Calenergy Co Inc – ‘DEFR14A’ on 1/23/95

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Revised Definitive Proxy Solicitation Material   —   Schedule 14A
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Document/Exhibit                   Description                      Pages   Size 

 1: DEFR14A     Revised Proxy Soliciting Materials--Definitive       168    989K 

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As filed with the Securities and Exchange Commission on January 23, 1995  

DEFINITIVE PROXY MATERIALS  

SCHEDULE 14A INFORMATION  

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF  
THE SECURITIES EXCHANGE ACT OF 1934   

Filed by the registrant  [X]                                              

Filed by a party other than the registrant  [ ]                           

Check the appropriate box:                                                

[ ] Preliminary proxy statement                                         

[X] Definitive proxy statement                                          

[ ] Definitive additional materials                                     

[ ] Soliciting material pursuant to Section 240.14a-11(c) or            
Section 240.14a-12                                              

CALIFORNIA ENERGY COMPANY, INC.   
------------------------------------------------------------------------------- 
(Name of Registrant as specified in its Charter)  

CALIFORNIA ENERGY COMPANY, INC.   
------------------------------------------------------------------------------- 
(Name of person(s) filing proxy statement)  

Payment of filing fee (Check the appropriate box):                              

   [X] $125 per Exchange Act Rule 0-11(c)(l)(ii), 14a-6(i)(l), or 14a-6(i)(2).

[ ] $500 per each party to the controversy pursuant to Exchange Act     
Rule 14a-6(i)(3).                                               

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)      
and 0-11.                                                       

(1) Title of each class of securities to which transaction applies:       

(2) Aggregate number of securities to which transactions applies:         

(3) Per unit price or other underlying value of transaction computed      
pursuant to Exchange Act Rule 0-11:                                             

(4) Proposed maximum aggregate value of transaction:                      

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[X] Check box if any part of the fee is offset as provided by Exchange  
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was    
paid previously. Identify the previous filing by registration statement         
number, or the Form or Schedule and the date of its filing.                     

(1) Amount previously paid:                                               
$125                                                            

(2) Form, Schedule or Registration Statement No.:                         
Schedule 14A                                                    

(3) Filing Party:                                                         
California Energy Company, Inc.                                 

(4) Date Filed:                                                           
December 21, 1994                                               

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[CALIFORNIA ENERGY LOGO]    

CALIFORNIA ENERGY COMPANY, INC. 

10831 OLD MILL ROAD   
OMAHA, NE 68154   

January 23, 1995  

Dear Fellow Stockholder:                                                        

You are cordially invited to attend the Special Meeting of Stockholders of
California Energy Company, Inc. (the "Company") to be held at the Marriott      
Hotel, 10220 Regency Circle, in Omaha, Nebraska on February 10, 1995 at 10:00   
A.M., local time.                                                               

The following matters will be considered and acted upon at the Special    
Meeting: (i) amendment of the Company's Restated Certificate of Incorporation   
to increase by 20,000,000 the number of shares of common stock of the Company   
authorized to be issued from 60,000,000 to 80,000,000; (ii) approval of the     
issuance of up to 17,700,000 shares of common stock of the Company to holders   
of common stock of Magma Power Company ("Magma"), in connection with the        
pending acquisition of Magma by the Company; and (iii) transaction of such      
other matters as may be incidental to the conduct of the Special Meeting. A     
vote for these proposals is, in effect, a vote for completion of the            
Company's acquisition of Magma by way of the merger described in the attached   
Proxy Statement. As a result of the acquisition of Magma, shares of Company     
common stock will be issued either to the former Magma stockholders or to the   
public such that the newly issued shares will represent approximately 25.2%     
to 33.1% of the aggregate Company common stock issued, common stock             
equivalents and shares reserved for issuance pursuant to stock option plans     
and an employee stock purchase plan.                                            

Information concerning the matters to be considered and voted upon at the 
Special Meeting is set forth in the attached Notice of Special Meeting and      
Proxy Statement. We encourage you to review the attached material carefully     
and to sign, date and return the enclosed proxy card in the enclosed postage    
paid envelope. Each proxy is revocable and will not affect your right to vote   
in person if you attend the meeting.                                            

Sincerely,      

/s/ David L. Sokol      
David L. Sokol  
                          Chairman of the Board, President and Chief
 Executive Officer

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[CALIFORNIA ENERGY LOGO]    

CALIFORNIA ENERGY COMPANY, INC.   

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS   

TO BE HELD ON FEBRUARY 10, 1995   

To the Stockholders of California Energy Company, Inc.:                         

Notice is hereby given that a Special Meeting of Stockholders of          
California Energy Company, Inc. (the "Company") will be held at the Marriott    
Hotel, 10220 Regency Circle, in Omaha, Nebraska on February 10, 1995 at 10:00   
A.M. local time for the following purposes:                                     

1. To amend the Company's Amended and Restated Certificate of     
Incorporation to increase the number of shares of common stock of the   
Company (the "Common Stock") authorized to be issued by the Company from
60,000,000 to 80,000,000;                                               

   2. To approve the issuance of up to 17,700,000 shares of Common Stock
as part of the Merger Consideration in the pending acquisition of Magma 
Power Company ("Magma"), by the Company; and                            

   3. To transact such other matters as may be incidental to the conduct
of the Special Meeting.                                                 

A vote for these proposals is, in effect, a vote for completion of the    
Company's acquisition of Magma by way of the merger described in the attached   
Proxy Statement. As a result of the acquisition of Magma, shares of Company     
common stock will be issued either to the former Magma stockholders or to the   
public such that the newly issued shares will represent approximately 25.2%     
to 33.1% of the aggregate Company common stock issued, common stock             
equivalents and shares reserved for issuance pursuant to stock option plans     
and an employee stock purchase plan.                                            

All Stockholders of record at the close of business on January 17, 1995   
are entitled to vote at the Special Meeting.                                    

To ensure that your shares are represented, you are urged to please fill  
in, sign, date and return the enclosed proxy card promptly in the enclosed      
postage paid envelope. You may revoke your proxy at any time before it is       
voted at the Special Meeting. If you attend the meeting, you may vote your      
shares in person.                                                               

Please date your proxy card and sign it exactly as your name appears on   
the proxy card.                                                                 

                  By Order of the Board of Directors

/s/ David L. Sokol      
David L. Sokol  
                          Chairman of the Board, President and Chief
 Executive Officer

January 23, 1995                                                                

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TABLE OF CONTENTS   

                                                        [Enlarge/Download Table]

                                                                                  PAGE  
                                                                                --------
                                                                                        
INTRODUCTION ....................................................................  1    
SUMMARY .........................................................................  2    
 Time, Place and Date of the Special Meeting; Record Date .......................  2    
 The Proposals ..................................................................  2    
 Voting and Vote Required .......................................................  3    
 The Pending Acquisition ........................................................  3    
 Reasons for the Pending Acquisition ............................................  3    
 Recommendation of the Company's Board ..........................................  3    
 Opinions of Financial Advisors .................................................  4    
 Description of the Merger Agreement ............................................  4    
 Conflicts of Interest of Members of the Magma Board ............................  5    
 Regulatory Approvals ...........................................................  5    
 Accounting Treatment ...........................................................  5    
 Stock Exchange Listing .........................................................  5    
 Dissenters' Rights .............................................................  6    
 Market Prices and Dividends ....................................................  6    
VOTING AND VOTE REQUIRED ........................................................  7    
PROPOSAL 1 ......................................................................  8    
PROPOSAL 2 ......................................................................  9    
THE PENDING ACQUISITION AND THE MERGER AGREEMENT ................................ 10    
 The Pending Acquisition ........................................................ 10    
 Background of the Merger ....................................................... 10    
 Reasons for the Pending Acquisition ............................................ 14    
 Recommendation of the Company's Board .......................................... 14    
 Opinion of the Company's Financial Advisor ..................................... 16    
 Opinion of Magma's Financial Advisor ........................................... 19    
 Description of the Merger Agreement ............................................ 22    
 Conflicts of Interest of Members of the Magma Board ............................ 29    
 Antitrust ...................................................................... 31    
 Regulatory Approvals ........................................................... 31    
 Accounting Treatment ........................................................... 31    
 Federal Income Tax Consequences ................................................ 31    
 Stock Exchange Listing ......................................................... 31    
 Effects of the Pending Acquisition ............................................. 31    
 Source and Amount of Funds ..................................................... 32    
CAPITALIZATION OF THE COMPANY ................................................... 34    
 Merger Consideration Consisting of a Combination of Cash and Common Stock  ..... 34    
 Merger Consideration Consisting of All Cash .................................... 35    
COMPARISON OF CERTAIN UNAUDITED DATA ............................................ 36    
 Merger Consideration Consisting of a Combination of Cash and Common Stock  ..... 36    
 Merger Consideration Consisting of All Cash .................................... 37    
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND                                          
 OPERATING DATA OF THE COMPANY .................................................. 38    
SELECTED HISTORICAL CONSOLIDATED FINANCIAL                                              
 AND OPERATING DATA OF MAGMA .................................................... 40    
BUSINESS OF THE COMPANY AND MAGMA                                                       
 AND RELATED INFORMATION ........................................................ 41    
  General ....................................................................... 41    
  International Projects ........................................................ 47    


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                                                                                  PAGE  
                                                                                --------
                                                                                        

  Domestic Projects ............................................................. 48    
  International Projects--Discussion ...........................................  49    
  Domestic Projects--Discussion ................................................  57    
  Regulatory and Environmental Matters .......................................... 63    
  Employees ..................................................................... 64    
  Properties .................................................................... 65    
  Legal Proceedings ............................................................. 65    
THE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND             
    RESULTS OF OPERATIONS ....................................................... 66    
  General ....................................................................... 66    
  Results of Operations Through September 30, 1994 .............................. 66    
  Results of Operations for Three Years Ended December 31, 1993, 1992, and 1991 . 68    
  Liquidity and Capital Resources Through September 30, 1994 .................... 71    
  Liquidity and Capital Resources Through December 31, 1993 ..................... 74    
  Adoption of Financial Accounting Standard No. 109 ............................. 76    
MAGMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF        
    OPERATIONS .................................................................. 77    
  Results of Operations: Third Quarter 1994 Compared to Third Quarter 1993 ...... 77    
  Nine Months Ended September 30, 1994 Compared to Nine Months Ended September          
    30, 1993 .................................................................... 78    
  Results of Operations: 1993 Compared to 1992 .................................. 79    
  Results of Operations: 1992 Compared to 1991 .................................. 81    
  Liquidity and Capital Resources ............................................... 83    
  Seasonality ................................................................... 85    
  Inflation ..................................................................... 85    
  Future Rates .................................................................. 85    
  PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL DATA ......................... 86    
  Pro Forma Unaudited Condensed Combined Balance Sheet (Merger Consideration            
    Consisting of a Combination of Cash and Common Stock) ....................... 87    
  Pro Forma Unaudited Condensed Combined Statements of Earnings (Merger                 
    Consideration Consisting of a Combination of Cash and Common Stock) ......... 88    
  Notes To Pro Forma Unaudited Condensed Combined Financial Data (Merger                
    Consideration Consisting of a Combination of Cash and Common Stock) ......... 89    
  Pro Forma Unaudited Condensed Combined Balance Sheet (Merger Consideration            
    Consisting of All Cash) ..................................................... 91    
  Pro Forma Unaudited Condensed Combined Statements of Earnings (Merger                 
    Consideration Consisting of All Cash) ....................................... 92    
  Notes To Pro Forma Unaudited Condensed Combined Financial Data (Merger                
    Consideration Consisting of All Cash) ....................................... 93    
MARKET PRICES AND DIVIDENDS ..................................................... 95    
SECURITY OWNERSHIP OF SIGNIFICANT STOCKHOLDERS AND MANAGEMENT ................... 97    
OTHER MATTERS ................................................................... 98    
STOCKHOLDER PROPOSALS ........................................................... 98    
ACCOUNTANT'S REPRESENTATIVES .................................................... 98    
AVAILABLE INFORMATION ........................................................... 98    
INDEX TO FINANCIAL STATEMENTS ................................................... F-1   
Annex A Opinion of Gleacher & Co. Inc. .......................................... A-1   
Annex B Opinion of Goldman, Sachs & Co. ......................................... B-1   


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CALIFORNIA ENERGY COMPANY, INC.   

10831 OLD MILL ROAD   
OMAHA, NE 68154   

PROXY STATEMENT   

SPECIAL MEETING OF STOCKHOLDERS   
February 10, 1995   

INTRODUCTION  

This Proxy Statement ("Proxy Statement") is furnished in connection with  
the solicitation of proxies on behalf of the Board of Directors (the            
"Company's Board") of California Energy Company, Inc. (the "Company") to be     
voted at the Special Meeting of Stockholders to be held on February 10, 1995,   
or any adjournment or postponement thereof (the "Special Meeting"). The         
purpose of the Special Meeting of Stockholders is:                              

1. To amend the Company's Amended and Restated Certificate of       
Incorporation to increase the number of shares of common stock, $0.0675 par     
value, of the Company ("Common Stock") authorized to be issued by the Company   
from 60,000,000 to 80,000,000;                                                  

 2. To approve the issuance of up to 17,700,000 shares of Common Stock
in connection with the acquisition (the "Pending Acquisition") by the Company   
of Magma Power Company, a Nevada corporation ("Magma"), pursuant to an          
Agreement and Plan of Merger, dated as of December 5, 1994 (the "Merger         
Agreement"), among the Company, CE Acquisition Company, Inc., a wholly owned    
subsidiary of the Company (the "Purchaser"), and Magma; and                     

 3. To transact such other matters as may be incidental to the conduct
of the Special Meeting.                                                         

A vote for these proposals is, in effect, a vote for completion of the    
Company's acquisition of Magma by way of the Merger (as defined below).         
Pursuant to the Merger Agreement, the Company may elect to pay the              
consideration to be paid in the Merger to the holders of shares of the common   
stock, par value $0.10 per share, of Magma ("Magma Shares") either with a       
combination of cash and Common Stock or solely in cash. As a result of the      
acquisition of Magma, shares of Company common stock will be issued either to   
the former Magma stockholders or to the public such that the newly issued       
shares will represent approximately 25.2% to 33.1% of the aggregate Company     
common stock issued, common stock equivalents and shares reserved for           
issuance pursuant to stock option plans and an employee stock purchase plan.    

This Proxy Statement, the attached Notice of Special Meeting and the      
accompanying Proxy are being mailed to stockholders of the Company on or        
about January 23, 1995.                                                         

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SUMMARY   

The following is a brief summary of the more detailed information         
contained in this Proxy Statement with respect to the proposals to be           
considered at the Special Meeting and with respect to the Pending               
Acquisition. This Summary is not intended to be complete and is qualified in    
its entirety by the more detailed information contained elsewhere in this       
Proxy Statement. Terms used but not defined in this Summary have the meanings   
ascribed to them elsewhere in this Proxy Statement. Cross references in this    
Summary are to the captions of sections of this Proxy Statement.                

Stockholders of the Company should read carefully this Proxy Statement in 
its entirety.                                                                   

TIME, PLACE AND DATE OF THE SPECIAL MEETING; RECORD DATE                        

The Special Meeting will be held at 10:00 a.m., Nebraska time, on February
10, 1995 at the Marriott Hotel, 10220 Regency Circle, in Omaha, Nebraska.       
Only holders of Common Stock of record at the close of business on January      
17, 1995, the Record Date, are entitled to vote at the Special Meeting or any   
adjournment or postponement thereof.                                            

THE PROPOSALS                                                                   

The Special Meeting is being held for the purpose of voting on the        
following proposals:                                                            

 Proposal 1. To amend the Company's Amended and Restated Certificate
of Incorporation to increase the number of shares of Common Stock       
 authorized to be issued by the Company from 60,000,000 to 80,000,000; and

Proposal 2. To approve the issuance of up to 17,700,000 shares of 
 Common Stock in connection with the Pending Acquisition by the Company of
Magma, pursuant the Merger Agreement.                                   

Proposal 1. The Company's Board has unanimously approved and recommended  
to the Company's stockholders an amendment to the Amended and Restated          
Certificate of Incorporation to increase by 20,000,000 shares the number of     
shares of Common Stock the Company is authorized to issue.                      

If Proposal 1 is not approved by the Company's stockholders, the Company  
will be unable to consummate the Merger; therefore, a vote FOR Proposal 1 is,   
in effect, a vote for the Merger. The Company will own 51% of the outstanding   
Magma Shares and such Magma Shares will remain pledged to Credit Suisse         
pursuant to the terms of the Tender Facility. See "Source and Amount of         
Funds." The anticipated benefits of the Merger would not be realized by the     
Company, which, as a majority stockholder of Magma, would be subject to         
fiduciary duties vis-a-vis Magma's other stockholders that would preclude       
operation of the two companies as a single business unit.                       

Proposal 2. Pursuant to the policy of the New York Stock Exchange, Inc.   
(the "NYSE"), the Company's stockholders are being asked to approve the         
issuance and reservation for issuance by the Company of the Common Stock to     
be issued as part of the Merger Consideration (as defined below) to be paid     
in the Merger in the event the Company elects to pay the Merger Consideration   
with a combination of cash and Common Stock. If the Company elects to pay the   
Merger Consideration solely in cash, no approval pursuant to Proposal 2 will    
be required. Approval by a majority of the votes cast on this proposal will     
be required provided that the total vote cast represents at least a majority    
of the Voting Stock (as defined below) entitled to vote on this proposal.       

If Proposal 1 is approved by the Company's stockholders and the Company   
elects to pay the Merger Consideration with a combination of cash and Common    
Stock, but the required affirmative vote by the stockholders is not obtained    
and the NYSE were to commence delisting proceedings or refuses to list the      
Common Stock of the Company, the Company intends promptly to apply to list      
the Common Stock on the Nasdaq National Market ("NNM") and, upon such           
listing, to consummate the Merger. Although there can be no assurance that      
the NNM would approve the Common Stock for listing thereon, the Company is      
unaware of any reason why the Common Stock would not be eligible for listing    
thereon.                                                                        

2               

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VOTING AND VOTE REQUIRED                                                        

The Voting Stock consists of the Common Stock and the Series C Redeemable 
Preferred Stock (as defined below) of the Company. Holders of the Common        
Stock and holders of the Series C Preferred Stock will vote together as a       
single class at the Special Meeting. Each share of Common Stock will be         
entitled to one vote on all matters presented at the Special Meeting. Each      
share of Series C Preferred Stock will be entitled to vote on an "as            
converted" basis on all matters presented at the Special Meeting.               

The approval of sixty-six and two-thirds percent (66 2/3 %) of the Voting 
Stock (whether or not present at the Special Meeting) is required to approve    
Proposal 1. A quorum equal to sixty-six and two-thirds percent (66 2/3 %) of    
the Voting Stock must be present in person or by proxy at the Special Meeting   
in order to consider Proposal 1. The approval by a majority of the Voting       
Stock cast is required to approve Proposal 2, provided that the total Voting    
Stock cast on Proposal 2 represents over 50% in interest of all the Voting      
Stock. Peter Kiewit Sons', Inc. ("PKS"), the beneficial owner of                
approximately 39.1% of the voting power of the outstanding Voting Stock, has    
agreed to vote in favor of Proposal 1 and Proposal 2.                           

THE PENDING ACQUISITION                                                         

Pursuant to the Merger Agreement, on January 10, 1995, CE Acquisition     
Company, Inc. (the "Purchaser") purchased 12,400,000 Magma Shares at $39.00     
per Magma Share, net to the seller in cash, without interest thereon,           
pursuant to a tender offer commenced on December 9, 1994 (the "Offer"). As a    
result of the consummation of the Offer, the Purchaser acquired majority        
control of Magma as the first step in the acquisition of the entire equity      
interest in Magma. Pursuant to the Merger Agreement, the Purchaser will, as     
soon as practicable, consummate the Merger with Magma. The purpose of the       
Merger is to acquire all Magma Shares not beneficially owned by the             
Purchaser. As a result of the Merger, Magma will continue as the surviving      
corporation and will become a wholly owned subsidiary of the Company.           

REASONS FOR THE PENDING ACQUISITION                                             

The Company believes that combining the businesses of the Company and     
Magma will provide an excellent strategic fit due to the synergies and other    
benefits which will result from combining the operations of Magma and the       
Company pursuant to the Merger Agreement and which will strengthen the          
combined companies' competitive position in the increasingly challenging        
business environment and global markets in which they presently operate.        

Each of Magma and the Company have separately indicated their respective  
beliefs that, in the next several years, the greatest opportunities for         
financially attractive development projects will be found in the                
international markets and each company is engaged in, or otherwise pursuing,    
geothermal power and other power development projects in the Philippines and    
Indonesia, and elsewhere overseas where competition is strong and involves      
much larger entities than either company.                                       

The Company believes that the combined companies' international growth    
prospects will be substantially enhanced by the expanded development,           
financial, construction and operational resources and capabilities resulting    
from the Merger and that certain domestic and international synergies will      
also result from such a transaction.                                            

RECOMMENDATION OF THE COMPANY'S BOARD                                           

On September 19, 1994, the Company's Board approved a proposal to acquire 
the outstanding Magma Shares for $35.00 per Magma Share for consideration       
consisting of cash and Common Stock, and authorized certain officers of the     
Company to negotiate modifications to the foregoing proposal (including the     
final price and form of the consideration) in consultation with members of      
the Executive Committee of the Company. On December 6, 1994, the Company's      
Board unanimously ratified the signing of the Merger Agreement and the          
transactions contemplated thereby. Therefore, the Company's Board recommends    
that the Company's stockholders vote FOR both Proposal 1 and Proposal 2.        

The Company's Board concluded that the Merger will further the Company's  
objectives in part because of its belief that Magma is an excellent strategic   
fit and that the acquisition will create significant                            

3               

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benefits, including: (i) expansion and enhancement of development efforts,      
(ii) benefits of increased size, (iii) opportunities for operational and        
administrative cost savings, and (iv) diversification in sources of revenue     
and operations. See "Recommendation of the Company's Board."                    

OPINIONS OF FINANCIAL ADVISORS                                                  

On December 6, 1994, Gleacher delivered its written opinion to the        
Company's Board that the consideration to be paid by the Company pursuant to    
the Offer and the Merger is fair to the Company from a financial point of       
view. A copy of the written opinion of Gleacher, dated December 6, 1994,        
which sets forth a description of the assumptions made, matters considered      
and limits of its review, is attached to this Proxy Statement as Annex A. See   
"Opinion of the Company's Financial Adviser."                                   

On December 5, 1994, Goldman Sachs delivered its oral opinion (which was  
subsequently confirmed in writing) to the Magma Board of Directors (the         
"Magma Board") that, as of December 5, 1994, the consideration to be received   
by the holders of the Magma Shares in the Offer and the Merger, taken as a      
unitary transaction, was fair to the holders of Magma Shares receiving such     
Consideration (other than the Company and its affiliates). A copy of the        
written opinion of Goldman Sachs, dated December 9, 1994, which sets forth a    
description of the assumptions made, matters considered and limits of its       
review, is attached to this Proxy Statement as Annex B. See "Opinion of         
Magma's Financial Adviser."                                                     

DESCRIPTION OF THE MERGER AGREEMENT                                             

General. The Company, the Purchaser and Magma have entered into the Merger
Agreement, providing for, among other things, the Offer and the Merger.         
Pursuant to the Offer, on January 10, 1995, the Purchaser purchased             
12,400,000 Magma Shares at a price of $39 per Magma Share in cash. Pursuant     
to the Merger Agreement, the Purchaser and Magma will, as soon as practicable   
following consummation of the Offer, consummate the Merger.                     

Merger Consideration. Upon the effectiveness of the Merger, each          
outstanding Magma Share (other than Magma Shares held by the Company, the       
Purchaser or any other direct or indirect subsidiary of the Company and Magma   
Shares held in the treasury of Magma) will be converted into the right to       
receive, at the Company's election, either cash or a combination of cash and    
Common Stock of the Company. If the Company elects to pay the Merger            
Consideration with a combination of cash and Common Stock, the consideration    
paid by the Company in the Offer and the Merger will consist, on a blended      
basis, of $28.50 per Magma Share in cash and $10.50 per Magma Share in market   
value of Common Stock, based on the Average Closing Price and subject to the    
Collar Provision (as such terms are defined below). If the Company elects to    
pay the Merger Consideration solely in cash, the blended consideration paid     
by the Company in the Offer and the Merger would be $38.75 per Magma Share.     

Financing of the Merger. If the Company elects to pay the Merger          
Consideration with a combination of cash and Common Stock, the Company          
estimates that approximately $710,900,000 will be required to effectuate the    
Merger, to refinance bank borrowings incurred in connection with the Offer      
and to pay related fees and expenses. If the Company elects to pay the Merger   
Consideration solely in cash, approximately $957,400,000 will be required to    
complete the Merger. Approximately one-half of whichever amount is required     
will be provided under secured bank credit facilities with Credit Suisse        
pursuant to which Credit Suisse will provide, on specified terms and subject    
to customary conditions, up to $500,000,000 in secured bank financing. Such     
funds, together with a capital contribution by the Company from the Company's   
general corporate funds and, if the Company elects to pay the Merger            
Consideration solely in cash, the net proceeds of a public offering of Common   
Stock will be sufficient to pay the Merger Consideration, to refinance bank     
borrowings incurred in connection with the Offer and to pay related fees and    
expenses.                                                                       

Termination. The Merger Agreement provides that it may be terminated      
before the Effective Time in the following circumstances: (a) by mutual         
consent of the Company's Board and the Magma Board; or (b) by Magma or the      
Company if the Effective Time shall not have occurred on or prior to            
September 30, 1995; or (c) by either the Company or Magma if a court of         
competent jurisdiction or governmental, regulatory or administrative agency     
or commission shall have issued an order, decree or ruling or taken             

4               

CAPITAL PRINTING SYSTEMS]                                                       

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any other action (which order, decree or ruling the parties hereto shall use    
their best efforts to lift), in each case permanently restraining, enjoining    
or otherwise prohibiting the transactions contemplated by the Merger            
Agreement and such order, decree, ruling or other action shall have become      
final and nonappealable; or (d) by the Company if (i) the Magma Board           
withdraws, modifies or changes its recommendation of the Merger Agreement or    
any of the transactions contemplated thereby or shall have resolved to do any   
of the foregoing or (ii) the Magma Board recommends to the holders of Magma     
Shares any proposal with respect to a merger, consolidation, share exchange     
or similar transaction involving Magma or any of its subsidiaries, other than   
the transactions contemplated by the Merger Agreement; or (e) by the Company    
if, without Magma's consent, any person has acquired beneficial ownership or    
the right to acquire beneficial ownership of or any "group" (as defined under   
Section 13(d) of the Exchange Act and the rules and regulations promulgated     
thereunder) has been formed which beneficially owns, or has the right to        
acquire beneficial ownership of, more than 10% of the Magma Shares; or (f) by   
Magma or the Company if (i) a corporation, partnership, person or other         
entity or group shall have made a bona fide offer that the Magma Board          
determines in its good faith judgment and in the exercise of its fiduciary      
duties, after consultation with and based upon the advice of its financial      
and legal advisors, is more favorable to Magma's stockholders than the Offer    
and the Merger or any person (including, without limitation, Magma or any       
affiliate thereof), other than the Company or any affiliate of the Company,     
shall have become the beneficial owner of more than 50% of the then             
outstanding Magma Shares; or (g) by either the Company or Magma if the other    
party shall have breached the Merger Agreement in any material respect and      
such breach continues for a period of ten days after the receipt of notice of   
the breach from the nonbreaching party.                                         

Termination Fee for the Company. The Merger Agreement provides that if it 
is terminated pursuant to clauses (d) or (f) or terminated by the Company       
pursuant to clause (g) of the preceding paragraph, Magma will be required to    
pay the Company a termination fee of $8,000,000 plus the Company's actual       
documented out-of-pocket expenses incurred since September 13, 1994 in          
connection with the Merger Agreement and the transactions contemplated          
thereby, including, without limitation, legal and professional fees and         
expenses.                                                                       

CONFLICTS OF INTEREST OF MEMBERS OF THE MAGMA BOARD                             

The Merger Agreement, including the consideration to be paid in the       
Merger, was negotiated by the Company and Magma at arms' length. The Company    
does not believe that any party to the negotiation of the Merger Agreement      
had a material conflict of interest in respect thereof. However, stockholders   
of the Company should be aware that certain members of Magma's management and   
the Magma Board have certain interests in the Merger that are in addition to    
the interests of Magma stockholders generally and that these same members of    
Magma's management and the Magma Board participated in the negotiation of the   
terms of the Merger Agreement on behalf of Magma's stockholders. See            
"Conflicts of Interest of Members of the Magma Board."                          

REGULATORY APPROVALS                                                            

The Company, the Purchaser and Magma know of no federal or state          
regulatory requirements that must be complied with or approvals that must be    
obtained in order to consummate the Merger, other than the filing of the        
Certificate of Merger or the Merger Agreement with the Secretary of State of    
Nevada and the Secretary of State of Delaware.                                  

ACCOUNTING TREATMENT                                                            

The Merger will be accounted for under the purchase method of accounting. 

STOCK EXCHANGE LISTING                                                          

It is a condition to the Merger that the shares of Common Stock to be     
issued pursuant to the Merger, if any, be authorized for listing on the NYSE.   
Application will be made to list the Common Stock to be issued pursuant to      
the Merger on such exchange.                                                    

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DISSENTERS' RIGHTS                                                              

Neither the holders of the Common Stock nor the holders of the Magma      
Shares have the right to dissent from the Merger or from the authorization or   
issuance of Common Stock in connection therewith.                               

MARKET PRICES AND DIVIDENDS                                                     

The Company. The Common Stock is listed on the NYSE under the symbol "CE".
The Common Stock is also listed on the Pacific Stock Exchange (the "PSE") and   
the London Stock Exchange (the "LSE"). The following table sets forth the       
quarterly high and low last reported sales price per share for the Common       
Stock, as reported on the NYSE Composite Tape, based on published financial     
sources, for the fiscal quarters indicated.                                     

                                                                [Download Table]

QUARTER                        HIGH      LOW   
-------                      --------  --------
                                               
1995:                                          
 First (through January 20)  $17.88    $15.75  
1994:                                          
 Fourth ....................  17.13     15.25  
 Third .....................  17.75     16.00  
 Second ....................  18.13     16.00  
 First .....................  19.25     17.13  
1993:                                          
 Fourth ....................  20.13     18.13  
 Third .....................  18.38     16.00  
 Second ....................  20.13     17.25  
 First .....................  21.50     16.50  

On January 20, 1995, the last full trading day for which quotations were  
available at the time of printing of this Proxy Statement, the last reported    
sale price per share of Common Stock on the NYSE was $17.88. On December 2,     
1994, the last full trading day prior to the announcement that the Merger       
Agreement had been executed, the last reported sale price per share of Common   
Stock on the NYSE was $16.50. On September 19, 1994, the day of the Company's   
issuance of its press release announcing the transmission of a letter to        
Magma containing a proposal to acquire Magma in a transaction in which          
stockholders would receive cash and shares of Common Stock having a combined    
cash and market value of $35 per Magma Share, the last reported sale price      
per share of Common Stock on the NYSE was $16.875.                              

As of March 21, 1994, there were approximately 1,408 holders of record of 
Common Stock. The Company's present policy is to retain earnings to provide     
sufficient funds for the operation and expansion of its business.               
Accordingly, the Company has not paid, and does not have any present plan to    
pay, cash dividends on the Common Stock.                                        

Magma. The Magma Shares are quoted on the NNM under the symbol "MGMA". The
following table sets forth the quarterly high and low last reported sales       
prices of the Magma Shares, as reported by the NNM, based on published          
financial sources, for the fiscal quarters indicated.                           

                                                                [Download Table]

QUARTER                        HIGH      LOW   
-------                      --------  --------
                                               
1995:                                          
 First (through January 20)  $38.25    $37.50  
1994:                                          
 Fourth ....................  37.69     34.25  
 Third .....................  34.88     26.50  
 Second ....................  32.75     28.00  
 First .....................  35.00     30.75  
1993:                                          
 Fourth ....................  39.50     30.25  
 Third .....................  39.00     29.75  
 Second ....................  40.00     30.75  
 First .....................  39.50     31.00  

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On January 20, 1995, the last full trading day for which quotations were  
available at the time of printing of this Proxy Statement, the last reported    
sale price per Magma Share on the NNM was $38.13. On December 2, 1994, the      
last full trading day prior to the announcement that the Merger Agreement had   
been executed, the last reported sale price per Magma Share on the NNM was      
$35.50. On September 19, 1994, the day of the Company's issuance of its press   
release announcing the transmission of a letter to Magma containing a           
proposal to acquire Magma in a transaction in which stockholders of Magma       
would receive cash and shares of Common Stock having a combined cash and        
market value of $35.00 per Magma Share, the reported closing sale price per     
Magma Share on the NNM was $27.50.                                              

VOTING AND VOTE REQUIRED  

The voting stock of the Company (the "Voting Stock") consists of the      
Common Stock and the Series C Redeemable Convertible Exchangeable Preferred     
Stock of the Company (the "Series C Preferred Stock"). Holders of the Common    
Stock and holders of the Series C Preferred Stock will vote together as a       
single class at the Special Meeting. Each share of Common Stock will be         
entitled to one vote on all matters presented at the Special Meeting. Each      
share of Series C Preferred Stock will be entitled to vote on an "as            
converted" basis on all matters presented at the Special Meeting.               

The close of business on January 17, 1995 is the record date (the "Record 
Date") for determining holders of the outstanding Voting Stock (the             
"Stockholders") entitled to vote at the Special Meeting. On the Record Date,    
31,866,621 shares of Common Stock and 1,272 shares of Series C Preferred        
Stock, entitled to 3,461,224 votes, were outstanding.                           

The approval of sixty-six and two-thirds percent (66 2/3 %) of the Voting 
Stock (whether or not present at the Special Meeting) is required to approve    
the amendment of the Company's Amended and Restated Certificate of              
Incorporation (the "Certificate of Incorporation") to increase the amount of    
authorized Common Stock ("Proposal 1"). A quorum equal to sixty-six and         
two-thirds percent (66 2/3 %) of the Voting Stock must be present in person     
or by proxy at the Special Meeting in order to consider Proposal 1. The         
approval by a majority of the Voting Stock cast is required to approve the      
issuance of Common Stock for purposes of the Pending Acquisition ("Proposal     
2"), provided that the total Voting Stock cast on Proposal 2 represents over    
50% in interest of all the Voting Stock. Peter Kiewit Sons', Inc. ("PKS"),      
the beneficial owner of approximately 39.1% of the voting power of the          
outstanding Voting Stock, has agreed to vote in favor of Proposal 1 and         
Proposal 2.                                                                     

All shares of Voting Stock represented by properly executed proxies, which
are returned and not revoked will be voted in accordance with the               
instructions, if any, given therein. If no instructions are provided in a       
proxy, it will be voted FOR the approval of Proposals 1 and 2, and in           
accordance with the proxy-holders' best judgment as to any other matters        
raised at the Special Meeting. For purposes of determining whether a proposal   
has received the required number of votes for approval, abstentions will be     
included in the vote totals with the result that an abstention has the same     
effect as a negative vote. In instances where nominee recordholders, such as    
brokers, are prohibited from exercising discretionary authority for             
beneficial owners who have not returned a proxy ("broker non-votes"), those     
shares will not be included in the vote totals and, therefore, will have no     
effect on the vote. The proxy is revocable and any Stockholder who executes a   
proxy may revoke it at any time before it is voted by delivering to the         
Secretary of the Company a written statement revoking the proxy, by executing   
and delivering to the Secretary of the Company a later dated proxy or by        
voting in person at the Special Meeting.                                        

Expenses in connection with this solicitation of proxies will be paid by  
the Company. Upon request, the Company will reimburse brokers, dealers, banks   
or similar entities acting as nominees for reasonable expenses incurred in      
forwarding copies of these proxy materials to the beneficial owners of shares   
which such persons hold of record. The Company has engaged MacKenzie            
Partners, Inc. ("MacKenzie") to solicit proxies for the Special Meeting for a   
fee of $20,000 plus reimbursement of reasonable expenses. In addition,          
solicitation of proxies may be made through the mail, in person and by          
facsimile and telephone by certain directors, officers and regular employees    
of the Company.                                                                 

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PAGE>                                                                           
PROPOSAL 1  

AMENDMENT OF CERTIFICATE OF INCORPORATION--INCREASE   
IN AUTHORIZED COMMON STOCK IN CONNECTION WITH   
THE PENDING ACQUISITION   

The Company's Board has unanimously approved and recommended to the       
Stockholders an amendment to the Certificate of Incorporation to increase by    
20,000,000 shares the number of shares of Common Stock the Company is           
authorized to issue.                                                            

The Certificate of Incorporation currently authorizes the Company to issue
60,000,000 shares of Common Stock. If Proposal 1 is approved, the Certificate   
of Incorporation would be amended to authorize the Company to issue             
80,000,000 shares of Common Stock. As of the Record Date, (i) 31,866,621        
shares of Common Stock were outstanding, (ii) 1,272 shares of Series C          
Preferred Stock were outstanding and 3,529,252 shares of Common Stock have      
been reserved for issuance upon conversion of such shares of Series C           
Preferred Stock, (iii) 3,541,166 shares of Common Stock have been reserved      
for issuance pursuant to options granted under the Company's Amended and        
Restated 1986 Stock Option Plan (the "Stock Option Plan"), (iv) 6,064,154       
shares of Common Stock have been reserved for issuance under options other      
than those granted under the Stock Option Plan, (v) 4,444,444 shares of         
Common Stock have been reserved for issuance pursuant to the 5% Convertible     
Subordinated Debentures due July 31, 2000 of the Company and (vi) 738,064       
shares of Common Stock have been reserved for issuance pursuant to the          
Company's Employee Stock Purchase Plan. As a result, as of the Record Date an   
insufficient number of authorized but unissued shares of Common Stock remain    
available to permit payment of the Merger Consideration (as defined below).     

As of the date of this Proxy Statement, only approximately 9,900,000      
shares of Common Stock are available for issuance in connection with the        
Merger. If the Company chooses to consummate the Merger by electing to pay      
the Merger Consideration solely in cash, the Company estimates that             
approximately an additional 9,300,000 shares of Common Stock would have to be   
made available for issuance, or if the Company chooses to consummate the        
Merger by electing to pay the Merger Consideration with a combination of cash   
and Common Stock, the Company estimates that approximately an additional        
17,700,000 shares of Common Stock would have to be made available for           
issuance. Although the Company is seeking approval for the authorization of     
an additional 20,000,000 shares of Common Stock, the Company has no current     
plans relating to the shares (up to approximately 800,000 shares) sought to     
be authorized that are not required to be issued in connection with the         
Merger. If Proposal 1 is approved by the Company's stockholders but the         
Merger is not consummated, the additional 20,000,000 shares will remain         
authorized, although the Company has no current plans relating to such shares   
if the Merger were not to occur.                                                

If Proposal 1 is adopted, the Certificate of Incorporation will be amended
accordingly.                                                                    

If Proposal 1 is not approved by the stockholders of the Company, the     
Company will be unable to proceed with the Merger pursuant to the Merger        
Agreement. The Company will own 51% of the outstanding Magma Shares and such    
Magma Shares will remain pledged to Credit Suisse pursuant to the terms of      
the Tender Facility. See "Source and Amount of Funds." The anticipated          
benefits of the Merger would not be realized by the Company, which, as a        
majority stockholder of Magma, would be subject to fiduciary duties vis-a-vis   
Magma's other stockholders that would preclude operation of the two companies   
as a single business unit. See "Reasons for the Pending Acquisition." If        
Proposal 1 is not approved by the stockholders of the Company, the Company      
would not, however, be in breach of the Merger Agreement because its            
obligations thereunder are conditioned upon the approval of Proposal 1.         

The approval of sixty-six and two-thirds percent (66 2/3 %) of the Voting 
Stock (whether or not present at the Special Meeting) is required for           
approval of Proposal 1. A quorum equal to sixty-six and two-thirds percent      
(66 2/3 %) of the Voting Stock must be present in person or by proxy at the     
Special Meeting in order to consider Proposal 1. If no instructions are         
provided in a proxy, such proxy will be voted FOR the approval of Proposal 1.   

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PKS, the beneficial owner of approximately 39.1% of the voting power of   
the outstanding Voting Stock, has agreed to vote in favor of Proposal 1.        

THE COMPANY'S BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.      

PROPOSAL 2  

APPROVAL OF THE ISSUANCE OF COMMON STOCK TO HOLDERS OF MAGMA  
SHARES AS PART OF THE MERGER CONSIDERATION  
IN THE PENDING ACQUISITION  

Proposal 2 is to authorize the issuance by the Company of up to 17,700,000
shares of Common Stock in connection with the Pending Acquisition. Under the    
Merger Agreement, the Company has the option of paying the Merger               
Consideration (as defined below) in a mixture of cash and Common Stock or all   
in cash. It is the Company's current intention to pay the Merger                
Consideration solely in cash, although such intention is subject to change      
based on market conditions and other factors. If the Company opts to pay the    
Merger Consideration all in cash, the Company intends to issue Common Stock     
in a private placement or public offering and to use the cash proceeds of       
such sales to fund a portion of the Merger Consideration. Such sales will be    
based on market conditions at the time. If the Company determines to issue      
Common Stock in the Merger pursuant to the Merger Agreement, the precise        
number of shares to be issued will depend on market conditions, but in no       
event will the Merger Consideration consist of more than 17,700,000 shares of   
Common Stock or less than 13,477,000 shares of Common Stock. On January 6,      
1995, the Company filed with the Securities and Exchange Commission (the        
"Commission") a registration statement under the Securities Act of 1933, as     
amended (the "Securities Act"), for the purpose of registering shares of        
Common Stock that may be issued in an underwritten public offering (the         
"Public Offering") in order to enable the Company to pay the Merger             
Consideration solely in cash. See "Description of Merger Agreement."            

It is the policy of the New York Stock Exchange (the "NYSE"), which lists 
the Company's outstanding Common Stock, to require stockholder approval of an   
issuance of common stock or securities convertible into common stock, other     
than in a public offering for cash, if such issuance could result in an         
increase of 20% or more in the outstanding common stock of a company. If all    
of the Common Stock issuable pursuant to the Pending Acquisition were           
outstanding, such newly issued shares will represent approximately 25.2% to     
33.1% of the aggregate Common Stock issued, Common Stock equivalents and        
Common Stock reserved for issuance pursuant to stock options plans and an       
employee stock purchase plan.                                                   

Stockholders are being asked to approve the issuance and reservation for  
issuance by the Company of the Common Stock to be issued as part of the         
Merger Consideration in the Pending Acquisition in response to the policy of    
the NYSE. If the Company elects to pay the Merger Consideration solely in       
cash, no approval pursuant to Proposal 2 will be required. The issuance of      
the Common Stock in connection with the Pending Acquisition would not affect    
the rights of the existing stockholders of the Company with respect to Common   
Stock or Series C Preferred Stock which they hold. Approval by a majority of    
the votes cast on this proposal will be required provided that the total vote   
cast represents at least a majority of the Voting Stock entitled to vote on     
this proposal. If the required affirmative vote of the stockholders is          
obtained, no further authorization for the issuance of the Common Stock as      
part of the Merger Consideration in the Pending Acquisition will be solicited   
prior to the issuance. Although the Company intends to pay the Merger           
Consideration solely in cash, if the Company elects to pay the Merger           
Consideration in a combination of cash and Common Stock and the required        
affirmative vote by the stockholders with respect to Proposal 2 is not          
obtained and the NYSE were to commence delisting proceedings or refuses to      
list the Common Stock of the Company, the Company intends promptly to apply     
to list the Common Stock on the NNM and, upon such listing, to consummate the   
Merger. Although there can be no assurance that the NNM would approve the       
Common Stock for listing thereon, the Company is unaware of any reason why      
the Common Stock would not be eligible for listing thereon.                     

PKS, the beneficial owner of approximately 39.1% of the voting power of   
the outstanding Voting Stock, has agreed to vote in favor of Proposal 2.        

THE COMPANY'S BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.      

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THE PENDING ACQUISITION AND THE MERGER AGREEMENT  

THE PENDING ACQUISITION                                                         

Pursuant to the Merger Agreement, on January 10, 1995, the Purchaser      
purchased 12,400,000 shares of common stock, par value $0.10 per share          
("Magma Shares"), of Magma at $39.00 per Magma Share, net to the seller in      
cash, without interest thereon, pursuant to a tender offer commenced on         
December 9, 1994 (the "Offer"). As a result of consummation of the Offer, the   
Purchaser acquired majority control of Magma as the first step in the           
acquisition of the entire equity interest in Magma. Pursuant to the Merger      
Agreement, the Purchaser will, as soon as practicable, consummate a merger      
(the "Merger") with Magma by filing the Merger Agreement or a Certificate of    
Merger with the Secretary of State of the State of Delaware and the Secretary   
of State of the State of Nevada (the time of such later filing being the        
"Effective Time") . The purpose of the Merger is to acquire all Magma Shares    
not beneficially owned by the Purchaser.                                        

As a result of the Merger, Magma will continue as the surviving           
corporation (the "Surviving Corporation") and will become a wholly owned        
subsidiary of the Company. In addition, the directors of the Purchaser          
immediately prior to the Merger will become the initial directors of the        
Surviving Corporation, and the officers of Magma immediately before the         
Merger will become the initial officers of the Surviving Corporation, in each   
case until their successors are duly elected or appointed and qualified.        

BACKGROUND OF THE MERGER                                                        

In May 1991, representatives of the Company and Magma entered into        
discussions and meetings to explore the possibility of combining the            
companies, and the two companies exchanged certain information concerning       
their respective businesses for the purpose of considering such a business      
combination or other acquisition transaction. At the end of May 1991, the       
discussions were terminated as a result of the inability of the parties to      
reach agreement concerning price and certain other terms.                       

In September 1991, a number of conversations between the Company's        
representatives and persons believed by the Company to be Magma's               
representatives were held regarding a possible merger of Magma with and into    
the Company. Based upon those conversations, on September 26, 1991, after       
receiving the approval of the Company's Executive Committee, the Company        
transmitted a proposed letter of intent to Magma. The proposed letter of        
intent contemplated a consensual merger of Magma with and into the Company.     
Pursuant to the proposed merger, each outstanding Magma Share would have been   
exchanged for approximately two shares of the Common Stock in a transaction     
accounted for on a pooling of interests basis. Such a transaction would have    
represented a value of $30.25 for each Magma Share (approximately a 20%         
premium to the then-prevailing market price) based upon the then current        
market values of the respective companies' common stocks. After its receipt     
of the proposed letter of intent, Magma advised the Company that Magma had no   
interest in pursuing the proposed pooling of interests combination              
transaction.                                                                    

In August 1993, David L. Sokol, the Chairman, Chief Executive Officer and 
President of the Company, contacted Paul M. Pankratz, then Chairman and Chief   
Executive Officer of Magma, in order to propose a meeting to discuss various    
matters of mutual interest. At a meeting in San Diego in September 1993, Mr.    
Sokol and Steven A. McArthur, Senior Vice President, General Counsel and        
Secretary of the Company, and Mr. Pankratz, Ralph W. Boeker, President of       
Magma, and Jon R. Peele, Executive Vice President and General Counsel of        
Magma, discussed principally the possibility of joint venturing or other        
cooperation in respect of certain pending power development projects in the     
Philippines and the possible sharing of legal costs and information in          
respect of certain domestic regulatory proceedings in which the companies had   
a common interest. During the course of those discussions, Mr. Sokol            
suggested to Magma's management that such potential cost savings were           
illustrative of certain of the synergies that a combination of the companies    
could achieve. However, no agreements or understandings were reached between    
the Company and Magma as a result of these discussions. In addition, at that    
meeting the Company suggested to Magma that it consider utilizing PKS as        
Magma's general contractor in respect of Magma's pending projects in the        
Philippines. Magma's management                                                 

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agreed to meet with PKS regarding its possible role as a contractor in the      
Philippines. The meeting between Magma and PKS was held in the fall of 1993,    
but no agreements or understandings were reached with PKS and no further        
discussions were held in respect of such matters.                               

In January 1994, Mr. Sokol again contacted Mr. Pankratz by telephone in an
effort to resume the foregoing discussions and, at Mr. Pankratz's suggestion,   
Mr. Sokol was asked to contact Mr. Boeker, the President and recently           
appointed Chief Executive Officer of Magma, to discuss these matters further.   
In an April 1994 telephone conversation between Mr. Sokol and Mr. Boeker, the   
possibility of cooperation with respect to international joint ventures         
between the companies and other possible synergies between the companies were   
again generally discussed, but no agreements or understandings were reached.    

On or about June 20, 1994, Mr. Sokol contacted Mr. Boeker and proposed a  
meeting between members of management of the two companies to discuss the       
possible combination of the Company and Magma. Such contact was made as a       
result of Mr. Sokol's continuing belief that a combination of the two           
companies would provide substantial operational benefits such as those more     
fully discussed under the heading "BUSINESS OF THE COMPANY AND MAGMA AND        
RELATED INFORMATION--General--Rationale for the Merger." Mr. Boeker             
responded favorably to Mr. Sokol's proposal to meet by agreeing to a meeting    
on August 11, 1994.                                                             

On August 9, 1994, Mr. Sokol was advised that Mr. Boeker had declined a   
scheduled August 11 meeting, and that Magma's decision to cancel was due to     
the desire of Magma's management to dedicate its full attention to the          
pending financing of Magma's Malitbog project in the Philippines.               

In response to Magma's cancellation of the scheduled August 11 meeting, on
September 15, 1994, Mr. Sokol contacted a member of the Magma Board, in an      
effort to determine whether Magma had a serious interest in discussing a        
negotiated combination of the companies within a time frame that would          
recognize the Company's desire to make certain decisions regarding the          
strategic direction it wished to pursue in the changing global marketplace.     
The director stated that he was aware of certain of the past discussions        
between the companies, but would ask Magma's management to respond directly     
to Mr. Sokol's inquiry.                                                         

Later that same day, Messrs. Pankratz and Boeker called Mr. Sokol and     
advised him that the closing of the financing for Magma's Malitbog project      
was not expected to occur until November 1994 and suggested that they would     
not be interested in meeting with Mr. Sokol until that time. Mr. Sokol stated   
that the Company was considering a number of strategic alternatives,            
including a possible combination with Magma, and that the Company's strategic   
planning had reached a stage where a prompt decision concerning entering into   
negotiations regarding any possible combination with Magma was required. Mr.    
Sokol further stated his belief that it was unnecessary to wait until after     
the closing of the Malitbog financing because the Company was prepared to       
negotiate in good faith on a basis that would value Magma as though such        
financing had closed. Messrs. Boeker and Pankratz reiterated that, in light     
of their belief that their attention was more appropriately devoted to          
completion of Magma's Malitbog project, they would agree to meet only after     
the Malitbog closing. Mr. Sokol concluded the call by reiterating the           
Company's need to act upon certain of its strategic alternatives on a prompt    
basis.                                                                          

On September 18, 1994, the Company retained Gleacher to serve as financial
advisor to the Company in connection with the possible acquisition of Magma     
by the Company.                                                                 

On September 19, 1994, Mr. Sokol wrote to Messrs. Pankratz and Boeker     
proposing to acquire all outstanding Magma Shares for $35 per Magma Share       
comprised of $25.00 in cash and $10.00 in market value of the Common Stock      
(the "Initial Proposal"). The form and amount of consideration offered to       
Magma pursuant to the Initial Proposal was determined in consultation with      
Gleacher and was based on the Company's internal review of publicly available   
information of and relating to Magma. On September 20, 1994, Mr. Pankratz       
responded that the Magma Board would consider the proposal and respond after    
completion of its evaluation.                                                   

During the week of September 19, 1994, representatives of the Company     
contacted management of The Dow Chemical Company ("Dow"), the beneficial        
owner of approximately 21% of the Magma Shares, to determine Dow's reaction     
to the Company's proposal of September 19, 1994. The Company representatives    
were told Dow was evaluating such proposal. During the week of September 26,    
1994, the                                                                       

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Company's financial representatives contacted management of Dow to inquire as   
to the circumstances surrounding a recent sale by Dow of 857,143 Magma Shares   
for $28.25 per Magma Share and an associated option agreement to acquire such   
Magma Shares at the same price, which Dow had reported in filings with the      
Commission, and in particular whether any impediments existed to Dow's          
ability to freely dispose of such Magma Shares and whether any structural       
changes to the Company's merger proposal would be helpful in this regard. Dow   
reported that it was considering such issues in the context of the Company's    
proposal.                                                                       

On September 22, 1994, Magma announced its retention of Goldman as its    
financial advisor in connection with the Initial Proposal.                      

On September 28, 1994, after telephone discussions between the Company's  
financial advisors and Magma's financial advisors regarding the Company's       
request to arrange a meeting between the parties, Messrs. Sokol and McArthur,   
together with representatives from the Company's financial advisors, met with   
representatives from Magma's financial advisor in order to introduce the        
Company and to further elaborate and answer questions with respect to the       
details of the Company's proposal. The Company provided the representatives     
from Magma's financial advisors with a letter to Messrs. Pankratz and Boeker    
and copies of a draft merger agreement.                                         

At a meeting held on October 2 and 3, 1994, the Magma Board considered    
Magma's business, financial condition and prospects, the terms and conditions   
of the Initial Proposal, and the Company's business, financial condition and    
prospects. Magma's management made detailed presentations regarding Magma's     
business plan and the various strategic initiatives which Magma had             
undertaken both in the United States and overseas. On October 3, 1994,          
Magma's financial advisors informed the Company's financial advisors that the   
Magma Board had authorized Magma to enter into a "poison pill" Rights Plan      
(the "Rights Agreement") at its Board meeting which concluded on such date,     
but that the Magma Board had also authorized Magma's financial advisors to      
meet with the Company's financial advisors as soon as possible and,             
accordingly, a meeting was scheduled for the morning of October 4, 1994. The    
Company subsequently learned through press reports that Magma had amended its   
Bylaws to require that stockholder action occur only at a regular or special    
meeting of stockholders rather than by way of a written consent solicitation    
and that Magma also had filed a complaint against the Company seeking a         
declaratory judgment that (i) the Magma Board had properly discharged its       
fiduciary duties in adopting the Rights Agreement and an amendment to Magma's   
Bylaws and, accordingly, such agreement and amendment were valid and binding,   
and (ii) the Merger Moratorium Statute (as defined below) is valid and not in   
violation of the Commerce Clause and Supremacy Clause of the United States      
Constitution.                                                                   

On October 4, 1994, at the meeting between the Company's financial        
advisors and Magma's financial advisors, Magma's financial advisors informed    
the Company's financial advisors that Magma was not for sale and that the       
value placed on Magma by the Initial Proposal did not reflect the intrinsic     
value of Magma.                                                                 

Following the defensive actions taken by Magma, on October 6, 1994 the    
Purchaser commenced a cash tender offer for 12,400,000 Magma Shares at $35      
per Magma Share (the "Previous Offer").                                         

On October 11, 1994, Magma filed with the Commission a                    
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Previous          
Schedule 14D-9") pursuant to the Exchange Act, which included the               
recommendation of the Magma Board reached at its October 10, 1994 meeting       
that Magma's stockholders reject the Previous Offer.                            

On October 13, 1994, the Company announced the filing of a preliminary    
proxy statement with the Commission pursuant to the Exchange Act in order to    
solicit written requests from Magma's stockholders for the call of a Special    
Meeting of Magma's stockholders (the "Requested Special Meeting"). The          
purpose of the Requested Special Meeting was to provide Magma's stockholders    
the opportunity to consider and vote on the Company's proposals which, if       
approved, would help facilitate consummation of the Previous Offer.             

On October 21, 1994, the Purchaser increased the price per Magma Share to 
be paid in the Previous Offer to $38.50 per Magma Share (the "Revised           
Previous Offer"). The form and amount of consideration                          

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offered to Magma pursuant to the Revised Previous Offer was determined in       
consultation with Gleacher and was based on the Company's internal review of    
publicly available information of and relating to Magma and based on the        
Company's belief that the increased consideration was both prudent and would    
allow a transaction to occur. On October 31, 1994, the Company learned that     
the Magma Board had resolved at its meeting of that date to recommend that      
its stockholders reject the Revised Previous Offer. In making this              
recommendation, the Magma Board took into account inquiries received from       
various third parties expressing interest in pursuing a possible business       
combination with Magma, the terms of the Revised Previous Offer, which the      
Magma Board viewed as conditional and coercive, and the opinion of Goldman      
that the consideration provided for in the Revised Previous Offer was           
inadequate.                                                                     

On November 1, 1994, the Company announced that it had put its best offer 
on the table and that it intended to withdraw its acquisition proposal if it    
had not signed a merger agreement with Magma or received sufficient written     
requests to call the Requested Special Meeting by December 2, 1994.             
Throughout November 1994, the Company solicited written consents for the call   
of the Requested Special Meeting, which solicitation was actively opposed by    
Magma.                                                                          

As of the close of business on December 2, 1994, the Company had neither  
entered into a merger agreement with Magma nor received sufficient written      
requests to call the Requested Special Meeting. Consequently, the Company       
announced by press release, and Mr. Sokol placed telephone calls to Messrs.     
Pankratz and Boeker and to a representative of Dow to advise them, that the     
Company had withdrawn its acquisition proposal and had terminated the Revised   
Previous Offer. As a result of these telephone conversations, and follow up     
telephone conversations among the parties and their advisors, the Company and   
Magma arranged to meet the following day in New York to explore the             
possibility of a negotiated acquisition of Magma by the Company. The meeting    
was arranged between the Company and Magma because their respective financial   
advisors advised that it would be in the parties' respective best interests     
to discuss the possibility of a negotiated transaction at a higher              
consideration and because Dow indicated it would consider supporting a          
negotiated transaction at a higher consideration.                               

From December 3, 1994 through the morning of December 5, 1994,            
representatives of the Company and Magma, together with their legal and         
financial advisors, met to negotiate the terms of a proposed acquisition of     
Magma by the Company. The Magma Board met to consider and approve the Merger    
Agreement and the transactions contemplated thereby on December 4 and 5,        
1994. Following continued negotiations regarding the definitive agreements,     
the Merger Agreement was signed on the morning of December 5, 1994.             

The principal participants in the meetings held on December 3 through the 
morning of December 5, 1994, were: Messrs. Sokol and McArthur and John G.       
Sylvia, Senior Vice President, Chief Financial Officer and Treasurer, from      
the Company; Messrs. Boeker, Pankratz and Peele from Magma; representatives     
of Gleacher and Willkie Farr & Gallagher on behalf of the Company; and          
representatives of Goldman and Shearman & Sterling on behalf of Magma. The      
material issues discussed by the parties were the form and amount of the        
consideration to be paid in a transaction, the structure of a transaction,      
covenants relating to conduct of the respective businesses pending completion   
of a transaction, reciprocal termination fees, a "no shop" provision, a         
"standstill" provision in case the transaction failed to close as a result of   
the Company's fault, and the ability of the Company to secure the financing     
necessary to complete a transaction. Representatives of Credit Suisse and its   
counsel assisted in the discussions relating to the ability of the Company to   
finance a transaction.                                                          

Representatives of the Company and Magma each sought to structure the     
transaction in two steps, the first as a tender offer to obtain control of      
Magma and the second as a merger to permit the acquisition of the entire        
remaining equity interest in Magma. The Company sought this transaction         
structure in order to obtain operating control of Magma at the earliest         
possible time, and Magma sought this structure in order to enable Magma         
stockholders to receive a portion of the transaction consideration at the       
earliest possible time. The form and amount of the consideration was            
determined by the parties in consultation with their respective financial       
advisors and was based on the form of the consideration that had been offered   
by the Company pursuant to the Revised Previous Proposal. Representatives of    
the Company proposed that the transaction consideration be a combination of     
cash and Common Stock and that any                                              

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increase in such consideration be paid in additional shares of Common Stock.    
Representatives of Magma proposed that the transaction consideration be paid    
entirely in cash. The parties then discussed an increase in the consideration   
from a blended amount of $28.50 in cash and $10.00 in market value of Common    
Stock, as contemplated by the Revised Previous Proposal, to a blended amount    
of $28.50 in cash and $10.50 in market value of Common Stock. In light of       
Magma's desire to have the consideration paid entirely in cash, the Company     
proposed that, at its option, the Company could pay the consideration all in    
cash (rather than in cash and Common Stock) such that the blended all cash      
consideration paid in the Offer and the Merger would be $38.75 per Magma        
Share.                                                                          

On January 10, 1995, the Company consummated the Offer and purchased      
12,400,000 Magma Shares pursuant thereto. Pursuant to the Merger Agreement,     
nine members of the 11 member Magma Board resigned and six nominees of the      
Company and the Purchaser were elected to fill such vacancies. At such time,    
the size of the Magma Board was reduced to eight directors. Accordingly, as     
of the date hereof, the Company and the Purchaser have designated a majority    
of the Magma Board.                                                             

REASONS FOR THE PENDING ACQUISITION                                             

The Company believes that combining the businesses of the Company and     
Magma will provide an excellent strategic fit due to the synergies and other    
benefits which will result from combining the operations of Magma and the       
Company pursuant to the Merger Agreement and will strengthen the combined       
companies' competitive position in the increasingly challenging business        
environment and global markets in which they presently operate.                 

Each of Magma and the Company have separately indicated their respective  
beliefs that, in the next several years, the greatest opportunities for         
financially attractive development projects will be found in the                
international markets and each company is engaged in, or otherwise pursuing,    
geothermal power and other power development projects in the Philippines and    
Indonesia, and elsewhere overseas where competition is strong and involves      
much larger entities than either company.                                       

The Company believes that the combined companies' international growth    
prospects will be substantially enhanced by the expanded development,           
financial, construction and operational resources and capabilities resulting    
from the Merger and that certain domestic and international synergies will      
also result from such a transaction.                                            

In considering the Merger Agreement, the Company's Board identified no    
significant disadvantages to the combining of the businesses of the Company     
and Magma. The Company's Board considered the synergies expected to result      
from such a combination and determined that the economic value of such          
synergies was not a material determinant in establishing the Company's          
Board's belief that the Merger Consideration represents a fair value for the    
Magma Shares. The Company's Board considered the possibility that the           
synergies predicted by the Company's management may ultimately fail to occur    
but determined that such an occurrence would not be material to the Company's   
Board's approval of the payment in the Merger of the premium to market price    
and book value represented by the Merger Consideration. The Company's Board     
gave significant weight to the Company's pro forma analysis, which indicates    
the Company's belief that, among other things, on a consolidated basis,         
consummation of the Offer and the Merger will be accretive to per share         
earnings and will not materially increase the Company's debt to equity ratio.   

RECOMMENDATION OF THE COMPANY'S BOARD                                           

On September 19, 1994, the Company's Board approved a proposal to acquire 
the outstanding Magma Shares for $35.00 per Magma Share for consideration       
consisting of cash and Common Stock, and authorized certain officers of the     
Company to negotiate modifications to the foregoing proposal (including the     
final price and form of the consideration) in consultation with members of      
the Executive Committee of the Company. On December 6, 1994, the Company's      
Board unanimously approved the Merger Agreement and the transactions            
contemplated thereby. The Company's Board recommends that the Company's         
stockholders vote FOR each of Proposal I and Proposal II.                       

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In the course of reaching its decision to approve the Merger Agreement,   
the Company's Board consulted with its financial advisors regarding the         
financial aspects and fairness of the Merger, and its legal advisors            
regarding the legal terms of the transaction and the obligations of the         
Company's Board in its consideration of the Merger Agreement. The Company's     
Board concluded that the Merger will further the Company's objectives in part   
because of its belief that Magma is an excellent strategic fit and that the     
acquisition will create significant benefits, including: (i) expansion and      
enhancement of development efforts, (ii) benefits of increased size, (iii)      
opportunities for operational and administrative cost savings, and (iv)         
diversification in sources of revenue and operations. For a further             
discussion of these factors, see "BUSINESS OF THE COMPANY AND MAGMA AND         
RELATED INFORMATION--General--Reasons For the Merger."                          

In reaching its determinations and recommendations with respect to the    
Merger Agreement and the transactions contemplated thereby, the Company's       
Board took into account numerous factors, including, among other things, in     
addition to the foregoing, the following:                                       

 (i) The Company's knowledge and review of the business, operations,
properties, assets, financial condition and operating results of each of
the Company and Magma. The Company's Board found that these factors     
  supported their determinations and recommendations because, as a result of
 its favorable view of Magma, the Board believed the Company would realize
 benefits that would improve the Company's competitive position, including
expansion and enhancement of development efforts, the benefits of       
increased size, opportunities for operational and administrative cost   
savings and diversification in sources of revenues and operations;      

   (ii) The terms and conditions of the Merger Agreement, which were the
  product of arms' length negotiations, including the amount and form of the
consideration. The Company's Board found that these factors supported   
their determinations and recommendations because (a) the terms of the   
  Merger Agreement were generally evenhanded, (b) the pricing structure gave
the Company the option of alternative forms of consideration, (c) the   
two-tier structure contemplated by the Merger Agreement allowed the     
 Company to obtain control of Magma at the earliest possible time, thereby
  laying the groundwork for realizing the benefits of the transaction sooner
  rather than later and (d) the Merger Agreement (including the tender offer
conditions) gave the Company adequate protection against possible       
misrepresentations as to the business and operations of Magma;          

 (iii) The Gleacher Report and the Gleacher Opinion delivered to the
  Company's Board (as discussed more fully below) that the Consideration (as
defined below) to be paid by the Company pursuant to the Offer and the  
Merger is fair to the Company from a financial point of view. The       
Company's Board found that these factors supported their determinations 
and recommendations because the Gleacher Report and the Gleacher Opinion
spoke directly to the fairness of the transaction to the Company, the   
Board felt comfortable with the scope of work performed by Gleacher and 
the Board believed that Gleacher had done a competent and professional  
job;                                                                    

 (iv) The fact that the effect of the Merger would be accretive on a
pro forma per share basis. The Company's Board found that this factor   
 supported their determinations and recommendations because it indicated a
reasonable likelihood that earnings per share of Common Stock would     
increase as a result of the transaction; and                            

 (v) Current industry, economic and market conditions. The Company's
Board found that these factors supported their determinations and       
recommendations because (a) the development of new opportunities,       
particularly internationally, is a key component of the Company's       
strategy, (b) the international power production market is characterized
 by numerous strong and capable competitors and (c) based on the Company's
belief that potential customers consider both the price of power and the
provider's capacity to fulfill its obligations as primary factors in the
 selection of power suppliers, the Company believes that increased size is
an important factor in determining the success of an independent power  
producer competing in the global power market.                          

