<PAGE>1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 2 - 26720
LOUISVILLE GAS AND ELECTRIC COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Kentucky 61 - 0264150
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 West Main Street, P.O. Box 32010, Louisville, KY 40232
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(502) 627-2000
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-- --
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
21,294,223 shares, without par value, as of October 31, 1994, all of which
- --------------------------------------------------------------------------
were held by LG&E Energy Corp.
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<PAGE>2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
LOUISVILLE GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of $)
The following statements of income include all normal recurring adjustments
and accruals which are, in the opinion of the Company, necessary to present
a fair statement of the results for the periods shown.
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -----------------
1994 1993 1994 1993
---- ---- ---- ----
OPERATING REVENUES
Electric....................... $169,617 $181,028 $436,206 $442,054
Gas............................ 20,500 19,380 146,631 133,891
------- ------- ------- -------
Total operating revenues... 190,117 200,408 582,837 575,945
------- ------- ------- -------
OPERATING EXPENSES
Fuel for electric generation... 39,838 41,921 109,641 111,097
Power purchased................ 1,621 5,747 8,923 14,214
Gas supply expenses............ 12,374 11,560 98,220 88,409
Other operation expenses....... 33,369 33,831 103,250 100,052
Maintenance.................... 10,441 11,862 37,276 36,428
Non-recurring charges (Note 2). - - 38,613 -
Depreciation and amortization.. 20,633 19,882 61,899 59,645
Federal and State income
taxes...................... 22,025 23,867 29,624 44,799
Property and other taxes....... 3,903 3,952 13,003 12,367
------- ------- ------- -------
Total operating expenses... 144,204 152,622 500,449 467,011
------- ------- ------- -------
NET OPERATING INCOME............... 45,913 47,786 82,388 108,934
Other Income and (Deductions) -
net............................ 280 117 1,269 162
Contribution to Charitable
Foundation - net (Note 3)...... - - 8,946 -
Interest Charges................... 10,755 11,456 31,963 35,297
------- ------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING
PRINCIPLE...................... 35,438 36,447 42,748 73,799
Cumulative Effect of Change in
Accounting for Post-Employment
Benefits, net of income taxes
of $2,280 (Note 4)............. - - (3,369) -
------- ------- ------- -------
NET INCOME......................... 35,438 36,447 39,379 73,799
Preferred Stock Dividends.......... 1,503 1,348 4,261 4,603
------- ------- ------- -------
NET INCOME AVAILABLE FOR
COMMON STOCK................... $ 33,935 $ 35,099 $ 35,118 $ 69,196
------- ------- ------- -------
------- ------- ------- -------
<PAGE>3
LOUISVILLE GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Thousands of $)
ASSETS
September 30, December 31,
1994 1993
------------- ------------
UTILITY PLANT
At Original Cost.......................... $2,515,768 $2,464,101
Less: Reserve for depreciation............ 877,876 823,141
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1,637,892 1,640,960
--------- ---------
OTHER PROPERTY AND INVESTMENTS -
less reserve.............................. 50,490 22,067
--------- ---------
CURRENT ASSETS
Cash and temporary cash investments....... 53,456 44,105
Accounts receivable - less reserve........ 81,756 104,397
Materials and supplies - at average cost
Fuel (predominantly coal)............. 13,374 12,075
Gas stored underground................ 33,809 33,370
Other................................. 38,150 40,357
Prepayments............................... 853 360
--------- ---------
221,398 234,664
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DEFERRED DEBITS AND OTHER ASSETS
Unamortized debt expense.................. 23,785 24,698
Accumulated deferred income taxes......... 79,879 58,675
Regulatory asset - income taxes........... 38,860 39,651
Other..................................... 22,908 52,195
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165,432 175,219
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$2,075,212 $2,072,910
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--------- ---------
<PAGE>4
LOUISVILLE GAS AND ELECTRIC COMPANY
CAPITAL AND LIABILITIES
(Thousands of $)
September 30, December 31,
1994 1993
------------- ------------
CAPITALIZATION
COMMON STOCK, without par value -
Authorized 75,000,000 shares;
outstanding 21,294,223 shares......... $ 425,170 $ 425,170
COMMON STOCK EXPENSE...................... (836) (836)
UNREALIZED LOSS ON MARKETABLE SECURITIES,
net of income taxes of $760 (Note 5).. (1,170) -
RETAINED EARNINGS......................... 194,521 194,903
--------- ---------
617,685 619,237
CUMULATIVE PREFERRED STOCK................ 116,716 116,716
LONG-TERM DEBT............................ 662,866 662,879
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1,397,267 1,398,832
