-----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, TwYuQ/ol1WBF1VZXQZiI6zl2pgN6HU+N21GFGa9pbTJQUiZ1AZFb+XeS0SoKNH6v q+Ka2B2bg8aYWM/t+6peRQ== 0000912057-96-004324.txt : 19960312 0000912057-96-004324.hdr.sgml : 19960312 ACCESSION NUMBER: 0000912057-96-004324 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960311 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDAMERICAN ENERGY CO CENTRAL INDEX KEY: 0000928576 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 421425214 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11505 FILM NUMBER: 96533614 BUSINESS ADDRESS: STREET 1: 666 GRAND AVE STREET 2: P O BOX 9244 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-K 1 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended ____December 31, 1995____ or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _______________________ to ______________________ Commission file number ____1-11505____ MIDAMERICAN ENERGY COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) IOWA 42-1425214 --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 666 Grand Ave., P.O. Box 657, Des Moines, Iowa 50303 ---------------------------------------------- ---------- (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: Name of each exchange Title of each class on which registered - --------------------------------------------- ----------------------- COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE PREFERRED STOCK, $1.7375 SERIES, NO PAR VALUE 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X*_ No ___ Indicate 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 registrant's 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 /X/. The aggregate market value of voting stock held by non-affiliates of the registrant was $1,824,198,890 as of February 26, 1996, when 100,751,713 shares of common stock, without par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's Annual Report to Shareholders for 1995 is incorporated by reference in Parts I and II hereof. A portion of the Company's Proxy Statement relating to its 1996 Annual Meeting of Shareholders is incorporated by reference in Part III hereof. *MidAmerican Energy Company ("MidAmerican") is the successor by merger of Midwest Resources Inc. ("Midwest Resources"), Midwest Power Systems Inc. ("Midwest Power") and Iowa-Illinois Gas and Electric Company ("Iowa-Illinois") with and into MidAmerican. The effective date of the merger was July 1, 1995, and prior to such effective date, MidAmerican had no assets or operations. Prior to such effective date, each of Iowa-Illinois, Midwest Resources and Midwest Power was subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and accordingly filed in a timely manner all reports required to be filed pursuant to Sections 13 or 15(d) of the Exchange Act during the preceding 12 months. 2 MIDAMERICAN ENERGY COMPANY 1995 FORM 10--K ANNUAL REPORT TABLE OF CONTENTS
PAGE ----- PART I Item 1 Business General Development of Business.............................................................. 4 Financial Information About Industry Segments................................................ 4 Narrative Description of Business............................................................ 4 General.................................................................................... 4 Rate Matters............................................................................... 6 Electric Operations........................................................................ 7 Natural Gas Operations..................................................................... 9 Construction Program....................................................................... 10 General Utility Regulation................................................................. 10 Nuclear Regulation......................................................................... 11 Environmental Regulations.................................................................. 12 InterCoast Energy Company.................................................................. 13 Midwest Capital Group...................................................................... 14 Item 2 Properties..................................................................................... 15 Item 3 Legal Proceedings.............................................................................. 17 Item 4 Submission of Matters to a Vote of Security Holders............................................ 17 Other Information Executive Officers of the Registrant........................................................... 18 Business Transaction Policy Statement.......................................................... 18 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters...................... 19 Item 6 Selected Financial Data........................................................................ 19 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 20 Item 8 Financial Statements and Supplementary Data.................................................... 20 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................................................... 20 PART III Item 10 Directors and Executive Officers of the Registrant............................................. 20 Item 11 Executive Compensation......................................................................... 20 Item 12.. Security Ownership of Certain Beneficial Owners and Management................................. 20 Item 13 Certain Relationships and Related Transactions................................................. 20 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 21 Signatures................................................................................................ 26 Exhibits Index............................................................................................ 29
3 PART I ITEM 1. BUSINESS (A) GENERAL DEVELOPMENT OF BUSINESS MidAmerican Energy Company (MidAmerican or the Company), an Iowa corporation, was formed on July 1, 1995, through the merger of Iowa-Illinois Gas and Electric Company (Iowa-Illinois), Midwest Resources Inc. (Midwest Resources) and Midwest Power Systems Inc. (Midwest). The merger was accounted for as a pooling-of-interests. MidAmerican is primarily engaged in the business of generating, transmitting, distributing and selling electric energy and distributing, selling and transporting natural gas. The Company has two wholly owned subsidiaries: InterCoast Energy Company (InterCoast) and Midwest Capital Group, Inc. (Midwest Capital). InterCoast engages in nonregulated energy-related businesses. Midwest Capital conducts economic development activities in the Company's service territory. Prior to the merger, Iowa-Illinois was engaged in business activities similar to those of MidAmerican. InterCoast was a wholly owned subsidiary of Iowa-Illinois. Midwest Resources was an exempt public utility holding company with two wholly owned subsidiaries: Midwest and Midwest Capital. Midwest was engaged in utility activities similar to those of MidAmerican and Midwest Capital was engaged in nonregulated business activities. In January 1996, the Company's board of directors approved an Agreement and Plan of Exchange related to the formation of MidAmerican Energy Holdings Company (Holdings), a holding company. Holdings will have three wholly owned subsidiaries, MidAmerican (utility operations), Midwest Capital and InterCoast. Consummation of the holding company structure is subject to approval by holders of a majority of the outstanding shares of the Company's common stock. In addition, certain orders must be received from the Illinois Commerce Commission (ICC), the Iowa Utilities Board (IUB), the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission (NRC). Subject to the receipt of such orders, each share of MidAmerican common stock will be exchanged for one share of Holdings common stock. It is management's intent, if possible, to complete the formation of the holding company and share exchange by the end of 1996. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Financial information on the Company's segments of business is included under the Note "Segment Information" on page 35 of the Company's Annual Report to Shareholders for 1995, which page is incorporated herein by reference. (C) NARRATIVE DESCRIPTION OF BUSINESS GENERAL The Company distributes electric energy 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. The Company distributes natural gas 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. 4 MidAmerican's 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. The population of the Company's utility service territory is approximately 1.7 million. As of December 31, 1995, the Company had 635,000 retail electric customers and 601,000 natural gas customers. The Company has a residential, agricultural, commercial and diversified industrial customer group, in which no single industry or customer accounted for more than 3.5% (food and kindred products industry) of the Company's total 1995 electric operating revenues or 3.6% (food and kindred products industry) of its total 1995 gas operating margin. Among the primary industries served by the Company are those which are concerned with the manufacturing, processing and fabrication of primary metals, real estate, food products, farm and other non- electrical machinery, and cement and gypsum products. For the year ended December 31, 1995, the Company derived approximately 64% of its gross operating revenues from its electric business and 27% from its gas business. For 1994 and 1993, the corresponding percentages were 60% electric and 29% gas, and 60% electric and 32% gas, respectively. Historical electric sales by customer class as a percent of total electric sales and retail electric sales data by state as a percent of total retail sales are shown below: TOTAL ELECTRIC SALES BY CUSTOMER CLASS
1995 1994 1993 ----------- ----------- ----------- Residential.................................................. 23.2% 24.7% 22.7% Small General Service........................................ 19.1 22.3 19.9 Large General Service........................................ 26.1 28.0 24.5 Other........................................................ 4.7 5.2 4.7 Sales for Resale............................................. 26.9 19.8 28.2 ----- ----- ----- Total.................................................... 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- -----
RETAIL ELECTRIC SALES BY STATE
1995 1994 1993 ----------- ----------- ----------- Iowa......................................................... 89.5% 88.6% 88.7% Illinois..................................................... 9.9 10.9 10.9 South Dakota................................................. 0.6 0.5 0.4 ----- ----- ----- Total.................................................... 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- -----
5 Historical gas sales, excluding transportation throughput, by customer class as a percent of total gas sales and by state as a percent of total retail gas sales are shown below: TOTAL GAS SALES BY CUSTOMER CLASS
1995 1994 1993 ----------- ----------- ----------- Residential.................................................. 57.3% 55.3% 55.6% Small General Service........................................ 32.9 33.0 31.6 Large General Service........................................ 6.2 8.4 8.9 Sales for Resale and Other................................... 3.6 3.3 3.9 ----- ----- ----- Total.................................................... 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- -----
RETAIL GAS SALES BY STATE
1995 1994 1993 ----------- ----------- ----------- Iowa......................................................... 78.0% 76.6% 74.5% Illinois..................................................... 10.7 11.9 11.4 South Dakota................................................. 10.6 10.8 5.4 Other........................................................ 0.7 0.7 8.7 ----- ----- ----- Total.................................................... 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- -----
There are seasonal variations in the Company's electric and gas businesses which are principally related to the use of energy for air conditioning and heating. In 1995, 40.3% of the Company's electric revenues were reported in the months of June, July, August and September, reflecting the use of electricity for cooling, and 50.3% of the Company's gas revenues were reported in the months of January, February, March and December, reflecting the use of gas for heating. At December 31, 1995, the Company had 3,602 full-time employees, of which 3,331 were employed in utility operations and 271 were employed by the Company's nonregulated subsidiaries. InterCoast and its subsidiaries manage the nonregulated businesses of the Company. The nonregulated businesses include oil and gas production, financial investments, leasing activities, energy services and railcar leasing and management. Midwest Capital and its subsidiaries manage the Company's economic development investments. The economic development investments are primarily real estate. RATE MATTERS Under Iowa law, temporary collection of higher rates can begin (subject to refund) 90 days after filing with the IUB for that portion of such higher rates approved by the IUB based on prior ratemaking principles and a rate of return on common equity previously approved. If the IUB has not issued a final order within ten months after the filing date, the temporary rates cease to be subject to refund and any balance of the requested rate increase may then be collected subject to refund. Exceptions to the ten month limitation are provided for extensions due 6 to a utility's lack of due diligence in the rate proceeding, judicial appeals and situations involving new generating units being placed in service. Under Illinois law, new rates may be put into effect by the Company 45 days after filing with the ICC, or on such earlier date as the ICC may approve, subject to the power of the ICC to suspend the proposed new rates for a period not to exceed eleven months after filing, pending a hearing. South Dakota law authorizes the South Dakota Public Utilities Commission (SDPUC) to suspend new rates for up to six months during the pendency of rate proceedings; however, the rates are permitted to be implemented after six months subject to refund pending a final order in the proceeding. Additional information on the Company's current rate proceedings is included under the Note "Rate Matters" on page 34 of the Company's Annual Report to Shareholders for 1995, which page is incorporated herein by reference. In April 1992, the FERC issued Order No. 636, directing a restructuring by interstate pipeline companies for their natural gas sales and transportation services. The FERC Order contemplated that transitional gas supply realignment costs related to this restructuring may be billed by interstate pipelines to their customers. At December 31, 1995, a regulatory asset of $40.8 million, with an offsetting non-current Other Liability, had been recorded. In addition, the Company estimates it may incur other future billings of approximately $15.8 million related to such restructuring. The Company is currently recovering such costs through rates. The Company has established an external trust for the investment of funds collected for nuclear decommissioning associated with Quad-Cities Nuclear Station (Quad-Cities Station) of which the Company is a 25% owner. The owner and operator of Cooper Nuclear Station (Cooper), from which the Company purchases 50% of the output pursuant to a long-term agreement, maintains a decommissioning fund into which the Company makes contributions as a component of its power purchase payments. Electric tariffs in effect for 1995 include provisions for annual decommissioning costs at Quad-Cities Station and Cooper of approximately $17.5 million. In Illinois, nuclear decommissioning costs are included in customer billings through a mechanism that permits annual adjustments. In Iowa, such costs are reflected in base rates. The Company's Iowa electric tariffs contain a Uniform Electric Energy Adjustment Clause under which the Company's billings reflect changes in the cost of all fuels used for electric generation, including nuclear fuel disposition costs, as well as the net effect of energy transactions (other than capacity) with other utilities. Changes in the cost of gas to the Company are reflected in its Iowa gas rates through the Iowa Uniform Purchased Gas Adjustment Clause. Under Illinois electric tariffs, the Company's Fuel Cost Adjustment Clause reflects changes in the cost of all fuels used for electric generation, including allowable fuel transportation costs, nuclear fuel disposition costs and the effects of energy transactions (other than capacity and margins on interchange sales) with other utilities. Changes in the cost of gas to the Company are reflected in its Illinois gas rates through the Illinois Uniform Purchased Gas Adjustment Clause. ELECTRIC OPERATIONS The annual hourly peak demand occurs principally as a result of air conditioning use during the cooling season. MidAmerican's highest hourly peak demand in 1995 was 3,553 megawatts (MW), which was 269 MW more than the combined hourly peak of the predecessor companies. 7 MidAmerican is interconnected with certain Iowa and neighboring utilities and is one of 29 utilities involved in an electric power pooling agreement known as the Mid-Continent Area Power Pool (MAPP). The purpose of MAPP is to coordinate the planning, construction and operation of generation and transmission facilities, including the purchase and sale of power and energy among members. In October 1992, the National Energy Policy Act (NEPA) was signed into law. NEPA allows all electric generators, whether subject to utility regulation or not, to transport wholesale power across utilities' transmission facilities and is intended to promote competition in the wholesale electric market. The FERC has also developed, and is in the process of developing, policies to encourage open-access to utilities' transmission facilities. These policies include pricing, good faith requests and responses for transmission services and recovery of stranded costs by public and transmitting utilities. In addition, the IUB has initiated a formal inquiry proceeding entitled: "Emerging Competition in the Electric Utility Industry." The Company is participating in these various proceedings, as appropriate, in an attempt to assist in the development of public policy in these areas. The Company has and will continue to evaluate the impact on MidAmerican of policy decisions that result from these proceedings. Additional information on anticipated changes in the utility industry is included in the "Operating Activities" section of Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A) on pages 18 and 19 of the Company's Annual Report to Shareholders for 1995 which pages are incorporated herein by reference. The Company's accredited 1995 summer net generating capacity was 4,384 megawatts. The net generating capacity at any time may be less due to regulatory restrictions, fuel restrictions and generating units being temporarily out of service for inspection, maintenance, refueling or modifications. FUEL SUPPLY FOR ELECTRIC OPERATIONS The Company's sources of fuel for electric generation have been as follows for the periods shown:
YEAR ENDED DECEMBER 31, ------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Fuel Source: Coal....................................................... 77.6% 83.4% 77.8% Nuclear.................................................... 21.6 15.7 21.5 Gas........................................................ 0.7 0.7 0.7 Oil........................................................ 0.1 0.2 -- ----- ----- ----- Total.................................................... 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- -----
The average costs of fuels received (including transportation and handling costs) in cents per million BTU's consumed have been as follows for the periods shown:
YEAR ENDED DECEMBER 31, ------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Fuel Source: Nuclear................................................ 44.19 47.08 47.72 Coal................................................... 95.14 95.90 97.12 Gas.................................................... 226.92 297.08 303.21 Oil.................................................... 422.80 422.13 438.68 Total Weighted Average................................... 90.21 90.96 88.99
8 The average cost of coal received (including transportation) per ton for the years 1995, 1994 and 1993 has been $15.61, $15.67 and $15.91, respectively. MidAmerican has contracts with rail shippers providing for the delivery of coal to its generating stations. In addition, the Company has used spot market purchases of coal to effectively manage inventory levels and take advantage of near-term coal market opportunities. The Company is continuing to satisfy its coal requirements with a combination of contract and spot purchases. The Company believes its sources of coal for its fossil-fueled generating stations are and will continue to be satisfactory. Renewal of expiring contracts and negotiations of new agreements will be pursued as required. Natural gas and oil are used for peak demand electric generation and for standby purposes. These sources are presently in adequate supply and available to meet the Company's needs. The Company is a 25% joint owner of Quad-Cities Station. The Company has been advised by Commonwealth Edison (ComEd), the joint owner and operator of Quad-Cities Station, that the majority of its uranium concentrate and uranium conversion requirements for Quad-Cities Station for 1996 can be met under existing supplies or commitments. ComEd foresees no problem in obtaining the remaining requirements now or obtaining future requirements. ComEd further advises that all enrichment requirements have been contracted through 1999. Commitments for fuel fabrication have been obtained at least through 2000. ComEd does not anticipate that it will have any difficulty in contracting for uranium concentrates for conversion, enrichment or fabrication of nuclear fuel needed to operate Quad-Cities Station. The Company purchases one-half of the power and energy of Cooper through a long-term power purchase contract with Nebraska Public Power District (NPPD). Approximately 30% of the fuel in the core at Cooper must be replaced every 18 months. The next refueling cycle is currently scheduled to begin in March of 1997. NPPD has informed the Company that it either has sufficient materials and services available to meet foreseeable Cooper requirements or that such materials and services are readily available from suppliers. Under the Nuclear Waste Policy Act of 1982 (NWPA), the Department of Energy (DOE) is responsible for the selection and development of repositories for, and the permanent disposal of, spent nuclear fuel and high-level radioactive wastes. ComEd and NPPD, as required by the NWPA, have signed a contract with the DOE to provide for the disposal of spent nuclear fuel and high-level radioactive waste beginning not later than January 1998. The DOE has stated, however, that the delivery schedule for spent nuclear fuel may be delayed, and it is expected that it will be significantly delayed. The costs incurred by the DOE for disposal activities will be financed by fees charged to owners and generators of the waste. ComEd has informed the Company that there is on-site storage capability at the Quad-Cities Station sufficient to permit such interim storage at least through 2007. NPPD has informed the Company that there is on-site storage capability at the Cooper Station sufficient to permit such interim storage at least through 2004, the remaining term of the long-term power purchase contract. Meeting spent nuclear fuel storage requirements beyond such time could require modifications to the spent fuel storage pools or new and separate storage facilities, the costs of which have not been determined at this time. Industry activities are underway to utilize dry casks for the interim storage of high-level radioactive waste. This may provide an alternative for interim on-site storage of such waste. NATURAL GAS OPERATIONS MidAmerican is engaged in the procurement, transportation, and distribution of natural gas for utility and end-use customers in the Midwest. With the implementation in 1993 of FERC Order 636 and related orders (Order 636 or Orders), MidAmerican began operating in a more competitive environment. MidAmerican now has complete responsibility for natural gas procurement, transportation and storage, a responsibility which had 9 previously resided with the interstate pipeline suppliers. These Orders directly impact the operations, revenues and costs of local distribution companies (LDCs), including MidAmerican, and create new opportunities. The Company has firm rights to pipeline capacity to transport gas from the production area to its service territory. With the restructuring of the industry, if the Company does not need the capacity (due to fluctuations in anticipated system demand), it can "sublease" such capacity to other companies. To provide incentives for the achievement of optimum use of available transportation capacity, an IUB ruling allows the Company to retain 30% of Iowa revenues earned on the "subleased" capacity and returns 70% to customers through the purchased gas adjustment. Information on the impact of FERC Order 636 is included in the "Operating Activities" section of MD&A on page 19 of the Company's Annual Report to Shareholders for 1995, which page is incorporated herein by reference. FUEL SUPPLY AND CAPACITY The Company purchases the majority of its gas supplies from producers or third party marketers and transports the gas on a firm or interruptible basis through the Northern Natural Gas (NNG), Natural Gas Pipeline Company of America (NGPL) and ANR Pipeline Company (ANR) systems. To insure system reliability, a geographically diverse supply portfolio with varying terms and conditions is utilized for the gas supplies. The Company 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 replaced during the summer months. In addition, the company also utilizes three liquefied natural gas plants and five propane-air peak shaving plants to meet peak day demands. On February 2, 1996, the Company had an estimated new peak-day delivery of 1,140 million cubic feet. This peak-day delivery included approximately 88% from traditional sales service customers and 12% from customer owned gas transported through the Company's system. The supply sources utilized by the Company to meet its peak-day deliveries to its sales service customers were:
MILLIONS OF CUBIC PERCENT OF FEET TOTAL --------- ----------- Underground Storage................................................. 349.4 34.7 Firm Supply......................................................... 485.3 48.2 LNG Facilities...................................................... 116.5 11.6 LP Facilities....................................................... 56.2 5.5 --------- ----- Total........................................................... 1,007.4 100.0 --------- ----- --------- -----
The Company does not anticipate any difficulties in meeting its future demands through the use of its supply portfolio and pipeline interconnections for the foreseeable future. 10 CONSTRUCTION PROGRAM The table below shows actual utility capital expenditures for 1995 and budgeted utility expenditures for 1996 and for the period 1997 - 2000.
1996 1997-2000 1995 ACTUAL BUDGETED BUDGETED ----------- ----------- ----------- (THOUSANDS OF DOLLARS) Electric Property Production........................................... $ 32,919 $ 28,826 $ 152,544 Transmission......................................... 15,550 25,300 96,600 Distribution......................................... 53,670 35,200 142,800 Gas.................................................... 51,310 37,585 127,972 Administration and Other............................... 23,531 13,547 40,789 ----------- ----------- ----------- Subtotal........................................... 176,980 140,458 560,705 Quad-Cities Fuel....................................... 2,293 17,300 38,300 Cooper Additions....................................... 11,498 8,574 52,656 ----------- ----------- ----------- Total.............................................. $ 190,771 $ 166,332 $ 651,661 ----------- ----------- ----------- ----------- ----------- -----------
The amounts shown above include allowance for funds used during construction. Of the $181.4 million of budgeted electric production expenditures for the 1996-2000 period, $37.6 million are for expenditures at the Quad-Cities Station. Also included in the amounts above, are capital expenditures required to maintain compliance with the Clean Air Act Amendments of 1990 (CAA). See Environmental Regulations. In addition to the amounts shown above, the Company also expects to contribute a total of approximately $45 million to an external trust for Quad-Cities nuclear decommissioning during the 1996-2000 period. GENERAL UTILITY REGULATION MidAmerican is a public utility within the meaning of the Federal Power Act and a natural gas company within the meaning of the Natural Gas Act. Therefore, it is subject to regulation by FERC, in regard to numerous activities, including the issuance of securities, accounting policies and practices, sales for resale rates, the establishment and regulation of electric interconnections and transmission services and replacement of certain gas utility property. The Company is a public utility under the laws of Illinois and is regulated by the ICC as to retail rates, services, accounts, issuance of securities, affiliate transactions, construction, acquisition and sale of utility property, acquisition and sale of securities and in other respects as provided by the laws of Illinois. The Company is also a public utility under the laws of Iowa and is regulated by the IUB as to retail rates, services, accounts, construction of utility property and in other respects as provided by the laws of Iowa. MidAmerican is also subject to regulation by the SDPUC as to electric and gas retail rates and service. Iowa law requires electric and gas utilities to spend 2.0% and 1.5%, respectively, of their annual Iowa jurisdictional revenues on energy efficiency activities, including demand-side management. Additional information on the Company's energy efficiency activities is included under the Note "Rate Matters" on page 34 of the Company's Annual Report to Shareholders for 1995 which page is incorporated herein by reference. 11 NUCLEAR REGULATION The Company is subject to the jurisdiction of the NRC with respect to its license and 25 percent ownership interest in the Quad Cities Station. ComEd is the operator of the Quad-Cities Station and is under contract with the Company to secure and keep in effect all necessary NRC licenses and authorizations. Under the terms of a long-term power purchase agreement, the Company has contracted to purchase one-half of the power and energy from Cooper located near Brownville, NE, through September 22, 2004. Cooper is owned and operated by the NPPD. Under the terms of the contract, NPPD is the sole NRC licensee of Cooper and is required to comply with all NRC regulations. MidAmerican is responsible for one-half of the fixed and operating costs of Cooper (excluding depreciation but including debt service) and the Company's share of fuel costs (including disposal costs) based upon energy delivered. Refer to "Management's Discussion and Analysis" and Notes 1(i), 4(c), 4(d) and 4(e) on pages 15, 17, 27, 29 and 30 of the Company's Annual Report to Shareholders for 1995 which pages are incorporated herein by reference. The Company is not subject to the jurisdiction of the NRC with respect to Cooper and the long-term power purchase contract with NPPD. NPPD, because it is the sole owner, licensee and operator of Cooper, is thereby the only entity subject to the jurisdiction of the NRC. Under the terms of the long-term power purchase contract, NPPD is required to assure that Cooper is in compliance with all the NRC regulations. 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. Federal regulations provide that any 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. ComEd and NPPD have advised the Company that emergency preparedness plans for the Quad-Cities Station and Cooper, respectively, have been approved by the NRC. ComEd and NPPD have also advised the Company that state and local plans relating to the Quad-Cities Station and Cooper, respectively, have been approved by the Federal Emergency Management Agency. In June 1988, the NRC adopted final regulations with respect to the decommissioning of nuclear power plants. Among other things, the regulations address the planning and funding for the eventual decommissioning of nuclear power plants. In response to these regulations, the Company submitted a report to the NRC in July 1990 indicating that it will provide "reasonable assurance" that funds will be available to pay the costs of decommissioning its share of the Quad-Cities Station, by making monthly deposits to an external trust fund. NPPD has advised the Company that a decommissioning plan for Cooper has been submitted and approved by the NRC. Monthly payments to NPPD by the Company include monies to fund decommissioning as determined by NPPD. ENVIRONMENTAL REGULATIONS The Company is subject to numerous legislative and regulatory environmental protection requirements involving air and water pollution, waste management, hazardous chemical use, noise abatement, land use aesthetics and atomic radiation. State and federal environmental laws and regulations currently have, and future modifications may have, 12 the effect of (i) increasing the lead time for the construction of new facilities, (ii) significantly increasing the total cost of new facilities, (iii) requiring modification of certain of the Company's existing facilities, (iv) increasing the risk of delay on construction projects, (v) increasing the Company's cost of waste disposal and (vi) possibly reducing the reliability of service provided by the Company and the amount of energy available from the Company's facilities. Any of such items could have a substantial impact on amounts required to be expended by the Company in the future. AIR QUALITY Essentially all utility generating units are subject to the provisions of the CAA which address continuous emission monitoring, permit requirements and fees and emission of toxic substances. The Company has five jointly owned and six wholly owned coal-fired generating stations, which represent approximately 65% of the Company's electric generating capability. Two of the Company's coal-fired generating units were subject to the requirements of the CAA beginning in 1995. These units were given a set number of allowances by the United States Environmental Protection Agency (EPA). Each allowance permits the units to emit one ton of sulfur dioxide. The Company has completed most of the modifications necessary to one unit to burn low-sulfur coal and to install nitrogen oxides controls and an emissions monitoring system. Under proposed regulations, the second unit will require additional capital expenditures to reduce emissions of nitrogen oxides. The Company's other coal-fired generating units are not materially affected by the provisions of the CAA. Due to the use of low-sulfur western coal, the Company does not anticipate the need for additional capital expenditures to lower sulfur dioxide emission rates to ensure that allowances allocated by the federal government are not exceeded. While the Company estimates that sufficient emission allowances have been allocated on system-wide basis for its units to operate at the capacity factors needed to meet system energy requirements, additional purchases of allowances may be necessary to meet desired sales for resale levels. By the year 2000, some Company coal-fired generating units will be required to install controls to reduce emissions of nitrogen oxides. Based on currently proposed CAA regulations, the Company does not anticipate its remaining construction costs for the installation of low nitrogen oxides burner technology and emissions monitoring system upgrades to exceed $16 million of which $3.4 million and none are expected to be expended in 1996 and 1997, respectively. WATER QUALITY Under the Federal Water Pollution Control Act Amendments of 1972, as amended, the Company is required to obtain National Pollutant Discharge Elimination System (NPDES) permits to discharge effluents (including thermal discharges) from its properties into various waterways. All NPDES permits are subject to renewal after specified time periods not to exceed five years. The Company has obtained all necessary NPDES permits for its generating stations and, when such permits are expected to expire, the Company will file applications for renewal. HAZARDOUS MATERIALS AND WASTE MANAGEMENT The EPA and state environmental agencies have determined that contaminated wastes remaining at certain decommissioned manufactured gas plant (MGP) facilities may pose a threat to the public health or the 13 environment if such contaminants are in sufficient quantities and at such concentrations as to warrant remedial action. The Company is evaluating 26 properties which were, at one time, sites of MGP facilities in which it may be a potentially responsible party. The Company's present estimate of probable remediation costs of these sites is $21 million. The ICC has approved the use of a tariff rider which permits recovery of the actual costs of litigation, investigation and remediation relating to former MGP sites. The Company's present rates in Iowa provide for a fixed annual recovery of MGP costs. Additional information relating to the Company's MGP facilities is included under the Note "Commitments and Contingencies" on page 29 of the Company's Annual Report to Shareholders for 1995 which page is incorporated herein by reference. Pursuant to the Toxic Substances Control Act, a federal law administered by the EPA, the Company developed a comprehensive program for the use, handling, control and disposal of all polychlorinated biphenyls (PCB's) contained in electrical equipment. The future use of equipment containing PCB's will be minimized. Capacitors, transformers and other miscellaneous equipment are being purchased with a non-PCB dielectric fluid. The Company's exposure to PCB liability has been reduced through the orderly replacement of a number of such electrical devices with similar non-PCB electrical devices. An unresolved issue is whether exposure to electric and magnetic fields (EMFs) may result in adverse health effects. EMFs are produced by all devices carrying or using electricity, including transmission and distribution lines and home appliances. The Company cannot predict the effect on construction costs of electric utility facilities if EMF regulations were to be adopted. Although the Company is not the subject of any suit involving EMFs, litigation has been filed in a number of jurisdictions against a variety of defendants alleging that EMFs had an adverse effect on health. If such litigation were successful, the impact on the Company and on the electric utility industry in general could be significant. INTERCOAST ENERGY COMPANY InterCoast is a wholly owned nonregulated subsidiary of the Company. The nonregulated activities emphasize energy-related diversification, credit quality and liquidity. InterCoast takes advantage of a core expertise in energy, participating in the energy industry through four nonregulated business groups: Medallion Production Company (Medallion), InterCoast Energy Marketing and Services Company (Energy Services), Rail Car Services and Investments (Rail Services) and InterCoast Capital Company (InterCoast Capital). Medallion is an independent oil and gas company based in Tulsa, Oklahoma. Medallion's oil and gas assets at December 31, 1995 and 1994 were $161 million and $142 million, respectively. Medallion's reserves totaled 32.1 million barrels of oil equivalent at December 31, 1995. Principal oil and gas production facilities are in Texas, Louisiana, California, Oklahoma and Colorado. Energy Services provides electric, natural gas and energy management services to both retail and wholesale markets. Energy Services' assets at December 31, 1995 and 1994 were $13 million and $11 million, respectively. AmGas Inc., a part of the Energy Services group, was organized in anticipation of new opportunities under 14 Order 636. AmGas Inc. markets natural gas and energy management services to commercial and industrial clients in the Midwest and areas of the Northeastern United States. Continental Power Exchange, Inc. (Continental), a part of the Energy Services group, was established in March 1994. Continental operates a computerized information system facilitating the real-time exchange of power in the electric industry. InterCoast Power Marketing Company (IPM), a part of the Energy Services group, was established in September 1993 to offer wholesale power brokering and marketing services to utilities and other power supply agencies. In July 1995, IPM was granted "marketer" status by the FERC enabling it to directly buy and sell power. InterCoast Trade and Resources, Inc., was established during 1995. GED Energy Services, Inc. was purchased in November of 1995. These companies, which are part of the Energy Services group, provide wholesale natural gas marketing services. Rail Services provides railcar leasing, management and maintenance services through UNITRAIN, Inc. and Cornhusker Railcar Services Inc. This service is primarily provided to electric utility companies within Iowa and surrounding states. In addition, Rail Services has indirect investments in a variety of nonregulated energy production technologies including wind, solar, hydroelectric, and natural gas and coal-fueled generation, equity investments in two developing companies which provide products and services for the electric and gas utility industries, an equity investment in a company that services and markets fiber-optic and telecommunications systems and equity interests in special purpose funds that invest in venture capital and leveraged buyout opportunities. InterCoast Capital manages InterCoast's financial investments. Such investments consist primarily of investment grade marketable securities and aircraft leases. InterCoast Capital's total investments at December 31, 1995 and 1994 were $362 million and $324 million, respectively. InterCoast Capital's marketable securities portfolio, totaling $270 million and $200 million at December 31, 1995 and 1994, respectively, focuses on energy securities consisting primarily of preferred stocks issued by utility companies. All such preferred stocks have been issued by companies having investment grade senior debt ratings by Moody's or Standard & Poor's. In addition to the preferred stocks, InterCoast Capital has investments in common stocks and independently managed mutual funds. InterCoast Capital holds InterCoast's equity participations in equipment leases for passenger and freight transport aircraft. Such investments totaled $91 million and $124 million at December 31, 1995 and 1994, respectively. MIDWEST CAPITAL GROUP INC. Midwest Capital is a wholly owned nonregulated subsidiary of the Company. Midwest Capital's primary activity is the management of utility service area investments to support economic development. Midwest Capital's two principal interests are an office tower in downtown Des Moines, Iowa, and a 2,000-acre planned residential and business community near Sioux City, Iowa. The office tower is more than 97% leased to various businesses. The major construction phase of the planned community is complete, and the marketing phase to sell developed residential and commercial lots is in progress. 15 ITEM 2. PROPERTIES The Company's utility properties consist of physical assets necessary and appropriate to rendering electric and gas service in its service territories. Electric property consist primarily of generation, transmission and distribution facilities. Gas property consists primarily of distribution plant, including feeder lines to communities served from natural gas pipelines owned by others. It is the opinion of management that the principal depreciable properties owned by the Company's subsidiaries are in good operating condition and well maintained. The net accredited generating capacity, along with the participation purchases and sales, net, and firm purchases and sales, net, are shown for summer 1995 accreditation.
COMPANY'S SHARE OF ACCREDITED PERCENT GENERATING PLANT OWNERSHIP FUEL CAPABILITY (KW) - ------------------------------------------------------------------- ----------- ---------- -------------------- Steam Electric Generating Plants: Council Bluffs Energy Center Unit No. 1..................................................... 100.0 Coal 46,000 Unit No. 2..................................................... 100.0 Coal 88,000 Unit No. 3..................................................... 79.1 Coal 533,900 George Neal Station Unit No. 1..................................................... 100.0 Coal 135,000 Unit No. 2..................................................... 100.0 Coal 300,000 Unit No. 3..................................................... 72.0 Coal 370,800 Unit No. 4..................................................... 40.6 Coal 253,200 Louisa Unit...................................................... 88.0 Coal 616,000 Ottumwa Unit..................................................... 52.0 Coal 372,100 Riverside Station Unit No. 3..................................................... 100.0 Coal 5,000 Unit No. 5..................................................... 100.0 Coal 130,000 ---------- 2,850,000 ---------- Combustion Turbines: Coralville -- 1 unit............................................. 100.0 Gas/Oil 64,000 Electrifarm -- 3 units........................................... 100.0 Gas/Oil 185,600 Moline -- 1 unit................................................. 100.0 Gas/Oil 64,000 River Hills Energy Center -- 8 units............................. 100.0 Gas/Oil 116,000 Sycamore Energy Center -- 2 units................................ 100.0 Gas/Oil 149,000 Parr -- 2 units.................................................. 100.0 Gas/Oil 30,800 Pleasant Hill Energy Center -- 3 units........................... 100.0 Oil 148,000 ---------- 757,400 ---------- Nuclear: Quad-Cities Station Unit No. 1..................................................... 25.0 Nuclear 192,300 Unit No. 2..................................................... 25.0 Nuclear 192,500 Cooper (1)....................................................... (1) Nuclear 389,000 ---------- 773,800 ---------- Hydro: Moline -- 1 unit................................................. 100.0 Water 3,200 ---------- Net Accredited Generating Capacity................................. 4,384,400 Add: Participation Purchases and Sales, Net........................ (53,000) Firm Purchases and Sales, Net................................. (115,000) ---------- Adjusted Net Accredited Generating Capability...................... 4,216,400 ---------- ----------
- ------------------------ (1) Cooper is owned by NPPD and the amount shown is MidAmerican's entitlement (50%) of Cooper's accredited capacity under a power purchase agreement extending to the year 2004. 16 The electric system of the Company at December 31, 1995, included 871 miles of 345-kV transmission lines, 1,294 miles of 161-kV lines, 1,812 miles of 69-kV lines and 342 miles of 34.5-kV lines. Distribution lines included 24,403 miles of overhead conductor and 7,244 miles of underground conductor at December 31, 1995. The gas distribution facilities of the Company at December 31, 1995, included 18,284 miles of gas mains and services. Substantially all the former Iowa-Illinois utility property and franchises, and substantially all of the former Midwest electric utility property located in Iowa, is pledged to secure mortgage bonds. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries have no material legal proceedings except for the following: ENVIRONMENTAL MATTERS Information on the Company's environmental matters is included in Item 1 -- Business and under the Note "Environmental Matters" on page 29 of the Company's Annual Report to Shareholders for 1995, which page is incorporated herein by reference. COOPER LITIGATION On May 26, 1995, the Company filed a lawsuit naming Nebraska Public Power District (NPPD) as defendant. The action is filed in the U.S. District Court for the Southern District of Iowa and is identified as No. 4-95-CV-70356. The legal proceeding is based upon a long-term power purchase agreement between the Company and NPPD, pursuant to which the Company purchases one-half the output of NPPD's Cooper Nuclear Station (Cooper) and pays one-half the cost of operating Cooper. NPPD, in turn, is obligated to operate the plant in an efficient and economical manner and in compliance with the terms of its operating license issued to it by the Nuclear Regulatory Commission (NRC). In 1993 and 1994, as a response to NPPD actions, the NRC issued numerous notices of violations to NPPD; as a result of these violations and other safety issues identified by the NRC and NPPD, Cooper experienced unplanned outages and outages were unduly extended. NPPD's failure to meet its obligations with respect to the operation of Cooper deprived the Company of the benefits it was entitled to under the power sales contract, causing the Company to lose profits and incur increased costs of operation, which damages the Company seeks to collect from NPPD. Similar litigation has been filed against NPPD by the Lincoln Electric System (LES), a municipal utility serving the City of Lincoln, Nebraska, and purchasing one-eighth of the output of Cooper pursuant to a similar power purchase contract. The LES legal proceeding is pending in Nebraska state court. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None. 17 OTHER INFORMATION EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and positions of the executive officers of the Company are listed below.
