LG&E ENERGY CORP, 10-K, 1995-03-28

LG&E ENERGY CORP
10-K, 1995-03-28
ELECTRIC & OTHER SERVICES COMBINED

Previous: NUVEEN TAX EXEMPT UNIT TRUST SERIES 632, 485BPOS, 1995-03-28

Next: MERRILL LYNCH GLOBAL UTILITY FUND INC, 485B24E, 1995-03-28

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the fiscal year ended DECEMBER 31, 1994
-----------------

Commission file number 1 - 10568

LG&E ENERGY CORP.
-----------------
(Exact name of registrant as specified in its charter)

Kentucky 61 - 1174555
-------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

220 West Main Street 40232
P.O. Box 32030 -----
Louisville, KY (Zip Code)
--------------
(Address of principal executive offices)

(502) 627-2000
-------------
(Registrant's telephone number)

Securities registered pursuant to section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, without par value New York Stock Exchange
and
Rights to Purchase Series A Preferred Chicago Stock Exchange
Stock, without par value

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of February 28, 1995, the aggregate market value of the registrant's voting
stock held by non-affiliates was $1,282,673,044 and the number of outstanding
shares of the registrant's common stock, without par value, was 33,028,551.

DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------

The Company's proxy statement filed with the Commission on March 16, 1995, is
incorporated by reference into Part III of this Form 10-K.

<PAGE>

TABLE OF CONTENTS

PART I

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Organization . . . . . . . . . . . . . . . . . . . . . . . . 1
Louisville Gas and Electric Company
General. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Electric Operations. . . . . . . . . . . . . . . . . . . . 5
Gas Operations . . . . . . . . . . . . . . . . . . . . . . 7
Regulation and Rates . . . . . . . . . . . . . . . . . . . 8
Construction Program and Financing . . . . . . . . . . . . 9
Coal Supply. . . . . . . . . . . . . . . . . . . . . . . . 9
Gas Supply . . . . . . . . . . . . . . . . . . . . . . . . 10
Environmental Matters. . . . . . . . . . . . . . . . . . . 11
LG&E Energy Systems Inc. . . . . . . . . . . . . . . . . . . 11
Labor Relations. . . . . . . . . . . . . . . . . . . . . . . 15
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 19
Executive Officers of the Company. . . . . . . . . . . . . . . . . . . 20

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . 22
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . 23
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . 23
Item 8. Financial Statements and Supplementary Data. . . . . . . . . 33
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . 61

PART III

Item 10. Directors and Executive Officers of the Registrant (a) . . . 62
Item 11. Executive Compensation (a) . . . . . . . . . . . . . . . . . 62
Item 12. Security Ownership of Certain Beneficial Owners
and Management (a) . . . . . . . . . . . . . . . . . . . . 62
Item 13. Certain Relationships and Related Transactions (a) . . . . . 62

PART IV

Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 62
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Exhibit 21 - Subsidiaries of the Registrant. . . . . . . . . . . . . . 74
Exhibit 23 - Consent of Independent Public Accountants . . . . . . . . 75

(a) Incorporated by reference.

<PAGE>

Part I.

Item 1. Business.

OVERVIEW OF OPERATIONS

LG&E Energy Corp. (the Company), incorporated November 14, 1989, is a
diversified energy-services holding company with two direct subsidiaries:
Louisville Gas and Electric Company (LG&E) and LG&E Energy Systems Inc. (Energy
Systems). In August 1990, the Company and LG&E implemented a corporate
reorganization pursuant to a mandatory share exchange whereby each share of
outstanding common stock of LG&E was exchanged on a share-for-share basis for
the common stock of LG&E Energy Corp. The reorganization created a corporate
structure that gives the Company the flexibility to take advantage of
opportunities to expand into other businesses while insulating LG&E's utility
customers and senior security holders from risks associated with such
businesses. LG&E preferred stock and first mortgage bonds were not exchanged
and remained securities of LG&E. The Company is not currently engaged in any
business activity independent of LG&E and Energy Systems.

LG&E is a regulated public utility that supplies natural gas to approximately
266,000 customers and electricity to approximately 341,000 customers in
Louisville and adjacent areas in Kentucky. LG&E's service area covers
approximately 700 square miles in 17 counties and has an estimated population of
800,000. Included in this area is the Fort Knox Military Reservation, to which
LG&E provides both gas and electric service, but which maintains its own
distribution systems. LG&E also provides gas service in limited additional
areas. LG&E's coal-fired electric generating plants, which are all equipped
with systems to remove sulfur dioxide, produce most of LG&E's electricity; the
remainder is generated by a hydroelectric power plant and combustion turbines.
Underground gas storage fields help LG&E provide economical and reliable gas
service to customers. During 1994, the Company's financial condition and
results of operation depended to a large degree on the financial condition and
results of operations of LG&E.

In 1991, LG&E Energy Systems Inc. was formed to direct the Company's expansion
into the non-utility marketplace and to separate the regulated utility from new
business initiatives. This subsidiary explores business opportunities that fit
the corporate strategy aimed at energy services opportunities, including
cogeneration and independent power production; and fuel-related businesses, such
as gathering, storing, transporting and marketing natural gas.

Consistent with the Company's expansion strategy, Energy Systems purchased
Hadson Power Systems, Incorporated, of Irvine, California, from Hadson
Corporation in December 1991. Following the acquisition, Hadson Power Systems
was renamed LG&E Power Systems Inc. and has been subsequently renamed LG&E Power
Inc. (LPI). LPI develops, designs, builds, owns, operates, and maintains power
generation facilities that sell energy to local industries and utilities.

In 1992, Energy Systems acquired a 36.5% interest in Natural Gas Clearinghouse
(NGC), and in January 1994, it sold that interest. See Note 3 of Notes to
Financial Statements under Item 8 for a further discussion of the sale of NGC.

<PAGE>

principal subsidiary, to increase its focus on customer service and develop more
customer options as the utility industry becomes more competitive.

As part of the business realignment, a new subsidiary was formed to market power
throughout the United States. LG&E Power Marketing Inc. (LPM), an indirect
wholly owned subsidiary of the Company, was among the first utility-affiliated
marketers in the country to secure FERC approval to sell power at market-based
rates and engage in wholesale power marketing activities.

The realignment does not affect the Company's legal structure, regulation of
LG&E by the Public Service Commission of Kentucky (Kentucky Commission or
Commission) or the Company's status as an exempt holding company.

