Opinion of Steven A. McArthur



                            CalEnergy Company, Inc.
                        302 South 36th Street, Suite 400
                             Omaha, Nebraska 68131
                           Telephone: (402) 341-4500
                            Facsimile (402) 231-1658

February 4, 1998

CalEnergy Capital Trust III
c/o CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131

CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131

Ladies and Gentlemen:

I am the Senior Vice President and General Counsel of CalEnergy Company, Inc.,
a Delaware corporation (the "Company"). This opinion is being furnished in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of (i) 5,400,000 6-1/2% Convertible Preferred Securities
(liquidation preference $50 per each of the Convertible Preferred Securities)
(the "Convertible Preferred Securities") representing undivided beneficial
ownership interests in the assets of CalEnergy Capital Trust III, a statutory
business trust formed under the laws of the State of Delaware (the "Trust");
(ii) the 6-1/2% Convertible Junior Subordinated Debentures due 2027 (the
"Convertible Junior Subordinated Debentures") of the Company, which may be
distributed under certain circumstances to the holders of the Convertible
Preferred Securities; (iii) the shares of common stock, par value $.0675 per
share (the "Common Stock"), of the Company, issuable upon conversion of the
Convertible Preferred Securities and the Convertible Junior Subordinated
Debentures; and (iv) the Preferred Securities Guarantee of the Company (as
defined below).

The Convertible Preferred Securities were issued pursuant to an amended and
restated declaration of trust, dated as of August 12, 1997 (the "Declaration")
among the Company, as sponsor, Steven A. McArthur, Craig M. Hammett and Gregory
E. Abel, as regular trustees, The Bank of New York (Delaware), as Delaware
trustee, and The Bank of New York, as property trustee, and are guaranteed by
the Company as to the payment of distributions and as to payments on
liquidation, redemption and otherwise pursuant to a Preferred Securities
Guarantee Agreement, dated as of August 12, 1997 (the "Preferred Securities
Guarantee"), between the Company and The Bank of New York, as trustee. The
proceeds from the sale by the Trust of the Convertible Preferred Securities
were invested in the Convertible Junior Subordinated Debentures, which 







CalEnergy Capital Trust III
CalEnergy Company, Inc.
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were issued pursuant to an Indenture, dated as of August 12, 1997 (the
"Indenture"), between the Company and The Bank of New York, as trustee.

In connection with this opinion, I have examined originals or copies, certified
or otherwise identified to my satisfaction, of (i) the Registration Statement
on Form S-3, as filed by the Company and the Trust with the Securities and
Exchange Commission (the "Commission") under the Act on the date hereof (such
registration statement being hereinafter referred to as the "Registration
Statement"), relating to the Convertible Preferred Securities, the Preferred
Securities Guarantee, the Convertible Junior Subordinated Debentures and the
Common Stock; (ii) an executed copy of the Declaration filed as an exhibit to
the Registration Statement; (iii) the form of the Common Stock certificate
filed as an exhibit to the Registration Statement and a specimen certificate
thereof; (iv) the Restated Certificate of Incorporation of the Company as
currently in effect; (v) the By-laws of the Company as currently in effect;
(vi) certain resolutions of the Board of Directors of the Company relating to
the issuance of the Convertible Junior Subordinated Debentures and the shares
of Common Stock issuable upon conversion; (vii) an executed copy of the
Preferred Securities Guarantee filed as an exhibit to the Registration
Statement; (viii) the form of Convertible Preferred Securities filed as an
exhibit to the Registration Statement and a specimen certificate thereof; (ix)
the designation of the terms of the Convertible Preferred Securities; (x) the
form of the Convertible Junior Subordinated Debentures filed as an exhibit to
the Registration Statement and a specimen certificate thereof; (xi) an executed
copy of the Indenture; and (xii) an executed copy of the Registration Rights
Agreement, dated August 12, 1997, by and among the Trust and Credit Suisse
First Boston Corporation and Lehman Brothers Inc. as initial purchasers, filed
as an exhibit to the Registration Statement.

In my examination, I have assumed the legal capacity of all natural persons,
the genuineness of all signatures, the authenticity of all documents submitted
to me as originals, the conformity to original documents of all documents
submitted to me as certified or photostatic copies and the authenticity of the
originals of such copies. In making my examination of documents executed by
parties other than the Company or the Trust, I have assumed that such parties
had the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties of such
documents and that such documents constitute valid and binding obligations of
such parties. In addition, I have assumed that the shares of Common Stock to be
issued upon conversion of the Convertible Preferred Securities and the
Convertible Junior Subordinated Debentures, if any, will be in the form
reviewed by 



CalEnergy Capital Trust III
CalEnergy Company, Inc.
Page 3


me. As to any facts material to the opinions expressed herein, I have relied 
upon oral or written statements and representations of officers, trustees and 
other representatives of the Company, the Trust and others.

The opinions expressed herein are limited to the Federal laws of the United
States of America, the laws of the State of New York and the General
Corporation Law of the State of Delaware, and I express no opinion with respect
to the laws of any other country, state or jurisdiction.

Based upon and subject to the foregoing, I am of the opinion that the shares of
Common Stock issuable upon conversion of the Convertible Preferred Securities
and the Convertible Junior Subordinated Debentures, have been duly authorized
and reserved for issuance upon conversion and, when certificates representing
the Common Stock in the form of the specimen certificate examined by me have
been manually signed by an authorized officer of the transfer agent and
registrar for the Common Stock and are issued upon conversion of the
Convertible Preferred Securities and the Convertible Junior Subordinated
Debentures, such shares of Common Stock will be validly issued, fully paid and
nonassessable.

This letter is being delivered to you in my capacity as the Senior Vice
President and General Counsel of the Company and addresses matters only as of
the date hereof and is solely for the benefit of the addressees hereof and may
not be relied upon in any manner by any other person without my prior written
consent. I hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. I also consent to the reference to me
under the heading "Legal Matters" in the Registration Statement and in the
related Prospectus. In giving this consent, I do not thereby admit that I am
included in the category of persons whose consent is required under Section 7
of the Act or the rules and regulations of the Commission.

Sincerely,

/s/ Steven A. McArthur

Steven A. McArthur
Senior Vice President
and General Counsel