NAME AGE POSITIONS HELD - ---------------------------- --- -------------------------------------------------- Russell E. Christiansen 60 Chairman and Chairman of the Office of the CEO Stanley J. Bright 55 President and President of the Office of the CEO Lynn K. Vorbrich 57 President, Electric Division Beverly A. Wharton 42 President, Gas Division Richard C. Engle 61 Executive Vice President Lance E. Cooper (a) 52 Group Vice President Philip G. Lindner 52 Group Vice President John A. Rasmussen, Jr. 50 Group Vice President and General Counsel Ronald W. Stepien 49 Group Vice President President (Midwest Capital) Donald C. Hepperman 53 President and Chief Operating Officer (InterCoast)
Officers are elected annually by the Board of Directors. There are no family relationships among these officers, nor any arrangements or understanding between any officer and any other person pursuant to which the officer was selected. Each of the officers has served in the above stated capacity since July 1, 1995, and has been employed by the registrant and/or its subsidiaries or predecessor companies for five or more years as an executive officer except where noted. (a) Served as Vice President of predecessor Iowa-Illinois from October 1991 to June 30, 1995. Prior to that time, Mr. Cooper was Vice President -- Control, Atlantic City Electric Company. BUSINESS TRANSACTION POLICY STATEMENT In response to the competitive forces and regulatory changes being faced by the Company, the Company has from time to time considered, and expects to continue to consider, various strategies designed to enhance its competitive position and to increase its ability to adapt to and anticipate changes in its utility business. These strategies may include business combinations with other companies, internal restructurings involving the complete or partial separation of its wholesale and retail businesses, and additions to, or dispositions of, portions of its franchised service territories. The Company may from time to time be engaged in preliminary discussions, either internally or with third parties, regarding one or more of these potential strategies. No assurances can be given as to whether any potential transaction of the type described above may actually occur, or as to the ultimate effect thereof on the financial condition or competitive position of the Company. The Company's management is mindful of the importance of informing investors about Company operations. Management must also pay heed to the legally sensitive nature of certain matters, and that is particularly true about any business transaction involving an acquisition, disposition or combination of businesses which the Company may be considering. 18 Therefore, the Company's management has adopted a policy to announce consideration of any such transaction only after it would enter into a definitive agreement or an agreement in principle describing the material terms of such a transaction. Until that point, the Company would respond with "no comment" to any inquiry concerning any such transaction, whether or not the Company is considering, discussing or negotiating for any acquisitions, dispositions or combinations of businesses. The Company's management believes this policy is consistent both with investors' need for information and with the Company's concern for appropriate disclosure regarding legally sensitive matters. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION AND DIVIDENDS The Company's common stock is listed on the New York Stock Exchange under the symbol "MEC." The following table sets forth, for the periods indicated, the dividends declared per share of common stock and the high and low market prices of the common stock of MidAmerican, Midwest Resources and Iowa-Illinois, as reported in THE WALL STREET JOURNAL for the New York Stock Exchange Composite Tape.
PRICE RANGE ------------------------------------------------------------ DIVIDENDS DECLARED MIDAMERICAN IOWA-ILLINOIS RESOURCES ------------------------ ---------------- -------------------- -------------------- MEC IWG MWR HIGH LOW HIGH LOW HIGH LOW ------- ------- ------- ------- ------- -------- ---------- ---------- -------- 1995 4th Quarter................. $ 0.30 $ -- $ -- $17 1/8 $15 $ -- $ -- $ -- $ -- 3rd Quarter................. 0.30 -- -- 15 5/8 13 5/8 -- -- -- -- 2nd Quarter................. -- 0.4325 0.29 -- -- 22 19 7/8 15 13 5/8 1st Quarter................. -- 0.4325 0.29 -- -- 22 1/8 19 14 5/8 13 3/8 1994 4th Quarter................. $ -- $0.4325 $ 0.29 -- -- $20 5/8 $18 7/8 $14 1/2 $12 7/8 3rd Quarter................. -- 0.4325 0.29 -- -- 22 1/2 19 1/4 15 3/8 13 1/2 2nd Quarter................. -- 0.4325 0.29 -- -- 24 1/2 19 7/8 16 3/4 13 7/8 1st Quarter................. -- 0.4325 0.29 -- -- 24 3/4 22 3/8 18 16
HOLDERS On February 26, 1996, there were approximately 70,000 shareholders of record of MidAmerican's common stock. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is included in the following captions and pages of the Company's Annual Report to Shareholders for 1995, which captions are herein incorporated by reference:
CAPTION PAGE ----------------------------------------------------------------------- ----- (1) Operating Revenues 42 (2) Income From Continuing Operations 42 (3) Earnings Per Average Share -- Continuing Operations 41 (4) Total Assets 43 (5) Capitalization 43 (6) Cash Dividends Declared Per Common Share 41
19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is included on pages 13 through 20 of the Company's Annual Report to Shareholders for 1995, which pages are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is included on pages 21 through 40 of the Company's Annual Report to Shareholders for 1995, which pages are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT The information required by Item 10 relating to directors who are nominees for election as directors at the Company's 1996 Annual Meeting of Shareholders is set forth in the Company's Proxy Statement filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934. Therefore, such information is incorporated herein by reference to the material appearing under the caption "ELECTION OF DIRECTORS" on pages11 through 16 of the Proxy Statement. Information required by Item 10 relating to Executive Officers of the Registrant is set forth under a separate caption in Part I hereof. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the material appearing under the caption "EXECUTIVE COMPENSATION" on pages 19 through 28 of the Company's Proxy Statement filed with the SEC. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS To the Company's knowledge, no single entity has beneficial ownership of 5 percent or more of the outstanding Common Stock of the Company. (B) SECURITY OWNERSHIP OF MANAGEMENT Security ownership of management as outlined on pages 17 and 18 of the Company's Proxy Statement filed with the SEC under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference. (C) CHANGES IN CONTROL There are no arrangements known to the registrant, the operation of which may at a subsequent date result in a change in control of the registrant. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A)1. FINANCIAL STATEMENTS The following financial statements (including the notes thereto) and the related audit reports, incorporated herein by reference, are included in the Company's Annual Report to Shareholders for 1995.
PAGE NO. IN 1995 ANNUAL REPORT TO SHAREHOLDERS ----------------- Consolidated Statements of Income For the Year Ended December 31, 1995, 1994 and 1993.................................. 21 Consolidated Statements of Cash Flows For the Year Ended December 31, 1995, 1994 and 1993.................................. 23 Consolidated Balance Sheets As of December 31, 1995 and 1994..................................................... 22 Consolidated Statements of Retained Earnings For the Year Ended December 31, 1995, 1994 and 1993.................................. 25 Notes to Consolidated Financial Statements............................................. 26-39 Report of Independent Public Accountant................................................ 40
(A)2. FINANCIAL STATEMENT SCHEDULES (INCLUDED HEREIN) The following schedule should be read in conjunction with the aforementioned financial statements.
PAGE NO. IN THIS ANNUAL REPORT ON FORM 10-K ----------------- Consolidated Valuation and Qualifying Accounts (Schedule II) For the Year Ended December 31, 1995, 1994 and 1993.................................. 22 Reports of Independent Public Accountants.............................................. 23-25
Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. (A)3. EXHIBITS See Exhibit Index on page 29. (B) REPORTS ON FORM 8-K None. 21 SCHEDULE II MIDAMERICAN ENERGY COMPANY AND SUBSIDIARIES CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (IN THOUSANDS)
COLUMN B COLUMN C ----------- ----------- COLUMN E COLUMN A BALANCE AT ADDITIONS COLUMN D ----------- - ---------------------------------------------------------------- BEGINNING CHARGED TO ----------- BALANCE AT DESCRIPTION OF YEAR INCOME DEDUCTIONS END OF YEAR - ---------------------------------------------------------------- ----------- ----------- ----------- ----------- Reserves Deducted From Assets To Which They Apply: Reserve for uncollectible accounts: Year ended 1995............................................. $ 2,099 $ 4,934 $ (4,737) $ 2,296 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Year ended 1994............................................. $ 3,697 $ 3,920 $ (5,518) $ 2,099 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Year ended 1993............................................. $ 3,564 $ 3,406 $ (3,273) $ 3,697 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Reserves Not Deducted From Assets: Property insurance Year ended 1995............................................. $ 2,224 $ 17 $ (143) $ 2,098 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Year ended 1994............................................. $ 2,561 $ 200 $ (537) $ 2,224 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Year ended 1993............................................. $ 2,426 $ 135 $ -- $ 2,561 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Injuries and damages Year ended 1995............................................. $ 2,350 $ 2,654 $ (3,916) $ 1,079 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Year ended 1994............................................. $ 1,801 $ 3,452 $ (2,903) $ 2,350 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Year ended 1993............................................. $ 1,323 $ 2,283 $ (1,805) $ 1,801 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of MidAmerican Energy Company and Subsidiaries: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in MidAmerican Energy Company's annual report to shareholders for the year ended December 31, 1995, incorporated by reference in this Form 10-K, and have issued our report thereon dated January 26, 1996. We did not audit the 1994 and 1993 financial statements of Iowa-Illinois Gas and Electric Company, one of the companies merged in 1995 to form MidAmerican Energy Company in a transaction accounted for as a pooling-of-interests, as discussed in Note (1)(a). Such statements are included in the consolidated financial statements of MidAmerican Energy Company and subsidiaries and reflect total assets constituting 42 percent in 1994 and total revenues constituting 36 percent in 1994 and 1993, of the related consolidated totals. These statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Iowa-Illinois Gas and Electric Company, is based solely upon the report of the other auditors. Our audits were made for the purpose of forming an opinion on those consolidated financial statements taken as a whole. The schedule listed on Page 22, Item 14 is the responsibility of MidAmerican Energy Company management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, based on our audits and the report of other auditors, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP Chicago, Illinois January 26, 1996 23 DELOITTE & TOUCHE LLP Northwest Bank Building 101 West Second Street Davenport, IA 52801-1813 319-322-4415 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of MidAmerican Energy Company: We have audited the consolidated balance sheet and statement of capitalization of Iowa-Illinois Gas and Electric Company and subsidiary as of December 31, 1994, and the related consolidated statements of income, retained earnings and cash flows for the years ended December 31, 1994 and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 the companies as of December 31, 1994, and the results of their operations and their cash flows for the years ended December 31, 1994 and 1993, in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP January 25, 1995 -24- DELOITTE & TOUCHE LLP Northwest Bank Building 101 West Second Street Davenport, IA 52801-1813 319-322-4415 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of MidAmerican Energy Company We have audited the consolidated balance sheet and statement of capitalization of Iowa-Illinois Gas and Electric Company and subsidiary as of December 31, 1994, and the related consolidated statements of income, retained earnings and cash flows for the years ended December 31, 1994 and 1993, and have issued our report thereon dated January 25, 1995. Our audits also included the financial statement schedule of Iowa-Illinois Gas and Electric Company and subsidiary as of December 31, 1994 and 1993 and for each of the two years in the period ended December 31, 1994, listed in Item 14. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects in the information set forth therein. /s/ DELOITTE & TOUCHE LLP January 25, 1995 -25- 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. MIDAMERICAN ENERGY COMPANY Date: March 8, 1996 By /s/ S.J. Bright -------------------------------- (S. J. Bright) President and President of the Office of the 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 date indicated:
SIGNATURE TITLE DATE - ------------------------------------ -------------------------------------------------------- ----------------- /s/ R. E. Christiansen Chairman and Chairman of the Office of the Chief March 8, 1996 ---------------------------- Executive Officer and Director (R. E. Christiansen) /s/ L. E. Cooper Group Vice President Finance and Accounting (Principal March 8, 1996 ---------------------------- Accounting Officer) (L. E. Cooper) /s/ J. W. Aalfs Director March 8, 1996 ---------------------------- (J. W. Aalfs) /s/ B. T. Asher Director March 8, 1996 ---------------------------- (B. T. Asher) /s/ S. J. Bright Director March 8, 1996 ---------------------------- (S. J. Bright)
26
SIGNATURE TITLE DATE - ------------------------------------ -------------------------------------------------------- ----------------- /s/ R. A. Burnett Director March 8, 1996 ---------------------------- (R. A. Burnett) /s/ R. D. Christensen Director March 8, 1996 ---------------------------- (R. D. Christensen) /s/ J. W. Colloton Director March 8, 1996 ---------------------------- (J. W. Colloton) /s/ F. S. Cottrell Director March 8, 1996 ---------------------------- (F. S. Cottrell) /s/ J. W. Eugster Director March 8, 1996 ---------------------------- (J. W. Eugster) /s/ W. C. Fletcher Director March 8, 1996 ---------------------------- (W. C. Fletcher) /s/ M. Foster, Jr. Director March 8, 1996 ---------------------------- (M. Foster, Jr.) /s/ N. Gentry Director March 8, 1996 ---------------------------- (N. Gentry)
27
SIGNATURE TITLE DATE - ------------------------------------ -------------------------------------------------------- ----------------- /s/ J. M. Hoak, Jr. Director March 8, 1996 ---------------------------- (J. M. Hoak, Jr.) /s/ R. L. Lawson Director March 8, 1996 ---------------------------- (R. L. Lawson) /s/ R. L. Peterson Director March 8, 1996 ---------------------------- (R. L. Peterson) /s/ R. A. Schneider Director March 8, 1996 ---------------------------- (R. A. Schneider) /s/ N. L. Seifert Director March 8, 1996 ---------------------------- (N. L. Seifert) /s/ W. S. Tinsman Director March 8, 1996 ---------------------------- (W. S. Tinsman) /s/ L. L. Woodruff Director March 8, 1996 ---------------------------- (L. L. Woodruff)
28 EXHIBIT INDEX EXHIBITS FILED HEREWITH 2 Agreement and Plan of Exchange dated as of January 24, 1996. 4.15 Sixth Supplemental Indenture dated as of July 1, 1995, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee. 4.16 Thirty-First Supplemental Indenture dated as of July 1, 1995, between Iowa-Illinois Gas and Electric Company and Harris Trust and Savings Bank, Trustee. 10.1 MidAmerican Energy Company Deferred Compensation Plan for Directors. 10.2 MidAmerican Energy Company Deferred Compensation Plan for Executives. 10.3 MidAmerican Energy Company Supplemental Retirement Plan for Designated Officers. 10.4 MidAmerican Energy Company Key Employee Short-Term Incentive Plan. 10.37 Form of Indemnity Agreement between MidAmerican and its directors and officers. 12 Computation of ratios of earnings to fixed charges and computation of ratios of earnings to fixed charges plus preferred dividend requirements. 13.1 "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing on pages 13 - 20 of the Company's Annual Report to Shareholders for 1995, incorporated by reference into Items 1 and 7 of this Form 10-K. 13.2 "Financial Statements and Supplementary Data,"appearing on pages 21 - 39 of the Company's Annual Report to Shareholders for 1995, incorporated by reference into Items 1(b), 1(c), 3, 8 and 14(a) (1) of this Form 10-K. 13.3 "Operating Revenues," Income From Continuing Operations," "Earnings Per Average Share--Continuing Operations," "Total Assets," "Capitalization," and "Cash Dividends Declared Per Common Share" for the years 1991-1995, appearing on page 41 - 43 of the Company's Annual Report to Shareholders for 1995, incorporated by reference into Item 6 of this Form 10-K. 21 Subsidiaries of the Registrant. 23.1 Consent of Arthur Anderson LLP 23.2 Consent of Deloitte & Touche LLP EXHIBITS INCORPORATED BY REFERENCE 3.1 Restated Articles of Incorporation of the Company, as amended (filed as Exhibit 3 to the Company's Registration Statement on Form 8-B, File No. 1- 11505). -29- 3.2 Restated Bylaws of the Company. (Filed as Exhibit 4 to the Company's Registration Statement on Form 8-B, File No. 1-11505.) 4.1 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. (Filed as Exhibit 4(b)-1 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654.) 4.2 First Supplemental Indenture dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee. (Filed as Exhibit 4(b)-2 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654.) 4.3 Second Supplemental Indenture dated as of January 15, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee. (Filed as Exhibit 4(b)-3 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1- 10654.) 4.4 Third Supplemental Indenture dated as of May 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee. (Filed as Exhibit 4.4 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654. 4.5 Fourth Supplemental Indenture dated as of October 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee. (Filed as Exhibit 4.5 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654.) 4.6 Fifth Supplemental Indenture dated as of November 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee. (Filed as Exhibit 4.6 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654.) 4.7 Indenture of Mortgage and Deed of Trust, dated as of March 1, 1947. (Filed by Iowa-Illinois as Exhibit 7B to Commission File No. 2-6922.) 4.8 Sixth Supplemental Indenture dated as of July 1, 1967. (Filed by Iowa- Illinois as Exhibit 2.08 to Commission File No. 2-28806.) 4.9 Twentieth Supplemental Indenture dated as of May 1, 1982. (Filed as Exhibit 4.B.23 to Iowa-Illinois' Quarterly Report on Form 10-Q for the period ended June 30, 1982, Commission File No. 1-3573.) 4.10 Resignation and Appointment of successor Individual Trustee. (Filed by Iowa-Illinois as Exhibit 4.B.30 to Commission File No. 33-39211.) 4.11 Twenty-Seventh Supplemental Indenture dated as of October 1, 1991. (Filed as Exhibit 4.31.A to Iowa-Illinois' Current Report on Form 8-K dated October 1, 1991, Commission File No. 1-3573.) -30- 4.12 Twenty-Eighth Supplemental Indenture dated as of May 15, 1992. (Filed as Exhibit 4.31.B to Iowa-Illinois' Current Report on Form 8-K dated May 21, 1992, Commission File No. 1-3573.) 4.13 Twenty-Ninth Supplemental Indenture dated as of March 15, 1993. (Filed as Exhibit 4.32.A to Iowa-Illinois' Current Report on Form 8-K dated March 24, 1993, Commission File No. 1-3573.) 4.14 Thirtieth Supplemental Indenture dated as of October 1, 1993. (Filed as Exhibit 4.34.A to Iowa-Illinois' Current Report on Form 8-K dated October 7, 1993, Commission File No. 1-3573.) 10.5 Deferred Compensation Plan for Executives of Midwest Resources Inc. and Subsidiaries. (Filed as Exhibit 10.1 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1990, Commission File No. 1- 10654). 10.6 Deferred Compensation Plan for Board of Directors of Midwest Resources Inc. and Subsidiaries. (Filed as Exhibit 10.2 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1990, Commission File No. 1-10654). 10.7 Midwest Resources Inc. Directors Retirement Plan. (Filed as Exhibit 10.3 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1990, Commission File No. 1-10654.) 10.8 Non-Cash Bonus Award Plan for Executives of Midwest Resources Inc. (Filed as Exhibit 10.4 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1990, Commission File No. 1-10654). 10.9 Midwest Resources Inc. revised and amended Executive Deferred Compensation Plan for IOR and Subsidiaries, dated January 29, 1992. (Filed as Exhibit 10.5 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-10654.) 10.10 Midwest Resources Inc. revised and amended Board of Directors Deferred Compensation Plan for IOR and Subsidiaries, dated January 29, 1992. (Filed as Exhibit 10.6 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-10654.) 10.11 Midwest Resources Inc. revised and amended Executive Incentive Compensation Plan for IOR and Subsidiaries, dated January 29, 1992. (Filed as Exhibit 10.7 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-10654.) 10.12 Midwest Resources Inc. and Participating Subsidiaries Long-Term Incentive Compensation Plan. (Filed as Exhibit 10.8 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-10654.) 10.13 Midwest Power Group 1992 Key Executive Incentive Compensation Plan. (Filed as Exhibit 10.9 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-10654.) -31- 10.14 Midwest Resources Inc. Supplemental Retirement Plan (formerly the Midwest Energy Company Supplemental Retirement Plan). (Filed as Exhibit 10.10 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654.) 10.15 Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District, dated September 22, 1967. (Filed as Exhibit 4-C-2 to Iowa Power Inc.'s (IPR) Registration Statement, Registration No. 2-27681.) 10.16 Amendments Nos. 1 and 2 to Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District. (Filed as Exhibit 4-C-2a to IPR's Registration Statement, Registration No. 2-35624.) 10.17 Amendment No. 3 dated August 31, 1970, to the Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District, dated September 22, 1967. (Filed as Exhibit 5-C-2-b to IPR's Registration Statement, Registration No. 2-42191.) 10.18 Amendment No. 4 dated March 28, 1974, to the Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District, dated September 22, 1967. (Filed as Exhibit 5-C-2-c to IPR's Registration Statement, Registration No. 2-51540.) 10.19 Revised and amended Executive Compensation Plan for Iowa Resources Inc. and Subsidiaries, dated July 24, 1985. (Filed as Exhibit 10.21 to Iowa Resources Inc.'s (IOR) Annual Report on Form 10-K for the year ended December 31, 1985, Commission File No. 1-7830.) 10.20 Revised and amended Executive Deferred Compensation Plan for IOR and Subsidiaries, dated July 24, 1985. (Filed as Exhibit 10.22 to IOR's Annual Report on Form 10-K for the year ended December 31, 1985, Commission File No. 1-7830.) 10.21 Revised and amended Deferred Compensation Plan for Board of Directors of IOR and Subsidiaries, dated July 24, 1985. (Filed as Exhibit 10.22 to IOR's Annual Report on Form 10-K for the year ended December 31, 1985, Commission File No. 1-7830.) 10.22 Revised and amended Executive Compensation Plan for IOR and Subsidiaries, dated December 18, 1987. (Filed as Exhibit 10.14 to IOR's Annual Report on Form 10-K for the year ended December 31, 1987, Commission File No. 1- 7830.) 10.23 Revised and amended Executive Deferred Compensation Plan for IOR and Subsidiaries, dated December 18, 1987. (Filed as Exhibit 10.15 to IOR's Annual Report on Form 10-K for the year ended December 31, 1987, Commission File No. 1-7830.) 10.24 Revised and amended Deferred Compensation Plan for Board of Directors of IOR and Subsidiaries, dated December 18, 1987. (Filed as Exhibit 10.16 to IOR's Annual Report on Form 10-K for the year ended December 31, 1987, Commission File No. 1-7830.) 10.25 Employment Agreement between R. E. Christiansen and C&P Holdings Company dated as of March 15, 1990. (Filed as Exhibit 10.24 to IOR's Annual Report on Form 10-K for the year ended December 31, 1989, Commission File No. 1-7830.) -32- 10.26 Change in control agreement between Russell E. Christiansen and Midwest Energy Company dated as of May 5, 1989. (Filed as Exhibit 10(e) in MWE's Form 10-K for the year ended December 31, 1989, Commission File No. 1- 8708.) 10.29 Amendments to Midwest Resources Executive Deferred Compensation Plans, dated October 30, 1992. (Filed as Exhibit 10(h) to MWR's Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1- 10654.) 10.30 Midwest Power Systems 1993 Key Executive Incentive Compensation Plan. (Filed as Exhibit 10.30 in MWR's Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654.) 10.31 Supplemental Retirement Plan for Principal Officers, as amended as of July 1, 1993. (Filed as Exhibit 10.K.2 to Iowa-Illinois' Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-3573.) 10.32 Compensation Deferral Plan for Principal Officers, as amended as of July 1, 1993. (Filed as Exhibit 10.K.2 to Iowa-Illinois' Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-3573.) 10.33 Board of Directors' Compensation Deferral Plan. (Filed as Exhibit 10.K.4 to Iowa-Illinois' Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-3573.) 10.34 Revised and amended Supplemental Retirement Income Plan for Iowa Resources Inc. and Subsidiaries dated October 24, 1984. (Filed as Exhibit 10.15 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654.) 10.35 Amendment No. 1 to the Midwest Resources Inc. Supplemental Retirement Plan. (Filed as Exhibit 10.24 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654.) 10.36 Deferred Compensation Plan of Midwest Energy Company and Subsidiary Corporations. (Filed as Exhibit 10.25 to Midwest Resources' Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1- 10654.) Note: Pursuant to (b) (4) (iii)(A) of Item 601 of Regulation S-K, the Company has not filed as an exhibit to this Form 10-K certain instruments with respect to long-term debt not being registered if the total amount of securities authorized thereunder does not exceed 10% of total assets of the Company but hereby agrees to furnish to the Commission on request any such instruments. -33- EX-2 2 EXHIBIT 2 (AGREE AND PLAN OF EXCHANGE) EXHIBIT 2 AGREEMENT AND PLAN OF EXCHANGE THIS AGREEMENT AND PLAN OF EXCHANGE ("Agreement"), dated as of January 24, 1996, is between MidAmerican Energy Company, an Iowa corporation ("MidAmerican" or "Company"), the company whose shares will be acquired pursuant to the Share Exchange (described hereinafter), and MidAmerican Energy Holdings Company, an Iowa corporation ("Holdings"), the acquiring company. MidAmerican and Holdings are hereinafter sometimes referred to, collectively, as the "Companies". WITNESSETH: WHEREAS, the authorized capital stock of MidAmerican consists of (a) 350,000,000 shares of common stock without par value ("Company Common Stock"), of which 100,751,713 shares are issued and outstanding, and (b) 100,000,000 shares of preferred stock, without par value ("Company Preferred Stock"), of which 3,217,769 shares are issued and outstanding; and WHEREAS, Holdings has 1,000 shares of common stock, no par value, ("Holdings Common Stock") presently authorized, issued and outstanding, and at the Effective Time (as hereinafter defined), the authorized capital stock of Holdings will consist of (a) 350,000,000 shares of Holdings Common Stock and (b) 100,000,000 shares of preferred stock, no par value ("Holdings Preferred Stock"); and WHEREAS, the Boards of Directors of each of MidAmerican and Holdings deem it desirable and in the best interests of the Companies and their shareholders that each share of Company Common Stock be exchanged for a share of Holdings Common Stock with the result that Holdings becomes the owner of all outstanding Company Common Stock and each holder of Company Common Stock becomes the owner of an equal number of shares of Holdings Common Stock, all pursuant to the terms and conditions hereinafter set forth ("Share Exchange"); and WHEREAS, the Iowa Business Corporation Act ("IBCA") permits share exchanges which bind all of the shareholders upon the approval of a plan of share exchange by the holders of a majority of all votes entitled to be voted thereon; and WHEREAS, the Boards of Directors of MidAmerican and Holdings have recommended that their respective shareholders approve the Share Exchange and this Agreement, and this Agreement has been approved by the requisite vote of Holdings' shareholder pursuant to Section 490.1103 of the IBCA; NOW, THEREFORE, in consideration of the premises, and of the agreements, covenants and conditions hereinafter contained, the parties hereto agree with respect to the Share Exchange that, at the Effective Time, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time will be exchanged for one share of Holdings Common Stock, and that the terms and conditions of the Share Exchange and the method of carrying the same into effect are as follows: ARTICLE I Subject to the satisfaction of the conditions and obligations of the parties hereto, the Share Exchange will be effective upon the filing, with the Iowa Secretary of State, in accordance with the IBCA, of articles of share exchange ("Articles of Exchange") with respect to the Share Exchange or at such later time as may be stated in the Articles of Exchange (the time at which the Share Exchange becomes effective being referred to herein as the "Effective Time"). 1 ARTICLE II (1) The name of the corporation whose shares will be acquired is MidAmerican Energy Company, and the name of the acquiring corporation is MidAmerican Energy Holdings Company. (2) The terms and conditions of the exchange, and the manner and basis of exchanging the shares of Company Common Stock to be acquired for shares of Holdings Common Stock, are as follows: At the Effective Time: (a) Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time shall be exchanged for one share of Holdings Common Stock, which shall thereupon be fully paid and non-assessable, except the shares for which dissenters' rights were exercised; (b) Holdings shall become the owner and holder of each issued and outstanding share of Company Common stock so exchanged; (c) Each share of Holdings Common Stock issued and outstanding immediately prior to the Effective Time shall be canceled and shall thereupon constitute an authorized and unissued share of Holdings Common Stock; (d) The former owners of Company Common Stock shall be entitled only to receive shares of Holdings Common Stock as provided herein; and (e) Holders of Company Common Stock who exercised their dissenters' rights in accordance with the IBCA shall be entitled to receive payment of "fair value" for their shares of Company Common Stock. Shares of outstanding Company Preferred Stock shall not be exchanged or otherwise affected by the Share Exchange. ARTICLE III The consummation of the Share Exchange is subject to the following conditions precedent: (1) The receipt of the requisite approval of the Share Exchange by the holders of Company Common Stock; (2) The filing of Restated Articles of Incorporation of Holdings increasing the number of authorized shares of Holdings Common Stock and Holdings Preferred Stock to 350,000,000 and 100,000,000 shares, respectively, in the form attached hereto as Exhibit A; (3) The satisfaction of the respective obligations of the parties hereto set forth in this Agreement in accordance with the terms and conditions herein contained; (4) The execution and filing of Articles of Exchange with the Iowa Secretary of State pursuant to the IBCA in the form attached hereto as Exhibit B; (5) The approval for listing upon official notice of issuance by the New York Stock Exchange of Holdings Common Stock to be issued in accordance with this Agreement; (6) The receipt of either a ruling of the Internal Revenue Service satisfactory to MidAmerican and its counsel, or an opinion of counsel satisfactory to MidAmerican, with respect to the tax consequences of the Share Exchange and other transactions incident thereto; and (7) The receipt of such orders, authorizations, approvals or waivers from all jurisdictional regulatory bodies, boards or agencies, which are required in connection with the Share Exchange and related transactions. 2 ARTICLE IV Holdings will not engage in any business following the execution of this Agreement until the consummation of the Share Exchange, other than such business as is necessary to organize and maintain the corporate status and good standing of Holdings in the State of Iowa and such other states in which it may be authorized to conduct business. ARTICLE V This Agreement may be amended, modified or supplemented, or compliance with any provision or condition hereof may be waived, at any time, by the mutual consent of the Board of Directors of each of MidAmerican and Holdings; provided, however, that no such amendment, modification, supplement or waiver shall be made or effected, if such amendment, modification, supplement or waiver would, in the judgment of the Board of Directors of MidAmerican, materially and adversely affect the shareholders of MidAmerican. This Agreement may be terminated and the Share Exchange and related transactions abandoned at any time prior to the time the Articles of Exchange are filed with the Iowa Secretary of State, if the Board of Directors of MidAmerican determines, in its sole discretion, that consummation of the Share Exchange would be inadvisable or not in the best interest of MidAmerican or its shareholders. ARTICLE VI This Agreement has been submitted to the shareholder of Holdings for approval, and the shareholder of Holdings has approved this Agreement, as provided by the IBCA. ARTICLE VII Following the Effective Time, each holder of an outstanding certificate or certificates theretofore representing shares of Company Common Stock may, but shall not be required to, surrender the same to Holdings for cancellation and reissuance of a new certificate or certificates in such holder's name or for cancellation and transfer, and each such holder or transferee will be entitled to receive a certificate or certificates representing the same number of shares of Holdings Common Stock as the shares of Company Common Stock previously represented by the certificate or certificates surrendered. Until so surrendered or presented for transfer, each outstanding certificate which, immediately prior to the Effective Time, represented Company Common Stock shall be deemed and treated for all corporate purposes to represent the ownership of the same number of shares of Holdings Common Stock as though such surrender or transfer had taken place. The holders of Company Common Stock at the Effective Time shall have no right to have their shares of Company Common Stock transferred on the stock transfer books of MidAmerican, and such stock transfer books shall be deemed to be closed for this purpose at the Effective Time. 3 IN WITNESS WHEREOF, each of MidAmerican and Holdings, pursuant to authorization and approval given by their respective Boards of Directors, has caused this Agreement to be executed by its President and attested by its Secretary as of the date first above written. MIDAMERICAN ENERGY COMPANY By ___________________________________ PRESIDENT ATTEST ______________________________________ SECRETARY MIDAMERICAN ENERGY HOLDINGS COMPANY By ___________________________________ PRESIDENT ATTEST ______________________________________ SECRETARY 4 EX-4.15 3 EXHIBIT 4.15 (6TH SUPP. INDENTURE) - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- SIXTH SUPPLEMENTAL INDENTURE ------------------------- MIDAMERICAN ENERGY COMPANY TO HARRIS TRUST AND SAVINGS BANK, TRUSTEE DATED AS OF JULY 1, 1995 ------------------------- ASSUMING THE OBLIGATIONS OF THE GENERAL MORTGAGE BONDS AND THE OBSERVANCE OF THE TERMS OF THE INDENTURE AND CONFIRMING THE LIEN OF THE INDENTURE ------------------------- SUPPLEMENTAL TO GENERAL MORTGAGE INDENTURE AND DEED OF TRUST DATED AS OF JANUARY 1, 1993 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- THE SIXTH SUPPLEMENTAL INDENTURE, dated as of July 1, 1995, between MidAmerican Energy Company, an Iowa corporation ("MidAmerican"), and Harris Trust and Savings Bank, and Illinois corporation, as successor Trustee under the General Mortgage Indenture and Deed of Trust ("Indenture"), dated as of January 1, 1993, heretofore executed and delivered by Midwest Power Systems Inc. ("Midwest Power") to Morgan Guaranty Trust Company of New York, predecessor Trustee, to secure Mortgage bonds issued by Midwest Power pursuant to the Indenture, unlimited in aggregate principal amount except as therein otherwise provided. WHEREAS, except for terms defined in this Supplemental Indenture, all capitalized terms used in this Supplemental Indenture have the respective meanings set forth in the Indenture; and WHEREAS, Midwest Power has heretofore executed and delivered to the Trustee the First, Second, and Third Supplemental Indentures dated as of January 1, 1993, January 15, 1993 and May 1, 1993, respectively, creating eleven series of Bonds; and WHEREAS, effective September 28, 1994, Morgan Guaranty Trust Company of New York resigned as Trustee under the Indenture and Harris Trust and Savings Bank was duly appointed as successor Trustee under the Indenture; and WHEREAS, Midwest Power has heretofore executed and delivered to the Trustee the Fourth Supplemental Indenture dated as of October 1, 1994 to confirm unto the Trustee and record the description of certain property which is subject to the Lien of the Indenture; and WHEREAS, Midwest Power has heretofore executed and delivered to the Trustee the Fifth Supplemental Indenture dated as of November 1, 1994 creating the twelfth series of Bonds; and WHEREAS, effective July 1, 1995 Midwest Power, Midwest Resources Inc., an Iowa corporation and owner of the issued and outstanding common stock of Midwest Power, and Iowa-Illinois Gas and Electric Company, an Illinois corporation, were validly and legally merged (the "Merger") with and into MidAmerican; and WHEREAS, the Indenture requires MidAmerican to enter into a Supplemental Indenture for the purpose of assuming the due and punctual payment of the principal and premium, if any, and interest on all outstanding Bonds according to their tenor and the due and punctual performance by Midwest Power, confirming the Lien of the Indenture and making the covenant and stipulation hereinafter set forth; and WHEREAS, all acts and things have been done and performed which are necessary to make this Supplemental Indenture, when duly executed and delivered, a valid, binding and legal instrument in accordance with its terms for the purposes herein expressed; and the execution and delivery of this Supplemental Indenture have been in all respects duly authorized. NOW THEREFORE, in consideration of the premises and in further consideration of the sum of One Dollar in lawful money of the United States of America paid to MidAmerican by the Trustee at or before the execution and delivery of this Supplemental Indenture, the receipt of which is hereby acknowledged, and of other good and valuable consideration, it is agreed by and between MidAmerican and the Trustee as follows: ARTICLE I Assumption of Outstanding Bonds and Indenture Covenants SECTION 1. MidAmerican does hereby acknowledge that Midwest Power has been merged with and into MidAmerican and that such merger was on such terms which fully preserve and in no respect impair the Lien or security of the Indenture, or any of the rights or powers of the Trustee or the Bondholders under the Indenture, or create any Prior Lien (other than Permissible Encumbrances) on the Mortgaged Property. SECTION 2. MidAmerican does hereby represent that MidAmerican does not have outstanding, nor does it propose to issue in connection with such merger, and obligations secured by a mortgage, pledge or other lien. SECTION 3. In compliance with the requirements of Section 13.01 and Section 15.01(i) of the Indenture, MidAmerican hereby expressly assumes the due and punctual payment of the principal of and premium, if any, and interest on all Bonds according to their tenor and the due and punctual performance and observance of all the covenants and conditions of the Indenture to be kept or performed by Midwest Power. ARTICLE II Grant SECTION 1. In compliance with the requirements of Section 13.02(b)(i) of the Indenture and in order to confirm the Lien of the Indenture and to preserve and protect the rights of the Bondholders under the Indenture, MidAmerican hereby confirms the prior Lien of the Indenture upon the Mortgaged Property and subjects to the Lien of the Indenture as a first lien, or as a lien subject only to liens affecting the property of Midwest Power prior to the Merger, (A) all property which MidAmerican shall hereafter acquire or construct which shall form an integral part of, or be essential to the use or operation of, any property now or hereafter subject to the Lien of the Indenture and (B) all renewals, replacements and additional property as may be purchases, constructed or otherwise acquired by MidAmerican from and after the date of the Merger to maintain the Mortgaged Property in good repair, working order and condition as an operating system or systems and to comply with any covenant or condition of the Indenture to be kept or observed by Midwest Power. SECTION 2(a). In compliance with the requirements of Section 13.02(b)(ii) of the Indenture, MidAmerican hereby covenants to keep the Mortgaged Property, as far as practicable, identifiable. 