In August 1994, a partnership formed by LPI and Kenetech Windpower Inc. for the
purpose of owning and operating power plants producing electricity from wind
turbines, completed two projects in Buffalo Ridge, Minnesota, and Palm Springs,
California. LPI's investment in the projects totaled $20.4 million.

In November 1994, the Company announced that one of its subsidiaries, LG&E
International Inc., had formed a joint venture that will build and operate a
natural-gas-fired power plant in north central Argentina. The plant is
scheduled to be built and operational by the third quarter of 1995. The other
partners in the project are Sideco Americana, S.A., an Argentine engineering and
construction company, and Charter Oak Energy, Inc., a non-utility subsidiary of
Northeast Utilities. The Company intends to continue to pursue international
projects that have an acceptable level of risk and provide an opportunity to
earn an above average rate of return.

The Company has also announced that LPI has formed a joint venture for the
purpose of owning and operating power plants producing electricity from wind
turbines in Culberson County, Texas. The project will be constructed by CNF
Constructors Inc., a Kenetech Windpower Inc. affiliate. The other partners in
the venture will be Kenetech Windpower Inc. and Quixx Corporation, a wholly
owned subsidiary of Southwestern Public Service Company. Operations are
expected to begin in the fourth quarter of 1995.

On February 10, 1995, LG&E Energy Corp. signed definitive agreements to purchase
Hadson Corporation (Hadson) for $143 million, plus acquisition related fees and
expenses. Hadson, based in Dallas, Texas, is involved in the marketing,
gathering, processing, storage and transportation of natural gas and natural gas
liquids. The sale is subject to necessary regulatory filings and approvals, and
satisfaction of certain other conditions. Closing is scheduled to occur in the
second quarter of 1995.

The Company and its subsidiaries currently are exempt from all provisions,
except Section 9(a)(2), of the Public Utility Holding Company Act of 1935 (the
"Holding Company Act") on the basis that the Company and LG&E are incorporated
in the same state and their business is predominately intrastate in character
and carried on substantially in the state of incorporation. It is necessary for
the Company to file an annual exemption statement with the Securities and
Exchange Commission (SEC).

The Company is not a public utility under the laws of the Commonwealth of
Kentucky and is not subject to regulation as such by the Kentucky Commission.
See Louisville Gas and Electric Company - Regulation and Rates below for a
description of the regulation of LG&E by the Kentucky Commission, which includes
the ability to regulate certain inter-company transactions between LG&E and the
Company, including the Company's non-utility subsidiaries.

<PAGE>

LOUISVILLE GAS AND ELECTRIC COMPANY

General

LG&E's Trimble County Unit 1 (Trimble County or the Unit), a 495-megawatt,
coal-fired electric generating unit, which LG&E began constructing in 1979, was
placed in commercial operation on December 23, 1990. The Unit has been subject
to numerous reviews by the Kentucky Commission. In July 1988, the Kentucky
Commission issued an order stating that 25% of the total cost of the Unit would
not be allowed for ratemaking purposes. LG&E has sold a 25% ownership interest
in the Unit. For a more detailed discussion of the proceedings relating to
Trimble County Unit 1 and the sale of 25% of the Unit, see Electric Operations
and Notes 14 and 15 of Notes to Financial Statements under Item 8.

The Clean Air Act Amendments of 1990 impose stringent limits on emissions of
sulfur dioxide and nitrogen oxides by electric generating plants. LG&E is
closely monitoring the continuing rule-making process in order to assess the
precise impact of the legislation on LG&E. All of LG&E's coal-fired boilers are
equipped with sulfur dioxide "scrubbers" and already achieve the final sulfur
dioxide emission rates required by the year 2000 under the legislation.
However, as part of its ongoing capital construction program, LG&E has spent $10
million to date and anticipates incurring capital expenditures of approximately
$29 million through 1996 for remedial measures necessary to meet the Act's
requirements for nitrogen oxides. The overall financial impact of the
legislation on LG&E is expected to be minimal. LG&E is well-positioned in the
market to be a "clean" power provider without the large capital expenditures
that are expected to be incurred by many other utilities. For a more detailed
discussion of the Clean Air Act and other environmental issues, see
Environmental Matters under this Item, Item 3, Item 7, and Note 13 of Notes to
Financial Statements under Item 8.

Competition among energy suppliers is increasing. In particular, competition
for off-system sales, which is based primarily on price and availability of
energy, has become much more intense in recent years. The addition of electric
generating capacity by other utilities in the Midwest has reduced the
opportunities for LG&E to make interchange sales and has heightened price
competition for such sales. However, such additional capacity has made lower
cost power available for purchase by LG&E which, in certain instances, is at a
cost lower than the variable cost of generating power from the generating
stations owned by LG&E. In addition, the 1992 Energy Policy Act provides
utilities a wider choice of sources for their electrical supply than previously
available. The Act also creates generating supply options that did not exist
under previous legislation and is expected to increase competition for wholesale
electric sales. See Energy Policy Act of 1992 under Item 7 for a further
discussion. LG&E is responding to increased competition in a number of ways
designed to lower its costs and increase sales.

One such response has been the realignment by LG&E Energy Corp. into new
business units as described on pages 1 and 2 effective January 1, 1994. The
realignment will allow LG&E to increase its focus on customer service and to
develop more customer options as the utility industry becomes more competitive.
The realignment does not affect the regulation of LG&E by the Commission.

LG&E envisions an open electricity transmission system that facilitates delivery
of competitively priced power to all customers in the region. Toward that
vision, LG&E filed tariffs with FERC in 1994 which would provide transmission
service to wholesale customers at rates, terms, and conditions which are
comparable to those which LG&E applies to itself. This comparable transmission
service is a key feature of a more competitive electric utility industry.

<PAGE>

As part of its efforts to retain existing customers and expand to new customers,
in 1994 LG&E began securing long-term, mutually beneficial written contracts
with key customers. By entering into such agreements, LG&E is assured of a
market for its energy and can prudently invest in plant and equipment upgrades
and enhanced delivery services that will benefit customers and make the utility
more competitive. In 1994, LG&E also formalized its economic development
strategic plan, integrating many of its industry-attraction efforts with that of
the city of Louisville and other regional businesses.