The Company's Board considered each of the factors listed above during the
course of its deliberations and negotiations prior to entering into the         
Merger Agreement. Each of the foregoing                                         

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factors, which constitute all material factors considered by the Company's      
Board, was viewed positively by the Company's Board, and the Company's Board    
neither identified nor discussed any material negative factor in connection     
with its deliberations with respect to the Merger Agreement. The Company's      
Board evaluated the factors listed above in light of their knowledge of the     
business and operations of Magma and their business judgement. In view of the   
wide variety of factors considered in connection with the evaluation of the     
Offer and the Merger, the Company's Board did not find it practicable to, and   
did not, quantify or otherwise attempt to assign relative weights to the        
specific factors considered in making their determinations.                     

OPINION OF THE COMPANY'S FINANCIAL ADVISOR                                      

On December 6, 1994, Gleacher delivered its written opinion to the        
Company's Board (the "Gleacher Opinion") to the effect that, as of December     
6, 1994, and based upon the assumptions made, matters considered and limits     
of the review, as set forth in the Gleacher Opinion, the Consideration (as      
defined below) to be paid by the Company pursuant to the Offer and the Merger   
is fair to the Company from a financial point of view. For purposes of the      
Gleacher Opinion, the term "Consideration" means the consideration paid by      
the Company pursuant to the Offer together with, at the Company's option,       
either (i) $39.00 per Magma Share in a combination of cash and a number of      
shares of Common Stock to be determined in accordance with the Merger           
Agreement, or (ii) $38.50 per Magma Share in cash, in either case to be paid    
by the Company pursuant to the Merger Agreement. A copy of the Gleacher         
Opinion, which sets forth the assumptions made, matters considered and the      
limits of the review by Gleacher, is attached to this Proxy Statement as        
Annex A. The Gleacher Opinion is directed only to the fairness of the           
Consideration to be paid by the Company from a financial point of view. The     
summary of the Gleacher Opinion set forth in this Proxy Statement is            
qualified in its entirety by reference to the full text of such Opinion. The    
analyses that are summarized below represent all material analyses performed    
and relied on by Gleacher in rendering the Gleacher Opinion.                    

In arriving at its opinion, Gleacher, among other things, (i) reviewed the
audited financial statements and public Commission filings for the three most   
recent fiscal years and interim periods to date of Magma and the Company (the   
"SEC Reports"); (ii) on an operating and trading basis, compared financial      
information relating to Magma's businesses with published financial             
information concerning certain companies whose businesses Gleacher deemed to    
be reasonably similar, in whole or in part, to those of Magma; (iii) analyzed   
the market prices and trading characteristics of the Magma Shares and the       
Common Stock for recent periods to date; (iv) conducted discussions with        
members of senior management of the Company concerning its businesses and       
prospects; (v) reviewed certain financial forecasts for Magma and the           
Company, and projections of expected cost savings in a business combination     
(together, the "Projections"), in each case as prepared by the Company; (vi)    
based on the Projections, performed a discounted cash flow analysis of Magma    
including the expected cost savings arising from a business combination;        
(vii) based on the Projections, analyzed the pro forma financial effects to     
the Company of the proposed business combination; (viii) assumed without        
independent investigation that no material contingent liability exists with     
respect to Magma or the Company which is not disclosed in the SEC Reports;      
(ix) reviewed the Merger Agreement and related transaction documentation; and   
(x) reviewed certain other financial studies, performed such other analyses     
and took into account certain other matters as deemed appropriate.              

Gleacher relied upon the accuracy and completeness of all information     
supplied or otherwise made available to it by the Company, and did not          
independently verify such information or make or obtain an independent          
evaluation or appraisal of the assets of the Company or Magma. With respect     
to the Projections, Gleacher assumed without independent investigation that     
the Projections were reasonably prepared by the Company, and were generated     
on bases reflecting the best currently available estimates and judgments of     
the Company's management as to the expected future financial performance of     
the Company or Magma, as the case may be. The Gleacher Opinion was based upon   
prevailing market conditions and other circumstances and conditions as they     
existed as of the date of the Gleacher Opinion.                                 

In arriving at the Gleacher Opinion and making its presentation to the    
Company's Board at the meeting held on December 6, 1994, Gleacher considered    
and discussed certain financial analyses and                                    

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other factors. In connection with its presentation, Gleacher provided the       
Company's Board with a summary of valuation results obtained by using several   
different valuation methods as well as other materials concerning Magma (the    
"Gleacher Report"), the material portions of which are summarized below.        

Purchase Price Multiples. Gleacher compared the Consideration to be paid  
by the Company assuming that the All Cash Component Amount was exercised by     
the Company to the price per Magma Share as of the close of business the day    
before the Offer commenced (resulting in an implied premium to Magma            
stockholders of approximately 41%) and the average closing price per Magma      
Share during the six-month period before the Offer commenced (resulting in an   
implied premium to Magma stockholders of approximately 30%). Gleacher then      
compared such premiums to premiums paid in recent public merger and             
acquisition transactions generally and concluded that the premium being paid    
by the Company is at the low end of the range of the premiums paid in such      
recent public merger and acquisition transactions. Gleacher used its            
experience and knowledge of the markets and the premiums being paid in recent   
public merger and acquisition transactions generally over the last few years    
to arrive at its conclusion. Gleacher did not perform an analysis of premiums   
in comparable acquisitions because, it is the belief of Gleacher, there are     
no acquisitions of comparable public companies to Magma in terms of its line    
of business and, as a result, Gleacher gave little weight to the results of     
this analysis in rendering the Gleacher Opinion. Gleacher also calculated the   
value of such Consideration as a multiple of (i) Magma's trailing               
twelve-month earnings before interest and taxes (10.5x), (ii) net income        
(14.6x), (iii) book value (2.4x), and (iv) projected net income for 1994        
(15.5x) and for 1995 (14.4x). Gleacher then compared such multiples to the      
Company's current trading multiples, and noted that the Company's trading       
multiples in general were higher. Gleacher calculated the Company's trading     
value at December 5, 1994 as a multiple of (i) the Company's twelve-month       
earnings before interest and taxes (8.6x), (ii) net income (16.5x), (iii)       
book value (2.8x) and (iv) projected net income for 1994 (17.4x) and for 1995   
(14.6x). Gleacher further noted that the Consideration to be paid by the        
Company should not have an adverse impact in general on the Company's trading   
multiples.                                                                      

Discounted Cash Flow Analysis. Gleacher performed two discounted cash flow
analyses of Magma. The first, which was derived from publicly available         
information, was based upon estimates of financial performance as prepared by   
the Company for each of Magma's power projects in operation and for a limited   
number of projects in development but under signed contracts or awards. For     
this analysis, no value was accorded to any future development efforts by       
Magma, and as a result did not necessarily reflect Magma's potential future     
financial performance. The second analysis was based upon estimates of          
financial performance as prepared by Magma and as provided to the Company and   
Gleacher for each of Magma's power projects including (a) certain projects      
under development and (b) benefits of a specific technology expected to be      
implemented, including certain planned operational enhancements. Using these    
projections, Gleacher discounted to the present (i) the projected stream of     
proportionate cash flows through year 2012 and (ii) the projected terminal      
value of Magma at such year based upon a multiple of projected after-tax cash   
flows. After-tax cash flows were calculated as projected earnings adjusted      
for all non-cash items, less capital expenditures and principal payments on     
debt obligations. Gleacher applied discount rates in the first analysis of      
10%, 12% and 15% and an after-tax cash flow multiple of 14x to Magma's          
after-tax cash flows. Using this valuation method for the first analysis, the   
implied values per Magma Share were approximately equal to $30. In the second   
discounted cash flow analysis, Gleacher applied a 12% discount rate. For this   
analysis, value was accorded to substantially all of Magma's future             
development projects. By including such future development projects in the      
analysis, this analysis resulted in an implied value per Magma Share of in      
excess of $50. Gleacher then compared the results obtained from the second      
discounted cash flow analysis to the Consideration to be paid by the Company.   
Because the first discounted cash flow analysis was based solely on publicly    
available information, and the second discounted cash flow analysis was based   
on both information provided by Magma and the results of additional due         
diligence conducted on Magma, Gleacher's presentation to the Company's Board    
indicated that it discounted the results of the first analysis and gave         
substantially more weight to the second discounted cash flow analysis. The      
discount rates and after-tax cash flow multiple used by Gleacher in its         
analyses were based upon discussions with the management of the Company and     
Gleacher's judgments as to the manner in which companies in the Comparable      
Group (as defined below) are valued. The "Comparable Group" included the        
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Trading Valuation. Gleacher reviewed and compared certain actual and      
estimated financial and operating results and stock market performance of       
Magma and the Comparable Group. Gleacher applied trading multiples of the       
Comparable Group to Magma's financial performance. These trading multiples      
consisted of (i) trailing twelve-month revenues of 4x to 5x, (ii) earnings      
before interest, taxes, depreciation and amortization of 6.5x to 7.5x, (iii)    
earnings before interest and taxes of 9x to 10x, (iv) net income of 14x to      
16x and (v) projected net income for 1994 of 13x to 15x and for 1995 of 12x     
to 14x. Gleacher then derived a range of values for the Magma Shares.           
Gleacher then added control premiums of 25% and 50% to the calculated range     
for the Magma Shares. The control premium range was determined by Gleacher      
based upon its experience and knowledge of premiums generally paid to acquire   
control of a company. Gleacher then calculated the implied values per Magma     
Share, which ranged from approximately $39 to $54. Gleacher then noted that     
the Consideration to be paid by the Company was at the low end of such range.   

Pro Forma Analyses. Gleacher analyzed the pro forma impact of the Merger  
on earnings per share of Common Stock for periods following consummation of     
the Merger, and compared such amounts to projected earnings per share on a      
stand-alone basis for the Company based on the Company's base operating plan.   
In conducting its pro forma analyses, Gleacher assumed the following: the       
Company achieves synergies and cost savings in 1995 and thereafter resulting    
from the Merger of approximately $10 million, the All Cash Component Amount     
is exercised by the Company, interest rate on the Company's borrowings is 9%,   
opportunity cost of the Company's cash is 5% and the Company sells              
approximately 14,800,000 shares of Common Stock at $16.50 per share based on    
the then current market price. The foregoing assumptions were all of the        
assumptions used by Gleacher in performing the pro forma analyses. Gleacher     
estimated that the Merger could result in a percentage increase in the          
earnings per share for the Common Stock, of approximately (i) 1% in 1995, 10%   
in 1996 and 22% in 1997, based upon, with respect to Magma, publicly            
available information and estimates of financial performance as prepared by     
the Company for each of Magma's power projects in operation and for a limited   
number of projects in development but under signed contracts or awards, and     
approximately (ii) 2% in 1995, 25% in 1996 and 26% in 1997, based upon, with    
respect to Magma, estimates of financial performance as prepared by Magma for   
each of Magma's power projects, including the results of additional due         
diligence conducted on Magma. Because both pro forma analyses produced          
percentage increases in earnings per share for the Common Stock, Gleacher did   
not place more weight on either set of results.                                 

Stock Trading Analysis. Gleacher reviewed and analyzed historical trading 
prices and volumes for the Magma Shares during the 30-month period preceding    
the Offer. The trading prices per Magma Share over such period ranged from      
$20.00 to $39.25 and the weekly trading volumes for Magma Shares ranged from    
49,100 to 4,919,700. Gleacher then compared such historical trading prices to   
the Consideration to be paid by the Company. This comparison indicated that     
the Consideration to be paid by the Company is approximately equal to the       
high point of the trading value per Magma Share during such 30-month period.    

In arriving at the Gleacher Opinion and in presenting the Gleacher Report,
Gleacher decided to perform a purchase price multiples analysis, a discounted   
cash flow analysis, a trading valuation analysis and pro forma analyses, the    
material portions of which are summarized above, based on industry practice     
and its experience in merger and acquisition transactions. Gleacher concluded   
that the results of such analyses, when considered as a whole, support the      
Gleacher Opinion. Gleacher believes that its analyses must be considered as a   
whole and that selecting portions of its analyses and of the factors            
considered by it, without considering all such factors and analyses, or         
quantifying the value assigned to any particular analysis performed, could      
create a misleading view of the process underlying its analyses set forth in    
the Gleacher Opinion and the Gleacher Report. The matters considered by         
Gleacher in arriving at the Gleacher Opinion that, as of the date of such       
opinion, the Consideration to be paid by the Company pursuant to the Offer      
and the Merger is fair to the Company from a financial point of view, are       
based on numerous macroeconomic, operating and financial assumptions with       
respect to industry performance, general business and economic conditions and   
other matters, many of which are beyond the Company's control. Any estimates    
incorporated in the analyses performed by Gleacher are not necessarily          
indicative of actual past or future results or values, which may be             
significantly more or less favorable than such estimates. Estimated values do   
not purport to be appraisals and do not necessarily reflect the prices at       

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which businesses or companies may be acquired in the future, and such           
estimates are inherently subject to uncertainty. Arriving at a fairness         
opinion is a complex process not necessarily susceptible to partial or          
summary description. No public company utilized as a comparison is identical    
to Magma. Accordingly, an analysis of publicly traded comparable companies is   
not mathematical; rather, it involves complex considerations and judgments      
concerning differences in financial and operating characteristics of the        
comparable companies and other factors that could affect the public trading     
value of the comparable companies or company to which they are being            
compared.                                                                       

Gleacher is a recognized investment banking firm routinely engaged in the 
valuation of businesses and their securities in connection with mergers and     
acquisitions and other purposes. The Company's Board selected Gleacher to act   
as the Company's exclusive financial advisor based on Gleacher's familiarity    
with the Company and Gleacher's substantial experience in mergers and           
acquisitions and in securities valuation generally. No limitations were         
imposed by the Company's Board upon Gleacher with respect to the                
investigations made or procedures followed by Gleacher in rendering its         
opinion.                                                                        

Pursuant to the terms of a letter agreement dated September 18, 1994,     
between the Company and Gleacher (the "Gleacher Engagement Letter"), the        
Company paid Gleacher a fee of $250,000 and has agreed to pay Gleacher (i) a    
fee of $4,000,000 payable upon the completion of the direct or indirect         
acquisition by the Company, either alone or in partnership with another         
entity, by merger, acquisition of securities, or otherwise, of 50.1% or more    
of the equity securities of Magma, which fee shall be offset by the $250,000    
previously paid to Gleacher by the Company; and (ii) a fee equal to 0.25% of    
the principal amount of debt directly arranged by Gleacher and Lehman           
Brothers in connection with the proposed transaction, which is estimated to     
be $1,250,000, assuming the full amount of the Merger Facilities is drawn       
down by the Company.                                                            

In addition to any fees payable to Gleacher pursuant to the terms of the  
Gleacher Engagement Letter, the Company shall reimburse Gleacher for all        
reasonable travel and other reasonable out-of-pocket expenses incurred by       
Gleacher thereunder, including all reasonable fees and disbursements of         
Gleacher's legal counsel and any other professional advisors.                   

In connection with the matters described in the Gleacher Engagement       
Letter, the Company and Gleacher entered into a separate letter agreement,      
dated September 18, 1994, providing for the indemnification, contribution,      
and reimbursement of Gleacher and certain other entities and individuals for    
a period of six years from the date of termination of Gleacher's engagement     
pursuant to the terms of the Gleacher Engagement Letter.                        

OPINION OF MAGMA'S FINANCIAL ADVISOR                                            

The Magma Board retained Goldman Sachs as Magma's exclusive financial     
advisor in connection with the Initial Proposal and the ensuing related         
events, including the Offer and the Merger. Goldman Sachs is an                 
internationally recognized investment banking firm and is continually engaged   
in the valuation of businesses and their securities in connection with          
mergers and acquisitions, negotiated underwritings, competitive biddings,       
secondary distributions of listed and unlisted securities, private placements   
and valuations for estate, corporate and other purposes. The Magma Board        
selected Goldman Sachs to act as Magma's exclusive financial advisor based on   
Goldman Sachs' familiarity with Magma and Goldman Sachs' substantial            
experience in mergers and acquisitions and in securities valuation generally.   
No limitations were imposed by the Magma Board upon Goldman Sachs with          
respect to the investigations made or procedures followed by Goldman Sachs in   
rendering its opinion.                                                          

On December 5, 1994, Goldman Sachs delivered its oral opinion (which was  
subsequently confirmed in writing) to the Magma Board that, as of December 5,   
1994, the Consideration (as defined below) to be received by the holders of     
the Magma Shares in the Offer and the Merger, taken as a unitary transaction,   
was fair to the holders of Magma Shares receiving such Consideration (other     
than the Company and its affiliates). For purposes of Goldman Sachs' opinion,   
the term "Consideration" means the consideration to be received by the          
holders of Magma Shares in the Offer and the Merger, taken as a unitary         
transaction (regardless of the payment option chosen by the Company with        
respect to the Merger as discussed under the caption "Description of the        
Merger Agreement--The Merger Consideration"). The full text of the              

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written opinion, dated December 9, 1994, which confirms Goldman Sachs'          
December 5, 1994 oral opinion and sets forth the assumptions made, the          
matters considered and the limitations on the review taken by Goldman Sachs,    
is attached to this Proxy Statement as Annex B and is incorporated herein by    
reference.                                                                      

In connection with its opinion, Goldman Sachs reviewed, among other       
things, the Merger Agreement; Annual Reports to Stockholders and Annual         
Reports on Form 10-K of Magma and the Company for the five years ended          
December 31, 1993; certain interim reports to stockholders and Quarterly        
Reports on Form 10-Q of Magma and the Company; certain other communications     
from Magma and the Company to their respective stockholders; certain internal   
financial analyses and forecasts for Magma prepared by the management of        
Magma; and certain internal financial analyses and forecasts for Magma and      
the Company prepared by the management of the Company. Goldman Sachs also       
held discussions with members of the senior managements of each of Magma and    
the Company regarding the past and current business operations, financial       
condition and future prospects of their respective companies and as combined    
in the contemplated Merger. Goldman Sachs reviewed the reported price and       
trading activity for both the Magma Shares and the Common Stock, compared       
certain financial and stock market information for Magma and the Company,       
respectively, with similar information for certain other companies the          
securities of which are publicly traded, reviewed the financial terms of        
certain recent business combinations in the independent power production        
industry specifically and in other industries generally and considered such     
other information, held such other discussions and performed such other         
studies and analyses as it considered appropriate.                              

Goldman Sachs relied without independent verification upon the accuracy   
and completeness of all of the financial and other information reviewed by it   
for purposes of its opinion. In addition, Goldman Sachs did not make an         
independent evaluation or appraisal of the assets and liabilities of Magma or   
the Company or any of their respective subsidiaries and was not furnished       
with any such evaluation or appraisal.                                          

The terms of the engagement of Goldman Sachs by Magma are set forth in a  
letter agreement dated September 26, 1994 between Goldman Sachs and Magma       
(the "Goldman Engagement Letter"). Pursuant to the terms of the Goldman         
Engagement Letter, Magma has agreed to pay Goldman Sachs (a) an initial fee     
of $850,000, (b) a transaction fee in the event of any transaction in which     
at least 50% of the outstanding Magma Shares are acquired, or all or            
substantially all of the assets of Magma are transferred, equal to 0.4% of      
the aggregate value of such transaction up to $35.00 per share, plus 1.666%     
of the aggregate value of such transaction in excess of $35.00 per share up     
to $38.00 per share, plus 2.5% of the aggregate value of such transaction in    
excess of $38.00 per share and (c) a financial advisory fee to the extent no    
transaction of the type described in clause (b) above has been consummated      
equal to 0.4% of the market value of Magma's outstanding shares as determined   
on September 20, 1994, payable in four equal installments due December 31,      
1994, March 31, 1995, June 30, 1995 and September 30, 1995, so long as Magma    
is independent as of any date such payment is due; provided, however, that      
such financial advisory fee shall equal (i) $850,000 in the event that Magma    
rejected the Initial Proposal by October 10, 1994, and the Company              
subsequently withdraws such proposal on or before the end of the fifth          
business day following the date of such rejection or (ii) $1,700,000 in the     
event that Magma rejected the Initial Proposal by October 10, 1994, and the     
Company subsequently withdraws such proposal after the fifth business day       
following such rejection but on or before the end of the fifteenth business     
day following such rejection. The fees paid pursuant to clauses (a) and (c)     
above shall be creditable against any fees payable pursuant to clause (b)       
above.                                                                          

Magma has also agreed to reimburse Goldman Sachs for its out-of-pocket    
expenses, including all fees and disbursements of counsel, and to indemnify     
Goldman Sachs and certain related persons against certain liabilities in        
connection with its engagement, including certain liabilities under the         
federal securities laws. Goldman Sachs provides a full range of financial,      
advisory and brokerage services and in the course of its normal trading         
activities may from time to time effect transactions and hold positions in      
the securities or options on securities of Magma and/or the Company for its     
own account and for the accounts of its customers. In the course of its         
trading activities prior to its retention by Magma in connection with the       
Initial Proposal, Goldman Sachs accumulated a long position of 60,100 Magma     
Shares.                                                                         

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The following is a summary of the material financial analyses utilized by 
Goldman Sachs in connection with providing its opinion to the Magma Board on    
December 5, 1994.                                                               

Stock Trading Analysis. Goldman Sachs reviewed and analyzed the historical
trading prices and volumes for the common stock of Magma and of the Company     
during the trailing five and three year periods, respectively, for trading      
prices and volumes. During the period commencing on December 2, 1993 and        
ending on December 2, 1994, the intra-day high was $38 per Magma Share.         
Goldman Sachs noted that the Consideration was at a price above such            
intra-day high. Goldman Sachs reviewed the volume of Magma Shares which         
traded during the specified period to determine the weighted average price of   
Magma Shares during the period reviewed. Goldman Sachs determined that the      
average weighted price for a Magma Share during the trailing one year period    
was $33.44 and during the trailing three year period was $32.59 and noted       
that Consideration was higher than such weighted average prices.                

Selected Company Analysis. Goldman Sachs reviewed and compared certain    
actual and estimated financial, operating and stock market information of       
Magma, the Company and selected companies in the independent power production   
industry, specifically, the AES Corporation, Destec Energy, Inc., KENETECH      
Corporation and Sithe Energies, Inc. (collectively, excluding Magma and the     
Company, the "Selected Companies"). Based upon the closing market price for     
Magma Shares on December 2, 1994 ($35.50), such analysis indicated that, for    
the Selected Companies, the median values of the estimated 1994 and estimated   
1995 price/earnings ratios were 24.9x and 12.3x, as compared to corresponding   
values of 18.1x and 15.3x for the Company and 14.5x and 13.4x for Magma.        
Based upon a Consideration of $38.75 per Magma Share, the price/earnings        
ratio for Magma had an estimated value of 15.6x in 1994 and 14.4x in 1995.      
Based upon a Consideration of $39.00 per Magma Share, the price/earnings        
ratio for Magma had an estimated value of 15.7x in 1994 and 14.4x in 1995.      
The estimated price/earnings ratios for 1994 and 1995 for each of the Company   
and Magma were within the range of the price/earnings ratios for the same       
period for the Selected Companies, and, as such, indicated that the             
valuations for both Magma and the Company were not inconsistent with the        
valuations of the Selected Companies. Accordingly, in the case of Magma, the    
fact that Magma's estimated price/earnings ratios for 1994 and 1995, based      
upon a Consideration of either $38.75 or $39.00, were within the range of       
estimated price/earnings ratios for the same period for the Selected            
Companies was indicative that the Magma Shares at the Consideration prices      
were not under-valued vis-a-vis the Selected Companies, and, in the case of     
the Company, the estimated price/earnings ratios for 1994 and 1995 based on     
the then Common Stock price were within the range of appropriate values for     
purposes of serving as consideration in the Merger.                             

Discounted Cash Flow Analysis. Goldman Sachs estimated the net present    
value of Magma as a going concern based on estimates of future project cash     
flows and the likelihood of successful project development where appropriate,   
all as provided by Magma management. Goldman Sachs performed a variety of       
sensitivity analyses on such cash flow information based upon a variety of      
factors, including utility avoided costs and discount rates. Goldman Sachs      
conducted its discounted cash flow analysis using a bottom-up approach which    
is based upon the net present value of the cash flow generated by each of the   
individual projects for the life of each such project. Such analysis            
indicated that assuming discount rates ranging from 9% to 13% for domestic      
projects and 11% to 19% for international projects, the net after-tax present   
value of Magma's future cash flows (plus net cash of approximately $107         
million) ranged from $577 million to $1,250 million, or from $24 to $52 per     
Magma Share. The Consideration on a per Magma Share basis was within the        
range (and at approximately the midpoint of the range) indicated by the         
discounted cash flow analysis.                                                  

Pro Forma Analyses. Goldman Sachs reviewed certain forecasted financial   
information prepared by the respective managements of Magma and the Company     
for their respective companies as well as certain pro forma financial           
information for the combined entity prepared by the Company management.         
Goldman Sachs' pro forma analysis was based primarily on the foregoing          
information. In conducting its analysis, Goldman Sachs assumed that the         
option to pay the All Cash Component Amount was not exercised by the Company    
in the Merger. Further, in conducting its analysis with respect to              
information provided by Magma and the Company managements' for their            
respective companies, Goldman Sachs also assumed that synergies from the        
Merger aggregated in the amount of $5 million. The foregoing analysis           
indicated that the estimated earnings per share for the pro forma combined      
entity would be accretive to                                                    

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earnings per share for the Common Stock in the range of 2% to 11% in 1995 and   
13% to 22% in 1996 depending on the market price of the Common Stock at the     
time of consummation of the Merger. In addition, Goldman Sachs evaluated the    
pro forma information for the combined entity as provided by the Company        
management (including certain other assumptions made therein). The foregoing    
analysis indicated that the estimated earnings per share for the pro forma      
combined entity would be accretive to earnings per share for the Common Stock   
by 1% in 1995 and 11% in 1996.                                                  

Goldman Sachs also reviewed the value of the Consideration to be received 
by the holders of the Magma Shares on a per Magma Share basis assuming (i)      
that all outstanding Magma Shares were tendered in the Offer, (ii) that the     
option to pay the All Cash Component Amount was not exercised by the Company    
in the Merger, and (iii) a range of market prices for Common Stock between      
$10 per share to $20 per share. The foregoing analysis indicated that the       
value of the Consideration had a range between $35.86 per Magma Share (if       
Common Stock traded at $10 per share) and $39.71 per Magma Share (if Common     
Stock traded at $20 per share).                                                 

Selected Transactions Analysis. Goldman Sachs reviewed and analyzed       
certain information relating to selected transactions within the independent    
power production industry since January 1, 1988. Goldman Sachs noted that the   
selected transactions analysis did not provide any consistent indication of     
value, and, accordingly, did not rely upon this analysis.                       

Other Analyses.  Goldman Sachs also considered the status of discussions  
with certain third parties which may have had a potential interest in           
entering into a business combination transaction or a strategic alliance with   
Magma, which did not indicate a likelihood of an alternative transaction        
achieving a greater value for Magma stockholders than did the Consideration     
being offered by the Company.                                                   

General. As described above, certain of the analyses performed by Goldman 
Sachs relied on estimates of future financial performance provided by the       
managements of the Company and Magma, including certain financial forecasts     
for the pro forma combined entity resulting from the Merger prepared by the     
management of the Company and, in the Discounted Cash Flow Analysis,            
estimates regarding the likelihood of successful project development as         
provided by Magma management relating to Magma's IPP projects.                  

The foregoing summary does not purport to be a complete description of the
analyses performed by Goldman Sachs. The preparation of a fairness opinion is   
a complex process and is not necessarily susceptible to partial analysis or     
summary description. Selecting portions of the analyses or of the summary set   
forth above, without considering the analysis as a whole, could create an       
incomplete view of the processes underlying Goldman Sachs' opinion. In          
arriving at its fairness determination, Goldman Sachs considered the results    
of all such analyses. The analyses were prepared solely for purposes of         
Goldman Sachs' providing its opinion to the Magma Board as to the fairness of   
the Consideration to the holders of Magma Shares (other than the Company and    
its affiliates), and do not purport to be appraisals or necessarily reflect     
the prices at which Magma or its securities actually may be sold. Analyses      
based upon forecasts of future results are not necessarily indicative of        
actual future results, which may be significantly more or less favorable than   
suggested by such analyses.                                                     

DESCRIPTION OF THE MERGER AGREEMENT                                             

The following description of the Merger Agreement summarizes its material 
terms.                                                                          

Conditions to the Obligations of Each Party to Effect the                 
Merger. Consummation of the Merger remains subject to certain conditions,       
including, (i) approval and adoption of the Merger and the Merger Agreement     
by the requisite vote of Magma's stockholders, (ii) approval of the issuance    
of Common Stock in order to effectuate the Merger by the requisite vote of      
the Company's stockholders, (iii) the Common Stock issuable to Magma's          
stockholders in the Merger having been authorized for listing on the NYSE       
upon official notice of issuance, (iv) the registration statement to be filed   
with the Commission by the Company on Form S-4 under the Securities Act for     
the purpose of registering the shares of Common Stock to be issued in the       
Merger shall have become effective in accordance with the provisions of the     
Securities Act and no stop order suspending such effectiveness shall have       
been issued by the Commission and remain in effect, and (v) that there shall    
not be in effect (a) any judgment, decree or order issued by                    

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any Federal, state or local court of competent jurisdiction, or (b) any         
statute, rule or regulation enacted or promulgated by any Federal, state,       
local or legislative, administrative or regulatory body of competent            
jurisdiction, that in either of cases (a) or (b) prohibits the consummation     
of the Merger or makes such consummation illegal.                               

The Merger Consideration. In the Merger, each outstanding Magma Share     
(other than Magma Shares held by the Company and the Purchaser or any other     
direct or indirect subsidiary of the Company and Magma Shares held in the       
treasury of Magma), will be converted into the right to receive, at the         
Company's option, either (i) the All Cash Component Amount (as defined          
below), net in cash, without interest thereon, or (ii) both (A) the Mixed       
Cash Component Amount (as defined below), net in cash, without interest         
thereon, and (B) the number of fully paid and nonassessable shares of Common    
Stock equal to the quotient of (I) $39.00 less (II) the Mixed Cash Component    
Amount divided by the Average Closing Price (as defined below) (the All Cash    
Component Amount or (ii)(A) and (ii)(B), collectively, as applicable, being     
the "Merger Consideration"). The "Mixed Cash Component Amount" shall mean an    
amount equal to the quotient of (A) (x) $28.50 multiplied by the number of      
Magma Shares outstanding at the Effective Time less (y) $39.00 multiplied by    
the number of Magma Shares owned by the Company and any of its affiliates       
immediately prior to the Effective Time, divided by (B) the number of Magma     
Shares outstanding at the Effective Time (other than Magma Shares owned by      
the Company and any of its affiliates). The "All Cash Component Amount" shall   
mean an amount equal to the quotient of (A) (x) $38.75 multiplied by the        
number of Magma Shares outstanding at the Effective Time less (y) $39.00        
multiplied by the number of Magma Shares owned by the Company and any of its    
affiliates immediately prior to the Effective Time, divided by (B) the number   
of Magma Shares outstanding at the Effective Time (other than Magma Shares      
owned by the Company and any of its affiliates). The "Average Closing Price"    
shall mean the average closing price of Common Stock on the NYSE during the     
15 consecutive trading days ending on the fifth business day prior to the       
Effective Time; provided, however, that, for purposes of the calculation, if    
such average closing price exceeds $18.73, the Average Closing Price shall be   
deemed to be $18.73, and if such average closing price is less than $14.27,     
the Average Closing Price shall be deemed to be $14.27.                         

The foregoing formula for determining the consideration to be paid in the 
Merger was determined so that (i) if the Company determines to pay the Merger   
Consideration with a combination of cash and Common Stock, the consideration    
paid by the Company in the Offer and the Merger would consist, on a blended     
basis, of $28.50 per Magma Share in cash and $10.50 per Magma Share in market   
value of Common Stock, based on the Average Closing Price and subject to the    
Collar Provision, and (ii) if the Company determines to pay only cash           
consideration in the Merger, the blended consideration paid by the Company in   
the Offer and the Merger would be $38.75 per Magma Share. The consideration     
to be paid in the Offer and the Merger, including the terms of the Collar       
Provision, was negotiated on an arms' length basis between the Company and      
Magma. The purpose of the Collar Provision is to limit the number of shares     
of Common Stock required to be issued in the Merger if the Average Closing      
Price is less than $14.27 and to establish a minimum number of shares of        
Common Stock required to be issued in the Merger if the Average Closing Price   
exceeds $18.73. It is the Company's current intention to pay the Merger         
Consideration solely in cash, but such intention is subject to change if (i)    
the proposed underwriters for the public offering determine that they cannot    
or will not proceed with such offering upon terms reasonably satisfactory to    
the Company or (ii) market conditions would require the issuance of a greater   
number of shares of Common Stock in order to fund an all cash Merger than       
would be required to be issued in a Merger with a mixed cash and Common Stock   
consideration. The total maximum cash amount to be paid by the Company for      
Magma Shares in the Merger will be approximately equal to $440.3 million. Set   
forth below is a chart which shows the form and amount of consideration to be   
paid in the Merger under various assumptions:                                   

MERGER CONSIDERATION  

At the Company's option, each Magma Share to be converted in the Merger   
can be converted into the right to receive either the amounts of cash and       
Common Stock set forth in columns B and C, respectively, assuming the Average   
Closing Prices set forth in column A, or the amounts set forth in column F.     
For purposes of the calculations set forth below, it has been assumed that      
the number of Magma                                                             

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Shares outstanding at the Effective Time will be equal to 24,043,000 (the       
number of Magma Shares outstanding as of September 30, 1994). In addition, it   
has been assumed that the number of Magma Shares owned by the Company and any   
of its affiliates immediately prior to the Effective Time will be equal to      
12,600,000, 12,400,000 of which were acquired pursuant to the Offer.            

                                                        [Enlarge/Download Table]

     (A)           (B)          (C)         (D)            (E)              (F)      
------------  -----------  -----------  ----------  ---------------  --------------- 
                                                                      ALL CASH MERGER
                        CASH AND STOCK MERGER CONSIDERATION            CONSIDERATION 
              -----------------------------------------------------  --------------- 
   ASSUMED                   NUMBER OF                                               
   AVERAGE     MIXED CASH    SHARES OF    VALUE OF                       ALL CASH    
   CLOSING      COMPONENT     COMMON       COMMON         TOTAL          COMPONENT   
    PRICE        AMOUNT        STOCK       STOCK      CONSIDERATION       AMOUNT     
------------  -----------  -----------  ----------  ---------------  --------------- 
                                                                                     
$14.00 (1)    $16.94       1.546        $21.64      $38.58           $38.47          
 15.00         16.94       1.471         22.06       39.00            38.47          
 16.00         16.94       1.379         22.06       39.00            38.47          
 17.00         16.94       1.298         22.06       39.00            38.47          
 18.00         16.94       1.226         22.06       39.00            38.47          
 19.00 (1)     16.94       1.178         22.38       39.32            38.47          
 20.00 (1)     16.94       1.178         23.56       40.50            38.47          
<FN>                                                                                 
---------------                                                                      
      (1) The Collar Provision applies.                                              

The foregoing table is based on the number of Magma Shares outstanding as of    
September 30, 1994. If, prior to the Effective Time, the maximum number of      
Magma Shares (582,478) are issued in respect of outstanding options and         
deferred stock awards, (i) the All Cash Component Amount in all cases would     
be $38.49, (ii) the Mixed Cash Component Amount in all cases would be $17.50,   
and (iii) the "Number of Shares of Common Stock", the "Value of Common Stock"   
and the "Total Consideration" would be, respectively, for the following         
Assumed Average Closing Prices: for an Assumed Average Closing Price of         
$14.00, 1.507, $21.09 and $38.59; for an Assumed Average Closing Price of       
$15.00, 1.433, $21.50 and $39.00; for an Assumed Average Closing Price of       
$16.00, 1.344, $21.50 and $39.00; for an Assumed Average Closing Price of       
$17.00, 1.265, $21.50 and $39.00; for an Assumed Average Closing Price of       
$18.00, 1.195, $21.50 and $39.00; for an Assumed Average Closing Price of       
$19.00, 1.148, $21.81 and $39.31; and for an Assumed Average Closing Price of   
$20.00, 1.148, $22.96 and $40.46.                                               

Magma Stock Options. Each option outstanding immediately prior to the     
Effective Time under Magma Stock Option Plans (as defined in the Merger         
Agreement), whether or not then exercisable, shall be cancelled by Magma and,   
in exchange therefor, each holder of any such option shall be entitled to       
receive from Magma at the Effective Time, or as soon as practicable             
thereafter, an amount in cash equal to the product of (x) the number of Magma   
Shares previously subject to such option and (y) the excess, if any, of         
$39.00 or, if the Company has elected the All Cash Component Amount, $38.75,    
over the exercise price per Magma Share previously applicable to such option.   
Each unvested share of deferred stock under Magma's 1994 Equity Participation   
Plan (as defined in the Merger Agreement) or as otherwise described in Magma    
Disclosure Schedule (as defined in the Merger Agreement) outstanding            
immediately prior to the Effective Time (each, a "Deferred Share") shall be     
cancelled by Magma and each holder of a cancelled Deferred Share shall be       
entitled to receive at the Effective Time or as soon as practicable             
thereafter from Magma an amount in cash equal to $39.00 or, if the Company      
has elected the All Cash Component Amount, $38.75. The treatment of the Magma   
stock options in the Merger was determined subsequent to the determination of   
the Merger Consideration. The parties agreed on this treatment because they     
believed such treatment, which provides for the payment in cash of the          
"spread" on the options, is customary in transactions similar to the Merger.    

Board Representation. Pursuant to the Merger Agreement, on January 10,    
1995, the Company obtained majority representation on the Magma Board. The      
Magma Board currently consists of six designees of the Company and two          
individuals of Magma who were directors of Magma at the time the Merger         
Agreement was executed. Prior to the Effective Time, any amendment of the       
Merger Agreement                                                                

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or Magma's Restated Articles of Incorporation or Restated Bylaws, any           
extension by Magma of the time for the performance of any of the obligations    
or other acts of the Company or the Purchaser, or waiver of any of Magma's      
rights under the Merger Agreement, and any other consent or action of the       
Magma Board under the Merger Agreement will require the concurrence of a        
majority (which shall be at least two) of the directors of Magma then in        
office who are not designees of the Company or the Purchaser ("Disinterested    
Directors").                                                                    

The Company has agreed to use its best efforts to nominate and cause up to
two nominees of Magma to be elected or appointed as members of the Company's    
Board.                                                                          

Other Proposals. The Merger Agreement further provides that neither Magma 
nor any of its subsidiaries, or any of their respective directors, officers,    
agents, financial advisors or otherwise may, directly or indirectly, solicit,   
initiate or knowingly encourage the submission of proposals or offers from      
any person relating to any Competing Transaction (as defined below), or         
participate in any negotiations regarding, or furnish to any other person any   
information (except for information which has been previously publicly          
disseminated by Magma in the ordinary course of business) with respect to, or   
otherwise cooperate in any way with, or assist or participate in, facilitate    
or encourage, any effort or attempt by any other person to do or seek any of    
the foregoing. The Magma Board may (i) review and act upon (which actions may   
include, without limitation, providing confidential information, negotiating    
a transaction and entering into an agreement for a transaction) an              
unsolicited proposal by any other person relating to any of the transactions    
referred to in the preceding sentence, if the Magma Board determines in good    
faith, after consultation with and based upon the advice of its financial and   
legal advisors, that failing to review and act upon such proposal would         
constitute a breach of fiduciary duty, and (ii) comply with Rule 14e-2          
promulgated under the Exchange Act with regard to a tender or exchange offer,   
and such review, conduct or compliance will not violate the Merger Agreement.   
"Competing Transaction" shall mean any of the following involving Magma or      
any of its subsidiaries: (i) any merger, consolidation, share exchange,         
business combination, or other similar transaction; (ii) any sale, lease,       
exchange, mortgage, pledge, transfer or other disposition of 50% or more of     
the assets of Magma and its subsidiaries, taken as a whole, in a single         
transaction or series of transactions; (iii) any tender offer or exchange       
offer for 50% or more of the Magma Shares or the filing of a registration       
statement under the Securities Act in connection therewith; (iv) any person     
having acquired beneficial ownership or the right to acquire beneficial         
ownership of, or any "group" (as such term is defined under Section 13(d) of    
the Exchange Act and the rules and regulations promulgated thereunder) having   
been formed which beneficially owns or has the right to acquire beneficial      
ownership of, 50% or more of the Magma Shares; or (v) any public announcement   
of a proposal, plan or intention to do any of the foregoing or any agreement    
to engage in any of the foregoing.                                              

Representations and Warranties. The Merger Agreement contains customary   
representations and warranties of the parties thereto, including                
representations by each of Magma and the Company as to the absence of certain   
changes or events concerning its business, compliance with law, approval of     
the Offer and the Merger by Magma for purposes of certain Nevada antitakeover   
statutes, energy regulatory status, environment, employee benefit plans,        
insurance, taxes, related party transactions, the status of development and     
construction projects and the status of operating projects.                     

Certain Covenants of Magma, the Company and the Purchaser. Magma has      
agreed that, prior to the Effective Time, unless the Company shall otherwise    
consent in writing and except as is otherwise permitted by the Merger           
Agreement, the businesses of Magma and its subsidiaries shall be conducted      
only in, and Magma and its subsidiaries shall not take any action except in,    
the ordinary course of business and in a manner consistent with past            
practice; and Magma will use its best efforts to preserve substantially         
intact its business organization, to keep available the services of its         
present officers, employees and consultants and to preserve its present         
relationships with customers, suppliers and other persons with which it or      
any of its subsidiaries has significant business relations. Except as           
contemplated by the Merger Agreement, Magma has agreed that neither it nor      
any of its subsidiaries will, prior to the Effective Time, directly or          
indirectly, do any of the following without the prior written consent of the    
Company: (a) (i) issue, sell, pledge, dispose of, encumber, authorize, or       
propose the issuance, sale, pledge, disposition, encumbrance or authorization   
of any Magma Shares or shares of its subsidiaries' capital stock of any         
class,                                                                          

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or any options, warrants, convertible securities or other rights of any kind    
to acquire any shares of its or its subsidiaries' capital stock, or any other   
ownership interest (except with respect to Magma Shares previously reserved     
for issuance as disclosed in Section 4.03 of the Merger Agreement); (ii)        
amend or propose to amend its articles of incorporation or bylaws or            
equivalent organizational documents; (iii) split, combine or reclassify any     
of its outstanding common stock, or declare, set aside or pay any dividend or   
distribution payable in cash, stock, property or otherwise with respect to      
the common stock; (iv) redeem, purchase or otherwise acquire or offer to        
redeem, purchase or otherwise acquire any shares of its capital stock, except   
in the performance of its obligations under existing employee plans; or (v)     
authorize or propose or enter into any contract, agreement, commitment or       
arrangement with respect to any of the matters set forth in this section (a);   
(b) (i) acquire (by merger, consolidation, or acquisition of stock,             
partnership interests or assets) any corporation, partnership or other          
business organization or division thereof or any other interests in operating   
properties; (ii) except in the ordinary course of business and in a manner      
consistent with past practices, sell, pledge, lease, transfer, dispose of, or   
encumber or authorize or propose the sale, pledge, lease, transfer,             
disposition or encumbrance of any of its or its subsidiaries' assets            
(including intangible assets); (iii) create, incur, assume or guarantee any     
indebtedness or other similar obligation, or enter into any contract or         
agreement, except in the ordinary course of business and consistent with past   
practice; (iv) enter into any new line of business or make any bid or enter     
into any commitment in respect of any new or proposed projects; (v) prepay or   
refinance any part of the principal or interest of any existing indebtedness    
before the due date thereof; (vi) assume, guarantee, endorse or otherwise       
become liable or responsible (whether directly, contingently or otherwise)      
for the obligations of any other person or entity, except for endorsements in   
the ordinary course of business in connection with the deposit of items for     
collection; (vii) make any loans, advances or capital contributions to or       
investments in any person or entity; (viii) waive, release, grant or transfer   
any rights of value or modify or change in any material respect any existing    
license, material lease or commitment; (ix) make or commit to or guarantee      
any single capital expenditure or obligation which is not consistent with       
past practice and currently budgeted; or (x) enter into or amend any            
contract, agreement, commitment or arrangement with respect to any of the       
matters set forth in this section (b); (c) take any action other than in the    
ordinary course of business and in a manner consistent with past practice       
(none of which actions shall be unreasonable or unusual) with respect to the    
grant of any severance or termination pay (otherwise than pursuant to           
policies of Magma or any of its subsidiaries in effect on November 30, 1994)    
or with respect to any increase of benefits payable under its severance or      
termination pay policies in effect on November 30, 1994; (d) make any           
payments (except in the ordinary course of business and in amounts and in a     
manner consistent with past practice) under any of its employee plans to any    
of its or its subsidiaries' employees, independent contractors or               
consultants, enter into any new employee plan, any new employment or            
consulting agreement, grant or establish any new awards under such plan or      
agreement, or adopt or otherwise amend any of the foregoing; (e) take any       
action except in the ordinary course of business and in a manner consistent     
with past practice (none of which actions shall be unreasonable or unusual)     
with respect to accounting policies or procedures (including without            
limitation its procedures with respect to the payment of accounts payable);     
(f) before the purchase of Magma Shares pursuant to the Offer and other than    
pursuant to the Merger Agreement, take any action to cause the shares of its    
common stock to cease to be listed on the NNM; (g) cause or permit any of its   
current insurance (or reinsurance) policies to be cancelled or terminated or    
any of the coverage thereunder to lapse, unless forthwith upon notice of such   
termination, cancellation or lapse, Magma or such subsidiary used its best      
efforts to obtain commercially reasonable replacement policies from the same    
or comparable insurers providing coverage which is the same as or comparable    
to that provided under the cancelled, terminated or lapsed policies; (h)        
enter into any agreement or transaction with any affiliate of Magma upon        
terms and conditions less favorable to Magma or such affiliate than could be    
obtained on an arm's length basis, except for agreements or transactions in     
the ordinary course of business and consistent with past practice; (i) settle   
any material pending litigation; or (j) enter into any oral or written          
agreement, contract, commitment, arrangement or understanding with respect to   
any of the foregoing.                                                           

Notwithstanding the foregoing: (i) Magma may close the financing of its   
Malitbog project without the prior consent of the Company provided that the     
Company has been given the opportunity to review the                            

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relevant financing documents and Magma has given the Company at least two       
days prior notice of the anticipated closing date; (ii) Magma may make and      
commit to ordinary course budgeted operational capital and other expenditures   
relating to projects in operation or construction without the consent of the    
Company; (iii) Magma may make planned capital and operational expenditures      
with respect to its Malitbog project, without the consent of the Company;       
(iv) Magma will not make any capital or other expenditures in excess of         
$500,000 in the aggregate with respect to its Nevada Power Pumped Storage       
contract, its Alto Peak contract and any other contract related to a            
development project without prior consultation with the Company and the         
Company's consent; (v) Magma may honor all existing contractual obligations     
relating to projects in operation or construction without the consent of the    
Company; and (vi) Magma will not incur any additional indebtedness (secured     
or unsecured) or make new project or capital commitments in excess of           
$1,000,000 without prior consultation with the Company and the Company's        
consent.                                                                        

The Company has agreed that, prior to the Effective Time, unless the All  
Cash Component election has been made or unless Magma shall otherwise consent   
in writing, and except as is otherwise permitted by the Merger Agreement,       
neither the Company nor any of the Company Subsidiaries shall, directly or      
indirectly, do any of the following: (a) (i) issue or sell, or propose the      
issuance or sale of, any shares of its or its subsidiaries' capital stock of    
any class, or any options, warrants, convertible securities or other rights     
of any kind to acquire any shares of its or its subsidiaries' capital stock,    
or any other ownership interest (except with respect to Common Stock            
previously reserved for issuance as disclosed in Section 3.03 of the Merger     
Agreement) if (A) the proceeds of any such issuance or sale ("Proceeds")        
exceed $50,000,000, and (B) such Proceeds are not applied, if necessary, so     
as to allow the Company to exercise the All Cash Component election; (ii)       
split, combine or reclassify any of its outstanding common stock, or declare,   
set aside or pay any dividend or distribution payable in cash, stock,           
property or otherwise with respect to the common stock; (iii) redeem,           
purchase or otherwise acquire or offer to redeem, purchase or otherwise         
acquire any shares of its capital stock, except in the performance of its       
obligations under existing employee plans or pursuant to a repurchase program   
under Rule 10b-18 promulgated under the Exchange Act; or (iv) authorize or      
propose or enter into any contract, agreement, commitment or arrangement with   
respect to any of the matters set forth in this section (a); (b) in the case    
of the Company, merge or consolidate with or into another person or engage in   
a recapitalization or other similar extraordinary business transaction; (c)     
make any material change in accounting policies, other than as required by      
generally accepted accounting principles; or (d) enter into any oral or         
written agreement, contract, commitment, arrangement or understanding with      
respect to any of the foregoing.                                                

Employee Benefits. The Merger Agreement provides that the Company shall   
cause the Surviving Corporation and its subsidiaries to (x) honor all           
employment, change in control, deferred compensation, pension, retirement and   
severance agreements in effect on December 5, 1994 between Magma or one of      
its subsidiaries and any employee of Magma or one of its subsidiaries, or       
maintained for the benefit of any employee of Magma or one of its               
subsidiaries, and (y) honor all bonus determinations for the fiscal year        
ending December 31, 1994 made by Magma or any of its subsidiaries prior to      
December 5, 1994 with respect to the bonus plans and arrangements of Magma      
and its subsidiaries. For a period of one year commencing on the Effective      
Time, the Company shall cause the Surviving Corporation to provide active       
employees of Magma and its subsidiaries with benefits (including, without       
limitation, welfare benefits) that are no less favorable, taken as a whole,     
than the benefits provided under Magma Benefit Plans (as defined in the         
Merger Agreement) (other than equity-based plans and bonus plans) as in         
effect immediately prior to the Effective Date. To the extent that service is   
relevant for eligibility, vesting or benefit calculations or allowances         
(including, without limitation, entitlements to vacation and sick days) under   
any plan or arrangement maintained in order to provide the benefits described   
in the preceding sentence, such plan or arrangement shall credit employees      
for service on or prior to the Effective Time with Magma or any of its          
subsidiaries. The Company shall as promptly as practicable after the            
Effective Time cause the Surviving Corporation to (or Magma may prior to the    
Effective Time) amend each demand note made in favor of Magma by an employee    
of Magma or one of its subsidiaries to provide that (x) such demand note will   
not be repayable on demand from Magma and (y) upon the involuntary              
termination without cause of the employment of such employee, all sums owed     
under such demand note shall be payable in equal quarterly installments over    
a period of not less than 36 months. With respect to                            

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each employee of Magma (other than employees of Magma which are parties to a    
"change in control" or "severance" agreement) who is, within the one year       
period following the closing of the Offer, either (i) terminated without        
cause or (ii) terminated as a result of a reduction in force, the Company       
shall cause the Surviving Corporation to make the following payments: (1) if,   
upon the effective date of such employee's termination, such employee has       
less than one year's service with Magma, a payment equal to three months base   
salary plus an amount equal to one-fourth of the prior year's targeted bonus    
for such employee, payable in twelve equal installments over the twelve         
months following such termination; or (2) if, upon the effective date of such   
employee's termination, such employee has one year or more of service with      
Magma, a payment equal to six months base salary plus an amount equal to        
one-fourth of the prior year's targeted bonus for each such employee, payable   
in twelve equal installments over the twelve months following such              
termination. For the purposes of subclauses (1) and (2), if an employee was     
not eligible for a bonus in the referenced prior year, then the targeted        
bonus for the current year shall be used. An employee shall not be eligible     
for the payments specified in subclauses (1) or (2) if such employee's          
termination relates to a reduction in force referred to subclause (ii) above    
and such employee has been offered a comparable position (in terms of           
compensation) by the Company at any location; provided, however, that no such   
amounts referenced in (1) and (2) will be payable if, in the good faith         
determination of the Company, the employee's job performance did not merit      
continued employment or offer of relocation to a comparable position. An        
employee may not receive the foregoing severance payments and simultaneously    
receive any severance payments under Magma's severance policy described in      
the first two sentences of this paragraph.                                      

Amendment. The Merger Agreement may be amended by action taken by the     
Company and the Purchaser, and by action taken by or on behalf of the Magma     
Board at any time before the Effective Time; provided, however, that, after     
approval of the Merger by the stockholders of Magma, no amendment may be made   
which would materially adversely impact the interests of Magma's stockholders   
or reduce the amount or change the type of consideration into which each        
Magma Share will be converted upon consummation of the Merger.                  

Termination. The Merger Agreement provides that it may be terminated      
before the Effective Time in the following circumstances: (a) by mutual         
consent of the Boards of Directors of the Company and Magma; or (b) by Magma    
or the Company if the Effective Time shall not have occurred on or prior to     
September 30, 1995; or (c) by either the Company or Magma if a court of         
competent jurisdiction or governmental, regulatory or administrative agency     
or commission shall have issued an order, decree or ruling or taken any other   
action (which order, decree or ruling the parties hereto shall use their best   
efforts to lift), in each case permanently restraining, enjoining or            
otherwise prohibiting the transactions contemplated by the Merger Agreement     
and such order, decree, ruling or other action shall have become final and      
nonappealable; or (d) by the Company if (i) the Magma Board withdraws,          
modifies or changes its recommendation of the Merger Agreement or any of the    
transactions contemplated thereby or shall have resolved to do any of the       
foregoing or (ii) the Magma Board recommends to the holders of Magma Shares     
any proposal with respect to a merger, consolidation, share exchange or         
similar transaction involving Magma or any of its subsidiaries, other than      
the transactions contemplated by the Merger Agreement; or (e) by the Company    
if, without Magma's consent, any person has acquired beneficial ownership or    
the right to acquire beneficial ownership of or any "group" (as defined under   
Section 13(d) of the Exchange Act and the rules and regulations promulgated     
thereunder) has been formed which beneficially owns, or has the right to        
acquire beneficial ownership of, more than 10% of the Magma Shares; or (f) by   
Magma or the Company if (i) a corporation, partnership, person or other         
entity or group shall have made a bona fide offer that the Magma Board          
determines in its good faith judgment and in the exercise of its fiduciary      
duties, after consultation with and based upon the advice of its financial      
and legal advisors, is more favorable to Magma's stockholders than the Offer    
and the Merger or (ii) any person (including, without limitation, Magma or      
any affiliate thereof), other than the Company or any affiliate of the          
Company, shall have become the beneficial owner of more than 50% of the then    
outstanding Magma Shares; or (g) by either the Company or Magma if the other    
party shall have breached the Merger Agreement in any material respect and      
such breach continues for a period of ten days after the receipt of notice of   
the breach from the nonbreaching party.                                         

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Termination Fee for the Company. The Merger Agreement provides that if it 
is terminated pursuant to clauses (d) or (f) or terminated by the Company       
pursuant to clause (g) of the preceding paragraph, Magma will be required to    
pay the Company a termination fee of $8,000,000 plus the Company's actual       
documented out-of-pocket expenses incurred since September 13, 1994 in          
connection with the Merger Agreement and the transactions contemplated          
thereby, including, without limitation, legal and professional fees and         
expenses.                                                                       

Miscellaneous. The Merger Agreement contains customary indemnification    
provisions pursuant to which the directors, officers, employees, fiduciaries    
and agents of Magma and its subsidiaries are required to be indemnified to      
the fullest extent permitted by applicable law, and regardless of whether the   
Merger becomes effective, by Magma and, after the Effective Time, by the        
Surviving Corporation and the Company, from costs or expenses (including        
attorney's fees), judgments, fines, losses, claims, damages, and liabilities    
and amounts paid in settlement in connection with any claim, action, suit,      
proceeding or investigation arising out of or pertaining to the transactions    
contemplated by the Merger Agreement, including liabilities under the           
securities laws in connection with the Merger. In addition, except as set       
forth above, all costs and expenses incurred in connection with the Merger      
Agreement and the transactions contemplated thereby will be paid by the party   
incurring such costs and expenses.                                              

Confidentiality and Standstill Agreements. The Company and Magma have     
entered into a confidentiality agreement, dated December 4, 1994, pursuant to   
which the Company has agreed to maintain the confidentiality of proprietary     
information that may be disclosed to the Company and its representatives in     
connection with the transactions contemplated by the Merger Agreement. In       
addition, the Company and Magma have entered into a standstill agreement,       
dated December 5, 1994 (the "Standstill Agreement"), pursuant to which the      
Company has agreed that neither the Company nor any of its subsidiaries will,   
for a period of three years from December 5, 1994, among other things,          
acquire any securities of Magma or participate in any proxy solicitation with   
respect to voting securities of Magma, except in connection with the Offer      
and the Merger or a tender offer for all Magma Shares at a price no less than   
$38.75 per Magma Share net to the seller in cash.                               

Required Vote at Magma stockholders' meeting. An affirmative vote         
approving and adopting the Merger Agreement at a Magma stockholders' meeting    
by the holders of a majority of the outstanding Magma Shares is required to     
consummate the Merger. As a result of the completion of the Offer pursuant to   
which the Purchaser acquired 12,400,000 Magma Shares for $39.00 per Magma       
Share in cash (representing approximately 51% of the issued and outstanding     
Magma Shares), the Purchaser owns a sufficient number of Magma Shares to        
approve the Merger without the affirmative vote of any other Magma              
stockholder.                                                                    

Dissenters' Rights. Neither holders of the Common Stock nor holders of the
Magma Shares have appraisal rights as a result of the Offer and the Merger or   
from the authorization or issuance of Common Stock in connection therewith.     

CONFLICTS OF INTEREST OF MEMBERS OF THE MAGMA BOARD                             

The Merger Agreement, including the consideration to be paid in the       
Merger, was negotiated by the Company and Magma at arms' length. The Company    
does not believe that any party to the negotiation of the Merger Agreement      
had a material conflict of interest in respect thereof. However, stockholders   
of the Company should be aware that certain members of Magma's management and   
the Magma Board have certain interests in the Merger that are in addition to    
the interests of Magma stockholders generally and that these same members of    
Magma's management and the Magma Board participated in the negotiation of the   
terms of the Merger Agreement on behalf of Magma's stockholders. The Magma      
Board was aware of these interests when it considered and approved the Merger   
and the Merger Agreement.                                                       

In November 1993, the Compensation Committee of the Magma Board (the      
"Compensation Committee") determined that, in order to attract and retain key   
executives of Magma, from time to time it would be in Magma's best interests    
to enter into "change in control" agreements with key executives. The           
Compensation Committee authorized Magma to enter into such agreements,          
subject to the following parameters:                                            

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(A) provision for up to two times base and bonus salary;                  
(B) accelerated vesting of options; and                                   
(C) continuation of health and insurance benefits.                        

Each of the items referred to in (A) through (C) would be triggered by a  
Change in Control (as defined below) of Magma followed by termination of the    
relevant officer's employment by Magma within a specified period, other than    
for cause, disability or retirement.                                            

On September 15, 1994, Magma entered into such change in control          
agreements with each of its six current executive officers (Paul M. Pankratz,   
Chairman of the Board, Ralph W. Boeker, President and Chief Executive           
Officer, Jon R. Peele, Executive Vice President, General Counsel and            
Secretary, Kenneth Kerr, Senior Vice President--Commercial Development, Trond   
Aschehoug, Vice President--North American Operations, and Wallace C.            
Dieckmann, Vice President and Chief Financial Officer) ("Agreement I") and      
with nine other officers (Tom Hinrichs, Vice President--Government Affairs,     
David Olsen, Vice President--Marketing, Jim Runchey, Vice President--Human      
Resources and Administration, Russ Tenney, Vice President--Asian Operations,    
Steven Jaye, Vice President--Legal Affairs, Mark Robinson, Vice                 
President--Business Development, Paul Zapf, Corporate Controller, Joe Asiala,   
Director--Resource Development and Management, and Jim Turner,                  
Director--Engineering and Technology) ("Agreement II").                         

The agreements provide for certain severance payments to those officers in
the event of the termination of their employment following a Change in          
Control of Magma, consistent with the enabling resolutions passed by the        
Compensation Committee in the fall of 1993. Each agreement has a term           
expiring on December 31, 1997, renewable at the end of such term if mutually    
agreed to by the officer and Magma.                                             

Agreement I provides that if the officer's employment is terminated by    
Magma for any reason other than for Cause, Disability or Retirement (as such    
terms are defined in Agreement I) or by the officer for Good Reason (as such    
term is defined in Agreement I) within two years following a Change of          
Control (as defined below), (i) Magma will pay the officer, within 30 days of   
the date of termination, a cash payment (the "Severance Payment") equal to      
200% of the sum (the "Sum") of (A) the officer's base salary for the twelve     
months immediately preceding the Change in Control and (B) the officer's        
entire targeted bonus payable under Magma's Management Incentive Bonus Plan     
or other executive bonus plan then in effect and (ii) all Magma deferred        
shares or similar Magma securities and all options to purchase Magma            
securities then held by the officer shall immediately vest. Magma will          
continue to provide the officer and his or her dependents group life and        
health insurance benefits substantially the same as those in effect prior to    
the Change of Control, increased to the extent that such benefits are           
increased following the Change of Control, for 24 months following the          
officer's date of termination. In the event that any payments or benefits       
under the agreement would not be deductible (in whole or in part) by Magma as   
a result of the application of Section 280G of the Internal Revenue Code of     
1986, as amended (the "Code"), the Severance Payment will be reduced until no   
portion of the Severance Payment and benefits is not deductible as a result     
of Section 280G of the Code.                                                    

Agreement II provides the same level of payments and benefits as provided 
in Agreement I except that the Severance Payment shall equal 100% of the        
applicable Sum and that health insurance benefits shall be provided for 12      
months following a Change of Control.                                           

A "Change of Control" shall be deemed to have occurred (i) in the event of
the acquisition by any person, together with its affiliates, of beneficial      
ownership of capital stock of Magma possessing 30% or more of the combined      
voting power of the Magma Shares, (ii) if within any two-year period, the       
majority of the members of the Magma Board were to be comprised of              
individuals other than those who were members at the beginning of such          
period, unless the members elected during such period were approved by a        
majority of the Magma Board in office immediately prior to the beginning of     
such period, (iii) if all or substantially all of Magma's assets are sold as    
an entirety to any person or related group of persons or (iv) if Magma is       
merged with or into another corporation or another corporation is merged into   
Magma with the effect that immediately after such transaction the               
shareholders of Magma immediately prior to such transaction hold less than a    
majority in interest of the total voting power entitled to vote in the          
election of directors, managers or trustees of the entity surviving such        
transaction.                                                                    

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At a regular scheduled meeting of the Magma Board held on September 20,   
1994, the Compensation Committee authorized a change of the definition of       
"Good Reason" in these agreements, the effect of which would allow a covered    
executive to resign for "Good Reason" if, after a Change of Control, the        
executive were required to relocate more than 50 miles from his then current    
place of employment.                                                            

ANTITRUST                                                                       

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), certain acquisition transactions may not be consummated        
unless certain information has been furnished to the Federal Trade Commission   
("FTC") and the Antitrust Division of the Department of Justice (the            
"Antitrust Division") and certain waiting period requirements have been         
satisfied. As a result of termination of the HSR Act waiting period in          
connection with a previous tender offer for Magma Shares by the Company (the    
"Previous Offer"), no waiting period is required in connection with the         
Offer.                                                                          

The Antitrust Division, the FTC and state authorities frequently          
scrutinize the legality under the antitrust laws of transactions such as the    
acquisition of Magma Shares pursuant to the Offer. At any time before or        
after the consummation of any of such transactions, the Antitrust Division,     
the FTC or state authorities could take such action under the antitrust laws    
as it deems necessary or desirable in the public interest, including seeking    
to enjoin the purchase of Magma Shares pursuant to the Offer or otherwise or    
the consummation of the Merger, or seeking the divestiture of Magma Shares      
acquired by the Purchaser or the divestiture of substantial assets of the       
Company. Private parties may also seek to take action under the antitrust       
laws. The Purchaser believes that the acquisition of Magma Shares pursuant to   
the Offer will not violate the antitrust laws. However, and notwithstanding     
termination of the HSR Act waiting period in connection with the Previous       
Offer, there can not be any assurance that a challenge to the Offer on          
antitrust grounds will not be made, or if such a challenge is made, what the    
result will be.                                                                 

REGULATORY APPROVALS                                                            

The Company, the Purchaser and Magma know of no federal or state          
regulatory requirements that must be complied with or approvals that must be    
obtained in order to consummate the Merger, other than the filing of the        
Certificate of Merger or the Merger Agreement with the Secretary of State of    
Nevada and the Secretary of State of Delaware.                                  

ACCOUNTING TREATMENT                                                            

The Merger will be accounted for under the purchase method of accounting. 

FEDERAL INCOME TAX CONSEQUENCES                                                 

The purchase for cash and/or Common Stock of Magma Shares pursuant to the 
Offer and the Merger will be taxable for federal income tax purposes (and may   
also be taxable under applicable state, local, foreign and other tax laws).     
Accordingly, a holder of Magma Shares will recognize gain or loss for federal   
income tax purposes equal to the difference between (i) the sum of the cash     
and the fair market value of Common Stock received in the Offer and the         
Merger and (ii) the holder's adjusted tax basis for the Magma Shares. Such      
gain or loss will be capital gain or loss if the Magma Shares were held as a    
capital asset.                                                                  

STOCK EXCHANGE LISTING                                                          

The Common Stock is listed on the NYSE. Application will be made to list  
the Common Stock to be issued pursuant to the Offer on such exchange. See       
"PROPOSAL 2--APPROVAL OF THE ISSUANCE OF COMMON STOCK TO HOLDERS OF MAGMA       
SHARES AS PART OF THE MERGER CONSIDERATION IN THE PENDING ACQUISITION."         

EFFECTS OF THE PENDING ACQUISITION                                              

In the event that the Company elects to include Common Stock as           
consideration in the Merger, former stockholders of Magma will own              
approximately 32.2% of the outstanding shares of Common Stock after giving      
effect to the Pending Acquisition at a price of $16.50 per share of Common      
Stock of the Company.                                                           

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SOURCE AND AMOUNT OF FUNDS                                                      

If the Company elects to pay the Merger Consideration with a combination  
of cash and Common Stock, the Company estimates that approximately $710.9       
million will be required to effectuate the Merger, to refinance bank            
borrowings incurred in connection with the Offer and to pay related fees and    
expenses. If the Company elects to pay the Merger Consideration solely in       
cash, approximately $957.4 million will be required. Approximately one-half     
of whichever amount is required will be provided under secured bank credit      
facilities (the "Merger Facilities") with Credit Suisse pursuant to which       
Credit Suisse will provide, on specified terms and subject to customary         
conditions, up to $500,000,000 in secured bank financing. Such funds,           
together with a capital contribution by the Company from the Company's          
general corporate funds and, if the Company elects to pay the Merger            
Consideration solely in cash, the net proceeds of the Public Offering, will     
be sufficient to pay the Merger Consideration, to refinance bank borrowings     
incurred in connection with the Offer and to pay related fees and expenses.     