2 SECTION 2(b). Further in compliance with the requirements of Section 13.02(b)(ii) of the Indenture, MidAmerican hereby stipulates that the Trustee shall not be taken impliedly to waive, by accepting or joining in this Supplemental Indenture, and rights it would otherwise have. ARTICLE III The Trustee SECTION 1. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution here of by MidAmerican, or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by MidAmerican. SECTION 2. Except as herein otherwise provided, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustee by reason of this Supplemental Indenture other than as set forth in the Indenture; and this Supplemental Indenture is executed and accepted on behalf of the Trustee, subject to all terms and conditions set forth in the Indenture, as fully to all intents as if the same were herein set forth at length. ARTICLE IV Miscellaneous Provisions SECTION 1. Except insofar as herein otherwise expressly provided, all the provisions, definitions, terms and conditions of the Indenture, as it may from time to time be amended, shall be deemed to be incorporated in and made a part of, this Supplemental Indenture; and the Indenture as Indenture, as amended, and this Supplemental Indenture shall be read, taken and construed as one and the same instrument. SECTION 2. Nothing in this Supplemental Indenture is intended, or shall be construed, to give to any person or corporation, other than the parties hereto and the Registered Holders of Bonds issued and to be issued under and secured by the Indenture, any legal or equitable right, remedy or claim under or in respect of this Supplemental Indenture, or under any covenant, condition or provision herein contained, all the covenants, conditions and provisions of this Supplemental Indenture being intended to be, and being, for the sole and exclusive benefit of the parties hereto and of the Registered Holders of Bonds issued and to issued under the Indenture and secured hereby. SECTION 3. All covenants, stipulations and agreements in this Supplemental Indenture contained by or on behalf of MidAmerican shall bind its successors and assigns, whether so expressed or not. SECTION 4. This Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts when so executed shall be deemed to be an original; but all such counterparts shall together constitute but one and the same instrument. 3 IN WITNESS WHEREOF, MIDAMERICAN ENERGY COMPANY has caused this Supplemental Indenture to be executed by its President or one of its Vice Presidents and duly attested by its Secretary or its Assistant Secretary (MidAmerican Energy Company has no seal), and the Trustee has caused the same to be executed by one of its Vice Presidents and its corporate seal to be hereunto affixed, duly attested by one of its Assistant Secretaries, as of the day and year first written above. MIDAMERICAN ENERGY COMPANY By: /s/ L. E. Cooper ---------------------- L. E. Cooper Group Vice President Attest: /s/ P. J. Leighton - --------------------- P. J. Leighton Secretary Signed, acknowledged and delivered by MidAmerican Energy Company in the presence of: /s/ J. A. Williams - ---------------------- J. A. Williams /s/ J. J. Chaplin - ----------------------- J. J. Chaplin 4 HARRIS TRUST AND SAVINGS BANK, Trustee By: /s/J. Bartolini ------------------------ J. Bartolini Vice President [Corporate Seal] Attest: /s/C. Porter - ----------------------- C. Porter Assistant Sectary Signed, sealed, acknowledged and delivered by Harris Trust and Savings Bank in the presence of: /s/R. Johnson - ----------------------- R. Johnson /s/Kimberley Lange - ----------------------- Kimberley Lange 5 State of Iowa ) ss. County of Polk ) On this 30th day of June, 1995, before me appeared L. E. Cooper, to me personally known, who, being by me duly sworn, did say that he is the Group Vice President of MidAmerican Energy Company, a corporation described in and which executed the foregoing instrument, and that said instrument was signed on behalf of said corporation by authority of its board of directors, and said L. E. Cooper acknowledged said instrument to be the free act and deed of said corporation. - --------------------- EVONNE E. SCHAAF /s/Evonne E. Schaaf MY COMMISSION EXPIRES ------------------------------ 11-3-95 Evonne E. Schaaf, ------- Notary Public - --------------------- State of Illinois ) ss. County of Cook ) On this 29th day of June, 1995, before me appeared J. Bartolini, to me personally known, who, being by me duly sworn, did say that she is a Vice President of Harris Trust and Savings Bank, an Illinois corporation described in and which executed the foregoing instrument, and that the seal affixed to the foregoing instrument is the seal of said corporation, and that said instrument was signed and sealed on behalf of said corporation by authority of its board of directors, and said J. Bartolini acknowledged said instrument to be free act and deed of said corporation. /s/M. Cody ------------------------------ M. Cody, Notary Public ---------------------------------- "OFFICIAL SEAL" Marianne Cody Notary Public, State of Illinois My Commission Expires 5/29/97 ---------------------------------- 6 EX-4.16 4 EXHIBIT 4.16 (31ST SUPP. INDENTURE) - -------------------------------------------------------------------------------- THIRTY-FIRST SUPPLEMENTAL INDENTURE ----------------- MIDAMERICAN ENERGY COMPANY TO HARRIS TRUST AND SAVINGS BANK AND C. POTTER TRUSTEES DATED AS OF JULY 1, 1995 ----------------- ASSUMING PAYMENT OF OUTSTANDING FIRST MORTGAGE BONDS AND PERFORMANCE OF INDENTURE COVENANTS AND CONFIRMING MORTGAGE LIEN ----------------- SUPPLEMENTAL TO GENERAL MORTGAGE INDENTURE AND DEED OF TRUST DATED AS OF MARCH 1, 1947 OF IOWA-ILLINOIS GAS AND ELECTRIC COMPANY - -------------------------------------------------------------------------------- THIS THIRTY FIRST SUPPLEMENTAL INDENTURE, dated as of July 1, 1995, between MidAmerican Energy Company, 666 Grand Avenue, Des Moines 50306, a corporation duly organized and existing under the laws of the State of Iowa (hereinafter called "MidAmerican"), party of the first part, and Harris Trust and Savings Bank, 111 West Monroe Street, Chicago, Illinois, 60690, a corporation having its principal place of business in Chicago, Illinois (hereinafter called the "Trustee"), and C. Potter of Chicago, Illinois (hereinafter called the "Individual Trustee"), parties of the second part, under the Indenture of Mortgage and Deed of Trust, dated as of March 1, 1947, the second part, under the Indenture of Mortgage and Deed of Trust, dated as of March 1, 1947, (hereinafter called the "Original Indenture") of Iowa-Illinois Gas and Electric Company, a corporation duly organized and existing under the laws of the State of Illinois ("Iowa-Illinois"), as amended and supplemented by Supplemental Indentures dated, respectively, March 1, 1947, October 1, 1949, January 15, 1953, April 15, 1960, May 1, 1961, July 1, 1967, April 1, 1969, August 15, 1969, September 1, 1970, June 15, 1975, March 15, 1976, January 15, 1977, October 1, 1977, September 1, 1978, July 15, 1979, January 15, 1980, June 15, 1980, February 15, 1981, October 1, 1981, May 1, 1982, July 1, 1982, February 15, 1984, November 1, 1984, September 1, 1985, September 15, 1986, February 15, 1987, October 1, 1991, May 15, 1992, March 15, 1993 and October 1, 1993 (the Original Indenture, as so amended and supplemented, being hereinafter called the "Indenture" and such Supplemental Indentures being hereinafter called collectively the "Prior Supplemental Indentures"). WHEREAS, Iowa-Illinois, Midwest Resources Inc., a corporation duly organized and existing under the laws of the State of Iowa, and Midwest Power Systems Inc., a corporation duly organized and existing under the laws of the State of Iowa, are being merged (hereinafter called the "Merger") with and into MidAmerican contemporaneously herewith. WHEREAS, the Indenture requires that MidAmerican enter into a supplemental indenture for the purpose of assuming the due and punctual payment of the principal and interest on all outstanding Bonds secured by the Indenture and the due and punctual performance and observance of all the covenants of the Indenture to be kept and performed by Iowa-Illinois, confirming the Lien of the Indenture on the Trust Estate (as defined in the Indenture) and making the covenant and stipulation hereinafter set forth; and WHEREAS, all acts and things necessary to make this Thirty-first Supplemental Indenture, when duly executed and delivered, a valid, binding and legal instrument in accordance with its terms for the purposes herein expressed have been done and performed, and the execution and delivery of this Thirty- first Supplemental Indenture have been in all respects duly authorized. NOW, THEREFORE, in consideration of the premises and in further consideration of the sum of One dollar in lawful money of the United States of America paid to MidAmerican by the Trustee at or before the execution and delivery of this Thirty-first Supplemental Indenture, the receipt whereof is hereby acknowledged, and of other good and valuable considerations, it is agreed by and between MidAmerican and the Trustees as follows: ARTICLE I Assumption of Outstanding Bonds and Indenture Covenants SECTION 1. MidAmerican does hereby acknowledge that the Merger is being effected contemporaneously herewith and on such terms as shall fully preserve and in no respect impair the lien or security of the Indenture or any of the rights or powers of the Trustees or the bondholders under the Indenture. SECTION 2. MidAmerican does hereby represent that MidAmerican does not have outstanding, nor does it propose to issue in connection with such merger, any obligations secured by a mortgage, pledge or other lien. SECTION 3. In compliance with the requirements of Section 13.01 and Section 15.01(d) or the Original Indenture, MidAmerican hereby expressly assumes the due and punctual payment of the principal and interest on all bonds secured by the Indenture at the time outstanding according to their tenor, and the due and punctual performance and observance of all the covenants, terms and conditions of the Indenture to be kept and performed by Iowa-Illinois. ARTICLE II Grant SECTION 1. In compliance with the requirements of subparagraph (a) of the second paragraph of Section 13.02 of the Original Indenture, MidAmerican hereby confirms the prior lien of the Indenture upon the Trust Estate, and hereby expressly subjects to the lien and operation of the Indenture as a first lien, or as a lien subject only to liens affecting the property and franchises of Iowa-Illinois prior to the Merger: (i) all property and franchises which MidAmerican shall hereafter acquire or construct which shall form an integral part of, or be essential to the use or operation of, any property now or hereafter subject to the lien of the Indenture; and (ii) all renewals, replacements and additional property as may be purchased, constructed or otherwise acquired by MidAmerican from and after the date of the Merger to maintain the Trust Estate in good repair, working order and condition as an operating system or systems and to comply with any covenant or condition of the Indenture to be kept or observed by MidAmerican hereafter. ARTICLE III Additional Covenant In accordance with the requirement of subparagraph (b) of the second paragraph of Section 13.02 of the Original Indenture, MidAmerican hereby covenants to keep the Trust Estate, as far as practicable, readily identifiable. 2 ARTICLE IV Stipulation In accordance with the requirement of subparagraph (b) of the second paragraph of Section 13.02 of the Original Indenture, MidAmerican hereby stipulates that the Trustees shall not be taken impliedly to waive, by accepting or joining in this Thirty-first Supplemental Indenture, any rights they would otherwise have. ARTICLE V The Trustees SECTION 1. The Trustees shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Thirty-first Supplemental Indenture or the due execution hereof by MidAmerican, or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by MidAmerican. SECTION 2. Except as herein otherwise provided, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustees by reason of this Thirty-first Supplemental Indenture other than as set forth in the Indenture; and this Thirty-first Supplemental Indenture is executed and accepted on behalf of the Trustees subject to all terms and conditions set forth in the Indenture as fully to all intents as if the same were herein set forth at length. ARTICLE VI Miscellaneous Provisions SECTION 1. Except insofar as herein otherwise expressly provided, all the provisions, definitions, terms and conditions of the Indenture shall be deemed to be incorporated in, and made a part of, this Thirty-first Supplemental Indenture; and the Original Indenture, as supplemented by Prior Supplemental Indentures, is in all respects ratified and confirmed; and the Original Indenture, the Prior Supplemental Indentures and this Thirty-first Supplemental Indenture shall be read, taken and construed as one and the same instrument. SECTION 2. Nothing in this Thirty-first Supplemental Indenture is intended, or shall be construed, to give to any person or corporation, other than the parties hereto and the holders of bonds issued and to be issued under and secured by the Indenture any legal or equitable right, remedy or claim under or in respect of this Thirty-first Supplemental Indenture, or under any covenant, condition or provision herein contained, all the covenants, conditions and provisions of this Thirty-first Supplemental Indenture being intended to be, and being, for the sole and exclusive benefit of the parties hereto and of the holders of bonds issued and to be issued under the Indenture and secured hereby. 3 SECTION 3. All covenants, stipulations and agreements in this Thirty- first Supplemental Indenture contained by or on behalf of MidAmerican shall bind and inure to the benefit of its successors and assigns, whether so expressed or not. SECTION 4. The headings of the several Articles of this Thirty-first Supplemental Indenture are inserted for convenience of reference and shall not be deemed to be a part hereof. SECTION 5. This Thirty-first Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 4 IN WITNESS WHEREOF, MIDAMERICAN ENERGY COMPANY has caused this Thirty-first Supplemental Indenture to be signed in its name and behalf by its President or one of its Vice Presidents and duly attested by its Secretary or its Assistant Secretary (MidAmerican Energy Company has no seal), and Harris Trust and Savings Bank, as Trustee as aforesaid, has caused this Thirty-first Supplemental Indenture to be signed in its name and behalf by one of its Vice Presidents and its corporate seal to be affixed and duly attested by one of its Assistant Secretaries, and C. Potter, as Individual Trustee as aforesaid, has hereunto affixed her signature and seal, as of the day and year first above written. MIDAMERICAN ENERGY COMPANY BY: /S/ L.E. COOPER --------------------------------- L.E. Cooper, Group Vice President Attest: /s/ P.J. Leighton - ---------------------------- P.J. Leighton, Secretary Signed, acknowledged and delivered by MidAmerican Energy Company in the presence of: /s/ J.A. Williams - ---------------------------- J.A. Williams /s/ J.J. Chaplin - ---------------------------- J.J. Chaplin 5 HARRIS TRUST AND SAVINGS BANK, AS TRUSTEE By: /s/ J. Bartolini -------------------- J. Bartolini, Vice President [Seal] Attest: /s/ F.A. Pierson - ------------------------------------- F.A. Pierson, Assistant Secretary /s/ C. Potter -------------------------------- C. Potter, as Individual Trustee Signed, sealed, acknowledged and delivered by Harris Trust and Savings Bank and C. Potter in the presence of: /s/ R. Johnson - ------------------- R. Johnson /s/ K. Lang - ------------------- K. Lang 6 State of Iowa ) ss. County of Polk ) I, Evonne E. Schaaf, a Notary Public in and for said County in the State aforesaid, do hereby certify that on this 30th day of June, 1995, before me personally appeared L.E. Cooper and P.J. Leighton, to me personally known and known to me to be the same persons whose names are subscribed to the foregoing instrument and who, being by me duly sworn, did say that they are respectively a Group Vice President and the Secretary of MidAmerican Energy Company, an Iowa corporation, one of the corporations described in and which executed the foregoing instrument, and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and said L.E. Cooper and P.J. Leighton severally acknowledged that they, being thereunto duly authorized, signed and delivered said instrument, and acknowledged the execution thereof to be the free and voluntary act and deed of said corporation by it voluntarily executed, and to be their own free and voluntary act, for the uses and purposes therein set forth. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal in the County and State aforesaid the day and year above written. [Seal] /s/ Evonne E. Schaaf -------------------------------- Evonne E. Schaaf, Notary Public 7 State of Illinois ) SS. County of Cook ) I, M. Cody, a Notary Public in and for said County in the State aforesaid, do hereby certify that on this 29th day of June, 1995, before me personally appeared J. Bartolini and F.A. Pierson, to me personally known and known to me to be the same persons whose names are subscribed to the foregoing instrument and who, being by me duly sworn, did say that they are respectively a Vice President and Assistant Secretary of Harris Trust and Savings Bank, an Illinois corporation, one of the corporations described in and which executed the foregoing instrument, and that the seal affixed to the foregoing document is the corporate seal of said corporation and that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors, and said J. Bartolini and F.A. Pierson severally acknowledged that they, being thereunto duly authorized, signed, sealed and delivered said instrument, and acknowledged the execution thereof to be the free and voluntary act and deed of said corporation by it voluntarily executed, and to be their own free and voluntary act, for the uses and purposes therein set forth. I do hereby further certify that on the aforesaid day before me personally appeared C. Potter, to me personally known and known to me to be the person named in and the same person whose name is subscribed to the foregoing instrument, and acknowledged that she signed, sealed and delivered the same as her free and voluntary act and deed for the uses and purposes therein set forth IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal in the County and State aforesaid the day and year above written. [Seal] /s/ M. Cody ----------------------- M. Cody, Notary Public 8 EX-10.1 5 EXHIBIT 10.1 (DEFERRED COMP PLAN FOR DIRECTORS) EXHIBIT 10.1 MIDAMERICAN ENERGY COMPANY DEFERRED COMPENSATION PLAN BOARD OF DIRECTORS SECTION 1. PURPOSE. The purpose of this Plan is to enable MidAmerican Energy Company to attract and retain qualified and experienced individuals to serve on the Board of Directors of the Company by providing flexibility in the compensation payments to Directors. SECTION 2. DEFINITIONS. (a) "Common Stock" means shares of common stock of MidAmerican Energy Company. (b) "Company" means MidAmerican Energy Company. (c) "Compensation Committee" means the Compensation Committee established by the Board of Directors of the Company. (d) "Deferred Compensation" means the amount of Total Cash Compensation not yet earned by a Participant which such Participant elects to defer in any given Plan Year in accordance with the provisions of the Plan. (e) "Director" means any person serving as a member of the Board of Directors of the Company. (f) "Participant" means a Director who has elected to commit all or part of his or her Total Cash Compensation for service as a Director as Deferred Compensation under this Plan. (g) "Plan Year" shall mean each January 1 through December 31 inclusive. (h) "Total Cash Compensation" means the cash portion of the annual retainer, the regular and special meeting fees and any fees for special services payable to Directors. SECTION 3. ADMINISTRATION. (a) COMPENSATION COMMITTEE. The Compensation Committee shall have the responsibility of interpreting and construing the Plan, establishing and revising the rules and procedures governing the Plan and making such determinations as may be necessary or advisable to administer the Plan. No member of the Compensation Committee shall be liable for any act done or determination made in good faith. (b) DELEGATION. The Compensation Committee may, in its discretion, delegate its routine administrative duties to an officer or employee of the Company, or to a committee composed of such officers or employees. The Corporate Secretary of the Company shall maintain the records and accounts of the Plan. SECTION 4. ELIGIBILITY. (a) ELIGIBLE DIRECTORS. All Directors are eligible to participate in the Plan. (b) AMOUNTS WHICH MAY BE DEFERRED. A Director may commit to the Plan all or part of his or her Total Cash Compensation that would otherwise be paid to the Director for a Plan Year by filing a written deferral election form with the Corporate Secretary of the Company prior to the first day of the Plan Year. (c) DEFERRALS BY A MEMBER-ELECT. A member-elect of the Board of Directors, for his or her first partial or full Plan Year, may file such written deferral election form on or before 30 days following the beginning of his or her term on the Board of Directors. (d) DEFERRAL ELECTION FORM. Participants shall designate on their written deferral election form whether they elect to have their Total Cash Compensation deferred in accordance with the Book Value Deferral Option as set forth in Section 5 herein, the Fixed Rate of Interest Deferral Option as set forth in Section 6 herein or a combination thereof. (e) BENEFICIARY DESIGNATION. Participants shall designate one or more beneficiaries on the written deferral election form. Such designation may be revoked or modified at any time by designating a new beneficiary on the written deferral election form. A Participant's beneficiary designation shall be deemed automatically revoked in the event all designated beneficiaries predecease such Participant or, if the sole beneficiary is such Participant's spouse, in the event of dissolution of marriage. In such event, or in the event a Participant does not designate a beneficiary, the benefits hereunder shall be paid to such Participant's estate. 2 SECTION 5. BOOK VALUE DEFERRAL OPTION. (a) DEFERRED COMPENSATION UNITS. The Book Value Deferral Option credits Deferred Compensation Units ("Units") to a Participant's account which are determined by dividing the cash amount of Deferred Compensation by the Book Value of the Common Stock at the end of the previous calendar year, adjusted in accordance with paragraph (e) of this Section 5. Each Participant's account shall be credited with amounts equal to dividends paid in cash from time to time on the Common Stock. "Book Value" of Common Stock shall be the total Common Stock equity on a consolidated basis divided by total shares outstanding, as shown in the applicable annual report certified by the independent certified public accountants retained as auditors of the Company. (b) SPECIAL LEDGER. The Company shall keep an appropriate record, hereinafter called the Special Ledger, of (i) the amount of Total Cash Compensation deferred by a Participant for a particular Plan Year under the Book Value Deferral Option, (ii) the number of Units credited under paragraph (c) of this Section 5, and (iii) the amount of dividends and Units credited with respect thereto under paragraph (d) of this Section 5. (c) CREDIT OF UNITS TO ACCOUNT. The number of Units to be credited to a Participant's account at any time shall be determined by dividing the cash amount of Deferred Compensation by the Book Value of the Common Stock at the end of the previous calendar year, adjusted in accordance with Section 5(e) of this Plan, with fractional Units permitted. (d) CREDIT FOR DIVIDENDS. The Company shall credit to each Participant's account in the Special Ledger amounts equal to dividends paid in cash from time to time on the account, so that the amount of each such credit will be the equivalent of the dividends which the Participant would have received had the Participant been the owner of the number of shares of Common Stock equal to the number of Units in the Participant's account. Such amounts credited to each Participant's account shall be converted into additional Units in the manner provided in paragraph (c) of this Section 5, and thereafter such additional Units shall be included in the base for determining future credits. (e) ADJUSTMENT IN NUMBER OF UNITS. In the event of any stock dividend on the Common Stock or any stock split, reverse stock split or combination of shares of Common Stock, appropriate adjustment shall be made in the number of Units credited to the account of each Participant in the Special Ledger. (f) TERMINATION OF SERVICES DURING PLAN YEAR. In the event of termination of services during a Plan Year for any reason, a reduction in the Units credited 3 to the account of a Participant for such Plan Year shall be made, if necessary, such that the sum of the dollar amount of Deferred Compensation of the Participant for such Plan Year plus the amount of Total Cash Compensation paid to the Participant for the period of actual directorship during such Plan Year is equal to the amount of Total Cash Compensation that would have been paid to the Participant for such partial Plan Year had no election been made to defer any of the Total Cash Compensation for such Plan Year. SECTION 6. FIXED RATE OF INTEREST DEFERRAL OPTION. (a) INTEREST EARNED. Under the Fixed Rate of Interest Deferral Option, the amount of Total Cash Compensation deferred for the current Plan Year and Deferred Compensation credited to a Participant's account (including earnings thereon credited to the Participant's account) from previous Plan Years and for which this deferral option is selected will earn a fixed rate of interest ("Fixed Rate of Interest"). Interest shall be credited to a Participant's account on each March 31, June 30, September 30 and December 31. The Fixed Rate of Interest shall be established by the Compensation Committee prior to the beginning of each Plan Year and each Director shall be notified of such Fixed Rate of Interest prior to making a deferral election. (b) SPECIAL LEDGER. The Company shall keep on the Special Ledger (i) the amount of Total Cash Compensation deferred by a Participant for each Plan Year under the Fixed Rate of Interest Deferral Option and (ii) the amount of interest credited to the Participant's account as earnings on such Deferred Compensation for each Plan Year. (c) TERMINATION OF SERVICES DURING PLAN YEAR. In the event of termination of services during a Plan Year for any reason, interest will continue to be credited to the account of a Participant at the Fixed Rate of Interest for the remainder of the Plan Year during which the termination of services occurs and thereafter at the Fixed Rate of Interest established for each succeeding Play Year until such time as payments commence in accordance with Section 7 hereof. SECTION 7. PAYMENT. (a) CONDITIONS ON RIGHT TO RECEIVE PAYMENT. A Participant shall not be entitled to payment of any Deferred Compensation until the time elected by the Participant as set forth on the written deferral election form filed with the Corporate Secretary of the Company, or until his or her death or permanent disability, whichever occurs first. The election shall state the date that payments shall commence and the period over which payments shall be made. 4 The Participant may elect to receive Deferred Compensation and accumulated earnings thereon either in a lump sum payment or in annual installments. Once an election is filed, it shall not be changed except by approval of the Board of Directors of the Company. (b) FORM AND TIMING OF PAYMENT. (i)(A) Under the Book Value Deferral Option, the value of Units at the time of payout shall be based on the higher of (w) the closing market price of Common Stock on the last trading date of the preceding Plan Year on the New York Stock Exchange, (x) the average of the daily closing market price for the Common Stock for the twelve month period ending on the date of termination of services as a Director by a Participant, (y) the closing market price of the Common Stock on the last trading date immediately preceding the date of payment or (z) the Book Value of Common Stock as of the most recent December 31 prior to date of payment. The Participant (or beneficiary in the event of death prior to any payout to the Participant) shall make a selection between the foregoing methods of valuation prior to the time for payment of a lump sum or prior to the first payment in the case of annual installments. Such selection cannot be changed with respect to any subsequent payments in the case of annual installments. The per Unit value as selected by the Participant shall be referred to as the "Payout Value." (B) Under the Fixed Rate of Interest Deferral Option, the value of a Participant's account shall be the aggregate amount of Deferred Compensation for each Plan Year for which the Participant has elected to defer under the Fixed Rate of Interest Deferral Option plus the aggregate amount of interest earned thereon at the applicable Fixed Rate of Interest as established by the Compensation Committee from year to year. (ii) If annual installments are selected, each annual installment shall be not less that an amount equal to the value of the account at the beginning of the Plan Year in which distribution is to be made divided by the life expectancy of the Participant at the beginning of such Plan Year (or the joint life expectancy of the Participant and spouse if the Participant is married). Each annual installment payment shall be made within fifteen (15) days following the first day of each Plan Year. (iii)(A) In the case of a Book Value Deferral Option, if an election is made to receive annual installments, then Units remaining in the account at any time shall continue to be credited with dividends (which shall purchase additional Units), until full payment has been made with respect to all Units. Units shall continue to fluctuate in value based on the Payout Value until full payment has been made with respect to the Units. In the alternative, instead of having the account fluctuate in value, a Participant may elect to have the 5 value of his or her account fixed as of the December 31 prior to the first payment, based on the selection of Payout Value under paragraph (b)(i)(A) of this Section 7. If such an election is made, the account shall be credited each December 31 with interest at the then current Fixed Rate of Interest. (B) In the case of a Fixed Rate of Interest Deferral Option, if an election is made to receive annual installments, then the aggregate amount of Deferred Compensation plus interest earned thereon remaining in the account at any time shall continue to be credited each December 31 with interest at the then current Fixed Rate of Interest, until full payment has been made. (iv) If an election is made to receive a lump sum payment, payment shall be made within fifteen (15) days following the first day of the Plan Year in which payment is to be made, and the amount of the lump sum payment shall be equal to the value of the account as of December 31 of the preceding Plan Year (in the case of a Book Value Deferral Option, the value of the account shall be based on the Payout Value selected under paragraph (b)(i)(A) of this Section 7). (v) Payment of a lump sum amount or any annual installment shall be made in cash. (vi) In the event of the death of a Participant occurring either before the commencement of payment or before the full balance of the Participant's account has been paid, the unpaid balance of Deferred Compensation shall be paid in a lump sum to the Participant's designated beneficiary or estate. Payment shall be made within thirty (30) days following the date of death. In the case of a Book Value Deferral Option, dividends to which owners of Common Stock would be entitled through date of death shall be credited to the account. The value of Units shall be based on the closing market price of Common Stock on the date of death (or on the preceding business day if date of death is not business day) or as otherwise selected by the beneficiary in accordance with paragraph (b)(i)(A) of this Section 7. SECTION 8. GENERAL PROVISIONS. (a) UNFUNDED PLAN. (i) This Plan is intended to be an unfunded plan maintained primarily to provide benefits to a "select group of management or highly compensated employees" within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and as amended from time to time or any successor thereto, and, therefore, is further intended to be exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, the Compensation Committee may terminate 6 the Plan for any or all Participants in order to achieve and maintain this intended result, provided that previously accrued benefits hereunder shall not be reduced or otherwise adversely affected without the written consent of the affected Participants. (ii) The obligations hereunder shall at all times be unsecured and payments with respect to any benefits hereunder shall be paid out of the general operating revenue of the Company. A trust may be established to provide for the payment of benefits to Participants hereunder as long as the assets of such trust are subject to the claims of general creditors of the Company with respect to the deferrals (and earnings thereon, if applicable). (b) WITHHOLDING. The Company shall have the right to require Participants to remit to the Company an amount sufficient to satisfy Federal, state and local tax withholding requirements, or to deduct from any or all payments made pursuant to the Plan amounts sufficient to satisfy such withholding tax requirements. (c) COSTS OF THE PLAN. All costs of implementing and administering the Plan shall be borne by the Company. (d) NON-ALIENATION OF BENEFITS. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or claims of the person entitled to such benefit. If any Participant or designated beneficiary hereunder should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit hereunder, then such right or benefit shall, in the discretion of the Compensation Committee, cease, and in such event, the Company may hold or apply the same or any part thereof for the benefit of the Participant or the designated beneficiary, his or her spouse, children, or other dependents, or any of them, in such manner and in such proportion as the Compensation Committee may deem proper. (e) SUCCESSORS. All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company, whether the existence of such successor is the direct or indirect result of a merger or reorganization involving the Company or the purchase or other acquisition, of all or substantially all of the business or assets of the Company. 7 (f) AMENDMENT OR TERMINATION OF PLAN. (i) The Board of Directors reserves the right at any time and from time to time to amend, suspend or terminate the Plan without the consent of any Participant or other person claiming a right under the Plan. (ii) Any amendment or termination of this Plan shall not adversely affect the rights of Participants or designated beneficiaries to payments of amounts credited to Participants in the Special Ledger pursuant to the Book Value Deferral Option or the Fixed Rate of Interest Deferral Option at the time of such amendment or termination. (g) SEPARABILITY. If any term or provision of this Plan as presently in effect or as amended from time to time, or the application thereof to any payments or circumstances, shall to any extent be invalid or unenforceable, the remainder of the Plan, and the application of such term or provision to payments or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term or provision of the Plan shall be valid and enforced to the fullest extent permitted by law. (h) CONSTRUCTION. The provisions of this Plan shall be construed, administered and enforced according to the laws of the State of Iowa. (i) TITLES. The titles of the Articles and Sections herein are included for convenience of reference only and shall not be construed as part of this Plan, or have any effect upon the meaning of the provisions hereof. (j) IMPOSSIBILITY OF ACTION. In case it becomes impossible for the Company to perform any act under this Plan, that act shall be preformed which in the judgment of the Company will most nearly carry out the intent and purposes of this Plan. All parties concerned shall be bound by any such acts performed under such conditions. (k) AUTHORIZED OFFICERS. Whenever the Company under the terms of the Plan is permitted and required to perform any act or matter or thing, it shall be done and performed by a duly authorized officer of the Company. SECTION 9. EFFECTIVE DATE. This Plan shall become effective as of July 1, 1995. MEC-3a 09/18/95 8 MIDAMERICAN ENERGY COMPANY DEFERRED COMPENSATION PLAN BOARD OF DIRECTORS 1995 DEFERRAL ELECTION FORM A. DEFERRAL ELECTION. With respect to cash compensation for service as a director of MidAmerican Energy Company for the Plan Year commencing July 1, 1995 and ending on December 31, 1995, I hereby elect to defer: ALL_____or $_______(Multiples of $1,000) B. DEFERRAL OPTION. I further elect the following deferral option(s): Book Value Deferral Option: _____ ($ or %) Fixed Rate of Interest Deferral Option: _____ ($ or %) C. TIME OF PAYMENT. I further elect to defer such compensation until (check one): _____ The first day of the Plan Year following my termination as a member of the Board of Directors of MidAmerican Energy Company. _____ The first day of the Plan Year following my 65th birthday. _____ Such time as I am not subject to a loss of social security benefits under Section 203(f) of the Social Security Act as a result of earnings in excess of the amount specified in Section 203(f) of the Social Security Act. _____ Other_________________________________________________________________ D. PAYMENT ELECTION. Deferred compensation shall be paid to me (check one): _____ In a lump sum payment. _____ In substantially equal annual installments over a period of _____ years. E. BENEFICIARY DESIGNATION. I hereby designate __________________ to receive all payments specified above payable after my death. I hereby reserve the power to make future changes of beneficiary. _____________________________ _______________________________ Date Signature MEC-14 EX-10.2 6 EXHIBIT 10.2 (DEFERRED COMP PLAN FOR EXECS) EXHIBIT 10.2 MIDAMERICAN ENERGY COMPANY DEFERRED COMPENSATION PLAN EXECUTIVES SECTION 1. PURPOSE. The purpose of this Plan is to enable MidAmerican Energy Company to attract and retain in its employment qualified executives by providing such executives the opportunity to defer a portion of their cash compensation. SECTION 2. DEFINITIONS. (a) "Cash Compensation" means up to fifty percent (50%) of an Executive's annual base salary and the cash portion of any incentive compensation received by the Executive which is eligible for deferral under the terms of the applicable incentive compensation plan of the Company. (b) "Common Stock" means shares of common stock of MidAmerican Energy Company. (c) "Company" means MidAmerican Energy Company. (d) "Compensation Committee" means the Compensation Committee established by the Board of Directors of the Company. (e) "Deferred Compensation" means the amount of Cash Compensation not yet earned by a Participant which such Participant elects to defer in any given Plan Year in accordance with the provisions of the Plan. (f) "Executive" means an officer or key employee of the Company eligible to participate in the Plan. (g) "Participant" means an Executive who has elected to commit part or all of his or her Cash Compensation as Deferred Compensation under this Plan. (h) "Plan Year" shall mean each January 1 through December 31 inclusive. SECTION 3. ADMINISTRATION. (a) COMPENSATION COMMITTEE. The Compensation Committee shall have the responsibility of interpreting and construing the Plan, establishing and revising the rules and procedures governing the Plan and making such 1 determinations as may be necessary or advisable to administer the Plan. No member of the Compensation Committee shall be liable for any act done or determination made in good faith. (b) DELEGATION. The Compensation Committee may, in its discretion, delegate its routine administrative duties to an officer or employee of the Company, or to a committee composed of such officers or employees. The Corporate Secretary of the Company shall maintain the records and accounts of the Plan. SECTION 4. ELIGIBILITY. (a) ELIGIBLE EXECUTIVES. Executives eligible to participate in the Plan shall be designated by the Compensation Committee. (b) AMOUNTS WHICH MAY BE DEFERRED. An Executive may commit to the Plan up to fifty percent (50%) of his or her annual base salary that would otherwise be paid to the Executive for a Plan Year by filing a written deferral election form with the Corporate Secretary of the Company prior to the first day of the Plan Year. The cash portion of any incentive compensation received by the Executive which is eligible for deferral under the terms of the applicable incentive compensation plan of the Company will automatically be eligible for deferral under this Plan. An employee who is newly designated as an eligible Executive under this Plan, for his or her first partial or full Plan Year, may file such written election on or before thirty (30) days following designation as an eligible Executive. (c) DEFERRAL ELECTION FORM. Participants shall designate on their written deferral election form whether they elect to have their Cash Compensation deferred in accordance with the Book Value Deferral Option as set forth in Section 5 herein, the Fixed Rate of Interest Deferral Option as set forth in Section 6 herein or a combination thereof. Any incentive compensation deferred under this Plan will be deferred on the same basis as the Participant elects to defer Cash Compensation. (d) BENEFICIARY DESIGNATION. Participants shall designate one or more beneficiaries on the written deferral election form. Such designation may be revoked or modified at any time by designating a new beneficiary on the written deferral election form. A Participant's beneficiary designation shall be deemed automatically revoked in the event all designated beneficiaries predecease such Participant or, if the sole beneficiary is such Participant's spouse, in the event of dissolution of marriage. In such event, or in the event a Participant does not designate a beneficiary, the benefits hereunder shall be paid to such Participant's estate. 