By using gas storage fields strategically, LG&E can buy gas when prices are low,
store it, and retrieve the gas when demand is high. Accessing least cost gas
was made easier in November 1993 when FERC's Order No. 636 went into effect.
Previously, LG&E and other utilities purchased most of their gas services from
pipeline companies. The order "unbundled" gas services, allowing utilities to
purchase gas, transportation, and storage services separately from many
different sources. Currently, LG&E buys competitively priced gas from several
large producers under contracts of varying duration. By purchasing from
multiple suppliers, and storing any excess gas, LG&E is able to secure favorably
priced gas for its customers. Without storage capacity, LG&E would be forced to
buy additional gas when customer demand increases, which is usually when the
price is highest. See FERC Order No. 636 under Item 7 for a further discussion.

LG&E is experiencing some of the issues common to electric and gas utility
companies, namely, increased competition for customers and costs of compliance
with environmental laws and regulations.

For the year ended December 31, 1994, 74% of total utility revenues was derived
from electric operations and 26% from gas operations. Electric and gas
operating revenues and the percentages by classes of service on a combined basis
for this period were as follows:

(Thousands of $)
Electric Gas Combined % Combined
-------- --- -------- ----------
<S> <C> <C> <C> <C>
Residential $194,145 $110,553 $304,698 43%
Commercial 155,847 40,474 196,321 28
Industrial 108,004 27,956 135,960 19
Public authorities 53,191 12,930 66,121 10
-------- -------- -------- ---
Total-ultimate consumers 511,187 191,913 703,100 100%
Sales for resale 42,720 - 42,720 ---
Gas transported-net - 6,759 6,759 ---
Miscellaneous 5,420 1,457 6,877
-------- -------- --------
Total $559,327 $200,129 $759,456
-------- -------- --------
-------- -------- --------

</TABLE>

See Note 17 of Notes to Financial Statements under Item 8 for financial
information concerning segments of business for the three years ended December
31, 1994.

<PAGE>

Electric Operations

The sources of electric operating revenues and the volumes of sales for the
three years ended December 31, 1994, were as follows:

1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
ELECTRIC OPERATING REVENUES
(Thousands of $):
Residential $194,145 $195,273 $174,559
Small commercial and industrial 70,916 70,106 66,183
Large commercial 84,931 84,231 80,041
Large industrial 108,004 104,506 101,699
Public authorities 53,191 52,183 49,599
-------- -------- --------
Total-ultimate consumers 511,187 506,299 472,081
Sales for resale 42,720 60,060 50,097
Miscellaneous 5,420 5,268 3,965
-------- -------- --------
Total $559,327 $571,627 $526,143
-------- -------- --------
-------- -------- --------

ELECTRIC SALES (Thousands of kwh):
Residential 3,204,330 3,230,463 2,923,517
Small commercial and industrial 1,073,152 1,056,977 1,010,830
Large commercial 1,729,668 1,696,686 1,624,441
Large industrial 2,874,411 2,736,269 2,671,212
Public authorities 1,085,741 1,053,928 1,004,911
---------- ---------- ----------
Total-ultimate consumers 9,967,302 9,774,323 9,234,911
Sales for resale 2,315,311 3,346,107 3,234,758
---------- ---------- ----------
Total 12,282,613 13,120,430 12,469,669
---------- ---------- ----------
---------- ---------- ----------

</TABLE>

At December 31, 1994, LG&E had 340,810 electric customers.

LG&E uses efficient coal-fired boilers that are fully equipped with sulfur
dioxide removal systems to generate electricity. LG&E's system wide emission
rate for sulfur dioxide in 1994 was approximately .84 lbs./MMBtu of heat input,
which is significantly below the Phase II limit of 1.2 lbs./MMBtu established by
the Clean Air Act Amendments for the year 2000.

On Monday, August 30, 1993, LG&E set a record local peak load of 2,239 Mw, when
the temperature at the time of peak reached 94 degrees Fahrenheit (average for
the day was 84 degrees Fahrenheit). The 1994 maximum local peak load of 2,219
Mw occurred on Wednesday, June 15, when the temperature at the time of peak was
95 degrees Fahrenheit (average for the day was 85 degrees Fahrenheit). The
record system peak of 3,223 Mw (which included purchases from and short-term
sales to other electric utilities) occurred on Thursday, May 30, 1991.

LG&E's current reserve margin is 16%. At February 28, 1995, LG&E owned steam
and combustion turbine generating facilities with a capacity of 2,613 Mw and an
80 Mw hydroelectric facility on the Ohio River. See Item 2, Properties.

LG&E is a participating owner with 14 other electric utilities of Ohio Valley
Electric Corporation (OVEC) whose primary customer is the Portsmouth Area
uranium-enrichment complex of the U.S. Department of Energy at Piketon, Ohio.
LG&E has electric transmission interconnections and/or
interconnection/interchange agreements with PSI Energy, Kentucky Utilities
Company, Southern Indiana Gas and Electric Company, The Cincinnati Gas &
Electric Company, Indiana Michigan Power Company, OVEC, Big Rivers Electric
Corporation, Tennessee Valley Authority, Wabash Valley Power Association,
Indiana

5
<PAGE>

Municipal Power Agency, East Kentucky Power Cooperative (East Kentucky),
Illinois Municipal Electric Agency, Jacksonville Electric Authority, and
Ogelthorpe Power Corporation providing for various interchanges, emergency
services, and other working arrangements.

LG&E entered into an agreement with East Kentucky to provide about 40 megawatts
of electricity to Gallatin Steel Company's (Gallatin) new steel mill in north
central Kentucky. The agreement 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. LG&E will supply the electricity from its
power plants in the Louisville area. This transaction was negotiated by LPM, an
affiliate of the Company, and the terms of the transaction were approved by the
Kentucky Commission.

LG&E and East Kentucky had an agreement that allowed East Kentucky to purchase
power during its peak season, and LG&E to sell power during its off-peak
season. The agreement entitled East Kentucky to buy from LG&E up to 145
megawatts from mid-December to mid-February through 1994-95.

On February 28, 1991, LG&E sold a 12.12% ownership interest in Trimble County
Unit 1 to the Illinois Municipal Electric Agency (IMEA), based in Springfield,
Illinois, which is an agency of 30 municipalities that own and operate their own
electric systems. On February 1, 1993, the Indiana Municipal Power Agency
(IMPA), based in Carmel, Indiana, purchased a 12.88% interest in the Trimble
County Unit. IMPA is composed of 31 municipalities that have joined together to
meet their long-term electric power needs. Both IMEA and IMPA pay their
proportionate share for operation and maintenance expenses of the Unit and for
fuel and reactant used. They are also responsible for their proportionate share
of incremental capital assets acquired.

