PacifiCorp (which includes PacifiCorp and its subsidiaries) is a United States electric utility company serving retail customers in portions of the states of Utah, Oregon, Wyoming, Washington, Idaho and California. PacifiCorp generates electricity and also engages in electricity sales and purchases on a wholesale basis. The subsidiaries of PacifiCorp support its electric utility operations by providing coal mining facilities and services steam delivery services and environmental remediation. PacifiCorp is an indirect subsidiary of MidAmerican Energy Holdings Company (“MEHC”), whicha holding company based in Des Moines, Iowa, owning subsidiaries that are principally engaged in energy businesses. MEHC is a consolidated subsidiary of Berkshire Hathaway Inc. (“Berkshire Hathaway”).

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the U.S. Securities and Exchange Commission’s (the “SEC”) rules and regulations for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements. Management believes the unaudited Consolidated Financial Statements include all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation of the financial statements as of March 31,September 30, 2007, and for the three-monththree- and nine-month periods ended March 31,September 30, 2007 and 2006. A portion of PacifiCorp’s business is of a seasonal nature and, therefore, results of operations for the three-monththree- and nine-month periods ended March 31,September 30, 2007, and 2006 are not necessarily indicative of the results to be expected for athe full year.

The accompanying unaudited Consolidated Financial Statements include the accounts of PacifiCorp and its subsidiaries in which it holds a controlling financial interest. Intercompany accounts and transactions have been eliminated.

The preparation of the unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results may differ from the estimates used in preparing the unaudited Consolidated Financial Statements. Management’s Discussion and Analysis and Note 2 of Notes to Consolidated Financial Statements included in PacifiCorp’s Transition Report on Form 10-K for the nine-month period ended December 31, 2006, describedescribes the most significant accounting estimates and policies used in the preparation of the Consolidated Financial Statements. There have been no significant changes in PacifiCorp’s assumptions regarding critical accounting estimates and significant accounting policies during the first threenine months of 2007, except as described in Note 2.

As of January 1, 2007, PacifiCorp had an asset of $22 million for uncertain tax positions. PacifiCorp recognized a net increase in the asset of $22 million as a cumulative effect of adopting FIN 48, which was offset by increases in beginning retained earnings of $13 million and deferred income tax liabilities of $9 million in the Consolidated Balance Sheet. The $22 million isas of January 1, 2007, was included in other deferred credits in the Consolidated Balance Sheet.

Included in the asset of $22 million areis $14 million of net uncertain tax positions that, if recognized, would have an impact on the effective tax rate. The remaining amounts relate to tax positions for which ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Recognition of these tax positions, other than applicable interest and penalties, would not affect PacifiCorp’s effective tax rate. PacifiCorp recognizes interest and penalties accrued related to uncertain tax positions in income tax expense. As of January 1, 2007, PacifiCorp had $7 million accrued for the receipt of interest, which is included in the asset for uncertain tax positions.

Prior to 2006, PacifiCorp filed income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The U.S. Internal Revenue Service has closed examination of PacifiCorp’s income tax returns through its tax year ended March 31, 2000. In addition, open tax years related to a number of state jurisdictions remain subject to examination. As a result of the sale of PacifiCorp to MEHC on March 21, 2006, Berkshire Hathaway commenced including PacifiCorp in its U.S. Federalfederal income tax returns. During

In March 14, 2007, PacifiCorp issued $600 million of its 5.75% First Mortgage Bonds due April 1, 2037. The proceeds are beingwere used to repay short-term debt and for other general corporate purposes.

PacifiCorp is directly exposed to the impact of market fluctuations in thecommodity prices, ofprincipally natural gas and electricity. PacifiCorp is exposed to interestInterest rate risk as a result of the issuance of fixed andexists on variable rate debt.debt, commercial paper and future debt issuances. PacifiCorp employs established policies and procedures to manage its risks associated with these market fluctuations using various commodity and financial derivative instruments, including forward contracts, swaps and options. The risk management process established by PacifiCorp is designed to identify, measure, assess, monitor, report, manage and managemitigate each of the various types of risk involved in its business. PacifiCorp’s portfolio of energy derivatives is substantially used for non-trading purposes. As of March 31,September 30, 2007 and December 31, 2006, PacifiCorp had no financial derivatives in effect relating to interest rate exposure.