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CURRENT LIABILITIES
Accounts payable.......................... 64,667 93,551
Dividends declared........................ 19,503 18,878
Accrued taxes............................. 15,607 9,494
Accrued interest.......................... 11,718 12,864
Other..................................... 11,406 11,127
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122,901 145,914
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes......... 348,466 340,235
Investment tax credit,
in process of amortization............ 88,004 91,572
Customers' advances for construction...... 8,258 7,384
Regulatory liability - income taxes...... 47,998 46,528
Other..................................... 62,318 42,445
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555,044 528,164
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$2,075,212 $2,072,910
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<PAGE>5
LOUISVILLE GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of $)
Nine Months Ended Sept. 30
--------------------------
1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................... $ 39,379 $ 73,799
Items not requiring cash currently:
Depreciation and amortization............ 61,899 59,878
Deferred income taxes - net.............. (10,175) 884
Investment tax credit - net.............. (3,568) (11,856)
Cumulative effect of change in
accounting principle................. 3,369 -
Non-recurring charges.................... 38,613 -
Other.................................... 5,675 3,777
(Increase) decrease in certain net
current assets:
Accounts receivable...................... 22,641 6,111
Materials and supplies................... 469 2,194
Accounts payable......................... (28,884) (8,499)
Accrued taxes............................ 6,113 20,785
Accrued interest......................... (1,146) (2,219)
Prepayments and other.................... (214) 495
Other........................................ 2,119 384
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Net cash provided from
operating activities................... 136,290 145,733
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CASH FLOWS FROM INVESTING ACTIVITIES
Sale of capital asset........................ - 91,076
Long-term investment in securities........... (30,357) (10,773)
Construction expenditures.................... (57,446) (62,951)
------- -------
Net cash (used for) provided from
investing activities................... (87,803) 17,352
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of preferred stock.................. - 24,716
Issuance of first mortgage and
pollution control bonds.................. - 175,433
Redemption of preferred stock................ - (25,558)
Retirement of first mortgage and
pollution control bonds.................. - (205,872)
Payment of notes payable..................... - (8,000)
Payment of dividends......................... (39,136) (54,777)
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Net cash used for financing activities... (39,136) (94,058)
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<PAGE>6
LOUISVILLE GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of $)
Nine Months Ended Sept. 30
--------------------------
1994 1993
---- ----
NET INCREASE IN CASH AND
TEMPORARY CASH INVESTMENTS................... $ 9,351 $ 69,027
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD.......................... 44,105 946
------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD................................ $ 53,456 $ 69,973
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes............................. $ 34,709 $ 37,453
Interest on borrowed money............... 32,038 36,799
For the purposes of this statement, all temporary cash investments purchased
with a maturity of three months or less are considered cash equivalents.
<PAGE>7
LOUISVILLE GAS AND ELECTRIC COMPANY
STATEMENTS OF RETAINED EARNINGS
(Thousands of $)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
Balance at beginning of period........ $178,586 $178,946 $194,903 $178,667
Add net income........................ 35,438 36,447 39,379 73,799
------- ------- ------- -------
214,024 215,393 234,282 252,466
------- ------- ------- -------
Deduct: Cash dividends declared
on stock -
5% cumulative preferred..... 269 269 807 807
7.45% cumulative preferred.. 400 400 1,199 1,199
$8.90 cumulative preferred.. - - - 1,112
Auction rate cumulative
preferred................. 467 312 1,154 979
$5.875 cumulative preferred. 367 367 1,101 506
Common...................... 18,000 17,000 35,500 50,000
Preferred stock redemption
expense..................... - - - 818
------- ------- ------- -------
19,503 18,348 39,761 55,421
------- ------- ------- -------
Balance at end of period.............. $194,521 $197,045 $194,521 $197,045
------- ------- ------- -------
------- ------- ------- -------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. The financial statements included herein have been prepared by Louisville
Gas and Electric Company (the "Company" or "LG&E"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year 1993.