2 SECTION 5. BOOK VALUE DEFERRAL OPTION. (a) DEFERRED COMPENSATION UNITS. The Book Value Deferral Option credits Deferred Compensation Units ("Units") to a Participant's account which are determined by dividing the cash amount of Deferred Compensation by the Book Value of the Common Stock at the end of the previous calendar year, adjusted in accordance with paragraph (e) of this Section 5. Each Participant's account shall be credited with amounts equal to dividends paid in cash from time to time on the Common Stock. "Book Value" of Common Stock shall be the total Common Stock equity on a consolidated basis divided by total shares outstanding, as shown in the applicable annual report certified by the independent certified public accountants retained as auditors of the Company. (b) SPECIAL LEDGER. The Company shall keep an appropriate record, hereinafter called the Special Ledger, of (i) the amount of Cash Compensation deferred by a Participant for a particular Plan Year under the Book Value Deferral Option, (ii) the number of Units credited under paragraph (c) of this Section 5, and (iii) the amount of dividends and Units credited with respect thereto under paragraph (d) of this Section 5. (c) CREDIT OF UNITS TO ACCOUNT. The number of Units to be credited to a Participant's account at any time shall be determined by dividing the cash amount of Deferred Compensation by the Book Value of the Common Stock at the end of the previous calendar year, adjusted in accordance with Section 5(e) of this Plan, with fractional Units permitted. (d) CREDIT FOR DIVIDENDS. The Company shall credit to each Participant's account in the Special Ledger amounts equal to dividends paid in cash from time to time on the account, so that the amount of each such credit will be the equivalent of the dividends which the Participant would have received had the Participant been the owner of the number of shares of Common Stock equal to the number of Units in the Participant's account. Such amounts credited to each Participant's account shall be converted into additional Units in the manner provided in paragraph (c) of this Section 5, and thereafter such additional Units shall be included in the base for determining future credits. (e) ADJUSTMENT IN NUMBER OF UNITS. In the event of any stock dividend on the Common Stock or any stock split, reverse stock split or combination of shares of Common Stock, appropriate adjustment shall be made in the number of Units credited to the account of each Participant in the Special Ledger. (f) TERMINATION OF SERVICES DURING PLAN YEAR. In the event of termination of services during a Plan Year for any reason, a reduction in the Units credited 3 to the account of a Participant for such Plan Year shall be made, if necessary, such that the sum of the dollar amount of Deferred Compensation of the Participant for such Plan Year plus the amount of Cash Compensation paid to the Participant for the period of actual service during such Plan Year is equal to the amount of Cash Compensation that would have been paid to the Participant for such partial Plan Year had no election been made to defer any of the Cash Compensation for such Plan Year. SECTION 6. FIXED RATE OF INTEREST DEFERRAL OPTION. (a) INTEREST EARNED. Under the Fixed Rate of Interest Deferral Option, the amount of Cash Compensation deferred for the current Plan Year and Deferred Compensation credited to a Participant's account (including earnings thereon credited to the Participant's account) from previous Plan Years and for which this deferral option is selected will earn a fixed rate of interest ("Fixed Rate of Interest"). Interest shall be credited to a Participant's account on each March 31, June 30, September 30 and December 31. The Fixed Rate of Interest shall be established by the Compensation Committee prior to the beginning of each Plan Year and each Executive shall be notified of such Fixed Rate of Interest prior to making a deferral election. (b) SPECIAL LEDGER. The Company shall keep on the Special Ledger (i) the amount of Cash Compensation deferred by a Participant for a particular Plan Year under the Fixed Rate of Interest Deferral Option and (ii) the amount of interest credited to the Participant's account as earnings on such Deferred Compensation for each Plan Year. (c) TERMINATION OF SERVICES DURING PLAN YEAR. In the event of termination of services during a Plan Year for any reason, interest will continue to be credited to the account of a Participant at the Fixed Rate of Interest for the remainder of the Plan Year during which the termination of services occurs and thereafter at the Fixed Rate of Interest established for each succeeding Play Year until such time as payments commence in accordance with Section 7 hereof. SECTION 7. PAYMENT. (a) CONDITIONS ON RIGHT TO RECEIVE PAYMENT. A Participant shall not be entitled to payment of any Deferred Compensation until he or she reaches retirement age (including early retirement age if he or she takes early retirement) as defined in the Company's defined benefit or cash balance pension plan, or upon death or permanent disability, whichever occurs first. Upon approval by the Board of Directors of the Company, payment may be made to 4 a Participant earlier than retirement in the event employment terminates prior to such time. (b) FORM AND TIMING OF PAYMENT. (i)(A) Under the Book Value Deferral Option, the value of Units at the time of payout shall be based on the higher of (w) the closing market price of Common Stock on the last trading date of the preceding Plan Year of the Common Stock on the New York Stock Exchange, (x) the average of the daily closing market price for the Common Stock for the twelve month period ending on the date of termination of services as an employee of the Company, (y) the closing market price of the Common Stock on the last trading date immediately preceding the date of payment or (z) the Book Value of Common Stock as of the most recent December 31 prior to date of payment. The Participant (or beneficiary in the event of death prior to any payout to the Participant) shall make a selection between the foregoing methods of valuation prior to the time for payment of a lump sum or prior to the first payment in the case of annual installments. Such selection cannot be changed with respect to any subsequent payments in the case of annual installments. The per Unit value as selected by the Participant shall be referred to as the "Payout Value." (B) Under the Fixed Rate of Interest Deferral Option, the value of a Participant's account shall be the aggregate amount of Deferred Compensation for each Plan Year for which the Participant has elected to defer under the Fixed Rate of Interest Deferral Option plus the aggregate amount of interest earned thereon at the applicable Fixed Rate of Interest as established by the Compensation Committee from year to year. (ii) At the election of the Compensation Committee, upon consultation with the Participant, payments of deferred compensation shall be made in a lump sum or in annual installments. (iii) If annual installments are selected, each annual installment shall be not less that an amount equal to the value of the account at the beginning of the Plan Year in which distribution is to be made divided by the life expectancy of the Participant at the beginning of such Plan Year (or the joint life expectancy of the Participant and spouse if the Participant is married). Each annual installment payment shall be made within fifteen (15) days following the first day of each Plan Year. (iv)(A) In the case of a Book Value Deferral Option, if an election is made to receive annual installments, then Units remaining in the account at any time shall continue to be credited with dividends (which shall purchase additional Units), until full payment has been made with respect to all Units. 5 Units shall continue to fluctuate in value based on the Payout Value until full payment has been made with respect to the Units. In the alternative, instead of having the account fluctuate in value, a Participant may elect to have the value of his or her account fixed as of the December 31 prior to the first payment, based on the selection of Payout Value under paragraph (b)(i)(A) of this Section 7. If such an election is made, the account shall be credited each December 31 with interest at the then current Fixed Rate of Interest. (B) In the case of a Fixed Rate of Interest Deferral Option, if an election is made to receive annual installments, then the aggregate amount of Deferred Compensation plus interest earned thereon remaining in the account at any time shall continue to be credited each December 31 with interest at the then current Fixed Rate of Interest, until full payment has been made. (v) If an election is made to receive a lump sum payment, payment shall be made within fifteen (15) days following the first day of the Plan Year in which payment is to be made, and the amount of the lump sum payment shall be equal to the value of the account as of December 31 of the preceding Plan Year (in the case of a Book Value Deferral Option, the value of the account shall be based on the Payout Value selected under paragraph (b)(i)(A) of this Section 7). (vi) Payment of a lump sum amount or any annual installment shall be made in cash. (vii) In the event of the death of a Participant occurring either before the commencement of payment or before the full balance of the Participant's account has been paid, the unpaid balance of Deferred Compensation shall be paid in a lump sum to the Participant's designated beneficiary or estate. Payment shall be made within thirty (30) days following the date of death. In the case of a Book Value Deferral Option, dividends to which owners of Common Stock would be entitled through date of death shall be credited to the account. The value of Units shall be based on the closing market price of Common Stock on the date of death (or on the preceding business day if date of death is not business day) or as otherwise selected by the beneficiary in accordance with paragraph (b)(i)(A) of this Section 7. SECTION 8. GENERAL PROVISIONS. (a) UNFUNDED PLAN. (i) This Plan is intended to be an unfunded plan maintained primarily to provide benefits to a "select group of management or highly compensated employees" within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and as amended from time to time or any successor thereto, and, 6 therefore, is further intended to be exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, the Compensation Committee may terminate the Plan for any or all Participants in order to achieve and maintain this intended result, provided that previously accrued benefits hereunder shall not be reduced or otherwise adversely affected without the written consent of the affected Participants. (ii) The obligations hereunder shall at all times be unsecured and payments with respect to any benefits hereunder shall be paid out of the general operating revenue of the Company. A trust may be established to provide for the payment of benefits to Participants hereunder as long as the assets of such trust are subject to the claims of general creditors of the Company with respect to the deferrals (and earnings thereon, if applicable). (b) WITHHOLDING. The Company shall have the right to require Participants to remit to the Company an amount sufficient to satisfy Federal, state and local tax withholding requirements, or to deduct from any or all payments made pursuant to the Plan amounts sufficient to satisfy such withholding tax requirements. (c) COSTS OF THE PLAN. All costs of implementing and administering the Plan shall be borne by the Company. (d) NON-ALIENATION OF BENEFITS. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or claims of the person entitled to such benefit. If any Participant or designated beneficiary hereunder should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit hereunder, then such right or benefit shall, in the discretion of the Compensation Committee, cease, and in such event, the Company may hold or apply the same or any part thereof for the benefit of the Participant or the designated beneficiary, his or her spouse, children, or other dependents, or any of them, in such manner and in such proportion as the Compensation Committee may deem proper. (e) SUCCESSORS. All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company, whether the existence of such successor is the direct or indirect result of a merger or reorganization involving the Company or the purchase or other acquisition, of all or substantially all of the business or assets of the Company. 7 (f) AMENDMENT OR TERMINATION OF PLAN. (i) The Board of Directors reserves the right at any time and from time to time to amend, suspend or terminate the Plan without the consent of any Participant or other person claiming a right under the Plan. (ii) Any amendment or termination of this Plan shall not adversely affect the rights of Participants or designated beneficiaries to payments of amounts credited to Participants in the Special Ledger pursuant to the Book Value Deferral Option or the Fixed Rate of Interest Deferral Option at the time of such amendment or termination. (g) SEPARABILITY. If any term or provision of this Plan as presently in effect or as amended from time to time, or the application thereof to any payments or circumstances, shall to any extent be invalid or unenforceable, the remainder of the Plan, and the application of such term or provision to payments or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term or provision of the Plan shall be valid and enforced to the fullest extent permitted by law. (h) CONSTRUCTION. The provisions of this Plan shall be construed, administered and enforced according to the laws of the State of Iowa. (i) TITLES. The titles of the Articles and Sections herein are included for convenience of reference only and shall not be construed as part of this Plan, or have any effect upon the meaning of the provisions hereof. (j) IMPOSSIBILITY OF ACTION. In case it becomes impossible for the Company to perform any act under this Plan, that act shall be preformed which in the judgment of the Company will most nearly carry out the intent and purposes of this Plan. All parties concerned shall be bound by any such acts performed under such conditions. (k) AUTHORIZED OFFICERS. Whenever the Company under the terms of the Plan is permitted and required to perform any act or matter or thing, it shall be done and performed by a duly authorized officer of the Company. SECTION 9. EFFECTIVE DATE. This Plan shall become effective as of July 1, 1995. 8 MEC-4 09/13/95 EX-10.3 7 EXHIBIT 10.3 (SUPP RETIREMENT PLAN) EXHIBIT 10.3 SUPPLEMENTAL RETIREMENT PLAN FOR DESIGNATED OFFICERS MIDAMERICAN ENERGY COMPANY Board Approval: December 1995 MIDAMERICAN UTILITY COMPANY SUPPLEMENTAL RETIREMENT PLAN FOR DESIGNATED OFFICERS CONTENTS I. Establishment 1 II. Purpose 1 III. Construction 3.1. Definitions 1 3.2. Gender and Number 5 3.3. Severability 5 IV. Administration 4.1. The Committee 5 4.2. Authority of the Committee 5 4.3. Decisions Binding 6 V. Eligibility and Participation 5.1. Participation 6 5.2. No Employment Guarantee 6 VI. Benefits 6.1. Benefits Upon Normal Retirement 6 6.2. Benefits Upon Early Retirement 6 6.3. Benefits Upon Disability 7 6.4. Actuarial Equivalent Benefit 7 6.5. Benefits Upon Death 7 6.6. Forfeiture Upon Termination For Cause 8 6.7. General Payout Restriction 8 VII. Individual Accounts and the Rabbi Trust 7.1. Establishment of a Rabbi Trust 8 7.2. Causing the Trust to Become Irrevocable 9 7.3. Payment of Benefits from the Trust 9 VIII. Beneficiary Designation 8.1. Designation of Beneficiary 9 8.2. Payment to a Participant's Estate 9 IX. Miscellaneous 9.1. Unfunded Plan 9 9.2. Withholding 9 9.3. Costs of the Plan 10 9.4. Nontransferability 10 9.5. Successors 10 9.6. Address of Participant or Beneficiary 10 9.7. Applicable Law 10 MIDAMERICAN ENERGY COMPANY SUPPLEMENTAL RETIREMENT PLAN FOR DESIGNATED OFFICERS I. ESTABLISHMENT MidAmerican Energy Company, an Iowa corporation (the "Company"), hereby establishes the Company's Supplemental Retirement Plan for Designated Officers (the "Plan"), effective as of January 1, 1996. II. PURPOSE The purpose of the Plan is to enable the Company and its subsidiaries to attract, retain, and motivate persons of outstanding competence, and to provide appropriate supplemental retirement and survivor benefits to Designated Officers of the Company. III. CONSTRUCTION SECTION 3.1. DEFINITIONS. Whenever used herein, the following terms shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means a Participant's discharge from the employment of the Company because such Participant willfully engages in conduct, or lack thereof, that is demonstrably and materially injurious to the Company, its business reputation or financial structure, but shall not include a Qualifying Termination. Determination of "Cause" shall be made by the Committee in the exercise of good faith and reasonable judgement and approved by the Board. (c) "Change in Control" means either: (i) The closing date of the restructuring of the Company as a result of merger, consolidation, takeover or reorganization unless at least sixty percent (60%) of the members of the board of directors of the corporation resulting from such merger, consolidation, takeover or reorganization were members of the Incumbent Board; or (ii) The occurrence of any other event that is designated as being a "Change in Control" by a majority vote of the directors of the Incumbent Board who are not also employees of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means an Administrative Committee comprised of Company employees selected by the President of the Company and approved by the Board to administer the Plan pursuant to Article IV herein. (f) "Company" means MidAmerican Energy Company, and its subsidiaries. (g) "Designated Officer" is an officer of the Company or its subsidiaries who has been authorized by the Board to participate in the Plan. (h) "Disability" means a Termination of Services resulting from a total disability of a Participant, as a result of a medically determinable physical or mental impairment which renders such Participant unable to engage in any substantial gainful employment, and which can be expected to be of indefinite duration. Such Disability shall be determined by the Committee in the exercise of good faith and reasonable judgment in reliance on competent medical advice from one or more qualified individuals selected by the Committee. (i) "Disability Benefit" means, for such Participant, the Normal Retirement Supplemental Benefit or Early Retirement Supplemental Benefit, computed as though the Participant is deemed to have continued in employment during the period of disability and incurred a Termination of Services on the date he or she elects to begin receiving benefits hereunder. (j) "Early Retirement Total Benefit" means a Normal Retirement Total Benefit reduced at the rate of one percentage point for each full and fraction of a year that, on the effective date of commencement of benefits, such Participant's age is less than sixty-five (65) years (i.e., 60% at age 60, 55% at age 55). (k) "Early Retirement" means, for each Participant, the commencement of benefits after Termination of Services of such Participant other than because of death or Cause, but prior to such Participant reaching Normal Retirement Age. (l) "Early Retirement Date" means the first day of the month chosen by the Participant for commencement of the Early Retirement Supplement Benefit, which in no event shall be earlier than the first day of the month following the Participant's attainment of age fifty-five (55). (m) "Early Retirement Supplemental Benefit" (see subsection (s) below). (n) "Effective Date" means January 1, 1996. 2 (o) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor thereto. (p) "Incumbent Board" means the members of the Board on August 1, 1995. For this purpose, an individual who becomes a member of the Board subsequent to August 1, 1995 and who has been nominated for election by the Company's shareholders by resolution adopted by a vote of at least two-thirds of the directors then comprising the Incumbent Board at a duly convened meeting thereof shall be deemed to be a member of the Incumbent Board. (q) "Normal Retirement Total Benefit" means the annual benefit provided under the Plan upon a Termination of Services on or following a Participant's Normal Retirement Date, in the amount of sixty-five percent (65%) of such Participant's Total Cash Compensation in effect immediately prior to such Termination of Services, times a fraction, the numerator being the number of years (including fractions of a year) of participation in this Plan (or participation in a similar supplemental retirement plan of a Predecessor Company) as of the date of Termination of Services, and the denominator being the number of years of participation if the Participant had remained employed to age 55 (the factor shall not exceed 1.0). The Board shall have the authority to grant the crediting of service with a former employer of a Participant in the calculation above (such determination shall be made when the individual is first designated by the Board to participate in this Plan). (r) "Normal Retirement Supplemental Benefit" and "Early Retirement Supplemental Benefit", respectively, mean the Normal Retirement Total Benefit or Early Retirement Total Benefit, as applicable, reduced by the sum of: (i) the annual benefits provided to such Participant under the Company's Tax Qualified Pension Plan (determined as if the Participant elected the same benefit option as selected under this Plan and beginning on the same date that payments begin under this Plan, or the actuarial equivalent if payments are not payable as early as under this Plan, as determined by the Committee in the exercise of good faith and judgment); (ii) benefits under Iowa-Illinois Gas and Electric Company Supplemental Retirement Plan, the Iowa Resources Inc. and Subsidiaries Supplemental Retirement Income Plan, after converting such benefits to an actuarially equivalent amount, as determined by the Committee in the exercise of good faith and reasonable judgment; and 3 (iii) tax qualified defined benefit pension type retirement plan benefits payable to such Participant by other employers of such Participant if service with such other employers is credited as service under the Company's Tax Qualified Pension Plan, after converting such benefits to an actuarially equivalent amount, as determined by the Committee in the exercise of good faith and reasonable judgment. An Early Retirement Supplemental Benefit will not be available to any Participant whose Termination of Services occurs prior to being credited with five (5) Years of Service. (s) "Normal Retirement Age" means, for each Participant, the attainment of age sixty-five (65) years. (t) "Normal Retirement Date" means the first day of the month next following the date of reaching Normal Retirement Age. (u) "Participant" means an officer of the Company or its subsidiaries who has been approved by the Board, and any retired individual who has a vested accrued benefit under the Plan as specified in Article V. (v) "Plan Year" means the calendar year beginning January 1 and ending December 31. (w) "Predecessor Company" means Midwest Resources Inc., Iowa-Illinois Gas and Electric Company, Midwest Energy Company, Iowa Resources Inc. and any member of the same controlled group of corporations of any of these companies. (x) "Rabbi Trust" means a grantor trust, within the meaning of Sections 671-678 of the Code, established by the Company for the benefit of the Participants, both active and retired, and the Participants' designated beneficiaries, as specified in Article VIII. (y) "Spouse" means a husband or wife as licensed in marriage by the state. (z) "Survivor's Benefit" means the benefit payable to a Participant's surviving Spouse, designated beneficiary or estate under the Plan as specified in Section 6.6 in the event of such Participant's death. (aa) "Tax Qualified Pension Plan" shall mean the tax qualified defined benefit plan, cash balance plan and money purchase pension plan, if any, maintained by the 4 Company, but shall not include any profit sharing plans, employee stock ownership plans or qualified salary reduction or cash or deferred plan. (bb) "Termination of Services" means the severing of a Participant's employment with the Company for any reason. (cc) "Total Cash Compensation" means the highest amount payable to a Participant by the Company (or a Predecessor Company) as annual base salary during the five years immediately prior to termination of services (including the year in which termination occurs), plus the average of the Participant's last three years' Awards under the Company's Key Employee Annual Incentive Plan or its successor plan(s), or under a similar annual incentive bonus program for executives of a Predecessor Company. Annual Base Salary shall include amounts deferred under any Section 401(k) plans, Section 125 cafeteria plans, nonqualified deferred compensation plans or similar arrangements. If less than three years' Awards have been made for the Participant, the average of all Awards shall be used. (dd) "Year of Service" or "Years of Service" means each full twelve months of service with the Company or with a Predecessor Company. SECTION 3.2. GENDER AND NUMBER. Except when otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular; and the singular shall include the plural. SECTION 3.3. SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan; and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. IV. ADMINISTRATION SECTION 4.1. THE COMMITTEE. The Plan shall be administered within the guidelines contained in this Article IV by an Administrative Committee comprised of Company employees selected by the President of the Company and approved by the Board. The Committee may delegate the responsibility of performing ministerial acts to such administrative agents as it deems advisable or desirable to carry out the purpose of the Plan. SECTION 4.2. AUTHORITY OF THE COMMITTEE. Subject to ratification by the Board, the Committee shall have the power to construe and interpret the Plan and any agreement or instrument entered into hereunder; to prescribe, amend, or waive rules and regulations for the Plan's administration; and to make any other determination which may be necessary or advisable for the Plan's administration. The Committee may correct any defect or supply any omission or 5 reconcile any inconsistency in the Plan in the manner and to the extent reasonable to effect its purpose. The Company may elect to insure the lives of Participants; in such case, Participants must agree to undergo physical examinations and otherwise cooperate in obtaining such insurance as a condition precedent to participation in the Plan. Any such life insurance policies shall be owned by and be considered a general asset of the Company. Subject to Section 7.2, no Participant or beneficiary shall have any rights to or interest in or shall be entitled to any benefits under such policies. SECTION 4.3. DECISIONS BINDING. All determinations and decisions made by the Committee pursuant to the provisions of the Plan, as ratified by the Board, and all related orders or resolutions of the Board shall be final, conclusive, and binding on all persons, including the Company, its shareholders, employees, the Participants and their estates and designated beneficiaries. The Board shall have the full power to amend or terminate the Plan at any time prior to the occurrence of a Change in Control, as further described in Article VII herein. V. ELIGIBILITY AND PARTICIPATION SECTION 5.1. PARTICIPATION. Upon approval by the Board, Designated Officers shall automatically become Participants under the Plan. Retired individuals who have a vested accrued benefit under the Plan will also be considered to be Participants. SECTION 5.2. NO EMPLOYMENT GUARANTEE. Neither this Plan nor any action taken hereunder shall be construed as giving a Participant the right to be retained as an employee of the Company for any period. VI. BENEFITS SECTION 6.1. BENEFITS UPON NORMAL RETIREMENT. Upon a Participant's Normal Retirement, the Company shall pay to such Participant, as compensation for services rendered prior to such date, his or her Normal Retirement Supplemental Benefit in equal monthly installments commencing on the Normal Retirement Date, or, if later, then first day of the month next following Termination of Services, and continuing on the first day of each month thereafter during the lifetime of such Participant. SECTION 6.2. BENEFITS UPON EARLY RETIREMENT. Upon a Participant's Early Retirement (as chosen by the Participant), and following Termination of Services, the Company shall pay to the Participant, as compensation for services rendered prior to such date, his or her Early Retirement Supplemental Benefit in equal monthly installments commencing on the 6 Participant's Early Retirement Date, and, in all cases, continuing on the first day of each month thereafter during the lifetime of such Participant. SECTION 6.3. BENEFITS UPON DISABILITY. Upon a Participant's election to begin receiving benefits hereunder following Termination of Services for Disability, the Company shall begin payment to the Participant (but no earlier than his or her Early Retirement Date), as compensation for services rendered prior to such date, his or her Disability Benefit in equal monthly installments commencing on the first day of the month selected by the Participant and continuing on the first day of each month thereafter during the lifetime of such Participant. SECTION 6.4. ACTUARIAL EQUIVALENT BENEFIT. If the Participant so elects prior to commencement of benefits hereunder, he or she may choose a payment option under any payment option authorized under the Company's Tax Qualified Pension Plan which is the actuarial equivalent of the benefit accrued under this Plan, using appropriate actuarial assumptions as determined by the Committee in the exercise of good faith and reasonable judgment; provided, however, no lump sum payment shall be permitted and no installments for a fixed period only shall be permitted. SECTION 6.5. BENEFITS UPON DEATH. Upon a Participant's death, the Company shall pay to such Participant's designated beneficiary or estate, as appropriate, the following Survivor's Benefit; (a) DEATH PRIOR TO COMMENCEMENT OF BENEFITS. If a Participant dies prior to commencement of the payment of any benefit hereunder, the Company shall pay to such Participant's designated beneficiary or estate a Survivor's Benefit equal to the Normal Retirement Supplemental Benefit in one hundred eighty (180) equal monthly installments commencing on the first day of the month following such date of death and receipt of a death certificate by the Company, and continuing on the first day of each month thereafter until the one hundred eighty (180) payments have been made. (b) DEATH AFTER COMMENCEMENT OF BENEFITS. If a Participant dies after commencement of the payment of any benefit hereunder, the Company shall pay to the Participant's surviving Spouse a Survivor's Benefit commencing on the first day of the month following such date of death and receipt of a death certificate by the Company and continuing on the first day of each month thereafter for the remaining lifetime of the surviving Spouse. The Survivor's Benefit means a benefit equal to two-thirds of the Normal Retirement Supplemental Benefit, Early Retirement Supplemental Benefit or Disability Benefit, as applicable, that the Participant was receiving immediately prior to death, except that the total Survivor's Benefit shall be limited to fifty percent (50%) of the total benefit based upon an actuarial calculation at the time benefits commence. 7 (c) Payment by the Company of the benefit in Section 6.5 (a) or (b) shall relieve the Company of the obligation to pay a Normal Retirement Supplemental Benefit, an Early Retirement Supplemental Benefit, a Disability Benefit, or any other benefit which the Participant might have otherwise received under the Plan. (d) In the event a Participant dies without a surviving Spouse, after commencement of the payment of any benefits hereunder, the Company shall pay to such Participant's designated beneficiary or estate a Survivor's Benefit equal to the Normal Retirement Supplemental Benefit, Early Retirement Supplemental Benefit or Disability Benefit, as applicable, that the Participant was receiving immediately prior to death such that a total of one hundred eighty (180) equal monthly installments is paid to the Participant and such Participant's designated beneficiary or estate. The Survivor's Benefit portion shall commence on the first day of the month following such date of death and receipt of a death certificate by the Company, and continue on the first day of each month thereafter until a total of one hundred eighty (180) payments have been made. SECTION 6.6. FORFEITURE UPON TERMINATION FOR CAUSE. Upon a Participant's Termination of Services for Cause, such Participant shall immediately forfeit all rights and benefits provided under the Plan, and the Company shall have no further obligation to such Participant under the Plan. SECTION 6.7. GENERAL PAYOUT RESTRICTIONS. No benefits shall be paid under this Plan prior to the actual Termination of Services of a Participant. VII. INDIVIDUAL ACCOUNTS AND THE RABBI TRUST SECTION 7.1. ESTABLISHMENT OF A RABBI TRUST. After the Effective Date, the Company shall be authorized, but shall not be required, to establish a revocable Rabbi Trust for the benefit of the Participants, both active and retired. Any such Rabbi Trust shall have an independent trustee, selected by the Company, and, it shall contain restrictions on the Company's ability to amend or terminate any of the terms thereof after the Rabbi Trust shall become irrevocable as provided in Section 7.2. All assets held in the Rabbi Trust (while revocable or irrevocable) shall at all times be specifically subject to the claims of the Company's general creditors in the event of bankruptcy or insolvency; such terms shall be specifically defined within the provisions of the Rabbi Trust, along with a required procedure for notifying the Trustee of any such bankruptcy or insolvency. 8 SECTION 7.2. CAUSING THE TRUST TO BECOME IRREVOCABLE. The instrument establishing any such Rabbi Trust shall provide that the Rabbi Trust shall be revocable until the occurrence of either of the following: (i) A Change in Control; or (ii) A majority vote by the Incumbent Board to make the Rabbi Trust irrevocable. SECTION 7.3. PAYMENT OF BENEFITS FROM THE TRUST. The Company shall be primarily obligated to pay all benefits of Participants under the Plan, whether the Rabbi Trust is revocable or irrevocable at the time. In the event the Company fails to fulfill any such obligation hereunder in a timely manner, the Trustee shall be empowered, under the terms of the Rabbi Trust, to either cash in any related life insurance policies or to borrow against the policies, to the extent necessary to pay past due benefits directly from the Trust. VIII. BENEFICIARY DESIGNATION SECTION 8.1. DESIGNATION OF BENEFICIARY. Each Participant shall be entitled to designate one or more beneficiaries by filing a signed, written notice of such designation with the Committee, in a form as the Committee may prescribe. A Participant may revoke or modify a beneficiary designation at any time by filing a new beneficiary designation form with the Committee. SECTION 8.2. PAYMENT TO A PARTICIPANT'S ESTATE. A Participant's beneficiary designation shall be deemed automatically revoked in the event all designated beneficiaries predecease such Participant or, if the sole beneficiary is such Participant's Spouse, in the event of dissolution of marriage. In such event, or in the event a Participant does not designate a beneficiary, the benefits under Sections 6.5(a) and 6.5(d) shall be paid to such Participant's estate. IX. MISCELLANEOUS SECTION 9.1. UNFUNDED PLAN. This Plan is intended to be an unfunded plan maintained primarily to provide benefits to a "select group of management or highly compensated employees" within the meaning of Sections 201, 301, and 401 of ERISA and, therefore, is further intended to be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. Accordingly, the Committee may terminate the Plan for any or all Participants in order to achieve and maintain this intended result, provided that previously accrued benefits hereunder shall not be reduced or otherwise adversely affected without the written consent of all affected Participants. SECTION 9.2. WITHHOLDING. The Company shall have the right to require Participants to remit to the Company an amount sufficient to satisfy Federal, state, and local tax withholding requirements, or to deduct from any or all payments made pursuant to the Plan amounts 9 sufficient to satisfy such tax withholding requirements. In the event any FICA, FUTA, Social Security, Medicare or any similar taxes become due on benefits (or the value of such benefits) accrued under this Plan at any time prior to the actual payment of benefits under this Plan, the Company shall be authorized to withhold from the regular salary of such Participant the amount of any such tax payable by the Participant. Withholding shall take place during the same calendar year in which the taxes on such benefits become due, or at such time as may be required by Internal Revenue Service regulations. SECTION 9.3. COSTS OF THE PLAN. All costs of implementing and administering the Plan shall be borne by the Company. SECTION 9.4. NONTRANSFERABILITY. Neither the Participants nor any designated beneficiary shall have the right to sell, assign, transfer, or otherwise convey the right to receive any payment hereunder; nor shall any such payment be subject to attachment, garnishment, levy, pledge, bankruptcy, or any other manner or kind of execution in connection with any claim against the Participants or any designated beneficiary thereof. SECTION 9.5. SUCCESSORS. All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company, whether the existence of such successor is the direct or indirect result of a merger, consolidation, or reorganization involving the Company or the purchase or other acquisition of all or substantially all of the business and/or assets of the Company. SECTION 9.6. ADDRESS OF PARTICIPANT OR BENEFICIARY. Each Participant shall keep the Company apprised of his or her current address and that of any designated beneficiary during his or her participation in the Plan. Upon the death of a Participant, any beneficiaries entitled to receive benefit payment under the Plan shall keep the Company apprised of their current address until the entire amount to be distributed has been paid. SECTION 9.7. APPLICABLE LAW. To the extent not preempted by Federal law, the Plan shall be governed by and construed in accordance with the laws of the state of Iowa. 10 EX-10.4 8 EXHIBIT 10.4 (KEY EMPL SHORT-TERM INCENT PLAN) EXHIBIT 10.4 MIDAMERICAN ENERGY COMPANY KEY EMPLOYEE SHORT TERM INCENTIVE PLAN Board Approval: October 1995 MIDAMERICAN ENERGY COMPANY KEY EMPLOYEE SHORT TERM INCENTIVE PLAN SECTION 1. PURPOSE The purpose of this Plan is to further the financial performance of the Company by providing incentives and rewards to executives and key employees of the Company, or of any Affiliate or Subsidiary, who are in a position to contribute significantly to the achievement by the Company of such performance and to align more closely the interests of such persons with the interests of the Company's stockholders. SECTION 2. DEFINITIONS (a) "Plan" shall mean the MidAmerican Energy Company Key Employee Incentive Plan. (b) "Affiliate" shall mean any entity that, directly or through one or more intermediaries, is controlled by the Company, and any entity in which the Company has a significant equity interest, as determined by the Committee. (c) "Award Period" shall mean the period of time during which Participant Awards shall be measured. An Award Period shall be based on one or more consecutive Fiscal Years, but no Award Period shall exceed five (5) years. (d) "Base Salary" shall mean the base compensation paid to the Participant during a Fiscal Year, including deferrals to a Company sponsored plan that qualifies under either Code Section 401(k) or Code Section 125. (e) "Board of Directors" shall mean the Board of Directors of the Company. (f) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (g) "Company" shall mean MidAmerican Energy Company and its Subsidiaries and Affiliates. (h) "Committee" shall mean the Compensation Committee of the Board of Directors of the Company (the "Board") as designated by the Board to administer the Plan. (i) "Fiscal Year" shall mean the twelve months period used as the annual accounting period by the Company and shall be designated according to the calendar year in which such period ends. (j) "Incumbent Board" means the members of the Board of Directors on August 1, 1995. For this purpose, an individual who becomes a member of the Board of Directors subsequent to August 1, 1995 and who has been nominated for election by the Company's shareholders by resolution adopted by a vote of at least two-thirds of the directors then comprising the Incumbent Board at a duly convened meeting thereof shall be deemed to be a member of the Incumbent Board. (k) "Participant" shall mean an individual selected by the Committee pursuant to Section 4(a) from the following group of officers and employees of the Company: the Chairman, the Chief Executive Officer, the President, any Executive, Group or Senior Vice President, the Secretary, the General Counsel, and any other Vice President, and in addition, the Chief Executive Officer is authorized to recommend for inclusion in a Program such other salaried employees of the Company, subject to selection by the Committee, who the Chief Executive Officer deems to have a substantial opportunity to influence the financial performance of the Company. (l) "Participant Award" shall mean the cash or deferred compensation to be earned by achieving each Program Target for the Award Period. (m) "Program" shall mean the separate plan established by the Committee under which a Participant may earn a predetermined Target Award for each Program Target during an Award Period. (n) "Program Target" shall mean performance goals established by the Committee to be achieved by a Participant during an Award Period. Each performance goal applicable to an Award Period shall identify one or more business criteria that are to be monitored during the Award Period. Such business criteria may include, but are not limited to, the following: earnings per share, total earnings, return on equity, return on gross investment, return on net assets, growth in assets, free cash flow, total