10-K

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

FORM 10-K

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

For the fiscal year ended December 31, 2003

Commission File No. 0-25551

MIDAMERICAN ENERGY HOLDINGS COMPANY

(Exact name of registrant as specified in its charter)

Iowa				94-2213782
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)
666 Grand Avenue, Des Moines, IA				50309
(Address of principal executive offices)				(Zip Code)

Registrant's telephone number, including area code: (515) 242-4300

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of each of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). Yes     No

All of the shares of common equity of MidAmerican Energy Holdings Company are held by a limited group of private investors. As of January 31, 2004, 9,081,087 shares of common stock were outstanding.

TABLE OF CONTENTS

PART I

Item 1.				Business				4
Item 2.				Properties				33
Item 3.				Legal Proceedings				35
Item 4.				Submission of Matters to a Vote of Security Holders				37

PART II

Item 5.				Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities				38
Item 6.				Selected Financial Data				38
Item 7.				Management's Discussion and Analysis of Financial Condition and Results of Operations				39
Item 7A.				Quantitative and Qualitative Disclosures About Market Risk				54
Item 8.				Financial Statements and Supplementary Data				56
Item 9.				Changes in and Disagreements with Accountants on Accounting and Financial Disclosure				100
Item 9A.				Controls and Procedures				100

PART III

Item 10.				Directors and Executive Officers of the Registrant				101
Item 11.				Executive Compensation				102
Item 12.				Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters				107
Item 13.				Certain Relationships and Related Transactions				108
Item 14.				Principal Accountant Fees and Services				109

PART IV

Item 15.				Exhibits, Financial Statement Schedules and Reports on Form 8-K				110

SIGNATURES				115
EXHIBIT INDEX				117

Disclosure Regarding Forward-Looking Statements

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

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

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

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

•	weather effects on sales and revenue;

•	general industry trends;

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

•	fuel and power costs and availability;

•	continued availability of accessible gas reserves;

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

•	availability, term and deployment of capital;

•	availability of qualified personnel;

•	unscheduled outages or repairs;

•	risks relating to nuclear generation;

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

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

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

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

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PART I

Item 1.    Business.

General

MidAmerican Energy Holdings Company ("MEHC") and its subsidiaries (together with MEHC, the "Company") is a United States-based privately owned global energy company. The Company's operations are organized and managed on seven distinct platforms: MidAmerican Energy Company ("MidAmerican Energy"), Kern River Gas Transmission Company ("Kern River"), Northern Natural Gas Company ("Northern Natural Gas"), CE Electric UK Funding ("CE Electric UK") (which includes Northern Electric plc ("Northern Electric") and Yorkshire Electricity Group plc ("Yorkshire")), CalEnergy Generation – Domestic (interests in independent power projects and related operations), CalEnergy Generation – Foreign (the subsidiaries owning the Upper Mahiao, Malitbog and Mahanagdong projects (collectively, the "Leyte Projects") and the Casecnan project) and HomeServices of America, Inc. (collectively with its subsidiaries, "HomeServices"). Refer to Note 20 in "Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements" for additional segment information regarding the Company's platforms. Through these platforms, the Company owns and operates a combined electric and natural gas utility company in the United States, two natural gas pipeline companies in the United States, two electricity distribution companies in the United Kingdom, a diversified portfolio of domestic and international independent power projects and the second largest residential real estate brokerage firm in the United States.

MEHC's energy subsidiaries generate, transmit, store, distribute and supply energy. MEHC's electric and natural gas utility subsidiaries currently serve approximately 4.4 million electricity customers and approximately 670,000 natural gas customers. Its natural gas pipeline subsidiaries operate interstate natural gas transmission systems with approximately 18,200 miles of pipeline in operation and peak delivery capacity of 6.2 billion cubic feet of natural gas per day. The Company has interests in 6,716 net owned megawatts of power generation facilities in operation and construction, including 5,142 net owned megawatts in facilities that are part of the regulated return asset base of its electric utility business and 1,574 net owned megawatts in non-utility power generation facilities. Substantially all of the non-utility power generation facilities have long-term contracts for the sale of energy and/or capacity from the facilities.

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

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

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

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MidAmerican Energy

Business

Through MidAmerican Energy, MEHC owns a public utility company headquartered in Iowa with $4.4 billion of assets as of December 31, 2003, and operating revenues for 2003 totaling $2.6 billion. MidAmerican Energy is principally engaged in the business of generating, transmitting, distributing and selling electric energy and in distributing, selling and transporting natural gas. MidAmerican Energy distributes electricity at retail in Council Bluffs, Des Moines, Fort Dodge, Iowa City, Sioux City and Waterloo, Iowa; the Quad Cities (Davenport and Bettendorf, Iowa and Rock Island, Moline and East Moline, Illinois); and a number of adjacent communities and areas. It also distributes natural gas at retail in Cedar Rapids, Des Moines, Fort Dodge, Iowa City, Sioux City and Waterloo, Iowa; the Quad Cities; Sioux Falls, South Dakota; and a number of adjacent communities and areas. As of December 31, 2003, MidAmerican Energy had approximately 689,000 retail electric customers and 668,000 retail natural gas customers.

In addition to retail sales, MidAmerican Energy sells electric energy and natural gas to other utilities, marketers and municipalities. These sales are referred to as wholesale sales. It also transports natural gas through its distribution system for a number of end-use customers who have independently secured their supply of natural gas.

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

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

MidAmerican Energy also conducts a number of nonregulated business activities.

For the year ended December 31, 2003, MidAmerican Energy derived approximately 54% of its gross operating revenues from its regulated electric business, 36% from its regulated gas business and 10% from its nonregulated business activities. For 2002 and 2001, the corresponding percentages were 61% electric, 31% gas and 8% nonregulated; and 56% electric, 37% gas and 7% nonregulated, respectively.

Electric Operations

The electric utility industry continues to undergo regulatory change. Traditionally, prices charged by electric utility companies have been regulated by federal and state commissions and have been based on cost of service. In recent years, changes have been occurring that move the electric utility industry toward a more competitive, market-based pricing environment. These changes may have a significant impact on MidAmerican Energy's business.

MidAmerican Energy manages its operations as four separate business units: generation, energy delivery, transmission, and marketing and sales. The generation segment derives most of its revenue from the sale of regulated wholesale electricity and non-regulated wholesale and retail natural gas. The energy delivery segment derives its revenue principally from the delivery of regulated electricity and natural gas, while the transmission segment obtains most of its revenue from the sale of electric transmission capacity. The marketing and sales segment receives its revenue principally from non-regulated sales of natural gas and electricity.

For the year ended December 31, 2003, regulated electric sales by MidAmerican Energy by customer class were as follows: 19.4% were to residential customers, 14.0% were to small general service customers, 25.4% were to large general service customers, 8.5% were to other customers, and 32.7% were wholesale sales. For the year ended December 31, 2003, regulated electric sales by MidAmerican Energy by jurisdiction were as follows: 88.8% to Iowa, 10.4% to Illinois and 0.8% to South Dakota.

The annual hourly peak demand on MidAmerican Energy's electric system usually occurs as a result of air conditioning use during the cooling season. In August 2003, MidAmerican Energy reached a new

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record hourly peak demand of 3,935 MW, which was 46 MW greater than MidAmerican Energy's previous record hourly peak demand of 3,889 MW set in July 2002.

The following table sets out certain information concerning MidAmerican Energy's power generation facilities based upon summer 2003 accreditation:

Operating Project (1)				Facility Net Capacity (MW)(2)				Net MW Owned (2)				Fuel				Location				Operation
Coal Facilities:
Council Bluffs Energy Center Units 1 & 2					133				133				Coal				Iowa				1954, 1958
Council Bluffs Energy Center Unit 3					690				546				Coal				Iowa				1978
Louisa Generation Station					700				616				Coal				Iowa				1983
Neal Generation Station Units 1 & 2					435				435				Coal				Iowa				1964, 1972
Neal Generation Station Unit 3					515				371				Coal				Iowa				1975
Neal Generation Station Unit 4					644				261				Coal				Iowa				1979
Ottumwa Generation Station					708				368				Coal				Iowa				1981
Riverside Generation Station					135				135				Coal				Iowa				1925-61
Total coal facilities					3,960				2,865
Other Facilities:
Combustion Turbines					1,112				1,112				Gas/Oil				Iowa				1969-2003
Moline Water Power					3				3				Hydro				Illinois				1970
Quad Cities Generating Station					1,748				437				Nuclear				Illinois				1974
Portable Power Modules					56				56				Oil				Iowa				2000
Total other facilities					2,919				1,608
Accredited generating capacity					6,879				4,473
Projects Under Construction:
Greater Des Moines Energy Center (3)					190				190				Gas				Iowa				2004
Council Bluffs Energy Center Unit 4					790				479				Coal				Iowa				2007
Total Power Generation Capacity					7,859				5,142

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

(2)	Represents accredited net generating capability. Actual MW may vary depending on operating conditions and plant design for operating projects. Net MW owned indicates ownership of accredited capacity for the summer of 2003 as approved by the Mid-Continent Area Power Pool ("MAPP").

(3)	The Greater Des Moines Energy Center commenced commercial operations in May 2003. Since May 2003, 327 MW (included in "Other Facilities — Combustion Turbines" above) has been available.

MidAmerican Energy's accredited net generating capability in the summer of 2003 was 4,787 MW. Accredited net generating capability represents the amount of generation available to meet the requirements on MidAmerican Energy's system and consists of MidAmerican Energy-owned generation of 4,473 MW, generation under power purchase contracts of 630 MW and the net amount of capacity purchases and sales of (316) MW. The net generating capability at any time may be less than it would otherwise be due to regulatory restrictions, fuel restrictions and generating units being temporarily out of service for inspection, maintenance, refueling or modifications.

MidAmerican Energy anticipates a continuing increase in demand for electricity from its regulated customers. To meet anticipated demand and ensure adequate electric generation in its service territory, MidAmerican Energy is currently constructing two electric generating projects in Iowa and is developing a third. Upon completion, the projects will provide service to regulated retail electricity customers.

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MidAmerican Energy has obtained regulatory approval to include the actual costs of the generation projects in its Iowa rate base as long as actual costs do not exceed an agreed upon cap that MidAmerican Energy has deemed to be reasonable. Wholesale sales may also be made from the projects to the extent the power is not needed for regulated retail service.

The first project is a natural gas-fired, combined cycle unit with an estimated cost of $357 million, excluding allowance for funds used during construction. MidAmerican Energy will own and operate the plant. Commercial operation of the simple cycle mode began on May 5, 2003. The plant, which will continue to be operated in simple cycle mode during 2004, resulted in 327 MW of accredited capacity in the summer of 2003. The combined cycle operation is expected to commence in December 2004 and achieve an expected additional accredited capacity of 190 MW.

The second project is currently under construction and will be a 790 MW (based on expected accreditation) super-critical-temperature, low-sulfur coal-fired plant. MidAmerican Energy will operate the plant and hold an undivided ownership interest as a tenant in common with the other owners of the plant. MidAmerican Energy's ownership interest is 60.67%, equating to 479 MW of output. MidAmerican Energy expects its share of the estimated cost of the project to be approximately $713 million, excluding allowance for funds used during construction. Municipal, cooperative and public power utilities will own the remainder, which is a typical ownership arrangement for large base-load plants in Iowa. On May 29, 2003, the Iowa Utilities Board ("IUB") issued an order that approves the ratemaking principles for the plant, and on June 27, 2003, MidAmerican Energy received a certificate from the IUB allowing MidAmerican Energy to construct the plant. On February 12, 2003, MidAmerican Energy executed a contract with Mitsui & Co. Energy Development, Inc. ("Mitsui") for the engineering, procurement and construction of the plant. On September 9, 2003, MidAmerican Energy began construction of the plant, which it expects to be completed in the summer of 2007. MidAmerican Energy is also seeking an order from the IUB approving construction of the associated transmission facilities.

The third project is currently under development and is comprised of wind power facilities totaling 310 MW based on the nameplate rating. Generally speaking, accredited capacity ratings for the wind power facilities are considerably less than the nameplate ratings due to the varying nature of wind. The current projected accredited capacity for these wind power facilities is approximately 53 MW. If constructed, MidAmerican Energy will own and operate these facilities, which are expected to cost approximately $323 million. MidAmerican Energy's plan to construct the wind project is in conjunction with a settlement agreement that extends through December 31, 2010, an Iowa retail electric rate freeze that was previously scheduled to expire at the end of 2005. The settlement agreement, which was filed with the IUB in conjunction with MidAmerican Energy's application for ratemaking principles for the wind project, was approved by the IUB on October 17, 2003. The obligation of MidAmerican Energy to construct the wind project may be terminated by MidAmerican Energy if the federal production tax credit applicable to the wind energy facilities is not available at a rate of 1.8 cents per kWh for a period of at least ten years after the facilities begin generating electricity. The production tax credit is available only to wind facilities placed in service before January 1, 2004. MidAmerican Energy has received authorization from the IUB to construct the wind power project. If MidAmerican Energy does not construct the wind facilities by December 31, 2007, the rate extension from January 1, 2006 through December 31, 2010 may terminate.

MidAmerican Energy is interconnected with Iowa utilities and utilities in neighboring states and is party to an electric generation and transmission pooling agreement administered by the Mid-Continent Area Power Pool ("MAPP"). MAPP is a voluntary association of electric utilities doing business in Minnesota, Nebraska, North Dakota and the Canadian provinces of Saskatchewan and Manitoba and portions of Iowa, Montana, South Dakota and Wisconsin. Its membership also includes power marketers, regulatory agencies and independent power producers. MAPP facilitates operation of the transmission system, is responsible for the safety and reliability of the bulk electric system, and has responsibility for administration of MAPP's Open-Access Transmission Tariff.

Each MAPP participant is required to maintain for emergency purposes a net generating capability reserve of at least 15% above its system peak demand. If a participant's capability reserve falls below the 15% minimum, significant penalties could be contractually imposed by MAPP. MidAmerican Energy's reserve margin at peak demand for 2003 was approximately 22%.

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MidAmerican Energy's transmission system connects its generating facilities with distribution substations and interconnects with 14 other transmission providers in Iowa and five adjacent states. Under normal operating conditions, MidAmerican Energy's transmission system has adequate capacity to deliver energy to MidAmerican Energy's distribution system and to export and import energy with other interconnected systems. Refer to "Item 2. Properties" of this Form 10-K for additional information on transmission lines.

Gas Operations

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

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

MidAmerican Energy's cost of gas is recovered from customers through purchased gas adjustment clauses. In 1995, the IUB gave initial approval of MidAmerican Energy's Incentive Gas Supply Procurement Program. In November 2003, the IUB extended the program through October 31, 2004. Under the program, as amended, MidAmerican Energy is required to file with the IUB every six months a comparison of its gas procurement costs to an index-based reference price. If MidAmerican Energy's cost of gas for the period is less or greater than an established tolerance band around the reference price, then MidAmerican Energy shares a portion of the savings or costs with customers. A similar program is currently in effect in South Dakota through October 31, 2005. Since the implementation of the program, MidAmerican Energy has successfully achieved and shared savings with its natural gas customers.

MidAmerican Energy utilizes leased gas storage to meet peak day requirements and to manage the daily changes in demand due to changes in weather. The storage gas is typically replaced during the summer months. In addition, MidAmerican Energy also utilizes three liquefied natural gas plants and two propane-air plants to meet peak day demands in the winter. The storage and peak shaving facilities reduce MidAmerican Energy's dependence on gas purchases during the volatile winter heating season. In addition, MidAmerican Energy has entered into various financial and physical gas purchase agreements to mitigate the volatility of gas prices during the winter heating season.

On February 2, 1996, MidAmerican Energy had its highest peak-day delivery of 1,143,026 MMBtus. This peak-day delivery consisted of approximately 88% traditional sales service and 12% transportation service of customer-owned gas. As of January 31, 2004, MidAmerican Energy's 2003/2004 winter heating season peak-day delivery of 1,093,294 MMBtus was reached on January 29, 2004. This peak-day delivery included approximately 73% traditional sales service and 27% transportation service.

Kern River

Business

Through Kern River, MEHC owns an interstate natural gas transportation pipeline system comprising 1,678 miles of pipeline, with an approximate design capacity of 1,755,626 Dth per day, extending from supply areas in the Rocky Mountains to consuming markets in Utah, Nevada and California.

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The 2003 Expansion Project

The 2003 Expansion Project, which was placed in service on May 1, 2003, increased the design capacity of Kern River's pipeline system by 885,626 Dth per day to its current 1,755,626 Dth per day. Kern River's pipeline is comprised of two sections: the mainline section and the common facilities. Kern River owns the entire mainline section, which extends from the pipeline's point of origination near Opal, Wyoming through the Central Rocky Mountains area into Daggett, California. The mainline section is comprised of the original 680 miles of 36-inch pipeline and 634.3 miles of 36-inch loop pipeline related to the 2003 Expansion Project.

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

Transportation Service Agreements

As of December 31, 2003, Kern River had contracted 1,680,780 Dth per day of capacity under long-term firm gas transportation service agreements under which the pipeline receives natural gas on behalf of shippers at designated receipt points, transports the gas on a firm basis up to each shipper's maximum daily quantity and delivers thermally equivalent quantities of gas at designated delivery points. Each shipper pays Kern River the aggregate amount specified in its long-term firm gas transportation service agreement and Kern River's tariff, with such amount consisting primarily of a fixed monthly reservation fee based on each shipper's maximum daily quantity and a commodity charge based on the actual amount of gas transported.

With respect to Kern River's original mainline facilities, Kern River entered into 27 long-term firm gas transportation service agreements with 17 shippers, for a total of 864,154 Dth per day of capacity. All but one of these long-term firm gas transportation service agreements expires on or before April 30, 2017. Several of these shippers are major oil and gas companies, or affiliates of such companies. These shippers also include electric generating companies, energy marketing and trading companies, and a gas distribution utility which provides services in Nevada and California.

With respect to Kern River's 2003 Expansion Project, Kern River entered into 19 long-term firm gas transportation service agreements with 17 shippers, for a total of 906,626 Dth per day of capacity from Opal, Wyoming to delivery points primarily in California, commencing May 1, 2003. Approximately 85% of the capacity of the 2003 Expansion Project was contracted for 15 years, with 14 of the long-term firm gas transportation service agreements expiring on April 30, 2018. The remaining 15% of capacity was contracted for 10 years, with five long-term firm gas transportation service agreements expiring on April 30, 2013. Over 95% of the capacity of the 2003 Expansion Project has primary delivery points in California, with the flexibility to access secondary delivery points in Nevada and Utah.

Mirant Americas Energy Marketing ("Mirant") was one of the shippers that entered into a 15–year, 2003 Expansion Project, firm gas transportation contract (90,000 Dth per day) with Kern River (the "Mirant Agreement") and provided a letter of credit equivalent to 12 months of reservation charges as security for the Mirant Agreement. In July 2003, Mirant filed for Chapter 11 bankruptcy protection and continued to use the Mirant Agreement post-bankruptcy. In October 2003, Mirant informed Kern River that it would not renew its letter of credit and Kern River drew on the letter of credit and held the $14.8 million as cash collateral. Effective December 18, 2003, Mirant rejected the Mirant Agreement pursuant to procedures under the Bankruptcy Code and paid all post-petition amounts owing under the Mirant Agreement through December 18, 2003. On January 13, 2004, Kern River filed a proof of claim with the bankruptcy court for an aggregate total claim of $210.2 million, of which amount Kern River believes it

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has a secured claim of $14.8 million. These claims arise from Mirant's rejection of the Mirant Agreement. Kern River is not presently able to provide a reasonable estimate as to how much it will ultimately recover on account of such claims.

On May 1, 2003, Kern River Funding Corporation, a wholly owned subsidiary of Kern River, issued $836 million of its 4.893% Senior Notes with a final maturity on April 30, 2018. The proceeds were used to repay all of the approximately $815 million of outstanding borrowings under Kern River's $875 million credit facility entered into in 2002 to finance the construction of the 2003 Expansion Project.

Northern Natural Gas

Business

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

Northern Natural Gas' system is comprised of two distinct but operationally integrated markets. Its traditional end-use and distribution market area is at the northern end of the system, including delivery points in Michigan, Illinois, Iowa, Minnesota, Nebraska, Wisconsin and South Dakota, which Northern Natural Gas refers to as the Market Area, and the natural gas supply and service area is at the southern end of the system, including Kansas, Oklahoma, Texas and New Mexico, which Northern Natural Gas refers to as the Field Area. Northern Natural Gas' Field Area is interconnected with many interstate and intrastate pipelines in the national grid system. A majority of Northern Natural Gas' capacity in both the Market Area and the Field Area is dedicated to Market Area customers under long-term firm transportation contracts. Approximately 73% of Northern Natural Gas' firm transportation contracts extend beyond 2006.

Northern Natural Gas' pipeline system transports natural gas primarily to end-user and local distribution markets in the Market Area. Customers consist of local distribution companies ("LDCs"), municipalities, other pipeline companies, gas marketers and end-users. While approximately ten large LDCs account for the majority of Market Area volumes, Northern Natural Gas also serves numerous small communities through these large LDCs as well as municipalities or smaller LDCs and directly serves several large end-users. In 2003, approximately 85% of Northern Natural Gas' revenue was from capacity charges under firm transportation and storage contracts and approximately 81% of that revenue was from LDCs. In 2003, approximately 70% of Northern Natural Gas' revenue was generated from Market Area customer contracts.

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

In the Field Area, customers holding transportation capacity consist of LDCs, marketers, producers, and end-users. The majority of Northern Natural Gas' Field Area firm transportation is provided to

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Northern Natural Gas' Market Area firm customers under long-term firm transportation contracts with such volumes supplemented by volumes transported on an interruptible basis or pursuant to short-term firm contracts. In 2003, approximately 21% of Northern Natural Gas' revenue was generated from Field Area customer transportation contracts.

Northern Natural Gas' storage services are provided through the operation of one underground storage field in Iowa, two underground storage facilities in Kansas and one liquefied natural gas ("LNG") storage peaking unit at each of Garner, Iowa and Wrenshall, Minnesota. The three underground natural gas storage facilities and Northern Natural Gas' two LNG storage peaking units have a total working storage capacity of approximately 59 Bcf and over 1.3 Bcf per day of peak day deliverability. These storage facilities provide Northern Natural Gas with operational flexibility for the daily balancing of its system and providing services to customers for meeting their year-round loadswing requirements. In 2003, approximately 9% of Northern Natural Gas' revenue was generated from storage services.

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

Kern River and Northern Natural Gas Competition

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

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

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

Kern River is the only interstate pipeline that presently delivers natural gas directly from a gas supply basin into the intrastate California market, which enables its customers to avoid paying a "rate stack" (i.e., additional transportation costs attributable to the movement from one or more interstate pipeline systems to an intrastate system within California). Kern River believes that its rate structure and access to upstream pipelines/storage facilities and to economic Rocky Mountain gas reserves increases its competitiveness and attractiveness to end-users. Kern River believes it is advantaged relative to other competing interstate pipelines because its relatively new pipeline can be expanded at comparatively lower costs and will require significantly less capital expenditure to comply with the Pipeline Safety Improvement Act of 2002 (the "Pipeline Safety Improvement Act") than other systems. Kern River's levelized

11

rate structures under expansion rates and settlement rates also provide customers with greater rate certainty. Kern River's market position depends to a significant degree, however, on the availability and favorable price of gas produced in the Rocky Mountain area, an area that in recent years has attracted considerable expansion of pipeline capacity serving markets other than California and Nevada. In addition, Kern River's 2003 Expansion Project relies substantially on long-term transportation service agreements with several electric generation companies, who face significant competitive and financial pressures due to, among other things, the financial stress of energy markets and apparent over-building of electric generation capacity in California and other markets.

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

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

Although Northern Natural Gas will need to aggressively compete to retain and build load, Northern Natural Gas believes that current and anticipated changes in its competitive environment have created opportunities to serve existing customers more efficiently and to meet certain growing supply needs. While LDCs peak day growth is driven by population growth and alternative fuel replacement, new off-peak demand growth is being driven primarily by power and ethanol plant expansion. Off-peak demand growth is important to Northern Natural Gas as this demand can generally be satisfied with little or no requirement for the construction of new facilities. Northern Natural Gas has been successful in competing for a significant amount of the increased demand related to the construction of new power and ethanol plants. Over the last five years, Northern Natural Gas has contracted approximately 480 mmcf per day of volume on its system from such new facilities, of which approximately 465 mmcf per day is currently in service and approximately 15 mmcf per day is scheduled to begin service in 2004.

Pipeline Development Project

On January 22, 2004, MEHC and a recently formed subsidiary, Alaska Gas Transmission Company, LLC ("Alaska Gas"), filed an application with the State of Alaska Department of Revenue for approval under the Alaska Stranded Gas Development Act ("ASGDA") for authority to negotiate tax and financial terms with the State of Alaska to facilitate the transportation of stranded Alaskan natural gas. The proposed 745-mile, $6.3 billion pipeline, would be subject to FERC regulation and would extend from the North Slope area near Prudhoe Bay, Alaska southward to the Alaska-Yukon border near Beaver Creek, Alaska. On January 28, 2004, MEHC and Alaska Gas received notification from the Office of the Commissioner of the Department of Revenue of the State of Alaska that the proposed Alaska pipeline is a qualified project and Alaska Gas and its constituent owner-members constitute a qualified sponsor group, qualified to negotiate for favorable tax and financial terms as allowed under the ASGDA. MEHC, Alaska Gas, and two unaffiliated parties holding rights to acquire up to a combined aggregate of 19.9% of Alaska Gas's economic interest, intend to promptly commence negotiations with the State of Alaska.

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CE Electric UK

Business

Through CE Electric UK, MEHC owns, primarily, two companies that distribute electricity in the United Kingdom, Northern Electric Distribution Limited ("NED") and Yorkshire Electricity Distribution plc ("YED").

In December 1996, CE Electric UK Ltd., an indirect wholly owned subsidiary of CE Electric UK, acquired Northern Electric. Northern Electric was one of the fifteen original United Kingdom regional electric companies that came into existence in 1990 as a result of the restructuring and subsequent privatization of the electricity industry that occurred in the United Kingdom. In September 2001, CE Electric UK acquired 94.75% of Yorkshire from Innogy Holdings plc ("Innogy") and simultaneously sold Northern Electric's electricity and gas supply and metering businesses to Innogy. The Company sometimes refers to these transactions as the "Yorkshire Swap". In August 2002, CE Electric UK acquired the remaining 5.25% of Yorkshire that it did not already own from Xcel Energy International ("Xcel"), an affiliate of Xcel Energy Inc.

With the acquisition of Yorkshire, CE Electric UK is one of the largest distribution companies in the United Kingdom, serving more than 3.7 million customers in an area of approximately 10,000 square miles.

A description of the functional business units of CE Electric UK is set forth below.

Electricity Distribution

Northern Electric's and Yorkshire's operations consist primarily of the distribution of electricity in the United Kingdom. Northern Electric's and Yorkshire's distribution licensee companies, NED and YED, respectively, receive electricity from the national grid transmission system and distribute it to their customers' premises using their network of transformers, switchgear and cables. Substantially all of the end users in NED's and YED's distribution service areas are connected to the NED and YED networks and electricity can only be delivered through their distribution system, thus providing NED and YED with distribution volume that is relatively stable from year to year. NED and YED charge fees for the use of the distribution system to the suppliers of electricity. The suppliers, which purchase electricity from generators and sell the electricity to end-user customers, use NED's and YED's distribution networks pursuant to an industry standard "Use of System Agreement" which NED and YED separately entered into with the various suppliers of electricity in their respective distribution areas. One such supplier, Innogy plc. and certain of its affiliates, represented approximately 50% of the total revenues of NED and YED in 2003. The fees that may be charged by NED and YED for use of their distribution systems are controlled by a formula prescribed by the UK's electricity regulatory body that limits increases (and may require decreases) based upon the rate of inflation in the United Kingdom and other regulatory action.

At December 31, 2003, NED's and YED's electricity distribution network (excluding service connections to consumers) on a combined basis included approximately 31,000 kilometers of overhead lines and approximately 63,000 kilometers of underground cables. In addition to the circuits referred to above, at December 31, 2003, NED's and YED's distribution facilities also included approximately 57,000 transformers and approximately 750 primary substations. Substantially all substations are owned, with the balance being leased from third parties, most of which have remaining terms of at least 10 years.

Utility Services

Integrated Utility Services Limited ("IUS"), a subsidiary of Northern Electric, is an engineering contracting company whose main business is providing electrical connection services on behalf of NED's and YED's distribution businesses and providing electrical infrastructure contracting services to third parties.

Gas Exploration and Production

CalEnergy Gas (Holdings) Limited ("CE Gas"), CE Electric UK's indirect subsidiary, is a gas exploration and production company that is focused on developing integrated upstream gas projects. Its

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upstream gas business consists of the exploration, development and production, including transportation and storage, of gas for delivery to a point of sale into either a gas supply market or a power generation facility.

In May 2002, CE Gas completed the sale of substantially all of its United Kingdom natural gas assets to Gaz de France. In July 2003, CE Gas sold the ETS pipeline, which is a gas pipeline that extends from the North Sea to gas terminals in the United Kingdom, assets to CH4 Energy Limited. CE Gas retained its interest in the Victor Field, which is a gas field located in the North Sea. CE Gas also retained development interests in its Polish Trough project in Poland and its Bass, Otway and Perth Basins projects in Australia. In Poland, CE Gas, together with its joint venture partners FX Energy and the Polish Oil and Gas Company, is currently involved in drilling the Zaniemysl #3 well in the Fences Concession. The Bass development is a gas and gas liquids project in which CE Gas holds a 20% interest. The project, operated by Origin Energy of Australia, is under construction and includes an approximately 145 kilometer subsea pipeline across the Bass Strait off southern Victoria. The Bass project is expected to be fully operational during the fourth quarter of 2004. The gas from the project will be sold to Origin Energy's retail affiliate and the liquids to Elgas, the largest marketer of liquefied petroleum gas ("LPG") in Australia. The Otway project, in which CE Gas holds a 6% interest and which is operated by an unaffiliated party, is expected to receive construction approval during 2004 and offtake arrangements are being negotiated. In 2003, CE Gas acquired a one-third interest in Block LO2-6 in the northern Perth Basin, which is adjacent to the Dongara gas field. Arc Energy and Norwest Energy each also hold a one-third interest. The new permit is subject to satisfaction of the native title process, which is ongoing and expected to be completed by late 2004, at which time exploration activities can commence. In May 2003, CE Gas withdrew from all its southern Perth Basin permits.

CalEnergy Generation – Domestic

Business

Through CalEnergy Generation – Domestic, the Company owns interests in 15 operating non-utility power projects in the United States. The following table sets out certain information concerning CalEnergy Generation – Domestic's non-utility power projects in operation as of December 31, 2003:

Operating Project

Facility Net Capacity (MW)(1)

Net MW Owned(1)

Fuel

Location

Power Purchase Agreement Expiration

Power Purchaser(2)

Cordova

537

537

Gas

Illinois

2017

El Paso/ MidAmerican Energy

Salton Sea I

10

5

Geo

California

2017

Edison

Salton Sea II

20

10

Geo

California

2020

Edison

Salton Sea III

50

25

Geo

California

2019

Edison

Salton Sea IV

40

20

Geo

California

2026

Edison

Salton Sea V

49

25

Geo

California

Varies

TransAlta/Minerals

Riverside(3)

Vulcan

34

17

Geo

California

2016

Edison

Elmore

38

19

Geo

California

2018

Edison

Leathers

38

19

Geo

California

2019

Edison

Del Ranch

38

19

Geo

California

2019

Edison

CE Turbo

10

5

Geo

California

Varies

TransAlta/Minerals(3)

Saranac

240

90

Gas

New York

2009

NYSE&G

Power Resources(4)

212

106

Gas

Texas

2005

ONEOK

Yuma

50

25

Gas

Arizona

2024

SDG&E

Roosevelt Hot Springs(5)

23

17

Geo

Utah

2020

UP&L

Domestic Operating Projects

1,389

939

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

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(2)	El Paso Corporation ("El Paso"); Southern California Edison Company ("Edison"); TransAlta USA Inc. ("TransAlta"); CalEnergy Minerals LLC ("Minerals"); the City of Riverside, California ("Riverside"); New York State Electric & Gas Corporation ("NYSE&G"); ONEOK Energy, Marketing and Trading Company, L.P. ("ONEOK"); San Diego Gas & Electric Company ("SDG&E"); and Utah Power & Light Company ("UP&L").

(3)

Each contract governing power purchases by Minerals will expire 33 years from the date of the initial power delivery under such contract. Pursuant to a Transaction Agreement dated January 29, 2003, Salton Sea Power LLC ("Salton Sea Power") which owns Salton Sea V, and CE Turbo LLC ("CE Turbo") began selling available power to a subsidiary of TransAlta on February 12, 2003 based on percentages of the Dow Jones SP-15 Index. The Transaction Agreement shall continue until the earlier of (a) 30 days following a written notice of termination or (b) any other termination date mutually agreed to by the parties. No such notice of termination has been given by either party. Effective July 1, 2004, Salton Sea Power and CE Turbo will also be selling the environmental attributes associated with up to 931,800 MWh to TransAlta Energy Marketing (US) Inc., an affiliate of TransAlta, through December 31, 2008. Salton Sea Power also entered into a 10-year power sales agreement for up to 20 MW with Riverside in May 2003.

(4)

Power Resources net capacity was 200 MW during operation as a qualifying facility ("QF") within the meaning of the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA") under the TXU Power Generation Company, LP ("TXU") Power Purchase Agreement, which expired September 30, 2003. The net capacity increased to 212 MW during operations as an exempt wholesale generator ("EWG"), as defined by the Energy Policy Act of 1992, under the ONEOK tolling agreement due to the absence of the need to deliver steam to a third party.

(5)	Intermountain Geothermal Company, an indirect subsidiary of MEHC, owns an approximately 70% indirect interest in this project which supplies geothermal steam to a power plant owned by UP&L. The Company obtained a cash prepayment under a pre-sale agreement with UP&L whereby UP&L paid in advance for the steam produced by this steam field.

Cordova Energy owns a 537 MW gas-fired power plant in the Quad Cities, Illinois area (the "Cordova Project"). CalEnergy Generation Operating Company, an indirect wholly owned subsidiary of MEHC, operates the Cordova Project which commenced commercial operations in June 2001. Cordova Energy entered into a power purchase agreement with a unit of El Paso, under which El Paso will purchase all of the capacity and energy from the project until December 31, 2019. Cordova Energy has exercised an option to recall from El Paso 50% of the output through May 14, 2004, reducing El Paso's purchase obligation to 50% of the output during such period. The recalled output is being sold to MidAmerican Energy. The Company is aware there have been public announcements that El Paso's financial condition has deteriorated as a result of, among other things, reduced liquidity and will continue to monitor the situation.

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

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

Energy payments for the SO4 Agreements were at increasing fixed rates for the first ten years after firm operation and thereafter at a rate based on the cost that Edison avoids by purchasing energy from

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

For the years ended December 31, 2003, 2002 and 2001, respectively, Edison's Average Avoided Cost of Energy was 5.4 cents per kWh, 3.5 cents per kWh and 7.4 cents per kWh, respectively. Estimates of Edison's future Avoided Cost of Energy vary substantially from year to year.

The Salton Sea V project, which commenced operations in the third quarter of 2000, sells up to 22 MW of its net output to Minerals, pursuant to a 33-year power sales agreement. The agreement provides for energy payments based on the market rates available to the Salton Sea V project, adjusted for wheeling costs. On May 20, 2003, Salton Sea Power entered into a power sales agreement with Riverside. Under the terms of the agreement, Salton Sea Power sells up to 20 MW of energy generated from the Salton Sea V project to Riverside. Sales under the agreement commenced June 1, 2003 and will terminate May 31, 2013. The Salton Sea V project sells its remaining output through other market transactions.

The CE Turbo project, which commenced commercial operation in the third quarter of 2000, sells its output through market transactions. The CE Turbo project may sell its output to Minerals, pursuant to a 33-year power purchase agreement. The agreement provides for energy payments based on the market rates available to the CE Turbo project, adjusted for wheeling costs.

Salton Sea Power and CE Turbo began selling power to a subsidiary of TransAlta on February 12, 2003 based on percentages of Dow Jones SP-15 Index. The Transaction Agreement shall continue until the earlier of (a) 30 days following a written notice of termination by either party or (b) any other termination date mutually agreed to by the parties. No such notice of termination has been given by either party.

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

The Power Resources project, a 212 net MW natural gas-fired cogeneration project owned by Power Resources Ltd. ("Power Resources"), an indirect wholly-owned subsidiary of CE Generation, sold electricity to TXU, as a QF under PURPA, pursuant to a power purchase agreement which expired on September 30, 2003. The Power Resources project sold steam to ALON USA, LP under a 15-year agreement that also expired September 30, 2003.

On August 5, 2003, Power Resources entered into a Tolling Agreement with ONEOK. The agreement commenced October 1, 2003 and expires December 31, 2005. Under the terms of the agreement, Power Resources, as an EWG, sells its energy and capacity to ONEOK for a fixed amount per kW-month plus a variable operating and maintenance fee per MWh. In addition, ONEOK pays annual turbine start-up costs.

The Yuma project is a 50 net MW natural gas-fired cogeneration project in Yuma, Arizona providing 50 MW of electricity to SDG&E under an existing 30-year power purchase contract commencing in May 1994. The project entity, Yuma Cogeneration Associates, has executed steam sales contracts with Queen Carpet, Inc. to act as its thermal host.

The Roosevelt Hot Springs project is a geothermal steam field which supplies geothermal steam to a 23 net MW power plant owned by UP&L located on the Roosevelt Hot Springs property under a

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30-year steam sales contract expiring in 2020. The Company obtained a cash prepayment under a pre-sale agreement with UP&L whereby UP&L paid in advance for the steam produced by the steam field. MEHC guarantees the performance of this subsidiary and must make certain penalty payments to UP&L if the steam produced does not meet certain quantity and quality requirements.

Zinc Recovery Project

MEHC's indirectly wholly owned subsidiary, Minerals, developed and owns the rights to proprietary processes for the extraction of zinc from elements in solution in the geothermal brine and fluids utilized at the Imperial Valley Projects. The affiliates of Minerals may develop facilities for the extraction of manganese, silica and other products as they further develop the extraction technology.

Minerals constructed the Zinc Recovery project, which is recovering zinc from the geothermal brine. Facilities have been installed near the sites of the Imperial Valley Projects to extract a zinc chloride solution from the geothermal brine through an ion exchange process. This solution is being transported to a central processing plant where zinc ingots are produced through solvent extraction, electrowinning and casting processes. The Zinc Recovery project began limited production during December 2002 and continued limited production during 2003. Minerals entered into a sales agreement whereby all high-grade zinc produced by the Zinc Recovery project will be sold to Cominco, Ltd. at prevailing market prices. The agreement expires in December 2005.

Development Projects

MEHC's subsidiary, CE Obsidian Energy LLC ("Obsidian"), is evaluating the development of a 185 net MW geothermal facility in the Imperial Valley in California. Substantially all of the output of the facility would be sold to the Imperial Irrigation District ("IID") pursuant to a power purchase agreement. TransAlta is currently funding 50% of the development costs of this project. On December 17, 2003, the California Energy Commission ("CEC") gave final approval for construction of the facility.

CalEnergy Generation – Foreign

Business

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

The following table sets out certain information concerning CalEnergy Generation – Foreign's non-utility power projects in operation as of December 31, 2003:

Project(1)				Facility Net Capacity (MW)(2)				Net MW Owned(2)				Fuel				Commercial Operation				Power Purchaser/ Guarantor(3)
Upper Mahiao					119				119				Geo				1996				PNOC-EDC/ROP
Mahanagdong					155				150				Geo				1997				PNOC-EDC/ROP
Malitbog					216				216				Geo				1996-97				PNOC-EDC/ROP
Casecnan (4)					150				150				Hydro				2001				NIA/ROP
International Projects					640				635

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

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

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(3)

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

(4)	Net MW Owned, of approximately 150 MW, is subject to repurchase rights of up to 15% of the project by an initial minority shareholder and a dispute with the other initial minority shareholder regarding an additional 15% of the project. Refer to "Item 3. Legal Proceedings — Philippines — CE Casecnan Stockholder Litigation."

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

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

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

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

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

The electrical energy produced by the facility is sold to PNOC-EDC on a "take-or-pay" basis. These capacity payments equal approximately 100% of total revenue. Pursuant to an amendment to the Malitbog energy conversion agreement entered into on August 31, 2003, VGPC and PNOC-EDC agreed that the plant capacity would equal the contractually specified level of 216 MW. A substantial majority of the capacity payments are required to be made by PNOC-EDC in U. S. dollars. The portion of capacity

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payments payable to PNOC-EDC in pesos is expected to vary over the term of the Malitbog project energy conversion agreement from 10% of VGPC's revenue in the early years of the cooperation period to 23% of VGPC's revenue at the end of the cooperation period. Payments made in pesos will generally be made to a peso-dominated account and will be used to pay peso-denominated operation and maintenance expenses with respect to the Malitbog project and Philippine withholding taxes, if any, on the Malitbog project's debt service. The government of the Philippines has entered into a performance undertaking, which provides that all of PNOC-EDC's obligations pursuant to the Malitbog energy conversion agreement carry the full faith and credit of, and are affirmed and guaranteed by, the ROP. The Malitbog energy conversion agreement ten year cooperation period expires on July 25, 2007, at which time the facility will be transferred to PNOC-EDC at no cost, on an "as is" basis.

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

CE Casecnan owns and operates the Casecnan project under the terms of the Project Agreement between CE Casecnan and NIA, which was amended by a Supplemental Agreement between CE Casecnan and NIA signed in September 2003 and effective on October 15, 2003 (the "Supplemental Agreement"). CE Casecnan will own and operate the project for a 20-year Cooperation Period which commenced on December 11, 2001.

Under the terms of the Project Agreement, NIA had the option of timely reimbursing CE Casecnan directly for certain taxes CE Casecnan paid. If NIA did not so reimburse CE Casecnan, certain taxes paid by CE Casecnan would have resulted in an increase in the Water Delivery Fee (refer to the Amended and Restated CE Casecnan Project Agreement or the Supplemental Agreement for a definition of each capitalized term used in this section that is not otherwise defined in this report). The payment of certain other taxes by CE Casecnan would have resulted automatically in an increase in the Water Delivery Fee. Since the inception of the project and continuing through the commencement of commercial operations, NIA had failed to reimburse CE Casecnan for those taxes and also had failed to pay the portion of the Water Delivery Fee each month related to the payment of these taxes by CE Casecnan. As a result of the non-payment of the tax compensation portion of the Water Delivery Fees, on August 19, 2002, CE Casecnan filed a Statement of Claim against NIA pursuant to the Rules of Arbitration of the ICC (the "NIA Arbitration"), seeking payment of such portion of the Water Delivery Fee and enforcement of the relevant provision of the Project Agreement going forward.

On October 15, 2003, pursuant to the Supplemental Agreement, all claims by CE Casecnan and counterclaims by NIA in the NIA Arbitration were dismissed with prejudice and the terms of the Project Agreement were modified and supplemented in certain respects. Summarized below are significant provisions of the Project Agreement as supplemented by the Supplemental Agreement.

Under the Project Agreement, CE Casecnan is paid a fee for the delivery of water and a fee for the generation of electricity. With respect to water deliveries, NIA is obligated to pay CE Casecnan an amount for the delivery of water equal to the sum of the Guaranteed Water Delivery Fee plus the Variable Delivered Water Delivery Fee minus the Water Delivery Fee Credit. For the sixty-month period from December 25, 2003 through December 25, 2008, the Guaranteed Water Delivery Fee shall equal $0.029 per cubic meter, escalated at 7.5% annually from January 1, 1994 through December 25, 2006 (the "Guaranteed Water Delivery Rate") multiplied by approximately 66.8 million cubic meters per month (corresponding to the 801.9 million cubic meters per year), regardless of actual water deliveries made by the Casecnan project. For each month beginning after December 25, 2008 through the remainder of the Cooperation Period, the Guaranteed Water Delivery Fee shall equal the Guaranteed Water Delivery

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Rate multiplied by approximately 58.3 million cubic meters (corresponding to 700.0 million cubic meters per year), regardless of actual water deliveries made by the Casecnan project.

The Variable Delivered Water Delivery Fees are payable for each month beginning after December 25, 2008 through the end of the Cooperation Period, but only from the date when the cumulative Total Available Water (total delivered water plus the water volume not delivered to NIA as a result of NIA's failure to accept energy deliveries at a capacity up to 150 MW) for each contract year exceeds 700.0 million cubic meters. Variable Delivered Water Delivery Fees will be earned up to an aggregate maximum of 1,324.7 million cubic meters for the period from December 25, 2008 through the end of the Cooperation Period. No additional variable water delivery fees will be earned over the 1,324.7 million cubic meter threshold.

The Water Delivery Credit shall be applicable only for each of the sixty-months from December 25, 2008 through December 25, 2013 and shall equal the Water Delivery Rate as of December 25, 2008 multiplied by the sum of each Annual Water Credit divided by sixty. The Annual Water Credit for each contract year starting from December 25, 2003 and ending on December 25, 2008 shall equal 801.9 million cubic meters minus the Total Available Water for each contract year. The Total Available Water in any such year will equal actual deliveries with a minimum threshold of 700.0 million cubic meters.

With respect to electricity, CE Casecnan is paid a Guaranteed Energy Delivery Fee each month equal to the product obtained by multiplying 19,000,000 kWh times $0.1596 per kWh. The Guaranteed Energy Delivery Fee is payable regardless of the amount of energy actually generated and delivered by CE Casecnan in any month. NIA also pays CE Casecnan an Excess Energy Delivery Fee, which is a variable amount based on actual electrical energy, if any, delivered in each month in excess of 19,000,000 kWh multiplied by (i) $0.1509 per kWh through the end of 2008 and (ii) commencing in 2009, $0.1132 (escalating at 1% per annum thereafter) per kWh, provided that any deliveries of energy in excess of 490,000,000 kWh but less than 550,000,000 kWh per year are paid for at a rate of 1.3 Philippine pesos per kWh and deliveries in excess of 550 GWh per year are at no cost to NIA. If the Casecnan project is not dispatched up to 150 MW whenever water is available, NIA will pay for energy that could have been generated but was not as a result of such dispatch constraint.

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

In connection with entering into the Supplemental Agreement, on October 15, 2003, NIA paid to CE Casecnan the sum of $17.7 million plus 39.9 million pesos (approximately $0.7 million) and delivered to CE Casecnan the ROP $97.0 million 8.375% Note due 2013 (the "ROP Note"), which contained a put provision granting CE Casecnan the right to put the ROP Note to the ROP for a price of par plus accrued interest for a 30-day period commencing on January 14, 2004. Also pursuant to the Supplemental Agreement, CE Casecnan paid to the Philippine Bureau of Internal Revenue ("BIR") approximately $24.4 million in respect of Philippine income taxes on the foregoing consideration and CE Casecnan paid to NIA $1.6 million in respect of alleged late completion of the Casecnan project.

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

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

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HomeServices

Business

HomeServices is the second largest full-service residential real estate brokerage firm in the United States. In addition to providing traditional residential real estate brokerage services, HomeServices offers other integrated real estate services, including mortgage originations, title and closing services and other related services. HomeServices currently operates in 16 states under the following brand names: Carol Jones REALTORS, CBSHOME Real Estate, Champion Realty, Edina Realty Home Services, Esslinger-Wooten-Maxwell REALTORS, First Realty/GMAC, HOME Real Estate, Iowa Realty, Jenny Pruitt and Associates REALTORS, Long Realty, Prudential California Realty, RealtySouth, Rector-Hayden REALTORS, Reece & Nichols, Semonin REALTORS and Woods Bros. Realty. HomeServices generally occupies the number one or number two market share position in each of its major markets based on aggregate closed transaction sides. HomeServices' major markets consist of the following metropolitan areas: Minneapolis and St. Paul, Minnesota; Los Angeles and San Diego, California; Kansas City, Kansas; Des Moines, Iowa; Omaha and Lincoln, Nebraska; Birmingham and Auburn, Alabama; Tucson, Arizona; Louisville and Lexington, Kentucky; Annapolis, Maryland; Atlanta, Georgia; Miami, Florida and Springfield, Missouri.

Acquisitions

In 2003, HomeServices separately acquired four real estate companies for an aggregate purchase price of approximately $36.7 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2002, these real estate companies had combined revenue of approximately $102.9 million on 16,000 closed sides representing $3.6 billion of sales volume. In 2002, HomeServices separately acquired three real estate companies for an aggregate purchase price of approximately $106.1 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2001, these real estate companies had combined revenue of approximately $356.0 million on 42,000 closed sides representing $13.7 billion of sales volume.

Regulatory Matters

General Regulation

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

MidAmerican Energy

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

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

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required to seek the approval of the IUB if MidAmerican Energy's equity level decreases to below 39%, even if the decrease is due to circumstances beyond the control of MidAmerican Energy. If MidAmerican Energy's common equity level were to drop below the required thresholds, MidAmerican Energy's ability to issue debt could be restricted.

With the elimination of its energy adjustment clause in Iowa in 1997, MidAmerican Energy is financially exposed to movements in energy prices. Although MidAmerican Energy has sufficient low cost generation under typical operating conditions for its retail electric needs, a loss of adequate generation by MidAmerican Energy requiring the purchase of replacement power at a time of high market prices could subject MidAmerican Energy to losses on its energy sales.

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

In response to Order No. 2000, MidAmerican Energy and five other electric utilities applied for FERC approval to create TRANSLink Transmission Company LLC ("TRANSLink") as a for-profit independent transmission company to be operated in conjunction with a FERC-approved RTO. The FERC approved that application in April 2002. In June 2003, the IUB issued an order disapproving MidAmerican Energy's application for state regulatory approval of MidAmerican Energy's participation in TRANSLink and inviting MidAmerican Energy to refile the application once certain issues at the federal level have been resolved. On November 21, 2003, in response to continued regulatory uncertainty, TRANSLink suspended its operations and dissolved its interim management team. MidAmerican Energy is currently evaluating options relating to its transmission options in light of TRANSLink's current status.

If implemented, the FERC's July 2002 proposed rule for SMD would require sweeping changes to the use and expansion of the interstate transmission and wholesale bulk power systems in the United States. However, it is unclear when or even whether FERC will issue a final rule and what form the final rule would ultimately take. In response to significant criticism of its proposed rule, the FERC subsequently indicated that it had changed its proposal and would adopt a flexible approach to SMD that would accommodate regional differences. Legislation that is currently pending in Congress would forbid the FERC from implementing the SMD rule for several years, but it is not certain whether that legislation will be adopted. Any final rule on SMD may impact the costs of MidAmerican Energy's electricity and transmission products. A final rule on SMD could directly or indirectly influence how transmission services are priced, the availability of transmission services, and how transmission services are obtained. In addition, the rule could affect how wholesale electricity is bought and sold, as well as the geographic scope of the wholesale marketplace in which MidAmerican Energy buys and sells electricity. MidAmerican Energy recognizes there is considerable uncertainty as to the timing and outcome of this rulemaking and will continue to evaluate the status of the adoption of SMD for the wholesale markets. Transferring the operations and control of MidAmerican Energy's transmission assets to other entities could increase costs for MidAmerican Energy; however, the actual effect of any such transaction on MidAmerican Energy's future transmission costs, or alternate RTO strategies, is not yet known.

Under two settlement agreements approved by the IUB, MidAmerican Energy's Iowa retail electric rates in effect on December 31, 2000, are effectively frozen through December 31, 2010. The settlement agreements specifically allow the filing of electric rate design or cost of service rate changes that are intended to keep MidAmerican Energy's overall Iowa retail electric revenue unchanged, but could result in changes to individual tariffs. The settlement agreements also each provide that portions of revenues associated with Iowa retail electric returns on equity within specified ranges will be recorded as a regulatory liability to be used to offset a portion of the cost to Iowa customers of future generating plant investment.

Under the first settlement agreement, which was approved by the IUB on December 21, 2001, and is effective through December 31, 2005, an amount equal to 50% of revenues associated with returns on equity between 12% and 14%, and 83.33% of revenues associated with returns on equity above 14%, in each year is recorded as a regulatory liability. The second settlement agreement, which was filed in conjunction with MidAmerican Energy's application for ratemaking principles on a wind power project

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and was approved by the IUB on October 17, 2003, provides that during the period January 1, 2006 through December 31, 2010, an amount equal to 40% of revenues associated with returns on equity between 11.75% and 13%, 50% of revenues associated with returns on equity between 13% and 14%, and 83.3% of revenues associated with returns on equity above 14%, in each year will be recorded as a regulatory liability. An amount equal to the regulatory liability is recorded as a regulatory charge in depreciation and amortization expense when the liability is accrued. Future depreciation will be reduced as a result of the credit applied to generating plant balances as the regulatory liability is reduced. The liability is being reduced as it is credited against plant in service in amounts equal to the allowance for funds used during construction associated with generating plant additions. Interest expense is accrued on the portion of the regulatory liability related to prior years.

The 2003 settlement agreement also provides that if Iowa retail electric returns on equity fall below 10% in any consecutive 12-month period after January 1, 2006, MidAmerican Energy may seek to file for a general increase in rates. However, prior to filing for a general increase in rates, MidAmerican Energy is required by the settlement agreement to conduct 30 days of good faith negotiations with all of the signatories to the settlement agreement to attempt to avoid a general increase in rates.

Illinois bundled electric rates are frozen until 2007, subject to certain exceptions allowing for increases, at which time bundled rates are subject to cost-based ratemaking. Illinois law provides for Illinois earnings above a computed level of return on common equity to be shared equally between regulated retail electric customers and MidAmerican Energy. MidAmerican Energy's computed level of return on common equity is based on a rolling two-year average of the Monthly Treasury Long-Term Average Rate, as published by the Federal Reserve System, plus a premium of 8.5% for 2000 through 2004 and a premium of 12.5% for 2005 and 2006. The two-year average above which sharing must occur for 2003 was 13.73%. The law allows MidAmerican Energy to mitigate the sharing of earnings above the threshold return on common equity through accelerated recovery of electric assets.

On November 8, 2002, the IUB approved a gas rate settlement agreement previously filed with it by MidAmerican Energy and the Iowa Office of Consumer Advocate. The settlement agreement provided for an increase in rates of $17.7 million annually for MidAmerican Energy's Iowa retail natural gas customers and effectively froze base rates through November 2004. However, MidAmerican Energy will continue collecting fluctuating gas costs through its purchased gas adjustment clause. The new rates were implemented for usage beginning November 25, 2002.

Kern River and Northern Natural Gas

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

The FERC has jurisdiction over, among other things, the construction and operation of pipelines and related facilities used in the transportation, storage and sale of natural gas in interstate commerce, including the modification or abandonment of such facilities. The FERC also has jurisdiction over the rates and charges and terms and conditions of service for the transportation of natural gas in interstate commerce. Its pipeline subsidiaries also are required to file with the FERC an annual report on Form 2, which is publicly available, disclosing general corporate information and financial statements regarding its pipeline subsidiaries.

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

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

On May 1, 2003, Northern Natural Gas filed a request for increased rates with the FERC. The rate filing provides evidence in support of a $71 million increase to Northern Natural Gas' annual revenue requirement. However, Northern Natural Gas is requesting that only $55 million of this increase be effectuated. Northern Natural Gas' new rates went into effect November 1, 2003, subject to refund. Additionally, Northern Natural Gas filed on January 30, 2004 with the FERC to increase its revenue requirement by an incremental $30 million to that requested in the May 1, 2003 filing. Northern Natural Gas requested that the new rates be effective commencing August 1, 2004. Northern Natural Gas has filed to consolidate the two rate proceedings, but the FERC has not yet ruled on Northern Natural Gas' motion.

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

Other United States Regulation

PURPA and the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), are two of the laws (including the regulations thereunder) that affect MEHC and certain of its subsidiaries' operations. PURPA provides to QFs certain exemptions from federal and state laws and regulations, including organizational, rate and financial regulation. PUHCA extensively regulates and restricts the activities of registered public utility holding companies and their subsidiaries. Congress is currently considering major changes to both PUHCA and PURPA. Any such legislation, if adopted, could vary considerably from the terms which are presently under consideration. MEHC believes that if the current proposed legislation is passed, it would apply to new projects only and thus, although potentially impacting its ability to develop new domestic projects, it would not affect MEHC's existing qualifying facilities. MEHC cannot provide assurance, however, that legislation, if passed, or any other similar legislation proposed in the future, would not adversely impact its existing domestic projects.

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

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

Regulatory requirements applicable in the future to nuclear generating facilities could adversely affect the results of operations of MEHC and MidAmerican Energy, in particular. The Company is subject to certain generic risks associated with utility nuclear generation, including risks arising from the

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

Pipeline Safety Regulation

The Company's pipeline operations are subject to regulation by the United States Department of Transportation ("DOT") under the Natural Gas Pipeline Safety Act of 1968 ("NGPSA") relating to design, installation, testing, construction, operation and management of its pipeline system. The NGPSA requires any entity that owns or operates pipeline facilities to comply with applicable safety standards, to establish and maintain inspection and maintenance plans and to comply with such plans. The Company's pipeline operations conduct internal audits of their facilities every four years, with more frequent reviews of those it deemed of higher risk. The DOT also routinely audits these pipeline facilities. Compliance issues that arise during these audits or during the normal course of business are addressed on a timely basis.

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

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

CE Electric UK

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

Under the Utilities Act 2000, the public electricity supply license created pursuant to the Electricity Act 1989 was replaced by two separate licenses-the electricity distribution license and the electricity supply license. When the relevant provision of the Utilities Act 2000 became effective on October 1, 2001, the public electricity supply licenses formerly held by Northern Electric and Yorkshire were split so that separate subsidiaries held licenses for electricity distribution and electricity supply. In order to comply with the Utilities Act 2000 and to facilitate this license splitting, Northern Electric and Yorkshire (and each of the other holders of the former public electricity supply licenses) each made a statutory transfer

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scheme that was approved by the Secretary of State for Trade and Industry. These schemes provided for the transfer of certain assets and liabilities to the licensed subsidiaries. This occurred on October 1, 2001, a date set by the Secretary of State for Trade and Industry. As a consequence of these schemes, the electricity distribution businesses of Northern Electric and Yorkshire were transferred to NED and YED, respectively. NED and YED are each holders of an electricity distribution license. The residual elements of the electricity supply licenses were transferred to Innogy in connection with the sale of Northern Electric's electricity and gas supply business to Innogy and the retention by Innogy of the electricity and gas supply business of Yorkshire, all as a part of the Yorkshire Swap (an agreement to exchange Northern Electric's electricity and gas supply and metering assets for Innogy's 94.75% interest in Yorkshire's electricity distribution business) on September 21, 2001.

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

Most revenue of the DLHs is controlled by a distribution price control formula which is set out in the license of each DLH. It has been the practice of the Office of Gas and Electricity Markets ("Ofgem") (and its predecessor body, the Office of Electricity Regulation), to review and reset the formula at five year intervals, although the formula may be further reviewed at other times at the discretion of the regulator. Any such resetting of the formula requires the consent of the DLH. If the DLH does not consent to the formula reset, it is reviewed by the U.K.'s competition authority.

The periodic review during which the formula is reset is the process by which Ofgem determines its view of the future allowed revenue of DLHs. The procedure and methodology adopted at a price control review is at the reasonable discretion of Ofgem. At the last such review, concluded in 1999 and effective April 2000, Ofgem's judgment of the future allowed revenue of licensees was based upon, among other things:

•	the actual operating costs of each of the licensees;

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

•	the regulatory value to be ascribed to each of the licensees' distribution network assets;

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

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

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

As a result of the last review, the allowed revenue of NED's distribution business was reduced by 24%, in real terms, and the allowed revenue of YED's distribution business was reduced by 23%, in real terms, with effect from April 1, 2000. The range of reductions for all licensees in Great Britain was between 4% and 33%.

For the duration of the current regulatory period, the 1999 review also requires that regulated distribution revenue per unit be increased or decreased each year by RPI-Xd, where the factor "RPI" is the United Kingdom retail price index reflecting the average of the 12-month inflation rates recorded for each month in the previous July to December period and "Xd" is an adjustment factor which was established by Ofgem at the 1999 review (and continues to be set) at 3%. The formula also takes account of the changes in system electrical losses, the number of end users connected and the voltage at which end users receive the units of electricity distributed. This formula determines the maximum average price per unit of electricity distributed (in pence per kWh) which a DLH is entitled to charge the suppliers of electricity, which are the DLH's customers. The distribution price control formula permits DLHs to receive additional revenue due to increased distribution of units and a predetermined increase in end users. Once set, the price control formula does not, during its duration, seek to constrain the profits of a DLH from year to year. It is a control on revenue that operates independently of most of the DLH's costs. Therefore during the duration of the price control, increases or decreases in costs, if any, directly impact profit.

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Ofgem has commenced the process of reviewing each DLH's existing price control formula, with a revised formula for each DLH (including NED and YED) expected to take effect from April 1, 2005 for an expected period of five years. In April 2002, Ofgem modified the licenses of all DLHs to implement an "Information and Incentives Project" under which up to 2% of a DLH's regulated income depends upon the performance of the DLH's distribution system as measured by the number and duration of customer interruptions and upon the level of customer satisfaction monitored by Ofgem.

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

CalEnergy Generation – Domestic

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

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

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

CalEnergy Generation – Foreign

The Philippine Congress has passed the Electric Power Industry Reform Act of 2001 ("EPIRA"), which is aimed at restructuring the Philippine power industry, privatizing the NPC and introducing a competitive electricity market, among other initiatives. The implementation of EPIRA may have an impact on MEHC's future operations in the Philippines and the Philippines power industry as a whole, the effect of which is not yet determinable or estimable.

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

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CE Casecnan representatives, together with certain current and former government officials, also were requested to and did appear, during 2002 and the first half of 2003, before a Philippine Senate committee which had raised questions and made allegations with respect to the Casecnan project's tariff structure and implementation. The Company believes that as a result of the settlement of the NIA Arbitration and the entering into of the Supplemental Agreement the questions and allegations raised by the Philippine Senate committee have been addressed, although there can be no assurance that additional inquiries by the Philippine Congress or any agency of the Philippine government will not be made in the future.

HomeServices

HomeServices is subject to regulations promulgated by the U.S. Department of Housing and Urban Development ("HUD") as well as regulatory agencies in the states within which it operates that significantly influence its operating environment. On July 29, 2002, HUD issued a proposed regulation under the Real Estate Settlement and Procedures Act. HUD has characterized the proposal as "fundamentally changing the way in which payments to mortgage brokers are recorded and reported to consumers," "significantly" improving the disclosure of settlement costs on the Good Faith Estimate making it firmer and more usable, and "removing regulatory barriers to allow guaranteed packages of settlement services and mortgages to be made available to consumers." The final rule, if adopted as currently proposed, would require HomeServices to substantially change the manner in which mortgage, title insurance and escrow closing services are marketed and delivered to consumers. Title insurance and escrow closing services, in particular, may be marketed to lenders for inclusion within a lender's guaranteed package of settlement services. The proposed rule may impact the costs and pricing of HomeServices' mortgage, title and escrow services. The proposal was submitted to the Office of Management and Budget ("OMB") on December 16, 2003, and it is unknown whether the OMB will release the proposed rule; however, it is likely that the final rule could vary considerably from the initial proposal. Accordingly, the Company is presently unable to quantify the likely impact of the proposed rule, if adopted.

Environmental Regulation

Domestic

The Company's domestic operations are subject to a number of federal, state and local environmental and environmentally related laws and regulations affecting many aspects of its present and future operations in the United States. Such laws and regulations generally require the Company's domestic operations to obtain and comply with a wide variety of licenses, permits and other approvals. The Company believes that its operating power facilities and gas pipeline operations are currently in material compliance with all applicable federal, state and local laws and regulations. However, no guarantee can be given that in the future the Company's domestic operations will be 100% compliant with all applicable environmental statutes and regulations or that all necessary permits will be obtained or approved. In addition, the construction of new power facilities and gas pipeline operations is a costly and time-consuming process requiring a multitude of complex environmental permits and approvals prior to the start of construction that may create the risk of expensive delays or material impairment of project value if projects cannot function as planned due to changing regulatory requirements or local opposition. The Company cannot provide assurance that existing regulations will not be revised or that new regulations will not be adopted or become applicable to it which could have an adverse impact on its capital or operating costs or its operations.

Clean Air Standards

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

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The EPA has in recent years implemented more stringent standards for ozone and fine particulate matter. Designations regarding attainment of the eight-hour ozone standard have recently been reviewed by the EPA, and the EPA has concluded that the entire state of Iowa is in attainment of the standards. On December 4, 2003, the EPA announced the development of its Interstate Air Quality Rule, a proposal to require coal-burning power plants in 29 states and the District of Columbia to reduce emissions of sulfur dioxide ("SO₂") and nitrogen oxides in an effort to reduce ozone and fine particulate matter in the Eastern United States. It is likely that MidAmerican Energy's coal-burning facilities will be impacted by this proposal.

In December 2000, the EPA concluded that mercury emissions from coal-fired generating stations should be regulated. The EPA is currently considering two regulatory alternatives for the regulation of mercury from coal-fired utilities as necessary to protect public health. One of these alternatives would require reductions of mercury from all coal-fired facilities greater than 25 MW through application of Maximum Achievable Control Technology with compliance assessed on a facility basis. The other alternative would regulate the mercury emissions of coal-fired facilities that pose a health hazard through a market based cap-and-trade mechanism similar to the SO₂ allowance system. The EPA is currently under a deadline to finalize the mercury rule by December 2004. Any of these new or stricter standards could, in whole or in part, be superceded or made more stringent by one of a number of multi-pollutant emission reduction proposals currently under consideration at the federal level, including the "Clear Skies Initiative", and other pending legislative proposals that contemplate 70% to 90% reductions of SO₂, NO_X and mercury, as well as possible new federal regulation of carbon dioxide and other gasses that may affect global climate change.

Depending on the outcome of the final regulations, MidAmerican Energy may be required to install control equipment on its generating stations or decrease the number of hours during which its generating stations operate. However, until final regulations are issued, the impact of the regulations on MidAmerican Energy cannot be predicted.

While legislative action is necessary for the Clear Skies Initiative or other multi-pollutant emission reduction legislation to become effective, MidAmerican Energy has implemented a planning process that forecasts the site-specific controls and actions required to meet emissions reductions of this nature. On April 1, 2002, in accordance with an Iowa law passed in 2001, MidAmerican Energy filed with the IUB its first multi-year plan and budget for managing SO₂ and NO_X from its generating facilities in a cost-effective manner. The plan provides specific actions to be taken at each coal-fired generating facility and the related costs and timing for each action. Mercury emissions reductions were not addressed in the plan. On July 17, 2003, the IUB issued an order that affirmed an administrative law judge's approval of the plan, as amended. Accordingly, the IUB order provides that the approved expenditures will not be subject to a subsequent prudence review in a future electric rate case, but it rejected the future application of a tracker mechanism to recover emission reduction costs. However, pursuant to an unrelated rate settlement agreement approved by the IUB on October 17, 2003, if prior to January 1, 2011, capital and operating expenditures to comply with environmental requirements cumulatively exceed $325 million, then MidAmerican Energy may seek to recover the additional expenditures from customers. At this time, MidAmerican Energy does not expect these capital expenditures to exceed such amount.

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

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In recent years, the EPA has requested from several utilities information and support regarding their capital projects for various generating plants. The requests were issued as part of an industry-wide investigation to assess compliance with the NSR and the New Source Performance Standards of the Clean Air Act. In December 2002 and April 2003, MidAmerican Energy received requests from the EPA to provide documentation related to its capital projects from January 1, 1980, to the present for a number of its generating plants. MidAmerican Energy has submitted information to the EPA in responses to these requests, and there are currently no outstanding data requests pending from the EPA. MidAmerican Energy cannot predict the outcome of these requests at this time. However, on August 27, 2003, the EPA announced changes to its NSR rules that clarify what constitutes routine repair, maintenance and replacement for purposes of triggering NSR requirements. The EPA concluded equipment that is repaired, maintained or replaced with an expenditure not greater than 20 percent of the value of the source will not trigger the NSR provisions of the Clean Air Act. After the NSR changes were announced, the EPA's enforcement branch indicated it would apply the clarified routine repair, maintenance and replacement rules to its pending investigation. A number of states and local air districts have challenged the EPA's clarification of the rule and a panel of the U.S. Circuit Court of Appeals for the District of Columbia issued an order on December 24, 2003 staying the EPA's implementation of its clarification of the equipment replacement rule.

On August 29, 2003, the EPA finalized requirements to reduce toxic air emissions from stationary combustion turbines. These requirements apply to turbines used at pipeline compressor stations that are built after January 12, 2003. Kern River and Northern Natural Gas believe the existing turbines are exempt from the rule since the turbines were built and installed at compressor stations built prior to January 12, 2003. New turbine installations will likely require the installation of equipment to reduce formaldehyde emissions and other pollutants to meet the new requirements and could significantly increase the cost of new turbine installations.

On December 19, 2002, the EPA issued proposed emission standards for hazardous air pollutants for stationary reciprocating internal combustion engines, such as those used at pipeline compressor stations. The proposed standards would apply to all new and certain existing reciprocating internal combustion engines above 500 horsepower that are located at facilities characterized under the Clean Air Act as a "major source" of toxic air pollutants. While the emission standards have not yet been finalized, the impact of any new regulation of hazardous air pollutants from stationary reciprocating internal combustion engines could have a significant impact on existing and new facilities.

Manufactured Gas Plants

The EPA and the state environmental agencies have determined that contaminated wastes remaining at 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.

MidAmerican Energy has evaluated or is evaluating 27 properties that were, at one time, sites of gas manufacturing plants in which it may be a potentially responsible party. The purpose of these evaluations is to determine whether waste materials are present, whether the materials constitute a health or environmental risk, and whether MidAmerican Energy has any responsibility for remedial action. MidAmerican Energy is actively working with the regulatory agencies and has received regulatory closure on four sites. MidAmerican Energy is continuing to evaluate several of the sites to determine the future liability, if any, for conducting site investigations or other site activity.

MidAmerican Energy estimates the range of possible costs for investigation, remediation and monitoring for the sites discussed above to be approximately $11 million to $30 million. As of December 31, 2003, MidAmerican Energy has recorded a $14.0 million liability for these sites and a corresponding regulatory asset for future recovery through the regulatory process. MidAmerican Energy projects that these amounts will be incurred or paid over the next four years.

The estimated liability is determined through a site-specific cost evaluation process. The estimate includes incremental direct costs of remediation, site monitoring costs and costs of compensation to employees for time expected to be spent directly on the remediation effort. The estimated recorded

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liabilities for these properties are based upon preliminary data. Thus, actual costs could vary significantly from the estimates. The estimate could change materially based on facts and circumstances derived from site investigations, changes in required remedial action and changes in technology relating to remedial alternatives. Insurance recoveries have been received for some of the sites under investigation. Those recoveries are intended to be used principally for accelerated remediation, as specified by the IUB and are recorded as a regulatory liability.

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 Energy's financial position, results of operations or cash flows.

United Kingdom

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

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

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

The Environmental Protection Act (Disposal of PCB's and other Dangerous Substances) Regulations 2001 were introduced on May 5, 2000. The regulations required that transformers containing over 50 parts per million of PCB's and other dangerous substances be registered with the Environment Agency. Transformers containing 500 parts per million had to be de-contaminated by December 31, 2000. As of December 31, 2003, CE Electric UK had 318 transformers containing between 50 and 500 parts per million of such substances registered with the Environment Agency and is continuing with its sampling, labeling and registration program. CE Electric UK believes it is in compliance and these regulations are not expected to have a material impact on the Company.

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

The Oil Storage Regulations became effective in 2002 and require the phased introduction of secondary containment measures (bunding) for all above ground oil storage locations where the capacity is more than 200 liters. The primary containers must be in sound condition, leak free, and positioned away from vehicle traffic routes. The secondary containment must be impermeable to water and oil (without drainage valve) and be subject to routine maintenance. The capacity of the bund must be sufficient to hold up to 110% of the largest stored vessel or 25% of the maximum stored capacity, whichever is the greater. On March 1, 2002, these regulations came into effect for all new oil storage facilities. On September 1, 2003, the regulations became effective for existing storage facilities at "significant risk" (i.e. within 10 meters of a water course), and on September 1, 2005, the regulations come into effect for all remaining

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storage facilities. A detailed study of the impacts has been carried out and a plan of action prepared to ensure compliance. The Company expects that the cost of compliance with such regulations will not have a material impact.

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

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

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

Philippines

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

Nuclear Regulation

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

The NRC regulations control the granting of permits and licenses for the construction and operation of nuclear generating stations and subject such stations to continuing review and regulation. The NRC review and regulatory process covers, among other things, operations, maintenance, and environmental and radiological aspects of such stations. The NRC may modify, suspend or revoke licenses and impose civil penalties for failure to comply with the Atomic Energy Act, the regulations under such Act or the terms of such licenses. Quad Cities Station licenses currently expire in 2012. Exelon Generation submitted an application to renew the Quad Cities Station licenses with the NRC in January 2003. Action by the NRC on the application is expected by November 2004. Approval would result in the licenses allowing operation through 2032.

Under the Nuclear Waste Policy Act of 1982, the U.S. Department of Energy is responsible for the selection and development of repositories for, and the permanent disposal of, spent nuclear fuel and high-level radioactive wastes. Exelon Generation, as required by the Nuclear Waste Act, signed a contract

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with the Department of Energy to provide for the disposal of spent nuclear fuel and high-level radioactive waste beginning not later than January 1998. The Department of Energy did not begin receiving spent nuclear fuel on the scheduled date, and the schedule will be significantly delayed. The earliest expectation for completion is now 2010. The costs to be incurred by the Department of Energy for disposal activities are being financed by fees charged to owners and generators of the waste. Exelon Generation has informed MidAmerican Energy that existing on-site storage capability at Quad Cities Station is sufficient to permit interim storage into 2005. For Quad Cities Station, Exelon Generation has begun to develop an interim spent fuel storage installation ("ISFSI") at Quad Cities Station to store spent nuclear fuel in dry casks in order to free space in the storage pool. The first pad at the ISFSI is expected to facilitate storage of casks to support operations at Quad Cities Station until at least 2017. Exelon Generation expects the bulk of the construction work will be done in 2004 with the first cask loading to take place in 2005. In the 2017 to 2022 timeframe, Exelon Generation plans to add a second pad to the ISFSI to accommodate storage of spent nuclear fuel through the end of operations at Quad Cities Station.

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

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

MidAmerican Energy has established external trusts for the investment of funds collected for nuclear decommissioning associated with Quad Cities Station. Electric tariffs currently in effect include provisions for annualized collection of estimated decommissioning costs at Quad Cities Station. In Iowa, estimated Quad Cities Station decommissioning costs are reflected in base rates. MidAmerican Energy's cost related to decommissioning funding in 2003 was $8.3 million.

Employees

As of December 31, 2003, the Company employed approximately 11,440 people, of which approximately 3,820 are represented by labor unions.

Item 2.    Properties.

The Company's utility properties consist of physical assets necessary and appropriate to render electric and gas service in its service territories. Electric property consists primarily of generation, transmission and distribution facilities. Gas property consists primarily of distribution plants, natural gas pipelines, related rights-of-way, compressor stations and meter stations. It is the opinion of management that the principal depreciable properties owned by the Company are in good operating condition and well maintained. Pursuant to separate financing agreements, substantially all or most of the properties of each subsidiary (except CE Electric UK and Northern Natural Gas) are pledged or encumbered to support or otherwise provide the security for their own project or subsidiary debt. See Note 5 and Note 20 in "Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements" for additional information about the Company's properties.

MidAmerican Energy

MidAmerican Energy's most significant properties are its electric generation facilities. It is the opinion of management that the principal depreciable properties owned by MidAmerican Energy are in good operating condition and well maintained. For a discussion of these generation facilities, see "Item 1. Business — MidAmerican Energy." MidAmerican Energy's utility properties consist of physical assets necessary and appropriate to render electric and gas service in its service territories. Electric property consists primarily of generation, transmission and distribution facilities.

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The electric transmission system of MidAmerican Energy at December 31, 2003, included 918 miles of 345-kV lines and 1,128 miles of 161-kV lines. MidAmerican Energy's electric distribution system included approximately 220,400 transformers and 373 substations at December 31, 2003.

Gas property consists primarily of natural gas mains and services pipelines, meters and related distribution equipment, including feeder lines to communities served from natural gas pipelines owned by others. The gas distribution facilities of MidAmerican Energy at December 31, 2003, included 21,182 miles of gas mains and services pipelines.

Kern River and Northern Natural Gas

At December 31, 2003, Kern River's pipeline was comprised of two distinguishable sections: the mainline and the common facilities. The mainline section is comprised of the original 680 miles of 36-inch pipeline and 634.3 miles of 36-inch loop pipeline, and extends from the pipeline's point of origination in Opal, Wyoming through the Central Rocky Mountains area to Daggett, California and is owned entirely by Kern River. The common facilities consist of the 219-mile section of pipeline that extends from Daggett to Bakersfield, California. The common facilities are jointly owned by Kern River (currently approximately 76.8%) and Mojave (currently approximately 23.2%) as tenants-in-common.

At December 31, 2003, Northern Natural Gas' system was comprised of approximately 7,300 miles of mainline transmission pipes and approximately 9,200 miles of smaller diameter branch lines and laterals. Northern Natural Gas' storage services are provided through the operation of three underground storage fields, in Redfield, Iowa, and Lyons and Cunningham, Kansas. Northern Natural Gas' three underground natural gas storage facilities and liquefied natural gas storage peaking units have a total storage capacity of approximately 59 Bcf. Northern Natural Gas' two LNG liquefaction/vaporization facilities are located near Garner, Iowa and Wrenshall, Minnesota with storage capacity of 2 Bcf each.

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

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

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

CE Electric UK

At December 31, 2003, NED's and YED's electricity distribution networks (excluding service connection to consumers) on a combined basis included approximately 29,000 kilometers of overhead lines and approximately 63,000 kilometers of underground cables. In addition to the circuits referred to above, at December 31, 2003, NED's and YED's distribution facilities also included approximately 57,000 transformers and approximately 750 primary substations.

Other Properties

At December 31, 2003, MEHC's most significant physical properties, other than those owned by MidAmerican Energy, CE Electric UK, Kern River and Northern Natural Gas, are its current interests in operating power facilities and its plants under construction and related real property interests, as well as leases of office space for its residential real estate brokerage operations. See " Item 1. Business" for further detail.

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Item 3.    Legal Proceedings.

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

Pipeline Litigation

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

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

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

Natural Gas Commodity Litigation

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

The original complaint in this matter, Cornerstone Propane Partners, L.P. v. Reliant, et al. ("Cornerstone"), was filed on August 18, 2003 in the United States District Court, Southern District of New York naming MidAmerican Energy and the Company. On October 1, 2003, a second complaint, Roberto, E. Calle Gracey, et al. ("Calle Gracey"), was filed in the same court but did not name MidAmerican Energy or the Company. On November 14, 2003, a third complaint, Dominick Viola ("Viola"), et al., was filed in the same court and named MidAmerican Energy and MEHC as defendants. On November 19, 2003, an Order of Voluntary Dismissal Without Prejudice of MEHC was entered by the court dismissing MEHC from the Cornerstone and Viola complaints. On December 5, 2003, the court entered Pretrial Order No. 1, which among other procedural matters, ordered the consolidation of the Cornerstone, Calle Gracey and Viola complaints and permitted plaintiffs to file an amended complaint in this matter. On January 20, 2004, plaintiffs filed In Re: Natural Gas Commodity Litigation as the amended complaint reasserting their previous allegations. Unless extended by agreement of the parties or by court order, MidAmerican Energy's answer and/or responsive pleading in this matter is due February 19, 2004. MidAmerican Energy will coordinate with the other defendants and vigorously defend the allegations against it.

Philippines

CE Casecnan NIA Arbitration

The CE Casecnan NIA arbitration was settled on October 15, 2003. See "Item 1. Business — CalEnergy Generation – Foreign" for additional information.

CE Casecnan Construction Contract Arbitration

The Casecnan project was constructed pursuant to a fixed-price, date-certain, turnkey construction contract by a consortium consisting of Cooperativa Muratori Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa. (collectively, the "Contractor"), working together with Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and Colenco Power Engineering Ltd.

In 2001, the Contractor filed a Request for Arbitration (and two supplements) with the International Chamber of Commerce ("ICC") seeking schedule relief of up to 153 days, compensation for alleged

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additional costs of approximately $4 million (to the extent it is unable to recover from its insurer) and compensation for damages of approximately $62 million resulting from alleged force majeure events (and geologic conditions). The Contractor further alleged that the circumstances surrounding the placing of the Casecnan project into commercial operation in December 2001 amounted to a repudiation of the Replacement Contract resulting in a claim for unspecified quantum meruit damages, and that the delay liquidated damages clause which provides for payments of $125,000 per day to CE Casecnan for each day of delay in completion of the Casecnan project is unenforceable.

On November 7, 2002, the ICC issued the arbitration tribunal's partial award with respect to the Contractor's force majeure claims. The arbitration panel awarded the Contractor 18 days of schedule relief in the aggregate for all of the force majeure events and awarded the Contractor $3.8 million to the extent losses are not covered by insurance. All of the Contractor's other claims with respect to force majeure and geologic conditions were denied. If the Contractor were to prevail on the Contractor's claim that the delay liquidated damages clause is unenforceable, CE Casecnan would not be entitled to collect such delay damages for the period from March 31, 2001 through December 11, 2001. If the Contractor were to prevail in the Contractor's repudiation claim and prove quantum meruit damages in excess of amounts paid to the Contractor, CE Casecnan could be liable to make additional payments to the Contractor. CE Casecnan believes all of such allegations and claims are without merit and is vigorously contesting the Contractor's claims. CE Casecnan believes that an award will be issued by the ICC in 2004.

CE Casecnan Stockholder Litigation

Pursuant to the share ownership adjustment mechanism in the CE Casecnan stockholder agreement, which is based upon pro forma financial projections of the Casecnan project prepared following commencement of commercial operations, in February 2002, MEHC's indirect wholly owned subsidiary, CE Casecnan Ltd., advised the minority stockholder, LaPrairie Group Contractors (International) Ltd. ("LPG"), that MEHC's ownership interest in CE Casecnan had increased to 100% effective from commencement of commercial operations. In April 2002, CE Casecnan Ltd. and LPG entered into a status quo agreement pursuant to which CE Casecnan Ltd. agreed not to take any action to exercise control over or transfer LPG's shares in CE Casecnan. On July 8, 2002, LPG filed a complaint in the Superior Court of the State of California, City and County of San Francisco against, among others, CE Casecnan Ltd. and MEHC. In the complaint, LPG seeks compensatory and punitive damages for alleged breaches of the stockholder agreement and alleged breaches of fiduciary duties allegedly owed by CE Casecnan Ltd. and MEHC to LPG. The complaint also seeks injunctive relief against all defendants and a declaratory judgment that LPG is entitled to maintain a 15% interest in CE Casecnan. On January 21, 2004, CE Casecnan Ltd. and LPG entered into a second status quo agreement pursuant to which the parties agreed to set aside certain distributions related to the shares subject to the LPG dispute and not distribute such funds without at least 15 days prior notice to LPG. Accordingly, 15% of the dividend distribution declared on January 21, 2004 was set aside by CE Casecnan in an unsecured CE Casecnan account. The impact, if any, of this litigation on the Company cannot be determined at this time.

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

Not applicable.

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PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

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

Item 6.    Selected Financial Data.

The following table sets forth selected consolidated financial data, which should be read in conjunction with the Company's financial statements and the related notes to those statements included in this annual report and with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this annual report. The selected consolidated financial data, as of and for the years ended December 31, 2003, 2002 and 2001, as of December 31, 2000 and for the periods from March 14, 2000 through December 31, 2000, have been derived from the Company's historical consolidated financial statements. The selected consolidated financial data, from January 1, 2000 through March 13, 2000 and as of and for the year ended December 31, 1999, have been derived from MEHC Predecessor's historical consolidated financial statements.

SELECTED CONSOLIDATED FINANCIAL DATA
(Amounts in millions)

				Year Ended December 31,												March 14, 2000 through December 31, 2000(3)				MEHC (Predecessor)
																				January 1, 2000 through March 13, 2000(4)				Year Ended December 31, 1999(5)
				2003				2002(1)				2001(2)
Statement of Operations Data:
Total revenue				$	6,144.7			$	4,968.1			$	4,973.0			$	4,013.0			$	1,075.8			$	4,368.5
Total costs and expenses					5,294.9				4,325.0				4,469.1				3,793.8				984.7				4,011.5
Income before change in accounting principle					415.6				380.0				147.3				81.3				51.3				167.2
Cumulative effect of change in accounting principle, net of tax					—				—				(4.6	)			—				—				—
Net income				$	415.6			$	380.0			$	142.7			$	81.3			$	51.3			$	167.2
Balance Sheet Data:
Total assets				$	19,168.2			$	18,049.2			$	12,626.7			$	11,610.9				N/A			$	10,766.4
Parent company senior debt(6)					2,777.9				2,323.4				1,834.5				1,830.0				N/A				1,856.3
Parent company subordinated debt(6)					1,772.1				—				—				—				—				—
Company-obligated mandatory redeemable preferred securities of subsidiary trusts					—				2,063.4				788.2				786.5				N/A				450.0
Subsidiary and project debt(6)					6,674.6				7,077.1				4,754.8				3,398.7				N/A				3,642.7
Subsidiary-obligated mandatorily redeemable preferred securities of subsidiary trusts					—				—				100.0				100.0				N/A				101.6
Preferred securities of subsidiaries					92.1				93.3				121.2				145.7				N/A				146.6
Total stockholders' equity					2,771.4				2,294.3				1,708.2				1,576.4				N/A				994.6

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

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

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

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

(5) Reflects MEHC's acquisition of MidAmerican Energy on March 12, 1999, MEHC's disposition of the Coso Joint Ventures on February 26, 1999, and MEHC's disposition of a 50% ownership interest in CE Generation on March 3, 1999 and includes $81.5 million of after tax income related to the settlement of political risk insurance proceeds related to MEHC's investment in Indonesia, gains on sales of shares of McLeodUSA, CE Electric UK restructuring charges and transaction costs related to MEHC's acquisition by a private investor group.

(6) Excludes current portion.

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

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

General

MEHC is a United States-based privately owned global energy company with publicly held fixed income securities that generates, distributes and supplies energy to utilities, government entities, retail customers and other customers located throughout the world. Through its subsidiaries, its operations are organized and managed on seven distinct platforms: MidAmerican Energy, Kern River, Northern Natural Gas, CE Electric UK (which includes Northern Electric and Yorkshire), CalEnergy Generation-Domestic, CalEnergy Generation-Foreign and HomeServices.

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

The Company's principal energy subsidiaries generate, transmit, store, distribute and supply energy. The Company's electric and natural gas utility subsidiaries currently serve approximately 4.4 million electricity customers and approximately 670,000 natural gas customers. Its natural gas pipeline subsidiaries operate interstate natural gas transmission systems with approximately 18,200 miles of pipeline in operation and peak delivery capacity of 6.2 Bcf of natural gas per day. The Company has interests in 6,716 net owned MW of power generation facilities in operation and construction, including 5,142 net owned MW in facilities that are part of the regulated return asset base of its electric utility business and 1,574 net owned MW in non-utility power generation facilities. Substantially all of the non-utility power generation facilities have long-term contracts for the sale of energy and/or capacity from the facilities.

During the past several years, the Company completed a number of significant transactions, including the following:

•	Northern Natural Gas was acquired in August 2002 for $882.7 million, net of cash acquired. Northern Natural Gas owns a 16,500 mile interstate natural gas pipeline extending from southwest Texas to the upper Midwest region of the United States with a design capacity of 4.4 Bcf of natural gas per day.

•	Kern River was acquired in March 2002 for $419.7 million, net of cash acquired. At the date of acquisition, Kern River owned 926 miles of interstate natural gas pipeline extending from Wyoming to markets in California, Nevada and Utah and with access to natural gas supplies from large producing regions in the Rocky Mountains and Canada.

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•	In May 2003, Kern River completed a 717 mile expansion of its pipeline system, which increased the design capacity of the system by 885,626 Dth per day to 1,755,626 Dth per day.

•	HomeServices, MEHC's full-service independent residential real estate brokerage company, separately acquired seven real estate companies during 2003 and 2002.

•	CE Casecnan commenced operations on December 11, 2001.

•	On September 2001, CE Electric UK acquired 94.75% of Yorkshire from Innogy Holdings plc and simultaneously sold Northern Electric's electricity and gas supply and metering businesses to Innogy Holdings plc. In August 2002, CE Electric UK acquired the remaining 5.25% of Yorkshire from Xcel.

As a result of these events, the Company's future results may differ from historical results.

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

In 2003, net income available to common and preferred stockholders was $415.6 million compared with $380.0 million in 2002.

The increase was mainly due to: improved earnings at MidAmerican Energy, higher income at Kern River primarily due to the transportation fees earned in connection with the 2003 Expansion Project and, to a lesser degree, the inclusion of its operations for all of 2003, the acquisition of Northern Natural Gas in August 2002 and the inclusion of its operations for all of 2003, higher income at CE Electric UK due to lower costs and a weaker U.S. dollar and continued improvement at HomeServices due to acquisitions made throughout 2002 and 2003 and growth at existing companies which benefit from the low interest rate environment, a related increase in the mortgage refinance business and strong housing market. Offsetting those benefits were gains recorded, in 2002, of $41.3 million, after tax, from the sale of CE Gas assets and the tax benefits of $35.7 million in connection with the execution of the TPL restructuring agreement.

Operating revenue for the year ended December 31, 2003 increased $1,154.2 million or 24.1% to $5,948.2 million from $4,794.0 million for the same period in 2002. The following table summarizes operating revenue by segment for the years ended December 31 (in millions):

				Year Ended December 31,
				2003				2002				$ Change
Operating revenue:
MidAmerican Energy				$	2,600.2			$	2,240.9			$	359.3
Kern River					260.2				127.3				132.9
Northern Natural Gas					482.2				176.9				305.3
CE Electric UK					830.0				795.4				34.6
CalEnergy Generation – Domestic					45.8				38.5				7.3
CalEnergy Generation – Foreign					326.4				326.3				0.1
HomeServices					1,476.6				1,138.3				338.3
Segment operating revenue					6,021.4				4,843.6				1,177.8
Corporate/other					(73.2	)			(49.6	)			(23.6	)
Total operating revenue				$	5,948.2			$	4,794.0			$	1,154.2

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

Operating revenue at both pipelines is principally derived by providing firm or interruptible transportation services under long-term gas transportation service agreements. Northern Natural Gas also

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derives part of its revenue from storing gas. The increase in Kern River's operating revenue was primarily due to the transportation fees earned in connection with the 2003 Expansion Project which began operations May 1, 2003, and to a lesser degree, the inclusion of its operations for all of 2003. Northern Natural Gas was acquired on August 16, 2002. The increase in its operating revenue relates to the timing of that acquisition and inclusion of its operations for all of 2003.

CE Electric UK operating revenue increased during 2003 as a result of the weaker U. S. dollar, higher distribution revenue and higher revenue at its contracting business. This was partially offset by lower revenue caused by the sale of CE Gas assets in 2002.

HomeServices' operating revenue, consisting mainly of commission revenue from real estate brokerage transactions, increased $247.0 million due to acquisitions made throughout 2002 and 2003 and $91.3 million due to growth at existing companies. During 2003, HomeServices closed 185,181 brokerage sides up 22.0% from 151,808 closed sides in 2002. Closed brokerage volume was $48.6 billion in 2003, up 31.7% from $36.9 billion in 2002.

Income on equity investments for the year ended December 31, 2003 decreased $2.3 million to $38.2 million from $40.5 million for the same period in 2002. Equity income from non-regulated generation equity investments decreased $16.6 million to $14.8 million from $31.4 million in 2002 mainly due to the expiration of a contract at an independent power plant and a charge associated with an equity investment. Equity income from HomeServices for the year ended December 31, 2003 increased $14.8 million to $23.6 million from $8.8 million for the same period in 2002 primarily due to increased refinancing activity at mortgage joint ventures.

Interest and dividend income for the year ended December 31, 2003 decreased $8.4 million to $47.9 million from $56.3 million for the same period in 2002. The decrease was primarily due to lower income at CE Electric UK of $9.9 million due to lower cash balances following the redemption of the YED trust securities in June 2003 partially offset by higher dividend income on the investment in Williams' Cumulative Convertible Preferred Stock totaling $4.7 million and interest earned on higher corporate cash balances available during 2003.

Other income for the year ended December 31, 2003 increased $32.9 million to $110.3 million from $77.4 million in 2002. Other income in 2003 resulted mainly from a $31.9 million gain recognized in connection with the NIA Arbitration settlement, equity AFUDC of $26.0 million, $13.8 million gain on sale of Williams' Cumulative Convertible Preferred Stock in June 2003 and $12.7 million of income at CE Electric UK mainly from the gain on sale of a local operational and dispatch facility at NED. Other income in 2002 resulted primarily from the gain on the sale of CE Gas assets of $54.3 million and equity AFUDC of $19.8 million. These items were offset, in 2002, by losses from the write-down of non-regulated investments at MidAmerican Energy of $21.9 million.

Cost of sales for the year ended December 31, 2003 increased $572.1 million, or 31.0%, to $2,416.1 million from $1,844.0 million for the same period in 2002.

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

HomeServices cost of sales, consisting primarily of commissions on real estate brokerage transactions, increased $235.6 million for the year ended December 31, 2003, or 30.7%, to $1,003.2 million from

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$767.6 million for the same period in 2002. Cost of sales increased $178.8 million due to acquisitions made during 2002 and 2003. The remainder of HomeServices' increase was due to growth of existing companies totaling $56.8 million.

Operating expenses for the year ended December 31, 2003 increased $182.3 million, or 13.6%, to $1,527.5 million from $1,345.2 million for the same period in 2002. An increase of $146.6 million was due to Northern Natural Gas, which was owned for the entire period in 2003. Increased operating expenses at HomeServices were $78.8 million, primarily due to the impact of acquisitions and increased compensation expenses. These increases were partially offset by lower operating expenses at CE Electric UK of $30.7 million primarily due to the sale of the retail business in 2002, lower operating expenses of $24.3 million at CalEnergy Generation – Domestic primarily due to start-up costs at the Zinc facility in 2002, partially offset by increased overhaul costs at Cordova and lower operating expenses at MidAmerican Energy of $19.5 million primarily due to the restructuring of the Cooper contract.

Depreciation and amortization for the year ended December 31, 2003 increased $84.0 million, or 16.0%, to $609.9 million from $525.9 million for the same period in 2002. An increase of $34.6 million was due to Northern Natural Gas, which was owned for the entire period in 2003. Increased depreciation at Kern River was $19.6 million mainly due to the completion of the 2003 Expansion Project and the inclusion of Kern River's operations for the entire period. Increased depreciation of $11.6 million at MidAmerican Energy due to higher utility plant depreciation and increased depreciation of $8.2 million at CE Electric UK due to a weaker U.S. dollar and an increased asset base, partially offset by the CE Gas asset sale in 2002.

Interest expense, less amounts capitalized, for the year ended December 31, 2003 increased $131.4 million to $741.3 million from $609.9 million for the same period in 2002. The increase was mainly due to interest on parent company subordinated debt which was $49.8 million for the quarter and year ended December 31, 2003. This amount represents the interest recorded on the parent company subordinated debt for the period from October 1, 2003, the date the Company adopted FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN 46R"), through December 31, 2003. Prior to the adoption of FIN 46R, the parent company subordinated debt was classified as company-obligated mandatorily redeemable preferred securities of subsidiary trusts. Costs associated with those instruments, prior to the adoption of FIN 46R, were classified as minority interest and preferred dividends in the accompanying consolidated statements of operations. In addition, increases resulted from additional interest expense totaling $38.9 million on MEHC's debt issuances of $700.0 million in October 2002 and $450.0 million in May 2003, increased interest expense of $32.5 million at Northern Natural Gas primarily due to a full year of ownership and increased interest expense at Kern River of $32.2 million due to additional borrowings related to the 2003 Expansion Project and a full year of ownership. The increases were partially offset by decreased interest, totaling $27.9 million, due to the combination of the June 2003 redemption of the YED securities, reductions in CalEnergy Generation – Foreign project debt, MEHC's revolving credit facility and the retirement of MEHC's 6.96% Senior Notes.

Provision for income tax for the year ended December 31, 2003 increased $151.4 million to $251.0 million from $99.6 million for the same period in 2002. The effective tax rate was 29.5% and 15.5% for the years ended December 31, 2003 and 2002, respectively. The increase in the effective tax rate was primarily due to increased tax expense on foreign income including the incremental tax expense of $24.4 million in connection with the CE Casecnan NIA Arbitration settlement proceeds. The 2002 effective tax rate was unusually low as the Company recognized tax benefits of $35.7 million in connection with the execution of the TPL restructuring agreement at CE Electric UK.

Minority interest and preferred dividends for the year ended December 31, 2003 increased $19.7 million to $183.2 million from $163.5 million for the same period in 2002. The increase in minority interest and preferred dividends is primarily due to the issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary trusts relating to the Kern River and Northern Natural Gas acquisitions. This increase was partially offset by the adoption of FIN 46R described above and reduced dividends on subsidiary preferred securities resulting from lower outstanding balances.

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Results of Operations for the Year Ended December 31, 2002 and the Year Ended December 31, 2001

In 2002, net income available to common and preferred stockholders was $380.0 million compared with $142.7 million in 2001.

The increase was mainly due to: acquisitions of Kern River in March 2002 and Northern Natural Gas in August 2002, increased income at CE Electric UK, primarily as a result of the gain on the sale of CE Gas assets, increased income at CalEnergy Generation – Foreign due to a full year of operations of the CE Casecnan project, improved earnings at MidAmerican Energy's regulated electric business and continued improvement at HomeServices due to acquisitions made throughout 2002 and growth at existing companies.

Operating revenue for the year ended December 31, 2002 increased $97.2 million or 2.1% to $4,794.0 million from $4,696.8 million for the same period in 2001.

The following table summarizes operating revenue by segment for the years ended December 31 (in millions):

				Year Ended December 31,
				2002				2001				$ Change
Operating revenue:
MidAmerican Energy				$	2,240.9			$	2,388.7			$	(147.8	)
Kern River					127.3				—				127.3
Northern Natural Gas					176.9				—				176.9
CE Electric UK					795.4				1,444.0				(648.6	)
CalEnergy Generation – Domestic					38.5				37.3				1.2
CalEnergy Generation – Foreign					326.3				203.5				122.8
HomeServices					1,138.3				641.9				496.4
Segment operating revenue					4,843.6				4,715.4				128.2
Corporate/other					(49.6	)			(18.6	)			(31.0	)
Total operating revenue				$	4,794.0			$	4,696.8			$	97.2

MidAmerican Energy regulated and non-regulated gas revenue decreased due to lower prices for gas purchased which is passed directly to the customer, partially offset by an increase in regulated electric retail sales for the year ended December 31, 2002 as compared to 2001 due primarily to higher relative temperatures in 2002, which occurred primarily in the third quarter of 2002.