<PAGE>8
2. Effective January 1, 1994, LG&E's parent company, LG&E Energy Corp.,
realigned its business to reflect its outlook for rapidly emerging
competition in all segments of the energy services industry. Under the
realignment, a national business unit, LG&E Energy Services, was formed
to develop and manage all of its utility and non-utility electric power
generation and concentrate on the marketing and brokering of wholesale
electric power on a regional and national basis. LG&E will increase its
focus on customer service and develop more customer options as the utility
industry becomes more competitive in the future.
In addition to the realignment, LG&E re-evaluated its regulatory strategy
which previously had been to seek full recovery of certain costs deferred
in accordance with prior precedents established by the Public Service
Commission of Kentucky. LG&E completed its study in the first quarter of
1994 and decided to write off several non-recurring items amounting to
approximately $38.6 million before-tax. While LG&E continues to believe
that it could have reasonably expected to recover these costs in future
rate proceedings before the Public Service Commission of Kentucky, LG&E
decided to deduct these expenses currently and not seek recovery for such
expenses in future rates due to increasing competitive pressures and the
existing and anticipated future economic conditions. The items written
off include costs incurred in connection with early retirements and work
force reductions that occurred in 1992 and 1993 which consist primarily
of separation payments, enhanced early retirement benefits, and health
care benefits; costs associated with property damage claims pertaining to
particulate emissions from its Mill Creek electric generating plant which
primarily consist of spotting on automobile finish and aluminum siding;
and certain costs previously deferred resulting from adoption in January
1993 of Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Post-Retirement Benefits Other Than Pensions.
3. In the first quarter of 1994, the Board of Directors of the Company
approved the formation of a tax-exempt charitable foundation which will
make charitable contributions to qualified persons and entities. The
Board authorized an initial contribution to the foundation of up to $15
million. Accordingly, the Company recorded an after-tax charge against
income of $8.9 million. On June 6, 1994, the Internal Revenue Service
issued a letter stating that it had determined the foundation was exempt
from Federal income tax under the Internal Revenue Code. Funding of the
initial $15 million contribution is expected to be completed by year-end.
Contributions made from this foundation will not be charged against income
and, therefore, will not affect the Company's net income in the future.
4. The Company adopted SFAS No. 112 (Statement of Financial Accounting
Standards No. 112, Employers' Accounting for Post-Employment Benefits) in
the first quarter of 1994. SFAS No. 112 requires the accrual of the
expected cost of benefits to former or inactive employees after employment
but before retirement. The cumulative effect of the accounting change was
recorded in the first quarter of 1994 and decreased net income by $3.4
million.
<PAGE>9
5. The Company adopted the provisions of SFAS No. 115 (Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt
and Equity Securities) effective January 1, 1994. Accordingly,
investments in marketable securities have been determined to be
"available-for-sale" and are stated at market value in the accompanying
September 30, 1994, balance sheet. Available-for-sale securities at
September 30, 1994, consisted of $50 million classified as Other Property
and Investments.
6. Reference is made to Part II herein - Item 1, Legal Proceedings.
<PAGE>10
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Results of Operations
---------------------
Because of seasonal fluctuations in temperature and other factors the results
of one interim period are not necessarily indicative of results to be
expected for the year.
Quarter Ended September 30, 1994, Compared with
Quarter Ended September 30, 1993
-----------------------------------------------
The decrease in net income for the quarter reflects a 10% decrease in
electric sales to residential customers attributable to the cooler summer
weather and decreased off-system sales.
A comparison of operating revenues for the quarter ended September 30, 1994,
with the quarter ended September 30, 1993, reflects increases and decreases
which have been segregated by the following principal causes:
Increase or (Decrease)
(Thousands of $)
-------------------------
Electric Gas
Cause Revenues Revenues
----- -------- --------
Sales to Ultimate Consumers:
Fuel and gas supply adjustments.............. $ 904 $1,231
Variation in sales volume, etc............... (7,086) (710)
------ -----
Total.................................... (6,182) 521
Sales for resale............................... (5,237) -
Gas transportation - net....................... - 635
Other.......................................... 8 (36)
------ -----
Total.................................... $(11,411) $1,120
------ -----
------ -----
Fuel for electric generation and gas supply expenses comprise a large segment
of the Company's total operating expenses. The Company's electric and gas
rates contain a fuel adjustment clause and a gas supply clause, respectively,
whereby increases or decreases in the cost of fuel and gas supply may be
reflected in the Company's rates, subject to the approval of the Public
Service Commission of Kentucky. Fuel for electric generation decreased $2.1
million (5%) for the quarter primarily because of a decrease in the cost of
coal burned ($1.2 million) and decreased generation of 3%. Gas supply
expenses increased $.8 million (7%) due mainly to an increase in net gas
supply cost ($1.8 million) partially offset by a 9% decrease in the volume
of gas delivered to the distribution system.