The following table summarizes the various derivative mark-to-market positions included in the accompanying Consolidated Balance SheetsSheet as of March 31,September 30, 2007 (in millions):

The following table summarizes the various derivative mark-to-market positions included in the accompanying Consolidated Balance SheetsSheet as of December 31, 2006 (in millions):

The following table summarizes the amount of the pre-tax unrealized gains and losses included within the Consolidated Statements of Income associated with changes in the fair value of PacifiCorp’s derivative contracts that are not included in rates (in millions):

PacifiCorp is subject to numerous federal, state and local environmental laws and regulations, including the Clean Air Act, related air quality standards promulgated by the Environmental Protection Agency (“EPA”) and various state air quality laws; the Endangered Species Act; the Comprehensive Environmental Response, Compensation and Liability Act, relating to environmental cleanups; the Resource Conservation and Recovery Act and similar state laws relating to the storage and handling of hazardous materials; and the Clean Water Act, and similar state laws relating to water quality. These laws have the potential to impact PacifiCorp’s current and future operations; the cost of complying with applicable environmental laws, regulations and rules is expected to be material to PacifiCorp’s domestic generation facilities.operations. Current and future Clean Air Act and associated requirements will impact the operations of PacifiCorp’s generating facilities and will require PacifiCorp to reduce sulfur dioxide, nitrogen oxides and mercury emissions from current levels through the installation of additional or improved emission controls, the purchase of additional emission allowances, or some combination thereof. PacifiCorp is also subject to various state renewables portfolio standards. The cost of complying with applicable environmental laws, regulations and rules is expected to be material to PacifiCorp’s generation facilities. Additionally, the adoption of stringent limits on greenhouse emissions could significantly impact PacifiCorp’s fossil-fueled facilities, and, therefore, its financial results. As of March 31, 2007, PacifiCorp’s environmental contingencies consist principally of air quality matters. PacifiCorp believes it is in material compliance with current environmental requirements.

PacifiCorp is fully or partly responsible for environmental remediation that results from other than normal operations at various contaminated sites, including sites that are or were part of PacifiCorp’s operations and sites owned by third parties. PacifiCorp accrues environmental remediation expenses when the expense is believed to be probable and can be reasonably estimated. The quantification of environmental exposures is based on many factors, including changing laws and regulations, advancements in environmental technologies, the quality of available site-specific information, site investigation results, expected remediation or settlement timelines, PacifiCorp’s proportionate responsibility, contractual indemnities and coverage provided by insurance policies. The liability recorded as of March 31,September 30, 2007 and December 31, 2006 was $36$23 million and $40 million, respectively, and is included in other liabilities and other deferred credits on the accompanying Consolidated Balance Sheets. Environmental remediation liabilities that separately result from the normal operation of long-lived assets and that are associated with the retirement of those assets are separately accounted for as asset retirement obligations.

PacifiCorp’s hydroelectric portfolio consists of 5048 plants with an aggregate plant net owned capacity of 1,1601,158 megawatts (“MW”). The Federal Energy Regulatory Commission (the “FERC”) regulates 97.9%98% of the net capacity of this portfolio through 18 individual licenses. Several of PacifiCorp’s hydroelectric projects are in some stage of relicensing with the FERC. Hydroelectric relicensing and the related environmental compliance requirements and litigation are subject to uncertainties. PacifiCorp expects that future costs relating to these matters may be significant and will consist primarily of additional relicensing costs, operations and maintenance expense, and capital expenditures. Electricity generation reductions may result from the additional environmental requirements. PacifiCorp had incurred $81$86 million in costs at March 31, 2007 and $79 million in costs at September 30, 2007 and December 31, 2006, respectively, for ongoing hydroelectric relicensing, which are reflected in construction work-in-progress on the Consolidated Balance Sheets.

In February 2004, PacifiCorp filed with the FERC a final application for a new license to operate the 169-MW nameplate-rated Klamath hydroelectric project in anticipation of the March 2006 expiration of the existing license. PacifiCorp is currently operating under an annual license issued by the FERC and expects to continue to operate under annual licenses until the new operating license is issued. AsIn January 2007, as part of the relicensing process, the United States Departments of Interior and Commerce filed proposed licensingmodified terms and conditions consistent with the FERC in March 2006 filings, which proposed that PacifiCorp construct upstream and downstream fish passage facilities at the Klamath hydroelectric project’s four mainstem dams. In April 2006, PacifiCorp filed alternatives to the federal agencies’ proposal and requested an administrative hearing to challenge some of the federal agencies’ factual assumptions supporting their proposal for the construction of the fish passage facilities. A hearing was held in August 2006 before an administrative law judge. The administrative law judge issued a ruling in September 2006 generally supporting the federal agencies’ factual assumptions. In January 2007, the United States Departments of Interior and Commerce filed modified terms and conditions consistent with March 2006 filings and rejected the alternatives proposed by PacifiCorp. PacifiCorp is prepared to meet and implement the federal agencies’ terms and conditions as part of the project’s relicensing. However, PacifiCorp expects to continue in settlement discussions with various parties in the Klamath Basin area who have intervened with the FERC licensing proceeding to try to achieve a mutually acceptable outcome for the project.