shareholder return, net income, expenses as a percentage of assets, shareholder value, customer satisfaction, customer service criteria, and system performance. With respect to each business criteria that is identified in a Program Target for a particular Award Period, the Committee shall determine the target level of performance that must be achieved in order for a performance goal to be treated as attained. The Committee may base performance goals for an Award Period on one or more of the business criteria set forth above. (o) "Subsidiary" shall mean a corporation in which the Company owns at least 50% of the outstanding voting stock, and which the Committee has designated to participate in the Plan. (p) "Target Award" shall mean the value expressed as a percentage of the Participant Award, which has been determined for each Program Target that may be earned by each Participant, and which can be expressed as a mid-point target and at levels below and above the mid-point target. SECTION 3. ADMINISTRATION The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum. Any decision in writing signed by all members shall be as fully effective as if made by a majority vote at a meeting duly called and held. Such Committee shall have sole power to: -2- (a) determine whether to establish a Program for any Participant, designate the applicable Award Period, and the Program Target and Target Award to be earned in such Program by each Participant, subject only to the limitations otherwise prescribed in this Plan; (b) determine the amount of maximum (subject to the limitation in Section 4(b) below) and minimum Participant Awards which may be earned by each Participant; (c) establish other threshold criteria that must be achieved during an Award Period for any individual Participant, department, group, division, or Subsidiary before any Award is made to a Participant or Participants; (d) construe and interpret the Plan and make and amend such rules and regulations for the administration of the Plan as the Committee may deem desirable; (e) determine the Base Salary to be used in calculating Target Awards and the portions, if any, of an award which may be earned if employment commences or terminates or a Participant's position changes during an Award Period; and (f) determine in its sole discretion whether or not, and the degree to which, Program Targets for any Participant have been achieved; in making such determinations in connection with financial goals the Committee may include or exclude in financial results as it deems appropriate, the whole or any part of realized capital gains and losses and extraordinary (no matter how they are characterized for accounting purposes) gains, losses, charges or credits. Actions, determinations and decisions of the Committee respecting the Plan, the granting of awards thereunder and the administration thereof shall be final, conclusive and binding upon all parties concerned, including the Company, its stockholders, and any employee of the Company. SECTION 4. PROGRAM ESTABLISHMENT (a) Participants in a Program shall be selected by the Committee from the list of employees as set forth in Section 1(j) of this Plan and who, in the opinion of the Committee, have a substantial opportunity to influence the financial performance of the Company. In determining the Program Target for any Participant, the Committee may take into account the Participant's level of responsibility, performance, potential, cash compensation, salary, unexercised stock options and such other considerations as it deems appropriate. (b) Programs with respect to an Award Period shall be established by resolution of the Committee selecting Participants and the related Program Targets, Target Awards, and the maximum and minimum Participant Awards for each Participant. The maximum Participant Awards for all Programs during each separate Award Period for any Participant shall not exceed 100% of Base Salary multiplied by the number of years in the Award Period. -3- SECTION 5. DISTRIBUTION OF AWARDS (a) No payments shall be made to Participants prior to the end of an Award Period. Under no circumstances shall an award be payable under this Plan if none of the Program Targets for a particular Award Period are attained. (b) Distribution of Participant Awards (except any Award or part thereof which is deferred) shall be made as soon as practical after the close of the respective Award Period and after determination and verification of the results of each Program Target by the Committee. A Participant may defer payment of all or part of the Participant Award to which he or she would otherwise be entitled at the end of the Award Period as provided in Section 6. (c) The Committee in its sole and absolute discretion may reduce the amount of an award otherwise payable to a Participant upon attainment of the performance goal or goals established for an Award Period. A Participant's performance must be satisfactory, regardless of Company performance, before he or she may be granted an incentive award. (d) If a Participant's employment terminates for any of the following reasons prior to the end of the Award Period for a Program in which he or she was participating, distribution of such Participant Award, if any becomes payable, shall be limited to the following portion of the Award to which he or she would otherwise be entitled if he or she were employed at the end of such Award Period. (i) Voluntary resignation -- None of the Participant Award. (ii) Early Retirement or Normal Retirement under the terms of the Company's pension plan--A distribution in proportion to the term of active service (based on days) for the Participant during the Award Period based on actual corporate results. (iii) Disability as determined by the Committee -- A distribution in proportion to the term of active service (based on days) for the Participant during the Award Period based upon actual corporate results. (iv) Death -- A distribution to the beneficiary designated in writing by the Participant (or in the absence of such designation, to his or her legal representatives) in proportion to the term of active service (based on days) of the Participant during the Award Period based upon actual corporate results. (v) Discharge or requested resignation -- A distribution in proportion to the term of active service of the Participant during the Award Period based upon actual corporate results; however, no part of a Participant Award shall be distributable if the Participant was discharged for any act of fraud, misappropriation, embezzlement or other act of dishonesty. -4- SECTION 6. DEFERRED DISTRIBUTION OF AWARDS (a) A Participant may defer payment of all or part of the cash portion of the Award to which he or she would otherwise be entitled at the end of the Award Period. A Participant's election to defer payment must be made on or before December 15 immediately preceding the end of the Award Period to which the election shall apply. The election shall be in the form of a written notice and shall, if it so states, apply to more than one Award Period unless the Participant is not eligible for one or more Award Periods to which the Notice purports to apply, in which case the Notice shall apply to only those Award Periods stated therein for which such Participant is actually eligible. The Notice shall state a percentage of the Award to be deferred (the "Deferred Amount"). (b) The Deferred Amount with respect to any Award Period shall be governed by the terms of the MidAmerican Energy Company Deferred Compensation Plan for Executives ("Deferred Plan"). (c) The Committee shall designate, at the time of establishment of the Program, whether any portion of any Award that may be earned thereunder shall be mandatorily deferred under the Deferred Plan. SECTION 7. EXPENSES The expenses of administering this Plan shall be borne by the Company and not charged to any Participant. SECTION 8. OTHER CONDITIONS (a) No person shall have any claim or right to be granted a Participant Award under this Plan. Neither a Participant nor his or her designated beneficiary or legal representative shall have any right or interest in a Participant Award until a distribution thereof shall have been made in accordance with Sections 5, 6, or 8(e) hereof. (b) It is a condition of the Plan, and all rights of each Participant shall be subject thereto, that prior to distribution this Plan or the Deferred Plan, no right or interest of any Participant to whom a Participant Award may be made, shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy, or in any other manner, but no devolution by death or mental incompetency; and no such right or interest or any Participant shall be liable for, or subject to any obligation or liability of such Participant. (c) Neither this Plan nor any action taken hereunder shall be construed as giving to any employee the right to be retained in the employ of the Company. (d) The Company shall have the right to deduct from an Award any federal, state or local taxes required by law to be withheld with respect to such Award. -5- (e) Upon the occurrence of a Change in Control: (i) any Award then outstanding held by a Participant shall be immediately vested (without regard to any limitation imposed by the Committee at the time the Award is granted which permits all or any part of the Award to be received only after the lapse of time), and will remain so until distributed in accordance with the Plan; and (ii) any performance standards related to any Award shall be deemed achieved at the target level and restrictions otherwise applicable shall lapse. (f) A "Change in Control" shall be deemed to have occurred as of: (i) The closing date of the restructuring of the Company as a result of merger, consolidation, takeover or reorganization unless at least sixty percent (60%) of the members of the board of directors of the corporation resulting from such merger, consolidation, takeover or reorganization were members of the Incumbent Board; or (ii) The occurrence of any other event that is designated as being a "Change in Control" by a majority vote of the directors of the Incumbent Board who are not also employees of the Company. (g) All costs of Awards and compensation payable to Participants shall be charged to the entity employing the Participant. SECTION 9. AMENDMENT The Committee shall have the right to amend, suspend or terminate this Plan at any time; provided, however, that no such modification of this Plan shall: (a) without the consent of the respective Participant, operate to annul an established Program, or (b) without the approval of the Board of Directors entitled to vote thereon increase the maximum Participant Awards which may be awarded during an Award Period under the Plan to any one Participant, or (c) change the Program Target for a Program after it has been established, or (d) make any member of the Committee eligible to receive an award at any time while he or she is serving on the Committee. -6- SECTION 10. CODE SECTION 280G ELECTION. Participants may elect to reduce or defer benefits otherwise payable in the event total benefits payable by the Company would result in additional taxes to the Company or Participant under Code Section 280G. SECTION 11. EFFECTIVE DATE This Plan shall be effective as of November 1, 1995, and shall continue in effect, until terminated by the Committee. -7- EX-10.37 9 EXHIBIT 10.37 (INDEMNITY AGREEMENT) EXHIBIT 10.37 MIDAMERICAN ENERGY COMPANY INDEMNITY AGREEMENT THIS INDEMNITY AGREEMENT, effective as of July 1, 1995, between MidAmerican Energy Company, an Iowa corporation ("Corporation"), and _____________ ("Indemnitee"). WITNESSETH: WHEREAS, Indemnitee either is, or will become, a member of the board of directors of the Corporation ("Board of Directors") or an officer of the Corporation, or both, and in such capacity or capacities (as hereinafter defined), is performing or will perform valuable services for or on behalf of the Corporation; WHEREAS, Indemnitee is willing to perform or to continue to perform such services and to perform additional services for or on behalf of the Corporation on the condition that Indemnitee is indemnified as provided in this Agreement; WHEREAS, it is intended that Indemnitee shall be paid promptly by the Corporation all amounts necessary to effectuate in full the indemnity provided herein; and WHEREAS, all capitalized terms used in this Agreement have the respective meanings set forth in Section 15. NOW THEREFORE, in consideration of the premises and the covenants in this Agreement, and of Indemnitee agreeing to perform and performing services for or on behalf of the Corporation as a member of its Board of Directors or one of its officers, and intending to be legally bound hereby, the Corporation and Indemnitee agree as follows: 1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve as a director or as an officer of the Corporation, or both, so long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the Restated Articles of Incorporation, as amended ("Articles of Incorporation"), and Restated Bylaws ("Bylaws") of the Corporation, and until such time as Indemnitee resigns or otherwise ceases to be such director or officer. Indemnitee may from time to time also perform other services at the request or for the convenience of, or otherwise benefiting, the Corporation. Indemnitee may at any time and for any reason resign or be removed (subject to any obligation) as such director or officer, and, in such event, the Company shall continue to be obligated to indemnify Indemnitee for acts occurring while Indemnitee served as a director or officer as set forth in this Agreement, however, the Company shall not be obligated to indemnify Indemnitee for acts occurring after such event. 2. INDEMNIFICATION. Subject to the limitations set forth in this Section 2 and in Section 6, the Corporation hereby agrees to indemnify Indemnitee as follows: The Corporation shall indemnify Indemnitee from and against any and all Expenses and Liabilities with respect to any Proceeding associated with Indemnitee being or having been a director or officer of the Corporation, to the fullest extent permitted by applicable laws and the Articles of Incorporation in effect on the date hereof or as such laws or Articles of Incorporation may from time to time be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than applicable laws and the Articles of Incorporation permitted the Corporation to provide before such amendment). The right to indemnification conferred in this Agreement and the Articles of Incorporation shall be presumed to have been relied upon by Indemnitee in agreeing to serve, serving or continuing to serve the Corporation as a director or officer of the Corporation, and shall be enforceable as a contract right. Without in any way diminishing the scope of the indemnification provided by this Section 2, the Corporation shall indemnify Indemnitee if and whenever Indemnitee is or was a party or is threatened to be made a party to any Proceeding, including without limitation to the fullest extent permitted by applicable laws any such Proceeding brought by or in the right of the Corporation, because Indemnitee is or was a director or officer of the Corporation, or because of anything done or not done by Indemnitee in such capacity, against all Expenses and Liabilities actually and reasonably incurred by or on behalf of Indemnitee in connection with the investigation, defense, settlement or appeal of such Proceeding. In addition to, and not as a limitation of, the foregoing, the rights of Indemnitee to indemnification provided in this Agreement shall include those rights set forth in Sections 3 and 8. 3. ADVANCEMENT OF EXPENSES: LETTER OF CREDIT. (a) ADVANCEMENT OF EXPENSES. All reasonable Expenses incurred by or on behalf of Indemnitee shall be advanced from time to time by the Corporation to Indemnitee within 20 days after the receipt by the Corporation of a written request for the advancement of such Expenses, whether prior to or after final disposition of a Proceeding (except to the extent that there has been a Final Adverse Determination that Indemnitee is not entitled to be indemnified for such Expenses), including without limitation to the fullest extent permitted by applicable laws any Proceeding brought by or in the right of the Corporation. The written request for an advancement of any and all Expenses under this Section 3(a) shall contain reasonable details of the Expenses incurred by or on behalf of Indemnitee for which advancement is thereby requested, and by execution of such request, Indemnitee shall be deemed to have made whatever (i) written affirmation concerning the good faith of Indemnitee about the standard of conduct of Indemnitee or any other matter, which may be required by applicable law or the Articles of Incorporation, as from time to time amended, to give Indemnitee the right to be indemnified under this Agreement or otherwise, and (ii) 2 written undertaking may be required with respect to repayment to the Corporation of such Expenses under applicable provisions of any law, or the Articles of Incorporation, as from time to time amended; PROVIDED, HOWEVER; that in no circumstances shall Indemnitee be deemed to have undertaken to repay to the Corporation Expenses for which Indemnitee has the right to be indemnified under this Agreement or otherwise. (b) LETTER OF CREDIT. In order to secure the obligations of the Corporation to indemnify and advance Expenses to Indemnitee pursuant to this Agreement, the Corporation shall obtain at its expense at the time of any Change in Control an irrevocable standby letter of credit naming Indemnitee as the sole beneficiary ("Letter of Credit"). The Letter of Credit shall be in an appropriate amount not less than $1,000,000, issued by a financial institution having assets in excess of $100,000,000 and containing terms and conditions reasonably acceptable to Indemnitee. The Letter of Credit shall provide that Indemnitee may from time to time draw certain amounts thereunder, upon written certification by Indemnitee to the issuer of the Letter of Credit that (i) Indemnitee has made written request upon the Corporation for an amount not less than the amount Indemnitee is drawing under the Letter of Credit and that the Corporation has failed or refused to provide Indemnitee with such amount in full within 20 days after receipt of such request, and (ii) Indemnitee believes that Indemnitee is entitled under the terms of this Agreement to the amount which Indemnitee is drawing under the Letter of Credit. The issuance of the Letter of Credit shall not, in any way, diminish the obligation of the Corporation to indemnify Indemnitee against Expenses and Liabilities to the full extent required by this Agreement or otherwise. (c) TERM OF LETTER OF CREDIT. Once the Corporation has obtained the Letter of Credit, the Corporation shall at its expense maintain and renew the Letter of Credit or a substitute letter of credit meeting the criteria of Section 3(b) during the term of this Agreement so that the Letter of Credit shall have an initial term of five years, be renewed for successive five-year terms, and always have at least one year of its term remaining after the termination of this Agreement. 4. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. (a) Upon making a request for indemnification, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Corporation shall have the burden of proof to overcome such presumption in reaching any contrary determination. The termination of any Proceeding by judgment, order, settlement, arbitration award or conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not affect such presumption or, except as may be provided in Section 6, of itself be determinative that the Indemnitee failed to meet any requisite standard of conduct or establish a presumption with regard to any other factual matter relevant to determining the right of Indemnitee to indemnification under this Agreement or otherwise. (b) If the person or persons so empowered to make a determination pursuant to Section 5 shall have failed to make the requested determination within 30 days after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance of a plea of 3 NOLO CONTENDERE or its equivalent, or other disposition or partial disposition of any Proceeding or any other event which could enable the Corporation to determine the right of Indemnitee to be indemnified under this Agreement or otherwise, the requisite determination that Indemnitee has the right to indemnification shall be deemed to have been made; PROVIDED, HOWEVER, that such 30 day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person or persons so empowered to make a determination pursuant to Section 5 in good faith requires such additional time to obtain or evaluate documentation or information relating thereto; and PROVIDED FURTHER, that the foregoing provisions of this Section 4(b) shall not apply if the determination of entitlement to indemnification is to be made by the shareholders pursuant to Section 5(b) of this Agreement and if (i) within 15 days after receipt by the Corporation of the request for such determination the Board of Directors has resolved to submit such determination to the shareholders for their consideration at an annual meeting to be held within 75 days after such receipt and such determination is made thereat, or (ii) a special meeting of shareholders is called within 15 days after such receipt for the purpose of making such determination, such meeting is held for such purpose within 60 days after having been so called and such determination is made thereat. 5. PROCEDURE FOR DETERMINATION OF RIGHT OF INDEMNITEE TO BE INDEMNIFIED. (a) Whenever Indemnitee believes that Indemnitee has a right to indemnification pursuant to this Agreement, Indemnitee shall submit a written request for indemnification to the Corporation. Any request for indemnification shall include sufficient documentation or information reasonably available to Indemnitee for the determination of the right of Indemnitee to be indemnified pursuant to this Agreement. In any event, Indemnitee shall submit such request for indemnification within a reasonable time, not to exceed five years after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance of a plea of NOLO CONTENDERE or its equivalent, or final disposition of such Proceeding, whichever is the later date for which Indemnitee requests indemnification. The Secretary, General Counsel or other appropriate officer of the Corporation shall, promptly upon receipt of such request for indemnification, advise the Board of Directors in writing that Indemnitee has made such request. Determination of the right of Indemnitee to indemnification shall be made not later than 30 days after the receipt by the Corporation of such written request for indemnification, PROVIDED that any request for indemnification for Liabilities with respect to a particular Proceeding, other than amounts paid in settlement, shall be made after a determination thereof in such Proceeding. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within 10 days after such determination. (b) The Corporation shall be entitled to select the forum in which the right of Indemnitee to indemnification will be heard; PROVIDED, HOWEVER, that if such forum is selected after a Change in Control of the Corporation, Independent Legal Counsel shall determine whether Indemnitee has the right to indemnification. The forum shall be any one of the following: 4 (i) The shareholders of the Corporation, other than shareholders who are parties to the Proceeding with respect to which the Indemnitee has claimed indemnification; (ii) A majority of a quorum of the Board of Directors consisting of Disinterested Directors; (iii) Independent Legal Counsel, who shall make the determination in a written opinion; or (iv) A panel of three arbitrators, one selected by the Corporation, another by Indemnitee and the third by the first two arbitrators selected; or if for any reason three arbitrators are not selected within 30 days after the appointment of the first arbitrator, then selection of additional arbitrators shall be made by the American Arbitration Association. If any arbitrator resigns or is unable to serve in such capacity for any reason, the American Arbitration Association shall select a replacement. The arbitration shall be conducted pursuant to the commercial arbitration rules of the American Arbitration Association in effect on the date of this Agreement. 6. SPECIFIC LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything in this Agreement to the contrary, the Corporation shall not be obligated under this Agreement to make any payment to Indemnitee for indemnification with respect to any Proceeding: (a) To the extent that payment is actually made to Indemnitee under any insurance policy, or is made to Indemnitee by the Corporation or an affiliate otherwise than pursuant to this Agreement. Notwithstanding the availability of such insurance, Indemnitee also may claim indemnification from the Corporation pursuant to this Agreement by assigning to the Corporation any claims under such insurance to the extent Indemnitee is paid by the Corporation; (b) If a court in such Proceeding has entered a judgment or other adjudication which is final and has become nonappealable and establishes that the claim of Indemnitee for such indemnification arose from: (i) a breach by Indemnitee of his or her duty of loyalty to the Corporation or its shareholders; (ii) acts or omissions of Indemnitee not in good faith or which involve intentional misconduct or knowing violations of the law; (iii) a transaction in which Indemnitee derived an improper personal benefit; or (iv) liability of Indemnitee to the Corporation pursuant to Section 490.833 of the Iowa Business Corporation Act (or any successor provision); (c) If there has been no Change in Control, for Liabilities in connection with Proceedings settled without the consent of the Corporation, which consent, however, shall not be unreasonably withheld; or 5 (d) For an accounting of profits made from the purchase or sale by Indemnitee of securities of the Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any state statutory or common law. 7. FEES AND EXPENSES OF INDEPENDENT LEGAL COUNSEL. The Corporation agrees to pay the reasonable fees and expenses of Independent Legal Counsel or a panel of three arbitrators if such Counsel or panel of arbitrators is retained to make a determination of the right of Indemnitee to indemnification pursuant to Section 5(b), and to fully indemnify such Counsel or arbitrators against any and all expenses and losses incurred by any of them arising out of or relating to this Agreement or their engagement pursuant hereto. 8. REMEDIES OF INDEMNITEE. (a) If (i) a determination is made pursuant to Section 5 that Indemnitee is not entitled to indemnification, (ii) advances of Expenses are not made to Indemnitee pursuant to this Agreement, (iii) payment has not been timely made following a determination that Indemnitee has a right to indemnification pursuant to this Agreement, or (iv) Indemnitee otherwise seeks enforcement of this Agreement, Indemnitee shall be entitled to a final adjudication in an appropriate court of the State of Iowa of the remedy sought. Alternatively, unless the determination was made by a panel of arbitrators pursuant to Section 5(b)(iv), Indemnitee may elect to seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial arbitration rules of the American Arbitration Association in effect on the date of this Agreement, which award is to be made within 90 days following the filing of the demand for arbitration. The Corporation shall not oppose the right of Indemnitee to seek any such adjudication or arbitration award. In any such proceeding or arbitration Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Corporation shall have the burden of proof to overcome such presumption. (b) If a determination that Indemnitee is not entitled to indemnification, in whole or in part, has been made pursuant to Section 5, the decision in the judicial proceeding or arbitration provided in Section 8(a) shall be made DE NOVO and Indemnitee shall not be prejudiced by reason of a determination that Indemnitee is not entitled to indemnification. (c) If a determination that Indemnitee is entitled to indemnification has been made pursuant to Section 5 or is deemed to have been made pursuant to Section 4 or otherwise pursuant to this Agreement, the Corporation shall be bound by such determination in the absence of a misrepresentation of a material fact by Indemnitee. (d) The Corporation shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Corporation shall stipulate in any such court or before any such arbitrator that the Corporation is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary. 6 (e) Expenses reasonably incurred by Indemnitee in connection with the request of Indemnitee for indemnification under, seeking enforcement of, or to recover damages for breach of, this Agreement shall be borne by the Corporation when and as incurred by Indemnitee irrespective of any Final Adverse Determination that Indemnitee is not entitled to indemnification. 9. INSURANCE. (a) MAINTENANCE OF INSURANCE. The Corporation represents that it presently maintains certain policies of directors' and officers' liability insurance. Subject only to the provisions within this Section 9, the Corporation agrees that during the Indemnification Period, the Corporation shall use its best efforts to purchase and maintain in effect for the benefit of Indemnitee one or more valid, binding and enforceable policies of directors' and officers' liability insurance providing, in all respects, coverage both in scope and amount which is no less favorable than that presently provided. Notwithstanding the foregoing, the Corporation shall not be required to maintain such policies of directors' and officers' liability insurance if such insurance is not reasonably available or if it is in good faith determined by the then Board of Directors either that: (i) the premium cost of maintaining such insurance is substantially disproportionate to the amount of coverage provided thereunder; or (ii) the protection provided by such insurance is so limited by exclusions, deductions or otherwise that there is insufficient benefit to warrant the cost of maintaining such insurance. Anything in this Agreement to the contrary notwithstanding, to the extent that and for so long as the Corporation shall choose to continue to maintain any policies of directors' and officers' liability insurance during the Indemnification Period, the Corporation shall maintain similar and equivalent insurance for the benefit of Indemnitee during the Indemnification Period (whether more or less favorable to Indemnitee than the existing policies of such insurance maintained by the Corporation). (b) ADDITIONAL INDEMNIFICATION IN LIEU OF INSURANCE. If the Corporation discontinues any policy or policies of directors' and officers' liability insurance referred to in Section 9(a) or limits in any way the coverages provided thereunder either in scope or amount, or such policies or coverages provided thereunder become unavailable in whole or in part for any reason, the Corporation agrees to hold harmless and indemnify Indemnitee for the remainder of the Indemnification Period to the full extent of the coverage which would otherwise have been provided for the benefit of Indemnitee if such insurance policies specified in Section 9(a) had been maintained. 10. MODIFICATION, WAIVER, TERMINATION AND CANCELLATION. No supplement, modification, termination, cancellation or amendment of this 7 Agreement shall be binding unless executed in writing by both Indemnitee and the Corporation. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions of this Agreement (whether or not similar), nor shall any such waiver constitute a continuing waiver. 11. SUBROGATION. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything which may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights. 12. NOTICE BY INDEMNITEE AND DEFENSE OF CLAIM. Indemnitee shall promptly notify the Corporation in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter, whether civil, criminal, administrative or investigative, but the omission so to notify the Corporation shall not relieve it from any liability which it may have to Indemnitee if such omission does not materially prejudice the rights of the Corporation. If such omission does materially prejudice the rights of the Corporation, the Corporation shall be relieved from liability under this Agreement only to the extent of such prejudice; nor will such omission relieve the Corporation from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any Proceeding as to which Indemnitee notifies the Corporation of the commencement thereof: (a) The Corporation will be entitled to participate therein at its own expense; and (b) The Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense of Indemnitee therein, with counsel reasonably satisfactory to Indemnitee; PROVIDED, HOWEVER, that the Corporation shall not be entitled to assume the defense of Indemnitee in any Proceeding if there has been a Change in Control or if Indemnitee has reasonably concluded that there may be a conflict of interest between the Corporation and Indemnitee with respect to such Proceeding. After notice to Indemnitee from the Corporation of its election to assume the defense of Indemnitee therein, the Corporation will not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ his or her own counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless: (i) The employment of counsel by Indemnitee has been authorized by the Corporation; 8 (ii) Indemnitee has reasonably concluded that counsel employed by the Corporation may not adequately represent Indemnitee; or (iii) The Corporation has not in fact employed counsel to assume the defense of Indemnitee in such Proceeding or has not in fact assumed such defense or is not acting in connection therewith with reasonable diligence; in each of which cases the fees and expenses of such counsel shall be at the expense of the Corporation. (c) The Corporation shall not settle any Proceeding in any manner which would impose any liability, penalty or limitation on Indemnitee without the written consent of Indemnitee; PROVIDED, HOWEVER, that Indemnitee will not unreasonably withhold consent to any proposed settlement. 13. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom such notice or other communication shall have been directed, or (b) mailed by registered mail with postage prepaid, on the third business day after the date on which it is so mailed. (a) If to Indemnitee, to: _________________ _________________ _________________ _________________ (b) If to the Corporation, to: MidAmerican Energy Company 666 Grand Avenue P. O. Box 657 Des Moines, Iowa 50303-0657 Attention: Corporate Secretary or to such other address as may have been furnished to Indemnitee by the Corporation or to the Corporation by Indemnitee, as the case may be. 14. NONEXCLUSIVITY. The rights of Indemnitee under this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Business Corporation Act of the State of Iowa, the Articles of Incorporation or Bylaws of the Corporation, or any 9 agreements, vote of shareholders, resolution of the Board of Directors or otherwise, and to the extent that during the Indemnification Period the rights of the then existing directors and officers are more favorable to such directors or officers than the rights currently provided to Indemnitee thereunder or under this Agreement, Indemnitee shall be entitled to the full benefits of such more favorable rights. 15. CERTAIN DEFINITIONS. (a) "CHANGE IN CONTROL" shall be deemed to have occurred if: (1) Any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the shareholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Corporation representing 15% or more of the total voting power represented by the then outstanding voting securities of the Corporation; or (2) The Corporation is a party to a Business Combination (as defined in Section C(1) of Article VIII of the Articles of Incorporation, as in effect on the date hereof) except for any such Business Combination which meets the conditions specified in paragraph 1 of Section B of such Article VIII. (b) "DISINTERESTED DIRECTOR" means a director of the Corporation who is not or was not a party to the Proceeding with respect to which indemnification is being sought by Indemnitee. (c) "EXPENSES" shall include all direct and indirect costs (including without limitation attorneys' fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, all other disbursements or out-of-pocket expenses and reasonable compensation for time spent by Indemnitee for which Indemnitee is otherwise not compensated by the Corporation or any third party) actually and reasonably incurred in connection with either the investigation, defense, settlement or appeal of a Proceeding or establishing or enforcing a right to indemnification under this Agreement, applicable law or otherwise: PROVIDED, HOWEVER, that "Expenses" shall not include any liabilities. (d) "FINAL ADVERSE DETERMINATION" means a determination that Indemnitee is not entitled to indemnification pursuant to Section 5 and either (i) a final adjudication in an Iowa court or decision of an arbitrator pursuant to Section 8(a) shall have denied the right of Indemnitee to indemnification under this Agreement, and is no longer appealable, or (ii) Indemnitee shall have failed to file a complaint in an Iowa court or seek an arbitration award 10 pursuant to Section 8(a) for a period of 120 days after the determination made pursuant to Section 5. (e) "INDEMNIFICATION PERIOD" means the period of time for so long as Indemnitee shall continue to serve as a director or officer of the Corporation, or both, and thereafter so long as Indemnitee shall be subject to any possible Proceeding. (f) "INDEPENDENT LEGAL COUNSEL" means special legal counsel (i) selected by the Board of Directors by vote of a majority of a quorum consisting of Disinterested Directors or, if such quorum cannot be obtained, by vote of a majority of the full Board of Directors, including directors who are not Disinterested Directors, and (ii) approved by Indemnitee (which approval shall not be unreasonably withheld) or, if there has been a Change in Control, selected by Indemnitee and approved by the Board of Directors (which approval shall not be unreasonably withheld), and that neither is presently nor in the five years preceding such selection has been retained to represent (y) the Corporation or any of its subsidiaries or affiliates, or Indemnitee or any corporation or entity as to which Indemnitee is or was a director, officer or employee, or any subsidiary or affiliate of such a corporation or entity, in any material matter, or (z) any other party to the Proceeding giving rise to the claim for indemnification with respect to which such counsel is being selected. Notwithstanding the foregoing, the term "Independent Legal Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine the right of Indemnitee to indemnification under this Agreement. (g) "LIABILITIES" means liabilities of any type whatsoever including, but not limited to, any judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid in settlement (including all interest assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement) of any Proceeding. (h) "PROCEEDING" means any threatened, pending or completed action, claim, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative and whether formal or informal that is associated with Indemnitee being or having been a director or officer of the Corporation. 17. BINDING EFFECT; DURATION AND SCOPE OF AGREEMENT. This Agreement shall be binding upon and inure to the benefit of and be enforceable by Indemnitee and the Corporation and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Corporation), spouses, heirs, executors, personal representatives and administrators and other legal representatives. This Agreement shall continue in effect during the Indemnification Period, regardless of whether Indemnitee continues to serve as a director or officer of the Corporation. 11 18. SEVERABILITY. If any provision or provisions of this Agreement (or any portion thereof) shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) The validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and (b) To the fullest extent legally possible, the provisions of this Agreement shall be construed so as to give effect to the intent of any provisions held invalid, illegal or unenforceable. 19. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Iowa. 20. ENTIRE AGREEMENT. This Agreement represents the entire agreement between the Corporation and Indemnitee, and there are no other agreements, contracts or understandings between them, with respect to the subject matter of this Agreement, except as specifically referred to herein or as provided in Section 14. IN WITNESS WHEREOF, this Indemnity Agreement is executed by MidAmerican Energy Company and the Indemnitee as of the date first written above. MIDAMERICAN ENERGY COMPANY By ------------------------------------ R. E. Christiansen Chairman of the Board and Chairman of the Office of the CEO INDEMNITEE ------------------------------------ (Signature) ------------------------------------ 12 EX-12 10 EXHIBIT 12 (COMPUTATIONS OF RATIOS)
