-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qqpb0g7YWngT56MUVwWtPyo0Im8TlJQXcn9zZO/a9SfpvuqK+wA84N6pFtjXphh8 x43ua/4hiZvWH8MHDmlXhA== 0000928576-00-000007.txt : 20000511 0000928576-00-000007.hdr.sgml : 20000511 ACCESSION NUMBER: 0000928576-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDAMERICAN ENERGY CO CENTRAL INDEX KEY: 0000928576 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 421425214 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-15387 FILM NUMBER: 624798 BUSINESS ADDRESS: STREET 1: 666 GRAND AVE STREET 2: P O BOX 657 CITY: DES MOINES STATE: IA ZIP: 50306-9244 BUSINESS PHONE: 5152424300 MAIL ADDRESS: STREET 1: 666 GRAND AVENUE POST OFFICE BOX 9244 STREET 2: 666 GRAND AVENUE POST OFFICE BOX 9244 CITY: DES MOINES STATE: IA ZIP: 50306-9244 10-Q 1 MIDAMERICAN ENERGY COMPANY - FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2000 -------------- Commission Registrant's Name, State of Incorporation, IRS Employer File Number Address and Telephone Number Identification No. - ----------- ---------------------------- ------------------ 1-11505 MIDAMERICAN ENERGY COMPANY 42-1425214 (AN IOWA CORPORATION) 666 GRAND AVE. PO BOX 657 DES MOINES, IOWA 50303 515-242-4300 Securities registered pursuant to Section 12(b) of the Act: Name of each Exchange Title of Each Class On which Registered ------------------- --------------------- 7.98% MidAmerican Energy Company - Obligated Preferred Securities of Subsidiary Trust New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Preferred Stock, $3.30 Series, no par value Preferred Stock, $3.75 Series, no par value Preferred Stock, $3.90 Series, no par value Preferred Stock, $4.20 Series, no par value Preferred Stock, $4.35 Series, no par value Preferred Stock, $4.40 Series, no par value Preferred Stock, $4.80 Series, no par value Preferred Stock, $5.25 Series, no par value Preferred Stock, $7.80 Series, no par value - ------------------------------------------------------------------------------- Title of each Class 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No ----- ---- As of April 30, 2000, all 70,980,203 outstanding shares of MidAmerican Energy Company's voting stock were held by its parent company, MHC Inc. MIDAMERICAN ENERGY COMPANY FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE NO. ITEM 1. Financial Statements Independent Accountants' Report............................. 3 Consolidated Statements of Income........................... 4 Consolidated Balance Sheets................................. 5 Consolidated Statements of Cash Flows....................... 6 Notes to Consolidated Financial Statements.................. 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 12 PART II. OTHER INFORMATION ITEM 1. Legal Proceeding............................................ 22 ITEM 6. Exhibits and Reports on Form 8-K............................ 23 Signatures........................................................... 25 Exhibit Index........................................................ 26 -2- INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Shareholder MidAmerican Energy Company Des Moines, Iowa We have reviewed the accompanying consolidated balance sheet of MidAmerican Energy Company and subsidiaries (the Company) as of March 31, 2000, and the related consolidated statements of income and cash flows for the three month periods ended March 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of MidAmerican Energy Company and subsidiaries as of December 31, 1999, and the related consolidated statements of income, retained earnings and cash flows for the year then ended (not presented herein), and in our report dated January 25, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1999 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Des Moines, Iowa April 21, 2000 -3- MIDAMERICAN ENERGY COMPANY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ---------------------- 2000 1999 --------- --------- OPERATING REVENUES Regulated electric ........................ $ 278,463 $ 262,128 Regulated gas ............................. 179,902 170,778 Nonregulated .............................. 56,487 35,342 --------- --------- 514,852 468,248 --------- --------- OPERATING EXPENSES Regulated: Cost of fuel, energy and capacity ....... 58,317 50,986 Cost of gas sold ........................ 111,498 96,858 Other operating expenses ................ 101,891 116,639 Maintenance ............................. 24,739 26,537 Depreciation and amortization ........... 48,394 49,691 Property and other taxes ................ 19,299 20,151 --------- --------- 364,138 360,862 --------- --------- Nonregulated: Cost of sales ........................... 51,138 34,099 Other ................................... 3,599 3,937 --------- --------- 54,737 38,036 --------- --------- Total operating expenses .................. 418,875 398,898 --------- --------- OPERATING INCOME .......................... 95,977 69,350 --------- --------- NON-OPERATING INCOME Interest and dividend income .............. 1,373 1,099 Other, net ................................ (2,119) (2,041) --------- --------- (746) (942) --------- --------- FIXED CHARGES Interest on long-term debt ................ 14,583 16,489 Other interest expense .................... 2,900 5,412 Preferred dividends of subsidiary trust ... 1,995 1,995 Allowance for borrowed funds .............. (379) (306) --------- --------- 19,099 23,590 --------- --------- INCOME BEFORE INCOME TAXES ................ 76,132 44,818 INCOME TAXES .............................. 31,333 18,634 --------- --------- NET INCOME ................................ 44,799 26,184 PREFERRED DIVIDENDS ....................... 1,239 1,239 --------- --------- EARNINGS ON COMMON STOCK .................. $ 43,560 $ 24,945 ========= =========
The accompanying notes are an integral part of these statements. -4- MIDAMERICAN ENERGY COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
AS OF ----------------------- MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ (UNAUDITED) ASSETS UTILITY PLANT Electric ............................................. $4,355,811 $4,348,740 Gas .................................................. 812,896 809,112 ---------- ---------- 5,168,707 5,157,852 Less accumulated depreciation and amortization ....... 2,583,138 2,548,160 ---------- ---------- 2,585,569 2,609,692 Construction work in progress ........................ 39,024 33,739 ---------- ---------- 2,624,593 2,643,431 ---------- ---------- POWER PURCHASE CONTRACT .............................. 104,326 106,481 ---------- ---------- CURRENT ASSETS Cash and cash equivalents ............................ 2,728 5,167 Receivables .......................................... 163,394 190,986 Inventories .......................................... 55,822 80,649 Prepaid taxes ........................................ 22,889 22,889 Other ................................................ 10,998 10,355 ---------- ---------- 255,831 310,046 ---------- ---------- INVESTMENTS AND NONREGULATED PROPERTY, NET ........... 245,444 228,105 REGULATORY ASSETS .................................... 268,572 278,757 OTHER ASSETS ......................................... 48,068 25,737 ---------- ---------- TOTAL ASSETS ......................................... $3,546,834 $3,592,557 ========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common shareholder's equity .......................... $1,101,415 $1,057,855 MidAmerican preferred securities, not subject to mandatory redemption ............................... 31,759 31,759 Preferred securities, subject to mandatory redemption: MidAmerican preferred securities ................... 