Also, as part of the relicensing process, the FERC is required to perform an environmental review. In September 2006, the FERC issued its draft environmental impact statement on the Klamath hydroelectric project license. The public comment period on the draft environmental impact statement closed on December 1, 2006. The FERC is expected todid not issue its final environmental impact statement in springthe summer of 2007 after which otheras scheduled, and it has provided no new issuance date. Other federal agencies willare also working to complete their endangered species analyses. The states ofanalyses by December 1, 2007. PacifiCorp will need to obtain water quality certifications from Oregon and California will need to issue water quality certifications prior to the FERC issuing a final license. PacifiCorp currently has applications pending before each state.

In the relicensing of the Klamath hydroelectric project, PacifiCorp had incurred $43$46 million and $42 million in costs at March 31,September 30, 2007 and December 31, 2006, respectively, which are reflected in construction work-in-progress in the accompanying Consolidated Balance Sheets. While the costs of implementing new license provisions cannot be determined until such time as a new license is issued, such costs could be material.

PacifiCorp is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. PacifiCorp does not believe that such normal and routine litigation will have a material effect on its consolidated financial results. PacifiCorp is also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties in substantial amounts.amounts and are described below.

In February 2007, the Sierra Club and the Wyoming Outdoor Council filed a complaint against PacifiCorp in the federal district court in Cheyenne, Wyoming, alleging violations of air qualityWyoming state opacity standards at PacifiCorp’s Jim Bridger Power Plantplant in Wyoming. Opacity is an indicationUnder Wyoming state requirements, which are part of the amountJim Bridger plant’s Title V permit and are enforceable by private citizens under the federal Clean Air Act, a potential source of pollutants such as a coal-fired generating facility must meet minimum standards for opacity, which is a measurement of light that is obscured in the flue of a generating facility. The complaint alleges thousands of violations of asserted six-minute compliance periods and seeks an injunction ordering the Jim Bridger plant’s compliance with opacity limits, civil penalties of $32,500 per day per violation, and the plaintiffs’ costs of litigation. The court granted a motion to bifurcate the trial into separate liability and remedy phases. A five-day trial on the liability phase is scheduled to begin on April 21, 2008. The remedy-phase trial has not yet been set. PacifiCorp believes it has a number of defenses to the claims. PacifiCorp intends to vigorously oppose the lawsuit but cannot predict its outcome at this time. PacifiCorp has already committed to invest at least $812 million in pollution control equipment at its generating facilities, including the Jim Bridger plant. This commitment is expected to significantly reduce system-wide emissions, including emissions at the Jim Bridger plant.

On April 11,June 21, 2007, PacifiCorp executed athe FERC approved PacifiCorp’s settlement and release of claims agreement (“Settlement”) with Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, the People of the State of California, ex rel. Edmund G. Brown Jr., Attorney General, the California Electricity Oversight Board, and the California Public Utilities Commission (collectively, the “California Parties”), certain of which purchased energy in the California Independent System Operator (“ISO”) and the California Power Exchange (“PX”) markets during past periods of high energy prices in 2000 and 2001. The Settlement, filed with FERCwhich was executed by PacifiCorp on April 11, 2007, settles claims brought by the California Parties against PacifiCorp for refunds and remedies in numerous related proceedings (together, the “FERC Proceedings”), as well as certain potential civil claims, arising from events and transactions in Western United States energy markets during the period January 1, 2000 through June 20, 2001 (the “Refund Period”). Under the Settlement, PacifiCorp made a cash paymentpayments to escrows controlled by the California Parties in the amount of $16 million onin April 30, 2007, and upon FERC approval of the agreement in June 2007, PacifiCorp will allowallowed the PX to release an additional $12 million to such escrows, which representsrepresented PacifiCorp’s estimated unpaid receivablesreceivable from the transactions in the PX and ISO markets during the Refund Period, plus interest. The monies held in the escrows will, upon FERC acceptance of the settlement, be distributedescrow are for distribution to buyers of power from the ISO and PX markets that purchased power during the Refund Period. Other buyers in the ISO and PX markets will be provided the option of joining in the Settlement, in which case they will receive payments from one of the escrows. The agreement provides for the release of claims by the California Parties (as well as additional parties that join in the Settlement) against PacifiCorp for refunds, disgorgement of profits, or other monetary or non-monetary remedies in the FERC Proceedings, and provides a mutual release of claims for civil damages and equitable relief. As PacifiCorp previously accrued for these items, the settlement did not materially impact PacifiCorp’s financial results.

