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Calenergy Co,Inc Annual Rept for 1995. Data in First Column of Alternating Pages of Incoming Submittal Not Included
	ML20151Y616
Person / Time
Site:	Quad Cities
Issue date:	12/31/1995
From:	Sokol D; External (Affiliation Not Assigned)
To:	;
Shared Package
ML20151Y560	List: ML20151Y555; ML20151Y566; ML20151Y583; ML20151Y593; ML20151Y601; ML20151Y606; ML20151Y616;
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	NUDOCS 9809180293
	Download: ML20151Y616 (49)
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C A L E se e a e v C o me e a es v }{i Energy [ If a company is successful, it is because ofits ability 7[ y to focus..to always keep its goals within sight. F and to maintain the discipline that inspires excellence. )y W .Im CalEnergy is that type of company. Our focus and i discipline are the reasons for our past success and are the keys to our future growth. We are motivated by our vision for the future. As one of the world's largest inJependent pow er producers, we recogni:e the world's need for environ-mentally resrunsible energy from a variety of fuel sources. lt is our goal to belp satisfy that need while providing a positive return on investment to our shareholders. The smices we provide for our projects include: To under'tand our pmition in the marketplace and < Construction and project management our vision for the future, it is important to understand - Cycle optimuation our history. Our Company was founded in 1971 as a Engineering and resource modeling - Environmental reviews developer of geothermal power pn>Juction facilities < Fuel studies in North America. In the 1980s, we focused on geo, thennal development in the United States and in - Fuel system, plant engineering and des,gn i 1991, we modified our strategy to include additiona < Geological well drilling and exploration energy sources and opr ottunities in the emerging - Licensmg and permitting global marketplace. Through it all, we have main, < Operations and maintenance tained our commitment to excellence. Project financing Our commitment has paid off. Two years ago, AJJitionally, we are a recogni:ed leader for our ability the aggregate capacity of our projects was 297 net to creatively fm nce projects in a way that allows for m xinuun Am ty in pnica pment and con. megawatts (MW), we held assets of $715 million and all revenues were derived from domestic activities. stmetion. Ouneputation for this type of forethought Today, total assets are more than $2.6 billion, our pn>vides a competitive advantage in the bidding process market capitali:ation is more than $1 billion, and nJ, mupled with our project management expertise, revenues exceed $ 398 milhon. The aggregate capacity . dows CalEnergy to bring our facilities on-line in a of our projects in operation, construction or under timely m nner nd Jeliver electricity to our customers P" * * *P"It "'ba m development worldwide now totals more than 2,700 net MW. Today, as an international developer, owner and oper-ator of cnvironmentally responsible power generation facilities, CalEnergy is one of the world's largest and most technoh>gically advanced independent power paducers. With our goals firmly in sight, we look to the future with confidence. T,a%7 T, C,g% T," /tr's,n,A, T p i 1 4 m gl h fi i \\ V WE Ad MOTWKfEDv/ld jN 4 f xvA A w BYOUR VISION roame FUTURE.

CatE=smov CoupA=* 1 i EE88A8E1 FromThe Chairman m l l l As the representative of your [htrd of Directors and your management team, I am pleased to present the Company's 1995 results,information about the pnwress of our development, financing and construc-tion activities, and an outline of market trends as we view them. First, it is appropriate to mention an important new development-our name change. Cahfornia Eneigy Company, Inc. began as a geothermal developer based in California and during the past 24 years has steadily evolved to become one of the world's largest independent power pnducers with expertise in many fuel sources. Today, as we continue to expand into inter-national markets and diversify our project portfolio, it is only fitting that we retlect this evolution by modifying our name to CalEnergy Company, Inc. ("CalEnergy"). CalEnergy's many key accomplishments during 1995 are retlected in our positive economic results and further establish our foundation for the future of the Company. These accomplishments include: < continued operating excellence and record paduction levels at all domestic facilities < successful acquisition and integration of hiagma lhwer Company < completion of development and beginning of construction of the $495,000,000 Casecnan combined irrigation and 150 net hiW hydarlectric power project in the Philippines < complete recapitali:ation of acquired hiagma assets, significantly reducing the Company's interest expense < fmancing and beginning construction of the Imperial Valley Salton Sea Unit IV project Iwf L sou

signing of the Energy Sales and joint Operating charnnan of the Red Contracts for the 4tN net hiW geothermal Bali andChef Exeuaw Offin project in Indonesia

< on-schedule and on-budget implementation of development and construction projects in the Philippines and Indonesia < successfully completed the Salton Sea hiinerals Extraction Pilot Project . p- -- ~w p u,, n e r4 y-m ? y i f Li H p- %'M M N / 4 we nn GUIDED BY (s .a 2 m-oun WE LL-DEFINED STRATEGY. 2 h

C a t E se a n e w Coupany Of equal or perhaps greater significance than these Ibmestic power markets are in the early but accelerat-accomphshments is the fact that our Company wide ing stages ofderegulation. As the utility companies geothermal operations team completed one full year of in the United States work thmugh deregulation, the operation without a kwt time accident. Approximately demand for new power will be minimal for two primary 400 employees in 12 facilities worked well in excess of reasons. First, utilities will be reluctant to purchase } 820,000 hours without such an accident-an impressive new power until they unJerstand how they will statistic and one of which we are very proud. Empkn ce recover such expenditures in the new regulatory arena. safety is a Company-wide priority and this success story Second, as many utilities enter this new competitive is a tribute to our fine operations team. arena, they are attempting to utilize their existing We have also successfully completed the Salton inon ply mweno hnhnpetition until they have Sea Minerals Extraction Pilot Pmject for recovering had an opportunity to further ' tilt, the playing 6 eld minerals from geothennal fluids, which could prove in seit direction. Such activities are manifesting to be very promising. themdves in pmpmed regulanon and legislanon by utilities flexing their market power muscles. Considerable pn>gress has been maJe on the construc-tion of he Upper hiahiao, hialitbog, hiahanandong It is our view that Jeregulation is inevitable t and Casecnan projects in the Philippines. The Upper anJ very pwitive hhough it may be slow in coining in am s whae uhes have hiahiao project and Phase 1 of the hialitbog project are planned to go on line during the second half of

*"*I"' I"II"*" "" R"I '" Af

1996. Phase II of the hialitbog project and the entire deregulation, two beneficiaries will emerge. hiahanagdong project are on schedule to be opera-E* 'I"'"' P"""*"'"" *' "#f" tional in mid-1997. Commercial operation for the from dramatically kywer rates in many parts Casecnan project is scheduled for the end of 1999. of thmuntry. Addinonally,powerpnduc-ers, distributors and sellers who focus on The Company's projects in Indonesia also are proceed-delivering the highest quality service at ing extremely well. The coming year will be very active, the lowest owsible price will see increased with continued well drilling and construction beginning demand for their product. We believe that on the Dieng project, well drilling implementation at such a market will be pwitive for CalEnergy Patuha, and initial 6 eld testing on the island of Bali. over the long-term. Our finance team is developing an overall financing Our challenges for 1996 are clear and we structure for each of these Indonesian projects that are guided by our well-defined strategy. proviJes for substantiablexibility. This is the same We will place our first intemational power finance team that refinanced the hiagnu assets, a generation facilities into operation in the transaction which !nstitutional Investor maga:ine Philippines, commence operation of a new recogni:ed as one of 1995's " Deals of the Year." generation facility in the Imperial Valley of Both the domestic and intemational power develop-Califomia, and continue the development ment markets are experiencing interesting and differ- "I"!w pmjatsyhmughouuhe mM Wod ent dynamics that will shape our future activities mnunue toin mt in high-quality operations as we and priorities. plan for the pwt 2000 competitive U.S. marketplace. CalEnergy has the vision, detennination and is well The intemational market, which is a mosaic of prepared to meet all of these challenges. individual country markets, is experiencing robust demand for power in almost all of the emerging Finally, I would like to welcome hir. E mard W. industrial countries. However, thu overall demand Re:nicek and hir. John R. Shiner to our Board requires careful analysis of realistic timing, risk of Dhtors. They both bring significant expertise parameters and the ability to fmance mdividual and experience to our distmguished and projects. We will continue to work with our existing accomplished Board. and padpective customers io develop economically viable and environmentally sound rewer generation facilities by cooperatively working through the many complexities of intemational development. David L Sokol Chainnan of the BoarJ and Chief Exectaire Ofscer 3

C a t E se a a a v Coueamv IPitATIII8 Review ( f g -f 4 h They say the only constant is change and in our indus-h try this adage certainly rings true. As we prepare to meet our goals and keep pace with future developments, i]k we are con.stantly tes;ing new technokg, searching for innovation and making positive changes in every area ofCalEnergy. 7 Cm Ptsjectt* One of these Wsitive changes'took place August 1, [ -c; 1995, when our wholly-owned engineering subsidiary, mngama The Ben Holt Co., was officially renamed CE Holt sannung Company. This change signifies the unified strength mm.o of CalEnergy and the excellent reputation of The Ben _ 4a00 Holt Co., and further retlects our commitment to providing customers with single source reliability in giill2" all areas of project development and operation. CE l!ll Holt provides design, engineering and construction E I E E.tooo management services that encompass technokigies Des >n Ped Paer PLn. kardru Rer% Ned such as geothermal, hydroelectric, oil and natural gas. In addition to the United States, CE Holt has in 1995, we continued to meet and surpass industry supported projects in Kenya, hiexico, the Philippines, standards: 92 93 94 95 < hiaintained nearly 100 percent capacity and sa % th u. Something that has not changed is the steadfastness availability levels at all power pnduction facilities a mLM of our operating team-which we believe is the finest in < Decreased operating costs at every facility the industry. Discipline and commitment to excellence - Sustained an exceptional safety record with are essential elements in everything we do. Attention one of the lowest accident and k>st time records to detail has ;nabled us to achieve record capacity in the industry growth and profitabihty in 1995. Employees of our < Operated multiple production facilities in the state domestic geothermal operations kigged the full year-of California and ddigently maintained environ. b21,223 man hours-without a kist time accident, mentalcompliance an outstanding safety record. This dedication and A n n.on Hy, we mminudo unplement ophiwated attention to detail provides the foundation for our technology that protects our environment and allows future growth. us to increase efficiency and reduce overall costs. For example, steam pnduction for the Salton Sea Unit 111 Project was converted from the crystalh:er/ reactor / clarifier (CRC) brine pmcessing method to the pH modification technok,gy, a process that is expected to reduce operating costs at that facdity. Our demonstrated experience and expertise in operating environmentally responsible facilities-both domestically and internationally -continues to be a strong, well recogni:ed competitive advantage. Can Nan Il Paer PLn, located near Rdecerest, Caymua 4

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C. a ( Ewsao, C o u e s t. IPERATilN8 Review P 5-s ( a \\ Cais by I Pou a PLmt, kauJ un Rakuest. C d:p mui Case Navy I, Navy 11 and BLhi-paducing ciectricity solely The Coso geothermal roject in Cahfornia's NIojave from naturally occurnng geothennal steam. Nine P Iksert is the resuh of a long-tenu contract between turbines and more than 120 wells rndoce in excess CalEnergy and the U.S. Ikpartment of the Navy, of 250 net NiW at the site, where long-tenu contracts signed in 1979. The agreement provides for the provide for 100 percent of caracity to lv soli to Southern develorment on 5,000 acres of geothennal reserves Cahfomia Edison Company (Edmn). CalEnergy owns at the Naval Air Weapons Station at China Lake, arrroximately 50 percent of the Gm project. Cahfornia. Today, the Project consists of three facihties-C,alEnergy,s geothermal power riant on line availabil. ities average greater than 95 percent and the Coso project continues to be a top performer. It has yyte mgggg ; e achieved record paduction levels each ear since 3 1991. This tradition of excellence continued in 1995, when the three facihties ran at a combined capacity factor of 110.3 percent. Total net rnduction was more than 2,300 million kilowatt hours (kWh), yielding an average 264.7 net hiW. Several additional significant accomphshments were reali:ed at the Gw project in 1995: - lkhvered a record 2,318,400 megawatt hours (NiWh) of eneruv to E<hson, an averaee of 264.7 net hlW of power sales-enough to supply electrical energy to a city oi 250,000 people for an entire year

Completed a system to transfer steam between the three Coso facilities thereby increasing rehabihty and maximi:ing revenue by allowing each facility to operate at its optimum generating capacity Em and AW f Leh Pou e PLmts m dw imtmd Udb. hauJ ma Cedipitrt2. C<dapetui

, gg.g g j.. g .g operating an entire year nithout a lost time acciJent 6

C a t E es e a o v Coueasey a luprialViky Significant accomplishments of the combined IngerialhkyProjectr As part of the hiagma acquisition, CalEnergy Imperial %lley project during 1995 include: w noctumna obtained ownership interests in a geothennal project < 6wered operating costs by completing the with seven operating facilities in the Salton Sea conversion to and successful start up of the pH known Geothennal Resource Area (SSKGRA) ~~"" hkd process technology at the Salton Sea Unit 111 in southern Cahfonu,a s Imperial %lley. The combined < Rgan construction of the Salton Sea Unit IV capacity factor at the Imperial %lley was 99.1 percent Project, including the addition of a 40 net hiW

a =

m 1995. Totai net paduction was approximately 1,978 turbine generator-when completed in 1996, the .. a.. million kWh, yielding an average 227.8 net hiW. Sa ton Sea Project will pnduce 120 net hiW Four of the Imperial Wiley facilities-Vulcan, Hoch, output to Edison Elmore and Leathers-are 50 percent owned by < Successfully completed the Salton Sea hiinerals ":M CalEnergy and contract to sell power to Edison under Extraction Pilot Project for recovering minerals 30-year n>wer purchase agreements. In hiarch 1996, from geothennal fluids CalEnergy executed a defmitive agreement to acquire Installed over 4,000 feet of 24 inch diameter su m. na. the remaining 50 percent in those four facihties, cement-lined pipe at our Leathers facility which Na*

subject to Hart Scott-Rodino clearance.The is used to transport paduction brine from the wells other three p>wer plants-Salton Sea 1,11 and til to the plant, and will result in a significant decrease (collectively the Salton Sea Project)-are wholly-in maintenance costs owned by CalEnergy and also sell energy to Edison

< Achieved an outstanding safety record by operating under long-tenn p>wer purchase agreements. an entire year without a hist time accident During the summer of 1995, the facilities ran at near full peak capacity, providing Edison with the electrical Dan Peak, located near Reno, Nevada, has tremen-power needed to light and cool thousands of their customers' homes and businesses, dous geothennal development potential. CalEnergy owns 100 percent of the facility and holds rights to an aditional 24,000 acres at the site. in 1995,on line availability at the ~ ~ facility was a record 99.3 percent, although totalpnduction declined slightly fann 1994 levels to 76,430 htWh for an average of 8.7 net NiW. The project also marked its tenth year ofoperation in 1995, nine of those years without a kwt time injury.This ends the initial ten-

"m year period of CalEnergy's power it sales contract with Sierra Pacific 4

J~ r Ibwer Company (SPPCo).The P Company has entered into a short-7 tenn power sales arrangement ~ 4* ~ ,,.. s.s 3 with SPPCo todeliver energy at SPPCds short run avoided cost in 1996. We have implemented ~ I significant cost-cutting measures at Desert Peak and anticipate that in 1996it willbe one of the I geothennal industry's lowest-cost energy pnducers. J.M. leathen Pour Plant in the ImperAdicy, kated near G4patna, Caf ma 7

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C a n. E n s n e w Coweauv I INEAfit31 Review CWEng CmistIE. CalEmp

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un unw wn UNITED STATES:

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California: I Coso 264 127 Naty I ~~~ - f '" . 6 Naty II 11111 _ E_l . _ ux>o Imperial %11ey' 228 154 ,,j Salton Sea I g a m knaCogeneration Puner Plant,locarafin kna, Arimna Salton Sea il g,, i Salton Sealli 9__ R1888Villll813813 Y"IC"" ~ C o ~... ,0. Unlike CalEnergy's other geothermal plants, our yd d'"'"' Roosevelt Hot Springs facility operates only the well I'"b5 field that generates the steam to sell to Utah R>wer and I ight Company. Operational since 1983, Roosevelt

( dpd to 10 hot Springs is krated on the first known geothennal Utah:

resource area approved by the Department of the Roosevelt itot Springs 23 17 Interior,170 miles southwest of Salt Lake City. Ari:ena CalErg Roosevelt Hot Springs has performed remarkably Y""ta 50 50 S mnw well during its 12 years of operatien, and has never sUB TOTAL 575 358 se experienced a k)st time accident. In 1995, even m s though a turbine overhaul conducted by Utah PHILIPPINES: 2-Ibwer and Light caused the plant to be off-line l for more than three months,153,000 MWh of Upper Mahiao 119 119 Fiahanagdong 165 74 ~~. energy were produced and nearly 98 percent plant Mahtbog 216 216 l --~ '" on line availability was maintained. Caseenan 150 52 E s g tlNITED STATES: [ Sal.on Sea IV 40 40 I We are pleased to report that in its first complete year 1 .~~o-~' ofoperation, our 50 net MW nominal cogeneration sUO TOTAL 690 501 6 Co~mm,o, plant inYuma, Ari:ona, produced 390,420 MWh of onsemut ' ~ ' ' " " ~ electricity with an average on-line availability factor inoonesi,; S,, 73,,,3,,,,,,,,,,,, l of 98.3 percent. The plant,100 percent owned by pienj 400 183 i-umm,a.s CalEnergy, efficiently produces energy in two fanns-paruha 400 200 ""'"""""d<'d*"'"' ~ electric and thermal (steam). Electricity is sold to Bali 4N) 120 $,$J[ San Diego Gas & Electric Company under a 30-year g g, L,,,, y,,, contract and steam is sold to a thermal host, which Alto peak 70 70 uses the steam for process and cooling. UNITED STATES: As the fuel for its turbine, this highly efficient cogenera-oregon: tion plant uses natural gas-one of the cleanest fossil fuel Newberry 30 30 sources in the world. The exhaust from the gas turbine, California: waste heat that would otherwise dissipate into the BRpU' 163 163 atmosphere, is recycled into a heat recovery steam gen. Salton Sea M nerals Extraction 15 15 erator (boiler). High-pressure steam is pndiced which sVB TOTAL I,478 786 drives a steam turbine. After driving the steam turbine, TOTAt 2,743 1,645 a partion of the steam is extracted and delivered to the thermal host. This method of utili:ing steam that has i CdEn, e,mmd,m e,,.wn o aay,,,h,,,mam,n, mi,,,so m eh, already performed useful work increases the efficiency '"*""""'*""^"*"""*""*'d""'"""""*d 2 CdEnero nmed a notw, e),need to corume the fast (W4the D,mg tmy,t of the plant and maximi es fueluse, u a, _,a m vr a, w,r %, u.,,s,h,,,, udars CdEncro has,m ured a wirbnent gecment una Edmn 6 Arh. ( 4pul b the CTLC, s41,mle m CJEn<ro sichJraueng 69Nrnfilus a ed e

