UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2004

Commission File No. 33-95538

SALTON SEA FUNDING CORPORATION

(Exact name of registrant as specified in its charter)

	Delaware	47-0790493
	(State of Incorporation)	(IRS Employer Identification No.)

Salton Sea Brine Processing, L.P.	California	33-0601721
Salton Sea Power Generation L.P.	California	33-0567411
Fish Lake Power LLC	Delaware	33-0453364
Vulcan Power Company	Nevada	95-2636765
CalEnergy Operating Corporation	Delaware	33-0268085
Salton Sea Royalty LLC	Delaware	47-0790492
VPC Geothermal LLC	Delaware	91-1244270
San Felipe Energy Company	California	33-0315787
Conejo Energy Company	California	33-0268500
Niguel Energy Company	California	33-0268502
Vulcan/BN Geothermal Power Company	Nevada	95-3992087
Leathers, L.P.	California	33-0305342
Del Ranch, L.P.	California	33-0278290
Elmore, L.P.	California	33-0278294
Salton Sea Power L.L.C.	Delaware	47-0810713
CalEnergy Minerals LLC	Delaware	47-0810718
CE Turbo LLC	Delaware	47-0812159
CE Salton Sea Inc.	Delaware	47-0810711
Salton Sea Minerals Corp.	Delaware	47-0811261

302 S. 36^th Street, Suite 400 Omaha, Nebraska		68131
(Address of principal executive offices of		(Zip Code of
Salton Sea Funding Corporation)		Salton Sea Funding Corporation)

(402) 341-4500

Salton Sea Funding Corporation's telephone number, including area code:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

All common stock of Salton Sea Funding Corporation is indirectly held by Magma Power Company. 100 shares of common stock were outstanding on February 25, 2005.

TABLE OF CONTENTS

	PART I

Item 1.	Business	4
Item 2.	Properties	9
Item 3.	Legal Proceedings	10
Item 4.	Submission of Matters to a Vote of Security Holders	10


	PART II

Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	11
Item 6.	Selected Financial Data	11
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 8.	Financial Statements and Supplementary Data	24
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	72
Item 9A.	Controls and Procedures	72
Item 9B.	Other Information	72

	PART III

Item 10.	Directors and Executive Officers of the Registrant	73
Item 11.	Executive Compensation	74
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	74
Item 13.	Certain Relationships and Related Transactions	74
Item 14.	Principal Accountant Fees and Services	75

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	76
Signatures		78
Exhibit Index		98

PART I

Disclosure Regarding Forward-Looking Statements

This report contains statements that do not directly or exclusively relate to historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can typically identify forward-looking statements by the use of forward-looking words, such as "may," "could," "project," "believe," "anticipate," "expect," "estimate," "continue," "potential," "plan," "forecast," and similar terms. These statements represent Salton Sea Funding Corporation’s intentions, plans, expectations and beliefs and are subject to risks, uncertainties and other factors. Many of these factors are outside Salton Sea Funding Corporation’s control and could cause actual results to differ materially from such forward-looking statements. These factors include, among others:

·	general economic and business conditions in the jurisdictions in which Salton Sea Funding Corporation’s facilities are located;

·	the financial condition and creditworthiness of our significant customers and suppliers;

·	governmental, statutory, regulatory or administrative initiatives or ratemaking actions affecting Salton Sea Funding Corporation or the power generation industries;

·	weather effects on sales and revenue;

·	general industry trends;

·	increased competition in the power generation industry;

·	fuel and power prices and availability;

·	changes in business strategy, development plans or customer or vendor relationships;

·	availability of qualified personnel;

·	unscheduled outages or repairs;

·	financial or regulatory accounting principles or policies imposed by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (“FASB"), the Securities and Exchange Commission (‘‘SEC’’) and similar entities with regulatory oversight;

·	other risks or unforeseen events, including wars, the effects of terrorism, embargos and other catastrophic events; and

·	other business or investment considerations that may be disclosed from time to time in SEC filings or in other publicly disseminated written documents.

Salton Sea Funding Corporation undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors should not be construed as exclusive.

In this Annual Report references to kW means kilowatts, MW means megawatts, kWh means kilowatt hours, MWh means megawatt hours, and NMW means net megawatts.

Item 1. Business.

General

Salton Sea Funding Corporation ("Funding Corporation"), an indirect wholly-owned subsidiary of CE Generation, LLC ("CE Generation"), is a Delaware corporation formed for the sole purpose of issuing securities in its individual capacity as principal and as agent acting on behalf of the Guarantors (as defined below). The principal executive office of the Funding Corporation is located at 302 South 36th Street, Suite 400A, Omaha, Nebraska 68131 and its telephone number is (402) 341-4500.

CE Generation owns all of the capital stock of Magma Power Company ("Magma"), which owns all of the outstanding capital stock of Funding Corporation. Through its subsidiaries, CE Generation is primarily engaged in the development, ownership and operation of environmentally responsible independent power production facilities in the United States of America utilizing geothermal and natural gas resources. CE Generation has an aggregate net ownership interest of 769 MW of electrical generating capacity in power plants in operation in the United States of America, which have an aggregate net capacity of 829 MW (including its interests in the Salton Sea Projects and the Partnership Projects as defined below).

All of the outstanding stock of Magma was contributed by MidAmerican Energy Holdings Company ("MEHC") to CE Generation in February 1999. In March 1999, MEHC sold a 50% interest in CE Generation to El Paso CE Generation Holding Company ("El Paso"). On January 29, 2003, El Paso sold all its interest in CE Generation to TransAlta USA Inc. ("TransAlta"), an affiliate of TransAlta Corporation.

Magma directly or indirectly owns all of the capital stock of or partnership interests in the Funding Corporation and the Guarantors, except for CalEnergy Minerals LLC ("CalEnergy Minerals") and Salton Sea Minerals Corp., which are owned by MEHC. The Guarantors are comprised of the Salton Sea Guarantors, the Partnership Guarantors, and the Royalty Guarantor (collectively, the "Guarantors").

The Salton Sea Guarantors consist of Salton Sea Brine Processing L.P., Salton Sea Power Generation L.P. ("SSPG"), Salton Sea Power L.L.C. ("Salton Sea Power"), and Fish Lake Power LLC ("Fish Lake"), which own five operating geothermal power plants located in Imperial Valley, California known as Salton Sea I Project, Salton Sea II Project, Salton Sea III Project, Salton Sea IV Project and Salton Sea V Project, (collectively, the "Salton Sea Projects"), and CE Salton Sea Inc. (together with the Salton Sea Projects, the "Salton Sea Guarantors").

The Partnership Guarantors consist of the Vulcan/BN Geothermal Power Company ("Vulcan"), Elmore, L.P. ("Elmore"), Leathers, L.P. ("Leathers"), Del Ranch, L.P. ("Del Ranch"), and CE Turbo LLC ("CE Turbo"), each of which owns an operating geothermal power plant located in Imperial Valley, California known as the Vulcan Project, the Elmore Project, the Leathers Project, the Del Ranch Project and CE Turbo Project, (collectively, the "Partnership Projects" and, together with the Salton Sea Projects, the "Imperial Valley Projects"); CalEnergy Minerals, which installed facilities near the Imperial Valley Projects that were intended to recover zinc from the geothermal brine through and ion exchange, solvent extraction, electrowinning and casting process (the "Zinc Recovery Project"); CalEnergy Operating Corporation ("CEOC"), Vulcan Power Company ("VPC"), San Felipe Energy Company ("San Felipe"), Conejo Energy Company ("Conejo"), Niguel Energy Company ("Niguel"), VPC Geothermal LLC ("VPCG") Salton Sea Minerals Corp. and CE Salton Sea Inc. (collectively, the "Partnership Guarantors"). VPC and VPCG, collectively own 100% of the partnership interests in Vulcan. CEOC and Niguel, San Felipe and Conejo, collectively own 90% partnership interests in Elmore, Leathers and Del Ranch, respectively. Salton Sea Minerals Corp. owns CalEnergy Minerals.

Magma owns the remaining 10% interest in each of Elmore, Leathers and Del Ranch. CEOC is entitled to receive from Magma, as payment for certain data and services provided by CEOC, all of the partnership distributions Magma receives with respect to its 10% ownership interests in each of the Elmore, Leathers and Del Ranch Projects and Magma’s special distributions equal to 4.5% of total energy revenue from the Leathers Project.

Salton Sea Royalty LLC (the "Royalty Company") is the Royalty Guarantor. The Royalty Company received an assignment of certain fees and royalties ("Royalties") paid by three Partnership Projects: the Elmore, Leathers, and Del Ranch Projects.

CEOC currently operates the Imperial Valley Projects. Affiliates of Magma control, through a variety of fee, leasehold, and royalty interests, rights to geothermal resources for power production in the Salton Sea Known Geothermal Resource Area ("SSKGRA"). Funding Corporation believes that such resources will be sufficient to operate the Imperial Valley Projects at contract capacity under their respective power purchase agreements through the final maturity date of the securities.

The principal executive offices of the Salton Sea Guarantors are located at 302 South 36th Street, Suites 400-B, 400-D, 400-E, 400-K and 400-N, Omaha, Nebraska 68131. The principal executive offices of the Partnership Guarantors is 302 South 36th Street, Suite 400-F, 400-G, 400-I, 400-J, 400-L, 400-M, 400-N, 400-O, 400-P, 400-Q, 400-R, 400-S, 400-T, and 400-U, Omaha, Nebraska 68131. The principal executive office of the Royalty Guarantor is 302 South 36th Street, Suite 400-H, Omaha, Nebraska 68131.

The Projects

Set forth below is a table describing certain characteristics of the Imperial Valley Projects, and the Guarantors' collective interests therein. All the projects are located in the Imperial Valley, California.

	Facility
	Net Capacity	Net MW	Commercial	Agreement	Power
Power Project	(MW) ⁽¹⁾	Owned	Operation	Expiration	Purchaser⁽²⁾

Salton Sea Projects:
Salton Sea I	10	10	1987	2017	Edison
Salton Sea II	20	20	1990	2020	Edison
Salton Sea III	50	50	1989	2019	Edison
Salton Sea IV	40	40	1996	2026	Edison
Salton Sea V	49	49	2000	Varies	Various
Total Salton Sea Projects	169	169

Partnership Projects:
Vulcan	34	34	1986	2016	Edison
Elmore	38	34	1989	2018	Edison
Leathers	38	34	1990	2019	Edison
Del Ranch	38	34	1989	2019	Edison
CE Turbo	10	10	2000	Varies	Various
Total Partnership Projects	158	146
Total Imperial Valley Projects	327	315

(1)	Actual MW may vary depending on operating and reservoir conditions and plant design. Facility Net Capacity (in MW) represents facility gross capacity less parasitic load. Parasitic load is electrical output used by the facility and not made available for sale to utilities or other outside purchasers. Net MW Owned indicates current legal ownership.

(2)	The Imperial Valley Projects, excluding the Salton Sea V and CE Turbo Projects, sell electricity to Southern California Edison Company ("Edison").

	Pursuant to a transaction agreement dated January 29, 2003 (the "TransAlta Transaction Agreement"), Salton Sea Power which owns the Salton Sea V Project, and CE Turbo, which owns the CE Turbo Project, began selling available power to TransAlta on February 12, 2003 based on percentages of the Dow Jones SP-15 Index. The TransAlta Transaction Agreement shall continue until the earlier of: (a) 30 days following a written notice of termination; or (b) any other termination date mutually agreed to by the parties. No such notice of termination has been given by either party.

	Additionally, the Salton Sea V and CE Turbo Projects have 33-year contracts, which commenced in July 2000, to sell electricity to CalEnergy Minerals and the Salton Sea V Project has a 10-year contract, which commenced in May 2003, to sell up to 20 MW to the City of Riverside, California ("Riverside").

	Effective July 1, 2004, Salton Sea Power and CE Turbo began selling the environmental attributes associated with up to 931,800 MWh to TransAlta Marketing (US) Inc. ("TransAlta Marketing") through December 31, 2008.

Each of the Imperial Valley Projects, excluding the Salton Sea V and the CE Turbo Projects, sells electricity to Edison pursuant to either a separate Standard Offer No. 4 Agreement ("SO4 Agreement") or a negotiated power purchase agreement. Each power purchase agreement is independent of the others, and the performance requirements specified within one such agreement apply only to the project subject to the agreement. The power purchase agreements provide capacity payments, capacity bonus payments and energy payments. Edison makes fixed annual capacity payments and capacity bonus payments to the applicable projects to the extent that capacity factors exceed certain benchmarks. Except as described, the price for capacity is fixed for the life of the SO4 Agreements and is significantly higher in the months of June through September.

Energy payments under the SO4 Agreements, excluding the Salton Sea IV Project, are based on the cost that Edison avoids by purchasing energy from the project instead of obtaining the energy from other sources ("Edison’s Avoided Cost of Energy"). In June and November 2001, the Imperial Valley Projects, which receive Edison’s Avoided Cost of Energy entered into agreements that provide for amended energy payments under the SO4 Agreements. The amendments provide for fixed energy payments per kWh in lieu of Edison’s Avoided Cost of Energy. The fixed energy payment was 3.25 cents per kWh from December 1, 2001 through April 30, 2002 and is 5.37 cents per kWh commencing May 1, 2002 for a five-year period. Following the five-year period, the energy payments revert back to Edison’s Avoided Cost of Energy.

For the years ended December 31, 2004, 2003 and 2002, Edison’s Avoided Cost of Energy was 5.9 cents, 5.4 cents and 3.5 cents per kWh, respectively. Estimates of Edison’s Avoided Cost of Energy in the future vary substantially from year-to-year, primarily based on the estimated future cost of gas.

The Imperial Valley Projects, other than the Salton Sea I Project, receive transmission service from the Imperial Irrigation District ("IID"), to deliver electricity to Edison near Mirage, California. These projects pay a rate based on the IID’s cost of service, which was $1.66 per month per kW of service provided for 2004 and recalculated annually. The transmission service and interconnection agreements expire in 2015 for the Partnership Projects, excluding the CE Turbo Project, 2019 for the Salton Sea III Project, 2020 for the Salton Sea II Project and 2026 for the Salton Sea IV Project. The Salton Sea V Project and the CE Turbo Project have entered into agreements with similar terms with the IID, which expire in 2030. The Salton Sea I Project delivers energy to Edison at the project site and has no transmission service agreement with the IID.

Salton Sea Projects

The Salton Sea I Project has contracted to sell electricity to Edison pursuant to a 30-year negotiated power purchase agreement, which commenced on July 1, 1987 (the "Salton Sea I PPA"). The contract capacity and contract nameplate are each 10 MW. The capacity payment is based on the firm capacity price, which adjusts quarterly based on specified indices for the term of the Salton Sea I PPA and is currently $174.53 per kW-year. The capacity payment was approximately $1.5 million, $1.5 million and $1.1 million in 2004, 2003 and 2002, respectively. The energy payment is calculated using a Base Price (defined as the initial value of the energy payment (4.7 cents per kWh for the second quarter of 1992)), which is subject to quarterly adjustments based on specified indices. The time period weighted average energy payment for Salton Sea I was 6.3 cents per kWh during 2004.

The Salton Sea II Project has contracted to sell electricity to Edison pursuant to a 30-year modified SO4 Agreement that commenced on April 5, 1990. The contract capacity and contract nameplate are 15 MW (16.5 MW during on-peak periods) and 20 MW, respectively. The price for contract capacity and contract capacity bonus payments is fixed for the life of the modified SO4 Agreement. Pursuant to the modified SO4 Agreement, the maximum annual capacity and bonus payments are approximately $3.3 million. Edison was entitled to receive, at no cost, 5% of all energy delivered in excess of 80% of contract capacity through March 31, 2004.

The Salton Sea III Project has contracted to sell electricity to Edison pursuant to a 30-year modified SO4 Agreement that commenced on February 13, 1989 (the "Salton Sea III PPA"). The contract capacity and contract nameplate are 47.5 MW and 49.8 MW, respectively. The price for contract capacity payments and capacity bonus payments is fixed at $175 per kW per year. Pursuant to the modified SO4 Agreement, the maximum annual contracted capacity and bonus payments are approximately $9.7 million.

The Salton Sea IV Project has contracted to sell electricity to Edison pursuant to a modified SO4 Agreement which provides for contract capacity payments on 34 MW of capacity at two different rates based on the respective contract capacities deemed attributable to the original Salton Sea I PPA option (20 MW) and to the original Salton Sea IV SO4 Agreement (14 MW) (the "Salton Sea IV PPA"). The capacity payment price for the 20 MW portion adjusts quarterly based upon specified indices and the capacity payment price for the 14 MW portion is a fixed levelized rate. The capacity and bonus payments in 2004, 2003 and 2002 were approximately $5.5 million, $3.9 million and $5.5 million, respectively. For deliveries up to 39.6 MW the energy payment is at a base price, adjusted quarterly based on specified indices, for 55.6% of the total energy delivered by the Salton Sea IV Project and is based on an energy payment schedule for 44.4% of the total energy delivered by the Salton Sea IV Project. For deliveries over 39.6 MW, the energy payment is at Edison’s Avoided Cost of Energy. The contract has a 30-year term, but Edison is not required to purchase the 20 MW of capacity and energy originally attributable to the Salton Sea I PPA option after September 30, 2017, the original termination date of the Salton Sea I PPA.

On May 20, 2003, Salton Sea Power entered into a power sales agreement with Riverside. Under the terms of the agreement, Salton Sea Power sells up to 20 MW of energy generated from the Salton Sea V Project to Riverside at 6.1 cents per kWh. Sales under the agreement commenced June 1, 2003 and will terminate May 31, 2013. Pursuant to a 33-year power sales agreement, the Salton Sea V Project sells a portion of its net output to CalEnergy Minerals for the Zinc Recovery Project’s full electrical energy requirements. The agreement provides for energy payments based on the market rates available to the Salton Sea V Project, adjusted for wheeling costs. On September 10, 2004, CalEnergy Minerals ceased operations of the Zinc Recovery Project. Accordingly, except for sales during the dismantling and decommissioning phases of the Zinc Recovery Project, no further sales to CalEnergy Minerals are expected. The Salton Sea V Project sells its remaining output to TransAlta under the TransAlta Transaction Agreement.