Kern River and Northern Natural Gas were acquired in March 2002 and August 2002, respectively. The increases relate to their inclusion in MEHC's operations in 2002.

CE Electric UK operating revenue decreased primarily due to the sale of the supply business in 2001 partially offset by the acquisition of Yorkshire Electric in September 2001 and changes in the exchange rate. CE Electric UK distributed 41,157 GWh of electricity in the year ended December 31, 2002, compared with 23,770 GWh of electricity in the same period in 2001. The increase in electricity distributed is primarily due to the acquisition of Yorkshire distribution.

CalEnergy Generation – Foreign operating revenue for the year ended December 31, 2002 increased primarily due to commencement of commercial operation of the Casecnan project in December 2001.

HomeServices operating revenue for the year ended December 31, 2002 increased primarily due to contributions from 2002 acquisitions of $431.5 million. The remainder of HomeServices' increase was due to growth of existing companies of $105.3 million partially offset by a decrease of $40.4 million from a joint venture that was consolidated in 2001 and is accounted for under the equity method in 2002.

Interest and dividend income for the year ended December 31, 2002 increased $31.7 million or 128.9% to $56.3 million from $24.6 million for the same period in 2001. The increase was primarily due to increased interest income at CE Electric UK of $15.1 million due to the increased cash balance following the Yorkshire acquisition and increased corporate interest and dividends of $13.4 million primarily due to dividends received on the investment in Williams' Cumulative Preferred Stock.

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Other income for the year ended December 31, 2002 decreased $134.7 million or 63.5% to $77.4 million from $212.1 million for the same period in 2001. Other income in 2002 resulted primarily from the non-recurring gain on the sale of CE Gas of $54.3 million and equity AFUDC of $19.8 million. These items were offset, in 2002, by losses from the write-down of non-regulated investments at MidAmerican Energy of $21.9 million. Other income in 2001 resulted from the non-recurring gains from the sales of Northern Electric's supply business, Telephone Flat and Western States Geothermal of $196.7 million, $20.7 million and $9.8 million, respectively, and a non-recurring gain from the transfer of Bali shares of $10.4 million. These items were partially offset, in 2001, by a charge related to the impairment of the Company's interest in TPL of $58.8 million.

Cost of sales for the year ended December 31, 2002 decreased $497.2 million or 21.2% to $1,844.0 million from $2,341.2 million for the same period in 2001.

MidAmerican Energy cost of sales for the year ended December 31, 2002 decreased $132.4 million or 11.8% to $988.9 million from $1,121.3 million for the same period in 2001, primarily due to decreases in regulated and non-regulated gas costs, caused by lower volumes and prices, partially offset by an increase in regulated electric costs caused by higher volumes, partially offset by the restructuring of the Cooper Nuclear Station contract.

CE Electric UK cost of sales for the year ended December 31, 2002 decreased $713.2 million or 84.6% to $129.5 million from $842.7 million for the same period in 2001. The decrease was primarily due to the sale of the supply business in 2001.

HomeServices cost of sales for the year ended December 31, 2002 increased $371.9 million or 94.0% to $767.6 million from $395.7 million for the same period in 2001. The increase was primarily due to costs at companies acquired during 2002 of $315.6 million, and higher commission expense resulting from increased sales at existing HomeServices businesses.

Operating expenses for the year ended December 31, 2002 increased $168.8 million or 14.3% to $1,345.2 million from $1,176.4 million for the same period in 2001. The increase was primarily due to higher costs at HomeServices of $99.1 million as a result of acquisitions, operating expenses due to the acquisitions of Northern Natural Gas of $95.0 million and Kern River of $27.2 million and plant operating expenses at the Zinc project and CE Casecnan of $33.9 million, partially offset by lower costs at MidAmerican Energy of $57.5 million primarily due to the restructuring of the Cooper Nuclear Station contract and lower energy efficiency expenses and lower costs at CE Electric UK of $28.5 million due to the sale of the supply business.

Depreciation and amortization for the year ended December 31, 2002 decreased $12.8 million or 2.4% to $525.9 million from $538.7 million for the same period in 2001. The decrease was primarily due to discontinuance of amortizing goodwill beginning January 1, 2002 of $96.4 million, partially offset by a full year of operations at CE Casecnan of $22.0 million, higher depreciation at MidAmerican Energy of $17.2 million primarily due to higher Iowa revenue sharing accruals and a change in the estimated useful lives of electric generation plant, depreciation expense due to the acquisitions of Kern River of $17.2 million and Northern Natural Gas of $18.2 million and increased amortization at HomeServices of $9.5 million primarily due to the amortization of the gross margin of pending sales contracts related to acquisitions.

Interest expense, less amounts capitalized, for the year ended December 31, 2002 increased $197.1 million or 47.7% to $609.9 million from $412.8 million for the same period in 2001. The increase was primarily due to the increase of interest expense at CE Electric UK of $71.3 million predominantly due to the debt acquired as part of the Yorkshire acquisition, interest expense due to debt related to the acquisitions of Kern River and Northern Natural Gas of $33.0 million and $23.0 million, respectively and the discontinuance of capitalizing interest related to the Casecnan project, the Cordova project and the Zinc Recovery project of $50.9 million, $9.4 million and $5.3 million, respectively, all partially offset by capitalized interest at Kern River of $14.0 million.

Tax expense for the year ended December 31, 2002 decreased $150.5 million or 60.2% to $99.6 million from $250.1 million for the same period in 2001. The effective tax rate was 15.5% and 49.6% for the years ended December 31, 2002 and 2001, respectively. The decrease is due primarily to the tax expense related

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to the sale of the Northern Electric supply business in September 2001, the release of the tax obligation of $35.7 million in connection with the execution of the TPL restructuring agreement at CE Electric UK in 2002, and the recognition of a tax benefit in connection with the sale of the CE Gas assets in 2002.

Minority interest and preferred dividends for the year ended December 31, 2002 increased $57.0 million or 53.5% to $163.5 million from $106.5 million for the same period in 2001. Minority interest and preferred dividends includes the dividends on Company-obligated mandatorily redeemable preferred securities of subsidiary trusts. The increase in minority interest and preferred dividends is primarily due to the issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary trusts relating to the Kern River and Northern Natural Gas acquisitions.

Effective January 1, 2001, the Company changed its accounting policy regarding major maintenance and repairs for non-regulated gas projects, non-regulated plant overhaul costs and geothermal well rework costs to the direct expense method from the former policy of monthly accruals based on long-term scheduled maintenance plans for the gas projects and deferral and amortization of plant overhaul costs and geothermal well rework costs over the estimated useful lives. The cumulative effect of the change in accounting principle for 2001 was $4.6 million, net of taxes.

Liquidity and Capital Resources

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

The Company's cash and cash equivalents were $660.2 million at December 31, 2003, compared to $844.4 million at December 31, 2002. Each of MEHC's direct or indirect subsidiaries is organized as a legal entity separate and apart from MEHC and its other subsidiaries. Pursuant to separate financing agreements at each subsidiary, the assets of each subsidiary may be pledged or encumbered to support or otherwise provide the security for their own project or subsidiary debt. It should not be assumed that any asset of any subsidiary of MEHC will be available to satisfy the obligations of MEHC or any of its other subsidiaries; provided, however, that unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements for such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to MEHC or affiliates thereof.

In addition, the Company recorded separately, in restricted cash and short-term investments and in deferred charges and other assets, restricted cash and investments of $119.5 million and $58.7 million at December 31, 2003, and December 31, 2002, respectively. The restricted cash balance for both periods is comprised primarily of amounts deposited in restricted accounts which are reserved for the service of debt obligations and customer deposits held in escrow.

Cash flows from Operating Activities

The Company generated cash flows from operations of $1,217.9 million for the year ended December 31, 2003, compared with $757.7 million for the same period in 2002. The increase was mainly due to the positive impacts of the Kern River, Northern Natural Gas and HomeServices' acquisitions as well as accelerated tax depreciation benefits.

Cash Flows from Investing Activities

Cash flows used in investing activities for 2003 were $1,003.2 million, of which $1,191.0 million was used for capital expenditures, construction and other development costs. Cash flows used in investing activities for 2002 were $2,907.8 million, of which $1,508.1 million was used for capital expenditures, construction and other development costs. Investing activities in 2002 includes $1,416.9 million for acquisitions.

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Capital Expenditures, Construction and Other Development Costs

Capital expenditures, construction and other development costs by business segment for 2003 and 2002 are as follows (in millions):

				Year Ended December 31,
				2003				2002
MidAmerican Energy				$	378.5			$	358.2
Kern River					361.5				769.5
Northern Natural Gas					104.4				62.4
CE Electric UK					301.9				222.6
CalEnergy Generation – Domestic					17.9				61.9
CalEnergy Generation – Foreign					8.5				7.8
HomeServices					18.3				18.3
Segment capital expenditures					1,191.0				1,500.7
Corporate/other					0.1				7.4
Total capital expenditures				$	1,191.1			$	1,508.1

Capital expenditures and construction and other development costs for 2004 are expected to be approximately $1.3 billion.

MidAmerican Energy Capital Expenditures, Construction and Development Costs

MidAmerican Energy's primary need for capital is utility construction expenditures. For 2003, utility construction expenditures totaled $376.2 million, including allowance for funds used during construction and Quad Cities Station nuclear fuel purchases.

Forecasted utility construction expenditures, including allowance for funds used during construction, are $844 million for 2004. Capital expenditure needs are reviewed regularly by management and may change significantly as a result of such reviews. MidAmerican Energy expects to meet these capital expenditures with cash flows from operations and the issuance of long-term debt.

In order to address projected capacity needs for its regulated customers, MidAmerican Energy is currently constructing two electric generating projects in Iowa and developing a third. Upon completion, the projects will provide service to regulated retail electricity customers. MidAmerican Energy has obtained regulatory approval to include the actual costs of the generation projects in its Iowa rate base as long as actual costs do not exceed an agreed upon cap that MidAmerican Energy has deemed to be reasonable. Wholesale sales may also be made from the projects to the extent the power is not needed for regulated retail service. MidAmerican Energy expects to invest approximately $1.4 billion in the three projects, of which approximately $314 million has been invested through December 31, 2003.

The first project is a natural gas-fired combined cycle unit with an estimated cost of $357 million, excluding allowance for funds used during construction. MidAmerican Energy will own and operate the plant. Commercial operation of the simple cycle mode began on May 5, 2003. The plant, which will continue to be operated in simple cycle mode during 2004, resulted in 327 MW of accredited capacity in the summer of 2003. The combined cycle operation is expected to commence in December 2004 and achieve an expected additional accredited capacity of 190 MW.

The second project is currently under construction and is a 790 MW (based on expected accreditation) super-critical-temperature, low-sulfur coal-fired plant. MidAmerican Energy will operate the plant and hold an undivided ownership interest as a tenant in common with the other owners of the plant. MidAmerican Energy's ownership interest is 60.67%, equating to 479 MW of output. MidAmerican Energy expects its share of the estimated cost of the project to be approximately $713 million, excluding allowance for funds used during construction. Municipal, cooperative and public power utilities will own the remainder, which is a typical ownership arrangement for large base-load plants in Iowa. On May 29, 2003, the IUB issued an order that approves the ratemaking principles for the plant, and on June 27, 2003, MidAmerican Energy received a certificate from the IUB allowing MidAmerican Energy to construct the

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plant. On February 12, 2003, MidAmerican Energy executed a contract with Mitsui for the engineering, procurement and construction of the plant. On September 9, 2003, MidAmerican Energy began construction of the plant, which it expects to be completed in the summer of 2007. MidAmerican Energy is also seeking an order from the IUB approving construction of the associated transmission facilities.

The third project is currently under development and is comprised of wind power facilities totaling 310 MW based on the nameplate rating. Generally speaking, accredited capacity ratings for the wind power facilities are considerably less than the nameplate ratings due to the varying nature of wind. The current projected accredited capacity for these wind power facilities is approximately 53 MW. If constructed, MidAmerican Energy will own and operate these facilities, which are expected to cost approximately $323 million. MidAmerican Energy's plan to construct the wind project is in conjunction with a settlement agreement that extends through December 31, 2010, an Iowa retail electric rate freeze that was previously scheduled to expire at the end of 2005. The settlement agreement, which was filed with the IUB as part of MidAmerican Energy's application for ratemaking principles for the wind project, was approved by the IUB on October 17, 2003. The obligation of MidAmerican Energy to construct the wind project may be terminated by MidAmerican Energy if the federal production tax credit applicable to the wind energy facilities is not available at a rate of 1.8 cents per kWh for a period of at least ten years after the facilities begin generating electricity. The production tax credit is available only to wind facilities placed in service before January 1, 2004. MidAmerican Energy has also received authorization from the IUB to construct the wind power project. If MidAmerican Energy does not construct the wind facilities by December 31, 2007, the rate extension from January 1, 2006 through December 31, 2010 may terminate.

Kern River's 2003 Expansion Project

On May 1, 2003, Kern River completed the construction of its 2003 Expansion Project at a total cost of approximately $1.2 billion. The expansion increased the design capacity of the existing Kern River pipeline by 885,626 Dth per day to 1,755,626 Dth per day.

Also on May 1, 2003, Kern River Funding Corporation, a wholly owned subsidiary of Kern River, issued $836 million of its 4.893% Senior Notes with a final maturity on April 30, 2018. The proceeds were used to repay all of the approximately $815 million of outstanding borrowings under Kern River's $875 million credit facility. Kern River entered into this credit facility in 2002 to finance the construction of the 2003 Expansion Project. The credit facility and a completion guarantee issued by MEHC in favor of the lenders was terminated.

Other Development Costs

Obsidian is evaluating the development of a 185 net MW geothermal facility in the Imperial Valley in California. Substantially all of the output of the facility would be sold to the IID pursuant to a power purchase agreement. TransAlta is currently funding 50% of the development costs of this project. On December 17, 2003, the CEC issued final approval for construction of the facility. If the project is constructed, MEHC expects capital expenditures to total approximately $550.0 million and currently plans to fund its interest in this project with available cash and future issuances of debt.

Acquisitions

Kern River

In March 2002, MEHC acquired Kern River for $419.7 million, net of cash acquired and a working capital adjustment. At the time, Kern River owned a 926-mile interstate natural gas pipeline extending from Wyoming to markets in California, Nevada and Utah and accesses natural gas supplies from large producing regions in the Rocky Mountains and Canada. MEHC used the proceeds from the issuances of $323.0 million of 11% Company-obligated mandatorily redeemable preferred securities of subsidiary trust due March 12, 2012 with scheduled principal payments beginning in 2005 and $127.0 million of no par, zero coupon convertible preferred stock to Berkshire Hathaway to finance the acquisition.

Northern Natural Gas

In August 2002, MEHC acquired Northern Natural Gas for $882.7 million, net of cash acquired and a working capital adjustment. Northern Natural Gas owns a 16,500-mile interstate natural gas pipeline

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extending from southwest Texas to the upper Midwest region of the United States with a design capacity of 4.4 Bcf of natural gas per day. Northern Natural Gas also operates three natural gas storage facilities and two liquefied natural gas peaking units with a total storage capacity of 59 Bcf and peak delivery capability of over 1.3 Bcf of natural gas per day. Northern Natural Gas accesses natural gas supply from many of the larger producing regions in North America, including the Rocky Mountains, Hugoton, Permian, Anadarko and Western Canadian basins. The pipeline system provides transportation and storage services to utilities, municipalities, other pipeline companies, gas marketers and industrial and commercial users. MEHC used the proceeds from a $950.0 million investment in its subsidiary trust's preferred securities by Berkshire Hathaway to finance the acquisition.

HomeServices' Acquisitions

In 2003, HomeServices separately acquired four real estate companies for an aggregate purchase price of approximately $36.7 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2002, these real estate companies had combined revenue of approximately $102.9 million on 16,000 closed sides representing $3.6 billion of sales volume. Additionally, HomeServices is obligated to pay a maximum earnout of $5.2 million based on 2004 and 2005 financial performance measures. These purchases were financed using HomeServices' internally generated cash flows and revolving credit facility. In 2002, HomeServices separately acquired three real estate companies for an aggregate purchase price of approximately $106.1 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2001, these real estate companies had combined revenue of approximately $356.0 million on 42,000 closed sides representing $13.7 billion of sales volume. Additionally, HomeServices was obligated to pay an earnout of $17.3 million based on 2002 financial performance measures. These purchases were financed using HomeServices' internally generated cash flows, revolving credit facility and $40.0 million from MEHC, which was contributed to HomeServices as equity.

Williams' Cumulative Convertible Preferred Stock

On June 10, 2003, Williams repurchased, for approximately $288.8 million, plus accrued dividends, all of the shares of its 9-7/8% Cumulative Convertible Preferred Stock originally acquired by the Company in March 2002 for $275.0 million.

Put of ROP Bond and Receipt of Cash

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

Cash Flows from Financing Activities

Cash flows used in financing activities for 2003 were $426.3 million. During 2003, the Company used cash for financing activities, totaling $1,937.9 million, for repayments of parent and subsidiary long-term obligations, and generated cash from financing activities, totaling $1,606.9 million, from the issuance of subsidiary, project and parent company senior debt. Cash flows from financing activities for 2002 were $2,555.2 million. During 2002, the Company generated cash from financing activities, totaling $3,860.3 million, from the issuance of trust preferred securities, common and preferred stock and subsidiary, project and parent company debt, and used cash for financing activities, totaling $1,243.9 million, for repayments of parent and subsidiary long-term obligations.

Recent Debt Issuances and Redemptions

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

On February 10, 2003, MidAmerican Energy redeemed all $75.0 million of its 7.375% series of mortgage bonds, and on March 17, 2003, it redeemed all $6.94 million of its 7.45% series of mortgage bonds. Additionally, MidAmerican Energy's 7.125% series of mortgage bonds totaling $100 million matured on February 3, 2003. On October 17, 2003, MidAmerican Energy redeemed all $12.5 million of its 6.95% series of mortgage bonds at 103.48% of the principal amount.

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On May 16, 2003, MEHC issued $450 million of its 3.5% Senior Notes which mature on May 15, 2008. The proceeds were used for general corporate purposes.

In the second quarter of 2003, MEHC terminated its $400 million credit facility. On June 6, 2003, MEHC closed on a new $100 million revolving credit facility which expires on June 6, 2006. The facility supports letters of credit of which $73.0 million were outstanding at December 31, 2003.

On June 9, 2003, Yorkshire Power Group Limited, a wholly owned indirect subsidiary of CE Electric UK, completed the redemption in full of the outstanding shares of the Yorkshire Capital Trust I, 8.08% trust securities, due June 30, 2038, and paid $243.4 million in principal amount ($25 liquidation amount per each trust security) plus accrued distributions of $0.381555555 per trust security to the redemption date. The redemption price was paid to holders of the trust security on the redemption date.

On September 15, 2003, MEHC repaid its $215.0 million, 6.96% Senior Notes.

During 2003, MEHC purchased approximately $88.3 million of original face amount of debt obligations of its subsidiaries of which $37.5 million is held in other investments with the remainder being retired.

During 2003, CE Electric UK and its subsidiaries purchased and retired approximately $50 million of outstanding indebtedness.

On January 30, 2004, Salton Sea Funding Corporation ("SSFC"), a wholly owned subsidiary of CE Generation, announced its election to redeem an aggregate principal amount of approximately $136.4 million of its 7.475% Senior Secured Series F Bonds due November 30, 2018, pro rata, at a redemption price of 100% of such aggregate outstanding principal amount, plus accrued interest to the date of redemption. The trustee delivered a redemption notice to the holders of the bonds on January 29, 2004. The record date for the redemption is February 15, 2004 and the redemption is expected to be completed on March 1, 2004. SSFC expects to make a demand on MEHC for the full amount remaining on MEHC's guarantee of the Series F Bonds in order to fund the redemption. Upon the expected demand and payment under MEHC's guarantee, MEHC will no longer have any liability with respect to its guarantee.

Credit Ratings Risks

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

In conjunction with its wholesale marketing and trading activities, MidAmerican Energy must meet credit quality standards as required by counterparties. MidAmerican Energy has energy trading agreements that, in accordance with industry practice, either specifically require it to maintain investment grade credit ratings or provide the right for counterparties to demand "adequate assurances" in the event of a material adverse change in MidAmerican Energy's creditworthiness. If one or more of MidAmerican Energy's credit ratings decline below investment grade, MidAmerican Energy may be required to post cash collateral, letters of credit or other similar credit support to facilitate ongoing wholesale marketing and trading activities. As of December 31, 2003, MidAmerican Energy's estimated potential collateral requirements totaled approximately $89 million. MidAmerican Energy's collateral requirements could fluctuate considerably due to seasonality, market price volatility, a loss of key MidAmerican Energy generating facilities or other related factors.

Yorkshire Power Group Limited, a subsidiary of CE Electric UK, entered into certain currency rate swap agreements for its Yankee Bonds with three large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling. For the $281.1 million of the 6.496% Yankee Bonds outstanding at December 31, 2003, the agreements extend until February 25, 2008 and convert the U.S. dollar interest rate to a fixed Sterling rate ranging from 7.3175%

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to 7.345%. The estimated fair value of these swap agreements at December 31, 2003 is approximately $62.6 million based on quotes from the counterparties to these instruments and represents the estimated amount that the Company would expect to pay if these agreements were terminated. Certain of these counterparties have the option to terminate the swap agreements and demand payment of the fair value of the swaps if Yorkshire Power Group Limited's credit ratings from the three recognized credit rating agencies decline below investment grade. As of December 31, 2003, Yorkshire Power Group Limited's credit ratings from the three recognized credit rating agencies were investment grade; however, if the ratings fell below investment grade, payment requirements would have been approximately $29.0 million.

Inflation

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

Obligations and Commitments

The Company has contractual obligations and commercial commitments that may affect its financial condition. Contractual obligations to make future payments arise from parent company and subsidiary long-term debt and notes payable, preferred equity securities, operating leases and power and fuel purchase contracts. Other obligations arise from unused lines of credit and letters of credit. Material obligations as of December 31, 2003 are as follows (in millions):

				Payments Due By Period
				Total				< 1 Year				2-3 Years				4-5 Years				> 5 Years
Contractual Cash Obligations:
Parent company senior debt				$	2,777.9			$	—			$	260.0			$	1,550.0			$	967.9
Parent company subordinated debt					1,872.1				100.0				422.6				468.0				881.5
Subsidiary and project debt (1)					7,175.6				500.9				864.5				917.6				4,892.6
Preferred securities of subsidiaries					92.1				—				—				—				92.1
Coal, electricity and natural gas contract commitments (2)					593.1				179.0				204.5				101.2				108.4
Operating leases (2)					290.1				53.1				87.9				64.1				85.0
Total contractual cash obligations				$	12,800.9			$	833.0			$	1,839.5			$	3,100.9			$	7,027.5

				Commitment Expiration per Period
				Total				< 1 Year				2-3 Years				4-5 Years				> 5 Years
Other Commercial Commitments:
Unused parent company revolving lines of credit				$	26.4			$	—			$	26.4			$	—			$	—
Parent company letters of credit					73.6				73.0				0.6				—				—
Unused subsidiary lines of credit					138.0				13.0				125.0				—				—
Total other commercial commitments				$	238.0			$	86.0			$	152.0			$	—			$	—

(1) Total less than one year includes $136.4 million expected to be redeemed on March 1, 2004.

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

Off-Balance Sheet Arrangements

The Company has certain investments that are accounted for under the equity method in accordance with GAAP. Accordingly, an amount is recorded on the Company's balance sheet as an equity investment and is increased or decreased for the the Company's pro-rata share of earnings or losses, respectively, less any dividend distribution from such investments.

As of December 31, 2003, the Company's investments which are accounted for under the equity method had $924.6 million of debt and $39.5 million in outstanding letters of credit. As of December 31,

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2003, the Company's pro-rata share of such debt, which is non-recourse to MEHC, was $394.1 million. The $394.1 million excludes the $136.4 million of debt which MEHC has guaranteed on the Salton Sea Funding Series F Bonds and which is included in the the Company's consolidated balance sheet at December 31, 2003. This amount is expected to be redeemed on March 1, 2004. As of December 31, 2003, the Company's pro-rata share of its equity investments' outstanding letters of credit was $16.7 million and was non-recourse to MEHC.

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

New Accounting Pronouncements

On January 1, 2003, the Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement provides accounting and disclosure requirements for retirement obligations associated with long-lived assets. The cumulative effect of initially applying this statement by the Company was immaterial.

The Company identified legal retirement obligations for nuclear decommissioning, wet and dry ash landfills and offshore and minor lateral pipeline facilities. On January 1, 2003, the Company recorded $289.3 million of asset retirement obligation ("ARO") liabilities; $13.9 million of ARO assets, net of accumulated depreciation; $114.6 million of regulatory assets; and reclassified $1.0 million of accumulated depreciation to the ARO liability. The initial ARO liability recognized includes $266.5 million that pertains to obligations associated with the decommissioning of the Quad Cities nuclear station. The $266.5 million includes a $159.8 million nuclear decommissioning liability that had been recorded at December 31, 2002. The adoption of this statement did not have a material impact on the operations of the regulated entities, as the effects were offset by the establishment of regulatory assets, totaling $114.6 million, pursuant to SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation".

On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends SFAS No. 133 for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS 149 requires contracts with comparable characteristics to be accounted for similarly. In particular, SFAS 149 clarifies when a contract with an initial net investment meets the characteristic of a derivative and clarifies when a derivative that contains a financing component will require special reporting in the statement of cash flows. SFAS 149 is effective for the Company for contracts entered into or modified after June 30, 2003. The adoption of SFAS 149 did not have a material effect on the Company's financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The standard is effective for the Company for fiscal periods beginning after December 15, 2003. The adoption of SFAS 150 is not expected to have a material effect on the Company's financial position, results of operations or cash flows.

In December 2003, the FASB issued FIN 46R, which served to clarify guidance in Financial Interpretation No. 46 ("FIN 46"), and provided additional guidance surrounding the application of FIN 46. The Company adopted and applied the provisions of FIN 46R as of October 1, 2003. The adoption required the deconsolidation of certain finance subsidiaries, which resulted in the amounts previously classified as mandatorily redeemable preferred securities of subsidiary trusts, of approximately $1.9 billion, being reclassified to parent company subordinated debt in the accompanying consolidated balance sheet as of December 31, 2003. In addition, the associated amounts previously recorded as minority interest are now recorded as interest expense in the accompanying consolidated statement of operations. For the period from October 1, 2003 to December 31, 2003, the Company has recorded $49.8 million of interest expense related to these securities. In accordance with the requirements of FIN 46R, no amounts prior to adoption on October 1, 2003 have been reclassified. The Company will adopt the provisions of FIN 46R related to non-special purpose entities in the first quarter of 2004, in accordance with the

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provisions of FIN 46R. The Company is currently evaluating the impact of FIN 46R on several operating joint ventures that the Company currently does not consolidate.

Critical Accounting Policies

The preparation of financial statements and related documents in conformity with generally accepted accounting principles in the United States of America ("GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 2 to the consolidated financial statements for the year ended December 31, 2003 included in this annual report describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Estimates are used for, but not limited to, the accounting for the effects of certain types of regulation, impairment of long-lived assets, contingent liabilities, accrued pension and post-retirement expense and revenue. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.

Accounting for the Effects of Certain Types of Regulation

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

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

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

Impairment of Long-Lived Assets

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

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

The estimate of cash flows arising from future use of the asset that are used in the impairment analysis requires judgment regarding what the Company would expect to recover from future use of the

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

On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which establishes the accounting for acquired goodwill and other intangible assets, and provides that goodwill and indefinite-lived intangible assets will not be amortized, but will be tested for impairment on an annual basis. The Company's related amortization consists solely of goodwill amortization. In accordance with SFAS 142, the Company completed its annual goodwill impairment test, as of October 31, 2003, primarily using a discounted cash flow methodology. No impairment was indicated as a result of the impairment tests.

Contingent Liabilities

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

Accrued Pension and Postretirement Expense

Pension and postretirement costs are accrued throughout the year based on results of an annual study performed by external actuaries. In addition to the benefits granted to employees, the timing of the cost of these plans is impacted by assumptions used by the actuaries, including assumptions provided by MEHC for the discount rate and long-term rate of return on assets. Both of these factors require estimates and projections by management and can fluctuate from period to period. Actual returns on assets are significantly affected by stock and bond markets, over which management has little control. The interest rate at which projected benefits are discounted significantly affects amounts expensed.

Revenue Recognition

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

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

Revenue from the transportation and storage of gas are recognized based on contractual terms and the related volumes. Kern River and Northern Natural Gas are subject to the FERC's regulations and, accordingly, certain revenue collected may be subject to possible refunds upon final orders in pending rate cases. Kern River and Northern Natural Gas record rate refund liabilities considering their regulatory proceedings and other third party regulatory proceedings, advice of counsel and estimated total exposure, as discounted and risk weighted, as well as collection and other risks.

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

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

To the extent the estimated amount differs from the actual amount, revenue will be affected.

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

The Company is exposed to market risk, including changes in the market price of certain commodities and interest rates. To manage the price volatility relating to these exposures, the Company enters into various financial derivative instruments. Senior management provides the overall direction, structure, conduct and control of the Company's risk management activities, including the use of financial derivative instruments, authorization and communication of risk management policies and procedures, strategic hedging program guidelines, appropriate market and credit risk limits, and appropriate systems for recording, monitoring and reporting the results of transactional and risk management activities.

Interest Rate Risk

At December 31, 2003, the Company had fixed-rate long-term debt of $11,369.4 million in aggregate principal amount and having a fair value of $12,015.1 million. These instruments are fixed-rate and therefore do not expose the Company to the risk of earnings loss due to changes in market interest rates. However, the fair value of these instruments would decrease by approximately $387.3 million if interest rates were to increase by 10% from their levels at December 31, 2003. In general, such a decrease in fair value would impact earnings and cash flows only if the Company were to reacquire all or a portion of these instruments prior to their maturity.

At December 31, 2002, the Company had fixed-rate long-term debt and Company-obligated mandatorily redeemable preferred securities of subsidiary trusts of $11,683.2 million in aggregate principal amount and having a fair value of $12,188.8 million. These instruments were fixed-rate and therefore did not expose the Company to the risk of earnings loss due to changes in market interest rates.

At December 31, 2003, the Company had floating-rate obligations of $459.8 million that expose the Company to the risk of increased interest expense in the event of increases in short-term interest rates. These obligations are not hedged. If the floating rates were to increase by 1% the Company's consolidated interest expense for unhedged floating-rate obligations would increase by approximately $0.4 million each month in which such increase continued based upon December 31, 2003 principal balances.

At December 31, 2002, the Company had floating-rate obligations of $425.1 million that expose the Company to the risk of increased interest expense in the event of increases in short-term interest rates. These obligations were not hedged.

Currency Exchange Rate Risk

CE Electric UK entered into certain currency rate swap agreements for its Senior Notes with two large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling. For the $117.1 million of 6.853% Senior Notes, the agreements extend until maturity on December 30, 2004 and convert the U.S. dollar interest rate to a fixed Sterling rate of 7.744%. For the $236.2 million of 6.995% Senior Notes, the agreements extend until maturity on December 30, 2007 and convert the U.S. dollar interest rate to a fixed Sterling rate of 7.737%. The estimated fair value of these swap agreements at December 31, 2003 is approximately $16.0 million based on quotes from the counterparty to these instruments and represents the estimated amount that the Company would expect to pay if these agreements were terminated.

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

A decrease of 10% in the December 31, 2003 rate of exchange of Sterling to dollars would increase the amount owed by the Company if these swap agreements were terminated by approximately $97.4 million.

Derivatives

MidAmerican Energy enters into various financial derivative instruments, including futures, over-the-counter swaps and forward physical contracts. Senior management provides the overall direction, structure, conduct and control of MidAmerican Energy's risk management activities, including authorization and communication of risk management policies and procedures, the use of financial derivative instruments, strategic hedging program guidelines, appropriate market and credit risk limits, and appropriate systems for recording, monitoring and reporting the results of transactional and risk management activities.

As of December 31, 2003, MidAmerican Energy held derivative instruments used for non-trading and trading purposes with the following fair values (in thousands):

Contract Type				Maturity in 2004				Maturity in 2005-07				Total
Non-trading:
Regulated electric assets				$	5,924			$	217			$	6,141
Regulated electric (liabilities)					(14,275	)			—				(14,275	)
Regulated gas assets					9,008				—				9,008
Regulated weather (liabilities)					(1,775	)			—				(1,775	)
Nonregulated electric assets					2,953				1,676				4,629
Nonregulated electric (liabilities)					(1,711	)			(1,131	)			(2,842	)
Nonregulated gas assets					11,498				798				12,296
Nonregulated gas (liabilities)					(11,867	)			(739	)			(12,606	)
Total					(245	)			821				576
Trading:
Nonregulated gas assets					389				247				636
Nonregulated gas (liabilities)					(419	)			—				(419	)
Total					(30	)			247				217
Total MidAmerican Energy assets				$	29,772			$	2,938			$	32,710
Total MidAmerican Energy (liabilities)				$	(30,047	)		$	(1,870	)		$	(31,917	)

55

Item 8.    Financial Statements and Supplementary Data.

Independent Auditors' Report					57
Consolidated Balance Sheets as of December 31, 2003 and 2002					58
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001					59
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2003, 2002 and 2001					60
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001					61
Notes to Consolidated Financial Statements					62

56

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
MidAmerican Energy Holdings Company
Des Moines, Iowa

We have audited the accompanying consolidated balance sheets of MidAmerican Energy Holdings Company and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the consolidated financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MidAmerican Energy Holdings Company and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company changed its accounting policy for asset retirement obligations and for variable interest entities in 2003, for goodwill and other intangible assets in 2002, and for major maintenance, overhaul and well workover costs in 2001.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Des Moines, Iowa
February 9, 2004

57

MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)

				As of December 31,
				2003				2002
ASSETS
Current assets:
Cash and cash equivalents				$	660,213			$	844,430
Restricted cash and short-term investments					55,281				50,808
Accounts receivable, net of allowance for doubtful accounts of $26,004 and $39,742					666,063				707,731
Inventories					123,301				126,938
Other current assets					371,855				246,731
Total current assets					1,876,713				1,976,638
Properties, plants and equipment, net					11,180,979				9,898,796
Goodwill					4,305,643				4,258,132
Regulatory assets					512,549				415,804
Other investments					228,896				446,732
Equity investments					234,370				273,707
Deferred charges and other assets					829,039				779,420
Total assets				$	19,168,189			$	18,049,229
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable				$	345,237			$	462,960
Accrued interest					189,635				192,015
Accrued taxes					112,823				108,940
Other accrued liabilities					443,531				457,058
Short-term debt					48,036				79,782
Current portion of long-term debt					500,941				470,213
Current portion of parent company subordinated debt					100,000				—
Total current liabilities					1,740,203				1,770,968
Other long-term accrued liabilities					1,827,633				1,100,917
Parent company senior debt					2,777,878				2,323,387
Parent company subordinated debt					1,772,146				—
Subsidiary and project debt					6,674,640				7,077,087
Deferred income taxes					1,433,144				1,238,421
Total liabilities					16,225,644				13,510,780
Deferred income					69,201				80,078
Minority interest					9,754				7,351
Preferred securities of subsidiaries					92,145				93,325
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts					—				2,063,412
Commitments and contingencies (Note 19)
Stockholders' equity:
Zero coupon convertible preferred stock — authorized 50,000 shares, no par value; 41,263 shares outstanding at December 31, 2003 and 2002					—				—
Common stock — authorized 60,000 shares, no par value; 9,281 shares issued and outstanding at December 31, 2003 and 2002					—				—
Additional paid-in capital					1,957,277				1,956,509
Retained earnings					999,627				584,009
Accumulated other comprehensive loss, net					(185,459	)			(246,235	)
Total stockholders' equity					2,771,445				2,294,283
Total liabilities and stockholders' equity				$	19,168,189			$	18,049,229

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

58

MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)

				Year Ended December 31,
				2003				2002				2001
Revenue:
Operating revenue				$	5,948,224			$	4,794,010			$	4,696,781
Income on equity investments					38,224				40,520				39,565
Interest and dividend income					47,911				56,250				24,552
Other income					110,318				77,359				212,082
Total revenue					6,144,677				4,968,139				4,972,980
Costs and expenses:
Cost of sales					2,416,132				1,844,024				2,341,178
Operating expense					1,527,516				1,345,205				1,176,422
Depreciation and amortization					609,889				525,902				538,702
Interest expense					771,831				647,379				499,263
Less interest capitalized					(30,483	)			(37,469	)			(86,469	)
Total costs and expenses					5,294,885				4,325,041				4,469,096
Income before provision for income taxes					849,792				643,098				503,884
Provision for income taxes					250,971				99,588				250,064
Income before minority interest and preferred dividends					598,821				543,510				253,820
Minority interest and preferred dividends					183,203				163,467				106,547
Income before cumulative effect of change in accounting principle					415,618				380,043				147,273
Cumulative effect of change in accounting principle, net of tax (Note 2)					—				—				(4,604	)
Net income available to common and preferred stockholders				$	415,618			$	380,043			$	142,669

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

59

MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)

				Outstanding Common Shares				Common Stock				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total
Balance, January 1, 2001					9,281			$	—			$	1,553,073			$	81,257			$	(57,929	)		$	1,576,401
Net income					—				—				—				142,669				—				142,669
Other comprehensive income: Foreign currency translation adjustment					—				—				—				—				(22,103	)			(22,103	)
Fair value adjustment on cash flow hedges, net of tax of $8,143					—				—				—				—				18,490				18,490
Minimum pension liability adjustment, net of tax of $(3,448)					—				—				—				—				(4,847	)			(4,847	)
Unrealized losses on securities, net of tax of $(1,315)					—				—				—				—				(2,443	)			(2,443	)
Total other comprehensive income																									131,766
Balance, December 31, 2001					9,281				—				1,553,073				223,926				(68,832	)			1,708,167
Net income					—				—				—				380,043				—				380,043
Other comprehensive income:
Foreign currency translation adjustment					—				—				—				—				166,880				166,880
Fair value adjustment on cash flow hedges, net of tax of $(10,106)					—				—				—				—				(27,623	)			(27,623	)
Minimum pension liability adjustment, net of tax of $(135,707)					—				—				—				—				(313,456	)			(313,456	)
Unrealized losses on securities, net of tax of $(1,813)					—				—				—				—				(3,204	)			(3,204	)
Total other comprehensive income																									202,640
Issuance of zero-coupon convertible preferred stock					—				—				402,000				—				—				402,000
Retirement of stock options					—				—				815				(19,960	)			—				(19,145	)
Other equity transactions					—				—				621				—				—				621
Balance, December 31, 2002					9,281				—				1,956,509				584,009				(246,235	)			2,294,283
Net income					—				—				—				415,618				—				415,618
Other comprehensive income:
Foreign currency translation adjustment					—				—				—				—				58,148				58,148
Fair value adjustment on cash flow hedges, net of tax of $7,202					—				—				—				—				16,769				16,769
Minimum pension liability adjustment, net of tax of $(6,425)					—				—				—				—				(14,989	)			(14,989	)
Unrealized losses on securities, net of tax of $566					—				—				—				—				848				848
Total other comprehensive income																									476,394
Other equity transactions					—				—				768				—				—				768
Balance, December 31, 2003					9,281			$	—			$	1,957,277			$	999,627			$	(185,459	)		$	2,771,445

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

60

MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

				Year Ended December 31,
				2003				2002				2001
Cash flows from operating activities:
Net income				$	415,618			$	380,043			$	142,669
Adjustments to reconcile net cash flows from operating activities:
Distributions less income on equity investments					40,160				(11,383	)			(28,515	)
Gains on asset sales					(24,321	)			(25,329	)			(179,493	)
Depreciation and amortization					609,889				525,902				442,284
Amortization of goodwill					—				—				96,418
Amortization of regulatory assets and liabilities and other					(14,363	)			8,709				23,774
Amortization of deferred financing costs					28,046				28,615				20,737
Provision for deferred income taxes					237,322				(16,228	)			152,920
Cumulative effect of change in accounting principle, net of tax					—				—				4,604
Changes in other items:
Accounts receivable and other current assets					(27,447	)			(201,147	)			571,910
Accounts payable and other accrued liabilities					(46,138	)			64,759				(420,434	)
Deferred income					(9,344	)			(4,839	)			6,428
Other					8,501				8,624				13,696
Net cash flows from operating activities					1,217,923				757,726				846,998
Cash flows from investing activities:
Acquisitions, net of cash acquired					(54,263	)			(1,416,937	)			(81,934	)
Sale (purchase) of convertible preferred securities					288,750				(275,000	)			—
Capital expenditures relating to operating projects					(677,256	)			(542,615	)			(398,165	)
Construction and other development costs					(513,771	)			(965,470	)			(178,587	)
Purchase of affiliates notes					(35,029	)			—				(13,247	)
Proceeds from sale of assets					13,113				214,070				377,396
Decrease in restricted cash and investments					7,415				16,351				24,540
Other					(32,126	)			61,790				31,453
Net cash flows from investing activities					(1,003,167	)			(2,907,811	)			(238,544	)
Cash flows from financing activities:
Proceeds from subsidiary and project debt					1,157,649				1,485,349				200,000
Proceeds from parent company senior debt					449,295				700,000				—
Repayments of subsidiary and project debt					(1,490,986	)			(395,370	)			(437,372	)
Repayment of parent company senior debt					(215,000	)			—				—
Repayment of parent company subordinated debt					(198,958	)			—				—
Net proceeds from (repayment of) parent company revolving credit facility					—				(153,500	)			68,500
Repayment of other obligations					—				(94,297	)			—
Net repayment of subsidiary short-term debt					(31,750	)			(472,835	)			(74,144	)
Proceeds from issuance of trust preferred securities					—				1,273,000				—
Proceeds from issuance of preferred stock					—				402,000				—
Redemption of preferred securities of subsidiaries					(1,176	)			(127,908	)			(24,910	)
Other					(95,411	)			(61,205	)			9,459
Net cash flows from financing activities					(426,337	)			2,555,234				(258,467	)
Effect of exchange rate changes					27,364				52,536				(1,394	)
Net change in cash and cash equivalents					(184,217	)			457,685				348,593
Cash and cash equivalents at beginning of period					844,430				386,745				38,152
Cash and cash equivalents at end of period				$	660,213			$	844,430			$	386,745
Supplemental Disclosure:
Interest paid, net of interest capitalized				$	706,039			$	588,972			$	389,953
Income taxes paid				$	9,911			$	101,225			$	133,139
Non-cash transaction – ROP note received under NIA Arbitration Settlement				$	97,000			$	—			$	—

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

61

MIDAMERICAN ENERGY HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization and Operations

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

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

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

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

2.    Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of MEHC and its wholly owned subsidiaries excluding entities for which adoption of FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN 46R") was required at December 31, 2003. Subsidiaries which are less than 100% owned but greater than 50% owned are consolidated with a minority interest. Subsidiaries that are 50% owned or less, but where the Company has the ability to exercise significant influence, are accounted for under the equity method of accounting. Investments where the Company's ability to influence is limited are accounted for under the cost method of accounting. All inter-enterprise transactions and accounts have been eliminated. The results of operations of the Company include the Company's proportionate share of results of operations of entities acquired from the date of each acquisition for purchase business combinations.

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

62

Reclassifications

Certain amounts in the fiscal 2002 and 2001 consolidated financial statements and supporting note disclosures have been reclassified to conform to the fiscal 2003 presentation. Such reclassification did not impact previously reported net income or retained earnings.

Use of Estimates

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

Accounting for the Effects of Certain Types of Regulation

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

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

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

Cash and Cash Equivalents

The Company considers all investment instruments purchased with an original maturity of three months or less to be cash equivalents. Investments other than restricted cash are primarily commercial paper and money market securities. Restricted cash is not considered a cash equivalent.

Restricted Cash and Investments

The current restricted cash and short-term investments balance recorded separately in restricted cash and short term investments and in deferred charges and other assets, was $119.5 million and $58.7 million at December 31, 2003 and 2002, respectively, and includes commercial paper and money market securities. The balance is mainly composed of amounts deposited in restricted accounts from which the Company will source its debt service reserve requirements relating to the projects and customer deposits held in escrow. The debt service funds are restricted by their respective project debt agreements to be used only for the related project.

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

Allowance for Doubtful Accounts

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

63

Fair Value of Financial Instruments

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

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

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

Debt instruments — The fair value of all debt instruments has been estimated based upon quoted market prices as supplied by third-party broker dealers, where available, or at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risks. The Company is unable to estimate a fair value for the Leyte debt as there are no quoted market prices available.

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

Properties, Plants and Equipment, Net

Properties, plants and equipment are recorded at historical cost. The cost of major additions and betterments are capitalized, while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed.

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

Impairment of Long-Lived Assets

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

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

Goodwill

On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which establishes the accounting for acquired goodwill and other intangible assets, and provides that goodwill and indefinite-lived intangible assets will not be amortized, but will be tested for impairment on an annual basis. The Company's related amortization consisted primarily of goodwill amortization. Following is a reconciliation of net income available to common and preferred stockholders as originally reported for the years ended December 31, 2003, 2002 and 2001 to adjusted net income available to common and preferred stockholders (in thousands):

64

				Year Ended December
				2003				2002				2001
Reported net income available to common and preferred stockholders				$	415,618			$	380,043			$	142,669
Amortization of goodwill					—				—				96,418
Tax effect of amortization					—				—				(2,018	)
Adjusted net income available to common and preferred stockholders				$	415,618			$	380,043			$	237,069

The Company completed its annual review pursuant to SFAS 142 for its reporting units during the fourth quarter of 2003 primarily using a discounted cash flow methodology. No impairment was indicated as a result of these assessments.

Capitalization of Interest and Allowance for Funds Used During Construction

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

Deferred Financing Cost

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

Contingent Liabilities

The Company establishes reserves for estimated loss contingencies, such as environmental, legal and income taxes, when it is management's assessment that a loss is probable and the amount of the loss can be reasonably estimated.

Deferred Income Taxes

The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement and tax basis of assets and liabilities using estimated tax rates in effect for the year in which the differences are expected to reverse. The Company does not intend to repatriate earnings of foreign subsidiaries in the foreseeable future. As a result, deferred United States income taxes are not provided for currency translation adjustments, retained earnings of international subsidiaries or corporate joint ventures unless the earnings are intended to be remitted.

Revenue Recognition

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

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

Revenue from the transportation and storage of gas are recognized based on contractual terms and the related volumes. Kern River and Northern Natural Gas are subject to the Federal Energy Regulatory Commission's ("FERC") regulations and, accordingly, certain revenue collected may be subject to possible refunds upon final orders in pending rate cases. Kern River and Northern Natural Gas record rate refund liabilities, which are included in other accrued liabilities, considering their regulatory proceedings and other third party regulatory proceedings, advice of counsel and estimated total exposure, as well as collection and other risks.

65

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

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

Financial Instruments

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

Accounting Principle Change

Effective January 1, 2001, the Company changed its accounting policy regarding major maintenance and repairs for non-regulated gas projects, non-regulated plant overhaul costs and geothermal well rework costs to the direct expense method from the former policy of accruals based on long-term scheduled maintenance plans for the gas projects and deferral and amortization of plant overhaul costs and geothermal well rework costs over the estimated useful lives. The cumulative effect of the change in accounting principle was $4.6 million, net of taxes of $0.7 million.

New Accounting Pronouncements

On January 1, 2003, the Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement provides accounting and disclosure requirements for retirement obligations associated with long-lived assets. The cumulative effect of initially applying this statement by the Company was immaterial.

The Company identified legal retirement obligations for nuclear decommissioning, wet and dry ash landfills and offshore and minor lateral pipeline facilities. On January 1, 2003, the Company recorded $289.3 million of asset retirement obligation ("ARO") liabilities; $13.9 million of ARO assets, net of accumulated depreciation; $114.6 million of regulatory assets; and reclassified $1.0 million of accumulated depreciation to the ARO liability. The initial ARO liability recognized includes $266.5 million that pertains to obligations associated with the decommissioning of the Quad Cities nuclear station. The $266.5 million includes a $159.8 million nuclear decommissioning liability that had been recorded at December 31, 2002. The adoption of this statement did not have a material impact on the operations of the regulated entities, as the effects were offset by the establishment of regulatory assets, totaling $114.6 million, pursuant to SFAS 71, "Accounting for the Effects of Certain Types of Regulation".

During the year ended December 31, 2003, the Company recorded, as a regulatory asset and as accretion expense, accretion related to the ARO liability of $16.5 million and $0.1 million, respectively. In addition, as the result of a decommissioning study, the Company reduced its ARO liability associated with the decommissioning of the Quad Cities nuclear station by $21.9 million. As a result, the ARO liability balance is $284.0 million at December 31, 2003.

On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends SFAS No. 133 for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS 149 requires contracts with comparable characteristics to be accounted for similarly. In

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particular, SFAS 149 clarifies when a contract with an initial net investment meets the characteristic of a derivative and clarifies when a derivative that contains a financing component will require special reporting in the statement of cash flows. SFAS 149 is effective for the Company for contracts entered into or modified after June 30, 2003. The adoption of SFAS 149 did not have a material effect on the Company's financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The standard is effective for the Company for fiscal periods beginning after December 15, 2003. The adoption of SFAS 150 is not expected to have a material effect on the Company's financial position, results of operations or cash flows.

In December 2003, the FASB issued FASB Interpretation No. 46R which served to clarify guidance in Financial Interpretation No. 46 ("FIN 46"), and provided additional guidance surrounding the application of FIN 46. The Company adopted and applied the provisions of FIN 46R, related to certain finance subsidiaries, as of October 1, 2003. The adoption required the deconsolidation of certain finance subsidiaries, which resulted in the amounts previously classified as mandatorily redeemable preferred securities of subsidiary trusts, in the amount of $1.9 billion, being reclassified to parent company subordinated debt in the accompanying consolidated balance sheet as of December 31, 2003. In addition, the associated amounts previously recorded in minority interest and preferred dividends are now recorded as interest expense in the accompanying consolidated statement of operations. For the period from October 1, 2003 to December 31, 2003 the Company has recorded $49.8 million of interest expense related to these securities. In accordance with the requirements of FIN 46R, no amounts prior to adoption on October 1, 2003 have been reclassified. The Company will adopt the provisions of FIN 46R related to non-special purpose entities in the first quarter of 2004, in accordance with the provisions of FIN 46R. The Company is currently evaluating the impact of FIN 46R on several operating joint ventures that the Company currently does not consolidate.

3.    Acquisitions

Kern River

On March 27, 2002, the Company acquired Kern River. At the date of acquisition, Kern River owned a 926-mile interstate pipeline transporting Rocky Mountain and Canadian natural gas to markets in California, Nevada and Utah.

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

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

•	Opportunities for expansion;

•	Generally high credit quality shippers contracting with Kern River;

•	Kern River's strong competitive position;

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

•	Strong demand for gas in the Western markets; and

•	An ample supply of low-cost gas.

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

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

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions):

Cash				$	7.7
Properties, plants and equipment					796.8
Goodwill					33.9
Other assets					171.7
Total assets acquired					1,010.1
Current liabilities					(104.3	)
Long-term debt					(482.0	)
Other liabilities					(1.5	)
Total liabilities assumed					(587.8	)
Net assets acquired				$	422.3

Northern Natural Gas Company

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

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

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

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

•	Northern Natural Gas' strong competitive position;

•	Strategic location in the high demand Upper Midwest markets;

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

•	Exceptional operating track record; and

•	Opportunities for expansion.

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

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

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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions):

Cash				$	1.4
Properties, plants and equipment					1,294.3
Goodwill					416.3
Other assets					340.4
Total assets acquired					2,052.4
Current portion of long-term debt					(450.0	)
Other current liabilities					(195.3	)
Long-term debt					(499.8	)
Other liabilities					(28.2	)
Total liabilities assumed					(1,173.3	)
Net assets acquired				$	879.1

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

				Year Ended December 31,
				2002				2001
Revenue				$	5,299.4			$	5,688.5
Income before cumulative effect of change in accounting principle					285.5				36.9
Net income available to common and preferred shareholders					285.5				32.3

HomeServices' Acquisitions

In 2003, HomeServices separately acquired four real estate companies for an aggregate purchase price of approximately $36.7 million net of cash plus working capital and certain other adjustments. For the year ended December 31, 2002, these real estate companies had combined revenue of approximately $102.9 million on 16,000 closed sides representing $3.6 billion of sales volume. Additionally, HomeServices is obligated to pay a maximum earnout of $5.2 million based on 2004 and 2005 financial performance measures. These purchases were financed using HomeServices' internally generated cash flows and revolving credit facility. In 2002, HomeServices separately acquired three real estate companies for an aggregate purchase price of approximately $106.1 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2001, these real estate companies had combined revenue of approximately $356.0 million on 42,000 closed sides representing $13.7 billion of sales volume. Additionally in 2003, HomeServices paid an earnout of $17.3 million based on 2002 financial performance measures. These purchases were financed using HomeServices' internally generated cash flows, revolving credit facility and $40.0 million from MEHC, which was contributed to HomeServices as equity.

Yorkshire Swap

On September 21, 2001, CE Electric UK Ltd, an indirect wholly owned subsidiary of MEHC, and Innogy Holdings plc ("Innogy") executed an agreement to exchange Northern Electric's electricity and gas supply and metering assets for Innogy's 94.75% interest in Yorkshire's electricity distribution business. Northern Electric's supply business was valued at approximately $391.0 million (£268.0 million), including working capital of approximately $14.0 million (£10.0 million). 94.75% of Yorkshire's distribution business was valued at approximately $405.0 million (£278.0 million), including working capital of approximately $58.0 million (£40.0 million). The net cash paid by Northern Electric for the exchange was approximately $14.0 million (£10.0 million).

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The 2001 disposition of Northern Electric's supply business created a pre-tax non-recurring gain of $196.7 million and an after-tax gain of $10.8 million which included a write-off of non-deductible goodwill of $504.4 million.

The Company paid $57.4 million, net of cash acquired of $353.8 million and transaction costs, for 94.75% of the Yorkshire electricity distribution business and related indebtedness. The acquisition has been accounted for as a purchase business combination. The results of operations for Yorkshire are included in the Company's results beginning September 21, 2001.

4.    Dispositions and Other Items

CE Gas Asset Sale

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

Telephone Flat Sale

On October 16, 2001, the Company closed on a transaction that transferred all properties and rights of the Telephone Flat Project, a geothermal development project in northern California to Calpine Corp. The Company recorded a pre-tax gain of $20.7 million and an after-tax gain of $12.2 million on the sale of the Telephone Flat Project.

Western States Sale

On June 30, 2001, the Company closed on a transaction in which the Company sold Western States Geothermal, an indirect wholly owned subsidiary of the Company, to Ormat. The Company recorded a pre-tax gain of $9.8 million and an after-tax gain of $6.4 million on the sale of Western States Geothermal.

Teesside Power Limited ("TPL")

In December 2001, the Company recorded a charge of $20.7 million, net of tax, representing an asset valuation impairment charge under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets" ("SFAS 121") relating to the Company's 15.4% interest in TPL. TPL owns and operates a 1,875 MW combined cycle gas-fired power plant. Enron Corp. ("Enron"), through its subsidiaries, owned a 42.5% interest, operated the plant, and purchased 668 MW of capacity. Enron's subsidiary, which owns and operates TPL, is now in administration and administrators have been appointed to run its business and are attempting to find a buyer.

Shareholders in TPL had previously utilized TPL's taxable losses with an obligation to reimburse TPL later in the project's life. In May 2002, TPL executed a restructuring and stabilization agreement with its lenders. The contract included an agreement between TPL and its shareholders with respect to the waiver of these repayment obligations. In May 2002, TPL released $35.7 million due to the repayment obligation being waived which is reflected as a tax benefit in the provision for income taxes.

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5.    Properties, Plants and Equipment, Net

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

				Depreciation Life				2003				2002
Utility generation and distribution system					10-50			$	9,154,054			$	8,165,140
Interstate pipelines' assets					3-87				3,483,672				2,260,799
Independent power plants					10-30				1,395,782				1,410,170
Mineral and gas reserves and exploration assets					5-30				554,780				500,422
Utility non-operational assets					3-30				429,228				370,811
Other assets					3-10				146,286				131,577
Total operating assets									15,163,802				12,838,919
Accumulated depreciation and amortization									(4,260,643	)			(4,110,608	)
Net operating assets									10,903,159				8,728,311
Construction in progress									277,820				1,170,485
Properties, plants and equipment, net								$	11,180,979			$	9,898,796

Construction in Progress

MidAmerican Energy is constructing two electric generating projects in Iowa. Upon completion, the projects will provide service to regulated retail electricity customers. MidAmerican Energy has obtained regulatory approval to include the actual costs of the generation projects in its Iowa rate base as long as the actual costs do not exceed an agreed upon cap that MidAmerican Energy has deemed to be reasonable. Wholesale sales may also be made from the projects to the extent the power is not needed for regulated retail service.

The first project is a natural gas-fired combined cycle unit with an estimated cost of $357 million, excluding allowance for funds used during construction. MidAmerican Energy will own and operate the plant. Commercial operation of the simple cycle mode began on May 5, 2003. The plant, which will continue to be operated in simple cycle mode during 2004, resulted in 327 MW of accredited capacity in the summer of 2003. The combined cycle operation is expected to commence in December 2004 and achieve an expected additional accredited capacity of 190 MW.

The second project is currently under construction and will be a 790 MW (based on expected accreditation) super-critical-temperature, low-sulfur coal-fired plant. MidAmerican Energy will operate the plant and hold an undivided ownership interest as a tenant in common with the other owners of the plant. MidAmerican Energy's ownership interest is 60.67% equating to 479 MW of output. MidAmerican Energy expects its share of the estimated cost of the project to be approximately $713 million, excluding allowance for funds used during construction. Municipal, cooperative and public power utilities will own the remainder, which is a typical ownership arrangement for large base-load plants in Iowa. On May 29, 2003, the Iowa Utilities Board ("IUB") issued an order that approves the ratemaking principles for the plant, and on June 27, 2003, MidAmerican Energy received a certificate from the IUB allowing MidAmerican Energy to construct the plant. On February 12, 2003, MidAmerican Energy executed a contract with Mitsui & Co. Energy Development, Inc. for the engineering, procurement and construction of the plant. On September 9, 2003, MidAmerican Energy began construction of the plant, which it expects to be completed in the summer of 2007. MidAmerican Energy is also seeking an order from the IUB approving construction of the associated transmission facilities.

Kern River completed the construction of its expansion for which it filed an application with the Federal Energy Regulatory Commission on August 1, 2001 (the "2003 Expansion Project") at a total cost of approximately $1.2 billion. The expansion, which was placed into operation on May 1, 2003, increased the design capacity of the existing Kern River pipeline by 885,626 Dth per day to 1,755,626 Dth per day.

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6.    Investment in CE Generation

Since the sale of 50% of its interests in CE Generation, LLC ("CE Generation") on March 3, 1999, the Company has accounted for CE Generation as an equity investment. The equity investment in CE Generation at December 31, 2003 and 2002 was approximately $209.3 million and $244.9 million, respectively. The following is summarized financial information for CE Generation as of and for the years ended December 31 (in thousands):

				2003				2002				2001
Revenue				$	487,422			$	510,082			$	565,838
Income before cumulative effect of change in accounting principle					37,341				58,314				74,194
Net income					34,874				58,314				58,808
Current assets					124,168				202,490
Total assets					1,708,742				1,865,036
Current liabilities					253,240				148,685
Long-term debt, including current portion					924,563				1,011,220

7.    Other Investments

The Williams Companies' Preferred Stock

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

CE Casecnan NIA Arbitration Settlement

On October 15, 2003, CE Casecnan Water and Energy Company, Inc. ("CE Casecnan") closed a transaction settling the CE Casecnan NIA Arbitration, which arose from a Statement of Claim made by CE Casecnan, on August 19, 2002, against the Republic of the Philippines ("ROP") National Irrigation Administration ("NIA"). As a result of the agreement, CE Casecnan recorded $31.9 million of other income and $24.4 million of associated income taxes. Under the terms of the settlement, CE Casecnan entered into an agreement with NIA which provided for the dismissal with prejudice of all claims by CE Casecnan and counterclaims by NIA in the NIA Arbitration. In connection with the settlement, NIA delivered to CE Casecnan a ROP $97.0 million 8.375% Note due 2013 (the "ROP Note"), which contained a put provision granting CE Casecnan the right to put the ROP Note to the ROP for a price of par plus accrued interest for a 30-day period commencing on January 14, 2004. The ROP Note is included in the other current assets on the December 31, 2003 consolidated balance sheet.

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

8.    Short-Term Debt

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

				2003				2002
MidAmerican Energy commercial paper				$	48,000			$	55,000
HomeServices revolving credit facilities					—				24,750
Other					36				32
Total short-term debt				$	48,036			$	79,782

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Parent Company Revolving Credit Facilities

In the second quarter of 2003, the Company terminated its $400 million credit facility. On June 6, 2003, the Company closed on a new $100 million revolving credit facility which expires on June 6, 2006. The facility supports letters of credit of which $73.6 million were outstanding at December 31, 2003. No borrowings were outstanding at December 31, 2003 or 2002. The facility carries a variable interest rate based on Libor and ranged from 2.02% to 2.255% in 2003 and the prior facility ranged from 2.625% to 2.8625% in 2002.

MidAmerican Energy Short-Term Debt

As of December 31, 2003, MidAmerican Energy had in place a $370.4 million revolving credit facility that supports its $250.0 million commercial paper program and its variable rate pollution control revenue obligations. In addition, MidAmerican Energy has a $5.0 million line of credit. As of December 31, 2003 and 2002, commercial paper totaled $48.0 million and $55.0 million, respectively, for MidAmerican Energy. MHC Inc., an indirect wholly owned subsidiary of the Company, has a $4.0 million line of credit under which no borrowings were outstanding at December 31, 2003 or 2002. The commercial paper, bank notes and outstanding line of credit had a weighted average interest rate of 0.98% and 1.29% at December 31, 2003 and 2002, respectively.

HomeServices Revolving Credit Facilities

Upon the expiration of its $65.0 million senior secured revolving credit facility in November 2002, HomeServices entered into a new $125.0 million senior secured revolving credit agreement. The new revolving credit agreement has a term of three years and is secured by a pledge of the capital stock of all of the existing and future subsidiaries of HomeServices. Amounts outstanding under this revolving credit facility bear interest, at HomeServices' option, at either the prime lending rate or LIBOR plus a fixed spread of 1.25% to 2.25%, which varies based on HomeServices' cash flow leverage ratio. The spread was 1.25% at December 31, 2003 and 2002. No borrowings were outstanding at December 31, 2003 and $24.8 million was outstanding with a weighted average interest rate of 2.6661% at December 31, 2002.

9.    Parent Company Senior Debt

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

				2003				2002
6.96% Senior Notes, due 2003				$	—			$	215,000
7.23% Senior Notes, due 2005					260,000				260,000
4.625% Senior Notes, due 2007					199,225				199,044
7.63% Senior Notes, due 2007					350,000				350,000
3.50% Senior Notes, due 2008					449,373				—
7.52% Senior Notes, due 2008					450,000				450,000
7.52% Senior Notes, due 2008 (Series B)					101,267				101,481
5.875% Senior Notes, due 2012					499,898				499,887
8.48% Senior Notes, due 2028					475,000				475,000
Fair value adjustments and other					(6,885	)			(12,025	)
Total Parent Company Senior Debt					2,777,878				2,538,387
Less current portion					—				(215,000	)
Total Long-Term Parent Company Senior Debt				$	2,777,878			$	2,323,387

On May 16, 2003, MEHC issued $450.0 million, net of discount, of its 3.5% Senior Notes with a final maturity on May 15, 2008. The proceeds were used for general corporate purposes. On September 15, 2003, MEHC repaid its $215.0 million, 6.96% Senior Notes.

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10.	Parent Company Subordinated Debt/Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts

Deconsolidation

In accordance with the provisions of FIN 46R, effective as of October 1, 2003, the Company has recorded its subordinated debt to certain subsidiary finance trusts as long-term debt as a result of the deconsolidation of those trusts pursuant to FIN 46R. In prior years, these amounts were recorded on the consolidated balance sheet as "Company-obligated mandatorily redeemable preferred securities of subsidiary trusts".

The financial terms of MEHC's various subordinated debentures held by such Trusts are essentially identical to the corresponding terms of the trust preferred securities issued by such trusts. The following summarizes the terms and balances of the mandatorily redeemable preferred securities of these unconsolidated trusts.

Finance Trust Subsidiaries

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

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

The balances presented for December 31, 2003 are recorded in the accompanying consolidated balance sheet as "Parent company subordinated debt". The balances presented for December 31, 2002 are recorded in the accompanying consolidated balance sheet as "Company-obligated mandatorily redeemable preferred securities of subsidiary trusts". The following table presents the balances of such Parent company subordinated debt and Company-obligated mandatorily redeemable preferred securities of subsidiary trusts, respectively (in thousands):

				2003				2002
CalEnergy Capital Trust II — 6.25% preferred securities, due 2012				$	104,645			$	155,538
CalEnergy Capital Trust III — 6.5% preferred securities, due 2027					269,980				269,980
MidAmerican Capital Trust I — 11% preferred securities, due 2010					454,772				454,772
MidAmerican Capital Trust II — 11% preferred securities, due 2012					323,000				323,000
MidAmerican Capital Trust III — 11% preferred securities, due 2012					800,000				950,000
Fair value adjustment					(80,251	)			(89,878	)
Total Parent company subordinated debt (2003)/Company-obligated mandatorily redeemable preferred securities of subsidiary trusts (2002)					1,872,146				2,063,412
Less current portion					(100,000	)			—
Long-term Parent company subordinated debt (2003)/Company- obligated mandatorily redeemable preferred securities of subsidiary trusts (2002)				$	1,772,146			$	2,063,412

Dividends related to the company-obligated mandatorily redeemable preferred securities of subsidiary trusts, which were included in minority interest and preferred dividends on the consolidated statements of operations, for the years ended December 31, 2003, 2002 and 2001 were $170.2 million, $147.7 million and $80.1 million, respectively. For the year ended December 31, 2003 an additional $49.8 million, representing the amount of interest on parent company subordinated debt since the adoption of FIN 46R, was recorded as interest expense in the accompanying consolidated statements of operations.

MEHC owns all of the common securities of the Trusts. The Trust Securities have a liquidation preference of $50 each (plus accrued and unpaid dividends thereon to the date of payment) and represent

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undivided beneficial ownership interests in each of the Trusts. The assets of the Trusts consist solely of Subordinated Debentures of MEHC (collectively, the "Junior Debentures") issued pursuant to their respective indentures. The indentures include agreements by MEHC to pay expenses and obligations incurred by the Trusts.

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

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

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

11.    Subsidiary and Project Debt

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

The restrictions on distributions at these separate legal entities include various covenants including, but not limited to, leverage ratios, interest coverage ratios and debt service coverage ratios. As of December 31, 2003, the separate legal entities were in compliance with all applicable covenants. However, Cordova Energy's 537 MW gas-fired power plant in the Quad Cities, Illinois area (the "Cordova Project") is currently prohibited from making distributions by the terms of its indenture due to its failure to meet its debt service coverage ratio requirement.

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

				2003				2002
MidAmerican Funding				$	700,000			$	700,000
MidAmerican Energy					1,128,647				1,053,418
CE Electric UK					2,467,214				2,573,589
Kern River					1,276,174				1,277,916
Northern Natural Gas					799,472				799,406
Cordova Funding					214,761				223,762
Salton Sea Funding Corporation					136,384				137,789
CE Casecnan					246,458				287,926
Leyte Projects					172,813				244,961
HomeServices					37,558				39,031
Other, including fair value adjustments					(3,900	)			(5,498	)
Total Subsidiary and Project Debt					7,175,581				7,332,300
Less current portion					(500,941	)			(255,213	)
Total Long-Term Subsidiary and Project Debt.				$	6,674,640			$	7,077,087

MidAmerican Funding

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

				2003				2002
6.339% Senior Notes, due 2009				$	175,000			$	175,000
6.75% Senior Notes, due 2011					200,000				200,000
6.927% Senior Bonds, due 2029					325,000				325,000
Total MidAmerican Funding				$	700,000			$	700,000

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

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MidAmerican Energy

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

				2003				2002
Mortgage bonds:
7.125% Series, due 2003				$	—			$	100,000
7.7% Series, due 2004					55,630				55,630
7% Series, due 2005					90,500				90,500
7.375% Series, due 2008					—				75,000
7.45% Series, due 2023					—				6,940
6.95% Series, due 2025					—				12,500
Pollution control revenue obligations:
5.75% Series, due periodically through 2003					—				4,320
6.7% Series, due 2003					—				1,000
6.1% Series, due 2007					1,000				1,000
5.95% Series, due 2023					29,030				29,030
Variable rate series:
Due 2016 and 2017, 1.26% and 1.64%					37,600				37,600
Due 2023 (secured by general mortgage bond, 1.26% and 1.64%					28,295				28,295
Due 2023, 1.26% and 1.64%					6,850				6,850
Due 2024, 1.26% and 1.64%					34,900				34,900
Due 2025, 1.26% and 1.64%					12,750				12,750
Notes:
6.375% Series, due 2006					160,000				160,000
5.125% Series, due 2013					275,000				—
6.75% Series, due 2031					400,000				400,000
Obligations under capital lease					2,060				2,161
Unamortized debt premium and discount, net					(4,968	)			(5,058	)
Total MidAmerican Energy				$	1,128,647			$	1,053,418

On February 8, 2002, MidAmerican Energy issued $400 million of 6.75% notes due in 2031. The proceeds were used to refinance existing debt and preferred securities and for other corporate purposes. On March 11, 2002, MidAmerican Energy redeemed its MidAmerican Energy-obligated mandatorily redeemable preferred securities of subsidiary trust at 100% of the principal amount plus accrued interest.

On January 14, 2003, MidAmerican Energy issued $275 million of 5.125% medium-term notes due in 2013. The proceeds were used to refinance existing debt and for other corporate purposes.

On February 10, 2003, MidAmerican Energy redeemed all $75.0 million of its 7.375% series of mortgage bonds, and on March 17, 2003, it redeemed all $6.94 million of its 7.45% series of mortgage bonds. Additionally, MidAmerican Energy's 7.125% series of mortgage bonds totaling $100 million matured on February 3, 2003. On October 17, 2003, MidAmerican Energy redeemed all $12.5 million of its 6.95% series of mortgage bonds at 103.48% of the principal amount.

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CE Electric UK

The components of CE Electric UK and its subsidiares' long-term debt comprise the following at December 31 (in thousands):

				2003				2002
6.853% Senior Notes, due 2004				$	117,112			$	124,732
8.625% Bearer bonds, due 2005					178,877				161,451
6.995% Senior Notes, due 2007					236,174				236,081
6.496% Yankee Bonds, due 2008					281,149				300,185
Variable Rate Reset Trust Securities, due 2020 (4.39% and 5.04%)					287,539				260,028
8.875% Bearer bonds, due 2020					178,644				161,360
9.25% Eurobonds, due 2020					458,187				419,145
7.25% Sterling Bonds, due 2022					351,242				316,829
7.25% Eurobonds, due 2028					352,768				344,082
8.08% Trust Securities, due 2038					—				249,696
CE Gas Credit Facility, 6.67%					25,522				—
Total CE Electric UK				$	2,467,214			$	2,573,589

On February 15, 2005, the Variable Rate Reset Trust Securities may be remarketed at the option of the original underwriter at a fixed rate of interest through the maturity date or, CE Electric UK's subsidiary may elect a floating rate obligation for up to one year at which time the obligation would be remarketed at a fixed rate of interest through 2020, or redeemed by Yorkshire at a premium.

On June 9, 2003, Yorkshire Power Group Limited, an indirect wholly owned subsidiary of CE Electric UK, completed the redemption in full of the outstanding shares of the 8.08% Trust Securities, due June 30, 2038, and paid $243.4 million in principal amount plus accrued distributions. The redemption price was paid to holders of the trust security on the redemption date.

During 2003, CE Electric UK and its subsidiaries purchased and retired approximately $50.0 million of outstanding indebtedness.

Kern River

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

				2003				2002
Construction financing facility				$	—			$	789,916
6.676% Senior Notes, due 2016					464,000				488,000
4.893% Senior Notes, due 2018					812,174				—
Total Kern River				$	1,276,174			$	1,277,916

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

On May 1, 2003, Kern River Funding Corporation, a wholly owned subsidiary of Kern River, issued $836 million of its 4.893% Senior Notes with a final maturity on April 30, 2018. The proceeds were used to repay all of the approximately $815 million of outstanding borrowings under Kern River's $875 million credit facility. Kern River entered into this credit facility in 2002 to finance the construction of the 2003 Expansion Project. The credit facility was canceled and a completion guarantee issued by MEHC was terminated.

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Northern Natural Gas

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

				2003				2002
6.875% Senior Notes, due 2005				$	100,000			$	100,000
6.75% Senior Notes, due 2008					150,000				150,000
7.00% Senior Notes, due 2011					250,000				250,000
5.375% Senior Notes, due 2012					300,000				300,000
Unamortized debt discount					(528	)			(594	)
Total Northern Natural Gas				$	799,472			$	799,406

Cordova Funding

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

				2003				2002
8.48% Senior Secured Bonds, due 2019				$	12,175			$	12,685
8.64% Senior Secured Bonds, due 2019					89,260				93,001
8.79% Senior Secured Bonds, due 2019					29,885				31,137
8.82% Senior Secured Bonds, due 2019					55,476				57,801
9.07% Senior Secured Bonds, due 2019					27,965				29,138
Total Cordova Funding				$	214,761			$	223,762

MEHC has guaranteed a specified portion of the final scheduled principal payment on December 15, 2019 on the Cordova Funding Senior Secured Bonds in an amount up to a maximum of $37.0 million. MEHC also provides a debt service reserve guarantee in an amount equal to the principal, premium, if any, and interest payment due on the bonds on the next scheduled payment date which was equal to $13.5 million at December 31, 2003.

As of December 31, 2003, Cordova Funding is currently prohibited from making distributions by the terms of its indenture due to its failure to meet its debt service coverage ratio requirement.

Salton Sea Funding

Salton Sea Funding Corporation ("SSFC"), an indirect wholly owned subsidiary of CE Generation, had a debt balance of $463.6 million at December 31, 2003. CalEnergy Minerals LLC ("Minerals"), a wholly owned indirect subsidiary of MEHC, which owns a zinc facility, is one of several guarantors of the Salton Sea Funding Corporation's debt. As a result of a note allocation agreement, Minerals is primarily responsible for approximately $136.4 million of the 7.475% Senior Secured Series F Bonds due November 30, 2018 ("Series F Bonds"). In 1999, MEHC guaranteed a specified portion of the scheduled debt service on the Series F Bonds equal to this current principal amount of approximately $136.4 million and associated interest.

On January 30, 2004, SSFC announced its election to redeem an aggregate principal amount of $136.4 million of the 7.475% Senior Secured Series F Bonds due November 30, 2018, pro rata, at a redemption price of 100% of such aggregate outstanding principal amount, plus accrued interest to the date of redemption. The trustee delivered a redemption notice to the holders of the bonds on January 29, 2004. The record date for the redemption is February 15, 2004 and the redemption is expected to be completed on March 1, 2004. SSFC expects to make a demand on MEHC for the full amount remaining under MEHC's 1999 guarantee of the Series F Bonds in order to fund the redemption. Upon the expected demand and payment under MEHC's guarantee, MEHC will no longer have any liability with respect to its guarantee.

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CE Casecnan

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

				2003				2002
11.45% Senior Secured Series A Notes, due in 2005				$	91,250			$	125,000
11.95% Senior Secured Series B Bonds, due in 2010					155,208				162,926
Total Casecnan				$	246,458			$	287,926

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

Leyte Projects

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

				2003				2002
Mahanagdong Project 6.92% Term Loan, due 2007				$	72,151			$	92,766
Mahanagdong Project 7.60% Term Loan, due 2007					16,000				20,571
Malitbog Project 3.67% and 3.84%, due 2005					26,378				40,890
Malitbog Project 9.176% Term Loan, due 2006					14,628				22,677
Upper Mahiao Project 4.42%, due 2003					—				5,000
Upper Mahiao Project 5.95% Term Loan, due 2006					43,656				63,057
Total Leyte Projects				$	172,813			$	244,961

MEHC provides debt service reserve letters of credit in amounts equal to the next semi-annual principal and interest payments due on the loans which was equal to $40.3 million and $47.7 million at December 31, 2003 and 2002, respectively.

HomeServices

In November 1998, HomeServices issued $35.0 million of 7.12% fixed-rate private placement senior notes due in annual increments of $5.0 million beginning in 2004. As of December 31, 2003 and 2002, the balance of the HomeServices Senior Notes was $35.0 million.

In addition to the senior notes, HomeServices' has outstanding notes, with varying interest rates, totaling $2.6 million and $4.0 million at December 31, 2003 and 2002, respectively.

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Annual Repayments of Debt

The annual repayments of debt for the years beginning January 1, 2004 and thereafter are as follows (in thousands):

				2004				2005				2006				2007				2008				Thereafter				Total
Parent, Subsidiary and Project loans:
Parent Company Senior Debt				$	—			$	260,000			$	—			$	550,000			$	1,000,000			$	967,878			$	2,777,878
Parent Company Subordinated Debt					100,000				188,544				234,021				234,021				234,021				881,539				1,872,146
MidAmerican Funding					—				—				—				—				—				700,000				700,000
MidAmerican Energy					56,151				90,500				160,000				1,000				—				820,996				1,128,647
CE Electric UK					117,112				178,877				—				236,174				281,149				1,653,902				2,467,214
Kern River					61,366				62,784				66,128				69,472				72,816				943,608				1,276,174
Northern Natural Gas					—				100,000				—				—				150,000				549,472				799,472
Cordova Funding					8,100				7,875				4,500				4,163				4,725				185,398				214,761
Salton Sea Funding Corporation					136,384				—				—				—				—				—				136,384
CE Casecnan					49,360				54,752				36,016				37,730				37,730				30,870				246,458
Leyte Projects					67,148				63,035				30,037				12,593				—				—				172,813
HomeServices					5,320				5,000				5,000				5,000				5,000				12,238				37,558
Other, including fair value adjustments					—				—				—				—				—				(3,900	)			(3,900	)
Total Parent, Subsidiary and Project Loans				$	600,941			$	1,011,367			$	535,702			$	1,150,153			$	1,785,441			$	6,742,001			$	11,825,605

Fair Value

At December 31, 2003, the Company had fixed-rate long-term debt of $11,369.4 million in principal amount and having a fair value of $12,015.1 million. In addition, at December 31, 2003, the Company had floating-rate obligations of $459.8 million that expose the Company to the risk of increased interest expense in the event of increases in short-term interest rates.

12.    Income Taxes

Provision for income taxes was comprised of the following (in thousands):

				Year Ended December 31,
				2003				2002				2001
Current:
Federal				$	(78,066	)		$	46,714			$	51,025
State					3,565				14,516				2,669
Foreign					88,150				54,586				43,450
					13,649				115,816				97,144
Deferred:
Federal					155,237				(7,073	)			(14,004	)
State					14,577				(9,675	)			(342	)
Foreign					67,508				520				167,266
					237,322				(16,228	)			152,920
Total				$	250,971			$	99,588			$	250,064

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A reconciliation of the federal statutory tax rate to the effective tax rate applicable to income before provision for income taxes follows:

				2003				2002				2001
Federal statutory rate					35.0	%			35.0	%			35.0	%
Investment and energy tax credits					(0.5	)			(0.7	)			(1.0	)
State taxes, net of federal tax effect					1.4				1.2				3.2
Goodwill amortization					—				—				5.9
Dividends on preferred securities of subsidiary trusts					(7.0	)			(8.1	)			(6.1	)
Tax effect of foreign income					0.5				(4.8	)			(2.5	)
Non-recurring items on CE Electric UK,
net of tax effect of foreign income					(0.5	)			(8.1	)			19.2
Dividends received deduction					(1.2	)			(1.8	)			(2.6	)
Other items, net					1.8				2.8				(1.5	)
Effective tax rate					29.5	%			15.5	%			49.6	%

The Internal Revenue Service ("IRS") regularly examines the Company's federal income tax returns and, in the course of which, may propose adjustments to the Company's federal income tax liability reported on such returns. Tax years 1995 through 2001 are currently under review. The Company's management does not expect that the outcome of any proposed adjustments presented to date by the IRS, individually or collectively, will have a material adverse effect on the Company's financial position, results of operations, or cash flows.

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

				2003				2002
Properties, plants and equipment, net				$	1,721,842			$	1,325,228
Income taxes recoverable through future rates					142,597				159,411
Employee benefits					43,005				65,537
Reacquired debt					5,665				4,914
Fuel cost recoveries					12,864				—
Other					—				121
					1,925,973				1,555,211
Minimum pension liability adjustment					(147,279	)			(140,854	)
Revenue sharing accruals					(64,192	)			(48,861	)
Accruals not currently deductible for tax purposes					(37,672	)			(59,083	)
Nuclear reserve and decommissioning					(35,955	)			(28,411	)
Deferred income					(37,819	)			(21,733	)
Fuel cost recoveries					—				(9,558	)
NOL and credit carryforwards					(161,659	)			(8,290	)
Other					(8,253	)			—
					(492,829	)			(316,790	)
Net deferred income taxes				$	1,433,144			$	1,238,421

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13.    Preferred Securities of Subsidiaries

The total outstanding cumulative preferred securities of MidAmerican Energy not subject to mandatory redemption requirements may be redeemed at the option of MidAmerican Energy at prices which, in the aggregate, total $32.6 million. The aggregate total the holders of all preferred securities outstanding at December 31, 2003 and 2002, are entitled to upon involuntary bankruptcy is $31.8 million plus accrued dividends. Annual dividend requirements for all preferred securities outstanding at December 31, 2003, total $1.3 million.

The total outstanding 8.061% cumulative preferred securities of a subsidiary of CE Electric UK, which are redeemable in the event of the revocation by the Secretary of State of the Company's Public Electricity Supply License, was $56.0 million as of December 31, 2003 and 2002.

During 2002, MidAmerican Energy redeemed all $26.7 million of its $7.80 Series Preferred Shares.

14.    Convertible Preferred Stock

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

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

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

15.    Stock Transactions

As of December 31, 2003, there were 2,048,329 options outstanding which are exercisable until the end of the term on March 14, 2008 at exercise prices ranging from $15.94 to $35.05 per share.

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

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

16.    Accounting for Derivatives

Currency Exchange Rate Risk

CE Electric UK entered into certain currency rate swap agreements for its Senior Notes with two large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed

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interest rate to a fixed rate in Sterling. For the $117.1 million of 6.853% Senior Notes outstanding at December 31, 2003, the agreements extend until maturity on December 30, 2004 and convert the U.S. dollar interest rate to a fixed Sterling rate of 7.744%. For the $236.2 million of 6.995% Senior Notes, the agreements extend until maturity on December 30, 2007 and convert the U.S. dollar interest rate to a fixed Sterling rate of 7.737%. The estimated fair value of these swap agreements at December 31, 2003 is approximately $16.0 million based on quotes from the counterparty to these instruments and represents the estimated amount that the Company would expect to pay if these agreements were terminated.

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

17.    Regulatory Matters

MidAmerican Energy

Under two settlement agreements approved by the IUB, MidAmerican Energy's Iowa retail electric rates in effect on December 31, 2000, are effectively frozen through December 31, 2010. The settlement agreements specifically allow the filing of electric rate design or cost of service rate changes that are intended to keep MidAmerican Energy's overall Iowa retail electric revenue unchanged, but could result in changes to individual tariffs. The settlement agreements also each provide that portions of revenues associated with Iowa retail electric returns on equity within specified ranges will be recorded as a regulatory liability to be used to offset a portion of the cost to Iowa customers of future generating plant investment.

Under the first settlement agreement, which was approved by the IUB on December 21, 2001, and is effective through December 31, 2005, an amount equal to 50% of revenues associated with returns on equity between 12% and 14%, and 83.33% of revenues associated with returns on equity above 14%, in each year is recorded as a regulatory liability. The second settlement agreement, which was filed in conjunction with MidAmerican Energy's application for ratemaking principles on a wind power project and was approved by the IUB on October 17, 2003, provides that during the period January 1, 2006 through December 31, 2010, an amount equal to 40% of revenues associated with returns on equity between 11.75% and 13%, 50% of revenues associated with returns on equity between 13% and 14%, and 83.3% of revenues associated with returns on equity above 14%, in each year will be recorded as a regulatory liability. An amount equal to the regulatory liability is recorded as a regulatory charge in depreciation and amortization expense when the liability is accrued. Future depreciation will be reduced as a result of the credit applied to generating plant balances as the regulatory liability is reduced. The liability is being reduced as it is credited against plant in service in amounts equal to the allowance for funds used during construction associated with generating plant additions. Interest expense is accrued on the portion of the regulatory liability related to prior years.

The 2003 settlement agreement also provides that if Iowa retail electric returns on equity fall below 10% in any consecutive 12-month period after January 1, 2006, MidAmerican Energy may seek to file for a general increase in rates. However, prior to filing for a general increase in rates, MidAmerican Energy is required by the settlement agreement to conduct 30 days of good faith negotiations with all of the signatories to the settlement agreement to attempt to avoid a general increase in rates.

Illinois bundled electric rates are frozen until 2007, subject to certain exceptions allowing for increases, at which time bundled rates are subject to cost-based ratemaking. Illinois law provides for Illinois earnings above a computed level of return on common equity to be shared equally between regulated retail electric customers and MidAmerican Energy. MidAmerican Energy's computed level of return on common equity is based on a rolling two-year average of the Monthly Treasury Long-Term Average Rate, as published by the Federal Reserve System, plus a premium of 8.5% for 2000 through 2004

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and a premium of 12.5% for 2005 and 2006. The two-year average above which sharing must occur for 2003 was 13.73%. The law allows MidAmerican Energy to mitigate the sharing of earnings above the threshold return on common equity through accelerated recovery of electric assets.

On November 8, 2002, the IUB approved a gas rate settlement agreement previously filed with it by MidAmerican Energy and the Iowa Office of Consumer Advocate. The settlement agreement provided for an increase in rates of $17.7 million annually for MidAmerican Energy's Iowa retail natural gas customers and effectively froze base rates through November 2004. However, MidAmerican Energy will continue collecting fluctuating gas costs through its purchased gas adjustment clause. The new rates were implemented for usage beginning November 25, 2002.

CE Electric UK

Most revenue of each Distribution License Holder ("DLH") is controlled by a distribution price control formula. The current formula requires that regulated distribution income per unit is increased or decreased each year by RPI-Xd where the Retail Price Index ("RPI") reflects the average of the 12-month inflation rates recorded for each month in the previous July to December period. The distribution price control formula also reflects an adjustment factor ("Xd") which was established by the regulatory body, the Office of Gas and Electricity Markets ("Ofgem"), at the last price control review (and continues to be set) at 3%. The formula also takes account of the changes in system electrical losses, the number of customers connected and the voltage at which customers receive the units of electricity distributed. This formula determines the maximum average price per unit of electricity distributed (in pence per kWh) which a DLH is entitled to charge. The distribution price control formula permits DLHs to receive additional revenue due to increased distribution of units and a predetermined increase in end users. The price control does not seek to constrain the profits of a DLH from year to year. It is a control on revenue that operates independently of most of the DLH's costs. During the lifetime of the price control, cost savings or additional costs have a direct impact on profit.

Northern Natural Gas

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

On May 1, 2003, Northern Natural Gas filed a request for increased rates with the FERC. The rate filing provides evidence in support of a $71 million increase to Northern Natural Gas' annual revenue requirement. However, Northern Natural Gas is requesting that only $55 million of this increase be effectuated. Northern Natural Gas' new rates went into effect November 1, 2003, subject to refund. Additionally, Northern Natural Gas filed on January 30, 2004 with the FERC to increase its revenue requirement by an incremental $30 million to that requested in the May 1, 2003 filing. Northern Natural Gas requested that the new rates be effective commencing August 1, 2004. Northern Natural Gas has filed to consolidate the two rate proceedings, but the FERC has not yet ruled on Northern Natural Gas' motion.

18.    Pension Commitments

Domestic Operations

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

MidAmerican Energy also currently sponsors certain postretirement health care and life insurance benefits covering all retired domestic employees of MEHC and its domestic energy subsidiaries. Under the plan, substantially all of MEHC's and its domestic energy subsidiaries' employees may become eligible for these benefits if they reach retirement age while working for the Company. However, the Company retains the right to change these benefits anytime at its discretion, subject to provisions in the union contract.

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

Components of net periodic benefit cost (in thousands):

				Pension Cost												Postretirement Cost
				2003				2002				2001				2003				2002				2001
Service cost				$	24,693			$	20,235			$	18,114			$	8,175			$	6,028			$	4,357
Interest cost					34,533				34,177				33,027				16,065				13,928				10,418
Expected return on plan assets					(38,396	)			(38,213	)			(36,326	)			(6,008	)			(4,880	)			(4,032	)
Amortization of net transition obligation					(2,591	)			(2,591	)			(2,591	)			4,110				4,110				4,110
Amortization of prior service cost					2,761				2,729				2,729				593				425				425
Amortization of prior year (gain) loss					1,483				(2,482	)			(3,894	)			3,716				2,385				332
Regulatory expense					3,320				6,639				—				—				—				—
Net periodic cost				$	25,803			$	20,494			$	11,059			$	26,651			$	21,996			$	15,610

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

				2003				2002				2001				2003				2002				2001
Discount rate					5.75	%			5.75	%			6.50	%			5.75	%			5.75	%			6.50	%
Rate of compensation increase					5.00	%			5.00	%			5.00	%

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

				2003				2002				2001				2003				2002				2001
Discount rate					5.75	%			6.50	%			7.00	%			5.75	%			6.50	%			7.00	%
Expected return on plan assets					7.00	%			7.00	%			7.00	%			7.00	%			7.00	%			7.00	%
Rate of compensation increase					5.00	%			5.00	%			5.00	%

Assumed health care cost trend rates at December 31:

				2003				2002
Health care cost trend rate assumed for next year					11.00	%			9.75	%
Rate that the cost trend rate gradually declines to					5.00	%			5.25	%
Year that the rate reaches the rate it is assumed to remain at					2010				2006

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

				One Percentage-Point Increase				One Percentage-Point Decrease
Effect on total service and interest cost				$	5,484			$	(4,136	)
Effect on postretirement benefit obligation				$	47,583			$	(37,761	)

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

				Pension Benefits								Postretirement Benefits
				2003				2002				2003				2002
Reconciliation of the fair value of plan assets:
Fair value of plan assets at beginning of year				$	467,773			$	515,890			$	122,655			$	81,129
Employer contributions					5,044				4,681				32,566				24,034
Participant contributions					—				—				6,371				4,505
Actual return on plan assets					105,438				(27,376	)			15,853				(4,528	)
Acquisition					—				—				—				32,500
Benefits paid					(26,687	)			(25,422	)			(19,596	)			(14,985	)
Fair value of plan assets at end of year				$	551,568			$	467,773			$	157,849			$	122,655
Reconciliation of benefit obligation:
Benefit obligation at beginning of year				$	593,179			$	518,208			$	291,441			$	194,917
Service cost					24,693				20,235				8,175				6,028
Interest cost					34,533				34,177				16,065				13,928
Participant contributions					—				—				6,371				4,505
Plan amendments					—				520				—				2,205
Actuarial (gain) loss					(5,670	)			45,461				(5,023	)			31,743
Acquisition					—				—				—				53,100
Benefits paid					(26,687	)			(25,422	)			(19,596	)			(14,985	)
Benefit obligation at end of year				$	620,048			$	593,179			$	297,433			$	291,441
Funded status				$	(68,480	)		$	(125,406	)		$	(139,584	)		$	(168,786	)
Amounts not recognized:
Unrecognized net (gain) loss					(12,907	)			61,289				83,509				102,095
Unrecognized prior service cost					17,915				20,676				5,451				6,043
Unrecognized net transition obligation (asset)					(792	)			(3,383	)			36,992				41,102
Net amount recognized in the Consolidated Balance Sheets				$	(64,264	)		$	(46,824	)		$	(13,632	)		$	(19,546	)
Amounts recognized in the Consolidated Balance Sheets consist of
Prepaid benefit cost				$	39			$	11,825			$	—			$	1,493
Accrued benefit liability					(100,490	)			(99,392	)			(13,632	)			(21,039	)
Intangible assets					17,367				20,082				—				—
Regulatory assets					18,820				20,661				—				—
Net amount recognized				$	(64,264	)		$	(46,824	)		$	(13,632	)		$	(19,546	)

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The accumulated benefit obligation for all defined benefit pension plans was $554.6 million and $526.7 million at December 31, 2003 and 2002, respectively. The projected benefit obligation (included in the table above), accumulated benefit obligation and fair value of plan assets for the supplemental executive retirement plan which had an accumulated benefit obligation in excess of plan assets were $105.1 million, $100.5 million and $ — as of December 31, 2003 and $103.4 million, $99.1 million and $ — as of December 31, 2002, respectively. A minimum liability must be recognized for those plans whose accumulated benefit obligation exceeds plan assets.

Although the supplemental executive retirement plan had no assets as of December 31, 2003, the Company has Rabbi trusts that hold corporate-owned life insurance and other investments to provide funding for the future cash requirements. Because this plan is nonqualified, the fair value of these assets is not included in the plan asset table below. The fair value of the Rabbi trust investments was $88.1 million and $76.2 million at December 31, 2003 and 2002, respectively.

Plan Assets

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

The Company's pension plan asset allocation at December 31, 2003 and 2002, are as follows:

				Percentage of Plan Assets
				at December 31								Target Range
Asset Category				2003				2002
Equity securities					70	%			60	%			65-75	%
Debt securities					23				33				20-30
Real estate					7				7				0-10
Other					—				—				0-5
Total					100	%			100	%

The Company's postretirement benefit plan asset allocation at December 31, 2003, and 2002, are as follows:

				Percentage of Plan Assets
				at December 31								Target Range
Asset Category				2003				2002
Equity securities					49	%			34	%			45-55	%
Debt securities					48				48				45-55
Other					3				18				0-10
Total					100	%			100	%

Cash Flows

Employer contributions to the domestic pension and postretirement plans are currently expected to be $5.1 million and $27.6 million, respectively, for 2004 based on current regulations which are subject to change. The Company's policy is to contribute the minimum required amount to the pension plan and the amount expensed to its postretirement plans.

The Company sponsors defined contribution pension plans (401(k) plans) covering substantially all domestic employees. The Company's contributions vary depending on the plan but are based primarily on each participant's level of contribution and cannot exceed the maximum allowable for tax purposes. Total contributions were $12.4 million, $9.8 million and $8.6 million for 2003, 2002 and 2001, respectively.

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In December 2003, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("Medicare Act"). The Medicare Act introduces a prescription drug benefit under Medicare as well as a subsidy to sponsors of retiree health care plans that provide a benefit to participants that is at least actuarially equivalent to Medicare Part D. The Medicare Act is expected to ultimately reduce the Company's postretirement costs from what they would have been absent such changes. Detailed regulations pertaining to the Medicare Act have yet to be promulgated, and accordingly, the Company cannot determine precisely how it will implement the Medicare Act's provisions. Additionally, accounting guidance regarding the recognition of the impacts of the Medicare Act is pending. Accordingly, the Company continues to evaluate its options and cannot predict the magnitude or timing of any resulting costs savings. As permitted by FASB Staff Position 106-1, the Company has elected to defer recognizing the effects of the Medicare Act in its post-retirement plan accounting at December 31, 2003.

United Kingdom Operations

CE Electric UK, through a wholly-owned subsidiary, participates in the Electricity Supply Pension Scheme (the "UK Plan"), which provides pension and other related defined benefits, based on final pensionable pay, to substantially all employees throughout the electricity supply industry in the United Kingdom.

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

Components of net periodic pension cost (in thousands):

				Pension Cost
				2003				2002				2001
Service cost				$	9,485			$	8,718			$	7,781
Interest cost					62,632				56,817				51,440
Expected return on plan assets					(89,124	)			(85,927	)			(78,354	)
Amortization of prior service cost					1,472				1,202				—
Curtailment loss and foreign exchange					537				6,463				7,061
Net periodic benefit				$	(14,998	)		$	(12,727	)		$	(12,072	)

As a result of the distribution price reviews in 1999, CE Electric UK implemented a review of staffing requirements primarily in its distribution business. Following discussions with the trade unions, CE Electric UK put in place a workforce reduction program. The pension curtailment related to this workforce reduction program was $ - million, $6.5 million and $7.1 million in 2003, 2002 and 2001, respectively.

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

				2003				2002				2001
Discount rate					5.5	%			5.75	%			5.75	%
Rate of compensation increase					2.75	%			2.5	%			2.5	%

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

				2003				2002				2001
Discount rate					5.5	%			5.75	%			5.75	%
Expected return on plan assets					7.00	%			7.00	%			7.7	%
Rate of compensation increase					2.75	%			2.5	%			2.5	%

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

				Pension Benefits
				2003				2002
Reconciliation of the fair value of plan assets:
Fair value of plan assets at beginning of year				$	976,427			$	1,070,657
Employer contributions					14,391				3,607
Participant contributions					4,742				3,006
Actual return on plan assets					152,246				(144,298	)
Benefits paid					(57,726	)			(57,719	)
Foreign currency exchange rate changes					116,136				101,174
Fair value of plan assets at end of year				$	1,206,216			$	976,427
Reconciliation of benefit obligation:
Benefit obligation at beginning of year				$	1,102,730			$	974,079
Service cost					9,485				8,718
Interest cost					62,632				56,817
Participant contributions					4,742				3,006
Benefits paid					(57,726	)			(57,719	)
SFAS 88 Curtailment					—				5,712
Prior service cost					—				17,286
Experience gain and change of assumptions					83,890				(11,574	)
Foreign currency exchange rate changes					128,834				106,405
Benefit obligation at end of year				$	1,334,587			$	1,102,730
Funded status					(128,371	)		$	(126,303	)
Unrecognized net loss					507,039				465,211
Net amount recognized in the Consolidated Balance Sheets				$	378,668			$	338,908
Amounts recognized in the Consolidated Balance Sheets consist of:
Prepaid benefit cost				$	378,668			$	338,908
Accrued benefit liability					(496,147	)			(457,317	)
Intangible assets					16,604				16,433
Accumulated other comprehensive income					479,543				440,884
Net amount recognized				$	378,668			$	338,908

The accumulated benefit obligation for the defined benefit pension plan was $1.3 billion and $1.1 billion at December 31, 2003 and 2002, respectively.