C46 Easesv C o ** *

k s TIE INTERRATIIN of Magma Power Company A

n integral element of CalEnergy's long-term strategy technoh>gical resources. One of the additional benefits of this integration pmcess was a decrease in our [whI acquire companies that provide business synergies oEdurred with the acquisition of Magma Ibwer combined annual overhead costs by approximately Gunpany. The acquisition, which was fmali:ed in the $12 million. We have also increased paductivity _A first quarter of 1995, significantly increased our asset and reduced our average cost per kWh-providing base and doubled the number of our operating sites an economic edge that will assist us in continuing and sources of revenue. In tum, this revenue diversifi-our successful pursuit of intemational opportunities. cation reduced our risk pro 61e and enhanced our Further assuring a leadership p>sition in the industry, credit pisition. we recapitali:ed the debt incurred by the Company The Magma acquisition e6ectively moved CalEnergy in the Magma acquisition which will signi6cantly into pwition as one of the world's top independent power reduce our annual interest expense. The two-part debt pnducers and the large >t independent geothermal p >wer issue consisted of a $475 million nonrecourse project paducer. Our assets ht ve increased to more than $2.6 financing of senior secured notes by Salton Sea billion and our aggregate capacity of projects in operation, Funding Corporation coupled with a $200 million construction and devekyment now totals more tlun issue oflimited-recourse notes by the Company in the 2,700 net MW. public market. This innovative and much-heralded appnuch allowed us to kick in low-cost, fixed rate By addmg the strengths of Magma to our company, tenn 6nancing to replace our... lacquisition goan mina we have reali:ed many additional benefits. We have while raising more capital to fmance construction of added a wealth of industry leading talent to our opera-the additional 40 net MW Salton Sea Unit l\\ project. tions and development teams, providing further depth of experience, and have combined and eahanced our PIIJECTI In Construction Continued infrastructure growth and deveh rment ~ have contributed to the increased demand for reliable, environmentally responsible electricity from domestic sources in both the Philippines and Indonesia. To help satisfy these requirements, we are currently developine and constructing major projects in both countries. We are also constructing the Salton Sea Unit IV project in the United States. Projects currently under construction in the Philippines include the Upper Mahiao, Mahanagdong, and Malitbog geothermal projects and the Caseenan com-bined irrigation and hydroelectric project-representing a totalinvestment in excess of $1.3 billion. All are structured as Build Own-Operate-Transfer (BOOT) projects, whereby CalEnergy and its joint venture part-nets will construct, own and operate the projects for an agreed upon length of time. At the end of that time, II*# "'***" Upto M,h Pe PLmt. located on the dai of Leyte. Repubhc of the Ph4pnes l 1O

cal Ewaaoe Coepamv M'N W? T' ' ~.,.% e . f hthnigkng r,uer Ptmt. laated on the ulnl of Lnte. Repdk of the PhhNws kithe Philippim. lt has been extremely gratifying to successfully w g3 -V, implement our projects in the Philippines. The vision and leadership of President Ramos and other elected M 1, ~ ss officials anJ government agency leaders continues to ( ~ ,4 affect the country's social, economic and infrastructure 'a grm th in a very pisitive manner-and the p>wer pro-jects under construction in the country wdl continue to strengthen its position in the new global economy. Our sense of resp >nsibility continues to grow as we inte-grate our Company with the business community and culture of the Phihprines. The impirtance of aJJitional energy for re3iJences, busineses and industry is clear stsa P1 cr etmt, tu: red on the stalvf tace, gensa ofihe Phanws w and we are resolute in our commitment and further dedicated to our task. Our team is strengthened with hiahanagdong quality local employees w huse work et hic is exemplary. Construction on the hiahanagJong project, a 165 We L J 'orward to long and mutually beneficial relation. net htW umthermal facihty on the island of Leyte, ships with all our Phihrpine pirtners. was ahead of schedule at the enJ of 1995. Engineering Upper hiahiao "" I'""f'*'"' ""' "'"' P"""""* P " At the enJ of 1993, construcnon was neanng ""*"'""" ""'"PP'"*""" P"""""* P completion on the Upper hiahiao project, a 119 The hiahanandong project is owned and operated net hiW geothennal facihty on the island of Leyte. by CE Lu:on Geothennal Ibwer Company, Inc., a The facihty, scheduled to go on hne in mid year 1996, prinuogranon that cumntb me will sell 100 percent of its capacity to the I,hihrpine percent by CalEnergy and 50 percent b kiewit Energy 3 Comptny, Inc., a subsidiary of Peter Kiewit Sons', Inc. Nanonal Od Company-Energy Development Corn iranon ( PNOC EI E) for resale to t he National Scheduled to go on line by mid year 1997, the Ibwer Corp > ration of the Phibppines (NAPOCOR) hiahanagJong facility also wdhcIl 100 pc reent of and distnbution to the island of CebuA0 miles west its capacity to PNOC EIE for res.de to NAPOCOR of Leyte. It is being built and wdl be owned and and Jtstribution to the island of Lu:on. operated by CE Cebu Geothermal Ibwer Company, Inc., a Phihrpine corp > ration that is indirectly owned by CalEnergy. n

CattN344Y C 0 h4 P A N T PRIJiliti in Construction Malitbog local Philippine partners in this project will own up to At the end of 1995, construction was nearly 80 30 percent of the project. Ownership will transfer to percent complete on the first unit of the hialitbog NI A at the end of a 20 yea cooperation period. project, a three-unit 216 net hiW facility at the The project will divert excess water from the Caseenan Tongonan Geothermal Reservation on the island and Denip Rivers in Northern Lu on through a 26-of Leyte. Foundation construction of the second kih> meter tunnel, through an underground power plant and third units was well underway. and into the Pantabangan Reservoir.The project will The hialitbog project is being built, owned and provide up to 150 net hiW of new, installed hydroelectric operated by Visayas Geothermal Ibwer Company capacity to the important Lu:on electrical grid as well (VGPC), a Philippine general partnenhip indirectly as much-needed water for agricultural use in the Lu:on owned by CalEnergy.The 6nt unit is scheduled to Valley. It is projected that the annual impact will be be fully operational by mid year 1996, with the second approximately 465,000 tons of additiotial paddy rice and third units on-line by mid year 1997. VGPC will per year-a production increase that will help make sell 100 percent of the capacity of the hialitbog facility the Philippines self sufficient in rice praluctien in to PNOC EDC for resale to NAPOCOR. years to come. These three projects-Upper Mahiao, hiahanagdong Saiton Sea and Malitbog-will double the current generat;ng Conversion of Salton Sea Unit 111 from crystalli:er/ capacity of CalEnergy during the next two years. reactor / clarifier (CRC) to pH Mal technohyy at our Imperial Valley project was comptered November 1, 1995. The purpose of this steam supply technokigy n en ber 1995, financing ckwed and construction upgrade is to pr vide significant operating and commenced on the Casecnan project in the Philippines. mainten nce c st s vings t that facility. This project, based on an agreement between CalEnergy and the Philippine NationalIrrigation Administration Construction work continues on Sahon Sea Unit IV, (NI A) to develop a combined irrigation and hydroelec-an expansion facility with 40 net MW of new capacity, tric power generation project, is an example of our on budget and on schedule. It is expected that Unit IV successful efforts at fuel source diversif cation. Le willle on line by mid year 1996. This expansion effort agreement provides for CalEnergy and Kiewit Energy will increase the total output of the Imperial Valley Company, our joint venture partner, to jointly own at projects by 17.5 percent. least a 70 percent equity interest in, and manage, the joint venture project. s: ~ A litPillilillif 'ib OurNeighbors y + During the past year, several situations arose during our development efforts on the Casecnan project i the IMppind caused us to re-evaluate our responsibilities to our new neighbors. Many of the warenhed area inhabnants-an indgenma peoplh fl~ known as the Bugkalots-were found to be in need of basic nutritional and medical assistence.-- , e m~y in response to these needs, CalEnergy developed and is implementing a program that provides fo the folkwing'asmatance: m high schooland - irriptionsystenstoaidcroppowth ~ t W i M f. generators .G M ~b potable water university scholarships ' (construction of civic centers r J nutritionalanistance w contributionssolocal two way radios medical aid - chantiesandfeenvalfunds? ' 4. +y ' *, ? . jobs in Indonesia, through a collaborative effort, CalEnergy and its partners, Pertaniina aG PLN, have developed ounesch'pk grams designed to bring together professionals with relevant expertise. nese TechnologyTransfer and Fellowdup Pr allow teams of professionals to share ideas, skills and knowledge through individualized site visits and work study psopaan ~ at our power generation facilities in the United Stees and project sites in Indonesia;, ] Our efforts to supply both the Philippines and Indonesia with much-needed electricity will continue;tibejupponed Eith{ non-traditional assistance designed to bene 6t our neighbors. 4 w l l I2

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Cattasnew C o ns p a n y P18JJtil In Development j$' Oubcus is on future growth, with an intent to expand lalatussia... 1 undiiur divene technokigical capabihties and continue Indor esia has an immediate need to keep pace to JEekp additional environmentally responsible facili. with energy demands and supply its large p pulation %vf5 Our abihty to assemble creative 6nancing packages and rapidly growing industrial base with reliable elec-in a timely fashion enables us to 6 nance projects with tricity. The country possesses signi6 cant oil and natural reduced risk. This decreases our operating costs and gas resources, but the Indonesian govemment has allowwur customers to bene 6t from these ef6ciencies wisely chosen to save these for export by accelerating in the fonn of faster project implementation and lower development ofits vast geothenaal resources for its energy costs. intemal electricity supply. This type of fores;ght by the Indonesian govemment will contribute to the country's We believe that our vision, experience and successful amanued industrial expansion and economic growth. perfonnance will position us well in the future. Our reputation for integrity and ecologic:d sensitivity, as Our Indonesian associates have become true parmers well as our ability to reduce overall costs, will attract in our etTorts in their counny. AJditionally, the quality hke minded customen and partners. workmansup, dedication and work ethic of the people of Indonesia have contnbuted to our progress and will Development is underway at the Newberry geothennal be a key nwn fonu futun' sum l project near Bend, Oregon, at the Salton Sea hiinerals Extraction Pilot Project and at geothemial projects on Dieng the island of Bali and at the Patuha and Dieng geother-In 1995, CalEnergy initiated the exploration drilling mal 6 elds in Indonesia. Our projects in Indonesia are program for the 6rst phase of devekyment of the structured as Build-Own Operate Transfer (BOOT) Dieng geothennal project. Geophysical surveys and projects whereby, after an agreed unin time, ownership analysis were followed by the successful completion will transfer from CalEnergy and its partners to of four temperature coreholes and the drilling of three e the Indonesian govemment. It is estimated that full-si:e pnxiuction wells. CalEnergy has contracted CalEnergy's total investment in Indonesia will be to build up to 400 net hiW of generation facilities at in excess of $2 billion. this site and will deliver the electricity to PLN, the Indonesian state owned utility. Recently, CalEnergy Dn!!mg ng at the Dieng pwer Project, located on the istni ofJat a, InJonesu ssued a nocice to proceed to construct the 52 net hiW 6rst phase of the Dieng project. a CalEnergy has a joint Operation Contract with Pertamina, the Indonesian national oil company, 1 for the devekymerit of the Dieng geothemial steam field and power facility. Having signed a "take or pay" i En<.rgy Sales Contract with luth Pertamina and PLN, -..b it a expected that the 6rst facility of the Dieng project will go on line in md 1997. Patuha Field devekyment is proceedmg on schedule at the Patuha geothermal 6 eld on Java where CalEnergy has a join, bration Contract and Energy Sales Contract with Pertamina and PLN to develop up to a 400 ner hiW project. Exploratory drilling hications have been determined and work has started on road upgrades and a water supply system. Unit I of the Patuha project is currently scheduled to go on hne commencinp in mid 1998. id

C a L E se E

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s / 4 s .qe se e T' ~ g { 4 l s; ~' a. . 6 t.,, T ' ' y f ,e % unlaimg statum at the Impenal VJley pH MAfwathm fasty i Eali Newberry On November 17,1995, a joint Operation Contract Devek, ment activities for the Newberry project, for the development and operation of the Bali project a 30 net MW geothermal facility 100 percent owned l with Pertamina and a "take or pay" Energy Sales by CalEnergy, continue to pnxeed on schedule. i Contract with both Pertamina and PLN were signed In 1995, drilling began to determine the geothccmal by Bali Energy, Ltd., an affiliate of CalEnergy, to build, potential of the site. Tes wells and one commercial-own and operate a geothermal power project on the & ion well had been drilled before winter s island of Bah m Indonesia. CalEnergy and its kical weather interrupted our efforts. CE Exploration, the joint venture partner, P.T. Pandanwangi Sekartap, plan CalEnergy project company, anticipates drilling to to construct several geothermal production facilities in restart in the spring of 1996. phases with output of up to400 net MW. Contracts are in place to sell 20 net MW of electricity .? CalEnergy will maintair, an equity interest in the to the Bonneville Ibwer Administration and 10 net project and serve as managing partner of the venture. MW to the Eugene Water and Electric Board, once Field development and well drilling are expected to development and construction are completed. e j commence in late 1996. 1 Salton Sea Minerals Extraction Pilot Project i A successful pilot project has been implemented in the Imperial Valley to recover various minerals, initially Zinc, in commercial quantities from the mineral rich j geothermal fluids. Based on these successful test results, the Company plans to work with a speciali:ed mining j extraction company, or companies, to construct in phases a large scale minerals extraction facility. i y f,. ,_, /' f -~sw # n.y b; n a i t 1 l e?'"10 e@a 0 p a n o l u r. m 3 D O U R. hw/ v; j x ms wn i FOCUS IS ON i i nn FUTURE. j 15 4._.

C a o E es e a o y C o as e a se v 1 l _ VIEWToThe Future Th the year 2000, we anticipate that the current Imperial Valley are representative of our leadership i] endigy market will result in a muc h more positive $6vement toward dereg in the geothermal power production industry and our Salton Sea Minerals Extraction Pdot Project is very .A_enfironment for companies like CalEnergy. Recent promising. Our Yuma facility is an ef6cient cogenera-legislative refonns, as well as thou now in motion, tion plant. Exemplary capacity and availability levels should work to remove the inef6ciencies from as well as exceptional safety records at each of these currently monopoli:ed markets and contribute to facilities are indicative of the teamwork, commitment increased competition among g>wer producers and and vision ofour dedicated staff. power marketers. In tum, this will mean lower energy costs for consumers. By virtue of our operational We will continue to focus on applying the highest excellence anJ cost ef6ciencies, this is an arena standards of performance to every task at hand. Our m w hich CalEnergy expects to excel. reputation will continue to grow in the areas ofopera-tions, project financing, Jesign, engineering and con-Until that time, we intend to maintain our primary struction. We will continue to meet our commitments focus on markets outside the United States. Our deci-and bring facilities on line on time and within budget. sion to become a global in1 pendent energy provider And we will continue our leadership as one of the was multifaceted-not solely based on the slowed most po6 table companies in the industry. growth of the domestic market. We anticipated that the 47ew nn our conunitmeot to well-de6ned end of the cold war would lead to the opening of histor. ically cLised markets and create new economic growth strategy that is c ause for much of our success and vow to continue to: requiring many countries to expand their energy infra-structure. Accordingly, we knew that the movement - hiaximi:e current pnxiuction levels through toward privati:ation in countries with growing energy operational excellence needs would provide signi6 cant opportunities. - Focus our marketing efforts on targeted niche As a full service provider with expertise in all aspects markets, intemationally and domestically, when 3 of the development, construction and operation of and where market conditions are conducive energy facilities, we recogni:ed the opportumnes - Continue our efforts in the area of fuel source oftered by these circumstances and were confident "'Nf 'I"" in our abilities to perform. This insight has paid off

^'4""e canpames or pojuts thanneet our with our initial endeavors in the Philippines at Upper

'""'"E*'""" Mahiao, Mahanagdong, Malitbog and Casecnan, - Maintain a signi6 cant equity ownership and and in Indonesia at Dieng, Patuha anJ Bali. We "P"'"'I"" ""'"I I" F"l"'" *

I"i" have camed the position as a leaJer in world power ventunng to diversify risk market development.