The Company has received a fully underwritten financing commitment letter 
from Credit Suisse (the "Commitment Letter") which states that Credit Suisse    
will provide to the Purchaser, on specified terms and subject to customary      
conditions, (i) a facility of up to $250,000,000 to capitalize the Purchaser    
for the purpose of financing the Offer (the "Tender Facility"), which           
facility has been fully utilized in connection with consummation of the         
Offer, and (ii) the Merger Facilities for, among other things, refinancing      
the Tender Facility and effectuating the Merger.                                

On January 10, 1995, in connection with the purchase of Magma Shares      
pursuant to the Offer, the Company borrowed approximately $250 million under    
the Tender Facility on a limited-recourse basis (recourse as to interest only   
and certain fees) and loaned the proceeds of such borrowing to the Purchaser    
in exchange for a secured term note of the Purchaser (the "Purchaser Note").    
The economic terms of the Purchaser Note mirror those of the Tender Facility.   

The Tender Facility is a 12-month term loan extendible for up to three    
years by the mutual consent of the Company and Credit Suisse. Borrowings        
under the Tender Facility are secured by an assignment and pledge of the        
Purchaser Note, which in turn is secured by an assignment and pledge of the     
12,400,000 Magma Shares purchased by the Purchaser pursuant to the Offer and    
an additional 200,000 Magma Shares contributed by the Company to the capital    
of the Purchaser. Interest on borrowings under the Tender Facility is payable   
at spreads of 2.50% above LIBOR (adjusted for reserves) or 1.25% above Base     
Rate.                                                                           

The Tender Facility contains affirmative and negative covenants customary 
for similar credit facilities. Such covenants include: a negative pledge of     
all stock and unencumbered assets of the Purchaser and its subsidiaries; a      
limitation on guaranties by the Company and the Purchaser; a limitation on      
mergers and sales of assets by the Company and its subsidiaries; a limitation   
on investments in other persons by the Company and its subsidiaries; a          
prohibition on dividends and other payments by the Company and its              
subsidiaries to the Company unless the proceeds are used to pay down the        
Tender Facility in amounts to be agreed upon; a prohibition on the sale of      
ownership interests in the Purchaser and its subsidiaries; a prohibition on     
the incurrence of additional debt by the Purchaser and its subsidiaries; a      
requirement that the Company deliver each month a certificate as to the         
absence of material adverse changes in (i) the Company and its subsidiaries,    
taken as a whole, and (ii) the Purchaser and its subsidiaries, taken as a       
whole, which in either case could reasonably be expected to materially affect   
the ability of the Company to service the Tender Facility or the ability of     
the lenders to realize on the collateral for the Tender Facility; and a         
restriction on a change in the nature of the business of the Company and its    
subsidiaries, except as contemplated by the Merger Agreement.                   

The Tender Facility also contains financial covenants and customary events
of default, including events of default based on: a permanent injunction        
prohibiting the Merger; breaches of covenants; cross defaults with respect to   
debt of the Company, Magma and their subsidiaries; bankruptcy and similar       
events; the failure to pay one or more final judgments aggregating more than    
a specified threshold; the failure to make a payment with respect to the        
Tender Facility when due; and the failure of the pledge agreement with          
respect to the Magma Shares and the Purchaser Note to be in full force and      
effect.                                                                         

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The Merger Facilities will be comprised of (i) a six year term loan ("Term
Loan A") in a principal amount of up to the difference between $500 million     
and the principal amount of Term Loan B (as defined below), expected to be      
amortized in semi-annual payments, and (ii) an eight year term loan ("Term      
Loan B") in a principal amount expected to be not less than $150 million,       
expected to be amortized in semi-annual payments in the seventh and eighth      
years of such Term Loan. Loans under the Merger Facilities will be made to      
the Company on a non-recourse basis, and the Company will lend the proceeds     
of such loans to Magma in exchange for secured term note of Magma (the "Magma   
Note"). The loans under the Merger Facilities are to be amortized from          
internally generated funds of Magma and will be secured by an assignment and    
pledge by the Company of the Magma Notes and 100% of the capital stock of       
Magma. The Magma Notes will be secured by a collateral assignment of certain    
unencumbered assets of Magma.                                                   

Interest on loans borrowed under the Merger Facilities will be payable at 
spreads of 2.50% above LIBOR (adjusted for reserves) or 1.50% above the Base    
Rate for Term Loan A, and 3.00% above LIBOR (adjusted for reserves) or 2.00%    
above the Base Rate for Term Loan B. The LIBOR spreads are subject to upward    
adjustment in certain instances. The Company may elect to have the loans bear   
interest based on either LIBOR or the Base Rate (as defined in the Merger       
Facilities).                                                                    

The Merger Facilities will contain affirmative and negative covenants     
customary for similar credit facilities. Such covenants will include: a         
negative pledge of all stock and unencumbered assets of Magma and its           
subsidiaries; a limitation on guaranties by Magma and its subsidiaries; a       
limitation on mergers and sales of assets by Magma and its subsidiaries; a      
limitation on investments in other persons by Magma and its subsidiaries; a     
limitation on dividends and other payments by Magma and its subsidiaries to     
the Company unless the proceeds are used to pay down the Merger Facilities in   
amounts to be agreed upon; a prohibition on the sale of ownership interests     
in Magma and its subsidiaries; a prohibition on the incurrence of additional    
debt by Magma and its subsidiaries; a requirement that the Company deliver      
each fiscal quarter a certificate as to the absence of material adverse         
changes in the Company or Magma which could reasonably be expected to           
materially affect the ability of the Company to service the Merger Facilities   
or the ability of the lenders to realize on the collateral for the Merger       
Facilities; and a restriction on a change in the nature of the business of      
Magma and its subsidiaries.                                                     

The Merger Facilities will also contain financial covenants and customary 
events of default, including events of default based on: breaches of            
covenants; cross defaults with respect to debt of the Company, Magma and        
their subsidiaries; bankruptcy and similar events; the failure to pay one or    
more final judgments aggregating more than a specified threshold to be agreed   
upon; the failure to make a payment with respect to the Merger Facilities       
when due; and the failure of the pledge agreement with respect to the capital   
stock of Magma and the Magma Notes to be in full force and effect.              

Credit Suisse's commitment to provide the Merger Facilities is subject to 
certain customary conditions, including without limitation (a) a capital        
investment in the Purchaser in an amount and form satisfactory to Credit        
Suisse, and (b) the absence of certain material adverse changes.                

The Company has agreed to pay certain fees to Credit Suisse with respect  
to the Merger Facilities and Tender Facilities which, in the aggregate, are     
not material to the transactions described herein.                              

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CAPITALIZATION OF THE COMPANY   

MERGER CONSIDERATION CONSISTING OF A COMBINATION OF CASH AND COMMON STOCK       

The following table sets forth the consolidated capitalizations of the    
Company and Magma at September 30, 1994 and as adjusted to reflect borrowings   
of up to $500 million under the Merger Facilities, the purchase by the          
Purchaser of all the Magma Shares and the issuance as a part of the Merger      
Consideration of shares of Common Stock. The following table should be read     
in conjunction with the other pro forma financial information and the           
consolidated financial statements and notes thereto of the Company and Magma    
contained in this Proxy Statement.                                              

                                                        [Enlarge/Download Table]

                                                             AT SEPTEMBER 30, 1994              
                                                          -------------------------             
                                                                         PRO FORMA     PRO FORMA
                                               COMPANY       MAGMA      ADJUSTMENTS    COMBINED 
                                            ------------  ----------  -------------  -----------
                                                   (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)      
                                                                                                
DEBT:                                                                                           
Construction loans ........................ $   21,079    $      --   $       --     $   21,079 
Project loans .............................    233,080     188,969           --         422,049 
Senior discount notes .....................    421,375          --           --         421,375 
Convertible subordinated debenture  .......    100,000          --           --         100,000 
Other long term liabilities ...............         --      12,354      500,000         512,354 
                                            ------------  ----------  -------------  -----------
                                               775,534     201,323      500,000       1,476,857 
Redeemable preferred stock ................     62,350          --           --          62,350 
STOCKHOLDERS' EQUITY:                                                                           
Company preferred stock--Series A of no                                                         
 par value; authorized 2,000 shares  ......         --          --           --              -- 
Company Common Stock of $0.0675 par value;                                                      
 authorized 60,000 shares; Outstanding                                                          
 32,230 shares--actual; 47,529 shares--as                                                       
 adjusted(1) ..............................      2,407          --          802           3,209 
Magma common stock of $0.10 par value;                                                          
 authorized 30,000 shares; 24,043 issued  .         --       2,401       (2,401)             -- 
Additional paid in capital ................    100,000     142,765       49,350         292,115 
Unrealized gain from marketable securities          --        (677)         677              -- 
Retained earnings .........................    136,769     250,797     (250,797)        136,769 
Less treasury stock--3,420 shares at cost     (59,516)         --        59,516              -- 
                                            ------------  ----------  -------------  -----------
 Total stockholders' equity ...............    179,660     395,286     (142,853)        432,093 
                                            ------------  ----------  -------------  -----------
                                            $1,017,544    $596,609    $ 357,147      $1,971,300 
                                            ============  ==========  =============  ===========

---------------                                                                 

(1) Proposal I relates to an increase in the number of authorized shares of     
Common Stock to 80,000,000. Outstanding shares (actual and as adjusted) do
not include (i) 9,435,229 shares of Common Stock reserved for issuance    
upon the exercise of presently outstanding stock options; (ii) 4,444,444  
shares of Common Stock issuable upon the conversion of the Company's 5%   
Convertible Subordinated Debentures due July 31, 2000; and (iii) 3,393,197
shares of Common Stock issuable upon conversion of the 1,247 issued and   
outstanding shares of the Company's Series C Exchangeable Redeemable      
Preferred Stock.                                                          

The accompanying notes to the pro forma unaudited condensed combined      
financial data are an integral part of these statements.                        

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MERGER CONSIDERATION CONSISTING OF ALL CASH                                     

The following table sets forth the consolidated capitalizations of the    
Company and Magma at September 30, 1994 and as adjusted to reflect borrowings   
of up to $500 million under the Merger Facilities, the purchase by the          
Purchaser of all the Magma Shares for cash and the sale to the public of        
shares of Common Stock offered pursuant to a prospectus filed with the          
Commission. The following table should be read in conjunction with the other    
pro forma financial information and the consolidated financial statements and   
notes thereto of the Company and Magma contained in this Proxy Statement.       

                                                        [Enlarge/Download Table]

                                                             AT SEPTEMBER 30, 1994              
                                                          -------------------------             
                                                                         PRO FORMA     PRO FORMA
                                               COMPANY       MAGMA      ADJUSTMENTS    COMBINED 
                                            ------------  ----------  -------------  -----------
                                                   (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)      
                                                                                                
DEBT:                                                                                           
Construction loans ........................ $   21,079    $     --   $       --     $   21,079  
Project loans .............................    233,080     188,969           --         422,049 
Senior discount notes .....................    421,375          --           --         421,375 
Convertible subordinated debenture  .......    100,000          --           --         100,000 
Other long term liabilities ...............         --      12,354      500,000         512,354 
                                            ------------  ----------  -------------  -----------
                                               775,534     201,323      500,000       1,476,857 
Redeemable preferred stock ................     62,350          --           --          62,350 
STOCKHOLDERS' EQUITY:                                                                           
Company preferred stock--Series A of no                                                         
 par value; authorized 2,000 shares  ......         --          --           --              -- 
Company Common Stock of $0.0675 par value;                                                      
 authorized 60,000 shares; outstanding                                                          
 32,230 shares--actual; 48,897 shares--as                                                       
 adjusted(1) ..............................      2,407          --          894           3,301 
Magma common stock of $0.10 par value;                                                          
 authorized 30,000 shares; 24,043 issued  .         --       2,401       (2,401)             -- 
Additional paid in capital ................    100,000     142,765       63,492         306,257 
Unrealized gain from marketable securities          --        (677)         677              -- 
Retained earnings .........................    136,769     250,797     (250,797)        136,769 
Less treasury stock--3,420 shares at cost      (59,516)         --       59,516              -- 
                                            ------------  ----------  -------------  -----------
 Total stockholders' equity ...............    179,660     395,286     (128,619)        446,327 
                                            ------------  ----------  -------------  -----------
                                            $1,017,544    $596,609    $ 371,381      $1,985,534 
                                            ============  ==========  =============  ===========

---------------                                                                 

(1) Proposal I relates to an increase in the number of authorized shares of     
Common Stock to 80,000,000. Outstanding shares (actual and as adjusted) do
not include (i) 9,435,229 shares of Common Stock reserved for issuance    
upon the exercise of presently outstanding stock options; (ii) 4,444,444  
shares of Common Stock issuable upon the conversion of the Company's 5%   
Convertible Subordinated Debentures due July 31, 2000; and (iii) 3,393,197
shares of Common Stock issuable upon conversion of the 1,247 issued and   
outstanding shares of the Company's Series C Exchangeable Redeemable      
Preferred Stock.                                                          

The accompanying notes to the pro forma unaudited condensed combined      
financial data are an integral part of these statements.                        

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COMPARISON OF CERTAIN UNAUDITED DATA  

MERGER CONSIDERATION CONSISTING OF A COMBINATION OF CASH AND COMMON STOCK       

The following table contains certain unaudited comparative data related to
common stockholders' equity, cash dividends declared, and revenues and          
earnings (i) on a historical basis for the Company and Magma, (ii) on a pro     
forma combined basis of the Company to reflect the Merger and (iii) on an       
equivalent pro forma basis per Magma Share assuming that each Magma Share is    
converted into cash and 1.337 shares of Common Stock. Such information is       
based upon the acquisition of Magma being accounted for under the purchase      
method of accounting. The information shown below should be read in             
conjunction with the consolidated historical financial statements and notes     
thereto of the Company and Magma and the selected historical and pro forma      
financial data, including the notes thereto, appearing elsewhere in this        
Proxy Statement . See "PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL         
DATA."                                                                          

                                                        [Enlarge/Download Table]

                                                                     PRO FORMA     PRO FORMA 
                                           COMPANY       MAGMA      ADJUSTMENTS     COMBINED 
                                        ------------  ----------  -------------  ------------
                                               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)      
                                                                                             
OPERATING DATA:                                                                              
(Year Ended December 31, 1993)                                                               
Total revenue ......................... $  149,253    $167,138    $ (10,547)     $  305,844  
Net income from continuing operations                                                        
 available to common stockholders  .... $   38,444    $ 52,135    $ (47,745)     $   42,834  
Net income from continuing operations                                                        
 available to common stockholders per                                                        
 common share                                                                                
 Assuming no dilution ................. $     1.00    $   2.17    $      --      $     0.80  
 Assuming full dilution ............... $     1.00    $   2.17    $      --      $     0.79  
Weighted average number of common                                                            
 shares ...............................     38,485      24,063           --          53,784  
Dividends per share ...................         --          --           --              --  
OPERATING DATA:                                                                              
(Nine Months Ended September 30, 1994)                                                       
Total revenue ......................... $  139,188    $146,104    $  (7,910)     $  277,382  
Net income from continuing operations                                                        
 available to common stockholders  .... $   27,688    $ 46,843    $ (35,808)     $   38,723  
Net income from continuing operations                                                        
 available to common stockholders per                                                        
 common share                                                                                
 Assuming no dilution ................. $     0.77    $   1.95    $      --      $     0.75  
 Assuming full dilution ............... $     0.76    $   1.95    $      --      $     0.73  
Weighted average number of common                                                            
 shares ...............................     36,174      24,017           --          51,473  
Dividends per share ...................         --          --           --              --  
BALANCE SHEET DATA:                                                                          
(September 30, 1994)                                                                         
Total assets .......................... $1,087,064    $630,422    $ 515,147      $2,232,633  
Total indebtedness ....................    775,534     201,323      500,000       1,476,857  
Redeemable preferred stock ............     62,350          --           --          62,350  
Common stockholders' equity ...........    179,660     395,286     (142,853)        432,093  
Book value per common share ...........       5.57       16.44        --               9.09  

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                                        YEAR ENDED      NINE MONTHS ENDED 
                                     DECEMBER 31, 1993  SEPTEMBER 30, 1994
                                    -----------------  ------------------ 
                                                                          
PRO FORMA COMBINED EQUIVALENT PER                                         
 SHARE DATA(1):                                                           
Earnings per equivalent share from                                        
 continuing operations                                                    
 Assuming no dilution .............      $ 1.07             $ 1.00        
 Assuming full dilution ...........      $ 1.06             $ 0.98        
Dividends per equivalent share  ...         --                 --         
Book value per equivalent share at                                        
 September 30, 1994 ...............               $12.15                  

(1) Magma stockholders receiving common stock equivalents of the Company as     
displayed above will also receive a portion of their consideration in   
cash, which can be reinvested.                                          

MERGER CONSIDERATION CONSISTING OF ALL CASH                                     

The following table contains certain unaudited comparative data related to
common stockholders' equity, cash dividends declared, and revenues and          
earnings (i) on a historical basis for the Company and Magma, and (ii) on a     
pro forma combined basis of the Company to reflect the Merger. Such             
information is based upon the acquisition of Magma being accounted for under    
the purchase method of accounting. The information shown below should be read   
in conjunction with the consolidated historical financial statements and        
notes thereto of the Company and Magma and the selected historical and pro      
forma financial data, including the notes thereto, appearing elsewhere in       
this Proxy Statement. See "PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL     
DATA."                                                                          

                                                        [Enlarge/Download Table]

                                                                                 PRO FORMA     PRO FORMA 
                                                       COMPANY       MAGMA      ADJUSTMENTS     COMBINED 
                                                       -------    ----------  -------------  ------------
                                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)      
                                                                                                         
OPERATING DATA:                                                                                          
(Year Ended December 31, 1993)                                                                           
Total revenue ..................................... $  149,253    $167,138    $  (9,535)     $  306,856  
Net income from continuing operations available to                                                       
 common stockholders .............................. $   38,444    $ 52,135    $ (46,982)     $   43,597  
Net income from continuing operations available to                                                       
 common stockholders per common share                                                                    
 Assuming no dilution ............................. $     1.00    $   2.17    $      --      $     0.79  
 Assuming full dilution ........................... $     1.00    $   2.17    $      --      $     0.78  
Weighted average number of common shares  .........     38,485      24,063           --          55,152  
Dividends per share ...............................         --          --           --              --  
OPERATING DATA:                                                                                          
(Nine Months Ended September 30, 1994)                                                                   
Total revenue ..................................... $  139,188    $146,104    $  (7,151)     $  278,141  
Net income from continuing operations available to                                                       
 common stockholders .............................. $   27,688    $ 46,843    $ (35,236)     $   39,295  
Net income from continuing operations available to                                                       
 common stockholders per common share                                                                    
 Assuming no dilution ............................. $     0.77    $   1.95    $      --      $     0.74  
 Assuming full dilution ........................... $     0.76    $   1.95    $      --      $     0.73  
Weighted average number of common shares  .........     36,174      24,017           --          52,841  
Dividends per share ...............................         --          --           --              --  
BALANCE SHEET DATA:                                                                                      
(September 30, 1994)                                                                                     
Total assets ...................................... $1,087,064    $630,422    $ 529,381      $2,246,867  
Total indebtedness ................................    775,534     201,323      500,000       1,476,857  
Redeemable preferred stock ........................     62,350          --           --          62,350  
Common stockholders' equity .......................    179,660     395,286     (128,619)        446,327  
Book value per common share .......................       5.57       16.44           --            9.13  

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND  
OPERATING DATA OF THE COMPANY   

The following table sets forth selected historical consolidated financial 
and operating data, which should be read in conjunction with "THE COMPANY'S     
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO" and "THE COMPANY           
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      
OPERATIONS." The unaudited consolidated financial statements of the Company     
as of and for the nine months ended September 30, 1993 and 1994 reflect all     
adjustments necessary, in the opinion of management (consisting only of         
normal recurring adjustments), for a fair presentation of such financial        
data. The selected consolidated data as of and for each of the five years in    
the period ended December 31, 1993 have been derived from the audited           
historical consolidated financial statements of the Company.                    

                                                        [Enlarge/Download Table]

                                                                                                        NINE MONTHS ENDED 
                                                            YEAR ENDED DECEMBER 31,                       SEPTEMBER 30,   
                                          ---------------------------------------------------------  ---------------------
                                              1989       1990        1991        1992        1993       1993        1994  
                                          ----------  ---------  ----------  ----------  ----------  ---------  ----------
                                                               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                   
                                                                                                                          
STATEMENT OF OPERATIONS DATA:                                                                                             
 Sales of electricity ................... $ 43,010    $89,026    $104,155    $115,087    $129,861    $ 99,398   $115,357  
 Sales of steam .........................       --         --       2,029       2,255       2,198       1,648      1,851  
 Interest and other income ..............    5,386      7,787       9,379      10,187      17,194      12,294     21,980  
                                          ----------  ---------  ----------  ----------  ----------  ---------  ----------
 Total revenue ..........................   48,396     96,813     115,563     127,529     149,253     113,340    139,188  
 Plant operations, general and                                                                                            
  administrative and royalties ..........   13,615     37,412      41,506      45,183      46,794      34,019     41,321  
                                          ----------  ---------  ----------  ----------  ----------  ---------  ----------
 Income before depreciation,                                                                                              
  amortization, interest, income taxes,                                                                                   
  extraordinary item and cumulative                                                                                       
  effect of change in accounting                                                                                          
  principle (1) .........................   34,781     59,401      74,057      82,346     102,459      79,321     97,867  
 Depreciation and amortization ..........    6,605     13,372      14,752      16,754      17,812      13,044     15,439  
 Interest expense, net of capitalized                                                                                     
  interest ..............................   15,125     30,464      24,439      14,860      23,389      17,171     36,962  
 Provision for income taxes .............    2,715      3,522       8,284      11,922      18,184      14,295     14,067  
                                          ----------  ---------  ----------  ----------  ----------  ---------  ----------
 Income before extraordinary item and                                                                                     
  cumulative effect of change in                                                                                          
  accounting principle (1) ..............   10,336     12,043      26,582      38,810      43,074      34,811     31,399  
 Extraordinary item-refinancing (2)  ....       --         --          --      (4,991)       --         --        (2,007) 
 Cumulative effect of change in                                                                                           
  accounting principle (3) ..............       --         --          --          --       4,100       4,100         --  
                                          ----------  ---------  ----------  ----------  ----------  ---------  ----------
 Net income (1) .........................   10,336     12,043      26,582      33,819      47,174      38,911     29,392  
 Preferred dividends (paid in kind)  ....       --         --          --       4,275       4,630       3,429      3,711  
                                          ----------  ---------  ----------  ----------  ----------  ---------  ----------
 Net income available to common                                                                                           
  stockholders .......................... $ 10,336    $12,043    $ 26,582    $ 29,544    $ 42,544    $ 35,482   $ 25,681  
                                          ==========  =========  ==========  ==========  ==========  =========  ==========
 Income per share before  extraordinary                                                                                   
  item and cumulative  effect of change                                                                                   
  in accounting  principle (1)                                                                                            
  Assuming no dilution .................. $   0.38    $  0.44    $   0.75    $   0.92    $   1.00    $   0.81   $    0.77 
  Assuming full dilution (4) ............     0.38       0.44        0.75        0.92        1.00        0.81        0.76 
 Extraordinary item per share (2)  ......       --         --          --       (0.13)         --          --       (0.06)
 Cumulative effect of change in                                                                                           
  accounting principle per share (3)  ...       --         --          --          --        0.11        0.11         --  
                                          ----------  ---------  ----------  ----------  ----------  ---------  ----------
 Net income per share                                                                                                     
  Assuming no dilution .................. $   0.38    $  0.44    $   0.75    $   0.79    $   1.11    $  0.92    $   0.71  
                                          ==========  =========  ==========  ==========  ==========  =========  ==========
  Assuming full dilution (4) ............ $   0.38    $  0.44    $   0.75    $   0.79    $   1.11    $  0.92    $   0.70  
                                          ==========  =========  ==========  ==========  ==========  =========  ==========
 Weighted average shares outstanding (5)    27,019     27,254      35,471      37,495      38,485      38,436     36,174  
 Capital expenditures ................... $124,749    $32,514    $ 68,377    $ 32,446    $ 87,191    $ 64,250   $ 78,892  

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                                                        [Enlarge/Download Table]

                                                     DECEMBER 31,                              SEPTEMBER 30,    
                             ----------------------------------------------------------  -----------------------
                                 1989        1990        1991        1992        1993        1993        1994   
                             ----------  ----------  ----------  ----------  ----------  ----------  -----------
                                                                                                                
BALANCE SHEET DATA:                                                                                             
 Property-power plant, net   $302,514    $321,303    $373,948    $389,646    $458,974    $440,527    $  522,268 
 Total assets ..............  349,282     393,853     517,994     580,550     715,984     710,659     1,087,064 
 Total debt ................  260,120     270,738     257,038     299,334     382,610     390,972       775,534 
 Preferred stock ...........       --       4,705      54,705      54,350      58,800      57,650        62,350 
 Stockholders' equity  .....   42,163      55,088     143,128     168,764     211,503     206,675       179,660 

(1) The Navy I Plant commenced operation prior to 1989 and the BLM and    
Navy II Plants commenced commercial operation in February 1989 and
  January 1990, respectively. The Desert Peak, Nevada facility and the
Roosevelt Hot Springs, Utah steam field were acquired in March and
January 1991, respectively.                                       

(2) The refinancing of the Company's three largest domestic projects      
located at the Naval Air Weapons Station at China Lake, California
     (collectively, the "Coso Project") resulted in an extraordinary item in
1992 in the amount of $5.0 million, after the tax effect of $1.5  
million. The defeasance of the Senior Notes resulted in an        
     extraordinary item in 1994 in the amount of $2.0 million, after the tax
effect of $1.0 million.                                           

(3) On January 1, 1993, the Company adopted Statement of Financial        
Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS 
    109"), which resulted in a cumulative adjustment to net income of $4.1
million in 1993.                                                  

(4) Fully diluted earnings per share reflects the dilutive effect of      
  convertible subordinated debentures as if they were converted at the
beginning of the reporting period.                                

(5) The number of shares outstanding is calculated by using the treasury  
stock method.                                                     

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL  
AND OPERATING DATA OF MAGMA   

The selected financial data set forth below with respect to Magma's       
statements of operations for each of the five years in the period ended         
December 31, 1993 and the balance sheets of Magma as of December 31, 1989       
through 1993 are derived from the consolidated financial statements of Magma    
that have been audited by Coopers & Lybrand, independent certified public       
accountants. The selected financial data set forth below with respect to        
Magma's statements of operations for the nine-month period ended September      
30, 1994 and 1993 and, with respect to the balance sheet of Magma as of         
September 30, 1994, have been derived from the unaudited consolidated           
financial statements of Magma , which, in the opinion of Magma's management,    
reflect all adjustments necessary (consisting only of normal recurring          
adjustments) for a fair presentation of such financial data.                    

The selected financial data set forth below should be read in conjunction 
with "MAGMA'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO" and "MAGMA   
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      
OPERATIONS."                                                                    

                                                        [Enlarge/Download Table]

                                                                                                     NINE MONTHS ENDED  
                                                         YEAR ENDED DECEMBER 31,                       SEPTEMBER 30,    
                                        --------------------------------------------------------  ----------------------
                                           1989       1990       1991        1992         1993        1993        1994  
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)             
                                                                                                                        
STATEMENT OF OPERATIONS DATA:                                                                                           
Total revenues ........................ $63,103    $85,599    $94,891    $108,966     $167,138    $124,781    $146,104  
Operating revenues(1) .................  56,743     76,893     84,135     100,313      162,943     121,146     142,238  
Income from operations ................  26,892     36,694     41,204      49,667       74,913      57,957      67,915  
Income before cumulative effect of                                                                                      
 accounting change ....................  22,295     30,166     33,941      36,358       52,135      39,469      46,843  
Cumulative effect of change in                                                                                          
 accounting for income taxes ..........      --         --         --      17,833 (2)       --        --          --    
Net income ............................  22,295     30,166     33,941      54,191       52,135      39,469      46,843  
Return on revenues ....................    35.3 %     35.2 %     35.8 %      33.4 %(3)    31.2 %      31.6 %      32.1 %
Capital expenditures .................. $43,762    $ 7,054    $15,711    $ 12,043     $  8,434    $  5,718    $  8,854  
Return on average stockholders' equity     16.1 %     17.6 %     16.2 %      14.3 %(3)    16.4 %      13.0 %      12.5 %
Weighted average shares outstanding  ..  21,999     22,898     23,611      22,936       24,063      24,037      24,017  
Income before cumulative effect of                                                                                      
 accounting change per common share  ..                                                                                 
 Assuming no dilution ................. $  1.01    $  1.32    $  1.44    $   1.59     $   2.17    $   1.64    $   1.95  
 Assuming full dilution(4) ............    0.96       1.32       1.44        1.52         2.17        1.64        1.95  
Income per common share                                                                                                 
 Assuming no dilution .................    1.01       1.32       1.44        2.36(2)      2.17        1.64        1.95  
 Assuming full dilution(4) ............    0.96       1.32       1.44        2.27(2)      2.17        1.64        1.95  

                                                        [Enlarge/Download Table]

                                                                 DECEMBER 31,                            SEPTEMBER 30,
                                        -------------------------------------------------------------  ---------------
                                             1989          1990        1991        1992        1993          1994     
                                        -------------  ----------  ----------  ----------  ----------  ---------------
                                                                         (IN THOUSANDS)                               
                                                                                                                      
BALANCE SHEET DATA:                                                                                                   
Property, plant and equipment, net  ... $124,062(5)    $120,125    $118,541    $113,922    $265,215    $256,561       
Exploration and development costs, net    46,681         44,782      48,644      52,001     107,069     104,271       
Total assets ..........................  282,624        325,131     353,788     396,650     611,311     630,422       
Long-term obligations(6) ..............   98,212         99,297      89,808      87,339     200,509     164,313       
Total debt(7) .........................  100,517        102,842      97,541      96,126     226,008     188,969       
Stockholders' equity ..................  150,142        192,626     226,872     282,260     351,918     395,286       

----------                                                                      
(1) Excludes interest and other income.                                         

(2) The cumulative effect of Magma's adoption of SFAS 109 increased net         
income by $17,833, or $.77 per share. See Note 11, Provision for Income 
Taxes, accompanying the consolidated financial statements for the year  
 ended December 31, 1992 for Magma incorporated by reference in its Annual
Report on Form 10-K for the year ended December 31, 1993.               

(3) Excludes the impact of cumulative effect of change in accounting for        
income taxes.                                                           

(4) Fully diluted earnings per share reflects the dilutive effect of stock      
options and warrants at the end of the reporting period.                

(5) Projects in progress reclassified to appropriate asset classification.      

(6) Consists of the noncurrent portion of long-term loans payable and           
other long-term liabilities.                                            

(7) Represents loans payable, including the current portion of long-term        
loans payable.                                                          

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BUSINESS OF THE COMPANY AND MAGMA   
AND RELATED INFORMATION   

GENERAL   

THE COMPANY                                                                     

The Company was founded in 1971 to develop geothermal power production    
facilities. The Company is primarily engaged in the exploration for, and        
development and operation of, environmentally responsible independent power     
production facilities worldwide utilizing geothermal resources or other         
energy sources, such as hydroelectric, natural gas, oil and coal.               

Following completion of the Merger, the Company will be the largest       
independent geothermal power producer in the world (on the basis of aggregate   
MW of electric generating capacity in operation and under construction). The    
Company will have an aggregate net ownership interest of 354 MW of electric     
generating capacity in power production facilities in the United States         
having an aggregate net capacity of 571 MW. All of these facilities will be     
managed and operated by the Company and are principally located in Southern     
California. In addition to the electricity sales revenue earned from its net    
ownership position in such facilities, the Company receives significant fee     
and royalty income from operating such plants and managing the production       
from the geothermal reservoirs for such facilities. The Company will have an    
aggregate net ownership interest of 409 MW of electric generating capacity in   
three geothermal power projects in the Philippines, having an aggregate net     
capacity of 500 MW, which projects are financed and under construction. The     
Company is also developing eight additional projects with executed or awarded   
power sales contracts in the Philippines, Indonesia and the United States.      
The Company will have an approximate net ownership interest of 935 MW in        
these development projects representing an aggregate net capacity of 1,589 MW   
of additional potential electric generating capacity.                           

PKS is an approximate 44% stockholder of the Company (on a fully diluted  
basis). PKS is a large employee-owned construction, mining and                  
telecommunications company with approximately $2.2 billion in revenues in       
1993. PKS is one of the largest construction companies in North America and     
has been in the construction business since 1884. Since the initial PKS         
investment in the Company in 1991 (which at that time represented               
approximately 25% of the Common Stock on a fully diluted basis), a new          
management team has been installed and the Company's net income has increased   
from $12 million for the 12-month period ended December 31, 1990 to $29.4       
million for the nine-month period ended September 30, 1994.                     

The principal executive offices of the Purchaser and the Company are      
located at 10831 Old Mill Road, Omaha, Nebraska 68154 and their telephone       
number is (402) 330-8900. The Purchaser is a wholly owned subsidiary of the     
Company and has not conducted any business except in connection with the        
Offer. The Company and the Purchaser were incorporated in 1971 and 1994,        
respectively, under the laws of the State of Delaware.                          

Magma's principal executive offices are located at 4365 Executive Drive,  
Suite 900, San Diego, California 92121, and its telephone number is (619)       
622-7800.                                                                       

REASONS FOR THE MERGER                                                          

The Company believes that Magma is an excellent strategic fit and that the
acquisition of Magma will create significant benefits, including:               

o EXPANSION AND ENHANCEMENT OF DEVELOPMENT EFFORTS                            

Development of new opportunities, particularly internationally, is a key  
component of the Company's strategy. Since 1990, the Company and Magma have     
each pursued international development opportunities primarily in Southeast     
Asia. By pursuing additional development opportunities rather than competing    
with Magma for the same opportunities, the Company expects to expand its        
development efforts to cover additional projects and thereby more effectively   
capitalize on the numerous opportunities in the growing international           
independent power market.                                                       

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Furthermore, the Company will have available to it technology of both     
companies. The Company owns production technology compatible with the           
relatively low mineral content of its wells at the Coso Project, and Magma      
owns technology compatible with the high levels of mineral precipitates found   
in the geothermal resource at the Salton Sea Projects. The Company expects      
that access to these technologies will enable it to compete for new power       
development projects from geothermal reservoirs encompassing a wide range of    
geothermal resource characteristics.                                            

o BENEFITS OF INCREASED SIZE                                                  

The Company believes that size is an important factor in determining the  
success of an independent power producer. This view is based on the Company's   
belief that potential customers consider both the price of power and the        
provider's capacity to fulfill its obligations as primary factors in the        
selection of power suppliers. The expanded size and capabilities of the         
combined companies is expected to further enhance the Company's reputation      
and credibility with sovereign governments and state utility customers and      
therefore enhance its ability to successfully compete for new projects.         
Following the Merger, the Company will have over $2 billion of total assets     
and an aggregate net ownership interest of 1,698 MW of electric generating      
capacity in projects in operation, under construction or in development,        
which projects have an aggregate net generating capacity of 2,770 MW. The       
Company also believes that the combination with Magma will create the           
opportunity to reduce the Company's average cost per kWh by expanding its       
asset base, without materially expanding its cost structure. This will allow    
the Company to be more price competitive with other geothermal power            
producers and traditional fossil fuel power plants, which the Company           
believes will be its primary competition in the future.                         

o OPPORTUNITIES FOR OPERATIONAL AND ADMINISTRATIVE COST SAVINGS               

Based in part on its experience in restructuring the operations of the    
Company since 1991, management of the Company believes that it can achieve      
meaningful cost savings upon the combination of Magma and the Company.          
Through the implementation of the Company's existing organizational             
structure, management policies and cost controls, the Company presently         
expects that the cost of duplicate functions will be substantially eliminated   
and that the productivity of its combined operating and administrative staff    
will be significantly increased.                                                

o DIVERSIFICATION IN SOURCES OF REVENUE AND OPERATIONS                        

The combination of the Company's and Magma's operations will increase the 
Company's sources of revenue and increase the number of operating sites         
(including projects under construction) from eight to 16. The Company           
believes that the resulting diversification in sources of revenue and           
operations can be expected to reduce the risk profile of the Company, thereby   
enhancing its overall credit position and improving its access to capital in    
relation to competitors with more concentrated sources of revenue and           
operations.                                                                     

GEOTHERMAL ENERGY                                                               

Geothermal energy is a clean, renewable and generally sustainable energy  
source that releases significantly lower levels of emissions than result from   
energy generation based on the burning of fossil fuels. Geothermal energy is    
derived from the natural heat of the earth when water comes sufficiently        
close to hot molten rock to heat the water to temperatures of 400 degrees       
Fahrenheit or more. The heated water then ascends naturally toward the          
surface of the earth where it can be extracted by drilling geothermal wells.    
The energy necessary to operate a geothermal power plant is typically           
obtained from several such wells which are drilled using established            
technology similar to that employed in the oil and gas industry.                

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 GEOTHERMAL ENERGY

############################################################################# 

IMAGE OMITTED:  

[Schematic representing Geothermal Energy]  

(SEE ALSO "APPENDIX FOR GRAPHICS AND IMAGE MATERIAL"  
AFTER LAST PAGE OF THESE PROXY MATERIALS.)  

############################################################################# 

Geothermal production wells are normally located within approximately one 
to two miles of the power plant as geothermal fluids cannot be transported      
economically over longer distances. From the well heads, the heated fluid       
flows through pipelines to a series of separators where it is separated into    
water, brine and steam. The steam is passed through a turbine which drives a    
generator to generate electricity. Once the steam has passed through the        
turbine, it is then cooled and condensed back into water which, along with      
any brine, is returned to the geothermal reservoir via injection wells.         
Geothermal plants in the United States are eligible to be qualifying            
facilities ("QFs") under the Public Utility Regulatory Policies Act of 1978     
("PURPA"), which provides for certain beneficial Federal regulatory             
treatment. The geothermal reservoir is a renewable source of energy if          
natural ground water sources and re-injection of extracted geothermal fluids    
are adequate over the long term to replenish the geothermal reservoir after     
the withdrawal of geothermal fluids.                                            

The generation of electric power from geothermal resources has certain    
advantages when compared to other methods of electric power generation.         
Geothermal energy facilities generate significantly less emissions than         
fossil fuel power plants. Geothermal energy facilities typically have higher    
capital costs but tend to have significantly lower variable costs than fossil   
fuel based power plants. The utilization of geothermal power is preferred by    
certain governments so as to minimize the import, or maximize the export, of    
hydrocarbons. Geothermal power facilities also enjoy certain tax benefits in    
the United States.                                                              

GEOTHERMAL RESOURCE--"RING OF FIRE"                                             

Geothermal energy is most prevalent where the different sections or plates
of the Earth's crust meet. Productive geothermal resources are found            
throughout the Pacific Rim (the so-called "Ring of Fire"), including the        
western United States, Latin America, Hawaii, Indonesia, the Philippines,       
Malaysia and New Zealand. These areas are experiencing high rates of            
population growth and increased demand for new electric generating capacity.    

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AREAS OF POTENTIAL GEOTHERMAL ACTIVITY  

############################################################################# 

IMAGE OMITTED:  

[Map depicting areas of Potential Geothermal Energy]  

(SEE ALSO "APPENDIX FOR GRAPHICS AND IMAGE MATERIAL"  
AFTER LAST PAGE OF THESE PROXY MATERIALS.)  

############################################################################# 

THE GLOBAL POWER MARKET                                                         

The opportunity for independent power generation has expanded from a      
United States market consisting of cogeneration and small power production      
projects to a global competitive market for power generation. Many foreign      
countries have initiated restructuring policies after the advent of the         
independent power market in the United States.                                  

In the United States, the independent power industry expanded rapidly in  
the 1980's, facilitated by the enactment of PURPA. PURPA was enacted to         
encourage the production of electricity by non-utility companies as well as     
to lessen reliance on imported fuels. According to the Utility Data             
Institute, independent power producers were responsible for about 30,000 MW,    
or 50%, of the U.S. electric generation capacity which has been placed in       
service since 1988.                                                             

As the size of the United States independent power market has increased,  
available domestic power capacity and competition in the industry have also     
significantly increased. Over the past decade, obtaining a power sales          
contract from a U.S utility has generally become increasingly difficult,        
expensive and competitive. Many states now require power sales contracts to     
be awarded through competitive bidding, which both increases the cost of        
obtaining such contracts and decreases the chances of obtaining such            
contracts as bids significantly outnumber awards in most competitive            
solicitations. The federal Energy Policy Act of 1992 is expected to further     
increase domestic competition. As a result of this increased competition, it    
may be difficult to obtain a power sales agreement for a proposed project in    
the United States, and the terms and conditions of any such contract may be     
less favorable than those in prior agreements.                                  

Large amounts of new electric power generating capacity are required in   
developing countries. The movement toward privatization in some developing      
countries has created significant new markets outside the United States. In     
1990, the World Bank estimated that developing countries will need              
approximately 380,000 MW of new power generating capacity through the end of    
the decade. The need for such rapid expansion has caused many countries to      
select private power development as their only practical alternative and to     
restructure their legislative and regulatory systems to facilitate such         
development. The Company believes that this significant need for power has      
created strong local support for private power                                  

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projects in many foreign countries and increased the availability of            
attractive long-term power contracts. The Company intends to take advantage     
of opportunities in these new markets and to develop, construct and acquire     
power generation projects outside the United States.                            

STRATEGY                                                                        

Domestically, the Company is focusing on market opportunities in which it 
believes it has relative competitive advantages due to its geotechnical,        
project management and operating expertise. In addition, the Company expects    
to continue diversification into other environmentally responsible sources of   
energy primarily through selected acquisitions of partially developed or        
existing power generating projects and contracts.                               

The Company presently believes that the international independent power   
market holds the majority of new opportunities for financially attractive       
private power development in the next several years, in large part because      
the demand for new generating capacity is growing more rapidly in emerging      
nations than in the United States. In developing its international strategy,    
the Company pursues development opportunities in countries which it believes    
have an acceptable risk profile and where the Company's geothermal resource     
development and operating experience, project development expertise or          
strategic relationship with PKS or local partners are expected to provide it    
with a competitive advantage. Subsequent to the Merger, the Company will have   
financed and have under construction three projects representing an aggregate   
of 409 MW of net ownership of electric generating capacity in the               
Philippines. In addition, the Company is currently pursuing a number of other   
electric power project opportunities in countries including the Philippines     
and Indonesia. These countries are ideally suited for the Company to develop,   
finance and operate power projects successfully because of their excellent      
population demographics, extensive geothermal resources and stated              
commitments to the development of private power programs. The Company's         
development efforts include both so-called "greenfield" development as well     
as the acquisition of or participation in the joint venture development of      
projects which are under development or already operating. In greenfield        
development, the Company attempts to negotiate power sales contracts for new    
generation capacity or engages in competitive bids in response to government    
agency or utility requests for proposals for new capacity.                      

In pursuing its international strategy, the Company intends to own a      
significant equity interest in, and to operate, the projects it develops or     
acquires. In order to compete more effectively internationally, the Company's   
strategy is to attempt to diversify its project portfolio, extend its future    
equity funding capacity through joint ventures and utilize fixed-price,         
turnkey construction contracts with contractors experienced in the              
construction of power plants or other infrastructure facilities. The Company    
also believes that it is important in foreign transactions to work with local   
partners who are knowledgeable concerning local culture, politics and           
commercial practices and who provide a visible local presence and local         
project representation.                                                         

With respect to emerging market projects, the Company's policy is to      
attempt to minimize currency risks, including the devaluation of local          
currencies versus the U.S. dollar, as well as the risk of availability of       
hard currency convertibility. To date, all of the Company's executed power      
contracts contain provisions which index the Company's returns to U.S.          
dollars or provide for the payment of capacity payments in U.S. dollars. To     
the extent possible, the Company attempts to secure "political risk"            
insurance from the Overseas Private Insurance Corporation ("OPIC") or similar   
multilateral agencies to limit its risk in emerging market countries. In        
addition, the Company endeavors to involve the World Bank, export credit        
agencies or multilateral funding sources in its international project           
financings. The Company believes multilateral lending agencies and foreign      
source financing and political risk insurance are available for certain         
international private power projects, particularly those utilizing indigenous   
fuel sources in renewable or otherwise environmentally responsible generating   
facilities. The Company believes that the involvement of these institutions     
will enhance an international project's position in emerging market             
countries.                                                                      

The Company has an international joint venture agreement with PKS which   
the Company believes enhances the Company's capabilities in foreign power       
markets. The joint venture agreement is limited to international activities     
and provides that if both the Company and PKS agree to participate in a         
project,                                                                        

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they will share all development costs equally. Each of the Company and PKS      
will provide 50% of the equity required for financing a project developed by    
the joint venture and the Company will operate and manage such project. The     
agreement creates a joint development structure under which, on a project by    
project basis, the Company will be the development manager, managing partner    
and/or project operator, an equal equity participant with PKS and a preferred   
participant in the construction consortium and PKS will be an equal equity      
participant and the preferred turnkey construction contractor. The joint        
venture agreement may be terminated by either party on 15 days written          
notice, provided that such termination cannot affect the pre-existing           
contractual obligations of either party.                                        

In order to augment its technical capabilities, in 1993 the Company       
acquired The Ben Holt Co. ("BHCO"), a California based engineering firm with    
over 25 years of geothermal experience, specializing in feasibility studies,    
process design, detailed engineering, procurement, construction and operation   
of geothermal power plants, gathering systems and related facilities.           

THE PROJECTS                                                                    

Upon completion of the Merger, the Company will have net ownership        
interests of an aggregate of (i) 354 MW in 13 projects in operation             
representing an aggregate net capacity of 571 MW of electric generating         
capacity, (ii) 409 MW in three projects under construction representing an      
aggregate net capacity of 500 MW of electric generating capacity and (iii)      
935 MW in eight projects in development stages with signed power sale           
agreements or under award representing an aggregate net capacity of 1,589 MW    
of electric generating capacity. The following table sets out the Company's     
various projects in operation, under construction and in the latter stages of   
development pursuant to signed power sales agreements or awarded mandates in    
each case subsequent to the Merger.                                             

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INTERNATIONAL PROJECTS  

PROJECTS UNDER CONSTRUCTION                                                     

                                                        [Enlarge/Download Table]

                    FACILITY    FACILITY       NET                      PROJECTED                                         
                     GROSS        NET       OWNERSHIP                   COMMERCIAL                                 POWER  
                    CAPACITY    CAPACITY    INTEREST                    OPERATION      CONTRACT      CONTRACT    PURCHASER
PROJECT             IN MW(1)   (IN MW)(2)    (IN MW)      LOCATION         DATE      EXPIRATION(3)     TYPE         (4)   
----------------  ----------  ----------  -----------  -------------  ------------  -------------  ----------  -----------
                                                                                                                          
Upper Mahiao  ... 128         119         119          Leyte, the          1996     CO+10          Build,      PNOC- EDC  
                                                       Philippines                                 Own,        (GOP)(5)   
                                                                                                   Transfer               
Mahanagdong(6)  . 180         165          74          Leyte, the          1997     CO+10          Build,      PNOC- EDC  
                                                       Philippines                                 Own,        (GOP)(5)   
                                                                                                   Transfer               
Malitbog-Phase I                                       Leyte, the       1996-1997   CO+10          Build,      PNOC- EDC  
 and II  ........ 231         216         216          Philippines                                 Own,        (GOP)(5)   
                                                                                                   Transfer               
Total Under       539         500         409                                                                             
 Construction  ..                                                                                                         
                  ==========  ==========  ===========                                                                     

PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS                                                  

                               FACILITY                                                                                   
                   FACILITY      NET          NET                       PROJECTED                                         
                    GROSS      CAPACITY    OWNERSHIP                    COMMERCIAL                                POWER   
                   CAPACITY      (IN       INTEREST                     OPERATION      CONTRACT     CONTRACT    PURCHASER 
PROJECT           (IN MW)(7)  MW)(2)(7)   (IN MW)(7)      LOCATION         DATE       EXPIRATION      TYPE         (4)    
---------------  ----------  ----------  -----------  --------------  ------------  ------------  ----------  ----------- 
                                                                                                                          
Dieng(6) .......   400         400         188        Central Java,     1997-1999   CO+30         Build,      PLN (GOI)   
                                                      Indonesia                                   Own,                    
                                                                                                  Transfer                
Patuha(6) ......   400         400         140        Western Java,     1997-1999   CO+30         Build,      PLN (GOI)   
                                                      Indonesia                                   Own,                    
                                                                                                  Transfer                
Casecnan(8)  ...   140         140          98        Luzon, the           1998     CO+20         Build,      NIA         
                                                      Philippines                                 Own,        (GOP)(5)    
                                                                                                  Transfer                
Bali(8)(9) .....   350         350         210        Bali,             1998-1999   CO+30         Build,      PLN (GOI)   
                                                      Indonesia                                   Own,                    
                                                                                                  Transfer                
Alto Peak ......    70          70          70        Leyte, the           1997     CO+10         Build,      PNOC- EDC   
                                                      Philippines                                 Own,        (GOP)(5)    
                                                                                                  Transfer                
Total                                                                                                                     
 Contracted/                                                                                                              
 Awarded ....... 1,360       1,360         706                                                                            
                 ----------  ----------  -----------                                                                      
Total                                                                                                                     
 International                                                                                                            
 Projects ...... 1,899       1,860       1,115                                                                            
                 ----------  ----------  -----------                                                                      
<FN>                                                                                                                      
---------------                                                                                                           
   (1) Actual MW may vary depending on operating reservoir conditions and                                                 
       plant design. Facility Gross Capacity (in MW) for projects under                                                   
       construction represents gross electric output of the facility prior                                                
       to subtraction of the parasitic load. Parasitic load is electrical                                                 
       output used by the facility and not made available for sale to                                                     
       utilities or other outside purchasers. Facility Gross Capacity (in                                                 
       MW) does not necessarily reflect electric output available for sale                                                
       to utilities or other purchasers.                                                                                  
   (2) Facility Net Capacity (in MW) represents Facility Gross Capacity (in                                               
       MW) less parasitic load.                                                                                           
   (3) Commercial Operation (CO).                                                                                         
   (4) Philippine National Oil Company-Energy Development Company                                                         
       (PNOC-EDC); Government of the Philippines (GOP); P.T. PLN                                                          
       (Persero)(PLN); Government of Indonesia (GOI); and Philippine                                                      
       National Irrigation Administration (NIA).                                                                          
   (5) Government of the Philippines undertaking supports PNOC-EDC's and                                                  
       NIA's respective obligations.                                                                                      
   (6) PKS has elected to exercise its ownership option pursuant to its                                                   
       joint venture agreement with the Company.                                                                          
   (7) Actual MW may vary depending on operating and reservoir conditions                                                 
       and final plant design. Facility Gross Capacity (in MW) for awarded                                                
       projects equals maximum sales amount. Significant contingencies exist                                              
       in respect of awards, including without limitation, the need to                                                    
       obtain financing, permits and licenses, and the completion of                                                      
       construction.                                                                                                      
   (8) PKS has not indicated whether it intends to exercise its ownership                                                 
       option pursuant to its joint venture agreement with the Company and                                                
       such net ownership interest remains subject to the PKS option. The                                                 
       Casecnan Project is a combined hydroelectric and irrigation project                                                
       and will also sell water to NIA.                                                                                   
   (9) Geothermal resource development rights have been awarded and the                                                   
       power sales contract is subject to negotiation.                                                                    

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DOMESTIC PROJECTS   

PROJECTS IN OPERATION(1)                                                        

                                                        [Enlarge/Download Table]

                                   FACILITY                                                                                      
                       FACILITY      NET          NET                                                                            
                        GROSS      CAPACITY    OWNERSHIP                       DATE OF                                    POWER  
                       CAPACITY      (IN       INTEREST                       COMMERCIAL     CONTRACT      CONTRACT     PURCHASER
PROJECT               (IN MW)(1)  MW)(2)(3)     (IN MW)        LOCATION       OPERATION     EXPIRATION       TYPE          (5)   
-------------------  ----------  ----------  -----------  ----------------  ------------  ------------  ------------  -----------

                                                                                                                                 
Navy I .............  96          88          41          China Lake, CA     8/1987        8/2011            SO4           SCE   
BLM ................  96          88          42          China Lake, CA     3/1989        3/2019            SO4           SCE   
Navy II ............  96          88          44          China Lake, CA     1/1990        1/2010            SO4           SCE   
Vulcan .............  41          34          17          Imperial Valley,   2/1986        2/2016            SO4           SCE   
                                                          CA                                                                     
Hoch (Del Ranch)  ..  46          38          19          Imperial Valley,   1/1989       12/2018            SO4           SCE   
                                                          CA                                                                     
Elmore .............  46          38          19          Imperial Valley,   1/1989       12/2018            SO4           SCE   
                                                          CA                                                                     
Leathers ...........  46          38          19          Imperial Valley,   1/1990       12/2019            SO4           SCE   
                                                          CA                                                                     
Salton Sea I .......  11           8           8          Imperial Valley,   7/1987        6/2017       Negotiated         SCE   
                                                          CA                                                                     
Salton Sea II ......  20          18          18          Imperial Valley,   4/1990        4/2020            SO4           SCE   
                                                          CA                                                                     
Salton Sea III .....  54          50          50          Imperial Valley,   2/1989        2/2019            SO4           SCE   
                                                          CA                                                                     
Yuma Cogen .........  55          50          50          Yuma, AZ           5/1994        5/2024       Negotiated        SDG&E  
Roosevelt Hot                                                                                                                    
 Springs ...........  25          23          17          Milford, UT        5/1984        1/2021          Gathered       UP&L   
                                                                                                            Steam                
Desert Peak ........  10          10          10          Desert Peak, NV   12/1985       12/1995       Negotiated     SPPC Power

                     ----------  ----------  -----------  ----------------  ------------  ------------  ------------  -----------

Total in Operation   642         571         354                                                                                 
                     ==========  ==========  ===========                                                                         

PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS        

                                                        [Enlarge/Download Table]

                                  FACILITY                                                                                      
                      FACILITY      NET          NET                         PROJECTED                                          
                       GROSS      CAPACITY    OWNERSHIP                      COMMERCIAL                                  POWER  
                      CAPACITY      (IN       INTEREST                       OPERATION      CONTRACT      CONTRACT     PURCHASER
PROJECT              (IN MW)(5)  MW)(2)(5)     (IN MW)        LOCATION          DATE       EXPIRATION       TYPE          (5)   
------------------  ----------  ----------  -----------  ----------------  ------------  ------------  ------------  -----------
                                                                                                                                
BRPU(7) ...........   163         163         163        Imperial Valley,       TBD           TBD           FSO4          SCE   
                                                         CA                                                                     
Fish Lake(8) ......    36          36          36        Imperial Valley,    est. 1996       CO+30     Negotiated         SCE   
                                                         CA                                                                     
Newberry ..........    30          30          30        Bend, OR            est. 1997       CO+50     Negotiated    BPA/EWEB   
                    ----------  ----------  -----------  ----------------  ------------  ------------  ------------  -----------
Total                                                                                                                           
 Contracted/Awarded   229         229         229                                                                               
                    ----------  ----------  -----------                                                                         
Total Domestic                                                                                                                  
 Projects .........   871         800         583                                                                               
                    ----------  ----------  -----------                                                                         
Total Projects  ... 2,770       2,660       1,698                                                                               
                    ==========  ==========  ===========                                                                         
<FN>                                                                                                                            
---------------                                                                                                                 
   (1) In addition to the electricity sales revenue earned from its net                                                         
       ownership position in such facilities, the Company receives                                                              
       significant fee and royalty income from operating such plants and                                                        
       managing the production from the geothermal reservoirs for such                                                          
       facilities.                                                                                                              

   (2) Actual MW may vary depending on operating and reservoir conditions                                                       
       and plant design. Facility Gross Capacity (in MW) for projects in                                                        
       operation represents gross electric output of the facility prior to                                                      
       subtraction of the parasitic load. Parasitic load is electrical                                                          
       output used by the facility and not made available for sale to                                                           
       utilities or other outside purchasers. Facility Gross Capacity (in                                                       
       MW) does not necessarily reflect electric output available for sale                                                      
       to utilities or other outside purchasers.                                                                                

   (3) Facility Net Capacity (in MW) represents Facility Gross Capacity (in                                                     
       MW) less parasitic load.                                                                                                 

   (4) With respect to the Vulcan, Hoch (Del Ranch), Elmore, Leathers,                                                          
       Salton Sea I, Salton Sea II and Salton Sea III Projects, this                                                            
       represents contract nameplate.                                                                                           

   (5) Southern California Edison Company (SCE); San Diego Gas & Electric                                                       
       Company (SDG&E); Utah Power & Light Company (UP&L); Sierra Pacific                                                       
       Power Company (SPPC); Bonneville Power Authority (BPA); and Eugene                                                       
       Water and Electric Board (EWEB).                                                                                         

   (6) Actual MW may vary depending on operating and reservoir conditions                                                       
       and final plant design. Facility Gross Capacity (in MW) for awarded                                                      
       projects equals maximum sales amount. Significant contingencies exist                                                    
       in respect of awards, including without limitation, the need to                                                          
       obtain financing, permits and licenses, and the completion of                                                            
       construction.                                                                                                            

   (7) SCE is contesting the BRPU award; accordingly, no power sales                                                            
       contract is currently signed.                                                                                            

   (8) Combined Fish Lake and Salton Sea Expansion.                                                                             

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INTERNATIONAL PROJECTS--DISCUSSION  

PROJECTS IN CONSTRUCTION                                                        

The Philippines. The Company believes that increasing industrialization, a
rising standard of living and an expanding power distribution network has       
significantly increased demand for electrical power in the Philippines.         
According to the 1993 Power Development Program of the National Power           
Corporation of the Philippines ("NAPOCOR"), demand for electricity exceeds      
supply. NAPOCOR has also reported that its ability to sustain desired levels    
of electric production from existing facilities has been limited due to         
frequent breakdowns in many of its older electric generating plants. As a       
result, the Philippines has experienced severe power outages, with Manila       
suffering significant daily brownouts during much of 1993 and periodic          
brownouts during 1994. Although the occurrence of brownouts has been recently   
reduced, NAPOCOR has said that it still anticipates significant energy          
shortages in the future.                                                        

In 1993, the Philippine Congress, pursuant to Republic Act 7648, granted  
President Ramos emergency powers to remedy the Philippine energy crisis,        
including authority to (i) exempt power projects from public bidding            
requirements, (ii) increase power rates and (iii) reorganize NAPOCOR. Until     
1987, NAPOCOR had a monopoly on power generation and transmission in the        
Philippines. In 1987, then President Aquino issued Executive Order No. 215,     
which granted private companies the right to develop certain power generation   
projects, such as those using indigenous energy sources, on a                   
"build-operate-transfer" or "build-transfer" basis. In 1990, the Philippine     
Congress enacted Republic Act No. 6957, which authorized private development    
of priority infra-structure projects on a "build-operate-transfer" and a        
"build-transfer" basis. In addition, under that Act, such power projects were   
made eligible for certain tax benefits, including exemption from Philippine     
national income taxes for at least six years and exemption from, or             
reimbursement for, customs duties and value added taxes on capital equipment    
to be incorporated into such projects. In 1994, certain amendments to           
Republic Act No. 6957 were approved by the Philippine Congress and signed       
into law (R.A. 7718). Among other things, such amendments provide for the       
financing of "unsolicited proposals" on a "build-operate-transfer" basis.       

In an effort to remedy the shortfall of electricity, the Philippines,     
NAPOCOR and the Philippine National Oil Company-Energy Development Company      
("PNOC-EDC") continue to jointly solicit bids for private power projects.       
Among private power projects selected through this solicitation process were    
the Upper Mahiao (the "Upper Mahiao Project"), Mahanagdong (the "Mahanagdong    
Project"), Malitbog (the "Malitbog Project") and Alto Peak (the "Alto Peak      
Project") geothermal power projects, as described below. Geothermal power has   
been identified as a preferred alternative by the Philippine Government due     
to the domestic availability and the minimal environmental effects of           
geothermal power in comparison to other forms of power production. PNOC-EDC,    
which is responsible for developing the Philippines' domestic energy sources,   
has been successful in the exploration and development of geothermal            
resources.                                                                      

The Company and Magma have financed and commenced construction of the     
Upper Mahiao, Mahanagdong and Malitbog Projects, which have an aggregate net    
capacity of 500 MW, of which the Company's aggregate net ownership interest     
is 409 MW subsequent to the Merger.                                             

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MAP OF THE PHILIPPINES  

############################################################################# 

IMAGE OMITTED:  

[Map of the Republic of the Philippines with Project locations] 

(SEE ALSO "APPENDIX FOR GRAPHICS AND IMAGE MATERIAL"  
AFTER LAST PAGE OF THESE PROXY MATERIALS.)  

############################################################################# 

Upper Mahiao. The Company has closed the financing and commenced          
construction of the Upper Mahiao Project, a 128 gross MW geothermal project     
to be located in the Greater Tongonan area of the island of Leyte in the        
Philippines. The Upper Mahiao Project will be built, owned and operated by CE   
Cebu Geothermal Power Company, Inc. ("CE Cebu"), a Philippine corporation       
that is approximately 100% indirectly owned by the Company. It will sell 100%   
of its capacity on a "take-or-pay" basis (described below) to PNOC-EDC, which   
will in turn sell the power to NAPOCOR for distribution to the island of        
Cebu, located about 40 miles west of Leyte.                                     

The Upper Mahiao Project will have a total project cost of approximately  
$218 million, including interest during construction, project contingency       
costs and a debt service reserve fund. A consortium of international banks      
has committed to provide approximately $162 million in a project-financed       
construction loan, supported by political risk insurance from the               
Export-Import Bank of the United States ("ExIm Bank"). The largest portion of   
the term loan for the project will also be provided by ExIm Bank. The           
Company's equity contribution to the Upper Mahiao Project is $56 million.       
Subject to the pledge of the project company's stock to the lenders, the        
Company has arranged for political risk insurance of its equity investment      
through OPIC. The financing is collateralized by all the assets of the          
project.                                                                        

The Upper Mahiao Project is being constructed by Ormat, Inc. ("Ormat") and
its affiliates pursuant to supply and construction contracts (collectively,     
the "Upper Mahiao EPC"), which, taken together, provide for the construction    
of the plant on a fixed-price, date-certain, turnkey basis. Ormat is an         
international manufacturer and construction contractor that builds binary       
geothermal turbines. It has provided its equipment to several geothermal        
power projects throughout the United States, the Philippines and                
internationally. The Upper Mahiao EPC provides liquidated damage protection     
of up to 30% of the Upper Mahiao EPC price. Ormat's performance under the       
Upper Mahiao EPC is substantially backed by a completion guaranty of Ormat,     
by letters of credit, and by a limited guaranty of Ormat Industries, Ltd., an   
Israeli corporation and the parent of Ormat, in each case for the benefit of    
the project lenders.                                                            

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Under the terms of an energy conversion agreement, executed on September  
6, 1993 (the "Upper Mahiao ECA"), CE Cebu will build, own and operate the       
Upper Mahiao Project during the approximately two-year construction period      
and the ten-year cooperation period, after which ownership will be              
transferred to PNOC-EDC at no cost.                                             

The Upper Mahiao Project will be located on land provided by PNOC-EDC at  
no cost. It will take geothermal steam and fluid, also provided by PNOC-EDC     
at no cost, and convert its thermal energy into electrical energy to be sold    
to PNOC-EDC on a "take-or-pay" basis. Specifically, PNOC-EDC will be            
obligated to pay for the electric capacity that is nominated each year by CE    
Cebu, irrespective of whether PNOC-EDC is willing or able to accept delivery    
of such capacity. PNOC-EDC will pay to CE Cebu a fee (the "Capacity Fee")       
based on the plant capacity nominated to PNOC-EDC in any year (which, at the    
plant's design capacity, is approximately 95% of total contract revenues) and   
a fee (the "Energy Fee") based on the electricity actually delivered to         
PNOC-EDC (approximately 5% of total contract revenues). The Capacity Fee        
serves to recover the capital costs of the project, to recover fixed            
operating costs and to cover return on investment. The Energy Fee is designed   
to cover all variable operating and maintenance costs of the power plant.       
Payments under the Upper Mahiao ECA will be denominated in U.S. dollars, or     
computed in U.S. dollars and paid in Philippine pesos at the then-current       
exchange rate, except for the Energy Fee, which will be used to pay             
Phillipine peso-denominated expenses. The convertibility of Phillipine peso     
receipts into U.S. dollars is insured by OPIC. Significant portions of the      
Capacity Fee and Energy Fee will be indexed to U.S. and Philippine inflation    
rates, respectively. PNOC-EDC's payment requirements, and its other             
obligations under the Upper Mahiao ECA, are supported by the Government of      
the Philippines through a performance undertaking.                              

The payment of the Capacity Fee is not excused if PNOC-EDC fails to       
deliver or remove the steam or fluids or fails to provide the transmission      
facilities, even if its failure was caused by a force majeure event. In         
addition, PNOC-EDC must continue to make Capacity Fee payments if there is a    
force majeure event (e.g., war, nationalization, etc.) that affects the         
operation of the Upper Mahiao Project and that is within the reasonable         
control of PNOC-EDC or the government of the Philippines or any agency or       
authority thereof. If CE Cebu fails to meet certain construction milestones     
or the power plant fails to achieve 70% of its design capacity by the date      
that is 120 days after the scheduled completion date (as that date may be       
extended for force majeure and other reasons under the Upper Mahiao ECA), the   
Upper Mahiao Project may, under certain circumstances, be deemed "abandoned,"   
in which case the Upper Mahiao Project must be transferred to PNOC-EDC at no    
cost, subject to any liens existing thereon.                                    