EXHIBIT 12 MIDAMERICAN ENERGY COMPANY (consolidated) COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (In Thousands) (Unaudited) Twelve Months Ended Twelve Months Ended December 31, 1995 December 31,1994 ---------------------------------------- ---------------------------------------- Supplemental (a) Supplemental (a) ---------------- ---------------- As As Adjustment Adjusted Adjustment Adjusted ---------- -------- ---------- -------- Income from continuing operations $130,406 $130,406 $136,385 $136,385 Pre-tax (gain) loss of less than 50% owned persons 16,482 16,482 (270) (270) Add (Deduct): Total income taxes 67,984 67,984 62,349 62,349 Interest on long-term debt 110,505 4,595 115,100 105,753 5,428 111,181 Other interest charges 9,449 9,449 6,446 6,446 Interest on leases 1,088 1,088 1,211 1,211 ----------------------------------------- --------------------------------------- 189,026 4,595 193,621 175,759 5,428 181,187 ----------------------------------------- --------------------------------------- Earnings available for fixed charges 335,914 4,595 340,509 311,874 5,428 317,302 ----------------------------------------- --------------------------------------- Fixed Charges: Interest on long-term debt 110,505 4,595 115,100 105,753 5,428 111,181 Other interest charges 9,449 - 9,449 6,446 - 6,446 Interest on leases 1,088 - 1,088 1,211 - 1,211 ----------------------------------------- --------------------------------------- Total fixed charges 121,042 4,595 125,637 113,410 5,428 118,838 ----------------------------------------- --------------------------------------- Ratio of earnings to fixed charges 2.775 - 2.710 2.750 - 2.670 ----------------------------------------- --------------------------------------- ----------------------------------------- --------------------------------------- Preferred stock dividend requirements $ 8,059 $ 8,059 $ 10,551 $ 10,551 Ratio of net income before income taxes to net income 1.5213 - 1.5213 1.4572 - 1.4572 ----------------------------------------- --------------------------------------- Preferred stock dividend requirements before income tax 12,260 - 12,260 15,374 - 15,374 ----------------------------------------- --------------------------------------- Fixed charges plus preferred stock dividend requirements 133,302 4,595 137,897 128,784 5,428 134,212 ----------------------------------------- --------------------------------------- Ratio of earnings to fixed charges plus preferred stock dividend requirements (pre-income tax basis) 2.520 - 2.469 2.422 - 2.364 ----------------------------------------- --------------------------------------- ----------------------------------------- --------------------------------------- Twelve Months Ended December 31, 1993 ---------------------------------------- Supplemental (a) ---------------- As Adjustment Adjusted ---------- -------- Income from continuing operations $147,705 $147,705 Pre-tax (gain) loss of less than 50% owned persons (597) (597) Add (Deduct): Total income taxes 71,409 71,409 Interest on long-term debt 111,065 5,678 116,743 Other interest charges 5,066 5,066 Interest on leases 1,876 1,876 ----------------------------------------- 189,416 5,678 195,094 ----------------------------------------- Earnings available for fixed charges 336,524 5,678 342,202 ----------------------------------------- Fixed Charges: Interest on long-term debt 111,065 5,678 116,743 Other interest charges 5,066 - 5,066 Interest on leases 1,876 - 1,876 ----------------------------------------- Total fixed charges 118,007 5,678 123,685 ----------------------------------------- Ratio of earnings to fixed charges 2.852 - 2.767 ----------------------------------------- ----------------------------------------- Preferred stock dividend requirements $ 8,367 $ 8,367 Ratio of net income before income taxes to net income 1.4835 - 1.4835 ----------------------------------------- Preferred stock dividend requirements before income tax 12,412 - 12,412 ----------------------------------------- Fixed charges plus preferred stock dividend requirements 130,419 5,678 136,097 ----------------------------------------- Ratio of earnings to fixed charges plus preferred stock dividend requirements (pre-income tax basis) 2.580 - 2.514 ----------------------------------------- ----------------------------------------- Note: (a) Amounts in the supplemental columns are to reflect the Company's portion of the net interest component of payments to Nebraska Public Power District under a long term purchase agreement for one-half of the plant capacity from Cooper Nuclear Station. 1
EXHIBIT 12 MIDAMERICAN ENERGY COMPANY (consolidated) COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (In Thousands) (Unaudited) Twelve Months Ended Twelve Months Ended December 31, 1992 December 31,1991 ---------------------------------------- ---------------------------------------- Supplemental (a) Supplemental (a) ---------------- ---------------- As As Adjustment Adjusted Adjustment Adjusted ---------- -------- ---------- -------- Income from continuing operations $ 88,085 $ 88,085 $127,969 $127,969 Pre-tax (gain) loss of less than 50% owned persons (1,297) (1,297) (240) (240) Add (Deduct): Total income taxes 26,812 26,812 59,604 59,604 Interest on long-term debt 114,732 7,391 122,123 106,538 5,689 112,227 Other interest charges 5,899 5,899 16,380 16,380 Interest on leases 2,386 2,386 3,795 3,795 ----------------------------------------- --------------------------------------- 149,829 7,391 157,220 186,317 5,689 192,006 ----------------------------------------- --------------------------------------- Earnings available for fixed charges 236,617 7,391 244,008 314,046 5,689 319,735 ----------------------------------------- --------------------------------------- Fixed Charges: Interest on long-term debt 114,732 7,391 122,123 106,538 5,689 112,227 Other interest charges 5,899 - 5,899 16,380 - 16,380 Interest on leases 2,386 - 2,386 3,795 - 3,795 ----------------------------------------- --------------------------------------- Total fixed charges 123,017 7,391 130,408 126,713 5,689 132,402 ----------------------------------------- --------------------------------------- Ratio of earnings to fixed charges 1.923 - 1.871 2.478 - 2.415 ----------------------------------------- --------------------------------------- ----------------------------------------- --------------------------------------- Preferred stock dividend requirements $ 8,735 $ 8,735 $ 9,708 $ 9,708 Ratio of net income before income taxes to net income 1.3044 - 1.3044 1.4658 - 1.4658 ----------------------------------------- --------------------------------------- Preferred stock dividend requirements before income tax 11,394 - 11,394 14,230 - 14,230 ----------------------------------------- --------------------------------------- Fixed charges plus preferred stock dividend requirements 134,411 7,391 141,802 140,943 5,689 146,632 ----------------------------------------- --------------------------------------- Ratio of earnings to fixed charges plus preferred stock dividend requirements (pre-income tax basis) 1.760 - 1.721 2.228 - 2.181 ----------------------------------------- --------------------------------------- ----------------------------------------- --------------------------------------- Note: (a) Amounts in the supplemental columns are to reflect the Company's portion of the net interest component of payments to Nebraska Public Power District under a long term purchase agreement for one-half of the plant capacity from Cooper Nuclear Station. 2
EX-13.1 11 EXHIBIT 13.1 (MANAGEMENT'S DISCUSSION) EXHIBIT 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CORPORATE OVERVIEW MidAmerican Energy Company (the Company or MidAmerican) was formed on July 1, 1995, as a result of the merger of Iowa-Illinois Gas and Electric Company (Iowa-Illinois), Midwest Resources Inc. (Resources) and its utility subsidiary, Midwest Power Systems Inc. (Midwest). Pursuant to the merger, each outstanding share of preferred and preference stock of the predecessor companies was converted into one share of a similarly designated series of MidAmerican preferred stock, no par value. Each outstanding share of common stock of Resources and Iowa-Illinois was converted into one share and 1.47 shares, respectively, of MidAmerican common stock, no par value. The Company's utility operations (the Utility) consist of two principal business units: an electric business unit headquartered in Davenport, Iowa, and a natural gas business unit headquartered in Sioux City, Iowa. The Company's corporate headquarters, which includes various staff functions, is in Des Moines, Iowa. InterCoast Energy Company (InterCoast) and Midwest Capital Group, Inc. (Midwest Capital) are the nonregulated subsidiaries of the Company and are headquartered in Des Moines. InterCoast conducts various nonregulated activities of the Company, while Midwest Capital functions as a regional business development company in the utility service territory. Management anticipates that the merger will permit the Company to derive benefits from more efficient and economic use of the combined facilities and resources of its predecessors. Savings from avoided costs and cost reductions are estimated to total in excess of $500 million over the next 10 years. Although the Company began realizing some benefits of the merger in 1995, additional benefits and savings will be realized in 1996 and future years. As discussed below, the Company has incurred significant costs related to consummation of the merger, business restructuring and work force reduction. The merger is being accounted for as a pooling-of-interests, and the Consolidated Financial Statements included in this Annual Report are presented as if the merger was consummated as of the beginning of the earliest period presented. Portions of the following discussion provide information related to material changes in the Company's financial condition and results of operations between the periods presented, based on the combined historical information of the predecessor companies. It is not necessarily indicative of what would have occurred had the merger actually been consummated at the beginning of the earliest period. In January 1996, the Company's Board of Directors approved the formation of a holding company structure. The holding company would have two wholly owned subsidiaries consisting of MidAmerican (utility operations) and InterCoast. Midwest Capital would remain a subsidiary of MidAmerican. The Board of Directors and management believe a holding company structure will provide a more flexible organization better designed to operate in a more competitive environment. Consummation of the holding company structure is subject to approval by holders of a majority of the outstanding shares of the Company's common stock. In addition, certain orders must be received from the Illinois Commerce Commission (ICC), the Iowa Utilities Board (IUB), the Federal Energy Regulatory Commission (FERC), and the Nuclear Regulatory Commission (NRC). Subject to such approvals, each share of MidAmerican common stock will be exchanged for one share of the holding company's common stock. It is management's intent, if possible, to complete the formation of the holding company and share exchange by the end of 1996. -1- RESULTS OF OPERATIONS EARNINGS The following tables provide a summary of the earnings contributions of the Company's operations for the past three years:
1995 1994 1993 ------ ------ ------ Earnings (in millions) Utility operations............... $124.5 $110.6 $125.5 Nonregulated operations.......... (2.1) 15.2 13.8 Income (loss) from discontinued operations........ 0.4 (5.6) (3.8) ------ ------ ------- Consolidated earnings............ $122.8 $120.2 $135.5 ------ ------ ------- ------ ------ ------- Earnings Per Common Share Utility operations............... $1.24 $1.12 $1.29 Nonregulated operations.......... (0.02) 0.16 0.14 Income (loss) from discontinued operations........ - (0.06) (0.04) ------ ------ ------- Consolidated earnings............ $1.22 $1.22 $1.39 ------ ------ ------- ------ ------ -------
Earnings per share for 1995 were unchanged compared to 1994. Increases in the gross margins of utility electric and natural gas operations favorably affected earnings for 1995. Gross margin is the amount of revenues remaining after deducting electric fuel costs or the cost of gas sold, as appropriate. Decreases in nuclear operations and maintenance costs also favorably affected earnings. Merger-related costs and write-downs of certain nonregulated assets had a significant adverse affect on 1995 earnings. The increases in utility gross margins were due primarily to electric and gas service rate increases filed prior to the merger. Recent rate activity is discussed in greater detail later in this section. A portion of the rate increases relate directly to increases in certain operating expenses. The gross margin for electric operations, net of the increase in directly-related operating expenses, contributed $0.26 per share more to earnings in 1995 than in 1994. In addition to increases in electric rates, increased sales due to hot weather in the third quarter of 1995, though offset somewhat by less extreme temperatures in the heating season, resulted in a 3% increase in electric retail sales for 1995 compared to 1994. The gross margin for gas operations, net of the increase in directly-related operating expenses, contributed $0.07 per share more to earnings in 1995 than in 1994. An increase in retail natural gas sales also contributed to the improved gross margin due to colder temperatures in the fourth quarter of 1995 compared to 1994. As part of the process of merging the operations of MidAmerican's predecessors, the Company developed a restructuring plan which includes employee incentive early retirement, relocation and separation programs. The restructuring plan, which was completed in 1995, resulted in the elimination of over 700 positions. During 1995 the Company recorded $33.4 million of restructuring costs which included the Company's estimate of the remaining amount of such costs to be incurred. These costs are primarily reflected in Other Operating Expenses in the Consolidated Statements of Income. -2- In addition, the Company incurred nonrecurring costs to accomplish consummation of the merger. These "transaction costs," which are included in Other Non-Operating Income, in the Consolidated Statements of Income, totalled $4.6 million in 1995 and $4.5 million in 1994. In total, restructuring and transaction costs reduced 1995 earnings by $0.24 per share, while transaction costs reduced 1994 earnings by $0.05 per share. Write-downs of certain assets of the Company's nonregulated subsidiaries reduced 1995 earnings by approximately $10.2 million, or $0.10 per share. The pre-tax amount of the write-downs, which is included in Other Non-Operating Income, in the Consolidated Statements of Income, reflects other-than-temporary declines of $18.0 million in the value of those nonregulated investments. The investments are primarily alternative energy projects. Earnings for 1994 decreased $15.3 million from the 1993 level due primarily to merger transaction costs in 1994 and recognition of an $11.5 million aftertax gain on the exchange of gas service territory in 1993. UTILITY OPERATING REVENUES ELECTRIC: A combination of factors contributed to the $73.0 million increase in electric operating revenues for 1995. Various increases in retail electric rates contributed to the increase in electric revenues. In October 1994 and January 1995, the Company implemented rate increases for Iowa energy efficiency cost recovery filings which allow a total increase in electric revenues of $31.7 million over a four-year period. In August 1995, the Company began collection of $18.6 million over a four-year prospective period related to another energy efficiency cost recovery filing. In connection with an Iowa electric rate filing, the Company began collecting in January 1995 interim rates representing an increase of $13.6 million in annual electric revenues. A final rate increase in the proceeding, representing an increase of $20.3 million in annual electric revenues, was effective in August 1995. The new rates include a component for the recovery of other postretirement employee benefit (OPEB) costs on an accrual basis instead of the pay-as-you-go basis previously used. Approximately $8 million of the $20.3 million increase in annual revenues relates to additional expensing of OPEB costs. Increases in revenues due to OPEB and energy efficiency costs have an immaterial impact on net income due to corresponding increases in operating expenses. An 11% increase in retail sales of electricity for the 1995 third quarter compared to the 1994 third quarter was the main cause of the increase in electric retail sales for 1995. The increase in sales was primarily the result of warmer temperatures which, measured in cooling degree days, were 56% warmer in the 1995 third quarter than in the comparable 1994 quarter. The Company has been allowed current recovery from most of its electric utility customers for fuel and purchased power costs through energy adjustment clauses (EACs). As the cost of energy to serve those customers fluctuates, revenues fluctuate accordingly with no impact on gross margin or net income. In 1995, the average energy cost per unit decreased 4.5%. As a result, 1995 revenues collected through the EACs decreased compared to 1994. Revenues from sales for resale accounted for $21.2 million of the increase in electric revenues. Sales for resale volumes increased 53% for 1995 compared to 1994. Greater availability of nuclear generating facilities in 1995 increased the amount of energy available for sales for resale. Coal delivery uncertainties also limited the -3- Company's sales for resale activity in 1994. Sales for resale have a lower margin than other sales and, accordingly, increases in related revenues do not increase net income as much as increases in retail revenues. The Company is a 25% owner in Quad-Cities Nuclear Power Station (Quad- Cities Station), which is jointly owned and operated by Commonwealth Edison. The Company also purchases 50% of the energy of Cooper Nuclear Station (Cooper), which is owned and operated by Nebraska Public Power District (NPPD), through a power purchase agreement which terminates in 2004. NPPD took Cooper out of service on May 25, 1994. Pending satisfaction of the concerns of the NRC, Cooper remained out of service until February 1995 when it returned to service following NRC approval to restart. In May 1995, the Company filed a lawsuit seeking unspecified damages from NPPD related to the 1994-95 Cooper outage. In June 1995, the NRC removed Cooper and the Quad-Cities Station from its list of adversely trending plants. Total electric operating revenues for 1994 increased $18.7 million compared to 1993. Electric retail revenues increased $38.2 million in 1994 compared to 1993. The increase in retail revenues was partially offset by a decrease of approximately $20 million in sales for resale revenues. As discussed above, outages at Cooper in 1994 and coal delivery uncertainties limited the Company's sales for resale activity. An increase in retail sales, due mostly to increased sales to general service customers, was the primary cause of the increase in retail revenues. An increase in the cost of energy per unit sold also increased revenues through the EACs in 1994. Rate increases also contributed to the increase in electric revenues for 1994 compared to 1993 as discussed below. In July 1993, the Company implemented electric rates for some of its Iowa customers designed to increase annual electric revenues by $6.8 million. Also in July 1993, an annual electric rate increase in Illinois of $9.6 million became effective. GAS: Gas operating revenues for 1995 decreased $32.4 million compared to 1994. A reduction in revenues collected through the purchased gas adjustment clauses (PGAs) was the primary cause of the decrease in revenues. This was due to a significant decrease in the average cost of gas per unit sold. Variations in revenues collected through the PGAs reflecting changes in the cost of gas and volumes sold do not affect gross margin or net income. An increase in sales and rates offset part of the impact of lower PGA revenues. In January 1995, the Company implemented a gas service rate increase resulting from findings in an Iowa energy efficiency cost recovery filing which allows an increase in gas revenues of $6.7 million over a four-year period. In October 1994, the Company began collecting interim rates for an Iowa gas rate filing representing an increase of $8.2 million in annual gas revenues. A final rate increase of $10.6 million in annual gas revenues was effective in August 1995. Approximately $2.5 million of the $10.6 million increase in annual revenues relates to the recovery of OPEB costs on an accrual basis. Increases in revenues due to OPEB and energy efficiency costs have an immaterial impact on net income due to corresponding increases in operating expenses. Retail sales of natural gas increased slightly due to a 4% increase in residential sales. This was due mostly to colder weather in the fourth quarter of 1995. Gas operating revenues for 1994 decreased $47.0 million compared to 1993 due to a decrease in retail natural gas sales. Temperatures, measured in heating degree days, decreased considerably in 1994 compared to 1993, resulting in the decrease in retail sales. In addition, an exchange of gas service territories in the third quarter of 1993 resulted in a decrease in natural gas customers. A reduction in revenues collected through the PGAs also contributed to the decrease in retail revenues. The effect of rate increases partially offset the decrease in revenues due to reduced sales volumes and PGA revenues. -4- UTILITY OPERATING EXPENSES Changes in the cost of electric fuel, energy and capacity (collectively, Energy Costs) reflect fluctuations in generation levels and mix, fuel cost, and energy and capacity purchases. Energy Costs for 1995 increased 8% compared to 1994 due primarily to a 13% increase in total electric sales. The increase in Energy Costs as a result of greater sales of electricity was partially offset by a 5% decrease in the average Energy Cost per unit. Energy Costs for 1994 decreased 2% compared to 1993 due primarily to the reduction in sales for resale. The decrease due to reduced sales of electricity was partially offset by a 7% increase in the average Energy Cost per unit. Part of the fluctuation in the average Energy Cost per unit was due to the changes in the availability of nuclear generation throughout the three-year period. Cost of gas sold for 1995 decreased compared to 1994 due to a 15% decrease in the average cost of gas per unit sold. Cost of gas sold decreased in 1994 compared to 1993 due primarily to a 9% decrease in sales which was due in part to a gas property exchange. Other operating expenses increased $45.5 million in 1995 compared to 1994 due primarily to costs related to the restructuring plan discussed in the opening section of Results of Operations. Utility operating expenses include $31.9 million of the $33.4 million total restructuring costs. As discussed above, 1995 expenses also include increases from deferred energy efficiency and OPEB costs. The increases for 1995 were partially offset by an $8.6 million reduction in nuclear operations costs. Expenses for 1994 were reduced by $3.0 million due to capitalizing previously expensed energy efficiency costs to comply with the IUB regulation of these costs. Other operating expenses in 1994 increased $13.5 million compared to 1993. Increased nuclear operations costs related to extended outages at Cooper and Quad-Cities Station during 1994 contributed to the increase. The increase in nuclear costs was partially offset by the adjustment to energy efficiency costs mentioned above. Maintenance expenses decreased $15.9 million in 1995 compared to 1994. Quad-Cities Station maintenance expenses decreased $5.5 million due in part to the 1994 outage. The timing of power plant maintenance and a reduction in various distribution maintenance accounted for much of the remaining variation between years. Depreciation expense increased compared to each prior year due primarily to additions to utility plant in service. NONREGULATED OPERATING REVENUES Revenues for the Company's nonregulated subsidiaries decreased $7.8 million for 1995 compared to 1994. A decrease in real estate revenues and reduced revenues due to the impact of the sale of a telecommunications subsidiary in early 1995 accounted for most of the decrease. Revenues from the Company's oil and gas production subsidiary were basically unchanged with increases in gas production volumes and oil prices offsetting decreases due to lower prices for natural gas. A 16% decrease in sales volumes for a nonregulated retail natural gas marketing subsidiary resulted in a $13.9 million decrease in nonregulated gas revenues for 1995. This decrease was offset by $14.2 million in revenues of a wholesale natural gas marketing firm acquired in December 1995. Revenues for 1994 increased $36.3 million compared to 1993 due primarily to a $33.4 million increase in revenues from retail sales of natural gas. The increase in retail natural gas sales and revenues for 1994 is attributable primarily to the purchase of the assets of an existing nonregulated natural gas business in January 1994. Higher production volumes reflecting additional acquired reserves and successful drilling results also contributed to the increase in revenues for 1995. -5- NONREGULATED OPERATING EXPENSES Cost of sales includes expenses directly related to sales of oil, natural gas and real estate. The factors discussed above for revenues, including natural gas sales volumes, lower gas prices and reduced real estate sales, also affected the variances in cost of sales for the years 1993 through 1995. Cost of sales for the newly acquired natural gas firm also contributed to the increase in 1995 compared to 1994. Other nonregulated expenses increased $3.0 million for 1995 compared to 1994. The 1995 amount includes $1.5 million of expenses for the Company's restructuring plan. The $5.7 million increase in 1994 compared to 1993 was due primarily to expenses of the natural gas marketing business acquired in January 1994. REALIZED GAINS AND LOSSES ON SECURITIES, NET Realized gains and losses on securities decreased $6.9 million for 1995 compared to 1994. The decrease resulted primarily from the sale of a single holding in 1994 which generated a $5.9 million pre-tax gain. During 1993, InterCoast realized significant gains on some of its investments in marketable securities due to the impact of favorable market conditions. NON-OPERATING INCOME - OTHER, NET The adjustments to nonregulated investments discussed at the beginning of Results of Operations were the primary cause of the decrease in Other, Net, for 1995 compared to 1994. In addition, merger transaction costs reduced Other, Net in 1995 and 1994. A gain on the sale of an investment in a leveraged lease in 1994 also contributed to the comparative decrease for 1995 compared to 1994. Gains totalling $8.5 million on the sales of a partnership interest in a gas marketing organization and a telecommunication subsidiary in 1995 partially offset the decreases. The decrease from 1993 to 1994 is due primarily to an $18.5 million pre-tax gain on the exchange of natural gas service territories in 1993. INTEREST CHARGES Increased interest on long-term debt in 1995 compared to 1994 was due primarily to the issuance of $60 million of 7.875% Series of mortgage bonds in November 1994. The decrease in interest on long-term debt from 1993 to 1994 reflects refinancing of several series of long-term debt at lower interest rates in 1993. DISCONTINUED OPERATIONS In 1994, the Company announced its intent to divest its construction subsidiaries and recognized the anticipated loss on disposal. The sale of certain assets of one of the subsidiaries was completed in December 1994, and the sale of the other construction subsidiary was completed in March 1995. Settlement of a construction receivable in the second quarter of 1995 resulted in $0.4 million of income in 1995. PREFERRED DIVIDENDS The decrease in the preferred dividend requirement for 1995 compared to 1994 was due mostly to the redemption of three series of outstanding preferred shares in December 1994. -6- 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, debt retirement, dividends, construction expenditures and other capital requirements. For 1995, the Company had net cash provided from operating activities of $382 million and net cash used of $320 million and $54 million for investing and financing activities, respectively. INVESTING ACTIVITIES Utility construction expenditures, including allowance for funds used during construction (AFUDC), Quad-Cities Station nuclear fuel purchases and Cooper capital improvements, were $191 million for 1995. The decrease from the 1994 total of $212 million reflects the Company's efforts to limit construction expenditures. Forecasted utility construction expenditures for 1996 are $166 million including AFUDC. The 1996 plan includes $35 million for Cooper capital improvements and Quad-Cities Station nuclear fuel purchases and construction expenditures. For the years 1996 through 2000, the Company forecasts $818 million for utility construction expenditures, $154 million of which is for nuclear expenditures. The Company presently expects that all utility construction expenditures for 1996 through 2000 will be met with cash generated from utility operations, net of dividends. 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. During 1995, the Utility contributed approximately $9 million to an external trust established for the investment of funds for decommissioning the Quad-Cities Station. Based on information presently available, the Utility expects to contribute $45 million to the trust during the period 1996 through 2000. The funds are invested predominately in investment grade municipal, and U.S. Treasury, bonds. In addition, approximately $9 million of the 1995 payments made under the power purchase contract with NPPD were for decommissioning funding related to Cooper. The Cooper costs are reflected in Other Operating Expenses in the Consolidated Statements of Income. Based on NPPD estimates, the Utility expects to pay approximately $54 million for Cooper decommissioning during the period 1996 through 2000. NPPD invests the funds in instruments similar to those of the Quad-Cities Station trust fund. The Company'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. The Company currently recovers Quad-Cities Station decommissioning costs charged to Illinois customers through a rate rider on customer billings. Cooper and Quad-Cities Station decommissioning costs charged to Iowa customers are included in base rates, and increases in those amounts must be sought through the normal ratemaking process. Refer to Note 4(d) of Notes to Consolidated Financial Statements (Notes) for additional details regarding decommissioning. Capital expenditures of nonregulated subsidiaries were $56 million for 1995. Capital expenditures of nonregulated subsidiaries depend upon the availability of suitable investment opportunities and other factors. For 1996, such expenditures are forecasted to be approximately $85 million, primarily related to InterCoast. InterCoast invests in a variety of marketable securities which it holds for indefinite periods of time. For 1995, InterCoast had net cash outflows of $67 million from its marketable securities investment activities. In the Consolidated Statements of Cash Flows, the lines Purchase of Securities and Proceeds from Sale of Securities consist primarily of the gross amounts of these activities, including realized gains and losses on investments in marketable securities. -7- FINANCING ACTIVITIES The Utility currently has authority from the FERC to issue short-term debt in the form of commercial paper and bank notes aggregating $400 million. As of December 31, 1995, the Utility had bank lines of credit of $250 million to provide short-term financing for utility operations. In January 1996, the Utility entered into a $250 million revolving credit facility agreement to replace those lines of credit. The Utility's commercial paper borrowings, which totalled $185 million at December 31, 1995, are currently supported by the revolving credit facility. The Utility also has lines of credit and revolving credit facilities which are dedicated to provide liquidity for its obligations under outstanding pollution control revenue bonds that are periodically remarketed. In January 1995, $12.75 million of floating rate pollution control refunding revenue bonds due 2025 were issued. Proceeds from this financing were used to redeem $12.75 million of collateralized pollution control revenue bonds, 5.8% Series, due 2007. The Utility has $347 million of long-term debt maturities and sinking fund requirements for 1996 through 2000, $1 million of which matures in 1996. The Utility is currently considering several long-term financing options for 1996. Proceeds from those issuances would be used to reduce commercial paper outstanding and to refinance higher cost securities. As of December 31, 1995, the Utility had the capability to issue approximately $1.3 billion of mortgage bonds under the current Midwest indenture. The Utility does not expect to issue additional debt under the Iowa- Illinois indenture, but may if necessary. During the first six months of 1995, Resources and Iowa-Illinois sold original issue shares of common stock through certain of their employee stock purchase and dividend reinvestment plans. On a MidAmerican share basis, 1,065,240 shares of common stock were issued. The Company has the necessary authority to issue up to 6,000,000 shares of common stock through its Shareholder Options Plan (the Company's dividend reinvestment and stock purchase plan). Since the effective date of the merger, the Company has used open market purchases of its common stock rather than original issue shares to meet share obligations under its Employee Stock Purchase Plan and the Shareholder Options Plan. The Company currently plans to continue using open market purchases to meet share obligations under these plans. Subsequent to the consummation of the merger, the Utility made a $55 million equity contribution to InterCoast. In addition, nonregulated businesses not related to regional business development were transferred from Midwest Capital to InterCoast. The equity contribution was then used to extinguish Senior Notes and variable interest rate Notes Payable, thus eliminating several financial relationships between the Company's utility and nonregulated operations. One support agreement remains between the Utility and Midwest Capital related to a performance guarantee by Midwest Capital of a joint venture turnkey engineering, procurement and construction contract for a cogeneration project. The project received preliminary acceptance from the owner in 1995, which pursuant to the construction contract, eliminates the potential for liquidated damages being incurred related to the project. Midwest Capital also has $25 million of long-term debt outstanding at December 31, 1995, that matures in 1996 and is supported by a guarantee from the Utility. In addition, Midwest Capital has a $25 million line of credit with the Utility. During the third quarter of 1995, InterCoast entered into a $64 million unsecured revolving credit facility agreement which matures in 1998. The facility was used primarily to refinance maturing Senior Notes. InterCoast also has a $110 million unsecured revolving credit facility agreement which matures in 1999. -8- Borrowings under these agreements may be at a fixed rate, floating rate or competitive bid rate basis. All borrowings under these agreements are without recourse to the Utility. At December 31, 1995, InterCoast had $130 million of debt outstanding under these two revolving credit facility agreements. In addition, InterCoast has entered into two floating rate to fixed interest rate swaps each in the amount of $32 million. The interest rate swaps have fixed rates of 5.97% and 6.00%, respectively, and are for three-year and two-year terms, respectively, with an optional third year on the latter. InterCoast's aggregate amounts of maturities and sinking fund requirements for long-term debt outstanding at December 31, 1995, are $39 million for 1996 and $287 million for the years 1996 through 2000. Amounts due in 1996 are expected to be refinanced with debt instruments. On January 24, 1996, the Company's Board of Directors declared a quarterly dividend on common shares of $0.30 per share payable March 1, 1996. The dividend represents an annual rate of $1.20 per share. OPERATING ACTIVITIES The Utility is subject to regulation by several utility regulatory agencies. The operating environment and the recoverability of costs from utility customers are significantly influenced by the regulation of those agencies. The Company anticipates that changes in the utility industry will create a more competitive environment. Although these anticipated changes may create opportunities, they will also create additional challenges and risks for utilities. The Company is evaluating strategies that will assist it in a more competitive environment. A possible consequence of competition in the utility industry is the discontinued applicability of Statement of Financial Accounting Standards (SFAS) No. 71. SFAS 71 sets forth accounting principles for all, or a portion, of a company's 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. The Company's electric and gas utility operations are currently subject to the provisions of SFAS 71. Should the utility industry become more competitive as presently anticipated, the Company will reexamine the applicability of SFAS 71. If a portion of the Company's utility operations no longer meets the criteria of SFAS 71, the Company could be required to eliminate from its balance sheet assets and liabilities related to those operations that resulted from actions of its regulators (i.e., regulatory assets and liabilities). A material adjustment to earnings in the appropriate period could result from the discontinuance of SFAS 71. Refer to Note (1)(c) of Notes for a discussion of regulatory assets. The Energy Policy Act (EPAct) was enacted in 1992. This law promotes competition in the wholesale electric power market. The FERC has taken action to establish rules and policies in compliance with provisions of the EPAct through a Notice of Proposed Rulemaking issued March 29, 1995. The Company has been active in providing filed, written comments with the FERC in an effort to shape new transmission policies in ways that will best serve the interests of its customers and shareholders. In conjunction with the Merger, the Company submitted an open access transmission tariff in 1994 which was accepted for filing by the FERC in June 1995. Legislation enacted by the State of Illinois in 1995 allows public utilities to file for regulatory approval of nontraditional rate design. Alternative forms of rate design may include price caps, flexible rate structures and other modifications of the cost-based method currently used to determine rates for electric and gas services. The Company is evaluating its options in light of the new legislation. If appropriate, the Company may file a request in 1996 for alternate rate design in Illinois. In 1992, the FERC issued Order No. 636, directing a restructuring by interstate pipeline companies for their natural gas sales and transportation services. The unbundling of pipeline services increased the Company's access -9- to supply options and its supply responsibilities. Certain transition costs incurred by interstate natural gas pipelines for their compliance with Order 636 will be paid to the pipeline companies over the next several years. The Company's Consolidated Balance Sheet as of December 31, 1995, includes a $41 million noncurrent liability and regulatory asset recorded for transition costs. The Company may incur other transition costs in conjunction with future purchases of gas, but does not expect these billings to have a material impact on the cost of gas. The Company is currently recovering costs related to Order 636 from its customers. Electric and gas utilities in Iowa are required to spend approximately 2% and 1.5%, respectively, of their annual Iowa jurisdictional revenues on energy efficiency activities. In October 1994 and in January 1995, the Company began collecting over a four-year prospective period $19.7 million and $18.7 million, respectively, related to prior energy efficiency cost recovery filings. A recent district court ruling was issued which affirmed in all respects the IUB decisions allowing such recovery. In another cost recovery filing, the IUB issued an order approving the collection over a four-year prospective period of $18.6 million. Collection related to this filing began August 8, 1995. As of December 31, 1995, the Company had approximately $68 million of energy efficiency costs deferred on its Consolidated Balance Sheet for which recovery will be sought in future energy efficiency filings. The United States Environmental Protection Agency (EPA) and state environmental agencies have determined that contaminated wastes remaining at certain decommissioned manufactured gas plant facilities may pose a threat to the public health or the environment if such contaminants are in sufficient quantities and at such concentrations as to warrant remedial action. The Company is evaluating 26 properties which were, at one time, sites of gas manufacturing plants in which it may be a potentially responsible party (PRP). The purpose of these evaluations is to determine whether waste materials are present, whether such materials constitute an environmental or health risk, and whether the Company has any responsibility for remedial action. The Company's present estimate of probable remediation costs for these sites is $21 million. This estimate has been recorded as a liability and a regulatory asset for future recovery through the regulatory process. Refer to Note (4)(b) of Notes for further discussion of the Company's environmental activities related to manufactured gas plant sites and cost recovery. Although the timing of potential incurred costs and recovery of such cost in rates may affect the results of operations in individual periods, management believes that the outcome of these issues will not have a material adverse effect on the Company's financial position or results of operations. The Clean Air Act Amendments of 1990 (CAA) were signed into law in November 1990. The Company has five jointly owned and five wholly owned coal-fired generating stations, which represent approximately 65% of the Company's electric generating capability. Two of the Company's coal-fired generating units were subject to the requirements of the CAA beginning in 1995. These units were given a set number of allowances by the EPA. Each allowance permits the units to emit one ton of sulfur dioxide. The Company has completed most of the modifications necessary to one unit to burn low-sulfur coal and to install nitrogen oxides controls and an emissions monitoring system. Under proposed regulations, the second unit will require additional capital expenditures to reduce emissions of nitrogen oxides. The Company's other coal-fired generating units are not materially affected by the provisions of the CAA. Due to the use of low-sulfur western coal, the Company does not anticipate the need for additional capital expenditures to lower sulfur dioxide emission rates to ensure that allowances allocated by the federal government are not exceeded. While the Company estimates that sufficient emission allowances have been allocated on a system-wide basis for its units to operate at the capacity factors needed to meet system energy -10- requirements, additional purchases of allowances may be necessary to meet desired sales for resale levels. By the year 2000, some Company coal-fired generating units will be required to install controls to reduce emissions of nitrogen