Power purchased decreased $4.1 million primarily because less power was
wheeled for other utilities as a result of the milder weather in the region.
<PAGE>11
Maintenance expenses decreased $1.4 million (12%) primarily due to decreased
repairs at the power plants related to sulfur dioxide removal equipment ($.9
million).
Depreciation and amortization increased because of increased depreciable
plant in service.
Variations in income tax expense are largely attributable to changes in
pre-tax income.
Interest charges decreased because of a lower composite interest rate on
outstanding debt. A component of interest expense was the cost associated
with $30 million of interest rate swaps that the Company entered into as a
standard hedging device in connection with the issuance of Pollution Control
Bonds Series S due September 1, 2017, in 1992. The swaps are designed to
reduce the Company's exposure to interest rate risk. During the three months
ended September 30, 1994, the Company received interest at a composite rate
of 2.89% and paid interest at a composite rate of 4.55% pursuant to the
swaps.
Nine Months Ended September 30, 1994, Compared with
Nine Months Ended September 30, 1993
---------------------------------------------------
Excluding the write off of non-recurring items, the formation of a charitable
foundation and the adoption of SFAS No. 112 as discussed in Notes 2, 3, and
4, net income for the nine months ended September 30, 1994, increased $2.0
million (3%) over the same period in 1993, primarily because of increased
sales of electricity and natural gas to retail customers. This increase was
partially offset by increased storm damage expenses caused by the area's
worst winter storm in 16 years which occurred in January 1994.
A comparison of operating revenues for the nine months ended September 30,
1994, with the nine months ended September 30, 1993, reflects increases and
decreases which have been segregated by the following principal causes:
Increase or (Decrease)
(Thousands of $)
--------------------------
Electric Gas
Cause Revenues Revenues
----- -------- --------
Sales to Ultimate Consumers:
Fuel and gas supply adjustments.............. $ 436 $ 3,430
Variation in sales volume, etc............... 3,656 9,565
------ ------
Total.................................... 4,092 12,995
Sales for resale............................... (10,064) -
Gas transportation - net....................... - (226)
Other.......................................... 124 (29)
------ ------
Total.................................... $ (5,848) $12,740
------ ------
------ ------
<PAGE>12
Fuel for electric generation decreased $1.5 million (1%) for the nine months
because of a decrease in the cost of coal burned. Gas supply expenses
increased $9.8 million (11%) because of an increase in the volume of gas
delivered to the distribution system ($5.5 million) and the higher cost of
gas supply.
Power purchased declined $5.3 million largely because less power was wheeled
for other utilities as a result of the milder weather in the region.
Other operation expenses increased $3.2 million (3%) mainly as a result of
increased costs to operate electric power plants and gas and electric
distribution systems ($1.4 million), an increase in various administrative
expenses ($.7 million), and an increase in the provision for uncollectible
accounts ($.6 million). Maintenance expenses increased $.8 million (2%)
primarily due to an increase in storm damage expenses caused by the severe
winter weather during the first quarter ($3 million), partially offset by
fewer repairs of a routine nature.
Non-recurring charges include the write off of costs in connection with early
retirements and work force reductions that occurred in 1992 and 1993, costs
in connection with property damage claims pertaining to particulate emissions
from the Mill Creek electric generating plant, and certain costs previously
deferred resulting from adoption of Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Post-Retirement Benefits Other
Than Pensions. See Note 2 of Notes to Financial Statements.
Depreciation and amortization increased because of an increase in depreciable
plant in service.
Variations in income tax expense are largely attributable to changes in
pre-tax income.
Property and other taxes increased mainly because of payroll taxes associated
with severance payments in connection with work force reductions. See Note 2
of Notes to Financial Statements.
