Fitch Affirms MidAmerican Energy Holdings; Kern River Announcement.

Business Editors

CHICAGO--(BUSINESS WIRE)--March 7, 2002

Fitch Ratings has affirmed the senior unsecured debt and preferred stock ratings of MidAmerican Energy Holdings Co. (MEHC) at 'BBB' and 'BBB-', respectively. The rating action follows the recent announcement that MEHC has entered into a definitive agreement to purchase 100% of Kern River Gas Transmission Corp. (KRGT) from The Williams Companies, Inc. (WMB) for $450 million plus the assumption of $506 million of debt. KRGT is a 926-mile natural gas interstate pipeline that delivers primarily Rocky Mountain natural gas in California, Utah and Nevada. The Rating Outlook is Stable.

The rating action reflects MEHC's plan to fund the acquisition with 100% equity, the additional cash flow that will be available to service existing parent company debt and the high quality of the new pipeline asset. The equity funds will be provided by the company's principal shareholder, Berkshire Hathaway (Berkshire, senior unsecured debt rated 'AAA' by Fitch). Berkshire will inject $725 million into MEHC in the form of trust preferred stock and zero coupon convertible preferred stock. Importantly, the equity infusion will increase Berkshire's investment in MEHC to $2.4 billion. The new equity will moderately improve the debt ratio, although MEHC's consolidated debt to capital remains high for the rating category. The company's forecasted debt to total capitalization is projected to be around 62% by 2004 (down from 72% currently).

The transaction includes the assumption of $506 million of project debt at Kern River Funding Corp. (KRFC, 'A-' senior unsecured). KRFC is a special purpose financing vehicle for KRGT; KRFC's debt obligations are unconditionally guaranteed by the pipeline, but are non-recourse to MEHC. The purchase agreement also includes a provision for MEHC to invest $275 million in WMB (to be provided by Berkshire) via a cumulative convertible preferred stock investment. The transaction, which remains subject to bank consents and Hart-Scott-Rodino review, is expected to close by March 31, 2002.

Although MEHC's consolidated interest coverage ratios (including non-recourse debt) will decline slightly due to the acquisition of KRGT, parent-only cash flow measures are forecasted to improve due to the additional distributions from the pipeline. Over the next several years, dividends from subsidiaries (including KRGT) cover parent-only interest expense by more than 3 times (x). Positively, KRGT's stable, regulated cash flows and strong operating fundamentals will decrease MEHC's business risk and enhance its overall credit profile. With the addition of the pipeline, approximately 72% of MEHC's consolidated EBITDA will be attributable to investment grade, regulated businesses. MEHC's other regulated subsidiaries include an electric and gas utility in the US, Iowa based MidAmerican Energy Company ('A' senior unsecured), and electric distribution companies in the UK, Northern Electric ('A-' senior unsecured) and Yorkshire Electric ('BBB+' senior unsecured, Rating Watch Positive).

MEHC's acquisition of KRGT is consistent with the company's stated strategy to focus on low risk business investments in established marketplaces. The pipeline benefits from a solid portfolio of binding long-term contracts with financially sound shippers, a competitive market position and access to abundant natural gas supply. Approximately 84% of KRGT's shipper agreements have remaining terms of 15 years, effectively limiting capacity turnback risk. As one of the few interstate pipeline systems extending beyond the California border, KRGT is able to provide its shippers with direct low-cost access to end-use markets, thus avoiding rate stacking and bottlenecks on California's various interstate systems. The pipeline continues to post a successful operating track record, with throughput consistently running at full capacity since 1993. A proposed $1.2 billion expansion project designed to significantly expand system deliverability into the California market creates some uncertainty to KRGT's future credit profile. However, Fitch expects that any potential expansion of the pipeline will be funded with project debt that is non-recourse to MEHC.

MEHC, a majority-owned subsidiary of Berkshire, provides electric and gas service to over 5 million customers worldwide through its retail subsidiaries, MidAmerican Energy Co. in the United States, and Northern Electric and Yorkshire Electric in the UK. MEHC also has a 50% interest in CE Generation LLC, a power project holding company with U.S. geothermal and gas fired power projects.