oxides. Essentially all utility generating units are subject to CAA provisions which address continuous emission monitoring, permit requirements and fees, and emission of toxic substances. Based on currently proposed CAA regulations, the Company does not anticipate its remaining construction costs for the installation of low nitrogen oxides burner technology and emissions monitoring system upgrades to exceed $16 million. ACCOUNTING ISSUES In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 121 regarding accounting for asset impairments. This statement, which will be adopted by the Company in the first quarter of 1996, requires the Company to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. SFAS 121 also requires rate-regulated companies to recognize an impairment for regulatory assets that are not probable of future recovery. Adoption of SFAS 121 is not expected to have a material impact on the Company's results of operations or financial position at the time of adoption. The staff of the Securities and Exchange Commission has questioned certain of the current accounting practices of the electric utility industry, including those of the Company, regarding the recognition, measurement and classification of nuclear decommissioning costs in the financial statements. In response to these questions, the FASB has added a project to its agenda to review the accounting for closure and removal costs, including decommissioning of nuclear power plants. If current electric utility industry accounting practices for such decommissioning are changed, the annual provision for decommissioning could increase relative to 1995, and the total estimated cost for decommissioning could be recorded as a liability with recognition of an increase in the cost of related nuclear power plant. The Company has not determined what impact, if any, it would have on the Company's operation and financial position. In October 1995, the FASB issued SFAS No. 123 regarding stock-based compensation plans. SFAS 123, which is effective for reporting periods beginning January 1, 1996, allows for alternative methods of adoption. The Company does not expect the accounting provisions or alternative disclosure provisions of SFAS 123 to have a material impact on the Company's results of operations. -11- EX-13.2 12 EXHIBIT 13.2 (FINANCIAL STATEMENTS) EXHIBIT 13.2 MIDAMERICAN ENERGY COMPANY CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31 ------------------------------------ 1995 1994 1993 ---------- ---------- ---------- (In thousands, except per share amounts) OPERATING REVENUES Electric utility $1,094,647 $1,021,660 $1,002,970 Gas utility 459,588 492,015 538,989 Nonregulated 169,409 177,235 140,976 ---------- ---------- ---------- 1,723,644 1,690,910 1,682,935 ---------- ---------- ---------- OPERATING EXPENSES Utility: Cost of fuel, energy and capacity 230,261 213,987 217,385 Cost of gas sold 279,025 326,782 366,049 Other operating expenses 399,648 354,190 340,720 Maintenance 85,363 101,275 101,601 Depreciation and amortization 158,950 154,229 150,822 Property and other taxes 96,350 94,990 93,238 ---------- ---------- ---------- 1,249,597 1,245,453 1,269,815 ---------- ---------- ---------- Nonregulated: Cost of sales 128,685 130,621 96,656 Other 44,230 41,230 35,568 ---------- ---------- ---------- 172,915 171,851 132,224 ---------- ---------- ---------- 1,422,512 1,417,304 1,402,039 ---------- ---------- ---------- OPERATING INCOME 301,132 273,606 280,896 ---------- ---------- ---------- NON-OPERATING INCOME Interest income 4,485 4,334 5,805 Dividend income 16,954 17,087 17,601 Realized gains and losses on securities, net 688 7,635 7,915 Other, net (10,467) 4,316 20,842 ---------- ---------- ---------- 11,660 33,372 52,163 ---------- ---------- ---------- INTEREST CHARGES Interest on long-term debt 110,505 105,753 111,065 Other interest expense 9,449 6,446 5,066 Allowance for borrowed funds (5,552) (3,955) (2,186) ---------- ---------- ---------- 114,402 108,244 113,945 ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 198,390 198,734 219,114 INCOME TAXES 67,984 62,349 71,409 ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS 130,406 136,385 147,705 INCOME (LOSS) FROM DISCONTINUED OPERATIONS 417 (5,645) (3,854) ---------- ---------- ---------- NET INCOME 130,823 130,740 143,851 PREFERRED DIVIDENDS 8,059 10,551 8,367 ---------- ---------- ---------- EARNINGS ON COMMON STOCK $ 122,764 $ 120,189 $ 135,484 ---------- ---------- ---------- ---------- ---------- ---------- AVERAGE COMMON SHARES OUTSTANDING 100,401 98,531 97,762 ---------- ---------- ---------- ---------- ---------- ---------- EARNINGS PER COMMON SHARE Continuing operations $ 1.22 $ 1.28 $ 1.43 Discontinued operations - (0.06) (0.04) ---------- ---------- ---------- Earnings per average common share $ 1.22 $ 1.22 $ 1.39 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these statements. - 1 - MIDAMERICAN ENERGY COMPANY CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31 ------------------------------ 1995 1994 ---------- ---------- (In thousands) ASSETS UTILITY PLANT Electric $3,881,699 $3,765,004 Gas 695,741 663,792 ---------- ---------- 4,577,440 4,428,796 Less accumulated depreciation and amortization 2,027,055 1,885,870 ---------- ---------- 2,550,385 2,542,926 Construction work in progress 104,164 101,252 ---------- ---------- 2,654,549 2,644,178 ---------- ---------- POWER PURCHASE CONTRACT 212,148 221,998 ---------- ---------- INVESTMENT IN DISCONTINUED OPERATIONS - 15,249 ---------- ---------- CURRENT ASSETS Cash and cash equivalents 41,216 33,778 Receivables, less reserves of $2,296 and $2,099, respectively 261,105 212,902 Inventories 85,235 92,248 Other 22,252 19,035 ---------- ---------- 409,808 357,963 ---------- ---------- INVESTMENTS 826,496 752,428 ---------- ---------- OTHER ASSETS 420,520 423,958 ---------- ---------- TOTAL ASSETS $4,523,521 $4,415,774 ---------- ---------- ---------- ---------- CAPITALIZATION AND LIABILITIES CAPITALIZATION (see accompanying statement) Common shareholders' equity $1,225,715 $1,204,112 Preferred shares, not subject to mandatory redemption 89,945 89,955 Preferred shares, subject to mandatory redemption 50,000 50,000 Long-term debt (excluding current portion) 1,403,322 1,398,255 ---------- ---------- 2,768,982 2,742,322 ---------- ---------- CURRENT LIABILITIES Notes payable 184,800 124,500 Current portion of long-term debt 65,295 72,872 Current portion of power purchase contract 13,029 12,080 Accounts payable 142,759 110,175 Taxes accrued 81,898 91,653 Interest accrued 30,635 30,659 Other 57,000 54,473 ---------- ---------- 575,416 496,412 ---------- ---------- OTHER LIABILITES Power purchase contract 112,700 125,729 Deferred income taxes 746,574 725,665 Investment tax credit 95,041 100,871 Other 224,808 224,775 ---------- ---------- 1,179,123 1,177,040 ---------- ---------- TOTAL CAPITALIZATION AND LIABILITIES $4,523,521 $4,415,774 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these statements. - 2 - MIDAMERICAN ENERGY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 ------------------------------ 1995 1994 1993 -------- -------- ------- (In thousands) NET CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 130,823 $ 130,740 $ 143,851 Adjustments to reconcile net income to net cash provided: Depreciation, depletion and amortization 202,542 198,049 193,199 Net increase in deferred income taxes and investment tax credit, net 10,278 36,926 1,935 Amortization of other assets 20,047 9,731 5,447 Capitalized cost of real estate sold 1,744 3,723 5,737 Loss (income) from discontinued operations (417) 5,645 3,854 Gain on sale of assets and long-term investments (1,050) (6,409) (25,428) Other-than-temporary decline in value of investments and other assets 17,971 1,791 2,939 Impact of changes in working capital, net of effects from discontinued operations (19,075) (9,270) 20,066 Other 18,809 10,624 (7,746) -------- -------- ------- Net cash provided 381,672 381,550 343,854 -------- -------- ------- NET CASH FLOWS FROM INVESTING ACTIVITIES Utility construction expenditures (190,771) (211,669) (215,081) Quad-Cities Nuclear Power Station decommissioning trust fund (8,636) (9,044) (7,918) Deferred energy efficiency expenditures (35,841) (28,221) (24,104) Nonregulated capital expenditures (56,162) (52,609) (86,505) Purchase of securities (164,521) (113,757) (197,490) Proceeds from sale of securities 94,493 142,307 205,767 Proceeds from sale of assets and other investments 34,263 6,433 55,582 Other investing activities, net 7,060 (7,957) 13,716 -------- -------- ------- Net cash used (320,115) (274,517) (256,033) -------- -------- ------- NET CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (126,892) (125,065) (122,410) Issuance of long-term debt, net of issuance cost 12,750 180,410 796,897 Retirement of long-term debt, including reacquisition cost (110,351) (102,472) (895,900) Issuance of preferred shares, net of issuance cost - - 68,140 Reacquisition of preferred shares, including reacquisition cost (9) (20,142) (32,629) Increase (decrease) in InterCoast Energy Company unsecured revolving credit facility 95,000 (9,500) 44,500 Issuance of common shares 15,083 27,760 - Net increase (decrease) in notes payable 60,300 (48,535) 52,791 -------- -------- ------- Net cash used (54,119) (97,544) (88,611) -------- -------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,438 9,489 (790) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 33,778 24,289 25,079 -------- -------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 41,216 $ 33,778 $ 24,289 -------- -------- ------- -------- -------- ------- ADDITIONAL CASH FLOW INFORMATION: Interest paid, net of amounts capitalized $ 116,843 $ 105,004 $ 111,133 -------- -------- ------- -------- -------- ------- Income taxes paid $ 88,863 $ 38,195 $ 54,346 -------- -------- ------- -------- -------- -------
The accompanying notes are an integral part of these statements. -3- MIDAMERICAN ENERGY COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION
AS OF DECEMBER 31 -------------------------------- 1995 1994 ------------ ------------ (In thousands, except share amounts) COMMON SHAREHOLDERS' EQUITY Common shares, no par; 350,000,000 shares authorized; 100,751,713 and 99,686,636 shares outstanding, respectively $ 801,227 $ 786,420 Retained earnings 430,589 426,683 Valuation allowance, net of income taxes (6,101) (8,991) ------------ ------------ 1,225,715 44.3% 1,204,112 43.9% ------------ ---- ------------ ----- PREFERRED SHARES (100,000,000 shares authorized) Cumulative preferred shares outstanding; not subject to mandatory redemption: $3.30 Series, 49,523 and 49,622 shares, respectively 4,952 4,962 $3.75 Series, 38,320 shares 3,832 3,832 $3.90 Series, 32,630 shares 3,263 3,263 $4.20 Series, 47,369 shares 4,737 4,737 $4.35 Series, 49,950 shares 4,995 4,995 $4.40 Series, 50,000 shares 5,000 5,000 $4.80 Series, 49,898 shares 4,990 4,990 $1.7375 Series, 2,400,000 shares 58,176 58,176 Cumulative preferred shares outstanding; subject to mandatory redemption: $5.25 Series, 100,000 shares 10,000 10,000 $7.80 Series, 400,000 shares 40,000 40,000 ------------ ------------ 139,945 5.0% 139,955 5.1% ------------ ---- ------------ ----- LONG-TERM DEBT Mortgage bonds: 5.875% Series, due 1997 22,000 22,000 Adjustable Rate Series, due 1997 (8.8% and 7.6%, respectively) 25,000 25,000 5.05% Series, due 1998 50,000 50,000 6.25% Series, due 1998 75,000 75,000 7 .875% Series, due 1999 60,000 60,000 6% Series, due 2000 35,000 35,000 6.75% Series, due 2000 75,000 75,000 8.15% Series, due 2001 40,000 40,000 7.125% Series, due 2003 100,000 100,000 7.70% Series, due 2004 60,000 60,000 7% Series, due 2005 100,000 100,000 7.375% Series, due 2008 75,000 75,000 8% Series, due 2022 50,000 50,000 7.45% Series, due 2023 30,000 30,000 8.125% Series, due 2023 100,000 100,000 6.95% Series, due 2025 50,000 50,000 Pollution control revenue obligations: 5.15% to 5.75% Series, due periodically through 2003 10,984 11,544 5.8% Series, due 2007 (secured by first mortgage bonds) - 12,750 5.95% Series, due 2023 (secured by general mortgage bonds) 29,030 29,030 Variable Rate Series- Due 2016 and 2017 (5.0% and 5.7%, respectively) 37,600 37,600 Due 2023 (secured by general mortgage bonds, 5.05% and 5.55%, respectively) 28,295 28,295 Due 2023 (5.1% and 5.6%, respectively) 6,850 6,850 Due 2024 (5.25% and 5.1%, respectively) 34,900 34,900 Due 2025 (5.1%) 12,750 -
The accompanying notes are an integral part of these statements. -4-
MIDAMERICAN ENERGY COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION AS OF DECEMBER 31 -------------------------------- 1995 1994 ------------- ----------- (In thousands) LONG-TERM DEBT (CONTINUED) Notes: 9% to 15% Series, due annually through 1996 $ - $ 22 8.75% Series, due 2002 240 240 6.4% Series, due 2003 through 2007 2,000 2,000 Obligation under capital lease 2,218 2,356 Unamortized debt premium and discount, net (4,126) (4,706) ---------- ---------- Total utility 1,107,741 1,107,881 ---------- ---------- Subsidiaries: Notes - 9.30% Series, due 1995 and 1996 - 9,000 8.7% Series, due annually through 1996 - 25,508 Adjustable Rate Series, due semiannually through 1996 - 13,100 10.20% Series, due 1996 and 1997 30,000 60,000 9.87% Series, due annually through 1997 - 11,664 7.34% Series, due 1998 20,000 20,000 7.76% Series, due 1999 45,000 45,000 8.52% Series, due 2000 through 2002 70,000 70,000 9% Series, due annually through 2000 - 489 8% Series, due annually through 2004 581 613 Borrowings under unsecured revolving credit facility (6.3%) 64,000 - Borrowings under unsecured revolving credit facility (6.4% and 6.6%, respectively) 66,000 35,000 ---------- ---------- Total Subsidiaries 295,581 290,374 ---------- ---------- 1,403,322 50.7% 1,398,255 51.0% ---------- ----- ---------- ------ TOTAL CAPITALIZATION $2,768,982 100.0% $2,742,322 100.0% ---------- ----- ---------- ------ ---------- ----- ---------- ------ CONSOLIDATED STATEMENTS OF RETAINED EARNINGS YEARS ENDED DECEMBER 31 ---------------------------------------- 1995 1994 1993 -------- -------- -------- (In thousands, except per share amounts) BEGINNING OF YEAR $426,683 $421,358 $400,621 -------- -------- -------- NET INCOME 130,823 130,740 143,851 -------- -------- -------- DEDUCT (ADD): (Gain) loss on reacquisition of preferred shares (5) 312 672 Dividends declared on preferred shares 8,064 10,141 8,350 Dividends declared on common shares of $1.18, $1.17 and $1.17 per share, respectively 118,828 114,924 114,060 Other 30 38 32 -------- -------- -------- 126,917 125,415 123,114 -------- -------- -------- END OF YEAR $430,589 $426,683 $421,358 -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these statements. -5- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (a) MERGER: On July 1, 1995, Iowa-Illinois Gas and Electric Company (Iowa-Illinois), Midwest Resources Inc. (Resources) and Midwest Power Systems Inc. (Midwest) merged to form MidAmerican Energy Company (MidAmerican or Company). The merger was accounted for as a pooling-of-interests and the financial statements included herein are presented as if the companies were merged as of the earliest period shown. MidAmerican is a utility company with two wholly owned nonregulated subsidiaries: InterCoast Energy Company (InterCoast) and Midwest Capital Group, Inc. (Midwest Capital). Each outstanding share of preferred and preference stock of the predecessor companies was converted into one share of a similarly designated series of MidAmerican preferred stock, no par value. Each outstanding share of common stock of Resources and Iowa-Illinois was converted into one share and 1.47 shares, respectively, of MidAmerican common stock, no par value. Resources' operating revenues and net income for the six months prior to the merger were $534.2 million and $37.7 million, respectively. Iowa-Illinois' operating revenues, as reclassified to include nonregulated revenues in operating revenues consistent with MidAmerican's presentation, and net income for the six months prior to the merger were $298.9 million and $27.1 million, respectively. (b) CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS: The accompanying Consolidated Financial Statements include the Company and its wholly owned nonregulated subsidiaries, InterCoast and Midwest Capital. All significant intercompany transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. (c) REGULATION: The Company's utility operations are subject to the regulation of the Iowa Utilities Board (IUB), the Illinois Commerce Commission (ICC), the South Dakota Public Utilities Commission, and the Federal Energy Regulatory Commission (FERC). The Company'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. -6- The Company's utility operations are subject to the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation. The following regulatory assets, primarily included in Other Assets in the Consolidated Balance Sheets, represent probable future revenue to the Company because these costs are expected to be recovered in charges to utility customers (in thousands):
1995 1994 Deferred income taxes. . . . . . . . . $144,257 $139,577 Energy efficiency costs. . . . . . . . 101,541 72,694 Debt refinancing costs . . . . . . . . 44,370 47,879 FERC Order 636 transition costs. . . . 40,824 56,608 Retirement benefit costs . . . . . . . 15,354 18,287 Environmental costs. . . . . . . . . . 23,076 23,535 Unamortized costs of retired plant . . 11,618 10,824 Enrichment facilities decommissioning. 8,970 9,807 Other . . . . . . . . . . . . . . . 7,396 10,479 -------- -------- Total . . . . . . . . . . . . . . $397,406 $389,690 -------- -------- -------- --------
(d) REVENUE RECOGNITION: Revenues are recorded as services are rendered to customers. The Company records unbilled revenues, and related energy costs, representing the estimated amount customers will be billed for services rendered between the meter-reading dates in a particular month and the end of such month. Accrued unbilled revenues are $61.0 million and $65.6 million at December 31, 1995 and 1994, respectively, and are included in Receivables on the Consolidated Balance Sheets. The majority of the utility's electric and gas sales are subject to adjustment clauses. These clauses allow the utility to adjust the amounts charged for electric and gas service as the costs of gas, fuel for generation or purchased power change. The costs recovered in revenues through use of the adjustment clauses are charged to expense in the same period. (e) DEPRECIATION AND AMORTIZATION: The Company's provisions for depreciation and amortization for its utility operations are based on straight-line composite rates. The average depreciation and amortization rates for the years ended December 31 were as follows: 1995 1994 1993 Electric . . . . . . . . . . . . . . . . 3.9% 3.8% 3.8% Gas . . . . . . . . . . . . . . . . 3.7% 3.6% 3.9% Utility plant is stated at original cost which includes overhead costs, administrative costs and an allowance for funds used during construction. The cost of repairs and minor replacements is charged to maintenance expense. Property additions and major property replacements are charged to plant accounts. The cost of depreciable units of utility plant retired or disposed of in the normal course of business is eliminated from the utility plant accounts and such cost, plus net removal cost, is charged to accumulated depreciation. -7- An allowance for the estimated annual decommissioning costs of the Quad-Cities Nuclear Power Station (Quad-Cities) equal to the level of funding is included in depreciation expense. See Note 4(d) for additional information regarding decommissioning costs. (f) INVESTMENTS: Investments, managed primarily through the Company's nonregulated subsidiaries, include the following amounts as of December 31 (in thousands):
1995 1994 Investments: Marketable securities . . . . . . . $270,162 $199,514 Oil and gas properties. . . . . . . 160,831 142,378 Equipment Leases. . . . . . . . . . 90,729 123,603 Nuclear decommissioning trust fund. 64,781 49,432 Energy projects . . . . . . . . . . 44,741 51,150 Special-purpose funds . . . . . . . 47,046 34,767 Real estate . . . . . . . . . . . . 65,232 72,721 Corporate owned life insurance. . . 22,743 18,832 Non-public preferred stock. . . . . 14,372 24,451 Coal transportation equipment . . . 10,216 11,616 Communications. . . . . . . . . . . 16,332 4,793 Other . . . . . . . . . . . . . . . 19,311 19,171 -------- -------- Total investments. . . . . . . . . . . $826,496 $752,428 -------- -------- -------- --------
Marketable securities generally consist of preferred stocks, common stocks and mutual funds held by InterCoast. On January 1, 1994, the Company adopted SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under this statement, investments in marketable securities classified as available-for-sale are reported at fair value with net unrealized gains and losses reported as a net of tax amount in Other Common Shareholders' Equity until realized. Investments in marketable securities that are classified as held-to-maturity are reported at amortized cost. An other-than-temporary decline in the value of a marketable security is recognized through a write-down of the investment to earnings. Investments held by the nuclear decommissioning trust fund for the Quad- Cities units are classified as available-for-sale and are reported at fair value with net unrealized gains and losses reported as adjustments to the accumulated provision for nuclear decommissioning. (g) OIL AND GAS: The Company uses the full cost method of accounting for oil and gas activities. Under the full cost method, all acquisition, exploration and development costs are capitalized and amortized over the estimated production from proved oil and gas reserves. Under the full cost method, net capitalized costs may not exceed the present value of proved reserves as determined under rules of the Securities and Exchange Commission. -8- (h) CONSOLIDATED STATEMENTS OF CASH FLOWS: The Company considers all cash and highly liquid debt instruments purchased with a remaining maturity of three months or less to be cash and cash equivalents for purposes of the Consolidated Statements of Cash Flows. Net cash provided (used) from changes in working capital, net of effects from discontinued operations and exchange of assets was as follows (in thousands):
1995 1994 1993 Receivables . . . . . . . . . . $(48,203) $13,152 $ 149 Inventories. . . . . . . . . . . 7,013 8,427 (2,067) Other current assets . . . . . . (3,217) 5,876 605 Accounts payable . . . . . . . . 32,584 (19,329) 13,741 Interest accrued . . . . . . . . (24) (362) (374) Taxes accrued. . . . . . . . . . (9,755) (19,270) 9,338 Other current liabilities. . . . 2,527 2,236 (1,326) -------- -------- ------- Total . . . . . . . . . . . . $(19,075) $ (9,270) $20,066 -------- -------- ------- -------- -------- -------
During 1993, the Company exchanged its Minnesota gas properties, with a book value of $52 million, for gas distribution properties in South Dakota, with an appraised fair value of $32 million, and $38 million cash. A pre-tax gain on the transaction of $18 million was recorded. (i) ACCOUNTING FOR LONG-TERM POWER PURCHASE CONTRACT: Under a long-term power purchase contract with Nebraska Public Power District (NPPD), expiring in 2004, the Company purchases one-half of the output of the 778-megawatt Cooper Nuclear Station (Cooper). The Consolidated Balance Sheets include a liability for the Company's fixed obligation to pay 50% of NPPD's Nuclear Facility Revenue Bonds and other fixed liabilities. A like amount representing the Company's right to purchase power is shown as an asset. -9- Capital improvement costs for new property, including carrying costs, are being deferred, amortized and recovered in rates over the term of the NPPD contract. Capital improvement costs for property replacements, including carrying costs, are being deferred, amortized and recovered in rates over a five-year period. The fuel cost portion of the power purchase contract is included in Cost of Fuel, Energy and Capacity on the Consolidated Statements of Income. All other costs the Company incurs in relation to its long-term power purchase contract with NPPD are included in Other Operating Expenses on the Consolidated Statements of Income. See Notes 4(c), 4(d) and 4(e) for additional information regarding the power purchase contract. (j) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121: In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 121 regarding accounting for asset impairments. This statement, which will be adopted by the Company in the first quarter of 1996, requires the Company to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 121 also requires rate-regulated companies to recognize an impairment for regulatory assets for which future recovery is not probable. Adoption of SFAS No. 121 is not expected to have a material impact on the Company's results of operations or financial position at the time of adoption. (k) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123: In October 1995, the FASB issued SFAS No. 123 regarding accounting for stock- based compensation plans. This statement, which is effective for reporting periods beginning January 1, 1996, allows for alternative methods of adoption. The Company does not expect the accounting provisions or the alternative disclosure provisions of SFAS No. 123 to have a material impact on the Company's results of operations. (2) LONG-TERM DEBT: The Company's sinking fund requirements and maturities of long-term debt and preferred stock for 1996 through 2000 are $65 million, $80 million, $209 million, $171 million and $134 million, respectively. The interest rate on the Company's Adjustable Rate Series Mortgage Bonds is reset every two years at 160 basis points over the average yield to maturity of 10-year Treasury securities. The rate was reset in 1995. The Company's Variable Rate Pollution Control Revenue Obligations bear interest at rates that are periodically established through remarketing of the bonds in the short-term tax-exempt market. The Company, at its option, may change the mode of interest calculation for these bonds by selecting from among several alternative floating or fixed rate modes. The interest rates shown in the Consolidated Statements of Capitalization are the weighted average interest rates as of December 31, 1995 and 1994. The Company maintains dedicated revolving credit facility agreements or renewable lines of credit to provide liquidity for holders of these issues. Substantially all the former Iowa-Illinois utility property and franchises, and substantially all of the former Midwest electric utility property in Iowa, is pledged to secure mortgage bonds. InterCoast's unsecured Notes are issued in private placement transactions. All Notes are issued without recourse to MidAmerican. InterCoast has $64 million and $110 million unsecured revolving credit facility agreements, which mature in 1998 -10- and 1999, respectively. Borrowings under these agreements may be on a fixed rate, floating rate or competitive bid rate basis. InterCoast has entered into two floating rate to fixed interest rate swaps, each in the amount of $32 million. The interest rate swaps have fixed rates at 5.97% and 6.00%, respectively, and are for three-year and two-year terms, respectively, with an optional third year on the latter. All InterCoast borrowings are without recourse to MidAmerican. (3) JOINTLY OWNED UTILITY PLANT: Under joint plant ownership agreements with other utilities, the Company had undivided interests at December 31, 1995, in jointly owned generating plants as shown in the table below. The dollar amounts below represent the Company's share in each jointly owned unit. Each participant has provided financing for its share of each unit. Operating Expenses on the Consolidated Statements of Income include the Company's share of the expenses of these units (dollars in millions).
Nuclear Coal fired ------------ ------------------------------------------------- Council Quad-Cities Neal Bluffs Neal Ottumwa Louisa Units Unit Unit Unit Unit Unit No. 1 & 2 No. 3 No. 3 No.4 No. 1 No. 1 ---------- ------- ------- ------- ------- -------- In service date 1972 1975 1978 1979 1981 1983 Utility plant in service $200.4 $111.7 $286.5 $155.8 $202.2 $526.0 Accumulated depreciation $ 70.6 $ 64.8 $138.8 $ 78.9 $ 89.3 $204.3 Unit capacity-MW 1,539 515 675 624 716 700 Percent ownership 25.0% 72.0% 79.1% 40.6% 52.0% 88.0%
(4) COMMITMENTS AND CONTINGENCIES: (a) CAPITAL EXPENDITURES: Utility construction expenditures for 1996 are estimated to be $166 million, including $17 million for Quad-Cities nuclear fuel and $9 million for Cooper capital improvements. Capital expenditures for nonregulated subsidiaries depend upon the availability of investment opportunities and other factors. During 1996, such expenditures are estimated to be approximately $85 million. (b) ENVIRONMENTAL MATTERS: The United States Environmental Protection Agency (EPA) and the state environmental agencies have determined that contaminated wastes remaining at certain decommissioned manufactured gas plant (MGP) facilities may pose a threat to the public health or the environment if such contaminants are in sufficient quantities and at such concentrations as to warrant remedial action. The Company is evaluating 26 properties which were, at one time, sites of gas manufacturing plants in which it may be a potentially responsible party (PRP). The purpose of these evaluations is to determine whether waste materials are present, whether such materials constitute an environmental or health risk, and whether the Company has any responsibility for remedial action. The Company is currently conducting field investigations at five sites and has completed investigations at three sites. In addition, the Company is currently removing contaminated soil at three sites, and has completed removals at two sites. The Company is continuing to evaluate several sites to determine the future liability, if any, for conducting site investigations or other site activity. -11- The Company's present estimate of probable remediation costs for the sites discussed above is $21 million. This estimate has been recorded as a liability and a regulatory asset for future recovery. 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 MGP sites. The Company's present rates in Iowa provide for a fixed annual recovery of MGP costs. The Company intends to pursue recovery of the remediation costs from other PRPs and its insurance carriers. The estimate of probable remediation costs is established on a site specific basis. The costs are accumulated in a three-step process. First, a determination is made as to whether the Company 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 are accrued. Once the investigation is completed and if it is determined remedial action is required, the best estimate of remediation costs is accrued. If necessary, the estimate is revised when a consent order is issued. The estimated recorded liabilities for these properties are based upon preliminary data. Thus, actual costs could vary significantly from the estimates. The estimate could change materially based on facts and circumstances derived from site investigations, changes in required remedial action and changes in technology relating to remedial alternatives. In addition, insurance recoveries for some or all of the costs may be possible, but the liabilities recorded have not been reduced by any estimate of such recoveries. Although the timing of potential incurred costs and recovery of such costs in rates may affect the results of operations in individual periods, management believes that the outcome of these issues will not have a material adverse effect on the Company's financial position or results of operations. (c) LONG-TERM POWER PURCHASE CONTRACT: Payments to NPPD cover one-half of the fixed and operating costs of Cooper (excluding depreciation but including debt service) and the Company's share of nuclear fuel cost (including nuclear fuel disposal) based on energy delivered. The debt service portion is approximately $1.5 million per month for 1996 and is not contingent upon the plant being in service. In addition, the Company pays one-half of NPPD's decommissioning funding related to Cooper. The debt amortization and Department of Energy (DOE) enrichment plant decontamination and decommissioning component of the Company's payments to NPPD were $12.0 million, $10.8 million and $9.9 million and the net interest component was $4.6 million, $5.4 million and $5.7 million each for the years 1995, 1994 and 1993, respectively. The Company's payments for the debt principal portion of the power purchase contract obligation and the DOE enrichment plant decontamination and decommissioning payments are $13.0 million, $13.6 million, $14.3 million, $15.0 million and $15.8 million for 1996 through 2000, respectively, and $54.0 million for 2001 through 2004. (d) DECOMMISSIONING COSTS: Based on site-specific decommissioning studies that include decontamination, dismantling, site restoration and dry fuel storage cost, the Company's share of expected decommissioning costs for Cooper and Quad-Cities, in 1995 dollars, is $420 million. In Illinois, nuclear decommissioning costs are included in customer billings through a mechanism that permits annual adjustments. Such costs are reflected as base rates in Iowa tariffs. For purposes of developing a decommissioning funding plan for Cooper, NPPD assumes that decommissioning costs will escalate at an annual rate of 4%. Although Cooper's operating license expires in 2014, the funding plan assumes decommissioning will start in 2004, the currently anticipated plant shutdown date. -12- As of December 31, 1995, the Company's share of funds set aside by NPPD in internal and external accounts for decommissioning was $49.4 million. In addition, the funding plan also assumes various funds and reserves currently held to satisfy NPPD Bond Resolution requirements will be available for plant decommissioning costs after the bonds are retired in early 2004. The funding schedule assumes a long-term return on funds in the trust of 6% annually. Certain funds will be required to be invested on a short-term basis when decommissioning begins and are assumed to earn at a rate of 4% annually. NPPD is recognizing decommissioning costs over the expected service life of the plant, and 50% of the costs are included as a component of the Company's power purchased costs. During each of the years 1995, 1994 and 1993, $8.9 million of the Company's power purchased costs were for Cooper decommissioning and are included in Other Operating Expenses in the Consolidated Statements of Income. Earnings from the internal and external trust funds, which are recognized by NPPD as the owner of the plant, are tax exempt and serve to reduce future funding requirements. The Company has established an external trust for the investment of funds for decommissioning the Quad-Cities units. The total accrued balance as of December 31, 1995, was $64.8 million and is included in Other Liabilities and a like amount is reflected in Investments and represents the value of the assets held in the trust. The Company's provision for depreciation includes costs for Quad-Cities nuclear decommissioning of $8.6 million, $9.1 million and $7.9 million for 1995, 1994 and 1993, respectively. The provision charged to expense is equal to the funding that is being collected in rates. The decommissioning funding component of the Company's Illinois tariffs assumes that decommissioning costs, related to the Quad-Cities unit, will escalate at an annual rate of 5.3% and the assumed annual return on funds in the trust is 6.5%. The Quad-Cities decommissioning funding component of the Company's Iowa tariffs assumes that decommissioning costs will escalate at an annual rate of 6.3% and the assumed annual return on funds in the trust is 6.5%. Earnings on the assets in the trust fund were $2.5 million, $2.2 million and $2.0 million for 1995, 1994 and 1993. (e) NUCLEAR INSURANCE: The Company maintains financial protection against catastrophic loss associated with its interest in Quad-Cites and Cooper through a combination of insurance purchased by NPPD (the owner and operator of Cooper) and Commonwealth Edison (the joint owner and operator of Quad-Cities), insurance purchased directly by the Company, and the mandatory industry-wide loss funding mechanism afforded under the Price-Anderson Amendments Act of 1988. The coverage falls into three categories: nuclear liability, property coverage and nuclear worker liability. NPPD and Commonwealth Edison each purchase nuclear liability insurance in the maximum available amount of $200 million. In accordance with the Price-Anderson Amendments Act of 1988, excess liability protection above that amount is provided by a mandatory industry-wide program under which the owners 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, the Company's maximum potential share of such an assessment is $79.2 million per incident, payable in installments not to exceed $10 million annually. The property coverage provides for property damage, stabilization and decontamination of the facility, disposal of the decontaminated material and premature decommissioning. For Quad-Cities, Commonwealth Edison purchases primary and excess property insurance protection for the combined interest in Quad-Cities totalling $2.1 billion. For Cooper, NPPD purchases primary property insurance in the amount of $500 million. Additionally, commencing December 31, 1995, the Company and NPPD separately purchase coverage for their respective obligation of $1.125 billion each in excess of the $500 million primary layer purchased by NPPD. This structure provides that both the Company and NPPD are covered for their respective 50% obligation in the event of a loss totalling $2.75 billion. The Company also directly purchases extra expense/business interruption coverage to cover the cost of replacement power and/or other continuing costs in the event of a covered accidental outage at Cooper or Quad- Cities. The coverages purchased directly by the -13- Company, and the primary and excess property coverages purchased by Commonwealth Edison, 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 the Company for its obligations associated with Cooper and Quad-Cities combined total $19.4 million. The master nuclear worker liability coverage is an industry-wide policy with an aggregate limit of $200 million for the nuclear industry as a whole, which is in effect to cover tort claims of workers as a result of radiation exposure on or after January 1, 1988. The Company's share, based on its interest in Cooper and Quad-Cities, of a maximum potential share of a retrospective assessment under this program is $3.0 million. (f) FINANCIAL GUARANTEES: The Company has letters of credit amounting to $20.4 million and financial guarantees amounting to $11.3 million which are not reflected in the consolidated financial statements. Letters of credit and financial guarantees are conditional commitments issued by, or on behalf of, the Company to secure performance for a third party. The guarantees are primarily issued to support private borrowing arrangements and similar transactions. Management believes that the likelihood of material cash payments by the Company under these agreements is remote. (g) COAL AND NATURAL GAS CONTRACT COMMITMENTS: The Company has entered into coal supply and transportation contracts for its fossil-fueled generating stations. The contracts, require minimum payments of $65 million, $45 million, $28 million, $26 million and $16 million for the years 1996 through 2000, respectively, and $28 million for the years thereafter. The Company expects to supplement these coal contracts with spot market purchases to fulfill its future fossil fuel needs. The Company has entered into various natural gas supply and transportation contracts for its utility operations. The minimum commitments under these contracts are $98 million, $87 million, $49 million, $26 million and $23 million for the years 1996 through 2000, respectively, and $96 million for the years thereafter. During 1993 FERC Order 636 became effective, requiring interstate pipelines to restructure their services. The pipelines will recover the transition costs related to Order 636 from the local distribution companies. The Company has recorded a liability and regulatory asset for the transition costs which are being recovered by the Company through the purchased gas adjustment clause. The unrecovered balance recorded by the Company as of December 31, 1995, was $41 million. -14- (5) COMMON SHAREHOLDERS' EQUITY: Common shares outstanding changed during the years ended December 31 as shown in the table below (in thousands):
1995 1994 1993 Amount Shares Amount Shares Amount Shares -------- -------- -------- -------- -------- -------- Balance, beginning of year . . . $786,420 99,687 $759,120 97,782 $759,610 97,778 Changes due to: Issuance of common shares. . 15,083 1,065 27,760 1,911 - - Capital stock expense . . . (276) - (377) - (442) - Other. . . . . . . . . . . . - - (83) (6) (48) 4 -------- -------- -------- -------- -------- -------- Balance, end of year . . . . . . $801,227 100,752 $786,420 99,687 $759,120 97,782 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(6) RETIREMENT PLANS: The Company has noncontributory defined benefit pension plans covering substantially all employees. Benefits under the plans are based on participants' compensation, years of service and age at retirement. Funding 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 utility has been allowed to recover funding contributions in rates. Net periodic pension cost includes the following components for the years ended December 31 (in thousands):
1995 1994 1993 Service cost-benefit earned during the period. . . . . . . . . . . . . $ 9,817 $ 13,241 $ 11,140 Interest cost on projected benefit obligation. . . . . . . . . . . . . 27,934 26,822 25,431 Decrease in pension costs from actual return on assets. . . . . . . . . . (63,593) (7,835) (22,149) Net amortization and deferral. . . . . . . . 32,126 (21,030) (6,075) One-time charge. . . . . . . . . . . . . . . 15,683 - - Regulatory deferral of incurred cost . . . . (10,470) (2,871) (2,018) ------- ------- ------- Net periodic pension cost. . . . . . . . . . $ 11,497 $ 8,327 $ 6,329 ------- ------- ------- ------- ------- -------
During 1995, the Company incurred a one-time charge of $15.7 million related to the early retirement portion of its restructuring plan. Of such cost, $3.0 million was charged to expense and the remaining amount was deferred for future recovery through the regulatory process. -15- The plan assets are stated at fair market value and are primarily comprised of insurance contracts, United States government debt and corporate equity securities. The following table presents the plans' funding status and amounts recognized in the Company's Consolidated Balance Sheets as of December 31 (dollars in thousands):