Commencing March 27, 2001, Salton Sea Power and CE Turbo entered into a series of transaction agreements to sell available power from the Salton Sea V Project and CE Turbo Project to El Paso Merchant Energy Company ("EPME") based on percentages of the Dow Jones SP-15 Index. On February 11, 2003, Salton Sea Power and CE Turbo ceased selling power to EPME. Pursuant to the TransAlta Transaction Agreement, Salton Sea Power and CE Turbo began selling available power from the Salton Sea V Project and CE Turbo Project to TransAlta on February 12, 2003 based on percentages of the Dow Jones SP-15 Index. The TransAlta Transaction Agreement shall continue until the earlier of: (a) 30 days following a written notice of termination; or (b) any other termination date mutually agreed to by the parties. No such termination has been given by either party.

On January 21, 2004, Salton Sea Power and CE Turbo entered into a Green Energy Tag Purchase and Sale Agreement to sell the non-power attributes (the non-power attributes made available by one MWh of generation, a "Green Tag") associated with up to 931,800 MWh of available generation at the Salton Sea V and CE Turbo Projects through December 31, 2008 to TransAlta Marketing at a market price per Green Tag. Sales under this agreement commenced in July 2004.

Partnership Projects

The Vulcan Project has contracted to sell electricity to Edison under a 30-year SO4 Agreement that commenced on February 10, 1986. The Vulcan Project has a contract capacity and contract nameplate of 29.5 MW and 34 MW, respectively. Pursuant to the SO4 Agreement, the maximum annual capacity and bonus payments are approximately $5.5 million.

The Elmore Project has contracted to sell electricity to Edison under a 30-year SO4 Agreement that commenced on January 1, 1989. The contract capacity and contract nameplate are 34 MW and 38 MW, respectively. Pursuant to the SO4 Agreement, the maximum annual capacity and bonus payments are approximately $7.9 million.

The Leathers Project has contracted to sell electricity to Edison pursuant to a 30-year SO4 Agreement that commenced on January 1, 1990. The contract capacity and contract nameplate are 34 MW and 38 MW, respectively. Pursuant to the SO4 Agreement, the maximum annual capacity and bonus payments are approximately $7.5 million.

The Del Ranch Project has contracted to sell electricity to Edison under a 30-year SO4 Agreement that commenced on January 2, 1989. The contract capacity and contract nameplate are 34 MW and 38 MW, respectively. Pursuant to the SO4 Agreement, the maximum annual capacity and bonus payments are approximately $7.9 million.

The CE Turbo Project sells its available power under the TransAlta Transaction Agreement.

Zinc Recovery Project and Minerals Assets

The Guarantors' long-lived assets include rights to commercial quantities of extractable minerals ("Mineral Reserves") from elements in solution in the geothermal brine and fluids utilized at certain geothermal energy generation facilities located in the Imperial Valley of California and the Zinc Recovery Project.

The Zinc Recovery Project began limited production during December 2002 and continued limited production until September 10, 2004. Efforts to increase production had continued since the Zinc Recovery Project was placed in service with an emphasis on process modification. Management had been assessing the long-term economic viability of the Zinc Recovery Project in light of continuing cash flow and operating losses and the efforts to increase production, and had continued to evaluate the expected impact of the planned improvements to the extraction process during the third quarter of 2004. Furthermore, management had been exploring other operating alternatives, such as establishing strategic partnerships and consideration of ceasing operations of the Zinc Recovery Project.

On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project. In connection with ceasing operations, the Zinc Recovery Project’s assets are being dismantled and sold, and certain employees of the operator of the Zinc Recovery Project have been paid one-time termination benefits. Implementation of a disposal plan began in September 2004 and is continuing into 2005.

Royalty Projects

The Royalty Guarantor has received an assignment from Magma of certain Royalties received from the Elmore, Leathers and Del Ranch Projects in exchange for the provision to those projects of the rights to use certain geothermal resources. Substantially all of the assigned Royalties are based on a percentage of energy and capacity revenue of the respective projects. Pursuant to the assignment, the Royalty Guarantor is entitled to receive the aggregate percentages of such project's energy and capacity revenue as illustrated in the chart below. The Partnership Guarantors are also entitled to receive Royalties from the Partnership Projects as illustrated in the chart below. Royalties are subject to netting and reduction from time to time to reflect various operating costs, as reflected in the financial statements herein. All such Royalties (other than the various operating costs, as reflected in the financial statements) are payable from revenue which will constitute Partnership Guarantor’s collateral.

	Royalties to be Paid to		Royalties to be Paid to
	Royalty Guarantor		Partnership Guarantors
	% of Energy	% of Capacity	% of Energy	% of Capacity
Project	Revenues	Revenues	Revenues	Revenues

Del Ranch	23.33	1.00	5.67	3.00
Elmore	23.33	1.00	5.67	3.00
Leathers	21.50	0.00	7.50	3.00
Vulcan	0.00	0.00	4.17	0.00

Reliance on Single Utility Customer

Each of the Vulcan, Elmore, Leathers, Del Ranch, and Salton Sea I-IV Projects relies on an agreement with Edison to generate 100% of its operating revenue. The payments (excluding those for power sales from March 22 through June 22, 2001) under these agreements have constituted 100% of the operating revenue of each Project since its inception, and may do so for the life of the securities. Any material failure of Edison to fulfill its contractual obligations under the power purchase agreements could have a material adverse effect on the ability of the Funding Corporation to pay principal of and interest on its Senior Secured Notes and Bonds (the "Securities").

Uncertainties Relating to Exploration and Development of Geothermal Energy Resources

Geothermal exploration, development and operations are subject to uncertainties, which vary among different geothermal reservoirs and are similar to those typically associated with oil and gas exploration and development, including dry holes and uncontrolled releases. Because of the geological complexities of geothermal reservoirs, the geographic area and sustainable output of geothermal reservoirs can only be estimated and cannot be definitively established. There is, accordingly, a risk of an unexpected decline in the capacity of geothermal wells and a risk of geothermal reservoirs not being sufficient for sustained generation of the electrical power capacity desired.

In addition, both the cost of operations and the operating performance of geothermal power plants may be adversely affected by a variety of operating factors. Production and injection wells can require frequent maintenance or replacement. Corrosion caused by high-temperature and high-salinity geothermal fluids may require the replacement or repair of certain equipment, vessels or pipelines. New production and injection wells may be required for the maintenance of current operating levels, thereby requiring substantial capital expenditures.

Insurance

The Salton Sea Projects and the Partnership Projects currently possess property, business interruption, catastrophic and general liability insurance. Proceeds of insurance received in connection with the Salton Sea Projects will be payable to the Depositary for the account of the Salton Sea Guarantors and will be applied as required under the financing documents. There can be no assurance that such comprehensive insurance coverage will be available in the future at commercially reasonable costs or terms or that the amounts for which the Salton Sea Guarantors and the Partnership Guarantors are or will be insured will cover all potential losses.

Because areas of geothermal activity such as the area in which the Imperial Valley Projects are located are subject to frequent low-level seismic disturbances, and serious seismic disturbances are possible, the power generating plants and other facilities at the Imperial Valley Projects are designed and built to withstand relatively significant levels of seismic disturbance. However, there is no assurance that seismic disturbances of a nature and magnitude so as to cause material damage to the Imperial Valley Projects or gathering systems or a material change in the nature of the geothermal resource will not occur, that insurance with respect to seismic disturbances will be maintained by or on behalf of all of the Imperial Valley Projects, that insurance proceeds will be adequate to cover all potential losses sustained, or that insurance will continue to be available in the future in amounts adequate to insure against such seismic disturbances.

Regulatory and Environmental Matters

The Guarantors are subject to a number of environmental laws and regulations affecting many aspects of their present and future operations, including the disposal of various forms of materials resulting from geothermal reservoir production and the drilling and operation of new wells. Such laws and regulations generally require the Guarantors to obtain and comply with a wide variety of licenses, permits and other approvals. In addition, regulatory compliance for the construction of new facilities is a costly and time-consuming process, and intricate and rapidly changing environmental regulations may require major expenditures for permitting and create the risk of expensive delays or material impairment of project value if projects cannot function as planned due to changing regulatory requirements or local opposition. The Guarantors and the Imperial Valley Projects also remain subject to a varied and complex body of environmental and energy regulations that both public officials and private individuals may seek to enforce. There can be no assurance that existing regulations will not be revised or that new regulations will not be adopted or become applicable to the Guarantors and the Imperial Valley Projects which could have an adverse impact on their operations. In particular, the independent power market in the United States is dependent on the existing energy regulatory structure, including the Public Utility Regulatory Policies Act and its implementation by utility commissions in the various states. The structure of such federal and state energy regulations has in the past, and may in the future, be the subject of various challenges and restructuring proposals by utilities and other industry participants. The implementation of regulatory changes in response to such challenges or restructuring proposals, or otherwise imposing more comprehensive or stringent requirements on the Guarantors and Imperial Valley Projects, which would result in increased compliance costs could have a material adverse effect on the Guarantors' and the Imperial Valley Projects' results of operations.

Employees

Employees necessary for the operation of the Imperial Valley Projects are provided by CEOC. As of December 31, 2004, CEOC employed 214 people. CEOC maintains a qualified technical staff covering a broad range of disciplines including geology, geophysics, geochemistry, hydrology, volcanology, drilling technology, reservoir engineering, plant engineering, construction management, maintenance services, production management, and electric power operation. CEOC employees are not covered by any collective bargaining agreement. CEOC has no material employee disputes.

Item 2. Properties.

The Funding Corporation’s most significant physical properties are its current interest in operating power facilities and its related real property interests. The Funding Corporation maintains an inventory of approximately 23,000 acres of geothermal property leases in the SSKGRA to support the Imperial Valley Projects. Funding Corporation, as lessee, pays certain royalties and other fees to the property owners and other royalty interest holders from the revenue generated by the Imperial Valley Projects.

Lessors and royalty holders are generally paid a monthly or annual rental payment during the term of the lease or mineral interest, unless and until the acreage goes into production, in which case the rental typically stops and the (generally higher) royalty payments begin. Leases of federal property are transacted with the Department of Interior, Bureau of Land Management, pursuant to standard geothermal leases under the Geothermal Steam Act and the regulations promulgated thereunder, and are for a primary term of 10 years, extendible for an additional 5 years if drilling is commenced within the primary term and is diligently pursued for two successive 5-year periods upon certain conditions set forth in the regulations. A secondary term of up to 40 years is available so long as geothermal resources from the property are being produced or used in commercial quantities. Leases of state lands may vary in form. Leases of private lands vary considerably, since their terms and provisions are the product of negotiations with the landowners.

Item 3. Legal Proceedings.

On July 10, 2003, the Salton Sea IV Project’s 40 MW turbine went out of service due to an uncontrollable force event. Such uncontrollable force event ended, and the Salton Sea IV Project’s turbine returned to service, on September 17, 2003. Edison failed to recognize the uncontrollable force event and, as such, has not paid amounts otherwise due and owing under the Salton Sea IV PPA totaling $2.5 million. SSPG, with Fish Lake, owner of the Salton Sea IV Project, served notices of error on Edison for such unpaid amounts. As a result, the Salton Sea Guarantors had established an allowance of doubtful accounts of $1.7 million for capacity payments as of December 31, 2003. In December 2004, as a result of a settlement agreement dated December 7, 2004 resolving the dispute, which settlement is contingent upon approval by the California Public Utility Commission, the allowance for doubtful accounts was released and the associated receivable was written off.

On October 9, 2003, the Salton Sea III Project’s 50 MW turbine went out of service due to an uncontrollable force event. Such uncontrollable force event ended and the Salton Sea III Project’s turbine returned to service, on December 12, 2003. Edison failed to recognize the uncontrollable force event and, as such, has not paid amounts otherwise due and owing under the Salton Sea III PPA totaling $0.8 million. SSPG, owner of the Salton Sea III Project, served notice of error on Edison for such unpaid amounts. As a result, the Salton Sea Guarantors had established an allowance for doubtful accounts for the full amount of this receivable. Pursuant to a letter agreement dated December 2, 2004, Edison made a settlement payment of $0.6 million on December 13, 2004. Consequently, in December 2004, the allowance for doubtful accounts was released and the remaining receivable of $0.2 million was written off.

In January 2001, the California Power Exchange declared bankruptcy. As a result, Salton Sea Power and CE Turbo have not received payment for power sold to EPME under certain transaction agreements during December 2000 and January 2001 of $3.8 million (the "PX Receivable"). Salton Sea Power and CE Turbo had established an allowance for doubtful accounts for this balance as of December 31, 2003. On September 29, 2004, Salton Sea Power and CE Turbo entered into separate Transfer of Claims Agreements with TransAlta and MEHC (the "Transfer of Claims Agreements"), pursuant to which Salton Sea Power and CE Turbo received an aggregate of $3.7 million in exchange for transferring the rights to receive payment on the PX Receivable to TransAlta and MEHC. As a result of the transaction, Salton Sea Power and CE Turbo wrote-off the PX Receivable and the related allowance for doubtful accounts and recorded a $3.8 million current liability to reflect the collection risk retained under the Transfer of Claims Agreements. Pursuant to the Transfer of Claims Agreements, to the extent that the PX Receivable becomes uncollectible, Salton Sea Power and CE Turbo can be required to pay the PX Receivable, plus interest, to MEHC and TransAlta.

On May 25, 2001, CalEnergy Minerals entered into a services agreement for engineering, procurement and construction management services (the "AMEC Agreement") with AMEC E&C Services, Inc. ("AMEC") in connection with the resolution of numerous problems that affected the construction of CalEnergy Minerals’ Zinc Recovery Project. Under the AMEC Agreement, AMEC represented that it had certain licenses required for its services. CalEnergy Minerals ultimately determined that AMEC did not have the requisite licenses, including a California contractor’s license. AMEC submitted $2.8 million of invoices to CalEnergy Minerals that AMEC claims are due and payable under the AMEC Agreement. Calenergy Minerals filed a lawsuit against AMEC on June 13, 2003 seeking a declaratory judgment that would (1) prevent collection by AMEC of the $2.8 million it claimed to be due and payable and, (2) recover payments made by CalEnergy Minerals to AMEC based on AMEC’s lack of a contractor’s license in California. The lawsuit also included claims by CalEnergy Minerals against AMEC for breach of contract, professional negligence and breach of duty of fiduciary responsibility. AMEC filed a motion to compel arbitration of the dispute. The court ruled against the motion to compel arbitration and AMEC has appealed that decision.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

Not applicable.

Item 6. Selected Financial Data.

The Funding Corporation

The following tables set forth selected financial data of the Funding Corporation. The data should be read in conjunction with the financial statements and related notes and other financial information appearing elsewhere in this Form 10-K (in thousands):

	Year Ended December 31,
	2004⁽¹⁾			2003			2002			2001			2000

Statement of Operations Data:
Total revenue	$	21,666		$	36,586		$	39,755		$	41,791		$	43,718
Net income (loss)		(4,861	)		(271	)		(125	)		(137	)		174

Balance Sheet Data:
Total assets	$	326,475		$	490,415		$	570,503		$	540,580		$	565,375
Senior secured notes and bonds ⁽²⁾		298,377			463,592			491,678			520,250			543,908
Total stockholder’s equity		10,736			13,653			13,418			13,098			13,235

(1)	2004 net loss includes a $4.4 million long-lived asset impairment charge which represents Funding Corporations 1% equity interest in the non-cash impairment charge related to the decision to cease operations of the Zinc Recovery Project on September 10, 2004. Refer to Note 3 in Item 8. Financial Statements and Supplementary Data - Notes to Financial Statementsæ for additional information.

(2)	Includes current portion.

Salton Sea Guarantors

The following tables set forth selected financial data of the Salton Sea Guarantors. The data should be read in conjunction with the financial statements and related notes and other financial information appearing elsewhere in this Form 10-K (in thousands):

	Year Ended December 31,
	2004⁽¹⁾			2003⁽²⁾			2002⁽³⁾			2001⁽⁴⁾			2000⁽⁵⁾

Statement of Operations Data:
Total revenue	$	105,083		$	83,428		$	87,893		$	113,228		$	98,410
Income (loss) from continuing operations		7,698			(37,917	)		(33,975	)		(9,550	)		28,323
Net income (loss)		(83,936	)		(37,963	)		(33,975	)		(9,550	)		28,323

Balance Sheet Data:
Total assets	$	415,201		$	527,439		$	584,279		$	629,950		$	626,543
Senior secured project note⁽⁶⁾		199,238			223,647			246,419			266,899			284,217
Total guarantors’ equity		166,071			250,007			287,970			321,945			331,495

(1)	On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project. Based on this decision, a non-cash, impairment charge of $91.4 million has been recorded to write-off the Mineral Reserves. The charge and related activity of the Mineral Reserves are classified separately as discontinued operations. Refer to Note 3 in "Item 8. Financial Statements and Supplementary Data - Notes to Combined Financial Statements" for additional information.

(2)	2003 net loss includes a $23.3 million impairment of goodwill. Refer to Note 2 in "Item 8. Financial Statements and Supplementary Data - Notes to Combined Financial Statements" for additional information.

(3)	2002 net loss includes a $21.0 million impairment of goodwill recognized as a cumulative effect of change in accounting principle. Refer to Note 2 in "Item 8. Financial Statements and Supplementary Data - Notes to Combined Financial Statements" for additional information.

(4)	2001 net loss includes a $15.0 million asset impairment and an $8.7 million loss on a cumulative change in accounting policy. Refer to Note 2 in "Item 8. Financial Statements and Supplementary Data - Notes to Combined Financial Statements" for additional information.

(5)	The Salton Sea V Project commenced operations in the third quarter of 2000.

(6)	Includes current portion.

Partnership Guarantors

The following tables set forth selected financial data of the Partnership Guarantors. The data should be read in conjunction with the financial statements and related notes, and other financial information appearing elsewhere in this Form 10-K (in thousands):

	Year Ended December 31,
	2004⁽¹⁾			2003⁽²⁾			2002			2001⁽³⁾		2000⁽⁴⁾

Statement of Operations Data:
Total revenue	$	95,325		$	96,166		$	96,152		$	125,471	$	107,608
Income (loss) from continuing operations		4,992			(12,117	)		8,799			18,706		29,961
Net income (loss)		(407,997	)		(39,698	)		(10,828	)		16,085		27,180

Balance Sheet Data:
Total assets	$	610,951		$	988,128		$	970,197		$	938,342	$	921,701
Senior secured project note ⁽⁵⁾		98,702			239,100			244,116			248,742		250,650
Total guarantors’ equity		399,860			612,204			601,288			567,579		551,494

(1)	On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project. Based on this decision, a non-cash, after-tax impairment charge of $390.0 million has been recorded to write-off the Zinc Recovery Project, Mineral Reserves, and allocated goodwill (collectively, the Mineral Assets). The charge and related activity of the Mineral Assets are classified separately as discontinued operations. Refer to Note 3 in "Item 8. Financial Statements and Supplementary Data - Notes to Combined Financial Statements" for additional information.