50,000 50,000 MidAmerican-obligated preferred securities of subsidiary trust holding solely MidAmerican junior subordinated debentures .................. 100,000 100,000 Long-term debt (excluding current portion) ........... 759,725 759,638 ---------- ---------- 2,042,899 1,999,252 ---------- ---------- CURRENT LIABILITIES Notes payable ........................................ 180,548 204,000 Current portion of long-term debt .................... 719 110,861 Current portion of power purchase contract ........... 15,767 15,767 Accounts payable ..................................... 151,790 131,186 Taxes accrued ........................................ 109,862 112,663 Interest accrued ..................................... 11,200 12,925 Other ................................................ 29,631 30,226 ---------- ---------- 499,517 617,628 ---------- ---------- OTHER LIABILITIES Power purchase contract .............................. 52,281 52,281 Deferred income taxes ................................ 559,622 561,000 Investment tax credit ................................ 70,292 71,757 Other ................................................ 322,223 290,639 ---------- ---------- 1,004,418 975,677 ---------- ---------- TOTAL CAPITALIZATION AND LIABILITIES ................. $3,546,834 $3,592,557 ========== ==========
The accompanying notes are an integral part of these statements. -5- MIDAMERICAN ENERGY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31 ---------------------- 2000 1999 --------- --------- NET CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................. $ 44,799 $ 26,184 Adjustments to reconcile net income to net cash provided: Depreciation and amortization .......................... 48,468 49,808 Deferred income taxes and investment tax credit, net ... (2,707) (2,863) Amortization of other assets ........................... 12,095 15,295 Cash inflow of accounts receivable securitization ...... 12,877 10,000 Impact of changes in working capital ................... 52,409 15,929 Other .................................................. (807) (11,601) --------- --------- Net cash provided ................................... 167,134 102,752 --------- --------- NET CASH FLOWS FROM INVESTING ACTIVITIES Utility construction expenditures .......................... (28,988) (25,841) Quad Cities Nuclear Power Station decommissioning trust fund (2,075) (2,813) Nonregulated capital expenditures .......................... (617) (584) Other investing activities, net ............................ (3,060) (11,039) --------- --------- Net cash used .......................................... (34,740) (40,277) --------- --------- NET CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid ............................................. (1,239) (37,945) Retirement of long-term debt, including reacquisition cost . (110,142) (134) Net decrease in notes payable .............................. (23,452) (14,626) --------- --------- Net cash used .......................................... (134,833) (52,705) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... (2,439) 9,770 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 5,167 5,370 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 2,728 $ 15,140 ========= ========= ADDITIONAL CASH FLOW INFORMATION: Interest paid, net of amounts capitalized .................. $ 17,240 $ 21,461 ========= ========= Income taxes paid .......................................... $ 18,230 $ -- ========= =========
The accompanying notes are an integral part of these statements. -6- MIDAMERICAN ENERGY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. GENERAL: The consolidated financial statements included herein have been prepared by MidAmerican Energy Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of MidAmerican Energy, all adjustments, consisting of normal recurring adjustments, have been made to present fairly the financial position, the results of operations and the changes in cash flows for the periods presented. Prior year amounts have been reclassified to a basis consistent with the current year presentation. All significant intercompany transactions have been eliminated. Although MidAmerican Energy believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in MidAmerican Energy's latest Annual Report on Form 10-K. MidAmerican Energy is a public utility with electric and natural gas operations and is the principal subsidiary of MHC Inc. MHC is a wholly owned indirect subsidiary of MidAmerican Energy Holdings Company. MidAmerican Energy Holdings is an exempt public utility holding company headquartered in Des Moines, Iowa. B. ENVIRONMENTAL MATTERS: (1) MANUFACTURED GAS PLANT FACILITIES - The United States Environmental Protection Agency 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 which 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 an environmental or health risk, and whether MidAmerican Energy has any responsibility for remedial action. MidAmerican Energy is currently conducting field investigations at eighteen sites and has conducted interim removal actions at six of the eighteen sites. In addition, MidAmerican Energy has completed investigations and removals at 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 $22 million to $68 million. MidAmerican Energy's estimate of the probable cost for these sites as of March 31, 2000 was $28 million. The estimate consists of $3 million for investigation costs, $10 million for remediation costs, $13 million for groundwater treatment and monitoring costs and $2 million for closure and administrative costs. This estimate has been recorded as a liability and a regulatory asset for future recovery. MidAmerican Energy projects that these amounts will be paid or incurred over the next 10 years. -7- The estimate of probable remediation costs is established on a site specific basis. The costs are accumulated in a three-step process. First, a determination is made as to whether MidAmerican Energy has potential legal liability for the site and whether information exists to indicate that contaminated wastes remain at the site. If so, the costs of performing a preliminary investigation and the costs of removing known contaminated soil are accrued. As the investigation is performed and if it is determined remedial action is required, the best estimate of remedial costs is accrued. If necessary, the estimate is revised when a consent order is issued. The estimated recorded liabilities for these properties include incremental direct costs of the remediation effort, costs for future monitoring at sites and costs of compensation to employees for time expected to be spent directly on the remediation effort. The estimated recorded liabilities for these properties are based upon preliminary data. Thus, actual costs could vary significantly from the estimates. The estimate could change materially based on facts and circumstances derived from site investigations, changes in required remedial action and changes in technology relating to remedial alternatives. In addition, insurance recoveries for some or all of the costs may be possible, but the liabilities recorded have not been reduced by any estimate of such recoveries. The Illinois Commerce Commission has approved the use of a tariff rider which permits recovery of the actual costs of litigation, investigation and remediation relating to former manufactured gas plant sites. MidAmerican Energy's present rates in Iowa provide for a fixed annual recovery of manufactured gas plant costs. MidAmerican Energy intends to pursue recovery of the remediation costs from other potentially responsible parties and its insurance carriers. 