The Company recorded a minimum pension liability as of December 31, 2003 and 2002 in the amount of $479.5 million and $440.9 million, respectively. The pension liability resulted from the declining market value of the pension plan assets during 2002 combined with a lower market interest rate used to value the plan's liabilities. As of December 31, 2003 and 2002, the minimum pension liability is measured as the amount of the plan's accumulated benefit obligation that is in excess of the plan's market value of assets at December 31, 2003 and 2002 plus the prepaid asset balance. A charge equal to the excess was recorded to the Company's stockholder's equity, net of income tax benefits, as a component of comprehensive loss in the amount of $27.1 million and $308.6 million in 2003 and 2002, respectively. This adjustment does not impact current year earnings, or the funding requirements of the plan.

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Plan Assets

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

CE Electric UK's pension plan asset allocation comprises the following at December 31:

				Percentage of Plan Assets
				at December 31
Asset Category				2003				2002
Equity securities					64	%			62	%
Debt securities					26				27
Real estate					9				10
Other					1				1
Total					100	%			100	%

Cash Flows

Employer contributions to fund the ongoing liabilities of the UK Plan are expected to be approximately $14.0 million in 2004. The next valuation of the UK Plan will take place as of March 31, 2004 and the results will be known later in the year. This valuation will set a revised level of contributions for the next three years. If the valuation results in a deficit in the UK Plan then an appropriate level of funding to address the deficit will be agreed in accordance with the UK Plan rules. The overall level of contributions paid by the employer is expected to be one of the factors considered by the regulator in setting the revised allowed prices which will take effect from April 1, 2005.

19.    Commitments and Contingencies

Fuel, Energy and Operating Lease Commitments

MidAmerican Energy has supply and related transportation contracts for its fossil fueled generating stations. As of December 31, 2003, the contracts, with expiration dates ranging from 2004 to 2010, require minimum payments of $83.3 million, $69.9 million, $54.5 million, $50.2 million and $16.1 million for the years 2004 through 2008, respectively, and $31.0 million for the total of the years thereafter. MidAmerican Energy expects to supplement these coal contracts with additional contracts and spot market purchases to fulfill its future fossil fuel needs. Additionally, MidAmerican Energy has a supply and transportation contact for a natural gas-fired generating plant. The contract, which expires in 2012, requires minimum payments of $0.8 million for 2004 and $6.2 million for each year thereafter.

MidAmerican Energy also has contracts with non-affiliated companies to purchase electric capacity. As of December 31, 2003, the contracts, with expiration dates ranging from 2004 to 2028, require minimum payments of $38.6 million, $3.6 million, $2.3 million, $2.2 million and $2.2 million for the years 2004 through 2008, respectively, and $40.1 million for the total of the years thereafter.

MidAmerican Energy has various natural gas supply and transportation contracts for its gas operations. As of December 31, 2003, the minimum commitments under these contracts were $56.3 million, $43.8 million, $18.0 million, $13.9 million and $4.2 million for the years 2004 through 2008, respectively, and $12.5 million for the total of the years thereafter.

MidAmerican Energy is the lessee on operating leases for coal railcars that contain guarantees of the residual value of such equipment throughout the term of the leases. Events triggering the residual guarantees include termination of the lease, loss of the equipment or purchase of the equipment. Lease terms are for five years with provisions for extensions. As of December 31, 2003, the maximum amount of such guarantees specified in these leases totaled $31.0 million. These guarantees are not reflected on the Consolidated Balance Sheets.

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MidAmerican Energy, Kern River, Northern Natural Gas, CE Electric UK, CalEnergy Generation – Domestic and HomeServices have non-cancelable operating leases primarily for computer equipment, office space and rail cars. The minimum payments under these leases are $53.1 million, $46.9 million, $41.0 million, $37.1 million and $27.0 million for the years 2004 through 2008, respectively, and $85.0 million for the total of the years thereafter.

Manufactured Gas Plants

The United States Environmental Protection Agency ("EPA") and the state environmental agencies have determined that contaminated wastes remaining at 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.

MidAmerican Energy has evaluated or is evaluating 27 properties that were, at one time, sites of gas manufacturing plants in which it may be a potentially responsible party. The purpose of these evaluations is to determine whether waste materials are present, whether the materials constitute a health or environmental risk, and whether MidAmerican Energy has any responsibility for remedial action. MidAmerican Energy is actively working with the regulatory agencies and has received regulatory closure on four sites. MidAmerican Energy is continuing to evaluate several of the sites to determine the future liability, if any, for conducting site investigations or other site activity.

MidAmerican Energy estimates the range of possible costs for investigation, remediation and monitoring for the sites discussed above to be approximately $11 million to $30 million. As of December 31, 2003, MidAmerican Energy has recorded a $14.0 million liability for these sites and a corresponding regulatory asset for future recovery through the regulatory process. MidAmerican Energy projects that these amounts will be incurred or paid over the next four years.

The estimated liability is determined through a site-specific cost evaluation process. The estimate includes incremental direct costs of remediation, site monitoring costs 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 derived from site investigations, changes in required remedial action and changes in technology relating to remedial alternatives. Insurance recoveries have been received for some of the sites under investigation. Those recoveries are intended to be used principally for accelerated remediation, as specified by the IUB and are recorded as a regulatory liability.

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 Energy's financial position, results of operations or cash flows.

Air Quality

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

The EPA has in recent years implemented more stringent standards for ozone and fine particulate matter. Designations regarding attainment of the eight-hour ozone standard have recently been reviewed by the EPA, and the EPA has concluded that the entire state of Iowa is in attainment of the standards. On December 4, 2003, the EPA announced the development of its Interstate Air Quality Rule, a proposal to require coal-burning power plants in 29 states and the District of Columbia to reduce emissions of sulfur dioxide ("SO₂") and nitrogen oxides ("NO_X") in an effort to reduce ozone and fine particulate matter in the Eastern United States. It is likely that MidAmerican Energy's coal-burning facilities will be impacted by this proposal.

In December 2000, the EPA concluded that mercury emissions from coal-fired generating stations should be regulated. The EPA is currently considering two regulatory alternatives for the regulation of

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mercury from coal-fired utilities as necessary to protect public health. One of these alternatives would require reductions of mercury from all coal-fired facilities greater than 25 MW through application of Maximum Achievable Control Technology with compliance assessed on a facility basis. The other alternative would regulate the mercury emissions of coal-fired facilities that pose a health hazard through a market based cap-and-trade mechanism similar to the SO₂ allowance system. The EPA is currently under a deadline to finalize the mercury rule by December 2004. Any of these new or stricter standards could, in whole or in part, be superceded or made more stringent by one of a number of multi-pollutant emission reduction proposals currently under consideration at the federal level, including the "Clear Skies Initiative", and other pending legislative proposals that contemplate 70% to 90% reductions of SO₂, NO_X and mercury, as well as possible new federal regulation of carbon dioxide and other gasses that may affect global climate change.

Depending on the outcome of the final regulations, MidAmerican Energy may be required to install control equipment on its generating stations or decrease the number of hours during which its generating stations operate. However, until final regulations are issued, the impact of the regulations on MidAmerican Energy cannot be predicted.

While legislative action is necessary for the Clear Skies Initiative or other multi-pollutant emission reduction legislation to become effective, MidAmerican Energy has implemented a planning process that forecasts the site-specific controls and actions required to meet emissions reductions of this nature. On April 1, 2002, in accordance with an Iowa law passed in 2001, MidAmerican Energy filed with the IUB its first multi-year plan and budget for managing SO₂ and NO_X from its generating facilities in a cost-effective manner. The plan provides specific actions to be taken at each coal-fired generating facility and the related costs and timing for each action. Mercury emissions reductions were not addressed in the plan. On July 17, 2003, the IUB issued an order that affirmed an administrative law judge's approval of the plan, as amended. Accordingly, the IUB order provides that the approved expenditures will not be subject to a subsequent prudence review in a future electric rate case, but it rejected the future application of a tracker mechanism to recover emission reduction costs. However, pursuant to an unrelated rate settlement agreement approved by the IUB on October 17, 2003, if prior to January 1, 2011, capital and operating expenditures to comply with environmental requirements cumulatively exceed $325 million, then MidAmerican Energy may seek to recover the additional expenditures from customers. At this time, MidAmerican Energy does not expect these capital expenditures to exceed such amount.

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

In recent years, the EPA has requested from several utilities information and support regarding their capital projects for various generating plants. The requests were issued as part of an industry-wide investigation to assess compliance with the NSR and the New Source Performance Standards of the Clean Air Act. In December 2002 and April 2003, MidAmerican Energy received requests from the EPA to provide documentation related to its capital projects from January 1, 1980, to the present for a number of its generating plants. MidAmerican Energy has submitted information to the EPA in responses to these requests, and there are currently no outstanding data requests pending from the EPA. MidAmerican Energy cannot predict the outcome of these requests at this time. However, on August 27, 2003, the EPA announced changes to its NSR rules that clarify what constitutes routine repair, maintenance and replacement for purposes of triggering NSR requirements. The EPA concluded equipment that is repaired, maintained or replaced with an expenditure not greater than 20 percent of the value of the

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source will not trigger the NSR provisions of the Clean Air Act. After the NSR changes were announced, the EPA's enforcement branch indicated it would apply the clarified routine repair, maintenance and replacement rules to its pending investigation. A number of states and local air districts have challenged the EPA's clarification of the rule and a panel of the U.S. Circuit Court of Appeals for the District of Columbia issued an order on December 24, 2003 staying the EPA's implementation of its clarification of the equipment replacement rule.

On August 29, 2003, the EPA finalized requirements to reduce toxic air emissions from stationary combustion turbines. These requirements apply to turbines used at pipeline compressor stations that are built after January 12, 2003. Kern River and Northern Natural Gas believe the existing turbines are exempt from the rule since the turbines were built and installed at compressor stations built prior to January 12, 2003. New turbine installations will likely require the installation of equipment to reduce formaldehyde emissions and other pollutants to meet the new requirements and could significantly increase the cost of new turbine installations.

On December 19, 2002, the EPA issued proposed emission standards for hazardous air pollutants for stationary reciprocating internal combustion engines, such as those used at pipeline compressor stations. The proposed standards would apply to all new and certain existing reciprocating internal combustion engines above 500 horsepower that are located at facilities characterized under the Clean Air Act as a "major source" of toxic air pollutants. While the emission standards have not yet been finalized, the impact of any new regulation of hazardous air pollutants from stationary reciprocating internal combustion engines could have a significant impact on existing and new facilities.

Decommissioning Costs

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

MidAmerican Energy's share of expected decommissioning costs for Quad Cities Station, in 2003 dollars, is $260 million and is the asset retirement obligation for Quad Cities Station. Refer to Note (1)(j) for a discussion of asset retirement obligations. MidAmerican Energy has established external trusts for the investment of funds for decommissioning the Quad Cities Station. The fair value of the assets held in the trusts is reflected in Investments and Nonregulated Property, Net.

MidAmerican Energy's depreciation and amortization expense included costs for Quad Cities Station nuclear decommissioning of $8.3 million for each of the years 2003, 2002 and 2001. The regulatory provision charged to expense is equal to the funding that is being collected in Iowa rates. Realized and unrealized gains and (losses) on the assets in the trust fund were $16.1 million, $(6.9) million and $(3.1) million for 2003, 2002 and 2001, respectively.

Nuclear Insurance

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

Exelon Generation purchases nuclear liability insurance for Quad Cities Station in the maximum available amount of $300 million, which includes coverage for MidAmerican Energy's ownership. In accordance with the Price-Anderson Amendments Act of 1988, excess liability protection above that amount is provided by a mandatory industry-wide Secondary Financial Protection program under which the licensees of nuclear generating facilities could be assessed for liability incurred due to a serious nuclear incident at any commercial nuclear reactor in the United States. Currently, MidAmerican Energy's aggregate maximum potential share of an assessment for Quad Cities Station is approximately $50.3 million per incident, payable in installments not to exceed $5 million annually.

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The property insurance covers property damage, stabilization and decontamination of the facility, disposal of the decontaminated material and premature decommissioning arising out of a covered loss. For Quad Cities Station, Exelon Generation purchased primary and excess property insurance protection for the combined interests in Quad Cities Station, with coverage limits totaling $2.1 billion. MidAmerican Energy also directly purchased extra expense or business interruption coverage for its share of replacement power and other extra expenses in the event of a covered accidental outage at Quad Cities Station. The property and related coverages purchased directly by MidAmerican Energy and by Exelon Generation, which includes the interests of MidAmerican Energy, are underwritten by an industry mutual insurance company and contain provisions for retrospective premium assessments should two or more full policy-limit losses occur in one policy year. Currently, the maximum retrospective amounts that could be assessed against MidAmerican Energy from industry mutual policies for its obligations associated with Quad Cities Station total $7.6 million.

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

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

Natural Gas Commodity Litigation

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

The original complaint in this matter, Cornerstone Propane Partners, L.P. v. Reliant, et al. ("Cornerstone"), was filed on August 18, 2003 in the United States District Court, Southern District of New York naming MidAmerican Energy and the Company. On October 1, 2003, a second complaint , Roberto, E. Calle Gracey, et al. ("Calle Gracey"), was filed in the same court but did not name MidAmerican Energy or the Company. On November 14, 2003, a third complaint, Dominick Viola ("Viola"), et al., was filed in the same court and named MidAmerican Energy and MEHC as defendants. On November 19, 2003, an Order of Voluntary Dismissal Without Prejudice of MEHC was entered by the court dismissing MEHC from the Cornerstone and Viola complaints. On December 5, 2003, the court entered Pretrial Order No. 1, which among other procedural matters, ordered the consolidation of the Cornerstone, Calle Gracey and Viola complaints and permitted plaintiffs to file an amended complaint in this matter. On January 20, 2004, plaintiffs filed In Re: Natural Gas Commodity Litigation as the amended complaint reasserting their previous allegations. Unless extended by agreement of the parties or by court order, MidAmerican Energy's answer and/or responsive pleading in this matter is due February 19, 2004. MidAmerican Energy will coordinate with the other defendants and vigorously defend the allegations against it.

Philippines

CE Casecnan Construction Contract Arbitration

The Casecnan project was constructed pursuant to a fixed-price, date-certain, turnkey construction contract by a consortium consisting of Cooperativa Muratori Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa. (collectively, the "Contractor"), working together with Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and Colenco Power Engineering Ltd.

In 2001, the Contractor filed a Request for Arbitration (and two supplements) with the International Chamber of Commerce ("ICC") seeking schedule relief of up to 153 days, compensation for alleged

95

additional costs of approximately $4 million (to the extent it is unable to recover from its insurer) and compensation for damages of approximately $62 million resulting from alleged force majeure events (and geologic conditions). The Contractor further alleged that the circumstances surrounding the placing of the Casecnan project into commercial operation in December 2001 amounted to a repudiation of the Replacement Contract resulting in a claim for unspecified quantum meruit damages, and that the delay liquidated damages clause which provides for payments of $125,000 per day to CE Casecnan for each day of delay in completion of the Casecnan project is unenforceable.

On November 7, 2002, the ICC issued the arbitration tribunal's partial award with respect to the Contractor's force majeure claims. The arbitration panel awarded the Contractor 18 days of schedule relief in the aggregate for all of the force majeure events and awarded the Contractor $3.8 million to the extent losses are not covered by insurance. All of the Contractor's other claims with respect to force majeure and geologic conditions were denied. If the Contractor were to prevail on the Contractor's claim that the delay liquidated damages clause is unenforceable, CE Casecnan would not be entitled to collect such delay damages for the period from March 31, 2001 through December 11, 2001. If the Contractor were to prevail in the Contractor's repudiation claim and prove quantum meruit damages in excess of amounts paid to the Contractor, CE Casecnan could be liable to make additional payments to the Contractor. CE Casecnan believes all of such allegations and claims are without merit and is vigorously contesting the Contractor's claims. CE Casecnan believes that an award will be issued by the ICC in 2004.

CE Casecnan Stockholder Litigation

Pursuant to the share ownership adjustment mechanism in the CE Casecnan stockholder agreement, which is based upon pro forma financial projections of the Casecnan project prepared following commencement of commercial operations, in February 2002, MEHC's indirect wholly owned subsidiary, CE Casecnan Ltd., advised the minority stockholder, LaPrairie Group Contractors (International) Ltd. ("LPG"), that MEHC's ownership interest in CE Casecnan had increased to 100% effective from commencement of commercial operations. In April 2002, CE Casecnan Ltd. and LPG entered into a status quo agreement pursuant to which CE Casecnan Ltd. agreed not to take any action to exercise control over or transfer LPG's shares in CE Casecnan. On July 8, 2002, LPG filed a complaint in the Superior Court of the State of California, City and County of San Francisco against, among others, CE Casecnan Ltd. and MEHC. In the complaint, LPG seeks compensatory and punitive damages for alleged breaches of the stockholder agreement and alleged breaches of fiduciary duties allegedly owed by CE Casecnan Ltd. and MEHC to LPG. The complaint also seeks injunctive relief against all defendants and a declaratory judgment that LPG is entitled to maintain a 15% interest in CE Casecnan. On January 21, 2004, CE Casecnan Ltd. and LPG entered into a second status quo agreement pursuant to which the parties agreed to set aside certain distributions related to the shares subject to the LPG dispute and not distribute such funds without at least 15 days prior notice to LPG. Accordingly, 15% of the dividend distribution declared on January 21, 2004 was set aside by CE Casecnan in an unsecured CE Casecnan account. The impact, if any, of this litigation on the Company cannot be determined at this time.

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20.    Segment Information:

The Company has identified seven reportable segments principally based on management structure: MidAmerican Energy, Kern River, Northern Natural Gas, CE Electric UK, CalEnergy Generation-Domestic, CalEnergy Generation-Foreign, and HomeServices. Information related to the Company's reportable operating segments is shown below (in thousands).

				Year Ended December 31,
				2003				2002				2001
Operating revenue:
MidAmerican Energy				$	2,600,239			$	2,240,879			$	2,388,650
Kern River					260,182				127,254				—
Northern Natural Gas					482,156				176,880				—
CE Electric UK					829,993				795,366				1,443,997
CalEnergy Generation – Domestic					45,750				38,546				37,299
CalEnergy Generation – Foreign					326,454				326,316				203,482
HomeServices					1,476,569				1,138,332				641,934
Segment operating revenue					6,021,343				4,843,573				4,715,362
Corporate/other					(73,119	)			(49,563	)			(18,581	)
Total operating revenue				$	5,948,224			$	4,794,010			$	4,696,781
Depreciation and amortization:
MidAmerican Energy				$	281,001			$	269,412			$	286,590
Kern River					36,771				17,165				—
Northern Natural Gas					52,716				18,151				—
CE Electric UK					125,000				116,792				133,865
CalEnergy Generation – Domestic					16,020				8,714				5,439
CalEnergy Generation – Foreign					87,928				88,036				66,315
HomeServices					17,560				22,072				17,201
Segment depreciation and amortization					616,996				540,342				509,410
Corporate/other					(7,107	)			(14,440	)			29,292
Total depreciation and amortization				$	609,889			$	525,902			$	538,702
Interest expense, net:
MidAmerican Energy				$	118,809			$	119,225			$	113,980
Kern River					61,979				33,036				—
Northern Natural Gas					55,833				22,987				—
CE Electric UK					171,767				183,472				112,308
CalEnergy Generation – Domestic					30,333				20,913				10,835
CalEnergy Generation – Foreign					59,603				68,338				30,875
HomeServices					3,864				4,256				3,884
Segment interest expense, net					502,188				452,227				271,882
Corporate/other					239,160				157,683				140,912
Total interest expense, net				$	741,348			$	609,910			$	412,794

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				Year Ended December 31,
				2003				2002				2001
Income before provisions for income taxes:
MidAmerican Energy				$	268,670			$	241,005			$	211,300
Kern River					133,720				60,700				—
Northern Natural Gas					127,307				42,882				—
CE Electric UK					288,720				266,755				173,816
CalEnergy Generation – Domestic					(25,510	)			(4,963	)			46,765
CalEnergy Generation – Foreign					179,546				149,915				94,542
HomeServices					113,537				69,979				42,945
Segment income before provision for income taxes					1,085,990				826,273				569,368
Corporate/other					(236,198	)			(183,175	)			(65,484	)
Total income before provision for income taxes				$	849,792			$	643,098			$	503,884
Provision for income taxes:
MidAmerican Energy				$	110,078			$	99,782			$	95,688
Kern River					51,319				23,014				—
Northern Natural Gas					50,599				16,947				—
CE Electric UK					91,539				25,245				163,253
CalEnergy Generation – Domestic					(18,183	)			(15,203	)			2,706
CalEnergy Generation – Foreign					76,493				37,577				29,712
HomeServices					43,587				28,207				15,953
Segment provision for income taxes					405,432				215,569				307,312
Corporate/other					(154,461	)			(115,981	)			(57,248	)
Total provision for income taxes				$	250,971			$	99,588			$	250,064
Capital expenditures:
MidAmerican Energy				$	378,530			$	358,194			$	252,615
Kern River					361,477				769,464				—
Northern Natural Gas					104,400				62,409				—
CE Electric UK					301,896				222,622				176,464
CalEnergy Generation – Domestic					17,845				61,920				52,940
CalEnergy Generation – Foreign					8,497				7,830				83,954
HomeServices					18,311				18,273				9,878
Segment capital expenditures					1,190,956				1,500,712				575,851
Corporate/other					71				7,373				901
Total capital expenditures				$	1,191,027			$	1,508,085			$	576,752

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				As of December 31,
				2003				2002				2001
Identifiable assets:
MidAmerican Energy				$	6,596,849			$	6,025,452			$	5,848,035
Kern River					2,200,201				1,797,850				—
Northern Natural Gas					2,167,621				2,162,367				—
CE Electric UK					5,038,880				4,714,459				4,340,147
CalEnergy Generation – Domestic					865,223				873,357				870,664
CalEnergy Generation – Foreign					949,237				974,852				950,035
HomeServices					567,736				488,324				322,552
Segment identifiable assets					18,385,747				17,036,661				12,331,433
Corporate/other					782,442				1,012,568				295,219
Total identifiable assets				$	19,168,189			$	18,049,229			$	12,626,652
Long-lived assets:
MidAmerican Energy				$	5,524,279			$	4,999,637			$	4,879,884
Kern River					2,010,113				1,682,934				—
Northern Natural Gas					1,809,623				1,818,469				—
CE Electric UK					4,489,306				3,936,598				3,650,385
CalEnergy Generation – Domestic					593,580				594,282				571,404
CalEnergy Generation – Foreign					621,674				724,908				805,050
HomeServices					418,999				384,899				262,175
Segment long-lived assets					15,467,574				14,141,727				10,168,898
Corporate/other					19,048				15,201				7,019
Total long-lived assets				$	15,486,622			$	14,156,928			$	10,175,917

The remaining differences from the segment amounts to the consolidated amounts described as "Corporate/Other" relate principally to the corporate functions including administrative costs, corporate cash and related interest income, corporate interest expenses, intersegment eliminations, and fair value adjustments relating to acquisitions.

The following table shows the change in the carrying amount of goodwill by reportable segment for the years ended December 31, 2003 and 2002 (in thousands):

				MidAmerican Energy				Kern River				Northern Natural Gas				CE Electric UK				Cal Energy Generation Domestic				Home- Services				Total
Balance, January 1, 2002				$	2,160,004			$	—			$	—			$	1,104,262			$	142,726			$	231,554			$	3,638,546
Goodwill from acquisitions during the year					—				32,547				414,721				56,626				—				108,914				612,808
Goodwill written off related to the sale of a business unit					—				—				—				(49,587	)			—				—				(49,587	)
Other goodwill adjustments (1)					(10,722	)			—				—				84,020				(16,286	)			(647	)			56,365
Balance, December 31, 2002					2,149,282				32,547				414,721				1,195,321				126,440				339,821				4,258,132
Goodwill from acquisitions during the year					—				—				—				—				—				26,648				26,648
Other goodwill adjustments (1)					(10,059	)			1,353				(35,573	)			66,262				(132	)			(988	)			20,863
Balance, December 31, 2003				$	2,139,223			$	33,900			$	379,148			$	1,261,583			$	126,308			$	365,481			$	4,305,643

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

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

None.

Item 9A.    Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer of MEHC, regarding the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2003. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer of MEHC, concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls.

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PART III

Item 10.    Directors and Executive Officers of the Registrant.

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

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

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

Set forth below is certain information, as of January 1, 2004, with respect to each of the foregoing officers and directors:

DAVID L. SOKOL, 47, Chairman of the Board of Directors and Chief Executive Officer. Mr. Sokol has been CEO since April 19, 1993 and served as President of MEHC from April 19, 1993 until January 21, 1995. Mr. Sokol has been Chairman of the Board of Directors since May 1994 and a director since March 1991. Formerly, among other positions held in the independent power industry, Mr. Sokol served as President and Chief Executive Officer of Kiewit Energy Company, which at that time was a wholly owned subsidiary of Peter Kiewit & Sons', Inc., and Ogden Projects, Inc.

GREGORY E. ABEL, 41, President, Chief Operating Officer and Director. Mr. Abel joined MEHC in 1992 and initially served as Vice President and Controller. Mr. Abel is a Chartered Accountant and from 1984 to 1992 he was employed by Price Waterhouse. As a Manager in the San Francisco office of Price Waterhouse, he was responsible for clients in the energy industry.

PATRICK J. GOODMAN, 37, Senior Vice President and Chief Financial Officer. Mr. Goodman joined MEHC in 1995 and served in various accounting positions including Senior Vice President and Chief Accounting Officer. Prior to joining MEHC, Mr. Goodman was a financial manager for National Indemnity Company and a senior associate at Coopers & Lybrand.

DOUGLAS L. ANDERSON, 45, Senior Vice President and General Counsel. Mr. Anderson joined MEHC in February 1993 and has served in various legal positions including General Counsel of the Company's independent power affiliates. From 1990 to 1993, Mr. Anderson was a corporate attorney with Fraser, Stryker in Omaha, NE. Prior to that Mr. Anderson was a principal in the firm Anderson and Anderson.

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

WARREN E. BUFFETT, 73, Director. Mr. Buffett has been a director of MEHC since March 2000. He is Chairman of the Board and Chief Executive Office of Berkshire Hathaway Inc. Mr. Buffett is a Director of the Coca-Cola Company, the Gillette Company and The Washington Post Company.

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WALTER SCOTT, JR., 72, Director. Mr. Scott has been a director of MEHC since June 1991. Mr. Scott was the Chairman and Chief Executive Officer of MEHC from January 8, 1992 until April 19, 1993. For more than the past five years, he has been Chairman of the Board of Directors of Level 3 Communications, Inc., a successor to certain businesses of Peter Kiewit & Sons', Inc. Mr. Scott is a director of Peter Kiewit & Sons', Inc., Berkshire Hathaway Inc., Burlington Resources, Inc., ConAgra, Inc., Valmont Industries, Inc., Kiewit Materials Co., Commonwealth Telephone Enterprises, Inc. and RCN Corporation. Mr. Scott is the father of W. David Scott.

MARC D. HAMBURG, 54, Director. Mr. Hamburg has been a director of MEHC since March 2000. He has served as Vice President – Chief Financial Officer of Berkshire Hathaway Inc. since October 1, 1992 and Treasurer since June 1, 1987, his date of employment with Berkshire Hathaway Inc.

W. DAVID SCOTT, 42, Director. Mr. Scott has been a director of MEHC since March 2000. Mr. Scott formed Magnum Resources, Inc., a commercial real estate investment and management company, in October 1994 and has served as its President and Chief Executive Officer since its inception. Before forming Magnum Resources, Mr. Scott worked for America First Companies, Cornerstone Banking Group and Peter Kiewit & Sons', Inc. Mr. Scott has been a director of America First Mortgage Investments, Inc., a mortgage REIT, since 1998. Mr. Scott is the son of Walter Scott, Jr.

EDGAR D. ARONSON, 69, Director. Mr. Aronson has been a director of MEHC since 1983. Mr. Aronson founded EDACO, Inc., a private venture capital company, in 1981, and has been President of EDACO, Inc. since that time. Prior to that, Mr. Aronson was Chairman of Dillon, Read International from 1979 to 1981 and a General Partner in charge of the International Department of Salomon Brothers Inc. from 1973 to 1979. Mr. Aronson served during 1962-1968 as Vice President consecutively in the International Departments of First National Bank of Chicago and Republic National Bank of New York. He founded the International Department of Salomon Brothers and Hutzler in 1968.

JOHN K. BOYER, 59, Director. Mr. Boyer has been a director of MEHC since March 2000. He is a partner with Fraser, Stryker, Meusey, Olson, Boyer & Bloch, P.C. where he has practiced from 1973 to present with emphasis on corporate, commercial, federal, state, and local taxation.

STANLEY J. BRIGHT, 63, Director. Mr. Bright was Chairman and Chief Executive Officer of MidAmerican Energy from July 1, 1995 until March 1999. Mr. Bright joined Iowa-Illinois Gas and Electric Company (a predecessor of MidAmerican Energy) as Vice President and Chief Financial Officer in 1986, became a director in 1987, President and Chief Operating Officer in 1990, and Chairman and Chief Executive Officer in 1991.

RICHARD R. JAROS, 51, Director. Mr. Jaros has been a director of MEHC since March 1991. Mr. Jaros served as President and Chief Operating Officer of MEHC from January 8, 1992 to April 19, 1993 and as Chairman of the Board from April 19, 1993 to May 1994. Until July 1997, Mr. Jaros was Executive Vice President and Chief Financial Officer of Peter Kiewit & Sons', Inc. and President of Kiewit Diversified Group, Inc., which is now Level 3 Communications, Inc. Mr. Jaros serves as director of Commonwealth Telephone Enterprises, Inc., RCN Corporation and Level 3 Communications, Inc.

Audit Committee Members and Financial Experts

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

Code of Ethics

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

Item 11.    Executive Compensation.

The following table sets forth the compensation of MEHC's Chief Executive Officer and its four other most highly compensated executive officers who were employed as of December 31, 2003, which

102

MEHC refers to as its Named Executive Officers. Information is provided regarding its Named Executive Officers for the last three fiscal years during which they were its executive officers, if applicable.

Name and Principal Positions				Year Ended Dec. 31				Salary(1)				Bonus(1)				Other Annual Compensation				All Other Comp(2)
David L. Sokol					2003			$	800,000			$	2,750,000			$	—			$	7,960
Chairman and					2002				800,000				2,750,000				27,122,550				7,960
Chief Executive Officer					2001				750,000				2,400,000				—				33,033
Gregory E. Abel					2003				669,011				2,200,000				—				7,690
President and					2002				540,000				2,200,000				—				7,636
Chief Operating Officer					2001				520,000				1,150,000				—				23,657
Patrick J. Goodman					2003				273,570				285,000				—				7,392
Senior Vice President and					2002				248,000				365,000				209,560				7,353
Chief Financial Officer					2001				240,000				260,000				—				13,527
Douglas L. Anderson					2003				270,711				240,000				—				7,150
Senior Vice President and					2002				200,000				325,000				—				7,150
General Counsel					2001				154,427				200,000				—				6,630
Keith D. Hartje					2003				180,000				65,000				—				7,796
Senior Vice President and					2002				180,000				65,000				—				7,796
Chief Administrative Officer					2001				180,000				60,000				—				6,630

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

(2) Consists of 401(k) Plan contributions for 2003 for Messrs. Sokol, Abel, Goodman and Anderson of $7,150, and Mr. Hartje of $7,796. To offset its obligations under the Company's Executive Split Dollar Plan for executives whose retirement benefit cannot be fully funded through the Company's Base Retirement Plan for Salaried Employees, the Company has agreed to pay the premiums for policies of split dollar life insurance on the lives of such executives. No premiums were paid in 2003 for Mr. Sokol, Mr. Abel, or Mr. Goodman. Included are the insurance premiums in the following amounts paid by the Company with respect to the term life insurance portion of premiums paid in 2003 for Mr. Sokol of $810, for Mr. Abel of $540 and for Mr. Goodman of $242.

Pursuant to MEHC's Executive Incremental Profit Sharing Plan, Messrs. Sokol and Abel are each eligible to receive a one-time profit sharing award of $11.25 million, $18.75 million or $37.5 million based upon achieving specified adjusted diluted earnings per share targets for any calendar year from 2003 through 2007 and continued employment during such time.

Option Grants in Last Fiscal Year

MEHC did not grant any options during 2003.

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

The following table sets forth the option exercises and the number of securities underlying exercisable and unexercisable options held by each of its Named Executive Officers at December 31, 2003.

												Underlying Unexercised Options Held (#)								Value of Unexercised In-the-money Options ($) (1)
Name				Shares Acquired on Exercise (#)				Value Realized				Exercisable				Unexercisable				Exercisable				Unexercisable
David Sokol					—				—				1,399,277				—				N/A				N/A
Gregory E. Abel					—				—				649,052				—				N/A				N/A
Patrick J. Goodman					—				—				—				—				—				—
Douglas L. Anderson					—				—				—				—				—				—
Keith D. Hartje									—				—				—				—				—

(1) On March 14, 2000, MEHC was acquired by a private investor group. As a privately held company, MEHC has no publicly traded equity securities and, consequently, its management does not believe there is a reliable method of computing the fair market value of the stock as of December 31, 2003.

Long-Term Incentive Plans – Awards in Last Fiscal Year

Name

Number of Shares, Units or Other Rights (#)

Performance or Other Period Until Maturation or Payout

Threshold ($)(1)

Target ($)(1)

Maximum ($)

Patrick J. Goodman

N/A

December 31, 2007

412,500

N/A

N/A

Douglas L. Anderson

N/A

December 31, 2007

390,000

N/A

N/A

Keith D. Hartje

N/A

December 31, 2007

163,913

N/A

N/A

(1) The awards shown in the foregoing table are made pursuant to the Long-Term Incentive Partnership Plan ("LTIP"). The amounts shown are dollar amounts credited to an investment account for the benefit of the named executive officers and such amounts vest equally over five years (starting with year 2003) with any unvested balances forfeited upon termination of employment unless the participant retires at or above age 55 with at least 5 years of service in which case the participant will receive any unvested portion of the award. Vested balances (including any investment performance profits or losses thereon) are paid to the participant at the time of termination. Once an award is fully vested, the participant may elect to defer or receive payment of part or all of the award. Messrs. Sokol and Abel are not participants in the LTIP. Awards are credited or reduced with annual interest or loss based on a composite of funds or indices. Because the amounts to be paid out may increase or decrease depending on investment performance, the ultimate benefits are undeterminable and the payouts do not have a "target" or "maximum" amount.

Compensation of Directors

All directors, excluding Messrs. Sokol, Abel, Buffett and Walter Scott Jr., are paid an annual retainer fee of $20,000 and a fee of $500 per day for attendance at Board and Committee meetings. Directors who are employees are not entitled to receive such fees. All directors are reimbursed for their expenses incurred in attending Board meetings.

Retirement Plans

The Company maintains a Supplemental Retirement Plan for Designated Officers, which the Company refers to as the Supplemental Plan, to provide additional retirement benefits to designated participants, as determined by the Board of Directors. Messrs. Sokol, Abel, Goodman and Hartje are participants in the Supplemental Plan. The Supplemental Plan provides annual retirement benefits up to sixty-five percent of a participant's Total Cash Compensation in effect immediately prior to retirement, subject to a $1 million maximum retirement benefit. "Total Cash Compensation" means the highest

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

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

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

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

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

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

Employment Agreements

Pursuant to his employment agreement Mr. Sokol serves as Chairman of MEHC's Board of Directors and Chief Executive Officer. The employment agreement provides that Mr. Sokol is to receive an annual base salary of not less than $750,000, senior executive employee benefits and annual bonus awards that shall not be less than $675,000. Subject to an annual renewal provision, such agreement is scheduled to expire on August 21, 2004.

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

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

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

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

The following table sets forth certain information regarding beneficial ownership of the shares of MEHC's common stock and certain information with respect to the beneficial ownership of each director, its Named Executive Officers and all directors and executive officers as a group as of January 31, 2004.

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

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

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

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

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

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

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

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

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

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

Pursuant to a shareholders agreement, following March 14, 2003, Walter Scott, Jr. or any of the Scott Family Interests are able to require Berkshire Hathaway to purchase, for an agreed value or an appraised value, any or all of Walter Scott, Jr.'s and the Scott Family Interests' shares of MEHC's common stock,

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provided that Berkshire Hathaway is then a purchaser of a type which is able to consummate such a purchase without causing it or any of its affiliates or MEHC or any of its subsidiaries to become subject to regulation as a registered holding company or a subsidiary of a registered holding company under PUHCA. Berkshire Hathaway is not currently such a purchaser. The consummation of such a transaction could result in a change in control with respect to MEHC.

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

Item 13.    Certain Relationships and Related Transactions.

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

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

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

MEHC did not purchase any options or securities from its stockholders, directors or executive officers during the year ended December 31, 2003.

On January 6, 2004, MEHC purchased shares of common stock from Mr. Sokol for an aggregate price of $20.0 million.

Compensation Committee Interlocks and Insider Participation

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

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Item 14.    Principal Accountant Fees and Services.

Aggregate fees billed to the Company as a consolidated entity for the fiscal years ending December 31, 2003 and 2002 by the Company's principal accounting firm, Deloitte & Touche LLP and their respective affiliates (collectively, "Deloitte"), are set forth below. The audit committee has considered whether the provision of the non-audit services described below is compatible with maintaining the principal accountant's independence.

				Year Ended December 31,
				2003				2002
				(in millions)
Audit Fees (1)				$	2.6			$	2.2
Audit-Related Fees (2)					0.3				0.4
Tax Fees (3)					0.9				1.3
All Other Fees (4)					—				—
Total aggregate fees billed				$	3.8			$	3.9

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

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

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

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

The audit committee reviewed the non-audit services rendered by Deloitte in and for fiscal 2003 as set forth in the above table and concluded that such services were compatible with maintaining the auditors' independence. Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by the Company's independent accountants must now be approved in advance by the audit committee to assure that such services do not impair the accountants' independence from the Company. Accordingly, the audit committee has adopted an Audit and Non-Audit Services Pre-Approval Policy (the "Policy") which sets forth the procedures and the conditions pursuant to which services to be performed by the independent accountants are to be pre-approved. Pursuant to the Policy, certain services described in detail in the Policy may be pre-approved on an annual basis together with pre-approved maximum fee levels for such services. The services eligible for annual pre-approval consist of services that would be included under the categories of Audit Fees, Audit-Related Fees and Tax Fees. If not pre-approved on an annual basis, proposed services must otherwise be separately approved prior to being performed by the independent auditors. In addition, any services that receive annual pre-approval but exceed the pre-approved maximum fee level also will require separate approval by the audit committee prior to being performed. The audit committee may delegate authority to pre-approve audit and non-audit services to any member of the audit committee, but may not delegate such authority to management.

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PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)	Financial Statements and Schedules

(i)	Financial Statements

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

(ii)	Financial Statement Schedules

See Schedule I on page 111.
See Schedule II on page 114.
Schedules not listed above have been omitted because they are either not applicable, not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.

(iii)	Exhibits

See Item 15 (c) below.

(b)	Reports on Form 8-K

MEHC filed the following Current Reports on Form 8-K during the fourth quarter of 2003:

•	MEHC filed a Current Report on Form 8-K on October 15, 2003.

•	MEHC filed a Current Report on Form 8-K on October 17, 2003.

•	MEHC filed an amended Current Report on Form 8-K on October 21, 2003.

(c)	Exhibits

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

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

Not applicable.

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MidAmerican Energy Holdings Company	Schedule I
Parent Company Only
Condensed Balance Sheets As of December 31, 2003 and 2002 (Amounts in thousands)

				2003				2002
ASSETS
Current assets — Cash and cash equivalents				$	328,750			$	320,629
Investments in and advances to subsidiaries and joint ventures					5,728,125				5,264,786
Equipment, net					15,388				15,984
Goodwill					1,370,241				1,381,009
Deferred charges and other assets					180,331				150,056
Total assets				$	7,622,835			$	7,132,464
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable and other accrued liabilities				$	49,144			$	94,389
Current portion of long-term debt					—				215,000
Current portion of subordinated debt					100,000				—
Total current liabilities ..					149,144				309,389
Non-current liabilities					31,298				11,885
Notes payable — affiliate					86,045				94,795
Senior debt					2,777,878				2,323,387
Subordinated debt					1,772,146				—
Total liabilities					4,816,511				2,739,456
Deferred income					32,916				35,313
Minority interest					1,963				—
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts					—				2,063,412
Stockholders' equity:
Zero coupon convertible preferred stock — authorized 50,000 shares, no par value; 41,263 shares outstanding at December 31, 2003 and 2002					—				—
Common stock — authorized 60,000 shares, no par value; 9,281 shares outstanding at December 31, 2003 and 2002					—				—
Additional paid in capital					1,957,277				1,956,509
Retained earnings					999,627				584,009
Accumulated other comprehensive loss, net					(185,459	)			(246,235	)
Total stockholders' equity					2,771,445				2,294,283
Total liabilities and stockholders' equity				$	7,622,835			$	7,132,464

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

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MidAmerican Energy Holdings Company	Schedule I
Parent Company Only (continued)
Condensed Statements of Operations For the three years ended December 31, 2003 (Amounts in thousands)

				2003				2002				2001
Revenue:
Equity in undistributed earnings of subsidiary companies and joint ventures				$	785,072			$	477,588			$	608,896
Dividends and distributions from subsidiary companies and joint ventures					318,665				351,847				87,625
Interest and other income					19,808				1,286				2,248
Total revenue					1,123,545				830,721				698,769
Costs and expenses:
General and administration					34,517				29,368				41,078
Depreciation and amortization					710				815				31,537
Interest, net of capitalized interest					251,578				173,240				148,680
Total costs and expenses ..					286,805				203,423				221,295
Income before provision for income taxes					836,740				627,298				477,474
Provision for income taxes					250,971				99,588				250,064
Income before minority interest					585,769				527,710				227,410
Minority interest and preferred dividends					170,151				147,667				80,137
Income before and cumulative effect of change in accounting principle					415,618				380,043				147,273
Cumulative effect of change in accounting principle, net of tax					—				—				(4,604	)
Net income available to common stockholders				$	415,618			$	380,043			$	142,669

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

112

MidAmerican Energy Holdings Company	Schedule I
Parent Company Only (continued)
Condensed Statements of Cash Flows For the three years ended December 31, 2003 (Amounts in thousands)

				2003				2002				2001
Cash flows from operating activities				$	(260,271	)		$	(188,300	)		$	(272,906	)
Cash flows from investing activities:
Decrease (increase) in advances to and investments in subsidiaries and joint ventures					205,206				(1,692,742	)			204,118
Other, net					30,995				10,307				(5,297	)
Net cash flows from investing activities					236,201				(1,682,435	)			198,821
Cash flows from financing activities:
Proceeds from issuance of common and preferred stock					—				402,000				—
Proceeds from issuance of trust preferred securities					—				1,273,000				—
Repayment of subordinated debt					(198,958	)			—				—
Proceeds from issuances of senior debt					449,295				700,000				—
Repayments of senior debt					(215,000	)			—				(32	)
Net (repayment of) proceeds from corporate revolving credit facility					—				(153,500	)			68,500
Other					(3,146	)			(32,660	)			(82	)
Net cash flows from financing activities					32,191				2,188,840				68,386
Net change in cash and cash equivalents					8,121				318,105				(5,699	)
Cash and cash equivalents at beginning of year					320,629				2,524				8,223
Cash and cash equivalents at end of year				$	328,750			$	320,629			$	2,524
Supplemental disclosures:
Interest paid, net of interest capitalized				$	219,910			$	164,267			$	148,999
Income taxes paid				$	9,911			$	101,225			$	133,139

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

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Schedule II

MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2002
(Amounts in thousands)

Column A Description				Column B Balance at Beginning of Year				Column C Additions												Column D Deductions				Column E Balance at End of Year
								Charged to Income				Other Accounts				Acquisition Reserves(2)
Reserves Deducted From Assets
To Which They Apply:
Reserve for uncollectible accounts receivable:
Year ended 2003				$	39,742			$	13,620			$	—			$	—			$	(27,358	)		$	26,004
Year ended 2002				$	7,319			$	27,782			$	—			$	10,142			$	(5,501	)		$	39,742
Year ended 2001				$	32,685			$	17,061			$	—			$	—			$	(42,427	)		$	7,319
Reserves Not Deducted From Assets (1):
Year ended 2003				$	10,981			$	10,527			$	—			$	—			$	(4,091	)		$	17,417
Year ended 2002				$	13,631			$	2,798			$	247			$	—			$	(5,695	)		$	10,981
Year ended 2001				$	25,063			$	5,046			$	—			$	—			$	(16,478	)		$	13,631

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

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

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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Des Moines, State of Iowa, on this 9^th day of February 2004.

MIDAMERICAN ENERGY HOLDINGS
COMPANY

/s/ David L. Sokol*

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

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

Signature				Date
/s/ David L. Sokol* __________________________ David L. Sokol Chairman of the Board, Chief Executive Officer, and Director				February 9, 2004
/s/ Gregory E. Abel* __________________________ Gregory E. Abel President, Chief Operating Officer and Director				February 9, 2004
/s/ Patrick J. Goodman* __________________________ Patrick J. Goodman Senior Vice President and Chief Financial Officer				February 9, 2004
/s/ Edgar D. Aronson* __________________________ Edgar D. Aronson Director				February 9, 2004
/s/ Stanley J. Bright* __________________________ Stanley J. Bright Director				February 9, 2004
/s/ Walter Scott, Jr.* __________________________ Walter Scott, Jr. Director				February 9, 2004
/s/ Marc D. Hamburg* __________________________ Marc D. Hamburg Director				February 9, 2004
/s/ Warren E. Buffett* __________________________ Warren E. Buffett Director				February 9, 2004

115

Signature				Date
/s/ John K. Boyer* __________________________ John K. Boyer Director				February 9, 2004
/s/ W. David Scott* __________________________ W. David Scott Director				February 9, 2004
/s/ Richard R. Jaros* __________________________ Richard R. Jaros Director				February 9, 2004
*By: /s/ Douglas L. Anderson ______________________				February 9, 2004
Douglas L. Anderson Attorney-in-Fact

116

EXHIBIT INDEX

Exhibit No.
3.1				Amended and Restated Articles of Incorporation of MEHC effective March 6, 2002 (incorporated by reference to Exhibit 3.3 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001).
3.2				Bylaws of MEHC (incorporated by reference to Exhibit 3.2 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999).
4.1				Indenture, dated as of October 4, 2002, by and between MEHC and The Bank of New York, relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012 (incorporated by reference to Exhibit 4.1 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
4.2				First Supplemental Indenture, dated as of October 4, 2002, by and between MEHC and The Bank of New York, relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012 (incorporated by reference to Exhibit 4.2 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
4.3				Registration Rights Agreement, dated as of October 1, 2002, by and between MEHC and Credit Suisse First Boston (as Representative for the Initial Purchasers) (incorporated by reference to Exhibit 4.3 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
4.4				Indenture for the 6 1/4% Convertible Junior Subordinated Debentures due 2012, dated as of February 26, 1997, between MEHC, as issuer, and the Bank of New York, as Trustee (incorporated by reference to Exhibit 10.129 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1995).
4.5				Indenture, dated as of October 15, 1997, among MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to MEHC's Current Report on Form 8-K dated October 23, 1997).
4.6				Form of First Supplemental Indenture for the 7.63% Senior Notes in the principal amount of $350,000,000 due 2007, dated as of October 28, 1997, among MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.2 to MEHC's Current Report on Form 8-K dated October 23, 1997).
4.7				Form of Second Supplemental Indenture for the 6.96% Senior Notes in the principal amount of $215,000,000 due 2003, 7.23% Senior Notes in the principal amount of $260,000,000 due 2005, 7.52% Senior Notes in the principal amount of $450,000,000 due 2008, and 8.48% Senior Notes in the principal amount of $475,000,000 due 2028, dated as of September 22, 1998 between MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to MEHC's Current Report on Form 8-K dated September 17, 1998.)
4.8				Form of Third Supplemental Indenture for the 7.52% Senior Notes in the principal amount of $100,000,000 due 2008, dated as of November 13, 1998, between MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to MEHC's Current Report on Form 8-K dated November 10, 1998).
4.9				Indenture, dated as of March 14, 2000, among MEHC and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.9 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999).
4.10				Subscription Agreement, dated as of March 14, 2000, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.10 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999).

117

Exhibit No.
4.11				Indenture, dated as of March 12, 2002, between MEHC and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.11 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001).
4.12				Subscription Agreement, dated as of March 7, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.12 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001).
4.13				Subscription Agreement, dated as of March 12, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.13 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001).
4.14				Amended and Restated Declaration of Trust of MidAmerican Capital Trust III, dated as of August 16, 2002 (incorporated by reference to Exhibit 4.14 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
4.15				Amended and Restated Declaration of Trust of MidAmerican Capital Trust II, dated as of March 12, 2002 (incorporated by reference to Exhibit 4.15 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
4.16				Amended and Restated Declaration of Trust of MidAmerican Capital Trust I, dated as of March 14, 2000 (incorporated by reference to Exhibit 4.16 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
4.17				Indenture, dated as of August 16, 2002, between MEHC and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.17 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
4.18				Subscription Agreement, dated as of August 16, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.18 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
4.19				Shareholders Agreement, dated as of March 14, 2000 (incorporated by reference to Exhibit 4.19 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
10.1				Employment Agreement between MEHC and David L. Sokol, dated May 10, 1999 (incorporated by reference to Exhibit 10.1 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999).
10.2				Amendment No. 1 to the Amended and Restated Employment Agreement between MEHC and David L. Sokol, dated March 14, 2000 (incorporated by reference to Exhibit 10.2 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999).
10.3				Non-Qualified Stock Options Agreements of David L. Sokol, dated March 14, 2000 (incorporated by reference to Exhibit 10.3 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
10.4				Amended and Restated Employment Agreement between MEHC and Gregory E. Abel, dated May 10, 1999 (incorporated by reference to Exhibit 10.3 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999).
10.5				Non-Qualified Stock Options Agreements of Gregory E. Abel, dated March 14, 2000 (incorporated by reference to Exhibit 10.5 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
10.6				Employment Agreement between MEHC and Patrick J. Goodman, dated April 21, 1999 (incorporated by reference to Exhibit 10.5 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999).

118

Exhibit No.
10.7				MidAmerican Energy Holdings Company, Amended and Restated Long Term Incentive Partnership Plan dated as of January 1, 2003 (incorporated by reference to Exhibit 10.1 of MEHC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.8				125 MW Power Plant-Upper Mahiao Agreement, dated September 6, 1993, between PNOC-Energy Development Corporation and Ormat, Inc. as amended by the First Amendment to 125 MW Power Plant Upper Mahiao Agreement, dated as of January 28, 1994, the Letter Agreement dated February 10, 1994, the Letter Agreement dated February 18, 1994 and the Fourth Amendment to 125 MW Power Plant-Upper Mahiao Agreement, dated as of March 7, 1994 (incorporated by reference to Exhibit 10.95 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.9				Credit Agreement, dated April 8, 1994, among CE Cebu Geothermal Power Company, Inc., the Banks thereto, Credit Suisse as Agent (incorporated by reference to Exhibit 10.96 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.10				Credit Agreement, dated as of April 8, 1994, between CE Cebu Geothermal Power Company, Inc., Export-Import Bank of the United States (incorporated by reference to Exhibit 10.97 to MEHC'sAnnual Report on Form 10-K for the year ended December 31, 1993).
10.11				Pledge Agreement, dated as of April 8, 1994, among CE Philippines Ltd, Ormat-Cebu Ltd., Credit Suisse as Collateral Agent and CE Cebu Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.98 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.12				Overseas Private Investment Corporation Contract of Insurance, dated April 8, 1994, between the Overseas Private Investment Corporation and the Company through its subsidiaries CE International Ltd., CE Philippines Ltd., and Ormat-Cebu Ltd. (incorporated by reference to Exhibit 10.99 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.13				180 MW Power Plant-Mahanagdong Agreement, dated September 18, 1993, between PNOC-Energy Development Corporation and CE Philippines Ltd. and the Company, as amended by the First Amendment to Mahanagdong Agreement, dated June 22, 1994, the Letter Agreement dated July 12, 1994, the Letter Agreement dated July 29, 1994, and the Fourth Amendment to Mahanagdong Agreement, dated March 3, 1995 (incorporated by reference to Exhibit 10.1 00 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.14				Credit Agreement, dated as of June 30, 1994, among CE Luzon Geothermal Power Company, Inc., American Pacific Finance Company, the Lenders party thereto, and Bank of America National Trust and Savings Association as Administrative Agent (incorporated by reference to Exhibit 10.101 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.15				Credit Agreement, dated as of June 30, 1994, between CE Luzon Geothermal Power Company, Inc. and Export-Import Bank of the United States (incorporated by reference to Exhibit 10.102 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.16				Finance Agreement, dated as of June 30, 1994, between CE Luzon Geothermal Power Company, Inc. and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.103 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).

119

Exhibit No.
10.17				Pledge Agreement, dated as of June 30, 1994, among CE Mahanagdong Ltd., Kiewit Energy International (Bermuda) Ltd., Bank of America National Trust and Savings Association as Collateral Agent and CE Luzon Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.104 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.18				Overseas Private Investment Corporation Contract of Insurance, dated July 29, 1994, between Overseas Private Investment Corporation and the Company, CE International Ltd., CE Mahanagdong Ltd. and American Pacific Finance Company and Amendment No. 1, dated August 3, 1994 (incorporated by reference to Exhibit 10.105 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.19				231 MW Power Plant-Malitbog Agreement, dated September 10, 1993, between PNOC-Energy Development Corporation and Magma Power Company and the First and Second Amendments thereto, dated December 8, 1993 and March 10, 1994, respectively (incorporated by reference to Exhibit 10.106 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.20				Credit Agreement, dated as of November 10, 1994, among Visayas Power Capital Corporation, the Banks parties thereto and Credit Suisse, as Bank Agent (incorporated by reference to Exhibit 10.107 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.21				Finance Agreement, dated as of November 10, 1994, between Visayas Geothermal Power Company and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.108 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.22				Pledge and Security Agreement, dated as of November 10, 1994, among Broad Street Contract Services, Inc., Magma Power Company, Magma Netherlands B.V. and Credit Suisse, as Bank Agent (incorporated by reference to Exhibit 10.109 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993).
10.23				Overseas Private Investment Corporation Contract of Insurance, dated December 21, 1994,between Overseas Private Investment Corporation and Magma Netherlands, B.V. (incorporated by reference to Exhibit 10.110 to MEHC's Annual Report on Form10-K for the year ended December 31, 1993).
10.24				Agreement as to Certain Common Representations, Warranties, Covenants and Other Terms, dated November 10, 1994, between Visayas Geothermal Power Company, Visayas Power Capital Corporation, Credit Suisse, as Bank Agent, Overseas Private Investment Corporation and the Banks named therein (incorporated by reference to Exhibit 10.111 to MEHC's 1994 Annual Report on Form 10-K for the year ended December 31, 1993).
10.25				Trust Indenture, dated as of November 27, 1995, between the CE Casecnan Water and Energy Company, Inc. and Chemical Trust Company of California (incorporated by reference to Exhibit 4.1 to CE Casecnan Water and Energy Company, Inc.'s Registration Statement on Form S-4 dated January 25, 1996).
10.26				Amended and Restated Casecnan Project Agreement, dated June 26, 1995, between the National Irrigation Administration and CE Casecnan Water and Energy Company Inc. (incorporated by reference to Exhibit 10.1 to CE Casecnan Water and Energy Company, Inc.'s Registration Statement on Form S-4 dated January 25, 1996).

120

Exhibit No.
10.27				Term Loan and Revolving Facility Agreement, dated as of October 28, 1996, among CE Electric UK Holdings, CE Electric UK plc and Credit Suisse (incorporated by reference to Exhibit 10.130 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1995).
10.28				Indenture and First Supplemental Indenture, dated March 11, 1999, between MidAmerican Funding LLC and IBJ Whitehall Bank & Trust Company and the First Supplement thereto relating to the $700 million Senior Notes and Bonds (incorporated by reference to MEHC's Annual Report on Form 10-K for the year ended December 31, 1998).
10.29				General Mortgage Indenture and Deed of Trust, dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-1 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654).
10.30				First Supplemental Indenture, dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-2 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654).
10.31				Second Supplemental Indenture, dated as of January 15, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-3 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654).
10.32				Third Supplemental Indenture, dated as of May 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4.4 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654).
10.33				Fourth Supplemental Indenture, dated as of October 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.5 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654).
10.34				Fifth Supplemental Indenture, dated as of November 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.6 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654).
10.35				Sixth Supplemental Indenture, dated as of July 1, 1995, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.15 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended December 31, 1995, Commission File No. 1-11505).
10.36				Indenture of Mortgage and Deed of Trust, dated as of March 1, 1947 (incorporated by reference to Exhibit 7B filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 2-6922).
10.37				Sixth Supplemental Indenture, dated as of July 1, 1967 (incorporated by reference to Exhibit 2.08 filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 2-28806).
10.38				Twentieth Supplemental Indenture, dated as of May 1, 1982 (incorporated by reference to Exhibit 4.B.23 to the Iowa-Illinois Gas and Electric Company Quarterly Report on Form 10-Q for the period ended June 30, 1982, Commission File No. 1-3573).

121

Exhibit No.
10.39				Resignation and Appointment of successor Individual Trustee (incorporated by reference to Exhibit 4.B.30 filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 33-39211).
10.40				Twenty-Eighth Supplemental Indenture, dated as of May 15, 1992 (incorporated by reference to Exhibit 4.31.B to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K dated May 21, 1992, Commission File No. 1-3573).
10.41				Supplemental Agreement between CE Casecnan Water and Energy Company, Inc. and the Philippines National Irrigation Administration dated as of September 29, 2003.
10.42				Thirtieth Supplemental Indenture, dated as of October 1, 1993 (incorporated by reference to Exhibit 4.34.A to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K, dated October 7, 1993, Commission File No. 1-3573).
10.43				Thirty-First Supplemental Indenture, dated as of July 1, 1995, between Iowa-Illinois Gas and Electric Company and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.16 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended dated December 31, 1995, Commission File No. 1-11505).
10.44				Sixth Amendment to 180 MW Power Plant-Mahanagdong Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and CE Luzon Geothermal Power Company, Inc.
10.45				Third Amendment to 231 MW Power Plant-Malitbog Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and Visayas Geothermal Power Company, Inc.
10.46				Seventh Amendment to 125 MW Power Plant-Upper Mahiao Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and CE Cebu Geothermal Power Company, Inc.
10.47				Fiscal Agency Agreement, dated as of October 15, 2002, between Northern Natural Gas Company and J.P. Morgan Trust Company, National Association, Fiscal Agent, relating to the $300,000,000 in principal amount of the 5.375% Senior Notes due 2012.
10.48				Trust Indenture, dated as of August 13, 2001, among Kern River Funding Corporation, Kern River Gas Transmission Company and the JP Morgan Chase Bank, as Trustee, relating to the $510,000,000 in principal amount of the 6.676% Senior Notes due 2016.
10.49				Third Supplemental Indenture, dated as of May 1, 2003, among Kern River Funding Corporation, Kern River Gas Transmission Company and JPMorgan Chase Bank, as Trustee, relating to the $836,000,000 in principal amount of the 4.893% Senior Notes due 2018.
10.50				CalEnergy Company, Inc. Voluntary Deferred Compensation Plan, effective December 1, 1997, First Amendment, dated as of August 17, 1999, and Second Amendment effective March 2000 (incorporated by reference to Exhibit 10.50 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
10.51				MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan (incorporated by reference to Exhibit 10.51 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
10.52				MidAmerican Energy Company First Amended and Restated Supplemental Retirement Plan for Designated Officers dated as of May 10, 1999 (incorporated by reference to Exhibit 10.52 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).

122

Exhibit No.
10.53				MidAmerican Energy Company Restated Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999).
10.54				MidAmerican Energy Holdings Company Restated Deferred Compensation Plan-Board of Directors (incorporated by reference to Exhibit 10 to MEHC's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.55				MidAmerican Energy Company Combined Midwest Resources/Iowa Resources Restated Deferred Compensation Plan-Board of Directors (incorporated by reference to Exhibit 10.63 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999).
10.56				Midwest Resources Inc. Supplemental Retirement Plan (formerly the Midwest Energy Company Supplemental Retirement Plan (incorporated by reference to Exhibit 10.10 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654).
10.57				Amendment No. 1 to the Midwest Resources Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.24 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654).
10.58				Iowa-Illinois Gas and Electric Company Supplemental Retirement Plan for Designated Officers, as amended as of July 28, 1994 (incorporated by reference to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-3573).
10.59				Iowa-Illinois Gas and Electric Company Compensation Deferral Plan for Designated Officers, as amended as of July 1, 1993 (incorporated by reference to Exhibit 10.K.2 to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-3573).
10.60				Iowa-Illinois Gas and Electric Company Compensation Deferral Plan for Key Employees, dated as of April 26, 1991 (incorporated by reference to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-3573).
10.61				Iowa-Illinois Gas and Electric Company Board of Directors' Compensation Deferral Plan (incorporated by reference to Exhibit 10.K.4 to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-3573).
10.62				Iowa Utilities Board Settlement Agreement among MidAmerican Energy Company, Office of Consumer Advocate, Iowa Energy Consumers, Aluminum Company of America, Deere & Company, Cargill Inc., U.S. Gypsum Company, Interstate Power Company and IES Utilities, Inc. (incorporated by reference to Exhibit 10.16 to the MidAmerican Funding, LLC and MidAmerican Energy Company respective Annual Reports on the combined Form 10-K for the year ended December 31, 2000, Commission File Nos. 333-90553 and 1-11505, respectively).
10.63				Share Sale Agreement, dated as of August 6, 2001, among NPower Yorkshire Limited, Innogy Holdings plc, CE Electric UK plc and Northern Electric plc (incorporated by reference to Exhibit 10.63 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002).
10.64				Purchase Agreement, dated as of March 7, 2002, among The Williams Companies, Inc., Williams Gas Pipeline Company, LLC, Williams Western Pipeline Company LLC, Kern River Acquisition, LLC and MEHC, KR Holding, LLC, KR Acquisition 1, LLC and KR Acquisition 2, LLC (incorporated by reference to Exhibit 99.2 to MEHC's Current Report on Form 8-K dated March 28, 2002).

123

Exhibit No.
10.65				MidAmerican Energy Holdings Company Executive Incremental Profit Sharing Plan (incorporated by reference to Exhibit 10.2 of MEHC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.)
10.67				Purchase and Sale Agreement, dated as of July 28, 2002, between Dynegy Inc., NNGC Holding Company, Inc. and MEHC (incorporated by reference to Exhibit 99.2 to MEHC's Current Report on Form 8-K dated July 30, 2002).
14.1				MidAmerican Energy Holdings Company Code of Ethics for Chief Executive Officer, Chief Financial Officer and Other Covered Officers.
21.1				Subsidiaries of the Registrant.
24.1				Power of Attorney.
31.1				Chief Executive Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2				Chief Financial Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1				Chief Executive Officer's Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2				Chief Financial Officer's Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

124

EX-10.41

EXHIBIT 10.41

                             SUPPLEMENTAL AGREEMENT

                                  REGARDING THE
                 AMENDED AND RESTATED CASECNAN PROJECT AGREEMENT


This Supplemental Agreement (the "Agreement") is dated September 29, 2003 and is
by and between CE CASECNAN WATER AND ENERGY COMPANY, INC., a Philippine
corporation (hereinafter referred to as the "Operator" or "CE Casecnan"), with
offices at 24th Floor, 6750 Ayala Avenue, Makati, Metro Manila, Philippines,
represented herein by David A. Baldwin, its President, who is duly authorized to
represent it in this Agreement and the NATIONAL IRRIGATION ADMINISTRATION, a
government owned and controlled corporation attached to the Department of
Agriculture of the Republic of the Philippines (hereinafter referred to as
"NIA"), with principal offices at Elliptical Road, Diliman, Quezon City,
Philippines, represented herein by Jesus Emmanuel M. Paras, its Administrator,
who is duly authorized to represent it in this Agreement.


WHEREAS, NIA and CE Casecnan are parties to that certain Amended and Restated
Project Agreement, dated June 26, 1995 (including the schedules thereto, the
"Project Agreement").

WHEREAS, there exist disputes between NIA and CE Casecnan with respect to the
Project Agreement and such disputes are currently the subject of an
International Chamber of Commerce arbitration proceeding styled as Case No.
12284/TE - CE Casecnan Water and Energy Company, Inc. v. National Irrigation
Administration.

WHEREAS, NIA and CE Casecnan wish to document their settlement of the disputes
and certain other matters related to the Project, including inter alia, to amend
the Project Agreement to eliminate the increases in the Water Delivery Fee
payable by NIA claimed to be due under Article 11 thereof and to reduce the
obligations of NIA in respect of Water Delivery Fees and Energy Delivery Fees
thereunder.

NOW THEREFORE, for and in consideration of the foregoing premises, and the terms
and conditions set forth herein, the parties hereto hereby agree as follows:

                                    ARTICLE 1

                               DEFINITION OF TERMS

1.1 Definitions. Capitalized terms used in this Agreement and not otherwise
defined shall have the meanings given thereto in the Project Agreement.

"CO Water" means the volume of water, expressed in cubic meters, available for
delivery by the Casecnan Project but which is not delivered to NIA as a result
of NIA's failure to accept energy deliveries at a capacity up to 150MW as
provided in Section 2.5 at any time and up to 490,000,000 kWh in any Contract
Year. The




definition of "V" as used in Fifth Schedule of the Project Agreement shall be
construed in accordance with this definition of CO Water.

"CO Water Fee" has the meaning given thereto in Section 2.5(c) of this
Agreement.

"Closing Date" means the date on or after the date on which each of the
conditions in Section 5.1 have been met, but in no event later than October 15,
2003, which is mutually agreed to by NIA and CE Casecnan for closing.

"Contract Year" means each period from 10:00 am on December 25 in one calendar
year to 10:00 am on December 25 in the immediately succeeding calendar year.

"Delivered Water" means the volume of water, expressed in cubic meters, which
during the relevant time period was delivered to the Water Delivery Point.

"ICC Arbitration" means International Chamber of Commerce Case No. 12284/TE - CE
Casecnan Water and Energy Company, Inc. v. National Irrigation Administration.

"RoP Bond" means a ten-year bond of the Republic of the Philippines in the form
attached hereto as Exhibit B with a principal amount of not more than US$97
million.

"Settlement Documents" means this Agreement, the RoP Bond and all other
documents ancillary to any of the foregoing to which any of CE Casecnan Water
and Energy Company, Inc., NIA, the Republic of the Philippines or any other
Philippine government agency or instrumentality is a party.

"Settlement Amount" has the meaning given thereto in Section 4.1.

"Threshold Volume" means for each Month commencing after December 25, 2008,
700,000,000 cubic meters.


"Total Available Water" for the relevant time period means the sum of (i)
Delivered Water plus (ii) CO Water.

"Water Delivery Rate" equals the per cubic meter price for water for each Month,
as shown in Annex I.

1.2 References. Any reference in this Amendment to an "Article," "Part,"
"Section", "Exhibit" or "Schedule" is a reference to an article, part or section
hereof or a schedule hereto.

                                    ARTICLE 2

                       AMENDMENTS TO THE PROJECT AGREEMENT

2.1 Amendments to Definitions. Article 1 of the Project Agreement is hereby
amended by adding thereto the following new definitions:




              "Article 11 Taxes" means any and all present or future taxes
              (including without limitation real estate and personal property
              taxes, assessments, and other charges in respect of the Project
              equipment, structures and improvements (all of the foregoing,
              "Real Property Taxes"), stamp taxes, registration fees and
              business taxes,), duties, levies, imposts, or other fees or
              charges, and other levies of any kind whatsoever imposed,
              collected or claimed by or paid or payable to or at the direction
              or for the account of any Governmental Authority to which the
              Operator, the Project, any component parts of the Project or the
              Project documents are or may at any time be or become subject and
              all amounts by which the Operator (whether as direct obligor or
              withholding agent) is required to increase its payments to the
              holders of the Operator's Current Indebtedness (including without
              limitation all amounts which the Operator is required to pay or
              remit as withholding taxes on interest payments to the holders of
              the Operator's Current Indebtedness), provided however that
              Article 11 Taxes shall not include (i) any Philippine value-added
              taxes (which shall be reimbursed in accordance with normal VAT
              regulations), (ii) any taxes imposed or calculated on the basis of
              the net income of the Operator, and (iii) the levy of 1 centavo
              per kWh of generation pursuant to Energy Regulation 1-94.

              "Operator's Current Indebtedness" means the $125,000,000 11.45%
              Series A Notes and $171,500,000 11.95% Series B Bonds of CE
              Casecnan Water and Energy Company, Inc.

              "Water Delivery Fee" means the Guaranteed Water Delivery Fee plus
              the Variable Delivered Water Delivery Fee minus the Water Delivery
              Fee Credit, all as provided for herein.

2.2 Amendments to Article 11. Article 11 of the Project Agreement is hereby
amended by deleting it in its entirety and replacing it with the following:

                                   ARTICLE 11

                                      TAXES

              11.1 RESPONSIBILITIES. (a) NIA shall not pay any Article 11 Taxes
              for or on behalf of the Operator. As part of the recovery of its
              investment, however, the Operator shall invoice NIA for and NIA
              shall be responsible for as an additional payment hereunder an
              amount equal to all Article 11 Taxes.

              (b) (i) On or about the 10th day of each January, April, July and
              October, the Operator shall advise NIA of the Article 11 Taxes
              (other than interest withholding taxes in respect of the
              Operator's Current Indebtedness) which it then anticipates having
              to pay within the current calendar quarter, provided that NIA
              acknowledges that such advice




              shall be indicative only and the failure to so advise NIA of any
              Article 11 Tax which is in fact paid by CE Casecnan shall not
              reduce or alter NIA's obligation to pay such tax if invoiced in
              accordance with paragraph (c) below.

              (ii) On or about the 10th day of each January, April, July and
              October, the Operator shall advise NIA of the bond interest
              withholding taxes in respect of the Operator's Current
              Indebtedness which it then anticipates invoicing NIA on the
              immediately succeeding quarter, respectively, provided that NIA
              acknowledges that such advice shall be indicative only and the
              failure to so advise NIA of any Article 11 Tax which is in fact
              paid by CE Casecnan shall not reduce or alter NIA's obligation to
              pay such tax if invoiced in accordance with paragraph (c) below.

              (c) Together with the invoices delivered by the Operator pursuant
              to Section 7.6 of the Project Agreement on each January 25, April
              25, July 25 and October 25, the Operator will deliver to NIA an
              invoice (separate from the invoices in relation to water and
              energy) in respect of any Article 11 Taxes (other than interest
              withholding taxes with respect to the Operator's Current
              Indebtedness) which have been paid by the Operator in the
              immediately preceding calendar quarter, and NIA shall pay to the
              Operator the amount of such invoice within ninety (90) days after
              the delivery of such invoice. Interest withholding taxes with
              respect to the Operator's Current Indebtedness shall be invoiced
              on each January 25, April 25, July 25 and October 25and NIA shall
              pay to the Operator the amount of such invoice within ninety (90)
              days after the delivery of such invoice. The Operator shall
              provide to NIA documentation evidencing the payment of all such
              taxes included within the invoiced amount.

              (d) Attached hereto as the Tenth Schedule is the Operator's
              current estimate of the Article 11 Taxes which will become due and
              payable through the remainder of the Cooperation Period.
              Inaccuracies in the Tenth Schedule shall not in any way reduce or
              alter NIA's obligation to reimburse the Operator for any and all
              Article 11 Taxes actually paid by the Operator, as provided in
              this Article 11.

              (e) CE Casecnan shall not pay any Real Property Taxes unless and
              until it shall have been directed to do so in writing by NIA, with
              the concurrence of the Department of Finance, provided that CE
              Casecnan may pay such Real Property Taxes under protest if CE
              Casecnan has not received such a direction to pay and faces the
              risk of imminent assessment of penalties for non-payment and CE
              Casecnan has notified NIA in writing of such imminent risk, unless
              NIA and the Department of Finance jointly agree in writing (prior
              to any such penalties accruing) to be responsible for any such
              penalties in which event CE Casecnan shall not so pay. If paid by
              CE Casecnan, such Real Property Taxes shall be reimbursed as
              provided for in paragraph (c) above.





              11.2 TAX CREDIT OR PAYMENT CERTIFICATE. NIA shall have no
              obligation to reimburse the Operator for any Article 11 Taxes as
              to which it has delivered to the Operator a certificate or other
              evidence, in form and substance satisfactory to the Operator, from
              the Philippine Bureau of Internal Revenue or such other Philippine
              Government Authority which has levied the applicable Article 11
              Tax, exempting the Operator from the payment and/or evidencing
              remittance or credit (without the need for payment) of such
              Article 11 Tax, or otherwise ensuring that CE Casecnan has no
              liability or cash outflow for such taxes, such certificate or
              evidence to be delivered prior to the date on which such Article
              11 Tax is due. NIA shall indemnify and hold harmless the Operator
              against all claims, losses and demands in respect of any Article
              11 Taxes so exempted or as to which other evidence of no liability
              is provided.

              11.3 PAYMENTS FREE AND CLEAR. All sums payable by NIA under
              Section 11.1 shall be paid in full, without set-off or
              counterclaim, free of any deductions and withholdings imposed by
              any Governmental Authority, all of which shall be for the account
              of NIA.

2.3 Payments for Water. NIA shall pay for water in accordance with the relevant
provisions of the Fifth Schedule of the Project Agreement and the following
provisions, provided that to the extent of any inconsistencies between the Fifth
Schedule and the following provisions, the following provisions shall prevail:

(a) The Water Delivery Fee shall be equal to the Guaranteed Water Delivery Fee
plus the Variable Delivered Water Delivery Fee minus the Water Delivery Fee
Credit (as such term is defined in Section (f)(i) below), and shall be
calculated on a monthly basis and be payable in Dollars at the end of each
Month:

(b) (i) For each Month through to the Month ending on December 25, 2008 the
Guaranteed Water Delivery Fee shall equal the Water Delivery Rate multiplied by
66,825,000 cubic meters (corresponding to 801.9 million cubic meters per year)
and (ii) for each Month beginning with the Month commencing December 25, 2008
the Guaranteed Water Delivery Fee shall equal the Water Delivery Rate multiplied
by 58,333,333 cubic meters (corresponding to 700 million cubic meters per year).

(c) The actual volume of Delivered Water and CO Water in any Month greater than
or less than (i) prior to the Month beginning on December 25, 2008, 66,825,000
cubic meters and (ii) after the Month beginning on December 25, 2008, 58,333,333
cubic meters, will not result in any increases or reductions of the Guaranteed
Water Delivery Fee. Each of NIA and CE Casecnan understands and acknowledges
that the 66,825,000 cubic meter and 58,333,333 cubic meter monthly figures are
mathematical averages of annual figures and therefore do not bear any
relationship to water flows in any particular Month.

(d) For each Month through the Month ending December 25, 2008, the Variable
Delivered Water Delivery Fee shall be zero and for each Month beginning with the
Month commencing December 25, 2008 through the end of




the Cooperation Period, the Variable Delivered Water Delivery Fee shall be
payable only from the date when the cumulative Total Available Water for the
then current Contract Year exceeds 700,000,000 cubic meters and (i) for the
first Month in each such Contract Year shall equal the Water Delivery Rate
multiplied by the amount obtained by subtracting 700,000,000 from the Total
Available Water for the Contract Year through the end of such first Month during
which the Total Available Water has exceeded 700,000,000 cubic meters and (ii)
for subsequent Months of the same Contract Year, the Variable Delivered Water
Delivery Fee shall equal the Water Delivery Rate multiplied by the Total
Delivered Water for such Month, in cubic meters, but shall only be payable to
the extent the cumulative Total Available Water from December 25, 2008 for which
CE Casecnan has been paid is less than 1,324,700,000 cubic meters (i.e., is less
than 101,900,000 (being the difference between 801,900,000 and 700,000,000) x 13
(being the number of years in the Cooperation Period from December 2008 through
December 2021)).

(e) When in the aggregate Variable Delivered Water Delivery Fees plus CO Water
Fees have been earned on 1,324,700,000 cubic meters of water, the Variable
Delivered Water Delivery Fee shall be zero for the remainder of the Cooperation
Period (i.e., from the date such amount has been earned through December 11,
2021).

(f)(i) The Water Delivery Fee Credit shall be applicable only for each of the 60
       Months from December 25, 2008 through December 25, 2013 and shall equal
       the Water Delivery Rate as at December 25, 2008 (i.e.: 0.07381 US$/m3)
       multiplied by the sum of each Annual Water Credit divided by 60. The
       Annual Water Credit for each Contract Year starting from December 25,
       2003 and ending on December 25, 2008 shall equal 801,900,000 minus the
       Total Available Water for each Contract Year starting from December 25,
       2003 and ending on December 25, 2008 (in cubic meters).

       (ii) For any year, the Annual Water Credit may be positive or negative,
       provided that if the Total Available Water for any Contract Year is less
       than 700,000,000, the Annual Water Credit shall be 101,900,000.

       (iii) If the Water Delivery Fee Credit is negative (i.e., over the 5-year
       period from December 25, 2003 through December 25, 2008 CE Casecnan has
       delivered more water on an annual average basis than 801,900,000 cubic
       meters), then NIA shall retain the benefit of the over-deliveries at no
       additional charge and the Water Delivery Fee Credit shall have no further
       force or effect hereunder.

2.4 Payments for Variable Energy. (a) NIA shall pay for energy in excess of the
19,000,000 kWh per month (228,000,000 kWh per year) in accordance with the
relevant provisions of the Fifth Schedule of the Project Agreement and the
following provisions, provided that to the extent of any inconsistencies between
the Fifth Schedule and the following provisions, the following provisions shall
prevail.

(b) Each reference in the Project Agreement to "Excess Energy Delivery Fee",
"Excess Energy" and "EEDF" are hereby deleted and replaced with the words
"Variable Energy Delivery Fee", "Variable Energy" and "VEDF", respectively.

(c) Each reference in the Project Agreement to "CERA(EE)" is deleted and
replaced with "CERA(VE)"




(d) The definition of the term CERA(VE) in the Project Agreement is deleted in
its entirety and replaced with the following:

       CERA(VE) equals the unit price for electrical energy delivered in any
       Month in excess of 19,000,000 kWh (as shown in Annex II), established at
       (i) for each Month through the Month ending on December 25, 2008, $0.1509
       (15.09 U.S. cents) per kilowatt-hour (kWh), and (ii) for each Month
       commencing with the Month beginning on December 25, 2008, $0.1132 (11.32
       U.S. cents) per kWh and escalated annually thereafter commencing December
       25, 2009 at the rate of 1.00% per annum (e.g., for the billing period
       commencing December 25, 2009, the Variable Energy Fee per kWh shall be
       US$0.1143 (i.e., 0.1132 + (0.1132 x .01)) and for the billing period
       commencing December 25, 2010, the Variable Energy Fee per kWh shall be
       US$0.1154 (i.e., 0.1143 + (0.1143 x .01))); provided, however, that, with
       effect from October 15, 2003, the unit price for electrical energy in
       excess of 490,000,000 kWh delivered in any Contract Year shall be 1.30
       Philippine Pesos per kWh for each Month through the Month ending on
       December 25, 2008 and for each Month commencing with the Month beginning
       on December 25, 2008 shall be 0.98 Philippine Pesos per kWh and escalated
       annually thereafter commencing December 25, 2009 at the rate of 1.00% per
       annum, provided further that, also with effect from October 15, 2003,
       electrical energy in excess of 550,000,000 kWh delivered in any Contract
       Year shall be delivered at no charge (i.e., each of CERA(GE) and CERA(VE)
       for such amounts shall be zero).

2.5 Dispatch Protocol. (a) NIA shall make a demand forecast available to CE
Casecnan on a weekly basis. NIA, from time to time, shall advise CE Casecnan of
NIA's preferred dispatching sequence of the Casecnan Project. NIA shall endeavor
to dispatch the Casecnan Project at the agreed maximum of 150MW and shall at the
request of CE Casecnan endeavor to dispatch for more than 12 hours each day. Any
dispatch above 150MW shall be at NIA's sole option.

(b) Notwithstanding paragraph (a) above, if NIA does not dispatch the Project at
the agreed 150MW maximum load, and if water is available for delivery to NIA
during any hour of each day (24 hours per day), NIA shall pay CE Casecnan for
the calculated energy (CO) corresponding to the amount of actual water spilled
based upon the 150MW maximum load during any hour of each day (24 hours per day)
provided that in no event shall CO be due and payable for any Contract Year if
actual energy delivered for such Contract Year paid for by NIA is equal to or
greater than 490,000,000 kWh.

CE Casecnan shall send NIA (with copy to NPC) a separate monthly statement of
CO, provided that actual CO shall only be payable yearly at the end of each
Contract Year after determination as to whether actual generation for such
Contract Year equal to or greater than 490,000,000 kWh has been paid for by NIA.

If NIA has paid for 490,000,000 kWh or more of energy for such Contract Year, no
CO shall be due and payable. If NIA has paid for less than 490,000,000 kWh for
such Contract Year, CE Casecnan shall invoice the aggregate amount of CO for
such Contract Year as set forth in each monthly statement up to an amount which,
when added to the energy actually paid for by NIA, equals 490,000,000 kWh.




(c) In addition, if NIA does not dispatch the Project at the agreed 150MW
maximum load, and if water is available for delivery to NIA during any hour of
each day (24 hours per day), NIA shall pay CE Casecnan for CO Water
corresponding to the amount of actual water spilled based upon the 150MW maximum
load during any hour of each day (24 hours per day) provided that in no event
shall CO Water be due and payable for any Contract Year if Delivered Water for
such Contract Year paid for by NIA is equal to or greater than 801,900,000 cubic
meters.

CE Casecnan shall send NIA a separate monthly statement of CO Water, provided
that actual CO Water shall only be payable yearly at the end of each Contract
Year after determination as to whether Delivered Water for such Contract Year
equal to or greater than 801,900,000 cubic meters has been paid for by NIA.

If NIA has paid for 801,900,000 cubic meters or more of Delivered Water for such
Contract Year, no CO Water shall be due and payable. If NIA has paid for less
than 801,900,000 cubic meters for such Contract Year, CE Casecnan shall invoice
the aggregate amount of CO Water for such Contract Year as set forth in each
monthly statement up to an amount which, when added to the Delivered Water
actually paid for by NIA, equals 801,900,000 cubic meters.

(d) Notwithstanding paragraph (c) above, for the period from December 25, 2003
through December 25, 2008, CE Casecnan shall include in any determination of
Total Available Water for the purpose of determining the Annual Water Credit the
aggregate amount of CO Water for each Contract Year as set forth in each monthly
statement, up to an amount which, when added to the Delivered Water actually
paid for by NIA, does not exceed 888,000,000 cubic meters.

(e) NIA and NPC shall have the right to verify the computation of CO or set up a
procedure or protocol to monitor or verify water spillage. If considered
practicable by CE Casecnan, CE Casecnan shall install new facilities to reduce
the spillage of water.

(f) CO and CO Water shall be calculated and due and payable in accordance with
the forgoing from and after September 29, 2003. No further payments in respect
of CO shall be due and payable for the period from December 11, 2001 through
September 28, 2003.

(g) This Section 2.6 (Dispatch Protocol) supplements the Second Schedule
(Operating Parameters) of the Project Agreement.

2.6 Annexes I and II. The text of Annex I and Annex II referred to above is
attached to this Agreement as Exhibit C.

2.7 Tenth Schedule. The Project Agreement is hereby amended by adding thereto a
new schedule, designated the Tenth Schedule, as set forth as Exhibit D to this
Agreement.




                                    ARTICLE 3

COMPLIANCE WITH ER 1-94

3.1. CE Casecnan to Comply with ER 1-94. CE Casecnan hereby acknowledges and
agrees that it shall pay the tax of 1 centavo per kWh of generation for the
benefit of the host community, and as and when described in Energy
Regulation1-94 as in effect on the date of this Agreement. CE Casecnan
acknowledges that the levy of 1 centavo per kWh of generation pursuant to Energy
Regulation 1-94 shall not be reimbursable from NIA.



                                    ARTICLE 4

                                   SETTLEMENT

4.1 Settlement. In consideration of settling all amounts paid to date for taxes
(apart from VAT, which shall be reimbursed in accordance with normal VAT
regulations) for which NIA was obligated under the Project Agreement to
reimburse CE Casecnan, and in consideration of all other concessions provided
herein, NIA shall pay to CE Casecnan the sum of one hundred fourteen million six
hundred and ninety two thousand six hundred and twenty nine United States
Dollars (US$114,692,629) plus thirty nine million nine hundred and ninety seven
thousand nine hundred and forty one Philippine pesos (Php. 39,997,941) (the
"Settlement Amount") of which the sum of seven million six hundred and ninety
two thousand six hundred and twenty nine United States Dollars (US$7,692,629)
plus thirty nine million nine hundred and ninety seven thousand nine hundred and
forty one Philippine pesos (Php. 39,997,941) represents taxes paid since the
commencement of operations through June 30, 2003 and the detail of which is set
forth on Exhibit A hereto.

4.2 Cash Payment. Not less than the sum of seventeen million six hundred and
ninety two thousand six hundred and twenty nine United States Dollars
(US$17,692,629) plus thirty nine million nine hundred and ninety seven thousand
nine hundred and forty one Philippine pesos (Php. 39,997,941) of the Settlement
Amount shall be due and payable in cash on the Closing Date. The US dollar
amount shall be paid by wire transfer of immediately available funds to the
account of CE Casecnan set forth below:

                  THE JP MORGAN TRUST COMPANY

                  ABA 021000021 CTCC OPERATING ACCOUNT NO. 507-874439

                  RE: 126535.5 CE CASECNAN REVENUE ACCOUNT

The Philippine peso amount shall be paid by wire transfer of immediately
available funds to the account of CE Casecnan set forth below:

                  CITIBANK, NA

                  9TH FLOOR, CITIBANK TOWER, 8741 PASEO DE ROXAS, MAKATI CITY




                  ACCOUNT NO. 0-602776-018

                  RE: CE CASECNAN WATER AND ENERGY COMPANY, INC.

NIA shall have the option, in its sole discretion, of paying more of the
Settlement Amount in cash on the Closing Date, in which event the principal
amount of the RoP Bond shall reduce dollar for dollar for each dollar of cash so
paid in excess of seventeen million six hundred and ninety two thousand six
hundred and twenty nine United States Dollars (US$17,692,629).

4.3 RoP Bond. The balance of the Settlement Amount not paid in cash shall be
paid in the form of delivery of the RoP Bond to and in the name of CE Casecnan,
which shall be delivered on or prior to the Closing Date. It is understood that
NIA is the party liable for the Settlement Amount, and it also understood that
NIA is the beneficiary of the RoP Bond. NIA shall exert its best efforts to
obtain from the DOF the issuance of the RoP Bond for the specific purpose of
making available the Settlement Amount to NIA by investing or purchasing NIA
issued bonds or other credit instruments. NIA shall obtain the cooperation of
the Department of Finance to provide necessary disclosure materials with respect
to the RoP Bond, and provide other marketing information as necessary if CE
Casecnan decides to assign the RoP Bond to a third party.

4.4 CE Casecnan Delay Damages. In full and final settlement of any and all
claims whatsoever in respect of late completion of the Project, CE Casecnan
shall pay to NIA the sum of one million six hundred thousand United States
Dollars (US$1.6 million) in cash on the Closing Date. Such payment shall be made
by cashiers check delivered to NIA.

4.5 Income Tax Liability. In full and final settlement of any Philippine income
tax liability in respect of receipt by CE Casecnan of the Settlement Amount, CE
Casecnan shall pay to the Bureau of Internal Revenue Philippine income tax in
the amount of twenty four million three hundred and eighty three thousand and
thirty five United States Dollars (US$24,383,035) ("Final Settlement Taxes"), as
confirmed by the Bureau of Internal Revenue on or before closing, such amount to
be paid by CE Casecnan to the Bureau of Internal Revenue on or prior to the
Closing Date as an advance payment of 2003 Philippine income taxes on the
Settlement Amount pursuant to a special tax return filed with the Philippine
Bureau of Inland Revenue as set forth in Exhibit E hereto.

4.6 No Set-Off. All sums payable by NIA hereunder shall be paid in full, without
set-off or counterclaim, free of any deductions and withholdings imposed by any
Governmental Authority, all of which shall be for the account of NIA. In the
event that NIA is required by law to make deductions or withholdings from its
payments to CE Casecnan, then NIA shall pay such additional amounts to CE
Casecnan as may be necessary in order that the actual amount received after
deduction or withholding (and after payment of any additional Taxes or other
charges due as consequence of the payment of such additional amounts) shall
equal the amount that would have been received if such deduction or withholding
were not required.




                                    ARTICLE 5

                        CONDITIONS PRECEDENT AND CLOSING

5.1 Conditions to Effectiveness. Sections 8.2, 8.3, 8.6 and 8.9 of this
Agreement shall be effective upon full execution and delivery hereof. The
effectiveness of each other provision of this Agreement is conditional upon
satisfaction of the following conditions:

(a) delivery to CE Casecnan of a copy of resolutions adopted by the Board of
Directors of NIA authorizing the execution, delivery and performance by NIA of
this Agreement;

(b) delivery to CE Casecnan of evidence reasonably satisfactory to CE Casecnan
that the IAC/EPIRA issues have been resolved to the satisfaction of the Power
Sector Assets and Liabilities Management Corporation by virtue of this
Agreement;

(c) delivery to CE Casecnan of a copy of the approval of the cabinet level
committee of the Investment Coordinating Committee;

(d) delivery to CE Casecnan of an opinion of NIA's counsel, the OGCC, as to the
due authorization, approval and execution of this Agreement and of the
consummation of the transactions contemplated hereby and as to the validity,
legality and enforceability of the same.

(e) delivery to NIA of a copy of resolutions adopted by CE Casecnan's Board of
Directors authorizing the execution, delivery, and performance by CE Casecnan of
this Agreement;

(f) delivery to NIA of a copy of resolutions adopted by the executive committee
of MidAmerican Energy Holdings Company's of the Board of Directors authorizing
the execution, delivery, and performance by CE Casecnan of this Agreement;

(g)  the actions described in Sections 5.3 and 5.4 having taken place.

5.2. Termination of Agreement. If all of the conditions in Section 5.1 have not
been fulfilled by October 15, 2003, this Agreement shall have no force and
effect and neither party shall have any liability under this Agreement and the
parties shall be returned to the position as of the date of this Agreement with
no amendment to the Project Agreement and all attendant rights and remedies
associated therewith.

5.3  NIA Actions on the Closing Date.  On or before the Closing Date, NIA shall:

      (a)  pay to CE Casecnan the amounts specified in Section 4.2, in the
           manner specified therein; and

      (b)  deliver or cause to be delivered to CE Casecnan the RoP Bond,
           together with a letter or attestation signed by an authorized officer
           of the Department of Finance or Bureau of Treasury confirming




           that the said RoP Bond has been duly and validly issued on behalf of
           the Republic of the Philippines, and that the obligations contained
           therein are legal, valid and enforceable obligations binding of the
           Republic on the Philippines in accordance with the terms and
           conditions thereof.

5.4   CE Casecnan Actions on the Closing Date. On or before the Closing Date,
      CE Casecnan shall:

      (a)  pay to NIA the amount specified in Section 4.4, in the manner
           specified therein; and

      (b)  pay the Final Settlement Taxes, provided that CE Casecnan has
           received written confirmation from the Bureau of Internal Revenue
           that other than the Final Settlement Taxes, no taxes of any kind are
           due in connection with the receipt by CE Casecnan of the Settlement
           Amount.

                                    ARTICLE 6

REPRESENTATIONS AND WARRANTIES

6.1 Representations and Warranties of CE Casecnan. CE Casecnan represents that
it is a private corporation, duly organized and existing under the laws of its
jurisdiction of incorporation with the corporate power and authority to execute,
deliver, and perform the terms and conditions to be performed by it under this
Agreement and by the Closing Date shall have taken all necessary action, and
shall have secured or caused to be secured all necessary government orders,
consents or approvals, permits, and licenses to enter into and perform all of
the terms of this Agreement.

6.2 Representations and Warranties of NIA. NIA represents and warrants that (i)
it is an agency of the Department of Agriculture duly organized and existing
under and by virtue of the laws of the Republic of the Philippines and has the
power and authority to execute, deliver, and carry out the terms and conditions
of this Agreement. NIA represents and warrants that by the Closing Date it shall
have taken all necessary action, and have secured or caused to be secured all
necessary government orders, consents or approvals, permits, and licenses to
enter into and perform all of the terms of this Agreement and to permit the
Department of Agriculture, NPC and the Department of Finance to enter into and
perform all of the terms of the Settlement Documents to which each of them is a
party, and (ii) each approval, endorsement, authorization and opinion given with
respect to the Project and the Project Agreement is and will remain valid and
binding upon the execution and effectivity of this Agreement.

6.3 NIA also represents and warrants that (i) the obligations of NIA in the
Settlement Documents to which it is a party are legal and valid obligations
binding on NIA enforceable in accordance with the terms and conditions thereof,
and (ii) the obligations of the Republic of the Philippines under the RoP Bond
are legal and valid obligations binding on the Republic of the Philippines
enforceable in accordance with the terms and conditions thereof and the RoP Bond
is a full faith and credit obligation of the Republic of the Philippines.







                                    ARTICLE 7

RELEASE OF CLAIMS; DISMISSAL OF ARBITRATION

7.1 Release by CE Casecnan. CE Casecnan (on behalf of itself and its affiliates,
predecessors, successors, assigns, principals, officers, directors, general
partners, limited partners, stockholders, members, managers, agents, servants,
employees, and representatives, and all persons acting by, through, under, or in
concert with any of them) hereby releases, remises and forever discharges NIA
and each other agency, department and instrumentality of the Republic of the
Philippines, effective on the Closing Date, of and from any and all claims,
causes of action, complaints, charges, liabilities, damages, demands, costs,
taxes, attorneys' fees or expenses, whether arising in law or in equity whether
fixed or contingent, whether known or unknown, which CE Casecnan ever had, now
has or hereafter can, shall, or may have, for, upon, or by reason of any matter
cause or thing (i) alleged or asserted by CE Casecnan in its Request for
Arbitration as filed in the ICC Arbitration, or (ii) arising prior to the
Closing Date.

7.2 Release by NIA. NIA (on behalf of itself and each other agency, department
and instrumentality of the Republic of the Philippines) hereby releases, remises
and forever discharges CE Casecnan (and its affiliates, predecessors,
successors, assigns, parent companies, principals, officers, directors, general
partners, limited partners, stockholders, members, managers, agents, servants,
employees, and representatives, and all persons acting by, through, under or in
concert with them), effective on the Closing Date, of and from any and all
claims, causes of action, complaints, charges, liabilities, damages, demands,
costs, taxes, attorneys' fees or expenses, whether arising in law or in equity,
whether fixed or contingent, whether known or unknown, which NIA ever had, now
has or hereafter can, shall, or may have, for, upon, or by reason of any matter
cause or thing (i) alleged or asserted by NIA in its Answer and Counterclaim and
Supplemental Counterclaim as filed in the ICC Arbitration, or (ii) arising prior
to the Closing Date.

7.3 Termination and Dismissal of Arbitration Proceedings. Each of NIA and CE
Casecnan hereby agree that as of the Closing Date the ICC Arbitration, including
all claims and counterclaims, and all defences to all claims and counterclaims,
is dismissed, on the merits, with prejudice and CE Casecnan and NIA agree to
submit an executed stipulation of discontinuance in the form set forth in
Exhibit F hereto on or prior to the date which is ten days after the Closing
Date.

                                    ARTICLE 8

MISCELLANEOUS

8.1 Headings. Article, Section, Part, paragraph, and/or Schedule headings
appearing in this Agreement are inserted for convenience only and shall not be
construed as interpretation of text.

8.2 Severability. If any part or parts of this Agreement shall be declared
invalid by an arbitral tribunal organized pursuant to Section 9.6 of this
Agreement, the other parts hereof shall not thereby be affected or





impaired and the arbitral tribunal shall enforce the remainder of the agreement
in a manner consistent with the manifest intent of the parties.

8.3 Notices. Unless otherwise stated, each communication to be made hereunder
shall be made in writing but, unless otherwise stated, may be made by facsimile,
registered mail, courier, or personal delivery at the addresses or fax numbers
specified in the Project Agreement.

8.4 No Waiver. None of the provisions of the Agreement shall be considered
waived by either party except when such waiver is given in writing. The failure
of a party to insist, in any one or more instances, upon strict performance of
any of the provisions of this Agreement or to take advantage of any of its
rights hereunder shall not be construed as a waiver of any such provisions or
the relinquishment of any such rights for the future, but the same shall
continue in full force and effect.

8.5. Assignment. The parties hereto agree that the assignment provisions of the
Project Agreement shall apply hereto mutatis mutandis..

8.6 Dispute Resolution. The parties hereto agree that the dispute resolution
provisions of the Project Agreement shall apply hereto mutatis mutandis.

8.7 No Other Agreements. The Project Agreement, this Agreement and its Exhibits
and Schedules supersede any previous agreements, arrangements, or
representations between the parties, whether oral or written, in respect of the
subject matter hereof and shall constitute the entire agreement between the
parties in relation thereto.

8.8 Project Agreement To Remain In Effect. Except as expressly modified by this
Agreement, all other provisions of the Project Agreement and the rights and
obligations of NIA and of CE Casecnan thereunder shall remain unchanged and in
full force and effect. To the extent of any inconsistencies between the Project
Agreement and this Agreement, the provisions of this Agreement shall prevail.

8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Republic of the Philippines.







IN WITNESS WHEREOF, the parties hereto have affixed their respective signatures
this 29th day of September in the year 2003.



NATIONAL IRRIGATION ADMINISTRATION    CE CASECNAN WATER AND ENERGY COMPANY, INC.

By:                                   By:
Name: Jesus Emmanuel M. Paras         Name: David A. Baldwin
Title: Administrator                  Title: President and Chief Executive
                                             Officer


WITH APPROVAL OF

DEPARTMENT OF AGRICULTURE, REPUBLIC OF THE PHILIPPINES

By:
Name: Luis P. Lorenzo
Title: Secretary


DEPARTMENT OF ENERGY OF THE           DEPARTMENT OF FINANCE OF THE REPUBLIC
REPUBLIC OF THE PHILIPPINES           OF THE PHILIPPINES

By:                                   By:
Name: Vincent S. Perez, Jr            Name: Jose Isidro N. Camacho
Title: Secretary                      Title: Secretary


NATIONAL POWER CORPORATION (with reference to Section 2.5, Dispatch Protocol)

By:
Name: Rogelio M. Murga
Title: President

NOTED BY:

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION

By:
Name: Edgardo M. Del Fonso
Title: President

EX-10.44

                                 SIXTH AMENDMENT

                TO THE 180 MW POWER PLANT--MAHANAGDONG AGREEMENT

This SIXTH AMENDMENT TO THE 18O MW POWER PLANT MAHANAGDONG AGREEMENT ("Sixth
Amendment") is made as of August 31, 2003 by and between:

CE LUZON GEOTHERMAL POWER COMPANY, INC. ("CE Luzon"), a corporation duly
organized and existing under the laws of the Philippines with offices at c/o
CalEnergy International, 24 Floor, 6750 Building, Ayala Avenue, Makati City,
Metro Manila, herein represented by its President and Chief Executive Officer
Mr. David A. Baldwin, who is duly authorized to represent it in this Sixth
Amendment;

and

PNOC-ENERGY DEVELOPMENT CORPORATION ("PN0C-EDC"), a wholly-owned subsidiary of
the Philippine National Oil Company, a corporation created and organized under
Presidential Decree No. 334, as amended, with principal office at Fort
Bonifacio, Merritt Road, Taguig City, Metro Manila, herein represented by its
Chairman and President Sergio Antonio F. Apostol, who is duly authorized to
represent it in this Agreement.