(2)	2003 net loss includes a $21.2 million impairment of goodwill. Refer to Note 2 in "Item 8. Financial Statements and Supplementary Data - Notes to Combined Financial Statements" for additional information.

(3)	2001 net income includes a $6.9 million loss on a cumulative effect of change in accounting policy. Refer to Note 2 in "Item 8. Financial Statements and Supplementary Data - Notes to Combined Financial Statements" for additional information.

(4)	CE Turbo commenced operations in the third quarter of 2000.

(5)	Includes current portion.

Royalty Guarantor

The following tables set forth selected financial data of the Royalty Guarantor. The data should be read in conjunction with the financial statements and related notes and other financial information appearing elsewhere in this Form 10-K (in thousands):

	Year Ended December 31,
	2004		2003		2002		2001		2000

Statement of Operations Data:
Total revenue	$	12,046	$	12,509	$	12,577	$	16,882	$	14,130
Net income		7,755		8,199		8,171		10,092		7,352

Balance Sheet Data:
Total assets	$	99,229	$	91,884	$	83,991	$	79,300	$	73,670
Senior secured project note ⁽¹⁾		437		845		1,147		4,607		9,041
Members’ equity		98,789		91,034		82,835		74,664		64,572

(1)	Includes current portion.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the selected consolidated financial data and the financial statements included in Items 6 and 8 herein.

Executive Summary

The following significant events and changes, as discussed in more detail herein, highlight the factors that affect the comparability of our operating results, liquidity and capital for the years ended December 31, 2004, 2003 and 2002:

On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project. Based on this decision, a non-cash, after-tax, impairment charge of $390.0 million and $91.4 million for the Partnership Guarantors and Salton Sea Guarantors, respectively, has been recorded to write-off the Mineral Assets.

·	On March 1, 2004, Funding Corporation completed the redemption of approximately $136.4 million of its 7.475% Senior Secured Series F Bonds ("Series F Bonds") due on November 30, 2018. Funding Corporation made a demand on MEHC and MEHC performed under that demand in order to fund the redemption.

The settlement agreement in regards to the Salton Sea V Project reached in April 2003 with Stone & Webster Inc. ("Stone & Webster") resulted in the receipt of $12.1 million from Stone & Webster. The settlement was recorded as a $7.6 million reduction to operating expenses and a $4.5 million reduction to capital expenditures.

·	The decreased production at the Salton Sea III and IV Projects due to the uncontrollable force events in 2003.

·	The collection of the majority of the amounts in dispute with Edison in 2002, resulting in positive adjustments to allowances for doubtful accounts of $6.0 million and $14.1 million by the Salton Sea Guarantors and Partnership Guarantors, respectively.

In June and November 2001, the Imperial Valley Projects, which receive Edison’s Avoided Cost of Energy entered into agreements that provide for amended energy payments under the SO4 Agreements. The amendments provide for fixed energy payments per kWh in lieu of Edison’s Avoided Cost of Energy. The fixed energy price was 3.25 cents per kWh from December 1, 2001 to April 30, 2002 and increased to 5.37 cents per kWh commencing May 1, 2002 through April 30, 2007.

The capacity factor for a particular project is determined by dividing the total quantity of electricity sold by the product of the project's capacity and the total hours in the year. At December 31, 2004, the capacity factors for the Salton Sea I Project, Salton Sea II Project, Salton Sea III Project, Salton Sea IV Project, and Salton Sea V Project plants are based on capacity amounts of approximately 10, 20, 50, 40, and 49 net MW, respectively. At December 31, 2004, the capacity factors for the Vulcan Project, Elmore Project, Leathers Project, Del Ranch Project, and CE Turbo Project plants are based on capacity amounts of approximately 34, 38, 38, 38 and 10 net MW, respectively. Each plant possesses an operating margin, which allows for production in excess of the amount listed above. Utilization of this operating margin is based upon a variety of factors and can be expected to vary throughout the year under normal operating conditions. The amount of revenues received by these projects is affected by the extent to which they are able to operate and generate electricity. Accordingly, the capacity and capacity factor figures provide information on operating performance that has affected the revenues received by these projects. The following operating data represents the aggregate capacity and electricity production of the Salton Sea Projects:

	Years Ended December 31,
	2004		2003		2002

Overall capacity factor		85.8%		70.32%		78.4%
MWh produced		1,269,000		1,037,300		1,156,800
Capacity NMW (weighted average)		168.4		168.4		168.4

The changes in the overall capacity factor and production for the Salton Sea Guarantors are primarily due to the uncontrollable force events at the Salton Sea III and IV Projects and other extended scheduled maintenance outages in 2003. Due to the uncontrollable force events, the Salton Sea IV Project’s 40 MW turbine went out of service on July 10, 2003 and returned to service on September 14, 2003 and Salton Sea III Project’s 50 MW turbine went out of service on October 2, 2003 and returned to service on December 12, 2003.

The following operating data represents the aggregate capacity and electricity production of the Partnership Projects:

	Years Ended December 31,
	2004		2003		2002

Overall capacity factor		97.7%		99.7%		101.5%
MWh produced		1,356,100		1,380,400		1,405,000
Capacity NMW (weighted average)		158.0		158.0		158.0

The changes in production and overall capacity factor for the Partnership Guarantors are due to scheduled maintenance outages.

Results of Operations for the Years Ended December 2004 and 2003

The Funding Corporation's net loss increased to $4.5 million for the year ended December 31, 2004 from $0.3 million for the same period in 2003. The net loss primarily represents the Funding Corporation's 1% equity in earnings of the Guarantors, which includes a non-cash, after-tax impairment charge to write off the Minerals Assets of $390.0 million and $91.4 million for the Partnership Guarantors and Salton Sea Guarantors, respectively, in 2004, and interest income and expense, net of applicable tax.

The Salton Sea Guarantors' operating revenue increased $21.2 million, or 25%, to $105.0 million for the year ended December 31, 2004 from $83.8 million for the same period in 2003. Revenue increased $6.5 million due to higher market prices in 2004 and $14.7 million due to higher production in 2004 resulting from the impact of extended overhauls and the Salton Sea III and IV Projects uncontrollable force events in 2003.

The Salton Sea Guarantors' royalty, operating, general and administrative expenses increased $1.4 million, or 3%, to $54.9 million for year ended December 31, 2004 from $53.5 million for the same period in 2003. The increase was primarily due to the 2003 warranty claim settlement with Stone & Webster, which included a $7.6 million reimbursement of incremental operating expenses related to legal, other expenses and equipment write-offs partially offset by higher maintenance costs in 2003 related to the repairs associated with the Salton Sea III and IV Projects uncontrollable force events.

The Salton Sea Guarantors' depreciation and amortization decreased $0.8 million to $24.7 million for the year ended December 31, 2004 from $25.5 million for the same period in 2003.

The Salton Sea Guarantors' interest expense decreased $1.8 million to $17.0 million for the year ended December 31, 2004 from $18.8 million for the same period in 2003. The decrease was due to reduced indebtedness.

In accordance with the Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), the Salton Sea Guarantors completed their annual goodwill impairment tests during the fourth quarter of 2003, primarily using a discounted cash flow methodology as of October 31, 2003. As a result of these tests, the Salton Sea Guarantors recognized a goodwill impairment of $23.3 million in the fourth quarter of 2003.

The Salton Sea Guarantors’ loss from discontinued operations for the year ended December 31, 2004 was $91.6 million and included a non-cash impairment charge of $91.4 million recognized in connection with ceasing operations of the Zinc Recovery Project. The remaining amounts for each period represent the depreciation of the mineral reserves.

The Salton Sea Guarantors are comprised of partnerships or limited liability companies. Income taxes are the responsibility of the partners or members and the Salton Sea Guarantors have no obligation to provide funds to the partners or members for payment of any tax liabilities. Accordingly, the Salton Sea Guarantors have no tax obligations.

The Partnership Guarantors' operating revenue decreased $1.0 million, or 1%, to $94.3 million for the year ended December 31, 2004 from $95.3 million for the same period in 2003. The decrease was due to lower production in 2004.

The Partnership Guarantors' operating expenses increased $4.1 million, or 8%, to $53.8 million for year ended December 31, 2004, from $49.7 million for the same period in 2003 due to increased maintenance in 2004.

The Partnership Guarantors' depreciation and amortization increased $2.2 million to $27.9 million for the year ended December 31, 2004 from $25.7 million for the same period in 2003. The increase is due to increased depreciable asset balances in 2004.

The Partnership Guarantors' interest expense decreased $0.1 million to $8.1 million for the year ended December 31, 2004 from $8.2 million for the same period in 2003. The decrease was due to reduced indebtedness.

The 2004 and 2003 asset impairment reflects the write-off of abandoned equipment and capitalized leases.

In accordance with SFAS 142 the Partnership Guarantors completed their annual goodwill impairment tests during the fourth quarter of 2003, primarily using a discounted cash flow methodology as of October 31, 2003. As a result of these tests the Partnership Guarantors recognized a goodwill impairment of $21.2 million in the fourth quarter of 2003.

The Partnership Guarantors' benefit for income tax was $4.2 million for the year ended December 31, 2004 as compared to a provision of $2.0 million for the same period in 2003. Changes in the effective rate are due primarily to the generation of energy tax credits and changes to depletion deductions. Income taxes will be paid by the parent of the Partnership Guarantors from distributions to the parent company by the Partnership Guarantors, which occur after payment of operating expenses and debt service.

The Partnership Guarantors’ loss from discontinued operations for the year ended December 31, 2004 increased $385.4 million to $413.0 million from $27.6 million for the same period in 2003. CalEnergy Minerals began the process of disposing of its Zinc Recovery Project in September 2004 and the increase in loss from discontinued operations is mainly due to a non-cash, after-tax impairment charge of $390.0 million recorded during the third quarter of 2004. The remaining amounts for each period represent the operating losses of the Zinc Recovery Project.

The Royalty Guarantor's net income was $7.8 million for the year ended December 31, 2004 as compared to $8.2 million for the same period in 2003. The decrease was due to reduced revenue at the Partnership Guarantors’ projects.

The Royalty Guarantor is a limited liability company. Income taxes are the responsibility of the members and the Royalty Guarantor has no obligation to provide funds to the members for payment of any tax liabilities. Accordingly, the Royalty Guarantor has no tax obligations.

Results of Operations for the Years Ended December 2003 and 2002

The Funding Corporation's net loss was not significant for the years ended December 31, 2003 and 2002. The net loss primarily represents interest income and expense, net of applicable tax, and the Funding Corporation's 1% equity in earnings of the Guarantors.

The Salton Sea Guarantors' operating revenue decreased $0.4 million to $83.8 million for the year ended December 31, 2003 from $84.2 million for the same period in 2002. The decrease was primarily due to the impact of a $6.0 million adjustment to the Edison allowance for doubtful accounts in 2002 and lower production due to extended overhauls and the Salton Sea III and IV Projects uncontrollable force events in 2003, partially offset by higher average rates in 2003.

The Salton Sea Guarantors’ interest and other income (loss) was $(0.4) million for the year ended December 31, 2003 as compared to $3.7 million in 2002. The 2002 interest income was due primarily to a business interruption insurance recovery for lost revenue at the Salton Sea II Project from an uncontrollable force event

The Salton Sea Guarantors' operating expenses, which include royalty, operating, general and administrative expenses decreased $5.7 million, or 10% to $53.5 million for year ended December 31, 2003 from $59.2 million for the same period in 2002. The decrease was primarily due to the second quarter 2003 warranty claim settlement with Stone & Webster, which included a $7.6 million reimbursement of incremental operating expenses related to legal, other expenses and equipment write-offs. The decrease was also due to lower brine pond and legal expenses in 2003, partially offset by repair costs associated with the Salton Sea III and IV Projects uncontrollable force events.

The Salton Sea Guarantors' depreciation and amortization increased $4.3 million to $25.5 million for the year ended December 31, 2003 from $21.2 million for the same period in 2002. The increase was due to a change in salvage value assumptions and higher depreciable asset balances in 2003.

The Salton Sea Guarantors' interest expense decreased $1.6 million to $18.8 million for the year ended December 31, 2003 from $20.4 million for the same period in 2002. The decrease was due to reduced indebtedness.

In accordance with the SFAS 142, the Salton Sea Guarantors completed their annual goodwill impairment tests during the fourth quarter of 2003, primarily using a discounted cash flow methodology as of October 31, 2003. As a result of these tests the Salton Sea Guarantors recognized a goodwill impairment of $23.3 million in the fourth quarter of 2003.

The Partnership Guarantors' operating revenue increased $0.6 million to $95.3 million for the year ended December 31, 2003 from $94.7 million for the same period in 2002. The impact of a $14.1 million adjustment to the Edison allowance for doubtful accounts in 2002 was mostly offset by higher average rates under the settlement agreement in 2003.

The Partnership Guarantors' operating expenses decreased $6.0 million, or 11%, to $49.7 million for year ended December 31, 2003, from $55.7 million for the same period in 2002 primarily due to lower legal expenses in 2003 as compared to 2002 in connection with the Edison disputes.

The Partnership Guarantors' depreciation and amortization increased $2.6 million to $25.7 million for the year ended December 31, 2003 from $23.1 million for the same period in 2002. The increase was due a change in salvage value assumptions.

The Partnership Guarantors' interest expense, net of capitalized amounts, decreased $1.2 million to $8.2 million for the year ended December 31, 2003 from $9.4 million for the same period in 2002. The decrease was due to reduced indebtedness.

The 2003 asset impairment reflects the write-off of abandoned equipment.

In accordance with the SFAS 142 the Partnership Guarantors completed their annual goodwill impairment tests during the fourth quarter of 2003, primarily using a discounted cash flow methodology as of October 31, 2003. As a result of these tests the Partnership Guarantors recognized a goodwill impairment of $21.2 million in the fourth quarter of 2003.

The Partnership Guarantors' provision for income tax was $2.0 million for the year ended December 31, 2003 as compared to $0.4 million for the same period in 2002. Changes in the effective rate are due primarily to the generation of energy tax credits and changes to depletion deductions. Income taxes will be paid by the parent of the Partnership Guarantors from distributions to the parent company by the Partnership Guarantors, which occur after payment of operating expenses and debt service.

The Partnership Guarantors’ loss from discontinued operations for the year ended December 31, 2003 increased $8.0 million to $27.6 million from $19.6 million for the same period in 2002. The increase related to increased costs in 2003 due to the commencement of limited operations in December 2002.

The Royalty Guarantor's net income was $8.2 million for the years ended December 31, 2003 and 2002.

Related Party Transactions

Pursuant to the TransAlta Transaction Agreement, Salton Sea Power and CE Turbo began selling available power from the Salton Sea V Project and CE Turbo Project to TransAlta on February 12, 2003 based on percentages of the Dow Jones SP-15 Index. The TransAlta Transaction Agreement shall continue until the earlier of: (a) 30 days following a written notice of termination; or (b) any other termination date mutually agreed to by the parties. No such termination has been given by either party. Pursuant to this agreement, sales to TransAlta totaled $10.5 million and $9.9 million in 2004 and 2003, respectively. As of December 31, 2004 and 2003, accounts receivable balances from TransAlta were $1.3 million and $1.6 million, respectively.

On January 21, 2004, Salton Sea Power and CE Turbo entered into a Green Energy Tag Purchase and Sale agreement to sell Green Tags associated with up to 931,800 MWh of available generation at the Salton Sea V Project and CE Turbo Project through December 31, 2008 to TransAlta Marketing at a market price per Green Tag. Pursuant to this agreement, sales to TransAlta Marketing commenced in July 2004 and totaled $0.5 million in 2004. As of December 31, 2004, there were no accounts receivable balances from TransAlta Marketing.

Pursuant to the November 1, 1998 Amended and Restated Power Sales Agreements, Salton Sea Power and CE Turbo may provide CalEnergy Minerals with its full electrical energy requirements at the market rates available to them, less wheeling costs. Pursuant to these agreements, sales to CalEnergy Minerals from Salton Sea Power totaled $1.3 million, $0.9 million and $0.4 million for the years ended December 31, 2004, 2003 and 2002, respectively, and there were no sales to CalEnegy Minerals from CE Turbo for the years ended December 31, 2004, 2003 and 2002. On September 10, 2004, CalEnergy Minerals ceased operations of the Zinc Recovery Project. Accordingly, except for sales during the dismantling and decommissioning phases of the Zinc Recovery Project, no further sales to CalEnergy Minerals are expected. There were no material accounts receivable balances at December 31, 2004 and 2003 from CalEnergy Minerals

On December 31, 2004, in connection with the dismantling and decommissioning of the Zinc Recovery Project, CalEnergy Minerals sold certain equipment to the Imperial Valley Projects. The equipment was sold at a fair market value of approximately $0.4 million, which was paid in January 2005.

On October 13, 1998, Funding Corporation completed a sale to institutional investors of $285.0 million aggregate amount of the Series F Bonds. A portion of the proceeds was advanced to CalEnergy Minerals, an indirect wholly owned subsidiary of MEHC, to fund the cost of construction of the Zinc Recovery Project. The direct and indirect owners of the Zinc Recovery Project (the "Zinc Guarantors", which include CalEnergy Minerals and its sole member, Salton Sea Minerals Corp.) are among the guarantors of Funding Corporation debt. In connection with the divestiture of 50% of CE Generation, MEHC guaranteed the payment by the Zinc Guarantors of a specified portion of the scheduled debt service and certain payments on certain senior project notes issued by the Partnership Guarantors securing the Series F Bonds.

On March 1, 2004, Funding Corporation completed the redemption of an aggregate principal amount of approximately $136.4 million of its Series F Bonds at a redemption price of 100% of such aggregate outstanding principal amount, plus accrued interest to the date of redemption. Funding Corporation also made a demand on MEHC, and MEHC performed under that demand, for the full amount remaining on MEHC's guarantee of the Series F Bonds in order to fund the redemption. Given the payment under MEHC's guarantee, MEHC no longer has any liability with respect to its guarantee.

MEHC contributed equity to the Partnership Guarantors to fund the Zinc Recovery Project’s operating losses, capital expenditures and debt service through September 10, 2004, which was the date the Zinc Recovery Project’s operations were ceased. Equity contributions for the years ended December 31, 2004, 2003 and 2002 were $156.8 million $50.6 million and $44.5 million, respectively, and are included in the accompanying combined statements of cash flows as part of net financing activity cash flows from discontinued operations. The 2004 equity contributions include MEHC's $136.4 million funding of its guarantee of the Series F Bonds which were redeemed on March 1, 2004 and MEHC’s $20.4 million funding of the Zinc Recovery Project’s operating losses. Additionally, through September 10, 2004, MEHC had funded $41.7 million of the Zinc Recovery Project’s operating losses, which had been recorded as a due to affiliate on the Partnership Guarantors’ combined balance sheet. Due to the cessation of the Zinc Recovery Project’s operations, MEHC does not expect to recover these amounts. As such, the $41.7 million due to affiliate has been reclassified as an equity contribution and is included in total equity contributions of $198.5 million for the year ended December 31, 2004.