- Achieve financial goals to which we are committed by maintaioing strict adherence The perforroance of our domestic projects also to 6nancial performance standards bales well for our abilities now and into the future. Processes are m. place and strategic operational More than ever, as we move toward the rum of the improvements have been made with the goal of century, we believe that discipline-and a focused ensunng connnued success. Our facilities at Coso, pgoach-am the keys to our future suaen Desert Peak, Roosevelt 1-lot Springs and in the ng y vi y 7%y y3 y p$ i ga 1 e i n a et f 4 a 4 3 y w 4 p q v x n a f ]m e 6 q h ej j g Q g K g vb 1 a p s J DISGlPLINE kNI[p e a t h N b A h .lk. As %st R..R R J.E JL M LJ FOCUSED APPROACli-ARE Tile KEYS TO OUR fu FURL SUCCESS. m e

1 C a a, E so s n o w Company l-f18AltlAt Summary 1 I in 1995, CalEnergy Company, Inc. (the " Company"), for-As part of the recapitalization of the Magma acquisition, merly Califomia Energy Company, Inc., produced record on July 21,1995, the Company issued $200,000,000 of revenue and net income, in part due to the acquisition 9 7/8% Limited Recourse Senior Secured Notes Due 2003 of Magma Power Company (" Magma"). Financially, the (the " Notes"). Concurrent with the issuance of the Notes, acquisition of Magma resuhed in an expanded Company the Company through its wholly owned subsidiary, Salton with greater (mancial resources and flexibility. As a result, Sea Funding Corporation, completed a sale to institutional the Compam

able to recapitali:e the acquisition with buyers of $475,000,000 principal amount of Salton Sea Notes the proceeds of a 300J88J00 issuance of Company com-and Bonds, which are nonrecourse to the Company. Proceeds mon stock, $475 million from the issuance of Salton Sea fmm this offering also funded the construction costs of Salton Notes and Bonds and $200 million from the issuance of Sea Unit IV at the Imperial Valley, which is scheduled to 9 7/8% Limited Recourse Senior Secured Notes. This effort commence operations by the summer of 1996.

enabled the Company to relatively reduce its interest expense in m E, se mp ny c n ndng and and increase its cash flow from operating facilities. Today the Company is fully recogni:ing the 6nacial and operating shortly thereafter commenced construction of a multipurpose cost bene 6ts of the Magma acquisition. irrigation and hydroelectric power facihty with a rated capacity of approximately 150 net MW in the Philippines. Revenues during 1995 increased to $398,723,000, a 114.5% increase from 1994 revenues of$185,854,0N. The increase Company,s scheduled equity funding obligations for its was due primarily to the acquisition of Magma, the contractual pmjan in mnstmaion have been satisfied, and as of year annual energy price increase pursuant to the Caso Projects, end, the Company maintained cash and investment balances power sales contracts with Southem Califomia Edison, and f ppt xim rely $106,000,000forfuturepotentialproject the full year of commercial operations of the 50 net MW investment opportunities. Yuma Cogeneration Project which began commercial The Company is the largest independent geothermal power operations in late May 1994. pnxiucer in the world. The Company has an aggregate net Net income available to common shareholders increased ownership of 358 ).W of electric generating capacity in to $62,335,000 in 1995, a 95.9% increase compared to power pr ducti n facihties m the Umted States having an P "Y "Ed S $31,817,000 in 1994. In March 1994, the Company recorded

* *2 "" ' P N a one-time after tax charge to eamings of $2,007,000 in n megate net owmdup of 409 MW of electric generating connection with the defeasance ofits 12% Senior Notes.

c pacity in three geothermal power projects in the Excluding the effects of the nonrecurring item, net income Pnilippines having an aggregate net capacity of 500 MW, available to common shareholders was $62335,000 in 1995 which projects are 6nanced and under construction. as compared to $33,824,000 in 1994. Overall, this improve, Furthermore, the Company has a net ownership interest of ment was due to both an increase in Mh production and 878 MW in nine additional constructien and development to the Company's continuing emphasis on cost control and pmjan with emuted or awarded power sales contracts operational ef6ciency. representing an aggregate nei 1,668 MW of electric generating iMM lanesia, and the United States. In September 1994, the Company initiated the purchase h chievements :f 1995 demonstrate our commitment of 51% of outstanding shares ofMagma as the 6rst step in the acquisition of the entire equity interest in Magma. m the goal of becoming the most cost effective devekver Purchase of majority control was completed in January nd operator of environmentally responsible power gener tion f cihties m the world. 1995, and the remaining 49% of the outstanding equity was acquired in late February 1995. Concurrent with the purchase , of the remaining 49% of Magma, the Company completed the sale of 18,170,000 shares of common stock at a price of $1'400 per share providing net proceeds to the Company of $300,388J00. This share offering was over subscribed, in part reflecting keen investor interest in the Company and its future prospects. In addition to supplying a portion of the funding for the Magma acquisition, this common share offering lmlstered the Company's equity capitali:ation in preparation for 6nancing potential future growth opportunities. 17

~ cass=see, ceae*=, Financial Data Dhs ninmod Erep Per be Anwnu j f Year Ended December 31. 1995' 1994 1993 1092 1991 $ 332,732 $ 152,047 $ 129,861 $ 115,087 $ 104,155 2,898 2,515 2,198 2,255 2,029 Saleso(electricity Sales o(steam 19,482 43,611 31,292 17,194 10,187 9J79 Royalties 301,672 130,018 67,995 76,797 80,697 Other income 97,051 55,836 61,258 50,732 34,866 Expenses inccxne before povision for income taxes income before change in accounting ginciple and 66,420 38,834 43,074 38,810 26,582 extraordinary item Cumulative effect ofchange in accounting ginciple 4,100 3 3,005 knority interest (2,007) (4,991) Extraordtnary item' 63,415 36,827 47,174 33,819 26,582 Net income before geferred dividends 1,080 5,010 4,630 4,275 Preferreddwi&nds lxame per share before change in acccmnting 1.25 .95 1.00 .92 .75 principle and extraordmaryitem Cumulative effect of change in accounting principle .11 per share Extraor<hnary item per share (.06) (.13) 1.25 .89 1.11 .79 .75 Net income pr share-primary 2,654.038 1,131,145 715,984 580,550 517,994 2,064,474 667,703 425,393 336,272 298,146 Totala.ssets 26,032 19,851 20,288 21,164 22,015 Totalliabihties Pedeemable geferred stock 63,600 58,800 54350 54,705 Deferredincome 543,532 179,991 211,503 168,764 143,128 Stockholden' equity Common stock cash e-idends %u -m se no u 6n.+_nm 3See Wie 14 to the omil&wl knanaal warmnu. 3See Wee 20 to the omklatwi (manual maremenn 46tA184fp3 Discussion and Analysis of Financial Condition and Results ofOperations Dhs d Shares m Anna Eues Per heikra The following is management's discussion and analysis of allows for production in excess of the amount listed above. certain signi6 cant factors which have affected the Company'sUtili:ation of this operating margin is based upon a variety fmancial condition and results of operations during the of factors and can be expected to vary throughout the year under normaloperating conditions. periods included in the accompanying statements of operations. The Coso Project and the Partnership Project sell all electricity generated by the respective plants pursuant to EM3I seven long-term SO4 Agreements between the projects For purposes of consistency in fmancial presentation, plant and Southem Califomia Edison Cornpany (" Edison"). capacity factors for Navy I, Navy 11, and BLM (collectively These SO4 Agreements provide for capacity payments, the Coso Project), are based upon a capacity amotmt of 80 capacity bonus payments and energy payments. Edison net MW f mch plant. Plant capacity factors for Vulcan, makes fixed annual capacity payments to the projects, and, Hoch (Del Ranch), Elmore, Leathers, (collectively the to the extent that capacity factors exceed certain bench-Partnership Project) are based on contract name@e marks, is required to make capacity bonus payments. The amounts of 34,38,38, and 38 net MW respectivei. price for capacity and capacity lunus payments is fixed for and for Salton Sea 1, Salton Sea 11 and Salton Sea 111 plants the life of the 504 Agreements and are signif cantly higher (collectively the Salton Sea Project), are based on contract in the nionths ofJune through September. Energy is sold at nameplate amounts of 10,20 and 49.8 net MW, respectively increasing fixed rates for the f rst ten ye us of each contract (the Partnership Project and the Sahon Sea Project are and thereafter at Edison's Avo;ded Cost of Energy. collectively referred to as the Imperial Valley Project). Each plant possesses an operating margin which periWically se

cm....c.~., The fixed price periods of the Coso Project SO4 Agreements For the year ended December 31,1995, Edison's average extend until at least August 1997, March 1999 and January Avoided Cost of Energy was 2.1 cents per k% which is 2000 for each of the units operated by the Navy 1, Bl.M substantially below the contract energy prices eamed for the and Navy 11 Partnerships, respectively. The Company's year ended December 31,1995. Estimates of Edison's future share of the annual capacity payments is approximately Avoided Q3st of Energy vary substantially from year to year. $5,600 to $5,900 per annum for each plant. The Company's The Company cannot predict the hkely level of Avoided share of bonus paymerits is approximately $ 1,000 per annum Cost of Energy prices under the SO4 Agreements and the for each plant. modi 6ed SO4 Agreements at the expiration of the scheduled The fixed price periods of the Partnership Project SO4 p ymem peri ds3e mvenues generated by each of the Agreements extend until February 1996, December 1998, pmjecu peratingunderSO4 Agreementscoulddecline December 1998, and December 1999 for each of the Vulcan, significantly fter the expiration of the respective scheduled . Hoch (Del Ranch), Elmore and Leathers Partnerships, payment periods. rupectively. The Company's share of the annual capacity . payments is approximately $12,000 and its share of the ResuRsofOperatins bonus payments is approximately $2,200 in aggregate ThreeYearshded - for the four plants. December 31,1995,1994 ud1993 The Company's SO4 Agreements provide for rates ranging S les felectricity ndste mincre sed t $335,630in the year ended December 31,1995 from $154,562 in the from II.4e per kWh in 1995 to 15.6g per k% in 1999, i year ended December 31,1994, a 117.1% increase. The The Salton Sea 1 Project sells electricity to Edison pursuant to improvement was primarily due to the addition of production a 30-year negotiated power purchase agreement, as amended from the Imperial Valley Project, as a result of the acquisition (the "Salton Sea I PPA"), which provides for capacity and of Magma in the 6rst quarter of 1995, an increase in the Gm energy payments. The energy payment is calculated using Project's electricity revenues to $152,128 from $137,013 due a Ba3e Price which is subject to quarterly adjustments based to an increase in the Coso Project's electric kilowatt hour on a basket ofindices. The time period weighted average sales to 2,318.4 million kWh from 2,238.6 million kWh, energy payment for Unit I was 4.99e per kWh during 1995. and an increased price per kWh in accordance with the SO4 As the Salton Sea I PPA is not an SO4 Agreement, the agreements and an increase in revenue received from the energy payments do not revert to Edison's Avoided Odt Yuma Project which commenced operation in late May 1994. of Energy. The capacity payment is approximately $ 1,000 The increase in sales of electricity and steam in 1994 to I P"""" j. $154,562 from $132,059 in 1993 was primarily due to a 'l c x! tea Sea 11 and Salton Sea 111 Projects sell electricity 2.4% increase in the Coso Pmject's electric kWh sales l to Edison pursuant to 30-year modified SO4 Agreements. to 2,238.6 million kWh from 2,186.7 million kWh, an The contract capacities and contract nameplates are 15 MW increased price per kWh in accordance with the SO4 and 20 MW for Salton Sea 11 and 47.5 MW and 49.8 MW agreements, and revenue received from the Yuma Project, for Salton Sea III.The contract requires Edison to make which commenced commercial operation in late May,1994. capacity payments, capacity bonus payments and energy The increase in Coso Project kWh sales was primarily l . payments. The price for contract capacity and contract due to the completion of new production wells. czpacity bonus payments is fixed for the life of the modified l '04 Agreements. The energy payments for the first ten The following operating data includes the aggregate capacity year period, which period expires in April 2000 and Fcbruary and electricity production of the Coso Project: 1999, are leveli:ed at a time period weighted average of 10.6e tw5 Iw4 Iw3 per kWh and 9.8e per kWh for Salton Sea 11 and Salton Sea Overall Carace Factor 1103 % 106.5 % 104.0 % lil, respectively. Thereafter, the monthly energy payments kWh praluced On thouunds) 2,31B,400 2,238,600 2,186,700 will be Edison's Avoided Cost of Energy. For Salton Sea 11 Capacity NMW ( Average) 240 240 240 4 only, Edison is entitled to receive, at no cost, 5% of all The Coso Plant capacity factor was 112.6% in the founh energy delivered in excess of 80% of contract capacity for quarter of 1995 compared to 112.2%,106.1% and 110.2% the period April 8,1994 through March 31,2004. The annual for the third, second and 6rst quaners of 1995, respectively. capacity payments for Salton Sea 11 and Salton Sea 111 are A steam transfer agreement was signed and the intenies approximately $2,000 and $8,300, respectively. The bonus were constructed in the third quaner of 1995, providing for payrnents for Salton Sea 11 and Salton Sea 111 are approximately increased production primarily at the BLM plant. Technical $500and $1,400, respectively. enhancements provided for the increase in 1994 from 1993 59

com...,c...... Electric sale price per kWh for the Sahon Sea Project also The following operating data includes the aggregate capacity varies seasonally in accordance with the rate schedule and electricity production of the Partnership Project: included in the power purchase agreements. The Salton Sea Project's average electricity prices per kWh in 1995, 3993 3994 3993 OverallCapacity Factor 105.9 % 103.8 % 100.7 % 1994 and 1993 were comprised of(.tn cents): kWh Produced (in thousands) 1,373,310 1,346,000 L305,700 Capacity NMW(Average) 148 148 143 Energy Capacity & 13 onus Total Avu ge facan995 9.50 233 u.83 The Partnership Project capacity factor was 105.8% in the fourth quarter of 1995 compared to 108.0%,107.5%, and ( $7 Hjj ^ 3 102.3% for the third, second, and first quarters of 1993,

rw intaa 6 fu, e...wuru casoe<,mi,31.1993 respectively. The increased production in 1995 and 1994 are a result of minimi:ing unscheduled downtime at the plants.

The Roosevelt Hot Springs steam field supplied 100"o of customt mwer plant steam requirements for each of the The following operating data includes the aggregate capacity past three years. Steam sales from the Rcwevelt Hot Springs and electricity production of the Salton Sea Project: field were $2,206, $2,185, and $ 2,198 in 1995,1994, and 1993, respectively. The Desert Peak power plant operated 1995 1994 1993 OverallCapacity Factor 865% 90.8 % 913 % at or near its ten net megawatt capacity for each of the past three years. Electric sales from Desert Peak were $5,115, kWh Praluced (in thousands) 604,300 634,890 638,262 Capacity NMW ( Average) 79.8 49.8 49.8 $5,281 and $5,177 for the years 1995,1994, and 1993, respectively. Beginning in 1996, the Desert Peak power plant The overall Salton Sea Project capacity factor was 86.8% will receive payments for delivered electricity based on Sierra in the fourth quarter of 1995 compared to 93.9%,78.3% Pacific Power Company's short-run Avoided Cost of Energy. and 86.8% for the third, second and first quarters of 1995, The Yuma power plant availability xas effectively 100% respectively.The Salton Sea Project capacity factor has during 1995 and delivered 89.2% of its 50 net MW plant decreased in 1995 from 1994 and 1993 due to the scheduled capacity. Electric and steam sales from Yuma were $16,975 Salton Sea Unit 111 overhaul in the second quarter of 1995 in 1995 and 40,082 for approximately seven months in 1994. and the conversion of that unit to the pH Mod technology in the fourth quarter of1995. Royahy income in 1995 of $19,482 is a result of the acquisition of Magma which receives royaltiu from the Partnership Electric sale price per kWh for the Coso Project varies Project, East Mesa Project and the Mammoth Project. seasonally in accordance with the rate schedule included in the SO4 agreements.The Coso Project's average electricity Interest and other income increased in 1995 to $43,611 prices per kWh m 1995,1994 and 1993 were comprised of from $31,292 in 1994 and from $17,194 in 1993. The increase reflects management fee income received from Energy Capacity & Bonus Total the Pmnership Project partially offset by lower interest income due to lower cah and investment balances. Average fiscal 1995 11.81 1.82 13.63 The Company's cost gr kWh was as follows Gn cents): Average fucal1994 10.91 1.90 12.81 Average fiscal 1993 10.11 1.93 12.04 1995 1994 1993 Electric sale price per kWh for the Partnership Project Pldn' oreratk'ns (net of Company's also varies seasonally in accordance with the rate schedule management'ees ndYumafuelcost) 2.3l 1.82 1.98 included in the SO4 agreements.The Parmership Project's average electricity prices per kWh in 1995,1994 and 1993 [""h" """" """ ',[ f 2.41 134 139 were comprised of(in cents): Rprecunon and amortcanon ImneaJew amountcapitaked 3.40 133 L82 Energy Capacity & Bonus Total Tel 9.71 7.91 6.87 Average facal!995 11.14 2.10 13.24 Average fiscal 1994 10.29 2.16 12.45 Average fiscal 1993 9.70 2.21 11.91 l 20

c m.... c.,,,, m, The Company's expenses as a percentage of sales of elec*ricity from the Imperial Valley Project and amorti:ation ofexcess i and steam were as follows: i of cost over fair value of net assets acquired in connection with the purchase of Magma. Depreciation and amorti:ation 3993 3994 3993 for the plants the Company owned in 1994 increased to mm in ,a U Depreciation and amorti:ation expense for%xtea a ,em n yuma c t) 20 6 % 18.7 % 19.2 % 1993 was 2.41 - General and administration ~.0 8.4 10.0 7 Royalties 7.2 6.4 6.3 cents per kWh compared to 1.34 cents per k% in 1994. Dereciation and amorti: anon 21.5 13.7 115 The cost per k% excluding Magma was 1.49 cents in 1995. Interest,less amouna capitah:ed 30.4 34.2 17.7 Depreciation and amortization expense increased to $21,197 Total 86.7 % 81.4 % 66.7 % in 1994 from $17,812 in 1993 a 19.0% increase. The increase in 1994 was due to the completion of H2S abatement systems The Company's expenses increased in 1993 as a general and vacuum pumps at the Coso plan:s and an increased result of the acquisition of Magma, the greater electricity number of wells. prcduction of the Coso Project and the inclusion of the costs from the Yuma plant for an entire year which operated interest expense, less amounts capitali:ed, increased to foronly seven monthsin 1994 $102,083 in 1995 from $52,906 in 1994, a 93.0% increase or 3.40 cents per kWh in 1995 compared to 3.33 cents The cost of plant operations increased to $79,294 in 1993 ! per k% in 1994. The 1995 increase was primarily due to from $ 33,015 m 1994, an increase of 140.2%. The addition the interest expense on the debt used to fmance the acquisi-of the Impenal Valley Pmject operations and the full year tion of Magma, the increase in the original issue discount ofoperations of the Yuma Project (including fuel nanases) amorti:ation on the Senior Discount Notes issued in March resuhed in the Air onal plant operations cost,. Plant 1994 and interest expense on the convertible debt, partially operations costs for the plants the Company owned in W4, offset by the defeasance of the Senior Notes in March 1994, excluding Yuma, decreased $2,250 or 8.4% in IE The cost Net !nterest expense in 1994 increased due primarily to the pr k% excluding Magma and Yuma fuel costs decreased Pompany's issuance of Senior Discount Notes in March of to 1.61 cents in 1995 from 1.82 cents and 1.98 cents in 1994 1994. Net interest increased to $52,906 in 1994 from $23,389 and 1993 respectively.The cost of plant operations increased in 1993, an increase of 126.2%, or 3.33 cents per k% to $33,015 in 1994 from $25,362 in 1993, an increase of in 1994, compared to 1.62 cents per kM in 1993. 30.2% as a result of the cost ofplant operations at Yuma. He provision for income taxes increased to $30,631 in 1995 General and administration costs increased to $23,376 from $17,002 in 1994, and decreased to $17,002 in 1994 from in 1995 from $13,012 in 1994, an increase of 79.6%. This $18,184 in 1993. The effective tax rate was 31.6%,30.5% increase is a result of the Company's acquisition of Magna. and 29.7% in 1995,1994, and 1993, respectively. General and administration costs per k% for 1995,1994, and 1993, continue to decrease due to a proponionally Income before the provision for income taxes increased greater increase in electrical production than general and to $97,051 in 1995 from $55,836 in 1994, a 73.8% increase. administration costs. General and administration costs Net income available to common shareholders increased decreased to $13,012 in 1994 compared to $13,158 in to $62,335or $1.25 per common share for the year ended 1993, a 1.1% decrease. December 31,1995 compared to $31,817 or $.89 per common share in 1994 and $42,544 or $ 1.11 per common share in Royahy cost increawd to $24,308 in 1995 from $9,888 1993. Net income for the year ended December 31,1994 was in 1994, a 145.8% increase. The increase was due to the reduced by $2,007 or $.06 per share due to an extraordinary addition of the Imperial Valley Project, increased revenue item. Net income for the year ended December 31,1993 was from the plants the Company owned in 1994 and scheduled increased by $4,100 or $.11 per share due to a cumulative royalty increases associated with such plants. Overall, the effect of a change in accounting principle, royalty cost per k% was 0,81 cents in 1993 compared to 0.62 cents in 1994 and 0.65 cents in 1993. Royalty costs increased Eamings per share in 1995,1994, and 1993 were favorably to $9,888 in 1994 from $8,274 in 1993, an increase of 19.5% impacted by the Company's stock repurchase plan. due to higher electrical sales and effective royalty rate. Dereciation and annrti:ation increased to $72,249 in 1995 from $21,197 in 1994, a 240.8% increase. The increase was due to depreciation and amonization i l i