PNOC-EDC is obligated to purchase CE Cebu's interest in the facility under
certain circumstances, including (i) extended outages resulting from the        
failure of PNOC-EDC to provide the required geothermal fluid, (ii) certain      
material changes in policies or laws which adversely affect CE Cebu's           
interest in the project, (iii) transmission failure, (iv) failure of PNOC-EDC   
to make timely payments of amounts due under the Upper Mahiao ECA, (v)          
privatization of PNOC-EDC or NAPOCOR, and (vi) certain other events. Prior to   
completion of the Upper Mahiao Project, the buy-out price will be equal to      
all costs incurred through the date of the buy-out, including all Upper         
Mahiao Project debt, plus an additional rate of return on equity of ten         
percent per annum. In a post-completion buy-out, the price will be the net      
present value (at a discount rate based on the last published Commercial        
Interest Reference Rate of the Organization for Economic Cooperation and        
Development) of the total remaining amount of Capacity Fees over the            
remaining term of the Upper Mahiao ECA.                                         

Mahanagdong. The Company has also closed the financing and commenced      
construction of the Mahanagdong Project, a 180 gross MW geothermal project,     
which will also be located on the island of Leyte. The Mahanagdong Project      
will be built, owned and operated by CE Luzon Geothermal Power Company, Inc.    
("CE Luzon"), a Philippine corporation that during construction is indirectly   
owned 50% by the Company and 50% by PKS. Up to a 10% financial interest in CE   
Luzon may be sold at completion to another industrial company at the option     
of such company. The Mahanagdong Project will sell 100% of its capacity on a    
similar basis as described above for the Upper Mahiao Project to PNOC-EDC,      
which will in turn sell the power to NAPOCOR for distribution to the island     
of Luzon.                                                                       

Mahanagdong has a total project cost of approximately $320 million,       
including interest during construction, project contingency costs and a debt    
service reserve fund. The capital structure consists of                         

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a project financing construction and term loan of approximately $240 million    
provided by OPIC, ExIm Bank and a consortium of international banks, and        
approximately $80 million in equity contributions. Political risk insurance     
from ExIm Bank has been obtained for the commercial lenders. The Company's      
equity investment for the Mahanagdong Project will be approximately $40         
million. Subject to the pledge of the project company's stock to the lenders,   
the Company has arranged for political risk insurance on its equity             
investment through OPIC. The financing is collateralized by all the assets of   
the project.                                                                    

The Mahanagdong Project is being constructed by a consortium (the "EPC    
Consortium") of Kiewit Construction Group, Inc. ("KCG") and BHCO pursuant to    
fixed-price, date-certain, turnkey supply and construction contracts            
(collectively, the "Mahanagdong EPC"). The obligations of the EPC Consortium    
under the Mahanagdong EPC are supported by a guaranty of KCG at an aggregate    
amount equal to approximately 50% of the Mahanagdong EPC price. KCG, a wholly   
owned subsidiary of PKS, is the lead member of the EPC Consortium, with an      
80% interest. KCG performs construction services for a wide range of public     
and private customers in the U.S. and internationally. The Mahanagdong EPC      
provides for maximum liability for liquidated damages of up to $100.5 million   
and total liability of up to $201 million. Construction projects undertaken     
by KCG during 1993 included transportation projects, including highways,        
bridges, airports and railroads, power facilities, buildings and sewer and      
waste disposal systems, and water supply systems, utility facilities, dams      
and reservoirs. KCG accounts for 80% of PKS's revenues, contributing $1.7       
billion in revenues in 1993. KCG has an extensive background in power plant     
construction.                                                                   

BHCO will provide design and engineering services for the EPC Consortium, 
holding a 20% interest. The Company has provided a guaranty of BHCO's           
obligations under the Mahanagdong EPC Contract.                                 

The terms of an energy conversion agreement (the "Mahanagdong ECA"),      
executed on September 18, 1993, are substantially similar to those of the       
Upper Mahiao ECA. The Mahanagdong ECA provides for an approximately             
three-year construction period and a ten-year cooperation period. At the end    
of the cooperation period, the facility will be transferred to PNOC-EDC at no   
cost. All of PNOC-EDC's obligations under the Mahanagdong ECA are supported     
by the Government of the Philippines through a performance undertaking. The     
capacity fees are expected to be approximately 97% of total revenues at the     
design capacity levels and the energy fees are expected to be approximately     
3% of such total revenues.                                                      

Malitbog. In December 1994 Magma closed the financing and commenced       
construction of the Malitbog Project, a 231 gross MW geothermal project,        
which will also be located on the island of Leyte. The Malitbog Project will    
be built, owned and operated by Visayas Geothermal Power Company ("VGPC"), a    
Philippine general partnership that is wholly owned, indirectly, by Magma.      
VGPC will sell 100% of its capacity on substantially the same basis as          
described above for the Upper Mahiao Project to PNOC-EDC, which will in turn    
sell the power to NAPOCOR.                                                      

The Malitbog Project has a total project cost of approximately $280       
million, including interest during construction and project contingency         
costs. A consortium of international banks and OPIC have provided a total of    
$210 million of construction and term loan facilities, the $135 million         
international bank portion of which is supported by political risk insurance    
from OPIC. Magma's equity contribution to VGPC was $70 million. Magma's         
equity participation is covered by political risk insurance from OPIC.          

The Malitbog Project will be constructed by Sumitomo Corporation          
("Sumitomo") pursuant to a fixed-price, date-certain, turnkey supply and        
construction contract (the "Malitbog EPC"). The Malitbog EPC provides that      
certain liquidated damages will be paid by Sumitomo for failure to meet         
certain scheduled performance test dates, including the payment of any          
liquidated damages or penalties required to be paid by VGPC to PNOC-EDC under   
an energy conversion agreement (the "Malitbog ECA") (subject to limitations     
on the total amount of liquidated damages payable by Sumitomo). The Malitobg    
EPC also provides for the payment of certain liquidated damages on a per unit   
basis if upon completion of the facility, tests do not demonstrate such         
unit's ability to operate at a net generating capacity of at least 74.1 MW.     
The liquidated damages for each generating unit are capped at 13 1/3 % of the   
total Malitbog EPC price. Pursuant to a reimbursement undertaking, Magma has    
agreed to reimburse Sumitomo for draws, if any, by PNOC-EDC on the              
construction bond provided by Sumitomo on behalf of Magma in excess of the      
liquidated damage amounts provided in the Malitbog EPC.                         

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Sumitomo is one of the principal trading and investment companies in      
Japan, and has built power plants around the world, often on a turnkey basis.   
As of October 20, 1994, Sumitomo had a credit rating of "Aa3" from Moody's      
Investors Service, Inc. ("Moody's"). The Malitbog EPC requires Sumitomo to      
provide engineering, procurement, construction, start-up and testing services   
with respect to the facility.                                                   

Construction of the facility has begun, with commercial operation of unit 
1 scheduled to commence in July 1996, and commercial operation of unit 2 and    
unit 3 scheduled to commence in July 1997.                                      

The terms of the Malitbog ECA, executed on September 10, 1993, are        
substantially similar to those of the Upper Mahiao ECA. The Malitbog ECA        
provides for a two-phase construction period, of three identical 77 gross MW.   
The cooperation period is ten years from the completion of unit 3. At the end   
of the cooperation period, the facility will be transferred to PNOC-EDC at no   
cost. All of PNOC-EDC's obligations under the Malitbog ECA are supported by     
the Government of the Philippines through a performance undertaking. The        
capacity fees are 100% of total revenues and there is no energy fee.            

PROJECTS IN DEVELOPMENT                                                         

Casecnan. In November 1994, the Company signed a "Project Agreement" with 
the Philippine National Irrigation Administration ("NIA") to develop an         
estimated $320 million combined irrigation and hydroelectric power generation   
project (the "Casecnan Multipurpose Project"). Such Project will deliver        
excess water from the Casecnan and Denip (Cagayan) watershed in Northern        
Luzon to the Pampanga watershed and the Pantabangan Reservoir for irrigation    
use in the Central Luzon Valley. The Casecnan Multipurpose Project, which has   
satisfied the requirements for an unsolicited proposal under the amended BOT    
law, will also provide 140 MW of net electric generation capacity to the        
Luzon grid.                                                                     

The project agreement is structured as a build, operate and transfer      
agreement under which NIA will supply the water for the Project and provides    
for a 20-year cooperation period with significant "take-or-pay" obligations     
for water and electricity. At the end of the 20-year cooperation period, the    
Casecnan Multipurpose Project will be transferred to NIA at no cost. The        
Company anticipates commencing construction in 1995.                            

Completion of such Project remains subject to a number of significant     
uncertainties, including arranging financing, obtaining certain required        
permits and licenses and completing construction, none of which can be          
assured.                                                                        

Alto Peak. The Alto Peak Project is a smaller geothermal project in the   
same general area of Leyte as the Upper Mahiao, Mahanagdong and Malitbog        
Projects. Magma and PNOC-EDC have executed a 70 MW net Energy Conversion        
Agreement, dated May 7, 1994. The general terms and conditions are similar to   
the Malitbog ECA. However, the plant design has not been initiated as           
PNOC-EDC has not finalized the steam conditions (pressure, composition and      
ph), as PNOC-EDC is still drilling and testing the geothermal wells that will   
supply steam to such project. Consequently, Magma has not commenced financing   
arrangements for the Alto Peak Project.                                         

Indonesia. Indonesia, which has the world's fourth largest population, has
experienced rapid growth in electricity demand. The Company believes that       
load growth has exceeded 13% since 1980. Furthermore, the Company believes      
that rapid expansion in industrial growth has created a backlog of              
unconnected industrial users in excess of 4,000 MW. In its sixth five-year      
plan, the Indonesian government has called for the addition of 12,000 MW of     
additional generating capacity by 1999. The long range plan calls for an        
additional 15,000 MW to be added by the year 2004. The plans call for           
approximately 75% of this capacity to be added by independent power             
producers. Although Indonesia is a member of OPEC and is also the world's       
largest exporter of liquified natural gas, the government has announced that    
it wishes to maintain sufficient amounts of oil for export, which will          
require a shift to coal fired generation and the use of other energy sources,   
such as geothermal.                                                             

It is estimated that Indonesia has sufficient geothermal steam potential  
to generate 16,000 MW, centered in the Java and Sumatra areas (the two most     
populous of the 13,000 islands in Indonesia). To date, less than 150 MW of      
geothermal facilities have been commissioned, as the Government of Indonesia    
was not encouraging the development of geothermal energy.                       

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The Indonesian state-owned utility, has recently been converted to a      
limited liability company, P.T. PLN (Persero) ("PLN"), as a first step toward   
the privatization of its two largest generating subsidiaries. The main          
objective of Indonesia's electric energy policy has been to secure a            
continuity of supply at reasonable rates for households (more than 50% of       
which have been reported to have no power) and to minimize the utilization of   
hydrocarbons. Rural electrification will remain an important component of the   
energy policy as PLN is targeting the addition of 2 million customers a year.   

Indonesia is rated "Baa3" by Moody's and "BBB-" by Standard & Poor's      
Ratings Group ("S&P"). The Company believes that Indonesia represents an        
attractive development opportunity, as it combines growing power needs with     
ample geothermal resources and creditworthy contract parties.                   

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MAP OF INDONESIA AND NEIGHBORING COUNTRIES  

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IMAGE OMITTED:  

[Map of Indonesia and Neighboring Countries with Project locations] 

(SEE ALSO "APPENDIX FOR GRAPHICS AND IMAGE MATERIAL"  
AFTER LAST PAGE OF THESE PROXY MATERIALS.)  

############################################################################# 

The following is a summary description of certain information concerning  
the Company's projects in Indonesia. Since these projects are still in          
development, however, there can be no assurance that this information will      
not change materially over time. In addition, there can be no assurance that    
development efforts on any particular project, or the Company's efforts         
generally, will be successful.                                                  

Dieng. On December 2, 1994, a subsidiary of the Company executed a joint  
operation contract (the "Dieng JOC") for the development of the geothermal      
steam field and geothermal power facilities at the Dieng geothermal field,      
located in Central Java (the "Dieng Project") with Perusahaan Pertambangan      
Minyak Dan Gas Bumi Negara ("Pertamina"), the Indonesian national oil           
company, and executed a "take-or-pay" energy sales contract (the "Dieng ESC")   
with both Pertamina and PLN, the Indonesian national electric utility.          

A subsidiary of the Company has entered into a joint development agreement
with P.T. Himpurna Enersindo Abadi ("P.T. HEA"), its Indonesian partner,        
which is a subsidiary of Himpurna, an association of Indonesian military        
veterans, whereby the Company and P.T. HEA have agreed to work together on an   
exclusive basis to develop the Dieng Project (the "Dieng Joint Venture"). The   
Dieng Joint Venture is structured with subsidiaries of the Company having a     
minimum 47% interest, subsidiaries of PKS having the option to take a 47%       
interest and P.T. HEA having a 6% interest in the Dieng Project.                

Pursuant to the Dieng JOC and ESC, Pertamina will grant to the Dieng Joint
Venture the geothermal field and the wells and other facilities presently       
located thereon and the Dieng Joint Venture will build, own and operate power   
production units with an aggregate capacity of up to 400 MW. The Dieng Joint    
Venture will accept the field operation responsibility for developing and       
supplying the geothermal steam and fluids required to operate the plants. The   
Dieng JOC is structured as a build own transfer agreement and will expire       
(subject to extension by mutual agreement) on the date which is the later of    
(i) 42 years following effectiveness of the Dieng JOC and (ii) 30 years         
following the date of commencement of commercial generation of the final unit   
completed. Upon the expiration of the proposed Dieng JOC, all                   

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facilities will be transferred to Pertamina at no cost. The Dieng Joint         
Venture is required to pay Pertamina a production allowance equal to three      
percent of the Dieng Joint Venture's net operating income from the Dieng        
Project, plus a further amount based upon the negotiated value of existing      
Pertamina geothermal production facilities that the Company expects will be     
made available by Pertamina.                                                    

Pursuant to the Dieng ESC, PLN agreed to purchase and pay for all of the  
Project's capacity and energy output on a "take or pay" basis regardless of     
PLN's ability to accept such energy made available from the Dieng Project for   
a term equal to that of the Dieng JOC. The price paid for electricity           
includes a base energy price per kWh multiplied by the number of kWhs the       
plants deliver or are "capable of delivering," whichever is greater. Energy     
price payments are also subject to adjustment for inflation. PLN will also      
pay a capacity payment based on plant capacity. All such payments are payable   
in U.S. dollars.                                                                

The Company presently intends to begin well testing by the second quarter 
of 1995 and to commence construction of an initial 55 MW unit in the 4th        
quarter of 1995, and then to proceed on a modular basis with construction of    
three additional units to follow shortly thereafter, resulting in an            
aggregate first phase net capacity at this site of 220 MW. The Company          
estimates that the total project cost of these units will be approximately      
$450 million. The next phase is expected to expand the total capacity to 400    
MW. The cost of the full Dieng Project is estimated to approximate $1           
billion. The Company anticipates a consortium consisting of KCG and BHCO will   
submit a proposal for the design and construction of the Dieng Project, and     
that the Company, through a subsidiary, will be responsible for operating and   
managing the Dieng Project.                                                     

The Dieng field has been explored domestically for over 20 years and BHCO 
has been active in the area for more than five years. Pertamina has drilled a   
total of 27 wells to date. The Company has a significant amount of data,        
which it believes to be reliable as to the production capacity of the field.    
However, a number of significant steps, both financial and operational, must    
be completed before the Dieng Project can proceed further. These steps, none    
of which can be assured, include obtaining required regulatory permits and      
approvals, completing the well testing, entering into a construction            
agreement and other project contracts, and arranging financing.                 

Patuha. The Company is also developing a geothermal power plant with      
respect to the Patuha geothermal field in Java, Indonesia (the "Patuha          
Project"). The Company has entered into a joint venture (the "Patuha Joint      
Venture") for Patuha with P.T. Enerindo Supra Abadi ("P.T. ESA"), an            
Indonesian company. P.T. ESA is an affiliate of the Bukaka Group, which has     
extensive experience in general construction, fabrication and electrical        
transmission construction in Indonesia. In exchange for project development     
services, P.T. ESA will receive a 10% equity interest in the Patuha Project     
with an option to acquire an additional 20% interest for cash upon the          
satisfaction of certain conditions. Subject to the exercise of that option,     
subsidiaries of the Company will have a 45% interest and subsidiaries of PKS    
will have the option to take a 45% interest in the Patuha Project.              

On December 2, 1994, the Patuha Joint Venture executed both a joint       
operation contract and an energy sales contract, each of which currently        
contains terms substantially similar to those described above for the Dieng     
Project. The Patuha Joint Venture intends to proceed on a modular basis         
similar to the Dieng Project, with an aggregate capacity of up to 400 MW. The   
Company estimates that the total cost will be approximately $1 billion. The     
Company presently intends to begin well testing and further exploration in      
the fourth quarter of 1995 with construction of the first unit expected to      
begin by 1996.                                                                  

The Patuha Project remains subject to a number of significant             
uncertainties, as described above in connection with the Dieng Project, and     
there can be no assurance that the Patuha Project will proceed or reach         
commercial operation.                                                           

Bali. The Company and PT Panutan Group, an Indonesian consortium of       
energy, oil, gas and mining companies, have formed a joint venture to pursue    
the development of geothermal resources in Bali (the "Bali Project") and to     
obtain a power sales contract from PLN.                                         

The Company presently intends to develop the Bali Project and other       
possible projects in Indonesia using a structure similar to that contemplated   
for the Dieng Project.                                                          

The Bali Project remains subject to a number of significant uncertainties,
as described above for the Dieng Project, and there can be no assurance that    
the Company will pursue the Bali Project or that it will proceed or reach       
commercial operation.                                                           

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DOMESTIC PROJECTS--DISCUSSION   

MAP OF THE WESTERN UNITED STATES  

############################################################################# 

IMAGE OMITTED:  

[Map of the Western United States with Project locations] 

(SEE ALSO "APPENDIX FOR GRAPHICS AND IMAGE MATERIAL"  
AFTER LAST PAGE OF THESE PROXY MATERIALS.)  

############################################################################# 

PROJECTS IN OPERATION                                                           

The Coso Project. In 1979, the Company entered into a 30-year contract    
(the "Navy Contract") with the United States Department of the Navy (the        
"Navy") to develop geothermal power facilities located on approximately 5,000   
acres of the Naval Air Weapons Station at China Lake, California (150 miles     
northeast of Los Angeles). In 1985, the Company entered into a 30-year lease    
(the "BLM Lease") with the United States Bureau of Land Management ("BLM")      
for approximately 19,000 acres of land adjacent to the land covered by the      
Navy Contract. The Navy Contract and the BLM Lease provide for certain          
royalty payments as a percentage of gross revenue and certain other formulas.   
The Company formed three joint ventures (the "Coso Joint Ventures") with one    
primary joint venture partner, Caithness Corporation ("Caithness"), to          
develop and construct the three facilities which comprise the Navy I project    
(the "Navy I Project"), the BLM project (the "BLM Project") and the Navy II     
project (the "Navy II Project") (collectively the "Coso Project").              

The Coso Joint Ventures are as follows: (i) Coso Finance Partners, which  
owns the Navy I Project (the "Navy I Partnership"), (ii) Coso Energy            
Developers, which owns the BLM Project (the "BLM Partnership") and (iii) Coso   
Power Developers, which owns the Navy II Project (the "Navy II Partnership"     
and, together with the Navy I Partnership and the BLM Partnership, the "Coso    
Partnerships"). The Company holds ownership interests of approximately 46% in   
the Navy I Partnership; approximately 48% in the BLM Partnership, after         
payout to the Company and Caithness; and 50% in the Navy II Partnership. The    
Company consolidates its respective share of the operating results of the       
Coso Partnerships into its financial statements. In addition, the Company       
indirectly holds rights to certain cash flows from its partners in the BLM      
Project, and, to a lesser extent, the Navy I Project and Navy II Project.       

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Each of the Coso Joint Ventures is managed by a management committee which      
consists of two representatives from the Company and two representatives from   
the Company's partners. The Company operates the Coso Project, for which it     
receives fees from the Coso Partnerships.                                       

The Coso Project sells all electricity generated by the respective plants 
pursuant to three long-term SO4 Agreements between the Navy I Partnership,      
the BLM Partnership, and the Navy II Partnership, respectively, and SCE.        
These SO4 Agreements provide for capacity payments, capacity bonus payments     
and energy payments. SCE makes fixed annual capacity payments to the Coso       
Partnerships, and to the extent that capacity factors exceed certain            
benchmarks is required to make capacity bonus payments. The price for           
capacity and capacity bonus payments is fixed for the life of the SO4           
Agreements. Energy is sold at increasing fixed rates for the first ten years    
of each contract and thereafter at SCE's Avoided Cost of Energy. The fixed      
price periods of the SO4 Agreements extend until August 1997, March 1999 and    
January 2000 for each of the Navy I, BLM and Navy II Partnerships,              
respectively, at rates ranging from 11.0cents per kWh in 1994 to 14.6cents      
per kWh in 2000. The Company's share of the revenues received by the Coso       
Partnerships for 1993 and the first nine months of 1994 was $92.9 million and   
$78.9 million, respectively.                                                    

The physical facilities used for geothermal energy production are         
substantially the same at the Navy I, BLM and Navy II Projects.                 

The Navy I Project. The geothermal resource for the Navy I Project        
currently is produced from approximately 32 wells. The Navy I Project           
consists of three turbine generators, each with approximately 32 MW of          
electrical generating capacity. The Navy I Project has an aggregate gross       
electrical generating capacity of approximately 96 MW. Based on an assumed      
net capacity of 80 MW, the Navy I Project operated at an average operating      
capacity factor of 99.8% in 1992, 111.2% in 1993 and 114.6% in the first nine   
months of 1994.                                                                 

The BLM Project. The BLM Project's geothermal resource currently is       
produced from approximately 20 wells. The BLM Project consists of three         
turbine generators. Two of these turbine generators are located at the BLM      
East site in a dual flash system, each with a nameplate capacity of 29 MW;      
and one is located at the BLM West site in a single flash system, with a        
nameplate capacity of 29 MW. The BLM Project has an aggregate gross             
electrical generating capacity of approximately 96 MW. Based on an assumed      
capacity of 80 MW, the BLM Project operated at an average operating capacity    
factor of 87.2% in 1992, 98.1% in 1993, and 98.5% in the first nine months of   
1994.                                                                           

The Navy II Project. The geothermal resource for the Navy II Project      
currently is produced from approximately 25 wells. The Navy II Project          
consists of three individual turbine generators, each with approximately 32     
MW of electrical generating capacity. The Navy II Project has an aggregate      
gross electrical capacity of approximately 96 MW. Based on an assumed           
capacity of 80 MW, the Navy II Project operated at an average operating         
capacity factor of 98.1% in 1992, 102.6% in 1993, and 103.5% in the first       
nine months of 1994.                                                            

In December 1992, the Coso Joint Ventures refinanced the existing bank    
debt on the Coso Project with the proceeds of the sale of approximately $560    
million in non-recourse senior secured notes (the "Notes") in a private         
placement pursuant to Rule 144A under the Securities Act. The Notes were        
issued by Coso Funding Corp. ("Coso Funding"), a corporation owned by the       
Coso Joint Ventures and formed exclusively for the purpose of issuing the       
Notes. Coso Funding lent the Coso Joint Ventures substantially all of the net   
proceeds of the sale of the Notes. At the time of their issuance, the Notes     
were rated "Baa3" by Moody's, "BBB-" by S&P and "BBB" by Duff & Phelps Credit   
Rating Co., all investment grade ratings. The outstanding balance of the        
Notes on September 30, 1994 was $483.5 million with a remaining average life    
of 3.5 years, and the average interest rate on the Notes for the nine months    
ending on the same date was 8.07%. The obligations of each Coso Partnership     
under the loans from Coso Funding are non-recourse to the Company. Coso         
Funding may look solely to each Coso Partnership's pledged assets for           
satisfaction of such Coso Partnership's loan. In addition, the loans are        
cross-collateralized by certain support loans only to the extent of the other   
Coso Joint Ventures' available cash flow and, under certain circumstances,      
the debt service reserve funds, and not as to other assets.                     

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Salton Sea Known Geothermal Resource Area Projects. Magma acquired three  
geothermal power plants which comprise the Salton Sea I project (the "Salton    
Sea I Project"), the Salton Sea II project (the "Salton Sea II Project") and    
the Salton Sea III project (the "Salton Sea III Project") (collectively, the    
"Salton Sea Projects") and all related wellfield, land and other related        
assets in March 1993 from Union Oil Company of California. Each of the          
Vulcan, Hoch (Del Ranch), Elmore and Leathers projects (the "Vulcan Project,"   
the "Hoch (Del Ranch) Project," the "Elmore Project" and the "Leathers          
Project," respectively, and collectively, the "Partnership Projects") is        
owned by an equal partnership (the "Vulcan Partnership," the "Del Ranch         
Partnership," the "Elmore Partnership" and the "Leathers Partnership,"          
respectively, and collectively, the "Partnerships") between Magma and a         
subsidiary of Mission Energy, a wholly owned subsidiary of SCE. In the case     
of the Vulcan Project, the Vulcan Partnership owns certain geothermal           
resources supplying the Vulcan Project plant. In the case of the other three    
Partnership Project plants, Magma owns the geothermal resources and receives    
royalty payments from the Del Ranch, Elmore and Leathers Partnerships. In the   
first nine months of 1994, such royalties together with the royalties from      
the East Mesa Plant and Mammoth Plants (as defined below) totaled $15.1         
million. Magma's share of the aggregate electricity revenues received by the    
Salton Sea Projects and the Partnerships for the first nine months of 1994      
was $124.1 million. In each case, a subsidiary of Magma is the managing         
general partner, and Magma consolidates one-half of the operating results of    
each Partnership Project plant into its financial statements. A subsidiary of   
Magma operates each of the Salton Sea Project plants and the Partnership        
Project plants.                                                                 

The Salton Sea Projects operated at a combined contract nameplate factor  
(excluding scheduled maintenance hours) of 94.1% in the nine months ended       
December 31, 1993 and 90.8% in the first nine months of 1994. The Partnership   
Projects operated at a combined contract nameplate factor of 100.7% in 1993     
and 105.0% in the first nine months in 1994.                                    

Vulcan. The Vulcan Project sells electricity to SCE 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.    
Under the SO4 Agreement, SCE is obligated to pay the Vulcan Project a           
capacity payment, a capacity bonus payment and an energy payment.               

The price for contract capacity payments is fixed for the life of such SO4
Agreement. The as-available capacity price is based on a payment schedule as    
approved by the CPUC from time to time. The contract energy payment increases   
each year for the first ten years, which period expires on February 9, 1996.    
Thereafter, the energy payments will be based on SCE's Avoided Cost of          
Energy. The energy payment per kWh is 10.9cents for 1994, 11.8cents for 1995    
and 12.6cents for 1996. The Vulcan Project is unleveraged.                      

Hoch (Del Ranch). The Hoch (Del Ranch) Project sells electricity to SCE   
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. The          
provisions of such SO4 Agreement are substantially the same as the SO4          
Agreement with respect to the Vulcan Project.                                   

The price for contract capacity payment is fixed for the life of the SO4  
Agreement. The energy payments per kWh for the first ten-year period, which     
expires on December 31, 1998, are fixed at rates ranging from 10.9cents for     
1994 to 14.6cents for 1998. Thereafter, the energy payments will be based on    
SCE's Avoided Cost of Energy.                                                   

The Del Ranch Partnership entered into a $66 million secured credit       
facility with commercial banks in March 1988. The final maturity date of the    
term loans is September 15, 2001. The secured credit agreement was amended to   
allow for the issuance of commercial paper and medium-term notes supported by   
a letter of credit as an alternative to borrowing directly from the banks.      

Elmore. The Elmore Project sells electricity to SCE 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. The provisions of such    
SO4 Agreement are substantially the same as the SO4 Agreement with respect to   
the Vulcan Project.                                                             

The price for contract capacity payments is fixed for the life of the SO4 
Agreement. The energy payments per kWh for the first ten-year period, which     
expires on December 31, 1998, are fixed at rates ranging from 10.9cents in      
1994 to 14.6cents in 1998. Thereafter, the energy payments will be based on     
SCE's Avoided Cost of Energy.                                                   

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The Elmore Partnership entered into a $66 million secured credit facility 
with commercial banks in March 1988. The final maturity date of the term        
loans is September 15, 2001. The secured credit agreement was amended and       
restated on April 18, 1990 to allow for the issuance of commercial paper and    
medium-term notes supported by a letter of credit as an alternative to          
borrowing directly from the banks.                                              

Leathers. The Leathers Project sells electricity to SCE 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. The          
provisions of such SO4 Agreement are substantially the same as the SO4          
Agreement with respect to the Vulcan Project.                                   

The price for contract capacity payments is fixed for the life of the SO4 
Agreement. The energy payments per kWh for the first ten-year period, which     
expires on December 31, 1999, are fixed at rates ranging from 10.9cents in      
1994 to 15.6cents in 1999. Thereafter, the energy payments are based on SCE's   
Avoided Cost of Energy.                                                         

The Leathers Partnership entered into an $82 million secured credit       
facility with commercial banks in March 1988. The final maturity date of the    
term loans is September 15, 2002. The secured credit agreement was amended to   
allow for the issuance of commercial paper and medium-term notes supported by   
a letter of credit as an alternative to borrowing directly from the banks.      

Salton Sea I Project. The Salton Sea I Project sells electricity to SCE   
pursuant to a 30-year negotiated power purchase agreement, as amended (the      
"Salton Sea I PPA"), which provides for capacity and energy payments. The       
initial contract capacity and contract nameplate are each 10 MW. The Salton     
Sea I Project may add subsequent increments of contract capacity (subject to    
notification requirements) the sum of which may not exceed 20 MW (the "Salton   
Sea I Project Expansion"). See "--Projects in Development--Fish Lake/Salton     
Sea I Expansion."                                                               

The capacity payment is based on the firm capacity price which is         
currently $123.61/kW-year. The contract capacity payment adjusts quarterly      
based on a basket of energy indices for the term of the Salton Sea I PPA. The   
energy payment is calculated using a Base Price (defined as the initial value   
of the energy payment (4.701cents per kWh for the second quarter of 1992)),     
which is subject to quarterly adjustments based on a basket of indices. The     
time period weighted average energy payment for Unit 1 was 4.8cents per kWh     
during 1993. As the Salton Sea I PPA is not an SO4 Agreement, the energy        
payments do not revert to SCE's Avoided Cost of Energy.                         

Salton Sea II Project. The Salton Sea II Project sells electricity to SCE 
pursuant to a 30-year modified SO4 Agreement that commenced on April 15,        
1990. The contract capacity and contract nameplate are 15 MW and 18 MW,         
respectively. The contract requires SCE to make capacity payments, capacity     
bonus payments and energy payments. The price for contract capacity and         
contract capacity bonus payments is fixed for the life of the modified SO4      
Agreement. The energy payments for the first ten-year period, which period      
expires on April 4, 2000, are levelized at a time period weighted average of    
10.6cents per kWh. Thereafter, the monthly energy payments will be SCE's        
Avoided Cost of Energy. For the period April 1, 1994 through March 31, 2004,    
SCE is entitled to receive, at no cost, 5% of all energy delivered in excess    
of 80% of contract capacity.                                                    

Salton Sea III Project. The Salton Sea III Project sells electricity to   
SCE pursuant to a 30-year modified SO4 Agreement. The contract capacity is      
47.5 MW and the contract nameplate is 50 MW. The SO4 Agreement requires SCE     
to make capacity payments, capacity bonus payments and energy payments for      
the life of the SO4 Agreement. The price for contract capacity payments is      
fixed. The energy payments for the first ten-year period, which period          
expires on February 13, 1999, are levelized at a time period weighted average   
of 9.8cents per kWh. Thereafter, the monthly energy payments will be SCE's      
Avoided Cost of Energy.                                                         

The partnerships that own the Salton Sea Projects (the "Salton Sea        
Partnerships") are parties to a secured credit facility with commercial         
banks. The agreement provides for a $130 million term loan broken into two      
tranches, (i) tranche A (covers Units 1 and 2) in the original principal        
amount of $37                                                                   

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million with a final maturity date of March 15, 2000 and (ii) tranche B         
(covers Unit 3) in the original principal amount of $93 million with a final    
maturity date of January 31, 1999. In addition, the agreement provides for a    
renewable working capital loan in the aggregate principal amount of $5          
million with an initial maturity date of February 27, 1995.                     

Yuma. During 1992, the Company acquired a development stage 50 MW natural 
gas-fired cogeneration project in Yuma, Arizona (the "Yuma Project"). The       
Yuma Project is designed to be a QF under PURPA and to provide 50 MW of         
electricity to San Diego Gas & Electric Company ("SDG&E") under an existing     
30-year power purchase contract. The electricity is sold at SDG&E's Avoided     
Cost of Energy. The power is wheeled to SDG&E over transmission lines           
constructed and owned by Arizona Public Service Company ("APS"). An agreement   
for interconnection and a firm transmission service agreement have been         
executed between APS and the Yuma Project entity and have been accepted for     
filing by the Federal Energy Regulatory Commission ("FERC").                    

The Yuma Project commenced commercial operation in May 1994. The project  
entity has executed steam sales contracts with an adjacent industrial entity    
to act as its thermal host in order to maintain its status as a QF, which is    
a requirement of its SDG&E contract. Since the industrial entity has the        
right under its contract to terminate the agreement upon one year's notice if   
a change in its technology eliminates its need for steam, and in any case to    
terminate the agreement at any time upon three years notice, there can be no    
assurance that the Yuma Project will maintain its status as a QF. However, if   
the industrial entity terminates the agreement, the Company anticipates that    
it will be able to locate an alternative thermal host in order to maintain      
its status as a QF or build a greenhouse at the site for which the Company      
believes it would obtain QF status. A natural gas supply and transportation     
agreement has been executed with Southwest Gas Corporation, terminable under    
certain circumstances by the Company and Southwest Gas Corporation. The Yuma    
Project is unleveraged other than intercompany debt.                            

Roosevelt Hot Springs. The Company operates and owns an approximately 70% 
interest in a 25MW geothermal steam field which supplies geothermal steam to    
a power plant owned by Utah Power & Light Company ("UP&L") located on the       
Roosevelt Hot Springs property under a 30-year steam sales contract. The        
Company obtained approximately $20.3 million of cash under a pre-sale           
agreement with UP&L whereby UP&L paid in advance for the steam produced by      
the steam field. The Company must make certain penalty payments to UP&L if      
the steam produced does not meet certain quantity and quality requirements.     

Desert Peak. The Company is the owner and operator of a 10 MW geothermal  
plant at Desert Peak, Nevada that is currently selling electricity to Sierra    
Pacific Power Company under a power sales contract that expires December 31,    
1995 and that may be extended on a year-to-year basis as agreed by the          
parties. The price for electricity under this contract is 6.3cents per kWh,     
comprising an energy payment of 1.8cents per kWh (which is adjustable           
pursuant to an inflation-based index) and a capacity payment of 4.5cents per    
kWh. The Company is currently negotiating the terms of an extension to this     
contract.                                                                       

Mammoth Plants. Magma receives royalty revenues from a 10 MW and a 12 MW  
contract nameplate geothermal power plant (the "First Mammoth Plant" and the    
"Second Mammoth Plant", respectively, and referred to herein, collectively,     
as the "Mammoth Plants") at Mammoth Lakes, California. Electricity from the     
Mammoth Plants is sold to SCE under two long-term power purchase agreements.    
The First Mammoth Plant and the Second Mammoth Plant began commercial           
operation in 1985 and 1991, respectively. Magma leases both property and        
geothermal resources to support the Mammoth Plants in return for certain base   
royalty and bonus royalty payments. For the First Mammoth Plant and the         
Second Mammoth Plant, the base royalty is 12.5% and 12%, respectively, of       
gross electricity sales revenues. The bonus royalty for the Mammoth Plants is   
50% of the excess of annual gross electricity sales revenues over an annual     
revenue standard based on the Mammoth Plants operating at 85% of contract       
capacity.                                                                       

The East Mesa Plant. Magma also receives royalty revenues from a 37 MW    
contract nameplate geothermal power plant (with two units) at East Mesa in      
Imperial Valley, California (the "East Mesa Plant"). Electricity from the       
plant is sold to SCE pursuant to two SO4 Agreements formerly held by            

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Magma, and Magma is entitled to receive a senior payment of 4% of gross         
electricity sales revenues and a junior payment of 10% of gross electricity     
sales revenues. To date, such junior payment has not been received. Since       
1992, Magma recognized the accrued junior payments as royalty income.           

PROJECTS IN DEVELOPMENT                                                         

The BRPU Process. Magma is seeking new long-term final standard offer no. 
4 power purchase agreements in southern California through the bidding          
process adopted by the CPUC under its 1992 Biennial Resource Plan Update        
("BRPU"). In its 1992 BRPU, the CPUC cited the need for an additional 9,600     
MW of power production through 1999 among California's three investor-owned     
utilities, SCE, SDG&E and Pacific Gas and Electric Company (collectively, the   
"IOUs"). Of this amount, 275 MW was set aside for bidding by independent        
power producers (such as Magma) utilizing renewable resources. Pursuant to an   
order of the CPUC dated June 22, 1994 (confirmed on December 21, 1994), Magma   
was awarded 163 MW for sale to SCE and SDG&E, with in-service dates in 1997     
and 1998. However, the IOUs may continue to challenge the order and there can   
be no assurance that power sales contracts will be executed or that any such    
projects will be completed.                                                     

Fish Lake/Salton Sea I Expansion. The Salton Sea I Project has an option  
to supply an additional 20 MW of power to SCE under the Salton Sea I PPA.       
Magma, through its wholly-owned subsidiary, Fish Lake Power Company ("FLPC"),   
acquired in 1992 a modified ISO4 power purchase agreement (the "Fish Lake       
ISO4") to supply electric power to SCE from a 16 MW geothermal power plant      
proposed to be built at Fish Lake in Esmeralda County, Nevada (the "Fish Lake   
Project").                                                                      

The Fish Lake ISO4 is a 30-year contract providing for a contract capacity
of 14 MW and a contract nameplate of 16 MW. The contract capacity payment       
under the Fish Lake ISO4 is levelized in the contract for the full 30-year      
term of the contract at $180 per kW-year. The capacity portion (plus bonus      
capacity) of such revenues is levelized at approximately 2.5cents per kWh for   
30 years (assuming a 90% nameplate capacity factor). The energy payment         
thereunder is fixed for the first ten years starting at 10.2cents per kWh in    
1996 and escalates at an average annual rate of 3.9%. For years 11 through      
15, such energy payment is set at SCE's Avoided Cost of Energy, plus an         
additional specified amount which decreases each year. For the last 15 years    
of the Fish Lake ISO4, the energy payment will be based on SCE's Avoided Cost   
of Energy.                                                                      

On November 29, 1994, SCE filed an application with the CPUC seeking      
approval for the proposed restructuring of (i) the Salton Sea I PPA and (ii)    
the Fish Lake ISO4, whereby the Fish Lake Project would not be developed at     
its present site in Nevada's Fish Lake Valley and instead would be developed    
under an amended and restated 30-year power purchase agreement (the "Amended    
PPA") in conjunction with the Salton Sea I PPA.                                 

If approved, the Amended PPA will consolidate the Salton Sea I Project    
Expansion with the Fish Lake Project. The Amended PPA also would reduce the     
price for contract capacity payments to $158/kW-year and would alter the        
energy payment schedule to commence in 1996 at 8.8cents per kWh.                

Newberry. Under a Bonneville Power Administration ("BPA") geothermal pilot
program, the Company is developing a 30 MW net geothermal project within the    
Newberry known geothermal resource area of Deschutes County, Oregon (the        
"Newberry Project"). Pursuant to two power sales contracts executed in          
September 1994, after the final environmental impact statement for the          
Newberry Project was issued, the Company has agreed to sell 20 MW to BPA and    
10 MW to Eugene Water and Electric Board ("EWEB") from the Newberry Project.    
In addition, BPA and EWEB together have an option to purchase up to an          
additional 100 MW of production from the Newberry Project under certain         
circumstances. In a public-private development effort, the Company is           
responsible for development, permitting, financing, construction and            
operation of the project (which will be 100% owned by the Company), while       
EWEB will cooperate in the development efforts by providing assistance with     
government and community affairs and sharing in the development costs (up to    
30%). The Newberry Project is currently expected to commence commercial         
operation in 1997. The power sales contracts provide that under certain         
circumstances the contracts may be utilized at an alternative location.         
Completion of the Newberry Project is subject to a number of significant        
uncertainties and cannot be assured.                                            

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REGULATORY AND ENVIRONMENTAL MATTERS  

Environmental Regulation. The projects of the Company and Magma are       
subject to environmental laws and regulations at the federal, state and local   
levels in connection with the development, ownership and operation of the       
projects. These environmental laws and regulations generally require that a     
wide variety of permits and other approvals be obtained for the construction    
and operation of an energy-producing facility and that the facility then        
operate in compliance with such permits and approvals. Failure to operate the   
facility in compliance with applicable laws, permits and approvals can result   
in the levy of fines or curtailment of operations by regulatory agencies.       

Management of the Coso Joint Ventures believes that the Coso Joint        
Ventures are in compliance in all material respects with all applicable         
environmental regulatory requirements and that maintaining compliance with      
current governmental requirements will not require a material increase in       
capital expenditures or materially affect its financial condition or results    
of operations. Likewise, management of each of the Company and Magma believes   
that the other projects of the Company and Magma are in compliance with all     
applicable environmental regulatory requirements. It is possible, however,      
that future developments, such as more stringent requirements of                
environmental laws and enforcement policies thereunder, could affect the        
costs of and the manner in which the Coso Joint Ventures or the other           
projects of the Company and Magma conduct their businesses.                     

Federal Energy Regulations. The principal federal regulatory legislation  
relating to the Company's geothermal energy activities is PURPA. PURPA and      
associated state legislation have conferred certain benefits on the             
independent power production industry. In particular, PURPA exempts certain     
electricity producers ("Qualifying Facilities") from federal and state          
regulation as a public utility. PURPA also requires utilities, such as SCE,     
to purchase electricity from qualifying facilities at the particular            
utility's avoided cost.                                                         

Each of the Company's domestic projects meets the requirements promulgated
under PURPA to be Qualifying Facilities. Qualifying Facility status under       
PURPA provides two primary benefits. First, regulations under PURPA exempt      
qualifying facilities from the Public Utility Holding Company Act of 1935       
("PUHCA"), most provisions of the Federal Power Act (the "FPA") and state       
laws concerning rates of electric utilities, and financial and organizational   
regulations of electric utilities. Second, FERC's regulations promulgated       
under PURPA require that (1) electric utilities purchase electricity            
generated by Qualifying Facilities, the construction of which commenced on or   
after November 9, 1978, at a price based on the purchasing utility's full       
avoided cost; (2) the electric utility sell back-up, interruptable,             
maintenance and supplemental power to the Qualifying Facility on a              
non-discriminatory basis; and (3) the electric utility interconnect with the    
Qualifying Facility in its service territory.                                   

The Company's projects remain subject, among other things, to FERC        
approvals and permits for power development, and to federal, state and local    
laws and regulations regarding environmental compliance, leasing, siting,       
licensing, construction, and operational and other matters relating to the      
exploration, development and operation of its geothermal properties.            

In 1992, Congress enacted comprehensive new energy policy legislation in  
its passage of the Energy Policy Act. This new law is designed to, among        
other things, foster competition in energy production and provide independent   
power producers with competitive access to the transmission grid. To achieve    
these goals, the Energy Policy Act amended PUHCA to create a new class of       
generating facility called Exempt Wholesale Generators ("EWGs"). EWGs are       
generally exempt from public utility regulation under PUHCA. The Energy         
Policy Act also provides new authority to FERC to mandate that owners of        
transmission lines provide wheeling access at just and reasonable rates.        
Previously limited, wheeling rights enhance the ability of independent power    
producers to negotiate transmission access and encourages development of        
facilities whose most feasible siting lies outside the purchasing utility's     
service area or which, like many geothermal sites, are remotely located.        

Permits and Approvals. The Company has obtained certain permits, approvals
and certificates necessary for the current exploration, development and         
operation of its projects. Similar permits,                                     

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approvals and certificates will be required for any future expansion of the     
Coso Project and for any development of the Company's other geothermal          
properties or for other power project development by the Company. Such          
compliance is costly and time consuming, and may in certain instances be        
dependent upon factors beyond the Company's control.                            

The Company believes that its operating power facilities are currently in 
material compliance with all applicable federal, state and local laws and       
regulations. No assurance can be given, however, that in the future all         
necessary permits, approvals, variances and certificates will be obtained and   
all applicable statutes and regulations will be complied with, nor can          
assurance be given that additional and more stringent laws, taxes or            
regulations will not be established in the future which may restrict the        
Company's current operations or delay the development of new geothermal         
properties, or which may otherwise have an adverse impact on the Company.       

EMPLOYEES   

As of December 31, 1993, the Company employed approximately 249 people, of
which approximately 160 people were employed at the Navy I, Navy II and BLM     
Projects, collectively. The Coso Joint Ventures do not hire or retain any       
employees. All employees necessary to the operation of the Coso Project are     
provided by the Company under certain plant and field operations and            
maintenance agreements.                                                         

As of February 28, 1994, Magma employed 340 persons on a regular,         
full-time basis, 31 at Magma's headquarters in San Diego, California, and 309   
at MOC in California's Imperial Valley.                                         

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PROPERTIES  

The Company's most significant physical properties are its four operating 
power facilities and its related real property interests. The Company also      
maintains an inventory of more than 400,000 acres of geothermal property        
leases and owns a 70% interest in a geothermal steam field. An affiliate of     
the Company owns the approximately 42 acre site in Yuma, Arizona where the 50   
MW gas fired cogeneration facility is being constructed.                        

The Company owns a one-story office building in Omaha, Nebraska, which    
houses it principal executive offices. The Company also leases office space     
in Ridgecrest, California, which houses the operating offices for the Coso      
Project and in Singapore and Manila, which house offices for the Company's      
international activities in the region.                                         

Magma holds geothermal leasehold and fee interests covering approximately 
198,208 acres on a gross acreage basis, after giving effect to the 1993         
Unocal Acquisition and the 1993 Freeport McMoRan Acquisition. See "Business     
of Magma." Such amount includes approximately 21,034 acres of developed         
(i.e., actively utilized in the production of geothermal energy) leasehold      
and fee interests, and approximately 178,174 acres of undeveloped (i.e.,        
non-producing) geothermal leasehold and fee interests. Certain of the           
producing acreage is owned by Magma and is leased to Mammoth-Pacific as owner   
and operator of the Mammoth Plants, and Magma, as lessor, receives royalties    
from the revenues earned by such power plants. See "Business of                 
Magma--Royalty Plants". The remainder of Magma's producing geothermal acreage   
is located in the SSKGRA and is utilized in the production of geothermal        
power at the SSKGRA Plants. Magma, as lessee, pays certain royalties and        
other fees to the property owners from the revenue generated by the SSKGRA      
Plants.                                                                         

Terms of Geothermal Leases. Lessors are generally paid a monthly or annual
rental payment during the term of the lease 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, such as those at    
Fish Lake, Nevada are transacted with the Department of Interior, Bureau of     
Land Management, pursuant to the Geothermal Steam Act and the regulations       
promulgated thereunder (the "Regulations"), and are for a primary term of 10    
years, extendible for an additional five years if drilling is commenced         
within the primary term and is diligently pursued for two successive            
five-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 federal lands provide for a modest yearly rental based on the acreage        
covered by the lease, a requirement of diligent exploration, a royalty of not   
less than 10% nor more than 15% of the value of geothermal resources sold or    
utilized and a royalty of up to 5% of the value of byproducts derived from      
the production of geothermal resources, and certain other obligations of the    
lessee as provided in the Regulations. Leases of state lands may vary in        
form. California, lease provisions and royalty amounts are determined from      
time to time by the State Lands Commission. Leases of private lands vary        
considerably, since their terms and provisions are the product of               
negotiations with the landowners. Generally, the private leases held by Magma   
provide for a primary term of five to 10 years, which is extendible for an      
additional period of time if certain conditions (such as the drilling of a      
well) have been satisfied.                                                      

Development Royalties and Payments. In connection with the development of 
any new geothermal power plants at the SSKGRA, Magma is obligated to pay        
royalties and/or one-time lump-sum payments to certain third parties.           

Headquarters. Magma's executive and administrative offices are currently  
located in San Diego, California. A total of approximately 19,000 square feet   
are leased in a modern office building. Magma also has a right of first         
negotiation on an additional 19,000 square feet in the same building. The       
lease expires in 2002.                                                          

LEGAL PROCEEDINGS   

Neither the Company nor Magma is a party to any material legal            
proceedings.                                                                    

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THE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL   
CONDITION AND RESULTS OF OPERATIONS   

GENERAL                                                                         

For purposes of consistency in financial presentation, dollars and shares 
are stated in thousands except per share data and the Plants comprising the     
Coso Project (including the Navy I, Navy II and BLM Plants) capacity factors    
are based upon a capacity amount of 88 gross MW ("GMW"), 80 net MW ("NMW")      
for each plant. The Navy I and Navy II Plants each consist of a set of three    
turbines located at a plant site. The BLM Plant consists of two turbines at     
one site ("BLM East") and one turbine at another site ("BLM West"). In April    
1990, the Company completed a retrofit of the two turbines at BLM East and in   
July 1990 completed associated retrofitting of the cooling towers to increase   
the aggregate installed capacity of the BLM Plant to 88 GMW/80 NMW, effective   
July 2, 1990. Each plant possesses an operating margin which periodically       
allows for production in excess of the amount listed above. However, through    
1990, the Navy I, Navy II and BLM Plant capacity amounts were restricted by     
the then existing PURPA 80 NMW cap. With the lifting of the PURPA 80 NMW cap    
in 1991, utilization of this operating margin can, at times, produce plant      
capacity factors in excess of 100%. 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.                                         

RESULTS OF OPERATIONS THROUGH SEPTEMBER 30, 1994                                

Sales of electricity and steam increased to $49,498 in the third quarter  
of 1994 from $41,433 in the third quarter of 1993, a 19.5% increase. This       
improvement was primarily due to an increase in the Coso Project's electric     
kilowatt hour sales to 580.4 million kWh from 578.2 million kWh and an          
increased price per kWh in accordance with the S04 Agreements. The remaining    
increases are a result of the Yuma project commencing operations in late May    
of 1994. For the nine months ended September 30, sales of electricity and       
steam increased to $117,208 in 1994 from $101,046 in 1993, a 16.0% increase.    
Similarly, the increase was due to an increase in the Coso Project's electric   
kilowatt hour sales to 1,659.4 million kWh from 1,610.4 million kWh, the        
aforementioned increased price per kWh, and the commencement of the Yuma        
project.                                                                        

The following operating data represent the aggregate installed capacity   
and electricity production of the Coso Project:                                 

                                                        [Enlarge/Download Table]

                                     THREE MONTHS ENDED SEPTEMBER                                 
                                                  30                NINE MONTHS ENDED SEPTEMBER 30
                                    ----------------------------  --------------------------------
                                         1994           1993            1994             1993     
                                    -------------  -------------  ---------------  ---------------
                                                                                                  
Overall installed capacity factor      109.5%         109.1%          105.5%           102.4%     
kWh produced ...................... 580,400,000    578,200,000    1,659,400,000    1,610,400,000  
Installed capacity NMW (average)  .       240            240             240              240     

The Navy I plant installed capacity factor was 115.5% in the third quarter
of 1994 compared to 115.1% in the third quarter of 1993. For the nine months    
ended September 30, the Navy I plant installed capacity factor was 114.6% in    
1994 compared to 109.0% for the same period in 1993. Several successful well    
workovers and the addition of a new well contributed to the improved            
performance. The Navy II plant installed capacity factor was 113.2% in the      
third quarter of 1994 compared to 106.3% in the third quarter of 1993. For      
the nine months ended September 30, the Navy II plant installed capacity        
factor was 103.5% in 1994 compared to 100.4% for the same period in 1993.       
Navy II output benefitted from gathering system improvements completed in       
June of 1993. The BLM plant installed capacity factor was 99.8% in the third    
quarter of 1994 compared to 106.0% in the third quarter of 1993. For the nine   
months ended September 30, the BLM plant installed capacity factor was 98.5%    
in 1994 compared to 97.8% for the same period in 1993.                          

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As a result of the successful performance of the BLM H2S abatement system,
which was installed in 1992, the Navy I and Navy II Joint Ventures obtained     
authority to construct ("ATC") permits for the installation of similar H2S      
abatement systems in an effort to enhance operational efficiency and improve    
long term reservoir management. Such abatement systems are expected to have     
an aggregate Coso Project capital cost of approximately $11,948, $10,845 of     
which has been incurred through September 30, 1994. Completion of               
construction and testing of the Navy I and Navy II abatement systems is         
currently expected to occur by year end of 1994. In conjunction with the ATC,   
the Great Basin Unified Air Pollution Control District agreed to provide an     
eighteen month variance to Navy I which allows venting of a portion of Navy     
I's non-condensable gas while the abatement system is constructed and tested.   

The Coso Project's average electricity prices per kWh in 1994, 1993, and  
1992, were comprised of (in cents):                                             

                                                                [Download Table]

                                  CAPACITY                                
THREE MONTHS ENDED      ENERGY    AND BONUS    TOTAL                      
--------------------  --------  -----------  --------                     
                                                                          
September 30, 1994  . 11.10     4.22         15.32                        
June 30, 1994 ....... 10.91     1.94         12.85                        
March 31, 1994 ...... 10.85      .70         11.55                        
September 30, 1993  . 10.20     4.24         14.44                        
June 30, 1993 ....... 10.16     1.94         12.10                        
March 31, 1993 ...... 10.01      .74         10.75                        

Average Fiscal 1993   10.11     1.93*        12.04*                       
Average Fiscal 1992    9.23     2.10*        11.33*                       
<FN>                                                                      
----------                                                                
   * Represents annualized price per kWh. Typically, the capacity price is
significantly higher in the months June through September.                

The Yuma plant commenced commercial operation in late May pursuant to its 
power purchase agreement and operated at 99.6% of its 50 net MW plant           
capacity in the third quarter of 1994.                                          

Roosevelt Hot Springs steam field supplied 100% of customer power plant   
steam requirements in the third quarter and for the nine months ended           
September 30, 1994. The Company has an approximate 70% interest in the          
Roosevelt Hot Springs field.                                                    

The Desert Peak power plant operated at 101.1% of its nine net megawatt   
capacity in the third quarter of 1994. For the nine months ended September      
30, 1994, the Desert Peak plant capacity factor was 105.5%.                     

Interest and other income increased in the third quarter of 1994 to $9,026
from $4,824 for the same period in 1993. For the nine months ended September    
30, interest and other income increased to $21,980 in 1994 from $12,294 for     
the same period in 1993. The increase primarily reflects interest income on     
higher average cash balances from the issuance of the Senior Discount Notes.    

The Company's expenses as a percentage of sales of electricity and steam  
were as follows:                                                                

                                                                [Download Table]

                                           THREE MONTHS      NINE MONTHS  
                                         ENDED SEPTEMBER   ENDED SEPTEMBER
                                                30                30      
                                        ----------------  ----------------
                                          1994     1993     1994     1993 
                                        -------  -------  -------  -------
                                                                          
Plant operations (net of the Company's                                    
 operator fees) ....................... 17.5%    11.5%    17.3%    15.4%  
General and administration ............  6.5%     5.7%     8.1%     8.5%  
Royalties .............................  7.1%     7.3%     6.7%     6.5%  
Depreciation and amortization ......... 11.4%    10.5%    13.2%    12.9%  
Interest (less amounts capitalized)  .. 31.4%    15.7%    31.5%    17.0%  
                                        -------  -------  -------  -------
                                        73.9%    50.7%    76.8%    60.3%  

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Plant operations increased to $9,846 in the third quarter of 1994 from    
$5,878 in the third quarter of 1993, a 67.5% increase. For the nine months      
ended September 30, plant operations increased to $23,887 in 1994 from          
$18,898 in 1993, a 26.4% increase. While plant operating cost at Coso           
actually declined, the above increases were due to the inclusion of the plant   
operating costs of the Yuma cogeneration plant which started operations in      
May 1994.                                                                       

General and administration costs increased to $3,216 in the third quarter 
of 1994 from $2,359 in the third quarter of 1993, a 36.3% increase. For the     
nine months ended September 30, general and administration costs increased to   
$9,536 in 1994 from $8,596 in 1993, a 10.9% increase. The increases are a       
result of the increased project construction activity associated with two       
projects aggregating 300 MW in the Philippines, as well as increased project    
development activity associated with overseas efforts.                          

Royalty costs increased to $3,504 in the third quarter of 1994 from $3,004
in the third quarter of 1993, a 16.6% increase. For the nine months ended       
September 30, royalties increased to $7,898 in 1994 from $6,525 in 1993, a      
21.0% increase. The increases were due to the increase in sales of              
electricity and an increase in the effective royalty rate at BLM.               

Depreciation and amortization increased to $5,639 in the third quarter of 
1994 from $4,344 in the third quarter of 1993, a 29.8% increase. For the nine   
months ended September 30, depreciation and amortization increased to $15,439   
in 1994 from $13,044 in 1993, an 18.4% increase. The increase was due           
primarily to capital expenditures at the Coso Project and the depreciation of   
the Yuma plant.                                                                 

Interest expense before amounts capitalized increased to $17,653 in the   
third quarter of 1994 from $8,184 in the third quarter of 1993, a 115.7%        
increase. For the nine months ended September 30, interest expense increased    
to $44,480 in 1994 from $20,993 in 1993, a 111.9% increase. The increase was    
primarily due to the original issue discount amortization expense on the        
Senior Discount Notes issued in March 1994 and interest expense on the          
Convertible Subordinated Debentures which were issued in June 1993, offset in   
part by the defeasance of the Senior Notes in March 1994.                       

The provision for income taxes decreased to $6,340 in the third quarter of
1994 from $7,493 in the third quarter of 1993, a 15.4% decrease. For the nine   
months ended September 30, the provision for income taxes decreased to          
$14,067 in 1994 from $14,295 in 1993, a 1.6% decrease. The decreases are due    
to a lower income before tax attributable to higher interest costs as           
previously discussed.                                                           

The Company's effective tax rate continues to be less than the expected   
statutory tax rate primarily due to the percentage depletion deduction and      
energy tax credits generated in the current year.                               

Income before extraordinary item and the cumulative effect of a change in 
accounting principle decreased to $14,413 in the third quarter of 1994 from     
$16,677 in the third quarter of 1993, a 13.6% decrease. Net income              
attributable to common shares in the third quarter of 1994 decreased to         
$13,138 or 38 cents per share from $15,498 or 41 cents per share in the third   
quarter of 1993, a 15.2% decrease. Net income excluding the effect of the       
Senior Discount Notes was approximately $16,487 or 47 cents per share for the   
third quarter of 1994. For the nine months ended September 30, income before    
extraordinary item and the cumulative effect of a change in accounting          
principle decreased to $31,399 or 77 cents per share from $34,811 or 81 cents   
per share, a 9.8% decrease. Net income attributable to common shares for the    
nine months ended September 30 decreased to $25,681 or 71 cents per share       
from $35,482 or 92 cents per share, a 27.6% decrease. Net income excluding      
the effect of the Senior Discount Notes was approximately $34,602 or 95 cents   
per share for the nine months ended September 30, 1994.                         

RESULTS OF OPERATIONS FOR THREE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991   

Sales of electricity and steam increased to $132,059 in the year ended    
December 31, 1993 from $117,342 in the year ended December 31, 1992, a 12.5%    
increase. This improvement was primarily due to a 9.1% increase in the Coso     
Project's electric kWh sales to 2,186.7 million kWh from 2,004.0 million kWh,   
and an increased price per kWh in accordance with the SO4 Agreements. The       
increase in Coso Project kWh sales was primarily due to the completion of new   
production wells. The increase in sales of electricity                          

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and steam in 1992 to $117,342 from $106,184 in 1991 was primarily due to        
increasing kWh sales by 6.0% to 2,004.0 million kWh from 1,890.4 million kWh,   
largely as a result of the drilling of additional production wells, and the     
aforementioned increase in price per kWh pursuant to the SO4 Agreements.        

The following operating data includes the full capacity and electricity   
production of the Coso Project only:                                            

                                                                [Download Table]

                                         1993             1992             1991     
                                   ---------------  ---------------  ---------------
                                                                                    
Overall capacity factor ..........         104.0%            95.1%            89.9% 
kWh produced ..................... 2,186,700,000    2,004,000,000    1,890,402,000  
Installed capacity NMW (average)             240              240              240  

The overall Coso plant capacity factor was 108.8% in the fourth quarter of
1993 compared to 109.1%, 100.9% and 97.1% for the third, second and first       
quarters of 1993, respectively. The Navy I Plant capacity factor was 111.2%     
in 1993, compared to 99.8% and 98.5% in 1992 and 1991, respectively. The Navy   
II Plant capacity factor was 102.6% in 1993, compared to 98.1% and 99.9% in     
1992 and 1991, respectively. The BLM Plant capacity factor was 98.1% in 1993,   
compared to 87.2% and 71.4% in 1992 and 1991, respectively. The BLM Plant,      
Navy I Plant and the Navy II Plant were overhauled in conjunction with          
scheduled warranty inspections in 1993, 1992 and 1991 respectively, resulting   
in a temporary reduction of the plant capacity factor of 3% in the specified    
year.                                                                           

Electric sale price per kWh for the Coso Project varies seasonally in     
accordance with the rate schedule included in the SO4 Agreements. The price     
consists of an energy payment based on the annualized contracted rate of        
10.11 cents per kWh in 1993, 9.23 cents per kWh in 1992, and 8.58 cents per     
kWh in 1991, and constant annual capacity payments, of which the Company's      
share was $5,400 to $5,800 per annum for each of the three power plants.        
Capacity payments are significantly higher in the months of June through        
September. Bonus payments are received monthly, of which the Company's share    
was approximately $1,000 per annum for each of the three power plants.          

The Coso Project's average electricity prices per kWh in 1993, 1992 and   
1991 were comprised of (in cents):                                              

                                                                [Download Table]

                        ENERGY   CAPACITY & BONUS   TOTAL
                      --------  ----------------  -------
                                                         
Average fiscal 1993    10.11         1.93           12.04
Average fiscal 1992     9.23         2.10           11.33
Average fiscal 1991     8.58         2.24           10.82

The Desert Peak and Roosevelt Hot Springs facilities ran at or near       
capacity levels for each of the past three years.                               

Steam sales from the Roosevelt Hot Springs field, which was acquired in   
January 1991, remained relatively unchanged at $2,198, $2,255, and $2,077 in    
1993, 1992, and 1991, respectively. Electricity sales from Desert Peak were     
$5,177, $5,347 and $3,976 for the years 1993, 1992, and 1991, respectively.     
Desert Peak was acquired in March 1991 and, accordingly, reflects only nine     
months sales in 1991.                                                           

Interest and other income increased in 1993 to $17,194 from $10,187 in    
1992 and from $9,379 in 1991. The increase reflects higher average cash         
balances, interest income on notes receivable from the Coso Joint Ventures      
and interest income on the Company's share of the cash reserves established     
in the refinancing of the Coso Project debt in December 1992.                   

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The Company's cost per kWh* was as follows (in cents):                    

                                                                [Download Table]

                                                          1993    1992    1991
                                                        ------  ------  ------
                                                                              
Plant operations (net of the Company's operator fees)   1.64    1.65    1.77  
General and administration ............................ 1.03    1.04    1.11  
Royalties .............................................  .65     .61     .49  
Depreciation and amortization ......................... 1.39    1.33    1.31  
Interest, less amounts capitalized .................... 1.82    1.17    2.16  
                                                        ------  ------  ------
 Total ................................................ 6.53    5.80    6.84  
                                                        ======  ======  ======
<FN>                                                                          
----------                                                                    
* Cost per kWh includes electrical production from the Desert Peak            
facility and the electrical production equivalent of the Company's share of   
geothermal steam produced at the Roosevelt Hot Springs field, acquired in     
March and January 1991, respectively.                                         

The Company's expenses* as a percentage of sales of electricity and steam 
were as follows:                                                                

                                                                [Download Table]

                                                          1993     1992     1991 
                                                        -------  -------  -------
                                                                                 
Plant operations (net of the Company's operator fees)   15.8%    17.7%    18.8%  
General and administration ............................ 10.0     11.1     11.7   
Royalties .............................................  6.3      6.6      5.2   
Depreciation and amortization ......................... 13.5     14.3     13.9   
Interest, less amounts capitalized .................... 17.7     12.7     23.0   
                                                        -------  -------  -------
 Total ................................................ 63.3%    62.4%    72.6%  
                                                        =======  =======  =======
<FN>                                                                             
---------                                                                        
* Expenses as a percentage of electricity sales and steam sales include          
electricity sales from the Desert Peak facility and steam sales from the         
Roosevelt Hot Springs field, acquired in March and January 1991,                 
respectively.                                                                    

The Company's expenses, excluding interest, increased as a general result 
of the greater electricity production of the Coso Project. However, in 1993,    
plant operations and general and administration costs per kWh decreased from    
1992. In 1992, the Company's total expenses, excluding interest, were           
proportionally less than the increase in electricity production of the Coso     
Project.                                                                        

The cost of plant operations increased to $25,362 in 1993 from $24,440 in 
1992, an increase of 3.8%. The cost of plant operations increased to $24,440    
in 1992 from $23,525 in 1991, an increase of 3.9%. General and administration   
costs remained relatively unchanged at $13,158 in 1993 compared to $13,033 in   
1992. General and administration costs increased to $13,033 in 1992 from        
$12,476 in 1991, a 4.5% increase. However, for 1993 and 1992 both plant         
operations and general and administration costs per kWh continued to decrease   
due to a proportionally greater increase in electrical production than plant    
operations and general administration costs. Plant cost per kWh decreased to    
1.64 cents in 1993 from 1.65 cents in 1992 and 1.77 cents in 1991. General      
and administration cost per kWh decreased to 1.03 cents in 1993 from 1.04       
cents in 1992 and 1.11 cents in 1991.                                           

Royalty costs increased to $8,274 in 1993 from $7,710 in 1992, an increase
of 7.3%. Royalty costs increased to $7,710 in 1992 from $5,505 in 1991, an      
increase of 40.1%, due to higher electrical sales and a contractually           
scheduled increase in the 1992 royalty rate for the second and third turbines   
of the Navy I Plant. Overall, the royalty cost per kWh increased to 0.65        
cents in 1993 from 0.61 cents in 1992 and 0.49 cents in 1991.                   

Depreciation and amortization expense increased to $17,812 in 1993 from   
$16,754 and $14,752 in 1992 and 1991, respectively, a 6.3% increase from 1992   
to 1993, and a 13.6% increase from 1991 to 1992. Depreciation and               
amortization expense for 1993 was 1.39 cents per kWh compared to 1.33 cents     
in 1992                                                                         

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and 1.31 cents per kWh in 1991. The increase in 1993 was due to additional      
capitalized costs associated with the settlement of litigation involving        
Mission Power Engineering Company ("MPE") and the Mission Power Group, as       
well as additional wells and gathering systems. The increase in per kWh cost    
in 1992 was due largely to the costs of an increased number of production and   
injection wells.                                                                

Interest expense, less amounts capitalized, increased to $23,389 in 1993  
from $14,860 in 1992, an increase of 57.4%, or 1.82 cents per kWh in 1993,      
compared to 1.17 cents in 1992. Net interest expense decreased to $14,860 in    
1992 from $24,439, or 2.16 cents per kWh in 1991. Net interest expense in       
1993 increased due primarily to the Company's higher weighted average           
interest rate, higher levels of indebtedness associated with the Coso Project   
and the issuance of convertible subordinated debentures in June 1993. The       
short-term variable rate debt on the Coso Project was refinanced in 1992 with   
longer-term fixed rate debt. The weighted average interest rate on the Coso     
Project debt was 7.9%, 5.4% and 8.5% in 1993, 1992, and 1991, respectively.     
Net interest expense decreased in 1992 from 1991 as a result of low interest    
rates associated with the Coso Project's then variable rate debt.               