Electric and magnetic fields (sometimes referred to as EMF) surround electric
wires or conductors of electricity such as electrical tools, household wiring
and appliances, and high voltage electric transmission lines such as those owned
by LG&E. Certain studies have suggested a possible association between electric
and magnetic fields and adverse health effects. The Electric Power Research
Institute, of which LG&E is a participating member, has expended approximately
$75 million since 1987 in its investigation and research with regard to possible
health effects posed by exposure to electric and magnetic fields.

<PAGE>

Gas Operations

The sources of gas operating revenues and the volumes of sales for the three
years ended December 31, 1994, were as follows:

1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
GAS OPERATING REVENUES
(Thousands of $):
Residential $110,553 $112,508 $96,175
Commercial 40,474 43,568 36,801
Industrial 27,956 28,310 26,156
Public authorities 12,930 13,846 13,884
-------- -------- --------
Total-ultimate consumers 191,913 198,232 173,016
Gas transported-net 6,759 5,147 4,169
Miscellaneous 1,457 1,536 1,341
------- ------- -------
Total $200,129 $204,915 $178,526
-------- -------- --------
-------- -------- --------

GAS SALES (Millions of cu. ft.):
Residential 22,935 24,330 22,465
Commercial 9,450 10,308 9,527
Industrial 7,505 7,817 8,077
Public authorities 3,268 3,515 3,864
------- ------- -------
Total-ultimate consumers 43,158 45,970 43,933
Gas transported 6,854 5,249 4,155
------- ------- -------
Total 50,012 51,219 48,088
------- ------- -------
------- ------- -------

</TABLE>

At December 31, 1994, LG&E had 265,688 gas customers.

LG&E has underground natural gas storage fields that help provide economical and
reliable gas service to ultimate consumers.

Reflecting the changing nature of the gas business, a number of industrial
customers purchase their natural gas requirements directly from alternate
suppliers for delivery through LG&E's distribution system. Generally,
transportation of natural gas for LG&E's customers does not have an adverse
effect on earnings because of the offsetting decrease in gas supply expenses.
Transportation rates are designed to make LG&E economically indifferent as to
whether gas is sold or merely transported.

The all-time maximum day gas sendout of 545,000 Mcf occurred on Sunday, January
20, 1985, when the average temperature for the day was -11 degrees Fahrenheit.
During 1994, the maximum day gas sendout was 524,000 Mcf, occurring on
January 15, when the average temperature for the day was 2 degrees Fahrenheit.
Supply on that day consisted of 176,000 Mcf from purchases, 314,000 Mcf
delivered from underground storage, and 34,000 Mcf transported for industrial
customers. For further discussion, see Gas Supply.

In 1994, LG&E experienced its first full year operating under FERC Order
No. 636. While LG&E had previously been able to purchase natural gas and
pipeline transportation services from Texas Gas Transmission Corporation (Texas
Gas), LG&E now purchases only transportation services from Texas Gas pursuant to
its FERC-approved tariff and acquires its supply of natural gas from other
sources. For further discussion see Gas Supply and Note 13 of Notes to
Financial Statements under Item 8.

<PAGE>

Regulation and Rates

The Kentucky Commission has regulatory jurisdiction over the rates and service
of LG&E and over the issuance of certain of its securities. LG&E is a "public
utility" as defined in the Federal Power Act, and is subject to the jurisdiction
of the Department of Energy and the FERC with respect to the matters covered in
such Act, including the sale of electric energy at wholesale in interstate
commerce. In addition, the FERC has sole jurisdiction over the issuance by LG&E
of short-term securities.

For a discussion of current regulatory matters, see Rates and Regulation under
Item 7 and Notes 2 and 14 of Notes to Financial Statements under Item 8.

Increases and decreases in the cost of fuel for electric generation are
reflected in the rates charged to all of LG&E's electric customers by means of
LG&E's fuel adjustment clause. The Kentucky Commission requires public hearings
at six-month intervals to examine past fuel adjustments, and at two-year
intervals for the purpose of additional examination and transfer of the then
current fuel adjustment charge or credit to the base charges. The Commission
also requires that electric utilities, including LG&E, file certain documents
relating to fuel procurement and the purchase of power and energy from other
utilities.

LG&E's gas rates contain a gas supply clause (GSC), whereby increases or
decreases in the cost of gas supply are reflected in LG&E's rates, subject to
approval of the Kentucky Commission. The GSC procedure prescribed by order of
the Commission provides for quarterly rate adjustments to reflect the expected
cost of gas supply in that quarter. In addition, the GSC contains a mechanism
whereby any over- or under-recoveries of gas supply cost from prior quarters
will be refunded to or recovered from customers through the adjustment factor
determined for subsequent quarters.

On January 1, 1994, LG&E implemented a Commission approved demand side
management (DSM) program. The program contains a rate mechanism that provides
for the recovery of DSM program costs, allows LG&E to recover revenues due to
lost sales associated with the DSM programs and provides LG&E an incentive for
implementing DSM programs. See Rates and Regulation under Item 7 for a further
discussion of DSM.

On October 7, 1994, LG&E filed an application with the Kentucky Commission in
which it requested approval of an environmental cost recovery surcharge to
recover certain costs required to comply with the Federal Clean Air Act, as
amended, and those federal, state, and local environmental requirements which
apply to coal combustion wastes and by-products from facilities utilized for
production of energy from coal. Under state law, the Commission has until
April 7, 1995, to rule on the application. If LG&E's application is approved as
filed, the surcharge will increase electric revenues by approximately $5.5
million in 1995 and $8.3 million in 1996. The Commission has previously
approved environmental cost recovery surcharges for two other regulated electric
utilities in Kentucky.

A management audit of LG&E, which began in September 1994, is nearing
completion. Vantage Consulting Inc. is conducting the audit under contract to
the Kentucky Commission. Vantage has interviewed some 300 employees and LG&E
has made written responses to more than 800 requests for data and documents.
The final report is not expected until June. A similar audit of LG&E was
conducted in 1986 under a mandate from the 1984 Kentucky General Assembly that
requires such audits of the Commonwealth's 10 largest utilities.