C a 6 E a, s s e y Compant ne Company has acquired all of the outstanding equity liquidityudCghthemms interest in Magma Power Company (" Magma") in a two-step Cash and short tenn investments were $106,kM at transaction accounted for as a purchase according to the December 31,1995 as compared to $304,004 at December 31,terms of a merger agreement whereby on January 10,1995, 1994. In addition, the Coso Project and Partnership Project the Company acquired approximately 51% of the retained cash and investments in project control accounts outstanding shares of Magma common stock (the " Magma of which the Company's share was $77,590 and $54,087 at Common Stock") through a cash tender offer (the " Magma December 31,1995 and 1994, respectively. Distributions Tender Offer") and on February 24,1995 tWmpany out of the project control accounts are made monthly to acquired the remaining 49% of Magma Cr.mou lock the Company for operation and maintenance and capital not owned by the Cwpany through a merge %e costs and semiannually to each Coso Project partner and " Merger"). Each outstanding share of Magma Common Partnership Project partner for profit sharing under a Stock (other than shares of Magma Common Stock held prescribed calculation subject to mutual agreement by by the Company, CE Acquisition Company, Inc., a wholly the partners. In addition to these liquid instruments, the owned subsidiary of the Company, or any other direct or Company recorded separately restricted cash of $ 149,227 indirect subsidiary of the Company and shares of Magma and $131,775 at December 31,1995 and 1994, respectively. Common Stock held in the treasury of Magma) was The restricted cash balances are comprised primarily of converted into the right to receive an average J amounts deposited in restricted accounts from which the approximately $38.75 per share of Magma Common Stock. Company will provide its equity contribution requirements The Company paid the Merger consideration solely in cash, relating to the Salten Sea Unit IV, Upper Mahiao, funded with the net proceeds of a public common stock Mahanagdong, and Malitbog projects and the Company's offering of 15,170 shares (the " Offering") and the proceeds proportionate share of Coso Project and Partnership of a direct sate of 1,500 shares to Peter Kiewit Sons', Inc. Project cash reserves for the debt service reserve funds. (the " Direct Sale") at $17.00 per share which together Accounts receivable normally represents two months of netted $275,653, over-allotment proceeds of $24,735 on revenues, and fluctuates with both production and price the sale of 1,500 shares, bormwings of $500,000 undet bank credit facilities (" Merger Facilities"), and general corporate per kWh. funds of the Company. Magma is engaged in independent The balance due from/to the joint htures relates to geothennal power operations similar to those of the Company. operations, maintenance, and management fees for managing the Coso Project and the Partnership Project as in July 1995 the Company recapitali:ed Magma and the well as advances and deferred revenue on the inten.:.tional related Merger Facilities with proceeds received through projects. Ris amount fluctuates based on the timing of the issuance of notes and bonds as described below. billings and incurrence of costs. On July 21,1995 tne Company issued $200,000 of 97/8% The Company repurchased 102 common shares during Limited Recourse Senior Secured Notes Due 2003 (the 1995 for the agegate amotmt of $1,590.The Company " Notes").The Notes are secured by r assignment and repurchased 3,765 shares of common stock in 1994 at an pledge of 100% of the outstanding capital stock of Magma. aggregate amount of $65,119. As of Dec mber 31,1995 theOn or prior to J une 30,1998, the Company may, at its option, Company holds 87 shares of tressury stock at a cost of $1,348 redeem up to an aggregate of 33% of the principal amount to provide shares for iruance under the Company s employee of the Notes originally issued at a redemption price equal stock option and share purchase plan and other outstandingto 109.875% of the principal amount thereof plus accrued convenible securities.The repurchase plaa attempts to ir terest to the redemption date. The Notes are redeemable minimi:e the dilutive effect of the additional shares issued at the option of the Company, in whole or in part, at the under these plans. redemption prices of 104.9375%,102.46875% and 100%, on or after June 30,2000,2001 anJ 2002, respectively, plus accrued interest to the date of redemption. 22

C a y E e a a e v ' C o w p a si y ) Concurrent with the issuance of the Notes, the Company in certain fordgn countries in which the Company may j ' through its wholly owned subsidiary, Salton Sea Funding develop or acquire projects could make it more dif6 cult for Corporation (" Funding Corporation"), completed a sale the Company to enforce its rights under agreements relating to institutional buyers of $475,C00 principal amount of to such projects. In addition, the laws and regulations of i Sahon Sea Notes and Bonds, which are nonrecourse to - certain countries may liminhe ability of the Company to the Company. The Funding Corporation debt securities hold a majority interest in some of the projects that it may were offered in three tranches as fotbws: develop or acquire. The Company's intemational projects j may,in cen in case tenn te% a gwenunent. 1 $232,7506.69% Senior Secured Series A Notes Due May30,2000 in 1995, the Company has commencd development of and $133,000 7.37% Senior Secured Series B Bonds has obtained fmancing for the Casecnan Project, a multipur-Duc May 30,2005 pose irrigation and hydroelectric power facility with a rated $ 109,250 7.84% Senior Secured Series C Bonds capacity of approximately 150 net MW hicated on the island i Due May3v,2010 of Lu:on in the Philippines. The total pmject cost for the facility is approximately $495,000. The current capital struc-The net proceeds of the Notes and the Salton Sea Notes and ture consists of term kians of $371,500 and $123,836 in equity Bonds were used to (a) recapitalize Magma and the related contributions. The Company's portion of the contributed - Merger Facihties (b) re6 nance approximately $102,000 of

9"D $61'918' existing hidebtedness of the Salton Sea Project, and (c) fmance the Salton Sea Unit IV in the amount of $115,000.

The project is structured as a 20 year BOOT, in which Pursuant to the Depositary Agreement, Funding Corporation the Company's indirect subsidiary CE Casecnan Water established a debt service reserve fund in the fonn of a letter and Energy Company, Inc., a Philippine corporation, will of credit in the initial amount of $50,000 from which sched-be responsible as the BOOT operator. The 6xed price, date- -) uled interest and principal payments can be made. certain tumkey contractors consist of Hanbo Corporation i and You One Engineering & Construction Co., Ltd. of The Company is actively seeking to develop, construct, South Korea. own and operate new power and infrastructure projects utili:- ing geothermal and other technokigies, both domestically Additionally in 1995, the Company has commenced and intemationally, the completion of any of which is subject construction of an additional 40 net MW electric generating to substantial risk. Development can require the Company facility (the "Salton Sea Umt IV") in the Imperia wuey l to expend significant sums for preliminary engineering, pursuant to an amended and restated 30-year po,. .hase l field development, pennitting, legal and other fmancing agreement with Edison. The Salton Sea Unit IV hu a target related costo. The Company's future growth is dependent, completion date ofJuly 1996 and an estimated capital in large part, upon the demand for signi6 cant amounts of construction cost of $135,000. As of December 31.1995, the I additional electrical generating capacity and the Company's Company has invested $64,935 in the Salton Sea Unit IV. ability to obtain contracts to supply portions of this capacity. There can be no assurance that development, financing in April 1994, the Company ckwed the fmancing for the or construction efforts on any particular project, or the 119 net MW Upper Mahiao geothermal power project . Company's efforts generally, will be successful. I cated in the Philippines.%e total project cost for the l' facility is approximately $218,000. The hmpany will supply The Company believes that the intemational independent approximately $56,000 of equity and project debt (mancing power market holds the majority of new opportunities will constitute the balance of approximately $162,000. l for fmancially attractive private power development in A syndicate ofintemational commercial banks is providing the next several years. The fmancing, construction and the construction fmancing. The Export-Import Bank of development of projects outside the United States the U.S. ("Ex Im Bank") is providing political risk insurance entail signi6 cant political and fmancial risks (including, to the commercial banks on the construction loan and without limitation, uncertainties associated with 6rst time will provide the Preponderance of project term 6nancing privati:ation efbrts ia the countries involved, currency upon satisfaction of conditions associated with commercial exchange rate fluctuations, currency repatriation restrictions, , operation. As of December 31,1995, dmws on the construction loan totalled $134,619, and the Company political instability, civil unrest and expropriation) and other 2 structuring issues that have the potential to cause substantial has invested $51,137. The Overseas Private investment delays or material impairment of value to the project being Corporation ("OPIC") is providmg political risk insurance developed, which the Company may not be fully capable on the equity investment by the Company in this pn!!ect. afinsuring against.The uncertainty of the legal environment The Upper Mahiao project commenced construction in w

Ca6Enspe, C o ns p a n y l l t l l l April of 1994, and is expected to be in service in July of 1996, by the Ex Im Bank. Ten year term debt fmancing (which he project is structured as a ten year Build-Own-Operate-wi!! replace the construction debt) will be provided by Transk (" BOOT"), in which the Company's subsidiary Ex-Im Bank and by OPIC. The Mahanagdong project has t CE Cebu Geothermal Power Company, Inc., the project commenced construction and as of December 31,1995, the company, will be responsible for implementing construction Company's proportionate share of draws on the con 3truction of the geothermal powu plant and, as owner, for providing kian totalled $39,716 and equity investments made by a eperations and maintenance during the ten year BOOT subsidiary of the Company totalled $29,604. OPIC is peri <d The electncity generated by the Upper Mahiao providing plitical risk insurance on the equity. The geothermal power plant will be sold to the Philippine Mahanagdong project has begun construction and is National Oil Company-Energy Development Corporation targeted for service in July,1997. As with the Upper Mahiao ("PNOC EDC"), which is also responsible for supplying project, the Mahaugdong project is structured as a ten-year the facility with the geothermal steam. After a ten year BOOT, in which the Company will be responsible for cooperation period, and the recovery by the Company of implementing construction of the geothermal power plant its capital investment plus incremental retum, the plant and, a owner, for providing operations and maintenance will be transferred to PNOC-EDC at no cost. Ormat Inc, for the ten year EOOT neriod After a ten year cooperation of Sparks, Nevada is the tumkey contractor for the project. period, and the recovery by the Company of its capital investment plus incremental retum, the plant will be PNOC-EDC will be obligated to pay for the e5tnc capacity transferred to PNOC-EDC at no cost. The Mahanagdong that is nominated each year by CE Cebu, irrespective of project will be built, owned and operated by CE Lu:on whether PNOC EDC ts willing or able to accept delivery Geothermal Power Company, Inc., a Philippine corporation, of such capacity. PNOC-EDC will pay to CE Cebu a fee that is expected to be owned post completion as follows: (the ' Capacity Fee ) based on the plant capacity nominated 45% by the Company,45% by Kiewit, and up to 10% to PNOC EDC in any year (which, at the plant's design by another industrial company. The tumkey contractor capacity, is approximately 95% of total contract revenues) consortium consists of Kiewit Construction Group, Inc. and a fee (the Energy Fee ) based on the electricity actually (with an 80% interest) and CE Holt Co., a wholly owned delivered to PNOC-EDC (approximately 5% of total subsidiary of the Company (with a 20% interest). contract revenues). The Capacity Fee serves to recover the capital costs of the project, to recover fixed operating The electricity generated by the Mahanagdong project will costs and to cover retum on investment. The Energy Fee be sold to PNOC EDC, on a "take or pay" basis, which is also is designed to cover all variable operating and maintenance responsible for supplying the facility with the geothermal costs of the power plant. Payments under the Upper steam.The terms of the Mahanagdong ECA are substantially Mahiao Energy Conversion Agreement ("ECA") will be similar to those oithe Upper Mahiao ECA. All of PNOC-denominated in U.S. dollars, or compute I in U.S. dollars EDC's obligations under the Mahanagdong ECA are and paid in Philippine pesos at the then-current exchange supported by the Govemment of the Philippines through rate, except far the Energy Fee, which will be used to pay a performance undertaking. The Capacity Fees are expected Philippine peso-denominated expenses. The convertibility to be approximately 97% of total revenues at the design of Philippine peso receipts into U.S. dollars is insured by capacity levels and the Energy Fees are expected n be OPIC. Significant partions of the Capacity Fee and Energy approximately 3% of such total revenues. Fee will be indexed to U.S. and Philippine inflation rates, in Daenhr 1994, fmancing w as ch> sed and conscruction respectively. PNOC EDC's payment requirements, and mnmenced n the Malithog Project, a 216 net MW its other obligations under the Upper Mahiao ECA are geothermal project, which will be !ocated on the island supported by the Govemment of the Philippines through obyte. The MahtMmint will be built, owned and a performance undertaking. operated by Visayas Geothermal Power Company In August 1994, the Company ek> sed the fmancing for ("VGPC"), a Philippine general partnership that is wholly the 165 ner MW Mahanagdong project kicated in the owned, indirectly, by the Company. VGPC will sell 100% Philippines. The total project cost for the facihty is approxi-ofits capacity on substantially the same ba3is as described mately $320 million.The capital structure consists of a term above for the Upper Mahiao Project to PNOC EDC, kan of $240 million and approximately $80 million in equity which will in turn sell the power to NAPOCOR. contributions. OPIC and a consortium of commerchl lenders led by Bank of America NT&SA is providing the construction debt fmancing facility.The debt provided l i by the commerciallenders is insured against pohtical risk 24

Cattasnov company i The Malithog Project has a total project cost of In light of the regtdatory uncertainty conceming the BRPU t approximately $280 million, inchidinr, interest during awards resulting from such IOU challenges, in March 1995 construction and project contingency c wts. Credit Mapma entered into a settlement agreement with Edison Suie and OPIC have provided a total of $210 million relating to the 69 net MW ofcapacity awarded to Magma of construction and term loan facilities, the $135 million as a winning hidder in the BRPU solicitation. The agreement intemational commercial bank portion of which is supported (which is subject to CPUC approval) provides for three . by political risk insurance from OPIC. As of December 31, lump sum termination payments in lieu of signing a power 1995, draws en the construction loan totalled $36,863, the sales contract with Edison for the 69 net MW of BRPU equiry investments made by subsidiaries of the Comt any capacity. The amount of the tennination payrnents is subject totalled $70,000 and advances by subsidiaries of the to a con 6dentiality agreement but provides Edison's ratepay-Company totalled $2,820. The advances will be repaid ers with very signi6 cant savings when compared to payments . by draws on the construction k>an. The Company's equity that would otherwise be made to Magma over the life of centribution to VGPC of $70,000 is covered by political the proposed BRPU power sales contract. risk insurance from OPIC and the Multilateral Investment Guarantee Agency ("MIGA"). As with the Upper Mahiao The agmemem alm pmvides Edison with an option, which project, the Malitbog project is structured as a BOOT, in c n be exercised until February 1,2002, to negonate a power which the Company wdl be responsible for implementing s les contract for 69 net MW of geothermal capacity and construction of the geothennat power plant and, as owner, energy on coinmewiaHy mamnable prices and terms, without for providing operations and maintenance for the ten year giving erfut m termin tion payments previously paid. BOOT period. After a ten year cmperation period, and Inflation has not had a substantial impact on the Company's - the recovery by the Company of its capital investment operating revenues and costs; energy payments for electricity plus incremental retum, the plant will be transferred to for the Coso Project, Partnership Project, Sahon Sea Il and PNOC-EDCat no cost. Salton Sea Ill will continue to be based upon scheduled rates The Malitbog Project is being constructed by Sumitomo q mn t djustedforinflationthroughtheinitialten year Corporation pursuant to a 6xed-price, date certain, rumkey pen d fe chpowerpurchaseagreement. j supply and construction contract. Construction of the facility has begun, with commercial operation of Unit I scheduled to commence in July 1996 and commercial operation of Unit 2 and Unit 3 scheduled to commence in July 1997. Magma is seeking new long-term 6nal 504 power purchase agreements in southem Cahfomia through the bidding process adopted by the CPUC under its 1992 Biennial Resource Plan Update ("BRPU"). In its 1992 DRPU, the CPUC cited the need for an additional 9,600 MW of power production through 1999 among Califomia's three investor-owned utilities, Edison, SDG&E an? Paci6c Gas and Electric Company (collectively, the " iqs"). Of this amount,275 MW was set aside for bidding by independent power producers (such as Magma) utili:ing renewable resources. Pursuant m an order of the CPUC dated J une 22,1994 (conf rmed on December 21,1904), Magma was - awarded 163 net MW for sale to Edison (69 net MW) and . SDG&E (94 net MW), with in-service dates in 1997 and l 1998. However, the IOUs have to date challenged and may continue to challenge the order and there can be no assurance that per sales contracts will be executed or that any such projects will be completed. 1 29 L

_v -.- ~. ~, catensa**. c e = ' * *' ' ~ ~~ L 1 BalanceSheets1 As egDecemtw.11,1995 amlIAcem/w 31,19M D&rs and Wres m7hmf,. Enrr< l'er he Am4 an 1995 1994 Ansel: Cash and investments - 72,114 $ - 254,004 77,590 54,087 - Joint venture cash and investments (Note 9) Restricted cash (Notes 3,7,9 and 10) 149,227 - 131,775 34,190 50,000 ' Short terminvestments 57,909 -28,272 Accounts receivable 27,273

Due fromJoint Ventures

- Properties, plants, contracts and equipment, net (Notes 5,7,9 and 10) 1,778,589 561,643 ' Notes receivable-joint Ventures (Note 191 14,254 12,627 Excess of cost over fair value of net assets 302,288 acquired, net (Note 3)

Equity investment in Caseenan (Note 8) 60,815 Deferred charges and other assets 79,789 38,737 Total assets

$ 2,654,038 ' $ 1,131,145 lbhiMugd8tchbsihrs'Esdly Liabilities: Accounts payable 6,638 1,679 Other accruedliabihties 87,892 42,658 Project (mance loans (Note 9)- 257,933 233,080 Constructionloans (Note 10) 211,198 3i,503 Seniordiscount notes (Note 11) -477,355-431,946 ~ 52,088 4 Salton Sea notes and bonds (Note 5; Limited recourse senior secured notes (Note 5) 200,000 Convertible subordinated debentures (Note 12) 100,000 100,000 . Convertible debt (Note 13) 64,850 Deferredincome taxes (Note 14) 226,520 26,568 Due to join't Ventures 269 Totalliabihties 2,084,474 867,703 Deferred income (Note 7) 26,032 19,851 Comraitments and contingencies (Notes 6 and 18) Redeemable pref-tred stock (Note 13) 63,600 Stockholders' equity (Notes 13,15,16, and 17): Preferred stock-authori:ed 2,000 shares, no par value (Note 15) Common stcek-par value $0.0675 per share, authorced 80,000 and 60,000 shares, issued 50,680 and 35,649 shares, outstandmg 50,593 and 31,849 share 3,411 2,407 Additionalpaid ir 343,406 100,421 Retained earning 205,059 I42,937 Treasury stock-87 and 3,800 common shares at cost ' (1,348) (65,774) Unearned compensatim-restricted stock (Note 16) (7,006) Totalstockhoklers' equity 543,532 179,991 Total liabii; ties and stockholden' equity $ 2,644,038 $ 1,131,145 The avonprmns nma = m swumi ruf d dww fr,anual amnwra to