WHEREAS, CE Luzon and PNOC-EDC are parties to the 180 MW Power Plant -
Mahanagdong Agreement dated as of September 18, 1993, as amended (the "ECA")
pursuant to which CE Luzon constructed, owns and operates a 180 MW Power Plant
near Tongonan, Leyte known as Mahanagdong Power Plant (the "Mahanagdong
Plant");

WHEREAS, affiliates of CE Luzon constructed, own and operate the 231 MW Power
Plant near Tongonan, Leyte, known as the Malitbog Power Plant (the "Malitbog
Power Plant") and the 125 MW Power Plant near Tongonan, Leyte known as Upper
Mahiao Power Plant (the "Upper Mahiao Power Plant"); and

WHEREAS, CE Luzon and PNOC-EDC desire to amend the ECA in certain respects as
set forth herein and to resolve various issues between themselves with respect
to the ECA and the Power Plant.

NOW THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, CE Luzon and PNOC-EDC agree as follows:

I    DEFINITIONS.

(a) Capitalized terms used herein and not defined have the meanings ascribed to
them in the ECA



(b) Article 1 of the ECA is hereby amended by adding thereto the following new
definitions:

     Contract Year: Each yearly period commencing on July 25 of each calendar
     year and end on July 25 of the immediately succeeding calendar year.

2. NO FURTHER CAPACITY TESTS FOR PURPOSES OF NOMINATED CAPACITY

Section 5.5 (Tests During Cooperation Period) is hereby deleted in its entirety.

3. CAPACITY NOMINATION.

(a) Section 6.13 of the ECA is deleted in its entirety.

(b) For the purpose of computing Capacity Payments under Section 8.4 on TERMS OF
PAYMENT of the ECA, all references to Nominated Capacity, NC, shall be replaced
with Contracted Capacity, CC.

4. SCHEDULED MAINTENANCE

Section 6.14 of the ECA is hereby deleted in its entirety and replaced with the
following:

     (a) The Operator shall be entitled to conduct Scheduled Maintenance for
     each generating unit of the Power Plant without penalty for the duration
     set forth below with respect to each Contract Year (the "Scheduled
     Maintenance Duration").



     -------------------------------------------------------------------------------------
                     JULY 25, 2003 -   JULY 25, 2004 -   JULY 25, 2005 -   JULY 25, 2006 -
                      JULY 25, 2004     JULY 25, 2005     JULY 25, 2006     JULY 25, 2007
     -------------------------------------------------------------------------------------

     Scheduled
     Maintenance
     Duration
     (Hours/Unit)          576               240               240               576
     -------------------------------------------------------------------------------------


     CE Luzon may in its sole discretion and without penalty elect to utilize up
     to 576 hours for Scheduled Maintenance in one of the Contract Years July
     25, 2004 to July 25, 2005 or July 25, 2005 to July 25, 2006 in lieu of
     during Contract Year July 25, 2006 to July 25, 2007 if, upon the
     commencement of the Scheduled Maintenance during one of Contract Years July
     25, 2004 to July 25, 2005 or July 25, 2005 to July 25, 2006 CE Luzon
     determines that a major overhaul is necessary. If CE Luzon so elects, the
     duration of Scheduled Maintenance for Contract Year July 25, 2006 to July
     25, 2007 shall be reduced to 240 hours.

     (b) Scheduled Maintenance for each Contract Year shall commence on the
     dates indicated below:


                                                                               2



     -----------------------------
      UNIT 1     UNIT 2     UNIT 3
     -----------------------------
     July 26   July 29   August 14
     -----------------------------

     The commencement dates of Scheduled Maintenance for the Contract Years
     commencing July 2004, July 2005 and July 2006 may be modified by mutual
     agreement between PNOC-EDC and CE Luzon.

5. SCHEDULED MAINTENANCE PAYMENT

Within 30 days of the effective date of this Sixth Amendment, CE Luzon shall pay
PNOC-EDC the sum of $334,000 in full and final settlement of previous claims by
PNOC-EDC related to Scheduled Maintenance.

6. STEAM UTILIZATION.

The ECA shall be amended to add a new Section 6.20 as follows:

     6.20 To the extent it is in accordance with prudent industry standards and
     good engineering practices and does not exceed the maximum design capacity
     of the units, CE Luzon shall fully utilize the available conforming steam
     supply provided by PNOC-EDC by operating plant equipment and configuring
     plant control settings to maximize plant output up to the maximum interface
     pressure limits and under specified conditions set forth in the ECA.
     PNOC-EDC instrumentation and measuring methods shall be the basis for
     validating any claims related to non-conforming steam.

7. TOTAL OUTAGE HOURS

The definition of TOH in Section 8.4.1 (Capacity Fee) of the ECA is hereby
amended to read in its entirety as follows:

          TOH = Total Outage Hours in Billing Period, provided that.(a) for
          Billing Periods within which (i) no Scheduled Maintenance for any Unit
          is performed, or (ii) Scheduled Maintenance for any Unit is performed
          and both (A) such Scheduled Maintenance is not completed and (B) the
          duration of the actual Scheduled Maintenance for such Unit does not
          exceed the Scheduled Maintenance Duration, there shall be no
          modification to the definition of TOH, and (b) for Billing Periods
          within which Scheduled Maintenance for any Unit is performed, if the
          cumulative actual duration of Scheduled Maintenance for such Unit as
          of the last day of such Billing Period exceeds the then applicable
          Scheduled Maintenance


                                                                               3



          Duration for such Unit but does not exceed 1,080 hours, the following
          formula shall be used to calculate TOH for such Billing Period:

               TOH = TOHP + SMDV

               where

                    TOHP = the total number of Outage Hours in Billing Period;

                    SMDV = the Scheduled Maintenance Duration Variance,

                    calculated as follows:

                         (AD-TD)x 0.35
                         ------------- - PV
                               3

     where

          AD = the actual duration of Scheduled Maintenance for any Unit, in
          hours, through the last day of such Billing Period;

          TD = the Scheduled Maintenance Duration for any Unit, in hours, as
          specified in Section 6.14;

          PV = the cumulative Scheduled Maintenance Duration Variance in prior
          Billing Periods during the same Contract Year related to a Unit's
          current Scheduled Maintenance and previously taken into account in an
          adjustment to TOH in a prior Billing Period.

     For Billing Periods within which Scheduled Maintenance for any Unit is
     performed, if the cumulative actual duration of Scheduled Maintenance as of
     the last day of such Billing Period exceeds 1,080 hours for such Unit, the
     following formula shall be used to calculate SMDV for such Billing Period:

                           (1,080 - TD)x 0.35   (AD - 1,080)
                    SMDV = ------------------ + ------------ - PV
                                    3                3

8. NO EFFICIENCY PENALTIES OR BONUSES

(a) The equation for the calculation of the Energy Fee in Section 8.4.2 (Energy
Fee) of the ECA is hereby amended to read as follows;

               Energy Fee = BER x ED

and the definitions of U(s), V(gs), V(ls) and z(s) are deleted in their
entirety.


                                                                               4



(b) Any obligations to test or meet, or otherwise take any action with respect
to, any Net Plant Steam Rate in the ECA are hereby deleted in their entirety.

9. EXCESS GENERATION PAYMENT; GENERATION AND MAINTENANCE EFFICIENCY PAYMENTS

The ECA is hereby amended by inserting the following text as Section 8.4.3
(currently reserved):

          8.4.3 EXCESS GENERATION PAYMENT; EFFICIENCY PENALTIES AND MAINTENANCE
          BONUSES

          (a) Excess Generation Payments (i) For each Contract Year commencing
          2003 through to the end of the Cooperation Period, CE Luzon shall be
          paid an Excess Generation Payment (EGP) based on the formula below, if
          the aggregate generation from the Mahanagdong Power Plant, the Upper
          Mahiao Power Plant and the Malitbog Power Plant (including energy
          delivered to FCDS) exceeds the threshold generation levels specified
          below for such respective Contract Year:

                    EGP = 1.00 Philippine Peso x 0.34 x EG

                    Where

                    EG = The positive difference, if any, between the actual
                    aggregate generation from the Mahanagdong, Upper Mahiao and
                    Malitbog Power Plants for each Contract Year and the annual
                    aggregate generation thresholds provided in the table below.



                    ------------------------------------------------------------------
                      CONTRACT YEAR     2003-2004    2004-2005   2005-2006   2006-2007
                    ------------------------------------------------------------------

                    Threshold (GWh)        4001         4116        4067        2993
                    ------------------------------------------------------------------


          For purposes of this provision, the actual aggregate generation from
          the Mahanagdong, Malitbog and Upper Mahiao, and Power Plants for each
          Contract Year shall be the aggregate of the metered net output from
          each plant (including energy delivered to FCDS) measured using
          PNOC-EDC official electrical meters for each such Contract Year
          commencing 2003 and ending at the expiration of the Cooperation
          Period, and for purposes of determining whether the annual aggregate
          generation thresholds provided in the table have been exceeded,
          metered output (including energy delivered to FCDS) from the Upper
          Mahiao Power Plant for each such Contract Year shall be added to the
          metered output (including energy delivered to FCDS) from the Malitbog
          Power Plant and Mahanagdong Power Plant for the


                                                                               5



          twelve month period commencing on the July 25 immediately succeeding
          each June 25.

          (ii) CE Luzon shall invoice PNOC-EDC for the Excess Generation Payment
          as a separate line item in the invoice delivered on or about July 25
          each Contract Year and such amount shall be due and payable within 30
          days of receipt of such invoice.

          (b) Efficiency Penalties (i) If for any hour the Power Plant generates
          less output than Contracted Capacity when modulating its governor
          valves to receive the steam flow required for Contracted Capacity,
          stated below, at a pressure of not less than 5.0 kg/cm(2) gauge,
          PNOC-EDC may provide written notice to CE Luzon requesting that an
          output test be conducted. Within 24 hours of receipt of such notice,
          CE Luzon shall conduct a test of the Power Plant's output, using steam
          flows and plant configuration stated below, over a period of four
          continuous hours during which test PNOC-EDC shall supply and/or make
          available to the Power Plant steam flow at a pressure of not less than
          5.0 kg/cm(2) gauge (the "Four Hour Test") as follows:

          (1) When three NCG trains are operating with 2% or less NCG content,
          907.247 tonnes per hour (main and auxiliary steam flow) at Site A and
          453.624 tonnes per hour at Site B,

          (2) when five NCG trains are operating with more than 2% NCG content
          but less than or equal to 2.9% NCG content, 964.257 tonnes per hour
          (main and auxiliary steam flow) at Site A and 482.111 tonnes per hour
          at Site B, and

          (3) when seven NCG trains are operating with more than 2.9% NCG
          content but less than or equal to 3.8% NCG content, 524.198 tonnes per
          hour (main and auxiliary steam flow) at Site B.

          provided that, in each case, if the Power Plant is unable to utilize
          such steam flow, then it will be provided with the amount it is able
          to utilize up to the steam flow quantities stated in b(i) above.

          If the average net electrical output of the Power Plant, operating at
          conditions specified under the ECA (except for steam flow and pressure
          which are specified above, and power factor, which shall be the actual
          power factor of the transmission system and/or that required by
          NPC/TRANSCO), as determined from the PNOC-EDC official electrical
          meters (including total energy delivered to FCDS) at the metering
          points specified in the ECA over the Four Hour Test ("AC"), is less
          than Contracted Capacity (a "Failed Test"), then CE Luzon shall pay
          PNOC-EDC a penalty determined as follows:


                                                                               6



                    P = (TC-AC) x CCR x h x y/N(h)

                    Where

                    P = the penalty amount per Billing Period

                    TC = 102% of Contracted Capacity

                    AC has the meaning specified above.

                    h = the number of hours in any Billing Period commencing
                    with the hour immediately after the Failed Test, and ending
                    with the earlier of (i) the hour immediately preceding the
                    first hour of a subsequent Four-Hour Test in the same
                    Billing Period during which AC is equal to or greater than
                    Contracted Capacity (a "Successful Test") and (ii) the end
                    of such Billing Period, provided that if at the end of any
                    Billing Period a Successful Test has not been conducted,
                    each hour in the immediately succeeding Billing Period
                    starting with the first hour thereof shall be included in
                    the calculation of 'h' for such Billing Period unless and
                    until a Successful Test in such Billing Period is conducted.

                    N(h)= total number of hours in the Billing Period

                    CCR shall have the meaning given thereto in Section 8.4.1

                    y = 0 if during the Four-Hour Test AC, as defined above, is
                    greater than Contracted Capacity. Otherwise, y = 1.

               (ii) CE Luzon may, at any time, provide written notice to
               PNOC-EDC requesting that a Four Hour Test be conducted. Within 24
               hours of receipt of such notice, PNOC-EDC shall supply the Power
               Plant with Steam Flow, as specified in item (i) above, at a
               pressure of not less than 5.0 kg/cm(2) gauge in order for the
               Four Hour Test to be conducted following the same procedures as
               b(i).

               Failure of PNOC-EDC to supply and/or make available to the Power
               Plant Steam Flow as specified in item (i) above at a pressure of
               not less than 5.0 kg/cm(2) gauge shall result in the Four Hour
               Test being deemed successful.

          (c) Maintenance Bonuses. Far each Billing Period during which
          Scheduled Maintenance for any Unit is performed and both (i) such
          Scheduled Maintenance is completed and (ii) the duration of the actual
          Scheduled Maintenance for such Unit is less than 504 hours (for
          Contract Years in which up to 576 hours of Scheduled Maintenance are
          permitted) and less than 192 hours (for Contract Years in which up to
          240 hours of Scheduled Maintenance are permitted), PNOC-EDC shall pay
          to CE Luzon a maintenance efficiency bonus equal to US$208.33
          multiplied by SMDD,


                                                                               7



          where SMDD equals the Scheduled Maintenance Duration Difference,
          determined as follows:

               SMDD = SMD-SMDA

          Where

               SMD equals 504 hours (for Contract Years in which up to 576 hours
               of Scheduled Maintenance are permitted) and 192 hours; (for
               Contract Years in which up to 240 hours of Scheduled Maintenance
               are permitted), and

               SMDA equals the actual hours of Scheduled Maintenance on a Unit
               during the then current Contract Year.

10. The last sentence of Section 8.6(d) of the ECA is hereby amended to read as
follows:

     As to Local Business Tax and Real Property Taxes, CE Luzon shall adopt the
     position that it is exempted from the payment of business taxes owing to
     its relationship to PNOC-EDC under the BOT agreements and the exemption of
     PNOC-EDC from the payment of all taxes under its Service Contract with the
     government. CE Luzon shall accordingly initiate and exhaust all the
     necessary actions seeking to invalidate or cancel any assessments issued by
     the local government units for want of legal basis. PNOC-EDC shall hold CE
     Luzon free and harmless from any liability or loss of revenue arising from
     CE Luzon's non-payment of local business and real property taxes claimed by
     the Municipality of Kananga, the City of Ormoc, and the Province of Leyte,
     should the Supreme Court of the Philippines decide with finality that CE
     Luzon is liable for the payment of such taxes. With effect from January 1,
     2004 CE Luzon shall assume all payments required under ER 1-94 for the
     benefit of host communities arising from the energy generated by its power
     plants through to the expiration of the Cooperation Period.

11.  INSTALLATION OF EQUIPMENT AND SOFTWARE

PNOC-EDC shall provide the complete installation and operation of equipment and
software configured to monitor the provisions of this Sixth Amendment for
Mahanagdong Power Plant at a cost chargeable to CE Luzon, not to exceed US$
30,000. The specifications of the equipment and software to be installed shall
be subject to the prior written approval of CE Luzon, and the installation of
such equipment and software shall be done at times agreed to by CE Luzon and in
a manner consistent with CE Luzon's health, safety and other working and
operating practices. Title to and care, custody and control of such equipment
and software shall remain with PNOC-EDC upon completion of and commissioning
thereof.

12. OPERATION OF POWER PLANT; CONDITION OF POWER PLANT ON TRANSFER

(a)  The Power Plant shall continue to be capable of operation within a power
     range of 0.85 lag to 0.9 lead, as currently provided in the ECA, if the
     connected grid so requires.


                                                                               8



(b)  CE Luzon hereby covenants and agrees that the condition of the Power Plant
     upon transfer will comply with Section 12.4 of the ECA.

13. WAIVER AND RELEASE OF CLAIMS; DISMISSAL OF ARBITRATION AND ARBITRATION
COSTS.

(a) PNOC-EDC hereby waives, releases and relinquishes any and all rights,
claims, causes of action, defenses or any other action whatsoever that it may
have had, or may now have, whether known or unknown, arising from circumstances
prior to the date hereof, whether arising in law, equity, tort or contract with
respect to in connection with or related in anyway to any claims presently
before any arbitral tribunal.

(b) CE Luzon hereby waives, releases and relinquishes any and all rights,
claims, causes of action, defenses or any other action whatsoever that it may
have had, or may now have, whether known or unknown, arising from circumstances
prior to the date hereof, whether arising in law, equity, tort or contract with
respect to in connection with or related in anyway to any claims presently
before any arbitral tribunal.

(c) Contemporaneously with the execution of this Sixth Amendment the parties
shall execute a Consent and Stipulation of Dismissal with Prejudice as to
Certain Claims in the form attached hereto as Exhibit A, shall immediately
obtain the signature of their respective counsel thereto, and shall direct such
counsel to promptly file the same with the International Chamber of Commerce
("ICC").

(d) Each of CE Luzon and PNOC-EDC shall be responsible for their respective
attorneys' fees in connection with the pending ICC arbitration.

14. ENTIRE AGREEMENT.

This Sixth Amendment together with the ECA constitutes the entire agreement
between PNOC-EDC and CE Luzon with respect to the matters dealt with herein, and
there are no oral or written understandings, representations or commitments of
any kind, express or implied, that are not expressly set forth in such
documents, taken collectively.

15. ECA TO REMAIN IN EFFECT.

Except as amended by this Sixth Amendment, all of the terms and provisions of
the ECA remain in full force and effect, including without limitation the
performance undertaking. Any references in the ECA that are inconsistent with
the modifications herein are hereby amended to be consistent with these
modifications. The dispute resolution provisions of the ECA shall apply with
full force and effect to the Sixth Amendment and shall govern any dispute
arising under this Sixth Amendment.

16. REFERENCES TO ECA.


                                                                               9



Any and all notices, requests, certificates and other instruments executed and
delivered concurrently with or after the execution of this Sixth Amendment may
refer to the ECA without making specific reference to this Sixth Amendment, but
nevertheless all such references shall be deemed to include this Sixth Amendment
unless the context shall otherwise require.

17. EFFECTIVITY OF AMENDMENT.

This Sixth Amendment shall become effective upon full execution of this Sixth
Amendment by both parties.

IN WITNESS WHEREOF, CE Luzon and PNOC-EDC have executed this SIXTH AMENDMENT as
at the date set forth in the first paragraph hereof.

PNOC ENERGY DEVELOPMENT CORPORATION


By: /s/ Sergio Antonio F. Apostol
- ---------------------------------------------
Name: Sergio Antonio F. Apostol
Title: Chairman and President


CE LUZON GEOTHERMAL POWER COMPANY, INC.


By: /s/ David A. Baldwin
- ---------------------------------------------
Name: David A. Baldwin
Title: President and Chief Executive Officer


                                       10



                                   EXHIBIT A

                                In the matter of

                     CE LUZON GEOTHERMAL POWER COMPANY, INC.

                                    Claimant

                                       vs.

                       PNOC-ENERGY DEVELOPMENT CORPORATION

                                   Respondent

                                ICC ARBITRATION

                 CONSENT AND STIPULATION OF CASE NO. 12342 / MS

                  DISMISSAL WITH PREJUDICE AS TO CERTAIN CLAIMS

                       DATED AS OF _________________, 2003

WHEREAS, Claimant CE Luzon Geothermal Power Company, Inc. ("Claimant") is a
corporation organized under the laws of the Republic of the Philippines, with
offices at 24 Floor, 6750 Building, Ayala Avenue, Makati City, Metro Manila,
Philippines;

WHEREAS, Respondent PNOC-Energy Development Corporation ("Respondent") is a
corporation organized under the laws of the Republic of the Philippines which is
a wholly-owned subsidiary of the Philippine National Oil Company, with offices
at the PNOC Energy Companies Building, Merritt Road, Fort Bonifacio, 1200 Makati
City, Metro Manila, Philippines;

WHEREAS, CE Luzon and PNOC-EDC are parties to a certain Energy Conversion
Agreement dated as of September 18, 1993 (the "ECA"), which was subsequently
amended and supplemented on various occasions, in which, among other things, the
Parties agreed to the arbitration provision governing the present dispute;

WHEREAS, after efforts to resolve certain disputes between them failed, the
Claimant filed a Request for Arbitration as identified on Annex I hereto and
the Respondent filed an Answer to the Request for Arbitration thereto,
identified on Annex II hereto;

WHEREAS, the Parties have now agreed to compromise, settle and resolve the
disputes between them including the disputes which are the subject matter of
this arbitration;

WHEREAS, the respective counsel for the parties herein have been authorized to
consent to this consent and stipulation of discontinuance with prejudice.


                                                                              11



NOW, THEREFORE, on this _____ day of ____________ 2003

THE PARTIES HEREBY STIPULATE AND AGREE AS FOLLOWS:

1. Settlement of Certain Claims through Amendment of the ECA. The Parties have
entered into a Sixth Amendment to the ECA of even date (the "Sixth Amendment")
attached hereto as Exhibit 1 in settlement of all of the claims asserted in the
Request for Arbitration and Answer to the Request for Arbitration.

2. Dismissal of Certain Claims. In light of the Sixth Amendment, the Parties
hereby agree to the dismissal with prejudice of all of the claims presently
before the Tribunal (the "Dismissed Claims").

3. Effectiveness of this Stipulation. The Stipulation shall not become effective
unless and until the Sixth Amendment has been signed by each of the parties
thereto. In the event the Sixth Amendment is not signed by each party, either
party shall have the right immediately to reinstate the Dismissed Claims in the
present arbitration, or to initiate a new arbitration relating to these claims.
Both parties waive any right whatsoever to object to the reinstatement of the
Dismissed Claims in the event the Sixth Amendment is not so signed.

IN WITNESS WHEREOF, CE Luzon and PNOC-EDC have executed this CONSENT AND
STIPULATION OF DISMISSAL WITH PREJUDICE AS TO CERTAIN CLAIMS this _____ day of
____________, 2003.

PNOC-ENERGY DEVELOPMENT CORPORATION


By: /s/ Sergio Antonio F. Apostol
    ----------------------------------------
Name: Sergio Antonio F. Apostol
Title: Chairman and President


CE LUZON GEOTHERMAL POWER COMPANY


By: /s/ David A. Baldwin
    ----------------------------------------
Name: David A. Baldwin
Title: President and Chief Executive Officer


                                                                              12



For Claimant

CE Luzon Geothermal Power Company, Inc.

LATHAM & WATKINS


By:
    ----------------------------------------


For Respondent

PNOC-Energy Development Corporation

ALLEN & OVERY


By:
    ----------------------------------------


                                                                              13

EX-10.45

                                 THIRD AMENDMENT

                   TO 231 MW POWER PLANT -- MALITBOG AGREEMENT

This THIRD AMENDMENT TO 231 MW POWER PLANT -- MALITBOG AGREEMENT
("Third Amendment") is made as of August 31, 2003 by and between:

VISAYAS GEOTHERMAL POWER COMPANY, INC. ("VGPC"), a partnership duly organized
and existing under the laws of the Philippines with offices at 6750 Cal Energy
International, 24 Floor, 6750 Building, Ayala Avenue, Makati City, Metro Manila,
herein represented by its President and Chief Executive Officer Mr. David A
Baldwin, who is duly authorized to represent it in this Agreement;

and

PNOC-ENERGY DEVELOPMENT CORPORATION ("PNOC-EDC) a wholly-owned subsidiary of the
Philippine National Oil Company, a corporation created and organized under
Presidential Decree No. 334, as amended, with principal office at Fort
Bonifacio, Merritt Road, Taguig City, Metro Manila, herein represented by its
Chairman and President Sergio Antonio F. Apostol, who is duly authorized to
represent it in this Agreement.

WHEREAS, VGPC and PNOC-EDC are Parties to the 231 MW Power Plant - Malitbog
Agreement, dated as of September 10, 1993, as amended (the "ECA") pursuant to
which VGPC constructed, owns and operates a 231 MW Power Plant near Tongonan,
Leyte, known as the Malitbog Power Plant (the "Malitbog Power Plant");

WHEREAS, affiliates of VGPC constructed, own and operate the 180 MW Power Plant
near Tongonan, Leyte, known as the Mahanagdong Power Plant (the "Mahanagdong
Power Plant") and the 125 MW Power Plant near Tongonan, Leyte known as Upper
Mahiao Power Plant (the "Upper Mahiao Power Plant"); and

WHEREAS, VGPC and PNOC-EDC desire to amend the ECA in certain respects as set
forth herein and to resolve various issues between themselves with respect to
the ECA and the Power Plant.

NOW THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, VGPC and PNOC-EDC agree as follows:

1. DEFINITIONS

     (a)  Capitalized terms used herein and not defined have the meanings
          ascribed to them in the ECA.

     (b)  Article I of the ECA is hereby amended by adding thereto the following
          new definitions:



          CONTRACT YEAR: Each yearly period commencing on July 25 of each
          calendar year and end on July 25 of the immediately succeeding
          calendar year.

     (c)  STEAM GENERATING UNIT CONTRACTED CAPACITY: One third of the Power
          Plant Contracted Capacity equivalent to 72 MW. A definition of
          "Generating Unit Forced Outage Hour" shall be included in Section 1.1
          of the ECA to read as follows with effect from August 8, 2003:

               GENERATING UNIT FORCED OUTAGE HOUR: For any hour in which a Steam
               Generating Unit failed, due to reasons attributable to the
               Operator, for a continuous period of thirty (30) minutes to
               deliver net output measured using PNOC-EDC electrical meters at
               MP5 and MP4 at a level of at least ninety five percent (95%) of
               the STEAM GENERATING UNIT CONTRACTED CAPACITY, one third (1/3) of
               such hour shall be considered as a FORCED OUTAGE HOUR defined in
               the ECA. If the failure to meet at least 95% of STEAM GENERATING
               UNIT CONTRACTED CAPACITY is attributable to failure of PNOC-EDC
               to supply and/or make available 102% of 507.933 tonnes per hour
               (main steam flow) at a pressure of not less than 10 kg/cm(2) g,
               such hour shall be considered a No Fault Outage for such steam
               generating unit.

     (d) (i) The definition of "No Fault Outage" in Section 1.1 of the ECA is
     hereby amended and restated to read as follows with effect from August 8,
     2003:

          No Fault Outage; The inability of the Operator to deliver power to
          NAPOCOR due to (i) any condition caused by PNOC-EDC or NAPOCOR, (ii)
          any faults in or failure of the steam supply to the Power Plant, (iii)
          any faults in or failure of the electrical system connecting the Power
          Plant to NAPOCOR's distribution system, (iv) Force Majeure, or (v) a
          Scheduled Outage.

     (ii) In consideration of such amendment, VGPC shall pay to PNOC-EDC the sum
     of US$800,000 within thirty days of the effectiveness of this Third
     Amendment.

2. NO FURTHER CAPACITY TESTS FOR PURPOSES OF NOMINATED CAPACITY

Section 5.5 (Tests During Cooperation Period) is hereby deleted in its entirety.

3. CAPACITY NOMINATION,

(a) Section 6.13 of the ECA is deleted in its entirety.

(b) For the purpose of computing Capacity Payments under Section 8.3 on TERMS OF
PAYMENT of the ECA, all references to Nominated Capacity, NC, shall be replaced
with Contracted Capacity, CC.


                                      2



(b) Within 30 days of the effective date of this Third Amendment, PNOC-EDC shall
pay to VGPC:

     (i) $8,695,000 and Philippine Pesos 6,903,000 in full and final settlement
     of Capacity Payments withheld from VGPC for the period July 25, 1999
     through July 25, 2002

     (ii) $1,542,000 and Philippine Pesos 1,572,000 in full and final settlement
     of Capacity Payments withheld from VGPC for the period July 25, 2002
     through June 25, 2003,

     (iii) Any Capacity Payments withheld from VGPC in relation to Nominated
     Capacity for the period June 25, 2003 through to the date of this
     Agreement, and

     (iv) $100,000 in full and final settlement of Capacity Fees withheld in
     relation to No Fault Outage through June 25, 2003.

(c) Within 30 days of the effective date of this Third Amendment, VGPC shall pay
to PNOC-EDC $700,000 in full and final settlement of any and all claims by
PNOC-EDC in any way related to the capacity of the Power Plant, including the
claim regarding alleged overpayment of Capacity Payments to VGPC for the period
July 25, 1998 through July 25, 1999.

4. SCHEDULED MAINTENANCE

Section 6.14 of the ECA is hereby deleted in its entirety and replaced with the
following:

          (a) The Operator shall be entitled to conduct Scheduled Maintenance
          for each generating unit of the Power Plant without penalty for the
          duration set forth below with respect to each Contract Year (the
          "Scheduled Maintenance Duration").



          --------------------------------------------------------------------------------
                         July 25, 2003-   July 25, 2004-   July 25, 2005-   July 25, 2006-
                          July 25, 2004    July 25, 2005    July 25, 2006    July 25, 2007
          --------------------------------------------------------------------------------

          Scheduled
          Maintenance          576              240              240              576
          Duration
          (Hours/Unit)
          --------------------------------------------------------------------------------


          VGPC may in its sole discretion and without penalty elect to utilize
          up to 576 hours for Scheduled Maintenance in one of the Contract Years
          July 25, 2004 to July 25, 2005 or July 25, 2005 to July 25, 2006 in
          lieu of during Contract Year July 25, 2006 to July 25, 2007 if, upon
          the commencement of the Scheduled Maintenance during one of Contract
          Years July 25, 2004 to July 25, 2005 or July 25, 2005 to July 25, 2006
          VGPC determines that a major overhaul is necessary. If VGPC so elects,
          the duration of Scheduled Maintenance for Contract Year July 25, 2006
          to July 25, 2007 shall be reduced to 240 hours.


                                       3



          (b) Scheduled Maintenance for each Contract Year shall commence on the
          dates indicated below:

          ---------------------------------------
            UNIT 1       UNIT 2         UNIT 3
          ---------------------------------------
          August 30   September 10   September 21
          ---------------------------------------

          The commencement dates of Scheduled Maintenance for the Contract Years
          commencing July 2004, July 2005 and July 2006 may be modified by
          mutual agreement between PNOC-EDC and VGPC.

5. SPARE STEAM TURBINE ROTOR

VGPC hereby (i) confirms to PNOC-EDC that the spare steam turbine rotor has been
refurbished and can be used interchangeably in all three units and (ii)
covenants and agrees to maintain such condition and interchangeability through
the end of the Cooperation Period.

6. SCHEDULED MAINTENANCE PAYMENT

Within 30 days of the effective date of this Third Amendment, VGPC shall' pay
PNOC-EDC the sum of $333,000 in full and final settlement of claims by PNOC-EDC
related to Scheduled Maintenance. VGPC waives all claims against PNOC-EDC
related to Scheduled Maintenance.

7. STEAM UTILIZATION.

The ECA shall be amended to add a new Section 6.23 as follows:

          6.23 To the extent it is in accordance with prudent industry standards
          and good engineering practices and does not exceed the maximum design
          capacity of the units, VGPC shall fully utilize the available
          conforming steam supply provided by PNOC-EDC by operating plant
          equipment and configuring plant control settings to maximize plant
          output up to the maximum interface pressure limits and under specified
          conditions set forth in the ECA. PNOC-EDC instrumentation and
          measuring methods shall be the basis for validating any claims related
          to non-conforming steam.

8. TOTAL OUTAGE HOURS.

(a) The definition of TFOH in Section 8.3.1 (Capacity Payments) of the ECA is
hereby amended to read in its entirety as follows:

          "TFOH = Total number of Forced Outage Hours in the Billing Period,
          provided that (i) for Billing Periods within which (a) no Scheduled
          Maintenance for any Unit is performed, or (b) Scheduled Maintenance
          for any Unit is performed and both (A) such Scheduled Maintenance is
          not completed and (B) the duration of the actual


                                        4



          Scheduled Maintenance for such Unit does not exceed the Scheduled
          Maintenance Duration, there shall be no modification to the definition
          of TFOH, and (ii) for Billing Periods within which Scheduled
          Maintenance for any Unit is performed, if the cumulative actual
          duration of Scheduled Maintenance for such Unit as of the last day of
          such Billing Period exceeds the then applicable Scheduled Maintenance
          Duration for such Unit but does not exceed 1,080 hours, the following
          formula shall be used to calculate TFOH for such Billing Period:

               TFOH = TFOHP + SMDV

          where

               TFOHP = the total number of Outage Hours in Billing Period;
               SMDV = the Scheduled Maintenance Duration Variance,
               calculated as follows:

                    (AD-TD)x 0.35
                    -------------  - PV
                          3

          where

               AD = the actual duration of Scheduled Maintenance for any Unit,
               in hours, through the last day of such Billing Period;

               TD = the Scheduled Maintenance Duration for any Unit, in hours,
               as specified in Section 6.14;

               PV = the cumulative Scheduled Maintenance Duration Variance in
               prior Billing Periods during the same Contract Year related to a
               Unit's current Scheduled Maintenance and previously taken into
               account in an adjustment to TFOH in a prior Billing Period.

          For Billing Periods within which Scheduled Maintenance for any Unit is
          performed, if the cumulative actual duration of Scheduled Maintenance
          as of the last day of such Billing Period exceeds 1,080 hours for such
          Unit, the following formula shall be used to calculate SMDV for such
          Billing Period:

                      (1,080 - TD) x 0.35   (AD - 1,080)
               SMDV = ------------------- + ------------  - PV
                               3                  3

9. EXCESS GENERATION PAYMENT; GENERATION EFFICIENCY PENALTIES AND MAINTENANCE
EFFICIENCY BONUSES

(a) The ECA is hereby amended by deleting the text of Section 8.3.2 in its
entirety and replacing it with the following:


                                        5



          8.3.2 ADDITIONAL GENERATION PAYMENT; EFFICIENCY PENALTIES AND
          MAINTENANCE BONUSES AND

          (a) Excess Generation Payments. (i) For each Contract Year commencing
          2003 through to the end of the Cooperation Period, VGPC shall be paid
          an Excess Generation Payment (EGP) based on the formula below, if the
          aggregate generation from the Malitbog Power Plant, the Upper Mahiao
          Power Plant and the Mahanagdong Power Plant (including energy
          delivered to FCDS) exceeds the threshold generation levels specified
          below for such respective Contract Year:

                    EGP = 1.00 Philippine Peso x 0.43 x EG

                    Where

                    EG = The positive difference, if any, between the actual
                    aggregate generation from the Malitbog, Mahanagdong and
                    Upper Mahiao Power Plants for each Contract Year and the
                    annual aggregate generation thresholds provided in the table
                    below.



                    ---------------------------------------------------------------
                     CONTRACT YEAR    2003-2004   2004-2005   2005-2006   2006-2007
                    ---------------------------------------------------------------

                    Threshold (GWh)     4001        4116        4067        2993
                    ---------------------------------------------------------------


          For purposes of this provision, the actual aggregate generation from
          the Malitbog, Upper Mahiao, and Mahanagdong Power Plants for each
          Contract Year shall be the aggregate of the net output from each plant
          (including energy delivered to FCDS) measured using PNOC-EDC official
          electrical meters for each such Contract Year commencing 2003 and
          ending at the expiration of the Cooperation Period, and for purposes
          of determining whether the annual aggregate generation thresholds
          provided in the table have been exceeded, metered output (including
          energy delivered to FCDS) from the Upper Mahiao Power Plant for each
          such Contract Year shall be added to the metered output (including
          energy delivered to FCDS) from the Malitbog Power Plant and
          Mahanagdong Power Plant for the twelve month period commencing on the
          July 25 immediately succeeding each June 25.

          (ii) VGPC shall invoice PNOC-EDC for the Excess Generation Payment as
          a separate line item in the invoice delivered on or about July 25 each
          Contract Year and such amount shall be due and payable within 30 days
          of receipt of such invoice.

          (b) Efficiency Penalties, (i) If for any hour the Power Plant
          generates less output than Contracted Capacity when modulating its
          governor valves to receive 104% of


                                        6



          1523.8 tonnes per hour (main steam flow) that is made available and/or
          supplied by PNOC-EDC at an interface pressure of not less than 10
          kg/cm(2) gauge, PNOC-EDC may provide written notice to VGPC requesting
          that an output test be conducted. Within 24 hours of receipt of such
          notice, VGPC shall conduct a test of the Power Plant's output over a
          period of four continuous hours during which test PNOC-EDC shall
          supply and/or make available to the Power Plant 104% of 1523.8 tonnes
          per hour (main steam flow) at a pressure of not less than 10 Kg/cm(2)
          gauge (the "Four Hour Test"). If the average net electrical output of
          the Power Plant, operating at conditions specified under the ECA
          (except for steam flow and pressure which are specified above, and
          power factor, which shall be the actual power factor of the
          transmission system and/or that required by NPC/TRANSCO), as
          determined from the PNOC-EDC official electrical meters (including
          total energy delivered to FCDS) at the metering points specified in
          the ECA over the Four Hour Test ("AC"), is less than Contracted
          Capacity (a "Failed Test"), then VGPC shall pay PNOC-EDC a penalty
          determined as follows:

               P = (TC-AC) x CCR x h x y/ N(h)

               Where

               P = the penalty amount per Billing Period

               TC = 102.4% of Contracted Capacity (i.e., 221.18 MW)

               AC has the meaning specified above.

               h = the number of hours in any Billing Period commencing with the
               hour immediately after the Failed Test, and ending with the
               earlier of (i) the hour immediately preceding the first hour of a
               subsequent Four-Hour Test in the same Billing Period during which
               AC is equal to or greater than Contracted Capacity (a "Successful
               Test") and (ii) the end of such Billing Period, provided that if
               at the end of any Billing Period a Successful Test has not been
               conducted, each hour in the immediately succeeding Billing Period
               starting with the first hour thereof shall be included in the
               calculation of 'h'for such Billing Period unless and until a
               Successful Test in such Billing Period is conducted.

               N(h)= total number of hours in the Billing Period

               CCR shall have the meaning given thereto in Section 8.4.1

               y = 0 if during the Four-Hour Test AC, as defined above, is
               greater than Contracted Capacity. Otherwise, y = 1.


                                       7



               (ii) VGPC may, at any time, provide written notice to PNOC-EDC
               requesting that a Four Hour Test be conducted. Within 24 hours of
               receipt of such notice, PNOC-EDC shall supply and/or make
               available to the Power Plant 104% of 1523.8 tonnes per hour of
               main steam flow at a pressure of not less than 10 kg/cm(2) gauge
               in order for the Four Hour Test to be conducted.

               Failure of PNOC-EDC to supply and/or make available to the Power
               Plant 104% of 1523.8 tonnes per hour of main steam flow at a
               pressure of not less than 10 kg/cm(2) gauge shall result in the
               Four Hour Test being deemed successful.

          (c) Maintenance Bonuses. For each Billing Period during which
          Scheduled Maintenance for any Unit is performed and both (i) such
          Scheduled Maintenance is completed and (ii) the duration of the actual
          Scheduled Maintenance for such Unit is less than 504 hours (for
          Contract Years in which up to 576 hours of Scheduled Maintenance are
          permitted) and less than 192 hours (for Contract Years in which up to
          240 hours of Scheduled Maintenance are permitted), PNOC-EDC shall pay
          to VGPC a maintenance efficiency bonus equal to US$208.33 multiplied
          by SMDD, where SMDD equals the Scheduled Maintenance Duration
          Difference, determined as follows:

               SMDD = SMD -SMDA

          Where

               SMD equals 504 hours (for Contract Years in which up to 576 hours
               of Scheduled Maintenance are permitted) and 192 hours (for
               Contract Years in which up to 240 hours of Scheduled Maintenance
               are permitted), and

               SMDA equals the actual hours of Scheduled Maintenance on a Unit
               during the then current Contract Year.

(b) Any obligations to test or meet, or otherwise take any action with respect
to, any Net Plant Steam Rate in the EGA are hereby deleted in their entirety.

(c) Within 30 days of the effective date of this Third Amendment, PNOC-EDC shall
pay to VGPC the amount of 199,900,000 Philippine pesos withheld by PNOC-EDC from
VGPC in respect of efficiency penalties, plus interest, for the period through
June 30, 2003.

10. The last sentence of Section 8.6(d) of the EGA is hereby amended to read as
follows:

     As to Local Business Tax and Real Property Taxes, VGPC shall adopt the
     position that it is exempted from the payment of business taxes owing to
     its relationship to PNOC-EDC under the BOT agreements and the exemption of
     PNOC-EDC from the payment of all taxes under its Service Contract with the
     government. VGPC shall accordingly initiate


                                       8



     and exhaust all the necessary actions seeking to invalidate or cancel any
     assessments issued by the local government units for want of legal basis.
     PNOC-EDC shall hold VGPC free and harmless from any liability or loss of
     revenue arising from VGPC's non-payment of local business and real property
     taxes claimed by the Municipality of Kananga, the City of Ormoc, and the
     Province of Leyte, should the Supreme Court of the Philippines decide with
     finality that VGPC is liable for the payment of such taxes. With effect
     from January 1, 2004 VGPC shall assume all payments required under ER 1-94
     for the benefit of host communities arising from the energy generated by
     its power plants through to the expiration of the Cooperation Period.

11. OPERATION OF POWER PLANT

(a) The Power Plant shall continue to be capable of operation within a power
range of 0.85 lag to 0.9 lead, as currently provided in the ECA, if the
connected grid so requires.

(b) VGPC hereby covenants and agrees that the condition of the Power Plant upon
transfer will comply with Section 13.4 of the ECA.

12. CONDITION OF POWER PLANT ON TRANSFER

Section 13.4(a) of the ECA is hereby amended and restated to read as follows:

     Three (3) months prior to the end of the Cooperation Period, VGPC shall
     demonstrate that the Malitbog Power Plant delivers a metered net output of
     at least Contracted Capacity, under design power plant configuration & ECA
     specified conditions (except for steam flow and pressure which are
     specified below, and power factor, which shall be the actual power factor
     of the transmission system and/or that require by NPC/TRANSCO),, for a
     continuous period of one week when supplied with steam flow 4% higher than
     the ECA interface specifications at a steam pressure of 10 kg/cm g. If the
     Power Plant fails to do so, VGPC shall be entitled to repeat the test as
     many times as it wishes provided that the Capacity Cost Recovery Fee, Fixed
     Operating Cost Recovery Fee and Service Fee for the last three months shall
     be withheld until such time as the plant is able to deliver at least
     Contracted Capacity when supplied with steam flow 4% higher than the ECA
     interface specifications at a steam pressure of 10 kg/cm g for the same
     duration stated above.


                                       9



13. INSTALLATION OF EQUIPMENT AND SOFTWARE

PNOC-EDC shall provide the complete installation and operation of equipment and
software configured to monitor the provisions of this Third Amendment for
Malitbog Power Plant at a cost chargeable to VGPC, not to exceed US$30,000. The
specifications of the equipment and software to be installed shall be subject to
the prior written approval of VGPC, and the installation of such equipment and
software shall be done at times agreed to by VGPC and in a manner consistent
with VGPC's health, safety and other working and operating practices. Title to
and care, custody and control of such equipment and software shall remain with
PNOC-EDC upon completion of and commissioning thereof.

14. WAIVER AND RELEASE OF CLAIMS; DISMISSAL OF ARBITRATION AND ARBITRATION
COSTS.

(a) PNOC-EDC hereby waives, releases and relinquishes any and all rights,
claims, causes of action, defenses or any other action whatsoever that it may
have had, or may now have, whether known or unknown, arising from circumstances
prior to the date hereof, whether arising in law, equity, tort or contract with
respect to in connection with or related in anyway to any claims presently
before any arbitral tribunal.

(b) VGPC hereby waives, releases and relinquishes any and all rights, claims,
causes of action, defenses or any other action whatsoever that it may have had,
or may now have, whether known or unknown, arising from circumstances prior to
the date hereof, whether arising in law, equity, tort or contract with respect
to in connection with or related in anyway to any claims presently before any
arbitral tribunal.

(c) Contemporaneously with the execution of this Third Amendment the parties
shall execute a Consent and Stipulation of Dismissal with Prejudice as to
Certain Claims in the form attached hereto as Exhibit A. Each party shall
immediately obtain the signature of their respective counsel thereto, and shall
direct such counsel to promptly file the same with the appropriate UNCITRAL
arbitration panel.

(d) With respect to the costs incurred by PNOC-EDC for the current Malitbog
arbitration case, VGPC agrees to pay PNOC-EDC, within thirty (30) days from the
execution of the Third Amendment, the amount of US$650,000 in full and final
settlement of, by way of compromise, PNOC-EDC's travel expenses and attorneys'
fees which are not covered by the payment of US$1,636,486.87 made by VGPC in
January 2003.


                                       10



15. ENTIRE AGREEMENT.

This Third Amendment together with the ECA constitute the entire agreement
between PNOC-EDC and VGPC with respect to the matters dealt with herein, and
there are no oral or written understandings, representations or commitments of
any kind, express or implied, that are not expressly set forth in such
documents, taken collectively.

16. ECA TO REMAIN IN EFFECT.

Except as amended by this Third Amendment, all of the terms and provisions of
the ECA remain in full force and effect, including without limitation the
performance undertaking. Any references in the ECA that are inconsistent with
the modifications herein are hereby amended to be consistent with these
modifications. The dispute resolution provisions of paragraph (t) of the
Acknowledgment and Consent Agreement dated December 15, 1994 between VGPC and
PNOC-EDC shall apply with full force and effect to the Third Amendment and shall
govern any dispute arising under this Third Amendment.

17. REFERENCES TO ECA.

Any and all notices, requests, certificates and other instruments executed and
delivered concurrently with or after the execution of this Third Amendment may
refer to the ECA without making specific reference to this Third Amendment, but
nevertheless all such references shall be deemed to include this Third Amendment
unless the context shall otherwise require.

18. EFFECTIVITY OF AMENDMENT.

This Third Amendment shall become effective upon full execution of this Third
Amendment by both parties.


                                       11



IN WITNESS WHEREOF, VGPC and PNOC-EDC have executed this THIRD AMENDMENT as at
the date set forth in the first paragraph hereof.

PNOC ENERGY DEVELOPMENT CORPORATION


By: /s/ Sergio Antonio F. Apostol
   -------------------------------------
Name: Sergio Antonio F. Apostol
Title: Chairman and President


VISAYAS GEOTHERMAL POWER COMPANY


By: /s/ David A. Baldwin
   -------------------------------------
Name: David A. Baldwin
Title: President and Chief Executive Officer


                                       12



                                    EXHIBIT A

                                In the matter of

                        VISAYAS GEOTHERMAL POWER COMPANY

                                    Claimant

                                       vs.

                       PNOC-ENERGY DEVELOPMENT CORPORATION

                                   Respondent,

                              UNCITRAL ARBITRATION

                           CONSENT AND STIPULATION OF

                  DISMISSAL WITH PREJUDICE AS TO CERTAIN CLAIMS

                          DATED AS OF __________, 2003

WHEREAS, Claimant Visayas Geothermal Power Company ("Claimant") is a general
partnership organised under the laws of the Republic of the Philippines, with
offices at 24 Floor, 6750 Building, Ayala Avenue, Makati City, Metro Manila,
Philippines;

WHEREAS, Respondent PNOC-Energy Development Corporation ("Respondent") is a
corporation organized under the laws of the Republic of the Philippines which is
a wholly-owned subsidiary of the Philippine National Oil Company, with offices
at the PNOC Energy Companies Building, Merritt Road, Fort Bonifacio, 1200 Makati
City, Metro Manila, Philippines;

WHEREAS, VGPC and PNOC-EDC are parties to a certain Energy Conversion Agreement
dated as of September 10, 1993 (the "ECA") (previously identified in this
arbitration as CX-1), which was subsequently amended and supplemented on various
occasions, including by the Acknowledgment and Consent Agreement dated December
15, 1994 between VGPC and PNOC-EDC (the "ACA") (previously identified in this
arbitration as Exhibit CX-8) in which, among other things, the Parties agreed to
the arbitration provision governing the present dispute;

"WHEREAS, after efforts to resolve certain disputes between them failed, the
Claimant filed various statements of claims as identified on Annex I hereto and
the Respondent filed certain Statements of Defenses and Counterclaims thereto,
identified on Annex II hereto;

WHEREAS, hearings on various claims were held in Sydney, Australia in July
2002;

WHEREAS, on November 27, 2002 the arbitral tribunal issued its Award, providing
for the subsequent determination of quantum;

WHEREAS, the Claimant and the Respondent each has made various filings and
submissions with respect to quantum, which remains to be determined.


                                       12



WHEREAS, the Parties have now agreed to compromise, settle and resolve the
disputes between them including the disputes which are the subject matter of
this arbitration;

WHEREAS, the respective counsel for the parties herein have been authorized to
consent to this consent and stipulation of discontinuance with prejudice;

NOW, THEREFORE, on this _____________ day of ________________ 2003

THE PARTIES HEREBY STIPULATE AHD AGREE AS FOLLOWS:

1. Settlement of Certain Claims through Amendment of the ECA, The Parties have
entered into a Third Amendment to the ECA of even date (the "Third Amendment")
attached hereto as Exhibit 1 in settlement of all of the claims asserted in the
Statements of Claims and Statements of Defenses and Counterclaims.

2. Dismissal of Certain Claims. In light of the Third Amendment, the Parties
hereby agree to the dismissal with prejudice of all of the claims presently
before the Tribunal (the "Dismissed Claims"), and no proceding or enforcement
shall be taken in any place under the Award rendered on November 27,20O2.

3. Effectiveness of this Stipulation. The Stipulation shall not become effective
unless and until the Third Amendment has been signed by each of the parties
thereto. In the event the Third Amendment is not signed by each party, either
party shall have the right immediately to reinstate the Dismissed Claims in the
present arbitration, or to initiate a new arbitration relating to these claims.
Both parties waive any right whatsoever to object to the reinstatement of the
Dismissed Claims in the event the Third Amendment is not so signed.

IN WITNESS WHEREOF, VGPC and PNOC-EDC have executed this CONSENT AND STIPULATION
OF DISMISSAL WITH PREJUDICE AS TO CERTAIN CLAIMS this ______ day of ___________,
2003.

PNOC-ENERGY DEVELOPMENT CORPORATION


By: /s/ Sergio Antonio F. Apostol
    -------------------------------------
Name: Sergio Antonio F. Apostol
Title: Chairman and President


                                       13



VISAYAS GEOTHERMAL POWER COMPANY


By:/s/ David A Baldwin
   -------------------------------------
Name: David A. Baldwin
Title: President and Chief Executive Officer


For Claimant

Visayas Geothermal Power Company

LATHAM & WATKINS


By:
   -------------------------------------


For Respondent

PNOC-Energy Development Corporation

ALLEN & OVERY


By:
   -------------------------------------


                                       14

EX-10.46

                                SEVENTH AMENDMENT

                TO THE 125 MW POWER PLANT--UPPER MAHIAO AGREEMENT

This SEVENTH AMENDMENT TO THE 125 MW POWER PLANT UPPER MAHIAO AGREEMENT
("Seventh Amendment") is made as of August 31, 2003 by and between:

CE CEBU GEOTHERMAL POWER COMPANY, INC. ("CE Cebu"), a corporation duly organized
and existing under the laws of the Philippines with offices at c/o CalEnergy
International, 24 Floor, 6750 Building, Ayala Avenue, Makati City, Metro Manila,
herein represented by its President and Chief Executive Officer, David A,
Baldwin, who is duly authorized to represent it in this Seventh Amendment;

and

PNOC-ENERGY DEVELOPMENT CORPORATION ("PNOC-EDCT), a wholly-owned subsidiary of
the Philippine National Oil Company, a corporation created and organized under
Presidential Decree No. 334, as amended, with principal office at Fort
Bonifacio, Merritt Road, Taguig City, Metro Manila, herein represented by its
Chairman and President, Sergio Antonio F. Apostol, who is duly authorized to
represent it in this Agreement.

WHEREAS, CE Cebu and PNOC-EDC are parties to the 125 MW Power Plant - Upper
Mahiao Agreement, dated as of September 16, 1993, as amended (the "ECA")
pursuant to which CE Cebu constructed, owns and operates a 125 MW Power Plant
near Tongonan, Leyte known as Upper Mahiao Power Plant (the "Upper Mahiao Power
Plant");

WHEREAS, affiliates of CE Cebu constructed, own and operate the 231 MW Power
Plant near Tongonan, Leyte, known as the Malitbog Power Plant (the "Malitbog
Power Plant") and the 180 MW Power Plant near Tongonan, Leyte known Mahanagdong
Power Plant (the "Mahanagdong Power Plant"); and

WHEREAS, CE Cebu and PNOC-EDC desire to amend the ECA in certain respects as set
forth herein and to resolve various issues between themselves with respect to
the ECA and the Power Plant,

NOW THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, CE Cebu and PNOC-EDC agree as follows:



1 DEFINITIONS.

(a) Capitalized terms used herein and not defined have the meanings ascribed to
them in the ECA

(b) Article 1 of the ECA is hereby amended by adding thereto the following new
definitions:

     Contract Year: Each yearly period commencing on June 25 of each calendar
     year and ending on June 25 of the immediately succeeding calendar year.

2. NO FURTHER CAPACITY TESTS FOR PURPOSES OF NOMINATED CAPACITY; ENERGY
GUARANTEE PAYMENT

(a) Section 5.5 (Tests During Cooperation Period) is hereby deleted in its
entirety.

(b) Within 30 days of the effective date of this Seventh Amendment, PNOC-EDC
shall pay to CE Cebu Capacity Fees withheld by PNOC-EDC in an amount relating
the difference between the actual duration of Scheduled Maintenance during 2001
and 240 hours per Unit.

(c) Within 30 days of the effective date of this Seventh Amendment, CE Cebu
shall pay to PNOC-EDC $800,000 in full and final settlement of any and all
claims by PNOC-EDC including the alleged failure of CE Cebu to meet the energy
delivery guarantee in the ECA for each of the Contract Years commencing June
25, 1998 and ending June 25, 1999.

3. CAPACITY NOMINATION.

(a) Section 6.13 of the ECA is deleted in its entirety.

(b) For the purpose of computing Capacity Payments under Section 8.4 on TERMS OF
PAYMENT of the ECA, all references to Nominated Capacity, NC, shall be replaced
with Contracted Capacity, CC.

4. SCHEDULED MAINTENANCE.

Section 6.14 of the ECA is hereby deleted in its entirety and replaced with the
following:

     (a) The Operator shall be entitled to conduct Scheduled Maintenance for
     each generating unit of the Power Plant without penalty for the duration
     set forth below with respect to each Contract Year (the "Scheduled
     Maintenance Duration ").

     ------------------------------------------------------------------------
                           JUNE 25, 20O3 -   JUNE 25, 2004 -   JUNE 25,2005 -
                            JUNE 25, 2004     JUNE 25, 2005     JUNE 25,2006
     ------------------------------------------------------------------------
     Scheduled
        Maintenance              240             240              576
        Duration (Hours/
        Unit)
     ------------------------------------------------------------------------


                                       2



     CE Cebu may in its sole discretion and without penalty elect to utilize up
     to 576 hours for Scheduled Maintenance in one of the Contract Years June
     25, 2003 to June 25, 2004 or June 25, 2004 to June 25, 2005 in lieu of
     during Contract Year June 25, 2005 to June 25, 2006 if, upon the
     commencement of the Scheduled Maintenance during one of Contract Year June
     25, 2003 to June 25, 2004 or June 25, 2004 to June 25, 2005 CE Cebu
     determines that a major overhaul is necessary. If CE Cebu so elects, the
     duration of Scheduled Maintenance for Contract Year June 25, 2005 to June
     25,2006 shall be reduced to 240 hours.

     (b) Scheduled Maintenance for each Contract Year shall commence on the
     dates indicated below.

     -----------------------------------------------
       UNIT 1     UNIT 2      UNIT 3       UNIT 4
     -----------------------------------------------
     October 6   October 6   October 11   October 11
     -----------------------------------------------

     The commencement dates of Scheduled Maintenance for the Contract Years
     commencing June 2004 and June 2005 may be modified by mutual agreement
     between PNOC-EDC and CE Cebu.

5. SCHEDULED MAINTENANCE PAYMENT

Within 30 days of the effective date of this Seventh Amendment, CE Cebu shall
pay PNOC-EDC the sum of $333,000 in full and final settlement of previous claims
by PNOC-EDC related to Scheduled Maintenance,

6. STEAM UTILIZATION.

The EGA shall be amended to add a new Section 6.20 as follows:

     6.20 To the extent it is in accordance with prudent industry standards and
     good engineering practices and does not exceed the maximum design capacity
     of the units, CE Cebu shall fully utilize the available conforming steam
     supply provided by PNOC-EDC by operating plant equipment and configuring
     plant control settings to maximize plant output up to the maximum interface
     pressure limits and under specified conditions set forth in the ECA,
     PNOC-EDC instrumentation and measuring methods shall be the basis for
     validating any claims related to non-conforming steam.


                                       3



7. TOTAL OUTAGE HOURS

The definition of TOH in Section 8.4.1 (Capacity Fee) of the ECA is hereby
amended to read in its entirety as follows:

          TOH = Total Outage Hours in Billing Period, provided that (a) for
          Billing Periods within which (i) no Scheduled Maintenance for any Unit
          is perfonned, or (ii) Scheduled Maintenance for any Unit is performed
          and both (A) such Scheduled Maintenance is not completed and (B) the
          duration of the actual Scheduled Maintenance for such Unit does not
          exceed the Scheduled Maintenance Duration, there shall be no
          modification to the definition of TOH, and (b) for Billing Periods
          within which Scheduled Maintenance for any Unit is perfonned, if the
          cumulative actual duration of Scheduled Maintenance for such Unit as
          of the last day of such Billing Period exceeds the then applicable
          Scheduled Maintenance Duration for such Unit but does not exceed 1,080
          hours, the following formula shall be used to calculate TOH for such
          Billing Period:

               TOH = TOHP + SMDV

               where

                    TOHP = the total number of Outage Hours in Billing Period;

                    SMDV = the Scheduled Maintenance Duration Variance,

                    calculated as follows:

                         (AD-TD) x 0.35
                         -------------- - PV
                                4

     where

          AD = the actual duration of Scheduled Maintenance for any Unit, in
          hours, through the last day of such Billing Period;

          TD = the Scheduled Maintenance Duration for any Unit, in hours, as
          specified in Section 6.14;

          PV - the cumulative Scheduled Maintenance Duration Variance in prior
          Billing Periods during the same Contract Year related to a Unit's
          current Scheduled Maintenance and previously taken into account in an
          adjustment to TOH in a prior Billing Period.

     For Billing Periods within which Scheduled Maintenance for any Unit is
     performed, if the cumulative actual duration of Scheduled Maintenance as of
     the last day of such


                                       4



     Billing Period exceeds 1,080 hours for such Unit, the following formula
     shall be used to calculate SMDV for such Billing Period:

                      (1.080 - TD) x 0.35   (AD--1.080)
               SMDV = ------------------- + ----------- - PV
                               4                 4

8. NO EFFICIENCY PENALTIES OR BONUSES

(a) The equation for the calculation of the Energy Fee in Section 8.4.2 (Energy
Fee) of the ECA is hereby amended to read as follows;

          Energy Fee = BER x ED

and the definitions of U(s), V(gs), V(ts), Z(s), U(b), V(gb), V(tb) and z(b) are
deleted in their entirety.

(b) Any obligations to test or meet, or otherwise take any action with respect
to, any Net Plant Steam Rate in the ECA are hereby deleted in their entirety.

9. EXCESS GENERATION PAYMENT; GENERATION AND MAINTENANCE EFFICIENCY PAYMENTS

The ECA is hereby amended by inserting the following text as Section 8.4.5:

     8.4.5 EXCESS GENERATION PAYMENTS; EFFICIENCY PENALTIES AND MAINTENANCE
     BONUSES

     (a) Excess Generation Payments: (i) For each Contract Year commencing 2003
     through to the end of the Cooperation Period, CE Cebu shall be paid an
     Excess Generation Payment (EGP) based on the formula below, if the
     aggregate generation from the Upper Mahiao Power Plant, the Malitbog Power
     Plant and the Mahanagdong Power Plant (including energy delivered to FCDS)
     exceeds the threshold generation levels specified below for such respective
     Contract Year;

               EGP = 1.00 Philippine Peso x 0.23 x EG

               Where

               EG = The positive difference, if any, between the actual
               aggregate generation from the Upper Mahiao, Mahanagdong and
               Malitbog Power Plants for each Contract Year and the annual
               aggregate generation thresholds provided in the table below.


                                       5



               ---------------------------------------------------------------
                CONTRACT YEAR    2003-2004   2004-2005   2005-2006   2006-2007
               ---------------------------------------------------------------
               Threshold (GWh)      4001        4116        4067        2993
               ---------------------------------------------------------------

     For purposes of this provision, the actual aggregate generation from the
     Upper Mahiao, Mahanagdong and Malitbog Power Plants for each Contract Year
     shall be the aggregate of the net output from each plant (including energy
     delivered to FCDS) measured using PNOC-EDC official electrical meters for
     each such Contract Year commencing 2003 and ending at the expiration of the
     Cooperation Period, and for purposes of determining whether the annual
     aggregate generation thresholds provided in the table have been exceeded,
     metered output (including energy delivered to FCDS) from the Upper Mahiao
     Power Plant for each such Contract Year shall be added to the metered
     output (including energy delivered to FCDS) from the Malitbog Power Plant
     and Mahanagdong Power Plant for the twelve month period commencing on the
     July 25 immediately succeeding each June 25.

     (ii) CE Cebu shall invoice PNOC-EDC for the Excess Generation Payment as a
     separate line item in the invoice delivered on or about July 25 each
     Contract Year and such amount shall be due and payable within 30 days of
     receipt of such invoice.

     (b) Efficiency Penalites: (i) If for any hour the Power Plant generates
     less output than Contracted Capacity when modulating its governor valves to
     receive 102% of 1019 tonnes per hour (main steam flow) that is made
     available and/or supplied by PNOC-EDC at a pressure of not less than 10
     kg/cm(2) gauge, PNOC-EDC may provide written notice to CE Cebu requesting
     that an output test be conducted. Within 24 hours of receipt of such
     notice, CE Cebu shall conduct a test of the Power Plant's output over a
     period of four continuous hours during which test PNOC-EDC shall supply
     and/or make available 102% of 1019 tonnes per hour (main steam flow) at a
     pressure of not less than 10 kg/cm(2) gauge (the "Four Hour Test"). If the
     average net electrical output of the Power Plant, operating at conditions
     specified under the ECA (except for steam flow and pressure which are
     specified above, and power factor, which shall be the actual power factor
     of the transmission system and/or that required by NPC/TRANSCO), as
     determined from the PNOC-EDC official electrical meters (including total
     energy delivered to FCDS) at the metering points specified in the ECA over
     the Four Hour Test ("AC"), is less than Contracted Capacity (a "Failed
     Test"), then CE Cebu shall pay PNOC-EDC a penalty determined as follows:

          P = (TC-AC) x CCR x h x y/ N(h)

          Where


                                       6



               P = the penalty amount per Billing Period

               TC = 102% of Contracted Capacity

               AC has the meaning specified above.

               h = the number of hours in any Billing Period commencing with the
               hour immediately after the Failed Test, and ending with the
               earlier of (i) the hour immediately preceding the first hour of a
               subsequent Four-Hour Test in the same Billing Period during which
               AC is equal to or greater than Contracted Capacity (a "Successful
               Test") and (ii) the end of such Billing Period, provided that if
               at the end of any Billing Period a Successful Test has not been
               conducted, each hour in the immediately succeeding Billing Period
               starting with the first hour thereof shall be included in the
               calculation of 'h' for such Billing Period unless and until a
               Successful Test in such Billing Period is conducted.

               N(h)= total number of hours in the Billing Period

               CCR shall have the meaning given thereto in Section 8.4.1

               y = 0 if during the Four-Hour Test AC, as defined above, is
               greater than Contracted Capacity. Otherwise, y = 1.

          (ii) CE Cebu may, at any time, provide written notice to PNOC-EDC
          requesting that a Four Hour Test be conducted. Within 24 hours of
          receipt of such notice, PNOC-EDC shall supply and/or make available to
          the Power Plant 102% of 1019 tonnes per hour (main steam flow) at a
          pressure of not less than 10 kg/cm(2) gauge in order for the Four Hour
          Test to be conducted. Failure of PNOC-EDC to supply and/or make
          available to the Power Plant 102% of 1019 tonnes per hour (main steam
          flow) at a pressure of not less than 10 kg/cm(2) gauge shall result in
          the Four Hour Test being deemed successful.

     (c) Maintenance Bonuses. For each Billing Period during which Scheduled
     Maintenance for any Unit is performed and both (i) such Scheduled
     Maintenance is completed and (ii) the duration of the actual Scheduled
     Maintenance for such Unit is less than 504 hours (for Contract Years in
     which up to 576 hours of Scheduled Maintenance are permitted) and less than
     192 hours (for Contract Years in which up to 240 hours of Scheduled
     Maintenance are permitted), PNOC-EDC shall pay to CE Cebu a maintenance
     efficiency bonus equal to US$208.33 multiplied by SMDD, where SMDD equals
     the Scheduled Maintenance Duration Difference, determined as follows:


                                       7



               SMDD = SMD -SMDA

          Where

               SMD equals 504 hours (for Contract Years in which up to 576 hours
               of Scheduled Maintenance are permitted) and 192 hours (for
               Contract Years in which up to 240 hours of Scheduled Maintenance
               are permitted), and

               SMDA equals the actual hours of Scheduled Maintenance on a Unit
               during the then current Contract Year.

10. The last sentence of Section 8.6(d) of the ECA is hereby amended to read as
follows:

          As to Local Business Tax and Real Property Taxes, CE Cebu shall adopt
          the position that it is exempted from the payment of business taxes
          owing to its relationship to PNOC-EDC under the BOT agreements and the
          exemption of PNOC-EDC from the payment of all taxes under its Service
          Contract with the government. CE Cebu shall accordingly initiate and
          exhaust all the necessary actions seeking to invalidate or cancel any
          assessments issued by the local government units for want of legal
          basis. PNOC-EDC shall hold CE Cebu free and harmless from any
          liability or loss of revenue arising from CE Cebu's non-payment of
          local business and real property taxes claimed by the Municipality of
          Kananga, the City of Ormoc, and the Province of Leyte, should the
          Supreme Court of the Philippines decide with finality that CE Cebu is
          liable for the payment of such taxes. With effect from January 1, 2004
          CE Cebu shall assume all payments required under ER 1-94 for the
          benefit of host communities arising from the energy generated by its
          power plants through to the expiration of the Cooperation Period.

11. INSTALLATION OF EQUIPMENT AND SOFTWARE

PNOC-EDC shall provide the complete installation and operation of equipment and
software configured to monitor the provisions of this Seventh Amendment for the
Upper Mahiao Power Plant at a cost chargeable to CE Cebu, not to exceed US$
30,000. The specifications of the equipment and software to be installed shall
be subject to the prior written approval of CE Cebu, and the installation of
such equipment and software shall be done at times agreed to by CE Cebu and in a
manner consistent with CE Cebu's health, safety and other working and operating
practices. Title to and care, custody and control of such equipment and software
shall remain with PNOC-EDC upon completion of and commissioning thereof.

12. OPERATION OF POWER PLANT

The Power Plant shall continue to be capable of operation within a power range
of 0.85 lag to 0.9 lead, as currently provided in the ECA, if the connected grid
so requires.

13. CONDITION OF POWER PLANT ON TRANSFER


                                       8



CE Cebu hereby covenants and agrees that the condition of the Power Plant upon
transfer will comply with Section 12.4 of the ECA.

14. WAIVER AND RELEASE OF CLAIMS

PNOC-EDC hereby waives, releases and relinquishes any and all rights, claims,
causes of action, defenses or any other action whatsoever that it may have had,
or may now have, whether known or unknown, arising from circumstances prior to
the date hereof, whether arising in law, equity, tort or contract.

CE Cebu hereby waives, releases and relinquishes any and all rights, claims,
causes of action, defenses or any other action whatsoever that it may have had,
or may now have, whether known or unknown, arising from circumstances prior to
the date hereof, whether arising in law, equity, tort or contract.

15. ENTIRE AGREEMENT.

This Seventh Amendment together with the ECA constitutes the entire agreement
between PNOC-EDC and CE Cebu with respect to the matters dealt with herein, and
there are no oral or written understandings, representations or commitments of
any kind, express or implied, that are not expressly set forth in such
documents, taken collectively.

16. ECA TO REMAIN IN EFFECT.

Except as amended by this Seventh Amendment, all of the terms and provisions of
the ECA remain in full force and effect, including without limitation the
performance undertaking. Any references in the ECA that are inconsistent with
the modifications herein are hereby amended to be consistent with these
modifications. The dispute resolution provisions of the ECA shall apply with
full force and effect to the Seventh Amendment and shall govern any dispute
arising under this Seventh Amendment.

17. REFERENCES TO ECA.

Any and all notices, requests, certificates and other instruments executed and
delivered concurrently with or after the execution of this Seventh Amendment may
refer to the ECA without making specific reference to this Seventh Amendment,
but nevertheless all such references shall be deemed to include this Seventh
Amendment unless the context shall otherwise require.

18. EFFECTIVITY OF AMENDMENT.

This Seventh Amendment shall become effective upon full execution of this
Seventh Amendment by both parties.


                                       9



IN WITNESS WHEREOF, CE Cebu and PNOC-EDC have executed this SEVENTH AMENDMENT as
at the date set forth in the first paragraph hereof.

PNOC ENERGY DEVELOPMENT CORPORATION


By: /s/ Sergio Antonio F. Apostol
    ----------------------------------------

Name: Sergio Antonio F. Apostol

Title: Chairman and President


CE CEBU GEOTHERMAL POWER COMPANY, INC


By: /s/ David A. Baldwin
    ----------------------------------------

Name: David A. Baldwin

Title: President and Chief Executive Officer


                                       10

EX-10.47

                                                                 Execution Copy


                             FISCAL AGENCY AGREEMENT


                                     Between


                          NORTHERN NATURAL GAS COMPANY,
                                    as Issuer


                                       and


                J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION,
                                 as Fiscal Agent


                                   ----------


                          Dated as of October 15, 2002


                                   ----------


                          5.375% Senior Notes due 2012







                                TABLE OF CONTENTS

                                                                          Page

1.       The Securities......................................................1
         (a)      General....................................................1
         (b)      Form of Securities; Denominations of Securities............1
         (c)      Temporary Securities.......................................4
         (d)      Legends....................................................4
         (e)      Book-Entry Provisions......................................5

2.       Fiscal Agent; Other Agents..........................................6

3.       Authentication......................................................6

4.       Payment and Cancellation............................................7
         (a)      Payment....................................................7
         (b)      Cancellation...............................................8

5.       Transfer and Exchange of Securities.................................8
         (a)      Transfers of Global Securities as Such.....................8
         (b)      Exchanges of Global Securities for Definitive Securities...8
         (c)      Beneficial Interests.......................................9
         (d)      Special Provisions Regarding Transfer of Beneficial
                  Interests in a Regulation S Global Security................9
         (e)      Special Provisions Regarding Transfer of Beneficial
                  Interests in a Rule 144A Global Security..................11
          (f)      Special Provisions Regarding Transfer of Restricted
                   Definitive Securities.....................................13

6.       Mutilated, Destroyed, Stolen or Lost Securities....................15

7.       Register; Record Date for Certain Actions..........................15

8.       Delivery of Certain Information....................................17
         (a)      Non-Reporting Issuer......................................17
         (b)      Information After Two Years...............................17
         (c)      Periodic Reports..........................................17

9.       Conditions of Fiscal Agent's Obligations...........................18
         (a)      Compensation and Indemnity................................18
         (b)      Agency....................................................18
         (c)      Advice of Counsel.........................................19
         (d)      Reliance..................................................19
         (e)      Interest in Securities, etc...............................19
         (f)      Certifications............................................19
         (g)      No Implied Obligations....................................20
         (h)      No Liability..............................................20
         (i)      No Inquiry................................................20
         (j)      Agents....................................................20
         (k)      Directors, Officers.......................................20

10.      Resignation and Appointment of Successor...........................20
         (a)      Fiscal Agent and Paying Agent.............................20
         (b)      Resignation...............................................20
         (c)      Successors................................................21
         (d)      Acknowledgment............................................21
         (e)      Merger, Consolidation, etc................................22

11.      Payment of Taxes...................................................22

12.      Amendments.........................................................22
         (a)      Approval..................................................22
         (b)      Binding Nature of Amendments, Notice, Notations, etc......23
         (c)      "Outstanding" Defined.....................................23

13.      GOVERNING LAW......................................................24


                                       i



14.      Notices............................................................24

15.      Defeasance (Legal and Covenant)....................................24
         (a)      Issuer's Option to Effect Defeasance or Covenant
                  Defeasance................................................24
         (b)      Defeasance and Discharge..................................24
         (c)      Covenant Defeasance.......................................25
         (d)      Conditions to Defeasance and Covenant Defeasance..........25
         (e)      Deposit in Trust; Miscellaneous...........................27
         (f)      Reinstatement.............................................27

16.      Headings...........................................................27

17.      Counterparts.......................................................28

18.      Successors and Assigns.............................................28

19.      Separability Clause................................................28



                                       ii






     FISCAL AGENCY AGREEMENT (this "Agreement"), dated as of October 15, 2002,
between NORTHERN NATURAL GAS COMPANY, a corporation duly organized under the
laws of the State of Delaware (the "Issuer"), and J.P. MORGAN TRUST COMPANY,
NATIONAL ASSOCIATION, a national banking association, as Fiscal Agent (as
defined in Section 2 hereof).

                             RECITALS OF THE ISSUER

     The Issuer has duly authorized the creation of an issue of its 5.375%
Senior Notes due October 31, 2012 (the "Securities") of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Issuer has duly
authorized the execution and delivery of this Agreement.

     All things necessary to make the Securities, when executed by the Issuer
and authenticated and delivered hereunder and duly issued by the Issuer, the
valid obligations of the Issuer, and to make this Agreement a valid agreement of
the Issuer, in accordance with their and its terms, have been done.

1. The Securities.

     (a) General. The aggregate principal amount of Securities which may be
authenticated and delivered under this Agreement is limited to $300,000,000
except for Securities authenticated and delivered upon registration of transfer,
or in exchange for, or in lieu of other Securities pursuant to the provisions of
this Agreement or the Securities.

     The Securities shall be known and designated as the "5.375% Senior Notes
due 2012" of the Issuer. The Securities will be unsecured, direct, unconditional
and general obligations of the Issuer and will rank pari passu with all other
unsecured and unsubordinated indebtedness of the Issuer.

     (b) Form of Securities; Denominations of Securities. The Securities will be
issued in registered form without coupons in substantially the form, and
including the terms, provided for herein and on Exhibit A. The Securities shall
be executed manually or in facsimile on behalf of the Issuer by its Chairman of
the Board, President or a Vice President and by its Secretary or an Assistant
Secretary (the "Authorized Officers"), notwithstanding that such officers, or
any one of them, shall have ceased, for any reason, to hold such offices prior
to the authentication and delivery of such Securities or did not hold such
offices at the date of such Securities. The Securities may also have such
additional provisions, omissions, variations or substitutions as are not
inconsistent with the provisions of this Agreement and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with any law or with any rules made
pursuant thereto or with the rules of any securities exchange or governmental
agency or as may, consistently herewith, be determined by the Authorized
Officers of the Issuer executing such Securities, as conclusively evidenced by
their execution of such Securities. All of the Securities shall be otherwise
substantially identical except as to denominations of Securities and as provided
herein.

     (i) Except as otherwise set forth in this Agreement, the Securities offered
and sold in their initial resale distribution to a qualified institutional buyer
(as defined in Rule 144A ("Rule 144A") under the United States Securities Act of
1933, as amended (the "Act"), each a "QIB") in reliance on Rule 144A ("Rule 144A
Securities") shall initially be issued in the form of one or more Global
Securities (as defined in Section 1(e) hereof) in definitive, fully registered
form, substantially in the form set forth on Exhibit A, with such applicable
legends as are provided for herein and on Exhibit A, and in minimum
denominations of $100,000 and in integral multiples of $1,000 in excess of
$100,000. Such Global Securities shall be duly executed by the Issuer and
authenticated by the Fiscal Agent as hereinafter provided, and deposited with
the U.S. Depository (as defined in Section 1(e) hereof). Until such time as the
Holding Period (as defined below) shall have terminated, each such Security
shall be referred to as a "Rule 144A Global Security." The aggregate principal
amount of any Rule 144A Global Security may be adjusted by endorsements to
Schedule A on the reverse thereof in any situation where adjustment is permitted
or required by this Agreement or provided for on Exhibit A. Unless the Issuer
determines otherwise in accordance with applicable law, the legend setting forth
transfer restrictions shall be removed or deemed removed from a Rule 144A
Security in accordance with the procedures set forth in Section 1(d) after such
time as the applicable Holding Period shall have terminated, and each such
Security shall thereafter be held as an unrestricted Security. As used herein,
the term "Holding Period," with respect to Rule 144A Securities, means the
period referred to in Rule 144(k) under the Act or any successor provision
thereto ("Rule 144(k)") and as may be amended or revised from time to time,
beginning from the later of (i) the original issue date of such Securities or
(ii) the last date on which the Issuer or any affiliate of the Issuer was the
beneficial owner of such Securities (or any predecessor thereof).

                                       1



     (ii) Except as otherwise set forth in this Agreement, Securities offered
and sold in reliance on Regulation S under the Act ("Regulation S") will be
issued initially in the form of one or more temporary Global Securities in the
form provided for herein and on Exhibit A, with such applicable legends as are
provided for herein and on Exhibit A, and in minimum denominations of $100,000
and in integral multiples of $1,000 in excess of $100,000 equal to the
outstanding principal amount of the Securities initially sold in reliance on
Rule 903 of Regulation S under the Act (the "Regulation S Temporary Global
Securities"). The Regulation S Temporary Global Securities, which will be
deposited on behalf of the purchasers of the Securities represented thereby with
the Fiscal Agent, as custodian for the U.S. Depository, and registered in the
name of the U.S. Depository or the nominee of the U.S. Depository for the
accounts of designated agents holding on behalf of Euroclear Bank S.A./N.V., as
operator of the Euroclear System ("Euroclear"), or Clearstream Banking, S.A.
("Clearstream"), shall be duly executed by the Issuer and authenticated by the
Fiscal Agent as hereinafter provided. Following the termination of the
Restricted Period (as defined below) and upon the receipt by the Fiscal Agent
of:

     a. a written certificate from the U.S. Depository, together with copies of
certificates from Euroclear and Clearstream, certifying that they have received
certification of non-United States beneficial ownership of 100% of the aggregate
principal amount of the Regulation S Temporary Global Securities (except to the
extent of any beneficial owners thereof who acquired an interest therein during
the Restricted Period pursuant to another exemption from registration under the
Act and who will take delivery of a beneficial ownership interest in a Rule 144A
Global Security or a Restricted Definitive Security (as defined below), all as
contemplated by Section 5(d) hereof); and

     b. a certificate signed by the Authorized Officers ("Officers'
Certificate"),

         beneficial interests in the Regulation S Temporary Global Securities
         will be exchanged for beneficial interests in a permanent global
         Security in the form provided for herein and on Exhibit A, issued in a
         denomination equal to the outstanding principal amount of the
         Regulation S Temporary Global Securities (the "Regulation S Permanent
         Global Securities") pursuant to the rules and regulations of the U.S.
         Depository, Euroclear or Clearstream, as applicable, in each case
         pertaining to beneficial interests in Global Securities ("Applicable
         Procedures"). Simultaneously with the authentication of the Regulation
         S Permanent Global Securities, the Fiscal Agent will cancel the
         Regulation S Temporary Global Securities. As used herein, "Regulation S
         Global Securities" means the Regulation S Temporary Global Securities
         or the Regulation S Permanent Global Securities, as applicable.

                           The aggregate principal amount of the Regulation S
         Temporary Global Securities and the Regulation S Permanent Global
         Securities may be adjusted by endorsements to Schedule A on the reverse
         thereof in any situation where adjustment is permitted or required by
         this Agreement. As used herein, the term "Restricted Period," with
         respect to Regulation S Securities, means the period of 40 consecutive
         days beginning on and including the later of (i) the date on which
         interests in such Securities are offered to Persons (as defined below)
         other than distributors (as defined in Regulation S) and (ii) the
         original issue date of such Securities. Except as otherwise provided in
         this Agreement, no Regulation S Global Security shall be issued except
         as provided in this paragraph to evidence Securities offered and sold
         in reliance on Regulation S. Unless the Issuer determines otherwise in
         accordance with applicable law, the legend setting forth transfer
         restrictions shall be removed or deemed removed from a Regulation S
         Security in accordance with the procedures set forth in Section 1(d)
         hereof, and each such Security shall thereafter be held as an
         unrestricted Security. As used herein, "Person" means any individual,
         corporation, limited liability company, partnership, joint venture,
         association, joint-stock company, trust, unincorporated organization or
         government or any agency or political subdivision thereof.

                                       2


                           The provisions of the "Operating Procedures of the
         Euroclear System" and "Terms and Conditions Governing Use of Euroclear"
         and the "General Terms and Conditions of Clearstream Banking" and
         "Customer Handbook" of Clearstream will be applicable to transfers of
         beneficial interests in the Regulation S Temporary Global Securities
         and the Regulation S Permanent Global Securities that are held by Agent
         Members (as defined in Section 1(e)) through Euroclear or Clearstream.

     (iii) Except as otherwise provided in this Agreement, Securities offered
and sold in their initial resale distribution to purchasers who are
institutional "accredited investors" as described in Rule 501(a)(1), (2), (3) or
(7) under the Act and who are not QIBs shall be issued in the form of fully
registered, definitive, physical certificates, substantially in the form set
forth herein and on Exhibit A, with such applicable legends as are provided for
on Exhibit A, and in minimum denominations of $250,000 and in integral multiples
of $1,000 in excess of $250,000 (such securities are herein referred to as
"Restricted Definitive Securities"). Unless the Issuer determines otherwise in
accordance with applicable law, the legend setting forth transfer restrictions
shall be removed or deemed removed from a Restricted Definitive Security in
accordance with the procedures set forth in Section 1(d) after such time as the
applicable Holding Period shall have terminated, and each such Security shall
thereafter be held as an unrestricted Security. As used herein, the term
"Holding Period," with respect to Restricted Definitive Securities, means the
period referred to in Rule 144(k) or any successor provision thereto and as may
be amended or revised from time to time, beginning from the later of (i) the
original issue date of such Securities or (ii) the last date on which the Issuer
or any affiliate of the Issuer was the beneficial owner of such Securities (or
any predecessor thereof).

     (c) Temporary Securities. Until definitive Securities are prepared, the
Issuer may execute, and there shall be authenticated and delivered in accordance
with the provisions of Section 3 hereof (in lieu of definitive printed
Securities), temporary Securities. Such temporary Securities may be in
registered global form. Such temporary Securities shall be subject to the same
limitations and conditions and entitled to the same rights and benefits as
definitive Securities, except as provided herein or therein. Temporary
Securities shall be exchangeable for definitive Securities, when such definitive
Securities are available for delivery; and upon the surrender for exchange of
such temporary Securities, the Issuer shall execute and there shall be
authenticated and delivered, in accordance with the provisions of Sections 6 and
7 hereof, in exchange for such temporary Securities, a like aggregate principal
amount of definitive Securities of like tenor. The Issuer shall pay all charges,
including (without limitation) stamp and other taxes and governmental charges,
incident to any exchange of temporary Securities for definitive Securities. All
temporary Securities shall be identified as such and shall describe the right of
the holder thereof to effect an exchange for definitive Securities and the
manner in which such an exchange may be effected.

     (d) Legends. Securities shall be stamped or otherwise be imprinted with the
legends set forth on the face of the text of the Securities attached as Exhibit
A, including any legend provided for pursuant to Section 1(e) hereof. The
legends so provided on the face of the text of the Securities may be removed
from any Security, upon written order signed in the name of the Issuer by the
Authorized Officers and delivered to the Fiscal Agent ("Order"), (i) two years
from the later of issuance of the Security or the date such Security (or any
predecessor) was last acquired from an "affiliate" of the Issuer within the
meaning of Rule 144 ("Rule 144") under the Act or (ii) in connection with a sale
made pursuant to the volume (and other restrictions) of Rule 144 following one
year from such time, provided that, if the legend is removed and the Security is
subsequently held by such an affiliate of the Issuer, the legend shall be
reinstated. Any legends provided pursuant to Section 1(e) hereof may be removed
in the event the applicable Global Securities cease to be Global Securities in
accordance with Section 5 hereof.

     (e) Book-Entry Provisions. The Securities may be issued initially in the
form of one or more registered global Securities ("Global Securities") deposited
with or on behalf of a depository located in the United States, which initially
shall be The Depository Trust Company together with its nominee Cede & Co. (the
"U.S. Depository"), that (i) shall be registered in the name of the U.S.
Depository for such Global Security or Securities or the nominee of such U.S.
Depository, (ii) shall be delivered by the Fiscal Agent to such U.S. Depository
or pursuant to such U.S. Depository's instruction and (iii) shall bear a legend
substantially similar to the following:

                                       3


"THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE FISCAL AGENCY
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE U.S.
DEPOSITORY OR A NOMINEE OF THE U.S. DEPOSITORY. THIS SECURITY IS EXCHANGEABLE
FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE U.S. DEPOSITORY
OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE FISCAL AGENCY
AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS
SECURITY AS A WHOLE BY THE U.S. DEPOSITORY TO A NOMINEE OF THE U.S. DEPOSITORY
OR BY A NOMINEE OF THE U.S. DEPOSITORY TO THE U.S. DEPOSITORY OR ANOTHER NOMINEE
OF THE U.S. DEPOSITORY OR BY THE U.S. DEPOSITORY OR ANY SUCH NOMINEE TO A
SUCCESSOR U.S. DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR U.S. DEPOSITORY) MAY BE
REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.

UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
U.S. DEPOSITORY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE IS ISSUED IN THE NAME OR NAMES AS
DIRECTED IN WRITING BY THE U.S. DEPOSITORY, ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE
REGISTERED HOLDER HEREOF, THE U.S. DEPOSITORY, HAS AN INTEREST HEREIN."

     Members of, or direct of indirect participants in, the U.S. Depository
("Agent Members") shall have no rights under this Agreement with respect to any
Global Security held on their behalf by the U.S. Depository or under the Global
Security, and such U.S. Depository may be treated by the Issuer, the Fiscal
Agent, and any agent of the Issuer or the Fiscal Agent as the owner of such
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Issuer, the Fiscal Agent, or any agent of the
Issuer or the Fiscal Agent from giving effect to any written certification,
proxy or other authorization furnished by the U.S. Depository or impair, as
between the U.S. Depository and its Agent Members, the operation of customary
practices governing the exercise of the rights of a holder of any Security.

     So long as the U.S. Depository or its nominee is the registered holder of
the Securities, the U.S. Depository or such nominee will for all purposes of the
Securities and this Agreement be considered the sole owner or holder of such
Securities. Until such time as definitive Securities may be issued, beneficial
owners of Securities will not be entitled to have Securities registered in their
names, will not receive or be entitled to receive physical delivery of
Securities in definitive form, and will not be considered the owners or holders
thereof under this Agreement for any purpose.

     The Issuer initially appoints the Fiscal Agent to serve as custodian for
the Global Securities.

     This Section 1(e) shall apply only to Global Securities deposited with or
on behalf of the U.S. Depository.

2. Fiscal Agent; Other Agents. The Issuer hereby appoints J.P. Morgan Trust
Company, National Association, acting through its corporate trust office in San
Francisco, California (the "Corporate Trust Office"), as fiscal agent of the
Issuer in respect of the Securities, upon the terms and subject to the
conditions herein set forth, and J.P. Morgan Trust Company, National Association
hereby accepts such appointment. J.P. Morgan Trust Company, National Association
and any successor or successors as such fiscal agent qualified and appointed in
accordance with Section 10 hereof, are herein called the "Fiscal Agent." The
Fiscal Agent shall have the powers and authority granted to and conferred upon
it in the Securities and hereby and such further powers and authority to act on
behalf of the Issuer as may be mutually agreed upon by the Issuer and the Fiscal
Agent. All of the terms and provisions with respect to such powers and authority
contained in the Securities are subject to and governed by the terms and
provisions hereof.

                                       4


     The Issuer may appoint one or more agents (a "Paying Agent" or "Paying
Agents") for the payment (subject to applicable laws and regulations) of the
principal of and interest on the Securities, and one or more agents (a "Transfer
Agent" or "Transfer Agents") for the transfer and exchange of securities, at
such place or places as the Issuer may determine; provided, however, the Issuer
shall at all times maintain a Paying Agent or agent thereof and Transfer Agent
or agent thereof in the Borough of Manhattan, The City of New York (which Paying
Agent and Transfer Agent may be the Fiscal Agent or any of its affiliates). The
Issuer initially appoints the Fiscal Agent, acting through its offices in the
Borough of Manhattan, The City of New York, as Paying Agent and Transfer Agent.
The Issuer shall promptly notify the Fiscal Agent of the name and address of
each Paying Agent and Transfer Agent appointed, and will notify the Fiscal Agent
of the resignation or termination of any Paying Agent or Transfer Agent. Subject
to the provisions of Section 10(c) hereof, the Issuer may vary or terminate the
appointment of any such Paying Agent or Transfer Agent at any time and from time
to time upon giving not less than 90 days' notice to such Paying Agent or
Transfer Agent, as the case may be, and to the Fiscal Agent.

     The Issuer shall cause notice of any resignation, termination or
appointment of any Paying Agent or Transfer Agent or of the Fiscal Agent and of
any change in the office through which any such Agent will act to be given to
registered holders of the Securities.

3. Authentication. The Fiscal Agent is authorized, upon receipt of Securities
duly executed on behalf of the Issuer for the purposes of the original issuance
of the Securities, (i) to authenticate said Securities in an aggregate principal
amount not in excess of $300,000,000 and to deliver said Securities in
accordance with an Order or Orders and (ii) thereafter to authenticate and
deliver said Securities in accordance with the provisions hereinafter set forth.

     The Fiscal Agent may, with the consent of the Issuer, appoint by an
instrument or instruments in writing one or more agents (which may include
itself) for the authentication of Securities and, with such consent, vary or
terminate any such appointment upon written notice and approve any change in the
office through which any authenticating agent acts. The Issuer (by written
notice to the Fiscal Agent and the authenticating agent whose appointment is to
be terminated) may also terminate any such appointment at any time. The Fiscal
Agent hereby agrees to solicit written acceptances from the entities concerned
(in form and substance satisfactory to the Issuer) of such appointments. In its
acceptance of such appointment, each such authenticating agent shall agree to
act as an authenticating agent pursuant to the terms and conditions of this
Agreement.

4. Payment and Cancellation.

(a) Payment. Subject to the following provisions, the Issuer shall provide to
the Fiscal Agent in funds available on or prior to each date on which a payment
of principal of or any interest on the Securities shall become due, as set forth
in the text of the Securities, such amount, in such coin or currency, as is
necessary to make such payment, and the Issuer hereby authorizes and directs the
Fiscal Agent from funds so provided to it to make or cause to be made payment of
the principal of and interest on, as the case may be, the Securities set forth
herein and in the text of the Securities. The Fiscal Agent shall arrange
directly with any Paying Agent who may have been appointed pursuant to the
provisions of Section 2 hereof for the payment from funds so paid by the Issuer
of the principal of and interest on the Securities as set forth herein and in
the text of the Securities. Notwithstanding the foregoing, the Issuer may
provide directly to a Paying Agent funds for the payment of the principal
thereof and premium and interest, if any, payable thereon under an agreement
with respect to such funds containing substantially the same terms and
conditions set forth in this Section 4(a) and in Section 9(b) hereof; and the
Fiscal Agent shall have no responsibility with respect to any funds so provided
by the Issuer to any such Paying Agent.

                                       5

     Any interest on the Securities shall be paid, unless otherwise provided in
the text of the Securities, to the Persons in whose names such Securities are
registered on the register maintained pursuant to Section 7 hereof at the close
of business on the record dates designated in the text of the Securities (the
"registered holders"). Payments of principal of Securities shall be payable
against surrender thereof at the corporate trust office or office of an agent of
the Fiscal Agent and at the offices of such other Paying Agents as shall have
been appointed pursuant to Section 2 hereof. Payments of principal shall be made
against surrender of Securities, and payments of interest on Securities shall be
made, in accordance with the foregoing and subject to applicable laws and
regulations, by check mailed on or before the due date for such payment to the
Person entitled thereto at such Person's address appearing on the register of
the Securities maintained pursuant to Section 7 hereof, or, in the case of
payments of principal, to such other address as the registered holder shall
provide in writing at the time of such surrender; provided, however, that such
payments may be made, in the case of a registered holder of greater than
$1,000,000 aggregate principal amount of Securities, by transfer to an account
maintained by the payee with a bank if such registered holder so elects by
giving notice to the Fiscal Agent, not less than 15 days (or such fewer days as
the Fiscal Agent may accept at its discretion) prior to the date of the payments
to be obtained, of such election and of the account to which payment is to be
made.

(b) Cancellation. All Securities delivered to the Fiscal Agent (or any other
Agent appointed pursuant to Section 2 hereof) for payment, registration of
transfer or exchange as herein or in the Securities provided shall be forwarded
to the Fiscal Agent by the Agent to which they are delivered. All such
Securities shall be canceled and destroyed by the Fiscal Agent or such other
Person as may be jointly designated by the Issuer and the Fiscal Agent, which
shall thereupon furnish certificates of such destruction to the Issuer upon the
Issuer's request.

5. Transfer and Exchange of Securities.

(a) Transfers of Global Securities as Such. Except as otherwise expressly set
forth in this Agreement or any amendment hereto, a Global Security representing
all or a portion of the Securities of a series may not be transferred in global
form, except as a whole (i) by the U.S. Depository for such series to a nominee
of such U.S. Depository, (ii) by a nominee of such U.S. Depository to such U.S.
Depository or another nominee of such U.S. Depository or (iii) by such U.S.
Depository or any such nominee to a successor U.S. Depository for such series or
a nominee of such successor U.S. Depository.

(b) Exchanges of Global Securities for Definitive Securities. A Global Security
shall be exchangeable, in whole but not in part, for definitive Securities if
(a) the U.S. Depository notifies the Issuer that it is unwilling or unable to
continue to hold book-entry interests in such Global Security or the U.S.
Depository at any time ceases to be a "clearing agency" registered as such under
the Exchange Act, and, in either case, a successor is not appointed by the
Issuer within 120 days, (b) while a Global Security is a restricted Security the
book-entry interests in such Global Security cease to be eligible for the U.S.
Depository's services because the Securities are neither (i) rated in one of the
top four categories by a nationally recognized statistical rating organization
nor (ii) included within a Self-Regulatory Organization system approved by the
Securities and Exchange Commission (the "Commission") for the reporting of
quotation and trade information of securities eligible for transfer pursuant to
Rule 144A, such as the PORTAL system, (c) the U.S. Depository for Securities
notifies the Issuer that it is unwilling or unable to continue as U.S.
Depository with respect to such Global Security and no successor is appointed
within 120 days or (d) the Issuer in its sole discretion executes and delivers
to the Fiscal Agent an Officers' Certificate providing that such Global Security
shall be so exchangeable; provided, however, that in no event shall the
Regulation S Temporary Global Securities be exchanged by the Issuer for
definitive Securities prior to (x) the expiration of the Restricted Period and
(y) the receipt by the Transfer Agent of any certificates required pursuant to
Rule 903(b)(3)(ii)(B) under the Act. Securities so issued in exchange for any
such Global Security shall be of the same series, having the same interest rate,
if any, and maturity and having the same terms as such Global Security, in
authorized denominations and in the aggregate having the same principal amount
as such Global Security and registered in such names as the U.S. Depository for
such Global Security shall direct. Upon such exchange, the surrendered Global
Security shall be cancelled by the Fiscal Agent.

     A Global Security shall be exchangeable, in whole or in part, for
definitive registered Securities if there shall have occurred and be continuing
an event of default (as set forth in paragraph 7 of the Securities) and the
registered holder, in such circumstances, shall have requested in writing that
all or a part of the Global Security be exchanged for one or more definitive
Securities (an "Optional Definitive Security Request"), provided, however, that
in no event shall the Regulation S Temporary Global Securities be exchanged by
the Issuer for definitive registered Securities prior to (x) the expiration of
the Restricted Period and (y) the receipt by the Transfer Agent of any
certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Act. Upon any
such surrender, (i) the Issuer shall execute and the Fiscal Agent shall
authenticate and deliver without charge to each Person specified by the U.S.
Depository, in exchange for such Person's beneficial interest in the Global
Security, a new Security or Securities in definitive registered form having the
same interest rate, if any, and maturity and having the same terms as such
Global Security, in any authorized denomination requested by such Person and in
an aggregate principal amount equal to such Person's beneficial interest in the
Global Security, and (ii) if the Global Security is being exchanged (x) as a
whole, then the surrendered Global Security shall be cancelled by the Fiscal
Agent, or (y) in part, then the principal amount of the surrendered Global
Security shall be reduced by an endorsement on Schedule A thereto in the
appropriate amount.

                                       6


     Unless otherwise provided by the Issuer, definitive Securities issued in
exchange for a Global Security pursuant to this Section 5(b) shall be issued
only in registered form and shall be registered in such names and in such
authorized denominations as the U.S. Depository for such Global Security,
pursuant to instructions of its Agent Members or otherwise, shall instruct the
Fiscal Agent. The Fiscal Agent shall deliver such Securities to the Persons in
whose names such Securities are so registered.

(c) Beneficial Interests.