As part of the corporate reorganization whereby the Company became the parent of
LG&E, LG&E obtained the approval of the Kentucky Commission. The order of the
Kentucky Commission authorizing

<PAGE>

LG&E to reorganize into a holding company structure contains certain provisions,
which, among other things, ensure the Kentucky Commission access to books and
records of the Company and its affiliates which relate to transactions with
LG&E; require the Company and its subsidiaries to employ accounting and other
procedures and controls to protect against subsidization of non-utility
activities by LG&E's customers; and preclude LG&E from guaranteeing any
obligations of the Company without prior written consent from the Kentucky
Commission. In addition, such order provides that LG&E's Board of Directors has
the responsibility to use its dividend policy consistent with preserving the
financial strength of LG&E and that the Kentucky Commission, through its
authority over LG&E's capital structure, can protect LG&E's ratepayers from the
financial effects resulting from non-utility activities.

Construction Program and Financing

LG&E's construction program is designed to assure that there will be adequate
capacity to meet the future electric and gas needs of its service area. These
needs are continually being reassessed and appropriate revisions are made, when
necessary, in construction schedules. LG&E's estimates of its construction
expenditures can vary substantially due to numerous items beyond LG&E's control,
such as changes in rates, economic conditions, construction costs, and new
environmental or other governmental laws and regulations.

For a further discussion of construction expenditures and financing, see
Liquidity and Capital Resources under Item 7.

During the five years ended December 31, 1994, LG&E's gross property additions
amounted to $501 million. Internally generated funds for the five year period
were sufficient to provide for all of these gross additions. LG&E's gross
additions during this period amounted to approximately 20% of total utility
plant at December 31, 1994, and consisted of $391 million for electric
properties and $110 million for gas properties. LG&E's gross retirements during
the same period were $55 million, consisting of $44 million for electric
properties and $11 million for gas properties.

Coal Supply

Approximately 90% percent of LG&E's present electric generating capacity is
coal-fired, the remainder being made up of a hydroelectric plant and combustion
turbine peaking units fueled by natural gas and oil. Coal will be the
predominant fuel used by LG&E in the foreseeable future, with natural gas and
oil being used for peaking capacity and flame stabilization in coal-fired
boilers or in emergencies. LG&E has no nuclear generating units and has no
plans to build any in the foreseeable future.

LG&E has entered into coal supply agreements with various suppliers for coal
deliveries for 1995 and beyond. LG&E normally augments its coal supply
agreements with spot market purchases which, during 1994, were about 10% of
total purchases. LG&E has a coal inventory policy, which is in compliance with
the Kentucky Commission's directives and which LG&E believes provides adequate
protection under most contingencies. LG&E had on hand at December 31, 1994, a
coal inventory of approximately 580,000 tons, or a 35 day supply.

LG&E expects, for the foreseeable future, to continue purchasing most of its
coal from western Kentucky and southwest Indiana, which has a sulfur content in
the 2%-3.5% range. The abundant supply of this relatively low priced coal,
combined with present and future desulfurization technologies, is expected to
enable LG&E to continue to provide adequate electric service in a manner
acceptable under existing environmental laws and regulations.

<PAGE>

Coal for LG&E's Mill Creek plant is delivered by rail and barge, whereas
deliveries to the Cane Run plant are primarily by rail and also by truck.
Deliveries to the Trimble County plant are by barge only.

The average delivered cost of coal purchased by LG&E, per ton and per million
Btu, for the periods shown were as follows:

1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Per ton $25.27 $26.58 $25.17
Per million Btu 1.10 1.14 1.09

</TABLE>

Gas Supply

During 1994, LG&E experienced its first full year of operation under FERC Order
No. 636. Although LG&E continues to transport natural gas supplies through
Texas Gas at rates and terms regulated by the FERC, LG&E now purchases its
supply of natural gas from other sources.

As a result of FERC Order No. 636 and effective November 1, 1993, LG&E entered
into new transportation service agreements with Texas Gas. These agreements
provide for 30,000 MMBtu (29,268 Mcf) per day in Firm Transportation (FT)
throughout the year. This FT agreement expires October 31, 1995. During the
winter months, LG&E also has 184,900 MMBtu (180,390 Mcf) per day in No-Notice
Service (NNS); during the summer months that NNS level is 135,000 MMBtu (131,707
Mcf) per day. LG&E's NNS agreements with Texas Gas incorporate terms of two,
five, and eight years, and include unilateral roll-over provisions at LG&E's
option. These transportation services are provided by Texas Gas pursuant to its
FERC-approved tariff.

LG&E has also entered into a series of long-term firm supply arrangements with
various suppliers in order to meet its firm sales obligations. The gas supply
arrangements include pricing provisions which are market-responsive. These firm
supplies, in tandem with pipeline transportation services, provide the reliable
and flexible supply needed to replace the bundled sales service supplied by the
pipeline prior to the implementation of FERC Order No. 636.

During 1995, LG&E will be participating in several regulatory proceedings at
FERC. In particular, LG&E will be involved in reviewing Texas Gas' most recent
rate filing, and Texas Gas' filing to recover certain transition costs
associated with the FERC-mandated implementation of FERC Order No. 636. As a
separate matter, the Kentucky Commission has indicated in an order issued in its
Administrative Case No. 346 that transition costs, which are clearly identified
as being related to the cost of the commodity itself, are appropriately
recoverable as a gas cost through LG&E's gas supply clause. See Note 13 of
Notes to Financial Statements under Item 8.

LG&E operates five underground gas storage fields with a current working gas
capacity of 14.6 million Mcf. Gas is purchased and injected into storage during
the summer season and is then withdrawn to supplement pipeline supplies to meet
the gas-system load requirements during the winter heating season.

The estimated maximum deliverability from storage during the early part of the
1993-1994 heating season was approximately 373,000 Mcf per day. Deliverability
decreases during the latter portion of the heating season as the storage
inventory is reduced by seasonal withdrawals.

The average cost per Mcf of natural gas purchased by LG&E was $2.78 in 1994,
$2.91 in 1993, and $2.77 in 1992.

<PAGE>

Environmental Matters

Protection of the environment is a major priority for LG&E. LG&E engages in a
variety of activities within the jurisdiction of federal, state, and local
regulatory agencies. Those agencies have issued LG&E permits for various
activities subject to air quality, water quality, and waste management laws and
regulations. For the five year period ending with 1994, expenditures for
pollution control facilities represented $106 million or 21% of total
construction expenditures. The cost of operating and maintaining scrubber-
related facilities amounted to $22 million in both 1994 and 1993. LG&E's
anticipated capital expenditures for 1995 to comply with environmental laws are
approximately $16 million. See Note 13 of Notes to Financial Statements under
Item 8 for a discussion of specific environmental proceedings affecting LG&E.

LG&E ENERGY SYSTEMS INC.