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 or results of operations. (2) CLEAN AIR ACT - On July 18, 1997, the Environmental Protection Agency adopted revisions to the National Ambient Air Quality Standards for ozone and a new standard for fine particulate matter. Based on data to be obtained from monitors located throughout each state, the Environmental Protection Agency will determine which states have areas that do not meet the air quality standards (i.e., areas that are classified as nonattainment). If a state has area(s) classified as nonattainment area(s), the state is required to submit a State Implementation Plan specifying how it will reach attainment of the standards through emission reductions or other means. In August 1998, the Iowa Environmental Protection Commission adopted by reference the National Ambient Air Quality Standards for ozone and fine particulate matter. In May 1999, the United States Court of Appeals for the District of Columbia Circuit remanded the standards adopted in July 1997 back to the Environmental Protection Agency indicating the Environmental Protection Agency had not expressed sufficient justification for the basis of establishing the standards and ruling that the Environmental Protection Agency has exceeded its constitutionally-delegated authority in setting the standards. The Environmental Protection Agency's appeal of the court's ruling to the full panel of the United States District Court of Appeals for the District of Columbia was denied. The Environmental Protection Agency filed a petition for a writ of certiorari to the United States Supreme Court on January 27, 2000, seeking review of the lower court's decision. As a result of the court's initial decision and the current status of the standards, the impact of any new standards on MidAmerican Energy is currently unknown. If the Environmental Protection Agency successfully appeals the court's decision, however, and the new standards are implemented, then MidAmerican Energy's fossil fuel generating stations may be subject to emission reductions if the stations are located in nonattainment areas. As part of an overall state plan to achieve attainment of the standards, -8- MidAmerican Energy could be required to install control equipment on its fossil fuel generating stations or decrease the number of hours during which these stations operate. The degree to which MidAmerican Energy may be required to install control equipment or decrease operating hours under a nonattainment scenario will be determined by the state's assessment of MidAmerican Energy's relative contribution, along with other emission sources, to the nonattainment status. The installation of control equipment would result in increased costs to MidAmerican Energy. A decrease in the number of hours during which the affected stations operate would decrease the revenues of MidAmerican Energy. C. RATE MATTERS: Under a 1997 pricing plan settlement agreement resulting from an Iowa Utilities Board rate proceeding, electric prices for Iowa industrial and commercial customers were reduced through a retail access pilot project, negotiated individual electric contracts and a tariffed rate reduction for some non-contract commercial customers. The negotiated electric contracts have differing terms and conditions as well as prices. The contracts range in length from five to ten years, and some have price renegotiation and early termination provisions exercisable by either party. The vast majority of the contracts are for terms of seven years or less, although, some large customers have agreed to ten-year contracts. Prices are set as fixed prices; however, many contracts allow for potential price adjustments with respect to environmental costs, government imposed public purpose programs, tax changes, and transition costs. While the contract prices are fixed (except for the potential adjustment elements), the costs MidAmerican Energy incurs to fulfill these contracts will vary. On an aggregate basis the annual revenues under contract are approximately $180 million. If MidAmerican Energy's annual Iowa electric jurisdictional return on common equity exceeds 12%, then earnings above the 12% level will be shared equally between customers and MidAmerican Energy; if the return exceeds 14%, then two-thirds of MidAmerican Energy's share of those earnings above the 14% level will be used for accelerated recovery of regulatory assets. The 1997 pricing plan settlement agreement precludes MidAmerican Energy from filing for increased rates prior to 2001 unless the return falls below 9%. Other parties signing the agreement are prohibited from filing for reduced rates prior to 2001 unless the return after reflecting credits to customers, exceeds 14%. Under an Illinois restructuring law enacted in 1997, a similar sharing mechanism is in place for MidAmerican Energy's Illinois electric operations. A two-year average return on common equity greater than a two-year average benchmark will trigger an equal sharing of earnings on the excess. The benchmark is a calculation of average 30-year Treasury Bond rates plus 5.5% for 1998 and 1999 and 8.5% for 2000 through 2004. The initial calculation, which was due March 31, 2000, was based on 1998 and 1999 results. D. ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION: MidAmerican's utility operations are subject to the regulation of the Iowa Utilities Board, the Illinois Commerce Commission, the South Dakota Public Utilities Commission, and the Federal Energy Regulatory Commission. MidAmerican Energy's accounting policies and the accompanying consolidated financial statements conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process. -9- Statement of Financial Accounting Standards No. 71 sets forth accounting principles for operations that are regulated and meet certain criteria. For operations that meet the criteria, SFAS 71 allows, among other things, the deferral of costs that would otherwise be expensed when incurred. A possible consequence of the changes in the utility industry is the discontinued applicability of SFAS 71. With the exception of the generation operations serving the Illinois jurisdiction, MidAmerican's electric and gas utility operations currently meet the criteria of SFAS 71, but its applicability is periodically reexamined. If portions of its utility operations no longer meet the criteria of SFAS 71, MidAmerican 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 are not recovered in transition provisions of any resulting legislation. E. MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES: The MidAmerican Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely MidAmerican Junior Subordinated Debentures included in the Consolidated Balance Sheets were issued by MidAmerican Energy Financing I, a wholly owned statutory business trust of MidAmerican Energy. The sole assets of MidAmerican Energy Financing I are $103.1 million of MidAmerican Energy 7.98% Series A Debentures due 2045. F. SEGMENT INFORMATION: MidAmerican Energy has two reportable operating segments: electric and gas. The electric segment derives most of its revenue from retail sales of regulated electricity to residential, commercial, and industrial customers and sales to other utilities. The gas segment derives most of its revenue from retail sales of regulated natural gas to residential, commercial, and industrial customers and also earns significant revenues by transporting gas owned by others through its distribution systems. Pricing for electric and gas sales are established separately by regulatory agencies; therefore, management also reviews each segment separately to make decisions regarding allocation of resources and in evaluating performance. Common operating costs such as interest income, interest expense, income tax expense and equity in the net loss of investees are allocated to each segment. The following table provides MidAmerican Energy information on an operating segment basis (in thousands): Three Months Ended March 31 ------------------------ 2000 1999 -------- -------- Revenues: Electric.......................... $278,463 $262,128 Gas............................... 179,902 170,778 Nonregulated and other (a)........ 