     Subject to the provisions herein, beneficial interests in a Global Security
may be transferred in any manner consistent with the Applicable Procedures.

(d) Special Provisions Regarding Transfer of Beneficial Interests in a
Regulation S Global Security. The transfer of beneficial interests in a
Regulation S Global Security shall be effected in a manner not inconsistent with
the following provisions:

     (i) Transfer Through a Rule 144A Global Security. If the holder of a
beneficial interest in a Regulation S Global Security wishes at any time to
transfer such interest to a Person who wishes to take delivery thereof in the
form of a beneficial interest in a Rule 144A Global Security, such transfer may
be effected, subject to the Applicable Procedures, only in accordance with this
Section 5(d)(i), provided, however, that prior to the expiration of the
Restricted Period, transfers of beneficial interests in the Regulation S
Temporary Global Securities may not be made to a U.S. person (as defined under
Regulation S) or for the account or benefit of a U.S. person (other than an
initial purchaser). Upon receipt by the U.S. Depository of the instructions,
order and certificate set forth below, the U.S. Depository shall promptly
forward the same to the Transfer Agent at the Corporate Trust Office. Upon
receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust
Office of (1) written instructions given in accordance with the Applicable
Procedures from an Agent Member directing the U.S. Depository to cause to be
credited to a specified Agent Member's account a beneficial interest in the Rule
144A Global Security equal to that of the beneficial interest in the Regulation
S Global Security to be so transferred, (2) a written order given in accordance
with the Applicable Procedures containing information regarding the account of
the Agent Member to be credited with, and the account of the Agent Member held
for Euroclear or Clearstream to be debited for, such beneficial interest, and
(3) a certificate substantially in the form set forth in or contemplated by
Exhibit B given by the transferor --------- of such beneficial interest, the
Transfer Agent, shall (A) reduce the principal amount of the Regulation S Global
Security, and increase the principal amount of the Rule 144A Global Security, in
each case by an amount equal to the principal amount of the beneficial interest
in the Regulation S Global Security to be so transferred, as evidenced by
appropriate endorsements on Schedule A of the respective Global Securities, and
(B) instruct the U.S. Depository, (x) to make corresponding reductions and
increases in the amounts represented by the respective Global Securities and (y)
to cause to be credited to the account of the Person specified in such
instructions a beneficial interest in the Rule 144A Global Security having a
principal amount equal to the amount by which the principal amount of the
Regulation S Global Security was reduced upon such transfer.

                                       7


                           Delivery of a beneficial interest in the Regulation S
         Global Security may not be taken in the form of a beneficial interest
         in the Rule 144A Global Security if immediately prior to the
         contemplated transfer no Rule 144A Global Security is then Outstanding
         (as defined in Section 12(c) hereof).

     (ii) Interests in Regulation S Global Security Initially to be Held Through
Euroclear or Clearstream. Beneficial interests in a Regulation S Temporary
Global Security may be held only through Agent Members acting for and on behalf
of Euroclear or Clearstream.

     (iii) Transfer Through Restricted Definitive Security. If the holder of a
beneficial interest in a Regulation S Global Security wishes at any time to
transfer such interest to a Person who wishes to take delivery thereof in the
form of a Restricted Definitive Security, such transfer may be effected, subject
to the Applicable Procedures, only in accordance with this Section 5(d)(iii),
provided, however, that in no event shall the Regulation S Temporary Global
Securities be exchanged by the Issuer for Restricted Definitive Securities prior
to (x) the expiration of the Restricted Period and (y) the receipt by the
Transfer Agent of any certificates required pursuant to Rule 903(b)(3)(ii)(B)
under the Act. Upon receipt by the U.S. Depository of the instructions and
certificate set forth below, the U.S. Depository shall promptly forward the same
to the Transfer Agent at the Corporate Trust Office. Upon receipt by the
Transfer Agent from the U.S. Depository at the Corporate Trust Office of (1)
written instructions given in accordance with the Applicable Procedures from an
Agent Member directing the U.S. Depository to cause to be issued a Restricted
Definitive Security to such Person in a principal amount equal to that of the
beneficial interest in the Global Security to be so transferred and (2) a
certificate substantially in the form set forth in or contemplated by Exhibit C
given by the transferor of such beneficial interest, the Transfer Agent shall
(A) reduce the principal amount of the Regulation S Global Security by an amount
equal to the principal amount of the beneficial interest in the Regulation S
Global Security to be so transferred, as evidenced by appropriate endorsement on
Schedule A of the Regulation S Global Security and (B) cause to be issued a
Restricted Definitive Security to such Person in a principal amount equal to the
amount by which the principal amount of the Regulation S Global Security was
reduced upon such transfer.

     (iv) Transfer Through an Unrestricted Global Security. If the holder of a
beneficial interest in a Regulation S Global Security wishes at any time to
transfer such interest to a Person who wishes to take delivery thereof in the
form of a beneficial interest in an unrestricted Global Security, such transfer
may be effected, subject to the Applicable Procedures, only in accordance with
this Section 5(d)(iv). Upon receipt by the U.S. Depository of the instructions,
order and certificate set forth below, the U.S. Depository shall promptly
forward the same to the Transfer Agent at the Corporate Trust Office. Upon
receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust
Office of (1) written instructions given in accordance with the Applicable
Procedures from an Agent Member directing the U.S. Depository to cause to be
credited to a specified Agent Member's account a beneficial interest in the
unrestricted Global Security equal to that of the beneficial interest in the
Regulation S Global Security to be so transferred, (2) a written order given in
accordance with the Applicable Procedures containing information regarding the
account of the Agent Member, and the Euroclear or Clearstream account for which
such Agent Member's account is held, to be credited with, and the account of the
Agent Members to be debited for, such beneficial interest, and (3) a certificate
substantially in the form set forth in or contemplated by Exhibit D given by the
transferor of such beneficial interest, the Transfer Agent shall (A) reduce the
principal amount of the Regulation S Global Security, and increase the principal
amount of the unrestricted Global Security, in each case by an amount equal to
the principal amount of the beneficial interest in the Regulation S Global
Security to be so transferred, as evidenced by appropriate endorsements on
Schedule A of the respective Global Securities and (B) instruct the U.S.
Depository, (x) to make corresponding reductions and increases to the
transferor's beneficial interests in the respective Global Securities and (y) to
cause to be credited to the account of the Person specified in such instructions
a beneficial interest in the unrestricted Global Security having a principal
amount equal to the amount by which the principal amount of the Regulation S
Global Security was reduced upon such transfer.

                                       8


     (v) Beneficial Interests in Regulation S Temporary Global Securities to
Definitive Securities. Notwithstanding the foregoing, a beneficial interest in a
Regulation S Temporary Global Security may not be exchanged for a definitive
Security or transferred to a Person who takes delivery thereof in the form of a
definitive Security prior to (A) the expiration of the Restricted Period and (B)
the receipt by the Registrar of any certificates required pursuant to Rule
903(b)(3)(ii)(B) under the Act, except in the case of a transfer pursuant to an
exemption from the registration requirements of the Act other than Rule 903 or
Rule 904.

(e) Special Provisions Regarding Transfer of Beneficial Interests in a Rule
144A Global Security. The transfer of beneficial interests in a Rule 144A Global
Security  shall be  effected  in a manner not  inconsistent  with the  following
provisions:

     (i) Transfer Through a Regulation S Global Security. If the holder of a
beneficial interest in a Rule 144A Global Security wishes at any time to
transfer such interest to a Person who wishes to take delivery thereof in the
form of a beneficial interest in a Regulation S Global Security, such transfer
may be effected, subject to the Applicable Procedures, only in accordance with
this Section 5(e)(i). Upon receipt by the U.S. Depository of the instructions,
order and certificate set forth below, the U.S. Depository shall promptly
forward the same to the Transfer Agent at the Corporate Trust Office. Upon
receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust
Office of (1) written instructions given in accordance with the Applicable
Procedures from an Agent Member directing the U.S. Depository to cause to be
credited to a specified Agent Member's account a beneficial interest in the
Regulation S Global Security equal to that of the beneficial interest in the
Rule 144A Global Security to be so transferred, (2) a written order given in
accordance with the Applicable Procedures containing information regarding the
account of the Agent Members held for Euroclear to be credited with, and the
account of the Agent Members to be debited for, such beneficial interest, and
(3) a certificate substantially in the form set forth in or contemplated by
Exhibit E given by the transferor of such beneficial interest, the Transfer
Agent shall (A) reduce the principal amount of the Rule 144A Global Security,
and increase the principal amount of the Regulation S Global Security, in each
case by an amount equal to the principal amount of the beneficial interest in
the Rule 144A Global Security to be so transferred, as evidenced by appropriate
endorsements on Schedule A of the respective Global Securities and (B) instruct
the U.S. Depository, (x) to make corresponding reductions and increases to the
amounts represented by the respective Global Securities and (y) to cause to be
credited to the account of the Person specified in such instructions a
beneficial interest in the Regulation S Global Security having a principal
amount equal to the amount by which the principal amount of the Rule 144A Global
Security was reduced upon such transfer.

                           Delivery of a beneficial interest in the Rule 144A
         Global Security may not be taken in the form of a beneficial interest
         in the Regulation S Global Security if immediately prior to the
         contemplated transfer no Regulation S Global Security is then
         Outstanding.

     (ii) Transfer Through Restricted Definitive Security. If the holder of a
beneficial interest in a Rule 144A Global Security wishes at any time to
transfer such interest to a Person who wishes to take delivery thereof in the
form of a Restricted Definitive Security, such transfer may be effected, subject
to the Applicable Procedures, only in accordance with this Section 5(e)(ii).
Upon receipt by the U.S. Depository of the instructions and certificate set
forth below, the U.S. Depository shall promptly forward the same to the Transfer
Agent at the Corporate Trust Office. Upon receipt by the Transfer Agent from the
U.S. Depository at the Corporate Trust Office of (1) written instructions given
in accordance with the Applicable Procedures from an Agent Member directing the
U.S. Depository to cause to be issued a Restricted Definitive Security to such
Person in a principal amount equal to that of the beneficial interest in the
Rule 144A Global Security to be so transferred and (2) a certificate
substantially in the form set forth in or contemplated by Exhibit F given by the
transferor of such beneficial interest, the Transfer Agent shall (A) reduce the
principal amount of the Rule 144A Global Security by an amount equal to the
principal amount of the beneficial interest in the Rule 144A Global Security to
be so transferred, as evidenced by appropriate endorsement on Schedule A of the
Rule 144A Global Security and cause to be issued a Restricted Definitive
Security to such Person in a principal amount equal to the amount by which the
principal amount of the Rule 144A Global Security was reduced upon such transfer
and (B) instruct the U.S. Depository to make a corresponding reduction to the
transferor's beneficial interest in the Rule 144A Global Security.

                                       9


     (iii) Transfer Through an Unrestricted Global Security. If the holder of a
sbeneficial interest in a Rule 144A Global Security wishes at any time to
transfer such interest to a Person who wishes to take delivery thereof in the
form of a beneficial interest in an unrestricted Global Security, such transfer
may be effected, subject to the Applicable Procedures, only in accordance with
this Section 5(e)(iii). Upon receipt by the U.S. Depository of the instructions,
order and certificate set forth below, the U.S. Depository shall promptly
forward the same to the Transfer Agent at the Corporate Trust Office. Upon
receipt by the Transfer Agent from the U.S. Depository at the Corporate Trust
Office of (1) written instructions given in accordance with the Applicable
Procedures from an Agent Member directing the U.S. Depository to cause to be
credited to a specified Agent Member's account a beneficial interest in the
unrestricted Global Security equal to that of the beneficial interest in the
Rule 144A Global Security to be so transferred, (2) a written order given in
accordance with the Applicable Procedures containing information regarding the
account of the Agent Members to be credited with, and the account of the Agent
Members to be debited for, such beneficial interest, and (3) a certificate
substantially in the form set forth in or contemplated by Exhibit G given by the
transferor of such beneficial interest, the Transfer Agent shall (A) reduce the
principal amount of the Rule 144A Global Security, and increase the principal
amount of the unrestricted Global Security, in each case by an amount equal to
the principal amount of the beneficial interest in the Rule 144A Global Security
to be so transferred, as evidenced by appropriate endorsements on Schedule A of
the respective Global Securities and (B) instruct the U.S. Depository, (x) to
make corresponding reductions and increases to the transferor's beneficial
interests in the respective Global Securities and (y) to cause to be credited to
the account of the Person specified in such instructions a beneficial interest
in the unrestricted Global Security having a principal amount equal to the
amount by which the principal amount of the Rule 144A Global Security was
reduced upon such transfer.

(f) Special Provisions Regarding Transfer of Restricted Definitive
Securities.  Unless expressly provided otherwise in this Agreement, whenever any
Restricted  Definitive  Security is presented or surrendered for registration of
transfer,   such  Restricted  Definitive  Security  must  be  accompanied  by  a
certificate in substantially  the form set forth in or contemplated by Exhibit H
(which may be attached to or set forth in the Restricted  Definitive  Security),
appropriately  completed,  dated the date of such  surrender  and  signed by the
holder  of such  Restricted  Definitive  Security,  as to  compliance  with such
restrictions on transfer, unless the Issuer shall have notified the Fiscal Agent
that there is an effective  registration statement under the Act with respect to
such Restricted Definitive Security. The Transfer Agent shall not be required to
accept for such  registration of transfer or exchange any Restricted  Definitive
Security not so accompanied by a properly completed certificate. The transfer of
Restricted  Definitive Securities shall be effected in a manner not inconsistent
with the following provisions:

     (i) Transfer Through Regulation S Global Security. If the holder of a
Restricted Definitive Security wishes at any time to transfer such interest to a
Person who wishes to take delivery thereof in the form of a beneficial interest
in a Regulation S Global Security, such transfer may be effected, subject to the
Applicable Procedures, only in accordance with this Section 5(e)(i). Upon
receipt by the Transfer Agent at the Corporate Trust Office of (1) written
instructions from the transferor directing it to cause the U.S. Depository to
cause to be credited to such Person a beneficial interest in the Regulation S
Global Security in a principal amount equal to that of the Restricted Definitive
Security to be so transferred and (2) a certificate substantially in the form
set forth in or contemplated by Exhibit H given by the transferor of such
Restricted Definitive Security, the Transfer Agent shall (A) increase the
principal amount of the Regulation S Global Security by an amount equal to the
principal amount of the beneficial interest in the Regulation S Global Security
to be received by such Person, as evidenced by appropriate endorsement on
Schedule A of the Regulation S Global Security, and cancel such Restricted
Definitive Security, and (B) instruct the U.S. Depository, (x) to make
corresponding increases in the amount represented by the Regulation S Global
Security and (y) to cause to be credited to the account of the Person specified
in such instructions a beneficial interest in the Regulation S Global Security
having a principal amount equal to the principal amount of the Restricted
Definitive Security that was cancelled.

                                       10


     (ii) Transfer Through Rule 144A Global Security. If the holder of a
Restricted Definitive Security wishes at any time to transfer such interest to a
Person who wishes to take delivery thereof in the form of a beneficial interest
in the Rule 144A Global Security, such transfer may be effected, subject to the
Applicable Procedures, only in accordance with this Section 5(e)(ii). Upon
receipt by the Transfer Agent at the Corporate Trust Office of (1) written
instructions from the transferor directing it to cause the U.S. Depository to
cause to be credited to such Person a beneficial interest in the Rule 144A
Global Security in a principal amount equal to that of the Restricted Definitive
Security to be so transferred and (2) a certificate substantially in the form
set forth in or contemplated by Exhibit H given by the transferor of such
Restricted Definitive Security, the Transfer Agent shall (A) increase the
principal amount of the Rule 144A Global Security by an amount equal to the
principal amount of the beneficial interest in the Rule 144A Global Security to
be received by such Person, as evidenced by appropriate endorsement on Schedule
A of the Rule 144A Global Security, and cancel such Restricted Definitive
Security, and (B) instruct the U.S. Depository, (x) to make corresponding
increases in the amount represented by the Rule 144A Global Security and (y) to
cause to be credited to the account of the Person specified in such instructions
a beneficial interest in the Rule 144A Global Security having a principal amount
equal to the principal amount of the Restricted Definitive Security that was
cancelled.

     (iii) Transfer Through Unrestricted Global Security. If the holder of a
Restricted Definitive Security wishes at any time to transfer such interest to a
Person who wishes to take delivery thereof in the form of a beneficial interest
in the unrestricted Global Security, such transfer may be effected, subject to
the Applicable Procedures, only in accordance with this Section 5(e)(iii). Upon
receipt by the Transfer Agent at the Corporate Trust Office of (1) written
instructions from the transferor directing it to cause the U.S. Depository to
cause to be credited to such Person a beneficial interest in the unrestricted
Global Security in a principal amount equal to that of the Restricted Definitive
Security to be so transferred and (2) a certificate substantially in the form
set forth in or contemplated by Exhibit H given by the transferor of such
Restricted Definitive Security, the Transfer Agent shall (A) increase the
principal amount of the unrestricted Global Security by an amount equal to the
principal amount of the beneficial interest in the unrestricted Global Security
to be received by such Person, as evidenced by appropriate endorsement on
Schedule A of the unrestricted Global Security, and cancel such Definitive
Security, and (B) instruct the U.S. Depository, (x) to make corresponding
increases in the amount represented by the Rule 144A Global Security and (y) to
cause to be credited to the account of the Person specified in such instructions
a beneficial interest in the unrestricted Global Security having a principal
amount equal to the principal amount of the Restricted Definitive Security that
was cancelled.

     (iv) Transfer Through Restricted Definitive Security. If the holder of a
Restricted Definitive Security wishes at any time to transfer such interest to a
Person who wishes to take delivery thereof in the form of another Restricted
Definitive Security, such transfer may be effected, subject to the Applicable
Procedures, only in accordance with this Section 5(e)(iv). Upon receipt by the
U.S. Depository of the instructions and certificate set forth below, the U.S.
Depository shall promptly forward the same to the Transfer Agent at the
Corporate Trust Office. Upon receipt by the Transfer Agent from the U.S.
Depository at the Corporate Trust Office of a certificate substantially in the
form set forth in or contemplated by Exhibit H given by the transferor of such
Restricted Definitive Security, the Transfer Agent shall register the transfer
of such Restricted Definitive Security.

                                       11


6. Mutilated,  Destroyed,  Stolen or Lost Securities.  The Fiscal Agent, or its
agent duly authorized by the Fiscal Agent, is hereby authorized from time to
time in accordance with the provisions of the Securities,  Section l(e), Section
5 and of this Section to authenticate and deliver:

     (i) Securities in exchange for or in lieu of Securities of like tenor and
of like form which become mutilated, destroyed, stolen or lost; and

     (ii) registered Securities of authorized denominations in exchange for a
like aggregate principal amount of Securities of like tenor and of like form.

     The Securities shall be dated the date of their authentication by the
Fiscal Agent. Each Security authenticated and delivered upon any transfer or
exchange for or in lieu of the whole or any part of any Security shall carry all
the rights if any, to interest accrued and unpaid and to accrue which were
carried by the whole or such part of such Security. Notwithstanding anything to
the contrary herein contained, such new Security shall be so dated that neither
gain nor loss in interest shall result from such transfer or exchange.

7. Register; Record Date for Certain Actions. The Fiscal Agent, as agent of
the Issuer, shall maintain at its corporate trust office in San Francisco,
California and at its agent's office in the Borough of Manhattan, The City of
New York, a register for the Securities for the registration and registration of
transfers of the Securities. Upon presentation for the purpose at the said
office of the Fiscal Agent or its agent of any Security, accompanied by a
written instrument of transfer in the form approved by the Issuer and the Fiscal
Agent (it being understood that, until notice to the contrary is given to
holders of Securities, the Issuer and the Fiscal Agent shall each be deemed to
have approved the form of instrument of transfer, if any, printed on any
definitive Security), executed by the registered holder, in person or by such
registered holder's attorney thereunto duly authorized in writing, such Security
shall be transferred upon the register for the Securities, and a new Security of
like tenor shall be authenticated and issued in the name of the transferee.
Transfers and exchanges of Securities shall be subject to Section 1(e) and
Section 5 hereof, to such restrictions as shall be set forth in the text of the
Securities and to such reasonable regulations as may be prescribed by the Issuer
and the Fiscal Agent. Successive registrations and registrations of transfers as
aforesaid may be made from time to time as desired and each such registration
shall be noted on the Security register. No service charge shall be made for any
registration, registration of transfer or exchange of Securities, but, except as
otherwise provided herein with respect to the exchange of temporary Securities
for definitive Securities, the Fiscal Agent (and any Transfer Agent or
authenticating agent appointed pursuant to Section 2 or 3 hereof, respectively)
may require payment of a sum sufficient to cover any stamp or other tax or
governmental charge in connection therewith and any other amounts required to be
paid by the provisions of the Securities.

     Any Transfer Agent appointed pursuant to Section 2 hereof shall provide to
the Fiscal Agent such information as the Fiscal Agent may reasonably require in
connection with the delivery by such Transfer Agent of Securities in exchange
for other Securities.

     Neither the Fiscal Agent nor any Transfer Agent shall be required to make
registrations of transfer or exchange of Securities except as set forth in this
Agreement.

     Upon receipt by the Fiscal Agent of any written demand, request or notice
with respect to any matter on which the holders of Securities are entitled to
act under this Agreement, a record date shall be established for determining
registered holders of Outstanding Securities entitled to join in such demand,
request or notice, which record date shall be at the close of business on the
day the Fiscal Agent receives such demand, request or notice. The holders on
such record date, or their duly designated proxies, and only such Persons, shall
be entitled to join in such demand, request or notice, whether or not such
holders remain holders after such record date; provided, however, unless the
holders of the requisite principal amount of the Outstanding Securities shall
have joined in such demand, request or notice prior to the day which is ninety
(90) days after such record date, such demand, request or notice shall
automatically and without further action by any holder be cancelled and of no
further effect. Nothing in this paragraph shall prevent a holder, or a proxy of
a holder, from giving, (i) after expiration of such 90-day period, a new demand,
request or notice identical to a demand, request or notice which has been
cancelled pursuant to the proviso in the preceding sentence or (ii) during any
such 90-day period, a new demand, request or notice contrary to or different
from such demand, request or notice, in either of which events a new record date
shall be established pursuant to the provisions of this paragraph.

                                       12


     The Issuer may, but shall not be obligated to, fix a record date for the
purpose of determining the Persons entitled to consent to or approve any action
or waive any term, provision or condition of any covenant of this Agreement. If
a record date is fixed, the holders on such record date, or their duly
designated proxies, and only such Persons, shall be entitled to consent to or
approve any such action or waive any such term, provision, condition or
covenant, whether or not such holders remain holders after such record date;
provided, however, that unless such consent, waiver or approval is obtained from
the requisite principal amount of holders of Outstanding Securities, or their
duly designated proxies, prior to the date which is ninety (90) days after such
record date, any such consent, waiver or approval previously given shall
automatically and without further action by any holder be cancelled and of no
further effect.

8. Delivery of Certain Information.

(a) Non-Reporting Issuer. Subject to Section 8(b), as long as the Issuer is not
subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), at any time, upon the request of a registered
holder of a Security, the Issuer, or the Fiscal Agent upon request by and at the
expense of the Issuer, will promptly furnish or cause to be furnished "Rule 144A
Information" (as defined below) with respect to the Issuer to such holder or to
a prospective purchaser of such Security designated by such holder in order to
permit compliance by such holder with Rule 144A under the Act in connection with
the resale of such Security by such holder. "Rule 144A Information" with respect
to the Issuer shall be such information with respect to it as is specified
pursuant to Rule 144A(d)(4)(i) under the Act (or any successor provision
thereto) which, at the date of this Agreement, consists of (x) a very brief
statement of the nature of the business, products and services of the Issuer, as
the case may be, (which statement shall be as of a date within 12 months prior
to the date of the intended resale) and (y) the most recent financial statements
of the Issuer and its financial statements for the two fiscal years preceding
the period covered in the most recent financial statements. Such financial
statements of the Issuer shall include its balance sheet (as of a date less than
16 months before the date of the intended resale) and its profit and loss and
retained earnings statements (for the twelve month period preceding the date of
such balance sheet and, if the balance sheet is not as of a date less than six
months before the date of the intended resale, the most recent profit and loss
and retained earnings statements shall be for the period from the date of such
balance sheet to a date less than six months before the date of the intended
resale) and shall be audited to the extent reasonably available.

(b) Information After Two Years. Neither the Issuer nor the Fiscal Agent shall
be required to furnish Rule 144A Information with respect to the Issuer as
contemplated by Section 8(a) hereof, (x) to the holder or a prospective
purchaser of a Security in connection with any request made on or after the date
which is two years from the later of (i) the date such Security (or any
predecessor Security) was acquired from the Issuer or (ii) the date such
Security (or any predecessor Security) was last acquired from an "affiliate" of
the Issuer within the meaning of Rule 144 under the Act or (y) at any time to a
prospective purchaser located outside the United States who is not a U.S. person
within the meaning of Regulation S under the Act.

                                       13


(c) Periodic Reports. So long as any Securities are Outstanding, the Issuer, or
the Fiscal Agent upon request by and at the expense of the Issuer, will furnish
or cause to be furnished to holders of Securities and to the Fiscal Agent, (i)
at any time when the Issuer is subject to Section 13 or 15(d) of the Exchange
Act, copies of its annual and quarterly reports to stockholders and of each
report or definitive proxy statement filed with the Commission under the
Exchange Act, such reports or statements to be so furnished within 15 days after
the due date for filing with the Commission, and (ii) at any time when the
Issuer is not subject to Section 13 or 15(d) of the Exchange Act, (A) its annual
financial statements prepared in accordance with generally accepted accounting
principles applied consistently (except as otherwise noted therein) with those
of the prior years (together with notes thereto and a report thereon by an
independent accounting firm of established national reputation), such report to
be so furnished as soon as reasonably available and in any event within 120 days
after the end of the fiscal year covered thereby, (B) its unaudited comparative
financial statements for each of the first three fiscal quarters and the
corresponding quarter of the prior year prepared in accordance with generally
accepted accounting principles applied consistently (except as otherwise noted
therein) with those of the most recent annual financial statements (which
unaudited statements and related notes may be condensed to the extent permitted
by Form 10-Q under the Exchange Act or any successor form), such statements to
be so furnished as soon as reasonably available and in any event within 60 days
after the end of the fiscal quarter covered thereby, (C) any other interim
reports or financial statements prepared generally for its nonaffiliated
investors or lenders, such reports or statements to be so furnished concurrently
with their distribution to such investors or lenders, and (D) at each time of
delivery of the financial statements in (A), an Officers' Certificate stating
whether or not to the best knowledge of the signers thereof the Issuer is in
default in the performance and observance of any of the terms, provisions and
conditions of the Securities or this Agreement and, if the Issuer shall be in
default, specifying all such defaults and the nature and status thereof of which
they may have knowledge.

9. Conditions of Fiscal Agent's Obligations. The Fiscal Agent accepts its
obligations herein set forth upon the terms and conditions hereof, including the
following, to all of which the Issuer agrees and to all of which the rights of
holders from time to time of Securities are subject:

(a) Compensation and Indemnity. The Fiscal Agent shall be entitled to reasonable
compensation as agreed with the Issuer for all services rendered by it, and the
Issuer agrees promptly to pay such compensation and to reimburse the Fiscal
Agent for the reasonable out-of-pocket expenses (including reasonable counsel
fees) incurred by it or its agents in connection with its services hereunder.
The Issuer also agrees to indemnify the Fiscal Agent for, and to hold it
harmless against, any loss, liability or expense, including, without limitation,
damages, fines, suits, actions, demands, penalties, costs, out-of-pocket or
incidental expenses, legal fees and expenses, and the allocated costs and
expenses of in-house counsel, incurred without negligence or willful misconduct,
arising out of or in connection with its acting as Fiscal Agent or in any other
capacity hereunder, as well as the reasonable costs and expenses of defending
against any claim of liability in the premises. The obligations of the Issuer
under this Section 9(a) shall survive payment of all the Securities or the
resignation or removal of the Fiscal Agent.

(b) Agency. In acting under this Agreement and in connection with the
Securities, the Fiscal Agent is acting solely as agent of the Issuer and does
not assume any responsibility for the correctness of the recitals in the
Securities (except for the correctness of the statement in its certificate of
authentication on the Securities) or any obligation or relationship of agency or
trust, for or with any of the owners or holders of the Securities, except that
all funds held by the Fiscal Agent for the payment of principal of and any
interest on the Securities shall be held in trust for such owners or holders, as
the case may be, as set forth herein and in the Securities; provided, however,
that monies held in respect of the Securities remaining unclaimed at the end of
two years after the principal of or any interest on the Securities shall have
become due and payable (whether at maturity or otherwise) and monies sufficient
therefor shall have been duly made available for payment shall, together with
any interest made available for payment thereon, be repaid to the Issuer upon
Order. Upon such repayment, the aforesaid trust with respect to the Securities
shall terminate and all liability of the Fiscal Agent and Paying Agents with
respect to such funds shall thereupon cease. In the absence of an Order from the
Issuer to return unclaimed funds to the Issuer, the Fiscal Agent shall from time
to time deliver all unclaimed funds to or as directed by applicable escheat
authorities, as determined by the Fiscal Agent in its sole discretion, in
accordance with the customary practices and procedures of the Fiscal Agent.

(c) Advice of Counsel. The Fiscal Agent and any Paying Agent or Transfer Agent
appointed by the Issuer pursuant to Section 2 hereof may consult with their
respective counsel or other counsel satisfactory to them, and the opinion of
such counsel shall be full and complete authorization and protection in respect
of any action taken or suffered by them hereunder in good faith and without
negligence and in accordance with such opinion.

(d) Reliance. The Fiscal Agent and any Paying Agent or Transfer Agent appointed
by the Issuer pursuant to Section 2 hereof each shall be protected and shall
incur no liability for or in respect of any action taken or thing suffered by it
in reliance upon any Security, notice, direction, consent, certificate,
affidavit, statement, or other paper or document believed by it, in good faith
and without negligence, to be genuine and to have been passed or signed by the
proper party or parties.

                                       14


(e) Interest in Securities, etc. The Fiscal Agent, any authenticating agent, and
any Paying Agent or Transfer Agent appointed by the Issuer pursuant to Section 2
hereof and their respective officers, directors and employees may become the
owners of, or acquire any interest in, any Securities, with the same rights that
they would have if they were not the Fiscal Agent, such authenticating agent,
such other Paying Agent or Transfer Agent or such Person, and may engage or be
interested in any financial or other transaction with the Issuer, and may act
on, or as depository, trustee or agent for, any committee or body of holders of
Securities or other obligations of the Issuer, as freely as if they were not the
Fiscal Agent, such authenticating agent, such other Paying Agent or Transfer
Agent or such Person. The provisions of this Section 9(e) shall extend to
affiliates of the Fiscal Agent, such authenticating agent, any Paying Agent or
any Transfer Agent.

(f) Certifications. Whenever in the administration of this Agreement the Fiscal
Agent shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Fiscal Agent (unless
other evidence be herein specifically prescribed) may, in the absence of willful
misconduct or negligence on its part, request and rely upon a certificate signed
by any Authorized Officer of the Issuer and delivered to the Fiscal Agent.

(g) No Implied Obligations. The duties and obligations of the Fiscal Agent shall
be determined solely by the express provisions of this Agreement, and the Fiscal
Agent shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Fiscal
Agent. In no event shall the Fiscal Agent be liable for any lost profits, lost
savings or other special, exemplary, consequential or incidental damages.

(h) No Liability. The Fiscal Agent shall not be liable for any interest on any
funds held by the Fiscal Agent and shall never be required to use, advance or
risk its own funds or otherwise incur financial liability in the performance of
its duties hereunder. The Fiscal Agent shall not be liable for any actions taken
or not taken hereunder, in the absence of negligence or willful misconduct.

(i) No Inquiry. The Fiscal Agent shall not be bound to ascertain or inquire as
to the performance or observance of any of the terms, conditions, covenants or
agreements of the Securities or other documents on the part of the Issuer or as
to the existence of any event of default thereunder.

(j) Agents. The Fiscal Agent may execute any of its trusts or powers or perform
any duties under this Agreement either directly or by or through agents or
attorneys, may in all cases pay such reasonable compensation as it deems proper
to all such agents and attorneys reasonably employed or retained by it, and
shall not be responsible for any misconduct or negligence of any agent or
attorney appointed with due care by it.

(k) Directors, Officers. The protections from liability provided to the Fiscal
Agent hereunder, including the right to indemnification, shall extend to its
directors, officers, employees and agents.

10. Resignation and Appointment of Successor.

(a) Fiscal Agent and Paying Agent. The Issuer agrees, for the benefit of the
holders from time to time of the Securities, that there shall at all times be a
Fiscal Agent hereunder which shall be a bank or trust company organized and
doing business under the laws of the United States of America, any state thereof
or the District of Columbia, in good standing and having an established place of
business or agency in the Borough of Manhattan, The City of New York, and
authorized under such laws to exercise corporate trust powers until all the
Securities authenticated and delivered hereunder (i) shall have been delivered
to the Fiscal Agent for cancellation or (ii) become due and payable and monies
sufficient to pay the principal of and any interest on the Securities shall have
been made available for payment and either paid or returned to the Issuer as
provided herein and in such Securities.

                                       15


(b) Resignation. The Fiscal Agent may at any time resign by giving written
notice to the Issuer of such intention on its part, specifying the date on which
its desired resignation shall become effective, provided that such date shall
not be less than three (3) months from the date on which such notice is given,
unless the Issuer agrees to accept shorter notice. The Fiscal Agent hereunder
may be removed at any time by the filing with it of an instrument in writing
signed on behalf of the Issuer and specifying such removal and the date when it
shall become effective. Notwithstanding the dates of effectiveness of
resignation or removal, as the case may be, to be specified in accordance with
the preceding sentences, such resignation or removal shall take effect only upon
the appointment by the Issuer of a successor Fiscal Agent (which, to qualify as
such, shall be a bank or trust company organized and doing business under the
laws of the United States of America, any state thereof or the District of
Columbia, in good standing and having and acting through an established place of
business or agency in the Borough of Manhattan, The City of New York, authorized
under such laws to exercise corporate trust powers and having a combined capital
and surplus in excess of U.S.$50,000,000) and the acceptance of such appointment
by such successor Fiscal Agent. Upon its resignation or removal, the Fiscal
Agent shall be entitled to payment by the Issuer pursuant to Section 9 hereof of
compensation for services rendered and to reimbursement of reasonable
out-of-pocket expenses incurred hereunder.

(c) Successors. In case at any time the Fiscal Agent or any Paying Agent in
respect of the Securities (if such Paying Agent is the only Paying Agent located
in a place where, by the terms of the Securities or this Agreement, the Issuer
is required to maintain a Paying Agent) shall resign, or shall be removed, or
shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or
shall file a voluntary petition in bankruptcy or make an assignment for the
benefit of its creditors or consent to the appointment of a receiver of all or
any substantial part of its property, or shall admit in writing its inability to
pay or meet its debts as they severally mature, or if a receiver of it or of all
or any substantial part of its property shall be appointed, or if an order of
any court shall be entered approving any petition filed by or against it under
the provisions of the Federal Bankruptcy Act or under the provisions of any
similar legislation, or if a receiver of it or its property shall be appointed,
or if any public officer shall take charge or control of it or of its property
or affairs, for the purpose or rehabilitation, conservation or liquidation, a
successor Fiscal Agent or Paying Agent, as the case may be, qualified as
aforesaid, shall be appointed by the Issuer by an instrument in writing, filed
with the successor Fiscal Agent or Paying Agent, as the case may be, and the
predecessor Fiscal Agent or Paying Agent, as the case may be. Upon the
appointment as aforesaid of a successor Fiscal Agent or Paying Agent, as the
case may be, and acceptance by such successor of such appointment, the Fiscal
Agent or Paying Agent, as the case may be, so succeeded shall cease to be Fiscal
Agent or Paying Agent, as the case may be, hereunder. If no successor Fiscal
Agent or other Paying Agent, as the case may be, shall have been so appointed by
the Issuer and shall have accepted appointment as hereinafter provided, and, in
the case of such other Paying Agent, if such other Paying Agent is the only
Paying Agent located in a place where, by the terms of the Securities or this
Agreement, the Issuer is required to maintain a Paying Agent, then any holder of
a Security who has been a bona fide holder of a Security for at least six (6)
months, on behalf of such holder and all others similarly situated, or the
Fiscal Agent may petition any court of competent jurisdiction for the
appointment of a successor agent. The Issuer shall give prompt written notice to
each other Paying Agent of the appointment of a successor Fiscal Agent.

(d) Acknowledgment. Any successor Fiscal Agent appointed hereunder shall
execute, acknowledge and deliver to its predecessor and to the Issuer an
instrument accepting such appointment hereunder, and thereupon such successor
Fiscal Agent, without any further act, deed or conveyance, shall become vested
with all the authority, rights, powers, trusts, immunities, duties and
obligations of such predecessor with like effect as if originally named as
Fiscal Agent hereunder, and such predecessor, upon payment of its compensation,
and reimbursement of its disbursements then unpaid, shall thereupon become
obligated to transfer, deliver and pay over, and such successor Fiscal Agent
shall be entitled to receive, all monies, securities, books, records or other
property on deposit with or held by such predecessor as Fiscal Agent hereunder.

                                       16


(e) Merger, Consolidation, etc. Any corporation into which the Fiscal Agent
hereunder may be merged, or any corporation resulting from any merger or
consolidation to which the Fiscal Agent shall be a party, or any corporation to
which the Fiscal Agent shall sell or otherwise transfer all or substantially all
of the corporate trust business of the Fiscal Agent, provided that it shall be
qualified as aforesaid, shall be the successor Fiscal Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.

11. Payment of Taxes. The Issuer will pay all stamp and other duties, if any,
which may be imposed by the United States of America or any political
subdivision thereof or taxing authority of or in the foregoing with respect to
this Agreement or the issuance of the Securities.

12. Amendments.

(a) Approval. With the written consent of the registered holders of not less
than a majority in aggregate principal amount of the Securities then Outstanding
(or of such other percentage as may be set forth in the text of the Securities
with respect to the action being taken), the Issuer and the Fiscal Agent may
modify, amend or supplement the terms of the Securities and this Agreement in
any way, and the holders of Securities may make, take or give any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Agreement or the Securities to be made, given or taken by
holders of Securities; provided, however, that no such action may, without the
consent of the holder of each Security affected thereby, (A) change the due date
for the payment of the principal of or any installment of interest on any
Security, (B) reduce the principal amount of any Security or the interest rate
thereon (C) change the coin or currency in which or the place at which payment
with respect to interest or principal in respect of Securities are payable as
required by the proviso of the first sentence of the second paragraph of Section
2 hereof, or (D) reduce the proportion of the principal amount of Securities,
the consent of the holders of which is necessary to modify, amend or supplement
this Agreement or the terms and conditions of the Securities or to make, take or
give any request, demand, authorization, direction, notice, consent, waiver or
other action provided hereby or thereby to be made, taken or given. The Issuer
and the Fiscal Agent may, without the consent of any holder of Securities, amend
this Agreement or the Securities for the purpose of (i) adding to the covenants
of the Issuer for the benefit of the holders of Securities, (ii) surrendering
any right or power conferred upon the Issuer, (iii) securing the Securities
pursuant to the requirements of the Securities or otherwise, (iv) evidencing the
succession of another corporation to the Issuer and the assumption by any such
successor of the covenants and obligations of the Issuer in the Securities or in
this Agreement, or (v) correcting or supplementing any defective provision
contained in the Securities or in this Agreement, and in any manner which the
Issuer and the Fiscal Agent may determine that shall not be inconsistent with
the Securities and shall not adversely affect the interest of any holder of
Securities.

     It shall not be necessary for the consent of the holders of Securities to
approve the particular form of any proposed modification, amendment, supplement,
request, demand, authorization, direction, notice, consent, waiver or other
action, but it shall be sufficient if such consent shall approve the substance
thereof.

     In entering into any amendment hereof, the Fiscal Agent shall be entitled
to receive, and may rely on, an opinion of counsel that such amendment is
authorized or permitted by the terms of this Agreement.

(b) Binding Nature of Amendments, Notice, Notations, etc. Any instrument given
by or on behalf of any holder of a Security in connection with any consent to
any such modification, amendment, supplement, request, demand, authorization,
direction, notice, consent, waiver or other action will be irrevocable once
given and will be conclusive and binding on all subsequent holders of such
Security or any Security issued directly or indirectly in exchange or
substitution therefor or in lieu thereof. Any such modification, amendment,
supplement, request, demand, authorization, direction, notice, consent, waiver
or other action will be conclusive and binding on all holders of Securities,
whether or not they have given such consent, and whether or not notation of such
modification, amendment, supplement, request, demand, authorization, direction,
notice, consent, waiver or other action is made upon the Securities. Notice of
any modification or amendment of, supplement to, or request, demand,
authorization, direction, notice, consent, waiver or other action with respect
to the Securities or this Agreement (other than for purposes of curing any
ambiguity or of curing, correcting or supplementing any defective provision
hereof or thereof) shall be given to each holder of Securities affected thereby.

                                       17


     Securities authenticated and delivered after the effectiveness of any such
modification, amendment, supplement, request, demand, authorization, direction,
notice, consent, waiver or other action may bear a notation in the form approved
by the Fiscal Agent and the Issuer as to any matter provided for in such
modification, amendment, supplement, request, demand, authorization, direction,
notice, consent, waiver or other action. New Securities modified to conform, in
the opinion of the Fiscal Agent and the Issuer, to any such modification,
amendment, supplement, request, demand, authorization, direction, notice,
consent, waiver or other action may be prepared by the Issuer, authenticated by
the Fiscal Agent (or any authenticating agent appointed pursuant to Section 3
hereof) and delivered in exchange for Outstanding Securities.

(c)      "Outstanding" Defined. For purposes of the provisions of this Agreement
         and the Securities, any Security authenticated and delivered pursuant
         to this Agreement shall, as of any date of determination, be deemed to
         be "Outstanding," except:

(i)      Securities theretofore canceled by the Fiscal Agent or delivered to the
         Fiscal Agent for cancellation or held by the Fiscal Agent for
         reissuance but not reissued by the Fiscal Agent;

(ii)     Securities which have become due and payable at maturity or otherwise
         and with respect to which monies sufficient to pay the principal
         thereof and any interest thereon shall have been made available to the
         Fiscal Agent;

(iii)    Securities which have been defeased pursuant to Section 15(b) hereof;
         or

(iv)     Securities in lieu of or in substitution for which other Securities
         shall have been authenticated and delivered pursuant to this Agreement;

provided, however, that in determining whether the holders of the requisite
principal amount of Outstanding Securities have consented to any request,
demand, authorization, direction, notice, consent, waiver, amendment,
modification or supplement hereunder, Securities owned directly or indirectly by
the Issuer or any affiliate of the Issuer shall be disregarded and deemed not to
be Outstanding.

13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.

14. Notices. All notices or communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to the Fiscal Agent shall
be delivered, transmitted by facsimile, telexed or telegraphed to it at 560
Mission Street, 13th Floor, San Francisco, California 94105, Attention: James V.
Myers, facsimile no. (415) 315-7585 or if sent to the Issuer shall be delivered,
transmitted by facsimile, telexed or telegraphed to it at 1111 South 103rd
Street, Omaha, Nebraska 68124, Attention: General Counsel, facsimile no. (402)
398-7426. The foregoing addresses for notices or communications may be changed
by written notice given by the addressee to each party hereto, and the
addressee's address shall be deemed changed for all purposes from and after the
giving of such notice.

                  If the Fiscal Agent shall receive any notice or demand
addressed to the Issuer by the holder of a Security, the Fiscal Agent shall
promptly forward such notice or demand to the Issuer.

15.      Defeasance (Legal and Covenant).

(a)      Issuer's Option to Effect Defeasance or Covenant Defeasance. The Issuer
         may at its option, by Order of the Issuer delivered to the Fiscal
         Agent, elect to have either Section 15(b) or Section 15(c) applied to
         the Outstanding Securities upon compliance with the conditions set
         forth below in this Section 15.

                                       18


(b)      Defeasance and Discharge. Upon exercise by the Issuer of the option
         provided in Section 15(a) applicable to this Section 15(b), the Issuer
         shall be deemed to have been discharged from its obligations with
         respect to the Outstanding Securities on the date the conditions set
         forth below are satisfied (hereinafter, "Defeasance"). For this
         purpose, such Defeasance means that the Issuer shall be deemed to have
         paid and discharged the entire Indebtedness represented by the
         Outstanding Securities and to have satisfied all its other obligations
         under such Securities and this Agreement insofar as the Securities are
         concerned (and the Issuer and the Fiscal Agent shall execute proper
         instruments acknowledging the same), except for the following, which
         shall survive until otherwise terminated or discharged hereunder: (i)
         the rights of holders of the Securities to receive, solely from the
         trust fund described in Section 15(d) and as more fully set forth in
         such Section, payments in respect of the principal of and any interest
         on the Securities when such payments are due, (ii) the Issuer's
         obligations with respect to the Securities under Sections 1(d), 2,
         4(a), 6, 7, 8(a), 8(b) and 10 of this Agreement and paragraphs 3, 4(a),
         6, 10 (insofar as it relates to Sections 8(a) and 8(b) of this
         Agreement), 11 and 12 of the Securities and (iii) this Section 15.
         Subject to compliance with this Section 15, the Issuer may exercise its
         option under this Section 15(b) notwithstanding the prior exercise of
         its option under Section 15(c).

(c)      Covenant Defeasance. Upon the Issuer's exercise of the option provided
         in Section 15(a) applicable to this Section 15(c), the Issuer shall be
         released from its obligations under paragraphs 7(iii), 8, and 9(a)(iii)
         of the Securities on and after the date the conditions set forth below
         are satisfied (hereinafter, "Covenant Defeasance"). For this purpose,
         such Covenant Defeasance means that the Issuer may omit to comply with
         and shall have no liability in respect of any term, condition or
         limitation set forth in any such Section, whether directly or
         indirectly by reason of any reference elsewhere herein to any such
         Section or by reason of any reference in any such Section to any other
         provision herein or in any other document, but the remainder of the
         Issuer's obligations shall be unaffected thereby.

(d)      Conditions to Defeasance and Covenant Defeasance. The following shall
         be the conditions to application of either Section 15(b) or Section
         15(c) to the then Outstanding Securities:

     (i) The Issuer shall irrevocably have deposited or caused to be deposited
with a trustee, who may be the Fiscal Agent and who shall agree to comply with
the provisions of this Section 15 applicable to it (the "Defeasance Trustee"),
as trust funds in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit of
the holders of the Securities, (A) money in an amount, or (B) U.S. Government
Obligations and/or Eligible Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment, money in an
amount, or (C) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Defeasance Trustee, to pay and discharge,
and which shall be applied by the Defeasance Trustee to pay and discharge, the
principal of and each installment of interest on the Securities not later than
one day before the stated maturity of such principal or installment of interest
in accordance with the terms of this Agreement and of the Securities. For this
purpose: "U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit are pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Act) as custodian with respect to any such U.S. Government Obligation or a
specific payment of principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such depository receipt;
and "Eligible Obligations" means interest bearing obligations as a result of the
deposit of which the Securities are rated in the highest generic long-term debt
rating category assigned to legally defeased debt by one or more nationally
recognized rating agencies.

                                       19


     (ii) In the case of an election under Section 15(b), the Issuer shall have
delivered to the Defeasance Trustee an opinion of counsel stating that (x) the
Issuer has received from, or there has been published by, the U.S. Internal
Revenue Service a ruling, or (y) since the date of this Agreement there has been
a change in the applicable U.S. Federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the holders of
the Outstanding Securities will not recognize gain or loss for U.S. Federal
income tax purposes as a result of such deposit, defeasance and discharge and
will be subject to U.S. Federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred.

     (iii) In the case of an election under Section 15(c), the Issuer shall have
delivered to the Defeasance Trustee an opinion of counsel to the effect that the
holders of the Outstanding Securities will not recognize gain or loss for
Federal income tax purposes as a result of such deposit and Covenant Defeasance
and will be subject to Federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit and Covenant
Defeasance had not occurred.

     (iv) No event of default under paragraph 7 of the Securities or event which
with notice or lapse of time or both would become such an event of default shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs 7(iv) and (v) of the Securities are concerned, at any time during the
period ending on the 121st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period).

     (v) Such Defeasance or Covenant Defeasance shall not result in a breach or
violation of or constitute a default under, any other agreement or instrument to
which the Issuer is a party or by which it is bound.

     (vi) The Issuer shall have delivered to the Fiscal Agent and the Defeasance
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to either the Defeasance under
Section 15(b) or the Covenant Defeasance under Section 15(c) (as the case may
be) have been complied with.

     (vii) Such Defeasance or Covenant  Defeasance shall not result in the trust
arising from such deposit  constituting an investment  company as defined in the
Investment  Company Act of 1940,  as amended,  or such trust shall be  qualified
under such act or exempt from regulation thereunder.

(e)      Deposit in Trust; Miscellaneous. All money, U.S. Government Obligations
         and Eligible Obligations (including the proceeds thereof) deposited
         with the Defeasance Trustee pursuant to Section 15(d) in respect of the
         Securities shall be held in trust and applied by the Defeasance
         Trustee, in accordance with the provisions of the Securities and this
         Agreement, to the payment, either directly or through any Paying Agent
         as the Defeasance Trustee may determine, to the holders of the
         Securities, of all sums due and to become due thereon in respect of
         principal and any interest, but such money need not be segregated from
         other funds except to the extent required by law. Any money deposited
         with the Defeasance Trustee for the payment of the principal of or any
         interest on any Security and remaining unclaimed for two years after
         such principal or interest has become due and payable shall be paid to
         the Issuer upon Order; and the holder of such Security shall
         thereafter, as an unsecured general creditor, look only to the Issuer
         for payment thereof and all liability of the Defeasance Trustee with
         respect to such trust money shall thereupon cease. In the absence of an
         Order from the Issuer to return unclaimed funds to the Issuer, the
         Defeasance Trustee shall from time to time deliver all unclaimed funds
         to or as directed by applicable escheat authorities, as determined by
         the Defeasance Trustee in its sole discretion, in accordance with the
         customary practices and procedures of the Defeasance Trustee.

                                       20


     The Issuer shall pay and indemnify the Defeasance Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Government
Obligations or Eligible Obligations deposited pursuant to Section 15(d) or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the holders of the
Outstanding Securities.

     Anything in this Section 15 to the contrary notwithstanding, the Defeasance
Trustee shall deliver or pay to the Issuer from time to time upon the request of
the Issuer any money, U.S. Government Obligations or Eligible Obligations held
by it as provided in Section 15(d) which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Defeasance Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect an
equivalent defeasance or covenant defeasance.

(f) Reinstatement. If the Defeasance Trustee is unable to apply any money in
accordance with Section 15(b) or 15(c) by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Issuer's obligations under this Agreement and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Section 15 until such time as the Defeasance Trustee is
permitted to apply all such money in accordance with Section 15(b) or 15(c);
provided, however, that if the Issuer makes any payment of principal of or
interest on any Security following the reinstatement of its obligations, the
Issuer shall be subrogated to the rights of the holders of such Securities to
receive such payment from the money held by the Defeasance Trustee.

16. Headings. The section headings herein are for convenience only and shall not
affect the construction hereof.

17. Counterparts. This Agreement may be executed in one or more counterparts,
and by each party separately on a separate counterpart, and each such
counterpart when executed and delivered shall be deemed to be an original. Such
counterparts shall together constitute one and the same instrument.

18. Successors and Assigns. All covenants and agreements in this Agreement by
the Issuer shall bind its respective successors and assigns, whether so
expressed or not.

19. Separability Clause. In case any provision in this Agreement or in the
Securities shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

                            (SIGNATURE PAGE FOLLOWS)


                                       21




                  IN WITNESS  WHEREOF,  the parties  hereto have executed this
Agreement as of the date first above written.

                                        NORTHERN NATURAL GAS COMPANY


                                        By:
                                           ------------------------------------
                                        Name:
                                        Title:





                                        J.P. MORGAN TRUST COMPANY,
                                        NATIONAL ASSOCIATION, as
                                        Fiscal Agent


                                        By:
                                           ------------------------------------
                                           Authorized Signatory



                                       22



                                    EXHIBIT A

                                FORM OF SECURITY

                                                                   [Form of Face
                                                                    of Security]


[If this Security is a Global Security, insert--THIS SECURITY IS A GLOBAL
SECURITY WITHIN THE MEANING OF THE FISCAL AGENCY AGREEMENT HEREINAFTER REFERRED
TO AND IS REGISTERED IN THE NAME OF THE U.S. DEPOSITORY OR A NOMINEE OF THE U.S.
DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME
OF A PERSON OTHER THAN THE U.S. DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE FISCAL AGENCY AGREEMENT, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE U.S.
DEPOSITORY TO A NOMINEE OF THE U.S. DEPOSITORY OR BY A NOMINEE OF THE U.S.
DEPOSITORY TO THE U.S. DEPOSITORY OR ANOTHER NOMINEE OF THE U.S. DEPOSITORY OR
BY THE U.S. DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR U.S. DEPOSITORY OR A
NOMINEE OF SUCH SUCCESSOR U.S. DEPOSITORY) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.

UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
U.S. DEPOSITORY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE IS ISSUED IN THE NAME OR NAMES AS
DIRECTED IN WRITING BY THE U.S. DEPOSITORY, ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE
REGISTERED HOLDER HEREOF, THE U.S. DEPOSITORY, HAS AN INTEREST HEREIN.]

[If this Security is a Regulation S Temporary Global Security, insert--THE
RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL SECURITY, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE SECURITIES, ARE
AS SPECIFIED IN THE FISCAL AGENCY AGREEMENT (AS DEFINED HEREIN). NEITHER THE
HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL SECURITY
SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.]

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. BY ITS
ACQUISITION OF THIS SECURITY OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:

         1.   REPRESENTS THAT (A) IT IS A QUALIFIED INSTITUTIONAL BUYER, AS
              DEFINED IN RULE 144A UNDER THE ACT, (B) IT IS AN "ACCREDITED
              INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7)
              UNDER THE ACT, OTHER THAN A QUALIFIED INSTITUTIONAL BUYER, OR (C)
              IT HAS ACQUIRED THIS SECURITY IN AN OFFSHORE TRANSACTION IN
              COMPLIANCE WITH REGULATION S UNDER THE ACT;

         2.   AGREES THAT IT WILL OFFER, SELL OR OTHERWISE  TRANSFER THIS
              SECURITY,  PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF
              THE  ORIGINAL  ISSUE DATE  HEREOF AND THE LAST DATE ON WHICH THE
              ISSUER,  OR ANY OF ITS AFFILIATES WAS THE HOLDER OF THIS SECURITY
              (OR ANY  PREDECESSOR  OF SUCH  SECURITY),  ONLY (A) TO THE ISSUER
              OR ANY OF ITS  SUBSIDIARIES,  (B)  PURSUANT TO A  REGISTRATION
              STATEMENT  THAT HAS BEEN  DECLARED  EFFECTIVE  UNDER THE ACT, (C)
              FOR SO LONG AS THE  SECURITIES  ARE ELIGIBLE FOR RESALE PURSUANT
              TO RULE 144A,  TO A PERSON IT REASONABLY  BELIEVES IS A QUALIFIED
              INSTITUTIONAL  BUYER,  AS DEFINED  IN RULE  144A,  THAT  PURCHASES
              FOR ITS OWN  ACCOUNT  OR FOR  THE  ACCOUNT  OF A  QUALIFIED
              INSTITUTIONAL  BUYER TO WHOM  NOTICE IS GIVEN THAT THE  TRANSFER
              IS BEING MADE IN  RELIANCE  ON RULE 144A,  (D) IN A  TRANSACTION
              MEETING THE  REQUIREMENTS  OF RULE 144 UNDER THE ACT, (E) PURSUANT
              TO OFFERS AND SALES THAT OCCUR  OUTSIDE THE UNITED  STATES  WITHIN
              THE MEANING OF REGULATION S UNDER THE ACT, OR (F) PURSUANT TO ANY
              OTHER AVAILABLE  EXEMPTION FROM THE REGISTRATION  REQUIREMENTS OF
              THE ACT AND, IN EACH OF THE CASES ABOVE,  IN ACCORDANCE  WITH THE
              APPLICABLE  SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
              ANY OTHER APPLICABLE JURISDICTION;

         3.   AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY
              OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
              EFFECT OF THIS LEGEND; AND

         4.   AGREES THAT, BEFORE THE HOLDER OFFERS, SELLS OR OTHERWISE
              TRANSFERS THIS SECURITY, THE ISSUER MAY REQUIRE THE HOLDER OF THIS
              SECURITY TO DELIVER A WRITTEN OPINION OF COUNSEL, CERTIFICATIONS
              AND/OR OTHER INFORMATION THAT IT REASONABLY REQUIRES TO CONFIRM
              THAT SUCH PROPOSED TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
              FROM THE REGISTRATION REQUIREMENTS OF THE ACT.

AS  USED IN  THIS SECURITY, THE TERMS "OFFSHORE TRANSACTION," "U.S. PERSON" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM WITHIN REGULATION S.


THE FOREGOING LEGENDS MAY BE REMOVED FROM THE SECURITIES ON THE CONDITIONS
SPECIFIED IN THE FISCAL AGENCY AGREEMENT.



                          NORTHERN NATURAL GAS COMPANY
                          5.375% Senior Notes due 2012

                                                              $[--------------]

                                                     CUSIP No. [______________]
No. ___                                             [ISIN No. [______________]]

     NORTHERN NATURAL GAS COMPANY, a corporation duly organized under the laws
of the State of Delaware (herein called the "Issuer"), for value received,
hereby promises to pay to [name of registered holder or its registered assigns]
[if this Security is a Global Security, insert-] the Initial Principal Amount
specified on Schedule A hereto (such Initial Principal Amount, as it may from
time to time be adjusted by endorsement on Schedule A hereto, is hereinafter
referred to as the "Principal Amount")] [if this Security is not a Global
Security, insert- the principal sum of ___ Dollars (the "Principal Amount")] on
October 31, 2012 and to pay interest thereon from October 15, 2002 or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semi-annually in arrears on April 30 and October 31 in each year,
commencing April 30, 2003 (each an "Interest Payment Date"), at the rate of
5.375% per annum, until the principal hereof is paid or made available for
payment and (to the extent that the payment of such interest shall be legally
enforceable) at the rate per annum equal to the above rate plus 1% per annum on
any overdue principal and on any overdue installment of interest. Interest on
the Securities shall be computed on the basis of a 360-day year of twelve 30-day
months. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Fiscal Agency Agreement
hereinafter referred to, be paid to the person (the "registered holder") in
whose name this Security (or one or more predecessor Securities) is registered
at the close of business on April 15 or October 16 (whether or not a Business
Day), as the case may be (each a "Regular Record Date"), next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly provided
for will forthwith cease to be payable to the registered holder on such Regular
Record Date and shall be paid to the person in whose name this Security (or one
or more predecessor Securities) is registered at the close of business on a
special record date for the payment of such interest to be fixed by the Issuer,
notice whereof shall be given to registered holders of Securities not less than
10 days prior to such special record date.

     [If this Security is a Regulation S Temporary Global Security,
insert--Until this Regulation S Temporary Global Security is exchanged for one
or more Regulation S Permanent Global Securities, the holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Security shall in all other respects be
entitled to the same benefits as other Securities under the Fiscal Agency
Agreement.]

     Principal of this Security shall be payable against surrender hereof at the
corporate trust office or office of an agent of the Fiscal Agent hereinafter
referred to or at such other offices or agencies as the Issuer may designate and
at the offices of such other Paying Agents as the Issuer shall have appointed
pursuant to the Fiscal Agency Agreement. Payments of principal shall be made
against surrender of this Security, and payments of interest on this Security
shall be made, in accordance with the foregoing and subject to applicable laws
and regulations, by check mailed on or before the due date for such payment to
the person entitled thereto at such person's address appearing on the
aforementioned register or, in the case of payments of principal to such other
address as the registered holder may specify upon such surrender; provided,
however, that any payments shall be made, in the case of a registered holder of
at least $1,000,000 aggregate principal amount of Securities, by transfer to an
account maintained by the payee with a bank if such registered holder so elects
by giving notice to the Fiscal Agent, not less than 15 days (or such fewer days
as the Fiscal Agent may accept at its discretion) prior to the date of the
payments to be obtained, of such election and of the account to which payments
are to be made. The Issuer covenants that until this Security has been delivered
to the Fiscal Agent for cancellation, or monies sufficient to pay the principal
of and interest on this Security have been made available for payment and either
paid or returned to the Issuer as provided herein, it will at all times maintain
an established place of business or agency in the Borough of Manhattan, The City
of New York for the payment of the principal of and interest on the Securities
as herein provided.

     Reference is hereby made to the further provisions of this Security set
forth on the following pages hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.

     Unless the certificate of authentication hereon has been executed by the
Fiscal Agent by manual signature, this Security shall not be valid or obligatory
for any purpose.

                  IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed and its corporate seal to be affixed hereto.

Date:____________                           NORTHERN NATURAL GAS COMPANY

                                            By:
                                               --------------------------------
                                            Name:
                                            Title:
Attest:


By:
   ------------------------------
   Name:
   Title:



                  FISCAL AGENT'S CERTIFICATE OF AUTHENTICATION

                  This is one of the Securities referred to in the
within-mentioned Fiscal Agency Agreement.

                                            J.P. MORGAN TRUST COMPANY, NATIONAL
                                            ASSOCIATION, as Fiscal Agent


                                            By:
                                               --------------------------------



Date of Authentication:_________________





                                                               [Form of reverse
                                                                  of Security]

     1. This Security is one of a duly authorized issue of securities of the
Issuer designated as its 5.375% Senior Notes due 2012 (herein called the
"Securities"), limited in aggregate principal amount to $300,000,000, issued and
to be issued in accordance with a Fiscal Agency Agreement, dated as of October
15, 2002 (herein called the "Fiscal Agency Agreement"), between the Issuer and
J.P. Morgan Trust Company, National Association, as Fiscal Agent (herein called
the "Fiscal Agent," which term includes any successor fiscal agent under the
Fiscal Agency Agreement), copies of which Fiscal Agency Agreement are on file
and available for inspection at the corporate trust office of the Fiscal Agent
which at the date hereof is at 560 Mission Street, 13th Floor, San Francisco,
California 94105.

     The Securities are unsecured direct, unconditional and general obligations
of the Issuer and will rank equally with all other unsecured and unsubordinated
indebtedness of the Issuer.

     2. [If this Security is a Global Security, insert--This Security is
issuable only in fully registered form, without coupons, in minimum
denominations of U.S. $100,000 and integral multiples of $1,000 in excess of
$100,000.] [If this Security is a Restricted Definitive Security, insert--This
Security is issuable only in fully registered form, without coupons, in minimum
denominations of U.S. $250,000 and integral multiples of $1,000 in excess of
$250,000.]

     3. The Issuer shall maintain in the Borough of Manhattan, The City of New
York, an established place of business or agency where Securities may be
surrendered for registration of transfer or exchange. The Issuer has initially
appointed the Fiscal Agent acting through its corporate trust office in San
Francisco, California, and at its agent's office in the Borough of Manhattan,
The City of New York, as its agent for such purpose and the Issuer has agreed to
cause to be kept at such offices a register in which, subject to such reasonable
regulations as it may prescribe, the Issuer will provide for the registration of
Securities and of transfers of Securities. The Issuer reserves the right to vary
or terminate the appointment of the Fiscal Agent as security registrar or of any
Transfer Agent or to appoint additional or other registrars or Transfer Agents
or to approve any change in the office through which any security registrar or
any Transfer Agent acts, provided that there will at all times be a security
registrar or agent thereof in the Borough of Manhattan, The City of New York.
Registered holders of the Securities will receive notice of any such change.

     The transfer of a Security is registrable on the aforementioned register
upon surrender of such Security at the corporate trust office of the Fiscal
Agent or the office of the agent of the Fiscal Agent or any Transfer Agent duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Fiscal Agent duly executed by, the registered
holder thereof or such holder's attorney duly authorized in writing. Upon such
surrender of this Security for registration of transfer, the Issuer shall
execute, and the Fiscal Agent shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities, dated the date
of authentication thereof of any authorized denominations and of a like
aggregate principal amount.

     At the option of the registered holder upon request confirmed in writing,
Securities may be exchanged for Securities of any authorized denominations and
of a like tenor, form and aggregate principal amount upon surrender of the
Securities to be exchanged at the office of any Transfer Agent or at the
corporate trust office of the Fiscal Agent or agent thereof. Whenever any
Securities are so surrendered for exchange, the Issuer shall execute, and the
Fiscal Agent shall authenticate and deliver, the Securities which the registered
holder making the exchange is entitled to receive. Any registration of transfer
or exchange will be effected upon the Transfer Agent or the Fiscal Agent, as the
case may be, being satisfied with the documents of title and identity of the
person making the request and subject to such reasonable regulations as the
Issuer may from time to time agree with the Transfer Agent and the Fiscal Agent.

     All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Issuer evidencing the same
debt, and entitled to the same benefits, as the Securities surrendered upon such
registration of transfer or exchange. No service charge shall be made for any
registration of transfer or exchange, but the Issuer may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.

     Prior to due presentment of this Security for registration of transfer, the
Issuer, the Fiscal Agent and any agent of the Issuer or the Fiscal Agent may
treat the person in whose name this Security is registered as the owner hereof
for all purposes, whether or not this Security be overdue, and neither the
Issuer, the Fiscal Agent nor any such agent shall be affected by notice to the
contrary.

     [If this Security is a Regulation S Temporary Global Security, insert--This
Regulation S Temporary Global Security is exchangeable in whole or in part for
one or more Global Securities only (i) on or after the termination of the 40-day
distribution compliance period (as defined in Regulation S) and (ii) upon
presentation of certificates required by Section 5(d) of the Fiscal Agency
Agreement. Upon exchange of this Regulation S Temporary Global Security for one
or more Global Securities, the Fiscal Agent shall cancel this Regulation S
Temporary Global Security.]


     4. (a) The Issuer shall pay to the Fiscal Agent at its principal office in
San Francisco, California, on or prior to each Interest Payment Date and the
maturity date of the Securities, in such amounts sufficient (with any amounts
then held by the Fiscal Agent and available for the purpose) to pay the interest
on and the principal of the Securities due and payable on such Interest Payment
Date or maturity date, as the case may be, in funds available on such date. The
Fiscal Agent shall apply the amounts so paid to it to the payment of such
interest and principal in accordance with the terms of the Securities. Any
monies paid by the Issuer to the Fiscal Agent for the payment of the principal
of or interest on any Securities and remaining unclaimed at the end of two years
after such principal or interest shall have become due and payable (whether at
maturity or otherwise) shall then be repaid to the Issuer upon its written
request, and upon such repayment all liability of the Fiscal Agent with respect
thereto shall cease, without, however, limiting in any way any obligation the
Issuer may have to pay the principal of and interest on this Security as the
same shall become due.

     (b) In any case where the due date for the payment of the principal of or
interest on any Security shall be at any place of payment on a day on which
banking institutions are authorized or obligated by law to close, then payment
of principal or interest need not be made on such date at such place but may be
made on the next succeeding day at such place which is not a day on which
banking institutions are authorized or obligated by law to close, with the same
force and effect as if made on the date for such payment, and no interest shall
accrue for the period after such date.

     5. The Securities are subject to redemption upon not less than 30 or more
than 60 days' notice to the registered holders of such Securities, at any time,
as a whole or in part, at the election of the Issuer, at a redemption price
equal to the greater of: (i) 100% of the Principal Amount of the Securities
being redeemed or (ii) the sum of the present values of the remaining scheduled
payments of principal of and interest on the Securities being redeemed
discounted to the redemption date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at a discount rate equal to the Treasury
Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is
applicable, accrued interest on the Securities to the Redemption Date.

     Notice of redemption pursuant to this Paragraph 5 shall be given not less
than 30 days nor more than 60 days prior to the Redemption Date.

     If fewer than all the Securities are to be redeemed, selection of
Securities for redemption will be made by the Fiscal Agent in any manner the
Fiscal Agent deems fair and appropriate.

     Unless the Issuer defaults in payment of the redemption price, from and
after the Redemption Date, the Securities or portions thereof called for
redemption will cease to bear interest, and the holders thereof will have no
right in respect of such Securities except the right to receive the redemption
price thereof.


     [If this Security is a Global Security, insert--In the event of redemption
of this Security in part only, the Fiscal Agent will reduce the Principal Amount
hereof by endorsement on Schedule A hereto such that the Principal Amount shown
on Schedule A after such endorsement will reflect only the unredeemed portion
hereof.]

     For purposes of the Securities,

     "Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in The City of New York or the City of San Francisco
or at a place of payment are authorized by law, regulation or executive order to
remain closed.

     "Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Securities to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the Securities.

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

     "Independent Investment Banker" means an investment banking institution of
international standing appointed by the Issuer.

     "Redemption Date" means any date on which the Issuer redeems all or any
portion of the Securities in accordance with the terms hereof.

     "Reference Treasury Dealer" means a primary U.S. government securities
dealer in New York City appointed by the Issuer.

     "Reference Treasury Dealer Quotation" means, with respect to the Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Issuer, of the bid and asked prices for the Comparable Treasury Issue (expressed
in each case as a percentage of its principal amount and quoted in writing to
the Issuer by such Reference Treasury Dealer at 5:00 p.m. on the third Business
Day in New York City preceding such Redemption Date).

     "Treasury Yield" means, with respect to any Redemption Date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date.


                  6. The Issuer shall pay all stamp and other duties, if any,
         which may be imposed by the United States or any political subdivision
         thereof or taxing authority of or in the foregoing with respect to the
         Fiscal Agency Agreement or the issuance of this Security. Except as
         otherwise provided in this Security, the Issuer shall not be required
         to make any payment with respect to any tax, assessment or other
         governmental charge imposed by any government or any political
         subdivision or taxing authority thereof or therein.

                  7. In the event of:

                  (i) default in the payment of any interest on any Security for
         a period of 30 days after the date when due; or

                  (ii) default in the payment of the principal of any Security
         when due (whether at maturity or otherwise); or

                  (iii) default in the performance or breach of any other
         covenant or agreement of the Issuer contained in the Securities or in
         the Fiscal Agency Agreement for a period of 60 days after the date on
         which written notice of such default requiring the Issuer to remedy the
         same and stating that such notice is a "Notice of Default" shall first
         have been given to the Issuer and the Fiscal Agent by the holders of at
         least 25% in principal amount of the Securities at the time Outstanding
         (as defined in the Fiscal Agency Agreement); or

                  (iv) the entry by a court having jurisdiction in the premises
         of (1) a decree or order for relief in respect of the Issuer in an
         involuntary case or proceeding under any applicable Federal or State
         bankruptcy, insolvency, reorganization or other similar law or (2) a
         decree or order adjudging the Issuer bankrupt or insolvent, or
         approving as properly filed a petition seeking reorganization,
         arrangement, adjustment or composition of or in respect of the Issuer
         under any applicable Federal or State law, or appointing a custodian,
         receiver, liquidator, assignee, trustee, sequestrator or other similar
         official of the Issuer or of any substantial part of the property of
         the Issuer, or ordering the winding up or liquidation of the affairs of
         the Issuer, and any such decree or order for relief or any such other
         decree or order shall continue unstayed and in effect for a period of
         60 consecutive days; or

                  (v) commencement by the Issuer of a voluntary case or
         proceeding under any applicable Federal or State bankruptcy,
         insolvency, reorganization or other similar law or of any other case or
         proceeding to be adjudicated a bankrupt or insolvent, or the consent by
         the Issuer to the entry of a decree or order for relief in respect of
         the Issuer in an involuntary case or proceeding under any applicable
         Federal or State bankruptcy, insolvency, reorganization or other
         similar law or to the commencement of any bankruptcy or insolvency case
         or proceeding against the Issuer, or the filing by the Issuer of a
         petition or answer or consent seeking reorganization or relief under
         any such applicable Federal or State law, or the consent by the Issuer
         to the filing of such petition or to the appointment of or the taking
         possession by a custodian, receiver, liquidator, assignee, trustee,
         sequestrator or other similar official of the Issuer or of any
         substantial part of its property, or the making by the Issuer of an
         assignment for the benefit of creditors, or the taking of action by the
         Issuer in furtherance of any such action;

the registered holders of this Security may, at such holder's option, declare
the principal of this Security and the interest accrued hereon to be due and
payable immediately by written notice to the Issuer and the Fiscal Agent at its
corporate trust office, and unless all such defaults shall have been cured by
the Issuer prior to receipt of such written notice, the principal of the
Security and the interest accrued thereon shall become and be immediately due
and payable. For purposes of the Securities, "Subsidiary" of the Issuer means a
corporation all of the outstanding voting stock of which is owned, directly or
indirectly, by the Issuer and/or one or more Subsidiaries of the Issuer. For the
purposes of this definition, "voting stock" means stock which ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.


                  8. So long as any of the Securities are Outstanding, the
         Issuer will not pledge, mortgage or hypothecate, or permit to exist,
         and will not cause, suffer or permit any Subsidiary of it to pledge,
         mortgage or hypothecate, or permit to exist, except in favor of the
         Issuer or any Subsidiary of it, any mortgage, pledge or other lien
         upon, any Principal Property (as hereinafter defined) at any time owned
         by it, to secure any Indebtedness (as hereinafter defined) of it,
         without making effective provision whereby the Outstanding Securities
         shall be equally and ratably secured with any and all such Indebtedness
         of the Issuer and with any other Indebtedness of it similarly entitled
         to be equally and ratably secured; provided, however, that this
         restriction shall not apply to or prevent the creation or existence of:

                  (i) undetermined or inchoate liens and charges incidental to
         construction, maintenance, development or operation;

                  (ii) any liens of taxes and assessments for the then current
         year;

                  (iii) any liens of taxes and assessments not at the time
         delinquent;

                  (iv) any liens of specified taxes and assessments which are
         delinquent but the validity of which is being contested in good faith
         at the time by the Issuer or any Subsidiary of it;

                  (v) any liens reserved in leases for rent and for compliance
         with the terms of the lease in the case of leasehold estates;

                  (vi) any obligations or duties, affecting the property of the
         Issuer or any Subsidiary of it, to any municipality or public authority
         with respect to any franchise, grant, license, permit or similar
         arrangement;

                  (vii) the liens of any judgments or attachments in an
         aggregate amount not in excess of $10,000,000, or the lien of any
         judgment or attachment the execution or enforcement of which has been
         stayed or which has been appealed and secured, if necessary, by the
         filing of an appeal bond;


                  (viii) any mortgage, pledge, lien or encumbrance on any
         property held or used by the Issuer or any Subsidiary of it in
         connection with the exploration for, development of or production of
         oil, gas, natural gas (including liquefied gas and storage gas), other
         hydrocarbons, helium, coal, metals, minerals, steam, timber, geothermal
         or other natural resources or synthetic fuels, such properties to
         include, but not be limited to, the interest of the Issuer or such
         Subsidiary in any mineral fee interests, oil, gas or other mineral
         leases, royalty, overriding royalty or net profits interests,
         production payments and other similar interests, wellhead production
         equipment, tanks, field gathering lines, leasehold or field separation
         and processing facilities, compression facilities and other similar
         personal property and fixtures;

                  (ix) any mortgage, pledge, lien or encumbrance on oil, gas,
         natural gas (including liquefied gas and storage gas), and other
         hydrocarbons, helium, coal, metals, minerals, steam, timber, geothermal
         or other natural resources or synthetic fuels produced or recovered
         from any property, an interest in which is owned or leased by the
         Issuer or any Subsidiary of it;

                  (x) mortgages, pledges, liens or encumbrances upon any
         property heretofore or hereafter acquired, created at the time of
         acquisition or within 365 days thereafter to secure all or a portion of
         the purchase price thereof, or existing thereon at the date of
         acquisition, whether or not assumed by the Issuer or any Subsidiary of
         it, provided that every such mortgage, pledge, lien or encumbrance
         shall apply only to the property so acquired and fixed improvements
         thereon;

                  (xi) any extension, renewal or refunding, in whole or in part,
         of any mortgage, pledge, lien or encumbrance permitted by Section (x)
         above, if limited to the same property or any portion thereof subject
         to, and securing not more than the amount secured by, the mortgage,
         pledge, lien or encumbrance extended, renewed or refunded;

                  (xii) mortgages, pledges, liens or encumbrances upon any
         property heretofore or hereafter acquired by any corporation that is or
         becomes such a Subsidiary of the Issuer after the date of the Fiscal
         Agency Agreement ("Acquired Entity"), provided that every such
         mortgage, pledge, lien or encumbrance (1) shall either (a) exist prior
         to the time the Acquired Entity becomes such a Subsidiary or (b) be
         created at the time the Acquired Entity becomes such a Subsidiary or
         within 365 days thereafter to secure all or a portion of the
         acquisition price thereof and (2) shall only apply to those properties
         owned by the Acquired Entity at the time it becomes such a Subsidiary
         or thereafter acquired by it from sources other than the Issuer or any
         other Subsidiary of it;


                  (xiii) the pledge of current assets, in the ordinary course of
         business, to secure current liabilities;

                  (xiv) mechanics' or materialmen's liens, any liens or charges
         arising by reason of pledges or deposits to secure payment of workmen's
         compensation or other insurance, good faith deposits in connection with
         tenders, leases of real estate, bids or contracts (other than contracts
         for the payment of money), deposits to secure duties or public or
         statutory obligations, deposits to secure, or in lieu of, surety, stay
         or appeal bonds, and deposits as security for the payment of taxes or
         assessments or similar charges;

                  (xv) any lien arising by reason of deposits with, or the
         giving of any form of security to, any governmental agency or any body
         created or approved by law or governmental regulation for any purpose
         at any time in connection with the financing of the acquisition or
         construction of property to be used in the business of the Issuer or
         any Subsidiary of it or as required by law or governmental regulation
         as a condition to the transaction of any business or the exercise of
         any privilege or license, or to enable the Issuer or any such
         Subsidiary to maintain self-insurance or to participate in any funds
         established to cover any insurance risks or in connection with
         workmen's compensation, unemployment insurance, old age pensions or
         other social security, or to share in the privileges or benefits
         required for companies participating in such arrangements;

                  (xvi) any lien to secure Indebtedness of the Issuer other than
         Funded Debt (as hereinafter defined);

                  (xvii) any mortgage, pledge, lien or encumbrance of or upon
         any office equipment, data processing equipment (including, without
         limitation, computer and computer peripheral equipment), or
         transportation equipment (including without limitation, motor vehicles,
         tractors, trailers, marine vessels, barges, towboats, rolling stock and
         aircraft);

                  (xviii) any mortgage, pledge, lien or encumbrance created or
         assumed by the Issuer or any Subsidiary of it in connection with the
         issuance of debt securities the interest on which is excludable from
         gross income of the holder of such security pursuant to the Internal
         Revenue Code of 1986, as amended, for the purpose of financing, in
         whole or in part, the acquisition or construction of property to be
         used by the Issuer or any such Subsidiary; or

                  (xix) the pledge or assignment of accounts receivable, or the
         pledge or assignment of conditional sales contracts or chattel
         mortgages and evidences of indebtedness secured thereby, received in
         connection with the sale by the Issuer or any Subsidiary of it of goods
         or merchandise to customers of the Issuer or any Subsidiary.

     In case the Issuer or any Subsidiary of it shall propose to pledge,
mortgage or hypothecate any Principal Property at any time owned by it to secure
any of its Indebtedness, other than as permitted by subdivisions (i) to (xix),
inclusive, of this Paragraph 8, the Issuer will prior thereto give written
notice thereof to the Fiscal Agent, and the Issuer will, or will cause such
Subsidiary to, prior to or simultaneously with such pledge, mortgage or
hypothecation, effectively secure all the Securities equally and ratably with
such Indebtedness.


     Notwithstanding the foregoing provisions of this Paragraph 8, the Issuer or
any Subsidiary of it may issue, assume or guarantee indebtedness secured by a
mortgage which would otherwise be subject to the foregoing restrictions in an
aggregate amount which, together with all other Indebtedness of the Issuer or a
Subsidiary of it secured by a mortgage which (if originally issued, assumed or
guaranteed at such time) would otherwise be subject to the foregoing
restrictions (not including Indebtedness permitted to be secured under clauses
(i) through (xix) above), does not at the time exceed 10% of the Consolidated
Net Tangible Assets of the Issuer as shown on its audited consolidated financial
statements as of the end of the fiscal year preceding the date of determination.

     For purposes of the Securities,

     "Consolidated Net Tangible Assets" of any corporation means total assets
less (a) total current liabilities (excluding Indebtedness due within 365 days)
and (b) goodwill, patents and trademarks, all as reflected in such corporation's
audited consolidated balance sheet preceding the date of a determination under
the immediately preceding paragraph of this Paragraph 8.

     "Funded Debt" as applied to any corporation means all Indebtedness
incurred, created, assumed or guaranteed by such corporation, or upon which it
customarily pays interest charges; provided, however, that the term "Funded
Debt" shall not include (i) Indebtedness incurred in the ordinary course of
business representing borrowings, regardless of when payable, of such
corporation from time to time against, but not in excess of the face amount of,
its installment accounts receivable for the sale of appliances and equipment
sold in the regular course of business or (ii) advances for construction and
security deposits received by such corporation in the ordinary course of
business.

     "Indebtedness" as applied to any corporation, means bonds, debentures,
notes and other instruments representing obligations created or assumed by any
such corporation for the repayment of money borrowed (other than unamortized
debt discount or premium). All Indebtedness secured by a lien upon property
owned by any corporation and upon which Indebtedness any such corporation
customarily pays interest, although any such corporation has not assumed or
become liable for the payment of such Indebtedness, shall for all purposes of
the Securities be deemed to be Indebtedness of any such corporation. All
Indebtedness for money borrowed or incurred by other persons which is directly
guaranteed as to payment of principal by any corporation shall for all purposes
of the Securities be deemed to be Indebtedness of such corporation, but no other
contingent obligation of such corporation in respect of Indebtedness incurred by
other persons shall for any purpose be deemed Indebtedness of such corporation.
Indebtedness of any corporation shall not include: (i) amounts which are payable
only out of all or a portion of the oil, gas, natural gas, helium, coal, metal,
mineral, steam, timber, hydrocarbons, or geothermal or other natural resources
produced, derived or extracted from properties owned or developed by such
corporation; (ii) any amount representing capitalized lease obligations; (iii)
any indebtedness incurred to finance oil, gas, natural gas, helium, coal,
metals, minerals, steam, timber, hydrocarbons or geothermal or other natural
resources or synthetic fuel exploration or development, payable with respect to
principal and interest, solely out of proceeds of oil, gas, natural gas, helium,
coal, metals, minerals, steam, timber, hydrocarbons or geothermal or other
natural resources or synthetic fuel to be produced, sold and/or delivered by any
such corporation; (iv) indirect guarantees or other contingent obligations in
connection with the Indebtedness of others, including agreements, contingent or
otherwise, with such other persons or with third persons with respect to, or to
permit or ensure the payment of, obligations of such other persons, including,
without limitation, agreements to purchase or repurchase obligations of such
other persons, agreements to advance or supply funds to or to invest in such
other persons, or agreements to pay for property, products or services of such
other persons (whether or not conferred, delivered or rendered), and any demand
charge, throughput, take-or-pay, keep-well, make-whole, cash deficiency,
maintenance of working capital or earnings or similar agreements; and (v) any
guarantees with respect to lease or other similar periodic payments to be made
by other persons.

     "Principal Property" of the Issuer means any oil or gas pipeline, gas
processing plant or chemical plant located in the United States, except any such
pipeline, facility, station or plant that in the opinion of the Board of
Directors of the Issuer is not of material importance to the total business
conducted by the Issuer or its Subsidiaries. "Principal Property" shall not
include any oil or gas property or the production or any proceeds of production
from an oil or gas producing property or the production or any proceeds of
production of gas processing plants or oil or gas or petroleum products in any
pipeline. "Principal Property" shall also include any gas storage facility or
gas compressor station located in the United States, except any such facility or
station that in the opinion of the Board of Directors of the Issuer is not of
material importance to the total business conducted by the Issuer or its
Subsidiaries, and "Principal Property" shall not include any liquefied natural
gas plants and related storage facilities or any natural gas liquids processing
plants.


                  9. (a) The Issuer shall not consolidate with or merge into any
         other person or convey, transfer or lease its properties and assets
         substantially as an entirety to any person, and the Issuer shall not
         permit any person to consolidate with or merge into the Issuer or
         convey, transfer or lease its properties and assets substantially as an
         entirety to the Issuer unless:

                  (i) in case the Issuer shall consolidate with or merge into
         another person or convey, transfer or lease its properties and assets
         substantially as an entirety to any person, the person formed by such
         consolidation or into which the Issuer is merged or the person which
         acquires by conveyance or transfer, or which leases, the properties and
         assets of the Issuer substantially as an entirety shall be a
         corporation, partnership or trust, shall be organized and validly
         existing under the laws of the United States of America, any State
         thereof or the District of Columbia (the "Successor Person") and shall
         expressly assume, by amendment to the Fiscal Agency Agreement signed by
         the Issuer and such Successor Person and delivered to the Fiscal Agent,
         the due and punctual payment of the principal of and interest on at the
         Securities and the performance or observance of every covenant hereof
         and of the Fiscal Agency Agreement on the part of the Issuer to be
         performed or observed;

                  (ii) immediately after giving effect to such transaction and
         treating any indebtedness which becomes an obligation of the Issuer or
         any Subsidiary of it as a result of such transaction as having been
         incurred by the Issuer or any such Subsidiary at the time of such
         transaction, no event of default (as set forth in Paragraph 7), and no
         event which, with notice or lapse of time or both, would become such an
         event of default, shall have happened and be continuing;

                  (iii) if, as a result of any such consolidation or merger or
         such conveyance, transfer or lease, properties or assets of the Issuer
         or any Subsidiary of it would become subject to a mortgage, pledge,
         lien, security interest or other encumbrance which would not be
         permitted by Paragraph 8 hereof, the Issuer, or the Successor Person,
         as the case may be, shall take such steps as shall be necessary
         effectively to secure the Securities equally and ratably with (or prior
         to) all Indebtedness secured by such mortgage, pledge, lien, security
         interest or other encumbrance; and

                  (iv) the Issuer has delivered to the Fiscal Agent an Officers'
         Certificate and a written opinion or opinions of counsel satisfactory
         to the Fiscal Agent (who may be counsel to the Issuer), stating that
         such consolidation, merger, conveyance, transfer or lease and such
         amendment to the Fiscal Agency Agreement comply with this Paragraph 9
         and that all conditions precedent herein provided for relating to such
         transaction have been complied with.

                  (b) Upon any such consolidation or merger, or any conveyance,
         transfer or lease of the properties and assets of the Issuer
         substantially as an entirety in accordance with Paragraph 9(a), the
         Successor Person shall succeed to, and be substituted for, and may
         exercise every right and power of, the Issuer under the Fiscal Agency
         Agreement and the Securities with the same effect as if the Successor
         Person had been named as the Issuer in the Fiscal Agency Agreement and
         the Securities, and thereafter the Issuer, except in the case of a
         lease of its properties and assets, shall be released from its
         liability as obligor on any of the Securities and under the Fiscal
         Agency Agreement.

                  10. Section 8 of the Fiscal Agency Agreement, which requires
         the Issuer to provide registered holders of Securities or, in the case
         of clauses (a) and (b) thereof, designated prospective purchasers of
         Securities with certain information and an Officers' Certificate, is
         hereby incorporated mutatis mutandis by reference herein.


                  11. Until the date that is two years from the date of original
         issuance of the Securities, the Issuer will not, and will not permit
         any of its "affiliates" (as defined under Rule 144 under the Act or any
         successor provision thereto) to, resell any Securities which constitute
         "restricted securities" under Rule 144 that have been reacquired by any
         of them.

                  12. If any mutilated Security is surrendered to the Fiscal
         Agent, the Issuer shall execute, and the Fiscal Agent shall
         authenticate and deliver in exchange therefor, a new Security of like
         tenor and principal amount, bearing a number not contemporaneously
         outstanding.

     If there be delivered to the Issuer and the Fiscal Agent (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of each of them harmless, then, in the absence of notice to the Issuer
or the Fiscal Agent that such Security has been acquired by a bona fide
purchaser, the Issuer shall execute, and upon its request the Fiscal Agent shall
authenticate and deliver in lieu of any such destroyed, lost or stolen Security
a new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.

     Upon the issuance of any new Security under this Paragraph 12, the Issuer
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and the expenses of the Fiscal Agent) connected
therewith.

     Every new Security issued pursuant to this Paragraph 12 in lieu of any
destroyed, lost or stolen Security, shall constitute an original additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone.

     Any new Security delivered pursuant to this Paragraph 12 shall be so dated
that neither gain nor loss in interest shall result from such exchange.

     The provisions of this Paragraph 12 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.

     13. Section 12 of the Fiscal Agency Agreement, which Section is hereby
incorporated mutatis mutandis by reference herein, provides that, with certain
exceptions as therein provided and by written consent of a majority in the
principal amount of all Outstanding Securities, the Issuer and the Fiscal Agent
may modify, amend or supplement the Fiscal Agency Agreement or the terms of the
Securities or may give consents or waivers or take other actions with respect
thereto. Any such modification, amendment, supplement, consent, waiver or other
action shall be conclusive and binding on the holder of this Security and on all
future holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange heretofore or in lieu hereof, whether or not
notation thereof is made upon this Security. The Fiscal Agency Agreement and the
terms of the Securities may be modified or amended by the Issuer and the Fiscal
Agent, without the consent of any holders of Securities, for the purpose of (i)
adding to the covenants of the Issuer for the benefit of the holders of
Securities, or (ii) surrendering any right or power conferred upon the Issuer,
or (iii) securing the Securities pursuant to the requirements of the Securities
or otherwise, or (iv) evidencing the succession of another corporation to the
Issuer and the assumption by any such successor of the covenants and obligations
of the Issuer in the Securities or in the Fiscal Agency Agreement pursuant to
Paragraph 9 hereof, or (v) correcting or supplementing any defective provision
contained in the Securities or in the Fiscal Agency Agreement, to all of which
each holder of any Security, by acceptance thereof, consents.

     14. No reference herein to the Fiscal Agency Agreement and no provision of
this Security or of the Fiscal Agency Agreement shall alter or impair the
obligation of the Issuer, which is absolute and unconditional, to pay the
principal of and interest on this Security at the times, place and rate, and in
the coin or currency, herein prescribed.

     15. This Security is subject to the provisions of Section 15 of the Fiscal
Agency Agreement (which are incorporated mutatis mutandis by reference herein)
which provide for the defeasance at any time of (i) the entire indebtedness of
this Security or (ii) certain covenants and events of default, in each case upon
compliance with certain conditions set forth therein.

     16. Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Issuer will cause CUSIP numbers to be
printed on the Securities as a convenience to the holders of the Securities. [If
this Security is a Regulation S Security, insert- This Security will also bear
an ISIN number.] No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.

     17. THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.






       [IF THIS SECURITY IS A GLOBAL SECURITY, INSERT AS A SEPARATE PAGE-]

                                                                    Schedule A

                             SCHEDULE OF ADJUSTMENTS

Initial Principal Amount: U.S. $___________________


      Date        Principal     Principal        Principal      Notation made on
   adjustment      amount         amount     amount following     behalf of the
      made        increase       decrease       adjustment       Transfer Agent
      ----        --------       --------       ----------       --------------








                                    EXHIBIT B

                          FORM OF TRANSFER CERTIFICATE
                   FOR TRANSFER OR EXCHANGE FROM REGULATION S
                  GLOBAL SECURITY TO RULE 144A GLOBAL SECURITY


J.P. Morgan Trust Company, National Association,
  as Fiscal Agent
530 Mission Street, 13th Floor
San Francisco, CA 94105

                  Re :     NORTHERN NATURAL GAS COMPANY
                           5.375% Senior Notes due 2012

     Reference is hereby made to the Fiscal Agency Agreement, dated as of
October 15, 2002 (the "Fiscal Agency Agreement"), between Northern Natural Gas
Company and J.P. Morgan Trust Company, National Association, as Fiscal Agent.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Fiscal Agency Agreement.

     This letter relates to U.S. $_________ principal amount of Securities which
are evidenced by one or more Regulation S Global Securities in fully registered
form (CUSIP No. U66480AB7; ISIN No. USU66480AB75) and held with the U.S.
Depository by means of a book-entry interest through Euroclear or Clearstream in
the name of [insert name of transferor] (the "Transferor"). The Transferor has
requested a transfer of such beneficial interest in the Regulation S Global
Security to a Person that will take delivery thereof (the "Transferee") in the
form of any equal principal amount of Securities evidenced by one or more Rule
144A Global Securities (CUSIP No. 665501AE2).

     In connection with such request and in respect of such Securities, the
Transferor does hereby certify that the interests in the Regulation S Global
Security are being transferred pursuant to and in accordance with Rule 144A
under United States Securities Act of 1933, as amended (the "Act", and,
accordingly, the Transferor does hereby further certify that the interests in
the Regulation S Global Security are being transferred to a Person that the
Transferor reasonably believes is purchasing the Securities for its own account,
or for one or more accounts with respect to which such Person exercises sole
investment discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States.

     This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the underwriters and initial
purchasers of the Securities being transferred.

                                       [Insert Name of Transferor]

                                        By:
                                           ------------------------------------
                                      Name:
                                     Title:

Dated: __________

cc:      NORTHERN NATURAL GAS COMPANY

Signature Guaranty:_____________________

     Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Transfer Agent, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Transfer Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.







                                    EXHIBIT C

                        FORM OF TRANSFER CERTIFICATE FOR
                  TRANSFER OR EXCHANGE FROM REGULATION S GLOBAL
                   SECURITY TO RESTRICTED DEFINITIVE SECURITY


J.P. Morgan Trust Company, National Association, as Fiscal Agent
530 Mission Street, 13th Floor
San Francisco, CA 94105

                  Re :     NORTHERN NATURAL GAS COMPANY
                           5.375% SENIOR NOTES DUE 2012

     Reference is hereby made to the Fiscal Agency Agreement, dated as of
October 15, 2002 (the "Fiscal Agency Agreement"), between Northern Natural Gas
Company and J.P. Morgan Trust Company, National Association, as Fiscal Agent.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Fiscal Agency Agreement.

     This letter relates to U.S. $___________ principal amount of Securities
which are evidenced by one or more Regulation S Global Securities in fully
registered form (CUSIP No. U66480AB7; ISIN No. USU66480AB75) and held with the
U.S. Depository by means of a book-entry interest through Euroclear or
Clearstream in the name of [insert name of transferor] (the "Transferor"). The
Transferor has requested a transfer of such beneficial interest in the
Regulation S Global Security to a Person that will take delivery thereof (the
"Transferee") in the form of an equal principal amount of Securities evidenced
by a Restricted Definitive Security.

     In connection with such request and in respect of such Securities, the
Transferor does hereby certify that the interests in the Regulation S Global
Security are being transferred to a Person that the Transferor reasonably
believes is purchasing the Securities for its own account, or for one or more
accounts with respect to which such Person exercises sole investment discretion,
and such Person and each such account is an institutional "accredited investor"
as described in Rule 501(a)(1), (2), (3) or (7) under the Unites States
Securities Act of 1933, as amended (the "Act"), and is purchasing such
Securities for investment purposes and not with a view to, or for offer or sale
in connection with, any distribution in violation of the Act, in a transaction
in accordance with any applicable securities laws of the United States or any
state thereof.

     This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the underwriters and initial
purchasers of the Securities being transferred.

                                        [Insert Name of Transferor]

                                        By:
                                           -------------------------------------
                                      Name:
                                     Title:

Dated:____________

cc:      NORTHERN NATURAL GAS COMPANY

     Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Transfer Agent, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Transfer Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.





                                    EXHIBIT D

                          FORM OF TRANSFER CERTIFICATE
                FOR EXCHANGE OR TRANSFER FROM REGULATION S GLOBAL
                    SECURITY TO UNRESTRICTED GLOBAL SECURITY

J.P. Morgan Trust Company, National Association, as Fiscal Agent
530 Mission Street, 13th Floor
San Francisco, CA 94105

                  Re:      NORTHERN NATURAL GAS COMPANY
                           5.375% Senior Notes due 2012

     Reference is hereby made to the Fiscal Agency Agreement, dated as of
October 15, 2002 (the "Fiscal Agency Agreement"), between Northern Natural Gas
Company and J.P. Morgan Trust Company, National Association, as Fiscal Agent.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Fiscal Agency Agreement.

     This letter relates to U.S.$ _________ principal amount of Securities which
are evidenced by one or more Regulation S Global Securities (CUSIP No.
U66480AB7; ISIN No. USU66480AB75) and held with the U.S. Depository by means of
a book-entry interest through Euroclear or Clearstream in the name of [insert
name of transferor] (the "Transferor"). The Transferor has requested a transfer
of such beneficial interest in the Securities to a Person who will take delivery
thereof in the form of an equal principal amount of Securities evidenced by one
or more unrestricted Global Securities (CUSIP No._________).

     In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with either Rule 903, Rule 904 or Rule 144 under the Unites
States Securities Act of 1933, as amended (the "Act"), and accordingly the
Transferor does hereby further certify that:

(1)  if the transfer has been effected pursuant to Rule 903 or Rule 904:

(a)  the offer of the Securities was not made to a Person in the United States;

(b)  either:

(i)  at the time the buy order was originated, the transferee was outside the
     United States or the Transferor and any Person acting on its behalf
     reasonably believed that the transferee was outside the United States, or

(ii) the transaction was executed in, on or through the facilities of a
     designated offshore securities market and neither the Transferor nor any
     Person acting on its behalf knows that the transaction was pre-arranged
     with a buyer in the United States;

(c)  no directed selling efforts have been made in contravention of the
     requirements of Rule 903(b) or 904(b)of Regulation S, as applicable; and

(d)  the transaction is not part of a plan or scheme to evade the registration
     requirements of the Act; or

(2)  if the transfer has been effected pursuant to Rule 144, the Securities have
     been transferred in a transaction permitted by Rule 144.

     This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the underwriters and initial
purchasers, if any, of the Securities being transferred. Terms used in this
certificate and not otherwise defined in the Fiscal Agency Agreement have the
meanings set forth in Regulation S under the Act.

                                        [Insert Name of Transferor]

                                        By:
                                           ------------------------------------
                                      Name:
                                     Title:
Dated: _____________

cc:  NORTHERN NATURAL GAS COMPANY

     Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Transfer Agent, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Transfer Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.


                                    EXHIBIT E

                          FORM OF TRANSFER CERTIFICATE
                 FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL
                    SECURITY TO REGULATION S GLOBAL SECURITY

J.P. Morgan Trust Company, National Association, as Fiscal Agent
530 Mission Street, 13th Floor
San Francisco, CA 94105

                  Re:      NORTHERN NATURAL GAS COMPANY
                           5.375% SENIOR NOTES DUE 2012

     Reference is hereby made to the Fiscal Agency Agreement, dated as of
October 15, 2002 (the "Fiscal Agency Agreement"), between Northern Natural Gas
Company and J.P. Morgan Trust Company, National Association, as Fiscal Agent.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Fiscal Agency Agreement.