Liquidity and Capital Resources

The Salton Sea Guarantors’ only source of revenue is payments received pursuant to long-term power sales agreements with Edison, other than Salton Sea V Project revenue and interest earned on funds on deposit. The Partnership Guarantors’ primary source of revenue is payments received pursuant to long term power sales agreements with Edison, other than CE Turbo Project revenue and interest earned on funds on deposit. The Royalty Guarantor’s only source of revenue is royalties received pursuant to resource lease agreements with the Partnership Projects. Because of the Guarantor’s dependence on Edison, if Edison fails to fulfill its obligations to the projects, it could significantly impair the ability, of the Guarantors, to fund operating and maintenance expenses, payments of interest and principal on the Securities, projected capital expenditures and debt service reserve fund requirements.

The Salton Sea Guarantors generated cash flows from operations of $30.5 million for the year ended December 31, 2004 compared with $11.4 million for the same period in 2003. Cash flows increased in 2004 due to the impact of the uncontrollable force events at the Salton Sea III and Salton Sea IV Projects in 2003.

The Partnership Guarantors generated cash flows from continuing operations of $37.9 million for the year ended December 31, 2004 compared with $36.7 million for the same period in 2003. The Partnership Guarantors' cash flows used in discontinued operations decreased to $35.0 million for the year ended December 31, 2004 compared with $43.4 million for the same period in 2003. The decrease in cash used in discontinued operations relates to decreased operating expenditures in 2004.

The Royalty Guarantors generated cash flows from operations of $8.8 million for the year ended December 31, 2004 compared with $9.2 million for the same period in 2003.

The Salton Sea Guarantors cash flow used in investing was $4.5 million for the year ended December 31, 2004 compared with $3.8 million for the same period in 2003. Capital expenditures are the primary component of investing activities.

The Partnership Guarantors cash flows used in continuing investing activities was $14.7 million for the year ended December 31, 2004 compared with $17.7 million for the same period in 2003. The Partnership Guarantors' cash flows used in discontinued investing activities decreased to $- for the year ended December 31, 2004 compared with $7.0 million for the same period in 2003. Capital expenditures are the primary component of investing activities.

The Salton Sea Guarantors cash flows used in financing was $26.0 million for the year ended December 31, 2004 compared with $7.6 million for the same period in 2003. Cash flows used in financing reflects scheduled debt repayments and changes in amounts due to affiliates.

The Partnership Guarantors cash flow used in continuing financing activities was $23.3 million for the year ended December 31, 2004 compared with $19.1 million for the same period in 2003. Cash flows used in financing activities from continuing operations reflect changes in amounts due from affiliates and debt repayments. The Partnership Guarantors’ cash flow from discontinued financing activities was $35.0 million for the year ended December 31, 2004 compared with $50.4 million for the same period in 2003. Cash flows generated from financing activities from discontinued operations reflect MEHC's equity contributions to fund the Zinc Recovery Project’s operating losses and capital expenditures, and MEHC's funding of its guarantee of the Series F Bonds which were redeemed on March 1, 2004.

The Royalty Guarantor generated cash flows used in financing was $8.8 million for the year ended December 31, 2004 compared with $9.2 million for the same period in 2003. Cash flows used in financing reflects scheduled debt repayments and changes in amounts due from affiliates.

Zinc Recovery Project and Minerals Assets

On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project. Based on this decision, a non-cash, after-tax impairment charge of $390.0 million and $91.4 million for the Partnership Guarantors and Salton Sea Guarantors, respectively, has been recorded to write-off the Mineral Assets. The charge and related activity of the Mineral Assets are classified separately as discontinued operations in the respective combined statements of operations for each of the Partnership Guarantors and Salton Sea Guarantors.

In connection with ceasing operations, CalEnergy Minerals has made cash expenditures of approximately $4.1 million, consisting of pre-tax disposal costs, termination benefit costs and property taxes. CalEnergy Minerals expects to make additional cash expenditures of pre-tax disposal costs and property taxes of approximately $1.6 million. Substantially all of such costs relate to disposal activities, and the disposal costs are expected to be partially offset by proceeds from sales of the Zinc Recovery Project’s assets. These costs are recognized in the period in which the related liability is incurred. Salvage proceeds will be recognized in the period earned. Implementation of a disposal plan began in September 2004 and is continuing into 2005.

On December 13, 2004, CalEnergy Minerals entered into a project decommissioning contract (the "Decommissioning Contract") and an equipment purchase agreement (the "Equipment Purchase Agreement") with a third party contractor. Under the terms of the Decommissioning Contract, the contractor has agreed to dismantle and remove certain Zinc Recovery Project equipment and other assets on a turnkey, fixed price, date certain basis. Under the terms of the Equipment Purchase Agreement the contractor has agreed to purchase certain Zinc Recovery Project equipment for a guaranteed purchase price of approximately $4.1 million, payable in scheduled installments, the payment of which is secured by a $0.5 million letter of credit that has been issued for the benefit of CalEnergy Minerals. Additionally, any gross proceeds the contractor receives from the sale of such equipment and other assets over approximately $5.7 million will be shared equally with CalEnergy Minerals. CalEnergy Minerals will retain ownership of the remaining Zinc Recovery Project equipment and other assets for potential direct sale to third parties. Under the terms of the Equipment Purchase Agreement and the Decommissioning Contract, CalEnergy Minerals has an option, exercisable no later than October 1, 2005, to sell this retained equipment and other assets to the contractor for approximately $0.1 million and have it removed by the contractor no later than December 31, 2005.

Stone & Webster

The Salton Sea V Project was constructed by Stone & Webster, pursuant to the Salton Sea V Project EPC Contract. On March 7, 2002, Salton Sea Power, the owner of the Salton Sea V Project, filed a Demand for Arbitration against Stone & Webster for breach of contract and breach of warranty arising from deficiencies in Stone & Webster’s design, engineering, construction and procurement of equipment for the Salton Sea V Project pursuant to the Salton Sea V Project EPC Contract. The demand for arbitration did not include a stated claim amount. On April 25, 2003, Salton Sea Power entered into a settlement agreement with Stone & Webster. The Settlement Agreement resulted in a total payment of $12.1 million from Stone & Webster in the second quarter of 2003 and the arbitration was dismissed. The settlement was recorded as a $4.5 million reduction of incremental capital expenditures and a $7.6 million reduction of incremental operating expenses related to legal, other expenses and equipment write-offs.

The CE Turbo Project was constructed by Stone & Webster, pursuant to the CE Turbo Project EPC Contract. On March 7, 2002, Vulcan, Del Ranch, and CE Turbo, the owners of the CE Turbo Project, filed a Demand for Arbitration against Stone & Webster for breach of contract and breach of warranty arising from deficiencies in Stone & Webster’s design, engineering, construction and procurement of equipment for the CE Turbo Project pursuant to the CE Turbo Project’s EPC Contract. On November 25, 2002, Vulcan, Del Ranch, and CE Turbo entered into a settlement agreement with Stone & Webster. The settlement agreement resulted in a $3.5 million payment from Stone & Webster which was recorded as a reduction of incremental capital expenditures.

Contractual Obligations and Commercial Commitments

The Funding Corporation has contractual obligations and commercial commitments that may affect its financial condition. Contractual obligations to make future payments arise primarily from long-term debt. Contractual obligations that could make future payments arise primarily from lines of credit and standby letters of credit. The following tables identify material obligations and commitments as of December 31, 2004 (in thousands):

	Payments Due by Period
			<1		2-3		4-5		>5
	Total		Year		Years		Years		Years

Contractual cash obligations-
Long-term debt	$	298,377	$	28,620	$	51,008	$	54,275	$	164,474
Interest expense		145,059		22,037		38,598		30,339		54,085
Total contractual cash obligations	$	443,436	$	50,657	$	89,606	$	84,614	$	218,559

Off Balance Sheet Arrangements

The Guarantors do not have any obligations which meet the definition of an off-balance sheet arrangement and which have or are reasonably likely to have a material effect on the financial statements.

New Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51" ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest, or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB issued FASB Interpretation No. 46R ("FIN 46R") which served to clarify guidance in FIN 46. During the fourth quarter of 2003, the Guarantors adopted the provisions of FIN 46R with respect to special purpose entities. The adoption did not have a significant impact on the Guarantors' financial position, results of operations or cash flows. The Guarantors adopted the provisions of FIN 46R related to non-special purpose entities in the first quarter of 2004. The Guarantors have considered the provisions of FIN 46R for all subsidiaries and their related power purchase or power sale agreements. Factors considered in the analysis include the duration of the agreements, how capacity and energy payments are determined, as well as responsibility and payment for operating and maintenance expenses. As a result of these considerations, the Guarantors have determined their power purchase and power sale agreements do not represent significant variable interest. Accordingly, the Guarantors have concluded that it is appropriate to continue to consolidate its power plant projects.

Environmental Liabilities

The Guarantors are subject to numerous legislative and regulatory environmental protection requirements involving air and water pollution, waste management, hazardous chemical use, noise abatement, and land use aesthetics.

State and federal environmental laws and regulations currently have, and future modifications may have, the effect of (i) increasing the lead time for the construction of new facilities, (ii) significantly increasing the total cost of new facilities, (iii) requiring modification of the Guarantors’ existing facilities, (iv) increasing the risk of delay on construction projects, (v) increasing the Guarantors’ cost of waste disposal and (vi) reducing the reliability of service provided by the Guarantors and the amount of energy available from the Guarantors’ facilities. Any of such items could have a substantial impact on amounts required to be expended by the Guarantors in the future. Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other social and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediation of sites, other companies’ clean-up experience and data released by the Environmental Protection Agency or other organizations. These estimated liabilities are subject to revision in future periods based on actual costs or new circumstances, and are included in the accompanying balance sheets at their undiscounted amounts. As of December 31, 2004 and December 31, 2003, the Guarantors environmental liabilities recorded on the balance sheet were not material.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the financial statements and accompanying notes. Note 2 to the financial statements for the year ended December 31, 2004 included in this annual report describe the significant accounting policies and methods used in the preparation of the financial statements. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, impairment of long-lived assets, income taxes and contingent liabilities. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used by management in the preparation of the financial statements.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on the Guarantors’ assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than the Guarantors’ historical experience, estimates of the recoverability of amounts due could be adversely affected.

Impairment of Long-Lived Assets

The Guarantors’ long-lived assets consist primarily of properties, plants, contracts and equipment. Depreciation is computed using the straight-line method based on economic lives. The Guarantors believe the useful lives assigned to the depreciable assets, which generally range from 3 to 30 years, are reasonable.

The Guarantors periodically evaluate long-lived assets, including properties, plants, contracts and equipment, when events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Upon the occurrence of a triggering event, the carrying amount of a long-lived asset is reviewed to assess whether the recoverable amount has declined below its carrying amount. The recoverable amount is the estimated net future cash flows that the Guarantors expect to recover from the future use of the asset, undiscounted and without interest, including the asset’s residual value on disposal. Where the recoverable amount of the long-lived asset is less than the carrying value, an impairment loss would be recognized to write down the asset to its fair value that is based on discounted estimated cash flows from the future use of the asset including the asset’s residual value on disposal.

The estimate of cash flows arising from future use of the asset that are used in the impairment analysis requires judgment regarding what the Guarantors would expect to recover from future use of the asset. Any changes in the estimates of cash flows arising from future use of the asset or the residual value of the asset on disposal based on changes in the market conditions, changes in the use of the asset, management’s plans, the determination of the useful life of the asset and technology changes in the industry could significantly change the calculation of the fair value or recoverable amount of the asset and the resulting impairment loss, which could significantly affect the results of operations. The determination of whether impairment has occurred is based on an estimate of undiscounted cash flows attributable to the assets, as compared to the carrying value of the assets. An impairment analysis of generating facilities requires estimates of possible future market prices, load growth, competition and many other factors over the lives of the facilities. A resulting impairment loss is highly dependent on these underlying assumptions.

The provisions of Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which establishes the accounting for acquired goodwill and other intangible assets and provides that goodwill and indefinite-lived intangible assets will not be amortized, requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach. The goodwill impairment test is performed annually or whenever an event has occurred that would more than likely not reduce the fair value of the reporting unit below its carrying amount. The Guarantors completed their annual reviews as of October 31, 2004, primarily using a discounted cash flow methodology. Refer to Note 2 of Notes to Combined Financial Statements for both Salton Sea Guarantors and Partnership Guarantors included in "Item 8. Financial Statements and Supplementary Data" for further discussion regarding the results of the annual impairment tests.

Income Taxes

The Guarantors are included in the consolidated income tax returns with their parent and affiliates; however, income taxes are provided on a separate return basis for the Partnership Guarantors. Tax obligations of the Partnership Guarantors will be remitted to the parent only to the extent of cash flows available after operating expenses and debt service. Deferred tax assets and liabilities are recognized based on the difference between the financial statement and tax bases of assets and liabilities using estimated tax rates in effect for the year in which the differences are expected to reverse. The calculation of current and deferred income taxes requires management to apply judgment related to the application of complex tax laws or related interpretations and uncertainties related to the outcomes of tax audits. Changes in such factors may result in changes to management’s estimates which could require the Partnership Guarantors to adjust its currently recorded tax assets and liabilities and record additional income tax expense or benefits.

Contingent Liabilities

The Guarantors establish reserves for estimated loss contingencies, such as environmental, legal and income taxes, when it is management’s assessment that a loss is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liabilities are reflected in operations in the period in which different facts or information become known or circumstances change that affect the previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon management’s assumptions and estimates, and advice of legal counsel or other third parties regarding the probable outcomes of any matters. Should the outcomes differ from the assumptions and estimates, revisions to the estimated reserves for contingent liabilities would be required.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

At December 31, 2004 and 2003, the Funding Corporation had fixed-rate long-term debt of $298.4 million and $463.6 million, respectively, in principal amount and having a fair value of $332.8 million and $483.3 million, respectively. These instruments are fixed-rate and therefore do not expose the Funding Corporation to the risk of earnings loss due to changes in market interest rates. However, the fair value of these instruments would decrease by approximately $7.6 million and $23.3 million if interest rates were to increase by 10% from their levels at December 31, 2004 and 2003, respectively. In general, such a decrease in fair value would impact earnings and cash flows only if the Funding Corporation were to reacquire all or a portion of these instruments prior to their maturity.

Item 8. Financial Statements and Supplementary Data.

SALTON SEA FUNDING CORPORATION

Report of Independent Registered Public Accounting Firm	25
Balance Sheets	26
Statements of Operations	27
Statements of Stockholder's Equity	28
Statements of Cash Flows	29
Notes to Financial Statements	30

SALTON SEA GUARANTORS

Report of Independent Registered Public Accounting Firm	35
Combined Balance Sheets	36
Combined Statements of Operations	37
Combined Statements of Guarantors' Equity	38
Combined Statements of Cash Flows	39
Notes to Combined Financial Statements	40

PARTNERSHIP GUARANTORS

Report of Independent Registered Public Accounting Firm	47
Combined Balance Sheets	48
Combined Statements of Operations	49
Combined Statements of Guarantors' Equity	50
Combined Statements of Cash Flows	51
Notes to Combined Financial Statements	52

SALTON SEA ROYALTY LLC

Report of Independent Registered Public Accounting Firm	65
Balance Sheets	66
Statements of Operations	67
Statements of Members' Equity	68
Statements of Cash Flows	69
Notes to Financial Statements	70

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder

Salton Sea Funding Corporation

Omaha, Nebraska

We have audited the accompanying balance sheets of Salton Sea Funding Corporation ("the Company") as of December 31, 2004 and 2003, and the related statements of operations, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2004. 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 audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements present fairly, in all material respects, the financial position of Salton Sea Corporation as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, the equity method investees of the Company changed their accounting policy for goodwill and other intangible assets in 2002.

/s/ Deloitte & Touche LLP

Omaha, Nebraska

February 25, 2005

SALTON SEA FUNDING CORPORATION

BALANCE SHEETS

(Amounts in thousands, except share data)

	As of December 31,
	2004		2003

ASSETS
Current assets:
Cash	$	19,524	$	14,341
Accrued interest receivable and other current assets		1,927		2,950
Current portion secured project notes from Guarantors		28,620		165,215
Total current assets		50,071		182,506
Secured project notes from Guarantors		269,757		298,377
Investment in 1% of net assets of Guarantors		6,675		9,532
Total assets	$	326,503	$	490,415

LIABILITIES AND STOCKHOLDER’S EQUITY

Current liabilities:
Accrued interest	$	1,914	$	2,945
Current portion of long-term debt		28,620		165,215
Total current liabilities		30,534		168,160
Due to affiliates		15,073		10,225
Senior secured notes and bonds		269,757		298,377
Total liabilities		315,364		476,762

Commitments and contingencies (Note 5)

Stockholder’s equity:
Common stock authorized - 1,000 shares, par value $.01 per share; issued and outstanding 100 shares		-		-
Additional paid-in capital		8,302		6,317
Retained earnings		2,837		7,336
Total stockholder’s equity		11,139		13,653
Total liabilities and stockholder’s equity	$	326,503	$	490,415

The accompanying notes are an integral part of these financial statements.

SALTON SEA FUNDING CORPORATION

STATEMENTS OF OPERATIONS

(Amounts in thousands)

	Year Ended December 31,
	2004			2003			2002

Revenue:
Interest income	$	26,495		$	37,281		$	39,938
Equity in loss of Guarantors		(4,842	)		(695	)		(183	)
Total revenue		21,653			36,586			39,755
Costs and expenses:
General and administrative expenses		324			283			720
Interest expense		26,119			36,763			38,891
Total costs and expenses		26,443			37,046			39,611
Income (loss) before income taxes		(4,790	)		(460	)		144
Provision (benefit) for income taxes		(291	)		(189	)		59
Income (loss) before cumulative effect of change in accounting principle		(4,499	)		(271	)		85
Cumulative effect of change in accounting principle, net of tax (Note 2)		-			-			(210	)
Net loss	$	(4,499	)	$	(271	)	$	(125	)

The accompanying notes are an integral part of these financial statements.