Plans in Which: ----------------------------------------------------------- Assets Exceed Accumulated Benefits Accumulated Benefits Exceed Assets ---------------------------- ---------------------------- 1995 1994 1995 1994 ----------- ------------ ------------ ------------ Actuarial present value of benefit obligations: Vested benefit obligation . . . . . . . . . . . $(293,985) $(224,488) $ (32,429) $(18,915) Nonvested benefit obligation . . . . . . . . . . (7,516) (5,881) (816) (1,744) ----------- ------------ ------------ ------------ Accumulated benefit obligation . . . . . . . . . (301,501) (230,369) (33,245) (20,659) Provision for future pay increases . . . . . . . (94,633) (66,414) (5,455) (2,357) ----------- ------------ ------------ ------------ Projected benefit obligation . . . . . . . . . . (396,134) (296,783) (38,700) (23,016) Plan assets at fair value. . . . . . . . . . . . . 385,598 335,809 - - ----------- ------------ ------------ ------------ Projected benefit obligation (greater) less than plan assets . . . . . . . . . . . . . . . . (10,536) 39,026 (38,700) (23,016) Unrecognized prior service cost. . . . . . . . . . (15,866) 22,520 2,884 6,896 Unrecognized net loss (gain) . . . . . . . . . . . 29,541 (40,151) 9,431 2,603 Unrecognized net transition asset. . . . . . . . . (21,521) (24,112) - - Other . . . . . . . . . . . . . . . . . . . . . . - - (6,860) (7,142) ----------- ------------ ------------ ------------ Pension liability recognized in the Consolidated Balance Sheets . . . . . . . . . . $ (18,382) $ (2,717) $ (33,245) $(20,659) ----------- ------------ ------------ ------------ ----------- ------------ ------------ ------------ Assumptions used were: Discount rate . . . . . . . . . . . . . . . . . . 7.0% 8.5% Rate of increase in compensation levels. . . . . . 5.0% 5.0% Expected long-term rate of return on assets. . . . 8.75-9.0% 8.75-9.0%
The Company currently provides certain health care and life insurance benefits for retired employees. Under the plans, substantially all of the Company's 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. In January 1993, the Company adopted SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. The Company began expensing these costs on an accrual basis for its Illinois customers and certain of its Iowa customers in 1993 and including provisions for such costs in rates for these customers. For its remaining Iowa customers, the Company deferred the portion of these costs above the "pay-as-you-go" amount already included in rates until recovery on an accrual basis was established in 1995. The Company is currently amortizing the deferral, expensing the SFAS No. 106 accrual and including provisions for these costs in rates. -16- Net periodic postretirement benefit cost includes the following components for the year ended December 31 (dollars in thousands):
1995 1994 1993 Service cost-benefit earned during the period. . . $ 1,583 $ 2,147 $ 2,252 Interest cost . . . . . . . . . . . . . . . . . 7,185 7,221 8,644 Increase (decrease) in benefit cost from actual return on assets . . . . . . . . . . . . . (2,090) 894 (468) Amortization of unrecognized transition obligation . . . . . . . . . . . . . . . . . . . 5,291 5,442 5,449 Other . . . . . . . . . . . . . . . . . . . . (262) (1,991) 293 One-time charge for early retirement . . . . . . . 4,353 - - Regulatory recognition of incurred cost. . . . . . 5,140 (6,218) (9,126) ------- ------- ------- Net periodic postretirement benefit cost . . . . . $21,200 $ 7,495 $ 7,044 ------- ------- ------- ------- ------- -------
During 1995, the Company recorded a one-time expense of $4.4 million related to the early retirement portion of its restructuring plan. The Company has established external trust funds to meet its expected postretirement benefit obligations. The trust funds are comprised primarily of guaranteed rate investment accounts and money market investment accounts. A reconciliation of the funded status of the plan to the amounts realized as of December 31 is presented below (dollars in thousands):
1995 1994 Accumulated present value of benefit obligations: Retiree benefit obligation . . . . . . . . . . . . $(67,488) $(55,233) Active employees fully eligible for benefits . . . (5,904) (6,127) Other active employees . . . . . . . . . . . . . . (33,949) (26,939) -------- ------- Accumulated benefit obligation . . . . . . . . . . (107,341) (88,299) Plan assets at fair value. . . . . . . . . . . . . 26,916 18,200 -------- ------- Accumulated benefit obligation greater than plan assets . . . . . . . . . . . . . . . . . . . (80,425) (70,099) Unrecognized net gain. . . . . . . . . . . . . . . (13,880) (25,894) Unrecognized transition obligation . . . . . . . . 89,952 95,993 -------- ------- Postretirement benefit liability recognized in the Consolidated Balance Sheets. . . . . . . . . . . $ (4,353) $ - -------- ------- -------- ------- Assumptions used were: Discount rate . . . . . . . . . . . . . . . . . 7.0% 8.5% Expected long-term rate of return on assets (after taxes): Midwest Resources union plan . . . . . . . . . . 9.0% 9.0% Midwest Resources salaried plan. . . . . . . . . 4.6% 4.6% Iowa-Illinois plans. . . . . . . . . . . . . . . 3.0% 3.0%
For purposes of calculating the postretirement benefit obligation, it is assumed that health care costs for covered individuals prior to age 65 will increase by 11% in 1996, and that the rate of increase thereafter will decline by 1% annually to an ultimate rate of 5% by the year 2002. For covered individuals age 65 and older, it is assumed that health care costs will increase by 9% in 1996, and that the rate of increase thereafter will decline by 1% annually to an ultimate rate of 5% by the year 2000. -17- If the assumed health care trend rates used to measure the expected cost of benefits covered by the plans were increased by 1%, the total service and interest cost would increase by $0.9 million and the accumulated postretirement benefit obligation would increase by $7.6 million. The Company sponsors defined contribution pension plans (401(k) plans) covering substantially all employees. The Company's contributions to the plans, which are based on the participants level of contribution and cannot exceed four percent of the participants salaries or wages, were $3.7 million, $3.6 million and $3.6 million for 1995, 1994 and 1993, respectively. (7) SHORT-TERM BORROWING: Interim financing of working capital needs and the construction program may be obtained from the sale of commercial paper or short-term borrowing from banks. Information regarding short-term debt follows (dollars in thousands):
1995 1994 1993 Balance at year-end . . . . . . . . . . . $184,800 $124,500 $173,035 Weighted average interest rate on year-end balance. . . . . . . . . . . . 5.7% 6.1% 3.4% Average daily amount outstanding during the year. . . . . . . . . . . . . . $114,036 $105,728 $117,445 Weighted average interest rate on average daily amount outstanding during the year. . . . . . . . 6.0% 4.4% 3.3%
At December 31, 1995, the Company had bank lines of credit of $250 million to provide short-term financing for its utility operations. As of December 31, 1995, the Company has regulatory authority to borrow up to $400 million of short-term debt for its utility operations. In January 1996, the Company entered into a $250 million revolving credit facility agreement to replace the lines of credit. The Company's commercial paper borrowings are currently supported by the revolving credit facility. (8) RATE MATTERS: The table below shows the Company's recent material general rate activities (dollars in thousands): Filing entity. . . . . . . . . . . . . . Midwest Midwest State of filing. . . . . . . . . . . . . Iowa Iowa Service . . . . . . . . . . . . . . . . Gas Electric Interim revenue increase: Amount . . . . . . . . . . . . . . . $ 8,200 $15,600 Percent. . . . . . . . . . . . . . . 3.2% 2.7% Date collection began. . . . . . . . October 18, 1994 January 1, 1995 Final revenue increase: Amount . . . . . . . . . . . . . . . $10,600 $20,300 Percent. . . . . . . . . . . . . . . 4.1% 3.4% Date collection began. . . . . . . . August 1, 1995 August 11, 1995
-18- The table below summarizes the results of the Company's recent material energy efficiency cost recovery filing activities (dollars in thousands): Filing entity . . . . . . . . . . Midwest Midwest Iowa-Illinois State of filing. . . . . . . . . . Iowa Iowa Iowa Final revenue increase granted*. . $19,700 $18,700 $18,600 Deferred charges to be amortized*. $14,100 $13,400 $13,800 Date collection began. . . . . . . October 12, 1994 January 21, 1995 August 3, 1995
* Recovery and amortization over a four-year period (9) DISCONTINUED OPERATIONS: The Company reflected as discontinued operations at September 30, 1994, all activities of a subsidiary that constructed generating facilities and a subsidiary that constructed electric distribution and transmission systems. Essentially all of the assets of these subsidiaries have been sold. Midwest Capital, under the terms of certain sale agreements, has indemnified the purchasers of the construction subsidiaries for specified losses or claims relating to construction projects which occurred prior to the date of their sale. In addition, Midwest Capital has guaranteed performance on a joint venture turnkey engineering, procurement and construction contract for a cogeneration project. The Company has provided a support agreement to Midwest Capital related to this project. In October 1995, the project received preliminary acceptance from the owner. Management believes that the likelihood of a material adverse impact to the Company under any indemnity provision of the sale agreements or construction contracts or material cash payments by the Company under the support agreements is remote. Net assets of the construction subsidiaries are separately presented on the Consolidated Balance Sheets as Investment in Discontinued Operations. Proceeds received from the disposition of the construction investments through December 31, 1995, were $4.1 million. Revenues from discontinued activities, as well as the results of operations and the estimated income (loss) on the disposal of discontinued operations for the years ended December 31 are as follows (in thousands):
1995 1994 1993 Operating Revenues . . . . . . . . . $ 7,334 $ 69,958 $ 94,350 -------- -------- --------- -------- -------- --------- Income (loss) from discontinued operations before income taxes . . . . . . . . $ 880 $ (2,788) $ (7,033) Income tax benefit (expense) . . . . (463) 908 3,179 -------- -------- --------- Total. . . . . . . . . . . . $ (417) $ (1,880) $ (3,854) -------- -------- --------- -------- -------- --------- Loss on disposal before income taxes . . . . . . . . $ - $(11,576) $ - Income tax benefit . . . . . . . . . - 7,811 - -------- ------- --------- Total. . . . . . . . . . . . $ - $ (3,765) $ - -------- -------- --------- -------- -------- ---------
-19- (10) CONCENTRATION OF CREDIT RISK: The Company's electric utility operations serve 549,000 customers in Iowa, 83,000 customers in western Illinois and 3,000 customers in southeastern South Dakota. The Company's gas utility operations serve 471,000 customers in Iowa, 65,000 customers in western Illinois, 60,000 customers in southeastern South Dakota and 4,000 customers in northeastern Nebraska. The largest communities served by the Company are the Iowa and Illinois Quad-Cities; Des Moines, Sioux City, Cedar Rapids, Waterloo, Iowa City and Council Bluffs, Iowa; and Sioux Falls, South Dakota. The Company's utility operations grant unsecured credit to customers, substantially all of whom are local businesses and residents. As of December 31, 1995, billed receivables from the Company's utility customers totalled $126 million. The Company has investments in preferred stocks of companies in the utility industry. As of December 31, 1995, the total cost of these investments was $163 million. InterCoast has entered into leveraged lease agreements with companies in the airline industry. As of December 31, 1995, the receivables under these agreements totalled $38 million. (11) PREFERRED SHARES: On December 15, 1994, the Company redeemed all of its outstanding $4.36 Series, $4.22 Series and $7.50 Series preferred shares. The redemption was made at a premium, which resulted in a charge to net income on common shares of $312,000. The $5.25 Series Preferred Shares, which are not redeemable prior to November 1, 1998 for any purpose, are subject to mandatory redemption on November 1, 2003 at $100 per share. The $7.80 Series Preferred Shares, which are not redeemable prior to May 1, 1996 for any purpose, have sinking fund requirements under which 66,600 shares will be redeemed at $100 per share each May 1, beginning in 2001 through May 1, 2006. The total outstanding cumulative preferred stock that is not subject to mandatory redemption requirements may be redeemed at the option of the Company at prices which, in the aggregate, total $95.1 million. The aggregate total the holders of all preferred stock outstanding at December 31, 1995, are entitled to upon involuntary bankruptcy is $141.8 million plus accrued dividends. Annual dividend requirements for preferred stock outstanding at December 31, 1995, total $9.1 million. -20- (12) SEGMENT INFORMATION: Information related to segments of the Company's business is as follows for the years ended December 31 (in thousands):
1995 1994 1993 UTILITY Electric- Operating revenues . . . . . . . . . . $ 1,094,647 $1,021,660 $1,002,970 Cost of fuel, energy and capacity. . . 230,261 213,987 217,385 Depreciation and amortization expense. 136,324 132,886 129,814 Other operating expenses . . . . . . . 459,344 438,811 424,589 ----------- --------- --------- Operating income . . . . . . . . . . . $ 268,718 $ 235,976 $ 231,182 ----------- --------- --------- ----------- --------- --------- Gas- Operating revenues . . . . . . . . . $ 459,588 $ 492,015 $ 538,989 Cost of gas sold . . . . . . . . . . . 279,025 326,782 366,049 Depreciation and amortization expense. 22,626 21,343 21,008 Other operating expenses . . . . . . . 122,017 111,644 110,970 ----------- --------- --------- Operating income . . . . . . . . . . . $ 35,920 $ 32,246 $ 40,962 ----------- --------- --------- ----------- --------- --------- Operating income . . . . . . . . . . . . $ 304,638 $ 268,222 $ 272,144 Other income (expense) . . . . . . . . . (4,074) (3,712) 21,185 Interest charges . . . . . . . . . . . . 83,977 76,606 83,524 ----------- --------- --------- Income from continuing operations before income taxes . . . . . . . . . . 216,587 187,904 209,805 Income taxes . . . . . . . . . . . . . . 84,098 66,759 75,917 ----------- --------- --------- Income from continuing operations. . . . $ 132,489 $ 121,145 $ 133,888 ----------- --------- --------- ----------- --------- --------- Capital Expenditures- Electric . . . . . . . . . . . . . . . $ 133,490 $ 164,870 $ 178,903 Gas. . . . . . . . . . . . . . . . . . 57,281 46,799 36,178 NONREGULATED Revenues . . . . . . . . . . . . . . . . $ 169,409 $ 177,235 $ 140,976 Cost of sales. . . . . . . . . . . . . . 128,685 130,621 96,656 Depreciation, depletion and amortization . . . . . . . . . . . 26,573 24,884 18,771 Other operating expenses . . . . . . . . 17,657 16,346 16,797 ----------- --------- --------- Operating income (loss). . . . . . . . . (3,506) 5,384 8,752 Other income . . . . . . . . . . . . . . 15,734 37,084 30,978 Interest charges . . . . . . . . . . . . 30,425 31,638 30,421 Income (loss) from continuing operations before income taxes. . . . . . . . . . (18,197) 10,830 9,309 Income taxes . . . . . . . . . . . . . . (16,114) (4,410) (4,508) ----------- --------- --------- Income (loss) from continuing operations . . . . . . . . . . . . . . $ (2,083) $ 15,240 $ 13,817 ----------- --------- --------- ----------- --------- --------- Capital expenditures . . . . . . . . . . $ 56,162 $ 52,609 $ 86,505 -21-
1995 1994 1993 ASSET INFORMATION Identifiable assets- Electric (a) . . . . . . . . . . . . . $2,947,832 $2,915,749 $2,891,487 Gas (a). . . . . . . . . . . . . . . . 709,742 693,203 662,634 Used in overall utility operations . . . . . . . . . . . . . 46,644 71,399 67,622 Nonregulated . . . . . . . . . . . . . . 819,303 735,423 749,518 ---------- ---------- ---------- Total assets . . . . . . . . . . . . . . $4,523,521 $4,415,774 $4,371,261 ---------- ---------- ---------- ---------- ---------- ----------
(a) Utility plant less accumulated provision for depreciation, accounts receivable, accrued unbilled revenues, inventories, deferred gas expense, energy adjustment clause balance, nuclear decommissioning trust fund and regulatory assets. (13) FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments Tariffs for the Company's utility services are established based on historical cost ratemaking. Therefore, the impact of any realized gains or losses related to financial instruments applicable to the Company's utility operations is dependent on the treatment authorized under future ratemaking proceedings. Cash and cash equivalents - The carrying amount approximates fair value due to the short maturity of these instruments. Quad-Cities nuclear decommissioning trust fund - Fair value is based on quoted market prices of the investments held by the fund. Marketable securities - Fair value is based on quoted market prices. Debt securities - Fair value is based on the discounted value of the future cash flows expected to be received from such investments. Equity investments carried at cost - Fair value is based on an estimate of the Company's share of partnership equity, offers from unrelated third parties or the discounted value of the future cash flows expected to be received from such investments. Notes payable - Fair value is estimated to be the carrying amount due to the short maturity of these issues. Preferred shares - Fair value of preferred shares with mandatory redemption provisions is estimated based on the quoted market prices for similar issues. -22- Long-term debt - Fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The following table presents the carrying amount and estimated fair value of certain financial instruments as of December 31 (in thousands):
1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value ---------- --------- --------- -------- Financial Instruments Owned by the Company: Equity investments carried at costs . . . . . . . . . . . . . . . $ 58,972 $ 61,316 $ 22,352 $ 23,930 Financial Instruments Issued by the Company: Preferred shares; subject to mandatory redemption . . . . . . . . . . . . $ 50,000 $ 52,800 $ 50,000 $ 50,836 Long-term debt, including current portion . . . . . . . . . . . . . . $1,468,617 $1,528,504 $1,471,127 $1,391,372
The amortized cost, gross unrealized gain and losses and estimated fair value of investments in debt and equity securities at December 31, 1995 and 1994, are summarized as follows (in thousands):
1995 Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------- -------- -------- -------- Available-for-sale: Equity securities $254,111 $ 7,132 $ (9,278) $251,965 Municipal Bonds 38,098 3,228 (210) 41,116 Cash equivalents 8,092 - - 8,092 Other debt securities 42,734 355 (6,507) 36,582 -------- -------- -------- -------- $343,035 $ 10,715 $(15,995) $337,755 -------- -------- -------- -------- -------- -------- -------- -------- Held-to-maturity: Equity securities $ 11,389 $ - $ (786) $ 10,603 Debt securities 19,440 31 (921) 18,550 -------- -------- -------- -------- $ 30,829 $ 31 $ (1,707) $ 29,153 -------- -------- -------- -------- -------- -------- -------- --------
-23-
1994 Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- -------- --------- --------- Available-for-sale: Equity securities $171,201 $2,388 $(14,703) $158,886 Municipal bonds 43,034 749 (1,773) 42,010 Cash equivalents 5,836 - - 5,836 Other debt securities 4,102 - - 4,102 --------- -------- --------- --------- $224,173 $3,137 $(16,476) $210,834 --------- -------- --------- --------- --------- -------- --------- --------- Held-to-maturity: Equity securities $ 40,628 $ - $ (1,374) $ 39,254 Debt securities 14,804 39 (1,849) 12,994 --------- -------- --------- --------- $ 55,432 $ 39 $ (3,223) $ 52,248 --------- -------- --------- --------- --------- -------- --------- ---------
At December 31, 1995, the debt securities held by the Company had the following maturities (in thousands):
Amortized Fair Cost Value --------- -------- Within 1 year $ 2,575 $ 2,454 1 through 5 years 38,345 36,934 5 through 10 years 35,788 32,239 Over 10 years 23,564 24,621
During 1995, the Company re-evaluated the classification of its securities classified as held-to-maturity and available-for-sale. As a result, certain securities, with a total amortized cost of $33.1 million and a market value of $33.8 million, were transferred from securities classified as held-to- maturity to available-for-sale securities. The proceeds and the gross realized gains and losses on the disposition of investments held by the Company for the years ended December 31, are as follows (in thousands):
1995 1994 Proceeds from sales $107,692 $135,769 Gross realized gains 3,923 10,338 Gross realized losses (3,158) 5,234
-24- (14) INCOME TAX EXPENSE: Income tax expense from continuing operations includes the following for the years ended December 31 (in thousands):
1995 1994 1993 Income taxes Current Federal . . . . . . . . . . $45,635 $20,036 $57,179 State . . . . . . . . . . . 12,071 5,387 12,295 -------- -------- -------- 57,706 25,423 69,474 Deferred Federal . . . . . . . . . . 15,905 37,316 7,610 State . . . . . . . . . . . 2,550 6,565 3,996 -------- -------- -------- 18,455 43,881 11,606 Investment tax credit, net. . (8,177) (6,955) (9,671) -------- -------- -------- Total income tax expense. . . $67,984 $62,349 $71,409 -------- -------- -------- -------- -------- --------
Included in Deferred Income Taxes in the Consolidated Balance Sheets as of December 31 are deferred tax assets and deferred tax liabilities as follows (in thousands):
1995 1994 Deferred tax assets Related to: Investment tax credits . . . $ 63,374 $ 67,279 Unrealized losses. . . . . . 7,548 4,008 Pensions . . . . . . . . . . 17,938 16,834 AMT credit carry forward . . 18,738 34,555 Nuclear reserves and decommissioning . . . . . 8,367 8,340 Other. . . . . . . . . . . . 10,679 14,640 -------- -------- Total. . . . . . . . . . . . $126,644 $145,656 -------- -------- -------- -------- 1995 1994 Deferred tax liabilities Related to: Depreciable property . . . . $533,750 $563,099 Income taxes recoverable through future rates. . . 207,631 206,856 Intangible drilling costs. . 38,278 17,062 Energy efficiency. . . . . . 28,616 17,635 Reacquired debt. . . . . . . 17,595 18,575 FERC Order 636 . . . . . . . 16,073 17,939 Other. . . . . . . . . . . . 31,275 30,155 -------- -------- Total. . . . . . . . . . . . $873,218 $871,321 -------- -------- -------- --------
The following table is a reconciliation between the effective income tax rate, before preferred stock dividends, indicated by the Consolidated Statements of Income and the statutory federal income tax rate for the years ended December 31: -25-
1995 1994 1993 Effective federal and state income tax rate . . . . . . . . . . . . . . 34% 31% 33% Amortization of investment tax credit . . . . 4 4 4 Resolution of prior year tax issue. . . . . . - 2 - State income tax, net of federal income tax benefit . . . . . . . . . . . . . . . . (5) (4) (5) Dividends received deduction. . . . . . . . . 2 2 2 Other . . . . . . . . . . . . . . . . . . . . - - 1 ---- ---- ---- Statutory federal income tax rate . . . . . . 35% 35% 35% ---- ---- ---- ---- ---- ----
(15) INVENTORIES: Inventories include the following amounts as of December 31 (in thousands):
1995 1994 Materials and supplies, at average cost. . . $ 27,442 $ 31,688 Coal stocks, at average cost . . . . . . . . 32,163 26,878 Fuel oil, at average cost. . . . . . . . . . 1,523 1,907 Gas in storage, at LIFO cost . . . . . . . . 21,883 30,347 Other. . . . . . . . . . . . . . . . . . . . 2,224 1,428 --------- --------- Total. . . . . . . . . . . . . . . . . . . . $ 85,235 $ 92,248 --------- --------- --------- ---------
At December 31, 1995 prices, the current cost of gas in storage was $31.4 million. (16) OTHER INFORMATION: The Company has completed a merger-related restructuring plan during 1995. Other operating expenses in the Consolidated Statements of Income for 1995 includes $33.4 million related to the restructuring plan. Non-Operating - Other, Net, as shown on the Consolidated Statements of Income includes the following for the years ended December 31 (in thousands):
1995 1994 1993 Allowance for equity funds used during construction . . . . . . . . . . . . . $ 481 $ 452 $ - Gain on sale of assets, net. . . . . . . . . . 8,570 4,468 20,164 Income (loss) from equity method investments . (312) 2,712 2,073 Energy efficiency carrying charges . . . . . . 3,092 1,681 1,172 Merger costs . . . . . . . . . . . . . . . . . (4,624) (4,510) - Other-than-temporary declines in value of investments and other assets . . . . . . . (17,971) (1,791) (2,939) Other. . . . . . . . . . . . . . . . . . . . . 297 1,304 372 --------- ---------- -------- Total. . . . . . . . . . . . . . . . . . . . . $(10,467) $ 4,316 $ 20,842 --------- ---------- -------- --------- ---------- --------
-26- (17) HOLDING COMPANY PROPOSAL The Company's Board of Directors has approved the formation of a holding company for MidAmerican's organizational structure. The holding company would have two wholly owned subsidiaries consisting of MidAmerican (utility operations) and InterCoast. Consummation of the holding company structure is subject to approval by holders of a majority of the outstanding shares of the Company's common stock. In addition, certain orders must be received from the ICC, IUB, FERC, and the Nuclear Regulatory Commission. Subject to such approvals, each share of MidAmerican common stock will be exchanged for one share of the holding company's stock. It is management's intent, if possible, to complete the formation of the holding company and share exchange by the end of 1996. (18) UNAUDITED QUARTERLY OPERATING RESULTS:
1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ----------- ----------- (In thousands, except per share amounts) Operating revenues . . . . . . . . . . $461,422 $371,712 $434,623 $455,887 Operating income . . . . . . . . . . . 78,841 56,312 99,887 66,092 Income from continuing operations. . . 37,577 26,674 37,457 28,698 Income (loss) from discontinued operations . . . . . . . . . . . . . - 516 - (99) Earnings on common stock . . . . . . . 35,296 24,908 35,780 26,780 Earnings per average common share: Income from continuing operations. . $ 0.35 $ 0.24 $ 0.36 $ 0.27 Income (loss) from discontinued operations . . . . . . . . . . . . - 0.01 - - -------- -------- -------- -------- Earnings per average common share. . . $ 0.35 $ 0.25 $ 0.36 $ 0.27 -------- -------- -------- -------- -------- -------- -------- -------- 1994 1st Quarter 2nd Quarter 3rd Quarter* 4th Quarter ----------- ----------- ----------- ----------- (In thousands, except per share amounts) Operating revenues . . . . . . . . . . $ 529,422 $ 368,126 $ 382,492 $ 410,870 Operating income . . . . . . . . . . . 86,855 55,949 85,570 45,232 Income from continuing operations. . . 47,468 24,748 42,125 22,044 Loss from discontinued operations. . . (759) (603) (4,236) (47) Earnings on common stock . . . . . . . 44,136 21,571 35,315 19,167 Earnings per average common share: Income from continuing operations . $ 0.46 $ 0.23 $ 0.40 $ 0.19 Loss from discontinued operations . (0.01) (0.01) (0.04) - -------- -------- -------- -------- Earnings per average common share. . . $ 0.45 $ 0.22 $ 0.36 $ 0.19 -------- -------- -------- -------- -------- -------- -------- --------
* Includes the estimated loss on the disposal of the construction subsidiaries. The quarterly data reflect seasonal variations common in the utility industry. -27- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of MidAmerican Energy Company and Subsidiaries: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of MidAmerican Energy Company (an Iowa corporation) and subsidiaries, as of December 31, 1995 and 1994, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1994 and 1993 financial statements of Iowa- Illinois Gas and Electric Company, one of the companies merged in 1995 to form MidAmerican Energy Company in a transaction accounted for as a pooling-of- interests, as discussed in Note (1)(a). Such statements are included in the consolidated financial statements of MidAmerican Energy Company and subsidiaries and reflect total assets constituting 42% in 1994 and total revenues constituting 36% in 1994 and 1993, of the related consolidated totals. These statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Iowa-Illinois Gas and Electric Company, is based solely upon the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. 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, based on our report and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of MidAmerican Energy Company and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Chicago, Illinois January 26, 1996 -28- REPORT OF MANAGEMENT Management is responsible for the preparation of all information contained in this Annual Report, including the financial statements. The statements and related financial information have been prepared in conformity with generally accepted accounting principles. In the opinion of management, the financial position, results of operation and cash flows of the Company are reflected fairly in the statements. The statements have been audited by the Company's independent public accountants, Arthur Andersen LLP. The Company maintains a system of internal controls which is designed to provide reasonable assurance, on a cost effective basis, that transactions are executed in accordance with management's authorization, the financial statements are reliable and the Company's assets are properly accounted for and safeguarded. The Company's internal auditors continually evaluate and test the system of internal controls and actions are taken when opportunities for improvement are identified. Management believes that the system of internal controls is effective. The Audit Committee of the Board of Directors, the members of which are directors who are not employees of the Company, meets regularly with management, the internal auditors and Arthur Andersen LLP to discuss accounting, auditing, internal control and financial reporting matters. The Company's independent public accountants are appointed annually by the Board of Directors on recommendation of the Audit Committee. The internal auditors and Arthur Andersen LLP each have full access to the Audit Committee, without management representatives present. /s/ Stanley J. Bright President, Office of the Chief Executive Officer /s/ Lance E. Cooper Group Vice President Finance and Accounting -29- EX-13.3 13 EXHIBIT 13.3 (OPENING REVENUES) EXHIBIT 13.3 FIVE-YEAR FINANCIAL STATISTICS
1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- Earnings per average common share -- Continuing operations: Utility operations $ 1.24 $ 1.12 $ 1.29 $ 0.82 $ 1.33 Nonregulated activities (.02) 0.16 0.14 0.01 (.01) Discontinued operations - (0.06) (0.04) 0.01 - ------- ------- ------- ------- ------- Earnings per average common share $ 1.22 $ 1.22 $ 1.39 $ 0.84 $ 1.32 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Return on average common equity (%) 10.1 10.1 11.6 7.1 11.2 Cash dividends declared per common share $ 1.18 $ 1.17 $ 1.17 $ 1.28 $ 1.38 Common dividend payout ratio (%) 97 96 84 152 105 Ratio of earnings to fixed charges Consolidated 2.8 2.8 2.9 1.9 2.5 Utility only 3.4 3.3 3.4 2.3 2.9 Ratio of earnings to fixed charges and Cooper Nuclear Station debt service Consolidated 2.7 2.7 2.8 1.9 2.4 Utility only 3.3 3.2 3.3 2.2 2.8 Capitalization ratios % -- Common shareholders' equity 44.3 43.9 44.0 43.8 42.9 Preferred shares, not subject to mandatory redemption 3.2 3.3 4.1 2.8 2.8 Preferred shares, subject to mandatory redemption 1.8 1.8 1.9 1.8 3.0 Long-term debt (excluding current portion) 50.7 51.0 50.0 51.6 51.3 Book value per common share at year-end $ 12.17 $ 12.08 $ 12.07 $ 11.86 $ 12.12 Quarterly earnings per average common share outstanding -- 1st quarter $ 0.35 $ 0.45 $ 0.44 $ 0.28 $ 0.36 2nd quarter 0.25 0.22 0.22 0.13 0.27 3rd quarter 0.36 0.36 0.52 0.26 0.47 4th quarter 0.27 0.19 0.20 0.17 0.22 Number of fulltime employees -- Utility 3,331 4,077 4,196 4,305 4,370 Nonregulated 271 274 347 200 140 Utility construction expenditures $190,771 $211,669 $215,081 $188,344 $177,061 Net cash from utility operations less dividends as a % of construction 134 121 103 71 100
COMMON STOCK DIVIDENDS AND PRICES
Price Range ---------------------------------------------------------- Dividends Declared MidAmerican Iowa-Illinois Resources ------------------------- ----------------- ------------------ ----------------- MEC IWG MWR High Low High Low High Low ------- ------- ------- -------- ------- -------- ------- -------- ------- 1995 4th Quarter $ 0.30 $ - $ - $17 1/8 $15 $ - $ - $ - $ - 3rd Quarter 0.30 - - 15 5/8 13 5/8 - - - - 2nd Quarter - 0.4325 0.29 - - 22 19 7/8 15 13 5/8 1st Quarter - 0.4325 0.29 - - 22 1/8 19 14 5/8 13 3/8 1994 4th Quarter $ - $0.4325 $0.29 - - $20 5/8 $18 7/8 $14 1/2 $12 7/8 3rd Quarter - 0.4325 0.29 - - 22 1/2 19 1/4 15 3/8 13 1/2 2nd Quarter - 0.4325 0.29 - - 24 1/2 19 7/8 16 3/4 13 7/8 1st Quarter - 0.4325 0.29 - - 24 3/4 22 3/8 18 16
-1- MIDAMERICAN ENERGY COMPANY FIVE-YEAR CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31 ------------------------------------------------------ 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (In thousands, except per share amounts) OPERATING REVENUES Electric utility $1,094,647 $1,021,660 $1,002,970 $ 936,027 $ 968,799 Gas utility 459,588 492,015 538,989 484,687 473,251 Nonregulated 169,409 177,235 140,976 70,344 46,513 ---------- --------- --------- --------- --------- 1,723,644 1,690,910 1,682,935 1,491,058 1,488,563 ---------- --------- --------- --------- --------- OPERATING EXPENSES Utility: Cost of fuel, energy and Capacity 230,261 213,987 217,385 211,924 212,647 Cost of gas sold 279,025 326,782 366,049 326,097 323,113 Other operating expenses (2) 399,648 354,190 340,720 329,911 306,508 Maintenance 85,363 101,275 101,601 93,769 91,548 Depreciation and amortization 158,950 154,229 150,822 144,646 135,062 Property and other taxes 96,350 94,990 93,238 97,479 94,872 ---------- --------- --------- --------- --------- 1,249,597 1,245,453 1,269,815 1,203,826 1,163,750 Nonregulated (2) 172,915 171,851 132,224 69,522 46,692 ---------- --------- --------- --------- --------- 1,422,512 1,417,304 1,402,039 1,273,348 1,210,442 ---------- --------- --------- --------- --------- OPERATING INCOME 301,132 273,606 280,896 217,710 278,121 ---------- --------- --------- --------- --------- NON-OPERATING INCOME (3) 11,660 33,372 52,163 15,656 28,023 ---------- --------- --------- --------- --------- INTEREST CHARGES Interest on long-term debt 110,505 105,753 111,065 114,732 106,538 Other interest expense 9,449 6,446 5,066 5,899 16,380 Allowance for borrowed funds (5,552) (3,955) (2,186) (2,162) (4,347) ---------- --------- --------- --------- --------- 114,402 108,244 113,945 118,469 118,571 ---------- --------- --------- --------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 198,390 198,734 219,114 114,897 187,573 INCOME TAXES 67,984 62,349 71,409 26,812 59,604 ---------- --------- --------- --------- --------- INCOME FROM CONTINUING OPERATIONS 130,406 136,385 147,705 88,085 127,969 INCOME (LOSS) FROM DISCONTINUED OPERATIONS (net of income taxes) (4) 417 (5,645) (3,854) 794 203 ---------- --------- --------- --------- --------- NET INCOME 130,823 130,740 143,851 88,879 128,172 PREFERRED DIVIDENDS 8,059 10,551 8,367 8,735 9,708 ---------- --------- --------- --------- --------- EARNINGS ON COMMON STOCK $ 122,764 $ 120,189 $ 135,484 $ 80,144 $ 118,464 ---------- --------- --------- --------- --------- ---------- --------- --------- --------- --------- AVERAGE COMMON SHARES OUTSTANDING 100,401 98,531 97,762 95,430 89,844 EARNINGS PER COMMON SHARE $ 1.22 $ 1.22 $ 1.39 $ 0.84 $ 1.32
(1) The Company was formed on July 1, 1995, through a merger, as discussed in Note (1)(a) of Notes to Consolidated Financial Statements (Notes). All data on this statement reflect the pooled amounts of the predecessor companies. Non-Operating income includes $4.5 million and $4.6 million of merger-related costs in 1994 and 1995, respectively. (2) Utility other operating expenses include $31.9 million of costs related to a restructuring and work force reduction plan implemented and completed in 1995. In addition, nonregulated other expenses for 1995 includes $1.5 million of related costs. (3) During 1995, the Company recorded approximately $18 million of expense for the write-down of certain nonregulated assets. In 1993, the Company recorded an $18.5 million pre-tax gain on the exchange of natural gas service territory. The exchange resulted in a decrease of approximately 33,000 natural gas customers. (4) In 1994 the Company announced its intent to divest its construction subsidiaries. Refer to Note (9) of Notes. -2- MIDAMERICAN ENERGY COMPANY FIVE-YEAR CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31 ----------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ---------- ---------- ----------- (In thousands) ASSETS UTILITY PLANT Electric $3,881,699 $3,765,004 $3,642,415 $3,534,703 $3,455,061 Gas 695,741 663,792 639,276 628,856 575,113 ---------- ---------- ---------- ---------- ---------- 4,577,440 4,428,796 4,281,691 4,163,559 4,030,174 Less accumulated depreciation and amortization 2,027,055 1,885,870 1,801,668 1,680,033 1,572,946 ---------- ---------- ---------- ---------- ---------- 2,550,385 2,542,926 2,480,023 2,483,526 2,457,228 Construction work in progress 104,164 101,252 111,726 67,664 51,176 ---------- ---------- ---------- ---------- ---------- Total 2,654,549 2,644,178 2,591,749 2,551,190 2,508,404 ---------- ---------- ---------- ---------- ---------- POWER PURCHASE CONTRACT 212,148 221,998 248,643 243,146 248,949 ---------- ---------- ---------- ---------- ---------- INVESTMENT IN DISCONTINUED OPERATIONS - 15,249 22,206 23,686 23,854 ---------- ---------- ---------- ---------- ---------- CURRENT ASSETS Cash and cash equivalents 41,216 33,778 24,289 25,079 30,384 Receivables, less reserves 261,105 212,902 226,054 225,566 205,440 Inventories 85,235 92,248 100,675 98,608 91,753 Other 22,252 19,035 24,911 26,182 20,277 ---------- ---------- ---------- ---------- ---------- 409,808 357,963 375,929 375,435 347,854 ---------- ---------- ---------- ---------- ---------- INVESTMENTS 826,496 752,428 760,308 727,929 673,789 ---------- ---------- ---------- ---------- ---------- OTHER ASSETS 420,520 423,958 372,426 192,630 107,819 ---------- ---------- ---------- ---------- ---------- TOTAL ASSETS $4,523,521 $4,415,774 $4,371,261 $4,114,016 $3,910,669 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- CAPITALIZATION AND LIABILITIES CAPITALIZATION Common shareholders' equity $1,225,715 $1,204,112 $1,180,510 1,159,676 1,128,858 Preferred shares, not subject to mandatory redemption 89,945 89,955 109,871 74,242 74,291 Preferred shares, subject to mandatory redemption 50,000 50,000 50,000 48,625 79,200 Long-term debt 1,403,322 1,398,255 1,341,003 1,368,784 1,351,385 ---------- ---------- ---------- ---------- ---------- 2,768,982 2,742,322 2,681,384 2,651,327 2,633,734 ---------- ---------- ---------- ---------- ---------- CURRENT LIABILITIES Notes payable 184,800 124,500 173,035 120,244 67,629 Current portion of long-term debt 65,295 72,872 66,371 32,952 10,991 Current portion of power purchase contract 13,029 12,080 10,830 8,065 8,948 Accounts payable 142,759 110,175 129,504 115,763 117,573 Taxes accrued 81,898 91,653 110,923 101,585 101,879 Interest accrued 30,635 30,659 31,021 31,395 31,678 Other 57,000 54,473 52,237 53,563 39,378 ---------- ---------- ---------- ---------- ---------- 575,416 496,412 573,921 463,567 378,076 ---------- ---------- ---------- ---------- ---------- OTHER LIABILITES Power purchase contract 112,700 125,729 140,655 138,085 141,890 Deferred income taxes 746,574 725,665 670,288 596,144 525,056 Investment tax credit 95,041 100,871 106,729 113,846 119,989 Other 224,808 224,775 198,284 151,047 111,924 ---------- ---------- ---------- ---------- ---------- 1,179,123 1,177,040 1,115,956 999,122 898,859 ---------- ---------- ---------- ---------- ---------- TOTAL CAPITALIZATION AND LIABILITIES $4,523,521 $4,415,774 $4,371,261 $4,114,016 $3,910,669 ---------- ----------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
-3- EX-21 14 EXHIBIT 21 (SUBSIDIARIES OF THE REGISTRANT) Exhibit 21 SUBSIDIARIES OF MIDAMERICAN ENERGY COMPANY AS OF DECEMBER 31, 1995 Jurisdiction Subsidiary of Incorporation - ---------- ---------------- InterCoast Energy Company Delaware Midwest Capital Group, Inc. Iowa InterCoast Capital Company Delaware Medallion Production Company Delaware As of the end of the year covered by this report, MidAmerican Energy Company's other subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as defined in Rule 1-02(w) of Regulation S-X. EX-23.1 15 EXHIBIT 23.1 (CONSENT ARTHUR ANDERSON) Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into MidAmerican Energy Company's previously filed Registration Statements, File No.'s 2-85102, 33-60549, 33-60849, and 33-60851. Chicago, Illinois /s/ ARTHUR ANDERSEN LLP March 8, 1996 EX-23.2 16 EXHIBIT 23.2 (CONSENT DELOITTE & TOUCHE) DELOITTE & TOUCHE LLP Northwest Bank Building 101 West Second Street Davenport, IA 52801-1813 319-322-4415 CONSENT OF INDEPENDENT AUDITORS MidAmerican Energy Company: We consent to the incorporation by reference in Registration Statement File No.'s 2-85102, 33-60549, 33-60849 and 33-60851 of our reports dated January 25, 1995, covering the consolidated balance sheet and statement of capitalization of Iowa-Illinois Gas and Electric Company and subsidiary as of December 31, 1994, and the related statements of income, retained earnings and cash flows for the years ended December 31, 1994 and 1993, and the schedule listed in Item 14(a)2 as of December 31, 1994 and 1993 and for each of the two years in the period ended December 31, 1994, appearing in MidAmerican Energy Company's Form 10-K for the year ended December 31, 1995. It should be noted that we have not audited any financial statements of Iowa-Illinois Gas and Electric Company and subsidiary subsequent to December 31, 1994, or performed any audit procedures subsequent to the date of our report. /s/ DELOITTE & TOUCHE LLP March 8, 1996 -----END PRIVACY-ENHANCED MESSAGE-----