In December 2006, non-bargaining employees were notified that PacifiCorp is switchingwould switch from a traditional final average pay formula for the PacifiCorp Retirement Plan to a cash balance formula effective June 1, 2007. BenefitsAs a result of the change, benefits under the traditional final average pay formula will bewere frozen as of May 31, 2007, with no further benefit accrual under that formula. All future benefits will be earned under the cash balance formula.and PacifiCorp’s pension liability and regulatory assets each decreased by $111 million.

The components of net periodic benefit cost for thePacifiCorp’s pension and other postretirement benefit plans for the three-month periods ended March 31 were as follows (in millions):

Excluded from tablethe tables above wereare contributions to certain multi-employer and joint trust union plans of $3 million and $2 millionfor each of contributions to the joint pension and other postretirement plans for the three-month periods ended March 31,September 30, 2007 and 2006, and $9 million and $7 million for the nine-month periods ended September 30, 2007 and 2006, respectively.

Employer contributions to the pension plans and the other postretirement planplans are expected to be approximately $88 million and $34 million, respectively, in 2007. As of March 31,September 30, 2007, $32$85 million and $9$21 million respectively, of contributions had been made to the pension plans and the other postretirement plan.plans, respectively.

This report contains statements that do not directly or exclusively relate to historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by the use of forward-looking words, such as “may,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast,” “intend,” and similar terms. These statements are based on PacifiCorp’s current intentions, assumptions, expectations and beliefs and are subject to risks, uncertainties and other important factors. Many of these factors are outside PacifiCorp’s control and could cause actual results to differ materially from those expressed or implied by PacifiCorp’s forward-looking statements. These factors include, among others:

Further details of the potential risks and uncertainties affecting PacifiCorp are described in PacifiCorp’s filings with the SEC.SEC, including Item 1A. and other discussions contained in this Form 10-Q. PacifiCorp undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors should not be construed as exclusive.

PacifiCorp’s net income was $99increased $90 million during the nine-month period ended September 30, 2007, to $339 million compared to $249 million for the three-monthnine-month period ended March 31, 2007 compared to $147 million for the three-month period ended March 31, 2006. The $48 million decrease in net income wasSeptember 30, 2006, primarily due to lower net unrealized gains on derivative contracts, increased fuel costs due to higher volumes and pricesretail revenues and higher depreciation expense. These decreases to net income werewholesale sales and purchases, partially offset by higher fuel costs.

Retail revenues increased due to higher retail prices approved by regulators, and lower income tax expenseas well as continued growth in the current period.number of retail customers and usage. Net unrealized gainsmargin on derivative contracts were $3 million during the three-month period ended March 31, 2007, compared to $53 million during the three-month period ended March 31, 2006. The decrease in net unrealized gains on derivative contracts waswholesale activities increased primarily due to higher average prices on wholesale sales and lower purchased electricity volumes. PacifiCorp’s financial results were further improved by higher output at PacifiCorp’s thermal and wind plants serving the change in estimate during the three-month period ended September 30, 2006 for contracts considered probablehigher retail load. These improvements were partially offset by higher prices of receiving recovery in rates due to regulatory settlements in Utahcoal, natural gas and Oregon, which resulted in more activity being recordedpurchased electricity, as a net regulatory asset in the current period.well as lower hydroelectric generation.

Output from PacifiCorp’s thermal plants for the three-monthnine-month period ended March 31,September 30, 2007, increased by 485,1453,135,182 megawatt-hours (“MWh”), or 4%9%, compared to the three-monthnine-month period ended March 31, 2006. This increase wasSeptember 30, 2006, primarily due to the Currant Creek plant becoming fully operational at the end of March 2006. Output from PacifiCorp’s wind plants increased by 261,137 MWh, or 314%, during the nine-month period ended September 30, 2007, compared to the nine-month period ended September 30, 2006, primarily due to the Leaning Juniper plant being placed into service in September 2006 and the Marengo plant being placed into service in August 2007. Output from PacifiCorp’s hydroelectric facilities decreased by 374,534621,155 MWh, or 23%18%, during the three-monthnine-month period ended March 31,September 30, 2007, compared to the three-monthnine-month period ended March 31, 2006. This decrease wasSeptember 30, 2006, primarily due to drier than normal conditions in the current period.