SALTON SEA FUNDING CORPORATION

STATEMENTS OF STOCKHOLDER'S EQUITY

FOR THE THREE YEARS ENDED DECEMBER 31, 2004

(Amounts in thousands, except share amounts)

					Additional
	Common Stock				Paid-in		Retained			Total
	Shares		Amount		Capital		Earnings			Equity

Balance, January 1, 2002		100	$	-	$	5,366	$	7,732		$	13,098

Net loss		-		-		-		(125	)		(125	)

Adjustments resulting from capital transactions of Guarantors		-		-		445		-			445

Balance, December 31, 2002		100	$	-	$	5,811	$	7,607		$	13,418

Net loss		-		-		-		(271	)		(271	)

Adjustments resulting from capital transactions of Guarantors		-		-		506		-			506

Balance, December 31, 2003		100	$	-	$	6,317	$	7,336		$	13,653

Net loss		-		-		-		(4,499	)		(4,499	)

Adjustments resulting from capital transactions of Guarantors		-		-		1,985		-			1,985

Balance, December 31, 2004		100	$	-	$	8,302	$	2,837		$	11,139

The accompanying notes are an integral part of these financial statements.

SALTON SEA FUNDING CORPORATION

STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year Ended December 31,
	2004			2003			2002

Cash flows from operating activities:
Net loss	$	(4,499	)	$	(271	)	$	(125	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Equity in loss of Guarantors		4,842			695			393
Changes in assets and liabilities:
Accrued interest receivable and other current assets		1,023			278			123
Accrued interest payable		(1,031	)		(211	)		(177	)
Net cash flows from operating activities		335			491			214
Cash flows from investing activities:
Principal repayments of secured project notes from Guarantors		165,215			28,086			28,572
Cash flows from financing activities:
Repayment of senior secured notes and bonds		(165,215	)		(28,086	)		(28,572	)
Decrease (increase) in restricted cash		-			46,293			(43,344	)
Due to affiliates, net		4,848			(52,026	)		58,352
Net cash flows from financing activities		(160,367	)		(33,819	)		(13,564	)
Net change in cash		5,183			(5,242	)		15,222
Cash at the beginning of year		14,341			19,583			4,361
Cash at the end of year	$	19,524		$	14,341		$	19,583
Supplemental disclosure:
Interest paid	$	27,178		$	36,941		$	39,058
Income taxes paid (received)	$	(291	)	$	(189	)	$	36

The accompanying notes are an integral part of these financial statements.

SALTON SEA FUNDING CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. Organization and Operations

Salton Sea Funding Corporation ("Funding Corporation"), which was formed on June 20, 1995, is a special purpose Delaware corporation and was organized for the sole purpose of acting as issuer of senior secured notes and bonds. On July 21, 1995, June 20, 1996 and October 31, 1998, Funding Corporation issued $475.0 million, $135.0 million and $285.0 million, respectively, of Senior Secured Notes and Bonds (collectively, the "Securities").

Funding Corporation is a wholly-owned subsidiary of Magma Power Company ("Magma"), which in turn was wholly-owned by MidAmerican Energy Holdings Company ("MEHC"). On February 8, 1999, MEHC created a new subsidiary, CE Generation, LLC ("CE Generation") and subsequently transferred its interest in Magma and its power generation assets located in the Imperial Valley of California to CE Generation with certain assets being retained by MEHC. On March 3, 1999, MEHC closed the sale of 50% of its ownership interests in CE Generation to El Paso CE Generation Holding Company ("El Paso"). On January 29, 2003, El Paso sold all its interest in CE Generation to TransAlta USA Inc. ("TransAlta"), an affiliate of TransAlta Corporation.

The Securities are payable from the proceeds of payments made of principal and interest on the secured project notes from the Guarantors to Funding Corporation (the "Senior Project Notes"). The Securities are also guaranteed on a joint and several basis by the Salton Sea Guarantors, the Partnership Guarantors and the Royalty Guarantor (collectively, the "Guarantors"), each of which is an affiliate of Magma and Funding Corporation.

The Salton Sea Guarantors (not a legal entity) consist of Salton Sea Brine Processing L.P., Salton Sea Power Generation L.P. ("SSPG"), Salton Sea Power L.L.C. ("Salton Sea Power"), and Fish Lake Power LLC ("Fish Lake"), together own 100% interest in five operating geothermal electric power generating plants located in Imperial Valley, California known as Salton Sea I Project, Salton Sea II Project, Salton Sea III Project, Salton Sea IV Project and Salton Sea V Project and CE Salton Sea Inc. (collectively, the "Salton Sea Guarantors").

The Partnership Guarantors (not a legal entity) consist of the Vulcan/BN Geothermal Power Company ("Vulcan"), Elmore, L.P. ("Elmore"), Leathers, L.P. ("Leathers"), Del Ranch, L.P. ("Del Ranch") and CE Turbo LLC ("CE Turbo"), each of which owns an operating geothermal power plant located in Imperial Valley, California known as the Vulcan Project, the Elmore Project, the Leathers Project, the Del Ranch Project and CE Turbo Project (collectively, the "Partnership Projects"), CalEnergy Minerals LLC ("CalEnergy Minerals"), which installed facilities near the Partnership Projects that were intended to recover zinc from the geothermal brine through an ion exchange, solvent extraction, electrowinning and casting process (the "Zinc Recovery Project"); CalEnergy Operating Corporation ("CEOC") and Vulcan Power Company ("VPC"), both 99% owned by Magma and 1% owned by Funding Corporation, San Felipe Energy Company ("San Felipe"), Conejo Energy Company ("Conejo"), Niguel Energy Company ("Niguel"), VPC Geothermal LLC ("VPCG"), Salton Sea Minerals Corp. and CE Salton Sea Inc (collectively, the "Partnership Guarantors"). VPC and VPCG, collectively own 100% of the partnership interests in Vulcan. CEOC, Niguel, San Felipe and Conejo collectively own 90% of the partnership interests in each of Elmore, Leathers and Del Ranch, respectively. Salton Sea Minerals Corp. owns CalEnergy Minerals. Salton Sea Minerals Corp. is an indirect wholly-owned subsidiary of MEHC. CE Salton Sea Inc. owns CE Turbo.

Salton Sea Royalty LLC (the "Royalty Company") is the Royalty Guarantor. The Royalty Company received an assignment of certain fees and royalties paid by the Elmore, Leathers and Del Ranch Projects.

The guarantees of the Partnership Guarantors and the Royalty Guarantor are limited to available cash flow. The Funding Corporation does not conduct any operations apart from issuing the Senior Project Notes.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Investment in Guarantors

Since Funding Corporation has the ability to assert significant influence over the operations of the Guarantors, it accounts for its one percent investment in the Guarantors using the equity method of accounting.

Goodwill

The provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which establishes the accounting for acquired goodwill and other intangible assets, and provides that goodwill and indefinite-lived intangible assets will not be amortized, requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach. The goodwill impairment test is performed annually or whenever an event has occurred that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

In accordance with SFAS 142, the Guarantors determined their reporting units and completed their transitional impairment testing of goodwill in the second quarter of 2002, primarily using a discounted cash flow methodology as of January 1, 2002. The transitional impairment tests indicated goodwill impairment at the Salton Sea Guarantors and the Partnership Guarantors.

During the fourth quarter of 2002, the Salton Sea Guarantors and the Partnership Guarantors completed their annual assessment of the implied fair value of goodwill. As a result, an impairment of goodwill was recognized as a cumulative effect of change in accounting principle of $21.0 million at the Salton Sea Guarantors as of January 1, 2002. However, as a result of this test, no goodwill impairment was recognized at the Partnership Guarantors as of January 1, 2002. Funding Corporation recorded its share of the Guarantors’ cumulative effect of this change of $0.2 million as of January 1, 2002. Additionally, the Guarantors completed their 2002 annual reviews as of October 31, 2002. No impairments were indicated as a result of these assessments.

Following is a reconciliation of net loss as originally reported for the years ended December 31, 2004, 2003 and 2002 to adjusted net income (loss) assuming SFAS 142 was in effect for all periods (in thousands):

	2004			2003			2002

Reported net loss	$	(4,499	)	$	(271	)	$	(125	)
Cumulative effect of change in accounting principle		-			-			210
Adjusted net income (loss)	$	(4,499	)	$	(271	)	$	85

The Guarantors completed their 2003 annual review as of October 31, 2003, primarily using a discounted cash flow methodology. Due to changes in our zinc price and capital expenditure forecasts, the cash flow forecasts were revised. As a result of these revisions and the changes in the fair value of debt, the tests indicated goodwill impairment at the Salton Sea and Partnership Guarantors. Therefore, the Salton Sea Guarantors and the Partnership Guarantors completed their assessments of the implied fair value of goodwill and as a result recognized goodwill impairment as of October 31, 2003 of $23.3 million and $21.2 million, respectively. Funding Corporation’s share of this impairment is approximately $0.5 million.

The Partnership Guarantors completed their 2004 annual review as of October 31, 2004, primarily using a discounted cash flow methodology. No impairments were indicated as a result of the assessments.

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount in which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique. Therefore, the fair value estimates presented herein are not necessarily indicative of the amounts that Funding Corporation could realize in a current transaction.

The methods and assumptions used to estimate fair value are as follows:

Debt-instruments - The fair value of all debt instruments has been estimated based upon quoted market prices as supplied by third-party broker dealers.

Income Taxes

Funding Corporation is included in the consolidated income tax returns with its parent and affiliates. Income taxes are provided on a separate return basis; however, tax obligations of Funding Corporation will be remitted to the parent only to the extent of cash flows available after operating expenses and debt service.

The Salton Sea Guarantors and the Royalty Guarantor are each comprised of partnerships or limited liability companies. Income taxes are the responsibility of the individual partners or members. Accordingly, Funding Corporation’s provision (benefit) for income taxes includes Funding Corporation’s income taxes on its 1% equity interest in the Salton Sea and the Royalty Guarantors. The Partnership Guarantors are included in the consolidated income tax returns with their parent and affiliates and computes its income tax expense on a stand-alone basis. Accordingly, no additional income tax benefit is recorded at Funding Corporation on the 1% equity interest in the Partnership Guarantor’s net losses.

3. Mineral Reserves and Zinc Recovery Project

The Guarantors' long-lived assets include rights to commercial quantities of extractable minerals from elements in solution in the geothermal brine and fluids utilized at the Imperial Valley Projects ("Mineral Reserves") and the Zinc Recovery Project.

On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project. Based on this decision, a non-cash, after-tax impairment charge of $390.0 million and $91.4 million for the Partnership Guarantors and the Salton Sea Guarantors, respectively, has been recorded to write-off the Zinc Recovery Project, Mineral Reserves, and allocated goodwill (collectively, the "Mineral Assets"). Funding Corporation’s net loss includes a $4.4 million long-lived asset charge which represents 1% equity interest in the non-cash impairment charge.

In connection with ceasing operations, CalEnergy Minerals has made cash expenditures of approximately $4.1 million, consisting of pre-tax disposal costs, termination benefit costs and property taxes. CalEnergy Minerals expects to make additional cash expenditures consisting of pre-tax disposal costs and property taxes of approximately $1.6 million. Substantially all of such costs relate to disposal activities, and the disposal costs are expected to be partially offset by proceeds from sales of the Zinc Recovery Project’s assets. These costs are recognized in the period in which the related liability is incurred. Salvage proceeds will be recognized in the period earned. Implementation of a disposal plan began in September 2004 and is continuing in 2005.

4. Senior Secured Notes and Bonds

Funding Corporation’s Securities are as follows (in thousands):

			Final				December 31,
Date issued	Securities		Maturity Date		Rate		2004		2003

July 21, 1995		B Bonds		May 30, 2005		7.370%	$	21,504	$	41,662
July 21, 1995		C Bonds		May 30, 2010		7.840%		98,396		102,014
June 20, 1996		E Bonds		May 30, 2011		8.300%		40,072		43,322
October 13, 1998		F Bonds		November 30, 2018		7.475%		138,405		276,594
							$	298,377	$	463,592

Principal and interest payments are made in semi-annual installments. Principal maturities of the Securities are expected to be as follows (in thousands):

	Amount

2005	$	28,620
2006		25,917
2007		25,091
2008		28,065
2009		26,209
Thereafter		164,475
Total	$	298,377

On October 13, 1998, Funding Corporation completed a sale to institutional investors of $285.0 million aggregate amount of 7.475% Senior Secured Series F Bonds due November 30, 2018 ("Series F Bonds"). A portion of the proceeds was advanced to CalEnergy Minerals, an indirect wholly owned subsidiary of MEHC, to fund the cost of construction of the Zinc Recovery Project. The direct and indirect owners of the Zinc Recovery Project (the "Zinc Guarantors", which include CalEnergy Minerals and its sole member, Salton Sea Minerals Corp.) are among the guarantors of Funding Corporation debt. In connection with the divestiture of 50% of CE Generation, MEHC guaranteed the payment by the Zinc Guarantors of a specified portion of the scheduled debt service of and certain payments of the senior project notes issued by the Partnership Guarantors securing the Series F Bonds.

On March 1, 2004, Funding Corporation completed the redemption of an aggregate principal amount of $136.4 million of the Series F Bonds, pro rata, at a redemption price of 100% of such aggregate outstanding principal amount, plus accrued interest to the date of redemption. Funding Corporation also made a demand on MEHC, and MEHC performed under that demand, for the full amount remaining on MEHC's guarantee of the Series F Bonds in order to fund the redemption. Given the payment under MEHC's guarantee, MEHC no longer has any liability with respect to its guarantee.

In May 2003, the previous $65.4 million debt service reserve letter of credit issued by a financial institution for the account of Funding Corporation, which was due to expire, was replaced by letters of credit issued by a financial institution for the account of TransAlta and by a financial institution for the account of MEHC. Each letter of credit is currently issued in the amount of $25.3 million. Due to the pending expiration of the previous debt service reserve letter of credit, certain cash balances became restricted in a debt service reserve account maintained on behalf of Funding Corporation. Upon the issuance of the new letters of credit, such cash was released from the debt service reserve account and distributed to CE Generation on May 29, 2003. During 2003, Funding Corporation distributed $69.8 million to CE Generation.

The estimated fair values of the Securities at December 31, 2004 and 2003 were $332.8 million and $483.3 million, respectively.

5. Commitments and Contingencies

On July 10, 2003, the Salton Sea IV Project’s 40 MW turbine went out of service due to an uncontrollable force event. Such uncontrollable force event ended, and the Salton Sea IV Project’s turbine returned to service, on September 17, 2003. Southern California Edison Company ("Edison") failed to recognize the uncontrollable force event and, as such, has not paid amounts otherwise due and owing under the Salton Sea IV power purchase agreement totaling $2.5 million. SSPG, with Fish Lake, owner of the Salton Sea IV Project, served notices of error on Edison for such unpaid amounts. As a result, the Salton Sea Guarantors had established an allowance for doubtful accounts of $1.7 million for capacity payments as of December 31, 2003. In December 2004, as a result of a settlement agreement dated December 7, 2004 resolving the dispute, which settlement is contingent upon approval by the California Public Utilities Commission, the allowance was released and the associated receivable was written off.

On October 9, 2003, the Salton Sea III Project’s 50 MW turbine went out of service due to an uncontrollable force event. Such uncontrollable force event ended, and the Salton Sea III Project’s turbine returned to service, on December 12, 2003. Edison failed to recognize the uncontrollable force event and, as such, has not paid amounts otherwise due and owing under the Salton Sea III power purchase agreement totaling approximately $0.8 million. SSPG, owner of the Salton Sea III Project, served notice of error on Edison for such unpaid amounts. As a result, the Salton Sea Guarantors had established an allowance for doubtful accounts for the full amount of this receivable. Pursuant to a letter agreement dated December 2, 2004, Edison made a settlement payment of $0.6 million on December 13, 2004. Consequently, in December 2004, the allowance was released and the remaining receivable of $0.2 million was written off.

In January 2001, the California Power Exchange declared bankruptcy. As a result, Salton Sea Power and CE Turbo have not received payment for power sold to El Paso Merchant Energy Company under certain transaction agreements during December 2000 and January 2001 of $3.8 million (the "PX Receivable"). Salton Sea Power and CE Turbo had established an allowance for doubtful accounts for this balance as of December 31, 2003. On September 29, 2004, Salton Sea Power and CE Turbo entered into separate Transfer of Claims Agreements with TransAlta and MEHC (the "Transfer of Claims Agreements"), pursuant to which Salton Sea Power and CE Turbo received an aggregate of $3.7 million in exchange for transferring the rights to receive payment on the PX Receivable to TransAlta and MEHC. As a result of the transaction, Salton Sea Power and CE Turbo wrote-off the PX Receivable and the related allowance for doubtful accounts and recorded a $3.8 million current liability to reflect the collection risk retained under the Transfer of Claims Agreements. Pursuant to the Transfer of Claims Agreements, to the extent that the PX Receivable becomes uncollectible, Salton Sea Power and CE Turbo can be required to pay the PX Receivable, plus interest, to MEHC and TransAlta.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder

Magma Power Company

Omaha, Nebraska

We have audited the accompanying combined balance sheets of the Salton Sea Guarantors as of December 31, 2004 and 2003, and the related combined statements of operations, Guarantors' equity and cash flows for each of the three years in the period ended December 31, 2004. The combined financial statements include the accounts of the companies discussed in Note 1, which are under common ownership and management. Our audits also included the combined financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Salton Sea Guarantors' management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Salton Sea Guarantor’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 combined financial statements present fairly, in all material respects, the combined financial position of the Salton Sea Guarantors as of December 31, 2004 and 2003 and the combined results of their operations and their combined cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles general accepted in the United States of America. Also in our opinion, such combined financial statement schedule, when considered in relation to the basic combined financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the combined financial statements, the Salton Sea Guarantors changed their accounting policy for goodwill and other intangible assets in 2002.

/s/ Deloitte and Touche LLP

Omaha, Nebraska

February 25, 2005

SALTON SEA GUARANTORS

COMBINED BALANCE SHEETS

(Amounts in thousands)

	As of December 31,
	2004		2003

Current assets:
Trade accounts receivable, net of allowance of $- and $5,477, respectively	$	14,872	$	14,070
Trade accounts receivable from affiliates		932		1,131
Prepaid expenses and other current assets		4,032		4,255
Total current assets		19,836		19,456
Properties, plants and equipment, net		372,986		484,454
Intangible assets, net		22,379		23,529
Total assets	$	415,201	$	527,439


Current liabilities:
Accounts payable	$	256	$	146
Accrued interest		1,269		1,421
Other accrued liabilities		4,282		6,566
Current portion of long-term debt		23,918		24,409
Total current liabilities		29,725		32,542
Due to affiliates		44,085		45,652
Senior secured project notes		175,320		199,238
Total liabilities		249,130		277,432

Commitments and contingencies (Note 7)

Guarantors’ equity		166,071		250,007
Total liabilities and guarantors’ equity	$	415,201	$	527,439

The accompanying notes are an integral part of these financial statements.