~.. -... ..m.._ _.m c. 6 s,, a n., e e m', a.,, [ 1 . Statements ofOpemtions. ~ Fun dw Tint %us Erskd%mlw 31,l%$ ' ' ' nAns mi ha mTL.nuli, Errg Per Slure Anv=nn ) ~ i '1995. 1994 1993 Revenue:- $ 335,630 $ 154,562 $ 132,059 Sales ofelectricity and steam. ' Royalty income - .19,482 Interest and other income 43,611 31,292 17,194 . Total revenues 398,723 185,854 149,253 ' Cat and expenn .'Plantoperations - 79,294 33,015 25,362 -LGeneraland administration 23,376 13,012 13,158 Royalties '. 24.308 9,888 8,274 1 Depreciation and amortization 72,249 21,197 17,812 LI.oss on equity investment in Casecnan - 362 interest '134,637 62,837 30,205 ' l.ess interest capitali:ed (32,554) (9,931) ' (6,816) .301,672 130,018 87,995' Totalexpenses 4 income before provision for income taxes 97,051 55,836-61,258 Provision for income taxes (Note 14). 30,631 17,002 18,184 ' income before change in accounting principle ~ __ and extraordinary item - - 66,420 38,834 .13,074 Cumulative effect of change in accounting 4,100 . principle (Note 14) , Extraordinary item (Note 20). (2,007) i income before minority interest and < i preferreddividends 66,420 36,827 47,174 Minority interest 3,003 ' Net income 63,415 36,827 47,174 . Prefei:eddividends 1,080 5,010 4,630 t. Net income available to common stockholders. $ 62,335 $. 31,817 $ 42,544 f Income per share before ciurnge in eccounting L principle and extraordinaryitem L25 .95 00 Cumulative effect of change in accounting principle (Note 14). 11 Extraordinary item (Nore 20) (.06) 1 L l Netincome reishare-rrimay 1.25 .89 5 -1.11 Net income per share-fullydduted 1.18 .88 1.09 . Average number ofshares outstanding-primary 49,971 35,721 38,485

Fully ddured shares 57,742 40,166 40,781 c

m.mw n,=. .n,,rd,t m 6n.na.: uni ni, .k e-V k 4 l

Ca6Ewsaev Cousant TTUTQHj Statements of Siockholders' Equity For dw Th=h Emlallkcember 31,1995 DAes mi hes m7bimfs. Enqu Per hv Armous . Outstanding - - Additional' Common. Common PaSIn Retained Treasury - Unearned Shares Stock: Capital Earnings Stock Compensation Total Balance December 31,1992 - 35,258 .$ 2,380 $ 97,977 $ 68,407 $ 168,764 h 955 258 18 937 Exercise d?ock options. 1ssuance ontock for purchase of 1,557 The Ben Holt Co. 87 6 1,551 (2,897) (157) (2,897) Purchase dtreasury stock., - Preferred stock dividends,SeriesC, . including cash distributions d $ 100 (4,550). (4,550) 500 500 Taxbene6 fromstockplan 47,174 Net income before preferred dividends - 47,174 ' Balance December 31,1993 - 35,446 2,404 100,965 111,031 (2,897) 211,503 Exercise ofstock options. 46 3 .379 382 Purchase of treasury stock (3.765) (65,119) (65,119) - Exerciseofstockop msfrom treasury stock ~ 96 ' (1,473) 1,772 299-Employee stock purchase plan issues from treasury stock 26 (122). 470 348 Preferred stock dividends, Series C, - (4,921) including cash distribution of$121 - (4,921) . Tax bene 6t from stock plan 672 672 Net income before preferred dividends ' 36,827 36,827 Balance December 31,1994 31,849 2,407 100,421 142,937 g65,774) 179,991 Equity offering' 18,170 1,004 240,825 56,801 298,630 310 Exercise ofstock oprions 1021 7 303 Restricted stock 500 848 8,652 (9,500) Amorti:ation duneamed compensation 2,494 2,494 Emp!oyee stock purcbase plan issues 41 3 559 562 Exercise of stock options from - treasurystock 33 (416) 563 147 (1,590) Purchase of treasury stock (102) (1,590) Preferred stock dividends, Series C, . includin;; cash distribution of $43 (1,293) (1,293) Tax bene 6t from stock plan 866 866 Net income before preferred dividends 63,415 63,415 Balance December 31,1995 50,593 $ 3,421 $ 343,406 $ 205,059 $ (1,348) $ (7,006) $ 543,532 The accanpanying exes are en meegral arr dthese 6nancel matermna 5 as ~

Cattwanew Couenne MBHH4Wft Statements ofCash Flows For dw Tine kn Endaf Darmber31,1995 DAr*Thawns '1995 1994 1993 Cash flows from operating activities: Net income $ 63,415 $ 36,827 $ 47,174 AJiustments to reconcile net cash oow from operaung activities: Depreciation W amortization 65,244 21,197 17,812 Amortization of excess of cost over fair value dnet asets acquired 7,005 Amortcation doriginal issue ducount 45,409 31,946 Amortization of deferred financing costs. 8,979 1,687 1,013 Amorti:atior, of uneamed compensation 2,494 Provision for deferred income taxe5 13,983 8,258 3,098 loss on equity investment in Caseenan 362 Expense of previously defer ed fmancing costs 198 Changes in otheritems- ' Accountsr::eivable 213 (6,614) (5,486) Accounts payable and other accrued liabihties 3,838 2.3,864 (784) I Deferred income 6,181 (437) (876) Income tax payable 2,084 (4,500). 4,000 Other assets (177) Net cash Lws (nu operating activities 219,207 112.426 65,774 Ce;h Hows from investing activities: Capital expenditures relating to power plants and development dcusting projects (25,884) (37,717) (26,860) Acquisition of equipment (1,236) (361) (1,104) Purchase dMagma, net of cd acquired (907,614) (),043) UpperMahiao-constructic.. iprogress (140,350) (48,554) wess (55,117) (21,443) Mahanagdong-construction i : Mahtbog-constructionin pn% (94,188) Inve::tment in Casecnan (61,177) Other internationaldevekyment (8,973) (2,445) Salton Sea Expansion (62,430) Paific Northwest, Nevada, and Utah expkration costs (10,445) (8,493) -(19,060) -Dxrease (increase) in short term investments 80,565 (50,000) Decrease (increase) in restricted cash (17,452) (83,670) !4,409 Decrease in other investments and assets 14,519 1,847 941 Yuma-construction in piogren (40,167) Transmission line deposit 7,684 Net cash flows from investing activities (1,269,782) (253,879) (64,157) Cash Bows from fuuncing activities: Proceeds from ale of common and treasury stock j and exercise of stock options 299,649 1,580 2,912 Pruceds from Salton Sea notes and bonds 475,000 i Pnreeds fmm hmited recoune senior secured notes 200,000 Proceeds from merger facility 500,000 Recapitalcation of merger facihty (500,(00) Repayment of project Lxms (133,752) (13,800) (16,724) - Constructionloans 179,695 31,503 Repayment of Salton Sea notes and bonds (22,912) Deferred charges relating to debt financing (34,733) (11,905) (2,582)

Decreaw (increaie) in arrounts due from Joint Ventu es (29,169) 316 (3,146)

Purchase dtreasury stock (1,590) (65,119) (2,897) Proceeds from issue d Senior Discount Note 400,000 Proceeds from issue dconvertible subordmated delvnturn 100,000 l Defeasance ofsenior notes (35,730) Net cash Hows from financing activittes 912,188 106,845 77,563 Net increase (decrease) in cash and investments (158,387) 165,392 79,180 ] Cash and investments at beginning dperhl 308,091 142,699 63,519 d ~ Cash and investments at end dperni $ 149,704 $ 308,091 $ 142,699 Interest paid (net d amounts capitaleed) 50,840 $ 12,6:4 $ 20,136 income taxes paid 14,812 $ 4,926 $ 6,819 The manranving a*s = an rirecal put M,en hnanaal matemente. a3

c m.... c.. J to Consolidated Financial Statements For dw Tinte % EuktDues& 31.1995 dam mi hres in bane. Exept Per Wre Amants Investments and Restricted Cash 1.Inum CalEnergy Company, Inc. (the " Company"), fonnerly Investments other than restricted cash are primarily Califomia Energy Company, Inc., was formed in 1971. commercial paper and money market securities. The L It is primarily engaged in the development of geothermal restricted cash balance includes such securities and mortgage - . resources and conversion of such resources into electrical backed securities, and is mainly composed o(amounts j

power and steam for sale to electric utilities, and the develop-deposited in restricted accounts from which the Company will source it equity contribution requirements relating ment and operation of other environmentally responsible forms ofpower generation.

to the Upper Mahiao, Mahanagdong; Malitivg, Salton Sea - Unit IV projecn and of the CosoJoint Ventures'and The Company has organized several partnerships ang joint i Pannership Project's debt service reserve funds.The debt 'i ventures (herein referred to as CosoJoint Ventures) m order service reserve funds are legally restricted to their ute and to develop geothermal energy at the China 1.ake Naval Air require the maintentnce of specific minimum balances. -l Weapons Station, Coso Hot Springs, China Lake, Cahfomia. Collectively, the projects undenaken by these Cosojoint Effective January 1,1994, the Company adopted the j Ventures are referred to as the Caso Project.The Company provisions of Statement of Financia! Accounting Standards is the operator and holds interests between 46.4% and 50% No.115 ("SFAS ll5") " Accounting for Certain Investments in the Coso joint Ventures after payout. Payout is achieved in Debt and F4uity Securities." Adoption of SFAS 115 had - when a Coso Joint Venture has retumed the initial capital no material effect on the Company's individual or cornbined to the Coso joint Venturers. In addition, the Company is fmancial position or results of operations. In accordance . developing geothermal resources in Northem Califomia and with the provisions of SFAS 115, the Company classi6es Oregon (collectively the Paci6c Northwest). In January 1991, its investments, and accounts for changes in fair value, J the Company acquired a power plant and an interest in ~ as follows: . steam 6 elds in Nevada and Utah (See Note 7). In 1992, Debt securities that the Company has the positive the Company entered into the natural gas-6ted electrical intent and ability to hold to maturity are classi6ed as generation market through the purchase of a development heEco-maturity securities and reponed at amorti:ed cost. opportunity in Yuma, Ari:ona. Commercial operation of the Yuma project commenced in late May 1994. In 1993, the Debt and equity securities that are luught and held Company started developing a number of intemational principally for the purpose of selling them in the near power project opportunities where private power generating term are classi6ed as trading securities and reported at fait programs have been initiated, including the Philippines value, with unreali:ed gains and losses included in eamings. and Indonesia. In addinon, in January 1995, the Company acquired approximately 51% of Magma Power Company Debt and equity securities not classi6ed as either heid-(" Magma") and completed the acquisition in February 1995 to-maturity securities or trading securities are classi6ed as by acquiring the remaining percentage of approximately 49% antaMe for sale securities and reponed at fair value, with of Magma Common Stock. Magma's operatitsassetsinclude unrealized gains and losses excluded from earnings and four projects referred to as the Partnership Project of which reponed as a separate component of.stockholdeu' equity. Magma has a 50% interest, the Salton Sea Project of which At December 31,1995, all of the Company's investments are Magma owns 100% and certain royalties received from the classi6ed as held to-maturity and are accounted for at their Parmership Pnject and other non related projects (See Note 3). amorti:ed cost basis. The carrying amount of the invarments approximates the fair value based on quoted market prices

2. LiaisplEWkul Ac:*e64Pidiclu as provided by the fmancial institution which holds the The consolidated 6nancial statements include the accounts investments.

of the Company, its wholly-owned subsidiaries, and its proportionate share of the joint ventures in which it has Well, Resource Development and Exploration Costs invested. All signi6 cant inter enterprise transactions and & Comm Mlows the full cost method of accounting accounts have been eliminated. for costs incurred in connection with the exploration and development of geothennal resources. All such costs, which include dry hole costs and the cost of drilling and equipping production wells and directly attributable administrative and int ut costs, are capitali:ed and amorti:ed over their estimatec.nefullives when production commences. The estimated useful lives of production wells are ten to twenty years depending on the charan ristics of the unJerlying e resource; exploration costs and development costs, other w

p. CALENARev COMPant j than production wells, are generally amorti:ed over the Capitalization of Interest and Deferred Financing Costs weighted average remaining term of the Company's power Prior to the commencement of operations, interest is and steam purchase contracts. For purposes of current period capitalized on the costs of the plants and geothermal resource visibility and discksure, all such costs are identi6ed in the development to the extent incurred. Capitali:ed interest Consolidated Statements of Cash Flows as they are incurred. and other deferred charges are amorti:ed over the lives of Deferred Welland Rework Costs Well rework costs are deferred and amorti:ed over the Deferred fmancing costs are amorti ed over the term of the . estimated period between reworks. These deferred costs related 6nancing. I oan fees are amorti:ed using the implicit of $7,086 and $733 at December 31,1995 and 1994, interest method; other deferred fmancing costs are amorti:ed respectively, are included in other assets. using the straight line method. Properties, Plants, Contracts, Equipment and Depreciation Revenue Recognition The cost of major additions and betterments are capitalized, Revenues are recorded based upon service rendered and while replacements, maintenance, and repairs that do not electricity and steam delivered to the end of the month. j improve or extend the lives of the respective assets are See Note 7 for contractual terms of power sales agreements. expensed. Royalties contractually payable to the Company by the Partnership Project are recorded on an accrual basis, net of . Depreciation of the operating power plant costs, net of the Company's 50% share of the corresporJing partnership . salvage value, is computed on the straight line method project expense. Royalties eamed from providing geothermal over the estimated useful lives, resuMng in a composite resources to power plants operated by other geothermal i rate of depreciation of approximately 2.67% per annum. power paducers are recorded on an accrual basis. Depreciation of fumiture,6xtures and equipment, which are recorded at cost, is computed on the straight line method Defeaed Income Taxes over the estimated useful lives of the related assets, w hich ! On January 1,1993, the Company adopted Statement range from three to ten years. of Financial Accounting Standards No.109 ("SFAS 109"), i "Acmunting for income Taxes." The adoption of SFAS 109 The Magma acquisition by the Company has been accounted i for as a purchase business combination pursuant changes the Company's method of accounting for income tam fmm the deferred method as required by Accounting to the principles of APB Opinion No.16 " Business Combinations." In applying APB No.16, all identifiable Prmciples Board Opinion No.11 to an asset and liability - assets acquired and liabilities assumed were assigned a portion ppm ch. of the cost of acquiring Magma, equal to their fair values at Fair Values of FinancialInstruments the date of the acquisition an ', include the following: The following methods and assumptions were used by the Power sales agreements are amortized separately over (1) Company in estimating fair values of fmancial instruments ~ the remaining portion (1 to 5 years) of the scheduled price as discussed herein. Fair values have been estimated based periods of the power sales agreements and (2) the 20 year on quoted market prices for debt issues listed on exchanges. avoided cost periods of the power sales agreements using Fair values of fmancial instruments that are not actively the straight line method. traded are based on market prices of similar instruments i and/or valuation techniques using market assumptions. Mineral reserves are amorti:ed on the units of production Although management uses its best judgement in estimating method the fair value of these fmancial instruments, there are ~ Process licenses and related technok,gies are amorti:ed inherent limitatior.s in any estimation technique. Therefore, using the straight lind method ove; the estimated useful the fair value estimates presented herein are not necessarily life of the license. indicative of the amounts which the Company could reali:e in a current transaction. Total acquisition costs in excess of the fair values assigned to the net assets acquired are amorti:ed over a 40 year period The Company assumes that the carrying amount of ' using the straight line methcd sh rt term 6nancialinstruments approximates their fair value. For these purposes, short term is de6ned as any item that matures, reprices, or represents a cash transaction between willing parties within six months or less of the measurement date. 31

w....ve. -. s ! ' he Company include the resuhs of operations of Magma NetIncome per Common Share t Primary and fully diluted eamings per common share are from January 10,1995, to December 31,1995 adjusted for the . based on the weighted average number of common and . Company's percentage ownership during that time period. dilutive common equivalent shares outstanding during The Magma acquisition has been accounted for as a the period computed using the treasury stock method. FullyI purchase business combination pursuant to the princip E diluted cauings per share also assumes the conver, ion of the AN Opimon No.16 " Business Combinations. In applying Convenible Subordinated Debentures into 4,444 common A No.16, all ident 6able assets acquired and liabilities ihares at a conversion price of $22.50 per share (even though ssumed were assigned a ponion of the cost of acquiring the common share price was $19.50 at l'ecember 31,1995) Magma, equal to their fair values at the date of the . and the exercise of all dilutive stock options outstanding at um.He t talc st f the acquisition was alk>cated cqu their option prices, with the option exercise proceeds used "'I"""** - to repurchase shares of common stock at the ending market Cash $ 62,116 price for fully diluted camings per share. For primary ~ eamings per share, shares of common stock are assumed operating facihties and roject cash 291,365 P Power sales agreernents 173,730 to be repurchased at the average price for the period. Mineralresen'es 160,768 Constructioninprogress. 93,174 Cash Flows 39 # The statement of cash flows classifies changes in cash accord- [*"j'""' *"d{( g_, ing to operating, investing, or financing activities. Investing acquired netofde rredtaxesd5168,914 137,455 a acti zities include capital expenditures incurred in connection $ 99'912 with the power plants, wells, resource development, and exploration costs. The Company considers all investment The fair value of operating facilities, net of salvage value, instruments purchased with a maturity of three months or and exploration and development cost is depreciated ' less to be cash equivalents. Restricted cash is not considered using the straight line method over the remaining portion a cash equivalent. (approximately 24 years) of the original 30 year life. Reclassi6 cation Power sales agreements have been assigned values separately for each of(1) the remaining portion (1 to 5 years) of the Cenain amounts in the fscal 1994 and 1993 6nancial statements ind supporting footnote dischuures have been scheduled price periods of the power sales agreements; (2) the 20 year avoided cost periods of the power sales reclassi6ed to conform to the 6 scal 1995 presentation. 3 Such reclassi6 cation did not impact previously reported agreements, and are being amorti:ed separately over such net income or retained eamings. periods using the straight line method; and (3) the 163 net MW BRPU Award for which the related plants will either be Use of Estimates . constructed or the contract rights wdl be bought out; amoni- . The preparation of 6nancial statements in conformity

ation of such values has been deferred until the plants have with generally accepted accounting principles requires been constructed and production comtr ences or the buyout management to make estimates and assumptions that affect proceeds have been applied against such values.
the reponed amounts of assets and liabilities and dischisure The Salton Sea reservoir contains commercial quantities of contingent assets and liabilities at the date of the 6nancial ofextractable minerals. The fer value has been alkicated statements and the reponed amounts of revenues and to mineral reserves which was based on the estimated net expenses during the reponing period. Actual results could cash flows generated from producing such minerals. The