56,487 35,342 -------- -------- $514,852 $468,248 ======== ======== -10- Three Months Ended March 31 ------------------------ 2000 1999 -------- -------- Earnings on common stock: Electric .......................... $ 27,771 $ 12,675 Gas ............................... 14,838 14,321 Nonregulated and other ............ 951 (2,051) -------- -------- $ 43,560 $ 24,945 ======== ======== (a) "Nonregulated and other" consists of nonregulated gas operations, CBEC Railway and other nonregulated activities. G. OTHER COMPREHENSIVE INCOME: For the three months ended March 31, 2000 and 1999, there were no differences between MidAmerican Energy's comprehensive income and earnings on common stock. -11- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION ------------ MidAmerican Energy Company is a public utility with electric and natural gas operations and is the principal subsidiary of MHC Inc. MHC is headquartered in Des Moines, Iowa, and has the following nonregulated subsidiaries: MidAmerican Capital Company, MidAmerican Services Company and Midwest Capital Group, Inc. MHC is a wholly owned subsidiary of MidAmerican Funding, LLC, which is a wholly owned subsidiary of MidAmerican Energy Holdings Company. MHC, MidAmerican Funding and MidAmerican Energy Holdings are exempt public utility holding companies headquartered in Des Moines. FORWARD-LOOKING STATEMENTS From time to time, MidAmerican Energy may make forward-looking statements within the meaning of the federal securities laws that involve judgments, assumptions and other uncertainties beyond its control. These forward-looking statements may include, among others, statements concerning revenue and cost trends, cost recovery, cost reduction strategies and anticipated outcomes, pricing strategies, changes in the utility industry, planned capital expenditures, financing needs and availability, statements of MidAmerican Energy's expectations, beliefs, future plans and strategies, anticipated events or trends and similar comments concerning matters that are not historical facts. These type of forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results and performance of MidAmerican Energy to differ materially from any expected future results or performance, expressed or implied, by the forward-looking statements. In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, MidAmerican Energy has identified important factors that could cause actual results to differ materially from those expectations, including weather effects on sales and revenues, fuel prices, fuel transportation and other operating uncertainties, acquisition uncertainty, uncertainties relating to economic and political conditions and uncertainties regarding the impact of regulations, changes in government policy, utility industry deregulation and competition. MidAmerican Energy assumes no responsibility to update forward-looking information contained herein. RESULTS OF OPERATIONS --------------------- EARNINGS DISCUSSION MidAmerican's earnings on common stock for the first quarter of 2000 were $43.6 million compared to $24.9 million for the first quarter of 1999. An increase in electric margin and decreases in regulated operating and maintenance costs and interest expense contributed to the improvement in earnings. -12- REGULATED GROSS MARGIN Regulated Electric Gross Margin: - -------------------------------- Three Months Ended March 31 ----------------- 2000 1999 ----- ----- (In millions) Operating revenues................. $278 $262 Cost of fuel, energy and capacity.. 58 51 ---- ---- Electric gross margin.......... $220 $211 ==== ==== MidAmerican Energy's electric gross margin for the first quarter of 2000 increased $9 million compared to the first quarter of 1999. MidAmerican Energy's margins on off-system sales increased $3.4 million in the first quarter of 2000 compared to the same period in 1999. Off-system sales are the delivery of energy to other utilities, municipalities and marketers which in turn distribute it to end-use customers. Related off-system sales volumes increased 15.9% compared to the 1999 period. Growth in the number of customers and other usage factors not dependent on weather increased electric margin by $7.8 million compared to the first quarter of 1999. Temperatures during the three months ended March 31, 2000, were warmer than temperatures in the first quarter of 1999, resulting in a $4 million decrease in electric margin. In total, retail sales of electricity increased 2.8% for the three months ended March 31, 2000 compared to the same period in 1999. Approximately $8.9 million of MidAmerican Energy's 2000 quarterly electric revenues were from the recovery of energy efficiency program costs compared to $9.5 million in the first quarter of 1999. Changes in revenues from energy efficiency cost recovery are substantially offset by corresponding changes in other operating expenses. Refer to the discussion under "Energy Efficiency" in the OPERATING ACTIVITIES AND OTHER MATTERS section of MD&A for further discussion. Regulated Gas Gross Margin: - --------------------------- Three Months Ended March 31 ---------------- 2000 1999 ---- ---- (In millions) Operating revenues........ $180 $171 Cost of gas sold.......... 111 97 ---- ---- Gas gross margin....... $ 69 $ 74 ==== ==== MidAmerican Energy's regulated gas revenues include purchase gas adjustment clauses through which MidAmerican Energy is allowed to recover the cost of gas sold from most of its gas utility customers. Consequently, fluctuations in the cost of gas sold do not affect gross margin or net income because revenues reflect comparable fluctuations in revenues from the purchase gas adjustment clauses. An increase in the per-unit cost of gas for the first quarter of 2000 compared to the first quarter of 1999 increased revenues and cost of gas sold by approximately $26 million. -13- Compared to the first quarter of 1999, gas gross margin decreased approximately $5 million due to the effect of warmer temperatures in the quarter ended March 31, 2000. Other sales factors also decreased gas margin for the first quarter of 2000 compared to the first quarter of 1999. In total, retail sales of natural gas in the first quarter of 2000 decreased 11.2% compared to the 1999 quarter. Recovery of gas energy efficiency costs decreased from $4.1 million in the first quarter of 1999 to $2.9 million in the first quarter of 2000. Again, changes in revenues from energy efficiency cost recovery are substantially offset by corresponding changes in other operating expenses. On January 22, 1999, the IUB approved a $6.7 million annual interim increase in gas rates for Iowa retail customers. An additional increase was implemented on May 27, 1999, as a result of the Iowa Utilities Board's approval of a final rate increase of $13.9 million annually. Rates for South Dakota customers increased $2.4 million annually effective May 1, 1999. These rate changes increased gas margin by approximately $4.3 million for the first quarter of 2000 compared to the first quarter of 1999. UTILITY OPERATING EXPENSES Utility other operating expenses decreased $14.7 million for the first quarter of 2000 compared to the first quarter of 1999. Information technology expenses were lower in the quarter ended March 31, 2000 due to consulting and other costs in the first quarter of 1999 to support newly implemented systems as well as costs in the 