The provision for income taxes increased to $18,184 in 1993 from $11,922  
and $8,284 in 1992 and 1991, respectively. The effective tax rate was 29.7%,    
23.5% and 23.8% in 1993, 1992, and 1991. The increase in the 1993 effective     
tax rate was a result of adopting Financial Accounting Standard No. 109 ("FAS   
109").                                                                          

Income before the provision for income taxes increased 21% to $61,258 in  
1993 from $50,732 in 1992. Net income after a cumulative effect of a change     
in accounting principle was $47,174 and net income available to common          
shareholders was $42,544 or $1.11 per common share for the year ended           
December 31, 1993. This compares to net income of $33,819 after an              
extraordinary item and net income available to common shareholders of $29,544   
or $.79 per common share for the year ended December 31, 1992. Net income       
before cumulative effect of a change in accounting principle for the year       
ended December 31, 1993 was $43,074 or $1.00 per common share versus net        
income before an extraordinary item of $38,810 or $.92 per common share in      
1992. In 1991, income before the provision for income taxes was $34,866 and     
net income available to common shareholders was $26,582, or $.75 per share.     

Earnings per share were favorably impacted in 1992 by the Company's       
repurchase of Common Stock during 1992 at an average price of approximately     
$12.00 per share. The Company purchased Common Stock to be held as treasury     
stock, which was reissued upon the exercise of options and warrants.            

LIQUIDITY AND CAPITAL RESOURCES THROUGH SEPTEMBER 30, 1994                      

The Company's cash and investments were $316,349 at September 30, 1994 as 
compared to $127,756 at December 31, 1993. In addition, the Company's share     
of Coso Project retained cash and investments in project control accounts at    
September 30, 1994 and December 31, 1993 was $27,088 and $14,943,               
respectively. Distributions out of the project control account are made         
monthly to the Company for operation and maintenance and capital costs and      
semiannually to each Coso Joint Venture partner for profit sharing under a      
prescribed calculation subject to mutual agreements by the partners. In         
addition, the Company recorded separately restricted cash and short-term        
investments of $127,380 and $48,105 at September 30, 1994 and December 31,      
1993, respectively. The restricted balances were comprised primarily of         
amounts deposited in restricted accounts from which the Company will source     
its equity contribution requirements relating to the Upper Mahiao and           
Mahanagdong projects and of its proportionate share of Coso Project cash        
reserves for a debt service reserve fund. The Coso Project established these    
reserves in conjunction with the refinancing of its previous bank debt.         

In March 1994, the Company issued $400,000 of 10 1/4 % Senior Discount    
Notes which accrete to an aggregate principal amount of $529,640 at maturity    
in 2004. The original issue discount (the difference between $400,000 and       
$529,640) will be amortized from issue date through January 15, 1997, during    
which time no cash interest will be paid on the Senior Discount Notes.          
Commencing July 15, 1997, cash interest on the Senior Discount Notes will be    
payable semiannually on January 15 and July 15 of each year. The Senior         
Discount Notes are redeemable at any time on or after January 15, 1999. The     
redemption prices commencing in the twelve month period beginning January 15,   
1999 (expressed in percentages of the principal amount) are 105.125%,           
103.417%, 101.708%, and 100% for 1999, 2000, 2001, and 2002, respectively,      
plus accrued interest through the redemption date in each case. The Senior      
Discount Notes are unsecured senior obligations of the Company.                 

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The Company's Senior Notes in the principal amount of $35,730 which were  
due in March 1995, together with the fixed 12% interest due thereon, were       
defeased in the first quarter of 1994 in conjunction with the issuance of the   
Senior Discount Notes. The 1994 contingent interest component of these Senior   
Notes, calculated by reference to the Company's share of available cash flow    
from the Coso Project, remains undefeased and outstanding through the end of    
the calculation period, December 31, 1994.                                      

In June of 1993, the Company issued $100,000 principal amount of 5%       
Convertible Subordinated Debentures ("Debentures") due July 31, 2000. The       
Debentures are convertible into shares of Common Stock at any time prior to     
redemption or maturity at a conversion price of $22.50 per share, subject to    
adjustment in certain circumstances. Interest on the Debentures is payable      
semiannually in arrears on July 31 and January 31 of each year, and commenced   
on July 31, 1993. The Debentures may be redeemed for cash at any time on or     
after July 31, 1996 at the option of the Company. The redemption prices         
commencing in the twelve month period beginning July 31, 1996 (expressed in     
percentages of the principal amount) are 102%, 101%, 100% and 100% for 1996,    
1997, 1998 and 1999, respectively. The Debentures are unsecured general         
obligations of the Company and subordinated to all senior indebtedness of the   
Company.                                                                        

In December 1992, the Company entered into an agreement with Community    
Energy Alternatives Incorporated ("CEA") to purchase CEA's interest in the      
Coso Project for $9,800. The terms of the agreement granted the Company's       
Coso Project Joint Venture Partner an option to purchase the CEA interest for   
a price which provided the Company with a 17% per annum return for the period   
the Company owned the CEA interest. In April 1994, the Coso Project Joint       
Venture Partner purchased the CEA interest from the Company for the defined     
price.                                                                          

In May 1994, pursuant to a special antidilution provision of the 1991     
Stock Purchase Agreement between the Company and Kiewit Energy Company, the     
Company increased Kiewit Energy Company's existing option (granted in 1991)     
to purchase 3 million shares at $12 per share by an additional 289,163 shares   
as a final adjustment under such provision.                                     

Proceeds from options for shares of common and treasury stock exercised in
the nine months ended September 30, 1994 aggregated approximately $677.         

As of September 30, 1994 the Company has repurchased 3,420 shares of      
Common Stock at a cost of $59,516. This repurchase provides shares for          
issuance under the Company's employee stock option and share purchase plans     
and other outstanding convertible securities. The shares may also be used for   
any future convertible securities or employee benefit plans.                    

The Company is actively seeking to develop, construct, own and operate new
power projects utilizing geothermal and other technologies, both domestically   
and internationally, the completion of any of which is subject to substantial   
risk. Development can require the Company to expend significant sums for        
preliminary engineering, field development, permitting, legal and other         
expenses in preparation for competitive bids which the Company may not win or   
before it can be determined whether a project is feasible, economically         
attractive or capable of being financed. Successful development is contingent   
upon, among other things, negotiation of construction, fuel supply and power    
sales contracts with other project participants on terms satisfactory to the    
Company, and receipt of required governmental permits and consents. Further,    
there can be no assurance that the Company will obtain access to the            
substantial debt and equity capital required to develop and construct           
electric power projects or to refinance projects for which the Company has      
provided initial construction financing. The Company's future growth is         
dependent, in large part, upon the demand for significant amounts of            
additional electrical generating capacity and the Company's ability to obtain   
contracts to supply portions of this capacity. There can be no assurance that   
development efforts on any particular project, or the Company's efforts         
generally, will be successful.                                                  

The Company believes that the international independent power market holds
the majority of new opportunities for financially attractive private power      
development in the next several years. The financing and development of         
projects outside the United States entail significant political and financial   
risks (including, without limitation, uncertainties associated with first       
time privatization efforts in the countries                                     

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involved, currency exchange rate fluctuations, currency repatriation            
restrictions, political instability, civil unrest and expropriation) and        
other structuring issues that have the potential to cause substantial delays    
or material impairment of value to the project being developed, which the       
Company may not be fully capable of insuring against. The uncertainty of the    
legal environment in certain foreign countries in which the Company may         
develop or acquire projects could make it more difficult for the Company to     
enforce its rights under agreements relating to such projects. In addition,     
the laws and regulations of certain countries may limit the ability of the      
Company to hold a majority interest in some of the projects that it may         
develop or acquire. The Company's international projects may, in certain        
cases, be terminated by a government.                                           

In April 1994, the Company closed the financing for the 128 GMW Upper     
Mahiao geothermal power project located in the Philippines. The total project   
cost for the facility is approximately $218,000. The Company will supply        
approximately $56,000 of equity and project debt financing will constitute      
the balance of approximately $162,000. A syndicate of international             
commercial banks is providing the construction financing. The Export-Import     
Bank of the U.S. ("Ex-Im Bank") is providing political risk insurance to the    
commercial banks for the construction loan and will provide the preponderance   
of project term financing upon satisfaction of conditions associated with       
commercial operation. As of September 30, 1994, draws on the construction       
loan totalled $20,636, equity investments made by a subsidiary of the Company   
totalled $12,712, and the Company has invested $1,236. The Overseas Private     
Investment Corporation ("OPIC") is providing political risk insurance on the    
equity investment by the Company in this project. The Upper Mahiao project      
has begun construction, and is expected to be in service by July of 1996. The   
project is structured as a ten year Build-Own-Transfer ("BOT"), in which the    
Company's subsidiary CE Cebu Geothermal Power Company, Inc., the project        
company, will be responsible for implementing construction of the geothermal    
power plant and, as owner, for providing operations and maintenance during      
the ten year BOT period. The electricity generated by the Upper Mahiao          
geothermal power plant will be sold to the Philippine National Oil              
Company--Energy Development Corporation ("PNOC-EDC"), which is also             
responsible for supplying the facility with the geothermal steam. After a ten   
year cooperation period, and the recovery by the Company of its capital         
investment plus incremental return, the plant will be transferred to PNOC-EDC   
at no cost. Ormat Inc. of Sparks, Nevada is the turnkey contractor for the      
project.                                                                        

In 1993 the Company and PNOC-EDC signed an Energy Conversion agreement for
a 180 GMW project at the Mahanagdong geothermal site with a target completion   
date of July 1997. As with the Upper Mahiao project, the Mahanagdong project    
is structured as a ten year Build-Own-Transfer ("BOT"), in which the Company    
will be responsible for implementing construction of the geothermal power       
plant and, as owner for providing operations and maintenance for the ten year   
BOT period. The electricity generated by the geothermal power plant will be     
sold to PNOC-EDC, which is also responsible for supplying the facility with     
the geothermal steam. After a ten year cooperation period, and the recovery     
by the Company of its capital investment plus incremental return, the plant     
will be transferred to PNOC-EDC at no cost.                                     

The Mahanagdong project will be built, owned and operated by CE Luzon     
Geothermal Power Company, a Philippine corporation, that is expected to be      
owned post completion as follows: 45% by the Company, 45% by Kiewit, and up     
to 10% by another industrial company. The turnkey contractor consortium         
consists of Kiewit Construction Group, Inc. (with an 80% interest) and The      
Ben Holt Co., Inc., a wholly owned subsidiary of the Company (with a 20%        
interest).                                                                      

In August 1994, the Company completed the financing on the Mahanagdong    
project with a total project cost of approximately $320 million. The capital    
structure consists of a term loan of $240 million and approximately $80         
million in equity contributions. The construction debt financing facility       
will be provided by OPIC and a consortium of commercial lenders led by Bank     
of America NT&SA. The debt provided by the commercial lenders will be insured   
against political risks by Ex-Im Bank. Ten-year term debt financing will be     
provided by Ex-Im Bank (which will replace the construction debt) and by        
OPIC.                                                                           

The Mahanagdong project has commenced construction and as of September 30,
1994, the Company's proportionate share of draws on the construction loan       
totalled $443, equity investments made by a subsidiary of the Company           
totalled $3,899, and the Company has invested $6,711.                           

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The Yuma Cogeneration Associates ("YCA") 50 MW cogeneration power plant   
commenced commercial operation pursuant to its power purchase agreement with    
San Diego Gas & Electric ("SDG&E") at the end of May, 1994. In June 1994        
SDG&E filed a complaint in U.S. District Court seeking to be released from      
its power purchase agreement with YCA. In September 1994 SDG&E dismissed its    
case against the Company without payment by either party. YCA, a wholly owned   
subsidiary of the Company, received all outstanding amounts due from SDG&E.     

LIQUIDITY AND CAPITAL RESOURCES THROUGH DECEMBER 31, 1993                       

The Company's cash and investments were $127,756 at December 31, 1993, as 
compared to $54,671 at December 31, 1992. In addition, the Coso Project         
retained cash and investments on project control accounts, of which the         
Company's share was $14,943 and $8,848 at December 31, 1993 and 1992,           
respectively. Distributions out of the project control accounts are made        
monthly to the Company for operation and maintenance and capital costs and      
semiannually to each Coso Joint Venture partner for profit sharing under a      
prescribed calculation subject to mutual agreement by the partners. In          
addition to these liquid instruments, the Company recorded separately           
restricted cash of $48,105 and $62,514 at December 31, 1993 and 1992,           
respectively. The restricted cash balance in 1993 was comprised primarily of    
the Company's proportionate share of Coso Project cash reserves for debt        
reserve funds and in 1992 included a contingency reserve fund, both of which    
were established in conjunction with the Coso Project's refinancing of its      
previous bank debt.                                                             

Accounts receivable normally represents two months of revenues, and       
fluctuates with both production and price per kWh.                              

The balance due from/to the Coso Joint Ventures relates to operations,    
maintenance, and management fees for managing the Coso Project. This amount     
fluctuates based on the timing of billings and incurrence of costs.             

In December 1992, the Company refinanced the existing bank debt of the    
Coso Project (see Note 5 of the Notes to the Consolidated Financial             
Statements). Coso Funding Corp. ("Funding Corp."), a single-purpose             
corporation, was formed to issue $560,245 of notes for its own account and as   
an agent acting on behalf of Navy I, BLM and Navy II Plants. The proceeds       
were used in part to replace the outstanding Coso Project bank indebtedness     
and to provide funding within the Coso Project for certain reserves. As of      
December 31, 1993 and 1992 the Company's proportionate share of the Coso        
Project loan was $246,880 and $263,604, respectively.                           

The Funding Corp. notes have remaining terms of up to eight years and     
different fixed interest rates for each tranche. The underlying project loans   
have identical terms as the Coso Project loans and are also non-recourse to     
the Company.                                                                    

In connection with the Coso Project refinancing, the Company purchased    
Community Energy Alternatives Incorporated's ("CEA") interest in the Coso       
Project at the close of the Coso Project refinancing (see Note 5 to the Notes   
to the Consolidated Financial Statements).                                      

On June 9, 1993, MPE and the Mission Power Group, subsidiaries of SCE     
Corp., and the Coso Joint Ventures reached a final settlement of all of their   
outstanding disputes and claims relating to the construction of the Coso        
Project. As a result of the various payments and releases involved in such      
settlement, the Coso Joint Ventures agreed to make a net payment of $20,000     
to MPE from the cash reserves of the Coso Project contingency fund and MPE      
agreed to release its mechanics' liens on the Coso Projects. After making the   
$20,000 payment, the remaining balance of the Coso Project contingency fund     
(approximately $49,300) was used to increase the Coso Project debt reserve      
fund from approximately $43,000 to its maximum fully-funded requirement of      
$67,900. The remaining $24,400 balance of the contingency fund was retained     
within the Coso Project for future capital expenditures and for Coso Project    
debt service payments. Since the Coso Project debt service reserve is fully     
funded in advance, Coso Project cash flows otherwise intended to fund the       
Coso Project debt service reserve funds, subject to satisfaction of certain     
covenants and conditions contained in the Coso Joint Ventures' refinancing      
documents, are available for distribution to the Company in its proportionate   
share.                                                                          

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On May 3, 1993, the transmission line dispute was settled and the         
transmission line deposit of approximately $7,700 was released to the           
Company.                                                                        

In June of 1993, the Company issued $100,000 principal amount of 5%       
convertible subordinated debentures (the "Convertible Subordinated              
Debentures"), due July 31, 2000. The Convertible Subordinated Debentures are    
convertible into shares of Common Stock at any time prior to redemption or      
maturity at a conversion price of $22.50 per share, subject to adjustment in    
certain circumstances. Interest on the Convertible Subordinated Debentures is   
payable semiannually in arrears on July 31 and January 31 each year,            
commencing on July 31, 1993. The Convertible Subordinated Debentures are        
redeemable for cash at any time on or after July 31, 1996 at a redemption       
price of (expressed in percentages of the principal amount) 102%, 101%, 100%    
and 100% in 1996, 1997, 1998 and 1999, respectively. The Convertible            
Subordinated Debentures are unsecured general obligations of the Company and    
subordinated to all existing and future senior indebtedness of the Company.     

The Senior Notes, of which $35,730 aggregate principal amount are         
currently outstanding, mature in March 1995 and bear interest at the rate of    
12% per annum, plus contingent interest calculated by reference to the          
Company's share of the cash flow from the Coso Project through December 31,     
1994. Simultaneous with the closing of a proposed offering of Senior Discount   
Notes (see Note 16 of Notes to the Consolidated Financial Statements), the      
Company intends to use approximately $39,000 to defease and provide for the     
repayment of the entire aggregate principal amount of Senior Notes              
outstanding. The Senior Notes prohibit the payment of cash dividends unless     
the Company has a net worth of at least $50,000 after payment of such           
dividends, and dividends do not exceed 50% of accumulated net income            
subsequent to December 31, 1987. The Senior Notes also place restrictions on    
capital expenditures not related to the Coso Project.                           

Proceeds and benefits from warrants and options for shares of Common Stock
exercised in 1993 and 1992 aggregated approximately $1,400 and $8,065,          
respectively. In addition, in September 1993, the Company acquired the Ben      
Holt Co. ("BHC"), a thirty person engineering firm, for a combination of cash   
and Company stock. In connection with this transaction, 87 common shares were   
issued having an aggregate market value of $1,557.                              

The Company repurchased 157 shares of Common Stock during 1993 for the    
aggregate amount of $2,897. The Company purchased common stock to be held as    
treasury stock in anticipation of their reissue upon the exercise of options.   
The Company repurchased 565 shares of Common Stock during 1992 at an            
aggregate amount of $4,887. The shares were reissued during 1992 upon the       
exercise of stock options.                                                      

On October 13, 1992, the Company repurchased, and cancelled, certain      
warrants exercisable for 1,025 shares of unregistered common stock at $2.04     
per share, for a purchase price of $9.16 per share, or approximately $9,389     
in the aggregate. Kiewit Energy Company ("Kiewit Energy") simultaneously        
purchased and exercised other warrants to purchase 600 shares of unregistered   
common stock at $2.04 per share, providing the Company with proceeds of         
$1,200. On October 27, 1992, the Company repurchased and cancelled warrants     
exercisable for 250 shares of unregistered common stock at 2.04 per share,      
for a purchase price of $9.316 per share, or $2,329 in the aggregate.           

On November 15, 1992, the Company called the Company's Series B           
convertible preferred stock, no par value (the "Series B preferred stock"),     
for conversion into common stock. Each share of Series B preferred stock was    
converted into two shares of Common Stock and, accordingly, the Company         
issued 954.9 shares of common stock.                                            

In 1991, the Company and Kiewit Energy signed a stock purchase agreement  
and related agreements (see Note 12 to the consolidated financial statement).   
In addition, in 1991 the Company issued 1,000 shares of its Series C            
redeemable preferred stock to Kiewit Energy for $50,000 per share.              

On March 31, 1993, the Company acquired leases from Unocal on 26,000 acres
of geothermal properties at the Glass Mountain site in Northern California      
which includes three successful production wells.                               

The Company is actively engaged in the acquisition of, and is seeking to  
develop, construct, own and operate power projects utilizing geothermal and     
other technologies, both domestically and internationally,                      

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the completion of any of which is subject to substantial risk. The Company is   
currently pursuing a number of international power project opportunities in     
countries where private power generation programs have been initiated,          
including the Philippines and Indonesia. Development can require the Company    
to expend significant sums for preliminary engineering, permitting, legal and   
other expenses in preparation for competitive bids which the Company may not    
win or before it can be determined whether a project is feasible,               
economically attractive or financeable. Successful development is contingent    
upon, among other things, negotiation of construction, fuel supply and power    
sales contracts with other project participants on terms satisfactory to the    
Company, and receipt of required governmental permits and consents. Further,    
there can be no assurance that the Company will obtain access to the            
substantial debt and equity capital required for the acquisition or             
development and construction of electric power projects. To the extent the      
Company engages in international development efforts, the financing and         
development of projects entails significant political and financial risks       
(including, without limitation, uncertainties associated with first time        
privatization efforts in the countries involved, currency exchange rate         
fluctuations, currency repatriation restrictions, political instability,        
civil unrest and expropriation) and other structuring issues that have the      
potential to cause substantial delays or that the Company may not be fully      
capable of insuring against. There can be no assurance that development         
efforts on any particular project, or the Company's acquisition or              
development efforts generally, will be successful.                              

In particular, the Company is developing a number of international        
projects, for which it may have significant capital requirements. In 1994,      
the Company intends to incur capital expenditures in excess of $40,000 for      
international project development. In addition to its international projects,   
the Company plans to incur domestic geothermal capital expenditures in the      
approximate aggregate amount of $30,000 in 1994. The Company's planned          
capital spending includes, among other things, its share of recurring Coso      
Project capital expenditures, as well as development of the Newberry Project    
in the Pacific Northwest.                                                       

The Company is constructing the Yuma Project, a 50 MW natural gas fired   
cogeneration project in Yuma, Arizona. Engineering and equipment procurement    
commenced in 1993. Capital expenditures of $10,000 are anticipated through      
the completion of the Yuma Project by midyear 1994. The capital expenditures    
will be funded from existing cash balances and the Company's operating cash     
flows.                                                                          

Inflation has not had a substantial impact on the Company's operating     
revenues and costs. The Coso Project's energy payments for electricity will     
continue to be based upon scheduled rate increases through the initial          
ten-year period of each SO4 Agreement. Prior to the Coso Project refinancing,   
the project loans relating to the Coso Project were generally for periods up    
to twelve months at LIBOR plus a specified margin. Accordingly, the interest    
rates on the loans varied and over the operating period resulted in             
fluctuating interest payments. The refinanced Coso Project debt has fixed       
interest rates.                                                                 

ADOPTION OF FINANCIAL ACCOUNTING STANDARD NO. 109                               

On January 1, 1993, the Company adopted FAS 109. The adoption of FAS 109  
changes the Company's method of accounting for income taxes from the deferred   
method as required by Accounting Principles Board No. 11 to an asset and        
liability approach. Under FAS 109, the net excess deferred tax liability as     
of January 1, 1993 was determined to be $4,100. This amount is reflected in     
1993 income as the cumulative effect of a change in accounting principle. It    
primarily represents the recognition of the Company's tax credit                
carryforwards as a deferred tax asset. There was no cash impact to the          
Company upon the required adoption of FAS 109. Under FAS 109, the effective     
tax rate utilized increased at the time of adoption as a result of the tax      
credit carryforwards being recognized as an asset and unavailable to reduce     
the current period's effective tax rate for computing the Company's provision   
for income taxes. The effective tax rate continues to be less than the          
statutory rate primarily due to the depletion deduction and the generation of   
energy credits in 1993. The significant components of the deferred tax          
liability are the temporary differences between the financial reporting bases   
and income tax bases of the power plant and the well and resource development   
costs, and in addition, the offsetting benefits of operating loss               
carryforwards and investment and geothermal energy tax credit and alternative   
minimum tax carryforwards.                                                      

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MAGMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL   
CONDITION AND RESULTS OF OPERATIONS   

RESULTS OF OPERATIONS: THIRD QUARTER 1994 COMPARED TO THIRD QUARTER 1993        

Revenues. Total revenues for the third quarter of 1994 were up $1,568,000 
or 3% to $58,883,000 as compared to $57,315,000 for the same period last        
year. This increase was made up primarily of increases in the sales of          
electricity, interest income and other income.                                  

Sales of Electricity. Revenues from the sale of electricity increased     
$918,000 in the third quarter of 1994 to $50,592,000. The revenue gain was      
due to a 7.9% increase in the payments for "energy" under the ISO4 contracts    
of the four Magma Partnership Plants. The "energy" payments under the ISO4      
contracts of two of the three Salton Sea Plants are "levelized" during their    
Initial Terms. The third Salton Sea Plant does not have an ISO4 contract.       
Under its "negotiated contract," the energy and capacity payments adjust        
quarterly pursuant to a basket of price indices. The "capacity" payments        
received by all plants were essentially unchanged during the period.            

During the third quarter of 1994 and 1993, the combined "contract" and    
"nameplate" capacity factors of the Magma Partnership Plants are shown in the   
table below:                                                                    

                                                                [Download Table]

                                                          THIRD QUARTER   
                                                      --------------------
                                                         1994       1993  
                                                      ---------  ---------
                                                                          
Total Kilowatt Hours produced (kWh amounts in 000s)     352,564    349,201
Contract Capacity Factor(1) .........................   121.4%     120.3% 
Nameplate Capacity Factor(1) ........................   107.9%     106.9% 

During the third quarter of 1994, the "contract" and "nameplate" capacity       
factors of the three Salton Sea Plants combined are as shown in the table       
below:                                                                          

                                                                [Download Table]

                                                          THIRD QUARTER   
                                                      --------------------
                                                         1994       1993  
                                                      ---------  ---------
                                                                          
Total Kilowatt Hours produced (kWh amounts in 000s)     162,059    167,603
Contract Capacity Factor(1) .........................   101.2%     104.7% 
Nameplate Capacity Factor(1) ........................    92.2%      95.1% 
<FN>                                                                      
----------                                                                
(1) Does not exclude scheduled maintenance hours. Calculation is based on 
 a 92-day (2,208 hours) third quarter.                                    

Interest and Other Income. Interest and other income increased $494,000, a
55% increase compared to interest and other income for the same period of the   
prior year, reflecting the higher cash balances available for investment and    
the higher short-term interest rate environment. Cash available for             
investment during the same period of the prior year was lower due to the use    
of cash in connection with the acquisition of the Salton Sea Plants from        
Unocal.                                                                         

Costs and Expenses. In the third quarter of 1994, total costs and expenses
were $25,744,000 compared to costs and expenses for the same period in 1993     
of $26,532,000. This 3% decrease in total costs and expenses was composed       
primarily of decreases in plant operating costs and depreciation of             
$1,681,000 and $499,000, respectively, and increases of $818,000 in general     
and administrative expense and $577,000 in interest expense.                    

The decrease in plant operating costs reflects the realization of certain 
efficiencies by integrating the operations of the Magma Partnership and         
Salton Sea Plants and the favorable results of Magma's ongoing efforts to       
reduce operating costs.                                                         

The $818,000 increase in general and administrative costs reflects Magma's
continued devotion of more of its resources towards expansion of business       
development activities by increasing staff and support services to facilitate   
the planned growth of Magma.                                                    

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The $577,000 increase in interest expense reflects the effect of higher   
borrowing costs due to higher market interest rates. Currently, approximately   
84% of Magma's consolidated debt is floating rate debt.                         

Net Income. Net income was 12% higher at $22,849,000 in the third quarter 
of 1994 as compared to $20,453,000 in the corresponding period of the prior     
year. The increase in net income reflects the increase in electricity           
revenues and interest income and the decrease in total costs and expenses.      

NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO NINE MONTHS ENDED SEPTEMBER    
30, 1993                                                                        

Revenues. Total revenues for the first nine months of 1994 were up        
$21,323,000 or 17% to $146,104,000 as compared to $124,781,000 for the same     
period of the prior year. This increase was made up primarily of an increase    
in the sales of electricity.                                                    

Sales of Electricity. Revenues from the sale of electricity increased     
$20,767,000 in the first nine months of 1994 to $124,086,000 primarily due to   
the inclusion of the revenues of the Salton Sea Plants for the full nine        
months of 1994. The Salton Sea Plants contributed $15,311,000 of this revenue   
gain. The balance of the revenue gain of $5,456,000 was produced by the four    
Magma Partnership Plants by way of a 1% increase in the megawatt hours          
delivered and an increase in the price paid for "energy" under their ISO4s      
with SEC. The annual time period weighted average price of "energy" under the   
Magma Partnership Plants ISO4s increased 7.9% in 1994 to 10.9 cents per kWh.    
The energy payments under the ISO4 contracts of two of the Salton Sea Plants    
are "levelized" during their Initial Terms. The third Salton Sea Plant does     
not have an ISO4 contract. Under its "negotiated" contract, both the energy     
and capacity payments adjust quarterly based on a basket of price indices.      
The "capacity" payments received by all plants were essentially unchanged       
during the first nine months of 1994 compared to 1993.                          

The combined "contract" and "nameplate" capacity factors of the Magma     
Partnership Plants are shown in the table below:                                

                                                        [Enlarge/Download Table]

                                                          FIRST NINE MONTHS       FISCAL YEAR
                                                      ------------------------  -------------
                                                          1994         1993          1993    
                                                      -----------  -----------  -------------
                                                                                             
Total Kilowatt Hours produced (kWh amounts in 000s)     1,017,707  968,941         1,305,700 
Contract Capacity Factor(1) .........................     118.1%   112.5%            113.3%  
Nameplate Capacity Factor(1) ........................     105.0%    99.9%            100.7%  
<FN>                                                                                         
---------                                                                                    
(1) Does not exclude scheduled maintenance hours. Calculation is based on                    
a 273 day (6,552 hour) nine month period in 1994 and 1993.                                   

The combined "contract" and "nameplate" capacity factors of the three     
Salton Sea Plants during the period are shown in the table below:               

                                                        [Enlarge/Download Table]

                                                        NINE MONTHS     NINE MONTHS  
                                                       ENDED DECEMBER  ENDED DECEMBER
                                                          31, 1994        31, 1993   
                                                      --------------  -------------- 
                                                                                     
Total Kilowatt Hours produced (kWh amounts in 000s)       474,704         495,800    
Contract Capacity Factor(1) .........................       99.9%          103.6%    
Nameplate Capacity Factor(1) ........................       90.8%           94.1%    
<FN>                                                                                 
----------                                                                           
(1) Does not exclude scheduled maintenance hours. Calculation is based on            
a 273-day (6,552 hours) nine month period in 1994 and a nine month period            
(6,600 hours) ended December 31, 1993.                                               

Interest and Other Income. Interest and other income increased $231,000, a
6% increase compared to interest income for the same period of the prior        
year, primarily due to higher investment earnings, reflecting the higher cash   
balances available for investment and the higher short-term interest rate       
environment.                                                                    

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Costs and Expenses. In the first nine months of 1994, total costs and     
expenses increased $11,365,000, a 17% increase, compared to costs for the       
same period in 1993. This increase was composed primarily of a $4,586,000       
increase in plant operating costs, a $2,288,000 increase in depreciation, a     
$2,131,000 increase in general and administrative expense, and a $2,381,000     
increase in interest expense. The increase in plant operating costs and         
depreciation primarily reflects the cost of operating the Salton Sea Plants     
for nine months in 1994 compared to six months in 1993.                         

The $2,131,000 increase in general and administrative costs reflects      
Magma's continued devotion of more of its resources towards expansion of        
business development activities by increasing staff and support services to     
facilitate the planned growth of Magma.                                         

The $2,381,000 increase in interest expense over the corresponding period 
of 1994 reflects the increased cost of borrowings to finance the acquisition    
of the Salton Sea Plants. Interest expense related to the Magma Partnership     
Plants declined as a result of lower partnership weighted-average borrowings    
during the first nine months of 1994 as compared to the same period of the      
prior year.                                                                     

Provision for Income Taxes. Magma's effective tax rate in the first nine  
months of 1994 was 31 percent which was comparable to the rate in the same      
period of the prior year.                                                       

Net Income. Net income was 19% higher at $46,843,000 for the first nine   
months of 1994 as compared to $39,469,000 in the corresponding period of the    
prior year. The increase in net income reflects the addition of the earnings    
of the Salton Sea Plants for nine months in 1994 compared to six months in      
1993 as well as the higher ISO4 electricity revenues received by the            
Partnership Plants.                                                             

RESULTS OF OPERATIONS: 1993 COMPARED TO 1992                                    

Revenues. Magma's operating revenues (total revenues excluding interest   
and other income) in 1993 increased $62,630,000 to $162,943,000. This           
increase was made up of an increase in the sales of electricity, an increase    
in royalties received from the Vulcan, Hoch, Elmore and Leathers plants (the    
"Partnership Plants") and an increase in management services fees earned for    
providing services to the Partnership Plants and a decrease in royalties        
received from third-party owned and operated geothermal power plants.           

Sales of Electricity. Revenues from the sale of electricity in 1993       
increased $65,646,000 to $137,882,000 primarily due to the inclusion of the     
revenues of the three power plants (the "Salton Sea Plants") acquired from      
Union Oil Company of California ("Unocal"), as of March 31, 1993. The Salton    
Sea Plants contributed $60,158,000 of the electricity revenue gain. The         
balance of $5,488,000 was produced by the Partnership Plants and was due to     
both an increase in the price paid for energy under their Interim Standard      
Offer No. 4 ("ISO4") long-term power purchase contracts with Southern           
California Edison Company ("SCE") and an increase in the number of megawatt     
hours produced. The annual time period weighted average price of energy under   
the Partnership Plants' ISO4s increased 8.6% in 1993 to 10.1cents per           
kilowatt hour ("kWh"). The number of megawatt hours produced by these plants    
increased 2.6% in 1993.                                                         

In addition to the energy payments, the Partnership Plants receive the    
following separate payments for capacity based on the contract capacities       
specified in their respective ISO4s: Vulcan--$158 per kilowatt year,            
Hoch--$198 per kilowatt year, Elmore--$198 per kilowatt year and                
Leathers--$187 per kilowatt year. Unlike the energy payments which escalate     
each year for the first ten years pursuant to schedules attached to the ISO4s   
and then convert to SCE's then published avoided cost of energy, the capacity   
payments are fixed for the full 30-year term of the ISO4s. The contract         
capacities specified in the ISO4s for the Vulcan, Hoch, Elmore and Leathers     
plants are 29,500, 34,000, 34,000 and 34,000 kilowatts, respectively.           

The ISO4s for the Vulcan, Hoch, Elmore and Leathers plants also specify a 
nameplate rating. The specified nameplate ratings for these plants are          
34,000, 38,000, 38,000 and 38,000 kilowatts, respectively.                      

The Partnership Plants are 50% owned by Magma and the newly acquired      
Salton Sea Plants are 100% owned by Magma. Two of the Salton Sea Plants have    
an ISO4 with SCE and the third has a non-standard offer long-term power         
purchase contract (a "Negotiated Contract") with SCE. Each of the Salton Sea    
Plants earns an energy payment. For the 10 MW, Salton Sea Plant I, the energy   
payment under its                                                               

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Negotiated Contract averaged 4.8cents per kWh in the nine months ended          
December 31, 1993. This energy payment adjusts quarterly based on a basket of   
indices for the 30-year term of its power purchase agreement with SCE. For      
the 20 MW, Salton Sea Plant 2, and the 49.8 MW, Salton Sea Plant 3, the         
energy payments under their ISO4 contracts are levelized for the first ten      
years at a time period weighted average of 10.6cents and 9.8cents per kWh,      
respectively. The first ten years expires in 1999 for Salton Sea Plant 3 and    
in 2000 for Salton Sea Plant 2.                                                 

Each of the Salton Sea Plants also receives the following capacity        
payments based on the contract capacity specified in its power purchase         
agreements with SCE: Salton Sea Plant 1--$123.61 per kilowatt year, Salton      
Sea Plant 2--$187.00 per kilowatt year and Salton Sea Plant 3--$175.00 per      
kilowatt year. The contract capacities specified in the power purchase          
agreements for the Salton Sea Plants are 10,000, 15,000 and 47,500 kilowatts,   
respectively. The capacity payments for Salton Sea Plants 2 and 3 are fixed     
for the full 30-year term of their ISO4s, while the capacity payment for        
Salton Sea Plant 1 adjusts quarterly based on a basket of indices for the       
full 30-year term of its Negotiated Contract.                                   

The power purchase agreements for the Salton Sea Plants also specify a    
nameplate rating. The specified nameplate ratings of these plants are 10,000,   
20,000 and 49,800 kilowatts, respectively.                                      

Royalties. Magma's royalty revenues from the Partnership Plants increased 
in 1993, while royalties received from third-party plants decreased. The        
decrease in third-party royalties was due to the one-time recognition in 1992   
of $7,900,000 of earned but unpaid Jr. SO4 payments from the GEO East Mesa      
plant. Since 1989, Magma has received Sr. SO4 payments from the East Mesa       
plant on a current basis. However, Jr. SO4 payments have gone unpaid pending    
conversion of the plant's construction loan to permanent financing. Due to      
the strong operating and financial performance and cash flow of the East Mesa   
plant, Magma recognized as royalty income in 1992 the $7,900,000 of Jr. SO4     
payments which had accrued since the East Mesa plant's start-up. In 1993        
Magma recognized as royalty income $3,190,000 of accrued Jr. SO4 payments       
from the East Mesa plant. Although no Jr. SO4 payments have been received by    
Magma, loan conversion is expected during the first half of 1994 at which       
time substantially all of the accrued Jr. SO4 payments are expected to be       
received.                                                                       

Royalties from the Partnership Plants, the major source of Magma's royalty
income, increased $1,225,000 or 10.5% in 1993 to $12,877,000. The increase      
resulted from the increased energy revenues in 1993.                            

Management Services. Revenues received for management services increased  
$284,000 in 1993, due to an increase in the incentive fees received from the    
Hoch, Elmore and Leathers plants for operating the facilities above certain     
predetermined targets and an increase in the administrative fees received       
from the four Partnership Plants, reflecting the higher electricity revenues    
received by these plants in 1993.                                               

Interest and Other Income. Interest and other income decreased $4,458,000,
or 52%, in 1993 to $4,195,000 due to lower investment earnings, reflecting      
the lower short-term interest rate environment and the reduction in Magma's     
cash and marketable securities due to the purchase, in March of 1993, of the    
Unocal geothermal properties and assets.                                        

Costs and Expenses. Total costs and expenses increased $32,926,000 in     
1993, a 56% increase primarily due to the acquisition of the Salton Sea         
Plants from Unocal. This increase was composed primarily of a $16,235,000       
increase in plant operating costs, a $9,765,000 increase in depreciation, a     
$4,460,000 increase in general and administrative expense and a $2,795,000      
increase in interest expense.                                                   

Plant Operating Costs and Depreciation. The increase in plant operating   
costs and depreciation primarily reflects the additional cost of operating      
and maintaining the Salton Sea Plants acquired from Unocal. Of the              
$16,235,000 increase in plant operating costs in 1993, $16,191,000 was          
attributable to the nine months operation of the newly acquired Salton Sea      
Plants. Similarly, of the $9,765,000 increase in depreciation, $8,156,000       
related to the Salton Sea Plants.                                               

Controllable operating costs for the Partnership Plants (total costs less 
depreciation, interest, management fees and royalties) increased by less than   
1% over the prior year and, on a per kilowatt hour                              

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basis, have decreased in 1993 to 4.3cents per kWh from 4.4cents per kWh in      
1992. Magma has established a goal of significantly reducing controllable       
operating costs over the next five years for its plants at the Salton Sea by    
applying newly developed material and process technologies and the further      
realization of the efficiencies gained through its acquisition of the Salton    
Sea Plants from Unocal. The goal is to reduce these costs to less than          
3.0cents per kWh over the next five years.                                      

General and Administrative. General and administrative costs increased    
from $6,483,000 in 1992 to $10,943,000 in 1993, an increase of $4,460,000.      
Magma continued to devote more resources to expansion of business development   
activities by increasing staff and related costs, which is directed toward      
development of international geothermal power projects, and support services    
to facilitate the planned growth of Magma.                                      

Interest Incurred. Interest expense increased by $2,795,000, in 1993 to   
$9,626,000, reflecting the cost of the $140,000,000 one-year term loan          
("Bridge Loan") incurred in the acquisition of the Unocal geothermal assets.    
Interest expense related to the Partnership Plants actually declined in 1993    
as a result of a lower level of partnership debt and lower market interest      
rates. Excluding the Bridge Loan, Magma's weighted average interest rate of     
5.6% during 1993 compared favorably with the corresponding rate of 6.7% in      
1992.                                                                           

Interest expense in 1994 is expected to be higher than in 1993 reflecting 
principally the replacing of the Bridge Loan on February 28, 1994 with a        
non-recourse $130,000,000 six-year term loan. The term loan is a "project       
level loan", that is, a loan arranged by Magma's subsidiaries owning the        
Salton Sea Plants and secured by their assets with no recourse to Magma.        
Magma believes that through non-recourse project level debt, typically more     
expensive than corporate level recourse loans, it retains more flexibility in   
financing future growth.                                                        

Provision for Income Taxes. In 1992 Magma adopted Statement of Financial  
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").       
SFAS 109 changed the manner in which Magma accounted for the tax benefit of     
certain items such as operating loss and tax credit carryforwards. The          
cumulative effect of this change increased net income approximately             
$17,833,000 or $.77 per share in 1992, and is reported separately in the        
consolidated statement of operations. As a result of this change Magma's        
effective tax rate increased in 1993, and will increase in future years as      
well, over what it would have been but for the change, since the future tax     
benefit of operating loss and tax credit carryforwards was recognized in 1992   
in the cumulative effect adjustment.                                            

Magma's tax provision in 1993, as a percentage of earnings before tax,    
increased to 30.4% from the 1992 rate of 26.8% due to higher operating          
profits in 1993 as a result of the earnings contribution of the newly           
acquired Salton Sea Plants and recognition of the 1% increase in the Federal    
statutory corporate tax rate in the current tax provision and the               
corresponding adjustment to recognize the effect of the rate increase on the    
deferred tax liability. Magma's 1994 provision for income taxes is expected     
to be approximately 32%.                                                        

Net Income. Magma's 1992 net income of $54,191,000 included a positive    
adjustment of $17,833,000 to reflect the cumulative effect of adopting SFAS     
No. 109. Before the cumulative effect of the accounting change, 1992's net      
income was $36,358,000. Magma's 1993 net income increased by $15,777,000 or     
43% to $52,135,000 from 1992's net income before the cumulative effect of the   
accounting change. The 1993 increase in net income reflects the addition of     
the earnings of the Salton Sea Plants acquired from Unocal, as well as the      
higher ISO4 electricity revenues received by the Partnership Plants.            

RESULTS OF OPERATIONS: 1992 COMPARED TO 1991                                    

Revenues. Magma's operating revenues increased $16,178,000 in 1992 to     
$100,313,000 from $84,135,000 in 1991. This increase was made up of an          
increase in the sales of electricity, an increase in royalties received from    
the Partnership Plants and third-party owned and operated geothermal power      
plants and an increase in management services fees earned for providing         
services to the Partnership Plants.                                             

Sales of Electricity. Revenues from the sale of electricity increased     
$6,221,000 in 1992 to $72,236,000 due primarily to an increase in the price     
for energy under the ISO4s and a 4.4% increase in kilowatts delivered to SCE.   
The average price for energy under the ISO4s increased 8.1% in 1992 to          
9.3cents per kWh.                                                               

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Royalties. Magma's royalty revenues increased $9,318,000 in 1992 to       
$22,929,000, $1,050,000 of the increase resulted from the increased energy      
revenues of the Partnership Plants in 1992. The remainder of the increase or    
$8,268,000 came as the result of higher royalty income recognized from          
third-party owned and operated plants of which $7,900,000 was due to the        
recognition of accrued royalties ("Jr. SO4 payments") from the GEO East Mesa    
geothermal power plant. Since 1989, Magma has received the senior portion of    
the royalties ("Sr. SO4 payments") from the East Mesa plant on a current        
basis, however, the Jr. SO4 payments have gone unpaid pending conversion of     
the plant's construction loan to permanent financing. Due to the strong         
performance and cash flow of the East Mesa plant in 1992 and the expected       
conversion of the plant's construction loan, Magma elected to recognize the     
accrued Jr. SO4 payments as royalty income.                                     

Management Services. Revenues received for management services provided to
the Partnership Plants increased $639,000 in 1992, due primarily to a           
$402,000 increase in the incentive fees received from the Hoch, Elmore and      
Leathers plants for operating the facilities above certain predetermined        
targets, and a $216,000 increase in the fees received from the Partnership      
Plants by Magma's wholly-owned subsidiary, Desert Valley Company, for           
disposal of drilling muds and cuttings and silica cake at its monofill, a       
single purpose landfill owned and operated by Desert Valley.                    

Interest and Other Income. Interest and other income decreased $2,103,000 
in 1992 to $8,653,000. In spite of higher cash balances available for           
investment, interest and other income decreased compared to the prior year      
reflecting the lower short-term interest rate environment.                      

Costs and Expenses. Total costs and expenses in 1992 increased $5,612,000,
a 10.5% increase, over 1991. This increase was comprised primarily of a         
$5,905,000 increase in plant operating costs, including depreciation and        
amortization, a $549,000 increase in general and administrative expense,        
offset by a $1,696,000 decrease in interest expense.                            

Plant Operating Costs. The increase in plant operating costs reflected the
increased costs in 1992 of processing geothermal fluids and collecting and      
disposing of geothermal solids and maintaining the well field and geothermal    
reservoir supporting the Partnership Plants.                                    

General and Administrative. General and administrative costs increased    
from $5,934,000 in 1991 to $6,483,000 in 1992, an increase of $549,000. Magma   
continues to direct more financial resources to business development and        
governmental relations.                                                         

Interest Incurred. Interest expense declined as a result of lower         
partnership weighted average borrowings during 1992 and the effect of lower     
borrowing costs, because of lower market interest rates. Magma's weighted       
average interest rate of 6.7% during 1992 compares favorably with the           
corresponding rate of 8.0% in the prior year.                                   

Provision for Income Taxes. In 1992 Magma adopted SFAS 109. Prior to 1992,
the provision for income taxes was based on income and expenses included in     
the accompanying consolidated statement of operations. Under SFAS 109,          
deferred tax assets and liabilities are determined based on the difference      
between the financial statement and the tax basis of the assets and             
liabilities using enacted tax rates in effect for the year in which             
differences are expected to reverse. SFAS 109 changed the manner in which       
Magma accounted for the tax benefit of certain items such as operating loss     
and tax credit carryforwards. Accordingly, the cumulative effect of this        
change in accounting for income taxes, adopted as of the beginning of 1992,     
increased net income approximately $17,833,000 or $.77 per share, and is        
reported separately in the consolidated statement of operations. The            
financial statements for 1991 have not been restated to reflect SFAS 109.       

Magma's tax provision, as a percentage of earnings before tax, was higher 
in 1992 as a result of the adoption of SFAS 109. The effect of applying SFAS    
109 in 1992 was to decrease net income before the cumulative effect of          
adopting SFAS 109 by approximately $2,821,000 or $.12 per share. Magma's 1992   
effective tax rate was 26.8% following the adoption of SFAS 109 rather than     
21.1% under the previous accounting treatment. Magma's effective tax rate       
will continue to be significantly higher in the future, since the tax benefit   
of operating loss and tax credit carryforwards, which could have been           
expected to reduce future tax provisions, has been recognized in 1992 in the    
cumulative effect adjustment.                                                   

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Net Income. Net income increased $20,250,000 in 1992 to $54,191,000. Of   
this increase $17,833,000 is attributable to the cumulative effect of           
adopting SFAS No. 109. In addition, higher net income reflects higher           
revenues from the sale of electricity, Magma's core business, higher royalty    
income from third-party owned and operated royalty plants including the         
recognition of $7,900,000 in accrued Jr. SO4 payments from the GEO East Mesa    
geothermal power plants and lower interest expense incurred on partnership      
non-recourse debt. The higher revenues and lower interest expense were          
offset, in part, by lower interest and other income, higher plant operating     
costs and a higher tax provision than would have been recorded under the        
previous accounting standard. The lower interest income and interest expense    
reflects the generally lower market rates of interest.                          

Acquisition and New Project Costs. Magma purchased, on March 31, 1993, all
of Unocal's geothermal interests in the Imperial Valley of California,          
including three operating geothermal power plants, 40,600 acres of geothermal   
leases and an option to develop and sell an additional 20MWs of geothermal      
power to SCE. The total cost of the acquisition was $248,200,000 (subject to    
certain post-closing adjustments) which included $6,686,000 for certain         
current assets and liabilities assumed by Magma, $3,489,000 of interest         
incurred on the unpaid purchase price from January 1, 1993 through the          
closing date, advisory fees and transaction costs of $3,400,000, and a          
$10,000,000 reserve for future capital expenditures for certain improvements    
to the assets. The total purchase price was paid utilizing both Company cash    
and the proceeds from a $140,000,000 Bridge Loan. The acquired assets           
contributed to Magma's revenues and earnings as of April 1, 1993.               

In addition, in separate transactions, Magma purchased from Unocal for an 
additional $1,000,000 interest in approximately 12,000 acres of geothermal      
leases in central California near Mammoth, California (the "Long Valley         
Leases") and its interest in approximately 58,300 acres of geothermal leases    
in Nevada. Simultaneously, Magma sold a two-thirds interest in the Long         
Valley Leases to two independent power developers.                              

On March 11, 1992 Magma acquired a 30-year modified ISO4 Power Purchase   
Agreement to sell 14MWs of capacity and 16MWs of energy to SCE using            
geothermal resources from leases at Fish Lake, Nevada. Magma is currently       
engaged in exploratory and well field development activities, which are         
preparatory to constructing a power plant. Three wells have been drilled,       
which could be used as production wells for the future plant.                   

LIQUIDITY AND CAPITAL RESOURCES                                                 

Operations and development activities have been financed with working     
capital, the sale of common stock for cash and services, secured and            
unsecured, loans and non-recourse loans from commercial banks.                  

Magma has geothermal projects in the development stage, both domestic and 
international, which it intends to finance with a combination of                
Magma-supplied equity and non-recourse project debt. These development stage    
projects will require significant equity contributions from Magma during the    
next five years. Magma believes that its cash reserves, augmented by cash       
flow from its current operations, will be sufficient to fund these equity       
contributions.                                                                  

Magma financed the Unocal acquisition with its own cash and with the      
proceeds from the $140,000,000 Bridge Loan. On February 28, 1994 the Bridge     
Loan was repaid, utilizing both Magma cash and the proceeds from a              
non-recourse project level six-year term loan of $130,000,000 collateralized    
by substantially all of the assets and power purchase contracts of the three    
Salton Sea Plants acquired from Unocal (the "$130,000,000 Term Loan"). In       
addition, a $5,000,000 working capital line of credit has been provided to      
the subsidiaries owning the plants by two of the banks participating in the     
$130,000,000 Term Loan. No loans against the working capital line of credit     
have been made.                                                                 

Magma's cash and marketable securities at December 31, 1993 totalled      
$73,022,000 of which $50,103,000 was available for general corporate uses.      
The remainder of $22,919,000 is Magma's share of cash and marketable            
securities of the four partnerships which own the four Partnership Plans        
operated by Magma. These funds are earmarked for the working capital needs of   
each of the partnerships. Restrictions in the secured credit agreements for     
the Hoch, Elmore and Leathers plants and the $130,000,000 Term Loan for the     
Salton Sea Plants place limits on distributions of cash by the partnerships     
to Magma.                                                                       

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In addition, at December 31, 1993, Magma had non-current investments      
totalling $47,642,000 consisting of $32,302,000 in securities with maturities   
greater than one year, which are liquid, and $15,340,000 of other               
investments, which are not liquid.                                              

At December 31, 1993, long-term obligations were $189,209,000, a          
$103,375,000 increase over year-end 1992. The increase reflects the             
replacement on February 28, 1994 of the $140,000,000 one-year Bridge Loan,      
with the six-year $130,000,000 Term Loan. The increase in long-term             
obligations was partially offset by a reduction of $9,028,000 in Magma's        
pro-rata share of partnership debt for the Hoch, Elmore and Leathers plants.    
Partnership debt is non-recourse to Magma.                                      

Magma has an unused and available line of credit with Morgan Guaranty     
Trust Company of New York of $25,000,000.                                       

Cash and marketable securities at September 30, 1994 totaled $74,198,000  
of which $48,720,000 was available for general corporate use. The remainder     
of $25,478,000 is Magma's share of the cash and marketable securities of the    
"Magma Partnerships," the four separate partnerships which are jointly owned    
by Magma and Mission Energy Company and which own the Partnership Plants, and   
the cash and marketable securities of the Salton Sea Partnerships, the 100%     
owned Magma partnerships which own the three Salton Sea plants acquired from    
Unocal (the "Salton Sea Plants"). Certain portions of these funds are           
earmarked for the working capital needs of the plants. In addition, the         
secured credit agreements for the Hoch, Elmore and Leathers Partnership         
Plants and the Term Loan for the Salton Sea Plants place limits on              
distributions of cash.                                                          

Non-current investments at September 30, 1994, totaled $41,245,000        
consisting of $29,676,000 in marketable securities with maturities greater      
than one year which are liquid and $11,569,000 of other investments, which      
are not liquid.                                                                 

At September 30, 1994, loans payable (including amounts currently due)    
were $188,969,000, a $37,039,000 decrease over year end 1993. The decrease      
reflects the $10,000,000 debt reduction that occurred on February 28, 1994      
when the $140,000,000 Bridge Loan was replaced with the $130,000,000 Term       
Loan and a $9,992,000 reduction in Magma's pro-rata share of Magma              
Partnership debt, a $15,692,000 reduction in Salton Sea Partnership debt, and   
a $1,355,000 reduction in other debt. The Magma Partnerships debt and the       
$130,000,000 Term Loan are both non-recourse to Magma Power Company and its     
subsidiaries. The ratio of debt to debt-plus-equity at September 30, 1994       
(inclusive of non-recourse debt) was 34 percent compared to 40 percent at       
December 31, 1993. Magma has an unused and available line of credit with        
Morgan Guaranty Trust Company of $25,000,000 at September 30, 1994.             

Six of the seven geothermal power plants operated by Magma sell           
electricity to SCE under Interim Standard Offer No. 4 "ISO4" long-term power    
purchase contracts. Each ISO4 contract provides for both capacity payments      
and energy payments. The capacity payments remain constant throughout the       
life of each ISO4 contract. During each of the first 10 years of operation      
(the "Initial Term"), the energy payments are fixed pursuant to the terms of    
the ISO4 contract. Thereafter, the energy payments are SCE's then-current       
published avoided cost of energy. In 1994 the time period weighted average      
price for energy for the six plants combined is approximately 10.6 cents per    
kWh. For September 1994, SCE's avoided cost of energy was 2.2 cents per kWh.    
Estimates of SCE's future avoided cost of energy vary substantially, but it     
is expected to remain substantially below such contract energy prices. Thus,    
the revenues generated by each of Magma's six plants operating under ISO4       
contracts are likely to decline significantly after their respective initial    
terms expire. Such decline could have a material adverse effect on Magma's      
results of operation. The initial terms expire in 1996 as to 34 megawatts of    
nameplate generation, in 1999 for 126 megawatts of nameplate generation and     
in 2000 for the remaining 58 megawatts of nameplate generation under ISO4       
contracts.                                                                      

The seventh and smallest plant (approximately 10 megawatts) sells         
electricity to SCE under a negotiated power purchase contract (the              
"Negotiated Contract"). The energy payment under the Negotiated Contract was    
4.8 cents per kWh in the third quarter of 1994. The capacity payment was        
approximately 1.7 cents per kWh in the third quarter of 1994. Both the energy   
and capacity payments adjust quarterly based on a basket of indices for the     
30-year term of the Negotiated Contract.                                        

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Magma's strategy is to mitigate the adverse impact of potentially lower   
revenues in the future from its six plants with ISO4 contracts by               
aggressively seeking out and developing new power generation projects in both   
the United States and abroad, seeking out additional strategic acquisitions,    
and continuing to find new ways to significantly reduce plant operating costs   
for its existing as well as any new plants. The competition for new power       
purchase contracts is intense, however, and any contracts Magma is able to      
secure in the future, whether in the United States or abroad, are likely to     
be on terms and conditions that are substantially less favorable than those     
provided in Magma's current ISO4 contracts.                                     

Other than as described herein and as subject to the ISO4 contract terms  
regarding payments for energy after its initial ten-year term (see "Magma       
Management's Discussion and Analysis of Financial Condition and Results of      
Operations--Future Rates") Magma is not aware of any trends or known demands,   
events or uncertainties that would result in or that are reasonably likely to   
result in a material change in Magma's liquidity or capital resources, other    
than the development activities mentioned above.                                

SEASONALITY                                                                     

The ISO4 contracts held by Magma reflect a seasonal variation in rates for
both energy and capacity. The ISO4 rates are higher in the summer months        
(i.e., June through September) to correspond with SCE's peak system load and    
are lower in the winter months. Similarly, the rates are higher during peak     
hours than they are during the off-peak hours (night time, weekends and         
holidays). Consequently, Magma strives to operate its geothermal power plants   
at the highest possible output during the peak months and peak hours to take    
advantage of the higher rates, and to conduct maintenance during non-peak       
months and the off-peak hours (especially during the eight winter off-peak      
months). Thus, Magma's monthly revenues from the sale of electricity are        
generally higher from June through September of each year.                      

INFLATION                                                                       

During the period that Magma has been engaged in business, general        
inflation has not had a substantial impact on Magma's operating revenues and    
costs. However, if Magma were to construct a new geothermal power plant at      
the Salton Sea of the same size and using the same technology as its existing   
plants, the capital cost of such plant would be significantly higher than       
that of any of the existing Salton Sea plants. Also, any general increase in    
interest rates will increase the interest expense of the Hoch, Elmore and       
Leathers plants and the Salton Sea Plants.                                      

FUTURE RATES                                                                    

Each of the Partnership Plants sells electricity to SCE under ISO4        
contracts. For the first ten years the price paid for energy under these        
ISO4s is fixed and escalates at an average rate of 7.5% per year. The price     
paid for capacity (including bonus capacity), on the other hand, is fixed for   
the entire 30-year term of the ISO4s at approximately 2.5 cents per kWh         
(assuming a 90% nameplate capacity factor). In 1994, the time period weighted   
average of the energy payments for each of the Partnership Plants is            
10.9 cents per kWh, which along with the fixed capacity payments results in a   
total time period weighted average price for electricity of approximately       
13.4 cents per kWh.                                                             

Two of the Salton Sea Plants sell electricity to SCE pursuant to ISO4     
contracts under which the capacity payments (including bonus capacity) are      
fixed for the full 30-year term of the ISO4s at approximately 2.4 cents per     
kWh (assuming a 90% nameplate capacity factor). During the first 10 years of    
these two ISO4s, the energy payments are fixed (and do not escalate) at a       
time period weighted average of 9.8cents per kWh for the 49.8MW Salton Sea      
Plant 3 and 10.6 cents per kWh for the 20MW Salton Sea Plant 2, which along     
with their fixed capacity payments results in a total time period weighted      
average price of electricity of approximately 12.2 cents and 13 cents per kWh,  
respectively.                                                                   

Starting in 1996 for the Vulcan plant, 1999 for the Hoch, Elmore and      
Salton Sea Plant 3 and 2000 for the Leathers and the Salton Sea Plant 2, the    
price for energy under the ISO4 contracts for these plants will automatically   
convert to the SCE's then-current published avoided cost of energy. As a        
result, the price paid by SCE for a kWh of electricity under these ISO4s will   
be composed of the capacity payments                                            

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per kWh described above and an energy payment based on SCE's avoided cost of    
energy. In 1993, SCE's time period weighted average avoided energy cost was     
3.2 cents per kWh. Thus, revenues generated by these plants are likely to       
decline significantly which may have a material adverse effect on Magma's       
results of operations.                                                          

The remaining acquired plant (Salton Sea Plant 1) sells electricity to SCE
pursuant to a negotiated contract under which both the capacity and the         
energy portions of the revenues adjust quarterly based on a basket of           
indices. In 1993, the time period weighted average energy payment was           
4.8 cents per kWh, which along with the capacity payment of approximately       
1.7 cents per kWh (assuming a 90% nameplate capacity factor) results in a       
total payment of approximately 6.5 cents per kWh.                               

PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL DATA   

The following Pro Forma Unaudited Condensed Combined Balance Sheet as of  
September 30, 1994 and the Pro Forma Unaudited Condensed Combined Statements    
of Earnings for the year ended December 31, 1993 and the nine months ended      
September 30, 1994 combine the historical consolidated balance sheets of the    
Company and Magma as if the acquisition had been effective on September 30,     
1994, and the historical statements of income as if the acquisition had been    
effective at the beginning of the period. The acquisition is reflected under    
the purchase method of accounting, after giving effect to the pro forma         
adjustments and assumptions described in the accompanying notes. Under this     
method of accounting, which is in accordance with generally accepted            
accounting principles, assets and liabilities of Magma are adjusted to their    
estimated fair value, and combined with the recorded values of the assets and   
liabilities of the Company. This pro forma combined financial data should be    
read in conjunction with the financial data appearing under "SELECTED           
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF THE COMPANY,"           
"SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF MAGMA" and    
the consolidated financial statements, including the notes thereto, of the      
Company and Magma contained in this Proxy Statement.                            

The Company has not completed reviewing Magma's records in order to make  
its determination of the fair value of Magma's assets and liabilities. The      
fair value adjustments reflected in the accompanying pro forma combined         
financial data reflect, among other things, estimates of fair value made by     
the Company based on market quotations and assumptions it believes to be        
reasonable.                                                                     

It should be noted, however, that the actual fair values will be          
determined on the basis of the financial condition of Magma at the time the     
Magma Shares are purchased.                                                     

The pro forma data do not reflect operating efficiencies and cost         
reductions which the Company anticipates are achievable. The savings would be   
largely attributable to the economies of scale obtained through the             
combination of the Company's operations with Magma's operations, and the        
resulting decrease in employment and occupancy costs, as well as general        
overhead expenses.                                                              

The pro forma combined financial data are not intended to present the     
results that would have actually occurred if the acquisition had been in        
effect on the assumed dates and for the assumed periods, and are not            
necessarily indicative of the results that may be obtained in the future.       

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PRO FORMA UNAUDITED CONDENSED COMBINED BALANCE SHEET  
(MERGER CONSIDERATION CONSISTING OF A COMBINATION OF CASH AND COMMON STOCK)   
COMPANY AND MAGMA   
AS OF SEPTEMBER 30, 1994  
(IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                             PRO FORMA      PRO FORMA 
                                                   COMPANY       MAGMA      ADJUSTMENTS      COMBINED 
                                                ------------  ----------  --------------  ------------
                                                                                                      
ASSETS                                                                                                
  Cash and short term investments  ............ $  316,349    $  5,111    $(210,944)(4C)  $  110,516  
  Marketable securities  ......................         --      43,609           --           43,609  
  Joint venture cash and short term                                                                   
   investments ................................     27,088      25,478           --           52,566  
  Restricted cash and short term investments  .    127,380          --           --          127,380  
  Accounts receivable--trade and other  .......     33,901      54,204           --           88,105  
  Prepaid expenses and other assets  ..........         --      10,423           --           10,423  
  Due from joint ventures  ....................      1,639          --           --            1,639  
  Property and plant, net  ....................    522,268     395,560      340,000 (4B)   1,257,828  
  Equipment, net  .............................      4,699          --           --            4,699  
  Notes receivable--joint venture  ............     12,255          --           --           12,255  
  Other investments  ..........................     11,517      41,245           --           52,762  
  Power purchase contracts  ...................         --      21,313       60,000 (4B)      81,313  
  Deferred charges and other assets  ..........     29,968      24,480        6,948 (4B,4C)     61,396
  Goodwill  ...................................         --       8,999      319,143 (4B)     328,142  
                                                ------------  ----------  --------------  ------------
   Total Assets  .............................. $1,087,064    $630,422    $ 515,147       $2,232,633  
                                                ============  ==========  ==============  ============
  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                
  LIABILITIES                                                                                         
  Accounts payable  ........................... $    1,021    $  7,832    $      --       $    8,853  
  Other accrued liabilities  ..................     23,357       3,605           --           26,962  
  Income taxes payable  .......................        587          --           --              587  
  Construction loans  .........................     21,079          --           --           21,079  
  Project loans  ..............................    233,080     188,969           --          422,049  
  Senior discount notes  ......................    421,375          --           --          421,375  
  Convertible subordinated debenture  .........    100,000          --           --          100,000  
  Deferred income taxes  ......................     24,774      22,376      158,000 (4B)     205,150  
  Other long term liabilities  ................         --      12,354      500,000 (4C)     512,354  
                                                ------------  ----------  --------------  ------------
   Total liabilities  .........................    825,273     235,136      658,000        1,718,409  
  Deferred income  ............................     19,781          --           --           19,781  
  Redeemable preferred stock  .................     62,350          --           --           62,350  

  STOCKHOLDERS' EQUITY                                                                                
  Preferred stock  ............................         --          --           --               --  
  Common Stock  ...............................      2,407       2,401       (1,599)(4A)       3,209  
  Additional paid in capital  .................    100,000     142,765       49,350 (4A)     292,115  
  Unrealized gain from marketable securities  .         --        (677)         677 (4A)          --  
  Retained earnings  ..........................    136,769     250,797     (250,797)(4A)     136,769  
  Treasury stock  .............................    (59,516)         --       59,516 (4A)          --  
                                                ------------  ----------  --------------  ------------
   Total stockholders' equity  ................    179,660     395,286     (142,853)         432,093  
                                                ------------  ----------  --------------  ------------
   Total liabilities and stockholders' equity   $1,087,064    $630,422    $ 515,147       $2,232,633  
                                                ============  ==========  ==============  ============

The accompanying notes to the pro forma unaudited condensed combined            
financial statements are an integral part of these statements.  

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PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENTS OF EARNINGS   
(MERGER CONSIDERATION CONSISTING OF A COMBINATION OF CASH AND COMMON STOCK)   
    COMPANY AND MAGMA FOR THE YEAR ENDED DECEMBER 31, 1993 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1994      
(IN THOUSANDS, EXCEPT PER SHARE DATA)   

                                                        [Enlarge/Download Table]

                                           YEAR ENDED DECEMBER 31, 1993                  NINE MONTHS ENDED SEPTEMBER 30, 1994      
                                 ------------------------------------------------  ------------------------------------------------
                                                          PRO FORMA                                         PRO FORMA              
                                                          ADJUSTMENT   PRO FORMA                            ADJUSTMENT   PRO FORMA 
                                      COMPANY  MAGMA         (4D)       COMBINED    COMPANY      MAGMA         (4D)       COMBINED 
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------ ------------
                                                                                                                                   
REVENUES                                                                                                                           
Sales of electricity and steam  $132,059    $137,882    $     --      $269,941    $117,208    $124,086    $     --      $241,294   
Royalties .....................       --      19,629          --        19,629          --      15,062          --        15,062   
Interest and other income  ....   17,194       4,195     (10,547)       10,842      21,980       3,866      (7,910)       17,936   
Management services ...........       --       5,432          --         5,432          --       3,090          --         3,090   
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ---------- 
Total Revenue .................  149,253     167,138     (10,547)      305,844     139,188     146,104      (7,910)      277,382   

COSTS AND EXPENSES                                                                                                                 
Plant operations ..............   25,362      49,493          --        74,855      23,887      41,208          --        65,095   
General and administrative  ...   13,158      10,943          --        24,101       9,536       9,602          --        19,138   
Royalties .....................    8,274          --          --         8,274       7,898          --          --         7,898   
Depreciation and amortization     17,812      21,692      18,254        57,758      15,439      17,737      13,690        46,866   
Other non-plant costs .........       --         471          --           471          --         380          --           380   
Interest expense ..............   30,205       9,626      45,000        84,831      44,480       9,262      33,750        87,492   
Less interest capitalized  ....   (6,816)         --          --        (6,816)     (7,518)         --          --        (7,518)  
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ---------- 
Total costs and expenses  .....   87,995      92,225      63,254       243,474      93,722      78,189      47,440       219,351   
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ---------- 
Income before income taxes  ...   61,258      74,913     (73,801)       62,370      45,466      67,915     (55,350)       58,031   
Provision for income taxes  ...   18,184      22,778     (26,056)       14,906      14,067      21,072     (19,542)       15,597   
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ---------- 
Income from continuing                                                                                                             
 operations ...................   43,074      52,135     (47,745)       47,464      31,399      46,843     (35,808)       42,434   
Preferred dividends ...........    4,630          --          --         4,630       3,711          --          --         3,711   
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ---------- 
Income available to common                                                                                                         
 stockholders ................. $ 38,444    $ 52,135    $(47,745)     $ 42,834    $ 27,688    $ 46,843    $(35,808)     $ 38,723   
                                ==========  ==========  ============  ==========  ==========  ==========  ============  ========== 
Income per common and common                                                                                                       
 equivalent share                                                                                                                  
 Assuming no dilution .........    $1.00       $2.17                     $0.80       $0.77       $1.95                     $0.75   
                                ==========  ==========                ==========  ==========  ==========                ========== 
 Assuming full dilution  ......    $1.00       $2.17                     $0.79       $0.76       $1.95                     $0.73   
                                ==========  ==========                ==========  ==========  ==========                ========== 
Weighted average common shares                                                                                                     
 outstanding ..................   38,485      24,063                    53,784      36,174      24,017                    51,473   
                                ==========  ==========                ==========  ==========  ==========                ========== 

The accompanying notes to the pro forma unaudited condensed combined            
financial statements are an integral part of these statements.  