Other income and deductions include a gain realized from the sale of fully
depreciated heavy equipment.
The contribution to a charitable foundation represents the initial
contribution (net of taxes) to a tax-exempt charitable foundation. See
Note 3 of Notes to Financial Statements.
Interest charges decreased because of a lower composite interest rate on
outstanding debt. A component of interest expense was the cost associated
with $30 million of interest rate swaps that the Company entered into as a
standard hedging device in connection with the issuance of Pollution Control
Bonds Series S due September 1, 2017, in 1992. The swaps are designed to
reduce the Company's exposure to interest rate risk. During the nine months
ended September 30, 1994, the Company received interest at a composite rate
of 2.6% and paid interest at a composite rate of 4.55% pursuant to the swaps.
<PAGE>13
Cumulative Effect of Change in Accounting for Post-Employment Benefits
reflects an accounting change required by the adoption of Statement of
Financial Accounting Standards No. 112, Employers' Accounting for
Post-Employment Benefits. See Note 4 of Notes to Financial Statements.
Liquidity and Capital Resources
-------------------------------
The Company's capital structure and cash flow remained strong throughout the
reported periods. This is evidenced primarily by the Company's ability to
meet its capital needs through internal cash generation, the lack of any
short-term borrowings, and the significant investment in marketable
securities at September 30, 1994. The need for capital funds is primarily
related to the construction of plant and equipment necessary to meet electric
and gas customers' needs and the protection of the environment. Construction
expenditures for the nine months ended September 30, 1994 of $57 million were
financed with internally generated funds.
During 1994, the Company invested $29 million in long-term marketable
securities. At September 30, 1994, the total of such securities amounted to
$50 million.
Variations in accounts receivable and accounts payable are not generally
significant indicators of the Company's liquidity, as such variations are
primarily attributable to seasonal fluctuations in weather, which has a
direct effect on sales of electricity and natural gas.
At September 30, 1994, the Company had lines of credit of $145 million with
banks for which it pays commitment fees. There were no outstanding
borrowings under these credit lines at September 30, 1994. The lines are
scheduled to expire at various periods throughout 1994. The Company intends
to renegotiate such lines when they expire.
The Company's capitalization ratios at September 30, 1994, and December 31,
1993 were:
September 30, 1994 December 31, 1993
------------------ -----------------
Long-term debt............... 47.4% 47.4%
Preferred stock.............. 8.4 8.3
Common stock equity.......... 44.2 44.3
----- -----
Total...................... 100.0% 100.0%
----- -----
----- -----
For a description of significant contingencies that may affect the Company,
reference is made to Part II herein - Item 1, Legal Proceedings and Item 5,
Other Information.
<PAGE>14
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
For a description of the significant legal proceedings involving the Company,
reference is made to the information under the following items and captions
of the Company's Annual Report on Form 10-K for the year ended December 31,
1993: Item 1, Business; Item 3, Legal Proceedings; Item 7, Management's
Discussion and Analysis of Results of Operations and Financial Condition; and
Notes 7 and 8 of the Notes to Financial Statements under Item 8, Financial
Statements and Supplementary Data and to the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994: Part II,
Item I, Legal Proceedings. Except as noted below, there have been no
material changes in these proceedings as reported in the Company's 1993
Form 10-K, March 1994 Form 10-Q, and June 1994 Form 10-Q.
Environmental. As discussed in Note 7 of the Notes to Financial Statements
under Item 8 of the 1993 Form 10-K and in Part II, Item 1, of the June 1994
Form 10-Q, in June 1992, the U.S. Environmental Protection Agency (USEPA)
identified the Company as a potentially responsible party (PRP) allegedly
liable under the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) for $1.6 million in costs allegedly incurred by USEPA
in cleanup of the Sonora site and Carlie Middleton Burn site located in
Hardin County, Kentucky. The USEPA has since increased the amount of its
demand to $1.8 million to reflect additional cleanup costs. In September
1994, USEPA filed a CERCLA cost recovery action in the U.S. District Court
for the Western District of Kentucky against the Company and six other
parties. In the Company's opinion, the resolution of this issue will not
have a material adverse impact on its financial position or results of
operations.