1999 quarter for Y2K preparation. Pension expense and employee incentive costs also decreased for the quarter ended March 31, 2000. During the first quarter of 2000, the distribution from a nuclear insurance fund, which reduces expense, was greater than the distribution in the 1999 quarter. Energy efficiency costs decreased $1.5 million in the first quarter of 2000 compared to the first quarter of 1999. Maintenance expenses decreased $1.8 million in the first quarter of 2000 compared to the same period in 1999 due to the recovery from insurance of transformer costs incurred in prior periods as a result of an outage. Depreciation and amortization expense decreased for the period ended March 31, 2000, compared to the same period in 1999 due a reduction in amortization of regulatory assets for MidAmerican Energy's Illinois operations. NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES Revenues and Cost of Sales - Revenues from nonregulated natural gas marketing operations increased $12.6 million to $46.1 million for the first quarter of 2000 compared to the same period in 1999. An increase in the average price per unit sold, reflective of a 40% increase in the average cost of gas, accounted for $14.4 million of the increase in revenues. Sales volumes decreased 1 million MMBtus (6%), partially offsetting the increase due to average price. The decrease in sales volumes was due to a decrease in the average number of customers and use per customer, in part due to milder weather. Related cost of sales increased $11.0 million and reflects the increase in cost per unit and the decrease in sales volumes. Revenues for 2000 include $4.2 million from MidAmerican Energy's market access service project, which began in the third quarter of 1999. The pilot project allows Iowa customers with at least 4 megawatts of load that are participating in the project to choose their electric power supplier. MidAmerican Energy's revenues from project participants related to non-supply services, such as -14- distribution and transmission, are reflected in regulated electric revenues. Cost of sales for the first quarter of 2000 includes $4.6 million related to the market access service project. Beginning October 1, 1999, some non-residential customers in Illinois are allowed to select their electric power supplier. MidAmerican Energy's revenues related to these supply services are included in nonregulated revenues and totaled $1.5 million. MidAmerican Energy's nonregulated revenues also include pre-tax income from awards for successful performance under its incentive gas procurement program. Under the program, if MidAmerican Energy's cost of gas varies from an established reference price range, then the savings or cost is shared between customers and shareholders. The first quarter of 2000 reflects an award of $1.0 million. NON-OPERATING INCOME AND INTEREST EXPENSE Other, Net - Other, Net reflects the discount on sold accounts receivable, net of a subservicer fee charged to MidAmerican Energy Funding Corporation for servicing the accounts. The discount is designed to cover the expenses of MidAmerican Energy Funding Corporation, including bad debt expense, subservicer fees, monthly administrative costs and interest. The discount is recorded in Other, Net because it is not reflected in utility cost of services for regulatory purposes. The discount, net of the subservicer fee, reduced Other, Net by $2.1 million and $2.9 million in the first quarter of 2000 and 1999, respectively. Fixed Charges - The decrease in interest on long-term debt is due to long-term debt maturities in 1999 and 2000. Other interest expense decreased due to a decrease in short-term debt outstanding. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- MidAmerican Energy has available a variety of sources of liquidity and capital resources, both internal and external. These resources provide funds required for current operations, construction expenditures, dividends, debt retirement and other capital requirements. As reflected on the Consolidated Statements of Cash Flows, MidAmerican Energy's net cash provided from operating activities was $167 million and $103 million the first three months of 2000 and 1999, respectively. INVESTING ACTIVITIES AND PLANS Utility Construction Expenditures - MidAmerican Energy's primary need for capital is utility construction expenditures. For the first three months of 2000, utility construction expenditures totaled $29 million, including allowance for funds used during construction, or capitalized financing costs, and Quad Cities Station nuclear fuel purchases. All such expenditures were met with cash generated from utility operations. -15- Forecasted utility construction expenditures, including allowance for funds used during construction for 2000 are $211 million and $732 million for 2001 through 2004. Capital expenditure needs are reviewed regularly by management and may change significantly as a result of such reviews. MidAmerican Energy presently expects that all utility construction expenditures for the next five years will be met with cash generated from utility operations, net of dividends. The actual level of cash generated from utility operations is affected by, among other things, economic conditions in the utility service territory, weather and federal and state regulatory actions. Nuclear Decommissioning - Each licensee of a nuclear facility is required to provide financial assurance for the cost of decommissioning its licensed nuclear facility. In general, decommissioning of a nuclear facility means to safely remove the facility from service and restore the property to a condition allowing unrestricted use by the operator. Based on information presently available, MidAmerican Energy expects to contribute approximately $42 million during the period 2000 through 2004 to an external trust established for the investment of funds for decommissioning Quad Cities Station. Approximately 65% of the trust's funds are now invested in domestic corporate debt and common equity securities. The remainder is invested in investment grade municipal and U.S. Treasury bonds. In addition, MidAmerican Energy makes payments to the Nebraska Public Power District related to decommissioning Cooper. These payments are reflected in other operating expenses in the Consolidated Statements of Income. Nebraska Public Power District estimates call for MidAmerican Energy to pay approximately $57 million to Nebraska Public Power District for Cooper decommissioning during the period 2000 through 2004. Nebraska Public Power District invests the funds predominately in U.S. Treasury Bonds and other U.S. Government securities. Approximately 20% was invested in domestic corporate debt. MidAmerican Energy's obligation for Cooper decommissioning may be affected by the actual plant shutdown date and the status of the power purchase contract at that time. In July 1997, Nebraska Public Power District filed a lawsuit in United States District Court for the District of Nebraska naming MidAmerican Energy as the defendant and seeking a declaration of MidAmerican Energy's rights and obligations in connection with Cooper nuclear decommissioning funding. Refer to Part I, Item 3. Legal Proceedings, for further discussion of the litigation. Cooper and Quad Cities Station decommissioning costs charged to Iowa customers are included in base rates, and recovery of increases in those amounts must be sought through the normal ratemaking process. Cooper decommissioning costs charged to Illinois customers are recovered through a rate rider on customer billings that is reviewed annually. FINANCING ACTIVITIES, PLANS AND AVAILABILITY Debt Authorization and Credit Facilities - MidAmerican Energy currently