In 1991, the Company formed LG&E Energy Systems Inc. (Energy Systems) to direct
the Company's expansion into the non-utility marketplace. In December 1991,
Energy Systems purchased Hadson Power Systems, Incorporated, which was renamed
at the time of purchase to LG&E Power Systems Inc, and subsequently renamed LG&E
Power Inc. (together with its subsidiaries, "LPI"). In 1992, Energy Systems
acquired a 36.5% interest in Natural Gas Clearinghouse (NGC). In January 1994,
the Company completed the sale of its equity interest in NGC to NOVA Corporation
of Alberta, Canada. Accordingly, the Company's investment in NGC, equity
interest in NGC's earnings and the related gain on sale has been classified as
discontinued operations in the accompanying consolidated financial statements.
See Note 3, Discontinued Operations.

LPI develops, designs, builds, owns, operates, and maintains power generation
facilities that sell electric and steam energy to industrial and utility
customers. LPI, through its predecessor, has been in the independent power
business since 1982 and has approximately 300 employees. It currently has in
operation or under construction, projects capable of generating over 700
megawatts of electric power capacity in Maine, North Carolina, Virginia, New
York, California, Minnesota, and Texas. In November, 1994, the Company
announced that one of its subsidiaries, LG&E International Inc., had formed a
joint venture that will build and operate a natural gas fired power plant in
north central Argentina. The Company intends to continue to pursue
international projects that have an acceptable level of risk and provide an
opportunity to earn an above average rate of return.

Except for its investments in wind power (see Item 2, Properties), each of the
projects LPI has in operation or under construction within the United States
will be a qualifying cogeneration facility under the Public Utility Regulatory
Policy Act of 1978 (PURPA). See Item 3 and Note 13 of Notes to Financial
Statements under Item 8 for a discussion of certain waiver requests regarding
past operations at certain of these facilities. Certain partnerships, in which
LPI has an ownership interest, are constructing or operating wind power
facilities which are or will be qualifying small power production facilities
under PURPA. In addition, LPI has obtained exempt wholesale generator (EWG)
status for the entity which owns the Roanoke Valley I project in North Carolina.
Such status will allow LPI to own and operate the 165 megawatt Roanoke Valley I
facility without complying with PURPA's qualifying cogeneration facility
operating standards. EWGs are not required to comply with such standards if the
rates charged for a facility's electric generation have been accepted for filing
by FERC. Such a filing was made and accepted for the Roanoke Valley I facility
in December 1993.

In January 1995, four partnerships in which LPI has an ownership interest -
LG&E-Westmoreland Hopewell, LG&E-Westmoreland Altavista, LG&E-Westmoreland
Southampton and LG&E-Westmoreland

<PAGE>

Rensselaer - applied to FERC for EWG status. In February 1995, FERC granted the
applications and determined that each partnership is an EWG under PUHCA. These
partnerships continue to maintain their QF status under PURPA.

Generally, qualifying facility status exempts projects from the application of
the Holding Company Act, many provisions of the Federal Power Act, and state
laws and regulations respecting rates and financial or organization regulation
of electric utilities. Exempt wholesale generators also are exempt from
application of the Holding Company Act and many provisions of the Federal Power
Act, but once such an entity files its electric generation rates with FERC, it
becomes a jurisdictional public utility under the Federal Power Act. As such a
"public utility," an EWG's rates and some of its corporate activities are
subject to FERC regulation. Exempt wholesale generators also are subject to
non-rate regulation under state laws governing electric utilities. While
qualifying facility or exempt wholesale generator status entitles LPI's projects
to certain regulatory exceptions and benefits under PURPA and the Holding
Company Act, each project must still comply with other federal, state, and local
laws, including those regarding siting, construction, operation, licensing, and
pollution abatement. Through an affiliate, LPI also operates and maintains 12
projects in which it does not have an ownership interest that are located in
California, Pennsylvania, and Montana. In order to permit it to operate EWGs,
such affiliate also has been designated as an exempt wholesale generator under
the Holding Company Act.

Effective January 1, 1994, the Company 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. As part of the business
realignment, a new subsidiary was formed to market power throughout the United
States. LG&E Power Marketing Inc. (LPM), an indirect wholly-owned subsidiary of
the Company, was among the first utility marketers in the country to secure FERC
approval for wholesale power marketing activities. The realignment does not
affect the Company's legal structure, regulation of LG&E by the Commission or
the Company's status as an exempt holding company.

LPI is currently involved in the construction of the Roanoke Valley II project.
This project is owned with Westmoreland Energy, Inc., a subsidiary of the
Westmoreland Coal Company (Westmoreland) and is expected to begin commercial
operations in 1995. The construction of the Roanoke Valley I project in Weldon,
North Carolina was completed and began commercial operations in 1994. Both
facilities will share certain common facilities and sell electricity to Virginia
Power and steam to Patch Rubber Company.

The financing and overall structure of the Roanoke Valley II project is similar
to that followed for previous LPI cogeneration projects. Subsidiaries of LPI,
as builder of the projects, are contractually obligated to construct the project
and to assure it meets certain performance standards. Financing for the
construction of the project is provided to a partnership which is the owner of
the project and in which LPI (or a wholly owned entity) is a partner. The
partners are obligated to make equity contributions to the project at various
stages prior to its completion. Each project has a long-term contract with the
local utility to purchase electricity generated by the project and for those
projects which are qualifying cogeneration facilities, with an industrial
company to purchase the steam for the project. Revenues from the sale of
electricity and steam are designed to be sufficient to repay the debt incurred
in financing the project. LPI's ownership interest in the project and the
revenues from the sale of steam and electricity from the project are pledged as
security to the lenders providing financing for the project. Although the
financing of the project is non-recourse to the partnership owning the project,
the various obligations of LPI under the contracts for construction of the
project and LPI's equity commitments are guaranteed by Energy Systems.

<PAGE>

In connection with the financing of various power projects, Energy Systems and
LPI provide equity funding commitments and guarantee the construction and
performance of the projects. Ascertainable equity funding commitments were $27
million and $36 million at December 31, 1994, and 1993, respectively.
Contingent construction and project performance guarantees totaled approximately
$104 million and $198 million at December 31, 1994, and 1993, respectively.

Through a support agreement with Energy Systems for the benefit of certain
Energy Systems' lenders, LG&E Energy Corp. has agreed to provide Energy Systems
with the necessary funds and financial support to meet the foregoing
contingencies.