As discussed in Note 7 of the Notes to Financial Statements under Item 8 of
the Company's 1993 Form 10-K and in Part II, Item 1, of the June 1994 Form
10-Q, in August 1993, 34 persons filed a complaint in Jefferson Circuit Court
against the Company seeking certification of a class consisting of all
persons within 2.5 miles of its Mill Creek generating plant. The plaintiffs
seek compensation for alleged personal injury and property damage
attributable to emissions from the Mill Creek plant, injunctive relief, a
fund to finance medical monitoring of area residents, and other relief. In
June 1994, the court denied the plaintiffs' motion for certification of the
class and thus limited the scope of the litigation to the claims of the
individual plaintiffs. In a related matter, the Company has made extensive
efforts to settle the property damage claims of certain Mill Creek area
residents who are not parties to the pending litigation. The Company has
recorded an accrual of $15 million for settlement of these individual
property damage claims.
<PAGE>15
As previously reported, in 1992, the Company entered two agreed orders with
the Air Pollution Control District (APCD) of Jefferson County in which the
Company committed to undertake remedial measures to address certain
particulate emissions and excess sulfur dioxide emissions from its Mill Creek
generating plant. In May 1994, the Company completed all specified remedial
measures in accordance with the terms of the Agreed Orders. The Company
incurred total capital expenditures of approximately $33 million on the
project, with an additional $2 million expected to be incurred through 1996
on related modifications. The Company has agreed to commence a joint field
sampling program with the APCD to demonstrate the effectiveness of the
remedial measures.
In March 1994, the APCD adopted a regulation requiring a 15% reduction from
1990 levels in volatile organic compound (VOC) emissions from industrial
sources. There are currently no demonstrated technologies for control of VOC
emissions from coal-fired utility boilers. Consequently, compliance with the
regulation could require limits on generation at the Mill Creek and Cane Run
plants, unless the APCD adopts a provision for compliance through utilization
of banked emission allowances. The Company is currently negotiating with the
APCD in an effort to demonstrate its eligibility for an exclusion from the
VOC reduction requirements or identify alternatives to the current
regulation. The Company is currently unable to predict the outcome or exact
impact of this matter.
Trimble County Generating Plant. As discussed in Note 8 of the Notes to
Financial Statements under Item 8 of the Company's 1993 Form 10-K and in Part
II, Item 1, of the March 1994 Form 10-Q and the June 1994 Form 10-Q, on
January 7, 1994, the Company filed testimony with the Kentucky Public Service
Commission (Commission) in which it recommended that the Commission allow it
to recover the approximately $11.1 million it refunded to customers under the
1989 settlement agreement. Testimony was filed by intervenors, including the
Kentucky Attorney General, the Jefferson County Attorney, the Metro Human
Needs Alliance, and the Kentucky Industrial Utility Customers. Their
testimony recommended that the Commission order the Company to refund
approximately $183 million, based upon their argument that the Company should
refund 25% of the revenue requirements associated with Trimble County's
construction-work-in-progress (CWIP) collected through rates over the course
of the Trimble County construction project.
On March 25, 1994, the Kentucky Attorney General and the Jefferson County
Attorney (Intervenors) filed a motion with the Commission in which they
requested that two of the three members of the Commission and certain
unspecified Commission staff employees be recused from further participation
in the case. The intervenors supported the motion by arguing that past
statements and orders of the Commission in this and other proceedings showed
that the Commissioners had prejudged the issues relevant to the current
proceeding. The issues referred to in the motion centered on the
Intervenors' claims that the Company should refund 25% of all revenues
associated with Trimble County CWIP collected through rates during the course
of the plant's construction.
<PAGE>16
On July 8, 1994, the Commission entered an order which denied the motion.
In the order, the Commission stated that it had not prejudged any issues but
rather had decided a number of issues in past proceedings which are binding
on it and the parties. The Commission also stated that it had never implied
in prior orders that the amounts of Trimble County CWIP included in rate base
prior to the issuance of its July 1, 1988, order in Case No. 10064, a general
rate case, would be subject to later review. The Commission concluded that
the scope of the present case had been limited since at least 1985 when the
Commission issued an order that put the Company on notice that in future rate
cases the continuation of allowing a return on further additions to Trimble
County CWIP would be an issue.
The Commission made its July 8, 1994, order final and appealable. The order
also stated that the Commission would not take any further action in this
case pending the passage of the statutory amount of time to file an appeal.