has authority from the Federal Energy Regulatory Commission to issue short-term debt in the form of commercial paper and bank notes aggregating $400 million. As of March 31, 2000, MidAmerican Energy had in place a $325 million commercial paper program which is supported by $325 million of revolving credit facilities. In addition, MidAmerican Energy has a $5 million bank line of credit. MidAmerican Energy also has a revolving credit facility which is dedicated to providing liquidity for its obligations under outstanding pollution control revenue bonds that are periodically remarketed. -16- MidAmerican Energy has on file with the Securities and Exchange Commission a registration statement to issue approximately $130 million of preferred securities and long-term debt. MidAmerican Energy has authorization from the Federal Energy Regulatory Commission to issue up to an additional $500 million in various forms of long-term debt. MidAmerican Energy will also need authorization from the Illinois Commerce Commission prior to issuing any securities. If 90% or more of the proceeds from a securities issuance are used for refinancing purposes, MidAmerican Energy need only provide the commission with an "informational statement" prior to the issuance which sets forth the type, amount and use of the proceeds of the securities to be issued. If less than 90% of the proceeds are used for refinancing, MidAmerican Energy must file a comprehensive application seeking authorization prior to issuance. The Illinois Commerce Commission is required to hold a hearing before issuing its authorization. Accounts Receivable Sold - In 1997, MidAmerican Energy entered into a revolving agreement, which expires in 2002, to sell all of its right, title and interest in the majority of its billed accounts receivable to MidAmerican Energy Funding Corporation, a special purpose entity established to purchase accounts receivable from MidAmerican Energy. Funding Corp. in turn sells receivable interests to outside investors. In consideration for the sale, MidAmerican Energy received $70 million in cash and the remaining balance in the form of a subordinated note, bearing interest at 8%, from Funding Corp. As of March 31, 2000, the revolving cash balance was $70 million, and the amount outstanding under the subordinated note was $62 million. As part of the agreement, the creditors of Funding Corp. will be entitled to be satisfied out of the assets of Funding Corp. prior to any value being returned to MidAmerican Energy or its creditors. Therefore, the accounts receivable sold are not reflected on MidAmerican Energy's Consolidated Balance Sheets. As of March 31, 2000, $134.2 million of accounts receivable, net of reserves, were sold under the agreement. OPERATING ACTIVITIES AND OTHER MATTERS Industry Evolution - The utility industry continues to evolve into an increasingly competitive environment. In many regions of the country, legislative and regulatory actions are being taken which result in customers having more choices in their energy decisions. In the electric industry, the traditional vertical integration of generation, delivery and marketing is being unbundled, with the generation and marketing functions becoming deregulated. For local gas distribution businesses, the supply, local delivery and marketing functions are similarly being separated and opened to competitors for all classes of customers. Retail electric competition is presently not permitted in Iowa, MidAmerican Energy's primary market. Legislation to initiate competition was introduced in the Iowa legislature in the 2000 session, but it did not pass. MidAmerican Energy cannot predict the timing or ultimate outcome of any potential electric restructuring legislation in Iowa. Deregulation of the gas supply function related to small volume customers is also being considered by the Iowa Utilities Board. MidAmerican Energy has actively participated in the legislative and regulatory processes. The generation and retail portions of MidAmerican Energy's electric business will be most affected by competition. The introduction of competition in the wholesale market has resulted in a proliferation of power marketers and a substantial increase in market activity. As retail choice evolves, competition from other traditional utilities, power marketers and customer-owned generation could put pressure on utility margins. -17- During the transition to full competition, increased volatility in the marketplace can be expected. With the elimination of the energy adjustment clause in Iowa, 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 at a time of high market prices could subject MidAmerican Energy to losses on its energy sales. Legislative and Regulatory Evolution - In December 1997, the Governor of Illinois signed into law a bill to restructure Illinois' electric utility industry and transition it to a competitive market. Under the law, beginning October 1, 1999, larger non-residential customers in Illinois and 33% of the remaining non-residential Illinois customers are allowed to select their provider of electric supply services. All other non-residential customers will have supplier choice starting December 31, 2000. Residential customers all receive the opportunity to select their electric supplier on May 1, 2002. In addition to rate reductions implemented in 1998, the law provides for Illinois earnings above a certain level of return on common equity to be shared equally between customers and MidAmerican Energy beginning in April 2000. MidAmerican Energy's return on common equity level will be based on a rolling two-year average, with the first determination being based on an average of 1998 and 1999. The level of return at which MidAmerican Energy will be required to share earnings is a multi-step calculation of average 30-year Treasury Bond rates plus 5.50% for 1998 and 1999. Legislation passed in July 1999 increased the benchmark for 2000 through 2004 to 8.5% above the 30-year Treasury bond rate. The two-year average above which sharing must occur for 1999 was 11.21%. Using the same 30-year Treasury bond average, the computed level of return would be 12.71% for 2000 and 14.21% for 2001 through 2004. The law allows MidAmerican Energy to mitigate the sharing of earnings above the threshold return on common equity through accelerated cost recognition. MidAmerican Energy continues its involvement in proceedings which detail the new competitive environment and to evaluate the impact of the law on its operations and the opportunities the law presents, including proceedings involving the unbundling of customer billing and meter reading. In December 1999, the Federal Energy Regulatory Commission issued Order No. 2000 establishing among other things minimum characteristics and functions for regional transmission organizations. Public utilities that were not a member of an independent system operator at the time of the order are required to submit a plan by which its transmission facilities would be transferred to a regional transmission organization on a schedule that would allow the regional transmission organization to commence operating by December 15, 2001. MidAmerican Energy, which was not a member of an independent system operator, is presently analyzing the impact that the order may have on its operations. Accounting Effects of Industry Restructuring - A possible consequence of competition in the utility industry is that Statement of Financial Accounting Standards No. 71 may no longer apply. SFAS 71 sets forth accounting principles for operations that are regulated and meet certain criteria. For operations that meet the criteria, SFAS 71 allows, among other things, the deferral of costs that would otherwise