- differ from those esumates. fair value assigned to the mineral reserves will be amoni:ed on the units of pnduction method upon commencement - 1 hi m l W 6 M of commercial production. On January 10,1995, the Company acquired approximately 51% of the outstanding shares of common stock of Magma Fair value has been assigned to contracts for which the i plants are presently under construction and energy produc-Power Company (the " Magma Common Stock") through a cash tender offer (the " Magma Tender Offer") and completed tion is not expected to commence before 1996. Accordingly, the Magma acquisitin =n February 24,1995 by acquiring revenues, period operating costs, depreciation of the the approximately e f the outstanding shares of Magma remaining capital costs to be incurred for the completion Common Stock not owned by the Company through a of such facilities and amoni:atian of this acquisition cost merger. Magma is engag;ed in independent power operations n not presently included in the Company's statements similar to those of the Company.The results of operations of uperations. 32

Cattusmov C o ss p a m v A paress license was alkicated fair value which represents

5. DetOffrag the economic benefits expected to be reali:ed from the On July 21,1995 the Company issued $200,000 of 9 7/8%

installation of the license and related technok>gy at the Limited Recourse Senior Secured Notes Due 2003 (the Imperial Valley. The fair value assigned to the process " Notes"). Interest on the Notes is payable on J une 30 and license is being amorti:ed using the straight-line method Drember 30 of each year, commencing December 1995. i over the remaining estimated usefullife of the license. 1 Notes are secured by an assignment and pledge of Deferred fmance costs are being amorti:ed using the level IC 4 of the outstanding capital stock of Magma and are yield method over the term of the related debt. recourse only to such Magma capital stock, the Company's interest in a secured Magma note and general assets of the Total acquisition costs in excess of the fair values assigned i - to the net assets acquired is amorti:ed over a 40 year perig3 Company equal to the Restricted Payment Recourse using the straight line method. Amount (as defmed in the Note Indenture). At ny time r fmm time to time on or prior toJune 30,1998, The Magma Tender Offer was (manced with a $245,600 facility from Credit Suisse (the " Tender Facihty"). Loans the Company may, at its option, use all or a portion of the net under the Tender Facility were made to the Cortpany on c sh proceeds of a Company equity offering (as defmed in a nonrecourse basis, secured by the Magma stock acquired, the Note Indenture) and shall at any time use all of the net and the Company lent the proceeds ofsuch k>ans to c sh proceeds of any Magma equity offering (as defmed m Magma in exchange for a secured term note from Magma the Note Indenture) to redeem up to an aggregate of 35% (the " Tender Note"). The loans under the Tender Facility f the principal amount of the Notes originally issued at a were repaid from funds received from the Merger Facilities, redemption price equal to 109.875% of the principal amount dwibed belom thereof plus accrued interest to the redemption date. On or after June 30, 2000, the Notes are redeemable at the option Secured bank fmancing in the amount of $500,000 was of t'a Company, in whole or in part, initially at a redemption provided by Credit Suisse (the " Merger Facilities") on price of 104.9375% declining to 100% on June 30, 2002 and specified terms and subject to customary conditions. Such thereafter, plus accrued interest to the date of redemption. funds, together with the net proceeds of a public equity offering (see Note 4) and general corporate funds of the Caunem with the issuance of the Notes, the Company Company, were used to coniplete the Magma acquisition. through its wholly owned subsimary, Sahon Sea Funding Corporation ( ' Funding Corporation ), compleal a sale i In July 1995, the Company recapitali:ed Magma and the to institutional buyers of $475,000 principal amount of j related Merger Facilities from pmceeds received through Salton Sea Notes and Bonds, which are nonrecourse to the the issuance of notes and bonds as described in Note 5. Company. These debt securities were rated Baa3 by Moody's and BBB-by Standard & Poor's. The Funding Corporation Unaudited proforma combm.ed revenue, net income and debt securities were offered in three tranches as follows: pnmary eamings per share of the Company and Magma for the twelve months ended December 31,1995 and 1994, as $232,750 6.69% Senior Secured Series A Notes if the acquisition had occurred at the beginning of 1994 after Due May 30,2000 giving effect to certain proforma adjustments related to the $133,000 7.37% Senior Secured Series B Bonds acquisition were $400,648, $62,367 and $1.18, compared to Due May 30,2005 $368,276, $30,978 and $.57, respectively. $109,250 7.84% Senior Secured Series C Bonds Due May 30,2010

4. Egd4Offe%

The Salton Sea Notes and Bonds are secured by the Simukaneous with the acquisition of the remaining equity Company's three existing Salton Sea plants, the 40 net interest of Magma on February 24,1995, the Company MW Sahon Sea Unit IV plant as well as an assignment completed a public offering (the " Offering") of 18,170 shares of the right to receive various myahies payable to Magma ofcommon stock, which amount included a direct sale by in connection with its Imperial Valley properties and the Company to Peter Kiewit Sons, Inc. of 1,500 shares and distributions from the Partnership Project. In connection the exercise of underwriter over-allotment options for 1,500 with the Salton Sea debt issuance, the Company has, chares, at a price of $17.00 per share. The Company received subject to certain conditions, committed to fund any costs net proceeds of $300,388 from the Offering. of construction in connection with the construction of the Sahon Sea Unit IV project over and aluve the initial l budgeted amount of $135,000 in the event such buJgeted amount is insufficient to cause substantial completion of the expansion pniect prior to January 1,1998. 33

~ CA6Easnev C o m a n e, v

8. ImeredllWeSwg AgreemeWs Each of the Company's direct or indirect subsidiaries is orga.

ni:ed as a legal entity separate and apart from the Company In January 1993, the Coso joint Ventures entered into 6ve year deposit interest rate swap agreements. The subject and its other subsidiaries. It should not be assumed that i any asset of any such subsidiary willbe available to satisfy deposits represent debt service reserves established in the obligations of the Company or any ofits other such conjunction with re6nancing the CosoJoint Ventures subsidiaries; provided, however, that unrestricted cash or k>ans thmugh Coso Funding Corp. The dentsit interest rate other assets which are available for distribution may, subject swaps effectively convert interest eamed on the debt service to applicable law and the terms of 6nancing arrangements reserve deposits from a variable rate to a 6xed rate, in order of such parties, be advanced, loaned, paid as dividends or to match the nature of the interest rate on the borrowings l otherwise distributed or contributed to the Company or used to fund theMebt service reserve deposits, The Company's af61iates thereof. Substantially all of the assets of each proportion of the deposit amount of $25,056 inchided in subsidiary listed below (except Vulcan /BN Geothennal restricted cash and investments accretes annually to a Power Company and certain other subsidiaries involved maximum amount of approximately $29,300 in 1992 in project fmancing activities) have been encumbered to Under the agreements, which mature on January 11,19t secure obligations owed to the creditors of such subsidiary: the Coso Joint Ventures make semi-annual payments to i the counter party at variable rates based on IJ BOR, reset Fish Lake Power Company nd compounded every three months, and in retum receive Salton Sea Brine Processing LP. p yments based on a dud rate of 6.34% The effective IJBOR Salten Sea Power Generation LP. rate ranged from 16875% to 6.375% during 1995 and was i 'E ' ' ""'."' I "Y ' E"S" In tn mpany greements is a large multi national 6nancial institution. Salton Sea Funding Corporation Salton Sea PowerCompany In September 1993, the Company entered into a three year Salton Sea Royalty Company deposit interest rate swap agreement, which effectively ' Vulcan /BN Geothermal Power Company converts a notional deposit balance of $75,000 from a DelRanch,LP, variable rate to a 6xed rate. The Company makes semi-Elmore, LP. annual payments to the counter party at effectively the Leathers, LP. LIBOR rate, reset every six months, and in return receives p yments based on a 6xed rate of 4.871 The counter party The net proceeds of the Notes and the Salton Sea Notes to this agreement is the same counter party to the Cm and Bonds were used to (a) recapitali:e Magma and the J int Ventures. related Merger Facilities (b) re6 nance approximately $102,000 of existing indebtedness of the Salton Sea Projects, ' and (c) provide funding for the Salton Sea Unit IV in the 1 Prgerlies,Plag JsWmlaandEglipment amount of $115,000. Pursuant to the Depositary Agreement, Properties, plants, contracts and equipment comprise the Funding Corporation established a debt service reserve following at December 31: fund in the form of a letter of credit in the initial amount I* of $50,000 from which scheduled interest and principal Operanng pMect cma payments can be made. Powerplants $ 623,778 $ 314,027 Annual repayment of the Notes and the Salton Sea Notes and Wells and remurce devekyment 271,242 174,651 P amalesagwemena 185,749 Bonds'for the years beginning January 1,1996 are as follows: Licenses, equipment and other 58,052 9,674 1996 $ 48,106 Wells and remurce devekvment m pnieress 465 434 1997 64,378 Tualoperating facihnes 1,139,286 498,786 1998 74,938 Less acemulated depreciation and amorti:ation (162,970) (95,480) 1999 35,108 Net operating facihties 976,316 403,306 2000 19,572 M.ncral reserves 211,576 39,275 Thereafter 409,986 conuruction m progrew $ 652,088 Upper Miao 188,904 48,554 i Mahrhig 146,735 Mahanagdong 76,560 21,443 Sahon Sea Un t IV 108,769 Pacific Northwest geothermal develyment costs 58,311 46,620 Other internationaldevekyment 11,418 2,445 Tond $ 1,778,589 $ 561,643 u

C a 6 E,e e e e y C o as e a e, v Coso Project OperatingFacilities lit The Partnership Pmject and the Salton Sea Project The Coso Project operating facilities comprise the are collectively referred to as the Imperial Valley Project. Company's proportionate share of the assets of three of The Imperial Valley Project commencement dates and its joint Ventures; Coso Finance Partners (Navy 1 Joint contract nameplates are as follows: Venture), Coso Energy Developers (BLM Joint Venture), Impnalvalley o>mmencement contract and Q>so Power Developers (Navy 11 joint Venture). Plants Date Nameplate Navy 1 Plant Vulcan February 10,1986 34 M W Hoch (Del Ranch) January 2,1989 38 MW The Navy I Plant consists of three turbines, of which one Elmore January 1,1989 38 M W unit commenced delivery of fmn power in August 1987, and leathers Januxy 1,1990 38 M W the second and third units in December 1988.The 80 net sahon sea 1 July 1,1987 toMW MW Plant is h,cated on land owned by and leased from the Sahon Sea 11 Arn! 5,1990 20MW U.S. Navy to December 2009, with a 10 year extension at the $ahon Sea 111 February 13,1989 49.8 MW option of the Navy. Under tenns of the Navy 1 Joint Venture, pro 6ts and hisses were alh>cated approximately 49% before Sigm6c nt Customer payout of Units 2 and 3 and approximately 46.4% thereafter All f the Company's sales of electricity from the Coso to the Company. As of December 31,1994, payout had been Project and Imperial Valley Project, which comprise approxi-reached on Units 2 and 3 of the Navy I Plant. mately 93% of 1995 electricity and steam revenues, are to Edison and are under long-tenn power purchase contracts. BLM Plant The Coso Project and the Partnership Project sell all The BLM Plant consists of two turbm.es at one site (BLM electricity generated by the respective plants pursuant East), which commenced delivery of fmn p>wer in March to seven long-term SO4 Agreements between the project and May,1989, respectively, and one turbine at another site (BLM West) which commenced delivery of 6nn power in and Edison. These SO4 Agreements provide for capacity e.gr,1989. The BLM Plant is situated on lands leased from payments, capacity bonus payments and energy payments. the U.S. Bureau of Land Management under a geothermal Edison makes f xed annual capacity payments to the projects, i lease agreement that extends until October 31,2035. The and to the extent that capacity factors exceed certain bench-marks is required ta make capacity bonus payments. The lease may be extended to 200 at the option of the BLM. Under the tenns of the BLM Joint Venture agreement, price for capacity and capacity bonus payments is 6xed for the Company's share of pro 6ts and losses before and after the life of the SO4 Agreements. Energy is sold at increasing 6xed ntes for the 6rst ten years of each contract and there-payout is approximately 45% and 48%, respectively. The BLM Plant reached payout in June 1994. after at Edison's Avoided Cost of Energy. The 6xed price periods of the Coso Project SO4 Agreements Navy 11 Plant extend until at least August 1997, March 1999 and January The Navy 11 Plant consists of three turbines, of which two 2000 for each of the units operated by the Navy 1, BLM and units commenced delivery of 6rm power in January 1990, Navy 11 Partnerships, respectively, and the third in February 1990. The 80 net MW Plant is h>cated on the southem portion of the Navy lands. The 6xed price periods of the Partnership Project SO4 Under terms of the Joint Venture, all pro 6ts, kisses and Agreements extend until February 1996, December 1998, capital contributions for Navy 11 are d!vided equally by Ikcember 1998, and fkcember 1999 for each of the Vulcan, the two panners. Hoch (Del Ranch), Elmore anJ Leathers Partnerships, respectively. Imperial Valley Project Operating Facilities Magma currently operates seven geothermal p>wer plants The C,ompany's SO4 Agreements provide for rates ranging m the Imperial Valley m Cahforma. Four of these plants were from II.4e per kWh in 1995 to 15.6e per kWh in 1999. 1 developed by Magma and are owned by the partnerships in Salton Sea 1 sells electricity to Edison pursuant to a 30-year which Magma is the managing general partner and operator negotiated power purchase agreement, as amended (the and owns 50% interests. The Partnership Project consists "Salton Sea 1 PPA"), which provides for capacity and energy of the Vulcan, Hoch (Del Ranch), Elmore, and Leather payments. The energy payment is calculated using a Base Parmerships. The remaining three plants which comprise Price which is subject to quarterly adjustments based on the Salton Sea Project are wholly owned by subsidiaries of a basket ofindices. The time period weighted average energy Magma and were purchased on March 31,1993 from Union payment for Unit I was 4.99e per kWh during 1995. As the Oil Company of Califomia. These geothermal power plants Salton Sea I PPA is not an SO4 Agreement, the energy consist of the Salton Sea l, Salton Sea 11 and the Salton Sea payments do not revert to Edison's Avoided Cost of Energy. l so

C a 6 E es a e o y C o se e a e, v Salton Sea 11 and Salton Sea 111 sell electricity to Edison monthly deposit is currently $50. As of December 31,1995, pursuant to 30-year modi 6ed SO4 Agreements that provide the balance of funds deposited approximated $4,457, which for capacity payments, capacity bonus payments and energy amount is included in restricted cash and accrued liabilities. payments. The price for contract capacity and contract Units 2 and 3 of Navy I and the Navy 11 power plaats are on capacity bonus payments is fixed for the life d the modi 6ed Navy lands, for which the Navy receives a royalty based on SO4 Agreements.Le energy payments for the first ten year electnc sales revenue at the imnal rate of 4% escalating to period, which period expires in April 2000 and February 1999 22% by the end of the contract in Deceraber 2019.The BLM are leveli:ed at a time period weighted average of 10.6v per is pad a myahy of 10% of the value of steam pnxluced by kWh and 9.8e per kWh for Salton Sea 11 and Salton Sea III, the geothennal resource supplying the BLM Plant. respectively. Thereafter, the menthly energy payments will be Edison's Avoided Cost of Energy. For Sahon Sea 11 only, The Partnership Project pays royalties based on both energy Edison is entitled to receive, at no cost,5% of all energy revenues and total electricity revenues. Hoch (Del Ranch) delivered in excess of 80% of contract capacity through and Leathers pay royalties of 5% of energy revenues and 1% March 31,2004. d total electricity revenue. Elmore pays royalties of 5% enem revemes ukan pays myahies of 4.lW% of For the year ended December 31,1995, Edison's average ""*W"""" Avoided Cost of Energy was 2.1 cents per kWh which is substantially below the contract energy prices eamed for The Salton Sca Project's weighted average royalty expense the year ended December 31,1995. Estimates of Edison's in 1995 was approximately 3.4%.The royalties are paid future Avoided Cost of Energy vary substantially from year to numerous recipients based on varying percentages to year. The Company cannot predict the likely level of of electrical revenue or steam pnxiuction multiplied Avoided Cost of Energy prices under the SO4 Agreements by published indices. and the modi 6ed SO4 Agreements at the expiration d the scheduled payment periods. The revenues generated by each Yuma Project of the projects operating under SO4 Agreements could During 1992, the Company acquired a devekipment stage decline significantly after the expiration of the respective 50 net MW natural gas-6ted cogeneration project in Yuma, Ari:ona (the "Yuma Project"). The Yuma Project is designed scheduled payment periods. to be a Qualifying Facility ("QF") under PURPA and to Royalty Expense pmvide 50 net MW of electricity to San Diego Gas & Royalty expense comprises the following for the years ended: Electric Company ("SDG&E") under an existing 30-year power purchase contract. The electricity is sold at SDO&E's 3993 3994 3993 ' I" 8 Navy 1, Unit 1 5 1,622 $ 1,641 $ 1,556 over transmission lines constructed and owned by Ari:ona Navy 1 Units 2 and 3 3,394 3,174 2,924 Pubhc Service Company ("APS"). An agreement for BLM 3,036 2,842 1,868 Navy 11 5,571 1,963 1,717 interconnection and a firm transmission service agreement WSG 287 268 209 have been executed between APS and the Yuma Project Vulcan 1,207 entity and have been accepted for 61ing by the Federal Leathen 1,968 Energy Regulatory Commission. Elmore 1,713 Hoch (DelRanch) 1,932 The Yuma Project commenced commercial operation in Salton Sea 1 & 2 1,147 May 1994.The project entity has executed steam sales Salton Sea 3 2,431 ~ contracts with an adjacent industrial entity to act as its Total $ 24,308 $ 9,888 $ 8,274 thennat host in order to maintain its status as a QF, which is a requirement of its SDO&E contract. Since the industrial The amount of royalties paid by Navy I to the U.S. Navy to entity has the nght under its contract to terminate devekip geothermal energy for Navy I, Unit I on the lands the agreement upon one year's notice if a change m its owned by the Navy comprises (i) a fee payable during the techmlogy eliminates its need for steam, and in any case term of the contract based on the difference between the unennin te the agreement at any time upon three years amounts paid by the Navy to Edison for speci6ed quantities notice, there can be no assurance that the Yuma Project will of electricity and the price as determined under the contract m intain its status as a QE However,if the industrial entity (which currently approximates 73% of that paid by the terminates the agreement, the Company anticipates that Navy to Edison), and (ii) $25,000 payable in December 2009, it wil! be able to kcate an ahemative thermal host in order J of which the Company's share is $11,600. The $25,000 pay, m intain its status as a QF or build a greenhouse at the I t ment is secured by funds placed on deposit monthly, which site i r which the Company believes it woull obtain QF funds, plus accrued interest, will aggregate $25,000. The status. A natural gas supply and transportation agreement 36