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NOTES TO PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL DATA  
(MERGER CONSIDERATION CONSISTING OF A COMBINATION OF CASH AND COMMON STOCK)   
COMPANY AND MAGMA   
(TABLES IN THOUSANDS)   

The Merger will be accounted for as a purchase. The resulting adjustments 
are based on the historical consolidated financial statements of the Company    
and Magma. The final adjustments will be based on the fair value of Common      
Stock and the fair value of the assets and liabilities of Magma at or near      
the closing. For purposes of the pro forma combined financial statements, it    
is assumed that one hundred percent of the Magma Shares will be acquired and    
that the fair value of the Common Stock will be $16.50 (the mid-point of the    
"Average Closing Price" range limits stipulated in the Agreement and Plan of    
Merger).                                                                        

The pro forma unaudited condensed combined financial statements are based 
on the following assumptions:                                                   

1. The Merger occurred as of September 30, 1994 for balance sheet purposes      
and at the beginning of the periods presented for statement of earnings         
purposes.                                                                       

2. 23,843,000 Shares outstanding as of September 30, 1994 will be purchased     
for $39.00 per Magma Share consisting of a package of, on a blended basis,      
approximately $28.50 per share in cash and approximately $10.50 in market       
value per share of Common Stock (see "Description of the Merger Agreement       
--The Merger Consideration").                                                   

3. The Magma options outstanding will be retired for approximately $8,500,000   
in cash.                                                                        

4. The pro forma adjustments to reflect the effect of the transaction are as    
follows:                                                                        

A. The adjustments reflect the elimination of Magma's equity accounts and 
the issuance of Common Stock.                                                   

B. The adjustments which have been made to the net assets of Magma and the
Company to give effect to the Merger follow:                                    

                                                        [Enlarge/Download Table]

                                                                                         
Assumed value of the Common Stock and cash consideration plus                            
estimated direct costs to be incurred in consummating the                                
Merger .........................................................             $ 942,377   
Cost of retiring outstanding Magma options ......................                 8,500  
Cost of 200,000 Magma shares presently owned by the Company  ....                 5,552  
Net assets of Magma ............................................. $395,286               
Adjustment to eliminate goodwill of Magma .......................   (8,999)    (386,287) 
                                                                  ----------  -----------
Excess of purchase price over carrying                                                   
 value of net assets acquired ...................................               570,142  
Allocated to:                                                                            
 Property and plant .............................................              (340,000) 
 Power purchase contracts .......................................               (60,000) 
 Deferred income taxes on allocated costs .......................               158,000  
                                                                              -----------
Goodwill ........................................................             $ 328,142  
                                                                              ===========

C. The additional cash which the Company will be required to pay in order 
to effect the Merger has been provided for in the pro forma adjustments as      
follows:                                                                        

                                                                [Download Table]

                                                                
Reduce cash on hand .....................             $210,944  
Increase long-term debt .................              500,000  
                                                      ----------
                                                      $710,944  
                                                      ==========
Represents:                                                     
 Payments to Magma common stockholders  .             $677,444  
 Payments to Magma stock option holders                  8,500  
 Other direct acquisition costs  ........               12,500  
 Finance costs ..........................               12,500  
                                                      ----------
                                                      $710,944  
                                                      ==========

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D. The pro forma adjustments to the pro forma combined statements of      
earnings include the following:                                                 

i.  Record amortization of the excess of purchase price over net assets         
acquired over a 40-year period, eliminate the amortization of goodwill from     
the historical operating results of Magma and provide depreciation expense on   
costs allocated to property and plant. The Company's policy is to provide       
depreciation and amortization expense beginning upon the commencement of        
energy production over the estimated remaining useful life of plant and         
equipment or the contract period for costs applicable to power sales and        
development contracts. Costs of $150 million have been allocated to power       
sales and development contracts and plant for which energy production is not    
expected to commence until 1996 or later. Accordingly, revenues, period         
operating costs and amortization of future costs to be incurred in the          
completion of such facilities together with amortization of this allocation     
of acquisition costs are not included in the pro forma combined statements of   
earnings.                                                                       

ii. Increase interest expense relating to amortization of deferred financing    
costs over ten years and cash used to finance the merger, utilizing an 8.75     
percent annual interest rate assumption applied to additional borrowings and    
a 5 percent annual interest rate assumption applicable to the reduction of      
cash on hand.                                                                   

iii. Change income tax expense as a result of pro forma adjustments which       
affect taxable income.                                                          

 The pro forma income per common share has been determined on the basis of
weighted average outstanding shares which have been adjusted to include the     
number of shares of Common Stock to be exchanged for the outstanding Shares.    

5. The pro forma combined income from continuing operations available to        
common stockholders per share for the year ended December 31, 1993, and nine    
months ended September 30, 1994, would be $0.82 and $0.78, respectively,        
based upon the assumption that (1) 100% of the Magma Shares are acquired by     
the Company and (2) the market value of Common Stock issued to the present      
stockholders of Magma is $18.73 per share. The pro forma combined book value    
per share at September 30, 1994, would be $9.45 under the same assumptions.     

6. The pro forma combined income from continuing operations available to        
common stockholders per share for the year ended December 31, 1993, and nine    
months ended September 30, 1994, would be $0.76 and $0.72, respectively,        
based upon the assumption that (1) 100% of the Magma Shares are acquired by     
the Company and (2) the market value of Common Stock issued to the present      
stockholders of Magma is $14.27 per share. The pro forma combined book value    
per share at September 30, 1994, would be $8.66 under the same assumptions.     

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PRO FORMA UNAUDITED CONDENSED COMBINED BALANCE SHEET  
(MERGER CONSIDERATION CONSISTING OF ALL CASH)   
COMPANY AND MAGMA   
AS OF SEPTEMBER 30, 1994  
(IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                             PRO FORMA      PRO FORMA 
                                                   COMPANY       MAGMA      ADJUSTMENTS      COMBINED 
                                                ------------  ----------  --------------  ------------
                                                                                                      
ASSETS                                                                                                
  Cash and short term investments  ............ $  316,349    $  5,111    $(190,699)(5C)  $  130,761  
  Marketable securities  ......................         --      43,609           --           43,609  
  Joint venture cash and short term                                                                   
   investments ................................     27,088      25,478           --           52,566  
  Restricted cash and short term investments  .    127,380          --           --          127,380  
  Accounts receivable--trade and other  .......     33,901      54,204           --           88,105  
  Prepaid expenses and other assets  ..........         --      10,423           --           10,423  
  Due from joint ventures  ....................      1,639          --           --            1,639  
  Property and plant, net  ....................    522,268     395,560      340,000 (5B)   1,257,828  
  Equipment, net  .............................      4,699          --           --            4,699  
  Notes receivable--joint venture  ............     12,255          --           --           12,255  
  Other investments  ..........................     11,517      41,245           --           52,762  
  Power purchase contracts  ...................         --      21,313       60,000 (5B)      81,313  
  Deferred charges and other assets  ..........     29,968      24,480        6,948 (5B,5C)   61,396  
  Goodwill  ...................................         --       8,999      313,132 (5B)     322,131  
                                                ------------  ----------  --------------  ------------
   Total Assets  .............................. $1,087,064    $630,422    $ 529,381       $2,246,867  
                                                ============  ==========  ==============  ============
  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                
  LIABILITIES                                                                                         
  Accounts payable  ........................... $    1,021    $  7,832    $      --       $    8,853  
  Other accrued liabilities  ..................     23,357       3,605           --           26,962  
  Income taxes payable  .......................        587          --           --              587  
  Construction loans  .........................     21,079          --           --           21,079  
  Project loans  ..............................    233,080     188,969           --          422,049  
  Senior discount notes  ......................    421,375          --           --          421,375  
  Convertible subordinated debenture  .........    100,000          --           --          100,000  
  Deferred income taxes  ......................     24,774      22,376      158,000 (5B)     205,150  
  Other long term liabilities  ................         --      12,354      500,000 (5C)     512,354  
                                                ------------  ----------  --------------  ------------
   Total liabilities  .........................    825,273     235,136      658,000        1,718,409  

  Deferred income  ............................     19,781          --           --           19,781  
  Redeemable preferred stock  .................     62,350          --           --           62,350  
  STOCKHOLDERS' EQUITY                                                                                
  Preferred stock  ............................                                                       
  Common Stock  ...............................      2,407       2,401       (1,507)(5A)       3,301  
  Additional paid in capital  .................    100,000     142,765       63,492 (5A)     306,257  
  Unrealized gain from marketable securities  .         --        (677)         677 (5A)          --  
  Retained earnings  ..........................    136,769     250,797     (250,797)(5A)     136,769  
  Treasury stock  .............................    (59,516)         --       59,516 (5A)          --  
                                                ------------  ----------  --------------  ------------
   Total stockholders' equity  ................    179,660     395,286     (128,619)         446,327  
                                                ------------  ----------  --------------  ------------
   Total liabilities and stockholders' equity   $1,087,064    $630,422    $ 529,381       $2,246,867  
                                                ============  ==========  ==============  ============

The accompanying notes to the pro forma unaudited condensed combined            
financial statements are an integral part of these statements.  

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PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENTS OF EARNINGS   
(MERGER CONSIDERATION CONSISTING OF ALL CASH)   
COMPANY AND MAGMA   
FOR THE YEAR ENDED DECEMBER 31, 1993 AND THE NINE MONTHS ENDED SEPTEMBER 30,  
1994  
(IN THOUSANDS, EXCEPT PER SHARE DATA)   

                                                        [Enlarge/Download Table]

                                           YEAR ENDED DECEMBER 31, 1993                  NINE MONTHS ENDED SEPTEMBER 30, 1994     
                                ------------------------------------------------  ------------------------------------------------
                                                          PRO FORMA                                         PRO FORMA             
                                                          ADJUSTMENT   PRO FORMA                            ADJUSTMENT   PRO FORMA
                                  COMPANY      MAGMA         (5D)       COMBINED    COMPANY      MAGMA         (5D)       COMBINED
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ----------
                                                                                                                                  
REVENUES                                                                                                                          
Sales of electricity and steam  $132,059    $137,882    $     --      $269,941    $117,208    $124,086    $     --      $241,294  
Royalties .....................       --      19,629          --        19,629          --      15,062          --        15,062  
Interest and other income  ....   17,194       4,195      (9,535)       11,854      21,980       3,866      (7,151)       18,695  
Management services ...........       --       5,432          --         5,432          --       3,090          --         3,090  
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ----------
Total Revenue .................  149,253     167,138      (9,535)      306,856     139,188     146,104      (7,151)      278,141  

COSTS AND EXPENSES                                                                                                                
Plant operations ..............   25,362      49,493          --        74,855      23,887      41,208          --        65,095  
General and administrative  ...   13,158      10,943          --        24,101       9,536       9,602          --        19,138  
Royalties .....................    8,274          --          --         8,274       7,898          --          --         7,898  
Depreciation and amortization     17,812      21,692      18,103        57,607      15,439      17,737      13,577        46,753  
Other non-plant costs .........       --         471          --           471          --         380          --           380  
Interest expense ..............   30,205       9,626      45,000        84,831      44,480       9,262      33,750        87,492  
Less interest capitalized  ....   (6,816)         --          --        (6,816)     (7,518)         --          --        (7,518) 
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ----------
Total costs and expenses  .....   87,995      92,225      63,103       243,323      93,722      78,189      47,327       219,238  
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ----------
Income before income taxes  ...   61,258      74,913     (72,638)       63,533      45,466      67,915     (54,478)       58,903  
Provision for income taxes  ...   18,184      22,778     (25,656)       15,306      14,067      21,072     (19,242)       15,897  
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ----------
Income from continuing                                                                                                            
 operations ...................   43,074      52,135     (46,982)       48,227      31,399      46,843     (35,236)       43,006  
Preferred dividends ...........    4,630          --          --         4,630       3,711          --          --         3,711  
                                ----------  ----------  ------------  ----------  ----------  ----------  ------------  ----------
Income available to common                                                                                                        
 stockholders ................. $ 38,444    $ 52,135    $(46,982)     $ 43,597    $ 27,688    $ 46,843    $(35,236)     $ 39,295  
                                ==========  ==========  ============  ==========  ==========  ==========  ============  ==========
Income per common and common                                                                                                      
 equivalent share:                                                                                                                

 Assuming no dilution .........    $1.00       $2.17                     $0.79       $0.77       $1.95                     $0.74  
                                ==========  ==========                ==========  ==========  ==========                ==========
 Assuming full dilution  ......    $1.00       $2.17                     $0.78       $0.76       $1.95                     $0.73  
                                ==========  ==========                ==========  ==========  ==========                ==========
Weighted average common shares                                                                                                    
 outstanding ..................   38,485      24,063                    55,152      36,174      24,017                    52,841  
                                ==========  ==========                ==========  ==========  ==========                ==========

The accompanying notes to the pro forma unaudited condensed combined            
financial statements are an integral part of these statements.  

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NOTES TO PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL DATA  
(MERGER CONSIDERATION CONSISTING OF ALL CASH)   
COMPANY AND MAGMA   
(TABLES IN THOUSANDS)   

The Merger will be accounted for as a purchase. The resulting adjustments 
are based on the historical consolidated financial statements of the Company    
and Magma. The final adjustments will be based upon the net proceeds to the     
Company from the Public Offering and the fair market value of the assets of     
Magma at or near the Effective Time.                                            

The pro forma unaudited condensed combined financial statements are based 
on the following assumptions:                                                   

1. The Merger occurred as of September 30, 1994 for balance sheet purposes      
and at the beginning of the periods presented for statement of earnings         
purposes.                                                                       

2. 16,666,667 shares of Common Stock will be sold at a price sufficient to      
provide net proceeds of $16.00 per share to the Company, all of which will be   
used to fund a portion of the cost of the Merger. The Company treasury stock    
will be canceled.                                                               

3. 23,843,000 Magma Shares outstanding as of September 30, 1994 will be         
purchased for cash in an amount of $483,600,000 as to 12,400,000 Magma Shares   
and cash in an amount of $440,266,000 as to 11,443,000 Magma Shares.            

4. The Magma options outstanding will be retired for approximately $8,500,000   
in cash.                                                                        

5. The pro forma adjustments to reflect the effect of the transaction are as    
follows:                                                                        

A. The adjustments reflect the elimination of Magma's equity accounts, the
sale of Common Stock, and the cancellation of Company treasury stock.           

B. The adjustments which have been made to the net assets of Magma and the
Company to give effect to the Merger follow:                                    

                                                        [Enlarge/Download Table]

                                                                                     
Cash consideration plus estimated direct costs to be                                 
incurred in consummating the Proposed Merger ................             $ 936,366  
Cost of retiring outstanding Magma options ..................                 8,500  
Cost of 200,000 Magma shares presently owned by the Company                   5,552  
Net assets of Magma ......................................... $395,286               
Adjustment to eliminate goodwill of Magma ...................   (8,999)    (386,287) 
                                                              ----------  -----------
Excess of purchase price over carrying value of net assets                           
 acquired ...................................................               564,131  
Allocated to:                                                                        
  Property and plant ........................................              (340,000) 
  Power purchase contracts ..................................               (60,000) 
  Deferred income taxes on allocated costs ..................               158,000  
Goodwill ....................................................             $ 322,131  
                                                                          ===========

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C. The cash which the Company will be required to pay in order to effect  
the Merger has been provided for in the pro forma adjustments as follows:       

                                                                [Download Table]

                                                               
Reduce cash on hand ....................             $190,699  
Net proceeds from sale of Common Stock                266,667  
Increase long-term debt ................              500,000  
                                                     ----------
                                                     $957,366  
                                                     ==========
Represents:                                                    
  Payments to Magma common stockholders              $923,866  
  Payments to Magma stock option holders                8,500  
  Other direct acquisition costs .......               12,500  
  Finance costs ........................               12,500  
                                                     ----------
                                                     $957,366  
                                                     ==========

D. The pro forma adjustments to the pro forma combined statements of      
earnings include the following:                                                 

i. Record amortization of the excess of purchase price over net 
assets acquired over a 40-year period, eliminate the amortization of goodwill   
from the historical operating results of Magma and provide depreciation         
expense on costs allocated to property and plant. The Company's policy is to    
provide depreciation and amortization expense beginning upon the commencement   
of energy production over the estimated remaining useful life of plant and      
equipment or the contract period for costs applicable to power sales and        
development contracts. Costs of $150 million have been allocated to power       
sales and development contracts and plant for which energy production is not    
expected to commence until 1996 or later. Accordingly, revenues, period         
operating costs and amortization of future costs to be incurred in the          
completion of such facilities together with amortization of this allocation     
of acquisition costs are not included in the pro forma combined statements of   
earnings.                                                                       

ii. Increase interest expense relating to amortization of deferred
financing costs over ten years and cash used to finance the merger, utilizing   
an 8.75 percent annual interest rate assumption applied to additional           
borrowings and a 5 percent annual interest rate assumptio applicable to the     
reduction of cash on hand.                                                      

iii. Change income tax expense as a result of pro forma adjustments 
which affect taxable income.                                                    

    The pro forma income per common share has been determined on the
basis of weighted average outstanding shares which have been adjusted to        
include the number of shares of Common Stock to be sold.                        

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MARKET PRICES AND DIVIDENDS   

The Company. The Common Stock is listed on the NYSE under the symbol "CE".
The Common Stock is also listed on the Pacific Stock Exchange (the "PSE") and   
the London Stock Exchange (the "LSE"). The following table sets forth the       
quarterly high and low last reported sales price per share for the Common       
Stock, as reported on the NYSE Composite Tape, based on published financial     
sources, for the fiscal quarters indicated.                                     

                                                                [Download Table]

 QUARTER                       HIGH      LOW  
--------------------------  --------  --------
                                              
  1995:                                       
   First (through                             
     January 20) ........... $17.88    $15.75 
  1994:                                       
   Fourth ..................  17.13     15.25 
   Third ...................  17.75     16.00 
   Second ..................  18.13     16.00 
   First ...................  19.25     17.13 
  1993:                                       
   Fourth ..................  20.13     18.13 
   Third ...................  18.38     16.00 
   Second ..................  20.13     17.25 
   First ...................  21.50     16.50 

On January 20, 1995, the last full trading day for which quotations were  
available at the time of printing of this Proxy Statement, the last reported    
sale price per share of Common Stock on the NYSE was $17.88. On December 2,     
1994, the last full trading day prior to the announcement that the Merger       
Agreement had been executed, the last reported sale price per share of Common   
Stock on the NYSE was $16.50. On September 19, 1994, the day of the Company's   
issuance of its press release announcing the transmission of a letter to        
Magma containing a proposal to acquire Magma in a transaction in which          
stockholders would receive cash and shares of Common Stock having a combined    
cash and market value of $35 per Magma Share, the last reported sale price      
per share of Common Stock on the NYSE was $16.875.                              

As of March 21, 1994, there were approximately 1,408 holders of record of 
Common Stock. The Company's present policy is to retain earnings to provide     
sufficient funds for the operation and expansion of its business.               
Accordingly, the Company has not paid, and does not have any present plan to    
pay, cash dividends on the Common Stock.                                        

The agreements relating to senior notes issued by the Company prohibit the
payment of dividends unless the Company has a net worth of at least $50         
million, after giving effect to the payment of such dividends, and dividends    
do not exceed 50% of the Company's net income accumulated after December 31,    
1987. The Certificate of Designation with respect to the Series C Preferred     
Stock prohibits cash dividend payments with respect to the Common Stock         
unless all accumulated dividends on the Series C Preferred Stock have been      
paid.                                                                           

The Company's ability to pay dividends is dependent upon receipt of       
dividends or other distributions from the Company's subsidiaries and the        
partnerships and joint ventures in which the Company has interests. The         
availability of distributions from one of the Company's joint ventures is       
subject to the satisfaction of various covenants and conditions contained in    
the venture's financing documents and the Company anticipates that future       
project level financings will contain certain conditions and similar            
restrictions on the distribution of cash flow to the Company.                   

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Magma. The Magma Shares are quoted on the NNM under the symbol "MGMA". The
following table sets forth the quarterly high and low last reported sales       
prices of the Magma Shares, as reported by the NNM, based on published          
financial sources, for the fiscal quarters indicated.                           

                                                                [Download Table]

          QUARTER             HIGH      LOW  
-------------------------  --------  --------
                                             
  1995:                                      
   First (through                            
    January 20) ........... $38.25    $37.50 
  1994:                                      
   Fourth .................  37.69     34.25 
   Third ..................  34.88     26.50 
   Second .................  32.75     28.00 
   First ..................  35.00     30.75 
  1993:                                      
   Fourth .................  39.50     30.25 
   Third ..................  39.00     29.75 
   Second .................  40.00     30.75 
   First ..................  39.50     31.00 

On January 20, 1995, the last full trading day for which quotations were  
available at the time of printing of this Proxy Statement, the last reported    
sale price per Magma Share on the NNM was $38.13. On December 2, 1994, the      
last full trading day prior to the announcement that the Merger Agreement had   
been executed, the last reported sale price per Magma Share on the NNM was      
$35.50. On September 19, 1994, the day of the Company's issuance of its press   
release announcing the transmission of a letter to Magma containing a           
proposal to acquire Magma in a transaction in which stockholders of Magma       
would receive cash and shares of Common Stock having a combined cash and        
market value of $35.00 per Magma Share, the reported closing sale price per     
Magma Share on the NNM was $27.50.                                              

As of October 10, 1994, there were approximately 2,238 holders of record  
of the Magma Shares.                                                            

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SECURITY OWNERSHIP OF SIGNIFICANT STOCKHOLDERS AND MANAGEMENT   

The following table sets forth certain information with respect to all    
stockholders known by the Company to beneficially own more than 5% of either    
the Common Stock or the Series C Preferred Stock and certain information with   
respect to the beneficial ownership of each director and the five most highly   
compensated executive officers of the Company (and all directors and            
executive officers of the Company, as a group) of Common Stock. All             
information is as of September 30, 1994, unless otherwise indicated.            

                                                                [Download Table]

                                             NUMBER OF                       
                                               SHARES                        
    NAME (AND ADDRESS IF REQUIRED) OF       BENEFICIALLY    PERCENTAGE       
             BENEFICIAL OWNER                OWNED (1)      CLASS (1)        
----------------------------------------  --------------  ------------       
                                                                             
SERIES C PREFERRED STOCK:                                                    
Kiewit Energy Company 1000 Kiewit Plaza                                      
 Omaha, Nebraska 68131 ..................      1,247      100%               
COMMON STOCK:                                                                
Kiewit Energy Company(2) ................ 18,154,272      43.84%             
Merrill Lynch & Co. Inc.(3) .............  2,249,210      6.98%              
The Equitable Companies, Inc.(4)  .......  2,027,182      6.29%              
Forstmann-Leff Associates, Inc. (5)  ....  1,829,235      5.68%              
Neuberger & Berman ......................  1,668,475      5.18%              
Edgar D. Aronson ........................     47,000      .15%               
Judith E. Ayres .........................     60,000      .19%               
Harvey F. Brush .........................        -0-      -0-                
James Q. Crowe ..........................     10,000      .03%               
Richard K. Davidson .....................     40,000      .12%               
Ben Holt ................................    124,365      .39%               
Richard R. Jaros ........................    309,179      .95%               
Everett B. Laybourne ....................     27,790      .09%               
Daniel J. Murphy ........................     30,000      .09%               
Herbert L. Oakes, Jr.(6) ................     66,355      .21%               
Walter Scott, Jr. .......................     10,000      .03%               
Barton W. Shackelford ...................     12,860      .04%               
David E. Wit(7) .........................     47,875      .15%               
David L. Sokol ..........................    459,509      1.41%              
Thomas R. Mason .........................     92,440      .29%               
Steven A. McArthur ......................    111,703      .35%               
Donald M. O'Shei, Sr. ...................     68,137      .21%               
John G. Sylvia ..........................    101,055      .31%               
All directors and executive officers as                                      
 a group (18 persons) ...................  1,618,268      4.81%              
<FN>                                                                         
   (1) Includes shares of Common Stock which the listed beneficial owner is  
      deemed to have the right to acquire beneficial ownership under Rule    
      13d-3(d) under the Exchange Act, including, among other things, shares 
      of Common Stock which the listed beneficial owner has the right to     
      acquire within 60 days.                                                

   (2) Includes the 7,436,112 shares of Common Stock Kiewit Energy held on   
      October 29, 1992, the date of Amendment No. 6 to their Schedule 13D,   
      options to purchase an additional 5,789,163 shares of Common Stock and 
      3,393,197 shares of Common Stock in to which the 1,247 shares of Series
      C Preferred Stock held by Kiewit Energy are convertible, and 1,535,800 
      shares purchased in the open market.                                   

   (3) According to a Schedule 13G filed by such parties in February 1994,   
      includes shares of Common Stock registered in the names of Merrill     
      Lynch & Co., Inc., Merrill Lynch Group, Inc., Princeton Services, Inc. 
      and Merrill Asset Management, L.P.                                     

   (4) According to a Schedule 13G filed by such parties in February 1994,   
      includes shares of Common Stock registered in the names of The         
      Equitable Companies Incorporated, Axa Assurances L.A.R.D. Mutuelle, Axa
      Assurances Vie Mutuelle, Alpha Assurances L.A.R.D. Mutuelle, Alpha     
      Assurances Vie Mutuelle, Uni Europe Assurance Mutuelle and Axa.        

   (5) According to a Schedule 13G filed by such parties in February 1994,   
      includes shares of Common Stock registered in the name of              
      Forstmann-Leff Associates Inc., FLA Asset Management, Inc. and Stamford
      Advisors Corp.                                                         

   (6) Includes 9,093 shares registered in the name of H.L. Oakes & Co.,     
      Inc., a company of which Mr. Oakes is a director and of which his wife 
      is a principal stockholder, 4,746 shares owned by Mr. Oakes' wife and  
      4,996 shares registered to H.L. Oakes, trustee for Harrison Oakes, Mr. 
      Oakes' minor son. Mr. Oakes disclaims beneficial ownership of all of   
      those shares.                                                          

   (7) Includes 3,748 shares of Common Stock held jointly with his spouse.   

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OTHER MATTERS   

The Company's Board knows of no other matters which are likely to be      
brought before the Special Meeting. However, if any other matters are brought   
before the Special Meeting, the proxy-holders will vote proxies granted by      
the Stockholders in accordance with their best judgment.                        

STOCKHOLDER PROPOSALS   

Any proposal which a stockholder intended to present at the 1995 Annual   
Meeting of Stockholders must have been received by the Company no later than    
November 25, 1994 in order to be considered for inclusion in the proxy          
statement relating to such meeting. Any such proposals should have been         
directed to the Secretary, California Energy Company, Inc., 10831 Old Mill      
Road, Omaha, Nebraska 68154.                                                    

ACCOUNTANT'S REPRESENTATIVES  

It is expected that representatives of Deloitte & Touche LLP, the         
Company's independent auditors, will be present at the Special Meeting to       
respond to appropriate questions of stockholders and to make a statement if     
they desire.                                                                    

AVAILABLE INFORMATION   

The Company is subject to the informational requirements of the Exchange  
Act, and in accordance therewith, files reports, proxy statements and other     
information with the Commission. Such reports, proxy statements and other       
information filed by the Company with the Commission can be inspected and       
copied at the public reference facilities maintained by the Commission at 450   
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the   
Commission located at Northwestern Atrium Center, 500 West Madison Street,      
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,   
New York, New York 10048. Copies of such materials can be obtained from the     
Public Reference Section of the Commission at 450 Fifth Street, N.W.,           
Washington, D.C. 20549 at prescribed rates. The Common Stock is listed and      
traded on the NYSE, the PSE and the LSE. Reports, proxy statements and other    
information concerning the Company can also be inspected at the offices of      
the NYSE at 20 Broad Street, New York, New York 10005, at the offices of the    
PSE at 301 Pine Street, San Francisco, California 94104 and 233 South Beaudry   
Avenue, Los Angeles, California 90012 and at the offices of the LSE at          
International Stock Exchange, Throgmorton Street, EC2N 1HP, London, England,    
on which the shares of Common Stock are listed. Material filed by Magma can     
be inspected at the offices of the National Association of Securities           
Dealers, Inc., 1735 K Street, N.W., Washington, D. C. 20006.                    

                  By order of the Board of Directors

DAVID L. SOKOL  
                    Chairman of the Board, President and
           Chief Executive Officer

January 23, 1995                                                                
Omaha, Nebraska                                                                 

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INDEX TO FINANCIAL STATEMENTS   

                                                                [Download Table]

                                                                   
THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES          
   THERETO                                                         
 Financial Statements for Period Ending December 31, 1993          
   INDEPENDENT AUDITORS' REPORT .............................. F-2 
   CONSOLIDATED BALANCE SHEETS ............................... F-3 
   CONSOLIDATED STATEMENTS OF OPERATIONS ..................... F-4 
   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ........... F-5 
   CONSOLIDATED STATEMENTS OF CASH FLOWS ..................... F-6 
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................ F-7 
 Financial Statements for Period Ending September 30, 1994         
   INDEPENDENT ACCOUNTANTS' REPORT ........................... F-27
   CONSOLIDATED BALANCE SHEETS ............................... F-28
   CONSOLIDATED STATEMENTS OF OPERATIONS ..................... F-29
   CONSOLIDATED STATEMENTS OF CASH FLOWS ..................... F-30
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................ F-31
MAGMA'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO        
 Financial Statements for Period Ending December 31, 1993 .        
   REPORT OF INDEPENDENT ACCOUNTANTS ......................... F-37
   CONSOLIDATED BALANCE SHEETS ............................... F-38
   CONSOLIDATED STATEMENTS OF OPERATIONS ..................... F-39
   CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY  F-40
   CONSOLIDATED STATEMENTS OF CASH FLOWS ..................... F-41
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................ F-42
 Financial Statements for Period Ending September 30, 1994         
   CONSOLIDATED BALANCE SHEETS ............................... F-52
   CONSOLIDATED STATEMENTS OF OPERATIONS ..................... F-53
   CONSOLIDATED STATEMENTS OF CASH FLOWS ..................... F-54
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................ F-55
IMPERIAL VALLEY GEOTHERMAL INTERESTS (ACQUIRED BY MAGMA)           
 FINANCIAL STATEMENTS ....................................         
   REPORT OF INDEPENDENT ACCOUNTANTS ......................... F-56
   STATEMENT OF NET ASSETS ACQUIRED .......................... F-57
   HISTORICAL SUMMARIES OF GROSS REVENUES AND DIRECT OPERATING     
     EXPENSES ................................................ F-58
   NOTES TO THE STATEMENT OF NET ASSETS ACQUIRED AND               
     HISTORICAL SUMMARIES OF GROSS REVENUES AND DIRECT             
     OPERATING EXPENSES ...................................... F-59

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THE COMPANY'S CONSOLIDATED FINANCIAL  
STATEMENTS AND NOTES THERETO  

FINANCIAL STATEMENTS FOR PERIOD ENDING                                          
DECEMBER 31, 1993                                                               

INDEPENDENT AUDITORS' REPORT                                                    

Board of Directors and Shareholders                                             
California Energy Company, Inc.                                                 
Omaha, Nebraska                                                                 

We have audited the accompanying consolidated balance sheets of California      
Energy Company, Inc. and subsidiaries as of December 31, 1993 and 1992, and     
the related consolidated statements of operations, stockholders' equity and     
cash flows for each of the three years in the period ended December 31, 1993.   
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 generally accepted auditing          
standards. 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 examining, on a test basis,         
evidence supporting the amounts and disclosures in the financial statements.    
An audit also includes assessing the accounting principles used and             
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe our audits provide a reasonable    
basis for our opinion.                                                          

In our opinion, such consolidated financial statements present fairly, in all   
material respects, the financial position of California Energy Company, Inc.    
and subsidiaries at December 31, 1993 and 1992 and the results of their         
operations and their cash flows for each of the three years in the period       
ended December 31, 1993 in conformity with generally accepted accounting        
principles.                                                                     

As discussed in Note 8, the consolidated financial statements give effect to    
the Company's adoption, effective January 1, 1993, of Statement of Financial    
Accounting Standards No. 109, "Accounting for Income Taxes."                    

/s/ Deloitte & Touche LLP                                                       

Deloitte & Touche LLP                                                           
Omaha, Nebraska                                                                 
February 24, 1994                                                               

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CONSOLIDATED BALANCE SHEETS 
(AS OF DECEMBER 31, 1993 AND DECEMBER 31, 1992)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

                                                        [Enlarge/Download Table]

                                                                     1993        1992  
                                                                 ----------  ----------
                                                                                       
ASSETS                                                                                 
  Cash and investments ......................................... $127,756   $  54,671  
  Joint venture cash and investments (Note 5) ..................   14,943       8,848  
  Restricted cash (Notes 4 and 5) ..............................   48,105      62,514  
  Accounts receivable ..........................................   21,658      16,172  
  Transmission line deposit (Note 13) ..........................       --       7,684  
  Due from Joint Ventures ......................................    1,394          --  
  Geothermal power plant and development costs, net (Notes 4 and                       
    5) .........................................................  458,974     389,646  
  Equipment, net of accumulated depreciation of $4,773 and $3,996   4,540       4,312  
  Notes receivable--Joint Ventures (Note 13) ...................   11,280       9,997  
  Deferred charges and other assets ............................   27,334      26,706  
                                                                 ----------  ----------
    Total assets ............................................... $715,984    $580,550  
                                                                 ==========  ==========
LIABILITIES AND STOCKHOLDERS' EQUITY                                                   
Liabilities:                                                                           
  Accounts payable ............................................. $    607   $   3,146  
  Other accrued liabilities ....................................   19,866      18,111  
  Income taxes payable (Note 8) ................................    4,000          --  
  Project finance loans (Note 5) ...............................  246,880     263,604  
  Due to Joint Ventures ........................................       --         469  
  Senior notes (Note 6) ........................................   35,730      35,730  
  Convertible subordinated debentures (Note 7) .................  100,000          --  
  Deferred income taxes ........................................   18,310      15,212  
                                                                 ----------  ----------
   Total liabilities ...........................................  425,393     336,272  
  Deferred income (Note 4) .....................................   20,288      21,164  
  Commitments and contingencies (Notes 3, 6, 9, 13 and 16) .....   58,800      54,350  
Redeemable preferred stock (Note 10)                                                   
   Stockholders' equity (Notes 11 and 12):                                             
   Preferred stock--authorized 2,000 shares, no par value (Note                        
    10) ........................................................       --          --  
Common stock--authorized 60,000 shares, par value $0.0675 per                          
  share, issued and outstanding 35,446 and 35,258 shares .......    2,404       2,380  
Additional paid in capital .....................................  100,965      97,977  
Retained earnings ..............................................  111,031      68,407  
Treasury stock--157 common shares at cost ......................   (2,897)         --  
                                                                 ----------  ----------
    Total stockholders' equity .................................  211,503     168,764  
                                                                 ----------  ----------
      Total liabilities and stockholders' equity ............... $715,984    $580,550  
                                                                 ==========  ==========

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

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CONSOLIDATED STATEMENTS OF OPERATIONS   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

                                                        [Enlarge/Download Table]

                                                                  1993        1992        1991  
                                                              ----------  ----------  ----------
                                                                                                
Revenue:                                                                                        
 Sales of electricity and steam ............................. $132,059    $117,342    $106,184  
 Interest and other income ..................................   17,194      10,187       9,379  
                                                              ----------  ----------  ----------
   Total revenues ...........................................  149,253     127,529     115,563  
                                                              ----------  ----------  ----------
Cost and expenses:                                                                              
  Plant operations ..........................................   25,362      24,440      23,525  
  General and administration ................................   13,158      13,033      12,476  
  Royalties .................................................    8,274       7,710       5,505  
  Depreciation and amortization .............................   17,812      16,754      14,752  
  Interest ..................................................   30,205      20,459      29,814  
  Less interest capitalized .................................   (6,816)     (5,599)     (5,375) 
                                                              ----------  ----------  ----------
    Total expenses ..........................................   87,995      76,797      80,697  
                                                              ----------  ----------  ----------
Income before provision for income taxes ....................   61,258      50,732      34,866  
Provision for income taxes (Note 8) .........................   18,184      11,922       8,284  
                                                              ----------  ----------  ----------
Income before change in accounting principle and                                                
  extraordinary item ........................................   43,074      38,810      26,582  
Cumulative effect of change in accounting principle (Note 8)     4,100          --          --  
Extraordinary item (Note 15) ................................       --      (4,991   )       -- 
                                                              ----------  ----------  ----------
Net income ..................................................   47,174      33,819      26,582  
Preferred dividends .........................................    4,630       4,275          --  
                                                              ----------  ----------  ----------
Net income available to common stockholders ................. $  42,544   $ 29,544    $ 26,582  
                                                              ==========  ==========  ==========
Income per share before change in accounting principle and                                      
  extraordinary item ........................................ $   1.00    $   0.92   $   0.75   
Cumulative effect of change in accounting principle (Note 8)      0.11         --          --   
Extraordinary item (Note 15) ................................       --       (0.13)        --   
                                                              ----------  ----------  --------  
Net income per share ........................................ $   1.11    $   0.79    $   0.75  
                                                              ==========  ==========  ========  
Average number of shares outstanding ........................   38,485      37,495      35,471  
                                                              ==========  ==========  ========  

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

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS)   

                                                        [Enlarge/Download Table]

                                                        ADDITIONAL                                    
                               OUTSTANDING    COMMON     PAID-IN      RETAINED    TREASURY            
                              COMMON SHARES   STOCK      CAPITAL      EARNINGS     STOCK       TOTAL  
                             -------------  --------  ------------  ----------  ----------  ----------
                                                                                                      
Balance January 1, 1991  ... 23,218         $1,567    $ 39,353      $14,168     $ --        $ 55,088  
 Exercise of stock options   2,329          157         14,959      --          --            15,116  
 Sale and private                                                                                     
  placement of common                                                                                 
  stock (Note 12) .......... 6,505          439         43,237      --          --            43,676  
 Exercise of warrants  ..... 660            45           2,897      --          --             2,942  
 Issue costs of sale of                                                                               
  preferred stock .......... --             --            (276)     --          --              (276) 
 Net income ................ --             --              --      26,582      --            26,582  
Balance December 31, 1991  . 32,712         2,208      100,170      40,750      --           143,128  
                             -------      --------   ---------    --------  ----------      --------  
 Exercise of stock options   1,544          67           2,764      --          --             2,831  
 Exercise of warrants  ..... 612            41           1,206      --          --             1,247  
 Issue costs on stock  ..... --             --             (96)     --          --               (96) 
 Purchases/issuances of                                                                               
  treasury stock for                                                                                  
  exercise of options and                                                                             
  warrants, net of                                                                                    
  proceeds of $797 ......... (565)          --          (4,090)     --          --            (4,090) 
 Preferred stock dividends,                                                                           
  series B & C, including                                                                             
  cash distributions of                                                                               
  $134 ..................... --             --              --      (6,162)     --            (6,162) 
 Retirement of warrants  ... --             --         (11,716)     --          --           (11,716) 
 Tax benefit from stock                                                                               
  plan ..................... --             --           3,420      --          --             3,420  
 Net income before                                                                                    
  preferred dividends ...... --             --              --      33,819      --            33,819  
 Conversion of preferred                                                                              
  stock to common stock  ... 955            64           6,319      --          --             6,383  
                             -------      --------   ---------    --------  ----------      --------  
Balance December 31, 1992  . 35,258         2,380       97,977      68,407      --           168,764  
  Exercise of stock options  258            18             937      --          --               955  
  Issuance of stock for                                                                               
    purchase of The Ben Holt                                                                          
    Co. .................... 87             6            1,551      --          --             1,557  
  Purchase of treasury stock (157)          --              --      --          (2,897)       (2,897) 
  Preferred stock dividends,                                                                          
    Series C, including cash                                                                          
    distributions of $100 .. --             --              --      (4,550)     --            (4,550) 
  Tax benefit from stock                                                                              
    plan ................... --             --             500      --          --               500  
  Net income before                                                                                   
    preferred dividends .... --             --              --      47,174      --            47,174  
                             -------      --------   ---------    --------  ----------      --------  
  Balance December 31, 1993  35,446         $2,404    $100,965    $111,031    $(2,897)      $211,503  
                             =======      ========   =========    ========  ==========      ========  

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS 
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                             1993        1992         1991  
                                                         ----------  -----------  ----------
                                                                                            
Cash flows from operating activities:                                                       
 Net income ............................................ $ 47,174    $  33,819    $ 26,582  
Adjustments to reconcile net cash flow from operating                                       
 activities:                                                                                
 Depreciation and amortization .........................   17,812       16,754      14,752  
 Amortization of deferred financing costs ..............    1,013          967       1,054  
 Expense of previously deferred financing costs  .......       --        3,895          --  
 Provision for deferred income taxes ...................    3,098        3,645       5,889  
 Other .................................................       --           --        (639) 
 Changes in other items:                                                                    
  Accounts receivable ..................................   (5,486)       1,279      (3,701) 
  Accounts payable and other accrued liabilities  ......     (784)      (7,082)    (10,890) 
  Deferred income ......................................     (876)        (851)       (589) 
  Income tax payable ...................................    4,000       (1,202)        713  
  Other assets .........................................     (177)         814      (2,157) 
                                                         ----------  -----------  ----------
Net cash flows from operating activities ...............   65,774       52,038      31,014  
                                                         ----------  -----------  ----------
Cash flows from investing activities:                                                       
 Capital expenditures relating to power plants  ........  (10,295)      (6,711)       (112) 
 Well and resource development expenditures for                                             
  existing projects ....................................  (16,565)     (19,203)    (20,564) 
 Acquisition of equipment ..............................   (1,104)      (1,093)       (773) 
 Acquisition of Nevada and Utah properties .............       --           --     (43,062) 
 Pacific Northwest, Nevada, and Utah exploration costs    (19,060)      (4,145)     (3,866) 
 Yuma--construction in progress ........................  (40,167)      (1,294)         --  
 Transmission line deposit .............................    7,684         (118)     (1,404) 
 Decrease (increase) in restricted cash ................   14,409        9,882      (2,217) 
 Decrease (increase) in other investments ..............      941      (14,503)         --  
                                                         ----------  -----------  ----------
 Net cash flows from investing activities ..............  (64,157)     (37,185)    (71,998) 
                                                         ----------  -----------  ----------
Cash flows from financing activities:                                                       
 Proceeds from sale of common, treasury and preferred                                       
  stocks and exercise of warrants and options  .........    2,912        8,065     111,458  
 Repayment of project finance loans ....................       --      (17,098)    (10,100) 
 Repayment of project loans ............................  (16,724)      (6,277)         --  
 Retirement of project finance loans ...................       --     (204,210)         --  
 Payment of other senior notes .........................       --           --      (6,000) 
 Proceeds from refinancing .............................       --      269,881       2,400  
 Proceeds from issue of convertible subordinated                                            
  debentures ...........................................  100,000           --          --  
 Increase in restricted cash related to the refinancing        --      (65,670)         --  
 Net change in short-term bank loan ....................       --           --     (15,000) 
 Deferred charges relating to debt financing  ..........   (2,582)      (2,937)        (58) 
 Decrease (increase) in amounts due from Joint Ventures    (3,146)       6,198      (6,180) 
 Purchase of warrants ..................................       --      (11,716)         --  
 Proceeds from pre-sale of steam .......................       --           --      20,317  
 Purchase of treasury stock ............................   (2,897)      (4,887)         --  
                                                         ----------  -----------  ----------
 Net cash flows from financing activities ..............   77,563      (28,651)     96,837  
                                                         ----------  -----------  ----------
Net increase (decrease) in cash and investments  .......   79,180      (13,798)     55,853  
                                                         ----------  -----------  ----------
Cash and investments at beginning of period  ...........   63,519       77,317      21,464  
                                                         ----------  -----------  ----------
Cash and investments at end of period .................. $142,699    $  63,519    $ 77,317  
                                                         ==========  ===========  ==========
Interest paid (net of amounts capitalized) ............. $ 20,136    $  19,237    $ 24,435  
                                                         ==========  ===========  ==========
Income taxes paid ...................................... $  6,819    $   4,129    $  1,682  
                                                         ==========  ===========  ==========

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

1. BUSINESS                                                                     

The Company was formed in 1971. It is primarily engaged in the exploration
for and development of geothermal resources and conversion of such resources    
into electrical power and steam for sale to electric utilities, and the         
development of other environmentally responsible forms of power generation.     

The Company has organized several partnerships and joint ventures (herein 
referred to as Coso Joint Ventures) in order to develop geothermal energy at    
the China Lake Naval Air Weapons Station, Coso Hot Springs, China Lake,         
California. Collectively, the projects undertaken by these Coso Joint           
Ventures are referred to as the Coso Project. The Company is the operator and   
holds interests between 46.4% and 50% in the Coso Joint Ventures after          
payout. Payout is achieved when a Coso Joint Venture has returned the initial   
capital to the Coso Joint Venturers. In addition, the Company is exploring      
geothermal resources in Northern California, Washington and Oregon              
(collectively, the Pacific Northwest). In January 1991, the Company acquired    
a power plant and an interest in steam fields in Nevada and Utah (see Note      
4--Nevada and Utah Properties). In 1992, the Company entered into the natural   
gas-fired electrical generation market through the purchase of a development    
opportunity in Yuma, Arizona. Commercial operation of the Yuma project will     
commence in 1994. In 1993, the Company started developing a number of           
international power project opportunities where private power generating        
programs have been initiated, including the Philippines and Indonesia.          

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and its proportionate share of the Coso Joint    
Ventures in which it has invested. All significant inter-enterprise             
transactions and accounts have been eliminated.                                 

INVESTMENTS AND RESTRICTED CASH. Investments other than restricted cash   
are primarily commercial paper and money market securities. The restricted      
cash balance includes such securities and mortgage backed securities, and is    
mainly composed of the Coso Joint Ventures' debt service reserve funds. The     
debt service reserve funds are legally restricted to their use and require      
the maintenance of specific minimum balances. The carrying amount of the        
investments approximates the fair value based on quoted market prices as        
provided by the financial institution which holds the investments.              

WELL, RESOURCE DEVELOPMENT AND EXPLORATION COSTS. The Company follows the 
full cost method of accounting for costs incurred in connection with the        
exploration and development of geothermal resources. All such costs, which      
include dry hole costs and the cost of drilling and equipping production        
wells, as well as directly attributable administrative and interest costs,      
are capitalized and amortized over their estimated useful lives when            
production commences. The estimated useful lives of production wells are ten    
years each; exploration costs and development costs, other than production      
wells, are generally amortized over the weighted average remaining term of      
the Company's power and steam purchase contracts. For purposes of current       
period visibility and disclosure, all such costs are identified in the          
Consolidated Statements of Cash Flows as they are incurred.                     

DEFERRED WELL AND REWORK COSTS. Well rework costs are deferred and        
amortized over the estimated period between reworks. These deferred costs of    
$1,305 and $1,592 at December 31, 1993 and 1992, respectively, are included     
in other assets. Currently, both production and injection well reworks are      
amortized over twelve months.                                                   

FIXED ASSETS AND DEPRECIATION. The cost of major additions and betterments
are capitalized, while replacements, maintenance, and repairs that do not       
improve or extend the lives of the respective assets are expensed.              

Depreciation of the operating power plants is computed on the             
straight-line method over the estimated useful lives resulting in a composite   
rate of depreciation of approximately 2.67% per annum.                          

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

Depreciation of furniture, fixtures and equipment, which are recorded at        
cost, is computed on the straight-line method over the estimated useful lives   
of the related assets, which range from three to ten years.                     

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. Loan fees are amortized using the implicit interest method; other    
deferred financing costs are amortized using the straight-line method.          
Accumulated amortization at December 31, 1993 and 1992 was approximately        
$1,954 and $950, respectively.                                                  

REVENUE RECOGNITION. Revenues are recorded based upon service rendered and
electricity and steam delivered to the end of the month.                        

MANAGEMENT FEE AND INTEREST REVENUE RECOGNITION. The Company charges the  
Coso Joint Ventures management fees, operator fees and interest on              
outstanding advances. Recognition of fees and interest relating to power        
plants and resource development of the Coso Joint Ventures in which the         
Company has invested is deferred until each Coso Joint Venture commences        
operations. Revenue previously deferred is amortized over the lives of the      
related assets of the Coso Joint Ventures as each Coso Joint Venture becomes    
operational.                                                                    

DEFERRED INCOME TAXES. On January 1, 1993, the Company adopted Statement  
of Financial Accounting Standard No. 109 (FAS 109), "Accounting for Income      
Taxes." The adoption of FAS 109 changes the Company's method of accounting      
for income taxes from the deferred method as required by Accounting             
Principles Board Opinion No. 11 to an asset and liability approach.             

NET INCOME PER COMMON SHARE. Earnings per common share are based on the   
weighted average number of common and dilutive common equivalent shares         
outstanding during the period computed using the treasury stock method.         

CASH FLOWS.  The statement of cash flows classifies changes in cash       
according to operating, investing, or financing activities. Investing           
activities include capital expenditures incurred in connection with the power   
plants, wells, resource development and exploration costs. The Company          
considers all investment instruments purchased with a maturity of three         
months or less to be cash equivalents. Restricted cash is not considered a      
cash equivalent.                                                                

RECLASSIFICATION. Certain amounts in the fiscal 1992 and 1991 financial   
statements and supporting footnote disclosures have been reclassified to        
conform to the fiscal 1993 presentation. Such reclassification did not impact   
previously reported net income or retained earnings.                            

3. INTEREST RATE SWAP AGREEMENTS                                                

In January 1993, the Coso Joint Ventures entered into five year deposit   
interest rate swap agreements which effectively convert a notional deposit,     
the Company's portion of the balance is $20,300 (restricted cash and            
investments), from a variable rate to a fixed rate. The Company's proportion    
of the deposit amount accretes annually to a maximum amount of approximately    
$29,300 in 1996. Under the agreements, which mature on January 11, 1998, the    
Coso Joint Ventures make semiannual payments to the counter party at variable   
rates based on LIBOR, reset and compounded every three months, and in return    
receive payments based on a fixed rate of 6.34%. The effective LIBOR rate       
ranged from 3.25% to 3.375% during 1993 and was 3.375% at December 31, 1993.    
The counter party to this agreement is a large multinational financial          
institution. The Company's proportionate share of the carrying amount,          
representing accrued interest receivable, and the fair value of the swap        
agreements are $277 and $1,281, respectively. The fair value is based on        
quoted market prices provided by the counter party to the swap.                 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

 In September 1993, the Company entered into a three year deposit interest
rate swap agreement, which effectively converts a notional deposit balance of   
$75,000 from a variable rate to a fixed rate. The Company makes semiannual      
payments to the counter party at effectively the LIBOR rate, reset every six    
months, and in return receives payments based on a fixed rate of 4.87%. The     
counter party to this agreement is the same counter party to the Coso Joint     
Ventures. The carrying amount is $286, representing accrued interest            
receivable. The fair value of the interest rate swap is currently negative in   
the amount of $642, which is based on quoted market prices provided by the      
counter party to the swap and assumes the Company closes out the swap           
agreement prior to the stated maturity.                                         

4. PROPERTIES AND PLANTS                                                        

Properties and plants comprise the following at December 31:              

                                                                [Download Table]

                                                     1993        1992  
                                                 ----------  ----------
                                                                       
Project costs                                                          
 Power plants .................................. $246,219    $235,924  
 Well and resource development .................  161,137     144,595  
                                                 ----------  ----------
    Total operating facilities .................  407,356     380,519  
Less accumulated depreciation and amortization    (67,813)    (51,054) 
                                                 ----------  ----------
 Net operating facilities ......................  339,543     329,465  
 Wells and resource development in progress  ...      939         916  
                                                 ----------  ----------
Total project costs ............................  340,482     330,381  
Pacific Northwest geothermal exploration costs     41,539      25,882  
Nevada and Utah properties .....................   35,492      32,089  
Yuma-construction in progress ..................   41,461       1,294  
                                                 ----------  ----------
    Total ...................................... $458,974    $389,646  
                                                 ==========  ==========

OPERATING FACILITIES. The Coso operating facilities comprise the Company's
proportionate share of the assets of three of its Joint Ventures; Coso          
Finance Partners (Navy I Joint Venture), Coso Energy Developers (BLM Joint      
Venture), and Coso Power Developers (Navy II Joint Venture). With respect to    
the Coso Project, distributions from its project accounts are made              
semiannually to each Coso Joint Venture partner for profit sharing under a      
prescribed calculation subject to mutual agreement by the partners and          
compliance with the Coso Joint Ventures' financing documents. As of December    
31, 1993, payout had only been reached on Units 2 and 3 of the Navy I power     
plant.                                                                          

i.  NAVY I PLANT. The Navy I plant consists of three turbines, of 
which one unit commenced delivery of firm power in August 1987, and the 
  second and third units in December 1988. The 80 NMW power plant is located
  on land owned by and leased from the U.S. Navy through December 2009, with
a 10-year extension at the option of the Navy. Under terms of the Navy I
 Joint Venture, profits and losses were allocated approximately 49% before
  payout of units 2 and 3 and approximately 46.4% thereafter to the Company.

    ii. BLM PLANT. The BLM plant consists of two turbines at one site (BLM
East), which commenced delivery of firm power in March and May, 1989,   
respectively, and one turbine at another site (BLM West) which commenced
  delivery of firm power in August, 1989. The BLM plant is situated on lands
leased from the U.S. Bureau of Land Management under a geothermal lease 
agreement that extends until October 31, 2035. The lease may be extended
  to 2075 at the option of the BLM. Under the terms of the BLM Joint Venture
agreement, the Company's share of profits and losses before and after   
payout is approximately 45% and 48%, respectively. During 1990, the     
Company upgraded the cooling tower and turbines to increase the plant's 
capacity to 80 NMW from the initial level of 70 NMW.                    

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 (FOR THE THREE YEARS ENDED DECEMBER 31, 1993)
 (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

    iii. NAVY II PLANT. The Navy II plant consists of three turbines, of
 which two units commenced delivery of firm power in January 1990, and the
third in February 1990, respectively. The 80 NMW power plant is on the  
 southern portion of the Navy lands. Under terms of the Joint Venture, all
 profits, losses and capital contributions for Navy II are divided equally
by the two partners.                                                    

SIGNIFICANT CUSTOMER. All of the Company's sales of electricity from the  
Coso Project, which comprise approximately 94% of 1993 electricity and steam    
revenues, are to Southern California Edison (SCE) and are under long-term       
power purchase contracts. Under the terms of these contracts, SEC pays firm     
prices for the energy portion of the contract. The energy payment escalates     
pursuant to the contracts at an average rate of approximately 7.0% per year     
for the delivery of electricity for ten years, commencing with the initial      
delivery of electricity at firm power; thereafter, the energy payment adjusts   
to the actual avoided energy cost experienced by SCE at that time. The          
capacity payment, which initially represented approximately 25% of the          
Company's revenue, remains fixed during the entire period of the contract. In   
addition, the Company is eligible for bonus payments based on the amount by     
which the actual output exceeds the contract capacity of each power plant.      
Bonus payments aggregated $3,050, $3,257 and $2,635 in the years ended          
December 31, 1993, 1992 and 1991.                                               

The Company has three contracts for terms of 24, 30 and 20 years, expiring
in 2011, 2019 and 2010, respectively. Delivery of electricity by the Navy I     
Joint Venture, the BLM Joint Venture and the Navy II Joint Venture commenced    
under those contracts in 1987, 1989 and 1990, respectively.                     

See Note 13 for a description of litigation involving SCE.                

ROYALTIES. Royalties comprise the following for the years ended:          

                                                                [Download Table]

                           1993      1992      1991 
                        --------  --------  --------
                                                    
Navy I, Unit 1 ........ $1,556    $2,014    $1,787  
Navy I, Units 2 and 3    2,924     2,628     1,160  
BLM ...................  1,868     1,268     1,033  
Navy II ...............  1,717     1,509     1,486  
Other .................    209       291        39  
                        --------  --------  --------
    Total ............. $8,274    $7,710    $5,505  
                        ========  ========  ========

The amount of royalties paid by the Company to the U.S. Navy to develop   
geothermal energy for Navy I, Unit 1 on the lands owned by the Navy comprises   
(i) a fee payable during the term of the contract based on the difference       
between the amounts paid by the Navy to SCE for specified quantities of         
electricity and the price as determined under the contract (which currently     
approximates 65% of that paid by the Navy to SCE), and (ii) $11,600 payable     
in December 2009. The $11,600 payment is secured by funds placed on deposit     
monthly, which funds, plus accrued interest, will aggregate $11,600. The        
monthly deposit is currently $23. As of December 31, 1993, the balance of       
funds deposited approximated $1,283, which amount is included in restricted     
cash and accrued liabilities.                                                   

Units 2 and 3 of Navy I and the Navy II power plants are on Navy lands, on
which the Navy receives a royalty based on electric sales revenue at the        
initial rate of 4% escalating to 22% by the end of the contract in December     
2019. The BLM is paid a royalty of 10% of the value of steam produced by the    
geothermal resource supplying the BLM plant.                                    

PACIFIC NORTHWEST GEOTHERMAL EXPLORATION COSTS. In the Pacific Northwest, 
the Company has acquired leasehold rights and has performed certain             
geological evaluations to determine the resource potential of the underlying    
properties. Recovery of those costs is ultimately dependent upon the            
Company's ability to prove geothermal reserves and sell geothermal steam, or    
to obtain financing, build power plants, gain access to high voltage            
transmission lines, and sell the resultant electricity at favorable prices,     
or sell its leaseholds. In the opinion of management, the Company will be       
able to realize its exploration costs through the generation of electricity     
for sale.                                                                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

NEVADA AND UTAH PROPERTIES. On May 3, 1990, the Company entered into a  
definitive purchase agreement with a subsidiary of Chevron Corporation          
(Chevron) for the acquisition of certain geothermal operations, including       
interests in approximately 83,750 acres of geothermal properties in Nevada      
and Utah, for an aggregate purchase price of approximately $51,100. These       
property interests consist largely of leasehold interests, including            
properties leased from the BLM and from private landowners.                     

The property acquired from Chevron includes a 9 MW power plant at Desert  
Peak, Nevada ("Desert Peak"), and a 70% interest in a steam field at            
Roosevelt Hot Springs, Utah (Roosevelt Hot Springs"). The facility at Desert    
Peak is currently selling electricity to Sierra Pacific Power Company under a   
contract that runs through 1995 and then may be extended on a year-to-year      
basis as agreed by the parties. The price for electricity under this contract   
is 6.5 cents per kWH, comprising an energy payment of 2.0 cents per kWH         
(which is adjustable pursuant to an inflation based index) and a capacity       
payment of 4.5 cents per kWH. The Roosevelt Hot Springs site has a contract     
to sell steam to a 25 MW power plant owned by Utah Power and Light Company      
(UP&L) and to dispose of the brine that is a by-product of the electricity      
production process.                                                             

As part of the Nevada and Utah properties acquisition, the Company        
acquired leasehold interests in an aggregate of approximately 20,000 acres at   
the Roosevelt Hot Springs site in Utah and approximately 63,750 acres at four   
sites in Nevada. The Roosevelt Hot Springs and Desert Peak properties have      
been the subject of exploration and testing by Chevron and its predecessors.    
Based on these tests and reports of independent engineering companies, the      
Company believes that there are significant geothermal resources available      
for commercial development at these sites. Other tests conducted by Chevron     
and its predecessors indicate that commercially viable amounts of geothermal    
resources may underlie the other Chevron properties.                            

The Company financed the acquisition of Roosevelt Hot Springs through an  
equity offering, a $20,317 pre-sale of steam from the Roosevelt Hot Springs     
field to the utility-owned power plant located at the site, and seller          
financing. The acquisition of Roosevelt Hot Springs and certain of the Nevada   
properties closed on January 22, 1991 for an aggregate amount of                
approximately $35,000. The remainder of the transaction closed on March 28,     
1991 and was financed with seller financing and the proceeds of the sale of     
common stock to Kiewit Energy Company (Kiewit Energy); see Note 12.             

5. PROJECT LOANS                                                                

Project loans, which are non-recourse to the Company, comprise the        
following at December 31:                                                       

                                                        [Enlarge/Download Table]

                                                                                1993       1992  
                                                                            ----------  ---------
                                                                                                 
Project loans with fixed interest rates (weighted average interest rates                         
 of 8.04% and 7.88% at December 31, 1993 and 1992, respectively) with                            
 scheduled repayments through December 2001 ............................... $246,880    $263,604 
                                                                            ==========  =========

The project loans are from Coso Funding Corp. ("Funding Corp."). Funding  
Corp. is a single-purpose corporation formed to issue notes for its own         
account and as an agent acting on behalf of Navy I, BLM, and Navy II Joint      
Ventures, collectively the "Coso Joint Ventures." Pursuant to separate credit   
agreements executed between Funding Corp. and each Coso Joint Venture on        
December 16, 1992, the proceeds from Funding Corp.'s note offering were         
loaned to the Coso Joint Ventures. The proceeds of $560,245 were used by the    
Coso Joint Ventures to (i) purchase and retire project finance debt comprised   
of the term loans and construction loans in the amount of $424,500, (ii) fund   
contingency funds in the amount of $68,400, (iii) fund debt service reserve     
funds in the amount of $40,000, and (iv) finance $27,345 of capital             
expenditures and transaction costs. The contingency fund and debt service       
reserve fund were required by the project loan agreements.                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

The contingency fund represented the approximate maximum amount, if any,
which could theoretically have been payable by the Coso Joint Ventures to       
third parties to discharge all liens of record and other contract claims        
encumbering the Coso Joint Ventures' plant at the time of the project loans     
(See Note 13). The contingency fund was established in order to obtain          
investment-grade ratings to facilitate the offer and sale of the notes by       
Funding Corp., and such establishment did not reflect the Coso Joint            
Ventures' view as to the merits or likely disposition of such litigation or     
other contingencies. On June 9, 1993, MPE and the Mission Power Group,          
subsidiaries of SCE Corp., and the Coso Joint Ventures reached a final          
settlement of all of their outstanding disputes and claims relating to the      
construction of the Coso Project. As a result of the various payments and       
releases involved in such settlement, the Coso Joint Ventures agreed to make    
a net payment of $20,000 to MPE from the cash reserves of the Coso Project      
contingency fund and MPE agreed to release its mechanics' liens on the Coso     
Project. After making the $20,000 payment, the remaining balance of the Coso    
Project contingency fund (approximately $49,300) was used to increase the       
Coso Project debt reserve fund from approximately $43,000 to its maximum        
fully-funded requirement of $67,900. The remaining $24,400 balance of           
contingency fund was retained within the Coso Project for future capital        
expenditures and for Coso Project debt service payments. Since the Coso         
Project debt service reserve is fully funded in advance, Coso Project cash      
flows otherwise intended to fund the Coso Project debt service reserve fund,    
subject to satisfaction of certain covenants and conditions contained in the    
Coso Joint Ventures' refinancing documents, may be available for distribution   
to the Company in its proportionate share.                                      

The loans are collateralized by, among other things, the power plants,    
geothermal resource, debt service reserve funds, contingency funds, pledge of   
contracts, and an assignment of all such Coso Joint Ventures' revenues which    
will be applied against the payment of obligations of each Coso Joint           
Venture, including the project loans. Each Coso Joint Venture's assets will     
secure only its own project loan, and will not be cross-collateralized with     
assets pledged under other Coso Joint Venture's credit agreements. The          
project loans are non-recourse to any partner in the Coso Joint Ventures and    
Funding Corp. shall solely look to such Coso Joint Venture's pledged assets     
for satisfaction of such project loans. However, the loans are                  
cross-collateralized by the available cash flow of each Coso Joint Venture.     
Each Coso Joint Venture after satisfying a series of its own obligations has    
agreed to advance support loans (to the extent of available cash flow and,      
under certain conditions, its debt service reserve funds) in the event          
revenues from the supporting Coso Joint Ventures are insufficient to meet       
scheduled principal and interest on their separate project loans.               

The annual repayments of the project loans for the years beginning January
1, 1994 and thereafter are as follows:                                          

                                                                [Download Table]

 YEAR             AMOUNT 
-------------  ----------
                         
1994 ......... $  27,599 
1995 .........   32,109  
1996 .........   38,826  
1997 .........   41,729  
1998 .........   38,912  
Thereafter  ..   67,705  
               ----------
Total ........ $246,880  
               ==========

Based on quoted market rates of the Funding Corp. notes, the fair value of      
the project loan was approximately $260,276 at December 31, 1993.               