On July 27, the Intervenors filed with the Commission a Petition for
Rehearing of the July 8 order, and the Kentucky Industrial Utility Customers
(KIUC) filed an Application for Rehearing with the Commission as well. On
July 29, 1994, the City of Louisville filed a pleading with the Commission
in which it indicated its support for and joinder in KIUC's Application.
On August 16, 1994, the Commission entered an Order which denied the request
for rehearing. On August 24, 1994, the Kentucky Attorney General, Jefferson
County Attorney, and the Metro Human Needs Alliance filed a joint Motion to
Admit Evidence, which requested the Commission to indicate whether the
intervenors' previously filed testimony on retroactive ratemaking and refund
of revenues collected prior to 1988 will be admitted into evidence. The
Commission has not ruled on this Motion.
On September 7, 1994, the Intervenors filed a Complaint with the Franklin
Circuit Court in which they requested that the court prohibit Commissioners
Overbey and Davis from participating in the case, and appoint two special
Commissioners to hear the underlying case. The Complaint also requested the
Court to require the Commission to consider the issue of refunds based upon
pre-1988 CWIP, and to consider all evidence and testimony offered by them.
On September 30, 1994, the Commission filed a Motion to Dismiss the Complaint
on the grounds that the Intervenors had failed to serve their Complaint on
all parties to the underlying proceedings as required by law, and had failed
to designate the Commission record to the court in a timely manner. The
Company, on October 10, 1994, filed its response in support of the
Commission's motion. On November 7, 1994, the Court dismissed the Complaint,
ruling that the Commission's orders of July 8 and August 16 were
interlocutory in nature and could not be appealed until the Commission had
entered a final order in the proceeding.
The Company believes that the Commission's July 8 order makes it unlikely
that the Commission will entertain the position that the Intervenors have
taken in their previously-filed testimony that the Company refund
approximately $183 million to its customers. The Company believes that
remaining at issue is what amount, if any, of the approximately $30 million
it collected subject to refund under a rate case order issued in 1988 should
be returned to ratepayers. Of this amount, the Company has already returned
to ratepayers under the 1989 settlement agreement approximately $11.1 million
through refunds and rate reductions. However, the Company is unable to
predict the outcome of the Commission proceedings, or the amount of
additional refunds or recoveries, if any, that may be ordered.
<PAGE>17
Environmental Cost Recovery. On October 7, 1994, the Company filed an
application with the Kentucky Public Service Commission in which it requested
approval of an environmental cost recovery surcharge to recover the costs the
Company has and will incur to comply with federal, state, and local
environmental requirements that apply to coal combustion wastes and
by-products from its generating facilities. Under state law, the Commission
has until April 7, 1995, to rule on the application. If approved, the
Company estimates that the surcharge will increase electric revenues by $5.5
million in 1995 and $8.3 million in 1996.
Item 5. Other Information. The Company has entered into an agreement with
East Kentucky Power Cooperative, Inc. to provide about 40 megawatts of
electricity to Gallatin Steel Company's new steel mill in north central
Kentucky. The agreement, which takes effect on February 1, 1995, will
continue for 10 years and is expected to result in approximately $6 million
of revenues annually. Gallatin makes steel for manufacturing plants in
Kentucky. The Company will supply the electricity from its power plants in
the Louisville area. This transaction was negotiated by LG&E Power
Marketing, Inc., an affiliate of the Company, and the terms of the
transactions were approved by the Public Service Commission of Kentucky.
Item 6(a). Exhibits.
Exhibit No.
- -----------
27. Financial Data Schedule
Item 6(b). Reports on Form 8-K.
None
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOUISVILLE GAS AND ELECTRIC COMPANY
-----------------------------------
Registrant
By M. L. Fowler
-----------------------------------
Vice President and Controller
(On behalf of the registrant in
his capacity as Principal
Accounting Officer)
Date November 14, 1994
-----------------
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<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,637,892
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0
116,716
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0
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<OTHER-INCOME-NET> (11,046)<F2>
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4,261
<EARNINGS-AVAILABLE-FOR-COMM> 35,118
<COMMON-STOCK-DIVIDENDS> 35,500
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<EPS-PRIMARY> 0
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<FN>
<F1> Represents Unrealized Loss on Marketable
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<F2> Includes ($3,369) for Cumulative Effect of Change
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