C a L E se a a e v C o u e 4 e, y has been executed with Southwest Gas Corporation, Eugene Water and Electric Board ("EWEB") for a 30 MW terminable under certain circumstances by the Company geothermal pilot project planned to be constructed at the and Southwest Gas Corporation. Newberry site near Bend, Oregon. The Comrw agreed to sell 20 net MW to BPA and 10 net MW to Eugene Water Mineral Reserves-Nevada and Utah Properties and Electric Board ("EWEB") from the Newberry Project. On May 3,1990, the Company entered into a defmitive In addition, BPA and EWEB together have an option purchase agreement with a subsidiary of Chevron to purchase up to an additional 100 net MW of pnxluction Corporation (" Chevron") for the acquisition of certain from the Newberry Project under certain circumstances. geothermal operations, including interests in approximately In a public-private development effort, the Company 83,750 acres of geothennal propenies in Nevada and Utah, is responsible for development, permitting, fmancing, for an aggregate purchase price of approximately $51,100. construction and operation of the project (which will be These property i sterests consi-gely ofleasehold interests, 100% owned by the Company), while EWEB will cooperate including pn pertles leased from the BLM and from private in the development effons by providing assistance with landowners. govemment and community affairs and sharing in the The property acquired from Chevron includes: development costs (up to 30%). The Newberry Project is currently expected to commence commercial operation in Roosevelt Hot Springs. The Company operates and owns 1998. The power sales agreements provide that under certain an approximately 70% interest in a geothermal steam 6 eld circumstances the contracts may be utili:ed at an attemative which supplies geothermal steam to a 23 net MW power kication. Completion of the Newbeny Project is subject to plant owned by Utah Power & Light Company ("UP&L") a number of signi6 cant uncertainties and cannot be assured. kicated on the Roosevelt Hot Springs property under a 30-year steam sales contract. The Company obtained approxi, SFAS 121 mately $20,317 cash under a pre-sale agreement with UP&L On January 1,1996, the Company intends to adapt whereby UP&L paid in advance for the steam produced Statement of Financial Accounting Standards No.121 by the steam 6 eld. The Company must make certain penalty ("SFAS 121")," Accounting for the Impairment of Long-payments to UP&L if the steam produced does not meet Lived Assets and for Long-Lived Assets to be Disposed Of." g certain quantity and quality requirements. Management anticipates that the adop; ion of SFAS 121 will not have a material effect on the Company's fmancial Desert Peak. The Company is the owner and operator of a statements. 10 net MW geothermal plant at Desert Peak, Nevada that is currently selling electricity to Sierra Paci6c Power Company g gg ( Siena ) under a power sales agreement that expires December 31,1995 and that may be extended on a year to, The Company has a 35% ownership interest in the Casecnan year basis as agreed by the parties. The December 31,1995 P ject, multipurpose irrigation and hydroelectric power price for electricity under this contract was 6.6e per kWh, f cility with a rated capacity of approximately 150 net MW comprising an energy payment of 2.1e per kWh (which loc red on the island of Lumn in the Philippines. The assets is adjustable pursuant to an inflation-based index) and nd li bilities of the Caseenan Project as of December 31, a capacity payment of 4.5v per kWh. The Company is 1995 uere $500,672 and $378,299 respectively. currently selling power to Sierra at Sierra's Avoided Cost.

9. Pnjeclle Pacific Northwest Geothermal Development Losts Project loans, w hich are nonrecourse to the Company, in the Paci6c Northwest, the Company has acquired lease-comprise the following at December 31:

hold rights and has performed certain geokigical evaluations to detemiine the resource potential of the underlying 1" l* properties. Recovery of those costs is ultimately dependent Coso F mding Corp. project loans with 6xed upon the Company's ability to prove geothermal reserves iS"""'ted*e'ghted average interest rates and sell geothermal steam, or to obtain fmancing, build ',(," [i {,]u d re , c power plants, gain access to high voltage transmission h.nes, through December 2001 $ 203,226 $ 2H.080 and sell the resultant electricity at favorable prices or, sell its leasehokis. In the opinion of management, the Company Partnership Project loans wah vanable interest will be aNe to recover its devehipment costs through the 'd*Ehd "" E' i"'erest rates d 6 44% generation of electricity for sale. In Sepmber 1994, the

$3[

34,7g7 Company executed the 6nal Power Purchase Agreements with Bonneville Power Administration ('BPA ) and Total Project loans $ 257.933 $ 233.080 37 5

__ - ' ~ ~ - ~ - - - - - - - - Ca6E=saev Co=*aav l l l l l The Gm Funding Corp. project loans are from Coso The Funding Corp. project k ans are collaterali:ed by, among Funding Corp. (" Funding Corp."). Funding Corp. is a other things, the power plants, geothermal resource, debt wrvice reserve funds, continnency funds, pledge of contracts, single purpose corporation formed to issue notes for its anJ an assignment of all such Gm Project's revenues which own account and as an agent acting on behalf of the Coso will be applied again : the payment ofobligations of each Project. On December 16,1992, pursuant to separate credit Gm Joint Venture, including the project loans. Each Gm agreements executed between Funding Corp. and each joint Venture's aswts will secure only its own project kun, Cosojoint Venture the proceeds from Funding Corp.'s note and will not be cross ollateralized with assets pledged under offering were kuned to the Coso Project. The proceeds other Gm Joim \\ enrure's credit agreements.The project of $560,245 were used by the Coso Project to (i) purchase loans are nonrecourm o any parmer in the Coso joint and retire project f nance debt comprised of the term loans Ventures and Funding Corp. shall solely Liok to such Cmo and construction loans in the amount of $424,500, (ii) fund ? such project f contingency funds in the amount of $68,400, (iii) fund Joint Venture's pledged assets for satisfacti-debt service reserve funds in the amount of $40,000, and kuns. However, the kuns are cross-col;ateuit:ed by the available cash flow of each Coso joint Venture. Each Cm (iv) 6 nance $27,345 of capital expenditures and transaction costs.The contingency fund and debt service reserve fund joint Venture after satisfying a series of its own obligations has agreed to advance support kuns (to the extent of available were required by the project loan agreements. cash flow and, under certain conditions, its debt service mserve funds) in the event revenues from the supporting The contingency fund represented the approx.imate maximum amount,if any, which could theoretically have Coso joint Ventures are insufficient to meet scheduled been payable by the Gm Project to third parties to discharge principal and interest on their separate project kuns. all liens of record and other contract claims encumbering the Coso Project's plants at the time of the project kuns. Partnership Project kuns inciuJe the Company's pro-rata The contingency fund was established in order to obtain share of the debt of the Del Ranch, Elmore, and Leathers investment grade ratings to facilitate the offer and sale of partnerships and is nonrecourse to the Company and the notes by Funding Corp., and such establishment did subsidiaries, however, it is collaterali:ed by substantially not reflect the Coso Project's view as to the merits or likely all of the assets of these partnerships. A Secured Credit disposition of such htigation or other contingencies. On JuneAgreement with a group of international banks, with 9,1993, MPE and the Mission Power Group, subsidiaries Morgan Guaranty Trust Company (" Morgan") as the agent of Edison Corp., and the Coso Project reached a 6nal settle-bank pmvides for direct bank loans at speci6ed premiums ment of all of their outstanding disputes and daims relating over a choice of either the bank's prime rate, the London to the construction of the Gm Project. As a result of the Interbank Offered Rate ("LIBOR") or the CD Base rate. As an alternative, each partnership may elect to issue various payments and releases invoh ed in such settlement, commercial paper and medium-term notes supported by the Coso Project agreed to make a net payment of $20,000 letters of credit issued by Fuji Bank, Limited, which are to MPE from the cash reserves of the Om Project secured, in turn, by the project debt facility with the contingency fund and MPE agreed to release its mechanics' Company. The partnerships had no direct bank borrowings liens on the Coso Project. After making the $20,000 at December 31,1995. The loans of each partnership are payment, the remaining balance of the Coso Project reduced by semiannual principal payments in March contingency fund (approximately $49300) was used and September of each year. The last principal payment to increase the Coso Project debt reserve fund from is scheduled for September 15,2001 for the Del Ranch and approximately $43,000 to its maximum ftdly. funded Elmore loans and September 15,2002 for the Leathers loan. requirement of $67,900. The remaining $24,400 balance of contingency fund was retained within the Gm Project The annual rerayments of the project loans for the years for future capital expenditures and for Gm Project debt beginning January 1,1996 and thereafter are as follows: service payments. Since the Gm Project debt service oo pannenhm reserve is fully funded in advance, Om Project cash flows FunJme Q>rr.. project Toul otherwise intended to fund the Giso Project debt service reserve fund, subject to satisfaction of certain covenants and 1996 $ 54.fdl $ 12,811 $ 67,712 1997 41.729 13.347 55.076 conditions contained in the Oiso joint Ventures' re6nancing E912 13.347 52;59 1998 documents, may be available for distribution to the Company 40'295 6'.5IO l999 II'III 2 953 7.033 in its proportionate share. 2000 4,050 Thereafter 31.907 3.631 15.558 $ 203.226 $ 54J07 $ 257.933 38

CaLEns=ov C e as e a se v 10.Constructientnas by December 31,1995 and retention on the construction The Construction Loans which are nonrecourse to the and supply contracts. Company, compri3e the following at December 31: Draws on the construction loan and accrued liabilities for the 1995 1994 Malitbog Geothermal Power Project at December 31,1995 Upper Mahiao Construction Loan with totalled $36,863 and $18,678, respectively. Credit Suisse variable interest rates (weighted average and Or1C have provided the cristruction and term loan C interest rate of 8.11%) with scheduled facilities. The eight year project term loan facilities will project term repayments thmugh 2006 $ 134,619 $ 24,508 he at variable interest rates. The international bank portion Mahanagdong Construction loan with of the debt will be insured by OPIC against politicahisks and variable interest rates (weighted average the Company's equity contribution to Visayas Geothermal interest rate of 8.02%) with scheduled Power Company ("VGPC") is covered by political risk project term repayments through 2007 39,716 6,995 insurance from the Multilateral Investment Guarantee Mahrbog Construction Loan with Agency and OPIC. vanable interest rates (weighted average interest rate of 8.42%) with scheduled 11.SniOP die 0Mt nut 23 project term repayments through 2005 36.861 gg g99gg $ 211,198 $ 11,503 Senior Discount Notes which accrete to an aggregate Draws on the construction L>an and accrued liabilities for principal amount of $529,640 at maturity in 2004. The the Upper Mahiao geothermal power project at December 31, original issue discount (the difference between $400,000 1995 totalled $134,619 and $2313, respectively. A syndicate and $ 529,640) will be amorti:ed from issue date through ofintemational com nercial banks is providing the construc, January 15,1997, during which time no cash interest will be tion 6nancing with interest rate 3 at LIBOR or " Prime" with paid on the Senior Discount Notes. CommencingJuly 15. interest payments due every quarter and at LIBOR maturity. 1997, cash interest on the Senior Discount Notes will be The weighted average interest rate at December 31,1995 payable semiannually on Januaq 15 and July 15 of each year. is approximately 8.31%. The Export Import Bank of the The Senior Discount Notes are redeemable at any timc on U.S. ("Ex Im Bank") is providing political risk insurance or after January 15,1999. The redemption prices comi nencing to commercial banks on the construction loan and will in the twelve month period beginning January 15,19o9 provide the majority of the project term fmancing of (expressed in percentages of the principal amount) ar e approximately $ 162.000 upon satisfaction of the conditions 105.125%,103.417% 101.708% and 100% for 1999,2000, associated with commercial operation. The term 6nancing 2001, and 2002, respectively, phis accrued interest through for the Ex-Im B mL loan will be for a ten year term at the reJemption date in each case. The Senior Discount a 6xed interest rate of 5.95%. The accrued liabilities Notes are unsecured senior obligations of the Company. represent invoices which were received, but not paid, The Senior Discount Notes prohibit payment of cash C by December 31,1995 and retention on the construction dends unless certain 6nancial ratios are met and the chv. : ads and supply contracts. do not exceed 50% of the Company's accumulated adjusted The Company's share ofdraws on the construction loan and consolidated net income as defmed, subsequent to April 1, accrued liabilities for the Mahanagdong geothennal power 1994, plus the proceeds of any stock issuance. project at December 31,1995 totalled $39,716 and $6,592 respectively. The construction debt 6nancing is provided by the Overseas Private investment Grporation ("OPIC") and a consortium of commercial lenders led by Bank of America NT&SA. The construction loan interest rates are at LIBOR or

Prime" with interest payments due quarterly and at LIBOR maturity. The debt provided by the commercial lenders will be insured by Ex-Im Bank against political risks. Tenocar project term debt 6nancing of approximately

$ 120,000 will be provided by Ex-Im Bank (which will replace the bank construction debt) and by OPIC. ~he majority of the tenn fmancing is expected to be provided by the Ex-Im Bank at a fixed interest rate of 6.92% The accrued liabilities represent invoices which were received, but not paid, 39 e

~ - ' - ' - - - - - - - - - - - - - - _ - - - CaLEhaeav C o es e a n v 1tIsaiaInu 12.CunctibleSubrdiatedDebutru In June of 1993, the Company issued $100,000 principal On January 1,1993, the Company adopted Statement of Financial Accounting Standards No.109 ("SFAS 109"), amount of 5% convertible subordinated debentures " Accounting for Income Taxes." The adoption of SFAS 109 (" debentures") due July 31, 2000. The debentures are convertible into shares of the Company's common stock changed the Company's method cf accounting for income taxes from the deferred method as required by Accounting at any time prior to redemption or maturity at a conversion Principles Ibard Opinion No. 'l to an asset and liability price of $22.50 per share, subject to adjustment in certain approach. Under SFAS 109, the net excess deferred tax circumstances. Interest on the debentures is payable semi-liability as of January 1,1993 was determined to be $4,100. annually in arrears on July 31 and January 31 of each This amount was reflected in 1993 income as the cumulative year, commencing on July 31,1993. The debentures are effect of a change in accounting principle. It primarily redeemable for cash at any time on er after July 31, IP6 represents the recognition of the Company's tax credit at the option of the Company. The redemption ; rices carryforwards as a deferred tax asset. There was no cash commencing in the tw elve month period beginning J uly 31, impact to the Company upon the required adoption of 1996 (expressed in percentages of the principal amount) are 102% 101%,100% and 100% in 1996,1997,1998 and SFAS 109. Under SFAS 109, the effective tax rate increased 1999, respectively. The debentures are unsecured general to approximately 30% in 1993 from 23.5% in 1992.This increase was due to the Company's tax credit carryforward obligations of the Company and subordinated to all existing being recogni:ed as an asset and unavailable to reduce the and future senior indebtedness of the Company. current period's effective tax rate for computing the Company's provision for income taxes. 11 hthup of Prelmed Stut ta Cawtible Debt On November 19,1991, the Company sold one thousand Provision for income tax is comprised of the following shares of convertible preferred stock, Series C, at $50,000 at December 3h per share to Kiewit Energy Company, in a private placement. 1"i 1*4 "3 Each share of the Series C preferred stock was convertible cunently payable: at any time at $18.375 per common share into two thousand $] $ 0 $ seven hundred and twenty one shares ofcommon stock subject to customary adjustments. The Series C preferred 16448 7.799 loss stock had a dividend rate of 8.125%, commencing March Nened: 15,1992 through conversion date or December 15,2003. 921 1,017 385 state The dividends, which were cumulative, were payable f"d" I u,062 7m en quarterly in convertible preferred stock, Series C, through O,99 8,258 7J98 March 15,1995 and in cash on subsequent dividend dates. Total after beneht of Pursuant to the tenns of the Securities Purchase Agreement, extraoranary item 30,631 16.057 18,184 the Company exercised its rights to exchange the preferred Tax bene 6t attnbutable to stock, Series C, on March 15,1995 for $64,850 principal extraoranary item 945 amount 9.5% convertible subordinated debenture of the Totalbefore bene 6r of extraormnary item $ 30,631 $ 17,002 $ 18,184 Company due 2003, with the same conversion features of the preferred stock, Series C. The deferred expense is primarily temporary differences The Company is obligated to redeem 20% of the outstanding associated with depreciation and amortization of certain assets. debt each December 15, commencing 1999 through 2003, plus accrued interest. At any time after March 15,1995, upon 20 days notice, the Company may redeem all, or any portion consisting of at least $5,000, of the convertible debt, then outstanding, provided that the Company's common stock has traded at or above 150% of the then effective conversion price, for any 20 trading days out of 30 consecutive trading days ending not more than five trading days prior to notice of redemption. 40

CALEnanov Company A reconciliatian of the federal statutory tax rate to the of Directors up to ten days after an event triggering the effective tax rate applicable to income before provision distribution of certificates for the rights. The rights plan for income taxes follows: was amended in February 1991 so that the agreement with Kie Energy (see Note 12) would not trigger the exercise 1995 1994 1993 of the nghts. The nghts will expire, unless previously Federal statuton rate 35.00 L 35.00 % 35.00 % amd or exercised, on November 30,1998. The rights c let (738) (6.85) (6.70) re automatically attached to, and trade with, each share Investment and energy tax creats (1.80) (3.04) (4.62) ofcommon stock. State taxes, net dfederal tax effect 4.09 4.48 3.90 Curnulative effect ofchange in