     This letter relates to U.S.$ ________ principal amount of Securities which
are evidenced by one or more Rule 144A Global Securities (CUSIP No.
665501AE2)and held through the U.S. Depository in the name of [insert name of
transferor] (the "Transferor"). The Transferor has requested a transfer of such
beneficial interest in the Securities to a non-U.S. person who will take
delivery thereof in the form of an equal principal amount of Securities
evidenced by one or more Regulation S Global Securities (CUSIP No. U66480AB7;
ISIN No. USU66480AB75), which amount, immediately after such transfer, is to be
held with the U.S. Depository through Euroclear or Clearstream (Common Code
_______).

     In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with Rule 903 or Rule 904 under the Unites States Securities
Act of 1933, as amended (the "Act"), and accordingly the Transferor does hereby
further certify that:

(3)  the offer of the Securities was not made to a Person in the United States;

(4)  either:

(a)  at the time the buy order was originated, the transferee was outside the
     United States or the Transferor and any Person acting on its behalf
     reasonably believed that the transferee was outside the United States, or

(b)  the transaction was executed in, on or through the facilities of a
     designated offshore securities market and neither the Transferor nor any
     Person acting on its behalf knows that the transaction was pre-arranged
     with a buyer in the United States;

(5)  no directed selling efforts have been made in contravention of the
     requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;

(6)  the transaction is not part of a plan or scheme to evade the registration
     requirements of the Act; and

(7)  upon completion of the transaction, the beneficial interest being
     transferred as described above is to be held with the U.S. Depository
     through Euroclear or Clearstream (Common Code ___________).

     This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the underwriters or initial
purchasers, if any, of the initial offering of such Securities being
transferred. Terms used in this certificate and not otherwise defined in the
Fiscal Agency Agreement have the meanings set forth in Regulation S under the
Act.
                                           [Insert Name of Transferor]

                                        By:
                                           ------------------------------------
                                      Name:
                                     Title:
Dated:   ________________

cc:      NORTHERN NATURAL GAS COMPANY

Signature Guaranty:____________________

                  Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Transfer Agent, which requirements
include membership or participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Transfer Agent in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.




                                    EXHIBIT F

                          FORM OF TRANSFER CERTIFICATE
                 FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL
                   SECURITY TO RESTRICTED DEFINITIVE SECURITY

J.P. Morgan Trust Company, National Association, as Fiscal Agent
530 Mission Street, 13th Floor
San Francisco, CA 94105

                  Re:      NORTHERN NATURAL GAS COMPANY
                           5.375% SENIOR NOTES DUE 2012

     Reference is hereby made to the Fiscal Agency Agreement, dated as of
October 15, 2002 (the "Fiscal Agency Agreement"), between Northern Natural Gas
Company and J.P. Morgan Trust Company, National Association, as Fiscal Agent.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Fiscal Agency Agreement.

     This letter relates to U.S.$ _________ principal amount of Securities which
are evidenced by one or more Rule 144A Global Securities (CUSIP No. 665501AE2)
and held through the U.S. Depository in the name of [insert name of transferor]
(the "Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Securities to a Person who will take delivery thereof in the
form of an equal principal amount of Securities evidenced by a Restricted
Definitive Security.

     In connection with such request and in respect of such Securities, the
Transferor does hereby certify that the interests in the Rule 144A Global
Security are being transferred to a Person that the Transferor reasonably
believes is purchasing the Securities for its own account, or for one or more
accounts with respect to which such Person exercises sole investment discretion,
and such Person and each such account is an institutional "accredited investor"
as described in Rule 501(a)(1), (2), (3) or (7) under the Unites States
Securities Act of 1933, as amended (the "Act"), and is purchasing such
Securities for investment purposes and not with a view to, or for offer or sale
in connection with, any distribution in violation of the Act, in a transaction
in accordance with any applicable securities laws of the United States or any
state thereof.

     This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the underwriters and initial
purchasers, if any, of the Securities being transferred.

                                            [Insert Name of Transferor]

                                        By:
                                           ------------------------------------
                                      Name:
                                     Title:

Dated: ____________

cc:  NORTHERN NATURAL GAS COMPANY

     Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Transfer Agent, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Transfer Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.



                                    EXHIBIT G

                          FORM OF TRANSFER CERTIFICATE
                 FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL
                    SECURITY TO UNRESTRICTED GLOBAL SECURITY


J.P. Morgan Trust Company, National Association, as Fiscal Agent
530 Mission Street, 13th Floor
San Francisco, CA 94105

                  Re:      NORTHERN NATURAL GAS COMPANY
                           5.375% SENIOR NOTES DUE 2012

     Reference is hereby made to the Fiscal Agency Agreement, dated as of
October 15, 2002 (the "Fiscal Agency Agreement"), between Northern Natural Gas
Company and J.P. Morgan Trust Company, National Association, as Fiscal Agent.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Fiscal Agency Agreement.

     This letter relates to U.S.$ _________ principal amount of Securities which
are evidenced by one or more Rule 144A Global Securities (CUSIP No. 665501AE2)
and held through the U.S. Depository in the name of [insert name of transferor]
(the "Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Securities to a Person who will take delivery thereof in the
form of an equal principal amount of Securities evidenced by one or more
unrestricted Global Securities (CUSIP No._________).

     In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with either Rule 903, Rule 904 or Rule 144 under the Unites
States Securities Act of 1933, as amended (the "Act"), and accordingly the
Transferor does hereby further certify that:

(8)  if the transfer has been effected pursuant to Rule 903 or Rule 904:

(a)  the offer of the Securities was not made to a Person in the United States;

(b)  either:

(i)  at the time the buy order was originated, the transferee was outside the
     United States or the Transferor and any Person acting on its behalf
     reasonably believed that the transferee was outside the United States, or

(ii) the transaction was executed in, on or through the facilities of a
     designated offshore securities market and neither the Transferor nor any
     Person acting on its behalf knows that the transaction was pre-arranged
     with a buyer in the United States;

(c)  no directed selling efforts have been made in contravention of the
     requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and

(d)  the transaction is not part of a plan or scheme to evade the registration
     requirements of the Act; or

(9)  if the transfer has been effected pursuant to Rule 144, the Securities have
     been transferred in a transaction permitted by Rule 144.

     This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the underwriters and initial
purchasers, if any, of the Securities being transferred. Terms used in this
certificate and not otherwise defined in the Fiscal Agency Agreement have the
meanings set forth in Regulation S under the Act.

                                            [Insert Name of Transferor]

                                        By:
                                           ------------------------------------
                                      Name:
                                     Title:

Dated: _____________

cc:  NORTHERN NATURAL GAS COMPANY

     Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Transfer Agent, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Transfer Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.



                                    EXHIBIT H

                          FORM OF TRANSFER CERTIFICATE
          FOR TRANSFER AND EXCHANGE OF RESTRICTED DEFINITIVE SECURITIES


J.P. Morgan Trust Company, National Association,
as Fiscal Agent
530 Mission Street, 13th Floor
San Francisco, CA 94105

                  Re:      NORTHERN NATURAL GAS COMPANY
                           5.375% SENIOR NOTES DUE 2012

     Reference is hereby made to the Fiscal Agency Agreement, dated as of
October 15, 2002 (the "Fiscal Agency Agreement"), between Northern Natural Gas
Company and J.P. Morgan Trust Company, National Association, as Fiscal Agent.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Fiscal Agency Agreement.

     This letter relates to U.S. $________________ principal amount of
Securities presented or surrendered on the date hereof (the "Surrendered
Securities") which are registered in the name of [insert name of transferor]
(the "Transferor"). The Transferor has requested a transfer of such Surrendered
Securities registered in the name of a Person (the "Transferee") other than the
Transferor (each such transaction being referred to herein as a "transfer").

     In connection with such request and in respect of such Surrendered
Securities, the Transferor does hereby certify that:

                                   [CHECK ONE]

     (1)  the Surrendered Securities are being transferred to the Issuer or an
          Affiliate thereof;

     (2)  the Surrendered Securities are being transferred pursuant to and in
          accordance with Rule 144A under the United States Securities Act of
          1933, as amended (the "Act") and, accordingly, the Transferor does
          hereby further certify that the Surrendered Securities are being
          transferred to a Person that the Transferor reasonably believes is
          purchasing the Surrendered Securities for its own account, or for one
          or more accounts with respect to which such Person exercises sole
          investment discretion, and such Person and each such account is a
          "qualified institutional buyer" within the meaning of Rule 144A, in
          each case in a transaction meeting the requirements of Rule 144A and
          in accordance with any applicable securities laws of any state of the
          United States;

     (3)  the Surrendered Securities are being transferred to a Person that the
          Transferor reasonably believes is purchasing the Surrendered
          Securities for its own account or for one or more accounts with
          respect to which such Person exercise sole investment discretion, and
          such Person and each such account is an institutional "accredited
          investor" as described in Rule 501(a)(1), (2), (3) or (7) under the
          Act and is purchasing such Surrendered Securities for investment
          purposes and not with a view to, or for offer or sale in connection
          with, any distribution in violation of the Act in a transaction in
          accordance with any applicable securities laws of the United States or
          any state thereof. or

     (4)  the Surrendered Securities are being transferred pursuant to and in
          accordance with Regulation S and:

(a)  the offer of the Surrendered Securities was not made to a Person in the
     United States;

(b)  either:

(i)  at the time the buy order was originated, the transferee was outside the
     United States or the Transferor and any Person acting on its behalf
     reasonably believed that the transferee was outside the United States, or

(ii) the transaction was executed in, on or through the facilities of a
     designated offshore securities market and neither the Transferor nor any
     Person acting on its behalf knows that the transaction was prearranged with
     a buyer in the United States;

(c)  no directed selling efforts have been made in contravention of the require-
     ments of Rule 903(b) or 904(b) of Regulation S, as applicable; and

(d)  the transaction is not part of a plan or scheme to evade the registration
     requirements of the Act;

                                       or

     (5)  the Surrendered Securities are being transferred in a trans- action
          permitted by Rule 144.

     This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the underwriters and initial
purchasers of the Securities being transferred.

                                             [Insert Name of Transferor]

                                         By:
                                            -----------------------------------
                                      Name:
                                     Title:

Dated:________________

cc:      NORTHERN NATURAL GAS COMPANY

Signature Guaranty:_____________________

     Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Transfer Agent, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Transfer Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.

EX-10.48

                                 ---------------



                                 TRUST INDENTURE



                           dated as of August 13, 2001



                                      among



                         KERN RIVER FUNDING CORPORATION,
                                   as Issuer,



                      KERN RIVER GAS TRANSMISSION COMPANY,
                                  as Guarantor,



                                       and



                            THE CHASE MANHATTAN BANK
                                   as Trustee



                                 ---------------



                                    Including
                    $510,000,000 6.676% Senior Notes due 2016



                                 ---------------






                                TABLE OF CONTENTS

                                                                           PAGE


ARTICLE 1.            DEFINITIONS AND OTHER PROVISIONS OF GENERAL
                      APPLICATION............................................1

  SECTION 1.1.         Definitions...........................................1
  SECTION 1.2.         Compliance Certificates and Opinions.................20
  SECTION 1.3.         Form of Documents Delivered to Trustee...............21
  SECTION 1.4.         Acts of Holders; Record Dates........................21
  SECTION 1.5.         Notices, Etc., to Trustee, Company and Partnership...23
  SECTION 1.6.         Notice to Holders; Waiver............................24
  SECTION 1.7.         Effect of Headings and Table of Contents.............24
  SECTION 1.8.         Successors and Assigns...............................24
  SECTION 1.9.         Separability Clause..................................24
  SECTION 1.10.        Benefits of Indenture................................24
  SECTION 1.11.        Governing Law........................................24
  SECTION 1.12.        Legal Holidays.......................................24
  SECTION 1.13.        Counterparts.........................................25
  SECTION 1.14.        Agency...............................................25

ARTICLE 2.            THE SECURITIES........................................25

  SECTION 2.1.         Forms Generally......................................25
  SECTION 2.2.         Legends on Restricted Securities.....................27
  SECTION 2.3.         Amount Unlimited; Issuable in Series.................27
  SECTION 2.4.         Denominations........................................30
  SECTION 2.5.         Execution, Authentication, Delivery and Dating.......30
  SECTION 2.6.         Temporary Securities.................................31
  SECTION 2.7.         Registration, Registration of Transfer and Exchange..32
  SECTION 2.8.         Mutilated, Destroyed, Lost and Stolen Securities.....38
  SECTION 2.9.         Payments; Interest Rights Preserved..................39
  SECTION 2.10.        Persons Deemed Owners................................40
  SECTION 2.11.        Cancellation.........................................40
  SECTION 2.12.        Computation of Interest..............................41
  SECTION 2.13.        Certification Forms..................................41
  SECTION 2.14.        CUSIP Numbers........................................41

ARTICLE 3.            SATISFACTION AND DISCHARGE............................41

  SECTION 3.1.         Satisfaction and Discharge of Indenture..............41
  SECTION 3.2.         Application of Trust Money...........................43

ARTICLE 4.            REMEDIES..............................................43

  SECTION 4.1.         Events of Default....................................43
  SECTION 4.2.         Acceleration of Maturity; Rescission and Annulment...45
  SECTION 4.3.         Collection of Indebtedness and Suits for Enforcement
                         by Trustee.........................................46
  SECTION 4.4.         Trustee May File Proofs of Claim.....................47
  SECTION 4.5.         Trustee May Enforce Claims Without Possession of
                         Securities.........................................48
  SECTION 4.6.         Application of Money Collected.......................48
  SECTION 4.7.         Limitation on Suits..................................48
  SECTION 4.8.         Unconditional Right of Holders to Receive Principal,
                         Premium and Interest...............................49
  SECTION 4.9.         Restoration of Rights and Remedies...................49
  SECTION 4.10.        Rights and Remedies Cumulative.......................49
  SECTION 4.11.        Delay or Omission Not Waiver.........................49
  SECTION 4.12.        Control by Holders...................................50
  SECTION 4.13.        Waiver of Past Defaults..............................50
  SECTION 4.14.        Undertaking for Costs................................50
  SECTION 4.15.        Waiver of Usury, Stay or Extension Laws..............51
  SECTION 4.16.        Securities Held by Certain Persons Not to Share in
                         Distribution.......................................51
  SECTION 4.17.        The Collateral Agency Agreement......................51

ARTICLE 5.            THE TRUSTEE...........................................51

  SECTION 5.1.         Certain Duties and Responsibilities..................51
  SECTION 5.2.         Notice of Defaults...................................52
  SECTION 5.3.         Certain Rights of Trustee............................53
  SECTION 5.4.         Not Responsible for Recitals or Issuance of
                         Securities.........................................53
  SECTION 5.5.         May Hold Securities..................................54
  SECTION 5.6.         Money Held in Trust..................................54
  SECTION 5.7.         Compensation and Reimbursement.......................54
  SECTION 5.8.         Corporate Trustee Required; Eligibility..............55
  SECTION 5.9.         Resignation and Removal; Appointment of Successor....56
  SECTION 5.10.        Acceptance of Appointment by Successor...............57
  SECTION 5.11.        Merger, Conversion, Consolidation or Succession to
                         Business...........................................58
  SECTION 5.12.        Appointment of Paying Agent and Authenticating Agent.58
  SECTION 5.13.        Rights and Obligations of Trustee as Representative
                         of the Holders under the Security Agreements.......60

                                     Page 2


ARTICLE 6.            HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.....61

  SECTION 6.1.         Company to Furnish Trustee Names and Addresses of
                          Holders...........................................61
  SECTION 6.2.         Preservation of Information; Communications to
                          Holders...........................................61

ARTICLE 7.            SUPPLEMENTAL INDENTURES...............................62

  SECTION 7.1.         Supplemental Indentures Without Consent of Holders...62
  SECTION 7.2.         Supplemental Indentures With Consent of Holders......63
  SECTION 7.3.         Execution of Supplemental Indentures.................64
  SECTION 7.4.         Effect of Supplemental Indentures....................64
  SECTION 7.5.         Reference in Securities to Supplemental Indentures...65

ARTICLE 8.            COVENANTS.............................................65

  SECTION 8.1.         Financial Statements, Etc............................65
  SECTION 8.2.         Payment of Principal, Premium and Interest...........67
  SECTION 8.3.         Existence, Etc.......................................67
  SECTION 8.4.         Money for Securities Payments to be Held in Trust....68
  SECTION 8.5.         Insurance............................................69
  SECTION 8.6.         Prohibition of Fundamental Changes...................70
  SECTION 8.7.         Ownership of the Company; No Other Subsidiaries......70
  SECTION 8.8.         Limitation on Liens..................................70
  SECTION 8.9.         Indebtedness.........................................72
  SECTION 8.10.        Investments..........................................73
  SECTION 8.11.        Distributions........................................73
  SECTION 8.12.        Affiliate Subordinated Debt..........................73
  SECTION 8.13.        Lines of Business; Single-Purpose Entity.............73
  SECTION 8.14.        Transactions with Affiliates and Related Parties.....74
  SECTION 8.15.        Modifications of Certain Documents...................74
  SECTION 8.16.        Mandatory Obligor Actions............................74
  SECTION 8.17.        Rule 144A Information................................74
  SECTION 8.18.        Maintenance of Office or Agency......................75
  SECTION 8.19.        Use of Proceeds......................................75
  SECTION 8.20.        Expansion............................................75
  SECTION 8.21.        Compliance With Laws.................................76
  SECTION 8.22.        Property.............................................76
  SECTION 8.23.        FERC Filings.........................................76
  SECTION 8.24.        Transportation Service Agreement.....................77
  SECTION 8.25.        Collateral Agency Agreement..........................77
  SECTION 8.26.        Transfers............................................77
  SECTION 8.27.        Amendment to Partnership Security Agreement..........77
  SECTION 8.28.        Debt Service Notices to Collateral Agent.............77

ARTICLE 9.            REDEMPTION OF SECURITIES..............................77

  SECTION 9.1.         Applicability of Article.............................77
  SECTION 9.2.         Election to Redeem; Notice to Trustee................77
  SECTION 9.3.         Selection by Trustee of Securities to Be Redeemed....78
  SECTION 9.4.         Notice of Redemption.................................78
  SECTION 9.5.         Deposit of Redemption Price..........................79
  SECTION 9.6.         Securities Payable on Redemption Date................79
  SECTION 9.7.         Securities Redeemed in Part..........................80
  SECTION 9.8.         Mandatory Redemption Upon a Casualty Event...........80
  SECTION 9.9.         Redemption at Company's Option.......................80

ARTICLE 10.           SINKING FUNDS.........................................81

  SECTION 10.1.        Applicability of Article.............................81
  SECTION 10.2.        Satisfaction of Sinking Fund Payments with
                         Securities.........................................81
  SECTION 10.3.        Redemption of Securities for Sinking Fund............81

ARTICLE 11.           DEFEASANCE AND COVENANT DEFEASANCE....................82

  SECTION 11.1.        Company's Option to Effect Defeasance or Covenant
                         Defeasance.........................................82
  SECTION 11.2.        Defeasance and Discharge.............................82



                                     Page 3


 SECTION 11.3.        Covenant Defeasance..................................82
  SECTION 11.4.        Conditions to Defeasance or Covenant Defeasance......83
  SECTION 11.5.        Deposited Money and U.S. Government Obligations to
                         Be Held in Trust; Miscellaneous Provisions.........85
  SECTION 11.6.        Reinstatement........................................85

ARTICLE 12.           PARTNERSHIP GUARANTEE.................................85

  SECTION 12.1.        Obligations Guaranteed...............................85
  SECTION 12.2.        Obligations Unconditional............................86
  SECTION 12.3.        No Waiver or Set-off.................................86
  SECTION 12.4.        Waiver of Notice; Expenses...........................87
  SECTION 12.5.        Benefit and Enforcement..............................87
  SECTION 12.6.        Survival of Partnership Guarantee Obligation; Waiver
                         of Subrogation.....................................87
  SECTION 12.7.        Pledge of Partnership Collateral.....................87

ARTICLE 13.           LIMITATION OF LIABILITY...............................88

  SECTION 13.1.        Company..............................................88
  SECTION 13.2.        Partnership..........................................88



                                    EXHIBITS

EXHIBIT A           FORM OF NOTE

EXHIBIT B           FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM
                    RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY

EXHIBIT C           FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM
                    REGULATION S GLOBAL SECURITY TO RESTRICTED GLOBAL SECURITY

EXHIBIT D           FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE OF
                    RESTRICTED SECURITY

EXHIBIT E           FORM OF INSTITUTIONAL ACCREDITED INVESTOR TRANSFEREE
                    COMPLIANCE LETTER


                  This TRUST INDENTURE, dated as of August 13, 2001, among KERN
RIVER FUNDING CORPORATION, a corporation duly organized and validly existing
under the laws of the State of Delaware, as issuer (the "Company"), having its
principal office at Tulsa, Oklahoma, Kern River Gas Transmission Company, a
general partnership duly organized and existing under the laws of the State of
Texas, as guarantor (the "Partnership"), having its principal office at Salt
Lake City, Utah, and The Chase Manhattan Bank, a New York corporation, as
trustee (the "Trustee").

                              W I T N E S S E T H:
                               - - - - - - - - - -

                  WHEREAS, the Company has duly authorized the execution and
delivery of this Indenture to provide for the issuance in its individual
capacity and as agent for the Partnership from time to time of the Company's
debentures, notes or other evidences of indebtedness in one or more series as in
this Indenture provided herein (the "Securities"); and

                  WHEREAS, the Company wishes to lend all of the proceeds of the
sale of the Securities to the Partnership; and

                  WHEREAS, the Partnership wishes to provide its guarantee to
secure the payment of the principal of, premium on, if any, and interest on, all


                                     Page 4


the Securities authenticated and delivered hereunder and issued by the Company
and the performance of the covenants therein and herein contained; and

                  WHEREAS, all things necessary to make this Indenture a valid
agreement of the Company and the Partnership, in accordance with its terms, have
been done;

                  NOW, THEREFORE, for and in consideration of the premises and
the purchase of the Securities by the Holders thereof, it is mutually covenanted
and agreed, for the equal and proportionate benefit of all Holders of the
Securities or of series thereof, as follows:

                                   ARTICLE 1

             DEFINITIONS AND OTHER PROVISIONSOF GENERAL APPLICATION

SECTION 1.1.......Definitions. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:

(1)      the terms defined in this Article have the meanings assigned to them in
         this Article and include the plural as well as the
         singular;

(2)      all accounting terms not otherwise defined herein have the meanings
         assigned to them in accordance with regulatory accounting principles
         (whether or not such is indicated herein), and, except as otherwise
         herein expressly provided, the term "required accounting practices"
         with respect to any computation required or permitted hereunder means
         such accounting practices as are required by the Company and the
         Partnership, at the date of such computation;

(3)      unless otherwise specifically set forth herein, all calculations or
         determinations of a Person shall be performed or made in accordance
         with RAP;

(4)      unless the context otherwise requires, any reference to an "Article"
         or a "Section" refers to an Article or a Section, as the case may be,
         of this Indenture;

(5)      the words "herein," "hereof" and "hereunder" and other words of similar
         import refer to this Indenture as a whole and not to any particular
         Article, Section or other subdivision;

(6)      unless the context clearly intends to the contrary, pronouns having a
         masculine or feminine gender shall be deemed to include the other; and

(7)      unless otherwise expressly specified, any agreement, contract or
         document defined or referred to herein shall mean such agreement,
         contract or document as in effect as of the date hereof, as the same
         may thereafter be amended, supplemented or otherwise modified from time
         to time in accordance with the terms of this Indenture and the other
         Project Agreements (as hereinafter defined) and shall include any
         agreement, contract or document in substitution or replacement of any
         of the foregoing entered into in accordance with the terms of this
         Indenture and the other Project Agreements.

                  "2002 Expansion" means the expansion for which the Partnership
filed an application with the FERC in Docket No. CP01-31-000 on November 15,
2000.

                  "Acceptable Letter of Credit" means an irrevocable standby
letter of credit provided on behalf of an LTFT Shipper for the benefit of the
Partnership with a stated amount equal, at any time, to one year's reservation
charges due under the applicable LTFT Agreement and issued by a bank whose
long-term unsecured and unguaranteed debt is rated at least "A" by S&P and "A2"
by Moody's. Such letter of credit shall have a term of at least a year and shall
be subject to draw if not renewed or replaced at the end of such term.

                  "Account Bank" has the meaning assigned to such term in the
Collateral Agency Agreement.

                                     Page 5


                  "Act," when used with respect to any Holder, has the meaning
specified in Section 1.4.

                  "Additional Senior Indebtedness" means Indebtedness of the
Company or the Partnership for borrowed money ranking pari passu in right of
payment with the Senior Debt. For the avoidance of doubt, any indebtedness
incurred in respect of an Expansion and described in the proviso to the
definition of Indebtedness shall not constitute Additional Senior Indebtedness
until such time as it constitutes Indebtedness in accordance with the definition
thereof and the Completion Guaranty in respect of such Expansion has been
released.

                  "Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

                  "Affiliate Subordinated Debt" means Indebtedness of the
Partnership held by any Partner or an Affiliate of any Partner and subordinated
to the Senior Debt.

                  "Agency Agreement" means the agreement entered into on the
Closing Date between the Company and the Partnership pursuant to which the
Company agrees to act as agent for the Partnership with respect to the issuance
of the Securities.

                  "Agent Member" has the meaning specified in Section
2.7(c)(v)(B).

                  "Applicable Procedures" has the meaning specified in Section
2.7(c)(v)(B).

                  "Authenticating Agent" means any Person authorized by the
Trustee pursuant to Section 5.12 to act on behalf of the Trustee to authenticate
Securities of one or more series.

                  "Authorized Agent" has the meaning specified in Section
5.12(a).

                  "Bankruptcy Code" means the United States Bankruptcy Code of
1978, as amended from time to time.

                  "Basic Agreements" means, collectively, this Indenture, the
Securities and the Security Agreements.

                  "Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.

                  "Business Day" means any day other than (a) a Saturday or
Sunday or (b) a day on which commercial banks in New York City or any other city
in which the Trustee's Corporate Trust Office, any Place of Payment or the
Collateral Agent's principal office is located, are authorized or required to
close.

                  "California Action Project" means the expansion for which the
Partnership filed an application with the FERC in Docket No. CP01-106-000 on
March 15, 2001.

                  "Capital Expenditures" means, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by the Partnership to acquire or
construct fixed assets, plant and equipment (including renewals improvements and
replacements) during such period that in accordance with RAP are required to be
capitalized on the Partnership's balance sheet.

                                     Page 6


                  "Capital Lease Obligations" means, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under RAP, and, for purposes of this Indenture
the amount of such obligations shall be the capitalized amount thereof
determined in accordance with RAP.

                  "Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock of, or partnership or other ownership interests in, such Person.

                  "Casualty Event" means, with respect to any Property of any
Person, any event that causes all or a portion of such Property to be damaged,
destroyed or rendered unfit for normal use for any reason whatsoever, including,
without limitation, any compulsory transfer or taking or transfer under threat
of compulsory transfer or taking of any material part of such Property by any
Governmental Authority.

                  "Catastrophic Loss" means any Casualty Event with respect to
the Project for which the replacement value of the lost or damaged Property (as
determined by the Executive Committee of the Partnership reasonably and in good
faith) is greater than the greater of (x) 10% of the gross book value of the
Partnership's plant, property and equipment, taken as a whole, and (y)
$100,000,000, as Escalated.

                  "Clearstream" means Clearstream Banking, societe anonyme.

                  "Closing Date" means August 13, 2001.

                  "CO&M Agreement" means the Construction, Operation and
Maintenance Agreement dated as of August 29, 1989, as amended, by and among
MPOC, Mojave Pipeline and the Partnership under which MPOC operates the Common
Facilities.

                  "Code" means the Internal Revenue Code of 1986, as amended
from time to time.

                  "Collateral" has the meaning assigned to such term in the
Collateral Agency Agreement.

                  "Collateral Agency Agreement" means the Collateral Agency
Agreement dated as of the Closing Date by and among the Partnership, the
Company, the Trustee and the Collateral Agent.

                  "Collateral Agent" means The Chase Manhattan Bank, in its
capacity as Partnership Collateral Agent or Funding Collateral Agent under the
Collateral Agency Agreement.

                  "Common Facilities" means the facilities from Daggett,
California, to termination points in Kern County, California, consisting of
approximately 219 miles of pipe jointly owned by the Partnership and Mojave
Pipeline as tenants-in-common.

                  "Company" means Kern River Funding Corporation.

                  "Company Order" or "Company Request" means a written order or
request signed in the name of the Company by the Chairman of the Board, a Vice
Chairman of the Board, the President, a Vice President, the Treasurer or the
Assistant Treasurer, and delivered to the Trustee.

                  "Company Security Agreement" means the Assignment of
Contracts, Pledge and Security Agreement dated as of the Closing Date between
the Company and the Collateral Agent.

                  "Completion" means, with respect to any Expansion, that (i)
pursuant to FERC certificate compliance requirements and 18 C.F.R. ss.
157.20(c)(3), the Partnership has filed with the FERC notice that such
Expansion's facilities have been constructed and placed into service or that
service has commenced on such facilities, (ii) pursuant to the LTFT Agreements


                                     Page 7


entered into in connection with such Expansion, the Partnership may begin
invoicing the applicable LTFT Shippers the full amount of their periodic
reservation charge payments and (iii) the equity investment, if any, described
in clause (z) of the proviso to the definition of Indebtedness and required so
that the percentage of the costs of such Expansion that are financed with
Indebtedness incurred by the Partnership does not exceed the Applicable
Expansion Debt Level, has been contributed to the Partnership.

                  "Completion Guaranty" means, with respect to any Expansion, an
unconditional undertaking by Williams, or another entity that has a public debt
rating equal to at least "BBB-" from S&P and "Baa3" from Moody's, that ensures
Completion of such Expansion.

                   "Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered which office as of the date of execution of this Indenture is
located at 450 West 33rd Street, New York, NY 10001.

                  "Covenant Defeasance" has the meaning specified in Section
11.3.

                  "Debt Service Coverage Ratio" means, for any period, the ratio
of (a) Operating Cash Flow for such period to (b) Mandatory Senior Debt Service
(excluding the amount of the Final Principal Payment) for such period.

                  "Debt Service Letter of Credit" means one or more irrevocable,
direct pay letters of credit issued by the Debt Service LOC Provider.

                  "Debt Service Letter of Credit Obligation" means all
obligations of the Partnership under the Debt Service LOC Reimbursement
Agreement including without limitation all obligations in respect of the Debt
Service Letter of Credit, interest, principal in respect of any notes or bonds
issued thereunder together with any obligation or indemnity for fees, expenses
or damages.

                  "Debt Service LOC Account" means the special irrevocable
collateral account and funds within such account, established and maintained
pursuant to Section 7.1 of the Collateral Agency Agreement.

                  "Debt Service LOC Loan" means each loan made by a Debt Service
LOC Provider to the Partnership pursuant to the Debt Service LOC Reimbursement
Agreement.

                  "Debt Service LOC Provider" means the commercial banks or
financial institutions issuing the Debt Service Letter of Credit.

                  "Debt Service LOC Reimbursement Agreement" means the Debt
Service LOC Reimbursement Agreement, among the Partnership, the Company and the
Debt Service LOC Provider, dated as of the Closing Date.

                  "Debt Service Payment Date" means the final day of each month,
commencing on August 31, 2001, provided that payments in respect of principal on
the Securities issued on the Closing Date will not commence until the Debt
Service Payment Date occurring on January 31, 2002.

                  "Default" means an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default

                  "Defaulted Interest" has the meaning specified in Section 2.9.

                  "Defeasance" has the meaning specified in Section 11.2.

                  "Depository" means, with respect to Securities of any series
issuable in whole or in part in the form of one or more Global Securities, a
clearing agency registered under the Exchange Act that is designated to act as
Depository for such Securities as contemplated by Section 2.3.

                  "Determination Date" means the second Business Day prior to
the Redemption Date.

                                     Page 8


                  "Distribution" means (a) all partnership distributions of the
Partnership (in cash, property of the Partnership or obligations) on, or other
payments or distributions on account of, or the setting apart of money for a
sinking or other analogous fund for, or the purchase, redemption, retirement or
other acquisition by the Partnership of, any portion of any partnership interest
in the Partnership, (b) all dividends (in cash, property or obligations) on, or
other payments or distributions on account of, or the setting apart of money for
a sinking or other analogous fund for, or the purchase, redemption, retirement,
or other acquisition of, any shares of any class of stock of the Company or of
any warrant options or other rights to acquire the same, but excluding dividends
payable solely in shares of common stock of the Company and (c) all payments (in
cash, property of the Partnership or obligations) of principal of, interest on
and other amounts with respect to, or other payments on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition by the Partnership of, any
Affiliate Subordinated Debt.

                  "Dollars" and "$" means lawful money of the United States of
America.

                  "Economic Make-Whole Premium" means,

(a)      with respect to all of the Securities of any series, an amount
         calculated by the Company as of the second Business Day prior to the
         Redemption Date (the "Determination Date") of the Securities of such
         series as follows:

(i)      the average life of the remaining scheduled payments of principal in
         respect of the Outstanding Securities (the "Remaining Average Life")
         shall be calculated as of the Redemption Date;

(ii)     the yield to maturity shall be calculated for the United States
         Treasury security having an average life equal to the Remaining Average
         Life and trading in the secondary market at the price (on the
         Determination Date) closest to par (the "Primary Issue"); provided,
         however, that if no United States Treasury security has an average life
         equal to the Remaining Average Life, the yields (the "Other Yields')
         for the two maturities of the United States Treasury securities having
         average lives most closely corresponding to such Remaining Average Life
         and trading in the secondary market at the price (on the Determination
         Date) closest to par shall be calculated and the yield to maturity for
         the Primary Issue shall be the yield interpolated or extrapolated from
         such Other Yields on a straight-line basis, rounding in each of such
         relevant periods to the nearest month;

(iii)    the discounted present value of the then remaining scheduled payments
         of principal and interest (but excluding that portion of any scheduled
         payment of interest that is actually due and paid on the Redemption
         Date) in respect of Outstanding Securities shall be calculated as of
         the Redemption Date using a discount factor equal to the sum of (a) the
         yield to maturity for the Primary Issue, plus (b) 50 basis points; and

(iv)     the amount of premium in respect of Securities to be redeemed shall be
         an amount equal to (a) the discounted present value of such Securities
         to be redeemed determined in accordance with clause (iii) above minus
         (b) the unpaid principal amount of such Securities; provided, however,
         that the premium shall not be less than zero; and,

(b)      with respect to any Security in any series, the amount obtained by
         multiplying (i) the aggregate Economic Make-Whole Premium determined as
         set forth above by (ii) the ratio of the Outstanding principal amount
         of such Security on the Redemption Date to the aggregate Outstanding
         principal amount of all Securities of such series on the Redemption
         Date.

                  "Environmental Laws" means any and all present and future
federal, state, local and foreign laws, rules or regulations, and any orders or
decrees in each case as now or hereafter in effect, relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of Hazardous Materials into the


                                     Page 9


indoor or outdoor environment, including, without limitation, ambient air, soil
surface water, ground water, wetlands, land or subsurface strata, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.

                  "Escalated" means, with respect to any amount and as at any
date of determination, such amount as multiplied by a fraction (a) the numerator
of which is the Consumer Price Index for All Urban Consumers (CPI/U), as
published by the Bureau of Statistics of the Department of Labor (or if the
publication of such Consumer Price Index is discontinued, a comparable index
similar in nature to the discontinued index which clearly reflects the change in
the real value of the purchasing power of the Dollar (hereafter in this
definition referred to as the "index")) reported for the calendar year
immediately preceding such date and (b) the denominator of which is equal to the
index reported for 2001, provided, however, that if an Escalation has to be
determined in a particular year at a time prior to the time that such Consumer
Price Index is published, the figure used immediately prior thereto shall be
used.

                  "Euroclear" means Euroclear Bank, S.A./N.V., as operator of
the Euroclear System, or any successor to Euroclear Bank, S.A./N.V., as operator
thereof.

                  "Event of Default" has the meaning specified in Section 4.1.

                  "Exchange Act" means, the Securities Exchange Act of 1934 and
any statute successor thereto, in each case as amended from time to time.

                  "Existing 144A Debt" means existing 144A indebtedness
outstanding under the Trust Indenture, dated as of March 15, 1996, among Kern
River Funding Corporation, as Issuer, Kern River Gas Transmission Company, as
Guarantor, and The Chase Manhattan Bank (formerly called Chemical Bank) as
Trustee.

                  "Expansion" means any capital investment project that (i)
involves Capital Expenditures in excess of $100,000,000, as Escalated and (ii)
increases the transportation capacity of the Pipeline by at least 100 MMcf per
day.

                  "Expiration Date" has the meaning specified in Section 1.4.

                  "FERC" means the Federal Energy Regulatory Commission.

                  "Final Maturity Date" means, as at any date of determination,
the latest Stated Maturity of any Security then Outstanding.

                  "Final Principal Payment" means the payment to be made in
respect of principal of the Securities (established by the Partnership pursuant
to Section 2.1 and issued on the Closing Date) on the Final Maturity Date with
respect to such Securities.

                  "Fitch" means Fitch, Inc. and its successors.

                  "Global Security" means a Security that evidences all or part
of the Securities of any series or tranche and bears the appropriate legend set
forth in Exhibit A (or such legend as may be specified as contemplated by
Section 2.2 for such Securities).

                  "Governmental Approval" means any authorization of or by,
consent of, approval of, license from, ruling of, permit from, tariff by, rate
of certification by, exemption from, filing with (except any filing relating to
the perfection of security interests), variance from, claim of, order from,
judgment from, decree of, publication to or by, notice to, declaration of or
with or registration by or with any Governmental Authority.

                  "Governmental Authority" means any federal, state, municipal
local, territorial or other government department, commission, board, bureau,
agency, regulatory authority, instrumentality, judicial or administrative body,
domestic or foreign.

                                    Page 10


                  "Governmental Rule" means any statute, law, regulation,
ordinance, rule, final and nonappealable judgment, order, decree, permit,
concession, grant, franchise, license, directive, guideline, policy,
requirement, or other government restriction or any similar form of decision of
or determination by, or any interpretation of any of the foregoing by, any
Governmental Authority, whether now or hereafter in effect (including, without
limitation, any Environmental Law).

                  "Gross Book Value" means, with respect to any Person, the
gross book value of such Person's plant, property and equipment, taken as a
whole.

                  "Guarantee" means a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) Property, products, materials, supplies or
services primarily for the purpose of enabling a debtor to make payment of such
debtor's obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank or other financial institution to
issue a letter of credit or other similar instrument for the benefit of another
Person, but excluding endorsements for collection or deposit in the ordinary
course of business. The terms "Guarantee" and "Guaranteed" used as a verb and
the term "Guarantor" shall have correlative meanings.

                  "Hazardous Material" means, at any time, collectively, (a) any
petroleum or petroleum products, flammable materials, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, and transformers or
other equipment that contain polychlorinated biphenyls, (b) any chemicals or
other materials or substances that, at such time, become defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "contaminants," "pollutants" or words of
similar import under any Environmental Law and (c) any other chemical or other
material or substance, exposure to which, at such time, is prohibited, limited
or contemplated under any Environmental Law.

                  "Holder" and "Securityholder" means a Person in whose name a
Security is registered in the Security Register.

                  "Indebtedness" means, for any Person (without duplication)
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed, (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (d) every obligation of such Person issued or
assumed as the deferred purchase price of Property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (e) every Capital Lease Obligation of such Person, (f) the maximum
fixed redemption or repurchase price of Redeemable Stock of such Person, if any,
at the time of determination plus accrued but unpaid dividends, (g) every
obligation of such Person with respect to interest rate and currency hedging
agreements, and (h) every obligation of the type referred to in clauses (a)
through (g) of another Person and all dividends of another Person the payment of
which, in either case, such Person has Guaranteed or is responsible or liable
for, directly or indirectly, as obligor, Guarantor or otherwise; provided,
however, that "Indebtedness" shall not include any indebtedness incurred with
respect to an Expansion provided that, and only for so long as, (x) a Completion
Guaranty with respect to such Expansion is in full force and effect, (y) the
recourse of the holders of such indebtedness is limited as set forth in clause
(b) of Section 8.20 and (z) the Partners are obligated under the terms of the
financing for such Expansion to contribute equity upon Completion in an amount,
if any, that, if such equity were contributed at the time such indebtedness was
incurred and such indebtedness was included in the definition of Indebtedness,
would enable the Partnership to satisfy the tests set forth in clause (a)(iv) of
Section 8.9 and clause (c) of Section 8.20.

                                    Page 11


                  "Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
The term "Indenture" shall also include the terms of particular series of
Securities established as contemplated by Section 2.3.

                  "Installment Security" means a Security, the principal of
which is payable in installments.

                  "institutional accredited investors" has the meaning specified
in Section 2.1.

                  "interest," when used with respect to an Original Issue
Discount Security which by its terms bears interest only after Maturity, means
interest payable after Maturity.

                  "Interest Payment Date," when used with respect to any
Security, means the Stated Maturity of an installment of interest on such
Security.

                  "Investment" by any Person means any direct or indirect loan,
advance or other extension of credit or capital contribution to (by means of
transfers of cash or other Property to others or payments for Property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Indebtedness issued by, any other Person, and any Capital
Expenditures.

                  "Investment Company Act" means the Investment Company Act of
1940 and any statute successor thereto, in each case as amended from time to
time.

                  "Investment Grade" means with respect to any Person, that such
Person's long-term senior unsecured debt is rated at least Baa3 by Moody's, BBB-
by S&P, BBB (low) by Dominion Bond Rating Service, or B++ (low) by Canadian Bond
Rating Service.

                  "KR Acquisition" means Kern River Acquisition, LLC, a
subsidiary of Williams, and owner of a general partnership interest in the
Partnership with WWPC.

                  "Lien" means, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property. For purposes of this Indenture and the other Project Agreements,
a Person shall be deemed to own subject to a Lien any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.

                  "Loss Proceeds Account" has the meaning assigned to such term
in Section 3.1 of the Collateral Agency Agreement.

                  "LTFT Agreements" means those long-term firm gas
transportation service agreements providing for the transportation of natural
gas, entered into by and among the Partnership and the long-term firm
transportation Shippers and includes, without limitation (i) any long-term firm
transportation service agreements entered into in connection with an expansion
of the Pipeline and (ii) any such agreement entered into after the Closing Date.

                  "LTFT Shipper" means a Shipper party to an LTFT Agreement.

                  "Mandatory Senior Debt Service" means, for any period, the sum
of all scheduled interest premium (if any) and principal due and payable during
such period in respect of all Senior Debt, provided that fees payable in
connection with the issuance of any Additional Senior Indebtedness shall be
excluded.

                  "Material Adverse Effect" means a material adverse effect on
(a) the property, business, operations, financial condition, liabilities or
capitalization of any of the Partnership or the Company, (b) the ability of


                                    Page 12


either such Person to perform any of its payment obligations or any of its other
material obligations under any of the Project Agreements to which such Person is
a party, (c) the validity or enforceability of any of the Project Agreements or
the Senior Debt Agreements, unless immediately after giving effect to such
adverse effect on validity or enforceability, there shall be No Ratings
Downgrade, (d) the material rights and remedies of the Senior Party under any of
the Senior Debt Agreements or (e) the timely payment of any principal of or
interest on any of the Senior Debt.

                  "Material Loss" means any Casualty Event with respect to the
Project for which the replacement value of the lost or damaged Property (as
determined by the Executive Committee of the Partnership reasonably and in good
faith) is (A) equal to or greater than the greater of (x) 2% of the Gross Book
Value of the Partnership and (y) $10,000,000, as Escalated, and (B) less than
the greater of (i) 10% of the Gross Book Value of the Partnership and (ii)
$100,000,000, as Escalated.

                  "Maturity," when used with respect to any Security, means the
date on which the principal of such Security or an instalment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, call for redemption or otherwise.

                  "Mojave Pipeline" means Mojave Pipeline Company.

                  "Moody's" means Moody's Investors Service, Inc. and its
successors.

                  "MPOC" means the Mojave Pipeline Operating Company, an
affiliate of Mojave Pipeline and operator of the Common Facilities.

                  "No Ratings Downgrade" means that the ratings on the
Securities are reaffirmed as being equal to or higher than the rating on the
Securities before the applicable event, by both of the Required Rating Agencies.

                  "Notice of Default" means a written notice of the kind
specified in Section 5.2.

                  "NRSRO" means any Nationally Recognized Statistical Ratings
Organization.

                  "Obligor" means, individually and collectively, the
Partnership and the Company.

                  "Officer's Certificate" means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the President, a Vice
President, the Treasurer or the Assistant Treasurer of the Company or a Senior
Officer of the Partnership, as applicable, and delivered to the Trustee.

                  "Operating Cash Flow" means, for any period, the excess, if
any, of (a) all Project Revenues received during such period over (b) all
Operating Expenses paid during such period other than any nonrecurring Operating
Expenses incurred in connection with the issuance of any Additional Senior
Indebtedness.

                  "Operating Expenses" means, for any period, the sum, computed
without duplication, of all cash operating and maintenance expenses and required
reserves in respect of such expenses of the Project including, without
limitation, (a) expenses of administering and operating the Project and of
maintaining it in good repair and operating condition payable by the Partnership
during such period, (b) direct operating and maintenance costs of the Project
(including, without limitation, all payments due and payable under the CO&M
Agreement and any ground leases) payable by the Partnership during such period,
(c) insurance costs payable by the Partnership during such period, (d) sales and
excise taxes payable by the Partnership with respect to the transportation of
natural gas during such period, (e) franchise taxes payable by the Partnership
during such period, (f) federal, state and local income taxes payable by the
Partnership, if any, during such period, (g) costs and fees attendant to the
obtaining and maintaining in effect the government approvals payable by the
Partnership during such period and (h) legal, accounting and other professional
fees attendant to any of the foregoing items payable by the Partnership during


                                    Page 13


such period. Operating Expenses excludes, to the extent otherwise included,
depreciation and other non-cash expenditures for such period.

                  "Operative Agreements" means the LTFT Agreements, the Shipper
Guarantees and the Partnership Guarantee.

                  "Opinion of Counsel" means a written opinion of counsel who
may be in-house counsel for the Company or the Partnership, and who and which
shall be reasonably acceptable to the Trustee.

                  "Original Issue Discount Security" means any Security which
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
Section 4.2.

                  "Outstanding," when used with respect to Securities, means, as
of the date of determination, all Securities therefore authenticated and
delivered under this Indenture, except:

(1)      Securities theretofore canceled by the Trustee or delivered to the
         Trustee for cancellation;

(2)      Securities for whose payment or redemption money in the necessary
         amount has been therefore deposited with the Trustee or any Paying
         Agent (other than the Company) in trust or set aside and segregated in
         trust by the Company (if the Company shall act as its own Paying Agent)
         for the Holders of such Securities; provided that, if such Securities
         are to be redeemed, notice of such redemption has been duly given
         pursuant to this Indenture or provision therefor satisfactory to the
         Trustee has been made;

(3)      Securities as to which Defeasance has been effected pursuant to Section
         11.2; and

(4)      Securities which have been paid pursuant to Section 2.8 or in exchange
         for or in lieu of which other Securities have been authenticated and
         delivered pursuant to this Indenture, other than any such Securities in
         respect of which there shall have been presented to the Trustee proof
         satisfactory to it that such Securities are held by a bona fide
         purchaser in whose hands such Securities are valid obligations of the
         Company;

provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, (A) the principal amount of an Original Issue
Discount Security which shall be deemed to be Outstanding shall be the amount of
the principal thereof which would be due and payable as of such date upon
acceleration of the Maturity thereof to such date pursuant to Section 4.2, (B)
if, as of such date, the principal amount payable at the Stated Maturity of a
Security is not determinable, the principal amount of such Security which shall
be deemed to be Outstanding shall be the amount as specified or determined as
contemplated by Section 2.3, (C) the principal amount of a Security denominated
in one or more foreign currencies or currency units which shall be deemed to be
Outstanding shall be the U.S. dollar equivalent, determined as of such date in
the manner provided as contemplated by Section 2.3, of the principal amount of
such Security (or, in the case of a Security described in clause (A) or (B)
above, of the amount determined as provided in such clause), and (D) Securities
owned by the Obligors or any other obligor upon the Securities or any Affiliate
of either Obligor or of such other obligor shall be disregarded and deemed not
to be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only Securities which the Trustee knows
to be so owned shall be so disregarded. Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not either of the Obligors or any other
obligor upon the Securities or any Affiliate of either Obligor or of such other
obligor.

                                    Page 14


                  "Partner Agreements" means the Partnership Agreement and the
Purchase Agreement.

                  "Partners" means WWPC and KR Acquisition and such other Person
or Persons as may become general partners of the Partnership from time to time.

                  "Partnership" means the Person named as the "Partnership" in
the first paragraph of this instrument until a successor Person shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter "Partnership' means such successor Person.

                  "Partnership Agreement" means the General Partnership
Agreement, dated May 29, 1985 as amended, among Kern River Corporation, WWPC and
KR Acquisition.

                  "Partnership Guarantee" means the Guarantee of the Partnership
hereunder.

                  "Partnership Loan Agreement" means the loan agreement, dated
as of the Closing Date, between the Partnership and the Company, pursuant to
which the Company will lend the proceeds of the sale of the Securities to the
Partnership.

                  "Partnership Loan" means the loan made by the Company to the
Partnership from the proceeds of the sale of the Securities.

                  "Partnership Security Agreement" means the Assignment of
Contracts, Pledge and Security Agreement dated as of the Closing Date between
the Partnership and the Collateral Agent.

                  "Paying Agent" means any Person authorized by the Company to
pay the principal of or any premium or interest on any Securities on behalf of
the Company pursuant to Section 5.12.

                  "Peril" means, collectively, fire, lightning, flood,
windstorm, hail, earthquake, explosion, vandalism and malicious mischief, damage
from aircraft, vehicles and smoke.

                  "Permitted Investments" means:

(a) direct obligations of the United States of America, or of any agency or
instrumentality thereof or obligations guaranteed or insured as to principal and
interest by the United States of America or by any agency or instrumentality
thereof in either case maturing not more than 365 days from the date of
acquisition thereof, or

(b) commercial paper or bankers acceptances having (on the date of acquisition
thereof) a rating from S&P of at least "A-1" or from Moody's of at least "P-1"
(or an equivalent rating from another NRSRO if neither of such corporations is
then in the business of rating commercial paper) maturing not more than 180 days
from the date of acquisition thereof, or

(c) certificates of deposit and other time deposits issued by any bank or trust
company having capital surplus and undivided profits of at least $500,000,000
whose long-term unsecured senior indebtedness is rated "A-" or better by S&P or
"A-3" or better by Moody's (or an equivalent rating from another NRSRO if
neither of such corporations is then in the business of rating such
obligations); or

(d) repurchase agreements with respect to (and secured by a pledge of)
securities described in clause (a) above and entered into with any commercial
bank described in clause (c) above or any securities broker-dealer of recognized
national standing.

                  "Person" means any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).

                  "Pipeline" or "Project" means the 926 mile United States
interstate pipeline system that transports natural gas produced in the Rocky


                                    Page 15


Mountain areas to major gas consuming markets in Utah, Nevada and California
with an approximate capacity of 700 Mmcf per day, plus the California Action
Project and any expansions financed in whole or in part with Additional Senior
Indebtedness.

                  "Place of Payment," when used with respect to the Securities
of any series, means New York, New York, and the place or places where the
principal of and any premium and interest on the Securities of that series are
payable as specified as contemplated by Section 2.3.

                  "Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 2.8 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.

                  "Principal Amount" means the principal sum of Dollars.

                  "Proceeds" means, in the case of any Casualty Event, the
aggregate amount of proceeds of insurance, condemnation awards and other
compensation received by the Partnership and the Company in respect of such
Casualty Event, in each case net of reasonable expenses incurred by the
Partnership and the Company in connection therewith and any income and transfer
taxes payable by the Partnership or the Company in respect of such Casualty
Event.

                  "Project Agreements" means the Operative Agreements, the
Partnership Agreement and the CO&M Agreement.

                  "Project Revenues" means revenues received by the Partnership
pursuant to the Operative Agreements.

                  "Projected Debt Service Coverage Ratio" means, at any time of
determination thereof, a projection of the Debt Service Coverage Ratio for a
period which includes, or consists entirely of, future periods, prepared by the
Partnership in good faith based upon assumptions reasonably believed by the
Partnership to be consistent in all material respects with the Transaction
Agreements and the historical operating results of the Project as adjusted by
reasonable assumptions as to future operating results including any changes in
efficiency or capacity.

                  "Property" means any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.

                  "Purchase Agreement" means the Purchase Agreement, to be
entered into on or about the Closing Date, between the initial purchasers of the
Securities, the Company, the Partnership, and the Partners, providing for the
sale of the Securities to the initial purchasers.

                  "QIB" has the meaning ascribed thereto in Rule 144A under the
Securities Act.

                  "Qualified Transaction" means any transaction made in
accordance with the following:

(a) with the prior written consent of the Required Senior Parties; or

(b) with respect to which the Partnership or the Company shall have obtained,
and shall have delivered to the Collateral Agent a copy thereof certified by the
Partnership or the Company, as applicable, the prior written affirmation from
the Required Ratings Agencies that there is No Ratings Downgrade; provided,
that, to the extent such Qualified Transaction involves a merger, consolidation
or amalgamation of an Obligor, the successor in interest to such Obligor agrees
to assume by an instrument in form satisfactory to the Required Senior Parties
all obligations of such Obligor under the Indenture, pursuant to the Securities
and pursuant to all other agreements entered into by such Obligor in connection
with the offering of the Securities.

                                    Page 16


                  "Qualified Transferee" means any person that shall acquire
after the Closing Date, directly or indirectly, ownership of membership
interests in the Partnership so long as (i) such person has, or is controlled by
a person that has, (a) significant experience in the business of owning and
operating pipeline systems similar to the Pipeline and (b) a public debt rating
equal to at least "BBB-" by S&P and "Baa3" by Moody's, (ii) after giving effect
to such transfer, no Default or Event of Default shall have occurred and be
continuing, and (iii) such transfer could not reasonably be expected to result
in a Material Adverse Effect.

                  "RAP" means regulatory accounting principles as in effect in
the United States from time to time.

                  "Rate Refund" means any refunds owed to Shippers or any other
Person or tariffs charged to such Shippers by the Partnership during a pending
FERC rate proceeding as determined by FERC pursuant to a Rate Review.

                  "Rate Review" means a FERC rate proceeding reviewing the
tariff set by the Partnership for firm transportation services.

                  "Redeemable Stock" of any Person means any Capital Stock of
such Person that by its terms or otherwise is required to be redeemed on or
prior to the Final Maturity Date.

                  "Redemption Date," when used with respect to any Security to
be redeemed, means the date set for such redemption by or pursuant to this
Indenture.

                  "Redemption Price," when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.

                  "Regular Record Date" for the interest payable on any Interest
Payment Date on the Securities of any series means the date specified for that
purpose as contemplated by Section 2.3 (whether or not a Business Day).

                  "Regulation D" means Regulation D under the Securities Act and
any successor thereto, in each case as amended from time to time.

                  "Regulation S" means Regulation S under the Securities Act and
any successor thereto, in each case as amended from time to time.

                  "Regulation S Global Security" means the Temporary Regulation
S Global Security or the Regulation S Unrestricted Global Security, as
applicable.

                  "Regulation S Unrestricted Global Security" has the meaning
specified in Section 2.1.

                  "Relevant Party" means the Partnership, the Company and the
Partners.

                  "Repayment Period" means the one month period beginning with
each Debt Service Payment Date and ending on the date immediately prior to the
next Debt Service Payment Date.

                  "Required Amount Condition" means that any of (i) the undrawn
available amount under the Debt Service Letter of Credit as in effect at the
date of a proposed Distribution, (ii) the Partnership's unrestricted cash or
(iii) the sum of (i) and (ii) equals the aggregate of the Debt Service Payments
due during the six Repayment Periods following the date of such proposed
Distribution.

                  "Required Rating Agencies" means S&P and Moody's.

                  "Required Senior Parties" has the meaning assigned to such
term in the Collateral Agency Agreement.

                  "Responsible Officer" when used with respect to the Trustee,
means any officer within the Institutional Trust Services department (or any


                                    Page 17


successor department or group) of the Trustee, including, without limitation,
any senior trust officer, any trust officer, any vice president, any assistant
vice president, any assistant secretary, or any assistant treasurer or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.

                  "Restricted Global Security" has the meaning specified in
Section 2.1.

                  "Restricted Period" has the meaning specified in Section 2.1.

                  `"Restricted Securities" has the meaning specified in Section
2.2.

                  "Rule 144A" means Rule 144A under the Securities Act and any
rule or regulation successor thereto, in each case as amended from time to time.

                  "Rule 144A Information" has the meaning specified in Section
8.17.

                  "S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill, and its successors.

                  "Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.

                  "Securities Act" means the Securities Act of 1933 and any
statute successor thereto, in each case as amended from time to time.

                  "Security Agreements" means, collectively, the Collateral
Agency Agreement, the Company Security Agreement and the Partnership Security
Agreement.

                  "Securities Account" has the meaning assigned to such term in
the Collateral Agency Agreement.

                  "Securities Percentage" means, at any date of determination,
the ratio (expressed as a percentage) of (a) the aggregate Principal Amount of
Securities Outstanding as at such date to (b) the sum of the then outstanding
Senior Debt.

                  "Security Register" and "Security Registrar" have the
respective meanings specified in Section 2.7.

                  "Senior Debt" has the meaning assigned to such term in the
Collateral Agency Agreement.

                  "Senior Debt Agreements" has the meaning assigned to such term
in the Collateral Agency Agreement.

                  "Senior Officer" means (a) with respect to the Partnership,
the President, any Vice President, Treasurer or Assistant Treasurer of the
Partnership or any Partner and any other individual who is directly responsible
for the general oversight and management of the business of the Partnership
designated in writing to the Trustee by a Senior Officer of the Partnership and
(b) with respect to the Company, the Chairman of the Board, President, any Vice
President, the Treasurer or Assistant Treasurer of the Company and any other
individual who is directly responsible for the general oversight and management
of the business of the Company designated in writing to the Trustee by a Senior
Officer of the Company.

                  "Senior Parties" has the meaning assigned to such term in the
Collateral Agency Agreement.

                  "Shipper Guarantees" means those agreements providing
financial and performance guarantees to certain of the long-term firm
transportation Shippers.

                                    Page 18


                  "Shippers" means those Persons party to the Transportation
Service Agreements with the Partnership.

                  "Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Company pursuant to Section 2.9.

                  "Stated Maturity," when used with respect to any Security or
any installment of principal thereof or interest thereon, means the date
specified in such Security as the fixed date on which the principal of such
Security or such installment of principal or interest is due and payable.

                  "Subsidiary" means, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.

                  "Surrendered Securities" has the meaning specified in Exhibit
D attached hereto.

                  "Temporary Regulation S Global Security" has the meaning
specified in Section 2.1.

                  "Total Capitalization" shall mean, with respect to any Person,
the sum, without duplication, of (i) total common stock equity or analogous
ownership interests of such Person, (ii) preferred stock and preferred
securities of such Person, (iii) additional paid-in capital or analogous
interest of such Person, (iv) retained earnings of such Person and (v) the
aggregate principal amount of Indebtedness of such Person then outstanding.

                  "Transaction Agreements" means, collectively, the Senior Debt
Agreements, the Project Agreements and the Security Agreements.

                  "Transfer" means any (a) direct or indirect sale, pledge,
lease, assignment, transfer, merger, dissolution or other disposition effecting
a transfer of any of a Partner's partnership interest in the Partnership or (b)
a dissolution, wind-up, liquidation or other termination of the existence of the
Partnership.

                  "Transfer Certificate" means a certificate in the form of
Exhibits B, C and D, as applicable.

                  "Transferor" has the meaning specified in Exhibits B-E.

                  "Transportation Service Agreements" means those shipper
contracts pursuant to which the Partnership provides for the transportation of
natural gas for the Shippers.

                  "Trust Indenture Act" means the Trust Indenture Act of 1939 as
in force at the date as of which this instrument was executed.

                  "Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and the "Trustee" means
or includes each Person who is then a Trustee hereunder, and if at any time
there is more than one such Person, "Trustee" as used with respect to the
Securities of any series means the Trustee with respect to Securities of that
series.

                  "U.S. Government Obligation" has the meaning specified in
Section 11.4.

                                    Page 19


                  "Vice President," when used with respect to the Company means
any vice president, whether or not designated by a number or a word or words
added before or after the title "vice president."

                  "Wholly Owned Subsidiary" means, with respect to any Person,
any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.

                  "Williams" means The Williams Companies, Inc.

                  "WWPC" means Williams Western Pipeline Company, LLC, a
subsidiary of Williams and owner of a general partnership interest in the
Partnership with KR Acquisition.

SECTION 1.2.......Compliance Certificates and Opinions. Upon any application or
request by the Company or the Partnership to the Trustee to take any action
under any provision of this Indenture, the Company or the Partnership, as the
case may be, shall furnish to the Trustee such certificates and opinions as may
be reasonably requested by the Trustee. Each such certificate or opinion shall
be given in the form of an Officer's Certificate, if to be given by an officer
of the Company or a Senior Officer of the Partnership, as the case may be, or an
Opinion of Counsel, if to be given by counsel and shall satisfy the requirements
set forth in this Indenture.

                  Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

(a) a statement that each individual signing such certificate or opinion has
read such covenant or condition and the definitions herein relating thereto;

(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based,

(c) a statement that, in the opinion of each such individual, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and

(d) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.

SECTION 1.3.......Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.

                  Any certificate or opinion of an officer of the Company or of
the Partnership may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company or a Senior Officer of the Partnership, as the case may be, stating that
the information with respect to such factual matters is in the possession of the
Company or the Partnership, as the case may be, unless such counsel knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.

                                    Page 20


                  Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.

SECTION 1.4.......Acts of Holders; Record Dates. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given, made or taken by Holders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed in writing,
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company and the Partnership. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 5.1) conclusive in favor of the Trustee, the
Company and the Partnership, if made in the manner provided in this Section.

                  The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.

                  The ownership of Securities shall be proved by the Security
Register.

                  Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee, the
Company or the Partnership in reliance thereon, whether or not notation of such
action is made upon such Security.

                  The Company may set any day as a record date for the purpose
of determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, provided that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take or revoke the relevant action, whether or not such
Holders remain Holders after such record date; provided that no such action
shall be effective hereunder unless taken on or prior to the applicable
Expiration Date (as defined below) by Holders of the requisite principal amount
of Outstanding Securities of such series on such record date. Nothing in this
paragraph shall be construed to prevent the Company from setting a new record
date for any action for which a record date has previously been set pursuant to
this paragraph (whereupon the record date previously set shall automatically and
with no action by any Person be canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Company, at its own expense, shall cause notice
of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Trustee in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 1.6.

                  The Trustee may set any day as a record date for the purpose
of determining the Holders of Outstanding Securities of any series entitled to


                                    Page 21


join in the giving or making of (i) any declaration of acceleration referred to
in Section 4.2, (ii) any request to institute proceedings referred to in Section
4.7(b) or (iii) any direction referred to in Section 4.12, in each case with
respect to Securities of such series. If any record date is set pursuant to this
paragraph, the Holders of Outstanding Securities of such series on such record
date, and no other Holders, shall be entitled to join in such declaration,
request or direction or any revocation thereof, whether or not such Holders
remain Holders after such record date; provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities of such
series on such record date. Nothing in this paragraph shall be construed to
prevent the Trustee from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be canceled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities of the relevant series on the date such action
is taken. Promptly after any record date is set pursuant to this paragraph, the
Trustee, at the Company's expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Company in writing and to each Holder of Securities of the relevant series in
the manner set forth in Section 1.6.

                  With respect to any record date set pursuant to this Section
1.4, the party hereto which sets such record date may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other parties hereto
in writing, and to each Holder of Securities of the relevant series in the
manner set forth in Section 1.6, on or prior to the existing Expiration Date. If
an Expiration Date is not designated with respect to any record date set
pursuant to this Section, the party hereto which set such record date shall be
deemed to have initially designated the 180th day after such record date as the
Expiration Date with respect thereto, subject to its right to change the
Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no
Expiration Date shall be later than the 180th day after the applicable record
date.

                  Without limiting the foregoing, a Holder entitled hereunder to
take any action hereunder with regard to any particular Security may do so with
regard to all or any part of the Principal Amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.

SECTION 1.5.......Notices, Etc., to Trustee, Company and Partnership.  Any
request demand, authorization, direction, notice, consent, waiver or Act of
Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with,

(a) the Trustee by any Holder, by the Company or by the Partnership shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Trustee at its Corporate Trust Office, 450 West 33rd
Street, 15th Floor, New York, NY, 10001, Attention: Institutional Trust
Services, or

(b) the Company by the Trustee, by any Holder or by the Partnership shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the Company
at One Williams Center, Tulsa, Oklahoma, 74102, Attention: Treasurer or at any
other address previously furnished in writing to the Trustee and the
Partnership, or

(c) the Partnership by the Trustee, by any Holder or by the Company shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the
Partnership at 295 Chipeta Way, Salt Lake City, Utah, 84108, Attention: General
Counsel or at any other address previously furnished in writing to the Trustee
and the Company.

SECTION 1.6.......Notice to Holders; Waiver. Where this Indenture provides for


                                    Page 22


notice to Holders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at its address as it
appears in the Security Register, not later than the latest date (if any), and
not earlier than the earliest date (if any), prescribed for the giving of such
notice. In any case where notice to Holders is given by mail neither the failure
to mail such notice, nor any defect in any notice so mailed, to any particular
Holder shall affect the sufficiency of such notice with respect to other
Holders. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.

                  In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.

SECTION 1.7.......Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.

SECTION 1.8.......Successors and Assigns. All covenants and agreements in this
Indenture by the Obligors shall bind their successors and assigns, whether so
expressed or not.

SECTION 1.9.......Separability Clause. In case any provision in this Indenture
or in the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

SECTION 1.10......Benefits of Indenture. Nothing in this Indenture or in the
Securities, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder and the Holders, any benefit or any legal
or equitable right, remedy or claim under this Indenture.

SECTION 1.11......Governing Law. This Indenture and the Securities shall be
governed by and construed in accordance with the laws of the State of New York
without giving effect to the principles thereof relating to conflicts of law
except Section 5-1401 of the New York General Obligation Law.

SECTION 1.12......Legal Holidays. In any case where any Interest Payment Date,
Redemption Date or Stated Maturity of any Security shall not be a Business Day
at any Place of Payment, then (notwithstanding any other provision of this
Indenture or of the Securities (other than a provision of any Security which
specifically states that such provision shall apply in lieu of this Section
1.12)) payment of interest or principal (and premium, if any) need not be made
at such Place of Payment on such date, but may be made on the next succeeding
Business Day at such Place of Payment with the same force and effect as if made
on the Interest Payment Date or Redemption Date or at the Stated Maturity, and
no interest shall accrue on such payment for the period from and after such
date.

SECTION 1.13......Counterparts. This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.

SECTION 1.14......Agency. In executing the Securities and this Indenture, the
Company will be acting both as principal and as agent for the Partnership to the
extent of the Partnership's obligations under the Indenture. As used in this
Indenture, references to the "Company" shall be interpreted to include the
Company in its capacity as principal and the Company in its capacity as agent
pursuant to the Agency Agreement.

                                    Page 23


                                    ARTICLE 2

                                 THE SECURITIES

SECTION 2.1.......Forms Generally. The Securities of each series shall be in
substantially the form set forth in Exhibit A or in such other form as shall,
subject to Section 2.5, be established by or pursuant to an Officer's
Certificate or in one or more indentures supplemental hereto, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any securities exchange or
Depository therefor or as may, consistently herewith, be determined by the
officers executing such Securities as evidenced by their execution thereof.

                  The definitive Securities shall be printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner, all
as determined by the officers executing such Securities, as evidenced by their
execution of such Securities.

                  Except as otherwise provided pursuant to Section 2.3,
Restricted Securities shall bear the applicable legends as set forth in Exhibit
A and as provided in Section 2.2 and Installment Securities shall bear the
following legend:

"THIS SECURITY IS AN INSTALLMENT SECURITY (AS DEFINED IN THE INDENTURE
HEREINAFTER REFERRED TO). ACCORDINGLY, THE FACE AMOUNT HEREOF MAY EXCEED THE
UNPAID PRINCIPAL AMOUNT HEREOF AND ANY TRANSFEREE OF THIS SECURITY MAY NOT RELY
ON THE FACE AMOUNT HEREOF AS EVIDENCE OF THE AMOUNT DUE AND OWING ON THIS
SECURITY BUT IS ADVISED TO DETERMINE SUCH UNPAID PRINCIPAL AMOUNT FROM THE
RECORDS OF THE COMPANY OR ITS PAYING AGENT."

and shall set forth either on the face or the reverse thereof or, if a Global
Security, on a schedule attached thereto, such Security's schedule of principal
installments.

                  Except as otherwise provided pursuant to Section 2.3,
Securities of any series offered and sold in their initial distribution in
reliance on Rule 144A shall be issued in the form of one or more Global
Securities of such series (each a "Restricted Global Security") in definitive,
fully registered form without interest coupons, substantially in the form set
forth in Exhibit A, or in such other form as shall, subject to Section 2.5, be
established by or pursuant to an Officer's Certificate or in one or more
indentures supplemental hereto, with such applicable legends as are provided for
in Exhibit A. Such Global Securities shall be registered in the name of the
Depository for such Global Securities or its nominee and deposited with the
Trustee, at its Corporate Trust Office, as custodian for such Depository, duly
executed on behalf of the Company and authenticated by the Trustee as herein
provided. The aggregate principal amount of any Restricted Global Security may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depository for such Global Security, as
provided in Section 2.7, which adjustments shall be conclusive as to the
aggregate principal amount of any such Global Securities. Except as otherwise
provided pursuant to Section 2.3 or agreed by the Company, no Restricted Global
Security shall be issued except as provided in this paragraph to evidence
Securities offered and sold in their initial distribution in reliance on Rule
144A.

                  Except as otherwise provided pursuant to Section 2.3,
Securities of any series offered and sold in their initial distribution in
reliance on Regulation S under the Securities Act shall be issued initially in
the form of one or more temporary global Securities (a "Temporary Regulation S
Global Security") of such series in definitive, fully registered form without
interest coupons, substantially in the form set forth in Exhibit A, or in such
other form as shall, subject to Section 2.5, be established by or pursuant to an
Officer's Certificate or in one or more indentures supplemental hereto, with
such applicable legends as are provided for in Exhibit A. Such Temporary
Regulation S Global Securities shall be issued to the Depository and registered
in the name of the Depository for such Global Securities or its nominee and
deposited with the Trustee, at its Corporate Trust Office, as custodian for such
Depository, duly executed by the Company and authenticated by the Trustee as
herein provided, for credit to the respective accounts of beneficial owners of
such Securities (or to such other accounts as they may direct) at Euroclear
Bank, S.A./N.V., as operator of Euroclear or Clearstream. Beneficial interests


                                    Page 24


in any Temporary Regulation S Global Security may be held only through Euroclear
or Clearstream. Within a reasonable period of time after the expiration of the
40-day restricted period (within the meaning of Rule 903(c)(3) of Regulation S
under the Securities Act) (the "Restricted Period"), any Temporary Regulation S
Global Security will be exchanged for a permanent Regulation S Global Security
(the "Regulation S Unrestricted Global Security," together with the Temporary
Regulation S Global Security, the "Regulation S Global Security") substantially
in the form set forth in Exhibit A with such applicable legends as are provided
for in Exhibit A, but without the Restricted Securities Legend set forth in
Exhibit A upon delivery to the Depository of certification of non-United States
ownership and compliance with Regulation S under the Securities Act. The
Regulation S Unrestricted Global Security will be deposited with the Trustee at
its Corporate Trust Office, as custodian for the Depository and registered in
the name of the nominee of the Depository. Clearstream and Euroclear will hold
beneficial interests in the Regulation S Unrestricted Global Security on behalf
of their participants through their respective depositories, which in turn will
hold such beneficial interests in the Regulation S Unrestricted Global Security
in participants' securities accounts in the depositories' names on the books of
the Depository. The aggregate principal amount of any Temporary Regulation S
Global Security and any Regulation S Unrestricted Global Security may from time
to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depository for such Global Security, as provided
in Section 2.7, which adjustments shall be conclusive as to the aggregate
principal amount of any such Global Security. As used herein, the term
"Restricted Period," with respect to Global Securities of any series (or of any
identifiable tranche of any series) offered and sold in reliance on Regulation
S, means the period of 40 consecutive days beginning on and including the later
of (i) the day on which the Securities of such series (or tranche) are first
offered to persons other than distributors (as defined in Regulation S) in
reliance on Regulation S (according to a notice to the Company and the Trustee
by the underwriter(s), if any, of the offering of such Securities) and (ii) the
date of the closing of the offering. Except as otherwise provided pursuant to
Section 2.3 or agreed by the Company, no Temporary Regulation S Global Security
or Regulation S Unrestricted Global Security shall be issued except as provided
in this paragraph to evidence Securities offered and sold in their initial
distribution in reliance on Regulation S under the Securities Act.

                  Except as otherwise provided pursuant to Section 2.3,
Securities of any series offered and sold in their initial distribution to a
limited number of institutions that are accredited investors (which are not
qualified institutional buyers, as defined under Rule 144A) within the meaning
of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (and institutions in
which all the equity owners are such accredited investors) (together referred to
as "institutional accredited investors") in transactions exempt from
registration under the Securities Act shall be issued in definitive, fully
registered form without interest coupons, substantially in the form set forth in
Exhibit A, with such applicable legends as are provided for in Exhibit A. Such
Securities shall be delivered to such institutional accredited investors only
upon the execution and delivery to the Company and the underwriter(s), if any,
of the offering of such Securities of a purchaser's letter, substantially in the
form set forth in Exhibit E. Such Securities may not be exchanged for interests
in a Global Security except as provided in Section 2.7(c)(v)(E).

SECTION 2.2.......Legends on Restricted Securities. Except as otherwise provided
pursuant to Section 2.3, all Securities of any series (or any identifiable
tranche of any series) issued pursuant to this Indenture (including Securities
issued upon registration of transfer, in exchange for or in lieu of such
Securities) shall be "Restricted Securities," and shall bear the applicable
legend(s) setting forth restrictions on transfer provided in Exhibit A;
provided, however, that the term "Restricted Securities" shall not include (i)
Temporary Regulation S Global Securities or Regulation S Unrestricted Global
Securities, (ii) Securities as to which such restrictive legend(s) shall have
been removed pursuant to Section 2.7 and (iii) Securities issued upon
registration of transfer of, in exchange for, or in lieu of, Securities that are
not Restricted Securities.

SECTION 2.3.......Amount Unlimited; Issuable in Series. Subject to the
provisions of Section 8.9, the aggregate principal amount of Securities which
may be authenticated and delivered under this Indenture is unlimited.

                                    Page 25


                  The Securities may be issued in one or more series. There
shall be established, subject to Section 2.5, by or pursuant to an Officer's
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of any series,

(a) the title of the Securities of the series (which shall distinguish the
Securities of the series from Securities of any other series);

(b) any limit upon the aggregate principal amount of the Securities of the
series which may be authenticated and delivered under this Indenture (except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities of the series pursuant to Section
2.6, 2.7, 2.8 or 9.7 and except for any Securities which pursuant to Section
2.5, are deemed never to have been authenticated and delivered hereunder);

(c) the Person to whom any interest on a Security of the series shall be
payable, if other than the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest;

(d) the date or dates on which the principal of any Securities of the series is
payable and whether such Securities shall constitute Installment Securities;

(e) the rate or rates at which any Securities of the series shall bear interest,
if any, the date or dates from which any such interest shall accrue, the
Interest Payment Dates on which any such interest shall be payable and the
Regular Record Date for any such interest payable on any interest payment;

(f) the place or places where the principal of and any premium and interest on
any Securities of the series shall be payable;

(g) the period or periods within which, the price or prices at which, and the
terms and conditions upon which, any Securities of the series may be redeemed,
in whole or in part, at the option of the Company and the manner in which any
election by the Company to redeem the Securities shall be evidenced;

(h) the obligation, if any, of the Company to redeem or purchase any Securities
of the series pursuant to any sinking fund or analogous provisions or at the
option of the Holder thereof and the period or periods within which, the price
or prices at which, and the terms and conditions upon which, any Securities of
the series shall be redeemed or purchased, in whole or in part, pursuant to such
obligation;

(i) whether the Securities of the series shall initially be represented by
Global Securities or definitive Securities and, if other than denominations of
$100,000 and any integral multiple of $1,000 in excess thereof, the
denominations in which any Securities of the series shall be issuable;

(j) if the amount of principal of or any premium or interest on any Securities
of the series may be determined with reference to an index or pursuant to a
formula or other measure, the manner in which such amounts shall be determined;

(k) if other than the currency of the United States of America, the currency,
currencies or currency units in which the principal of or any premium or
interest on any Securities of the series shall be payable and the manner of
determining the equivalent thereof in the currency of the United States of
America for any purpose, including for purposes of the definition of
"Outstanding" in Section 1.1;

(l) if the principal of or any premium or interest on any Securities of the
series is to be payable, at the election of the Company or the Holder thereof,
in one or more currencies or currency units other than that or those in which
such Securities are stated to be payable, the currency, currencies or currency
units in which the principal of or any premium or interest on such Securities as
to which such election is made shall be payable, the periods within which and
the terms and conditions upon which such election is to be made and the amount
so payable (or the manner in which such amount shall be determined);

(m) if other than the entire Principal Amount thereof, the portion of the
Principal Amount of any Securities of the series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 4.2;

                                    Page 26


(n) if the Principal Amount payable at the Stated Maturity of any Securities of
the series will not be determinable as of any one or more dates prior to the
Stated Maturity, the amount which shall be deemed to be the Principal Amount of
such Securities as of any such date for any purpose thereunder or hereunder,
including the Principal Amount thereof which shall be due and payable upon any
Maturity other than the Stated Maturity or which shall be deemed to be
Outstanding as of any date prior to the Stated Maturity (or, in any such case,
the manner in which such amount deemed to be the Principal Amount shall be
determined);

(o) if applicable, that the Securities of the series, in whole or any specified
part, shall be defeasible pursuant to Section 11.2 or 11.3 or both such Sections
and the manner in which any election by the Company to defease such Securities
shall be evidenced;

(p) if applicable, that any Securities of the series shall be issuable in whole
or in part in the form of one or more Global Securities and, in such case, the
respective Depositaries for such Global Securities, the form of any legend or
legends which shall be borne by any such Global Security in addition to or in
lieu of that set forth in Exhibit A or pursuant to Section 2.2 and any
circumstances in addition to or in lieu of those set forth in Section 2.7 in
which any such Global Security may be exchanged in whole or in part for
Securities registered and any transfer of such Global Security in whole or in
part may be registered, in the name or names of Persons other than the
Depository for such Global Security or a nominee thereof,

(q) the form of any legend(s) which shall be borne by any Restricted Securities
in addition to or in lieu of that set forth in Exhibit A, any circumstances in
addition to or in lieu of those set forth in Section 2.7 in which such legend(s)
may be removed or modified, and any circumstances in addition to or in lieu of
those set forth in Section 2.7 in which Restricted Securities may be registered
for transfer or may be transferred to a Person who takes delivery thereof in the
form of a beneficial interest in a Global Security and any related certificates
in addition to or in lieu of those set forth in Section 2.13;

(r) any addition to or change in the Events of Default which applies to any
Securities of the series and any change in the right of the Trustee or the
requisite Holders of such Securities to declare the principal amount thereof due
and payable pursuant to Section 4.2;

(s)      any addition to a change in the covenants set forth in Article 8 which
applies to Securities of the series: and

(t) any other terms of the series (which terms shall not be inconsistent with
the provisions of this Indenture, except as permitted by Section 7.1(e)).

                  All Securities of any one series shall be substantially
identical except as to denomination and except as may otherwise be provided by
or pursuant to the Officer's Certificate referred to above or in any such
indenture supplemental hereto.

SECTION 2.4.......Denominations. The Securities of each series shall be issuable
only in registered form without coupons and only in such denominations as shall
be specified as contemplated by Section 2.3. In the absence of any such
specified denomination with respect to the Securities of any series pursuant to
Section 2.3, the Securities of such series shall be issuable in denominations of
$100,000 and any integral multiple of $1,000 in excess thereof. The denomination
of an Installment Security shall be deemed to be the Dollar amount set forth on
the face thereof and not the unpaid Principal Amount thereof. The Dollar amount
set forth on the face of an Installment Security shall be the Principal Amount
of such Security (or any Predecessor Security) upon the original issuance
thereof.

SECTION 2.5.......Execution, Authentication, Delivery and Dating. The Securities
shall be executed on behalf of the Company by a Senior Officer of the Company
and on behalf of the Partnership by a Senior Officer of the Partnership. The
signature of any of these officers on the Securities may be manual or facsimile.

                                    Page 27


                  Securities bearing the manual or facsimile signature of
individuals who were at the time of execution the Senior Officers of the Company
or the Partnership shall bind the Company or the Partnership, as the case may
be, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication and delivery of such Securities or did
not hold such offices at the date of such Securities.

                  At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities of any series
executed by the Company to the Trustee for authentication, together with a
Company Order for the authentication and delivery of such Securities, and the
Trustee in accordance with the Company Order shall authenticate and deliver such
Securities. If the form or terms of the Securities of the series have been
established by or pursuant to an Officer's Certificate as permitted by Sections
2.1 and 2.3, in authenticating such Securities, and accepting any additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 5.1) shall be
fully protected in relying upon, an Opinion of Counsel stating,

(a) that such form has been established in conformity with the provisions of
this Indenture;

(b) that such terms have been established in conformity with the provisions of
this Indenture; and

(c) that such Securities, when authenticated and delivered by the Trustee and
issued by the Company in the manner and subject to any conditions specified in
such Opinion of Counsel, will constitute valid and legally binding obligations
of the Company, enforceable against the Company in accordance with their terms
(subject to customary qualifications or exceptions).

                  The Trustee shall also be entitled to receive an Officer's
Certificate of each of the Company and the Partnership stating that, immediately
after the authentication and delivery of such Securities, no Default or Event of
Default will have occurred.

                  If such form or terms have been so established, the Trustee
shall not be required to authenticate such Securities if the issue of such
Securities pursuant to this Indenture will affect the Trustee's own rights,
duties or immunities under the Securities and this Indenture or otherwise in a
manner which is not reasonably acceptable to the Trustee.

                  Notwithstanding the provisions of Section 2.3 and of the
preceding paragraph, if all Securities of a series are not to be originally
issued at one time, it shall not be necessary to deliver the Officer's
Certificate otherwise required pursuant to Section 2.3 or the Company Order and
Opinion of Counsel otherwise required pursuant to such preceding paragraph at or
prior to the authentication of each Security of such series if such documents
are delivered at or prior to the authentication upon original issuance of the
Security of such series to be issued.

                  Each Security shall be dated the date of its authentication.

                  No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein executed by the Trustee by manual signature of an authorized officer, and
such certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder. Notwithstanding the foregoing, if any Security shall have been
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company shall deliver such Security to the Trustee for cancellation as
provided in Section 2.1, for all purposes of this Indenture such Security shall
be deemed never to have been authenticated and delivered hereunder and shall
never be entitled to the benefits of this Indenture.

SECTION 2.6.......Temporary Securities. Pending the preparation of definitive
Securities of any series, the Company may execute, and upon Company Order the
Trustee shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized


                                    Page 28


denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers of the Company executing the
same may determine, as evidenced by their execution of such Securities.

                  If temporary Securities of any series are issued, the Company
will cause definitive Securities of that series to be prepared without
unreasonable delay. After the preparation of definitive Securities of such
series, the temporary Securities of such series shall be exchangeable for
definitive Securities of such series upon surrender of the temporary Securities
of such series at the office or agency of the Company in a Place of Payment for
that series, without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Securities of any series, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor one or more
definitive Securities of the same series of any authorized denominations and of
like tenor and aggregate principal amount. Until so exchanged, the temporary
Securities of any series shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities of such series and tenor.

SECTION 2.7.......Registration, Registration of Transfer and Exchange.

(a) General. The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office or in any other
office or agency of the Company in a Place of Payment being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities and transfers of
Securities as herein provided.

                  Notwithstanding anything to the contrary set forth herein, the
Trustee shall not be required and shall have no obligation to monitor compliance
with any federal or state securities laws.

                  Upon surrender for registration of transfer of any Security of
a series at the office or agency of the Company in a Place of Payment for that
series, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of the same series, of any authorized denominations and of like
tenor and aggregate principal amount.

                  At the option of the Holder, Securities of any series may be
exchanged for other Securities of the same series, of any authorized
denominations and of like tenor and aggregate principal amount, upon surrender
of the Securities to be exchanged at such office or agency. Whenever any
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive.

                  All Securities issued upon any registration of Transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture as the
Securities surrendered upon such registration of transfer or exchange.

                  Every Security presented or surrendered for registration of
transfer or for exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by the Holder thereof or his attorney duly authorized in
writing.

                  No service charge shall be made for any registration of
Transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 2.6, 7.5 or 9.7 not involving any transfer.

                  If the Securities of any series (or of any series and
specified tenor) are to be redeemed in part, the Company shall not be required
(A) to issue, register the Transfer of, or exchange, any Securities of that
series (or of that series and specified tenor, as the case may be) during a


                                    Page 29


period beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of any such Securities selected for redemption
under Section 9.3 and ending at the close of business on the day of such mailing
or (B) to register the Transfer of or exchange any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.

(b) Restricted Securities. Every Restricted Security shall be subject to the
restrictions on offers provided in the applicable legend(s) required to be set
forth on the face of each Restricted Security pursuant to Exhibit A and Section
2.2 or as provided pursuant to Section 2.3, unless such restrictions on transfer
shall be waived by the written consent of the Company, and the Holder of each
Restricted Security, by such Holder's acceptance thereof, agrees to be bound by
such restrictions on transfer. Whenever any Restricted Security is presented or
surrendered for registration of transfer or for exchange for a Security
registered in a name other than that of the Holder, such Restricted Security
must be accompanied by an appropriately completed certificate in substantially
the form set forth in or contemplated by Section 2.13(d) (which may be attached
to or set forth in the Restricted Security), appropriately completed, dated the
date of such surrender and signed by the Holder of such Restricted Security, as
to compliance with such restrictions on transfer, unless the Company shall have
notified the Trustee pursuant to this Section 2.7 that there is an effective
registration statement under the Securities Act with respect to such Restricted
Security. The Security Registrar shall not be required to accept for such
registration of transfer or exchange any Restricted Security not so accompanied
by a properly completed certificate.

                  Except as otherwise provided in the preceding paragraph or
pursuant to Section 2.3, if Securities are issued upon the transfer, exchange or
replacement of Securities bearing a legend or legends setting forth restrictions
on transfer, or if a request is made to remove such legend(s) on a Security, the
Securities so issued shall bear such legend(s) or such legend(s) shall not be
removed, as the case may be, unless the transferor delivers to the Company such
satisfactory evidence (which may include an opinion of independent counsel
experienced in matters of United States securities law as may be reasonably
satisfactory to the Company), as may be reasonably required by the Company, that
neither such legend(s) nor the restrictions on transfer set forth therein are
required to ensure that transfers thereof comply with the provisions of Rule
144A or Rule 144 or Regulation S under the Securities Act or that such
Securities are not "Restricted Securities" within the meaning of Rule 144 under
the Securities Act. Upon provision of such satisfactory evidence to the Company,
the Trustee, at the written direction of the Company set forth in an Officer's
Certificate, shall authenticate and deliver a Security that does not bear such
legend(s). In the absence of bad faith on its part, the Trustee may conclusively
rely upon such direction of the Company in authenticating and delivering a
Security that does not bear such legend(s).

                  Upon registration of Transfer of or exchange of Securities
that are no longer Restricted Securities, the Company shall execute, and the
Trustee shall authenticate and deliver, a Security that does not bear
restrictive legends.

                  As used in this Section 2.7(b), the term "Transfer"
encompasses any sale, pledge or other transfer of any Securities referred to
herein.

(c) Global Securities. Except as otherwise provided pursuant to Section 2.3,
this Section 2.7(c) shall apply to Global Securities.

     (i) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depository designated for such Global Security or
a nominee thereof and delivered to such Depository or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture. The Securities of each series may
be represented by one or more Global Securities, and such Global Securities may
be Restricted Global Securities, Temporary Regulation S Global Securities or
Regulation S Unrestricted Global Securities, or any combination thereof.

     (ii)  Notwithstanding  any other  provision  in this  Indenture,  no Global
Security may be exchanged in whole or in part for Securities registered,  and no


                                     Page 30


transfer of a Global Security in whole or in part may be in the name of any
Person other than the Depository for such Global Security or a nominee thereof
unless (A) such Depository (1) has notified the Company that it is unwilling or
unable to continue as Depository for such Global Security or (2) has ceased to
be a clearing agency registered under the Exchange Act, and, in either case, a
successor Depository is not appointed within 90 days thereof, (B) the Company
executes and delivers to the Trustee a Company Order providing that such Global
Security shall be so transferable, registrable and exchangeable, (C) there shall
have occurred and be continuing an Event of Default with respect to the
Securities of such series or (D) there shall exist such circumstances if any, in
addition to or in lieu of the foregoing as have been specified for this purpose
by Section 2.3. Any Global Security exchanged pursuant to subclause (A) above
shall be so exchanged in whole and not in part and any Global Security exchanged
pursuant to subclause (B), (C) or (D) above may be exchanged in whole or from
time to time in part as directed by the Depository for such Global Security.
Notwithstanding any other provision in this Indenture, a Global Security to
which the restriction set forth in the second preceding sentence shall have
ceased to apply may be transferred only to, and may be registered and exchanged
for Securities registered only in the name or names of, such Person or Persons
as the Depository for such Global Security shall have directed and no transfer
thereof other than such a transfer may be registered.

     (iii) Subject to clause (ii) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued in
exchange for a Global Security or any portion thereof shall be registered in
such name or names as the Depository for such Global Security shall direct.

     (iv) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Section 2.7, Section 2.6, 2.9 or 9.7 or
otherwise shall be authenticated and delivered in the form of, and shall be, a
Global Security, unless such Security is registered in the name of a Person
other than the Depository for such Global Security or a nominee thereof.

     (v) Except as otherwise provided pursuant to Section 2.3, notwithstanding
any other provision of this Indenture or of the Securities, transfers of
interests in a Global Security of the kind described in Section 2.1 and in
subclauses (B), (C), (D) and (E) of this clause (v) below shall be made only in
accordance with this clause (v), and all transfers of an interest in a Temporary
Regulation S Global Security shall comply with subclause (G) of this clause (v).
The provisions of this clause (v) providing for transfers of Securities of a
series or beneficial interests in Global Securities of such series to Persons
who wish to take delivery in the form of beneficial interests in a Restricted
Global Security, Temporary Regulation S Global Security or Regulation S
Unrestricted Global Security shall only apply if there is a Restricted Global
Security, Temporary Regulation S Global Security or Regulation S Unrestricted
Global Security, as the case may be, for such series.

     (A) Transfer of Global Security. A Global Security may not be transferred,
in whole or in part to any Person other than the Depository or a nominee
thereof, and no such transfer to any such other Person may be registered;
provided that this subclause (A) shall not prohibit any transfer of a Security
that is issued in exchange for a Global Security but is not itself a Global
Security. No transfer of a Security to any Person shall be effective under this
Indenture or the Securities unless and until such Security has been registered
in the name of such Person. Nothing in this Section 2.7 shall prohibit or render
ineffective any transfer of a beneficial interest in a Global Security effected
in accordance with the other provisions of this Section 2.7(c)(v).

     (B) Restricted Global Security to Regulation S Global Security. If the
holder of a beneficial interest in a Restricted Global Security wishes at any
time to transfer such interest to a person who wishes to take delivery thereof
in the form of a beneficial interest in a Regulation S Global Security, such
transfer may be effected, subject to the rules and procedures of the Depository
for such Global Security, Euroclear and Clearstream, in each case to the extent
applicable (the "Applicable Procedures"), only in accordance with the provisions
of this Section 2.7(c)(v)(B). Upon receipt by the Trustee, as Security
Registrar, at the Corporate Trust Office of (1) written instructions given in
accordance with the Applicable Procedures from a member of, or participant in,
the Depository for such Global Security (each, an "Agent Member") directing the


                                     Page 31


Trustee to credit or cause to be credited to a specified Agent Member's account
a beneficial interest in a Regulation S Global Security in a principal amount
equal to that of the beneficial interest in the Restricted Global Security to be
so transferred, (2) a written order given in accordance with the Applicable
Procedures containing information regarding the account of the Agent Member (and
the Euroclear or Clearstream account, as the case may be) to be credited with,
and the account of the Agent Member to be debited for, such beneficial interest
and (3) an appropriately completed certificate in substantially the form set
forth in or contemplated by Section 2.13(a) given by the holder of such
beneficial interest, the Trustee, as Security Registrar, shall instruct the
Depository for such Securities to reduce the principal amount of the Restricted
Global Security, and to increase the principal amount of the Regulation S Global
Security, by the principal amount of the beneficial interest in the Restricted
Global Security to be so transferred, and to credit or cause to be credited to
the account of the Person specified in such instructions (which shall be the
Agent Member for Euroclear or Clearstream or both, as the case may be) a
beneficial interest in the Regulation S Global Security having a principal
amount equal to the amount by which the principal amount of the Restricted
Global Security was reduced upon such transfer.

     (C) [Intentionally Omitted]

     (D) Regulation S Global Security to Restricted Global Security. If the
holder of a beneficial interest in a Regulation S Global Security wishes at any
time to transfer such interest to a Person who wishes to take delivery thereof
in the form of a beneficial interest in a Restricted Global Security, such
transfer may be effected, subject to the Applicable Procedures, only in
accordance with this Section 2.7(c)(v)(D). Upon receipt by the Trustee, as
Security Registrar, at the Corporate Trust Office of (1) written instructions
given in accordance with the Applicable Procedures from an Agent Member
directing the Trustee, as Security Registrar, to credit or cause to be credited
to a specified Agent Member's account a beneficial interest in the Restricted
Global Security equal to that of the beneficial interest in the Regulation S
Global Security to be so transferred, (2) a written order given in accordance
with the Applicable Procedures containing information regarding the account of
the Agent Member to be credited with, and the account of the Agent Member (or,
if such account is held for Euroclear or Clearstream, the Euroclear or
Clearstream account, as the case may be) to be debited for, such beneficial
interest and (3) with respect to a transfer of a beneficial interest in the
Regulation S Global Security, an appropriately completed certificate in
substantially the form set forth in or contemplated by Section 2.13(c) given by
the holder of such beneficial interest, the Trustee, as Security Registrar,
shall instruct the Depository for such Securities to reduce the principal amount
of the Regulation S Global Security and to increase the principal amount of the
Restricted Global Security, by the principal amount of the beneficial interest
in the Regulation S Global Security to be so transferred, and to credit or cause
to be credited to the account of the Person specified in such instructions a
beneficial interest in the Restricted Global Security having a principal amount
equal to the amount by which the principal amount of the Regulation S Global
Security was reduced upon such transfer.

     (E) Restricted Security (other than a Restricted Global Security) to Global
Security. If the Holder of a Restricted Security (other than a Restricted Global
Security) wishes at any time to transfer such Security to a Person who wishes to
take delivery thereof in the form of a beneficial interest in a Restricted
Global Security or an Unrestricted Global Security, such transfer may be
effected, subject to the Applicable Procedures, only in accordance with this
Section 2.7(c)(v)(E). Upon receipt by the Trustee, as Security Registrar, at the
Corporate Trust Office of (1) the Restricted Security to be transferred, (2)
written instructions given in accordance with the Applicable Procedures from an
Agent Member directing the Trustee to credit or cause to be credited to a
specified Agent Member's account a beneficial interest in the Restricted Global
Security or the Unrestricted Global Security, as the case may be, in a principal
amount equal to the principal amount of the Restricted Security to be so
transferred (3) a written order given in accordance with the Applicable
Procedures containing information regarding the account of the Agent Member
(and, in the case of any Transfer pursuant to Regulation S, the Euroclear or
Clearstream account for which such Agent Member's account is held or, if such
account is held for Euroclear or Clearstream, the Euroclear or Clearstream
account, as the case may be) to be credited with such beneficial interest and


                                     Page 32


(4) an appropriately completed certificate in substantially the form set forth
in or contemplated by Section 2.13(d) (which may be attached to or set forth in
the Restricted Security), the Trustee, as Security Registrar, shall cancel the
Restricted Security, the Company shall execute, and the Trustee shall
authenticate and deliver, a new definitive Security for the principal amount, if
any, of the Restricted Security not so transferred, registered in the name of
the Holder transferring such Restricted Security, and the Trustee shall instruct
the Depository for such Securities to increase the principal amount of the
Restricted Global Security or the Unrestricted Global Security, as the case may
be, by the principal amount of the Restricted Security so transferred, and to
credit or cause to be credited to the account of the Person specified in such
instructions (which, in the case of any increase of the principal amount of an
Unrestricted Global Security as the result of a Transfer pursuant to Regulation
S, shall be the Agent Member for Euroclear or Clearstream or both, as the case
may be) a corresponding principal amount of the Restricted Global Security or
the Unrestricted Global Security. The transfer of a Restricted Security to a
Person who wishes to take delivery thereof in the form of a beneficial interest
in a Global Security other than a Restricted Global Security may be effected
only in accordance with Regulation S or Rule 144A under the Securities Act (as
evidenced by the certificate delivered pursuant to Section 2.13(d)).

     (F) Other Exchanges. In the event that a Global Security or any portion
thereof is exchanged for Securities other than Global Securities, the Trustee,
as Security Registrar, shall instruct the Depository for the Global Security to
reduce the principal amount of the Global Security by the principal amount of
the Securities other than Global Securities issued upon such exchange. Such
other Securities may in turn be exchanged (on transfer or otherwise) for
beneficial interests in a Global Security (if any are then outstanding) only in
accordance with such procedures, which shall be substantially consistent with
the provisions of subclauses (A) through (E) above (including the certification
requirements intended to insure that transfers of beneficial interests in a
Global Security comply with Rule 144A, Rule 144 or Regulation S under the
Securities Act, as the case may be) and any other procedures as may be from time
to time adopted by the Company and the Trustee.

     (G) Interests in Temporary Regulation S Global Security to be Held Through
Euroclear or Clearstream. Until the termination of the Restricted Period with
respect to Securities of a series, interests in any Temporary Regulation S
Global Security of such series may be held only through Agent Members acting for
and on behalf of Euroclear and Clearstream, provided that this subclause (G)
shall not prohibit any transfer in accordance with subclause (D) of this Section
2.7(c)(v).