SALTON SEA GUARANTORS

COMBINED STATEMENTS OF OPERATIONS

(Amounts in thousands)

	Year Ended December 31,
	2004			2003			2002

Revenue:
Operating revenue	$	104,953		$	83,786		$	84,176
Interest and other income (loss)		130			(358	)		3,717
Total revenue		105,083			83,428			87,893

Costs and expenses:
Royalty, operating, general and administrative expense		54,933			53,480			59,234
Depreciation and amortization		24,649			25,474			21,195
Interest expense		16,977			18,810			20,421
Goodwill impairment		-			23,252			-
Asset impairment		826			329			-
Total costs and expenses		97,385			121,345			100,850
Income (loss) from continuing operations before cumulative effect of change in accounting principle		7,698			(37,917	)		(12,957	)
Cumulative effect of change in accounting principle (Note 2)		-			-			(21,018	)
Income (loss) from continuing operations		7,698			(37,917	)		(33,975	)
Loss from discontinued operations (Note 3)		(91,634	)		(46	)		-
Net loss	$	(83,936	)	$	(37,963	)	$	(33,975	)

The accompanying notes are an integral part of these financial statements.

SALTON SEA GUARANTORS

COMBINED STATEMENTS OF GUARANTORS' EQUITY

FOR THE THREE YEARS ENDED DECEMBER 31, 2004

(Amounts in thousands)

	Amount

Balance, January 1, 2002	$	321,945

Net loss		(33,975	)

Balance, December 31, 2002	$	287,970

Net loss		(37,963	)

Balance, December 31, 2003	$	250,007

Net loss		(83,936	)

Balance, December 31, 2004	$	166,071

The accompanying notes are an integral part of these financial statements.

SALTON SEA GUARANTORS

COMBINED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year Ended December 31,
	2004			2003			2002

Cash flows from operating activities:
Income (loss) from continuing operations	$	7,698		$	(37,917	)	$	(33,975	)
Adjustments to reconcile income (loss) from continuing operations to net cash flows from continuing operations:
Depreciation and amortization		24,649			25,474			21,195
Goodwill impairment		-			23,252			-
Asset impairment		826			329			-
Cumulative effect of change in accounting principle		-			-			21,018
Changes in assets and liabilities:
Trade accounts receivable, net		(603	)		5,323			16,123
Prepaid expenses and other current assets		223			1,028			31
Accounts payable and accrued liabilities		(2,326	)		(6,092	)		228
Net cash flows from continuing operating activities		30,467			11,397			24,620
Cash flows from investing activities:
Capital expenditures, net of warranty settlement		(4,491	)		(3,816	)		(12,696	)
Cash flows from financing activities:
Repayments of senior secured project notes		(24,409	)		(22,772	)		(20,480	)
Increase (decrease) in due to affiliates		(1,567	)		15,191			8,556
Net cash flows from financing activities		(25,976	)		(7,581	)		(11,924	)
Net change in cash		-			-			-
Cash at beginning of year		-			-			-
Cash at end of year	$	-		$	-		$	-
Supplemental disclosure:
Cash paid for interest	$	16,593		$	18,332		$	19,893

The accompanying notes are an integral part of these financial statements.

SALTON SEA GUARANTORS

NOTES TO COMBINED FINANCIAL STATEMENTS

1. Organization and Operations

The Salton Sea Guarantors (not a legal entity) consist of Salton Sea Brine Processing, L.P. ("SSBP"), Salton Sea Power Generation L.P. ("SSPG"), Salton Sea Power L.L.C. ("Salton Sea Power"), and Fish Lake Power LLC ("Fish Lake") each of which owns 100% interests in five operating geothermal electric power generating plants located in the Imperial Valley of California known as the Salton Sea I Project, the Salton Sea II Project, the Salton Sea III Project, the Salton Sea IV Project and the Salton Sea V Project (collectively, the "Salton Sea Projects") and CE Salton Sea Inc. (together with the Salton Sea Projects, the "Salton Sea Guarantors"). The Salton Sea Guarantors guarantee loans from Salton Sea Funding Corporation ("Funding Corporation"), an indirect wholly-owned subsidiary of Magma Power Company ("Magma"), which was wholly-owned by MidAmerican Energy Holdings Company ("MEHC") until March 1999.

On February 8, 1999, MEHC created a new subsidiary, CE Generation, LLC ("CE Generation") and subsequently transferred its interest in Magma and its power generation assets located in the Imperial Valley of California to CE Generation, with certain assets being retained by MEHC. On March 3, 1999, MEHC closed the sale of 50% of its ownership interests in CE Generation to El Paso CE Generation Holding Company ("El Paso"). On January 29, 2003, El Paso sold all its interest in CE Generation to TransAlta USA Inc. ("TransAlta"), an affiliate of TransAlta Corporation.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements of the Salton Sea Guarantors present the accounts of (1) SSBP, a California limited partnership between Magma as a 99% limited partner and Salton Sea Power Company ("SSPC"), a wholly-owned subsidiary of Magma, as a 1% general partner, (2) SSPG, a California limited partnership between Salton Sea Brine Processing, L.P., as a 99% limited partner, and SSPC, as a 1% general partner, (3) assets and liabilities attributable to Salton Sea IV Project which are held 99% by SSPG and 1% by Fish Lake and (4) Salton Sea Power, a Delaware limited liability company. Funding Corporation owns 1% interests in SSPC and Fish Lake. All of the entities in the combination are affiliates of Magma and indirect subsidiaries of CE Generation. All intercompany balances and transactions have been eliminated.

Reclassifications

Certain amounts in the fiscal 2003 and 2002 financial statements and supporting note disclosures have been reclassified to conform to the fiscal 2004 presentation, including the reclassification of activity related to discontinued operations (see Note 3). Such reclassifications did not impact previously reported net losses or guarantors’ equity.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on the Salton Sea Guarantors’ assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than the Salton Sea Guarantors’ historical experience, estimates of the recoverability of amounts due could be adversely affected.

Properties, Plants and Equipment, Net

Properties, plants and equipment are recorded at historical cost. The cost of major additions and betterments are capitalized, while replacements, maintenance, overhaul and well rework and repairs that do not improve or extend the lives of the respective assets are expensed. Depreciation of the operating power plant costs, net of salvage value if applicable, is computed using the straight-line method based on economic lives. The Salton Sea Guarantors believe the useful lives assigned to the depreciable assets, which generally range from 2 to 30 years, are reasonable.

Intangible Assets, Net

The Salton Sea Guarantors intangible assets consist of acquired power sales agreements and are amortized using the straight-line method over the remaining contract periods, which have ranged from 5 to 30 years.

Impairment of Long-Lived Assets

The Salton Sea Guarantors periodically evaluate long-lived assets, including properties, plants and equipment, rights to commercial quantities of extractable minerals ("Mineral Reserves") and intangible assets when events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Upon the occurrence of a triggering event, the carrying amount of a long-lived asset or intangible asset is reviewed to assess whether the recoverable amount has declined below its carrying amount. The recoverable amount is the estimated net future cash flows that the Salton Sea Guarantors expect to recover from the future use of the asset, undiscounted and without interest, including the asset’s residual value on disposal. Where the recoverable amount of the long-lived asset or intangible asset is less than the carrying value, an impairment loss would be recognized to write down the asset to its fair value that is based on discounted estimated cash flows from the future use of the asset, including the asset’s residual value on disposal.

Goodwill

In accordance with SFAS 142, the Salton Sea Guarantors determined their reporting units and completed their transitional review of goodwill in the second quarter of 2002, primarily using a discounted cash flow methodology as of January 1, 2002. The transitional impairment tests indicated goodwill impairment at the Salton Sea Guarantors.

During the fourth quarter of 2002, the Salton Sea Guarantors completed their annual assessment of the implied fair value of goodwill. As a result, an impairment of goodwill was recognized as a cumulative effect of change in accounting principle of $21.0 million as of January 1, 2002. Additionally, the Salton Sea Guarantors completed the 2002 annual review as of October 31, 2002. No impairment was indicated as a result of these assessments.

Following is a reconciliation of net loss as originally reported for the years ended December 31, 2004, 2003 and 2002 to adjusted net loss (in thousands):

	2004			2003			2002

Reported net loss	$	(83,936	)	$	(37,963	)	$	(33,975	)
Cumulative effect of change in accounting principle		-			-			21,018
Adjusted net loss	$	(83,936	)	$	(37,963	)	$	(12,957	)

The Salton Sea Guarantors completed their 2003 review as of October 31, 2003, primarily using a discounted cash flow methodology. Due to changes in our zinc price and capital expenditure forecasts, the cash flow forecasts were revised. As a result of these revisions and the changes in the fair value of debt, the assessments indicated goodwill impairment. Therefore, the Salton Sea Guarantors completed their assessment of the implied fair value of goodwill and as a result recognized goodwill impairment of $23.3 million, as of October 31, 2003.

The changes in the carrying amount of goodwill for the two years ended December 31, 2004, are as follows (in thousands):

Balance, January 1, 2003	$	23,252
Impairment losses		(23,252	)
Balance, December 31, 2003 and 2004	$	-

Capitalization of Interest and Deferred Financing Costs

Prior to the commencement of operations, interest is capitalized on the costs of the plants and geothermal resource development to the extent incurred. Capitalized interest and other deferred charges are amortized over the lives of the related assets.

Deferred financing costs are amortized over the term of the related financing using the effective interest method.

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount in which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique. Therefore, the fair value estimates presented herein are not necessarily indicative of the amounts that the Salton Sea Guarantors could realize in a current transaction.

The methods and assumptions used to estimate fair value are as follows:

Debt-instruments - The fair value of all debt instruments has been estimated based upon quoted market prices as supplied by third-party broker dealers.

Contingent Liabilities

The Salton Sea Guarantors are subject to the possibility of various loss contingencies arising in the ordinary course of business. The Salton Sea Guarantors consider the likelihood of the loss or impairment of an asset or the incurrence of a liability as well as the ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. The Salton Sea Guarantors regularly evaluate current information available to determine whether such accruals should be adjusted.

Revenue Recognition

The Salton Sea Guarantors recognize revenue and related accounts receivable from sales of electricity on an accrual basis. All of the Salton Sea Guarantors’ sales of electricity, except for the Salton Sea V Project, are to Southern California Edison Company ("Edison") under long-term power purchase contracts.

Income Taxes

The Salton Sea Guarantors are comprised substantially of partnership interests. The income or loss of each partnership for income tax purposes, along with any associated tax credits, is the responsibility of the individual partners. Accordingly, no recognition has been given to federal or state income taxes in the accompanying combined financial statements.

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51" ("Fin 46"). Fin 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest, or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB issued FASB Interpretation No. 46R ("FIN 46R") which served to clarify guidance in Fin 46. During the fourth quarter of 2003, the Salton Sea Guarantors adopted the provisions of FIN 46R with respect to special purpose entities. The adoption did not have a significant impact on the Salton Sea Guarantors' financial position, results of operations or cash flows. The Salton Sea Guarantors adopted the provisions of FIN 46R related to non-special purpose entities in the first quarter of 2004. The Salton Sea Guarantors have considered the provisions of FIN 46R for all subsidiaries and their related power purchase or power sale agreements. Factors considered in the analysis include the duration of the agreements, how capacity and energy payments are determined, as well as responsibility and payment for operating and maintenance expenses. As a result of these considerations, the Salton Sea Guarantors have determined their power purchase and power sale agreements do not represent significant variable interest. Accordingly, the Salton Sea Guarantors have concluded that it is appropriate to continue to consolidate its power plant projects.

3. Discontinued Operations - Mineral Reserves and Zinc Recovery Project

The Salton Sea Guarantors' long-lived assets include Mineral Reserves from the elements in solution in the geothermal brine and fluids utilized at the Salton Sea Projects. CalEnergy Minerals, LLC ("CalEnergy Minerals") installed facilities near the geothermal generation facilities intended to recover zinc from the geothermal brine through an ion exchange, solvent extraction, electrowinning and casting process ("Zinc Recovery Project").

On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project. Based on this decision, a non-cash impairment charge of $91.4 million has been recorded to write-off the Mineral Reserves. The charge and related activity of the Mineral Reserves are classified separately as discontinued operations in the accompanying combined statements of operations and consist of depreciation and amortization of $0.2 million, $- and $- for the years ended December 31, 2004, 2003 and 2002, respectively, in addition to the $91.4 million impairment charge recorded in September 2004.

4. Properties, Plants and Equipment, Net

Properties, plants, contracts and equipment as of December 31 are as follows (in thousands):

	Estimated Useful lives		2004			2003

Plant and equipment		2 to 30 years	$	454,762		$	452,763
Mineral Reserves (see Note 3)		n/a		-			91,811
Wells and resource development		2 to 20 years		67,511			66,824
Total operating assets				522,273			611,398
Accumulated depreciation and amortization				(149,287	)		(126,944	)
Property, plants and equipment, net			$	372,986		$	484,454

The Salton Sea Guarantors wrote down $0.8 million and $0.3 million of abandoned equipment in 2004 and 2003, respectively.

The Salton Sea V Project was constructed by Stone & Webster Inc. ("Stone & Webster"), pursuant to the Salton Sea V Project EPC Contract. On March 7, 2002, Salton Sea Power, the owner of the Salton Sea V Project, filed a Demand for Arbitration against Stone & Webster for breach of contract and breach of warranty arising from deficiencies in Stone & Webster’s design, engineering, construction and procurement of equipment for the Salton Sea V Project pursuant to the Salton Sea V Project EPC Contract. On April 25, 2003, Salton Sea Power entered into a settlement agreement with Stone & Webster. The settlement agreement resulted in a total payment of $12.1 million from Stone & Webster in the second quarter of 2003 and the arbitration was dismissed. The settlement was recorded as a $4.5 million reduction of incremental capital expenditures and a $7.6 million reduction of incremental operating expenses related to legal, other expenses and equipment write-offs.

5. Intangible Assets, Net

The Salton Sea Guarantors’ acquired intangible assets consist of power purchase agreements with a cost of $33.4 million and $33.4 million and accumulated amortization of $11.1 million and $9.9 million at December 31, 2004 and 2003, respectively. Amortization expense on the power purchase agreements was $1.2 million, for each of the years ended December 31, 2004, 2003 and 2002. The Salton Sea Guarantors expect amortization expense on the power purchase agreements to be $1.2 million for each of the five succeeding fiscal years. The power purchase agreements are being amortized over the remaining fixed price periods which range from 5 to 30 years.

6. Senior Secured Project Notes

The Salton Sea Guarantors’ project notes payable to Funding Corporation as of December 31 are as follows (in thousands):

	Senior		Final
Date issued	Secured Securities		Maturity Date		Rate		2004		2003

July 21, 1995		B Bonds		May 30, 2005		7.370%	$	21,067	$	40,817
July 21, 1995		C Bonds		May 30, 2010		7.840%		98,391		102,014
October 13, 1998		F Bonds		November 30, 2018		7.475%		79,780		80,816
							$	199,238	$	223,647

The Salton Sea Guarantors have also guaranteed, along with other guarantors, the debt of Funding Corporation, which amounted to $298.4 million at December 31, 2004. The guarantee issued is collateralized by a lien on substantially all the assets of and a pledge of the equity interests in the Salton Sea Guarantors. The structure has been designed to cross collateralize cash flows from each Guarantor without cross collateralizing all of the Guarantors' assets.

Principal maturities of the senior secured project note are as follows (in thousands):

	Amount

2005	$	23,918
2006		22,621
2007		22,131
2008		23,494
2009		22,501
Thereafter		84,573
Total	$	199,238

The estimated fair values of the senior secured project notes at December 31, 2004 and 2003 were $221.4 million and $230.4 million, respectively.

7. Related Party Transactions

The Salton Sea Guarantors have entered into the following agreements:

Pursuant to the Amended and Restated Easement Grant Deed and Agreement Regarding Rights for Geothermal Development dated February 23, 1994, as amended, the Salton Sea Guarantors acquired from Magma Land I, a wholly-owned subsidiary of Magma, rights to extract geothermal brine from the geothermal lease rights property which is necessary to operate the Salton Sea Projects in return for 5% of all electricity revenue received by the Salton Sea Guarantors. The amount expensed for the years ended December 31, 2004, 2003 and 2002 was $5.3 million, $3.4 million and $3.6 million, respectively.

Pursuant to the Administrative Services Agreement dated April 1, 1993 with Magma, Magma will provide administrative and management services to the Salton Sea Guarantors, excluding the Salton Sea IV and Salton Sea V Projects. Fees payable to Magma amount to 3% of total electricity revenue. The amount expensed for the years ended December 31, 2004, 2003 and 2002 was $1.4 million, $1.2 million and $1.2 million, respectively.

Pursuant to the Operating and Maintenance Agreement dated April 1, 1993 between CalEnergy Operating Corporation ("CEOC") and the Salton Sea Guarantors, the Salton Sea Guarantors have retained CEOC to operate the Salton Sea Projects for a period of 32 years. Payments are made to CEOC in the form of reimbursements of expenses incurred. During 2004, 2003 and 2002, the Salton Sea Guarantors reimbursed CEOC for expenses of $18.1 million, $14.7 million and $13.8 million, respectively.

Commencing March 27, 2001, Salton Sea Power entered into a series of transaction agreements to sell available power from the Salton Sea V Project to El Paso Merchant Energy Company ("EPME") based on percentages of the Dow Jones SP-15 Index. On February 11, 2003, Salton Sea Power ceased selling available power to EPME. Pursuant to these agreements, sales to EPME totaled $0.8 million and $7.3 million in 2003 and 2002, respectively. As of December 31, 2004 and 2003, there were no accounts receivable balances from EPME.

Pursuant to a transaction agreement dated January 29, 2003 (the "TransAlta Transaction Agreement"), Salton Sea Power began selling available power from the Salton Sea V Project to TransAlta on February 12, 2003 at prices based on percentages of the Dow Jones SP-15 Index. The TransAlta Transaction Agreement shall continue until the earlier of: (a) 30 days following a written notice of termination; or (b) any other termination date mutually agreed to by the parties. No such termination has been given by either party. Pursuant to this agreement, sales to TransAlta totaled $7.2 million and $7.7 million in 2004 and 2003, respectively. As of December 31, 2004 and 2003, accounts receivable balances from TransAlta were $0.9 million and $1.1 million, respectively.