18. Stock OpticasandRestrictedMck ii IorI ation 2.[3

[ The Cmnpany has issued various stock options. As of o Non-IkJuctiMe Expense 1.10 December 31,1995, a total of 9,552 shares are reserved for Lease investment (2.18) stock options, of which 9,291 shares have been granted and Other .20 .56 .20 remain outstanding at prices of $3.00 to $ 19.00 per share. 31.56 % 30.45 % 29.68 % The Company has stock option plans under which shares Deferred tax liabilities (assets) are comprised of the following were reserved for grant as incentive or non-qualified stock at December 31: options, as determined by the Board of Directors. The plans 1995 1994 allow options to be granted at 85% of their fair market value Ikpreciation and amorti:auon, net $ 349,079 $ 119,947 at the date of grant. Generally, options are issued at 100% of Other 4.043 3,590 fair market value at the date of grant, Options granted under 353.122 123.537 the 1986 Plan become exercisable over a period of three to Ikferred income (7,709) (2,190) five years and expire if not exercised within ten years from las carryforwards (3,050) (31,592) the date of grant or, in some instances a lesser term. Prior Energy and investment tax cn:Jits (52,857) (40,743) to the 1986 Plan, the Company granted 256 options at Altemative minimurn tax creats (52,480) (22,379) fair market value at date of grant which had terms of ten Jr.SO4 royalty receivaNe (5,865) years and were exercisable at date ofgrant. In addition, Other (4.641) ( 60) the Company had issued approximately 138 options to (126.602) (96.969) consultants on terms similar to those issued under the Net deferred taxes $ 226,520 $ 26,568 1986 Plan. The non 1986 plan options are primarily As of December 31,1995, the Company has an unused net options gr ntd to Kiewir Energy; see Note 17. operating hws (NOI.) carryover of approximately $8,714 On January 1,1996, the Company intends to adopt for regular federal tax return purposes which expires in 2007. the disck>sure requirements of Statement of Financial in addition, the Company has unused investment and Accounting Standards No.123 ("SFAS 123"), " Accounting geothermal energy tax credit carryfwards of approximately for Stock Based Compensation." Management anticipates $52,857 expiring between 2002 and 2010. The Company that aJoption of SFAS 123 will not have a material also has approximately $52,4SO of alternative minimum effect on the Company's fmancial statements. tax credit carryforwards which have no expiration date. 15.Preterredmck Series A: On December 1,1988, the Company distributed a dividend ofone preferred share purchase right ("right") for each outstanding share of common stock. The rights are not exercisable until ten days after a person or group acquires or has the right to acquire, beneficial ownership of 20% or more of the Company's common stock or announces a tender or exchange offer for 30% or more of the Company's common stock. Each right entitles the holder to purchase one one-hundredth of a share of Series A junior preferred _ stock for $52.The rights may be redeemed by the Board A1

c.a ...,c. l f 1 value of the shares at the date of issuance was charged The Company granted 500 shares of restricted common stock to Stockholders' equity. Such unearned compensation is with an aggregate market value of $9,500 in exchange for thebeing amorti:ed over the vesting period of which 125 shares relinquishment of 500 stock options which were cancelled were immediately vested and the remaining 375 shares vest by the Company. The shares have all rights of a shareholder, straight line over five years. Accordingly, $2,494 of uncamed subject to certain restrictions on transferability and risk of compensation was charged to general and administrative forfeiture. Unearned comoensation equivalent to the market expense in 1995. Transactions in Stock Options Options Outstanding Shares Available for Grant Under Option Price Per 1986 Option Plan Shares Share Total 816 7J97* $ 3.00 - $ 15.938 $ 80,021 Balance December 31,1992 (lJ96) 1,396 $ 17.75 - $ 19.00 26,209 Options granted 19 (20) $ 3.00 - $ 14.875 (114) Options terminated (259) $ 3.00 - $ 14.875 (1,185) Opnons exercised 1,000 Additional shares reserved under 1986 Option I'lan 439 8,514' $ 3.00 - $ 19.00 104,931 Ikdance December 31,1993 (954) 1,243 $ 16.00 - $ 17.25 19,260 15 (15) $ 3.00 - $ 15.938 (205) Options granted Options terminated (141) $ 3.00 - $ 15.938 (709) Optkms exerciwd 586 Additional shares reserved under 19860ption Plan 86 9,60l* $ 3.00 - $ 19.00 123,277 Balance December 31,1994 (396) 396 $ 15.81 - $ 19.00 7,188 571 (571) $ 14.875 - $ 19.00 (10,673) Optkms granted Options terminated (135) $ 3.00 - $ 15.938 (460) Optkw exercised 261 9,291* $ 3.00 - $ 19.00 $ 119,332 Balance December 31,1995 Options which became exercisable during: 985 $ 12.63 - $ 19.00 $ 17,512 Year ended December 31,1995 1,015 $ 11.625 - $ 19.00 $ 15,776 Year erded December 31,1994 592 $ 3.00 - $ 19.00 $ 10,1SO Year ended December 31,1993 Opnons exercisable at: 8,229* $ 3.00 - $ 19.00 $ 100,886 December 31,1995 7,897* $ 3.00 - $ 19.00 $ 93,705 December 31,1994 7,026* $ 3.00 - $ 19.00 $ 78,644 December 31,1993

lndales Kewu Energy oprmnu. M Niac it

) 42

CaLEmmas, c o a. p a n y

17. Carma Slack Sales Ha!ated Options

18. Litigation The Company and Kiewit Energy Company, Inc. ("Kiewit")

As of December 31,1995 there were no material outstanding signed a Stock Purchase Agreement and related agreements, lawsuits. ~ dated as of February 18,1991. Kiewit is a subsidiary of Peter Kiewit Sons', Inc. of Omaha, Nebraska, a large construction, 19.llelatedPrlyTransactions mining, and telecommunications company with diversi6ed The Company charged and recogni:ed a management fee operations. Under the tenns of the agreements, kiewit pur-and interest on advances to its Coso Joint Ventures, which chased 4,000 shares ofcommon stock at $7.25 per share and aggregated approximately $6,075, $ 5,569 and $5,354 in received options to buy 3,000 shares at a price of $9 per share the years ended December 31,1995,1994 and 1993. The exercisaNe over three years and an additional 3,000 shares Company's note receivable from the Coso Joint Ventures at a price of $ u per share exercisable over five years (subject ' bears a fixed interest rate of 12.5% and is payaHe on or to customary adjustments). before March 19,2002. This note is suborJmated to the In May 1994, pursuant to a special antidilution provision of senior project h>an on the project. the 1991 Stock Purchase Agreement between the Company The Company's wholly owned subsidiaries charge and and knewit, tae Company increased kiewit's existing option (granted in 1991) to purchase 3,000 shares at $ 12 per share recogni:e a management, operator, guaranteed capacity by an additional 289 shares as a fmal adjustment unJer such and brine fee to its Partnership Project. A management and operator fee is also charged to the Salton Sea Project. provtstons. These fees aggregated approximately $50,793 for the year in connection with this initial stock purchase, the Company ended December 31,1995. and Kiewit al30 entered into certain other agreements pur' The Mahanagdong Project is being constructed by a suant to which (i) kiewit and its affiliates agreed not to consortium (the "EPC Consortium") of Kiewit Construction acquire more than 34% of the outstanding common stock (the Standstill Percentage") for a 6ve year period,(ii) Group, Inc. ("KCG") and the CE Holt Company, a wholly kiewit became entitled to nominate at least three of the owned subsidiary of the Company, pursuant to fixed-price, date certain, tumkey supply and construction contracts Company's directors, and (iii) the Company and K,iewit agreed to use their best efforts to negotiate and execute (collectively, the "Mahanagdong EFC"). The obligations of the EPC Consortium under the Mahanagdong EPC are a joint venture agreement relating to the development supponed by a guaranty of KCG at an aggregate amount ofcertain geothermal properties in Nes, a and Utah. equal to approximately 50% of the Mahanagdong EPC price. On June 19,1991, the board approved a number of The MahanagJong EPC provides for maximum liability amendments to the Stock Purchase Agreement and the for liquidated damages of up to $ 100,500 and total liability related agreements. Pursuant to those amendments, the of up to $201,000. KCG, a wholly owned subsidiary of Company reacquired from Kiewit the rights to develop the Peter Kiewit Sons', Inc. ("PKS"), is the lead member of Nevada and Utah properties, anJ Kiewit agreed to exercise the EPC Consortium, with an 80% interest, KCG performs options to acquire 1,500 shares of common stock at $9.00 construction services for a wide range of public and private per share, providing the Company with $13,500 in cash. customers in the U.S. and internationally. CE Holt Company The Company also extene: d the term of the $9.00 and will provide design and engineering services for the EPC $12.00 options to seven years; modi 6ed certain of the other Consortium, and holds a 20% interest. The Company has tenns of these options; granted to Kiewit an option to acquire provided a guaranty of CE Holt Company's obligations an additional 1,000 shares of the common stock at $11.625 under the Mahanandong EPC Contract. per share (closing price for the shares on the American Stock Exchange on June 18,1991) for a ten year term; The Company participates in an intemational joint venture and m, ereased the Standstill Percentage from 34% to 49%. agreement with PKS which the Company believes enhances its capabilities in foreign power markets. The joint venture On November 19,1991, the Board approved the issuance agreement is limited to international activities and provides by the Company to Kiewit of one thousand shares of Series that if both the Company and PKS agree to participate in a C preferred stock for $50,000, as described in Note 13. In project, t hey will share all development costs equally. Each connection with the sale of the Series C preferred stock to of the Company and PKS will provide 50% of the equity Kiewit, the Standstill Agreement was amended so that the required for fmancing a project developed by the joint 49% Standstill Percentage restriction would apply to voting venture and the Company will operate and manage such stock rather than just common stock. project. The agreement creates a joint development structure under which, on a project by project basis, the Company will be the development manager, managing panner and/or 43

~ ~ ~ - ~ ~ - - C a o E se e a e v C e as e a se v l l Interest rate swap agreements-The fair value of interest project operator, and equal equity panicipant and PKS will rate swap agreements is estimated based on quotes from be the preferred rumkey construction contractor.The joint the counter party to these instruments and represents the venture agreement may be terminated by either party on 15 estimated amounts that the Company would expect to days written notice, provided that such termination cannot receive or pay to terminate the agreements. It is the affect the pre-existing contractual obligations of either party, Company's intention to hold the swap agreements to their intended maturity. 20.Extraordinaryttes In conjunction with the Company's Senior Discount Note Other fmancial instruments-All other fmancial instruments offering in 1994 (See Note 11), the 12% Senior Notes were of a material nature fallinto the defmition of shon term and defeased. This resulted in an extraordinary item in the fair value is estimated as the carrying amount. amount of $2,007, after the income tax effect of $945. The carrying amounts in the table below are included in The extraordinary item represents the amount necessary to the consolidated balance sheets under the indicated captions defease the interest payments and the unamorti:ed ponion except for the interest rate swaps which are discussed in of the deferred fmancing costs on the $35,730 Senior Notes. Note 6. 1995 1994

21. Fair Value st financiallastrument:

Esmnated Esmnated Statement of Financial Accounting Standards ("SFAS") Carrying Fair Carrying Fair No.107," Disclosures about Fair Value of Financial Value Value Value Value Instruments," requires dischisure of the following information hnancial assets: about the fair value of cenain fmancial instruments for l**"" te mmeivable $ 61 $ 561 $ 110 $ 1.281 which it is practicable to estimate that value. For purmes ,f,hahli of the following dischisure, the fair value of a fmancial 257,933 269,624 233,080 227,I44 instrument is the amount at which the instrument could a,nsruction w 211,198 211,19s 31,503 31,503 he exchanged in a current transaction between willing Senior discount notes 477,355 503,158 431,946 413,013 panies, other than in a forced sale or liquidation. Although salmn sea notes and hinds 452,088 459,629 hmited recourse management uses its best judgement in estimating the senior secured notes 200,000 210,500 fair value of these fmancial instruments, there are inherent G * *" HeSuh*d ""ed limitations in any estimation techniques. Therefore, the 'f fair value estimates presented herein are not necessarily g g mdicative of the amounts which the Company could reali:e in a current transaction. The methods and assumptions used to estimate fair value are as follows: Debt instruments-Le fair value of all debt issues listed on exchanges has been estimated based on the quoted market prices. The fair value of convenible debt (see Note 13 ) is not practicable to estimate due to the convertible features of thedebt. 1 44

CaLEmeaov C o no e a se v

22. Onfterly Financial his (haditet0 Folkwing is a summary of the Company's quarterly results of operations for the years ended December 31,1995 and December 31,1994.

Three Months Ended

1995:'

March 31 June 30 September 30 December 31 Revenue: Sales of electricity and steam $ 72,978 $ 81,756 $ 102,423 $ 78,473 Royalties 3,917 4,912 5,372 5,281 Otherincome 9,790 10,428 11,922 11,471 Totalrevenue 86,685 97,096 119,717 95,225 Totalcosts and expenses 68,527 +,957 79,898 76,290 Income before provision 64 income taxes and minority interest 18,158 40,139 39,819 18,935 Provision (tr income taxes 5,540 6,248 12,457 6,386 Net income bekre minonty interest 12,618 13,891 27,362 12,549 Minority interest 3,005 Net income 9,613 13,891 27,362 12,549 Preferred dividends 1,080 Net income attributable to common shares 8,5 33 $ 13,891 $ 27,362 $ 12,549 Net income rer share-primarv .21 .27 .52 .24 Net income per share-fully dileted .21 .27 .48 .18 1994: March 31 June 30 September 30 December 31 w Revenue: Sales ofelectricity and steam $ 30,819 $ 36,850 $ 49,498 $ 37,395 Other income 4,591 8,404 9,026 9,271 Total revenue 35,410 45,254 58,524 46,666 Totalccr 3 and expenses 22,753 33,198 37,771 36,296 income before provision for income taxes 12,657 12,056 20,753 10,370 Provision forincome taxes 4,050 3,677 6,340 2,935 Net income before extraordinary item 8,607 8,379 14,413 7,435 Extraordinary item 2 (2,007) Net income 6,600 8,370 14,413 7,435 Preferred dividends 1,200 1,2 h 1,275 1,299 ^ Net income attnbutable ro common shares $ 5,400 $ 7,143 $ 13,138 $ 6.136 . Net income per share before extraordinary item .20 .20 .38 .18 Net income per share-extraordinary item 2 (.06) Net income per share-primary .14 .20 .38 .18 ~ Net income per share-fully diluted .14 .20 .36 .18 ne company'.orerstan are erammal m name wuh a Agiremmare penentage d mcmw canni m the accond and rhud qaners. 3 Rethu xqumtem oi M.wma we Nore l 2 See Niwe 20. 9 45

Castwenev COMP 4Nf TfDiftHinj Auditors' Report Ikrard of Directors and Shareholders CalEnergy Company,Inc. Omaha, Nebraska We have audited the accompanying consolidated balance sheets of CalEnergy Company, Inc. and subsidiaries as of December 31,1995 and 1994, and the related consolidated statements of operations, stockholders' equiry 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 au 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 fmancial statements are free of material misst An audit includes examining, on a test basis, evidence supporting the amounts and discksures in the 6nancial 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 fmancial pusition of CalEnergy Company,Inc. and subsidiaries at 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 confomiity with generally accepted accounting panciples. As discussed in Note 14, the consolidated financial statements give effect to the Company's adoption, effective January 1,1993 of Statement of Financial Accounting Standards No.109," Accounting for Income Taxes." ben)df / eloitte&ToucheLLP D [ Omaha, Nebraska January 26,1996 1 I 1 i A6

BIIP88 ATE! Information 7

OGicers Beard 11Direders Carperstelisedquiriert David L Sokol Edgar D. Aronson CalEnergy Company, Inc. Chairman of the ikrarJ and Chairman 302 S. 36th Street, Suite 400 Chief Execunve Of6cer Oakes, Fit:wdhams & G>., LLP. Omaha, NE 681313S45 homas R. Mason New York, NY Telephone:402 3414500 i President and Judith E. Ayres Edx: 402'345-9318 Chief 0peranng Gficer Pnncipal g g ,O. GepeaWeb hewer n e

ident, Fr i Services, LLC.

C.,ontroller and Chief Accounting Oficer James Q.Crowe 50 Cahfornia Street,10th fLxv Edwani E Ba:emore Chainuan and CEO San Francisco,CA 94111 Vice President hiFS Communicanom Company,Inc. 800 356-2017 Human Resources Onaha,NE Callcollect at 212-613-7427 Wcent R.Fesmire Richard K. Daviaon Vice PresiJent Preident and Chief Operanna Oficer Auditors Construction Union Paci6c Corporanon Deloitte & Touche LLP Pethlehem, PA 2000 First NationalCenter Frederick L hlanuel Vice PresiJent Ben Holi Omaha, NE 68102 U.S. Operations FounJer anJ Chairman (renreJ) CE Holt Company M 30ll8 Steven A.McArthur (formerly The Ben Holt Co.) New York Stock Exchange Symbol: CE Senior Vice President and General Pasadena, CA london Stock Exchange Symbol:CE Om'el Richard R.Jaron Pacinc Stock Exchange Symbol: CE neral hianager "h* 'g',n,1 i vests!'Retsues: c I e iJ an Indonesia I*II"Yb*L*"JI" Omaha, NE Donald M. 0'Shei, Sr. Inustor Relations Manager Everett B.14, iurne, E+ CalEnergy Gimpany, Inc. Senior Vice President (Emeritus) Asia Division and President 102 S. 36th Street, Suite 400 Attomey at Law Omaha, NE 681113845 CalEnergy lntemational la Angeles,CA Telephone:402 341 4500 Dale R. Schuster Bernard W. Re:nicek Fax: 402-231 1578 Vice President Ihn, College of Business E-maiblaudin#mcimail.com AJministranon AJmmistration Robert S. Silberman Oeighton University IlrRl101 Senior Vice President Omaha, NE Le Company's AnnualRepirt on Devekipment w,i,,, Scott, y,, Fonn 10.K is 61ed with the Secunties John G. Sylvia President and Chairman of the IbarJ and Exchange Comnussion. Projects in Senior Vice President and Chief Peter Kiewit Sons', Inc. ornation, construction, and devekyment Financial Oficer Omaha,NE arnubano a numiu of uncenaintin, more spn6cally JewnbeJ in the Russ L Tenney Barton W. ShackelforJ o,mpany's Form 8-K, Jared Arn! 2, Vice President (Emeritus) 1996,6leJ with the Secunnes Exchange IntemanonalOperations PresiJent (renred) g,mmission.ne G3mpany wdl proviJe ') Jonathan hl Weisgall Paa6c Gas & Eh ctric Company a copy of the Fonn 10-K or an 8-K with-Vice President San Francisco, CA out charge. Gries of exhibits to the Form Legislanve and Regulatory Affairs John R. Shiner 10-K wdl be fumished unin payment of Atromey at Law a fee equal to the Company's reasonable Atomen & Foerster expenses in fumishing such exhibits. In Angeles, CA Pleax direct your wntren requests to: David L Sokol Jeffrey S. LauJin Chairmanof theikarJandCluef Investor Relanons Manager Execunve Ofhcer Calinergy Company, Inc. CalEnergy Company, Inc. 302 S. 36th Street, Suite 400 Omaha.NE Omaha, NE 681313845 lbvid E.Witt Co-CEO AssualMeetilig LOGICAT The Annual Meenng of the ShareholJen New York, NY wdl be helJ on Thunday, May 16,1996, at 91M a.m. Lical time at the Joslyn Art Museum, Witherspx>n Concert Hall, 22tT DoJge Street, Gnaha, Nebraska. q l

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