be expensed when incurred. A majority of MidAmerican Energy's electric and gas utility operations currently meet the criteria required by SFAS 71, but its applicability is periodically reexamined. If portions of its utility operations no longer meet the criteria of SFAS 71, MidAmerican Energy could be required to write off the related regulatory assets and liabilities from its balance sheet, and thus, a material adjustment to earnings in that period could -18- result if regulatory assets are not recovered in transition provisions of any resulting legislation. As of March 31, 2000, MidAmerican Energy had $269 million of net regulatory assets on its Consolidated Balance Sheet. Energy Efficiency - MidAmerican Energy's regulatory assets as of March 31, 2000, included $38.1 million of deferred energy efficiency costs. Based on the current level of recovery, MidAmerican Energy expects to recover these costs by the end of 2001. MidAmerican Energy is also allowed to recover its ongoing energy efficiency costs on a current basis. Recovery of these costs is being collected from customers based on projected annual costs of $17.4 million, which may be adjusted annually. Amortization of the deferred energy efficiency costs and current expenditures for energy efficiency costs will be reflected in other operating expenses over the related periods of recovery. The total of such costs for the years 2000 and 2001 is estimated to be $40 million and $35 million, respectively. Rate Matters: Electric - Under a 1997 pricing plan settlement agreement resulting from an Iowa Utilities Board rate proceeding, electric prices for MidAmerican Energy's Iowa industrial and commercial customers were reduced through a retail access pilot project, negotiated individual electric contracts and a tariffed rate reduction for some non-contract commercial customers. The negotiated electric contracts have differing terms and conditions as well as prices. The contracts range in length from five to ten years, and some have price renegotiation and early termination provisions exercisable by either party. The vast majority of the contracts are for terms of seven years or less, although, some large customers have agreed to ten-year contracts. Prices are set as fixed prices; however, many contracts allow for potential price adjustments with respect to environmental costs, government imposed public purpose programs, tax changes, and transition costs. While the contract prices are fixed (except for the potential adjustment elements), the costs MidAmerican Energy incurs to fulfill these contracts will vary. MidAmerican Energy presently intends to manage this risk through hedging and other similar arrangements. On an aggregate basis the annual revenues under contract are approximately $180 million. Under the 1997 pricing plan settlement agreement if MidAmerican Energy's annual Iowa electric jurisdictional return on common equity exceeds 12%, then earnings above the 12% level will be shared equally between customers and MidAmerican Energy. If the return exceeds 14%, then two-thirds of MidAmerican Energy's share of those earnings above the 14% level will be used for accelerated recovery of certain regulatory assets. The pricing plan settlement agreement precludes MidAmerican Energy from filing for increased rates prior to 2001 unless the return falls below 9%. Other parties signing the agreement are prohibited from filing for reduced rates prior to 2001 unless the return, after reflecting credits to customers, exceeds 14%. The agreement also eliminated MidAmerican Energy's energy adjustment clause, and, as a result, the cost of fuel is not directly passed on to customers. Rate Matters: Gas - On September 1, 1999, MidAmerican Energy filed with the Illinois Commerce Commission requesting a rate increase totaling $3.2 million annually for its Illinois retail gas customers. A decision by the Illinois Commerce Commission is anticipated prior to August 2000. -19- Environmental Matters - The U.S. Environmental Protection Agency, or EPA, and 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 these contaminants are in sufficient quantities and at sufficient concentrations as to warrant remedial action. MidAmerican Energy has evaluated or is evaluating 27 properties which 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 an environmental or health risk, and whether MidAmerican Energy has any responsibility for remedial action. MidAmerican Energy's estimate of the probable costs for these sites as of March 31, 2000, was $28 million. This estimate has been recorded as a liability and a regulatory asset for future recovery through the regulatory process. Refer to Note B(1) of Notes to Consolidated Financial Statements for further discussion of MidAmerican Energy's environmental activities related to manufactured gas plant sites and cost recovery. Although the timing of potential incurred costs and recovery of 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 or results of operations. On July 18, 1997, the EPA adopted revisions to the National Ambient Air Quality Standards for ozone and a new standard for fine particulate matter. In May 1999, the U.S. Court of Appeals for the District of Columbia Circuit remanded the standards adopted in July 1997 back to the EPA indicating the EPA had not expressed sufficient justification for the basis of establishing the standards and ruling that the EPA has exceeded its constitutionally-delegated authority in setting the standards. As a result of the court's initial decision and the current status of the standards, the impact of any new standards on MidAmerican Energy is currently unknown. If the EPA successfully appeals the court's decision, however, and the new standards are implemented, then MidAmerican Energy could incur increased costs and a decrease in revenues. Refer to Note B(2) of Notes to Consolidated Financial Statements for further discussion of this issue. Quad Cities Nuclear Power Station - Quad Cities Station is operated by, and 75% owned by, Commonwealth Edison Company. On May 3, 1999, the Nuclear Regulatory Commission advised ComEd that it had classified Quad Cities Station in its Routine Oversight category for nuclear power plants, which is the best of the commission's three new categories, removing the station from the Trending (adversely) Letter status initiated in January 1998. During 1999, Quad Cities Station's capacity factor based on maximum dependable capacity was in excess of 96.0% compared to 51.7% for 1998. The lower capacity factor in 1998 reflects the extended outages at both of the Quad Cities Station units during the first five months of 1998. Generating Capability - In July 1999, retail customer usage of electricity caused an hourly peak demand of 3,833 MW on MidAmerican Energy's energy system. MidAmerican Energy is interconnected with Iowa and neighboring utilities and is involved in an electric power pooling agreement known as Mid-Continent Area Power Pool. Each MAPP participant is required to maintain for emergency purposes a net generating capability reserve of at least 15% above its system peak demand. MidAmerican Energy was able to maintain its capacity -20- reserve requirement during the hot weather in July 1999 and was not adversely affected by the resultant high prices in the off-system market. MidAmerican Energy believes it has adequate electric capacity reserve and continues to manage its generating resources to ensure an adequate reserve in the future. However, significantly higher-than-normal temperatures during the cooling season could cause MidAmerican Energy's reserve to fall below the 15% minimum. If MidAmerican Energy fails to maintain the appropriate reserve, significant penalties could be contractually imposed by MAPP. ACCOUNTING ISSUES In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", which was delayed by SFAS 137 and is effective for MidAmerican Energy beginning January 1, 2001. SFAS 133 requires an entity to recognize all of its derivatives as either assets or liabilities in its statement of financial position and measure those instruments at fair value. MidAmerican Energy is in the process of evaluating the impact of this accounting standard. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK MidAmerican Energy is exposed to market risk, including changes in the market price of certain commodities and interest rates. The exposure to changes in market prices and interest rates at March 31, 2000 is not materially different than at December 31, 1999. -21- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- MidAmerican Energy and its subsidiaries have no material legal proceedings except for the following: Environmental Matters - --------------------- For information relating to MidAmerican Energy's environmental matters, reference is made to Note B of Notes to Consolidated Financial Statements. Cooper Litigation - ----------------- On July 23, 1997, Nebraska Public Power District filed a complaint, in the United States District Court for the District of Nebraska, naming MidAmerican Energy as the defendant and seeking declaratory judgment as to three issues under the parties' long-term power purchase agreement for Cooper capacity and energy. More specifically, Nebraska Public Power District sought a declaratory judgment in the following respects: (1) that MidAmerican Energy is obligated to pay 50% of all costs and expenses associated with decommissioning Cooper, and that in the event Nebraska Public Power District continues to operate Cooper after expiration of the power purchase agreement (September 2004), MidAmerican Energy is not entitled to reimbursement of any decommissioning funds it has paid to date or will pay in the future; (2) that the current method of allocating transition costs as a part of the decommissioning cost is proper under the power purchase agreement; and (3) that the current method of investing decommissioning funds is proper under the power purchase agreement. MidAmerican Energy filed its answer and contingent counterclaims. The contingent counterclaims filed by MidAmerican Energy are generally as follows: (1) that MidAmerican Energy has no duty under the power purchase agreement to reimburse or pay 50% of the decommissioning costs unless conditions to reimbursement occur; (2) that Nebraska Public Power District has the duty to repay all amounts that MidAmerican Energy has prefunded for decommissioning in the event the Nebraska Public Power District operates the plant after the term of the power purchase agreement; (3) that Nebraska Public Power District is equitably estopped from continuing to operate the plant after the term of the power purchase agreement; (4) that Nebraska Public Power District has granted MidAmerican Energy an option to continue taking 50% of the power from the plant; (5) that the term "monthly power costs" as defined in the power purchase agreement does not include costs and expenses associated with decommissioning the plant; -22- (6) that MidAmerican Energy has no duty to pay for nuclear fuel, operations and maintenance projects or capital improvements that have useful lives after the term of the power purchase agreement; (7) that transition costs are not included in any decommissioning costs and expenses; (8) that Nebraska Public Power District has breached its duty to MidAmerican Energy in making investments of decommissioning funds; (9) that reserves in named accounts are excessive and should be refunded to MidAmerican Energy; and (10) that Nebraska Public Power District must credit MidAmerican Energy for payments by MidAmerican Energy for low-level radioactive waste disposal. On October 6, 1999, the court rendered summary judgment for Nebraska Public Power District on the above-mentioned issue concerning liability for decommissioning (issue one in the first paragraph above) and the related contingent counterclaims filed by MidAmerican Energy (issues one, two, three and five in the second paragraph above). The court referred all remaining issues in the case to mediation, and cancelled the November 1999 trial date. MidAmerican Energy has appealed the court's summary judgment ruling and is participating in ongoing mediation efforts. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (A) EXHIBITS Exhibits Filed Herewith - ----------------------- Exhibit 15 - Awareness Letter of Independent Accountants Exhibit 27 - Financial Data Schedules (for electronic filing only). -23- (B) REPORTS ON FORM 8-K On January 11, 2000, MidAmerican Energy filed two current reports on Form 8-K, dated January 11, 2000. The reports were as follows: (1) A Form 8-K regarding the acquisition of MidAmerican Energy Holdings included the following information: Item 5. Other Events - Discussed the proposed acquisition of MidAmerican Energy Holdings by an investor group including Berkshire Hathaway Inc., Walter Scott, Jr. and David L. Sokol. Item 7(c). Exhibits - Included the Agreement and Plan of Merger, dated October 24, 1999, by and among MidAmerican Energy Holdings Company, Teton Formation L.L.C. and Teton Acquisition Corp. (2) A Form 8-K regarding cautionary statements included in Item 5 a discussion of several important factors that could cause MidAmerican Energy's actual results to differ materially from those expressed or implied by any forward-looking statements made by or on behalf of MidAmerican Energy. -24- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MIDAMERICAN ENERGY COMPANY ------------------------------------ (Registrant) Date May 10, 2000 /s/ Patrick J. Goodman ---------------- ------------------------------------ Patrick J. Goodman Senior Vice President and Chief Financial Officer -25- EXHIBIT INDEX Exhibit No. - ----------- 15 Awareness Letter of Independent Accountants 27 Financial Data Schedules (for electronic filing only). -26- EX-15 2 AWARENESS LETTER OF AUDITORS EXHIBIT 15 AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS MidAmerican Energy Company Des Moines, Iowa We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited consolidated interim financial information of MidAmerican Energy Company and subsidiaries for the three-month periods ended March 31, 2000 and 1999 as indicated in our report dated April 21, 2000; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly report on Form 10-Q for the quarter ended March 31, 2000, is incorporated by reference in Registration Statement No. 333-15387 on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered part of a Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP Des Moines, Iowa May 10, 2000 EX-27 3 FDS - MIDAMERICAN ENERGY COMPANY
UT This schedule contains summary financial information extracted from the consolidated balance sheet of MidAmerican Energy Company as of March 31, 2000, and the related consolidated statements of income and cash flows for the three months ended March 31, 2000, and is qualified in its entirety by reference to such financial statements. 0000928576 MidAmerican Energy Company 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 PER-BOOK 2,624,593 245,444 255,831 316,640 104,326 3,546,834 560,563 0 540,852 1,101,415 150,000 31,759 759,725 0 0 180,548 719 0 0 0 1,322,668 3,546,834 514,852 31,333 418,875 418,875 95,977 (746) 95,231 19,099 44,799 1,239 43,560 0 14,583 167,134 0 0 INCOME-TAX-EXPENSE includes all income taxes and is excluded from Total Operating Expenses above and on the Consolidated Statement of Income.
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