In connection with the aforementioned refinancing, the Company entered    
into an agreement with Community Energy Alternatives Incorporated ("CEA") for   
the Company to purchase at the close of the Coso Project refinancing CEA's      
interest in the Coso Project. Until the close of the Coso Project               

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

refinancing, CEA had been a partner in a partnership structure organized by     
the Company's Joint Venture Partner in the BLM project. The Company purchased   
the CEA interest under certain terms and conditions which are designed to       
provide the Company with a 17% per annum return on the CEA interest purchase    
price of $9,800. The Company's 17% per annum return is secured in part by a     
pledge and assignment to the Company of certain cash flows to be received by    
the Company's Coso Project Joint Venture Partner (and certain affiliates)       
from Coso Project distributions. The Company has granted its Coso Project       
Joint Venture Partner the right to purchase the CEA interest for a price        
which will provide the Company a 17% per annum return for the duration the      
Company owns the CEA interest.                                                  

6. SENIOR NOTES                                                                 

The Senior Notes are due in March 1995, and bear interest at the rate of  
12% per annum, plus 10% of the Company's share of the cash flow from the Coso   
Project, commencing July 1, 1989 and terminating December 31, 1994. The         
Senior Notes prohibit the payment of cash dividends unless the Company has a    
net worth of at least $50,000 after payment of such dividends, and dividends    
do not exceed 50% of accumulated net income subsequent to December 31, 1987.    
The Senior Notes also place restrictions on capital expenditures not related    
to the Coso Project. The fair value of the Senior Notes approximates the        
carrying value.                                                                 

7. CONVERTIBLE SUBORDINATED DEBENTURES                                          

In June of 1993, the Company issued $100,000 principal amount of 5%       
convertible subordinated debentures (debentures) due July 31, 2000. The         
debentures are convertible into shares of the Company's common stock at any     
time prior to redemption or maturity at a conversion price of $22.50 per        
share, subject to adjustment in certain circumstances. Interest on the          
debentures is payable semiannually in arrears on July 31 and January 31 of      
each year, commencing on July 31, 1993. The debentures are redeemable for       
cash at any time on or after July 31, 1996 at the option of the Company. The    
redemption prices commencing in the twelve month period beginning July 31,      
1996 (expressed in percentages of the principal amount) are 102%, 101%, 100%    
and 100% in 1996, 1997, 1998 and 1999, respectively. The debentures are         
unsecured general obligations of the Company and subordinated to all existing   
and future senior indebtedness of the Company. The fair value of the            
debentures as of December 31, 1993 was approximately $103,250, which is based   
on quoted market rates.                                                         

8. INCOME TAXES                                                                 

On January 1, 1993, the Company adopted Statement of Financial Accounting 
Standard No. 109 (FAS 109), "Accounting for Income Taxes." The adoption of      
FAS 109 changes the Company's method of accounting for income taxes from the    
deferred method as required by Accounting Principles Board Opinion No. 11 to    
an asset and liability approach. Under FAS 109, the net excess deferred tax     
liability as of January 1, 1993 was determined to be $4,100. This amount is     
reflected in 1993 income as the cumulative effect of a change in accounting     
principle. It primarily represents the recognition of the Company's tax         
credit carryforwards as a deferred tax asset. There was no cash impact to the   
Company upon the required adoption of FAS 109. Under FAS 109, the effective     
tax rate increased to approximately 30% from 23.5% in 1992. This increase was   
due to the Company's tax credit carryforward being recognized as an asset and   
unavailable to reduce the current period's effective tax rate for computing     
the Company's provision for income taxes.                                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

Provision for income tax was comprised of the following at December 31:       

                                                                [Download Table]

                                                    1993       1992       1991 
                                                 ---------  ---------  --------
                                                                               
Currently payable:                                                             
 State ......................................... $  3,300   $  2,300   $2,134  
 Federal .......................................   7,686      4,444       261  
                                                  10,986      6,744     2,395  
Deferred:                                                                      
 State .........................................     385      1,607       929  
 Federal .......................................   6,813      2,038     4,960  
                                                   7,198      3,645     5,889  
                                                 ---------  ---------  --------
Total after benefit of extraordinary item  .....  18,184     10,389     8,284  
Tax benefit attributable to extraordinary item         -      1,533         -  
                                                 ---------  ---------  --------
    Total before benefit of extraordinary item   $18,184    $11,922    $8,284  
                                                 =========  =========  ========

The deferred expense is primarily temporary differences associated with         
depreciation and amortization of certain assets.                                
A reconciliation of the federal statutory tax rate to the effective tax rate    
applicable to income before provision for income taxes follows:                 

                                                                [Download Table]

                                                      1993      1992       1991  
                                                   --------  ---------  ---------
                                                                                 
Federal statutory rate ........................... 35.00%     34.00%     34.00%  
Percentage depletion in excess of cost depletion   (6.70)     (6.81)     (6.89)  
Investment and energy tax credits ................ (4.62)    (10.52)    (10.93)  
State taxes, net of federal tax effect ...........  3.90       5.83       6.32   
Cumulative effect of change in federal tax rate  .  1.90       -          -      
Other ............................................   .20       1.00       1.26   
                                                   --------  ---------  ---------
                                                   29.68%     23.50%     23.76%  
                                                   ========  =========  =========

Deferred tax liabilities (assets) are comprised of the following at December    
31:                                                                             

                                                                [Download Table]

                                         1993  
                                     ----------
                                               
Depreciation and amortization, net   $111,117  
Other ..............................    1,733  
                                     ----------
                                      112,850  
Deferred income ....................   (2,415) 
Loss carryforwards .................  (39,529) 
Energy and investment tax credits  .  (40,106) 
Alternative minimum tax credits  ...  (12,018) 
Other ..............................     (472) 
                                     ----------
                                      (94,540) 
                                     ----------
Net deferred taxes ................. $  18,310 
                                     ==========

In 1992, the significant components of the deferred tax liability were timing   
differences in the computation of depreciation and amortization of the power    
plants and exploration and development costs for financial reporting purposes   
versus income tax purposes.                                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

As of December 31, 1993, the Company has an unused net operating loss   
(NOL) carryover of approximately $113,000 for regular federal tax return        
purposes which expires primarily between 2001 and 2007. In addition, the        
Company has unused investment and geothermal energy tax credit carryforwards    
of approximately $40,106 expiring between 2002 and 2008. The Company also has   
approximately $12,018 of alternative minimum tax credit carryforwards which     
have no expiration date.                                                        

9. COMMITMENTS                                                                  

The Company's former office space lease, which requires annual rental of  
$660 through April 1994, has been partially sublet at annual rentals of $261    
and remaining future rental costs were previously provided for in a             
restructuring charge. The Company also leases an aircraft under a lease that    
expires on August 1, 1995, at an annual rental of approximately $464. The       
aircraft has been subleased at an annual rental of approximately $300. Rental   
expense for the aircraft, vehicles, geothermal leases, and other equipment      
leases for the years ended December 31, 1993, 1992 and 1991 was approximately   
$1,143, $1,018 and $986 respectively.                                           

Total projected lease commitments (net of sublease contracts) at December 
31, 1993, are as follows:                                                       

                                                                [Download Table]

   YEAR                 
  ENDED                 
 DECEMBER               
   31,            AMOUNT
--------------  --------
                        
1994 .......... $318    
1995 ..........  186    
1996 ..........    8    
                --------
Total ......... $512    
                ========

10. PREFERRED STOCK                                                             

SERIES A. On December 1, 1988, the Company distributed a dividend of one  
preferred share purchase right (right) for each outstanding share of common     
stock. The rights are not exercisable until ten days after a person or group    
acquires or has the right to acquire, beneficial ownership of 20% or more of    
the Company's common stock or announces a tender or exchange offer for 30% or   
more of the Company's common stock. Each right entitles the holder to           
purchase one one-hundredth of a share of Series A junior preferred stock for    
$52. The rights may be redeemed by the Board of Directors up to ten days        
after an event triggering the distribution of certificates for the rights.      
The rights plan was amended in February 1991 so that the agreement with         
Kiewit Energy (see Note 12) would not trigger the exercise of the rights. The   
rights will expire, unless previously redeemed or exercised, on November 30,    
1998. The rights are automatically attached to, and trade with, each share of   
common stock.                                                                   

SERIES B. On November 15, 1990, the Company sold 357.5 shares of          
convertible preferred stock, Series B at $14 per share. Each share of the       
convertible preferred stock was convertible into two shares of common stock,    
and had a dividend rate of 15% through November 15, 1992, 10% from November     
16, 1992 to November 15, 1994 and 5% from November 16, 1994 to November 15,     
1996. The dividends were payable semiannually in convertible preferred stock,   
Series B.                                                                       

On November 15, 1992, the Company called the preferred stock for          
conversion into common stock. Each Series B preferred stock was converted       
into two shares of common stock; accordingly, the Company issued 954.9 shares   
of common stock.                                                                

SERIES C. On November 19, 1991, the Company sold one thousand shares of   
convertible preferred stock, Series C at $50,000 per share to Kiewit Energy,    
in a private placement. Each share of the Series C preferred stock is           
convertible at any time at $18.375 per common share into 2,721 shares of        
common stock subject to customary adjustments. The Series C preferred stock     
has a dividend rate of 8.125%,                                                  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

commencing March 15, 1992 through conversion date on December 15, 2003. The     
dividends, which are cumulative, are payable quarterly in convertible           
preferred stock, Series C, through March 15, 1995 and in cash on subsequent     
dividend dates.                                                                 

The Company is obligated to redeem 20% of the outstanding preferred stock,
Series C each December 15, commencing 1999 through 2003 at a price per share    
equal to $50,000, plus accrued and unpaid dividends.                            

At any time after December 15, 1994, upon 20 days written notice, the     
Company may redeem all, or any portion consisting of at least $5,000, of the    
preferred stock, Series C. then outstanding, provided that the Company's        
common stock has traded at or above 150% of the then effective conversion       
price, for any 20 trading days out of 30 consecutive trading days ending not    
more than five trading days prior to notice of redemption.                      

The Company may also exchange the preferred stock, Series C, in whole or  
part on any dividend date commencing December 15, 1994, for 9.5% Convertible    
Subordinated Debentures of the Company due 2003.                                

Each share of preferred stock, Series C shall be entitled to the number of
votes equal to $50,000 per share divided by the then effective conversion       
price. If cash dividends are in arrears six consecutive quarters, Kiewit        
Energy shall have the exclusive right, voting separately as a class, to elect   
two directors of the Company.                                                   

No cash dividends shall be paid or declared on the Company's common stock 
unless all accumulated dividends on the Series C preferred stock have been      
paid.                                                                           

The Company has issued various stock options and warrants. As of December 
31, 1993, a total of 8,953 shares are reserved for stock options, of which      
8,514 shares have been granted and remain outstanding at prices of $3.00 to     
$19.00 per share.                                                               

11. STOCK OPTIONS AND WARRANTS                                                  

The Company has stock option plans under which shares were reserved for   
grant as incentive or non-qualified stock options, as determined by the Board   
of Directors. As of December 31, 1993, the total options granted for the        
non-1986 plan and the 1986 plan are 5,778 and 6,354, respectively. The plans    
allow options to be granted at 85% of their fair market value at the date of    
grant. Generally, options are issued at 100% of fair market value at the date   
of grant. Options granted under the 1986 Plan become exercisable over a         
period of three to five years and expire if not exercised within ten years      
from the date of grant or, in some instances a lesser term. Prior to the 1986   
Plan, the Company granted 256 options at fair market value at date of grant     
which had terms of ten years and were exercisable at date of grant. In          
addition, the Company had issued approximately 138 options to consultants on    
terms similar to those issued under the 1986 Plan. The non-1986 Plan options    
are primarily options granted to Kiewit Energy; see Note 12.                    

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

TRANSACTIONS IN STOCK OPTIONS.                                                

                                                        [Enlarge/Download Table]

                                                               OPTIONS OUTSTANDING          
                                                    ----------------------------------------
                                   SHARES AVAILABLE                                         
                                   FOR GRANT UNDER               OPTION PRICE PER           
                                   1986 OPTION PLAN    SHARES         SHARE          TOTAL  
                                  ----------------  ----------  ----------------  ----------
                                                                                            
Balance, December 31, 1991  .....     72             3,361      $   3.00 -$13.096  $ 12,658 
Options granted .................   (368)            8,268  *   $   8.063-$14.875    89,193 
Options terminated ..............    304              (331 )    $   3.00 -$ 9.708    (3,065)
Options exercised ...............     --            (2,328 )*   $   3.00 -$ 9.00    (15,116)
Additional shares reserved under                                                            
 1986 Option Plan ...............  1,230                --       --                     --  
                                  ----------------  ----------  ----------------  ----------
Balance, December 31, 1991  .....  1,238             8,970  *   $   3.00 -$14.875    83,670 
Options granted .................   (551)              751      $  11.90 -$15.938    11,262 
Options terminated ..............    129              (780 )    $   3.00 -$11.625    (7,839)
Options exercised ...............     --            (1,544 )    $   3.00 -$11.625    (7,072)
                                  ----------------  ----------  ----------------  ----------
Balance, December 31, 1992  .....    816             7,397  *   $   3.00 -$15.938    80,021 
Options granted ................. (1,396)            1,396      $  17.75 -$19.00     26,209 
Options terminated ..............     19               (20 )    $   3.00 -$14.875      (114)
Options exercised ...............     --              (259 )    $   3.00 -$14.875    (1,185)
Additional shares reserved under                                                            
 1986 Option Plan ...............  1,000                --       --                     --  
                                  ----------------  ----------  ----------------  ----------
Balance, December 31, 1993  .....    439             8,514  *   $   3.00 -$19.00   $104,931 
                                  ================  ==========  ================  ==========
Options which became exercisable                                                            
 during:                                                                                    
 Year ended December 31, 1993  ..                      592      $   3.00 -$19.00   $ 10,180 
 Year ended December 31, 1992  ..                      333      $   3.00 -$15.938  $  3,693 
 Year ended December 31, 1991  ..                    7,767  *   $   3.00 -$14.88   $ 79,890 
Options exercisable at:                                                                     
 December 31, 1993 ..............                    7,026 *    $   3.00 -$19.00   $ 78,644 
 December 31, 1992 ..............                    6,708  *   $   3.00 -$15.9375 $ 69,739 
 December 31, 1991 ..............                    8,070  *   $   3.00 -$14.88   $ 73,481 

----------                                                                      
* Includes Kiewit Energy options. See Note 12.                                  

WARRANTS. The Company has granted warrants in connection with various     
financing activities to purchase shares of common stock as follows:             

                                                                [Download Table]

                                     WARRANTS OUTSTANDING       
                             -----------------------------------
                               WARRANT     PRICE PER            
                               SHARES        SHARE        TOTAL 
                             ---------  -------------  ---------
                                                                
Balance, January 1, 1991  ..  2,549     $ 2.04-$6.67   $ 6,804  
Warrants exercised .........   (660)    $ 2.04-$6.67    (2,951) 
                             ---------  -------------  ---------
Balance, December 31, 1991    1,889     $ 2.04           3,853  
Warrants exercised .........   (612)    $ 2.04          (1,247) 
Warrants repurchased ....... (1,277)    $ 2.04          (2,606) 
                             ---------  -------------  ---------
Balance, December 31, 1992       --     $ --           $     -- 
                             =========  =============  =========

On October 13, 1992, the Company repurchased, and cancelled, certain      
warrants exercisable for 1,025 shares of unregistered common stock at $2.04     
per share, for a purchase price of $9.16 per share or $9,389                    

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

in aggregate. Separately, Kiewit Energy simultaneously purchased and            
exercised other warrants to purchase 600 shares of unregistered common stock    
at $2.04 per share, providing the Company with proceeds of $1,224.              

On October 27, 1992, the Company repurchased, and cancelled, certain      
warrants exercisable for 250 shares of unregistered common stock at $2.04 per   
share, for a purchase price of $9.316 per share or $2,329 in aggregate.         

12. COMMON STOCK SALES AND RELATED OPTIONS                                      

In January 1991, the Company sold 2,505 shares of unregistered common     
stock at $6.75 per share for an aggregate total of $16,909. The funds were      
used to repay a portion of the seller financing related to the Company's        
acquisition of Chevron's interest in Roosevelt Hot Springs, Utah.               

The Company and Kiewit Energy signed a Stock Purchase Agreement and       
related agreements, dated as of February 18, 1991. Kiewit Energy is a           
subsidiary of Peter Kiewit Sons', Inc. of Omaha, Nebraska, a large              
construction and mining company with diversified operations. Under the terms    
of the agreements, Kiewit Energy purchased 4,000 shares of common stock at      
$7.25 per share and received options to buy 3,000 shares at a price of $9 per   
share exercisable over three years and an additional 3,000 shares at a price    
of $12 per share exercisable over five years (subject to customary              
adjustments).                                                                   

In connection with this initial stock purchase, the Company and Kiewit    
Energy also entered into certain other agreements pursuant to which (i)         
Kiewit Energy and its affiliates agreed not to acquire more than 34% of the     
outstanding common stock (the Standstill Percentage) for a five-year period,    
(ii) Kiewit Energy became entitled to nominate at least three of the            
Company's directors, and (iii) the Company and Kiewit Energy agreed to use      
their best efforts to negotiate and execute a joint venture agreement           
relating to the development of certain geothermal properties in Nevada and      
Utah.                                                                           

On June 19, 1991, the board approved a number of amendments to the stock  
purchase agreement and the related agreements. Pursuant to those amendments,    
the Company reacquired from Kiewit Energy the rights to develop the Nevada      
and Utah properties, and Kiewit Energy agreed to exercise options to acquire    
1,500 shares of common stock at $9.00 per share, providing the Company with     
$13,500 in cash. The Company also extended the term of the $9.00 and $12.00     
options to seven years; modified certain of the other terms of these options;   
granted to Kiewit Energy an option to acquire an additional 1,000 shares of     
the outstanding common stock at $11.625 per share (closing price for the        
shares on the American Stock Exchange on June 18, 1991) for a ten year term;    
and increased the Standstill Percentage from 34% to 49%.                        

On November 19, 1991, the Board approved the issuance by the Company to   
Kiewit Energy of one thousand shares of Series C Preferred Stock for $50,000    
per share, as described in Note 10 above. In connection with the sale of the    
Series C Preferred Stock to Kiewit Energy, the Standstill Agreement was         
amended so that the 49% Standstill Percentage restriction would apply to        
voting stock rather than just common stock.                                     

13. LITIGATION                                                                  

SETTLEMENT OF CONTRACTOR CLAIMS. In June 1990, Mission Power Engineering  
Company (MPE), a subsidiary of SCECorp. and the general contractor for eight    
of the nine facilities at the Coso Project recorded mechanics' liens (the       
Liens) against two of the Coso Projects and filed suit to pursue claims for     
amounts allegedly due from the Coso Joint Ventures in connection with the       
turnkey contracts for the design and construction on eight of the units. In     
July 1990, MPE, the Joint Venture Partners and the Company agreed to enter      
settlement discussions during which period the suit was suspended. In January   
1991, MPE terminated settlement discussions and refiled its suit in the         
amount of approximately $70,900 in contract claims. The Coso Joint Ventures     
counterclaimed on January 10, 1991, for performance and equipment related and   
other damages arising under the turnkey contracts.                              

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

On June 9, 1993, MPE and the Mission Power Group, subsidiaries of       
SCECorp, and the Coso Joint Ventures and the Company announced that the         
companies had reached a final settlement of all of their outstanding disputes   
relating to the construction of and the filing of mechanics' liens against      
the Coso Project.                                                               

Under the settlement agreement, MPE agreed to dismiss with prejudice its  
$70,900 breach of contract suit against the Coso Joint Ventures and the Coso    
Joint Ventures agreed to dismiss with prejudice their counterclaims against     
MPE and related parties. As a result of the various payments and releases       
involved in such settlement, the Coso Joint Ventures agreed to make a net       
payment of $20,000 to MPE from the cash reserves of the Coso Project            
Contingency Fund and MPE agreed to release its mechanics' liens on the Coso     
Project.                                                                        

SETTLEMENT OF TRANSMISSION LINE DISPUTES. In September 1990, the          
California Public Utilities Commission (CPUC) issued a decision which would     
fix at approximately $10,500 the Coso Joint Ventures' maximum exposure for      
the cost of the construction of a new 220 kV electric transmission line         
(Line) on the SCE transmission system. The Coso Joint Ventures appealed the     
decision of the CPUC to the Federal district court and intended to petition     
the CPUC to reconsider its decision on the grounds that such line is not        
necessary. In a related proceeding involving the cost allocation for existing   
and ancillary interconnection facilities, the CPUC ruled that the Coso Joint    
Ventures' share would be approximately $7,000. The Coso Joint Ventures appeal   
of such decision to the California Supreme Court was denied in February 1993.   
In addition, SCE alleged certain line losses that SCE deemed applicable to      
the existing 115 kV line utilized by two of the Coso Joint Ventures and         
deducted amounts from revenues payable under the power purchase contracts.      
The Coso Joint Ventures dispute SCE's allegations, methodology and alleged      
ability to deduct amounts under the interconnection contracts and filed a       
complaint alleging breach of contract in the California State Court.            

On May 3, 1993, SCE and the Coso Joint Ventures agreed to settle the      
transmission line loss contract dispute and certain related interconnection     
disputes involving the Coso Project under a separate agreement whereby, among   
other things, the parties made certain cash payments to each other and agreed   
to certain interconnection cost and historical line loss allocations and to     
the release to the Coso Joint Ventures of certain funds previously deducted     
from project revenues and held in escrow. The parties also agreed to jointly    
pursue appropriate rate treatment by the CPUC of certain SCE financed           
interconnection costs, including the one remaining cost allocation issue        
between them in the amount of $5,900. As a result of the various payments,      
allocations and releases involved in such partial settlement, SCE released      
$15,500 of Coso Project funds (the Company's share was approximately $7,800)    
held in escrow in respect of interconnection costs (transmission line           
deposit) and the Partners of Coso Joint Ventures posted an irrevocable letter   
of credit to support their contingent obligation of $5,900 on the cost          
allocation matter to be jointly pursued with SCE at the CPUC.                   

SETTLEMENT OF ANTITRUST LAWSUIT. On January 31, 1991, the Company filed an
antitrust lawsuit in San Francisco Federal Court against SCECorp., its          
subsidiaries (MPE, Mission Power Group and SCE), Kidder-Peabody & Co., and      
others alleging violations of the federal antitrust laws, unfair competition    
and tortious interference. This lawsuit was settled in conjunction with the     
transmission line disputes.                                                     

SETTLEMENT WITH JOINT VENTURE PARTNER. The Company has served as managing 
partner, project manager and field operator for the Coso Project since its      
inception. It has been plant operator for the facilities since August 1988.     
In April 1990, the Company's principal Coso Joint Venture partner (the J.V.     
Partner) served the Company and certain of the Company's subsidiaries with a    
demand for arbitration arising out of disagreements concerning primarily the    
operating budgets and the allocation to the Joint Ventures of certain           
expenses incurred by the Company.                                               

On March 19, 1991, the Company and its J.V. Partner executed a settlement 
agreement which resolved all their outstanding disputes. The terms of the       
settlement provide that if the Coso Project                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

performs at capacity level in the future so that certain formula-based          
contingencies related to the productivity of the power plants are satisfied     
in any of the following eight years, then, out of the excess cash flow          
generated from such performance levels, up to $1.4 million may be paid in       
each such year to the J.V. Partner by the Company. During 1992, the Company     
purchased the J.V. Partner's contingent payment for $5,000, which will be       
amortized over the remaining seven years of the agreement.                      

In return for the original settlement, the J.V. Partner agreed to the     
conversion of all prior advances made by the Company on behalf of the           
partnership into a Coso Joint Venture note payable to the Company due on or     
before March 19, 1999. The note bore interest at an adjustable rate tied to     
LIBOR and was subordinated to the prior payment in full of all the senior       
bank debt on the project as well as to the foregoing contingent payments to     
the J.V. Partner. On December 16, 1992 the Coso Joint Ventures paid $5,133 of   
their note payable plus accrued interest to the Company. A new promissory       
note was then signed on December 16, 1992 for the remaining principal           
balance. This note bears a fixed interest rate of 12.5% and is payable on or    
before March 19, 2002. This note continues to be subordinated to the senior     
project loan on the project. The fair value of this note approximates the       
carrying value.                                                                 

14. RELATED PARTY TRANSACTIONS                                                  

The Company charged and recognized a management fee and interest on       
advances to its Coso Joint Ventures, which aggregated approximately $5,354,     
$4,246 and $5,664 in the years ended December 31, 1993, 1992 and 1991.          

15. EXTRAORDINARY ITEM                                                          

The refinancing of the Coso Joint Ventures' project financing debt in 1992
resulted in an extraordinary item in the amount of $4,991, after the tax        
effect of $1,533. The extraordinary item represents the unamortized portion     
of the deferred financing costs and related repayment costs associated with     
the original Coso Joint Ventures' project financing debt.                       

16. SUBSEQUENT EVENT                                                            

The Company is currently in the process of arranging a proposed offering  
of $400,000 Senior Discount Notes (the "Notes"). The interest rate will be      
between approximately 9% and 10%, with cash interest payment commencing in      
1997. The Notes will be senior unsecured obligations of the Company. The        
Company intends to use the proceeds from the offering to: (i) fund equity       
commitments in, and the construction costs of, geothermal power projects        
presently planned in the Philippines and Indonesia, (ii) to fund equity         
investments in, and loans to, other potential international and domestic        
private power projects and related facilities, (iii) for corporate or project   
acquisitions permitted under the indenture, and (iv) for general corporate      
purposes.                                                                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

17. QUARTERLY FINANCIAL DATA (Unaudited)                                      

Following is a summary of the Company's quarterly results of operations   
for the years ended December 31, 1993 and 1992:                                 

                                                        [Enlarge/Download Table]

                                                             THREE MONTHS ENDED*              
                                              ------------------------------------------------
                                                MARCH 31,    JUNE 30,    SEPT. 30,    DEC. 31,
                                                  1993         1993        1993         1993  
                                              -----------  ----------  -----------  ----------
                                                                                              
Revenue:                                                                                      
 Sales of electricity and steam ............. $27,617      $31,996     $41,433      $31,013   
 Other income ...............................   3,544        3,926       4,824        4,900   
                                              -----------  ----------  -----------  ----------
  Total revenue .............................  31,161       35,922      46,257       35,913   
  Total costs and expenses ..................  20,314       21,833      22,087       23,761   
Income before provision for income taxes and                                                  
 change in accounting principle .............  10,847       14,089      24,170       12,152   
Provision for income taxes ..................   3,363        3,439       7,493        3,889   
                                              -----------  ----------  -----------  ----------
Net income before change in accounting                                                        
 principle ..................................   7,484       10,650      16,677        8,263   
Cumulative effect of change in accounting                                                     
 principle ..................................   4,100           --          --           --   
                                              -----------  ----------  -----------  ----------
Net income ..................................  11,584       10,650      16,677        8,263   
Preferred dividends .........................   1,107        1,143       1,179        1,201   
                                              -----------  ----------  -----------  ----------
Net income attributable to common shares  ... $10,477      $  9,507    $15,498      $  7,062  
                                              ===========  ==========  ===========  ==========
Net income per share before change in                                                         
 accounting principle ....................... $      .16  $       .25 $    .41  $        .18  
Cumulative effect of change in accounting                                                     
 principle ..................................        .11        --          --           --   
                                              -----------  ----------  -----------  ----------
Net income per share ........................ $      .27  $       .25 $    .41  $        .18  
                                              ===========  ==========  ===========  ==========

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

                                                        [Enlarge/Download Table]

                                                               THREE MONTHS ENDED*              
                                                ------------------------------------------------
                                                  MARCH 31,    JUNE 30,    SEPT. 30,    DEC. 31,
                                                    1992         1992        1992         1992  
                                                -----------  ----------  -----------  ----------
                                                                                                
Revenue:                                                                                        
 Sales of electricity and steam ............... $24,147      $28,173     $37,977      $27,045   
 Other income .................................   1,995        2,609       3,160        2,423   
                                                -----------  ----------  -----------  ----------
  Total revenue ...............................  26,142       30,782      41,137       29,468   
  Total costs and expenses ....................  18,541       18,779      20,583       18,894   
Income before provision for income taxes and                                                    
 extraordinary item ...........................   7,601       12,003      20,554       10,574   
Provision for income taxes ....................   1,806        2,852       4,884        2,380   
                                                -----------  ----------  -----------  ----------
Net income before extraordinary item  .........   5,795        9,151      15,670        8,194   
Extraordinary item ............................      --           --          --       (4,991)  
                                                -----------  ----------  -----------  ----------
Net income ....................................   5,795        9,151      15,670        3,203   
Preferred dividends ...........................   1,020        1,056       1,089        1,110   
                                                -----------  ----------  -----------  ----------
Net income attributable to common shares  ..... $  4,775     $  8,095    $ 14,581     $ 2,093   
                                                ===========  ==========  ===========  ==========
Net income per share before extraordinary item  $    .13  $       .22 $       .39  $      .19   
Extraordinary item ............................      --           --          --         (.13)  
                                                -----------  ----------  -----------  ----------
Net income per share .......................... $    .13  $       .22 $       .39  $      .06   
                                                ===========  ==========  ===========  ==========

----------                                                                      
*  The Company's operations are seasonal in nature with a               
disproportionate percentage of income earned in the second and third
quarters.                                                           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

18. SUMMARIZED COMPANY (PARENT ONLY) FINANCIAL STATEMENTS                     

COMPANY (PARENT ONLY) BALANCE SHEETS  
AS OF DECEMBER 31, 1993 AND 1992  
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

                                                        [Enlarge/Download Table]

                                                                        1993        1992  
                                                                    ----------  ----------
                                                                                          
Assets                                                                                    
  Cash and Investments ............................................ $126,824    $  53,321 
  Restricted cash .................................................   13,535         634  
  Development projects in progress ................................   44,272      21,428  
  Investment in and advances to subsidiaries and joint ventures ...  215,660     168,949  
  Equipment, net of accumulated depreciation ......................    2,587       1,575  
  Notes receivable--joint ventures ................................   21,558      19,098  
  Deferred charges and other assets ...............................   16,458      17,214  
                                                                    ----------  ----------

     Total assets ................................................. $440,894    $282,219  
                                                                    ==========  ==========

  Liabilities and Stockholders Equity                                                     

  Liabilities:                                                                            
   Accounts payable ............................................... $      86   $     937 
   Other accrued liabilities ......................................   10,550       5,061  
   Income taxes payable ...........................................    4,000          --  
   Senior notes ...................................................   35,730      35,730  
   Convertible subordinated debenture .............................  100,000          --  
   Deferred income taxes ..........................................   18,310      15,212  
                                                                    ----------  ----------

     Total liabilities ............................................  168,676      56,940  
                                                                    ----------  ----------

  Deferred income relating to joint ventures ......................    1,915       2,165  
                                                                    ----------  ----------

  Redeemable preferred stock ...................................... $ 58,800    $ 54,350  

  Stockholders' equity:                                                                   
   Preferred stock--authorized 2,000 shares no par value ..........       --          --  
   Common stock--authorized 60,000 shares par value $0.0675 per                           
    share;  issued and outstanding 35,446 and 35,258 shares .......    2,404       2,380  
   Additional paid-in capital .....................................  100,965      97,977  
   Retained earnings ..............................................  111,031      68,407  
   Treasury stock, 157 common shares at cost ......................   (2,897)         --  
                                                                    ----------  ----------

     Total stockholders' equity ...................................  211,503     168,764  
                                                                    ----------  ----------
     Total liabilities and stockholders equity .................... $440,894    $282,219  
                                                                    ==========  ==========

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

COMPANY (PARENT ONLY) STATEMENTS OF OPERATIONS  
FOR THE THREE YEARS ENDED DECEMBER 31, 1993   
(DOLLARS IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                         1993       1992       1991  
                                                      ---------  ---------  ---------
                                                                                     
Revenues:                                                                            
 Equity in earnings of subsidiary companies and                                      
  joint ventures before extraordinary items  ........ $61,412    $53,685    $38,364  
 Interest and other income ..........................   8,756      4,557      4,923  
                                                      ---------  ---------  ---------
  Total revenues ....................................  70,168     58,242     43,287  
                                                      ---------  ---------  ---------
Expenses:                                                                            
 General and Administration .........................   6,564      6,796      5,585  
 Interest, net of capitalized interest ..............   2,346        714      2,836  
                                                      ---------  ---------  ---------
  Total expenses ....................................   8,910      7,510      8,421  
                                                      ---------  ---------  ---------
Income before provision for income taxes ............  61,258     50,732     34,866  
Provision for income taxes ..........................  18,184     11,922      8,284  
                                                      ---------  ---------  ---------

Income before change in accounting principle and                                     
 extraordinary item .................................  43,074     38,810     26,582  
Cumulative effect of change in accounting principle     4,100         --         --  
Equity in extraordinary item of joint ventures (Less                                 
 applicable income taxes of $1,533) .................      --     (4,991)        --  
                                                      ---------  ---------  ---------

Net income ..........................................  47,174     33,819     26,582  
Preferred dividends .................................   4,630      4,275         --  
                                                      ---------  ---------  ---------

Net income available to common stockholders  ........ $42,544    $29,544    $26,582  
                                                      =========  =========  =========

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

COMPANY (PARENT ONLY) STATEMENTS OF OPERATIONS  
FOR THE THREE YEARS ENDED DECEMBER 31, 1993   
(DOLLARS IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                        1993        1992        1991  
                                                    ----------  ----------  ----------
                                                                                      
Cash flows from operating activities .............. $ 45,671    $ 22,597    $    631  
                                                    ----------  ----------  ----------
Cash flows from investing activities:                                                 
  Increase in development projects in progress ....  (22,844)     (4,218)     (3,458) 
  Decrease (increase) in advances to and                                              
    investments in subsidiaries and joint ventures   (36,812)     12,155     (41,162) 
  Other ...........................................   (9,945)    (15,711)        251  
                                                    ----------  ----------  ----------

  Cash flows from investing activities ............  (69,601)     (7,774)    (44,369) 
                                                    ----------  ----------  ----------

  Cash flows from financing activities:                                               
  Proceeds from sale of common, treasury and                                          
    preferred stocks, and exercise of warrants and                                    
    stock options .................................    2,912       8,065     111,458  
  Payment of senior notes .........................       --          --      (6,000) 
  Purchase of treasury stock ......................   (2,897)     (4,887)         --  
  Net change in short-term bank loan ..............       --          --     (15,000) 
  Proceeds from issue of subordinated debentures ..  100,000          --          --  
  Purchase of warrants ............................       --     (11,716)         --  
  Deferred charges relating to debt financing .....   (2,582)         --          --  
                                                    ----------  ----------  ----------

Cash flows from financing activities ..............   97,433      (8,538)     90,458  
                                                    ----------  ----------  ----------

Net increase in cash and investments ..............   73,503       6,285      46,720  
Cash and investments at beginning of period  ......   53,321      47,036         316  
                                                    ----------  ----------  ----------

Cash investments at end of period ................. $126,824    $  53,321   $  47,036 
                                                    ==========  ==========  ==========

Interest paid (net of amounts capitalized)  ....... $   (897)   $     464   $   3,342 
                                                    ==========  ==========  ==========

Income taxes paid ................................. $  6,819    $   4,129   $   1,682 
                                                    ==========  ==========  ==========

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   

COMPANY (PARENT ONLY)   
SUPPLEMENTAL NOTES TO FINANCIAL STATEMENTS  
(Dollars in thousands)  

RELATED PARTY TRANSACTIONS                                                      

The Company bills the Coso Project partnership and joint ventures for     
management, professional and operational services. Billings for the years       
ended December 31, 1993, 1992 and 1991 were $18,285, $19,629 and $18,316,       
respectively. Dividends received from subsidiaries for the years ended          
December 31, 1993, 1992 and 1991 were $49,053, $33,524 and $18,935              
respectively.                                                                   

RECLASSIFICATION                                                                

Certain amounts in the fiscal 1992 and 1991 financial statements have been
reclassified to conform to the fiscal 1993 presentation. Such                   
reclassifications do not impact previously reported net income or retained      
earnings.                                                                       

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FINANCIAL STATEMENTS FOR PERIOD ENDING                                          
SEPTEMBER 30, 1994                                                              

INDEPENDENT ACCOUNTANTS' REPORT                                                 

Board of Directors and Stockholders                                             
California Energy Company, Inc.                                                 
Omaha, Nebraska                                                                 

We have reviewed the accompanying consolidated balance sheet of California      
Energy Company, Inc. and subsidiaries as of September 30, 1994, and the         
related consolidated statements of operations for the three-month and           
nine-month periods ended September 30, 1994 and 1993, and the related           
consolidated statements of cash flows for the nine-month periods ended          
September 30, 1994 and 1993. These financial statements are the                 
responsibility of the Company's management.                                     

We conducted our review in accordance with standards established by the         
American Institute of Certified Public Accountants. A review of interim         
financial information consists principally of applying analytical procedures    
to financial data and of making inquiries of persons responsible for            
financial and accounting matters. It is substantially less in scope than an     
audit conducted in accordance with generally accepted auditing standards, the   
objective of which is the expression of an opinion regarding the financial      
statements taken as a whole. Accordingly, we do not express such an opinion.    

Based on our review, we are not aware of any material modifications that        
should be made to such consolidated financial statements for them to be in      
conformity with generally accepted accounting principles.                       

We have previously audited, in accordance with generally accepted auditing      
standards, the consolidated balance sheet of California Energy Company, Inc.    
and subsidiaries as of December 31, 1993, and the related consolidated          
statements of operations, stockholders' equity, and cash flows for the year     
then ended (not presented herein); and in our report dated February 24, 1994,   
we expressed an unqualified opinion on those consolidated financial             
statements. In our opinion, the information set forth in the accompanying       
consolidated balance sheet as of December 31, 1993 is fairly stated, in all     
material respects, in relation to the consolidated balance sheet from which     
it has been derived.                                                            

/s/ DELOITTE & TOUCHE LLP                                                       

DELOITTE & TOUCHE LLP                                                           

Omaha, Nebraska                                                                 
October 19, 1994                                                                

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CONSOLIDATED BALANCE SHEETS 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)  

                                                        [Enlarge/Download Table]

                                                               SEPTEMBER 30,    DECEMBER 31,
                                                                   1994             1993    
                                                             ---------------  --------------
                                                                (UNAUDITED)                 
                                                                                            
Assets:                                                                                     
  Cash and short-term investments .......................... $  316,349       $127,756      
  Joint venture cash and short-term investments ............     27,088         14,943      
  Restricted cash and short-term investments ...............    127,380         48,105      
  Accounts receivable ......................................     33,901         21,658      
  Due from joint ventures ..................................      1,639          1,394      
  Properties and plants, net (Note 3) ......................    522,268        458,974      
  Equipment, net of depreciation ...........................      4,699          4,540      
  Notes receivable--joint ventures .........................     12,255         11,280      
  Other investments ........................................     11,517         10,445      
  Deferred charges and other assets ........................     29,968         16,889      
                                                             ---------------  --------------
    Total assets ........................................... $1,087,064       $715,984      
                                                             ===============  ==============
Liabilities and Stockholders' Equity                                                        

Liabilities:                                                                                
  Accounts payable ......................................... $    1,021       $    607      
  Other accrued liabilities ................................     23,357         19,866      
  Income taxes payable .....................................        587          4,000      
  Construction loans .......................................     21,079             --      
  Project loans ............................................    233,080        246,880      
  Senior Notes (Note 8) ....................................         --         35,730      
  Senior Discount Notes (Note 4) ...........................    421,375             --      
  Convertible Subordinated Debentures ......................    100,000        100,000      
  Deferred income taxes ....................................     24,774         18,310      
                                                             ---------------  --------------
    Total liabilities ......................................    825,273        425,393      
                                                             ---------------  --------------
Deferred income ............................................     19,781         20,288      
Redeemable preferred stock .................................     62,350         58,800      
Commitments and contingencies (Note 5)                                                      
Stockholders' equity:                                                                       
  Preferred stock--authorized 2,000 shares, no par value ...         --             --      
  Common stock--authorized 60,000 shares, par value $0.0675                                 
    per share, issued and outstanding 32,230 and 35,446                                     
    shares at September 30, 1994 and December 31, 1993,                                     
    respectively ...........................................      2,407          2,404      
  Additional paid in capital ...............................    100,000        100,965      
  Retained earnings ........................................    136,769        111,031      
  Treasury stock--3,420 and 157 common shares, at September                                 
    30, 1994 and December 31, 1993, respectively, at cost ..    (59,516)        (2,897)     
                                                             ---------------  --------------
      Total stockholders' equity ...........................    179,660        211,503      
                                                             ---------------  --------------
      Total liabilities and stockholders' equity ........... $1,087,064       $715,984      
                                                             ===============  ==============

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

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CONSOLIDATED STATEMENTS OF OPERATIONS 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)  

                                                        [Enlarge/Download Table]

                                                  THREE MONTHS ENDED     NINE MONTHS ENDED  
                                                    SEPTEMBER 30,          SEPTEMBER 30,    
                                                   1994       1993        1994        1993  
                                                ---------  ---------  ----------  ----------
                                                     (UNAUDITED)            (UNAUDITED)     
                                                                                            
Revenues:                                                                                   
  Sales of electricity and steam .............. $49,498    $41,433    $117,208    $101,046  
  Interest and other income ...................   9,026      4,824      21,980      12,294  
                                                ---------  ---------  ----------  ----------
    Total revenues ............................  58,524     46,257     139,188     113,340  
                                                ---------  ---------  ----------  ----------
Costs and expenses:                                                                         
  Plant operations ............................   9,846      5,878      23,887      18,898  
  General and administration ..................   3,216      2,359       9,536       8,596  
  Royalties ...................................   3,504      3,004       7,898       6,525  
  Depreciation and amortization ...............   5,639      4,344      15,439      13,044  
  Interest expense ............................  17,653      8,184      44,480      20,993  
  Less interest capitalized ...................  (2,087)    (1,682)     (7,518)     (3,822) 
                                                ---------  ---------  ----------  ----------
    Total costs and expenses ..................  37,771     22,087      93,722      64,234  
                                                ---------  ---------  ----------  ----------
Income before income taxes ....................  20,753     24,170      45,466      49,106  
Provision for income taxes ....................   6,340      7,493      14,067      14,295  
                                                ---------  ---------  ----------  ----------
Income before extraordinary item and change in                                              
  accounting principle ........................  14,413     16,677      31,399      34,811  
Extraordinary item (less applicable income                                                  
  taxes of $945) (Note 8) .....................      --         --      (2,007   )       -- 
Cumulative effect of change in accounting                                                   
  principle ...................................      --         --          --       4,100  
                                                ---------  ---------  ----------  ----------
Net income ....................................  14,413     16,677      29,392      38,911  
Preferred dividends (paid in kind)* ...........   1,275      1,179       3,711       3,429  
                                                           ---------  ----------  ----------
Net income attributable to common stockholders  $13,138    $15,498    $ 25,681    $ 35,482  
                                                =========  =========  ==========  ==========
Income per share before extraordinary item and                                              
  change in accounting principle .............. $  0.38    $  0.41    $   0.77    $   0.81  
Extraordinary item (Note 8) ...................      --         --       (0.06)         --  
Cumulative effect of change in accounting                                                   
  principle ...................................      --         --          --        0.11  
                                                ---------  ---------  ----------  ----------
Net income per share assuming no dilution  .... $  0.38    $  0.41    $   0.71    $   0.92  
                                                =========  =========  ==========  ==========
Net income per share assuming full dilution                                                 
  (Note 7) .................................... $  0.36    $  0.41    $   0.70    $   0.92  
                                                =========  =========  ==========  ==========
Average number of common and common equivalent                                              
  shares outstanding assuming no dilution .....  34,831     38,180      36,174      38,436  
                                                =========  =========  ==========  ==========
<FN>                                                                                        
--------                                                                                    
* Reflects dividends on the Company's Series C Redeemable Convertible                       
Preferred Stock, which are payable in kind.                                                 

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS 
(DOLLARS IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                      NINE MONTHS ENDED  
                                                                        SEPTEMBER 30,    
                                                                  -----------------------
                                                                      1994         1993  
                                                                  -----------  ----------
                                                                         (UNAUDITED)     
                                                                                         
  Cash flows from operating activities:                                                  
  Net income .................................................... $  29,392    $ 38,911  
  Adjustments to reconcile net cash flow from operating                                  
    activities:                                                                          
   Depreciation and amortization ................................    15,439      13,044  
   Amortization of original issue discount ......................    21,375          --  
   Amortization of deferred financing costs .....................     1,421        714   
   Provision for deferred income taxes ..........................     6,464       1,848  
  Changes in other items:                                                                
    Accounts receivable .........................................   (12,243)    (12,638) 
    Accounts payable and accrued liabilities ....................     3,905      (4,906) 
    Deferred income .............................................      (507)       (657) 
    Income tax payable ..........................................    (3,413)      1,444  
    Other .......................................................        --          (3) 
                                                                  -----------  ----------
     Net cash flows from operating activities ...................    61,833      37,757  
                                                                  -----------  ----------
  Cash flows from investing activities:                                                  
  Capital expenditures relating to existing power plants ........   (10,739)     (9,401) 
  Well and resource development expenditures for existing                                
    projects ....................................................    (8,508)    (13,270) 
  Acquisition of equipment ......................................      (411)     (1,116) 
  Yuma plant ....................................................    (5,611)    (25,530) 
  Foreign projects--construction in progress and development ....   (46,841)         --  
  Pacific Northwest, Nevada and Utah developments ...............    (6,782)    (14,933) 
  Transmission line deposit .....................................        --       7,684  
  Decrease (increase) in restricted cash ........................   (79,275)     12,892  
  Increase in other investments and assets ......................    (4,371)     (2,327) 
                                                                  -----------  ----------
  Net cash flows from investing activities ......................  (162,538)    (46,001) 
                                                                  -----------  ----------
  Cash flows from financing activities:                                                  
  Proceeds and net benefits from sale of common, treasury, and                           
    preferred stock and exercise of options .....................       677       2,303  
  Deferred financing costs--Senior Discount Notes ...............   (11,201)         --  
  Proceeds from issue of Senior Discount Notes ..................   400,000          --  
  Defeasance of Senior Notes ....................................   (35,730)         --  
  Repayment of project loans ....................................   (13,800)     (8,362) 
  Deferred financing costs--Convertible Subordinated Debentures .        --      (2,500) 
  Proceeds from issue of Convertible Subordinated Debentures ....        --     100,000  
  Proceeds from construction loan ...............................    21,079          --  
  Increase in amounts due from joint ventures ...................    (1,220)     (2,139) 
  Purchase of treasury stock ....................................   (58,362)         --  
                                                                  -----------  ----------
  Net cash flows from financing activities ......................   301,443      89,302  
                                                                  -----------  ----------
Net increase in cash and cash equivalents .......................   200,738      81,058  
Cash and cash equivalents at beginning of period ................   142,699      63,519  
                                                                  -----------  ----------
Cash and cash equivalents at end of period ...................... $ 343,437    $144,577  
                                                                  ===========  ==========
Supplemental disclosures:                                                                
 Interest paid, net of amounts capitalized ...................... $  14,494    $ 14,881  
                                                                  -----------  ----------
 Income taxes paid .............................................. $   5,070    $  1,410  
                                                                  ===========  ==========

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER KWH DATA)   

1. GENERAL                                                                      

In the opinion of management of California Energy Company, Inc. (the      
"Company"), the accompanying unaudited consolidated financial statements        
contain all adjustments (consisting only of normal recurring accruals)          
necessary to present fairly the financial position as of September 30, 1994     
and the results of operations for the three and nine months ended September     
30, 1994 and 1993, and cash flows for the nine months ended September 30,       
1994 and 1993.                                                                  

The consolidated financial statement include the accounts of the Company  
and its wholly owned subsidiaries, and its proportionate share of the           
accounts of the partnerships and joint ventures in which it has invested.       

The results of operations for the three and nine months ended September   
30, 1994 and 1993 are not necessarily indicative of the results to be           
expected for the full year.                                                     

Certain amounts in the 1993 financial statements and supporting footnote  
disclosures have been reclassified to conform to the 1994 presentation. Such    
reclassification did not impact previously reported net income or retained      
earnings.                                                                       

2. OTHER FOOTNOTE INFORMATION                                                   

Reference is made to the Company's most recently issued annual report that
included information necessary or useful to the understanding of the            
Company's business and financial statement presentations. In particular, the    
Company's significant accounting policies and practices were presented as       
Note 2 to the consolidated financial statements included in that report.        

3. PROPERTIES AND PLANTS                                                        

Properties and Plants comprise the following:                             

                                                                [Download Table]

                                                   SEPTEMBER 30,    DECEMBER 31,
                                                       1994             1993    
                                                 ---------------  --------------
                                                    (UNAUDITED)                 
                                                                                
Project costs:                                                                  
 Power plants and gathering systems ............ $304,030         $246,219      
 Wells and resource development ................  171,802          162,776      
                                                 ---------------  --------------
                                                  475,832          408,995      
Less accumulated depreciation and amortization    (85,010)         (69,823)     
                                                 ---------------  --------------
Net facilities .................................  390,822          339,172      
Resource development in progress ...............      421              939      
                                                 ---------------  --------------
Total project costs ............................  391,243          340,111      
                                                 ---------------  --------------
Yuma plant --construction in progress  .........       --           41,461      
Upper Mahiao plant --construction in progress  .   34,584               --      
Manhanagdong --construction in progress  .......   11,053               --      
Other foreign project development ..............    1,204               --      
Pacific Northwest costs ........................   45,922           41,910      
Nevada and Utah properties cost ................   38,262           35,492      
                                                 ---------------  --------------
   Total ....................................... $522,268         $458,974      
                                                 ===============  ==============

In June 1994, amounts recorded as "Yuma plant --construction in progress" 
were transferred to "Power plants and gathering systems".                       

4. SENIOR DISCOUNT NOTES                                                        

In March 1994, the Company issued $400,000 of 10-1/4% Senior Discount     
Notes which accrete to an aggregate principal amount of $529,640 at maturity    
in 2004. The original issue discount (the difference                            

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER KWH DATA)   

between $400,000 and $529,640) will be amortized from issue date through        
January 15, 1997, during which time no cash interest will be paid on the        
Senior Discount Notes. Commencing July 15, 1997, cash interest on the Senior    
Discount Notes will be payable semiannually on January 15 and July 15 of each   
year. The Senior Discount Notes are redeemable at any time on or after          
January 15, 1999. The redemption prices commencing in the twelve month period   
beginning January 15, 1999 (expressed in percentages of the principal amount)   
are 105.125%, 103.417%, 101.708%, and 100% for 1999, 2000, 2001, and 2002,      
respectively, plus accrued interest through the redemption date in each case.   
The Senior Discount Notes are unsecured senior obligations of the Company.      

5. COMMITMENTS AND CONTINGENCIES                                                

In April 1994, the Company closed the financing for the 128 GMW Upper     
Mahiao geothermal power project located in the Philippines. The total project   
cost for the facility is approximately $218,000. The Company will supply        
approximately $56,000 of equity and project debt financing will constitute      
the balance of approximately $162,000. A syndicate of international             
commercial banks is providing the construction financings. The Export-Import    
Bank of the U.S. ("Ex-Im Bank") is providing political risk insurance to the    
commercial banks on the construction loan and will provide the preponderance    
of project term financing upon satisfaction of conditions associated with       
commercial operation. As of September 30, 1994, draws on the construction       
loan totalled $20,636, equity investments made by a subsidiary of the Company   
totalled $12,712, and the Company has invested $1,236. The Overseas Private     
Investment Corporation ("OPIC") is providing political risk insurance on the    
equity investment by the Company in this project. The Upper Mahiao project      
has begun construction, and is expected to be in service by July of 1996. The   
project is structured as a ten year Build-Own-Transfer ("BOT"), in which the    
Company's subsidiary CE Cebu Geothermal Power Company, Inc., the project        
company, will be responsible for implementing construction of the geothermal    
power plant and, as owner, for providing operations and maintenance during      
the ten year BOT period. The electricity generated by the Upper Mahiao          
geothermal power plant will be sold to the Philippine National Oil Company      
--Energy Development Corporation ("PNOC-EDC"), which is also responsible for    
supplying the facility with the geothermal steam. After a ten year              
cooperation period, and the recovery by the Company of its capital investment   
plus incremental return, the plant will be transferred to PNOC-EDC at no        
cost. Ormat Inc. of Sparks, Nevada is the turnkey contractor for the project.   

In 1993 the Company and PNOC-EDC signed an Energy Conversion agreement for
a 180 GMW project at the Mahanagdong geothermal site with a target completion   
date of July 1997. As with the Upper Mahiao project, the Mahanagdong project    
is structured as a ten year Build-Own-Transfer ("BOT"), in which the Company    
will be responsible for implementing construction of the geothermal power       
plant and, as owner, for providing operations and maintenance for the ten       
year BOT period. The electricity generated by the geothermal power plant will   
be sold to PNOC-EDC, which is also responsible for supplying the facility       
with the geothermal steam. After a ten year cooperation period, and the         
recovery by the Company of its capital investment plus incremental return,      
the plant will be transferred to PNOC-EDC at no cost.                           

The Mahanagdong project will be built, owned and operated by CE Luzon     
Geothermal Power Company, a Philippine corporation, that is expected to be      
owned post completion as follows: 45% by the Company, 45% by Kiewit, and up     
to 10% by another industrial company. The turnkey contractor consortium         
consists of Kiewit Construction Group, Inc. (with an 80% interest) and The      
Ben Holt Co., a wholly owned subsidiary of the Company (with a 20% interest).   

In August 1994, the Company completed the financing on the Mahanagdong    
project with a total project cost of approximately $320 million. The capital    
structure consists of a term loan of $240 million and approximately $80         
million in equity contributions. The construction debt financing facility       
will be provided by OPIC and a consortium of commercial lenders led by Bank     
of America NT&SA. The debt provided by the commercial lenders will be insured   
against political risks by the Ex-Im Bank. Ten-year                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER KWH DATA)   

term debt financing will be provided by Ex-Im Bank (which will replace the      
construction debt) and by OPIC. The Mahanagdong project has commenced           
construction and as of September 30, 1994, the Company's proportionate share    
of draws on the construction loan totalled $443, equity investments made by a   
subsidiary of the Company totalled $3,899, and the Company has invested         
$6,711.                                                                         

The Company has made an offer (the "Offer to Purchase") to acquire all of 
the outstanding shares of Magma Power Company ("Magma") for $38.50 per share,   
comprised of $28.50 in cash and $10.00 in market value of the Company's         
common stock. As the first step in implementing its proposal to acquire all     
Magma shares, CE Acquisition Company, Inc. (the "Purchaser"), a wholly owned    
subsidiary of the Company, commenced a cash tender offer (the "Offer") to       
purchase 12,400 shares, or approximately 51% of the common stock of Magma       
Power Company, at a price of $38.50 net per share to be followed by a second    
step merger for a combination of cash and the Company common stock, which       
when completed would result in an aggregate blended consideration of $28.50     
in cash and $10.00 in market value of the Company's common stock for each       
share of Magma purchased by the Company. The Offer currently is set to expire   
on December 2, 1994. Magma's Board of Directors (the "Board") has recommended   
that their shareholders not accept the Company's $38.50 per share Offer.        

In order to facilitate consummation of its acquisition offer, the Company 
is soliciting requests to call a special meeting of Magma stockholders and      
has established November 7, 1994 as the record date for its solicitation        
period which will also expire on December 2, 1994. The Company has stated       
that it intends to withdraw its $38.50 per share acquisition proposal if it     
has not signed a merger agreement with Magma or received a sufficient number    
of requests from Magma stockholders to call a special meeting by December 2,    
1994. The special meeting will provide Magma stockholders the opportunity to    
consider and vote on the Company's special meeting proposals which, if          
approved, would result in certain bylaw amendments that would facilitate the    
Company's proposal and the election of four Company nominees to Magma's         
Board, who would be committed to removing any impediments to shareholders       
being able to freely choose whether to accept the Offer and approve the         
proposed merger, thereby ensuring that the Offer and proposed merger get a      
full and fair hearing. The Company also intends to call a special meeting of    
its shareholders to approve the issuance of the Company's stock in connection   
with the transaction. Kiewit, the Company's largest shareholder, which          
beneficially owns approximately 43.8% of the common shares, has already         
approved the proposed transaction.                                              

The Company anticipates that a substantial portion of the cash required to
purchase Magma shares and rights pursuant to the Offer and the proposed         
merger will be provided through a secured bank credit facility. The Company     
has received a fully underwritten financing commitment letter which states      
that the lender will provide up to $500,000 in secured bank financing in        
connection with the Offer and the proposed merger. Such funds, together with    
a portion of the Company's general corporate funds, will be sufficient to pay   
the cash portion of the consideration for the Offer and proposed merger and     
related expenses.                                                               

The commitment letter contemplates (i) a facility of up to $250,000 to    
capitalize the Company for the purpose of financing the Offer and (ii)          
facilities of up to $500,000 for, among other things, refinancing the tender    
facility and effectuating the proposed merger.                                  

The term of the tender facility will be 12 months, extendible for a term  
of up to three years from the initial funding at the mutual consent of the      
Company and the lender. The tender facility will be a margin loan               
collateralized by the shares purchased pursuant to the Offer.                   

The merger facility will be composed of (i) up to a 6-year amortizing term
loan ("Term Loan A") in an expected amount of up to $500,000 less the amount    
of Term Loan B (as defined below) and (ii) up to an 8-year amortizing term      
loan ("Term Loan B") in an expected amount not to be less than $150,000. The    
merger facilities are to be amortized from internally generated funds and       
will be secured by an assignment and pledge of Magma stock and all              
unencumbered assets of Magma.                                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER KWH DATA)   

The lender's commitment to provide the facilities is subject to certain 
customary conditions, including without limitation (a) a capital investment     
by the Company in an amount and form satisfactory to the lender, (b) the        
absence of certain material adverse changes and (c) the lender's satisfaction   
with its due diligence with respect to the Company and Magma.                   

The definitive documentation relating to the facilities will contain      
representations, warranties, covenants, events of default and conditions        
customary for transactions of this size and type.                               

On October 3, 1994, Magma filed a complaint entitled Magma Power Company  
v. California Energy Company, Inc., Case No. CV-N-94-06160, against the         
Company in the Second Judicial District Court of the State of Nevada in and     
for the County of Washoe. The complaint seeks a declaratory judgment that (i)   
Magma's Board properly discharged its fiduciary obligations in adopting a       
poison pill and amendments to its bylaws and, accordingly, such documents       
were valid and binding, and (ii) Nevada General Corporation Law ("NGCL")        
Sections 78.411 through 78.444 (the "Merger Moratorium Statute") is valid and   
not in violation of the Commerce Clause and Supremacy Clause of the United      
States Constitution. The Company subsequently removed this action to the        
United States District Court for the District of Nevada.                        

On October 17, 1994, the Company filed its answer and counterclaims in    
response to Magma's complaint. The counterclaims name the Purchaser as an       
additional counterclaim plaintiff and Magma's directors as counterclaim         
defendants in addition to Magma. The Company's counterclaims seek primarily:    
(i) a declaratory judgment that certain actions taken by Magma, including the   
amendment to Magma's bylaws purporting to preclude Magma's stockholders from    
taking action by written consent, and implementation of its poison pill, are    
void and ultra vires, and constitute a breach of fiduciary duty by Magma's      
Board; (ii) an injunction requiring Magma's Board to rescind the amendment to   
Magma's bylaws which purports to eliminate the power of stockholders to act     
by written consent, the "golden parachute" severance agreements granted to 15   
members of Magma's management and the indemnification agreements granted to     
each member of Magma's Board; (iii) an injunction enjoining the operation of    
the poison pill and directing Magma's Board to redeem the poison pill rights;   
(iv) a declaratory judgment that the Merger Moratorium Statute is               
unconstitutional under the Supremacy Clause and the Commerce Clause of the      
United States Constitution; (v) an injunction requiring Magma to correct all    
false and misleading statements in its Schedule 14D-9 and the amendments        
thereto.                                                                        

On October 17, 1994, Magma filed an amended complaint, which in addition  
to the relief requested in its original complaint, seeks (i) declaratory and    
injunctive relief with respect to certain purportedly false and misleading      
disclosures in the Company's and the Purchaser's Schedule 14D-1 and the Offer   
to Purchase therein; and (ii) declaratory and injunctive relief with respect    
to certain allegedly false and misleading statements made in the Company's      
preliminary Request Solicitation Statement filed with the Commission pursuant   
to Section 14(a) of the Exchange Act on October 13, 1994.                       

On October 19, 1994, the Company and the Purchaser filed their answer to  
Magma's amended complaint and amended their counterclaims which, in addition    
to the relief requested in the original counterclaims, seek an injunction       
requiring Magma to correct additional false and misleading statements           
reflected in an amendment to its Schedule 14D-9 and in other statements made    
by Magma.                                                                       

On October 25, 1994, the Company and the Purchaser filed their second     
amended counterclaims which, in addition to the relief requested in the         
original and amended counterclaims, seek an injunction requiring Magma to       
refrain from (i) taking actions to damage its international development         
projects, including the Karaha project, or (ii) taking other actions designed   
to waste corporate assets and block the Offer and the proposed merger.          

On November 3, 1994, the Company and the Purchaser filed their third      
amended counterclaims which, among other things, seek a ruling that the         
Control Share Statute does not apply to the Offer.                              

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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER KWH DATA)   

The Company intends to take any action necessary to have attempted      
impediments to the Offer and the proposed merger set aside.                     

On October 14, 1994, Ben Holt, a stockholder of Magma, and a director of  
the Company, filed a complaint entitled Ben Holt v. Magma Power Company, Case   
No. CV94-06432, against Magma in the Second Judicial District Court for the     
State of Nevada in and for the County of Washoe (the "Court"), alleging,        
among other things, that Magma has infringed the plaintiff's right as a         
stockholder by denying his statutory right under the NGCL to demand access to   
Magma's stockholder list and certain related material necessary to              
communicate with Magma's stockholders. The plaintiff sought an order            
directing Magma to comply with the demand for the stockholder list and          
related information necessary to communicate with stockholders.                 

On October 25, 1994, the Court issued an order directing Magma forthwith  
and without delay to turn over to Mr. Holt a complete record or list of         
Magma's stockholders together with certain other information concerning         
stockholders of Magma requested by Mr. Holt in his demand letter to Magma.      
The Court ruled expressly that Mr. Holt satisfied the requirements of the       
NGCL governing requests for stockholder information in that he had been a       
stockholder of Magma for more than six months as of the time of his demand,     
and had complied with Magma's request for an affidavit concerning his           
request; that Mr. Holt's purpose for requesting stockholder information of      
Magma, which was to facilitate the Company's request for a special meeting of   
stockholders of Magma and otherwise to communicate with the other               
stockholders of Magma concerning the Company's proposal to acquire Magma        
through the Offer and the proposed merger was a proper purpose for which to     
request stockholder information; and that the public interest is served by      
granting Mr. Holt's request for stockholder information.                        

The Yuma Cogeneration Associates ("YCA") 50 MW cogeneration power plant   
commenced commercial operation pursuant to its power purchase agreement with    
San Diego Gas & Electric ("SDG&E") at the end of May 1994. In June 1994 SDG&E   
filed a complaint in U.S. District Court seeking to be released from its        
power purchase agreement with YCA. In September 1994 SDG&E dismissed its case   
against the Company without payment by either party. YCA, a wholly owned        
subsidiary of the Company, received all outstanding amounts due from SDG&E.     

6. INCOME TAXES                                                                 

On January 1, 1993, the Company adopted Statement of Financial Accounting 
Standard No. 109 ("FAS 109"), Accounting for Income Taxes. The adoption of      
FAS 109 changed the Company's method of accounting for income taxes from the    
deferred method as required by Accounting Principles Board No. 11 to an asset   
and liability approach. Under FAS 109, the net excess deferred tax liability    
as of January 1, 1993 was determined to be $4,100. This amount was reflected    
in 1993 income as the cumulative effect of a change in accounting principle.    
It primarily represented the recognition of the Company's tax credit            
carryforwards as a deferred tax asset. There was no cash impact to the          
Company upon the required adoption of FAS 109. Under FAS 109, the effective     
tax rate has increased due to the Company's tax credit carryforwards being      
recognized as an asset upon the adoption of FAS 109 and unavailable to reduce   
the current period's effective tax rate for computing the Company's provision   
for income taxes.                                                               

The Company's effective tax rate continues to be less than the statutory  
rate primarily due to the depletion deduction and the generation of energy      
tax credits in 1994. The significant components of the deferred tax liability   
are the temporary differences between the financial reporting basis and         
income tax basis of the power plant and the well and resource development       
costs, and in addition, the offsetting benefits of operating loss               
carryforwards and investment and geothermal energy tax credits. The income      
tax provision for the nine months ended September 30, 1994, is approximately    
54% current tax expense and 46% deferred tax expense.                           

7. EARNINGS PER SHARE                                                           

Fully diluted earnings per share assumes the conversion of the Convertible
Subordinated Debentures into common shares at a conversion price of             
$22.50/share. The conversion has become dilutive because                        

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER KWH DATA)   

of the significant repurchase by the Company of the Company's common stock      
which has materially reduced the number of shares outstanding and thereby       
increased the relative effect of the conversion.                                

8. EXTRAORDINARY ITEM                                                           

In conjunction with the Company's Senior Discount Note offering (See Note 
4), the 12% Senior Notes were defeased. This resulted in an extraordinary       
item in the amount of $2,007, after the income tax effect of $945. The          
extraordinary item represents the amount necessary to defease the interest      
payments and the unamortized portion of the deferred financing costs on the     
$35,730 Senior Notes. The 1994 contingent interest component of these Senior    
Notes, calculated by reference to the Company's share of available cash flow    
from the Coso Project, remains undefeased and outstanding through the end of    
the calculation period, December 31, 1994.                                      

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MAGMA'S CONSOLIDATED FINANCIAL  
STATEMENTS AND NOTES THERETO  

FINANCIAL STATEMENTS FOR PERIOD ENDING                                          
DECEMBER 31, 1993                                                               

REPORT OF INDEPENDENT ACCOUNTANTS                                               

To the Shareholders and Board of Directors of Magma Power Company               

We have audited the accompanying consolidated balance sheets of Magma Power     
Company and Subsidiaries (the "Company") at December 31, 1993 and 1992, and     
the related consolidated statements of operations, changes in shareholders'     
equity and cash flows for each of the three years in the period ended           
December 31, 1993. The financial statements are the responsibility of the       
Company's management. Our responsibility is to express an opinion on these      
consolidated financial statements based on our audits.                          

We conducted our audits in accordance with generally accepted auditing          
standards. Those standards require that we plan and perform the audit to        
obtain reasonable assurance about whether the consolidated financial            
statements are free of material misstatement. An audit includes examining, on   
a test basis, evidence supporting the amounts and disclosures in the            
financial statements. An audit also includes assessing the accounting           
principles used and significant estimates made by management, as well as        
evaluating the overall financial statement presentation. We believe our         
audits provide a reasonable basis for our opinion.                              

