Fitch Affirms Northern Natural Gas Co.; Outlook Positive.

NEW YORK -- Fitch Ratings has affirmed the 'BBB+' rated senior unsecured debt of Northern Natural Gas Company (NNG). The Rating Outlook for NNG is changed to Positive from Stable. NNG is an interstate natural gas pipeline company which has been owned and operated by MidAmerican Energy Holdings Company (MEHC) since August 16, 2002 when it was purchased from Dynegy Inc. MEHC is a privately owned provider of energy services whose holdings include the 1,678-mile Kern River Gas Transmission system. MEHC is rated 'BBB', with a Stable Rating Outlook.

The rating action reflects NNG's favorable operating characteristics and strengthened standalone credit fundamentals. Also considered in NNG's rating is its structural relationship with MEHC and the status of its pending rate case before the Federal Energy Regulatory Commission (FERC).

NNG is a 16,600-mile pipeline extending from the Permian Basin in Texas to the upper Midwest. It has a market area delivery capacity of 4.4 Bcf per day and has 59 Bcf of natural gas storage capacity. While the Midwest region is served by several competing pipelines NNG's market is relatively secure. Its customer base is primarily composed of local natural gas utilities, which have a large seasonal demand for natural gas and whose customers have limited options for alternative fuel. Contract length is mostly short-to-intermediate term which is typical of the Midwest and approximately 73% of NNG's capacity contracts extend through 2006.

On a standalone basis NNG currently exhibits a strong financial profile. However, future results will be affected by its ability to increase its rates. NNG generates about $250 million of annual EBITDA. Annual interest associated with its outstanding $800 million of senior unsecured debt should approximate $50 million in 2004. Future capital spending, including anticipated pipeline safety spending and planned information technology and logistical upgrades, is very manageable. NNG is expected to generate adequate free cash flow and scheduled upcoming debt maturities are relatively modest. In May 2003, NNG filed with FERC for a 12% increase in revenues. New rates were placed into effect on November 1, 2003, subject to refund. In January 2004, a second rate case was filed requesting an 8% revenue increase over the 2003 rate increase. The FERC has consolidated the two cases. Resolution of the rate case may extend into 2005 although a settlement could occur sooner.

MEHC's ownership of NNG is through a special purpose, intermediate limited liability company, NNGC Acquisition, LLC (Holdco) which has been structured to separate, to a greater extent than is typical for natural gas pipelines, the credit profile of NNG from that of MEHC. Holdco and NNG are operated independently from MEHC with separate books, financial records, employees, and no commingling of assets. An independent director assent is required to place Holdco or NNG into bankruptcy. Furthermore, distributions by NNG are not permitted unless certain financial covenants are met. The strong structural protections lessen bankruptcy risk through credit contagion derived from parent MEHC and loosen rating linkage between it and MEHC. Without strong ring-fencing, for investment grade pipelines, there is typically a maximum one notch separation between an affiliated pipeline's rating and that of its holding company parent. In the case of NNG, Fitch believes a two notch separation in ratings is attainable.

MEHC, a subsidiary of Berkshire Hathaway, provides electric and gas service to more than 5 million customers worldwide through its retail subsidiaries, MidAmerican Energy Company (MEC) and Kern River in the U.S. and Northern Electric Distribution Limited and Yorkshire Electricity Distribution plc in the UK. MEHC also owns a 50% interest in CE Generation LLC, a power project holding company with U.S. geothermal and gas-fired power projects. International investments include the company's Philippine power production facilities.