On January 21, 2004, Salton Sea Power and CE Turbo LLC entered into a Green Energy Tag Purchase and Sale Agreement to sell the non-power attributes (the non-power attributes made available by 1 MWh of generation, a "Green Tag") associated with up to 931,800 MWh of available generation at the Salton Sea V Project and CE Turbo Project through December 31, 2008 to TransAlta Energy Marketing (US) Inc. ("TransAlta Marketing") at a market price per Green Tag. Pursuant to this agreement, sales to TransAlta Marketing from Salton Sea Power commenced in July 2004 and totaled $0.5 million in 2004. As of December 31, 2004, there were no accounts receivable balances from TransAlta Marketing.

Pursuant to the November 1, 1998 Amended and Restated Power Sales Agreements, Salton Sea Power provided CalEnergy Minerals with the Zinc Recovery Project’s electrical energy requirements at the market rates available to Salton Sea Power, less wheeling costs. Pursuant to these agreements, sales to CalEnergy Minerals from Salton Sea Power totaled $1.3 million, $0.9 million and $0.4 million for the years ended December 31, 2004, 2003 and 2002, respectively. On September 10, 2004, CalEnergy Minerals ceased operations of its Zinc Recovery Project. Accordingly, except for sales during the dismantling and decommissioning phases of the Zinc Recovery Project, no further sales to CalEnergy Minerals are expected.

8. Commitments and Contingencies

Edison and the California Power Exchange

On July 10, 2003, the Salton Sea IV Project’s 40 MW turbine went out of service due to an uncontrollable force event. Such uncontrollable force event ended, and the Salton Sea IV Project’s turbine returned to service, on September 17, 2003. Edison failed to recognize the uncontrollable force event and, as such, has not paid amounts otherwise due and owing under the Salton Sea IV power purchase agreement totaling $2.5 million. SSPG, with Fish Lake, owner of the Salton Sea IV Project, served notices of error on Edison for such unpaid amounts. As a result, the Salton Sea Guarantors had established an allowance for doubtful accounts of $1.7 million for capacity payments as of December 31, 2003. In December 2004, as a result of a settlement agreement dated December 7, 2004 resolving the dispute, which settlement is contingent upon approval by the California Public Utility Commission, the allowance for doubtful accounts was released and the associated receivable was written off.

On October 9, 2003, the Salton Sea III Project’s 50 MW turbine went out of service due to an uncontrollable force event. Such uncontrollable force event ended and the Salton Sea III Project’s turbine returned to service, on December 12, 2003. Edison failed to recognize the uncontrollable force event and, as such, has not paid amounts otherwise due and owing under the Salton Sea III power purchase agreement totaling $0.8 million. SSPG, owner of the Salton Sea III Project, served notice of error on Edison for such unpaid amounts. As a result, the Salton Sea Guarantors had established an allowance for doubtful accounts for the full amount of this receivable. Pursuant to a letter agreement dated December 2, 2004, Edison made a settlement payment of $0.6 million which was received on December 13, 2004. Consequentially, in December 2004 the allowance for doubtful accounts was released and the remaining receivable of $0.2 million was written off.

In January 2001, the California Power Exchange declared bankruptcy. As a result, Salton Sea V had not received payment for power sold to EPME under certain transaction agreements during December 2000 and January 2001 of $3.0 million (the "PX Receivable"). Salton Sea Power had established an allowance for doubtful accounts for this balance as of December 31, 2003. On September 29, 2004, Salton Sea Power V entered into separate Transfer of Claims Agreements with TransAlta and MEHC (the "Transfer of Claims Agreements"), pursuant to which Salton Sea V received $2.9 million in exchange for transferring the rights to receive payment on the PX Receivable to TransAlta and MEHC. As a result of the transaction, Salton Sea Power wrote-off the PX Receivable and the related allowance for doubtful accounts and recorded a $3.0 million current liability to reflect the collection risk retained under the Transfer of Claims Agreements. Pursuant to the Transfer of Claims Agreements, to the extent that the PX Receivable becomes uncollectible, Salton Sea Power can be required to pay the PX Receivable, plus interest, to MEHC and TransAlta.

Environmental Liabilities

The Salton Sea Guarantors are subject to numerous legislative and regulatory environmental protection requirements involving air and water pollution, waste management, hazardous chemical use, noise abatement, and land use aesthetics. State and federal environmental laws and regulations currently have, and future modifications may have, the effect of (i) increasing the lead time for the construction of new facilities, (ii) significantly increasing the total cost of new facilities, (iii) requiring modification of the Salton Sea Guarantors’ existing facilities, (iv) increasing the risk of delay on construction projects, (v) increasing the Salton Sea Guarantors’ cost of waste disposal and (vi) reducing the reliability of service provided by the Salton Sea Guarantors and the amount of energy available from the Salton Sea Guarantors’ facilities. Any of such items could have a substantial impact on amounts required to be expended by the Salton Sea Guarantors in the future. Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other social and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in the remediation of sites, other companies’ clean-up experience and data released by the Environmental Protection Agency or other organizations. These estimated liabilities are subject to revision in future periods based on actual costs or new circumstances, and are included in the accompanying combined balance sheets at their undiscounted amounts. As of December 31, 2004 and 2003, the environmental liabilities recorded on the combined balance sheets were not material.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder

Magma Power Company

Omaha, Nebraska

We have audited the accompanying combined balance sheets of the Partnership Guarantors as of December 31, 2004 and 2003, and the related combined statements of operations, Guarantors' equity and cash flows for each of the three years in the period ended December 31, 2004. The combined financial statements include the accounts of the companies discussed in Note 1, which are under common ownership and management. Our audits also included the combined financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Partnership Guarantors' management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership Guarantor’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 combined financial statements present fairly, in all material respects, the combined financial position of the Partnership Guarantors as of December 31, 2004 and 2003 and the combined results of their operations and their combined cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, such combined financial statement schedule, when considered in relation to the basic combined financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

Omaha, Nebraska

February 25, 2005

PARTNERSHIP GUARANTORS

COMBINED BALANCE SHEETS

(Amounts in thousands)

	As of December 31,
	2004			2003


Current assets:
Trade accounts receivable, net of allowance of $- and $791, respectively	$	13,841		$	13,500
Trade accounts receivable from affiliate		353			433
Inventory		18,513			19,616
Prepaid expenses and other current assets		1,649			3,641
Total current assets		34,356			37,190
Restricted cash		965			441
Properties, plants and equipment, net		204,985			583,195
Intangible assets, net		50,017			53,515
Management fee		61,544			66,603
Due from affiliates		205,386			157,531
Goodwill		56,528			99,653
Total assets	$	613,781		$	998,128


Current liabilities:
Accounts payable	$	1,771		$	1,883
Accrued interest		642			1,519
Other accrued liabilities		14,605			12,812
Current portion of long-term debt		4,265			140,398
Total current liabilities		21,283			156,612
Senior secured project notes		94,437			98,702
Deferred income taxes		95,371			130,610
Total liabilities		211,091			385,924

Commitments and contingencies (Note 10)

Guarantors’ equity:
Common stock		3			3
Additional paid-in capital		681,297			482,814
Retained earnings (deficit)		(278,610	)		129,387
Total guarantors’ equity		402,690			612,204
Total liabilities and guarantors’ equity	$	613,781		$	998,128

The accompanying notes are an integral part of these financial statements.

PARTNERSHIP GUARANTORS

COMBINED STATEMENTS OF OPERATIONS

(Amounts in thousands)

	Year Ended December 31,
	2004			2003			2002

Revenue:
Operating revenue	$	94,343		$	95,254		$	94,697
Interest and other income		982			912			1,455
Total revenue		95,325			96,166			96,152
Costs and expenses:
Royalty, operating, general and administrative costs		53,789			49,716			55,662
Depreciation and amortization		27,908			25,697			23,052
Interest expense		8,087			8,239			9,391
Less capitalized interest		-			-			(1,117	)
Asset impairment		4,716			1,428			-
Goodwill impairment		-			21,213			-
Total costs and expenses		94,500			106,293			86,988
Income (loss) from continuing operations before income taxes		825			(10,127	)		9,164
Provision (benefit) for income taxes		(4,167	)		1,990			365
Income (loss) from continuing operations		4,992			(12,117	)		8,799
Loss from discontinued operations, net of tax benefits (Note 3)		(412,989	)		(27,581	)		(19,627	)
Net loss	$	(407,997	)	$	(39,698	)	$	(10,828	)

The accompanying notes are an integral part of these financial statements.

PARTNERSHIP GUARANTORS

COMBINED STATEMENTS OF GUARANTORS' EQUITY

FOR THE THREE YEARS ENDED DECEMBER 31, 2004

(Amounts in thousands, except share amounts)

					Additional		Retained
	Common Stock				Paid-in		Earnings			Total
	Shares		Amount		Capital		(Deficit)			Equity

Balance, January 1, 2002		3	$	3	$	387,663	$	179,913		$	567,579

Net loss		-		-		-		(10,828	)		(10,828	)

Equity contribution		-		-		44,537		-			44,537

Balance, December 31, 2002		3	$	3	$	432,200	$	169,085		$	601,288

Net loss		-		-		-		(39,698	)		(39,698	)

Equity contribution		-		-		50,614		-			50,614

Balance, December 31, 2003		3	$	3	$	482,814	$	129,387		$	612,204

Net loss		-		-		-		(407,997	)		(407,997	)

Equity contribution		-		-		198,483		-			198,483

Balance, December 31, 2004		3	$	3	$	681,297	$	(278,610	)	$	402,690

The accompanying notes are an integral part of these financial statements.

PARTNERSHIP GUARANTORS

COMBINED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year Ended December 31,
	2004			2003			2002

Cash flows from operating activities:
Income (loss) from continuing operations	$	4,992		$	(12,117	)	$	8,799
Adjustments to reconcile income (loss) from continuing operations to cash flows from continuing operations:
Depreciation and amortization		27,908			25,697			23,052
Deferred income taxes		(4,961	)		3,038			(7,789	)
Asset impairment		4,716			1,428			-
Goodwill impairment		-			21,213			-
Changes in assets and liabilities:
Trade accounts receivable, net		(160	)		585			45,086
Inventory, prepaid expenses and other current assets		(1,381	)		(2,680	)		(448	)
Accounts payable and accrued liabilities		6,825			(441	)		(9,761	)
Net cash flows from continuing operations		37,939			36,723			58,939
Net cash flows from discontinued operations		(34,975	)		(43,407	)		(1,992	)
Net cash flows from operating activities		2,964			(6,684	)		56,947
Cash flows from investing activities:
Capital expenditures related to operating projects		(14,790	)		(16,905	)		(7,425	)
Construction and other development		-			-			(557	)
Other		124			(758	)		(706	)
Net cash flows from continuing operations		(14,666	)		(17,663	)		(8,688	)
Net cash flows from discontinued operations		1			(7,017	)		(42,279	)
Net cash flows from investing activities		(14,665	)		(24,680	)		(50,967	)
Cash flows from financing activities:
Increase in due from affiliates		(19,258	)		(15,450	)		(47,731	)
Repayment of senior secured project notes		(4,015	)		(3,609	)		(2,520	)
Net cash flows from continuing operations		(23,273	)		(19,059	)		(50,251	)
Net cash flows from discontinued operations		34,974			50,423			44,271
Net cash flows from financing activities		11,701			31,364			(5,980	)
Net change in cash		-			-			-
Cash at beginning of period		-			-			-
Cash at the end of period		-			-			-
Supplemental disclosure:
Cash paid for interest, net of capitalized interest	$	10,531		$	18,831		$	8,066
Income taxes paid (received)	$	794		$	(1,048	)	$	8,154
Forgiveness of amounts borrowed from MEHC to fund Zinc Recovery Project operating losses (Note 7)	$	41,708		$	-		$	-

The accompanying notes are an integral part of these financial statements.

PARTNERSHIP GUARANTORS

NOTES TO COMBINED FINANCIAL STATEMENTS

1. Organization and Operations

The Partnership Guarantors (not a legal entity) consist of the Vulcan/BN Geothermal Power Company ("Vulcan"), Elmore, L.P. ("Elmore"), Leathers, L.P. ("Leathers"), Del Ranch, L.P. ("Del Ranch") and CE Turbo LLC ("CE Turbo"), each of which owns an operating geothermal power plant located in Imperial Valley, California known as the Vulcan Project, the Elmore Project, the Leathers Project, the Del Ranch Project and CE Turbo Project, (collectively, the "Partnership Projects"); CalEnergy Minerals LLC ("CalEnergy Minerals"), which installed facilities near the Partnership Projects that were intended to recover zinc from the geothermal brine through an ion exchange, solvent extraction, electrowinning and casting process (the "Zinc Recovery Project"); CalEnergy Operating Corporation ("CEOC") and Vulcan Power Company ("VPC"), both 99% owned by Magma Power Company ("Magma") and 1% owned by Salton Sea Funding Corporation ("Funding Corporation"), San Felipe Energy Company ("San Felipe"), Conejo Energy Company ("Conejo"), Niguel Energy Company ("Niguel"), VPC Geothermal LLC ("VPCG"), Salton Sea Minerals Corp. and CE Salton Sea Inc (collectively, the "Partnership Guarantors"). VPC and VPCG, collectively own 100% of the partnership interests in Vulcan. CEOC, Niguel, San Felipe and Conejo collectively own 90% of the partnership interests in each of Elmore, Leathers and Del Ranch, respectively. Salton Sea Minerals Corp. owns CalEnergy Minerals. Salton Sea Minerals Corp. is an indirect wholly-owned subsidiary of MidAmerican Energy Holdings Company ("MEHC"), CE Salton Sea Inc. owns CE Turbo.

Magma owns all of the remaining 10% interests in each of Elmore, Leathers and Del Ranch. CEOC is entitled to receive from Magma, as payment for certain data and services provided by CEOC, all of the partnership distributions Magma receives with respect to its 10% ownership interests in each of the Elmore, Leathers and Del Ranch Projects and Magma’s special distributions equal to 4.5% of total energy revenue from the Leathers Project.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements of the Partnership Guarantors present the accounts of CEOC, VPC, CE Turbo and CalEnergy Minerals and their proportionate share of the partnerships in which they have an undivided interest in the assets and are proportionately liable for their share of the liabilities. All intercompany balances and transactions have been eliminated.

Reclassifications

Certain amounts in the fiscal 2003 and 2002 financial statements and supporting note disclosures have been reclassified to conform to the fiscal 2004 presentation, including the reclassification of activity related to ceasing of operations at the Zinc Recovery Project, as discontinued operations (see Note 3) and a $10.1 million reclassification between due from affiliates and deferred income taxes. Such reclassifications did not impact previously reported net losses or retained earnings.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on the Partnership Guarantors’ assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than the Partnership Guarantors’ historical experience, estimates of the recoverability of amounts due could be adversely affected.

Properties, Plants and Equipment, Net

Properties, plants and equipment are recorded at historical cost. The cost of major additions and betterments are capitalized, while replacements, maintenance, overhaul and well rework and repairs that do not improve or extend the lives of the respective assets are expensed. Depreciation of the operating power plant costs, net of salvage value if applicable, is computed using the straight-line method based on economic lives. The Partnership Guarantors believe the useful lives assigned to the depreciable assets, which generally range from 2 to 30 years, are reasonable.

Intangible Assets, Net

The Partnership Guarantors’ intangible assets consist of acquired power sales agreements and are amortized using the straight-line method over the remaining contract periods, which have ranged from 4 to 24 years.

Impairment of Long-Lived Assets

The Partnership Guarantors periodically evaluate long-lived assets, including properties, plants and equipment, rights to commercial quantities of extractable minerals ("Mineral Reserves") and intangible assets when events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Upon the occurrence of a triggering event, the carrying amount of a long-lived asset or intangible asset is reviewed to assess whether the recoverable amount has declined below its carrying amount. The recoverable amount is the estimated net future cash flows that the Partnership Guarantors expect to recover from the future use of the asset, undiscounted and without interest, including the asset’s residual value on disposal. Where the recoverable amount of the long-lived asset or intangible asset is less than the carrying value, an impairment loss would be recognized to write down the asset to its fair value that is based on discounted estimated cash flows from the future use of the asset, including the asset’s residual value on disposal.

Goodwill

The provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which establishes the accounting for acquired goodwill and other intangible assets and provides that goodwill and indefinite-lived intangible assets will not be amortized, requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach. The goodwill impairment test is performed annually or whenever an event has occurred that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

In accordance with SFAS 142, the Partnership Guarantors determined their reporting units and completed their transitional impairment testing of goodwill in the second quarter of 2002, primarily using a discounted cash flow methodology as of January 1, 2002. The transitional impairment tests indicated goodwill impairment at the Partnership Guarantors.

During the fourth quarter of 2002, the Partnership Guarantors completed their annual assessment of the implied fair value of goodwill. No goodwill impairment was recognized at the Partnership Guarantors as of January 1, 2002. Additionally, the Partnership Guarantors completed their 2002 annual reviews as of October 31, 2002. No impairments were indicated as a result of these assessments.

The Partnership Guarantors completed their 2003 annual review as of October 31, 2003, primarily using a discounted cash flow methodology as of October 31, 2003. Due to changes in our zinc price and capital expenditure forecasts, the cash flow forecasts were revised. As a result of these revisions and the changes in the fair value of debt, the tests indicated goodwill impairment. Therefore, the Partnership Guarantors completed their assessments of the implied fair value of goodwill and as a result recognized goodwill impairment as of October 31, 2003 of $21.2 million.

The Partnership Guarantors completed their 2004 annual review as of October 31, 2004, primarily using a discounted cash flow methodology. No impairments were indicated as a result of the assessments.

The changes in the carrying amount of goodwill for the two years ended December 31, 2004, are as follows (in thousands):

Balance, January 1, 2003	$	120,866
Impairment losses		(21,213	)
Balance, December 31, 2003		99,653
Impairment losses (see Note 3)		(43,125	)
Balance, December 31, 2004	$	56,528

Capitalization of Interest and Deferred Financing Costs

Deferred financing costs are amortized over the term of the related financing using the effective interest method.

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount in which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique. Therefore, the fair value estimates presented herein are not necessarily indicative of the amounts that the Partnership Guarantors could realize in a current transaction.

The methods and assumptions used to estimate fair value are as follows:

Debt-instruments - The fair value of all debt instruments has been estimated based upon quoted market prices as supplied by third-party broker dealers.