SECTION 2.8.......Mutilated, Destroyed, Lost and Stolen Securities. If any
mutilated Security is surrendered to the Trustee, the Company shall execute and,
upon the Company's request, the Trustee shall authenticate and deliver a new
definitive Security, of like tenor and aggregate principal amount and equal face
amount of principal, registered in the same manner, dated the date of its
authentication and bearing interest from the date to which interest has been
paid on such Security, in exchange and substitution for such Security (upon
surrender and cancellation thereof); provided, that the applicant for such new
Security shall furnish to the Company and to the Trustee such reasonable
security or indemnity as may be required by them to save each of them harmless.

                  If there shall be delivered to the Company and the Trustee (a)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (b) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and, upon the Company's request, the
Trustee shall authenticate and deliver a new definitive Security, of like tenor
and aggregate principal amount and equal face amount of principal registered in
the same manner, dated the date of its authentication and bearing interest from
the date to which interest has been paid on such Security, in lieu of and
substitution for such Security.

                  In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security (without surrender
thereof, except in the case of a mutilated Security) if the applicant for such


                                    Page 33


payment shall furnish to the Company and the Trustee such reasonable security or
indemnity as they may require to save each of them harmless, and in case of
destruction, loss or theft, evidence to the satisfaction of the Company and the
Trustee of the destruction, loss or theft of such Security.

                  Upon the issuance of any new Security under this Section 2.8,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.

                  Every new Security of any series issued pursuant to this
Section 2.8 in lieu of any destroyed, lost or stolen Security shall constitute
an original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities of that series duly issued
hereunder.

                  The provisions of this Section 2.8 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.

SECTION 2.9.......Payments; Interest Rights Preserved. Except as otherwise
provided as contemplated by Section 2.3 with respect to any series of
Securities, interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.

                  Any interest on any Security of any series which is payable;
but is not punctually paid or duly provided for, on any Interest Payment Date
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
Holder on the relevant Regular Record Date by virtue of having been such Holder,
and such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (a) or (b) below:

(a) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series (or their respective
Predecessor Securities) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be set in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security of such series
and the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this clause (a)
provided. Thereupon, the Company shall fix a Special Record Date for the payment
of such Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than 10 days
after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly, in the name and at the expense of the Company, cause
notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be given to each Holder of Securities of such series in the
manner set forth in Section 1.6, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following clause (b).

(b) The Company may make payment of any Defaulted Interest on the Securities of
any series in any other lawful manner not inconsistent with the requirements of
any securities exchange on which such Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause (b), such
manner of payment shall be deemed practicable by the Trustee.

                                    Page 34


                  Subject to the foregoing provisions of this Section 2.9, each
Security delivered under this Indenture upon registration of transfer of, or in
exchange for, or in lieu of, any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.

                  Except as otherwise specified as contemplated by Section 2.3
for the Securities of any series, all payments of principal, premium, if any,
and interest on Securities of such series will be made by check drawn on a bank
in The City of New York or, for a Holder of at least $1,000,000 in initial
aggregate principal amount of Securities of such series, by wire transfer to an
account maintained by the payee with a bank in The City of New York, provided
that a written request from such Holder to such effect designating such account
is received by the Trustee no later than the thirtieth day immediately preceding
the date of payment. Unless such designation is revoked in writing, any
designation made by such Holder with respect to such Securities will remain in
effect with respect to any future payments with respect to such Securities
payable to such Holder. The Company will indemnify and hold the Trustee harmless
against any loss, liability or expense (including attorneys' fees) resulting
from any act or omission to act on the part of the Trustee or any such Holder in
connection with any such designation or which the Paying Agent or Trustee may
incur as a result of making any payment in accordance with any such designation.

                  Except as otherwise specified as contemplated by Section 2.3,
all payments of principal and premium, if any, on the Securities of any series
(other than installments of principal due with respect to Installment Securities
prior to the Maturity thereof) shall be made upon presentation and surrender
thereof at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan, The City of New York.

SECTION 2.10......Persons Deemed Owners. Prior to due presentment of a Security
for registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee shall treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of and any premium and (subject to Section 2.9) any interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.

SECTION 2.11......Cancellation. All Securities surrendered for payment,
redemption, registration of transfer or exchange, or for credit against any
sinking fund payment shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee for cancellation) any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly canceled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
canceled as provided in this Section 2.11, except as expressly permitted by this
Indenture. All canceled Securities held by the Trustee shall be disposed of as
directed by a Company Order.

SECTION 2.12......Computation of Interest. Except as otherwise specified as
contemplated by Section 2.3 for Securities of any series, interest on the
Securities of each series shall be computed on the basis of a 360-day year of
twelve 30-day months.

SECTION 2.13......Certification Forms.

(a) Except as otherwise specified as contemplated by Section 2.3 for the
Securities of any series, whenever any certification is to be given by a
beneficial owner of a portion of a Restricted Global Security pursuant to
Section 2.7(c)(v)(B) in connection with the initial transfer of a beneficial
interest in a Restricted Global Security to a Person who wishes to take delivery
thereof in the form of a beneficial interest in a Regulation S Global Security,
such certification shall be provided substantially in the form set forth in
Exhibit B hereto, with only such changes as shall be approved in writing by the
Company and the lead underwriters or purchasers, if any, of the initial offering
of such Securities being transferred.

                                    Page 35


(b) Intentionally Omitted.

(c) Except as otherwise specified as contemplated by Section 2.3 for the
Securities of any series, whenever any certification is to be given by a
beneficial owner of a portion of a Regulation S Global Security pursuant to
Section 2.7(c)(v)(D) in connection with the initial transfer of a beneficial
interest in the Regulation S Global Security to a Person who wishes to take
delivery thereof in the form of a beneficial interest in the Restricted Global
Security, such certification shall be provided substantially in the form set
forth in Exhibit C hereto, with only such changes as may be approved in writing
by the Company and the lead underwriters or purchasers, if any, of the initial
offering of such Securities being transferred.

(d) Except as otherwise specified as contemplated by Section 2.3 for the
Securities of any series, whenever any certification is to be given by a
beneficial owner of a Restricted Security pursuant to Section 2.7(b) or
2.7(c)(v)(E) in connection with the transfer or exchange of a Restricted
Security, such certification shall be provided substantially in the form set
forth in Exhibit D (which may be attached to or set forth on the Restricted
Security), with only such changes as may be approved in writing by the Company
and the lead underwriters or purchasers, if any, of the initial offering of such
Securities being transferred.

SECTION 2.14......CUSIP Numbers. The Company in issuing the Securities may use
"CUSIP" or"ISIN" numbers (if then generally in use), and, if so, the Trustee
shall use "CUSIP" or "ISIN" numbers in notices of redemption as a convenience to
Holders; provided that the Trustee shall assume no responsibility for the
accuracy of such numbers and any such redemption shall not be affected by any
defect in or omission of such numbers.

                                   ARTICLE 3

                           SATISFACTION AND DISCHARGE

SECTION 3.1.......Satisfaction and Discharge of Indenture. This Indenture shall
upon Company Request cease to be of further effect (except as to any surviving
rights of registration of transfer or exchange of Securities herein expressly
provided for), and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when:

(a) either:

(i)     all Securities theretofore authenticated and delivered (other
        than (A) Securities which have been destroyed, lost or stolen
        and which have been replaced or paid as provided in Section
        2.8 and (B) Securities for whose payment money has theretofore
        been deposited in trust or segregated and held in trust by the
        Company and thereafter repaid to the Company or discharged
        from such trust, as provided in Section 8.4) have been
        delivered to the Trustee for cancellation; or

(ii)    all such Securities not theretofore delivered to the Trustee
        for cancellation

(1)               have become due and payable, or

(2)               will become due and payable at their Stated Maturity within
                  one year, or

(3)               are to be called for redemption within one year under
                  arrangements satisfactory to the Trustee for the giving of
                  irrevocable notice of redemption by the Trustee in the name,
                  and at the expense of the Company,

         and the Company, in the case of (1), (2) or (3) above, has deposited or
         caused to be deposited with the Trustee as trust funds in trust for the
         purpose of making the following payments, specifically pledged as


                                    Page 36


         security for and dedicated solely to, the benefits of the Holders of
         such Securities, money in an amount sufficient to pay and discharge the
         entire indebtedness on such Securities not theretofore delivered to the
         Trustee for cancellation, for principal and any premium and interest to
         the date of such deposit (in the case of Securities which have become
         due and payable) or to the Stated Maturity or Redemption Date, as the
         case may be;

(b) the Company has paid or caused to be paid all other sums payable hereunder
by the Company, and

(c) the Company has delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel, each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.

                  Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company and the Partnership (through Section
12.1) to the Trustee under Section 5.7 and, if money shall have been deposited
with the Trustee pursuant to subclause (ii) of clause (A) of this Section, the
obligations of the Trustee under Section 3.2 and the last paragraph of Section
8.4 shall survive.

                  The provisions of Section 11.6 shall apply to this Section 3.1
as if set forth herein.

SECTION 3.2.......Application of Trust Money. Subject to the provisions of the
last paragraph of Section 8.4, all money deposited with the Trustee pursuant to
Section 3.1 shall be held in trust and applied by it, in accordance with the
provisions of the Securities and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company acting as its own Paying
Agent), to the Persons entitled thereto, of the principal and any premium and
interest for whose payment such money has been deposited with the Trustee.

                                   ARTICLE 4

                                    REMEDIES

SECTION 4.1.......Events of Default. "Event of Default," wherever used herein
with respect to Securities of any series, means any one of the following events
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
or order of any court or any order, rule or regulation of any administrative or
governmental body):

(a)      the Company shall fail to pay (i) any principal or premium, if any, on
         any Security when the same becomes due and payable, whether at stated
         maturity or required prepayment or by acceleration or otherwise and
         such failure shall continue for a period of more than 5 days or (ii)
         any interest on any Security when the same becomes due and payable,
         whether at stated maturity or required prepayment or by acceleration or
         otherwise and such failure shall continue for a period of more than 15
         days; or

(b)      either Obligor shall fail to preserve and maintain its legal existence
         (except as permitted in Article 8); or

(c)      either Obligor shall fail to deposit any sinking fund payment, when and
         as due by the terms of a Security of that series; or

(d)      any representation, warranty or certification made herein or in any
         other Basic Agreement (or in any modification or supplement hereto or
         thereto) by either Obligor or any other Relevant Party, or in any
         certificate furnished to the Trustee or the Collateral Agent pursuant
         to the provisions hereof or thereof, shall prove to have been false as
         of the time made or furnished in any material respect and such
         misrepresentation has resulted in a Material Adverse Effect and shall
         continue uncured for 30 or more days; or

                                    Page 37


(e)      any Relevant Party shall fail to perform or observe any of its
         obligations or covenants contained herein or in any other Basic
         Agreement (or in any modification or supplement hereto or thereto)
         (other than an obligation or covenant, a default in which is otherwise
         expressly included in this Section 4.1), and such failure has resulted
         in a Material Adverse Effect and shall continue uncured for 30 or more
         days; or

(f)      (i) the Partnership shall default in the payment when due of any
         principal of or interest on any of its other Indebtedness aggregating
         at least the greater of (x) $20,000,000, as Escalated, or more and (y)
         5% of the Partnership's aggregate outstanding Indebtedness, (ii) the
         Company shall default in the payment when due of any principal of or
         interest on any of its other Indebtedness or (iii) the Partnership or
         the Company shall default in the payment when due of any secured debt
         secured equally and ratably with the Securities; or any event specified
         in any note, agreement, indenture or other document evidencing or
         relating to any such Indebtedness shall occur if the effect of such
         event is to cause, or (with the giving of any notice or the lapse of
         time or both) to permit the holder or holders of such Indebtedness (or
         a trustee or agent on behalf of such holder or holders) to cause, such
         Indebtedness to become due, or to be prepaid in full (whether by
         redemption, purchase, offer to purchase or otherwise), prior to its
         stated maturity and such event is not cured or waived within 30 days
         after the date of its occurrence or such Indebtedness is accelerated
         prior to the end of such 30-day period.

(g)      the Partnership, the Company or any other Relevant Party shall admit in
         writing its inability to, or be generally unable to, pay its debts as
         such debts become due; or

(h)      the Partnership, the Company or any other Relevant Party shall (i)
         apply for or consent to the appointment of, or the taking of possession
         by, a receiver, custodian, trustee, examiner or liquidator of itself or
         of all or a substantial part of its Property, (ii) make a general
         assignment for the benefit of its creditors, (iii) commence a voluntary
         case under the Bankruptcy Code, (iv) file a petition seeking to take
         advantage of any other law relating to bankruptcy, insolvency,
         reorganization, liquidation, dissolution, arrangement or winding-up, or
         composition or readjustment of debts, (v) fail to controvert in a
         timely and appropriate manner, or acquiesce in writing to, any petition
         filed against it in an involuntary case under the Bankruptcy Code or
         (vi) take any corporate action authorizing any of the foregoing; or

(i)      a proceeding or case shall be commenced without the application or
         consent of the affected Relevant Party, in any court of competent
         jurisdiction, seeking (x) its reorganization, liquidation, dissolution,
         arrangement or winding-up, or the composition or readjustment of its
         debts, (y) the appointment of a receiver, custodian, examiner,
         liquidator or the like of such Relevant Party or of all or any
         substantial part of its Property or (z) similar relief in respect of
         such Relevant Party under any law relating to bankruptcy, insolvency,
         reorganization, winding-up, or composition or adjustment of debts, and
         such proceeding or case shall continue undismissed, or an order,
         judgment or decree approving or ordering any of the foregoing shall be
         entered and continue unstayed and in effect, for a period of 60 or more
         consecutive days;

(j)      a final judgment or judgments for the payment of money, in the
         aggregate, in excess of the greater of (x) $20,000,000, as Escalated,
         and (y) 5% of the Gross Book Value of the Partnership, shall be
         rendered by one or more courts, administrative tribunals or other
         bodies having jurisdiction against the Partnership or the Company and
         the same shall not be discharged (or provision shall not be made for
         such discharges or a stay of execution thereof shall not be procured),
         within 60 days from the date of entry thereof and such Obligor shall
         not, within said period of 60 days, or such longer period during which
         execution of the same shall have been stayed, appeal therefrom and
         cause the execution thereof to be stayed during such appeal; or

                                    Page 38


(k)      one or more of the Basic Agreements (other than the Indenture) shall
         fail to be in full force and effect (unless such failure is the result
         of a termination of such Basic Agreement in accordance with its terms
         (other than a termination due to a default by a party to such Basic
         Agreement) and such failure continues for more than 30 days (provided
         that, if efforts to cure such default have been commenced within such
         30-day period, such cure period shall be extended for an additional 30
         days so long as no other Event of Default shall occur and be continuing
         and the Partnership, or the Company, as applicable, is diligently
         pursuing such cure) unless immediately after giving effect to such
         failure to be in full force and effect there shall be No Ratings
         Downgrade; or

(l)      If:

(i)      any party (other than the Partnership) to a Project Agreement (other
         than an LTFT Agreement or a Shipper Guaranty) shall default in the
         performance of any term, covenant or agreement contained in such
         Project Agreement, (and such default shall continue uncured for the
         length of the applicable cure period set forth in such Project
         Agreement or a Shipper Guaranty), and such party shall not have been
         replaced within 90 days of such default with a Person capable of
         performing such term, covenant or agreement; or

(ii)     any Project Agreement (other than an LTFT Agreement) shall become
         invalid, illegal or unenforceable, or shall cease, for any reason, to
         be in full force and effect in all material respects, and such Project
         Agreement shall not have been replaced within 90 days of such
         cessation;

and, in either case, the failure to make such replacement could reasonably be
expected to result in a Material Adverse Effect; or

(m) any of the Liens created by the Security Agreements shall at any time not
constitute a valid and perfected Lien on the collateral intended to be covered
thereby (to the extent perfection by filing, registration, recordation or
possession is required herein or therein) in favor of the Collateral Agent free
and clear of all other Liens (other than Liens permitted under Section 8.8), or,
except for expiration in accordance with its terms, any of the Security
Agreements shall for whatever reason be terminated or cease to be in full force
and effect, or the enforceability thereof shall be contested by either Obligor
and any such event shall remain uncured for a period of 15 days; or

(n) the Company shall cease to be a wholly owned Subsidiary of the Partnership;
or

(o) any other Event of Default provided with respect to Securities of that
series.

                  Any Partner shall have the right, but not the obligation, to
cure any payment default in clauses (a), (e), (f) or (j) above, including the
Partnership's payment obligations under Article 12 herein, within the respective
grace period set forth in such clauses and, if such payment default is cured,
such payment default shall not constitute an Event of Default under this
Indenture.

SECTION 4.2.......Acceleration of Maturity; Rescission and Annulment. If an
Event of Default (other than an Event of Default specified in Section 4.1(g),
(h) or (i)) with respect to Securities of any series at the time Outstanding
occurs and is continuing, then in every such case the Trustee or the Holders of
not less than 25% in Principal Amount of the Outstanding Securities of that
series may declare the unpaid Principal Amount (including any premium) of all
the Securities of that series (or, if any Securities of that series are Original
Issue Discount Securities, such portion of the Principal Amount (and premium) of
such Securities as may be specified by the terms thereof) to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee, if given
by Holders), and upon any such declaration such Principal Amount (and premium)
shall become immediately due and payable. If an Event of Default specified in
Section 4.1(g), (h) or (i) with respect to Securities of any series at the time
Outstanding occurs, the principal amount of all the Securities of that series
(or, if any Securities of that series are Original Issue Discount Securities,


                                    Page 39


such portion of the principal amount of such Securities as may be specified by
the terms thereof) shall automatically, and without any declaration or other
action on the part of the Trustee or any Holder, become immediately due and
payable. In either such case, the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities may then send a Default Notice
pursuant to the Collateral Agency Agreement requesting the Collateral Agent to
take action against the Collateral. Such request is subject to approval by the
Required Senior Parties.

                  At any time after such a declaration of acceleration with
respect to Securities of any series has been made and before a judgment or
decree for payment of the money due has been obtained by the Trustee as
hereinafter in this Article 4 provided, the Holders of a majority in Principal
Amount of the Outstanding Securities of that series, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:

(a) there has been paid or deposited with the Trustee a sum sufficient to pay
the aggregate of:

(i)      all overdue interest on all Securities of that series,

(ii)     the principal of (and premium, if any, on) any Securities of that
         series which have become due otherwise than by such declaration of
         acceleration and any interest thereon at the rate or rates prescribed
         therefor in such Securities,

(iii)    to the extent that payment of such interest is lawful, interest upon
         overdue interest at the rate or rates prescribed therefor in such
         Securities, and

(iv)     all sums paid by the Trustee hereunder and the reasonable compensation,
         expenses and disbursements of the Trustee, its agents and counsel;

                  and

(b) all Events of Default with respect to Securities of that series, other than
the non-payment of the principal of Securities of that series which have become
due solely by such declaration of acceleration, have been cured or waived as
provided in Section 4.13.

                  No such rescission shall affect any subsequent default or
impair any right consequent thereon.

SECTION 4.3.......Collection of Indebtedness and Suits for Enforcement by
Trustee.  The Company covenants that if:

(a) default is made in the payment of any interest on any Security when such
interest becomes due and payable and such default continues for a period of 15
days and such default is not cured by any Partner pursuant to Section 4.1(a), or

(b) default is made in the payment of the principal of (or premium, if any, on)
any Security at the Maturity thereof and such default continues for a period of
5 days and such default is not cured by any Partner pursuant to Section 4.1(a),
then the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Security the whole amount then due and payable on
such Securities for principal and any premium and interest and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal and premium and on any overdue interest (if any), at the rate
or rates prescribed therefor in such Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses and disbursements of
the Trustee, its agents and counsel.

                  If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon such Securities


                                    Page 40


and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon such
Securities, wherever situated, subject to the Collateral Agency Agreement.

                  If an Event of Default with respect to Securities of any
series occurs and is continuing, the Trustee may, subject to Section 4.12, in
its discretion proceed to protect and enforce its rights and the rights of the
Holders of Securities of such series by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.

SECTION 4.4.......Trustee May File Proofs of Claim. In case of any judicial
proceeding relative to the Company or the Partnership (or any other obligor upon
the Securities), its property or its creditors, the Trustee shall be entitled
and empowered, by intervention in such proceeding or otherwise, to file and
prove a claim for the whole amount of principal, premium, if any, and any
interest owing and unpaid in respect of the Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses
and disbursements of the Trustee, its agents and counsel) and of the Holders
allowed in any such judicial proceeding. In particular, the Trustee shall be
authorized to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses and disbursements of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 5.7.

                  No provision of this Indenture shall be deemed to authorize
the Trustee (x) to authorize, consent to, accept, or adopt on behalf of any
Holder, any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof or to (y) to vote
in respect of the claim of any Holder in any such proceeding; provided however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.

SECTION 4.5.......Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be
prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses and disbursements of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Securities in respect of which such judgment has been recovered.

SECTION 4.6.......Application of Money Collected. Any money collected by the
Trustee pursuant to this Article 4 or the Collateral Agency Agreement shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or any premium
or interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:

                  FIRST, to the payment of all amounts due the Trustee under
          Section 5.7;

                  SECOND, to the payment of the amounts then due and unpaid for
          principal of and any premium and interest on the Securities in respect
          of which or for the benefit of which such money has been collected
          ratably, without preference or priority of any kind, according to the
          amounts due and payable on such Securities for principal and any
          premium and interest, respectively; and

                  THIRD, if any such money shall remain after the distributions
          set forth in priorities FIRST and SECOND, to the Company.

                                    Page 41


SECTION 4.7.......Limitation on Suits. No Holder of any Security of any series
shall have any right to institute any proceeding, judicial or otherwise, with
respect to the Securities of such series or this Indenture, or for the
appointment of a receiver or for any other remedy hereunder, unless:

(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;

(b) the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series shall have made a written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;

(c) such Holder or Holders have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request;

(d) the Trustee for 60 days after its receipt of such notice, request and offer
of indemnity has failed to institute any such proceeding; and

(e) no written direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
Principal Amount of the Outstanding Securities of that series;

it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.

SECTION 4.8.......Unconditional Right of Holders to Receive Principal, Premium
and Interest. Notwithstanding any other provision in this Indenture, the Holder
of any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, premium, if any, and (subject to Section
2.9) interest on such Security on the respective Stated Maturities expressed in
such Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.

SECTION 4.9.......Restoration of Rights and Remedies. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then and in
every such case, subject to any determination in such proceeding, the Company,
the Partnership, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.

SECTION 4.10......Rights and Remedies Cumulative. Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities in the last paragraph of Section 2.8 and subject to Section
4.7, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.

SECTION 4.11......Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder of any Securities to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article 4 or by law to the Trustee or to
the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.

                                    Page 42


SECTION 4.12......Control by Holders. The Holders of a majority in principal
amount of the Outstanding Securities of any series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the Securities of such series, provided that

(a) such direction shall not be in conflict with any rule of law or with this
Indenture, and would not involve the Trustee in personal liability.

(b) the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction, provided, further, that, any trust or
power conferred on the Trustee in its capacity as representative of the Holders
as Partnership Senior Parties or Funding Senior Parties (as such terms are
defined in the Collateral Agency Agreement), shall be exercisable at the
direction of the Holders in accordance with Section 5.13 and not in accordance
with this Section 4.12.

SECTION 4.13......Waiver of Past Defaults. The Holders of not less than a
majority in principal amount of the Outstanding Securities of any series may on
behalf of the Holders of all the Securities of such series waive any past
default hereunder with respect to such series and its consequences, except a
default:

(a) in the payment of the principal of, premium, if any, or interest on any
Security of such series; or

(b) in respect of a covenant or provision hereof which under Article 7 cannot be
modified or amended without the consent of the Holder of each Outstanding
Security of such series affected.

                  Upon any such waiver, such default shall cease to exist, the
Company, the Partnership, the Trustee and the Holders of the Securities of that
series shall be restored to their former positions and rights hereunder, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.

SECTION 4.14......Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, a court may require any
party litigant in such suit to file an undertaking to pay the costs of such
suit, and may assess costs against any such party litigant, having due regard to
the merits and good faith of the claims or default made by such party litigant;
provided, that the provisions of this Section 4.14 shall not apply to any suit
instituted by the Trustee or to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in principal amount of the
Outstanding Securities of any series, or to any suit instituted by any Holder of
any Security for the enforcement of the payment of the principal of, premium, if
any, or interest on such Security on or after the Stated Maturity thereof
(including, in the case of redemption, on or after the Redemption Date).

SECTION 4.15......Waiver of Usury, Stay or Extension Laws. Each Obligor
covenants (to the extent that each may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury, stay or extension law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture or any obligations arising under the Securities of
any series issued hereunder, and each Obligor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

SECTION 4.16......Securities Held by Certain Persons Not to Share in
Distribution. Any Securities known to a Responsible Officer of the Trustee
assigned to its Institutional Trust Services department (or any successor
department or group) to be owned or held by, or for the account or benefit of,
the Company or the Partnership or an Affiliate of either thereof shall not be


                                    Page 43


entitled to share in any payment or distribution provided for in this Article 4
until all Securities held by other Persons have been indefeasibly paid in full.

SECTION 4.17......The Collateral Agency Agreement. Simultaneously with the
execution and delivery of this Indenture, the Trustee shall enter into the
Collateral Agency Agreement. All rights and remedies available to the Trustee
and the Holders of the Outstanding Securities, and all future Holders of any of
the Securities, with respect to the Collateral, or otherwise pursuant to the
Security Agreements, shall be subject to the Collateral Agency Agreement.

                                   ARTICLE 5

                                   THE TRUSTEE

SECTION 5.1.......Certain Duties and Responsibilities.

(a)      Except during a continuance of an Event of Default:

(i)      the Trustee undertakes to perform such duties and only such duties as
         are specifically set forth in this Indenture and the Collateral Agency
         Agreement, and no implied covenants or obligations shall be read into
         this Indenture and the Collateral Agency Agreement against the Trustee;
         and

(ii)     in the absence of bad faith on its part, the Trustee may conclusively
         rely, as to the truth of the statements and the correctness of the
         opinions expressed therein, upon certificates, requests, orders or
         opinions furnished to the Trustee and conforming to the requirements of
         this Indenture and the Collateral Agency Agreement, as applicable; but
         in the case of any such certificates or opinions which by any provision
         hereof or of the Collateral Agency Agreement are specifically required
         to be furnished to the Trustee, the Trustee shall be under a duty to
         examine the same to determine whether or not they conform to the
         requirements of this Indenture, but need not verify the contents
         thereof.

(b)      In case an Event of Default has occurred and is continuing, the Trustee
         shall exercise such of the rights and powers vested in it by this
         Indenture and the Collateral Agency Agreement, and use the same degree
         of care and skill in their exercise, as a prudent man would exercise or
         use under the circumstances in the conduct of his own affairs.

(c)      No provision of this Indenture shall be construed to relieve the
         Trustee from liability for its own negligent action, its own negligent
         failure to act or its own wilful misconduct, except that:

(i)      this clause (c) shall not be construed to limit the effect of clause
         (a) of this Section 5.1;

(ii)     the Trustee shall not be liable for any error of judgment made in good
         faith by a Responsible Officer, unless it shall be proved that the
         Trustee was negligent in ascertaining the pertinent facts;

(iii)    the Trustee shall not be liable with respect to any action taken or
         omitted to be taken by it in good faith in accordance with the
         direction of the Holders of a majority in Principal Amount (or such
         other amount as may be provided in or pursuant to this Indenture) of
         the Outstanding Securities of any series relating to the time, method
         and place of conducting any proceeding for any remedy available to the
         Trustee or exercising any trust or power conferred upon the Trustee
         under this Indenture or the Collateral Agency Agreement; and

(iv)     no provision of this Indenture or the Collateral Agency Agreement shall
         require the Trustee to expend or risk its own funds or otherwise incur
         any financial liability in the performance of any of its duties
         hereunder, or in the exercise of any of its rights or powers, if it
         shall have reasonable grounds for believing that repayment of such
         funds or adequate indemnity against such risk or liability is not
         reasonably assured to it (including, without limitation, adequate
         indemnity reasonably satisfactory to the Trustee against any


                                    Page 44


         environmental liabilities against the Trustee arising out of the
         performance of its duties hereunder and under the Collateral Agency
         Agreement).

(d)      Whether or not therein expressly so provided, every provision of this
         Indenture or the Collateral Agency Agreement relating to the conduct or
         affecting the liability of or affording protection to the Trustee shall
         be subject to the provisions of this Section 5.1.

SECTION 5.2.......Notice of Defaults. Within 90 days after the occurrence of any
default hereunder, the Trustee shall transmit by mail to all Holders, as their
names and addresses appear in the Security Register, notice of such default
hereunder known to the Trustee, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of or interest on any Security, the Trustee shall be protected
in withholding such notice if and so long as a Responsible Officer of the
Trustee in good faith determines that the withholding of such notice is in the
best interests of the Holders. For the purpose of this Section 5.2, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.

SECTION 5.3.......Certain Rights of Trustee.  Subject to the provisions of
Section 5.1:

(a) the Trustee may rely and shall be protected in acting or refraining from
acting upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;

(b) any request or direction of the Company or the Partnership mentioned herein
shall be sufficiently evidenced by an Officer's Certificate, or, in the case of
the Company, a Company Request or Company Order;

(c) whenever in the administration of this Indenture or the Collateral Agency
Agreement the Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting to take any action hereunder
or under the Collateral Agency Agreement, the Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate;

(d) the Trustee may consult with counsel, and the written advice of such counsel
or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;

(e) the Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by this Indenture or the Collateral Agency Agreement at the
request or direction of any of the Holders pursuant to this Indenture or the
Collateral Agency Agreement, unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;

(f) the Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company or the Partnership, as applicable,
personally or by agent or attorney; and

(g) the Trustee may execute any of the trusts or powers hereunder or perform any
duties hereunder or under the Collateral Agency Agreement either directly or by
or through agents or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with due
care by it hereunder.

                                    Page 45


SECTION 5.4.......Not Responsible for Recitals or Issuance of Securities. The
recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company
or the Partnership, as applicable, and neither the Trustee nor any
Authenticating Agent assumes any responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or the Securities or any Collateral or Lien thereon or any Security
Agreement. Neither the Trustee nor any Authenticating Agent shall be accountable
for the use or application by the Company of Securities or the proceeds thereof.
The Trustee shall not be charged with knowledge of any Default or Event of
Default unless a Responsible Officer of the Trustee assigned to its
Institutional Trust Services department (or any successor department or group)
shall have actual knowledge thereof or shall have received written notice
thereof in accordance with Section 1.5 from the Company, the Partnership, the
Collateral Agent or any Holder. The Trustee shall not be responsible for
perfecting or maintaining the perfection of the Lien on the Collateral or for
filing, refiling or recording any document, notice or instrument in any public
office at any time. The Trustee shall not be responsible for calculating the
Economic Make-Whole Premium. The Trustee makes no representations as to the
value or condition of the Collateral or any part thereof, or as to the title of
the Partnership or the Company thereto or as to the security afforded by the
Security Agreements, or as to the validity, execution (except its own
execution), enforceability, priority, perfection, legality or sufficiency of the
Security Agreements or any Senior Debt Agreement, and the Trustee shall incur no
liability or responsibility in respect of any such matters. The Trustee shall
not be responsible for insuring the Collateral or any other Property or for
determining whether the Collateral or any other Property is properly insured or
for the payment of taxes, charges, assessments or liens upon the Collateral or
otherwise as to the maintenance of the Collateral.

SECTION 5.5.......May Hold Securities. The Trustee, any Authenticating Agent,
any Paying Agent, any Security Registrar or any other agent of the Company or
the Partnership, in its individual or any other capacity, may become the owner
or pledgee of Securities and may otherwise deal with the Company and the
Partnership with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.

SECTION 5.6.......Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Company.

SECTION 5.7.......Compensation and Reimbursement.  The Company agrees:

(a) to pay to the Trustee (all references in this Section 5.7 to the Trustee
shall be deemed to apply to the Trustee in its capacities as Trustee, Paying
Agent and Securities Registrar) from time to time such compensation as shall be
agreed to in writing for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);

(b) except as otherwise expressly provided herein or in any written agreement
between the Trustee and the Company, to reimburse the Trustee upon its request
for all reasonable and documented (in accordance with the standard practices of
the Trustee) expenses and disbursements incurred or made by the Trustee in
accordance with any provision of this Indenture or the Collateral Agency
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense or
disbursement as may be attributable to its negligence or bad faith;

(c) to indemnify the Trustee for, and to hold it harmless against, any loss,
liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
trust or trusts hereunder or in connection with the Securities of any series,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder or under the Collateral Agency Agreement; and

(d) the obligations of the Company under this Section 5.7 to compensate the
Trustee, to pay or reimburse the Trustee for expenses and disbursements and to


                                    Page 46


indemnify and hold harmless the Trustee shall constitute additional indebtedness
hereunder and shall survive the satisfaction and discharge of this Indenture.

                  Without prejudice to any other rights available to the Trustee
under applicable law, when the Trustee incurs expenses or renders services after
the occurrence of an Event of Default under Section 4.1(g), (h) or (i), the
parties hereto and the Holders by their acceptance of the Securities hereby
agree that the expenses and the compensation for the services of the Trustee are
intended to constitute expenses of administration under any applicable
bankruptcy law.

                  If the Trustee (or an agent thereof) takes title to the assets
of the Company or the Partnership pursuant to a foreclosure proceeding (as used
in this Section 5.7(d), a "Transfer"), then the Company and the Partnership will
indemnify the Trustee for liabilities arising out of any violation of
environmental law by the Company or the Partnership, as the case may be, whether
known at the time of the Transfer or discovered subsequent to the Transfer, with
respect to such assets that resulted from action occurring prior to the
Transfer. The foregoing indemnity shall be for the sole benefit of the Trustee
(and any agent thereof who takes title to assets of the Company or the
Partnership, as the case may be, in a foreclosure proceeding) and rights
thereunder may not be assigned or otherwise transferred other than to a
successor Trustee hereunder. Holders of Securities shall not have any rights
under the foregoing indemnity.

SECTION 5.8.......Corporate Trustee Required; Eligibility. There shall at all
times be one (and only one) Trustee hereunder with respect to the Securities of
each series, which may be Trustee hereunder for Securities of one or more other
series. Each Trustee shall be a corporation organized and doing business under
the laws of the United States of America, any State thereof or the District of
Columbia, authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of at least $100,000,000 and subject to
supervision or examination by Federal or State authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then, for the purposes
of this Section 5.8, the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee with respect to the
Securities of any series shall cease to be eligible in accordance with the
provisions of this Section 5.8, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article 5.

SECTION 5.9.......Resignation and Removal; Appointment of Successor. No
resignation or removal of the Trustee and no appointment of a successor Trustee
pursuant to this Article 5 shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 5.10.

                  The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to the
Company. If the instrument of acceptance by a successor Trustee required by
Section 5.10 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may at the
expense of the Company petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.

                  The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Company.

                  If at any time:

(a) the Trustee shall cease to be eligible under Section 5.8 and shall fail to
resign after written request therefor by the Company or by any Holder; or

(b) the Trustee shall be incapable of acting or shall be adjudged as bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its


                                    Page 47


property or affairs for the purpose of rehabilitation, conservation or
liquidation;

then, in any such case, (A) the Company by an Officer's Certificate may remove
the Trustee with respect to all Securities, or (B) subject to Section 4.14, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.

                  If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause,
with respect to the Securities of one or more series, the Company, by an
Officer's Certificate, shall promptly appoint a successor Trustee or Trustees
with respect to the Securities of that or those series (it being understood that
any such successor Trustee may be appointed with respect to the Securities of
one or more or all of such series and that at any time there shall be only one
Trustee with respect to the Securities of any particular series) and shall
comply with the applicable requirements of Section 5.10. If, within one year
after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee with respect to the Securities of any series shall
be appointed by Act of the Holders of a majority in Principal Amount of the
Outstanding Securities of such series delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment in accordance with the applicable requirements of Section
5.10, become the successor Trustee with respect to the Securities of such series
and to that extent supersede the successor Trustee appointed by the Company. If
no successor Trustee with respect to such Securities of any series shall have
been so appointed by the Company or the Holders and accepted appointment in the
manner required by Section 5.10, any Holder who has been a bona fide Holder of a
Security of such series for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.

                  The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
to all Holders of Securities of such series in the manner provided in Section
1.6. Each notice shall include the name of the successor Trustee with respect to
the Securities of such series and the address of its Corporate Trust Office.

SECTION 5.10......Acceptance of Appointment by Successor. In case of the
appointment hereunder of a successor Trustee with respect to all Securities,
every such successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trust and shall duly assign, transfer
and deliver to such successor Trustee all property and money held by such
retiring Trustee hereunder.

                  In case of the appointment hereunder of a successor Trustee
with respect to the Securities of one or more (but not all) series, the Company,
the Partnership, the retiring Trustee and each successor Trustee with respect to
the Securities of one or more series shall execute and deliver an indenture
supplemental hereto wherein each successor Trustee shall accept such appointment
and which (a) shall contain such provisions as shall be necessary or desirable
to transfer and confirm to, and to vest in, each successor Trustee all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates, (b) if the retiring Trustee is not retiring with respect to all
Securities, shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series as to
which the retiring Trustee is not retiring shall continue to be vested in the


                                    Page 48


retiring Trustee, and (c) shall add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the administration
of the trusts hereunder by more than one Trustee, it being understood that
nothing herein or in such supplemental indenture shall constitute such Trustee's
co-trustees of the same trust and that each such Trustee shall be trustee of a
trust or trusts hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee; and, upon the execution and delivery of
such supplemental indenture, the resignation or removal of the retiring Trustee
shall become effective to the extent provided therein and each such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee with respect
to the Securities of that or those series to which the appointment of such
successor Trustee relates; but, on request of the Company or any successor
Trustee, such retiring Trustee shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee hereunder
with respect to the Securities of that or those series to which the appointment
of such successor Trustee relates.

                  Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in the first or second preceding paragraph, as the case may be.

                  No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be eligible under this
Article.

SECTION 5.11......Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder (provided such
corporation shall be otherwise eligible under this Article 5), without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Securities so authenticated with the same effect as if such
successor Trustee had itself authenticated such Securities.

SECTION 5.12......Appointment of Paying Agent and Authenticating Agent. (a)There
shall at all times be a Paying Agent hereunder. In addition, the Trustee may
appoint an Authenticating Agent or Agents with respect to one or more series of
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities of such series issued upon exchange, registration of
transfer or partial redemption thereof or pursuant to Section 2.8, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. The Paying Agent and all Authenticating Agents shall
herein be referred to individually as an "Authorized Agent" and collectively as
the "Authorized Agents."

(b)      Each Authorized Agent shall be acceptable to the Company and shall at
         all times be a corporation organized and doing business under the laws
         of the United States of America, any State thereof or the District of
         Columbia, authorized under such laws to act as such Authorized Agent,
         having a combined capital and surplus of not less than $50,000,000 and
         subject to supervision or examination by Federal or State authority. If
         such Authorized Agent publishes reports of condition at least annually,
         pursuant to law or to the requirements of said supervising or examining
         authority, then, for the purposes of this Section 5.12, the combined
         capital and surplus of such Authorized Agent shall be deemed to be its
         combined capital and surplus as set forth in its most recent report of
         condition so published. If at any time an Authorized Agent shall cease


                                    Page 49


         to be eligible in accordance with the provisions of this Section 5.12,
         such Authorized Agent shall resign immediately in the manner and with
         the effect specified in this Section 5.12.

(c)      Any corporation into which an Authorized Agent may be merged or
         converted or with which it may be consolidated, or any corporation
         resulting from any merger, conversion or consolidation to which such
         Authorized Agent shall be a party, or any corporation succeeding to the
         corporate agency or corporate trust business of an Authorized Agent,
         shall continue to be an Authorized Agent (provided such corporation
         shall be otherwise eligible under this Section 5.12), without the
         execution or filing of any paper or any further act on the part of the
         Trustee or such Authorized Agent.

(d)      Any Paying Agent (other than the Trustee) from time to time appointed
         hereunder shall execute and deliver to the Trustee an instrument in
         which said Paying Agent shall agree with the Trustee, subject to the
         provisions of this Section 5.12, that such Paying Agent will:

(i)      hold all sums held by it for the payment of principal of, and premium,
         if any, and interest on Securities in trust for the benefit of the
         Persons entitled thereto until such sums shall be paid to such Persons
         or otherwise disposed of as herein provided;

(ii)     give the Trustee within five days thereafter notice of any default by
         any obligor upon the Securities in the making of any such payment of
         principal, premium, if any, or interest; and

(iii)    at any time during the continuance of any such default, upon the
         written request of the Trustee, forthwith pay to the Trustee all sums
         so held in trust by such Paying Agent.

Notwithstanding any other provision of this Indenture any payment required to be
made to or received or held by the Trustee may, to the extent authorized by
written instructions of the Trustee, be made to or received or held by a Paying
Agent in the Borough of Manhattan, the City of New York, for the account of the
Trustee.

(e) An Authorized Agent may resign at any time by giving written notice thereof
to the Trustee and to the Company. The Trustee may at any time terminate the
agency of an Authenticating Agent by giving written notice thereof to such
Authorized Agent and to the Company and the Company may at any time terminate
the agency of a Paying Agent by giving written notice thereof to such Authorized
Agent and to the Trustee. Upon receiving such a notice of resignation or upon
such a termination, or in case at any time such Authenticating Agent shall cease
to be eligible in accordance with the provisions of this Section 5.12, the
Trustee may appoint a successor Authenticating Agent which shall be acceptable
to the Company and the Company may appoint a successor Paying Agent and give
notice of such appointment to the Trustee and the Trustee, in the case of an
Authenticating Agent, and the Company, in the case of a Paying Agent, shall give
notice of such appointment in the manner provided in Section 1.6 to all Holders
of Securities of the series with respect to which such Authorized Agent will
serve. Any successor Authorized Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as such
Authorized Agent. No successor Authorized Agent shall be appointed unless
eligible under the provisions of this Section 5.12.

(f) The Company agrees to pay to each Authorized Agent from time to time
reasonable compensation for its services under this Section 5.12.

(g) If an appointment of an Authenticating Agent with respect to one or more
series is made pursuant to this Section 5.12, the Securities of such series may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, a certificate of authentication in the following form:

                                    Page 50


         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

                                 The Chase Manhattan Bank, as Trustee

                                 By____________________________
                                    As Authenticating Agent

                                 By____________________________
                                    As Authenticating Agent

                  If all of the Securities of a series may not be originally
issued at one time, and if the Trustee does not have an office capable of
authenticating Securities upon original issuance located in a Place of Payment
where the Company wishes to have Securities of such series authenticated upon
original issuance, the Trustee, if so requested by the Company in writing or by
facsimile, shall appoint at the expense of the Company in accordance with this
Section 5.12 and such procedures as shall be acceptable to the Trustee, an
Authenticating Agent having an office in a Place of Payment designated by the
Company with respect to such series of Securities.

(h) The Paying Agent will comply with all applicable withholding, backup
withholding and information reporting requirements imposed by the Code and
applicable Treasury Regulations issued thereunder (including, without
limitation, the collection of Internal Revenue Service Forms W-8 or W-9, as the
case may be, and the filing of Internal Revenue Service Forms 1099, 1042 and
1042-S).

SECTION 5.13......Rights and Obligations of Trustee as Representative of the
Holders under the Security Agreements. Whenever any Security Agreement provides
that the Senior Parties are to take any action thereunder, the Trustee, as
representative of the Holders shall be obligated to solicit consents from the
Securityholders and consent on behalf of the Securityholders in accordance with
the results of such solicitation. The Trustee shall be required to consent or
not consent with respect to all matters requiring the consent of Senior Parties
in proportion to the aggregate Principal Amount of Securities the Holders of
which have consented affirmatively and negatively to the proposed action. The
Trustee shall consider any non-responses a "no" vote with respect to that
Securityholder. The expenses of any such solicitation shall be borne by the
Company and the Company shall be obligated, at the request of the Trustee, to
prepare all documents required to consummate such solicitation, including all
documents required by applicable law, including applicable securities laws. The
Trustee shall have no liability to any Person, including, without limitation,
any Senior Party, the Company or the Partnership, for any delay in consenting as
a Senior Party caused by the solicitation requirements of this Section 5.13. The
Trustee may, but shall not be obligated to, give its consent as representative
of the Holders pursuant to this Section 5.13, if the action so consented to
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise. If the Collateral Agent requires indemnity from the Trustee, as
representative of the Holders, prior to taking any action under the Security
Agreements, the Trustee shall have no responsibility for providing such
indemnity but shall request such indemnity from the Holders and shall have no
liability to any Person for any inaction by the Collateral Agent pending receipt
of such indemnity from the Holders.

                                   ARTICLE 6

                HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

SECTION 6.1.......Company to Furnish Trustee Names and Addresses of Holders. The
Company will furnish or cause to be furnished to the Trustee:

(a) monthly, not later than each Interest Payment Date with respect to the
Securities of each series, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders of Securities of such series
as of the day 15 days preceding such Interest Payment Date; and

(b) at such other times as the Trustee may request in writing, within 30 days
after the receipt by the Company of any such request, a list of similar form and
content as of a date not more than 15 days prior to the time such list is
furnished;

excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.

                                    Page 51


SECTION 6.2.......Preservation of Information; Communications to Holders. The
Trustee shall preserve, in as current a form as is reasonably practicable, the
names and addresses of Holders contained in the most recent list furnished to
the Trustee as provided in Section 6.1 and the names and addresses of Holders
received by the Trustee in its capacity as Security Registrar. The Trustee may
destroy any list furnished to it as provided in Section 6.1 upon receipt of a
new list so furnished.

                  The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided by the
Trust Indenture Act (as if the provisions of the Trust Indenture Act applied to
this Indenture).

                  Every Holder of Securities, by receiving and holding the same,
agrees with the Company, the Partnership and the Trustee that none of the
Company, the Partnership nor the Trustee, nor any agent of either of them, shall
be held accountable by reason of any disclosure of information as to names and
addresses of Holders made pursuant to the Trust Indenture Act (as if the
provisions of the Trust Indenture Act applied to this Indenture).

                                   ARTICLE 7

                             SUPPLEMENTAL INDENTURES

SECTION 7.1.......Supplemental Indentures Without Consent of Holders. Subject to
the terms of the Collateral Agency Agreement that require the Required Senior
Parties to consent to certain amendments to the Indenture, without the consent
of any Holders, the Company and the Partnership, in each case when authorized by
an Officer's Certificate and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:

(a) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and in
the Securities, or to evidence the succession of another entity to the
Partnership and the assumption by such successor of the covenants of the
Partnership contained herein; or

(b) to add to the covenants of the Company or the Partnership for the benefit of
the Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely for the benefit of such series) or
to surrender any right or power herein conferred upon the Company or the
Partnership; or

(c) to add any additional Events of Default for the benefit of the Holders of
all or any series of Securities (and if such additional Events of Default are to
be for the benefit of less than all series of Securities, stating that such
additional Events of Default are expressly being included solely for the benefit
of such series); or

(d) to add to or change any of the provisions of this Indenture to such extent
as shall be necessary to permit or facilitate the issuance of Securities in
bearer form, registrable or not registrable as to principal, and with or without
interest coupons, or to permit or facilitate the issuance of Securities in
uncertificated form; or

(e) to add to, change or eliminate any of the provisions of this Indenture in
respect of one or more series of Securities provided that any such addition,
change or elimination (i) shall neither (A) apply to any Security of any series
created prior to the execution of such supplemental indenture and entitled to
the benefit of such provision nor (B) modify the rights of the Holder of any
such Security with respect to such provision or (ii) shall become effective only
when there is no such Security Outstanding; or

(f) to secure the Securities, including, without limitation, by amending the
Partnership Security Agreement in accordance with Section 8.27; or

                                    Page 52


(g) to establish the form of Securities of any series as permitted by Section
2.1, and to establish the terms of Securities of any series as permitted by
Section 2.3; or

(h) to evidence and provide for the acceptance of appointment hereunder by a
successor Trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 5.10; or

(i) to cure any ambiguity, to correct or supplement any provision herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this
Indenture, provided that such action pursuant to this clause (i) shall not
adversely affect the interests of the Holders of Securities of any series in any
material respect; or

(j) to modify the restrictive legends set forth on the face of the form of
Security in Exhibit A or as are otherwise set forth or provided for pursuant to
Section 2.1, 2.2 or 2.3, or modify the forms of certification provided for in
Section 2.13; provided, however, that any such modification shall not adversely
affect the interest of the Holders of the Securities of any series created prior
to the execution of such supplemental indenture in any material respect; or

(k) to permit the holders of any indebtedness incurred in respect of an
Expansion to secure such indebtedness with the collateral specifically permitted
under clauses (ii), (iii) and (iv) of Section 8.20(b), and upon Completion of
such Expansion and release of the related Completion Guaranty, to permit such
holders to share equally and ratably in the Collateral; or

(l) to make any other change that does not adversely affect the interests of the
Holders of the Securities of any series created prior to the execution of such
supplemental indenture in any material respect.

SECTION 7.2.......Supplemental Indentures With Consent of Holders. Subject to
the terms of the Collateral Agency Agreement that require the Required Senior
Parties to consent to certain amendments to the Indenture, with the consent of
the Holders of not less than a majority in principal amount of the Outstanding
Securities of each series affected by such supplemental indenture, by Act of
said Holders delivered to the Company, the Partnership and the Trustee, the
Company and the Partnership, in each case when authorized by an Officer's
Certificate, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities of such series
under this Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Security affected
thereby:

(a) change the Stated Maturity of the principal of, or any installment of
principal of or interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or reduce the amount of the principal of an Original Issue
Discount Security or any other Security which would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 4.2, or
change any Place of Payment where, or the coin or currency in which, any
Security or any premium or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date); or

(b) subject to Section 7.1(k), permit the creation of any lien prior to the Lien
of the Security Agreements with respect to any of the Collateral, or terminate
the Lien of the Security Agreements on any Collateral or deprive any Holder of
the security afforded by the Lien of the Security Agreements, except to the
extent expressly permitted by this Indenture or any of the Security Agreements;
or

(c) reduce the percentage in principal amount of the Outstanding Securities of
any series, the consent of whose Holders is required for any such supplemental


                                    Page 53


indenture, or the consent of whose Holders is required for any waiver of certain
defaults hereunder and their consequences) provided for in this Indenture; or

(d) modify any of the provisions of this Section 7.2 or Section 4.13, except to
increase any such percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby; provided, however, that this clause (d)
shall not be deemed to require the consent of any Holder with respect to changes
in the references to "the Trustee" and concomitant changes in this Section 7.2,
or the deletion of this proviso, in accordance with the requirements of Sections
5.10 and 7.1(h).

                  A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been included
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of the Holders of Securities of such series with respect to
such covenant or other provision, shall be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.

                  It shall not be necessary for any Act of Holders under this
Section 7.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.

SECTION 7.3.......Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article 7 or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
5.1) shall be fully protected in relying upon, an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted by
this Indenture and that such supplemental indenture is the legal, valid and
binding obligation of the Company and the Partnership, enforceable against the
Company and the Partnership in accordance with its terms (subject to customary
qualifications and exceptions) and that all necessary consents have been
obtained. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

SECTION 7.4.......Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this Article 7, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.

SECTION 7.5.......Reference in Securities to Supplemental Indentures. Securities
of any series authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article 7 may, and if required by the
Trustee shall, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company or the Partnership
shall so determine, new Securities of any series so modified as to conform, in
the opinion of the Trustee, the Company and the Partnership, to any such
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities of such series.

                                    ARTICLE 8

                                    COVENANTS

                  Each of the Partnership and the Company covenants and agrees
that so long as this Indenture is in effect and any Securities remain
Outstanding:

SECTION 8.1.......Financial Statements, Etc. The Partnership (for itself and on
behalf of the Company) shall deliver to the Trustee and upon the request of a
beneficial holder of the Securities shall thereafter deliver to such beneficial
holder without further request:

(a) as soon as available and in any event within 60 days after the end of each
of the first three quarterly fiscal periods of each fiscal year of the


                                    Page 54


Partnership, unaudited statements of income, retained earnings and cash flows of
each of the Partnership and the Company (commencing with the quarter ending June
30, 2001) for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related balance sheets
of each of the Partnership and the Company as at the end of such period, setting
forth in each case in comparative form the corresponding figures for the
corresponding periods in the preceding fiscal year (except that, in the case of
balance sheets, such comparison shall be to the last day of the prior fiscal
year);

(b) as soon as available and in any event within 120 days after the end of each
fiscal year of the Partnership, audited statements of income, retained earnings
and cash flows of each of the Partnership and the Company for such fiscal year
(commencing with the year ending December 31, 2001) and the related balance
sheet of the Partnership and the Company as at the end of such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, and accompanied by an opinion thereon of independent
certified public accountants of recognized national standing, which opinion
shall state that said financial statements fairly present in all material
respects the financial condition and results of operations of each of the
Partnership and the Company as at the end of and for, such fiscal year in
accordance with RAP;

(c) together with the first quarterly report under Section 8.1(a) that is
delivered after the publication in each year of the Consumer Price Index for all
Urban Consumers (CPI/U) or a comparable index, an annual Officer's Certificate
setting forth the Escalation over the previous year and the method of
calculation thereof.

(d) as soon as practicable and in any event within 10 days after the Partnership
becomes aware or should reasonably become aware of the occurrence of an Event of
Default or Default, an Officer's Certificate setting forth the details of such
Event of Default or Default, and the action which the Partnership and the
Company propose to take with respect thereto;

(e) promptly following the effectiveness thereof, copies of each amendment,
modification, supplement or waiver to any Project Agreement, certified by a
Senior Officer of the Partnership, to be a true and complete copy of such
amendment, modification, supplement or waiver, provided that, unless requested
by the Trustee, the foregoing shall not apply to any such amendment,
modification, supplement or waiver that could not reasonably be expected to have
a Material Adverse Effect;

(f) no later than the date of the consummation of any Transfer, notice of such
event;

(g) simultaneously with the delivery of each set of financial statements
pursuant to clauses (a) and (b) of this Section 8.1, a written discussion
prepared by the Partnership of the Partnership's financial condition, changes in
financial condition and results of operations, including a description of (i)
any material developments in the Partnership's business, (ii) the Partnership's
material commitments for Capital Expenditures (not including Capital
Expenditures in connection with maintenance of the Partnership's Properties or
other Capital Expenditures made in the ordinary course) (iii) any unusual events
or transactions or any significant changes that materially affected the amount
of reported income or cash flow from continuing operations and any other
significant components of revenues of expenses, (iv) Distributions made during
the period covered by such statements and, (v) loans and other advances made by
the Partnership to any of the Partners;

(h) written notice of the occurrence of any Material Loss or Catastrophic Loss
within 10 days of the occurrence of such loss.

                  The Partnership will furnish to the Trustee at the time it
furnishes each set of financial statements pursuant to paragraph (a) or (b)
above, a certificate of a Senior Officer of the Partnership (i) to the effect
that no Default has occurred and is continuing (or, if any Default has occurred
and is continuing, describing the same in reasonable detail and describing the
action that the Partnership has taken or proposes to take with respect thereto),
(ii) setting forth in reasonable detail the computations necessary to determine


                                    Page 55


whether the Obligors are in compliance with Sections 8.9 and 8.11 hereof as of
the end of the respective quarterly fiscal period or fiscal year and (iii)
certifying that the amendments, modifications, supplements and waivers referred
to in Section 8.1(d) which have become effective since (in the case of the first
such certificate) the Closing Date or (in the case of each subsequent such
certificate) the date of the next preceding such certificate and copies of which
have not been delivered to the Trustee as provided above could not, taken as a
whole, reasonably be expected to have a Material Adverse Effect.

                  The Trustee's sole responsibility with respect to any
statement or written discussion delivered to it pursuant to this Section 8.1
shall be to make the same available for inspection by the Holders during normal
business hours.

SECTION 8.2.......Payment of Principal, Premium and Interest. The Company
covenants and agrees for the benefit of each series of Securities that it will
duly and punctually pay the principal of, premium, if any, and interest on the
Securities of that series in accordance with the terms of the Securities and
this Indenture.

SECTION 8.3.......Existence, Etc.  Each Obligor will:

(a) Subject to Section 8.6, preserve and maintain its legal existence, its
general partnership form (in the case of the Partnership) or corporate form (in
the case of the Company), and obtain and maintain, or to cause to be obtained or
maintained, as the case may be, all of its rights, licenses, permits, privileges
and franchises necessary for the operation of the Project and the conduct of its
business unless each Partner shall have determined that failure to maintain any
of such rights, licenses, permits, privileges and franchises could not
reasonably be expected (either individually or in the aggregate) to have a
Material Adverse Effect (provided that nothing in this Section 8.3 shall
prohibit any transaction expressly permitted under Section 8.6);

(b) operate and manage the Project (or cause it to be operated and managed) and
maintain, repair and preserve (or cause the maintenance, repair and preservation
of) the Project in each case (i) in compliance with, and otherwise comply with
the requirements of, all applicable Governmental Rules and Governmental
Approvals including, without limitation, all applicable laws involving pipeline
safety and environmental protection except for such failures to comply as could
not reasonably be expected to result in a Material Adverse Effect, (ii) in
accordance with the terms of the Project Agreements, (iii) in accordance with
generally accepted prudent pipeline industry standards, and (iv) subject to
Section 8.6, maintain and preserve the Project and all of its other Properties
used or useful in its business in good operating and working order and
condition, ordinary wear and tear excepted; provided however, that nothing in
this Section 8.3 shall prevent the Partnership or the Company from discontinuing
or suspending the operation or maintenance or preservation of any of such
properties if such discontinuance or suspension is, in the judgment of each
Partner, desirable in the conduct of the Partnership's business and not
disadvantageous in any material respect to the Holders; provided further, that,
except in the event of a Casualty Event, in which case the provisions of Section
9.8 shall apply with respect to the portion or portions of the Project lost,
damaged or condemned;

(c) pay and discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its Property when due
except (i) for any such tax, assessment charge or levy the payment of which is
being contested in good faith and by proper proceedings and against which
adequate reserves are being maintained in accordance with RAP and (ii) to the
extent that failure to pay such taxes will not have a Material Adverse Effect on
the financial condition of the Partnership; and

(d) keep adequate records and books of account.

SECTION 8.4.......Money for Securities Payments to be Held in Trust. If the
Company shall at any time act as Paying Agent with respect to any series of
Securities, it will on or before each due date of the principal of or any
premium or interest on any of the Securities of that series, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal, premium, if any, and interest so becoming due until such sums


                                    Page 56


shall be paid to such Persons or otherwise disposed of as herein provided, and
the Company will promptly notify the Trustee of its action or failure so to act.

                  Whenever the Company shall have one or more Paying Agents for
any series of Securities, it will, on or prior to each due date of the principal
of, premium, if any, or interest on any Securities of that series, deposit with
a Paying Agent a sum sufficient to pay such amount, such sum to be held as
provided by the Trust Indenture Act (as if the provisions of the Trust Indenture
Act applied to this Indenture), and (unless such Paying Agent is the Trustee)
the Company will promptly notify the Trustee of its action or failure so to act.

                  The Company will cause each Paying Agent for any series of
Securities other than the Trustee to execute and deliver to the Trustee an
instrument in which such Paying Agent shall agree with the Trustee, subject to
the provisions of this Section, that such Paying Agent will (a) comply with the
provisions of the Trust Indenture Act applicable to it as a Paying Agent (as if
the provisions of the Trust Indenture Act applied to this Indenture) and (b)
during the continuance of any default by the Company (or any other obligor upon
the Securities of that series) in the making of any payment in respect of the
Securities of that series, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Securities of that series.

                  The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
the Company by Company Order may direct any Paying Agent to pay, to the Trustee
all sums held in trust by the Company, or such Paying Agent, such sums to be
held by the Trustee upon the same trusts as those upon which such sums were held
by the Company or such Paying Agent; and, upon such payment by any Paying Agent
to the Trustee, such Paying Agent shall be released from all further liability
with respect to such money.

                  Except as otherwise required by applicable law, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of, premium, if any, or interest on any
Security of any series and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on demand, or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Security shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in a newspaper published in the English language, customary
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.

SECTION 8.5.......Insurance.

(a)      Except as expressly provided in the last paragraph of this Section
         8.5(a), the Partnership will maintain insurance with financially sound
         and reputable insurance companies and with respect to Property and
         risks of a character that, in the reasonable good faith opinion of the
         Partnership, are no less favorable than the insurance coverage obtained
         by companies engaged in similar businesses and owning similar
         properties as the Partnership; including the following insurance:

(i)      Property Insurance. Insurance against loss or damage covering the
         Project and other tangible real and personal Property and improvements
         of the Partnership and the Company by reason of any Peril.

(ii)     Business Interruption Insurance. Business interruption insurance
         covering 100% of business income (defined as net profit before income
         taxes, continuing normal operating expenses including payroll and
         mandatory debt service) of the Project, for a period of 12 months,
         arising from loss insured by clause (i) above. The maximum deductible


                                    Page 57


         in respect of such business interruption insurance shall be no greater
         than $10,000,000.

(iii)    Automobile Liability Insurance for Bodily Injury and Property Damage.
         Insurance against liability for bodily injury and property damage in
         respect of all vehicles (whether owned, hired or rented by the
         Partnership or the Company) at any time located at, or used in
         connection with, its Properties or operations, but in no event less
         than the amount required by applicable law.

(iv)     Commercial General Liability Insurance. Insurance against claims for
         bodily injury, death or Property damage occurring on, in or about the
         Properties (and adjoining sidewalks and waterways) of the Partnership
         and the Company.

(v)      Workers' Compensation Insurance. Workers' compensation insurance
         (including, without limitation, Employers' Liability Insurance) to the
         extent required by applicable law.

(vi)     Other Insurance. Such other insurance in each case as generally carried
         by Williams for such similar facilities.

                  Notwithstanding any provision in this Section 8.5 to the
contrary, (i) the Partnership shall have no obligation to maintain insurance
coverage on underground piping, and (ii) the Partnership and the Company will
not be obligated to maintain or cause to be maintained the insurance described
in this Section 8.5 during any period in which Williams extends its own
insurance or self-insurance to the Partnership and Company to the extent and in
the manner normal for companies of like size, type and financial condition as
the Partnership and the Company.

(b) The Collateral Agent shall be named as sole loss payee, under a standard
lenders loss payable clause or mortgage endorsement substantially equivalent to
the New York standard mortgage endorsement or lenders loss payable endorsement
form 438 BFU, without contribution, under insurance policies required by
Sections 8.5(a)(i) and (ii).

(c) On the Closing Date, the Company and the Partnership shall furnish to the
Trustee certification indicating procurement of all required insurance. Such
certification shall identify underwriters, the type of insurance, the insurance
limits, the risks covered thereby and the policy term. Upon request by the
Trustee, the Company and the Partnership will promptly furnish to the Trustee
copies of all insurance digests (or upon further request insurance policies),
binders and cover notes or other evidence of such insurance relating to the
Project.

SECTION 8.6.......Prohibition of Fundamental Changes.  Except as permitted by
the Partnership Agreement:

(a) Neither Obligor will enter into any transaction of merger or consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), except pursuant to a Qualified Transaction.

(b) Neither Obligor will acquire any business or Property from, or capital stock
of, or be a party to any acquisition of, any Person except (in the case of the
Partnership) for the acquisition of capital stock of the Company and purchases
of inventory and other Property to be sold or used in the ordinary course of
business.

(c) Subject to Section 8.6(a), neither Obligor will sell, transfer, lease,
abandon or otherwise dispose of, in one transaction or a series of transactions,
all or substantially all of its assets. (d) Subject to Section 8.6(a), neither
Obligor will convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, any of its business or Property,
whether now owned or hereafter acquired, that is material to the operation or
maintenance of the Project (including, without limitation, receivables and
leasehold interests) excluding (i) redundant, obsolete or worn-out Property,
tools or equipment no longer used or useful in its business and any inventory or
other Property sold or disposed of in the ordinary course of business and on
ordinary business terms and (ii) dispositions contemplated by the Project
Agreements.

                                    Page 58


SECTION 8.7.......Ownership of the Company; No Other Subsidiaries. The
Partnership will at all times cause the Company to be a Wholly Owned Subsidiary
of the Partnership. The Partnership will at no time have any Subsidiaries other
than the Company, Subsidiaries with limited purposes similar to those of the
Company, Kern River Gas Supply Corporation and Kern River Service Corp. and the
Company will at no time have any Subsidiaries.

SECTION 8.8.......Limitation on Liens. Neither Obligor will create, incur,
assume or suffer to exist any Lien upon any of its Property, whether now owned
or hereafter acquired, except:

(a) Liens equally and ratably securing the Securities of each series;

(b) any Lien that secures Additional Senior Indebtedness equally and ratably
with the Securities;

(c) Liens imposed by any Governmental Authority for taxes, assessments or
charges not yet due or that are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Partnership or the Company, as the case may be, in accordance with
RAP;

(d) carriers', warehousemen's, mechanics', materialmen's, repairmen's, lessor's
other than the lessor in a sale-leaseback transaction, or other like Liens
arising in the ordinary course of business or are incident to the construction
or improvement of any Property that are not overdue for a period of more than 30
days or that are being contested in good faith and by appropriate proceedings
and Liens securing judgments as to which all rights of appeal have not
terminated and are bonded or pledged or enforcement of which will not have a
Material Adverse Effect on the Company or the Partnership but only to the
extent, for an amount and for a period not resulting in an Event of Default
under Section 4.1(k) hereof;

(e) pledges or deposits under worker's compensation, unemployment insurance and
other social security legislation;

(f) easements, rights-of-way, actions and other similar encumbrances incurred in
the ordinary course of business and encumbrances consisting of zoning
restrictions, easements, licenses, restrictions on the use of Property or minor
imperfections in title thereto that, in the aggregate, are not material in
amount, and that do not in any case materially detract from the value of the
Property subject thereto or interfere with the ordinary conduct of the business
of the Partnership or the Company;

(g) Liens upon real and/or tangible personal Property acquired after the date
hereof (by purchase, construction or otherwise) by the Partnership, each of
which Liens either (i) existed on such Property before the time of its
acquisition and was not created in anticipation thereof or (ii) was created
solely for the purpose of securing Indebtedness representing, or incurred to
finance, refinance or refund, the cost (including the cost of construction,
repair or improvement) of such Property; provided that for clause (ii) above,
(A) no such Lien shall extend to or cover any Property of the Partnership other
than the Property so acquired and improvements thereon, (B) the principal amount
of Indebtedness secured by any such Lien shall at no time exceed 100% of the
purchase price or cost or fair market value (as determined in good faith by a
Senior Officer of the Partnership) of such Property at the time it was acquired
(by purchase construction or otherwise), (C) the Indebtedness secured by the
Lien may not be incurred more than one year after the acquisition, completion of
construction, repair, improvement, or commencement of full operation of the
Property subject to the Lien, and (D) the principal amount of all such
Indebtedness secured by such Liens shall not exceed 5% of the Total
Capitalization of the Partnership in the aggregate at any one time outstanding;

(h) any Lien securing a Debt Service Letter of Credit Obligation;

(i) any Lien that extends, or renews or replaces in whole or in part a Lien
referred to herein;

                                    Page 59


(j) additional Liens upon real and/or personal Property created after the date
hereof (including Indebtedness for capitalized lease obligations), provided that
the aggregate principal amounts of the Indebtedness secured thereby and incurred
on and after the date hereof, excluding the principal amount of Indebtedness
secured by Liens provided by clauses (a) - (h) above, shall not exceed 3% of
total capitalization of the Partnership in the aggregate at any one time
outstanding; and

(k) any Lien permitted by the foregoing that is created pursuant to the Security
Agreements.

SECTION 8.9.......Indebtedness.

(a)      Limit on Indebtedness. Neither Obligor will create, incur or suffer to
         exist or guarantee any Indebtedness except any one or more of the
         following:

(i)      Indebtedness incurred in connection with the Securities (including the
         Partnership Loan, the Partnership Guarantee and the Debt Service LOC
         Loans);

(ii)     trade or other similar Indebtedness incurred in the ordinary course of
         business;

(iii)    Additional Senior Indebtedness to be used for working capital purposes
         of up to the greater of (x) $15,000,000 and (y) 120% of Project
         Revenues for the month immediately preceding the incurrence of such
         Indebtedness;

(iv)     Additional Senior Indebtedness, the proceeds of which are applied to
         fund Capital Expenditures (including, without limitation, Capital
         Expenditures previously made for which the FERC requires a different
         percentage of Indebtedness than was originally sought by the
         Partnership in an application to the FERC) provided that, after giving
         effect to the incurrence of such Indebtedness, the ratio of
         Indebtedness to Total Capitalization of the Partnership does not exceed
         70/100;

(v)      Affiliate Subordinated Debt; and

(vi)     any Additional Senior Indebtedness not set forth in clauses (i) through
         (v) above, so long as immediately after giving effect to the incurrence
         thereof, there shall be No Ratings Downgrade.

(b)      Limit on Company Indebtedness. Without prejudice to Section 8.9(a)
         hereof, the Company will not create, incur or suffer to exist any
         Indebtedness other than Indebtedness Guaranteed by the Partnership (i)
         the proceeds of which are loaned or otherwise advanced to the
         Partnership, with such loans or advances by the Company to the
         Partnership evidenced by promissory notes of the Partnership in an
         amount equal to the principal amount of such loan or advance, bearing
         interest at a rate equal to the interest rate payable with respect to
         such loan or advance and with an amortization schedule identical to the
         amortization schedule with respect to such loan or advance or (ii) to
         the extent the proceeds thereof are applied to repay or otherwise
         refinance all or a portion of the Indebtedness with respect to the
         Securities of the Company then outstanding.

SECTION 8.10......Investments.  Neither Obligor will make or permit to remain
outstanding any Investments except:

(a) Permitted Investments;

(b) Investments by the Partnership in the Capital Stock of the Company;

(c) Investments by the Company in the Partnership Loan;

(d) the Debt Service LOC Account;

(e) subject to Sections 8.12 and 9.8, the redemption, retirement, prepayment or
defeasance of Indebtedness of such Obligor;

                                    Page 60


(f) accounts receivable arising in the ordinary course of business; and

(g) Capital Expenditures as permitted hereunder which shall include all Capital
Expenditures so long as not in violation of this Indenture.

SECTION 8.11......Distributions. The Obligors shall be permitted to declare or
make any Distribution only on a Debt Service Payment Date, provided that neither
Obligor will declare or make any Distribution to any Partner on any such Debt
Service Payment Date if (i) an Event of Default has occurred and is continuing
hereunder, (ii) the ratio of Senior Debt to Total Capitalization of the
Partnership exceeds 75%, (iii) (A) the Projected Debt Service Coverage Ratio of
the Partnership for the next two calendar quarters from such date of
distribution is expected to be less than 1.25 to 1 or (B) the Debt Service
Coverage Ratio for the two calendar quarters prior to such intended Distribution
is less than 1.25 to 1, as certified by the Partnership and the Company by an
Officer's Certificate delivered to the Trustee, or (iv) the Required Amount
Condition has not been met.

SECTION 8.12......Affiliate Subordinated Debt. Neither Obligor will purchase,
redeem, retire or otherwise acquire for value, or set apart any money for a
sinking, defeasance or other analogous fund for the purchase, redemption,
retirement or other acquisition of, or make any voluntary payment or prepayment
of the principal of or interest on, or any other amount owing in respect of, any
Affiliate Subordinated Debt, except for payments or prepayments of principal and
interest in respect thereof required pursuant to the instruments evidencing such
Affiliate Subordinated Debt and permitted by the subordination provisions
thereof.

SECTION 8.13......Lines of Business; Single-Purpose Entity.

(a) The Partnership will not engage in any line of business other than that
directly related to its development, ownership and operation of the Project,
including any expansions thereof, (in each case as contemplated by the Project
Agreements) and any activities reasonably related thereto (which shall include
the gathering, marketing, sale, storage, processing and transportation of gas).

(b) The Company will not engage in any business other than the incurrence of
Indebtedness and the making of loans to the Partnership, in each case in
accordance with the terms hereof and the other Senior Debt Agreements, and the
performance of its obligations under the Transaction Agreements to which it is a
party.

SECTION 8.14......Transactions with Affiliates and Related Parties. Except for
arrangements contemplated by the Project Agreements as in effect on the date of
this Indenture, neither the Partnership nor the Company will enter into any
transaction, including, without limitation, any contract or Investment, with any
Affiliate of the Partnership unless (i) such transaction is a bona fide business
transaction reasonably related to the business of the Partnership, (ii) such
transaction is on terms that at such time are no less favorable to the
Partnership than those that could be obtained at such time in a comparable arm's
length transaction with an entity that is not an Affiliate of the Partnership
and (iii) such transaction has been fully disclosed to all Partners.

SECTION 8.15......Modifications of Certain Documents. Subject to the Collateral
Agency Agreement which requires (except as provided therein) approval by the
Required Senior Parties, among other parties, to amend any Project Agreement,
Security Agreement, Partnership Loan Agreement, the Indenture or changing in any
manner the rights of the Collateral Agent, the Partnership, the Company or the
other Senior Parties therein or thereunder, neither Obligor will (i) agree or
consent to any termination, modification, supplement or waiver of any Project
Agreement or Senior Debt Agreement or (ii) initiate changes to the Partnership's
FERC tariff if the Partnership reasonably determines that such termination,
modification, supplement, waiver or change to the tariff would individually or
collectively with all other such terminations, modifications, supplements,
waivers and changes to the tariff, reasonably be expected to have a Material
Adverse Effect, unless immediately after giving effect to such termination,
modification, supplement, waiver or change to the tariff, there shall be No
Ratings Downgrade.

                                    Page 61


SECTION 8.16......Mandatory Obligor Actions.

                  If any Casualty Event shall occur, the Partnership shall
promptly notify the Trustee thereof and take reasonable steps to pursue
diligently all material rights to compensation. In addition:

(a) The Partnership shall, in the case of a Catastrophic Loss, cause all
Proceeds of such Casualty Event to be deposited with the Collateral Agent in the
Loss Proceeds Account.

(b) The Partnership shall, in the case of a Material Loss, apply the Proceeds
received by it in connection with such Casualty Event to rebuild or repair the
Project (as provided in Section 9.8).

SECTION 8.17......Rule 144A Information. At any time when the Company is not
subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, upon the request of a beneficial holder of a Security, the Company
shall promptly furnish to such beneficial holder or to a prospective purchaser
of such Security designated by such holder, as the case may be, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act
("Rule 144A Information") in order to permit compliance by such holder with Rule
144A in connection with the resale of such Security by such holder; provided,
however, that the Company shall not be required to furnish Rule 144A Information
in connection with any request made on or after the date which is two years from
the later of (a) the date such Security (or any Predecessor Security) was
acquired from the Company or (b) the date such Security (or any Predecessor
Security) was last acquired from an "affiliate" of the Company within the
meaning of Rule 144 under the Securities Act; provided, further, that the
Company shall not be required to furnish such information at any time to a
prospective purchaser located outside the United States who is not a "United
States Person" within the meaning of Regulation S under the Securities Act if
such Security may then be sold to such prospective purchaser in accordance with
Rule 904 under the Securities Act (or any successor provision thereto).

SECTION 8.18......Maintenance of Office or Agency. The Company will maintain in
each Place of Payment for any series of Securities an office or agency where
Securities of that series may be presented or surrendered for payment, where
Securities of that series may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.

                  The Company may also from time to time designate one or more
other offices or agencies where the Securities of one or more series may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in each Place of Payment for Securities of any series for
such purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.

SECTION 8.19......Use of Proceeds. The Company and the Partnership agree to
apply the proceeds of the sale of the Securities hereunder (a) to repay the
Existing 144A Debt, (b) to pay certain financing costs related to the sale of
the Securities hereunder, including, without limitation, breakage costs
associated with the termination of certain existing interest rate hedging
arrangements, (c) to pay costs related to the development, financing and
construction of the California Action Project and the 2002 Expansion and (d) to
reimburse the Partnership, and its Affiliates, for any such costs incurred prior
to the date hereof.

                                    Page 62


SECTION 8.20......Expansion. Neither Obligor shall incur indebtedness for the
purposes of financing, or permit the commencement of construction of, any
Expansion unless:

(a) Williams or another entity that has a public debt rating equal to at least
"BBB-" from S&P and "Baa3" from Moody's provides a Completion Guaranty with
respect to such Expansion;

b) until such  Expansion  has achieved  Completion  and the holders of the
indebtedness  incurred to finance such  Expansion  have released the  applicable
Completion  Guaranty,  the  recourse  of  such  holders  is  limited  to (i) the
applicable  Completion  Guaranty,  (ii) any LTFT  Agreements and related Shipper
Guarantees  entered  into with  respect to such  Expansion,  (iii) any new fixed
assets financed with the proceeds of such indebtedness,  and (iv) a claim to any
cash of the  Partnership  that would  otherwise be available  for  Distributions
permitted under this Indenture;  provided, however, such holders shall agree not
to take any action or exercise any remedies prior to Completion that will in any
way  adversely  affect the ability of the  Partnership  to operate the  existing
Pipeline; and

(c) the percentage of the costs of such Expansion that are financed with
Indebtedness incurred by the Partnership does not exceed the Applicable
Expansion Debt Level. For the purposes of this clause (c), "Applicable Expansion
Debt Level" means the lesser of (x) 70%, (y) the difference between (A) the
percentage of additional transportation capacity attributable to an Expansion
that has been contracted by shippers meeting the requirements of the
Partnership's FERC tariff and (B) 20% and (z) a percentage that causes the
average annual Projected Debt Service Coverage Ratio from the date such
Expansion reaches Completion until the Final Maturity Date of the Securities
issued on the Closing Date (after taking into account the incurrence of the
Indebtedness incurred in connection with such Expansion) to be greater than or
equal to 1.55 to 1.0. For the purposes of clarity, if 95% of an Expansion's
transportation capacity has been contracted to shippers meeting such
requirements, the Applicable Expansion Debt Level for such Expansion will be 70%
or such lower amount that allows the Partnership to satisfy the Projected Debt
Service Coverage Ratio test set forth in clause (z); and if 75% of an
Expansion's transportation capacity has been contracted to shippers meeting such
requirements, the Applicable Expansion Debt Level for such Expansion will be 55%
or such lower amount that allows the Partnership to satisfy the Projected Debt
Service Coverage Ratio test set forth in clause (z).

SECTION 8.21......Compliance With Laws. The Partnership agrees to comply with
all laws and regulations applicable to the conduct of its business and the
operation of the Project, including environmental requirements, the failure to
comply with which the Partnership believes would have a Material Adverse Effect.

SECTION 8.22......Property. The Partnership agrees to preserve good title or
valid leasehold rights to all Project related Property it claims to hold (other
than Property subject to any Casualty Event or Property disposed of pursuant to
Section 8.6), subject only to Liens permitted pursuant to Section 8.8, to the
extent that failure to do so would have a Material Adverse Effect.

SECTION 8.23......FERC Filings. The Partnership agrees to oppose any filing made
with the FERC if such filing would result in changes to the amounts being
charged to Shippers that would have a Material Adverse Effect.

SECTION 8.24......Transportation Service Agreement. Except as the FERC may
require or as the Partnership's FERC tariff may permit, the Partnership agrees
not to permit the assignment by any LTFT Shipper of its obligations under a LTFT
Agreement (including, without limitation, by way of a release of capacity to a
substitute shipper) to any party with a public debt rating of less than
investment grade or its equivalent, unless (i) the obligations of the assignee
under the LTFT Agreement are (A) guaranteed by an entity with a public debt
rating equal to at least Investment Grade or (B) supported by an Acceptable
Letter of Credit, or (ii) the rating on the Securities after giving effect to
such assignment shall be reaffirmed as being equal to or higher than the ratings
on the Securities prior to such assignment by one of the Required Rating
Agencies.

SECTION 8.25......Collateral Agency Agreement. The Securityholders agree, by
their acceptance of the Securities pursuant to the terms of this Indenture, to


                                    Page 63


be governed by and agree to be bound by any restrictions imposed on
Securityholders pursuant to the terms of the Collateral Agency Agreement, unless
otherwise specifically stated herein.

SECTION 8.26......Transfers. The Partnership agrees not to allow any transfer of
ownership interests in the Partnership unless after giving effect to such
transfer (i) at least 50% of the Partnership is owned and operated either by
Williams and its affiliates or by a Qualified Transferee, or (ii) there is No
Ratings Downgrade.

SECTION 8.27......Amendment to Partnership Security Agreement. Upon Completion
of any Expansion, the Partnership agrees to amend Schedule A to the Partnership
Security Agreement to add to such Schedule A any LTFT Agreements and Shipper
Guaranties executed in connection with such Expansion.

SECTION 8.28......Debt Service Notices to Collateral Agent. If at any time, the
Partnership believes that it will have insufficient monies to pay Mandatory
Senior Debt Service on any date when it shall be due and payable, the
Partnership agrees to provide notice to such effect to the Collateral Agent at
least three (3) Business Days prior to the date on which such Mandatory Senior
Debt Service shall be due and payable. The Partnership agrees that such notice
shall state the amount of the expected insufficiency and shall otherwise be in
accordance with Sections 7.2(a)(i) and 7.2(b) of the Collateral Agency
Agreement.

                                   ARTICLE 9

                            REDEMPTION OF SECURITIES

SECTION 9.1.......Applicability of Article. Securities of any series which are
redeemable before their Stated Maturity shall be redeemable in accordance with
their terms and (except as otherwise specified as contemplated by Section 2.3
for such Securities) in accordance with this Article 9.

SECTION 9.2.......Election to Redeem; Notice to Trustee. The election of the
Company to redeem any Securities shall be evidenced in accordance with Section
9.4 and otherwise in the manner specified as contemplated by Section 2.3 for
such Securities. In case of any redemption at the election of the Company, the
Company shall at least 45 days prior to the Redemption Date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee of such Redemption Date, of the principal amount of Securities of the
series to be redeemed and, if applicable, of the tenor of the Securities to be
redeemed. In the case of any redemption of Securities prior to the expiration of
any restriction on such redemption or subject to compliance with conditions
provided in the terms of such Securities or elsewhere in this Indenture, the
Company shall furnish the Trustee with an Officer's Certificate evidencing
compliance with such restriction or conditions. Promptly after the calculation
by the Company of the Economic Make-Whole Premium, the Company will give the
Trustee notice thereof.

SECTION 9.3.......Selection by Trustee of Securities to Be Redeemed. If less
than all the Securities of any series are to be redeemed (unless all the
Securities of such series and of a specified tenor are to be redeemed or unless
such redemption affects only a single Security), the particular Securities to be
redeemed shall be selected not more than 30 days prior to the Redemption Date by
the Trustee from the Outstanding Securities of such series not previously called
for redemption pro rata or by lot or by such other method as the Trustee shall
deem fair and appropriate and which may provide for the selection for redemption
of a portion of the Principal Amount of any Security of such series, provided
that the unredeemed portion of the Principal Amount of any Security shall be in
an authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security, except that in the case of an Installment
Security redeemed in part, the face amount thereof after such redemption and not
the unpaid Principal Amount thereof shall be in an authorized denomination for
such Security. If less than all the Securities of such series and of a specified
tenor are to be redeemed (unless such redemption affects only a single
Security), the particular Securities to be redeemed shall be selected not more
than 30 days prior to the Redemption Date by the Trustee from the Outstanding
Securities of such series and specified tenor not previously called for
redemption in accordance with the preceding sentence.

                                    Page 64


                  The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption as aforesaid and, in case of any
Securities selected for partial redemption as aforesaid, the principal amount
thereof to be redeemed.

                  The provisions of the two preceding paragraphs shall not apply
with respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.

                  For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has been
or is to be redeemed.

SECTION 9.4.......Notice of Redemption. Notice of redemption shall be given by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date, to each Holder of Securities to be redeemed, at
his address appearing in the Security Register.

                  All notices of redemption shall state:

(a) the Redemption Date,

(b) the Redemption Price, provided, that, if the Redemption Price includes the
Economic Make-Whole Premium, such notice need not set forth the amount of such
Economic Make-Whole Premium, but need only set forth the manner in which such
Economic Make-Whole Premium is to be calculated.

(c) if less than all the Outstanding Securities of any series consisting of more
than a single Security and of a specified tenor are to be redeemed, the
identification (and, in the case of partial redemption of any such Securities,
the Principal Amounts) of the particular Securities to be redeemed and, if less
than all the Outstanding Securities of any series consisting of a single
Security are to be redeemed, the Principal Amount of the particular Securities
to be redeemed,

(d) that, on the Redemption Date, the Redemption Price will become due and
payable upon each such Security to be redeemed and, if applicable, that interest
thereon will cease to accrue on and after said date, and that interest accrued
to the Redemption Date will be paid to the Holder of the Security on the record
date prior to the Redemption Date,

(e) the place or places where each such Security is to be surrendered for
payment of the Redemption Price,

(f) that the redemption is for a sinking fund, if such is the case, and

(g) the CUSIP or ISIN number of the Securities to be redeemed.

                  Notice of Redemption of Securities to be redeemed at the
election of the Company shall be given by the Company to the Trustee and each
Holder of Securities or, at the Company's request, by the Trustee to each Holder
of Securities in the name and at the expense of the Company, and shall be
irrevocable.

SECTION 9.5.......Deposit of Redemption Price. On or prior to any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 8.4) an amount of money sufficient to pay the Redemption
Price of, and (except if the Redemption Date shall be an Interest Payment Date)
accrued interest on, all the Securities which are to be redeemed on that date.

SECTION 9.6.......Securities Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein


                                    Page 65


specified, and from and after such date (unless the Company shall default in the
payment of the Redemption Price and accrued interest) such Securities shall
cease to bear interest. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price, together with accrued interest to the Redemption Date;
provided, however, that, unless otherwise specified as contemplated by Section
2.3, installments of interest whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
2.9.

                  If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal and premium, if any,
thereof shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Security.

SECTION 9.7.......Securities Redeemed in Part. Any Security which is to be
redeemed only in part shall be surrendered at a Place of Payment therefor (with,
if the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge, a new Security or Securities of
the same series and of like tenor of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered; provided,
that, in the case of an Installment Security redeemed in part, no such new
Security shall be executed, authenticated and delivered in exchange for the
unredeemed portion thereof. Upon surrender of any such Installment Security, the
Security Registrar shall make a notation thereon of the unpaid principal amount
thereof.

SECTION 9.8.......Mandatory Redemption Upon a Casualty Event.

(a) Catastrophic Loss. In the event of a Catastrophic Loss, the Company shall
redeem Securities in inverse order of maturity, if applicable, in an amount
equal to the Securities Percentage of the applicable Proceeds ratably among each
series at a redemption price equal to the principal amount thereof plus accrued
interest to the Redemption Date.

(b) Material Loss. In the event of a Material Loss, the Company shall rebuild or
repair the Project.

(c) Excess Proceeds. Upon completion of the repair or restoration of the Project
following any Material Loss and the payment of all costs of such repair or
restoration, the excess, if any, of (x) the amount of the Proceeds of such
Casualty Event over (y) the aggregate amount of such costs of repair or
restoration shall be released to or for the account of, or shall otherwise be
made available to, the Partnership.

(d) Certain Notices. No later than 45 days prior to the date on which any
redemption of Securities is to be made pursuant to paragraph (a) of this Section
9.8, the Company will deliver to the Trustee a statement, certified by a Senior
Officer of the Company, in form and detail reasonably satisfactory to the
Trustee of the occurrence of such event and the amount of the Proceeds thereof.

SECTION 9.9.......Redemption at Company's Option. The Company shall have the
right to redeem all or any portion of the Outstanding Securities, in whole or in
part, at a Redemption Price equal to the Outstanding principal amount thereof
plus accrued and unpaid interest thereon to the Redemption Date, plus the
Economic Make-Whole Premium, if any, on a Redemption Date that it shall
establish in accordance with the provisions of Section 9.4 hereof.

                                   ARTICLE 10

                                  SINKING FUNDS

SECTION 10.1......Applicability of Article. The provisions of this Article 10
shall be applicable to any sinking fund for the retirement of Securities of any


                                    Page 66


series except as otherwise specified as contemplated by Section 2.3 for such
Securities.

                  The minimum amount of any sinking fund payment provided for by
the terms of any Securities is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of such Securities is herein referred to as an "optional sinking fund
payment". To the extent that a right to make an optional sinking fund payment is
not exercised in any year, it shall not be cumulative or carried forward to any
subsequent year. Unless otherwise provided for by the terms of any Securities,
the cash amount of any sinking-fund payment may be subject to reduction as
provided in Section 10.2. Each sinking fund payment shall be applied to the
redemption of Securities as provided for by the terms of such Securities.

SECTION 10.2......Satisfaction of Sinking Fund Payments with Securities. The
Company (a) may deliver Outstanding Securities of a series (other than any
previously called for redemption) and (b) may apply as a credit Securities of a
series which have been redeemed either at the election of the Company pursuant
to the terms of such Securities or through the application of permitted optional
sinking fund payments pursuant to the terms of such Securities, in each case in
satisfaction of all or any part of any sinking fund payment with respect to any
Securities of such series required to be made pursuant to the terms of such
Securities as and to the extent provided for by the terms of such Securities;
provided that the Securities to be so credited shall not have been previously so
credited. The Securities to be so credited shall be received and credited for
such purpose by the Trustee at the Redemption Price, as specified in the
Securities so to be redeemed, for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.

SECTION 10.3......Redemption of Securities for Sinking Fund. Not less than 60
days prior to each sinking fund payment date for any Securities, the Company
will deliver to the Trustee an Officer's Certificate specifying the amount of
the next ensuing sinking fund payment for such Securities pursuant to the terms
of such Securities, the portion thereof, if any, which is to be satisfied by
payment of cash, the portion thereof, if any, which is to be satisfied by
delivering and crediting Securities pursuant to Section 10.2, the basis for such
credit, and that such Securities have not been previously so credited, and will
also deliver to the Trustee any Securities to be so delivered. Not less than 45
days prior to each such sinking fund payment date, the Trustee shall select the
Securities to be redeemed upon such sinking fund payment date in the manner
specified in Section 9.3 and cause notice of the redemption thereof to be given
in the name of and at the expense of the Company in the manner provided in
Section 9.4. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections 9.6
and 9.7.

                                   ARTICLE 11

                       DEFEASANCE AND COVENANT DEFEASANCE

SECTION 11.1......Company's Option to Effect Defeasance or Covenant Defeasance.
The Company may elect, at its option at any time, to have Section 11.2 or
Section 11.3 applied to any Securities or any series of Securities, as the case
may be, designated pursuant to Section 2.3 as being defeasible pursuant to such
Section 11.2 or 11.3, in accordance with any applicable requirements provided
pursuant to Section 2.3 and upon compliance with the conditions set forth below
in this Article 11. Any such election shall be evidenced in the manner specified
as contemplated by Section 2.3 for such Securities.

SECTION 11.2......Defeasance and Discharge. Upon the Company's exercise of its
option (if any) to have this Section 11.2 applied to any Securities or any
series of Securities, as the case may be, the Company shall be deemed to have
been discharged from its obligations with respect to such Securities as provided
in this Section on and after the date the conditions set forth in Section 11.4
are satisfied (hereinafter called "Defeasance"). For this purpose, such
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by such Securities and to have satisfied all
its other obligations under such Securities and this Indenture insofar as such
Securities are concerned (and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging the same), subject to the following


                                    Page 67


which shall survive until otherwise terminated or discharged hereunder: (a) the
rights of Holders of such Securities to receive, solely from the trust fund
described in Section 11.4 and as more fully set forth in such Section 11.4,
payments in respect of the principal of, premium, if any, and interest on such
Securities when payments are due, (b) the Company's obligations with respect to
such Securities under Sections 2.7, 2.8, 8.4 and 8.17, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (d) this Article 11.
Subject to compliance with this Article 11, the Company may exercise its option
(if any) to have this Section 11.2 applied to any Securities notwithstanding the
prior exercise of its option (if any) to have Section 11.3 applied to such
Securities.

SECTION 11.3......Covenant Defeasance. Upon the Company's exercise of its option
(if any) to have this Section 11.3 applied to any Securities or any series of
Securities, as the case may be, (a) the Company shall be released from its
obligations under Sections 8.1 (other than the obligation set forth in clause
(i) of the last paragraph thereof, such delivery obligation to be fulfilled
within 60 days after the end of each of the first three quarterly fiscal periods
of each fiscal year of the Partnership and within 120 days after the end of each
fiscal year of the Partnership), 8.5 and 8.7 through 8.16, inclusive, 8.21
through 8.24 inclusive, 8.26 and 8.27 and any covenants provided pursuant to
Section 2.3(s), 7.1(b) or 7.1(g) for the benefit of the Holders of such
Securities and (b) the occurrence of any event specified in Sections 8.1 (other
than the obligation set forth in clause (i) of the last paragraph thereof, such
delivery obligation to be fulfilled within 60 days after the end of each of the
first three quarterly fiscal periods of each fiscal year of the Partnership and
within 120 days after the end of each fiscal year of the Partnership) and 8.5
and 8.7 through 8.16, inclusive, 8.21 through 8.24 inclusive, 8.26 and 8.27 and
any such covenants provided pursuant to Section 2.3(s), 7.1(b) or 7.1(g) shall
be deemed not to be or result in an Event of Default in each case with respect
to such Securities as provided in this Section 11.3 on and after the date the
conditions set forth in Section 11.4 are satisfied (hereafter called "Covenant
Defeasance"). For this purpose, such Covenant Defeasance means that, with
respect to such Securities, the Company may omit to comply with and shall have
no liability in respect of any term, condition or limitation set forth in any
such specified Section, whether directly or indirectly by reason of any
reference elsewhere herein to any such Section or by reason of any reference in
any such Section to any other provision herein or in any other document, but the
remainder of this Indenture and such Securities shall be unaffected thereby.

SECTION 11.4......Conditions to Defeasance or Covenant Defeasance. The following
shall be the conditions to the application of Section 11.2 or Section 11.3 to
any Securities or any series of Securities, as the case may be:

(a) The Company shall irrevocably have deposited or caused to be deposited with
the Trustee as trust funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to, the
benefits of the Holders of such Securities, (i) money in an amount, or (ii) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, money in an amount, or
(iii) a combination thereof, in each case sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee to pay and discharge, the principal
of, premium, if any, and interest on such Securities on the respective Stated
Maturities or Redemption Dates, in accordance with the terms of this Indenture
and such Securities. As used herein, "U.S. Government Obligation" means (x) any
security which is (i) a direct obligation of the United States of America for
the payment of which the full faith and credit of the United States of America
is pledged or (ii) an obligation of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which in either case (i) or (ii), is
not callable or redeemable at the option of the issuer thereof, and (y) any
depositary receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act) as custodian with respect to any U.S. Government Obligation
which is specified in clause (x) above and held by such bank for the account of
the holder of such depositary receipt, or with respect to any specific payment
of principal of or interest on any U.S. Government Obligation which is so


                                    Page 68


specified and held, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depositary receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of principal or interest
evidenced by such depositary receipt.

(b) In the event of an election to have Section 11.2 apply to any Securities or
any series of Securities as the case may be, the Company shall have delivered to
the Trustee an Opinion of Counsel stating that (i) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling or
(ii) since the date of this instrument, there has been a change in the
applicable Federal income tax law, in either case (i) or (ii) to the effect
that, and based thereon such opinion shall confirm that, the Holders of such
Securities will not recognize gain or loss for Federal income tax purposes as a
result of the deposit, Defeasance and discharge to be effected with respect to
such Securities and will be subject to Federal income tax on the same amount, in
the same manner and at the same times as would be the case if such deposit,
Defeasance and discharge were not to occur.

(c) In the event of an election to have Section 11.3 apply to any Securities or
any series of Securities, as the case may be, the Company shall have delivered
to the Trustee an Opinion of Counsel to the effect that the Holders of such
Securities will not recognize gain or loss for Federal income tax purposes as a
result of the deposit and Covenant Defeasance to be effected with respect to
such Securities and will be subject to Federal income tax on the same amount, in
the same manner and at the same times as would be the case if such deposit and
Covenant Defeasance were not to occur.

(d) The Company shall have delivered to the Trustee an Officer's Certificate to
the effect that neither such Securities nor any other Securities of the same
series, if then listed on any securities exchange, will be delisted as a result
of such deposit.

(e) No Default with respect to such Securities or any other Securities shall
have occurred and be continuing at the time of such deposit or, with regard to
any such event specified in Sections 4. 1 (g), (h) and (i), at any time on or
prior to the 90th day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until after such 90th day).

(f) Such Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company is a party or by which it is bound.

(g) Such Defeasance or Covenant Defeasance shall not result in the trust arising
from such deposit constituting an investment company within the meaning of the
Investment Company Act unless such trust shall be registered under such Act or
exempt from registration thereunder.

(h) At the time of such deposit, (i) no default in the payment of any principal
of or premium or interest on any Securities shall have occurred and be
continuing, (ii) no Event of Default with respect to any Securities shall have
resulted in such Securities becoming, and continuing to be, due and payable
prior to the date on which they would otherwise have become due and payable
(unless payment of such Securities has been made or duly provided for), and
(iii) no other Event of Default with respect to any Securities shall have
occurred and be continuing permitting (after notice or lapse of time or both)
the Holders of such Securities (or a Trustee on behalf of such Holders) to
declare such Securities due and payable prior to the date on which they would
otherwise have become due and payable.

(i) Any Securities that are to be redeemed in connection with any Defeasance or
Covenant Defeasance shall be redeemed in accordance with arrangements
satisfactory to the Trustee for the giving of irrevocable notice of redemption
by the Trustee in the name, and at the expense of the Company.

(j) The Company shall have delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel each stating that all conditions precedent with respect to
such Defeasance or Covenant Defeasance have been complied with.

                                    Page 69


SECTION 11.5......Deposited Money and U.S. Government Obligations to Be Held in
Trust; Miscellaneous Provisions. Subject to the provisions of the last paragraph
of Section 8.4, all money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee pursuant to Section 11.4 in respect
of any Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any such Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities, of all sums due and to become due thereon in respect of
principal and any premium and interest, but money so held in trust need not be
segregated from other funds except to the extent required by law.

                  The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 11.4 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of Outstanding Securities.

                  Anything in this Article 11 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon receipt
of a Company Request any money or U.S. Government Obligations held by it as
provided in Section 11.4 with respect to any Securities which, in the opinion of
a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee are in excess of the
amount thereof which would then be required to be deposited to effect the
Defeasance or Covenant Defeasance, as the case may be, with respect to such
Securities.