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the consolidated financial position of Magma Power       
Company and Subsidiaries at December 31, 1993 and 1992, and the consolidated    
results of their operations and their cash flows for each of the three years    
in the period ended December 31, 1993 in conformity with generally accepted     
accounting principles.                                                          

/s/ Coopers & Lybrand                                                           

Coopers & Lybrand                                                               
San Diego, California                                                           
March 18, 1994                                                                  

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CONSOLIDATED BALANCE SHEETS 
(AS OF DECEMBER 31, 1993 AND 1992)  
(DOLLARS IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                       1993        1992  
                                                                   ----------  ----------
                                                                                         
Assets                                                                                   
 Current Assets                                                                          
   Cash .......................................................... $ 18,017    $  2,106  
   Marketable securities .........................................   32,086      37,501  
   Partnership cash and marketable securities ....................   22,919      20,724  
   Accounts receivable:                                                                  
    Trade ........................................................   18,199      11,258  
    Other ........................................................   14,073      12,681  
   Prepaid expenses and other assets .............................   11,922       8,955  
                                                                   ----------  ----------
     Total Current Assets ........................................  117,216      93,225  
                                                                   ----------  ----------
  Land ...........................................................    6,225       5,677  
  Property, plant and equipment, net of accumulated depreciation                         
    of $53,166 and $36,932, respectively .........................  265,215     113,922  
  Exploration and development costs, net of accumulated                                  
    amortization of $13,682 and $10,445, respectively ............  107,069      52,001  
  Acquisition and new project costs ..............................   13,721      26,291  
  Other investments ..............................................   47,642      79,469  
  Power purchase contracts, net of accumulated amortization of                           
    $946 and $88, respectively. ..................................   22,185         853  
  Other assets and deferred charges ..............................   22,762      16,083  
  Goodwill, net of accumulated amortization of $2,122 and $1,757,                        
    respectively .................................................    9,276       9,129  
                                                                   ----------  ----------
     Total ....................................................... $611,311    $396,650  
                                                                   ==========  ==========
  Liabilities and Shareholders' Equity                                                   
  Current Liabilities                                                                    
   Trade accounts payable ........................................ $  7,235    $  4,635  
   Accrued and other liabilities .................................    3,463       3,774  
   Current portion of loans payable ..............................   36,799      10,292  
                                                                   ----------  ----------
     Total Current Liabilities ...................................   47,497      18,701  
                                                                   ----------  ----------
  Loans payable ..................................................  189,209      85,834  
  Deferred income taxes ..........................................   11,387       8,350  
  Other long-term liabilities ....................................   11,300       1,505  
                                                                   ----------  ----------
     Total Non-Current Liabilities ...............................  211,896      95,689  
                                                                   ----------  ----------
  Commitments and contingencies                                                          

  Shareholders' Equity                                                                   
    Preferred stock, $.10 par value, 1,000,000 shares authorized,                        
      none issued and outstanding ................................       --          --  
    Common stock, $.10 par value, 30,000,00 shares authorized,                           
      issued and outstanding 23,989,763 and 22,980,647 shares                            
      respectively ...............................................    2,399       2,298  
    Additional paid-in capital ...................................  144,996     128,154  
    Unrealized gains from marketable securities ..................      583          --  
    Retained earnings ............................................  203,940     151,808  
                                                                   ----------  ----------
      Total Shareholders' Equity .................................  351,918     282,260  
                                                                   ----------  ----------
                                                                   $611,311    $396,650  
                                                                   ==========  ==========

The accompanying notes are an integral part of these statements.  

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CONSOLIDATED STATEMENTS OF OPERATIONS 
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991)  
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)   

                                                        [Enlarge/Download Table]

 YEAR ENDED DECEMBER 31,                                 1993       1992       1991  
---------------------------------------------------  ----------  ---------  ---------
                                                                                     
Revenues                                                                             
  Sales of electricity ............................. $137,882    $ 72,236   $66,015  
  Royalties ........................................   19,629      22,929    13,611  
  Interest and other income ........................    4,195       8,653    10,756  
  Management services ..............................    5,432       5,148     4,509  
                                                     ----------  ---------  ---------
                                                      167,138     108,966    94,891  
                                                     ----------  ---------  ---------
Costs and Expenses                                                                   
  Plant operating costs ............................   49,493      33,258    27,353  
  Depreciation and amortization ....................   21,692      11,927    11,673  
  Other non-plant costs ............................      471         800       200  
  General and administrative .......................   10,943       6,483     5,934  
  Interest incurred ................................    9,626       6,831     8,527  
                                                     ----------  ---------  ---------
                                                       92,225      59,299    53,687  
                                                     ----------  ---------  ---------
   Income from operations ..........................   74,913      49,667    41,204  
  Provision for income taxes .......................   22,778      13,309     7,263  
                                                     ----------  ---------  ---------
   Income before cumulative effect of accounting                                     
     change ........................................   52,135      36,358    33,941  
  Cumulative effect to January 1, 1992 of change in                                  
    accounting for income taxes ....................       --      17,833        --  
                                                     ----------  ---------  ---------
    Net income ..................................... $ 52,135    $ 54,191   $33,941  
                                                     ==========  =========  =========
Income before cumulative effect of accounting                                        
    change per Common Share                                                          
  Assuming no dilution ............................. $   2.17    $   1.59   $  1.44  
                                                     ----------  ---------  ---------
  Assuming full dilution ........................... $   2.17    $   1.52   $  1.44  
                                                     ----------  ---------  ---------
Cumulative effect of accounting change per Common                                    
    Share                                                                            
  Assuming no dilution ............................. $     --   $    .77    $    --  
                                                     ----------  ---------  ---------
  Assuming full dilution ........................... $     --   $    .75    $    --  
                                                     ----------  ---------  ---------
Income per Common Share                                                              
  Assuming no dilution ............................. $   2.17   $   2.36    $  1.44  
                                                     ----------  ---------  ---------
  Assuming full dilution ........................... $   2.17   $   2.27    $  1.44  
                                                     ----------  ---------  ---------
Average Common Shares Outstanding                                                    
  Assuming no dilution .............................   24,063      22,936    23,611  
                                                     ----------  ---------  ---------
  Assuming full dilution ...........................   24,072      23,847    23,611  
                                                     ----------  ---------  ---------

The accompanying notes are an integral part of these statements.  

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY  
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991)  
(DOLLARS IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                    COMMON STOCK                                                           
                                ------------------                                                         
                                                                    UNREALIZED                             
                                                      ADDITIONAL    GAINS FROM                    TOTAL    
                                                       PAID-IN      MARKETABLE    RETAINED    SHAREHOLDERS'
                                  SHARES    AMOUNT     CAPITAL      SECURITIES    EARNINGS       EQUITY    
                                --------  --------  ------------  ------------  ----------  ---------------
                                                                                                           
Balance, December 31, 1990 .... 22,902    $2,290    $126,660      $ --          $ 63,676    $192,626       
  Other equity transactions,                                                                               
    net ....................... 25        3              302      --                  --         305       
  Net income, 1991 ............ --        --              --      --              33,941      33,941       
                                --------  --------  ------------  ------------  ----------  ---------------
Balance, December 31, 1991 .... 22,927    2,293      126,962      --              97,617     226,872       
  Other equity transactions,                                                                               
    net ....................... 54        5            1,192      --                  --       1,197       
  Net income, 1992 ............ --        --              --      --              54,191      54,191       
                                --------  --------  ------------  ------------  ----------  ---------------
Balance, December 31, 1992 .... 22,981    2,298      128,154      --             151,808     282,260       
  Purchase of Dow stock option                                                                             
    through issuance of shares  857       86             (86)     --                  --          --       
  Tax effect of Dow option                                                                                 
    purchase .................. --        --          13,581      --                  --      13,581       
  Unrealized gains from                                                                                    
    marketable securities ..... --        --              --      583                 --         583       
  Other equity transactions,                                                                               
    net ....................... 152       15           3,347      --                  (3)      3,359       
  Net income, 1993 ............ --        --              --      --              52,135      52,135       
                                --------  --------  ------------  ------------  ----------  ---------------
  Balance, December 31, 1993 .. 23,990    $2,399    $144,996      $583          $203,940    $351,918       
                                ========  ========  ============  ============  ==========  ===============

The accompanying notes are an integral part of these statements.  

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CONSOLIDATED STATEMENTS OF CASH FLOWS 
(FOR THE THREE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991)  
(DOLLARS IN THOUSANDS)  

                                                                [Download Table]

                                                   1993         1992         1991   
                                               -----------  -----------  -----------
                                                                                    
Cash Flows From Operating Activities                                                
Net income ................................... $  52,135    $  54,191    $  33,941  
                                               -----------  -----------  -----------
Adjustments to reconcile net income to net                                          
  cash provided by operating activities:                                            
  Depreciation and amortization ..............    21,692       11,927       11,673  
  Gain from the disposition of investments ...      (771)      (1,280)        (832) 
  Realization of transmission line credits ...     2,538        1,444        1,260  
  Other, net .................................      (227)         (76)        (237) 
  Cumulative effect of adoption of SFAS 109 ..        --      (17,833)          --  
  Changes in components of working capital:                                         
    Accounts receivable ......................    (8,333)      (8,529)         373  
    Partnership cash and marketable securities    (2,195)      (1,233)       1,293  
    Prepaid expenses and other assets ........    (2,253)         585       (2,565) 
    Accounts payable and accrued liabilities .     2,845          501        1,101  
    Accrued interest payable .................       719         (395)           4  
    Income taxes payable .....................     7,605         (301)         439  
    Deferred taxes from operations ...........     7,485        6,684         (842) 
                                               -----------  -----------  -----------
      Total adjustments ......................    29,105       (8,506)      11,667  
                                               -----------  -----------  -----------
Net cash provided by operating activities ....    81,240       45,685       45,608  
                                               -----------  -----------  -----------
Cash Flows From Investing Activities                                                
  Proceeds from the sale of investments ......   223,479      150,271      180,113  
  Purchase of investments ....................  (184,784)    (160,949)    (193,767) 
  Capital expenditures .......................    (8,434)     (12,043)     (15,711) 
  Power plant acquisition costs ..............  (215,081)     (22,527)          --  
  New project development costs ..............   (12,345)      (3,749)          --  
  Other, net .................................     1,893         (667)          43  
                                               -----------  -----------  -----------
   Net cash used in investing activities .....  (195,272)     (49,664)     (29,322) 
                                               -----------  -----------  -----------
Cash Flows From Financing Activities                                                
  Borrowing from banks ......................... 140,000           --           --  
  Proceeds from the issuance of common stock ...      --          691           --  
  Repayment of loans payable ................... (10,081)      (9,501)      (5,669) 
  Commercial paper discounts and prepaid                                            
   interest ....................................     359        1,353           --  
  Other, net ...................................    (335)         841         (181) 
                                               -----------  -----------  -----------
     Net cash provided by (used) in financing                                       
       activities ............................   129,943       (6,616)      (5,850) 
                                               -----------  -----------  -----------
  Net (decrease) in cash .....................    15,911      (10,595)      10,436  
  Cash at beginning of year ..................     2,106       12,701        2,265  
                                               -----------  -----------  -----------
  Cash at end of year ........................ $  18,017    $   2,106    $  12,701  
                                               ===========  ===========  ===========

The accompanying notes are an integral part of these statements.  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNT)  

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES                                 

BASIS OF CONSOLIDATION. The consolidated financial statements present the 
assets, liabilities, revenues, costs and expenses of Magma Power Company (the   
"Company") and its 100% owned subsidiaries and partnerships, Imperial Magma,    
Vulcan Power Company ("Vulcan"), Magma Operating Company ("MOC"), Desert        
Valley Company ("Desert Valley"), Fish Lake Power Company ("FLPC"), Magma       
Land I ("MLI"), Salton Sea Power Company, Salton Sea Brine Processing, L.P.,    
Salton Sea Power Generation, L.P., Peak Power Corporation ("Peak Power") and    
its pro-rata 50% share of the accounts of Del Ranch, L.P., Elmore, L.P.,        
Leathers, L.P., Vulcan/BN Geothermal Power Company and Magma/GEO '83 Joint      
Venture.                                                                        

All significant intercompany transactions and accounts have been          
eliminated.                                                                     

REVENUE RECOGNITION. Sales of electricity represents Magma's pro-rata 50% 
share of the revenue accrued by Del Ranch, L.P., Elmore, L.P., Leathers,        
L.P., and Vulcan/BN Geothermal Power Company (the "Partnerships") and its       
100% owned interest in Salton Sea Power Generation, L.P., from sales to         
Southern California Edison Company ("SCE"). SCE is a subsidiary of SCEcorp.     
SCEcorp is the parent corporation of Mission Energy Company which, through      
its subsidiaries, owns 50% of the Partnerships. Royalties, management service   
fees and rental income contractually payable to Magma by the Partnerships are   
recorded on an accrual basis, net of Magma's pro-rata 50% share of the          
corresponding partnership expense. Royalties earned from providing geothermal   
resources to power plants operated by other geothermal power producers are      
recorded on an accrual basis.                                                   

PROPERTY, PLANT AND EQUIPMENT. Land is carried at cost. Buildings and     
equipment are carried at cost less accumulated depreciation. Exploration and    
development costs are carried at cost less accumulated amortization. Such       
capitalized costs include all costs of acquiring geothermal leases, recurring   
lease rents, geological and geophysical studies and drilling and equipping      
wells. These costs are not amortized until they can be directly associated      
with energy production. Exploration and development costs associated with       
abandoned wells and properties are amortized over the estimated remaining       
life of the resource.                                                           

Depreciation and amortization are computed using the straight-line method 
over the asset's useful life.                                                   

Useful lives are as follows:                                              

                                                                [Download Table]

                                                    
Plant, plant equipment and buildings  ... 20 years  
Office furniture and equipment .......... 5-10 years
Maintenance and other equipment  ........ 7-10 years
Exploration and development costs  ...... 20 years* 

* Life of related plant facility.                                               

When property, plant and equipment is sold or abandoned, the cost and     
related accumulated depreciation/amortization are removed from the accounts     
and the resulting gain or loss is recognized currently.                         

DEFERRED WELL REWORK COSTS. Magma defers all rework costs and amortizes   
them over the estimated period between reworks. Production wells are            
amortized using a units of production method while injection wells are          
amortized on a straight-line basis over 18 months. Deferred well rework costs   
of $5,181,000 in 1993 and $3,010,000 in 1992 are included in prepaid expenses   
and other current assets.                                                       

POWER PURCHASE CONTRACTS. Power purchase contracts are carried at cost    
less accumulated amortization. Contract costs are amortized on a                
straight-line basis over the shorter of the remaining contract life or 20       
years. The amortization begins at the date of acquisition, for contracts in     
service, or the date of firm operations. Amortization expense amounted to       
$858,000 in 1993 and $25,000 in 1992 and 1991.                                  

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(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNT)  

GOODWILL. In a merger which was effective March 11, 1988, Magma Power   
Company became successor in interest to all of the assets and obligations of    
Magma Energy. The excess of the value of stock issued over the fair market      
value of the assets acquired was recorded as goodwill and is being amortized    
on the straight-line method over a period of thirty years. Amortization         
expense amounted to $365,000 in 1993, 1992 and 1991.                            

MARKETABLE SECURITIES, INTEREST-BEARING DEPOSITS AND OTHER INVESTMENTS.   
Marketable securities and interest-bearing deposits are classified as           
"available-for-sale" and are carried at their fair value. Realized gains and    
losses are determined using the specific identification method and are          
included in other income. Gross unrealized holding gains or losses are          
excluded from earnings and reported, net of related tax effect, as a separate   
component of Shareholders' Equity. Other investments are carried at cost        
which approximates market value.                                                

RETIREMENT PLANS. Magma maintains two defined contribution plans covering 
all eligible employees. Contributions to the plans are funded annually.         

INCOME PER COMMON SHARE. The calculation of primary earnings per common   
share is based on the weighted average number of outstanding common shares.     
In computing primary earnings per common share, adjustment has been made for    
common shares issuable for warrants and shares under option. Fully diluted      
earnings per share reflects the dilutive effect of stock options and warrants   
at the end of the reporting period.                                             

CONSOLIDATED STATEMENT OF CASH FLOWS. For purposes of the Statements of   
Cash Flows, Magma considers bank and money market deposits as cash.             
Partnership cash and marketable securities are not considered cash              
equivalents as these assets are segregated for exclusive use of the             
Partnerships and restrictions in the Partnership Secured Credit Agreements      
place limits on distributions of partnership cash to the partners.              

Interest paid was $8,407,000 in 1993, $5,514,000 during 1992 and          
$8,153,000 during 1991.                                                         

RECLASSIFICATION. Magma has reclassified the presentation of certain prior
year information to conform with the current presentation format.               

2. GEOTHERMAL POWER PARTNERSHIPS                                                

The Vulcan partnership was formed in 1985 with equal ownership between    
Vulcan Power Company, a 100% owned subsidiary of Magma Power Company and BN     
Geothermal, Inc., a wholly owned subsidiary of Mission Energy Company.          

Similarly, the Del Ranch, Elmore and Leathers partnerships were formed in 
1988 with equal ownership between Magma Power Company and Mission Energy        
Company.                                                                        

In March 1993 Magma formed Salton Sea Brine Processing, L.P. to hold the  
well field and brine processing equipment acquired from Union Oil Company of    
California ("Unocal"). Ownership of Salton Sea Brine Processing, L.P. is 99%    
Salton Sea Power Company and 1% Magma Power Company. Magma also formed Salton   
Sea Power Generation, L.P. to hold the power generating assets acquired from    
Desert Power Company and Earth Energy Inc., both wholly owned subsidiaries of   
Unocal. Ownership of Salton Sea Power Generation, L.P. is 99% Salton Sea        
Brine Processing, L.P. and 1% Magma Power Company.                              

3. MARKETABLE SECURITIES AND OTHER INVESTMENTS                                  

Effective December 31, 1993, Magma adopted Statement of Financial         
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and    
Equity Securities" ("SFAS 115"). As of December 31, 1993 all debt and equity    
securities have been classified as available-for-sale and are carried at fair   
value. Gross unrealized holding gains of $836,000 were recorded, net of tax     
effect, as of December 31, 1993.                                                

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNT)  

As of December 31, marketable securities and other investments consisted
of the following:                                                               

                                                        [Enlarge/Download Table]

                                            MARKETABLE                               
                                            SECURITIES                               
                                            (MATURING                   MATURITIES OF
                                            WITHIN ONE       OTHER          OTHER    
1993                                          YEAR)       INVESTMENTS    INVESTMENTS 
----------------------------------------  ------------  -------------  ------------- 
                                                                                     
Debt and equity securities                                                           
 Commercial paper ....................... $ 4,986       $     --                     
 Auction rate preferred stock ...........  23,100                                    
 U.S. treasuries and agencies ...........   4,000        12,986        2-5 years     
 U.S. treasuries and agencies ...........                 5,084        6-10 years    
 Corporate medium-term notes ............                 7,093        2-5 years     
 Corporate medium-term notes ............                 4,139        6-10 years    
 Municipal tax exempts ..................                 3,000        2-5 years     
Other investments                                                                    
 Low income housing limited partnerships                  8,333                      
 Other ..................................                 7,007                      
                                          ------------  -------------  ------------- 
   Total ................................ $32,086       $47,642                      
                                          ============  =============  ============= 
1992                                                                                 
----------------------------------------                                             
Auction rate preferred stock ............ $33,000       $     --                     
U.S. treasuries and agencies ............                17,572                      
Corporate medium-term notes .............   4,501        43,409                      
Low income housing limited partnerships                   8,202                      
Municipal tax exempts ...................                 3,000                      
Other ...................................                 7,286                      
                                          ------------  -------------  ------------- 
   Total ................................ $37,501       $79,469                      
                                          ============  =============  ============= 

In 1992, marketable securities and other investments are carried at cost, 
which approximates market value.                                                

4. PROPERTY, PLANT AND EQUIPMENT                                                

Property, plant and equipment at December 31 consisted of the following   
(dollars in thousands):                                                         

                                                                [Download Table]

                                        1993        1992  
                                    ----------  ----------
                                                          
Plant and equipment ............... $297,013    $138,361  
Maintenance equipment .............    8,914       6,069  
Buildings .........................    5,631       2,364  
Office furniture and equipment  ...    3,390       2,047  
Other equipment ...................    3,433       2,013  
                                    ----------  ----------
                                     318,381     150,854  
Less accumulated depreciation  ....   53,166      36,932  
                                    ----------  ----------
Property, plant and equipment, net  $265,215    $113,922  
                                    ==========  ==========

5. ACQUISITION AND NEW PROJECT COSTS                                            

On December 15, 1992, Magma signed a definitive agreement with Unocal to  
purchase all of Unocal's geothermal interests in the Imperial Valley of         
California including three operating geothermal power                           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNT)  

plants (the "Salton Sea Plants") and 40,600 acres of geothermal leases, its     
Long Valley geothermal leases, consisting of approximately 12,000 acres near    
Mammoth, California and its 58,300 acres of geothermal leases in Nevada. On     
March 31, 1993 Magma consummated its acquisition of the Imperial Valley         
geothermal interest. Total cost includes (i) payments to Unocal consisting of   
the purchase price of $224 million, working capital of $7.3 million and an      
interest charge of $3.5 million and (ii) advisory fees and transaction costs    
totaling $3.4 million and a provision for $10 million of capital                
improvements. The total cost of the acquisition is allocated as follows:        

                                                                [Download Table]

                                            
Land ............................. $    388 
Property, plant and equipment  ...  164,366 
Exploration and development costs    53,676 
Power purchase contracts .........   22,217 
Transmission line credits ........    6,254 
Other ............................    1,278 
                                   ---------
   Total ......................... $248,179 
                                   =========

In addition to the initial acquisition price, Magma will make payments to 
Unocal contingent on future development of new power generating capacity. The   
Salton Sea Plants consist of a 10 MW unit, which started firm operation in      
1982, a 20 MW unit, which started firm operation in 1990 and a 50 MW unit,      
which started firm operation in 1989. All three plants deliver electricity to   
Southern California Edison Company under 30 year power purchase contracts.      
The contract for the 10 MW unit is a negotiated contract while the contracts    
for the 20 MW and 50 MW units are ISO4's with levelized energy payments.        

On March 11, 1992 Magma acquired a 30 year modified ISO4 contract to      
supply SCE with 16 MWs of geothermal power from Fish Lake, Nevada. Magma is     
currently engaged in exploratory and well field development activities, which   
are preparatory to constructing a power plant.                                  

Acquisition and new project costs as of December 31, 1993 and 1992 were as
follows (dollars in thousands):                                                 

                                                                [Download Table]

                                                       1993       1992  
                                                    ---------  ---------
                                                                        
Deposit paid Unocal toward asset acquisition price  $    --    $22,400  
Other Unocal asset acquisition costs ..............      --        127  
Fish Lake development costs .......................  13,721      3,764  
                                                    ---------  ---------
   Total .......................................... $13,721    $26,291  
                                                    =========  =========

6. ACCRUED AND OTHER CURRENT LIABILITIES                                        

Accrued and other current liabilities at December 31 consisted of the     
following (dollars in thousands):                                               

                                                                [Download Table]

               1993       1992 
            ---------  --------
                               
Payroll  .. $1,187     $1,554  
Interest  .  1,602        883  
Other .....    674      1,337  
            ---------  --------
   Total  . $3,463     $3,774  
            =========  ========

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNT)  

7. LOANS PAYABLE                                                              

At December 31, loans payable consisted of the following (dollars in      
thousands):                                                                     

                                                                [Download Table]

                                                       1993       1992  
                                                   ----------  ---------
                                                                        
Pro-rata portion of partnership non-recourse debt  $ 75,149    $84,177  
Bridge loan ......................................  140,000         --  
Other loans ......................................   10,859     11,949  
                                                   ----------  ---------
                                                    226,008     96,126  
Less amounts due within one year .................   36,799     10,292  
                                                   ----------  ---------
Loans payable due after one year ................. $189,209    $85,834  
                                                   ==========  =========

Loans payable at December 31, 1993 and 1992 included Magma's pro-rata     
share of the debt of the Del Ranch, Elmore, and Leathers partnerships and is    
non-recourse to Magma Power Company and subsidiaries, however, it is            
collateralized by substantially all of the assets of these partnerships. A      
Secured Credit Agreement with a group of international banks, with Morgan       
Guaranty Trust Company ("Morgan") as the agent bank provides for direct bank    
loans at specified premiums over a choice of either the bank's prime rate,      
the London Interbank Offered Rate ("LIBOR") or the CD Base rate. As an          
alternative, each partnership may elect to issue commercial paper and           
medium-term notes supported by letters of credit issued by Fuji Bank,           
Limited, which are secured, in turn, by the project debt facility with Magma.   

The partnerships had no direct bank borrowings at December 31, 1993 and   
1992. The weighted average interest rate of the commercial paper and            
medium-term notes outstanding at December 31, was 5.5% in 1993 and 6.2% in      
1992. During 1993 and 1992 Magma's pro-rata share of the partnership weighted   
average borrowings was $77,616,000 and $85,926,000, with a weighted average     
interest rate of 5.6% and 6.7% for the corresponding periods.                   

The loans of each partnership are reduced by 25 semi-annual principal     
payments in March and September of each year. The last principal payment is     
scheduled for September 15, 2001 for the Del Ranch and Elmore loans and         
September 15, 2002 for the Leathers loan.                                       

On March 19, 1993 Magma entered into a one-year $140,000,000 term loan    
("Bridge Loan") with a group of commercial banks. Proceeds of the loan were     
used to finance the acquisition of the Imperial Valley geothermal interests.    
Interest on the loan accrues at LIBOR plus .675%.                               

On February 28, 1994 Magma replaced the Bridge Loan with a $130,000,000   
non-recourse project level debt which is collateralized by substantially all    
of the assets of the newly acquired Salton Sea Plants. A secured credit         
agreement with a group of international banks, with Credit Suisse as the        
agent bank, provides for direct loans at LIBOR plus 1.25%.                      

The loans are reduced by 12 semi-annual principal payments in March and   
September of each year. The last principal payment is scheduled for March 15,   
2000.                                                                           

Other loans consist of a 10-year $4,000,000 tax exempt debt financing     
guaranteed by Magma Power Company on behalf of Desert Valley, and installment   
obligations representing scheduled capital contributions for investments in     
low income housing limited partnerships. The tax exempt bonds issued in         
October, 1990 have a coupon interest rate of 7.625% and a sinking fund          
requirement in the seventh through tenth years. The installment obligations     
are non-interest bearing and are payable through the year 2000 in varying       
amounts totalling $6,467,000.                                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNT)  

Magma's pro rata portion of annual maturities of loans payable for the  
five years beginning January 1, 1994 are as follows (dollars in thousands):     

                                                                [Download Table]

                               PRO RATA                        
                              PORTION OF                       
                SALTON SEA    PARTNERSHIP                      
                  PLANTS         DEBT         OTHER      TOTAL 
              ------------  -------------  ---------  ---------
                                                               
1994 ........ $  25,692     $ 9,724        $ 1,383    $ 36,799 
1995 ........   25,072       10,718          1,388      37,178 
1996 ........   24,846       12,830          1,393      39,069 
1997 ........   26,108       13,348          2,211      41,667 
1998 ........   25,552       13,348          2,061      40,961 
Thereafter  .   12,730       15,181          2,423      30,334 
              ------------  -------------  ---------  ---------
   Total .... $140,000      $75,149        $10,859    $226,008 
              ============  =============  =========  =========

In addition, Magma Power Company has an unused and available $25,000,000  
line of credit with Morgan and since February 28, 1994, a $5,000,000 working    
line of credit with two of the banks participating in the Bridge Loan           
replacement.                                                                    

8. SHAREHOLDERS' EQUITY                                                         

In 1987 and 1993, Magma entered into technical, engineering and management
agreements with The Dow Chemical Company ("Dow"), a significant shareholder     
of Magma Power Company. Magma agreed to pay for those services either with      
shares of Magma Power Company common stock valued at the then market price or   
cash. Dow services totalling $575,000 in 1993, $799,000 in 1992 and             
$1,222,000 in 1991 were charged to the partnership and paid in cash.            

The 1987 Agreement granted Dow an option for 2,000,000 shares of Magma    
Power Company common stock at option prices that started at $17.00 per share,   
a negotiated price that exceeded the then current market price, and which       
escalated over a four year period commencing one year after operation of the    
Hoch (formerly Del Ranch) plant to a maximum exercise price of $21.00 in        
1993. On October 12, 1993 Magma purchased the option by issuing 857,143 newly   
issued and unregistered shares. The number of shares issued was based on the    
difference between the exercise price of $21.00 per share and the market        
price on October 12, 1993 discounted $1.00 to $37.50. Shareholders' equity      
has been increased by $13,581,000 representing the tax effect of the shares     
purchased.                                                                      

Reserved common stock at December 31 is as follows:                       

                                                                [Download Table]

                                        1993        1992   
                                     ---------  -----------
                                                           
Dow options ........................      --    2,000,000  
Stock Option Plan .................. 655,331      796,390  
Deferred Stock and Incentive Awards   19,925       10,800  
                                     ---------  -----------
   Total ........................... 675,256    2,807,190  
                                     =========  ===========

9. INCENTIVE STOCK OPTION PLAN                                                  

On September 25, 1987, the shareholders of Magma approved the Magma Power 
Company Stock Option Plan of 1987 (the "Plan"). Under the Plan, options to      
purchase an aggregate of 1,000,000 shares of common stock, $0.10 par value,     
of Magma may be granted to salaried employees and consultants of Magma and      
its subsidiaries, as selected by the Board of Directors or its compensation     
committee (the "Committee"). The number of shares available under the Plan is   
subject to adjustment in certain circumstances, including reorganizations,      
recapitalizations, stock splits, reverse stock splits, and stock dividends.     

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(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNT)  

The option price granted under the Plan will be established by the Board
of Directors or the Committee, when the option is granted. Such price may not   
be less than 90% of the fair market value of the stock on the date the option   
is granted. The options have a term of ten years and will become exercisable    
in accordance with a vesting schedule starting one year from the date of the    
grant.                                                                          

Options outstanding have been granted to officers and employees to        
purchase common stock at prices ranging from $9.25 to $32.50 per share.         
Option transactions for the years ended December 31 are as follows:             

                                                        [Enlarge/Download Table]

                                                                          1993         1992  
                                                                      -----------  ----------
                                                                                             
Options outstanding, beginning of year ..............................  475,034     302,561   
Options granted .....................................................   92,175     220,300   
Options exercised (Exercise price $9.25 to $32.50) .................. (141,059)    (47,827)  
                                                                      -----------  ----------
Options outstanding, end of year of which 215,849 were exercisable                           
 at December 31, 1993 ...............................................  426,150     475,034   
                                                                      ===========  ==========

At December 31, 1993 and 1992, respectively, 229,181 and 321,356 shares of
common stock were available for future option grants.                           

10. PROVISION FOR INCOME TAXES                                                  

Magma provides for taxes on income in accordance with Statement of        
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS    
109"). Under SFAS 109, deferred tax assets and liabilities are determined       
based on the difference between the financial statement and the tax basis of    
the assets and liabilities using enacted tax rates in effect for the year in    
which the differences are expected to reverse. The cumulative effect of the     
adoption of SFAS 109 as of January 1, 1992 increased net income by              
$17,833,000 or $.77 per share, and is reported separately in the consolidated   
statement of operations. Financial statements for 1991 were not restated to     
reflect SFAS 109.                                                               

The provision consisted of the following (dollars in thousands):          

                                                                [Download Table]

              CURRENT    DEFERRED     TOTAL 
            ---------  ----------  ---------
                                            
1993                                        
----------                                  
Federal  .. $10,787    $ 6,861     $17,648  
State .....   3,913      1,217       5,130  
            ---------  ----------  ---------
  Total  .. $14,700    $ 8,078     $22,778  
            =========  ==========  =========
1992                                        
----------                                  
Federal  .. $ 4,972    $ 4,783     $ 9,755  
State .....   1,908      1,646       3,554  
            ---------  ----------  ---------
  Total  .. $ 6,880    $ 6,429     $13,309  
            =========  ==========  =========
1991                                        
----------                                  
Federal  .. $ 6,082    $(2,514)    $ 3,568  
State .....   2,633      1,062       3,695  
            ---------  ----------  ---------
  Total  .. $ 8,715    $(1,452)    $ 7,263  
            =========  ==========  =========

Amounts paid to federal and state authorities for income tax purposes     
amounted to $7,707,000 in 1993, $7,244,000 in 1992 and $7,665,000 in 1991.      

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(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNT)  

Deferred tax liabilities and assets for 1993 and 1992 as calculated in  
accordance with SFAS 109 consists of the following (dollars in thousands):      

                                                                [Download Table]

                                    1993       1992  
                                 ---------  ---------
                                                     
Deferred Liabilities:                                
    Depreciation ............... $17,727    $13,953  
    Intangible drilling costs ..  22,832     18,724  
    Other ......................     270      1,872  
                                 ---------  ---------
Gross deferred tax                                   
      liabilities ..............  40,829     34,549  
                                 =========  =========
Deferred Assets:                                     
    Tax credits ................  26,318     23,075  
    Other ......................   3,124      3,124  
                                 ---------  ---------
Total deferred tax assets  .....  29,442     26,199  
                                 ---------  ---------
Net deferred tax liability  .... $11,387    $ 8,350  
                                 =========  =========

Magma realized a tax benefit of $13,581,000 from the purchase of Dow's    
option to acquire Magma Power Company common stock. This benefit resulted in    
a decrease in current income taxes payable of $8,880,000, an increase in        
deferred tax liabilities of $93,000 and an increase in deferred tax assets of   
$4,794,000.                                                                     

The deferred portion of the provision for income taxes for 1991 as        
calculated in accordance with Accounting Principles Board Statement No. 11,     
"Accounting for Income Taxes," consisted of the following (dollars in           
thousands):                                                                     

                                                                [Download Table]

                                                            1991  
                                                         ---------
                                                                  
Depreciation ........................................... $ 1,195  
Intangible drilling costs ..............................     (71) 
Difference between regular and alternative minimum tax    (2,463) 
Other ..................................................    (113) 
                                                         ---------
                                                         $(1,452) 
                                                         =========

Major differences between the statutory rate and the effective rate for   
the years ended December 31 consisted of the following (dollars in              
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                         1993       1992       1991  
                                                      ---------  ---------  ---------
                                                                                     
Taxes at federal statutory rate (35% in 1993 and 34%                                 
 for 1992 and 1991) ................................. $26,220    $16,887    $14,009  
State taxes .........................................   3,592      2,242      2,417  
Amortization of goodwill ............................     127        123        123  
Percentage depletion ................................  (2,692)    (1,321)    (1,292) 
Investment tax credit ...............................    (520)        --     (6,956) 
Lease investments ...................................  (4,268)    (2,887)        --  
Capital gains .......................................      --     (1,815)      (585) 
Other ...............................................     319         80       (453) 
                                                      ---------  ---------  ---------
  Provision for income taxes ........................ $22,778    $13,309    $ 7,263  
                                                      =========  =========  =========
Effective tax rate ..................................    30.4%      26.8%      17.6% 
                                                      =========  =========  =========

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)   
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNT)  

11. COMMITMENTS AND CONTINGENCIES                                             

Magma and its subsidiary, Desert Valley Company, have issued irrevocable  
letters of credit totalling $300,000 and $6,759,000, respectively, which        
guarantee repayment of tax-exempt bond financing, contingent environmental      
liabilities and obligations for site clean-up upon cessation of operations.     

12. QUARTERLY STATISTICS (Unaudited) (dollars in thousands, except per share    
data)                                                                           

                                                        [Enlarge/Download Table]

                                     FIRST      SECOND      THIRD     FOURTH       YEAR  
                                 -----------  ---------  ---------  ---------  ----------
                                                                                         
1993                                                                                     
-------------------------------                                                          
Total revenues .................   $22,458    $45,008    $57,315    $42,357    $167,138  
Income from operations .........     7,826     19,348     30,783     16,956      74,913  
Net income .....................     5,477     13,539     20,453     12,666      52,135  
Income per common share:  ......                                                         
 Assuming no dilution ..........      $.23    $   .56   $    .85   $    .53   $    2.17  
 Assuming full dilution ........       .23        .56        .85        .53        2.17  
1992                                                                                     
-------------------------------                                                          
Total revenues .................   $21,545    $24,174    $31,580    $31,667    $108,966  
Income from operations .........     7,424      9,312     16,344     16,587      49,667  
Income before cumulative effect                                                          
 of accounting change(b) .......     5,434      6,816     11,966     12,142      36,358  
Net income ..................... 23,267(a)      6,816     11,966     12,142      54,191  
Income per common share:                                                                 
  Assuming no dilution .........  $1.01(a)    $   .30    $   .52   $    .53   $    2.36  
  Assuming full dilution .......   1.01(a)        .30        .52        .51        2.27  
<FN>                                                                                     
   (a) First quarter results were restated to include the cumulative effect              
      of change in accounting for income taxes as of January 1, 1992 of                  
      $17,833,000 or $0.77 per common share assuming no dilution and $0.75               
      per common share assuming full dilution due to Magma's adoption of SFAS            
      109.                                                                               

   (b) Quarterly results have been restated to reflect adoption of SFAS 109.             

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FINANCIAL STATEMENTS FOR PERIOD ENDING                                          
SEPTEMBER 30, 1994                                                              

The consolidated balance sheets of Magma and its subsidiaries as of       
September 30, 1994 and December 31, 1993, the consolidated statements of        
operations for the nine months ended September 30, 1994 and 1993, and cash      
flows for the nine months ended September 30, 1994 and 1993, and the notes      
thereto, are set forth below.                                                   

The unaudited interim financial statements reflect all adjustments        
(consisting of normal recurring accruals) which, in the opinion of              
management, are considered necessary for a fair presentation of the results     
of the periods covered.                                                         

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CONSOLIDATED BALANCE SHEETS 
(DOLLARS IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                     SEPTEMBER 30,    DECEMBER 31,
                                                                         1994             1993    
                                                                   ---------------  --------------
                                                                      (UNAUDITED)                 
                                                                                                  
Assets                                                                                            
 Current Assets                                                                                   
    Cash ......................................................... $  5,111         $ 18,017      
    Marketable securities ........................................   43,609           32,086      
    Partnership cash and marketable securities ...................   25,478           22,919      
    Accounts receivable:                                                                          
     Trade .......................................................   34,192           18,199      
     Other .......................................................   20,012           14,073      
    Prepaid expenses and other assets ............................   10,423           11,922      
                                                                   ---------------  --------------
       Total Current Assets ......................................  138,825          117,216      
                                                                   ---------------  --------------
  Land ...........................................................    6,361            6,225      
  Property plant and equipment, net of accumulated depreciation of                                
    $64,828 and $53,166, respectively ............................  256,561          265,215      
  Exploration and development costs, net of accumulated                                           
    amortization of $18,490 and $13,682, respectively ............  104,271          107,069      
  Acquisition and new project costs ..............................   28,367           13,721      
  Other investments ..............................................   41,245           47,642      
  Power purchase contracts, net of accumulated amortization of                                    
    $1,818 and $946, respectively ................................   21,313           22,185      
  Other assets and deferred charges ..............................   24,480           22,762      
  Goodwill, net of accumulated amortization of $2,419 and $2,122,                                 
    respectively .................................................    8,999            9,276      
                                                                   ---------------  --------------
      Total ...................................................... $630,422         $611,311      
                                                                   ===============  ==============
  Liabilities and Shareholders' Equity                                                            
  Current Liabilities                                                                             
   Trade accounts payable ........................................ $  7,832         $  7,235      
   Accrued and other liabilities .................................    3,605            3,463      
   Current portion of loans payable ..............................   37,010           36,799      
                                                                   ---------------  --------------
      Total Current Liabilities ..................................   48,447           47,497      
                                                                   ---------------  --------------
  Loans payable ..................................................  151,959          189,209      
  Deferred income taxes ..........................................   22,376           11,387      
  Other long-term liabilities ....................................   12,354           11,300      
                                                                   ---------------  --------------
      Total Non-Current Liabilities ..............................  186,689          211,896      
                                                                   ---------------  --------------
Shareholders' Equity                                                                              
  Preferred stock, $.10 par value, 1,000,000 shares authorized,                                   
   none issued and outstanding ...................................    2,401            2,399      
Common stock, $.10 par value, 30,000,000 shares authorized,                                       
  issued and outstanding 24,042,915 and 23,989,763 shares,                                        
  respectively ...................................................  142,765          144,996      
Additional paid-in capital .......................................     (677)             583      
Unrealized gains (losses) from marketable securities  ............  250,797          203,940      
                                                                   ---------------  --------------
Retained earnings ................................................  395,286          351,918      
                                                                   ---------------  --------------
    Total Shareholders' Equity ................................... $630,422         $611,311      
                                                                   ===============  ==============

The accompanying notes are an integral part of these statements.  

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CONSOLIDATED STATEMENTS OF OPERATIONS 
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)   
(UNAUDITED)   

                                                                [Download Table]

                                    FOR THE THREE MONTHS   FOR THE NINE MONTHS 
                                    ENDED SEPTEMBER 30,    ENDED SEPTEMBER 30, 
                                   --------------------  ----------------------
                                      1994       1993        1994        1993  
                                   ---------  ---------  ----------  ----------
                                                                               
Revenues                                                                       
  Sales of electricity ........... $50,592    $49,674    $124,086    $103,319  
  Royalties ......................   5,628      5,569      15,062      14,885  
  Interest and other income ......   1,400        906       3,866       3,635  
  Management services ............   1,263      1,166       3,090       2,942  
                                   ---------  ---------  ----------  ----------
    Total ........................  58,883     57,315     146,104     124,781  
                                   ---------  ---------  ----------  ----------
Costs and Expenses                                                             
  Plant operating costs ..........  12,723     14,404      41,208      36,622  
  Depreciation and amortization ..   5,875      6,374      17,737      15,449  
  Other non-plant costs ..........     115        118         380         401  
  General and administrative .....   3,730      2,912       9,602       7,471  
  Interest incurred ..............   3,301      2,724       9,262       6,881  
                                   ---------  ---------  ----------  ----------
                                    25,744     26,532      78,189      66,824  
                                   ---------  ---------  ----------  ----------
  Income from operations .........  33,139     30,783      67,915      57,957  
  Provision for income taxes .....  10,290     10,330      21,072      18,488  
                                   ---------  ---------  ----------  ----------
  Net income ..................... $22,849    $20,453    $ 46,843    $ 39,469  
                                   =========  =========  ==========  ==========
Income per Common Share                                                        
  Assuming no dilution ........... $  0.95 $     0.85 $      1.95 $      1.64  
                                   =========  =========  ==========  ==========
Average Common Shares                                                          
    Outstanding                                                                
  Assuming no dilution ...........  24,029     24,096      24,017      24,037  
                                   =========  =========  ==========  ==========

The accompanying notes are an integral part of these statements.  

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CONSOLIDATED STATEMENTS OF CASH FLOWS 
INCREASE (DECREASE) IN CASH   
(DOLLARS IN THOUSANDS)  
(UNAUDITED)   

                                                                [Download Table]

                                                             FOR THE NINE MONTHS  
                                                             ENDED SEPTEMBER 30,  
                                                          ------------------------
                                                              1994         1993   
                                                          -----------  -----------
                                                                                  
Cash Flows From Operating Activities                                              
Net income .............................................. $  46,843    $  39,469  
                                                          -----------  -----------
Adjustments to reconcile net income to net cash provided                          
  by operating activities:                                                        
 Depreciation and amortization ..........................    17,737       15,449  
 Transmission credits realized ..........................     2,209        1,803  
 Other, net .............................................     1,848         (809) 
Changes in components of working capital:                                         
   Accounts receivable ..................................   (21,931)     (25,326) 
   Partnership cash and marketable securities ...........    (2,559)       6,373  
   Prepaid expenses and other assets ....................        87       (2,246) 
   Accounts payable and accrued liabilities .............     4,776        6,688  
   Accrued interest payable .............................    (1,102)         167  
   Income taxes payable .................................    (2,934)       8,646  
   Deferred taxes from operations .......................    12,645        2,920  
                                                          -----------  -----------
  Total adjustments .....................................    10,776       13,665  
                                                          -----------  -----------
Net cash provided by operating activities ...............    57,619       53,134  
                                                          -----------  -----------
Cash Flows From Investing Activities                                              
  Proceeds from the sale of investments .................   205,686      195,545  
  Purchase of investments ...............................  (216,060)    (148,655) 
  Capital expenditures ..................................    (8,854)      (5,718) 
  Power plant acquisition costs .........................        --     (215,718) 
  New project development costs .........................   (11,909)     (11,932) 
  Other, net ............................................    (1,198)       1,166  
                                                          -----------  -----------
Net cash used in investing activities ...................   (32,335)    (185,312) 
                                                          -----------  -----------
Cash Flows From Financing Activities                                              
  Repayment of loans payable ............................  (166,101)     (10,070) 
  Borrowing from banks ..................................   130,000      140,000  
  Loan fees .............................................    (3,225)          --  
  Proceeds from the issuance of common stock ............       816        2,519  
  Other, net ............................................       320         (278) 
                                                          -----------  -----------
  Net cash provided (used) by financing activities ......   (38,190)     132,171  
                                                          -----------  -----------
  Net increase (decrease) in cash .......................   (12,906)          (7) 
  Cash at beginning of period ...........................    18,017        2,106  
                                                          -----------  -----------
  Cash at end of period ................................. $   5,111    $   2,099  
                                                          ===========  ===========

The accompanying notes are an integral part of these statements.  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
(UNAUDITED)   

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

Basis of Consolidation --The consolidated financial statements present the
assets, liabilities, revenues, costs and expenses of Magma, its 100%-owned      
subsidiaries and its proportionate share of partnerships in which Magma has     
invested.                                                                       

All significant intercompany transactions and accounts have been          
eliminated.                                                                     

2. LOANS PAYABLE                                                                

Loans payable consisted of the following (dollars in thousands):          

                                                                [Download Table]

                                                   SEPTEMBER 30,    DECEMBER 31,
                                                       1994             1993    
                                                 ---------------  --------------
                                                                                
Pro-rata share of partnership non-recourse debt  $ 65,157         $ 75,149      
Bridge loan ....................................       --          140,000      
Salton Sea debt ................................  114,308               --      
Other loans ....................................    9,504           10,859      
                                                 ---------------  --------------
                                                  188,969          226,008      
Less amounts due within one year ...............   37,010           36,799      
                                                 ---------------  --------------
Loans payable due after one year ............... $151,959         $189,209      
                                                 ===============  ==============

Loans payable at September 30, 1994 and December 31, 1993 included Magma's
pro-rata share of the debt of the Del Ranch, L.P., Elmore, L.P., and            
Leathers, L.P. partnerships. The partnership loans are non-recourse to Magma    
and subsidiaries, however, it is collateralized by substantially all of the     
assets of these partnerships.                                                   

On March 19, 1993, Magma entered into a $140 million unsecured one-year   
term loan ("Bridge Loan") with a group of commercial banks. Proceeds from the   
loan were used to finance the acquisition of the Salton Sea Plants from         
Unocal. On February 28, 1994, Magma replaced the Bridge Loan with a             
$130,000,000 non-recourse project level loan which is collateralized by         
substantially all of the assets and power purchase contracts of the newly       
acquired Salton Sea Plants. Under the secured credit agreement for this loan,   
a group of international banks loaned to Salton Sea Power Generating, L.P.      
and Salton Sea Brine Processing, L.P. (the "Salton Sea Partnerships"), which    
own the Salton Sea Plants, $130,000,000 in the form of a six (6) year loan at   
interest rates of 1.25% over LIBOR, secured by substantially all of the         
assets of the Salton Sea Partnerships. Restrictions in the secured credit       
agreement place limits on distribution of cash from the Salton Sea Plants to    
Magma.                                                                          

3. DEFERRED INCOME TAXES                                                        

Deferred income taxes as of September 30, 1994 and December 31, 1993      
represent estimated income taxes payable in the future years as determined in   
accordance with SFAS 109 "Accounting for Income Taxes."                         

4. NET INCOME PER COMMON SHARE                                                  

The calculation of primary earnings per common share is based on the      
weighted average number of outstanding common shares. In computing primary      
earnings per common share, adjustment has been made for common shares           
issuable for shares under option.                                               

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IMPERIAL VALLEY GEOTHERMAL INTERESTS  
(ACQUIRED BY MAGMA) FINANCIAL STATEMENTS  

REPORT OF INDEPENDENT ACCOUNTANTS   

To the Board of Directors of                                                    
Magma Power Company:                                                          

We have audited the accompanying Statement of Net Assets Acquired as of March   
31, 1993 and Historical Summaries of Gross Revenues and Direct Operating        
Expenses for each of the three years in the period ended December 31, 1992      
(collectively, the "Statements") of the Imperial Valley Geothermal Interests    
(acquired by Magma Power Company from Union Oil Company of California           
["Unocal"]). The Statement of Net Assets Acquired is the responsibility of      
Magma Power Company's management. The Historical Summaries of Gross Revenues    
and Direct Operating Expenses are the responsibility of Unocal's management.    
Our responsibility is to express an opinion on the Statements based on our      
audits.                                                                         

We conducted our audits in accordance with generally accepted auditing          
standards. Those standards require that we plan and perform the audit to        
obtain reasonable assurance about whether the Statements are free of material   
misstatement. An audit includes examining, on a test basis, evidence            
supporting the amounts and disclosures in the Statements. An audit also         
includes assessing the accounting principles used and significant estimates     
made by management, as well as evaluating the overall presentation of the       
Statements. We believe that our audit provides a reasonable basis for our       
opinion.                                                                        

The accompanying Statements were prepared for inclusion in the Form 8-K of      
Magma Power Company on the basis of presentation as described in Note 1, and    
are not intended to be a complete presentation of the Imperial Valley           
Geothermal Interests' assets, liabilities, revenues and expenses.               

In our opinion, the Statements referred to above present fairly, in all         
material respects, the net assets acquired as of March 31, 1993 and the gross   
revenues and direct operating expenses for each of the three years in the       
period ended December 31, 1992 of the Imperial Valley Geothermal Interests on   
the basis of presentation as described in Note 1, in conformity with            
generally accepted accounting principles.                                       

/s/ Coopers & Lybrand                                                           

San Diego, California                                                           
May 6, 1993                                                                     

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IMPERIAL VALLEY GEOTHERMAL INTERESTS  
(ACQUIRED BY MAGMA POWER COMPANY)   
STATEMENT OF NET ASSETS ACQUIRED  
MARCH 31, 1993  
(IN THOUSANDS)  

                                                                [Download Table]

                                            
Prepaid expenses ..................$  1,629 
Land .............................      388 
Property, plant and equipment  ...  178,050 
Exploration and development costs    39,378 
Power purchase agreements ........   22,217 
Royalty-free use of technology  ..      900 
Transmission line credits ........    5,003 
                                   ---------
  Net assets acquired ............ $247,565 
                                   =========

The accompanying notes are an integral part of these statements.  

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IMPERIAL VALLEY GEOTHERMAL INTERESTS  
(ACQUIRED BY MAGMA POWER COMPANY)   
HISTORICAL SUMMARIES OF GROSS REVENUES AND  
DIRECT OPERATING EXPENSES   
(IN THOUSANDS)  

                                                                [Download Table]

                                    YEAR ENDED DECEMBER 31,   
                               -------------------------------
                                  1990       1991       1992  
                               ---------  ---------  ---------
                                                              
Gross Revenues:                                               
 Sales of electricity ........ $62,997    $73,442    $72,271  
 Other revenue ...............      22         20         --  
                               ---------  ---------  ---------
    Total gross revenues  ....  63,019     73,462     72,271  
                               ---------  ---------  ---------
Direct operating expenses:                                    
 Plant operating costs .......  20,815     23,126     21,693  
 District office charges  ....   4,123      4,389      3,868  
 Exploration operations  .....     901        985        975  
 Rentals in lieu of drilling     1,115      1,036        661  
                               ---------  ---------  ---------
                                26,954     29,536     27,197  
                               ---------  ---------  ---------
Excess of gross revenues over                                 
 direct operating expenses  .. $36,065    $43,926    $45,074  
                               =========  =========  =========

  The accompanying notes are an integral part of these statements.

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IMPERIAL VALLEY GEOTHERMAL INTERESTS  
(ACQUIRED BY MAGMA POWER COMPANY)   
NOTES TO THE STATEMENT OF NET ASSETS ACQUIRED AND   
HISTORICAL SUMMARIES OF GROSS REVENUES AND  
DIRECT OPERATING EXPENSES   
(IN THOUSANDS)  

1. BASIS OF PRESENTATION:                                                       

On March 31, 1993 ("Acquisition Date"), Magma Power Company ("Magma")     
acquired certain geothermal and other related assets located in the Imperial    
Valley of California (the "Imperial Valley Geothermal Interests") from Union    
Oil Company of California ("Unocal"). Magma has accounted for the acquisition   
under the purchase method, and, accordingly, the purchase price allocation in   
the accompanying Statement of Net Assets Acquired is based on the estimated     
fair values of the assets purchased as of the Acquisition Date. Such            
allocation has been based on certain estimates which may be revised at a        
later date. The Statement of Net Assets Acquired is not intended to be a        
complete presentation of the assets and liabilities of the Imperial Valley      
Geothermal Interests.                                                           

The consideration to Unocal and related liabilities assumed in determining
Magma's total cost of acquisition includes $224,000,000 consisting of           
$22,400,000 paid on December 31, 1992 ("Initiation Date" of the transaction)    
and a $201,600,000 note payable due to Unocal on March 31, 1993 for             
geothermal and other related assets; certain current assets and liabilities     
assumed by Magma as of the Initiation Date ("Adjusted Assets"), and an          
estimate of the net of revenues and certain expenditures ("Adjustment           
Account") relating to the operations of the Imperial Valley Geothermal          
Interests from the Initiation Date to the Acquisition Date pursuant to the      
Sale and Purchase Agreement ("Purchase Agreement") between Magma and Unocal;    
interest cost incurred during the acquisition period from the Initiation Date   
to the Acquisition Date paid to Unocal pursuant to the Purchase Agreement; an   
estimate of acquisition costs; and an estimate of capital expenditures for      
necessary improvements to the assets. These costs are summarized as follows:    

                                                                [Download Table]

                                                                
 Acquisition cost of geothermal and other related               
 assets ......................................... $224,000,000  
Adjusted Assets .................................    6,686,000  
Estimated Adjustment Account ....................      590,000  
Interest cost during acquisition period  ........    3,489,000  
Estimated acquisition costs .....................    2,800,000  
Estimated capital improvements ..................   10,000,000  
                                                  --------------
  Total cost of acquisition ..................... $247,565,000  
                                                  ==============

Excluded from the Statement of Net Assets Acquired are certain contingent 
payments of $100,000 per installed megawatt and revenue interests of one        
percent on the gross revenues generated on the first 150 megawatts of new       
plant capacity should Magma construct new geothermal electrical generating      
facilities, as defined in the Purchase Agreement.                               

The accompanying Historical Summaries of Gross Revenues and Direct        
Operating Expenses ("Historical Summaries") include only the gross revenues     
and direct operating expenses attributable to the production and sale of        
geothermal energy from the Imperial Valley Geothermal Interests on Unocal's     
basis of accounting. Prior to the acquisition, the Imperial Valley Geothermal   
Interests were included in the consolidated financial statements of Unocal      
and were not accounted for as a separate entity. Sales of electricity in the    
accompanying Historical Summaries represent revenue accrued from Unocal's       
sales to Southern California Edison Company. The Historical Summaries do not    
include certain significant expenses that were incurred in connection with      
the operations of the Imperial Valley Geothermal Interests and that were        
recorded in the Unocal financial statements. Those expenses were either not     
included because the information was not obtainable as Unocal did not           
allocate such expenses to                                                       

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IMPERIAL VALLEY GEOTHERMAL INTERESTS  
(ACQUIRED BY MAGMA POWER COMPANY)   
NOTES TO THE STATEMENT OF NET ASSETS ACQUIRED AND   
HISTORICAL SUMMARIES OF GROSS REVENUES AND  
DIRECT OPERATING EXPENSES--(CONTINUED)  

1. BASIS OF PRESENTATION, Continued:                                            

individual properties, or the basis of such amounts may be significantly        
different as operated by Magma. Items excluded are depreciation, depletion      
and amortization, transmission charges offset by credits from the Imperial      
Irrigation District, interest expense which may have been incurred for any      
debt directly or indirectly associated with the assets, allocated income        
taxes, accounting, legal, marketing and other general and administrative        
costs. The Historical Summaries also exclude any allocation of the total        
acquisition costs resulting from the purchase of the Imperial Valley            
Geothermal Interest by Magma as reflected in the accompanying Statement of      
Net Assets Acquired.                                                            

2. RELATED PARTIES:                                                             

Included in plant operating costs in the accompanying Historical Summaries
are certain technical support costs paid to a division of Unocal. Technical     
support costs do not exceed $1,600,000 in any respective year.                  

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                                                                     ANNEX A

December 6, 1994                                                                
Board of Directors                                                              
California Energy Company, Inc.                                                 
10831 Old Mill Road                                                             
Omaha, NE 68154                                                                 

Dear Ladies and Gentlemen:                                                      

California Energy Company, Inc., a Delaware corporation (the "Company" or       
"CECI"), CE Acquisition Company, Inc., a Delaware corporation and a wholly      
owned subsidiary of CECI ("Merger Sub"), and Magma Power Company, a Nevada      
corporation ("Magma"), propose to enter into an agreement (the "Agreement")     
pursuant to which Merger Sub will make a tender offer (the "Offer") for at      
least a majority of Magma's outstanding common stock, $0.10 par value per       
share (the "Shares"), for $39.00 per share, net to the seller in cash (the      
"Offer Consideration"). The Agreement also provides that, following             
consummation of the Offer, Merger Sub will be merged with and into Magma in a   
transaction (the "Merger") in which each remaining Share will be converted      
into the right to receive, at the Company's option, either (i) $39.00 per       
share in a combination of cash and a number of shares of CECI's common stock    
to be determined in accordance with the Agreement, or (ii) $38.50 per Share     
in cash (the "Merger Consideration" and together with the Offer                 
Consideration, the "Consideration").                                            

You have asked for our opinion as to whether the Consideration to be paid by    
the Company pursuant to the Offer and the Merger is fair to the Company from    
a financial point of view.                                                      

In arriving at the opinion set forth below, we have, among other things:        

(i) reviewed the audited and unaudited financial statements and public          
Securities Exchange Commission filings for the three most recent fiscal   
years and interim periods to date of Magma and the Company ("SEC          
Reports");                                                                

(ii) on an operating and trading basis, compared financial information          
relating to Magma's businesses with published financial information     
concerning certain companies whose businesses we deemed to be reasonably
similar, in whole or in part, to those of Magma;                        

(iii) analyzed the market prices and trading characteristics of the Shares      
and the Company's common stock for recent periods to date;            

(iv) conducted discussions with members of senior management of the Company     
concerning its businesses and prospects;                                

(v) reviewed certain financial forecasts for Magma and the Company, and         
projections of expected cost savings in a business combination (together, 
the "Projections"), in each case as prepared by the Company;              

(vi) based on the Projections, performed a discounted cash flow analysis of     
Magma including the expected cost savings arising from a business       
combination;                                                            

(vii) based on the Projections, analyzed the pro forma financial effects to     
the Company of the proposed business combination;                     

(viii) assumed without independent investigation that no material contingent    
liability exists with respect to Magma or the Company which is not  
disclosed in the SEC Reports;                                       

(ix) reviewed the definitive merger agreement and related transaction           
documentation; and                                                      

(x) reviewed such other financial studies and performed such other analyses     
and took into account such other matters as we deemed appropriate.        

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It should be noted that our opinion necessarily is based upon prevailing      
market conditions and other circumstances and conditions existing at the        
present time. In preparing our opinion, we have relied upon the accuracy and    
completeness of all information supplied or otherwise made available to us by   
the Company, and we have not independently verified such information or made    
or obtained an independent evaluation or appraisal of the assets of the         
Company or Magma. With respect to the Projections, we have assumed without      
independent investigation that the Projections have been reasonably prepared    
by the Company, and have been generated on bases reflecting the best            
currently available estimates and judgment of the Company's management as to    
the expected future financial performance of the Company or Magma, as the       
case may be.                                                                    

We are acting as financial advisor to the Company in connection with the        
Offer and the Merger and will receive a fee for our services.                   

Based on our analysis of the foregoing, and on our assessment of the general    
economic environment, and assuming no material change therein, we are of the    
opinion that the Consideration to be paid by the Company pursuant to the        
Offer and the Merger is fair to the Company from a financial point of view.     

Very truly yours,                                                               

GLEACHER & CO. INC.                                                             

By:                                                                             

/s/ James Goodwin                                                               

James Goodwin                                                                   
Managing Director                                                               

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                                                                     ANNEX B

December 9, 1994                                                                

The Board of Directors                                                          
Magma Power Company                                                             
4365 Executive Drive                                                            
Suite 900                                                                       
San Diego, CA 92121                                                             

Gentlemen:                                                                      

You have requested that we confirm our oral opinion as to the fairness to the   
holders (other than California Energy Company, Inc. ("California Energy") and   
its affiliates) of the outstanding shares of Common Stock, par value $0.10      
per share (the "Shares"), of Magma Power Company (the "Company") of the Cash    
Consideration and the Merger Consideration (as defined below) proposed to be    
paid by CE Acquisition Company, Inc. ("Purchaser"), a wholly owned subsidiary   
of California Energy, and California Energy in the Offer and the Merger (as     
defined below) pursuant to the Agreement and Plan of Merger dated as of         
December 5, 1994 among California Energy, Purchaser and the Company (the        
"Merger Agreement").                                                            

The Merger Agreement provides for a tender offer for 12,400,000 Shares (the     
"Offer") pursuant to which Purchaser will pay $39.00 per Share in cash for      
each Share accepted (the "Cash Consideration"). The Merger Agreement further    
provides that following completion of the Offer, Purchaser will be merged       
with and into the Company (the "Merger") and each outstanding Share (other      
than Shares already owned by California Energy or Purchaser) will be            
converted into the right to receive, at the option of California Energy;        

  (i) an amount in cash equal to the quotient of (A) $38.75 multiplied
by the number of Shares outstanding at the effective time of the Merger 
(the "Effective Time"), less $39.00 multiplied by the number of Shares  
owned by California Energy and its affiliates immediately prior to the  
Effective Time, divided by (B) the number of Shares outstanding at the  
Effective Time (other than Shares owned by California Energy and its    
affiliates) (the "All Cash Component Amount"); or                       

(ii) both (A) an amount in cash equal to the quotient of $28.50   
  multiplied by the number of Shares outstanding at the Effective Time, less
$39.00 multiplied by the number of Shares owned by California Energy and
its affiliates immediately prior to the Effective Time, divided by the  
number of Shares outstanding at the Effective Time (other than Shares   
owned by California Energy and its affiliates) (such amount, the "Mixed 
  Cash Component Amount"), and (B) the number of shares of Common Stock, par
value $0.0675 per share (the "California Energy Common Stock"), of      
 California Energy equal to the quotient of (I) $39.00 less (II) the Mixed
 Cash Component Amount, divided by the average closing price (the "Average
Closing Price") of California Energy Common Stock on the New York Stock 
 Exchange during the 15 consecutive trading days ending the fifth business
day prior to the Effective Time, provided, however, that if such average
closing price exceeds $18.73, the Average Closing Price will be $18.73, 
  and if such average closing price is less than $14.27, the Average Closing
Price will be $14.27.                                                   

The consideration to be received by the holders of Shares in the Merger,        
under either the All Cash Component Amount or (II) (A) and (II) (B),            
collectively, as applicable, is referred to herein as the "Merger               
Consideration". The Cash Consideration and the Merger Consideration are         
collectively referred to herein as the "Consideration."                         

Goldman, Sachs & Co., as part of its investment banking business, is            
continually engaged in the valuation of businesses and their securities in      
connection with mergers and acquisitions, negotiated underwritings,             
competitive biddings, secondary distributions of listed and unlisted            
securities, private placements and valuations for estate, corporate and other   
purposes. We are familiar with the Company having acted as                      

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its financial advisor in connection with and having participated in certain     
of the negotiations leading to the Merger Agreement. In the course of the       
trading activities of Goldman, Sachs & Co. prior to our retention in            
connection with this matter, the Firm accumulated a long position of 60,100     
Shares.                                                                         

In connection with this opinion, we have reviewed, among other things, the      
Merger Agreement; Annual Reports to Stockholders and Annual Reports on Form     
10-K of the Company and California Energy for the five years ended December     
31, 1993; certain interim reports to stockholders and Quarterly Reports on      
Form 10-Q of the Company and California Energy; certain other communications    
from the Company and California Energy to their respective stockholders;        
certain internal financial analyses and forecasts for the Company prepared by   
the management of the Company; and certain internal financial analyses and      
forecasts for the Company and California Energy prepared by the management of   
California Energy. We also have held discussions with members of the senior     
managements of each of the Company and California Energy regarding the past     
and current business operations, financial condition and future prospects of    
their respective companies and as combined in the contemplated Merger. We       
have reviewed the reported price and trading activity for both the Shares and   
the California Energy Common Stock, compared certain financial and stock        
market information for the Company and Calfornia Energy, respectively, with     
similar information for certain other companies the securities of which are     
publicly traded, reviewed the financial terms of certain recent business        
combinations in the independent power production industry specifically and in   
other industries generally and considered such other information, held such     
other discussions and performed such other studies and analyses as we           
considered appropriate.                                                         

We have relied without independent verification upon the accuracy and           
completeness of all of the financial information and other information          
reviewed by us for purposes of this opinion. In addition, we have not made an   
independent evaluation or appraisal of the assets and liabilities of either     
the Company or California Energy or any of their subsidiaries and we have not   
been furnished with any such evaluation or appraisal.                           

Based upon and subject to the foregoing and such other matters as we            
considered relevant, we confirm our oral opinion that, as of December 5,        
1994, the Cash Consideration and the Merger Consideration to be received by     
the holders of Shares in the Offer and the Merger, taken as a unitary           
transaction, are fair to the holders of Shares receiving such Consideration     
(other than California Energy and its affiliates).                              

Very truly yours,                                                               

/s/ Goldman, Sachs & Co.                                                        

GOLDMAN, SACHS & CO.                                                            

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ADDITIONAL INFORMATION  

If you have any questions, or require any additional information          
concerning this proxy material or the Offer, please contact MacKenzie           
Partners as set forth below. If your shares are held in the name of a           
brokerage firm or bank nominee or other institution, only they can vote your    
shares. Accordingly, please contact the person responsible for your account     
and give instructions for your shares to be voted.                              

MACKENZIE PARTNERS, INC.  
[LOGO]  

156 Fifth Avenue  
New York, New York 10010  
(212) 929-5500 (call collect)   
or  
1-800-322-2885  

APPENDIX FOR GRAPHIC AND IMAGE MATERIAL         

 Graphics or images which cannot be reproduced in the ASCII format
required for EDGAR have been omitted from the pages of the preceding document   
as listed below. Pursuant to Rule 304 of Regulation S-T, the substantive        
information contained in these graphics or images is conveyed in tabular and/or 
narrative form:                                                                 

Page in                                                                         
Typeset Copy                  Description                                       
------------                  -----------                                       
43                              Schematic representing Geothermal Energy        

44                              Map depicting areas of Potential Geothermal     
Energy          

50                              Map of the Republic of the                      
                  Philippines with Project locations

55                              Map of Indonesia and Neighboring                
                Countries with Project locations

57                              Map of the Western United States                
      with Project locations