Contingent Liabilities

The Partnership Guarantors establish reserves for estimated loss contingencies, such as environmental and legal, when it is management’s assessment that a loss is probable and the amount of the loss can be reasonably estimated.

Revenue Recognition

The Partnership Guarantors recognize revenue and related accounts receivable from sales of electricity on an accrual basis. All of the Partnership Guarantors’ sales of electricity, except for the CE Turbo Project, are to Southern California Edison Company ("Edison") under long-term power purchase contracts.

Management Fee

Pursuant to the Magma Services Agreement, Magma has agreed to pay CEOC all equity cash flows and certain royalties payable by the Partnership Guarantors in exchange for providing data and services to Magma. As security for the obligations of Magma under the Magma Services Agreement, Magma has collaterally assigned to CEOC its rights to such equity cash flows and certain royalties.

Income Taxes

The entities comprising the Partnership Guarantors are included in consolidated income tax returns with their parent and affiliates; however, income taxes are provided on a separate return basis. Tax obligations of the Partnership Guarantors will be remitted to the parent only to the extent of cash flows available after operating expenses and debt service.

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51" ("Fin 46"). Fin 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest, or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB issued FASB Interpretation No. 46R ("FIN 46R") which served to clarify guidance in Fin 46. During the fourth quarter of 2003, the Partnership Guarantors adopted the provisions of FIN 46R with respect to special purpose entities. The adoption did not have a significant impact on the Partnership Guarantors' financial position, results of operations or cash flows. The Partnership Guarantors adopted the provisions of FIN 46R related to non-special purpose entities in the first quarter of 2004. The Partnership Guarantors have considered the provisions of FIN 46R for all subsidiaries and their related power purchase or power sale agreements. Factors considered in the analysis include the duration of the agreements, how capacity and energy payments are determined, as well as responsibility and payment for operating and maintenance expenses. As a result of these considerations, the Partnership Guarantors have determined their power purchase and power sale agreements do not represent significant variable interest. Accordingly, the Partnership Guarantors have concluded that it is appropriate to continue to consolidate their power plant projects.

3. Discontinued Operations - Mineral Assets and Zinc Recovery Project

The Partnership Guarantors' long-lived assets include rights to commercial quantities of extractable minerals from elements in solution in the geothermal brine and fluids utilized at the Partnership Projects and the Zinc Recovery Project, which was intended to recover zinc from the geothermal brine through an ion exchange, solvent extraction, electrowinning and casting process.

The Zinc Recovery Project began limited production during December 2002 and continued limited production until September 10, 2004. Efforts to increase production had continued since the Zinc Recovery Project was placed in service with an emphasis on process modification. Management had been assessing the long-term economic viability of the Zinc Recovery Project in light of continuing cash flow and operating losses and the efforts to increased production, and had continued to evaluate the expected impact of the planned improvements to the extraction process during the third quarter of 2004. Furthermore, management had been exploring other operating alternatives, such as establishing strategic partnerships and consideration of ceasing operations of the Zinc Recovery Project.

On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project, effective immediately. Based on this decision, a non-cash, after-tax impairment charge of $390.0 million has been recorded to write-off the Zinc Recovery Project, rights to quantities of extractable minerals, and allocated goodwill (collectively the "Mineral Assets"). The income tax benefit recorded in connection with the impairment charge represents the reversal of book and tax basis differences related to property, plant and equipment, net of tax benefits previously recognized on operating losses. The

charge and related activity of the Mineral Assets are classified separately as discontinued operations in the accompanying combined statements of operations and include the following (in thousands):

	Years Ended
	December 31,
	2004			2003			2002

Total revenue	$	3,401		$	659		$	288

Losses from discontinued operations	$	(32,577	)	$	(46,550	)	$	(33,126	)
Costs of disposal activities, net		(4,134	)		-			-
Asset impairment charges		(363,432	)		-			-
Goodwill impairment charges		(43,125	)		-			-
Income tax benefits		30,279			18,969			13,499
Loss from discontinued operations, net of tax	$	(412,989	)	$	(27,581	)	$	(19,627	)

In connection with ceasing operations, CalEnergy Minerals has made cash expenditures of approximately $4.1 million, consisting of pre-tax disposal costs, termination benefit costs and property taxes. CalEnergy Minerals expects to make additional cash expenditures consisting of pre-tax disposal costs and property taxes of approximately $1.6 million. Substantially all of such costs relate to disposal activities, and the disposal costs are expected to be partially offset by proceeds from sales of the Zinc Recovery Project’s assets. These costs are recognized in the period in which the related liability is incurred. Salvage proceeds will be recognized in the period earned. Implementation of a disposal plan began in September 2004 and is continuing into 2005. The costs of disposal activities for the year ended December 31, 2004, are as follows (in thousands):

Accrued disposal costs at December 31, 2003	$	-
Costs of disposal activities		4,552
Payments of disposal costs		(4,122	)
Proceeds from sales of assets		-
Accrued disposal costs at December 31, 2004	$	430

On December 13, 2004 CalEnergy Minerals entered into a project decommissioning contract (the "Decommissioning Contract") and an equipment purchase agreement (the "Equipment Purchase Agreement") with a third party contractor. Under the terms of the Decommissioning Contract, the contractor has agreed to dismantle and remove certain Zinc Recovery Project equipment and other assets on a turnkey, fixed price, date certain basis. Under the terms of the Equipment Purchase Agreement the contractor has agreed to purchase certain Zinc Recovery Project equipment for a guaranteed purchase price of approximately $4.1 million, payable in scheduled installments, the payment of which is secured by a $0.5 million letter of credit that has been issued for the benefit of CalEnergy Minerals. Additionally, any gross proceeds the contractor receives from the sale of such equipment and other assets over approximately $5.7 million will be shared equally with CalEnergy Minerals. CalEnergy Minerals will retain ownership of the remaining Zinc Recovery Project equipment and other assets for potential direct sale to third parties. Under the terms of the Equipment Purchase Agreement and the Decommissioning Contract, CalEnergy Minerals has an option, exercisable no later than October 1, 2005, to sell this retained equipment and other assets to the contractor for approximately $0.1 million and have it removed by the contractor no later than December 31, 2005

4. Properties, Plants and Equipment, Net

Properties, plants and equipment as of December 31 are as follows (in thousands):

	2004			2003
Cost:
Power plant and equipment	$	234,865		$	232,842
Zinc Recovery Project (see Note 3)		-			209,726
Mineral Reserves (see Note 3)		-			162,487
Wells and resource development		108,396			105,210
Total operating assets		343,261			710,265
Accumulated depreciation and amortization		(138,276	)		(127,070	)
Property, plant and equipment, net	$	204,985		$	583,195

The CE Turbo Project was constructed by Stone & Webster, Inc. ("Stone & Webster"), pursuant to the CE Turbo Project EPC Contract. On March 7, 2002, Vulcan, Del Ranch, and CE Turbo, the owners of the CE Turbo Project, filed a Demand for Arbitration against Stone & Webster for breach of contract and breach of warranty arising from deficiencies in Stone & Webster’s design, engineering, construction and procurement of equipment for the CE Turbo Project pursuant to the CE Turbo Project’s EPC Contract. On November 25, 2002, Vulcan, Del Ranch, and CE Turbo entered into a settlement agreement with Stone & Webster. The settlement agreement resulted in a $3.5 million payment from Stone & Webster which was recorded as a reduction of incremental capital expenditures.

5. Intangible Assets, Net

The following table summarizes the acquired intangible assets as of December 31 (in thousands):

			2004				2003
			Gross				Gross
	Estimated		Carrying		Accumulated		Carrying		Accumulated
	Useful Lives		Amount		Amortization		Amount		Amortization

Power Purchase Contracts		4 to 20 years	$	123,002	$	100,032	$	123,002	$	98,463
Patented Technology		24 years		46,290		19,243		46,290		17,314
Total			$	169,292	$	119,275	$	169,292	$	115,777

Amortization expense on acquired intangible assets was $3.5 million, $3.8 million and $3.6 million for the years ended December 31, 2004, 2003 and 2002, respectively. The Partnership Guarantors expect amortization expense on acquired intangible assets to be $3.5 million for each of the five succeeding fiscal years.

6. Senior Secured Project Notes

The Partnership Guarantors’ project notes payable to Funding Corporation as of December 31 are as follows (in thousands):

	Senior		Final
Date issued	Secured Securities		Maturity Date		Rate		2004		2003

June 20, 1996		E Bonds		May 30, 2011		8.300%		40,072		43,322
October 13, 1998		F Bonds		November 30, 2018		7.475%		58,630		195,778
							$	98,702	$	239,100

The Partnership Guarantors have guaranteed, along with other guarantors, the debt of Funding Corporation, which amounted to $298.4 million at December 31, 2004. The guarantee is collateralized by a lien on the available cash flow of and a pledge of stock in the Partnership Guarantors. The structure has been designed to cross collateralize cash flows from each Guarantor without cross collateralizing all of the Guarantors' assets.

Principal maturities of the senior secured project notes are as follows (in thousands):

	Amount

2005	$	4,265
2006		3,296
2007		2,960
2008		4,572
2009		3,709
Thereafter		79,900
Total	$	98,702

On October 13, 1998, Funding Corporation completed a sale to institutional investors of $285.0 million aggregate amount of 7.475% Senior Secured Series F bonds due November 30, 2018 (the "Series F Bonds"). A portion of the proceeds was advanced to CalEnergy Minerals, an indirect wholly owned subsidiary of MEHC, to fund the cost of construction of the Zinc Recovery Project. The direct and indirect owners of the Zinc Recovery Project (the "Zinc Guarantors", which include CalEnergy Minerals and its sole member, Salton Sea Minerals Corp.) are among the guarantors of Funding Corporation debt. In connection with the divestiture of 50% of CE Generation, MEHC guaranteed the payment by the Zinc Guarantors of a specified portion of the scheduled debt service and certain payments on the senior secured project notes issued by the Partnership Guarantors securing the Series F Bonds.

The estimated fair values of the senior secured project note at December 31, 2004 and 2003 were $110.9 million and $249.7 million, respectively.

7. Related Party Transactions

MEHC contributed equity to the Partnership Guarantors to fund the Zinc Recovery Project’s operating losses, capital expenditures and debt service through September 10, 2004, which was the date the Zinc Recovery Project’s operations were ceased. Equity contributions for the years ended December 31, 2004, 2003 and 2002 were $156.8 million, $50.6 million and $44.5 million, respectively, and are included in the accompanying combined statements of cash flows as part of net financing activity cash flows from discontinued operations. The 2004 equity contributions include MEHC's $136.4 million funding of its guarantee of the Series F Bonds which were redeemed on March 1, 2004 and MEHC’s $20.4 million funding of the Zinc Recovery Project’s operating losses. Additionally, through September 10, 2004, MEHC had funded $41.7 million of the Zinc Recovery Project’s operating losses, which had been recorded as a due to affiliate on the Partnership Guarantors’ combined balance sheet. Due to the cessation of the Zinc Recovery Project’s operations, MEHC does not expect to recover these amounts. As such, the $41.7 million due to affiliate has been reclassified as an equity contribution and is included in total equity contributions of $198.5 million for the year ended December 31, 2004.

Pursuant to the Easement Grant Deed and Agreement Regarding Rights for Geothermal Development, the Partnership Guarantors acquired from Magma rights to extract geothermal brine from the geothermal lease rights property which is necessary to operate the Leathers, Del Ranch and Elmore Projects in return for 17.333%, on a pro rata basis, of all energy revenue received by each plant. The Partnership Guarantors' share of amounts expensed under this agreement for 2004, 2003 and 2002 were $8.2 million, $8.8 million and $8.5 million, respectively.

Pursuant to Ground Leases dated March 15 and August 15, 1988 with Magma, the Partnership Guarantors lease from Magma for 32 years the surface of the land as described in the Imperial County Assessor's official records. Amounts expensed under the ground leases for 2004, 2003 and 2002 were $70,000 per year.

Pursuant to the Administrative Services Agreements with CEOC, CEOC will provide to the Partnerships administrative and management services for a period of 32 years through 2020. Fees payable to CEOC amount to the greater of 3% of total electricity revenue or $60,000 per month. The minimum monthly payments for years subsequent to 1989 are increased based on the consumer price index of the Bureau of Labor and Statistics. Amounts expensed related to these agreements for 2004, 2003 and 2002 amounted to $2.8 million, $2.1 million and $2.1 million, respectively.

Commencing March 27, 2001, CE Turbo entered into a series of transaction agreements to sell all available power from the CE Turbo Project to El Paso Merchant Energy Company ("EPME") based on percentages of the Dow Jones SP-15 Index. On February 11, 2003, CE Turbo ceased selling available power to EPME. Pursuant to these agreements, sales to EPME totaled $0.4 million and $1.6 million in 2003 and 2002, respectively. As of December 31, 2004 and 2003, there were no accounts receivable balances from EPME.

Pursuant to a transaction agreement dated January 29, 2003 (the "TransAlta Transaction Agreement"), CE Turbo began selling available power to TransAlta on February 12, 2003 at prices based on percentages of the Dow Jones SP-15 Index. The TransAlta Transaction Agreement shall continue until the earlier of (a) 30 days following a written notice of termination or (b) any other termination date mutually agreed to by the parties. No such notice of termination has been given by either party. Pursuant to this agreement, sales to TransAlta were $3.3 million and $2.2 million in 2004 and 2003, respectively. As of December 31, 2004 and 2003, accounts receivable from TransAlta was $0.4 million.

On January 21, 2004 CE Turbo and Salton Sea Power L.L.C. entered into a Green Energy Tag Purchase and Sale Agreement to sell the non-power attributes (the non-power attributes made available by 1 MWh of generation, a "Green Tag") associated with up to 931,800 MWh of available generation at the CE Turbo Project and Salton Sea V Project through December 31, 2008 to TransAlta Energy Marketing (U.S.) Inc. ("TransAlta Marketing") at a market price per Green Tag. Pursuant to this agreement, there were no sales to TransAlta Marketing from CE Turbo in 2004.

8. Condensed Financial Information (in thousands)

	Vulcan										Vulcan		CalEnergy			Turbo			Adjustments/			Combined
	Power		CEOC		Elmore		Del Ranch		Leathers		BNG		Minerals			Turbo			Eliminations			Total
December 31, 2004:
Assets:
Restricted cash	$	-	$	-	$	-	$	-	$	-	$	-	$	965		$	-		$	-		$	965
Trade accounts receivable and other current assets		-		18,693		3,514		3,589		3,543		3,496		375			570			576			34,356
Due from affiliates		32,667		61,121		63,291		67,744		56,111		76,006		-			(1,118	)		(150,436	)		205,386
Properties, plants, and equipment and intangible assets		12,182		10,565		47,523		43,718		55,164		46,245		-			9,788			29,817			255,002
Management fee and goodwill		-		-		-		-		-		-		-			-			118,072			118,072
Investments in partnerships		125,013		340,518		-		-		-		-		-			-			(465,531	)		-
Total assets	$	169,862	$	430,897	$	114,328	$	115,051	$	114,818	$	125,747	$	1,340		$	9,240		$	(467,502	)	$	613,781

Liabilities and Guarantors' Equity:
Accounts payable, accrued liabilities and deferred taxes	$	149	$	9,486	$	1,149	$	1,291	$	1,239	$	734	$	(1,904	)	$	1,015		$	99,230		$	112,389
Senior secured project notes		-		-		-		-		-		-		-			-			98,702			98,702
Total liabilities		149		9,486		1,149		1,291		1,239		734		(1,904	)		1,015			197,932			211,091
Guarantors' equity		169,713		421,411		113,179		113,760		113,579		125,013		3,244			8,225			(665,434	)		402,690
Total liabilities and guarantors' equity	$	169,862	$	430,897	$	114,328	$	115,051	$	114,818	$	125,747	$	1,340		$	9,240		$	(467,502	)	$	613,781

	Vulcan										Vulcan		CalEnergy					Adjustments/			Combined
	Power		CEOC		Elmore		Del Ranch		Leathers		BNG		Minerals		Turbo			Eliminations			Total
December 31, 2003:
Assets:
Restricted cash	$	-	$	-	$	-	$	-	$	-	$	-	$	441	$	-		$	-		$	441
Trade accounts receivable and other current assets		-		17,716		3,628		3,471		3,385		3,452		4,749		681			108			37,190
Due from affiliates		33,628		48,297		58,832		59,179		54,883		64,659		56,764		(2,684	)		(216,027	)		157,531
Properties, plants, and equipment and intangible assets, net		11,202		13,333		51,215		51,037		58,464		54,141		167,074		9,043			221,201			636,710
Management fee and goodwill		-		-		-		-		-		-		-		-			166,256			166,256
Investments in partnerships		121,136		341,755		-		-		-		-		-		-			(462,891	)		-
Total assets	$	165,966	$	421,101	$	113,675	$	113,687	$	116,732	$	122,252	$	229,028	$	7,040		$	(291,353	)	$	998,128

Liabilities and Guarantors' Equity:
Accounts payable, accrued liabilities and deferred taxes	$	130	$	3,802	$	364	$	1,304	$	671	$	1,116	$	22,833	$	80		$	116,524		$	146,824
Senior secured project notes		-		-		-		-		-		-		136,383		-			102,717			239,100
Total liabilities		130		3,802		364		1,304		671		1,116		159,216		80			219,241			385,924
Guarantors' equity		165,836		417,299		113,311		112,383		116,061		121,136		69,812		6,960			(510,594	)		612,204
Total liabilities and guarantors' equity	$	165,966	$	421,101	$	113,675	$	113,687	$	116,732	$	122,252	$	229,028	$	7,040		$	(291,353	)	$	998,128

Condensed combining statements of operations including information of the Partnership Guarantors' pro rata interest in the respective entities for the years ended December 31, 2004, 2003 and 2002 are as follows (in thousands):

	Vulcan												Vulcan				CalEnergy			Adjustments/			Combined
	Power		CEOC		Elmore			Del Ranch		Leathers			BNG		Turbo		Minerals			Eliminations			Total
December 31, 2004:
Revenue	$	677	$	5,372	$	23,163		$	22,587	$	22,543		$	21,798	$	4,381	$	-		$	(5,196	)	$	95,325
Costs and expenses		677		15		23,295			21,210		25,025			17,921		3,118		-			(928	)		90,333
Income (loss) from continuing operations		-		5,357		(132	)		1,377		(2,482	)		3,877		1,263		-			(4,268	)		4,992
Loss from discontinued operations		-		-		-			-		-			-		-		(412,989	)		-			(412,989	)
Net income (loss)	$	-	$

CALENERGY OPERATING CORP 10-K