Westmoreland Energy, Inc. (WEI) is a partner along with LPI in six cogeneration
projects in operation or under construction. Under an agreement signed on April
15, 1993, Energy Systems guaranteed (in exchange for fees and other
consideration) the equity funding commitment of WEI in connection with the
following three projects: Roanoke Valley I, Roanoke Valley II and Rensselaer.
The outstanding commitments resulting from this agreement total $4.6 million and
$35.5 million as of December 31, 1994, and 1993, respectively. WEI funded their
equity commitments for the Roanoke Valley I and Rensselaer projects on December
30, 1994.

During 1993, the Company signed an agreement with Greyrock Capital Group, Inc.
(Greyrock, formerly known as Nations Financial Capital Corporation) under which
Greyrock agreed, in exchange for fees, to assume $26.9 million of the Company's
contingent equity funding commitment for Roanoke Valley I and II resulting from
its April 15, 1993, agreement with WEI. As a result of WEI's equity funding on
December 30, 1994, the Greyrock obligation to fund was reduced to $4.6 million,
related solely to Roanoke Valley II.

On November 8, 1994, Westmoreland Coal Company (Westmoreland), the parent of
WEI, together with certain of Westmoreland's subsidiaries other than WEI, filed
for protection under Chapter 11 of the U.S. Bankruptcy Code. According to
Westmoreland, this filing was made in order to facilitate the sale of its
Kentucky Criterion Coal unit (Kentucky Criterion), and would leave unaffected
all of Westmoreland's existing debt obligations and stockholder interests. On
December 16, 1994, the United States Bankruptcy Court for the District of
Delaware issued an order confirming the Westmoreland Plan of Reorganization (the
Plan). Pursuant to the Plan, Westmoreland completed its sale of Kentucky
Criterion to CONSOL of Kentucky, Inc. on December 22, 1994. The proceeds from
the sale were used to pay in full Westmoreland's outstanding indebtedness to its
principal creditors. After these payments, Westmoreland emerged from
bankruptcy. The proceeds from the sale of Kentucky Criterion were also used to
fund Westmoreland's equity commitments related to Roanoke Valley I and
Rensselaer on December 30, 1994, as discussed above.

Technical defaults may have resulted with certain project lenders by reason of
the bankruptcy filing. However, based upon discussions with the projects'
lenders and their consent to the Kentucky Criterion sale, the Company does not
anticipate that the projects' lenders or others will take action, as a result of
the technical defaults, that would adversely affect the projects or the
Company's interests, or that would have a material adverse effect on the
Company's financial position or its consolidated results of operations.

The Southampton plant, a 63 megawatt coal-fired cogeneration facility in
Franklin, Virginia, supplies process steam to a nearby chemical manufacturer and
bulk electric power under contract to Virginia Electric and Power Company
(Virginia Power) as a qualifying facility (QF) under the Public Utility
Regulatory Policies Act (PURPA). The plant began commercial operation in 1992.
On July 7, 1994, FERC denied the request of LG&E-Westmoreland Southampton (the
Partnership) for a waiver of certain

<PAGE>

qualifying facility requirements and directed the Partnership to show cause as
to why it should not be required to file new cost-based rates for its 1992
electric sales to Virginia Power.

The Partnership filed a request for rehearing and a motion to consider its
request for rehearing as timely filed, or in the alternative, to treat its
request for rehearing as a motion for reconsideration, in August 1994, one day
out of time. The Partnership is seeking a reversal of FERC's prior order, or,
in the alternative, a clarification of FERC's order stating that, with the
exception of rates, the Partnership remains a QF for 1992 exempt from regulation
as a public utility under PUHCA, utility laws in Virginia and various portions
of the Federal Power Act.

On August 24, 1994, Virginia Power filed a motion for leave to respond to the
Partnership's request for rehearing and response to request for rehearing, and a
response to the Partnership's show cause order. On September 6, 1994, the
Partnership filed with FERC its answer to Virginia Power's motion and response.
On September 6, 1994, FERC granted itself an extension of time to act on the
Partnership's request for rehearing, tolling the 30-day period in which FERC was
to have acted on the Partnership's rehearing request.

The parties have fully briefed and submitted to FERC their respective motions
with respect to the request for rehearing and are awaiting FERC's decision. As
of January 30, 1995, FERC had not acted on the Partnership's request for
rehearing. The Company expects that FERC will grant the Partnership the relief
that it is seeking and, accordingly, the ultimate resolution of the matter is
not expected to have a material adverse effect on its consolidated results of
operations or its financial condition. However, in light of FERC's July 7,
1994, order, and the arguable lateness of the filing of the request for
rehearing one day out of time, the Company cannot predict what action FERC
ultimately will take. Possible consequences from an adverse decision include
refunds and potential regulatory and other problems under PUHCA, Virginia
utility law and the Federal Power Act, the scope and amount of which cannot be
determined at this time.

The Rensselaer plant, a 79 megawatt, natural-gas-fired facility in Rensselaer,
New York, produces steam and electricity from a combined-cycle gas and steam
turbine-generator system as a QF under PURPA. The project is jointly owned by
LPI and WEI through a general partnership - LG&E-Westmoreland Rensselaer (LWR).

As a result of delays encountered during the start-up and testing of the
facility, the facility's commercial operation date was pushed back from February
1994 to April 1994, and the Rensselaer facility was prevented from meeting
FERC's operating or efficiency standard for the last month of 1993, and for
1994. LWR filed a waiver request with FERC on October 17, 1994, requesting a
temporary waiver of the operating and efficiency standards for 1993 and the
efficiency standard for 1994. As of January 30, 1995, FERC had not acted on
LWR's waiver request.

The Company, which indirectly owns a 50% interest in the project, based upon
past precedent, expects that FERC will grant the waiver and, accordingly, that
the ultimate resolution of this matter should not have a material adverse effect
on its consolidated results of operations or its financial condition. While the
resolution of the Rensselaer matter is not expected to have a material adverse
effect, the Company cannot predict what action FERC may take. Possible
consequences could include potential regulatory and other problems under PUHCA,
New York utility laws and the Federal Power Act, the scope and amount of which
cannot be determined at this time.