SECTION 11.6......Reinstatement. If the Trustee or the Paying Agent is unable to
apply any money in accordance with this Article 11 with respect to any
Securities by reason of any order or judgment of any court or Governmental
Authority enjoining, restraining or otherwise prohibiting such application, then
the obligations under this Indenture and such Securities from which the Company
has been discharged or released pursuant to Section 11.2 or 11.3 shall be
revived and reinstated as though no deposit had occurred pursuant to this
Article 11 with respect to such Securities, until such time as the Trustee or
Paying Agent is permitted to apply all money held in trust pursuant to Section
11.5 with respect to such Securities in accordance with this Article 11 ;
provided however, that if the Company makes any payment of principal of or any
premium or interest on any such Security following such reinstatement of its
obligations, the Company, as the case may be, shall be subrogated to the rights
(if any) of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations so held in trust.

                                   ARTICLE 12

                              PARTNERSHIP GUARANTEE

SECTION 12.1......Obligations Guaranteed. (a) The Partnership hereby guarantees,
subject to the provisions of Section 13.2, to the Trustee for its own benefit
and the benefit of the Holders from time to time (i) the full and prompt payment
of the principal of and premium, if any, on the Securities and the indebtedness
represented thereby, when and as the same shall become due and payable, whether
at the Stated Maturity thereof, by acceleration, call for redemption or
otherwise, (ii) the full and prompt payment of interest on the Securities when
and as the same shall become due and payable (the guarantee in clauses (i) and
(ii) collectively referred to as the "Partnership Guarantee"), and (iii) the
full and prompt payment to the Trustee of all fees, costs, expenses, or other
amounts payable to the Trustee under the Indenture when and as the same shall
become due and payable. The Partnership hereby irrevocably and unconditionally
agrees, subject to the provisions of Section 12.2 and Section 13.2 that upon any
default by the Company in the payment, when due, of any principal of, premium,
if any, or interest on the Securities, and after demand therefore being made
upon the Company by the Trustee, the Partnership will promptly pay the same. All
payments by the Partnership shall be paid in lawful money of the United States
of America. Each and every default in the payment of the principal of, premium,
if any, or interest on the Securities shall, subject to the provisions of
Section 13.2, give rise to a separate cause of action hereunder, and separate
suits may be brought hereunder as each cause of action arises.

                                    Page 70


(b) The Partnership further agrees, subject to the provisions of Section 12.2
and Section 13.2, that this Partnership Guarantee constitutes an absolute,
present and continuing guarantee of payment and not of collection, and waives
any right to require that any resort be had by the Trustee or the Holders of the
Securities, after demand for such payment being made upon the Company by the
Trustee, to the Trustee's or any Holder's rights against any other Person, or
any other right or remedy available to the Trustee or any Holder of the
Securities by contract, applicable law or otherwise. The obligations of the
Partnership under this Partnership Guarantee are direct, unconditional and
completely independent of the obligations of any other Person, and, subject to
the provisions of Section 12.2; a separate cause of action or separate causes of
action may be brought and prosecuted against the Partnership, after demand for
payment being made upon the Company by the Trustee, without the necessity of
joining the Company or any other party or previously proceeding with or
exhausting any other remedy against any other Person who might have become
liable for the indebtedness or of realizing upon any security held by or for the
benefit of the Holders of the Securities.

SECTION 12.2......Obligations Unconditional. The obligations of the Partnership
under this Partnership Guarantee shall, subject to the provisions of Section
13.2, be absolute and unconditional, and shall remain in full force and effect,
until the entire principal of, premium, if any, and interest on the Securities
shall have been paid in full or provided for and all costs, Trustee's fees and
commissions, indemnitees, and expenses, if any, shall have been paid in full
and, to extent permitted by law, such obligations shall not be affected,
modified, released or impaired by any state of facts or the happening from time
to time of any event, whatsoever, whether or not with notice to, or the consent
of, the Partnership, except as set forth in Section 13.2 hereof.

SECTION 12.3......No Waiver or Set-off. No act of commission or omission of any
kind or at any time upon the part of the Company or the Trustee, or their
successors and assigns, in respect of any matter whatsoever shall in any way
impair the rights of the Trustee to enforce any right, power or benefit under
this Partnership Guarantee and no set-off, counterclaim, reduction, or
diminution of any obligation, or any defense of a surety guarantor (other than
performance by the Partnership of its obligations hereunder, or receipt by the
Trustee of payment from the Company) which the Partnership has or may have
against the Company or the Trustee or any assignee or successor thereof shall be
available hereunder to the Partnership.

SECTION 12.4......Waiver of Notice; Expenses. The Partnership hereby expressly
waives notice from the Trustee or the Holders from time to time of the
Securities of their acceptance and reliance on this Partnership Guarantee of any
action taken or omitted in reliance hereon. The Partnership further expressly
waives diligence, presentment, demand for payment, protest, any requirement that
any right or power be exhausted or any action be taken against the Company or
the Partnership or against any Collateral. The Partnership agrees to pay all
reasonable costs, Trustee's fees and commissions and expenses (including all
court costs and reasonable attorneys' fees) which may be incurred by the Trustee
in enforcing or attempting to enforce this Partnership Guarantee following any
default on the part of the Partnership hereunder, whether the same shall be
enforced by suit or otherwise.

SECTION 12.5......Benefit and Enforcement. This Partnership Guarantee is given
for the benefit of the Company and the Trustee and, subject to the terms and
conditions set forth herein, including Section 4.7, the Holders from time to
time of the Securities, all of whom shall be entitled in the same manner as set
forth herein to enforce performance and observance of this Partnership
Guarantee.

SECTION 12.6......Survival of Partnership Guarantee Obligation; Waiver of
Subrogation. (a) If the Trustee receives any payment on account of the
liabilities guaranteed hereunder, which payment or any part thereof is
subsequently invalidated declared to be fraudulent or preferential, set aside
and/or required to be transferred or repaid to a trustee, receiver, assignee for
the benefit of creditors or any other party under any bankruptcy act or code,
state or federal law of common law or equitable doctrine, then to the extent of
any sum not finally retained by the Trustee, this Partnership Guarantee shall
remain in full force and effect until the Partnership shall have made payment to
the Trustee of such sum, which payment shall be due on demand.

                                    Page 71


(b) The Partnership hereby irrevocably waives any and all right to which it may
be entitled, by operation of law or otherwise, upon making any payment hereunder
(i) to be subrogated to the rights of the Trustee or the Holders against the
Company (or any Collateral) with respect to such payment or otherwise to be
reimbursed, indemnified or exonerated by the Company (or from the proceeds of
the Collateral) in respect thereof, or (ii) to receive any payment, in the
nature of contribution or for any other reason, from any other guarantor with
respect to such payment.

SECTION 12.7......Pledge of Partnership Collateral. As security for the prompt
payment and performance of all obligations of the Partnership under this
Partnership Guarantee, the Partnership has entered into the Partnership Security
Agreement to pledge, assign, hypothecate, bargain, sell, convey, mortgage and
grant to the Collateral Agent a security interest in and general lien upon all
of the Collateral owned by the Partnership. The pledge and assignment by the
Partnership of such Collateral is collateral and security for the prompt payment
and performance of the obligations of the Partnership under this Partnership
Guarantee.

                                   ARTICLE 13

                             LIMITATION OF LIABILITY

SECTION 13.1......Company. No recourse shall be had for the payment of the
principal (or premium, if any) or the interest on any Security, or for any claim
based thereon or otherwise in respect thereof, or of the indebtedness
represented thereby, or upon any obligation, covenant or agreement in this
Indenture or any other Transaction Agreement, against any Affiliate of the
Company or any incorporator, stockholder, officer, employee, partner, member or
director as such, past, present or future, of the Company or any Affiliate of
the Company or of any predecessor or successor (either directly or through the
Company or any such predecessor or successor), whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Company's obligation under the Securities, this Indenture and other Transaction
Agreements and all the obligations are solely corporate obligations of the
Company's, and that no personal liability whatsoever shall attach to, or be
incurred by any Affiliate of the Company or any such incorporator, stockholder,
officer, employee, partner, member or director, past, present or future, of the
Company or any Affiliate of the Company or of any such predecessor or successor
(either directly or indirectly through the Company or any such predecessor or
successor), because of any of the obligations, covenants, promises or agreements
contained in the Securities, this Indenture or any other Transaction Agreement
or to be implied herefrom or therefrom; and that any such personal liability is
hereby expressly waived and released as a condition of, and as part of the
consideration for, the execution of this Indenture and the delivery of the
Securities; provided, however, that nothing contained herein or in the
Securities shall be taken to prevent the institution of proceedings against any
Person in connection with the realization of the benefit of the Collateral
granted under the Security Agreements; and provided, further, that nothing in
this Section 13.1 shall relieve any Person of its obligations under this
Indenture, the Securities or any other Transaction Agreement to which such
Person is a party or limit or otherwise prejudice in any way the right of the
Collateral Agent or the Trustee to proceed against any such Person with respect
to the enforcement of such obligations.

SECTION 13.2......Partnership. Satisfaction of the obligations of the
Partnership under this Instrument and the Securities shall be had solely from
the assets of the Partnership. No recourse shall be had in the event of any
non-performance by the Partnership of any such obligations to (a) any assets or
properties of the Partners other than their respective interests in the
Collateral or (b) any Partners or any Affiliate of any Partners or of the
Partnership or any incorporator, stockholder, partner, member, officer, employee
or director, past, present or future, of any such Partner or Affiliate or of any
predecessor or successor (either directly or through either Partnership or any
Partner or any such predecessor or successor), whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, and no judgment for any deficiency upon the obligations of
the Partnership under this Indenture and the Securities shall be obtainable by
the Collateral Agent or the Trustee against any Partner or any Affiliate of any


                                    Page 72


Partner or of the Partnership or any incorporator, stockholder, partner, member,
officer, employee or director, past, present or future, of any Partner or
Affiliate or of any predecessor or successor of any such Partner or Affiliate;
provided, however, that nothing in this Section 13.2 shall relieve any Person of
its obligations under any Transaction Agreement to which such Person is a party
or limit or otherwise prejudice in any way the right of the Collateral Agent or
the Trustee to proceed against such Person with respect to the enforcement of
such obligations.

                  IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed and their respective seals to be hereunto affixed
and attested, all as of the day and year first above written.

                                 KERN RIVER FUNDING CORPORATION


                                 By:
                                       ------------------------------------
                                       Name:
                                       Title:

                                 KERN RIVER GAS TRANSMISSION COMPANY

                                 By:   KERN RIVER ACQUISITION, LLC,
                                       as General Partner

                                 By:
                                       ------------------------------------
                                       Name:
                                       Title:

                                 By:   WILLIAMS WESTERN PIPELINE COMPANY, LLC,
                                       as General Partner

                                 By:
                                       -------------------------------------
                                       Name:
                                       Title:

                                 THE CHASE MANHATTAN BANK,
                                 as Trustee

                                 By:
                                       -------------------------------------
                                       Name:
                                       Title:




                                    Page 73



                                                                      EXHIBIT A


                           [FORM OF FACE OF SECURITY]

                           [GLOBAL SECURITIES LEGEND]

                  [INCLUDE IF SECURITY IS A GLOBAL SECURITY - UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO KERN RIVER FUNDING CORPORATION ("THE
COMPANY") OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

                  THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO. THIS GLOBAL SECURITY MAY NOT BE EXCHANGED, IN
WHOLE OR IN PART, FOR A SECURITY REGISTERED IN THE NAME OF ANY PERSON OTHER THAN
THE DEPOSITORY TRUST COMPANY OR A NOMINEE THEREOF EXCEPT IN THE CIRCUMSTANCES
SET FORTH IN SECTION 2.7 OF THE INDENTURE, AND MAY NOT BE TRANSFERRED, IN WHOLE
OR IN PART, EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.7
OF THE INDENTURE. BENEFICIAL INTERESTS IN THIS GLOBAL SECURITY MAY NOT BE
TRANSFERRED EXCEPT IN ACCORDANCE WITH SECTION 2.7 OF THE INDENTURE.]

                         [RESTRICTED SECURITIES LEGEND]

                  [INCLUDE IF SECURITY IS A RESTRICTED SECURITY OR A TEMPORARY
REGULATION S GLOBAL SECURITY (UNLESS, PURSUANT TO SECTION 2.7, THE COMPANY
DETERMINES THAT THE LEGEND MAY BE REMOVED) - THIS SECURITY (OR ITS PREDECESSOR)
WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED
STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY
NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER.

                  THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO ANY EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS
SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

                  IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO
THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.]

                  [Insert any legend required by the Internal Revenue Code of
1986, as amended, and the regulations thereunder.]




                                    Page 74


                         KERN RIVER FUNDING CORPORATION

                           6.676% Senior Note due 2016

No.                                                              $
   ----------                                                    ----------

                  KERN RIVER FUNDING CORPORATION, a corporation duly organized
and existing under the laws of the State of Delaware (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to , or
registered assigns, [INCLUDE IF THIS SECURITY IS A GLOBAL SECURITY -- the
Initial Principal Amount specified on Schedule A hereto (such Initial Principal
Amount, as it may from time to time be adjusted by endorsement on Schedule A
hereto, is hereinafter referred to as the "Principal") [INCLUDE IF THIS SECURITY
IS NOT A GLOBAL SECURITY -- the principal sum of Dollars (the "Principal
Amount")] on [if the Security is to bear interest prior to Maturity, insert -- ,
and to pay interest thereon from [________] or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, monthly on
the last day of each month, commencing [________], at the rate of [__]% per
annum (computed on the basis of a 360-day year of twelve 30-day months), until
the principal hereof is paid or made available for payment [if applicable,
insert --, provided that any principal and premium, and any such installment of
interest, which is overdue shall bear interest at the rate of % per annum (to
the extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand]. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the 15th day of the
month (whether or not a Business Day), in which each applicable Interest Payment
Date shall occur. Any such interest not so punctually paid or duly provided for
will forthwith cease to be payable to the Holder on such Regular Record Date and
may either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Company, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of this series may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in said Indenture].

                  [If the Security is not to bear interest prior to Maturity,
insert -- The principal of this Security shall not bear interest except in the
case of a default in payment of principal upon acceleration, upon redemption or
at Stated Maturity and in such case the overdue principal and any overdue
premium shall bear interest at the rate of % per annum, (to the extent that the
payment of such interest shall be legally enforceable), from the dates such
amounts are due until they are paid or made available for payment. Interest on
any overdue principal or premium shall be payable on demand. [Any such interest
on overdue principal or premium which is not paid on demand shall bear interest
at the rate of __% per annum (to the extent that the payment of such interest on
interest shall be legally enforceable) from the date of such demand until the
amount so demanded is paid or made available for payment. Interest on any
overdue interest shall be payable on demand.]]

                  Payment of the principal of (and premium, if any) and [if
applicable, insert - any such interest] on this Security will be made at the
office or agency of the Company maintained for that purpose in the Borough of
Manhattan, The City of New York in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts [if applicable, insert -- ; provided, however, that at the option
of the Company payment of interest may be made by check mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register], provided, further, that, in the case of an Installment Security,
payment of principal and premium, if any, shall also be made by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Security Registrar without any requirement for the presentation and surrender of
such Security at such office or agency, except in connection with a redemption
or the final principal payment thereon.

                  Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.

                  Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.

                                    Page 75


                  IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.

Dated:

                                    KERN RIVER FUNDING CORPORATION,
                                      As Issuer

                                    By
                                       ----------------------------------

                                    KERN RIVER GAS TRANSMISSION COMPANY,
                                      As Guarantor

                                    By
                                       ----------------------------------



                          CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred to in
the within mentioned Indenture.

                                    THE CHASE MANHATTAN BANK
                                    As Trustee

                                    By
                                       ----------------------------------
                                       Authorized Officer




                                    Page 76



                          [FORM OF REVERSE OF SECURITY]

                  This Security is one of a duly authorized issue of securities
of the Company (herein called the "Securities"), issued and to be issued in one
or more series under a Trust Indenture, dated as of August 13, 2001(as the same
may be amended or supplemented from time to time the "Indenture"), among Kern
River Funding Corporation, as issuer (the "Company"), Kern River Gas
Transmission Company, as guarantor (the "Partnership"), and The Chase Manhattan
Bank, as trustee (the "Trustee," which term includes any successor trustee under
the Indenture), and reference is hereby made to the Indenture for a statement of
the respective rights, limitations of rights, duties and immunities thereunder
of the Company, the Partnership, the Trustee and the Holders of the Securities
and of the terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof [if
applicable, insert -- , limited in principal amount to $510,000,000.

                  If applicable, insert -- The Securities of this series are
subject to redemption upon not less than 30 days' notice by mail, [if
applicable, insert -- (1) on _____ in any year commencing with the year _____
and ending with the year _____through operation of the sinking fund for this
series at a Redemption Price equal to 100% of the principal amount hereof, and
(2)] at any time [if applicable, insert -- on or after ________,_____], as a
whole or in part, at the election of the Company at a Redemption Price equal to
100% of the principal amount hereof plus the Economic Make-Whole Premium, with
accrued interest to the Redemption Date, but interest installments whose Stated
Maturity is on or prior to such Redemption Date will be payable to the Holders
of such Securities, or one or more Predecessor Securities, of record at the
close of business on the relevant Record Dates referred to on the face hereof
all as provided in the Indenture.]

                  [if applicable, insert -- The sinking fund for this series
provides for the redemption on _____ in each year _____ beginning ___________
with the year ________ and ending with the year __________ of [if applicable,
insert -- not less than $__________ ("mandatory sinking fund") and not more
than] $____________ aggregate principal amount of Securities of this series.
Securities of this series acquired or redeemed by the Company otherwise than
through [if applicable, insert -- mandatory] sinking fund payments may be
credited against subsequent [if applicable, insert -- mandatory] sinking fund
payments otherwise required to be made [if applicable, insert -- , in the
inverse order in which they become due].]

                  [If the Security is subject to redemption of any kind, insert
- -- Except in the case of an Installment Security, in the event of redemption of
this Security in part only, a new Security or Securities of this series and of
like tenor for the unredeemed portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.)

                  [If applicable, insert -- The indenture contains provisions
for defeasance at any time of [the entire indebtedness of this Security] [or]
[certain restrictive covenants and Events of Default with respect to this
Security] [, in each case] upon compliance with certain conditions set forth in
the Indenture.]

                  [If the Security is not an Original Issue Discount Security,
insert -- If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.]

                  If the Security is an Original Issue Discount Security, insert
- -- If an Event of Default with respect to Securities of this series shall occur
and be continuing, an amount of principal of the Securities of this series may
be declared due and payable in the manner and with the effect provided in the
Indenture. Such amount shall be equal to -- insert formula for determining the
amount. Upon payment (i) of the amount of principal so declared due and payable
and (ii) of interest on any overdue principal, premium and interest (in each
case to the extent that the payment of such interest shall be legally
enforceable) all of the Company's obligations in respect of the payment of the
principal of and principal and interest, if any, on the Securities of this
series shall terminate.]

                  Subject to certain limitations in the Indenture, at any time
when the Company is not subject to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), upon the request of a
Holder of a Security [or of a beneficial owner of an interest in a Global
Security], the Company will promptly furnish or cause to be furnished Rule 144A
Information (as defined below) to such Holder [or beneficial owner), or to a
prospective purchaser of a Security [or a beneficial interest in a Global
Security] designated by such Holder [or beneficial owner of such interest], in
order to permit compliance by such Holder [or beneficial owner] with Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act"). "Rule 144A
Information" shall be such information as is specified pursuant to Rule
144A(d)(4) under the Securities Act (or any successor provision thereto).

                  The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the Partnership and the rights of the Holders of
the Securities of each series to be affected under the Indenture at any time by
the Company, the Partnership and the Trustee with the consent of the Holders of
a majority in principal amount of the Securities at the time Outstanding of each
series to be affected. The Indenture also contains provisions permitting the
Holders of specified percentage in principal amount of the Securities of each
series at the time Outstanding, on behalf of the Holders of all Securities of
such series, to waive certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Security.

                  As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of


                                    Page 77


Securities of this series at the time Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity.

                  The foregoing shall not apply to any suit by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.

                  No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair (i) the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest on this Security at the times, place and rate, and in the
coin or currency, herein prescribed or (ii) the unconditional guarantee of the
Partnership of the obligations of the Company under this Security and the
Indenture.

                  As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
any place where the principal of and any premium and interest on this Security
are payable, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities of this series and of like tenor, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.

                  The Securities of this series are issuable only in registered
form without coupons in denominations of $100,000 and any integral multiples of
$1,000 in excess thereof. As provided in the Indenture and subject to certain
limitations therein set forth Securities of this series are exchangeable for a
like aggregate principal amount of Securities of this series and of like tenor
of a different authorized denomination, as requested by the Holder surrendering
the same.

                  No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.

                  Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and none of
the Company, the Trustee and any such agent shall be affected by notice to the
contrary.

                  Each holder, by acceptance of this Security, hereby
acknowledges and agrees that (i) no recourse shall be had for the payment of the
principal of or the interest on this Security, or any part thereof, or for any
claim based thereon or otherwise in respect thereof, or of the indebtedness
represented hereby against any Affiliate of the Company (other than the
Partnership) or any incorporator, stockholder, officer, employee or director, as
such, present or future, of the Company or any Affiliate of the Company or of
any predecessor or successor, all as provided in Section 13.1 of the Indenture
and (ii) no recourse shall be had in the event of any non-performance by the
Partnership of any obligations of the Partnership under this Security or the
Indenture to the Partners or any Affiliate thereof or to any assets or
properties of the Partners other than their respective interests in the
Collateral, all as provided in Section 13.2 of the Indenture.

                  The Securities are subject to a Collateral Agency Agreement
dated as of August 13, 2001 pursuant to which the rights of the Senior Parties
(including the Holders of the Securities and certain other creditors of the
Company and the Partnership) in respect of the Collateral will be shared among
the Senior Parties and will be exercised by the Collateral Agent in accordance
with the Collateral Agency Agreement.

                                    Page 78


                  All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.

                  This Security shall be governed by and construed in accordance
with the laws of the State of New York.


         [IF SECURITY IS A GLOBAL SECURITY, INSERT AS A SEPARATE PAGE --

         THE INITIAL PRINCIPAL AMOUNT OF THIS GLOBAL SECURITY IS ______.

                                                                     Schedule A

                             SCHEDULE OF ADJUSTMENTS




                                                                                                 Notation made on
                           Principal amount of    Principal amount of      Principal amount         behalf of the
  Date adjustment made          increase                decrease         following adjustment    Security Registrar

































                                    Page 79




                                                                      EXHIBIT B

                          FORM OF TRANSFER CERTIFICATE
                 FOR EXCHANGE OR TRANSFER FROM RESTRICTED GLOBAL
                    SECURITY TO REGULATION S GLOBAL SECURITY
                   (Transfers pursuant to Section 2.7(c)(v)(B)
                                of the Indenture)


The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Attn.:  Institutional Trust Services


          Re:     Kern  River Funding Corporation
                  6.676% Senior Notes Due 2016 (the "Securities")

                  Reference is hereby made to the Trust Indenture, dated as of
August 13, 2001 (the "Indenture"), among Kern River Funding Corporation, as
issuer (the "Company") Kern River Gas Transmission Company, as guarantor, and
The Chase Manhattan Bank, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

                  This letter relates to US$510,000,000 principal amount of
Securities which are evidenced by one or more Restricted Global Securities
(CUSIP No. 49228RAC7) and held with the Depository in the name of [Insert Name
of Transferor] (the "Transferor"). The Transferor has requested a transfer of
such beneficial interest in the Securities to a Person who will take delivery
thereof in the form of an equal principal amount of Securities evidenced by one
or more Regulation S Global Securities (ISIN No. USU4912PAC42), which amount,
immediately after such transfer, is to be held with the Depository through
Euroclear or Clearstream or both (Common Code ________).

                  In connection with such request and in respect of such
Securities, the Transferor does hereby certify that such transfer has been
effected pursuant to and in accordance with Rule 903 or Rule 904 under the
United States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor does hereby further certify that:

(a)               the offer of the Securities was not made to a person in the
                  United States;

(b)               either:

(i)               at the time the buy order was originated, the transferee was
                  outside the United States or the Transferor and any person
                  acting on its behalf reasonably believed and believes that the
                  transferee was outside the United States; or

(ii)              the transaction was executed in, or through the facilities of
                  a designated offshore securities market and neither the
                  Transferor nor any person acting on its behalf knows that the
                  transaction was prearranged with a buyer in the United States;

(c)               no directed selling efforts have been made in contravention of
                  the requirements of Rule 903(b) or 904(b) of Regulation S, as
                  applicable;

(d)               the transaction is not part of a plan or scheme to evade the
                  registration requirements of the Securities Act; and

(e)               upon completion of the transaction, the beneficial interest
                  being transferred as described above is to be held with the
                  Depository through Euroclear or Clearstream or both (Common
                  Code ___).

                                    Page 80


                  This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the underwriters or initial
purchasers, if any, of the initial offering of such Securities being
transferred. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.

                           [Insert Name of Transferor]



                                  By:
                                     ----------------------------------------
                                  Name:
                                  Title:

Dated: _____________, ____



cc:  Kern River Funding Corporation












































                                    Page 81



                                                                      EXHIBIT C

                          FORM OF TRANSFER CERTIFICATE
                   FOR TRANSFER OR EXCHANGE FROM REGULATION S
                  GLOBAL SECURITY TO RESTRICTED GLOBAL SECURITY
                   (Transfers Pursuant to Section 2.7(c)(v)(D)
                                of the Indenture)


The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Attn.:  Institutional Trust Services

         Re:      Kern  River Funding Corporation
                  6.676% Senior Notes Due 2016 (the "Securities")

                  Reference is hereby made to the Trust Indenture, dated as of
August 13, 2001 (the "Indenture"), among Kern River Funding Corporation, as
issuer (the "Company") Kern River Gas Transmission Company, as guarantor, and
The Chase Manhattan Bank, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

                  This letter relates to US$510,000,000 principal amount of
Securities which are evidenced by one or more Regulation S Global Securities
(ISIN No. USU4912PAC42) and held with the Depository through [Euroclear]
[Clearstream] (Common Code ______) in the name of [Insert Name of Transferor]
(the "Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Securities to a Person who will take delivery thereof in the
form of an equal principal amount of Securities evidenced by one or more
Restricted Global Securities (CUSIP No. 49228RAC7), to be held with the
Depository.

                  In connection with such request and in respect of such
Securities, the Transferor does hereby certify that such transfer has been
effected pursuant to and in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the
Transferor does hereby further certify that the Securities are being transferred
to a Person that the Transferor reasonably believes is purchasing the Securities
for its own account, or for one or more accounts with respect to which such
Person exercises sole investment discretion, and such Person and each such
account is a "qualified institutional buyer" within the meaning of Rule 144A, in
each case in a transaction meeting the requirements of Rule 144A and in
accordance with any applicable blue sky or securities laws or any state of the
United States.

                                    Page 82


                  This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the underwriters and initial
purchasers, if any, of the Securities being transferred.

                           [Insert Name of Transferor]


                                          By:
                                             ----------------------------------
                                          Name:
                                          Title:

Dated: _____________, ____



cc:  Kern River Funding Corporation










































                                    Page 83



                                                                      EXHIBIT D

                          FORM OF TRANSFER CERTIFICATE
                            FOR TRANSFER OR EXCHANGE
                             OF RESTRICTED SECURITY
              (Transfers Pursuant to Section 2.7(b) or 2.7(c)(v)(E)
                                of the Indenture)


The Chase Manhattan Bank

450 West 33rd Street, 15th Floor

New York, New York 10001

Attn.:  Institutional Trust Services

         Re:      Kern  River Funding Corporation

                  6.676% Senior Notes Due 2016 (the "Securities")

                  Reference is hereby made to the Trust Indenture, dated as of
August 13, 2001 (the "Indenture"), among Kern River Funding Corporation, as
issuer (the "Company") Kern River Gas Transmission Company, as guarantor, and
The Chase Manhattan Bank, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

                  This letter relates to US$510,000,000 principal amount of
Securities presented or surrendered on the date hereof (the "Surrendered
Securities") which are registered in the name of [Insert Name of Transferor]
(the "Transferor"). The Transferor has requested a transfer of such Surrendered
Securities to a Person other than the Transferor (each such transaction being
referred to herein as a "transfer").

                  In connection with such request and in respect of such
Surrendered Securities, the Transferor does hereby certify that:

                                   [CHECK ONE]

     (a) the Surrendered Securities are being transferred to the Company;

                                       or

     (b) the  Surrendered  Securities are being  transferred  pursuant to and in
accordance  with Rule 144A under the United States  Securities  Act of 1933 (the
"Securities Act") and,  accordingly,  the Transferor does hereby further certify
that the  Surrendered  Securities  are being  transferred  to a Person  that the
Transferor reasonably believes is purchasing the Surrendered  Securities for its
own  account,  or for one or more  accounts  with  respect to which such  Person
exercises sole investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A, in each case in
a transaction  meeting the  requirements of Rule 144A and in accordance with any
applicable blue sky or securities laws of any state of the United States;

                                    Page 84


                                       or

     (c) the  Surrendered  Securities are being  transferred  pursuant to and in
accordance with Regulation S under the Securities Act, and

(i)                        the offer of the Surrendered Securities was not made
                           to a person in the United States;

(ii)                       either:

(A)                        at the time the buy order was originated, the
                           transferee was outside the United States or the
                           Transferor and any person acting on its behalf
                           reasonably believed and believes that the transferee
                           was outside the United States, or

(B)                        the transaction was executed in, on or through the
                           facilities of a designated offshore securities market
                           and neither the Transferor nor any person acting on
                           its behalf knows that the transaction was prearranged
                           with a buyer in the United States;

(iii)                      no directed selling efforts have been made in con-
                           travention of the requirements of Rule 903(b) or Rule
                           904(b) of Regulation S, as applicable; and

(iv)                       the transaction is not part of a plan or scheme to
                           evade the registration requirements of the Securities
                           Act;

     (d) the  Surrendered  Securities  are being  transferred  in a  transaction
permitted  by Rule 144  under  the  Securities  Act and in  accordance  with any
applicable blue sky securities laws of any state of the United States.

                  This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the underwriters and initial
purchasers, if any, of the Securities being transferred. Terms used in this
certificate and not otherwise defined in the Indenture have the meanings set
forth in Regulation S under the Securities Act.

                           [Insert Name of Transferor]



                                      By:
                                         --------------------------------------
                                      Name:
                                      Title:

Dated: _____________, ____



cc:  Kern River Funding Corporation




                                    Page 85



                                                                      EXHIBIT E

             Form of Letter to be Delivered by Accredited Investors


Kern River Funding Corporation
One Williams Center
Tulsa, Oklahoma 74172

Credit Suisse First Boston Corporation,
as representative of the several Purchasers

c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629


Dear Sirs:

         We are delivering this letter in connection with an offering of
$510,000,000 6.676% Senior Notes Due 2016 (the "Securities") of Kern River
Funding Corporation, a Delaware corporation (the "Company"), all as described in
the Confidential Offering Circular (the "Offering Circular") relating to the
offering.

We hereby confirm that:

         (i)      we are an "accredited investor" within the meaning of Rule
                  501(a)(1), (2) or (3) under the Securities Act of 1933, as
                  amended (the "Securities Act"), or an entity in which all of
                  the equity owners are accredited investors within the meaning
                  of Rule 501(a)(1), (2) or (3) under the Securities Act (an
                  "Institutional Accredited Investor");

         (ii)     (A) any purchase of the Securities by us will be for our own
                  account or for the account of one or more other Institutional
                  Accredited Investors or as fiduciary for the account of one or
                  more trusts, each of which is an "accredited investor" within
                  the meaning of Rule 501(a)(7) under the Securities Act and for
                  each of which we exercise sole investment discretion or (B) we
                  are a "bank", within the meaning of Section 3(a)(2) of the
                  Securities Act, or a "savings and loan association" or other
                  institution described in Section 3(a)(5)(A) of the Securities
                  Act that is acquiring the Securities as fiduciary for the
                  account of one or more institutions for which we exercise sole
                  investment discretion,

         (iii)    in the event that we purchase any of the Securities, we will
                  acquire Securities having a minimum purchase price of not less
                  than $100,000 for our own account or for any separate account
                  for which we are acting;

         (iv)     we have such knowledge and experience in financial and
                  business matters that we are capable of evaluating the merits
                  and risks of purchasing the Securities;

         (v)      we are not acquiring the Securities with a view to
                  distribution thereof or with any present intention of offering
                  or selling any of the Securities, except inside the United
                  States in accordance with Rule 144A under the Securities Act
                  or outside the United States under Regulation S under the
                  Securities Act, as provided below; provided that the
                  disposition of our property and the property of any accounts
                  for which we are acting as fiduciary shall remain at all times
                  within our control; and

         (vi)     we have received a copy of the Offering Circular relating to
                  the offering of the Securities and acknowledge that we have
                  had access to financial and other information, and have been
                  afforded the opportunity to ask questions of representatives
                  of the Company and receive answers thereto, as we deem
                  necessary in connection with our decision to purchase the
                  Securities.

         We understand that the Securities are being offered in a transaction
not involving any public offering within the United States within the meaning of
the Securities Act and that the Securities have not been registered under the
Securities Act, and we agree, on our own behalf and on behalf of each account
for which we acquire any Securities, that if in the future we decide to resell,
pledge or otherwise transfer the Securities, the Securities may be offered,


                                    Page 86


resold, pledged or otherwise transferred only (i) in the United States to a
person who we reasonably believe is a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in a transaction meeting the
requirements of Rule 144A, (ii) outside the United States in a transaction in
accordance with Rule 904 under the Securities Act, (iii) under an exemption from
registration under the Securities Act provided by Rule 144 thereunder (if
available) or (iv) under an effective registration statement under the
Securities Act, in each of cases (i) through (iv), subject to any applicable
securities laws of any State of the United States or any other applicable
jurisdiction. We understand that the registrar and transfer agent for the
Securities, will not be required to accept for registration of transfer any
Securities acquired by us, except upon presentation of evidence satisfactory to
the Company and the transfer agent that the foregoing restrictions on transfer
have been complied with. We further understand that any Securities acquired by
us, will be in the form of definitive physical certificates and that the
certificates will bear a legend reflecting the substance of this paragraph.

         We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.

         THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.

Date:__________________________       _________________________________________
                                      (Name of Purchaser)


                                      By:______________________________________
                                      Name:
                                      Title:
                                      Address:



































                                    Page 87

EX-10.49

                                                                  Execution Copy


                                 --------------

                          THIRD SUPPLEMENTAL INDENTURE

                             dated as of May 1, 2003

                                      among

                         KERN RIVER FUNDING CORPORATION,
                                   as Issuer,



                      KERN RIVER GAS TRANSMISSION COMPANY,
                                  as Guarantor,



                                       and



                              JPMORGAN CHASE BANK,
                                   as Trustee



                                 --------------

                                  $836,000,000

                          4.893% Senior Notes due 2018

                                 --------------






                  THIRD SUPPLEMENTAL INDENTURE, dated as of May 1, 2003 (this
"Third Supplemental Indenture"), among KERN RIVER FUNDING CORPORATION, a
corporation duly organized and validly existing under the laws of the State of
Delaware, as issuer (the "Company"), KERN RIVER GAS TRANSMISSION COMPANY, a
general partnership duly organized and validly existing under the laws of the
State of Texas, as guarantor (the "Partnership"), and JPMORGAN CHASE BANK
(formerly known as The Chase Manhattan Bank), a New York banking corporation, as
trustee (the "Trustee") under the Base Indenture referred to below.

                                   WITNESSETH

                  WHEREAS, the Company and the Partnership have heretofore
executed and delivered to the Trustee a trust indenture, dated as of August 13,
2001, as amended by the First Supplemental Indenture dated as of May 28, 2002
and the Second Supplemental Indenture dated as of June 21, 2002 (collectively,
the "Base Indenture"), to provide for the issuance from time to time in one or
more series of the Company's secured debentures, notes or other evidences of
indebtedness (the "Securities"), the form and terms of which are to be
established as set forth in Sections 2.1 and 2.3 of the Base Indenture;

                  WHEREAS, Section 7.1 of the Base Indenture provides, among
other things, that the Company, the Partnership and the Trustee may enter into
indentures supplemental to the Base Indenture for, among other things, the
purpose of establishing (i) the form of the Securities of any series as
permitted by Section 2.1 of the Base Indenture and (ii) the terms of the
Securities of any series as permitted by Section 2.3 of the Base Indenture;

                  WHEREAS, the Company, in its individual capacity and as agent
for the Partnership, desires to create one series of the Securities in an
aggregate principal amount of Eight Hundred Thirty-six Million Dollars
($836,000,000) to be designated the "4.893% Senior Notes due 2018" (the "Series
B Notes"), and all actions on the part of the Company necessary to authorize the
issuance of the Series B Notes under the Base Indenture and this Third
Supplemental Indenture have been duly taken;

                  WHEREAS, the Company wishes to lend all of the proceeds of the
sale of the Series B Notes to the Partnership;

                  WHEREAS, the Partnership wishes to provide its guarantee to
secure the payment of the principal of, premium, if any, and interest on, all
the Series B Notes authenticated and delivered hereunder and issued by the
Company and the performance of the covenants therein and herein contained; and

                  WHEREAS, all acts and things necessary to make this Third
Supplemental Indenture a valid agreement of the Company and the Partnership, in
accordance with its terms, have been done.

                                    AGREEMENT

                  NOW, THEREFORE, in consideration of the premises and of the
acceptance and purchase of the Series B Notes by the holders thereof and of the
acceptance of this trust by the Trustee, the Company and the Partnership
covenant and agree with the Trustee, for the equal benefit of holders of the
Series B Notes, as follows:

                                   ARTICLE I.
                                   Definitions

                  The use of the terms and expressions herein is in accordance
with the definitions, uses and constructions contained in the Base Indenture and
the form of Series B Notes attached hereto as Exhibit A.



                                  ARTICLE II.
                    Terms and Issuance of the SERIES B NOTES

Section 2.01 Issue of Securities. One series of the Securities, which shall be
designated the "4.893% Senior Notes due 2018" shall be executed, authenticated
and delivered in accordance with the provisions of, and shall in all respects be
subject to, the terms, conditions and covenants of the Base Indenture and this
Third Supplemental Indenture (including the form of Series B Notes set forth in
Exhibit A). The aggregate principal amount of the Series B Notes which may be
authenticated and delivered under this Third Supplemental Indenture shall not
exceed $836,000,000.

Section 2.02 Redemption. The Series B Notes may be redeemed, in whole or in
part, at the option of the Company pursuant to the terms set forth therein and
shall be subject to mandatory redemption on the terms and subject to the
conditions set forth in Section 9.8 of the Base Indenture. The provisions of
Article 9 of the Base Indenture shall also apply to any redemption of the Series
B Notes by the Company.

Section 2.03 Form of Securities; Incorporation of Terms. The forms of the Series
B Notes shall be substantially in the form of Exhibit A attached hereto, the
respective terms of which are incorporated herein by reference and which are
part of this Third Supplemental Indenture. The Series B Notes shall be
Installment Securities and shall be issued as one or more Global Securities in
fully registered form and one or more definitive Securities in fully registered
form, as determined in accordance with Section 2.1 of the Base Indenture. The
Global Securities shall be delivered by the Trustee to the Depository, as the
Holder thereof, or a nominee or custodian therefor, to be held by the Depository
in accordance with the Base Indenture.

Section 2.04 Registration, Registration of Transfer and Exchange. The Series B
Notes shall be registered, exchanged and transferred only as provided in Section
2.7 of the Base Indenture.

Section 2.05 Sinking Fund. The Series B Notes shall not have the benefit of any
Sinking Fund.

Section 2.06 Defeasance. The Series B Notes shall be defeasible, in whole or in
part, pursuant to Section 11.2 and 11.3 of the Base Indenture, upon the terms
and subject to the conditions set forth in Article 11 of the Base Indenture.

Section 2.07 Place of Payment. The Corporate Trust Office of the Trustee is
hereby designated as the office or agency where the principal of, premium, if
any, and interest on the Series B Notes shall be payable.

                                  ARTICLE III.
                                   DepositOry

Section 3.01 Depository. The Depository Trust Company is hereby appointed
Depository with respect to the Global Securities evidencing Series B Notes.

                                  ARTICLE IV.
                          amendments to Base Indenture

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

(a) Section 1.1 is hereby amended to restate the following definitions:

                  "Collateral Agent" means JPMorgan Chase Bank (formerly known
as The Chase Manhattan Bank), in its capacity as Partnership Collateral Agent or
Funding Collateral Agent under the Collateral Agency Agreement, and any
successor Collateral Agent appointed pursuant to Section 4.6 of the Collateral
Agency Agreement.



                  "Company Security Agreement" means the Assignment of
Contracts, Pledge and Security Agreement, dated as of the Closing Date and as
amended by Amendment No. 1 thereto dated as of May 1, 2003, and as further
amended or supplemented from time to time in accordance with the terms thereof
and of the other Basic Agreements, between the Company and the Collateral Agent.

                  "Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office as of the date of execution of the Third Supplemental
Indenture hereto is located at 4 New York Plaza, New York, New York 10004.

                  "Debt Service LOC Reimbursement Agreement" means the Amended
and Restated Debt Service LOC Reimbursement Agreement, dated as of May 1, 2003,
and as amended, supplemented or replaced from time to time in accordance with
the terms thereof and of the Basic Agreements, among the Partnership, Fortis
Bank S.A./N.V., Cayman Islands Branch, as Issuing Bank, Union Bank of
California, N.A., as Agent, and the Debt Service LOC Provider.

                  "Debt Service Payment Date" means the final day of each month,
provided that the initial Debt Service Payment Date for principal of and
interest on any series of Securities shall be set forth in the form of
Securities of such series.

                  "Economic Make-Whole Premium" means

                  (a) with respect to all of the Securities of any series, an
amount calculated by the Company as of the second Business Day prior to the
Redemption Date (the "Determination Date") of the Securities of such series as
follows:

                           (i) the average life of the remaining scheduled
         payments of principal in respect of the Outstanding Securities (the
         "Remaining Average Life") shall be calculated as of the applicable
         Redemption Date;

                           (ii) the yield to maturity shall be calculated for
         the United States Treasury security having an average life equal to the
         Remaining Average Life and trading in the secondary market at the price
         (on the Determination Date) closest to par (the "Primary Issue");
         provided, however, that if no United States Treasury security has an
         average life equal to the Remaining Average Life, the yields (the
         "Other Yields") for the two maturities of the United States Treasury
         securities having average lives most closely corresponding to such
         Remaining Average Life and trading in the secondary market at the price
         (on the Determination Date) closest to par shall be calculated and the
         yield to maturity for the Primary Issue shall be the yield interpolated
         or extrapolated from such Other Yields on a straight-line basis,
         rounding in each of such relevant periods to the nearest month;

                           (iii) the discounted present value of the then
         remaining scheduled payments of principal and interest (but excluding
         that portion of any scheduled payment of interest that is actually due
         and paid on the Redemption Date) in respect of Outstanding Securities
         shall be calculated as of the Redemption Date using a discount factor
         equal to the sum of (a) the yield to maturity for the Primary Issue,
         plus (b) the basis points provided for with respect to such series of
         Securities or 50 basis points in respect of the 6.676% Senior Notes due
         2016; and

                           (iv) the amount of premium in respect of the
         Securities to be redeemed shall be an amount equal to (a) the
         discounted present value of such Securities to be redeemed determined
         in accordance with clause (iii) above minus (b) the unpaid principal
         amount of such Securities; provided, however, that the premium shall
         not be less than zero; and

                  (b) with respect to any Security in any series, the amount
obtained by multiplying (i) the aggregate Economic Make-Whole Premium determined
as set forth above by (ii) the ratio of the Outstanding principal amount of such
Security on the Redemption Date to the aggregate Outstanding principal amount of
all Securities of such series on the Redemption Date.

                  "Final Principal Payment" means the payment to be made in
respect of principal of the 6.676% Senior Notes due 2016 and the 4.893% Senior
Notes due 2018 on the Final Maturity Date with respect to such Securities.



                  "Partners" means KR Acquisition 1 and KR Acquisition 2, and
such other Person or Persons as may become general partners of the Partnership
from time to time.

                  "Partnership Agreement" means the General Partnership
Agreement, dated as of May 29, 1985, as amended from time to time in accordance
with the terms thereof and of the Basic Agreements, between KR Acquisition 1 and
KR Acquisition 2 (as successors in interest to Williams Western Pipeline
Company, LLC and Kern River Acquisition, LLC, respectively).

                  "Partnership Loan Agreement" means the loan agreement, dated
as of the Closing Date and as supplemented by Supplement No. 1 thereto dated as
of May 1, 2003, and as further amended or supplemented from time to time in
accordance with the terms thereof and of the Basic Agreements, between the
Partnership and the Company, pursuant to which the Company will lend the
proceeds of the sale of Securities to the Partnership.

                  "Partnership Security Agreement" means the Assignment of
Contracts, Pledge and Security Agreement, dated as of the Closing Date and as
amended by Amendment No. 1 thereto dated as of May 1, 2003, and as further
amended or supplemented in accordance with the terms thereof and of the other
Basic Agreements, between the Partnership and the Collateral Agent.

                  "Purchase Agreement" means, with respect to the 6.676% Senior
Notes due 2016, the purchase agreement among the initial purchasers of the
Securities of such series, the Company, the Partnership and the Partners, and
with respect to any other series of Securities, the purchase agreement among the
initial purchasers of the Securities of such series, the Company and the
Partnership, in each case providing for the sale of the Securities of such
series to the initial purchasers thereof.

(b) Section 1.1 is hereby amended to add the following definitions:

                  "2003 Expansion Credit Facility" means that certain Credit
Agreement, dated as of June 21, 2002, by and among the Partnership, as borrower,
the banks and other financial institutions parties thereto, Union Bank of
California, N.A., as administrative agent and a lead arranger, Credit Suisse
First Boston, Cayman Islands Branch, as a lead arranger and book runner, and
Commerzbank AG, New York Branch, as a lead arranger and book runner.

                  "Escrow Agreement" shall have the meaning assigned to it in
the Partnership Security Agreement.

                  "KR Acquisition 1" means KR Acquisition 1, LLC, a Delaware
                  limited liability company. "KR Acquisition 2" means KR
                  Acquisition 2, LLC, a Delaware limited liability company.

                  "MidAmerican" means MidAmerican Energy Holdings Company, an
Iowa corporation.

                  "Shipper Credit Support" means those parent or third-party
guaranties, letters of credit (or the equivalent), cash escrow agreements
(including the Escrow Agreement) and other credit support provided with respect
to the LTFT Agreements.

(c) Section 1.1 is hereby amended to delete the definitions of "KR Acquisition,"
"Williams" and "WWPC" therefrom.

(d) Section 1.5(a) shall be amended by deleting the phrase ", 450 West 33rd
Street, 15th Floor, New York, NY, 10001" and inserting in the place thereof "4
New York Plaza, 15th Floor, New York, New York 10004."



(e) Section 1.5(b) shall be amended by deleting the phrase "One Williams Center,
Tulsa, Oklahoma, 74102, Attention: Treasurer" and inserting in the place thereof
"295 Chipeta Way, Salt Lake City, Utah 84108, Attn: General Counsel, with a copy
to MidAmerican Energy Holdings Company 666 Grand Avenue, Des Moines, Iowa 50309,
Attn: Treasurer."

(f) Section 8.5(c) shall be amended by deleting the phrase "On the Closing Date"
and inserting in place thereof the phrase "On the date of original issuance of
any Securities."

(g) Section 8.19 shall be amended by (i) deleting the word "and" prior to
subsection (d) and inserting "," in the place thereof and (ii) adding the
following after the word "hereof" at the end of subsection (d): ", (e) to pay
any outstanding amounts due under the 2003 Expansion Credit Facility or any
other indebtedness incurred to finance an Expansion that has reached Completion
and any costs or expenses relating thereto, including breakage expenses, and (f)
for any other purpose expressly permitted hereunder and to pay any costs or
expenses relating thereto."

(h) Section 8.20 shall be amended by deleting the phrase "of the Securities
issued on the Closing Date" in clause (c)(z) thereof.

(i) Any references in the Base Indenture to "Williams" shall be deleted and
"MidAmerican" shall be inserted in the place thereof.

(j) Any references in the Base Indenture to "Shipper Guarantees" shall be
deleted and "Shipper Credit Support" shall be inserted in the place thereof.

(k) Exhibits B through E of the Base Indenture shall be deleted in their
entirety and replaced by Exhibits B through E attached hereto. For purposes of
this Third Supplemental Indenture, any reference in the Base Indenture to any
such exhibit shall be a reference to the corresponding exhibit attached hereto.

                                   ARTICLE V.
                                  miscellaneous

Section 5.01 Execution as Supplemental Indenture. This Third Supplemental
Indenture is executed and shall be construed as an indenture supplemental to the
Base Indenture and, as provided in the Base Indenture, this Third Supplemental
Indenture forms a part thereof.

Section 5.02 Effect of Headings. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.

Section 5.03 Successors and Assigns. All covenants and agreements in this Third
Supplemental Indenture by the Company and the Partnership shall bind their
successors and assigns, whether so expressed or not.

Section 5.04 Separability Clause. In case any provision in this Third
Supplemental Indenture or in the Securities shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

Section 5.05 Benefits of Third Supplemental Indenture. Nothing in this Third
Supplemental Indenture or in the Securities, express or implied, shall give to
any person, other than the parties hereto and their successors hereunder and the
Holders, any benefit or any legal or equitable right, remedy or claim under this
Third Supplemental Indenture.

Section 5.06 Governing Law. This Third Supplemental Indenture shall be governed
by and construed in accordance with the laws of the State of New York without
giving effect to the principles thereof relating to conflicts of law except
5-1401 of the New York General Obligation Law.

Section 5.07 Execution in Counterparts. This Third Supplemental Indenture may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.

Section 5.08 Trustee. The Trustee makes no representations as to the validity or
sufficiency of this Third Supplemental Indenture. The statements herein are
deemed to be those of the Company and the Partnership and not of the Trustee.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                  IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed by their respective officers or
directors duly authorized thereto, all as of the day and year first above
written.

                                            KERN RIVER FUNDING CORPORATION


                                     By:
                                         ------------------------------------
                                     Name:
                                     Title:


                                             KERN RIVER GAS TRANSMISSION COMPANY


                                     By:
                                         -------------------------------------
                                     Name:
                                     Title:


                                             JPMORGAN CHASE BANK,
                                                as Trustee


                                     By:
                                         ------------------------------------
                                     Name:
                                     Title:







                                    EXHIBIT A
                                FORM OF SECURITY

                           [FORM OF FACE OF SECURITY]

                           [GLOBAL SECURITIES LEGEND]

                  [Include if Security is a Global Security - UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO KERN RIVER FUNDING CORPORATION ("THE
COMPANY") OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

                  THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO. THIS GLOBAL SECURITY MAY NOT BE EXCHANGED, IN
WHOLE OR IN PART, FOR A SECURITY REGISTERED IN THE NAME OF ANY PERSON OTHER THAN
THE DEPOSITORY TRUST COMPANY OR A NOMINEE THEREOF EXCEPT IN THE CIRCUMSTANCES
SET FORTH IN SECTION 2.7 OF THE BASE INDENTURE, AND MAY NOT BE TRANSFERRED, IN
WHOLE OR IN PART, EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.7 OF THE BASE INDENTURE. BENEFICIAL INTERESTS IN THIS GLOBAL SECURITY
MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH SECTION 2.7 OF THE BASE
INDENTURE.]

                         [RESTRICTED SECURITIES LEGEND]

                  [Include if Security is a Restricted Security or a "Temporary
Regulation S Global Security" (unless, pursuant to Section 2.7, the Company
determines that the legend may be removed) - THIS SECURITY (OR ITS PREDECESSOR)
WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED
STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY
NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER.

                  THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO ANY EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS
SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

                  IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO
THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.]

                  THIS SECURITY IS AN INSTALLMENT SECURITY (AS DEFINED IN THE
INDENTURE HEREINAFTER REFERRED TO). ACCORDINGLY, THE FACE AMOUNT HEREOF MAY
EXCEED THE UNPAID PRINCIPAL AMOUNT HEREOF AND ANY TRANSFEREE OF THIS SECURITY
MAY NOT RELY ON THE FACE AMOUNT HEREOF AS EVIDENCE OF THE AMOUNT DUE AND OWING
ON THIS SECURITY BUT IS ADVISED TO DETERMINE SUCH UNPAID PRINCIPAL AMOUNT FROM
THE RECORDS OF THE COMPANY OR ITS PAYING AGENT.

                  [Insert any legend required by the Internal Revenue Code of
1986, as amended and the regulations thereunder.]







                         KERN RIVER FUNDING CORPORATION

                           4.893% Senior Note due 2018

No. [____]                                                       $[___],000,000

                  KERN RIVER FUNDING CORPORATION, a corporation duly organized
and existing under the laws of the State of Delaware (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
[____________], or registered assigns, on the dates and in the installment
amounts as provided in Schedule A hereto, [Include if this Security is a Global
Security -- the Initial Principal Amount specified on Schedule B hereto (such
Initial Principal Amount, as it may from time to time be adjusted by endorsement
on Schedule B hereto, is hereinafter referred to as the "Principal")] [Include
if this Security is not a Global Security -- the principal sum of [___________]
Dollars (the "Principal Amount")], and to pay interest thereon from May 1, 2003
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, monthly on the last day of each month, commencing May 31,
2003, at the rate of 4.893% per annum (computed on the basis of a 360-day year
of twelve 30-day months), until the principal hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the 15th day of the month (whether or not a Business
Day), in which each applicable Interest Payment Date shall occur. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Company, notice whereof shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.

                  Payment of the principal of (and premium, if any) and any such
interest on this Security will be made at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of New York in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; provided, however, that
at the option of the Company payment of principal and interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register without any requirement for the presentation and
surrender of such Security at such office or agency, except in connection with a
redemption or the final principal payment thereon.

                  Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.

                  Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]






                  IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.

Dated: [__________]

                                    KERN RIVER FUNDING CORPORATION,
                                    as Issuer



                                    By:
                                       -----------------------------------------
                                    Name:
                                    Title


                                    KERN RIVER GAS TRANSMISSION COMPANY,
                                    as Guarantor



                                    By:
                                       ----------------------------------------
                                    Name:
                                    Title:







                          CERTIFICATE OF AUTHENTICATION

                  This is one of the Securities of the series designated therein
referred to in the within mentioned Indenture.



                                      JPMORGAN CHASE BANK,
                                           as Trustee



                                      By:
                                         --------------------------------------
                                           Authorized Officer








                          [FORM OF REVERSE OF SECURITY]

                  This Security is one of a duly authorized issue of securities
of the Company (herein called the "Securities"), issued and to be issued in one
or more series under a Trust Indenture, dated as of August 13, 2001 (the "Base
Indenture"), among Kern River Funding Corporation, as issuer (the "Company"),
Kern River Gas Transmission Company, as guarantor (the "Partnership"), and
JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as trustee
(the "Trustee," which term includes any successor trustee under the Indenture),
as amended or supplemented by the First Supplemental Indenture dated as of May
28, 2002, the Second Supplemental Indenture dated as of June 21, 2002 and the
Third Supplemental Indenture dated as of May 1, 2003 (collectively with the Base
Indenture, the "Indenture"), among the Company, the Partnership and the Trustee,
and reference is hereby made to the Indenture for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Partnership, the Trustee and the Holders of the Securities and of the terms
upon which the Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof, limited in
principal amount to $836,000,000.

                  The Securities of this series are subject to redemption upon
not less than 30 days' notice by mail, at any time, in whole or in part, at the
election of the Company at a Redemption Price equal to 100% of the principal
amount hereof plus the Economic Make-Whole Premium, together with accrued
interest to the Redemption Date, but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face hereof all as
provided in the Indenture. For purposes of the Securities of this series, the
number of basis points provided for in clause (a)(iii)(b) of the definition of
"Economic Make-Whole Premium" set forth in the Indenture shall be 25.

                  In the event of redemption of this Security in part only, a
new Security or Securities of this series and of like tenor for the unredeemed
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.

                  The mandatory redemption provisions set forth in Section 9.8
of the Base Indenture shall apply to the Securities of this series.

                  The Indenture contains provisions for defeasance at any time
of the entire indebtedness of this Security or certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
with certain conditions set forth in the Indenture.

                  If an Event of Default with respect to the Securities of this
series shall occur and be continuing, the principal of the Securities of this
series may be declared due and payable in the manner and with the effect
provided in the Indenture.

                  Subject to certain limitations in the Indenture, at any time
when the Company is not subject to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), upon the request of a
Holder of a Security or of a beneficial owner of an interest in a Global
Security, the Company will promptly furnish or cause to be furnished Rule 144A
Information (as defined below) to such Holder or beneficial owner, or to a
prospective purchaser of a Security or a beneficial interest in a Global
Security designated by such Holder or beneficial owner of such interest, in
order to permit compliance by such Holder or beneficial owner with Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act"). "Rule 144A
Information" shall be such information as is specified pursuant to Rule
144A(d)(4) under the Securities Act (or any successor provision thereto).



                  The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the Partnership and the rights of the holders of
the Securities of each series to be affected under the Indenture at any time by
the Company, the Partnership and the Trustee with the consent of the Holders of
a majority in principal amount of the Securities at the time Outstanding of each
series to be affected. The Indenture also contains provisions permitting the
Holders of specified percentage in principal amount of the Securities of each
series at the time Outstanding, on behalf of the Holders of all Securities of
such series, to waive certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Security.

                  As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity.

                  The foregoing shall not apply to any suit by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.

                  No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair (i) the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest on this Security at the times, place and rate, and in the
coin or currency, herein prescribed or (ii) the unconditional guarantee of the
Partnership of the obligations of the Company under this Security and the
Indenture.

                  As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
any place where the principal of and any premium and interest on this Security
are payable, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities of this series and of like tenor, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.

                  The Securities of this series are issuable only in registered
form without coupons in denominations of $100,000 and any integral multiples of
$1,000 in excess thereof. As provided in the Indenture and subject to certain
limitations therein set forth Securities of this series are exchangeable for a
like aggregate principal amount of Securities of this series and of like tenor
of a different authorized denomination, as requested by the Holder surrendering
the same.



                  No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.

                  Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and none of
the Company, the Trustee and any such agent shall be affected by notice to the
contrary.

                  Each holder, by acceptance of this Security, hereby
acknowledges and agrees that (i) no recourse shall be had for the payment of the
principal of or the interest on this Security, or any part thereof, or for any
claim based thereon or otherwise in respect thereof, or of the indebtedness
represented hereby against any Affiliate of the Company (other than the
Partnership) or any incorporator, stockholder, officer, employee or director, as
such, present or future, of the Company or any Affiliate of the Company or of
any predecessor or successor, all as provided in Section 13.1 of the Base
Indenture and (ii) no recourse shall be had in the event of any non-performance
by the Partnership of any obligations of the Partnership under this Security or
the Indenture to the Partners or any Affiliate thereof or to any assets or
properties of the Partners other than their respective interests in the
Collateral, all as provided in Section l3.2 of the Base Indenture.

                  The Securities are subject to a Collateral Agency Agreement
dated as of August 13, 2001, pursuant to which the rights of the Senior Parties
(including the Holders of the Securities and certain other creditors of the
Company and the Partnership) in respect of the Collateral will be shared among
the Senior Parties and will be exercised by the Collateral Agent in accordance
with the Collateral Agency Agreement.

                  All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.

                  This Security shall be governed by and construed in accordance
with the laws of the State of New York.




                                                                      Schedule A

                             PRINCIPAL INSTALLMENTS



                  The principal of the Securities of this series shall be
payable in monthly installments commencing on June 30, 2003. On each monthly
payment date in each year other than 2003 and 2018, the principal amount payable
shall be equal to the product of (i) 1/12 of the percentage set forth under
"Percentage of Principal Amount Payable" and (ii) the original principal amount
of this Security. On the final day of each of the last seven months in 2003, the
principal amount payable shall be equal to the product of (i) 1/7 of the
percentage set forth opposite year 2003 under "Percentage of Principal Amount
Payable" and (ii) the original principal amount of this Security. On the final
day of each of the first three months in 2018, the principal amount payable
shall be equal to the product of (i) 1/3 of the percentage set forth opposite
year 2018 under "Percentage of Principal Amount Payable" and (ii) the original
principal amount of this Security. On April 30, 2018, the Partnership will pay
all remaining unpaid principal, calculated as the product of (i) the percentage
of principal amount payable set forth opposite "Final Principal Payment" and
(ii) the original principal amount of this Security. In the case of any
redemption (other than by a mandatory redemption pursuant to Section 9.8 of the
Base Indenture) or other reduction (other than by scheduled amortization) of the
principal amount of this Security, the foregoing calculations will be based on
the original principal amount of this Security less the original principal
amount (i.e., before amortization) of this Security redeemed (other than by a
mandatory redemption pursuant to Section 9.8 of the Base Indenture) or otherwise
reduced (other than by scheduled amortization).

                                          Percentage of
                                         Principal Amount
          Payment Date                       Payable
          ------------                       -------
              2003                            2.85%
              2004                            4.35%
              2005                            4.40%
              2006                            4.80%
              2007                            5.20%
              2008                            5.60%
              2009                            5.85%
              2010                            6.30%
              2011                            6.35%
              2012                            6.35%
              2013                            5.95%
              2014                            6.15%
              2015                            6.50%
              2016                            6.50%
              2017                            7.40%
              2018                            2.50%
     Final Principal Payment                  12.95%








       [If the Security is a Global Security, insert as a separate page: -

                                                                      Schedule B

     THE INITIAL PRINCIPAL AMOUNT OF THIS GLOBAL SECURITY IS $[___],000,000.

                             SCHEDULE OF ADJUSTMENTS




                                                                                    Notation made on
       Date         Principal amount    Principal amount     Principal amount         behalf of the
  adjustment made     of increase          of decrease     following adjustment    Security Registrar



































                                      A-12
- -------------------------------------------------------------------------------
                                  ABBREVIATIONS



The following abbreviations, when used in the inscription on the face of this
instrument, shall be construed as though they were written out in full according
to applicable laws or regulations:



TEN COM- as tenants in             UNIF GIFT MIN ACT- _______ Custodian ________

          common                                       (Cust)            (Minor)

TEN ENT- as tenants by the

          entireties                                    under Uniform Gifts to

 JT TEN- as joint tenants                                     Minors Act

          with right of

          survivorship and                             ________________________

          not as tenants                                       (State)

          in common

                    Additional abbreviations may also be used

                          though not on the above list.

         FOR VALUE RECEIVED, the undersigned hereby sell(s) and transfer(s) unto

- -------------------------------------------------------------------------------

(please insert Social Security or other identifying number of assignee)

PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF
ASSIGNEE

- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------

the within Note and all rights thereunder, hereby irrevocably constituting and
appointing

- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------


agent to transfer said Note on the books of the Company, with full power of
substitution in the premises.

Dated:
       --------------------      ----------------------------------------------


NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular without
alteration or enlargement, or any change whatever.



                                    EXHIBIT B

                          FORM OF TRANSFER CERTIFICATE
                 FOR EXCHANGE OR TRANSFER FROM RESTRICTED GLOBAL
                    SECURITY TO REGULATION S GLOBAL SECURITY
                   (Transfers pursuant to Section 2.7(c)(v)(B)
                             of the Base Indenture)

JPMorgan Chase Bank
4 New York Plaza
New York, New York 10004
Attn.:  Institutional Trust Services

         Re:      Kern  River Funding Corporation
                  [__________________] (the "Securities")

         Reference is hereby made to the Trust Indenture, dated as of August 13,
2001 (as amended or supplemented from time to time in accordance with the terms
thereof, the "Indenture"), among Kern River Funding Corporation, as issuer (the
"Company"), Kern River Gas Transmission Company, as guarantor, and JPMorgan
Chase Bank, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.

         This letter relates to US$[___],000,000 principal amount of Securities
which are evidenced by one or more Restricted Global Securities (CUSIP No.
[__________]) and held with the Depository in the name of [Insert Name of
Transferor] (the "Transferor"). The Transferor has requested a transfer of such
beneficial interest in the Securities to a Person who will take delivery thereof
in the form of an equal principal amount of Securities evidenced by one or more
Regulation S Global Securities (ISIN No. [__________]), which amount,
immediately after such transfer, is to be held with the Depository through
Euroclear or Clearstream or both (Common Code ________).

         In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with Rule 903 or Rule 904 under the United States Securities
Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor
does hereby further certify that:

         (a) the offer of the Securities was not made to a person in the United
States;

         (b) either:

                 (i) at the time the buy order was originated, the transferee
was outside the United States or the Transferor and any person acting on its
behalf reasonably believed and believes that the transferee was outside the
United States; or

                 (ii) the transaction was executed in, or through the
facilities of a designated offshore securities market and neither the Transferor
nor any person acting on its behalf knows that the transaction was prearranged
with a buyer in the United States;

         (c) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;

         (d) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and

         (e) upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depository through
Euroclear or Clearstream or both (Common Code___________________).

         This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the underwriters or initial
purchasers, if any, of the initial offering of such Securities being
transferred. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.

                                            [Insert Name of Transferor]

                                            By: _______________________________
                                            Name:
                                            Title:

Dated: _____________, ____

cc:  Kern River Funding Corporation



                                    EXHIBIT C

                          FORM OF TRANSFER CERTIFICATE
                   FOR TRANSFER OR EXCHANGE FROM REGULATION S
                  GLOBAL SECURITY TO RESTRICTED GLOBAL SECURITY
                   (Transfers Pursuant to Section 2.7(c)(v)(D)
                             of the Base Indenture)

JPMorgan Chase Bank
4 New York Plaza
New York, New York 10004
Attn.:  Institutional Trust Services

         Re:      Kern River Funding Corporation
                  [_____________________] (the "Securities")

         Reference is hereby made to the Trust Indenture, dated as of August 13,
2001 (as amended or supplemented from time to time in accordance with the terms
thereof, the "Indenture"), among Kern River Funding Corporation, as issuer (the
"Company"), Kern River Gas Transmission Company, as guarantor, and JPMorgan
Chase Bank, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.

         This letter relates to US$[___],000,000 principal amount of Securities
which are evidenced by one or more Regulation S Global Securities (ISIN No.
[____________]) and held with the Depository through [Euroclear] [Clearstream]
(Common Code ______) in the name of [Insert Name of Transferor] (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Securities to a Person who will take delivery thereof in the
form of an equal principal amount of Securities evidenced by one or more
Restricted Global Securities (CUSIP No. [____________]), to be held with the
Depository.

         In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with Rule 144A under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, the Transferor does hereby
further certify that the Securities are being transferred to a Person that the
Transferor reasonably believes is purchasing the Securities for its own account,
or for one or more accounts with respect to which such Person exercises sole
investment discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A and in accordance with any
applicable blue sky or securities laws or any state of the United States.

         This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the underwriters and initial
purchasers, if any, of the Securities being transferred.


                                            [Insert Name of Transferor]


                                            By: _______________________________
                                            Name:
                                            Title:


Dated: _____________, ____



cc:  Kern River Funding Corporation




                                    EXHIBIT D

                          FORM OF TRANSFER CERTIFICATE
                            FOR TRANSFER OR EXCHANGE
                             OF RESTRICTED SECURITY
              (Transfers Pursuant to Section 2.7(b) or 2.7(c)(v)(E)
                             of the Base Indenture)

JPMorgan Chase Bank
4 New York Plaza
New York, New York 10004
Attn.:  Institutional Trust Services

         Re:      Kern  River Funding Corporation
                  [___________________________] (the "Securities")

         Reference is hereby made to the Trust Indenture, dated as of August 13,
2001 (as amended or supplemented from time to time in accordance with the terms
thereof, the "Indenture"), among Kern River Funding Corporation, as issuer (the
"Company"), Kern River Gas Transmission Company, as guarantor, and JPMorgan
Chase Bank, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.

         This letter relates to US$[___],000,000 principal amount of Securities
presented or surrendered on the date hereof (the "Surrendered Securities") which
are registered in the name of [Insert Name of Transferor] (the "Transferor").
The Transferor has requested a transfer of such Surrendered Securities to a
Person other than the Transferor (each such transaction being referred to herein
as a "transfer").

         In connection with such request and in respect of such Surrendered
Securities, the Transferor does hereby certify that:

                  [CHECK ONE]

     (a) the Surrendered Securities are being transferred to the Company;

                           or

     (b) the Surrendered Securities are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act of 1933 (the
"Securities Act") and, accordingly, the Transferor does hereby further certify
that the Surrendered Securities are being transferred to a Person that the
Transferor reasonably believes is purchasing the Surrendered Securities for its
own account, or for one or more accounts with respect to which such Person
exercises sole investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A, in each case in
a transaction meeting the requirements of Rule 144A and in accordance with any
applicable blue sky or securities laws of any state of the United States;

                           or

     (c) the  Surrendered  Securities are being  transferred  pursuant to and in
accordance with Regulation S under the Securities Act, and

     (i) the offer of the Surrendered Securities was not made to a person in the
United States;

     (ii) either:

               (A) at the time the buy order was originated, the transferee was
          outside the United States or the Transferor and any person acting on
          its behalf reasonably believed and believes that the transferee was
          outside the United States, or

               (B) the transaction was executed in, on or through the facilities
          of a designated offshore securities market and neither the Transferor
          nor any person acting on its behalf knows that the transaction was
          prearranged with a buyer in the United States;

     (iii) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and

     (iv)  the  transaction  is not  part  of a plan  or  scheme  to  evade  the
registration requirements of the Securities Act;

                           or

     (d) the Surrendered Securities are being transferred in a transaction
permitted by Rule 144 under the Securities Act and in accordance with any
applicable blue sky securities laws of any state of the United States.

                  This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the underwriters and initial
purchasers, if any, of the Securities being transferred. Terms used in this
certificate and not otherwise defined in the Indenture have the meanings set
forth in Regulation S under the Securities Act.

                                        [Insert Name of Transferor]

                                        By: _______________________________
                                        Name:
                                        Title:

Dated: _____________, ____

cc:  Kern River Funding Corporation




                                    EXHIBIT E


             Form of Letter to be Delivered by Accredited Investors

Kern River Funding Corporation
[______________________]


[Names and addresses of initial purchasers]

Dear Sirs:

         We are delivering this letter in connection with an offering of
$[___],000,000 [______________] (the "Securities") of Kern River Funding
Corporation, a Delaware corporation (the "Company"), all as described in the
Confidential Offering Circular (the "Offering Circular") relating to the
offering.


                  We hereby confirm that:

         (i) we are an "accredited investor" within the meaning of Rule
501(a)(1), (2) or (3) under the Securities Act of 1933, as amended (the
"Securities Act"), or an entity in which all of the equity owners are accredited
investors within the meaning of Rule 501(a)(1), (2) or (3) under the Securities
Act (an "Institutional Accredited Investor");

         (ii) (A) any purchase of the Securities by us will be for our own
account or for the account of one or more other Institutional Accredited
Investors or as fiduciary for the account of one or more trusts, each of which
is an "accredited investor" within the meaning of Rule 501(a)(7) under the
Securities Act and for each of which we exercise sole investment discretion or
(B) we are a "bank", within the meaning of Section 3(a)(2) of the Securities
Act, or a "savings and loan association" or other institution described in
Section 3(a)(5)(A) of the Securities Act that is acquiring the Securities as
fiduciary for the account of one or more institutions for which we exercise sole
investment discretion,

         (iii) in the event that we purchase any of the Securities, we will
acquire Securities having a minimum purchase price of not less than $100,000 for
our own account or for any separate account for which we are acting;

         (iv) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of purchasing the
Securities;

         (v) we are not acquiring the Securities with a view to distribution
thereof or with any present intention of offering or selling any of the
Securities, except inside the United States in accordance with Rule 144A under
the Securities Act or outside the United States under Regulation S under the
Securities Act, as provided below; provided that the disposition of our property
and the property of any accounts for which we are acting as fiduciary shall
remain at all times within our control; and

         (vi) we have received a copy of the Offering Circular relating to the
offering of the Securities and acknowledge that we have had access to financial
and other information, and have been afforded the opportunity to ask questions
of representatives of the Company and receive answers thereto, as we deem
necessary in connection with our decision to purchase the Securities.

         We understand that the Securities are being offered in a transaction
not involving any public offering within the United States within the meaning of
the Securities Act and that the Securities have not been registered under the
Securities Act, and we agree, on our own behalf and on behalf of each account
for which we acquire any Securities, that if in the future we decide to resell,
pledge or otherwise transfer the Securities, the Securities may be offered,
resold, pledged or otherwise transferred only (i) in the United States to a
person who we reasonably believe is a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in a transaction meeting the
requirements of Rule 144A, (ii) outside the United States in a transaction in
accordance with Rule 904 under the Securities Act, (iii) under an exemption from
registration under the Securities Act provided by Rule 144 thereunder (if
available) or (iv) under an effective registration statement under the
Securities Act, in each of cases (i) through (iv), subject to any applicable
securities laws of any State of the United States or any other applicable
jurisdiction. We understand that the registrar and transfer agent for the
Securities, will not be required to accept for registration of transfer any
Securities acquired by us, except upon presentation of evidence satisfactory to
the Company and the transfer agent that the foregoing restrictions on transfer
have been complied with. We further understand that any Securities acquired by
us, will be in the form of definitive physical certificates and that the
certificates will bear a legend reflecting the substance of this paragraph.


         We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.


         THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.



Date:    __________________________         _______________________________
                                                  (Name of Purchaser)

                                            By:____________________________
                                            Name:
                                            Title:
                                            Address:

EX-14.1

EXHIBIT 14.1

                       MIDAMERICAN ENERGY HOLDINGS COMPANY

     CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND
                             OTHER COVERED OFFICERS

A.   SCOPE.

     The Company has a Code of Business Conduct for Managers and Rules of
Conduct for All Employees (collectively, the "Rules of Conduct") that establish
standards addressing, among other things, business conduct, improper payment,
the proper recording and disclosure of funds or assets, and financial reporting.
The Rules of Conduct are applicable to the MidAmerican Energy Holdings Company
Chief Executive Officer, Chief Operating Officer, the Chief Financial Officer,
the Chief Accounting Officer, as well as to the President and Chief Accounting
Officer of each platform of the Company (collectively the "Covered Officers").
To further reinforce the Rules of Conduct, the Covered Officers are subject to
the following Code of Ethics.

B.   PURPOSE.

     The Company is proud of the values with which it and its subsidiaries
conduct business. It has and will continue to uphold the highest levels of
business ethics and personal integrity in all types of transactions and
interactions. To this end, this Code of Ethics serves to (1) emphasize the
Company's commitment to ethics and compliance with the law; (2) set forth basic
standards of ethical and legal behavior; (3) provide reporting mechanisms for
known or suspected ethical or legal violations; and (4) help prevent and detect
wrongdoing.

     Given the variety and complexity of ethical questions that may arise in the
course of business of the Company and its subsidiaries, this Code of Ethics
serves only as a rough guide. Confronted with ethically ambiguous situations,
the Covered Officers should remember the Company's commitment to the highest
ethical standards and seek independent advice, where necessary, to ensure that
all actions they take on behalf of the Company and its subsidiaries honor this
commitment.

C.   ETHICS STANDARDS.
     1.  Honest and Ethical Conduct.


     The Covered Officers shall behave honestly and ethically at all times and
with all people. They shall act in good faith, with due care, and shall engage
only in fair and open competition, by treating ethically competitors, suppliers,
customers, and colleagues. They shall not misrepresent facts or engage in
illegal, unethical, or anti-competitive practices for personal or professional
gain.

     This fundamental standard of honest and ethical conduct extends to the
handling of conflicts of interest. The Covered Officers shall avoid any actual,
potential, or apparent conflicts of interest with the Company and its
subsidiaries and any personal activities, investments, or associations that
might give rise to such conflicts. They shall not compete with or use the
Company or any of its subsidiaries for personal gain, self-deal, or take
advantage of corporate opportunities. They shall act on behalf of the Company
and its subsidiaries free from improper influence or the appearance of improper
influence on their judgment or performance of duties. A Covered Officer shall
disclose any material transaction or relationship that reasonably could be
expected to give rise to such a conflict to the Company's General Counsel or the
Chair of the Audit Committee of the Company's Board of Directors. No action may
be taken with respect to such transaction or party unless and until the General
Counsel and the Audit Committee has approved such action.








     2.  Timely and Truthful Disclosure.

     In reports and documents filed with or submitted to the Securities and
Exchange Commission and other regulators by the Company or its subsidiaries, and
in other public communications made by the Company or its subsidiaries, the
Covered Officers shall make disclosures that are full, fair, accurate, timely,
and understandable. The Covered Officers shall provide thorough and accurate
financial and accounting data for inclusion in such disclosures. The Covered
Officers shall not knowingly conceal or falsify information, misrepresent
material facts, or omit material facts necessary to avoid misleading the
Company's or any of its subsidiaries' independent public auditors or investors.

     3.  Legal Compliance.

     In conducting the business of the Company and its subsidiaries, the Covered
Officers shall comply with applicable governmental laws, rules, and regulations
at all levels of government in the United States and in any non-U.S.
jurisdiction in which the Company or any of its subsidiaries does business, as
well as applicable rules and regulations of self-regulatory organizations of
which the Company or any of its subsidiaries is a member. If the Covered Officer
is unsure whether a particular action would violate an applicable law, rule, or
regulation, he or she should seek the advice of inside counsel (if available),
and, where necessary, outside counsel before undertaking it.

D.   VIOLATIONS OF ETHICAL STANDARDS.
     1.  Reporting Known or Suspected Violations.

     The Covered Officers will promptly bring to the attention of the Company's
General Counsel or the Chair of the Audit Committee any information concerning a
material violation of any of the laws, rules or regulations applicable to the
Company and the operation of its businesses, by the Company or any agent
thereof, or of violation of the Rules of Conduct, or the Code of Ethics. Reports
of violations will be investigated by the Company's General Counsel and the
findings communicated to the Audit Committee.

     2.  Accountable for Violations.

     If the Audit Committee determines that this Code of Ethics has been
violated, either directly, by failure to report a violation, or by withholding
information related to a violation, it may discipline the offending Covered
Officer for non-compliance with penalties up to and including termination of
employment. Violations of this Code of Ethics may also constitute violations of
law and may result in criminal penalties and civil liabilities for the offending
Covered Officer and the Company or its subsidiaries.

EX-21.1

EXHIBIT 21.1
                       MIDAMERICAN ENERGY HOLDINGS COMPANY

                         SUBSIDIARIES AND JOINT VENTURES

SUBSIDIARIES:

MidAmerican Energy Holdings Company                         Iowa
MidAmerican Funding, LLC                                    Iowa
MHC Inc.                                                    Iowa
MidAmerican Energy Company                                  Iowa
CBEC Railway Inc.                                           Iowa
InterCoast Capital Company                                  Delaware
Cimmred Leasing Company                                     South Dakota
InterCoast Global Management, Inc                           Delaware
InterCoast Power Company                                    Delaware
IWG Co. 8                                                   Delaware
MHC Investment Company                                      South Dakota
MWR Capital Inc.                                            South Dakota
TTP, Inc. of South Dakota                                   South Dakota
Midwest Capital Group, Inc.                                 Iowa
Dakota Dunes Development Company                            Iowa
Two Rivers Inc.                                             South Dakota
MidAmerican Services Company                                Iowa
MEC Construction Services Co.                               Iowa
HomeServices of America, Inc.                               Delaware
Allied Title Services, LLC                                  Nebraska
California Title Company                                    California
Caldwell Mill, LLP                                          Alabama
Capitol Intermediary Company                                Nebraska
Capitol Land Exchange, Inc.                                 Nebraska
Capitol Title Company                                       Nebraska
CBSHome Real Estate Company                                 Nebraska
CBSHome Relocation Services, Inc.                           Nebraska
Champion Realty, Inc.                                       Maryland
Chancellor Mortgage Services, Inc.                          Maryland
Chancellor Title Services, Inc.                             Maryland
Columbia Title of Florida, Inc.                             Florida
Community Mortgage Company                                  Minnesota
Edina Financial Services, Inc.                              Minnesota
Edina Realty, Inc.                                          Minnesota
Edina Realty Insurance Agency, Inc.                         Minnesota
Edina Realty Referral Network, Inc.                         Minnesota
Edina Realty Relocation, Inc.                               Minnesota
Edina Realty Title, Inc.                                    Minnesota
Embassy Financial Services, Inc.                            Florida
Esslinger-Wooten-Maxwell, Inc.                              Florida
The Escrow Firm, Inc.                                       California
First Capital Enterprises, LP                               California
First Capital Group, LP                                     California
First Realty, Ltd.                                          Iowa
FMLC Mortgage LLC                                           Arizona



For Rent, Inc.                                              Arizona
HMSV-USB Lending, LLC                                       Alabama
HMSV Financial Services, Inc.                               Delaware
HMSV Technologies, Inc.                                     Delaware
Home Real Estate (Lincoln Central)                          Nebraska
Home Real Estate (Lincoln Corporate)                        Nebraska
Home Real Estate (Lincoln Cotner)                           Nebraska
Home Real Estate (Lincoln Holmes Lake)                      Nebraska
Home Real Estate (Lincoln North)                            Nebraska
Home Real Estate (Lincoln Pine Lake)                        Nebraska
Home Real Estate (Lincoln South)                            Nebraska
Home Real Estate (Nebraska)                                 Nebraska
HomeServices Insurance, Inc.                                Nebraska
HomeServices Lending, LLC                                   Delaware
HomeServices of California, Inc.                            Delaware
HomeServices of Florida, Inc.                               Florida
HomeServices of Kentucky, Inc.                              Kentucky
HomeServices of Nebraska, Inc.                              Delaware
IMO Co., Inc.                                               Missouri
InsuranceSouth, LLC                                         Alabama
Iowa Realty Co., Inc.                                       Iowa
Iowa Realty Insurance Agency, Inc.                          Iowa
Iowa Title Company                                          Iowa
Iowa Title Linn County, LLC                                 Iowa
Iowa Title Linn County II, LLC                              Iowa
J.D. Reece Mortgage Company                                 Kansas
J.S. White & Associates, Inc.                               Alabama
Jenny Pruitt Insurance Services, LLC                        Georgia
Jenny Pruitt & Associates, Inc.                             Georgia
JRHBW Realty, Inc.                                          Alabama
Kansas City Title, Inc.                                     Missouri
Kentucky Residential Referral Services, LLC                 Kentucky
Lincoln Title Company, LLC                                  Nebraska
Long Title Agency, LLC                                      Arizona
Meridian Title Services, LLC                                Georgia
MidAmerican Commercial Real Estate Services, Inc.           Kansas
Midland Escrow Services, Inc.                               Iowa
MortgageSouth, LLC                                          Alabama
MRSCT, Inc.                                                 Kentucky
Nebraska Land Title and Abstract Company                    Nebraska
Pickford Escrow Company, Inc.                               California
Pickford Golden State Member, LLC                           California
Pickford Holdings LLC                                       California
Pickford North County, LP                                   California
Pickford Real Estate, Inc.                                  California
Pickford Realty, Ltd.                                       California
Pickford Services Company                                   California
Plaza Financial Services, LLC                               Kansas
Plaza Mortgage Services, LLC                                Kansas
Professional Referral Organization, Inc.                    Maryland
Property I.D. Golden State, LLC                             California
Real Estate Links, LLC                                      Illinois



Rector-Hayden Realtors, Inc.                                Delaware
Reece & Nichols Alliance, Inc.                              Kansas
Reece & Nichols Realtors, Inc.                              Kansas
The Referral Company                                        Iowa
RHL Referral Company, LLC                                   Arizona
Roy H. Long Realty Company, Inc.                            Arizona
San Diego PCRE, Inc.                                        California
Semonin Mortgage Services, Inc.                             Kentucky
Semonin Realtors, Inc.                                      Kentucky
Seward Title, LLC                                           Nebraska
Southwest Relocation, LLC                                   Arizona
Title Info Now, LLC                                         Minnesota
TitleSouth, LLC                                             Alabama
Trinity Mortgage Affiliates                                 Minnesota
Trinity Mortgage Partners, Inc.                             Georgia
United Settlement Services, LC                              Iowa
Woods Bros. Real Estate Group, Inc.                         Nebraska
Woods Bros. Realty, Inc.                                    Nebraska
Woods Lots, Inc.                                            Nebraska
CE Electric UK Funding Company                              England
CalEnergy Gas (Holdings) Limited                            England
CalEnergy Gas Limited                                       England
CalEnergy Gas (Australia) Limited                           England
CalEnergy Gas (Polska) Sp. z.o.o.                           Poland
CalEnergy Resources Polska SP. z.o.o.                       Poland
CalEnergy Resources Limited                                 England
CE Electric (Ireland) Ltd.                                  Republic of Ireland
CE Electric UK Holdings                                     England
CE Electric UK Ltd.                                         England
CE UK Gas Holdings Limited                                  England
Integrated Utility Services Limited                         England
Integrated Utility Services Limited                         Ireland
Northern Electric plc                                       England
Northern Electric Distribution Limited                      England
Northern Electric Finance plc                               England
Northern Electric & Gas Limited                             England
Northern Electric Generation (TPL) Limited                  England
Northern Electric Generation (Peaking) Limited              England
Northern Electric Genco Limited                             England
Northern Electric Insurance Services Limited                Isle of Man
Northern Electric (Overseas Holdings) Limited               England
Northern Electric Properties Limited                        England
Northern Electric Retail Limited                            England
Northern Electric Supply Limited                            England
Northern Electric Training Limited                          England
Northern Infocom Limited                                    England
Northern Metering Services Limited                          England
Northern Transport Finance Limited                          England
Stamfordham Road Developments Ltd.                          England
Kings Road Developments Limited                             England
Selectusonline                                              England
Teesside Power Limited                                      England



Vehicle Lease and Service Limited                           England
Yorkshire Cayman Holding Limited                            Cayman Islands
Yorkshire Electricity Distribution plc                      England
Yorkshire Electricity Distribution Services Limited         England
Yorkshire Electricity Group plc                             England
Yorkshire Holdings plc                                      England
Yorkshire Power Finance Limited                             Cayman Islands
Yorkshire Power Finance 2 Limited                           Cayman Islands
Yorkshire Power Group Limited                               England
YPG Holdings LLC                                            Delaware
CE Generation, LLC                                          Nebraska
CalEnergy Operating Corporation                             Delaware
California Energy Development Corporation                   Delaware
California Energy Yuma Corporation                          Utah
CE Salton Sea Inc.                                          Delaware
CE Texas Energy LLC                                         Delaware
CE Texas Gas LP                                             Delaware
CE Texas Fuel, LLC                                          Delaware
CE Texas Pipeline, LLC                                      Delaware
CE Texas Power, LLC                                         Delaware
CE Texas Resources, LLC                                     Delaware
CE Turbo LLC                                                Delaware
Conejo Energy Company                                       California
Del Ranch, L. P.                                            California
Desert Valley Company                                       California
Elmore, L.P.                                                California
Falcon Power Operating Company                              Texas
Falcon Seaboard Oil Company                                 Texas
Falcon Seaboard Pipeline Corporation                        Texas
Falcon Seaboard Power Corporation                           Texas
Fish Lake Power LLC                                         Delaware
FSRI Holdings, Inc                                          Texas
Imperial Magma LLC                                          Delaware
Leathers, L.P.                                              California
Magma Land Company I                                        Nevada
Magma Power Company                                         Nevada
Niguel Energy Company                                       California
Power Resources, Ltd.                                       Texas
Salton Sea Brine Processing L. P.                           California
Salton Sea Funding Corporation                              Delaware
Salton Sea Power Company                                    Nevada
Salton Sea Power Generation L. P.                           California
Salton Sea Power LLC                                        Delaware
Salton Sea Royalty LLC                                      Delaware
San Felipe Energy Company                                   California
Saranac Energy Company, Inc.                                Delaware
SECI Holdings, Inc.                                         Delaware
VPC Geothermal LLC                                          Delaware
Vulcan Power Company                                        Nevada.
Vulcan/BN Geothermal Power Company                          Nevada.
Yuma Cogeneration Associates                                Arizona
North Country Gas Pipeline Corporation                      New York



Saranac Power Partners, LP                                  Delaware
American Pacific Finance Company                            Delaware
CalEnergy Capital Trust II                                  Delaware
CalEnergy Capital Trust III                                 Delaware
CalEnergy Company Inc.                                      Delaware
CalEnergy Generation Operating Company                      Delaware
CalEnergy Holdings, Inc.                                    Delaware
CalEnergy International, Inc.                               Delaware
CalEnergy International Ltd.                                Bermuda
CalEnergy International Services, Inc.                      Delaware
CalEnergy Investments C.V.                                  Netherlands
CalEnergy Minerals, LLC                                     Delaware
CalEnergy Minerals Development LLC                          Delaware
CalEnergy Pacific Holdings Corp.                            Delaware
CalEnergy U.K. Inc.                                         Delaware
CE Casecnan Ltd.                                            Bermuda
CE Cebu Geothermal Power Company, Inc.                      Philippines
CE (Bermuda) Financing Ltd.                                 Bermuda
CE Electric, Inc.                                           Delaware
CE Electric (NY), Inc.                                      Delaware
CE Exploration Company                                      Delaware
CE Geothermal, Inc.                                         Delaware
CE Geothermal LLC                                           Delaware
CE Insurance Services Limited                               Isle of Man
CE International (Bermuda) Ltd                              Bermuda
CE International Investments, Inc.                          Delaware
CE Mahanagdong Ltd.                                         Bermuda
CE Mahanagdong II, Inc.                                     Philippines
CE Obsidian Energy LLC                                      Delaware
CE Philippines Ltd.                                         Bermuda
CE Philippines II, Inc.                                     Philippines
CE Power, Inc.                                              Delaware
CE Power LLC                                                Delaware
CE Resources LLC                                            Delaware
Cordova Energy Company, LLC                                 Delaware
Cordova Funding Corporation                                 Delaware
Intermountain Geothermal Company                            Delaware
Kern River Funding Corporation                              Delaware
Kern River Gas Transmission Company                         Texas
KR Acquisition 1, LLC                                       Delaware
KR Acquisition 2, LLC                                       Delaware
KR Holding, LLC                                             Delaware
Magma Netherlands B.V.                                      Netherlands
MEHC Investment, Inc.                                       South Dakota
MidAmerican Capital Trust I                                 Delaware
MidAmerican Capital Trust II                                Delaware
MidAmerican Capital Trust III                               Delaware
MidAmerican Energy Machining Services, LLC                  Delaware
MidAmerican Transmission, LLC                               Delaware
NNGC Acquisition, LLC                                       Delaware
Northern Natural Gas Company                                Delaware
Ormoc Cebu Ltd.                                             Bermuda



Quad Cities Energy Company                                  Iowa
Salton Sea Minerals Corp.                                   Delaware
Tongonan Power Investment, Inc.                             Philippines
Visayas Geothermal Power Company                            Philippines
CE Casecnan Water and Energy Company, Inc.                  Philippines
CE Luzon Geothermal Power Company, Inc.                     Philippines
American Pacific Finance Company II                         California
Arizona Home Services LLC                                   Arizona
Avonmouth CHP Limited                                       England
Big Springs Pipeline Company                                Texas
Bioclean Fuels, Inc.                                        Delaware
CalEnergy BCF, Inc.                                         Delaware
CalEnergy Capital Trust I                                   Delaware
CalEnergy Capital Trust IV                                  Delaware
CalEnergy Capital Trust V                                   Delaware
CalEnergy Capital Trust VI                                  Delaware
CalEnergy Europe Ltd.                                       England
CalEnergy Imperial Valley Company, Inc.                     Delaware
CalEnergy Power Ltd.                                        England
CalEnergy Power Ventures Ltd.                               England
California Energy Management Company                        Delaware
CBE Engineering Co.                                         California
CEABC Co.                                                   Delaware
CEXYZ Co.                                                   Delaware
CE Administrative Services, Inc.                            Delaware
CE Argo Energy, Inc.                                        Delaware
CE Argo Power LLC                                           Delaware
CE Asia Ltd.                                                Bermuda
CE Bali, Ltd.                                               Bermuda
CE Indonesia Geothermal, Inc.                               Delaware
CE Indonesia Ltd.                                           Bermuda
CE Latin America Ltd                                        Bermuda
CE Obsidian Holding LLC                                     Delaware
CE Overseas Ltd.                                            Bermuda
CE Singapore Ltd.                                           Bermuda
CE/TA LLC                                                   Delaware
DCCO Inc.                                                   Minnesota
Electricity North East Ltd.                                 England
Electricity North Ltd.                                      England
Gas UK Ltd.                                                 England
Gilbert/CBE Indonesia LLC                                   Nebraska
Gilbert/CBE L. P.                                           Nebraska
Home Real Estate Inc. (Lincoln Central)                     Nebraska
Home Real Estate Inc. (Lincoln Corporate)                   Nebraska
Home Real Estate Inc. (Lincoln Cotner)                      Nebraska
Home Real Estate Inc. (Lincoln Holmes Lake)                 Nebraska
Home Real Estate Inc. (Lincoln North)                       Nebraska
Home Real Estate Inc. (LincolnSouth)                        Nebraska
Home Real Estate Inc. (Nebraska)                            Nebraska
Home Real Estate Inc. (Pine Lake)                           Nebraska
Integrated Utility Services (UK) Ltd.                       England
IPP Co.                                                     Delaware



IPP Co. LLC                                                 Delaware
InterCoast Sierra Power Company                             Delaware
InterCoast Energy Company                                   Delaware
InterCoast Power Marketing Company                          Delaware
J.P. & A., Inc.                                             Georgia
LW Technical (Northern) Ltd.                                England
Magma Generating Company I                                  Nevada
Magma Generating Company II                                 Nevada
Magma Geo (GP)                                              California
MidAmerican Energy Financing I                              Delaware
MidAmerican Energy Financing II                             Delaware
MidAmerican Energy Funding Corporation                      Delaware
Midwest Gas Company                                         Iowa
NEEB Ltd.                                                   England
Neptune Power Ltd.                                          England
NorCon Holdings, Inc.                                       Delaware
NorCon Power Partners L.P.                                  Delaware
Norming Investments B.V.                                    Netherlands
North Eastern Electricity Ltd.                              England
Northern Aurora, Inc.                                       Delaware
Northern Aurora Limited                                     England
Northern Cablevision Ltd.                                   England
Northern Cogen Ltd.                                         England
Northern Consolidated Power, Inc.                           Delaware
Northern Electric Contracting Ltd.                          England
Northern Electric & Gas Distribution Ltd.                   England
Northern Electric Generation Limited                        England
Northern Electric Power Ltd.                                England
Northern Electric Share Scheme Trustee Ltd.                 England
Northern Electrics Ltd.                                     England
Northern Electric Telecom Limited                           England
Northern Electric (TPL) Holdings Ltd.                       England
Northern Electric Training Limited                          England
Northern Electric Transport Limited                         England
Northern Energy Distribution Ltd.                           England
Northern Power Distribution Ltd.                            England
Northern Utilities Ltd.                                     England
Northern Utility Services Ltd.                              England
Northern Tracing & Collection Services Limited              England
NUSL International Ltd.                                     England
Real Estate Referral Network, Inc.                          Nebraska
Ryhope Road Developments Ltd                                England
Seal Sands Network Ltd.                                     England
Slupo I B.V.                                                Netherlands
UK Distribution Limited                                     England
YEDL Limited                                                England

EX-24.1

EXHIBIT 24.1

                                POWER OF ATTORNEY


The undersigned, a member of the Board of Directors or an officer of MIDAMERICAN
ENERGY HOLDINGS COMPANY, an Iowa corporation (the "Company"), hereby constitutes
and appoints Douglas L. Anderson and Paul J. Leighton and each of them, as
his/her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for and in his/her stead, in any and all
capacities, to sign on his/her behalf the Company's Form 10-K Annual Report for
the fiscal year ending December 31, 2003 and to execute any amendments thereto
and to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission and applicable
stock exchanges, with the full power and authority to do and perform each and
every act and thing necessary or advisable to all intents and purposes as he/she
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his/her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

Executed as of February 9, 2004.



   /s/ David L. Sokol                                   /s/ Gregory E. Abel
- -------------------------------------                 ---------------------
   DAVID L. SOKOL                                       GREGORY E. ABEL


   /s/ Patrick J. Goodman                               /s/ Stanley J. Bright
- -------------------------------------                 -----------------------
   PATRICK J. GOODMAN                                   STANLEY J. BRIGHT


   /s/ Edgar D. Aronson                                 /s/ Walter Scott, Jr.
- -------------------------------------                 -----------------------
   EDGAR D. ARONSON                                     WALTER SCOTT, JR.


   /s/ Richard R. Jaros                                 /s/ Warren E. Buffett
- -------------------------------------                 -----------------------
   RICHARD R. JAROS                                     WARREN E. BUFFETT


   /s/ Marc D. Hamburg                                  /s/ W. David Scott
- -------------------------------------                 --------------------
   MARC D. HAMBURG                                      W. DAVID SCOTT


   /s/ John K. Boyer
- --------------------
   JOHN K. BOYER

EX-31.1

EXHIBIT 31.1
                            CERTIFICATION PURSUANT TO
                               SECTION 302 OF THE
                           SARBANES-OXLEY ACT OF 2002

I, David L. Sokol, certify that:

1. I have reviewed this annual report on Form 10-K of MidAmerican Energy
   Holdings Company;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date:  February 9, 2004
                               /s/ David L. Sokol
                              --------------------
                                 David L. Sokol
                             Chief Executive Officer

EX-31.2

EXHIBIT 31.2
                            CERTIFICATION PURSUANT TO
                               SECTION 302 OF THE
                           SARBANES-OXLEY ACT OF 2002

I, Patrick J. Goodman, certify that:

1. I have reviewed this annual report on Form 10-K of MidAmerican Energy
   Holdings Company;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date:  February 9, 2004
                             /s/ Patrick J. Goodman
                            ------------------------
                               Patrick J. Goodman
                Senior Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                               SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002

I, David L. Sokol, President of MidAmerican Energy Holdings Company (the
"Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350, that to the best of my knowledge:

     (1) the Annual Report on Form 10-K of the Company for the annual period
         ended December 31, 2003 (the "Report") fully complies with the
         requirements of Section 13(a) or 15(d) of the Securities Exchange Act
         of 1934 (15 U.S.C. 78m or 78o(d)); and

     (2) the information contained in the Report fairly presents, in all
         material respects, the financial condition and result of operations of
         the Company.


Dated:  February 9, 2004


                               /s/ David L. Sokol
                              --------------------
                                 David L. Sokol
                             Chief Executive Officer

EX-32.2

EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                               SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002

I, Patrick J. Goodman, Senior Vice President and Chief Financial Officer of
MidAmerican Energy Holdings Company (the "Company"), certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to
the best of my knowledge:

     (1) the Annual Report on Form 10-K of the Company for the annual period
         ended December 31, 2003 (the "Report") fully complies with the
         requirements of Section 13(a) or 15(d) of the Securities Exchange Act
         of 1934 (15 U.S.C. 78m or 78o(d)); and

     (2) the information contained in the Report fairly presents, in all
         material respects, the financial condition and result of operations of
         the Company.


Dated:  February 9, 2004




                             /s/ Patrick J. Goodman
                            ------------------------
                               Patrick J. Goodman
                    Senior Vice President and Chief Financial