The Company owns a 50% interest in Westmoreland-LG&E Partners (WLP), the sole
owner of Roanoke Valley I, a cogeneration facility selling electric power to
Virginia Power and steam energy to Patch Rubber

<PAGE>

Company. Under the Power Purchase Agreement (PPA) between WLP and Virginia
Power, WLP is entitled to receive capacity payments based on availability. From
May 1994 through December 1994, Virginia Power withheld approximately $6 million
of these capacity payments during periods of forced outages. To date, the
Company has not realized any income on its 50% portion of the capacity payments
being withheld by Virginia Power. On October 31, 1994, WLP filed a complaint
against Virginia Power seeking damages of at least $5.7 million, contending that
Virginia Power has breached the PPA in withholding such payments. Virginia
Power filed a motion to dismiss, in which it denied that its actions were in
breach of the PPA. On March 17, 1995, the Circuit Court of the City of
Richmond, Virginia, dismissed WLP's complaint. WLP is considering further
action to protect its interests. In the Company's opinion, WLP is entitled to
recover the capacity payments withheld by Virginia Power and should prevail in
this matter ensuring receipt of future capacity payments during forced outages
billable to Virginia Power during the remaining 25 years of the PPA. However,
the Company is unable to predict the outcome of this matter, or the amount
of capacity payments, if any, which Virginia Power may be ordered to pay to
WLP.

On February 10, 1995, the Company announced that it reached definitive
agreements with Hadson Corporation to purchase the Dallas-based natural gas
marketing, gathering and processing company for $143 million. The acquisition
involves Hadson Corporation and all of its subsidiaries, including Hadson Gas
Systems, Inc., its natural gas marketing subsidiary, as well as the company's
1,300 miles of gas gathering systems, gas transmission systems, and gas
processing and storage facilities. Hadson has marketing contracts and
agreements with local distribution companies or industrial users in 36 states.
Santa Fe Energy Resources, Inc., and The Prudential Insurance Company of
America, which together own 65% of Hadson's common stock, have agreed to sell
all of their Hadson equity securities and long-term debt to a subsidiary of the
Company. The subsidiary will also acquire by merger all remaining Hadson common
stock at a price of $2.75 a share. The acquisition is subject to necessary
regulatory filings and approvals, and satisfaction of certain other conditions.
The companies expect to close the transaction following Hadson's shareholders'
meeting currently scheduled in the second quarter of this year. The boards of
both companies have unanimously approved the transaction.

LABOR RELATIONS

LG&E's 1,625 operating, maintenance, and construction employees are members of
the International Brotherhood of Electrical Workers (IBEW) Local 2100. The
current three-year contract will expire in November 1995.

EMPLOYEES

The Company and its subsidiaries had 2,971 full-time employees at December 31,
1994. During the last quarter of 1993, LG&E eliminated a number of full-time
positions. See Note 7 of Notes to Financial Statements under Item 8 for a
further discussion of this matter.

<PAGE>

ITEM 2. Properties.

At February 28, 1995, LG&E owned the following electric generating stations:

Year in Capability
Service Rating (Kw)
------- -----------
<S> <C> <C>
Steam Stations:
Mill Creek-Kosmosdale, Ky.
Unit 1 1972 303,000
Unit 2 1974 301,000
Unit 3 1978 386,000
Unit 4 1982 466,000
---------
Total Mill Creek 1,456,000

Cane Run-near Louisville, Ky.
Unit 3 (natural gas only) 1958 115,000
Unit 4 1962 155,000
Unit 5 1966 168,000
Unit 6 1969 240,000
---------
Total Cane Run 678,000

Trimble County-Bedford, Ky. (1)
Unit 1 1990 371,000

Combustion Turbine Generators (Peaking capability):
Zorn 1969 16,000
Paddy's Run 1968 43,000
Cane Run 1968 16,000
Waterside 1964 33,000
--------
Total combustion turbine generators 108,000
--------

Total capability rating 2,613,000
---------
---------

<FN>

(1) Amount shown represents LG&E's 75% interest in the Unit. See
Note 15 of Notes to Financial Statements, Jointly Owned Electric
Utility Plant, under Item 8 for a discussion of the sale of 25%
of the Unit to IMEA and IMPA. LG&E is responsible for operation
of the Unit and is reimbursed by IMEA and IMPA for expenditures
related to the Unit based on their proportionate share of
ownership interest.

</TABLE>
LG&E's steam stations consist mainly of coal-fired units except for Cane Run
Unit 3 which must use natural gas because of restrictions mandated by
environmental regulations.

LG&E also owns an 80 Mw hydroelectric generating station located in Louisville,
operated under license issued by the FERC.

At December 31, 1994, LG&E's electric transmission system included 21
substations with a total capacity of approximately 10,623,697 Kva and
approximately 648 structure miles of lines. The electric distribution system
included 83 substations with a total capacity of approximately 3,068,277 Kva,
3,505 structure miles of overhead lines, 233 miles of underground conduit, and
5,335 miles of underground conductors.

LG&E's gas transmission system includes 177 miles of transmission mains, and the
gas distribution system includes 3,312 miles of distribution mains.

<PAGE>

LG&E operates underground gas storage facilities with a current working gas
capacity of approximately 14.6 million Mcf. See Gas Supply under Item 1.

In 1990, LG&E entered into an operating lease for its corporate office building
located in downtown Louisville, Kentucky. The lease is for a period of 15 years
and is scheduled to expire June 30, 2005.

Other properties owned by LG&E include office buildings, service centers,
warehouses, garages, and other structures and equipment, the use of which is
common to both the electric and gas departments.

The trust indenture securing LG&E's First Mortgage Bonds constitutes a direct
first mortgage lien upon substantially all property owned by LG&E.

At December 31, 1994, LPI owned the percentage indicated of the following joint
ventures producing electricity either in operation or being constructed:

<TABLE>

Actual or Actual or
Proposed Net Planned
Ownership Capability Year in
Name Interest % Fuel Rating (Mw) Service
- ---- ---------- ---- ------------ --------
<S> <C> <C> <C> <C>
Babcock-Ultrapower Jonesboro 17 Wood 25 1986
Washington County, Maine

Babcock-Ultrapower West Enfield 17 Wood 25 1986
Penobscot County, Maine

LG&E Westmoreland-Southampton 50 Coal 63 1992
Franklin, Virginia

LG&E Westmoreland-Altavista 50 Coal 63 1992
Altavista, Virginia

LG&E Westmoreland-Hopewell 50 Coal 63 1992
Hopewell, Virginia

Westmoreland-LG&E Partners
(Roanoke Valley I) 50 Coal 165 1994
Weldon, North Carolina

LG&E Westmoreland-Rensselaer 50 Natural 79 1994
Rensselaer, New York Gas

Windpower Partners 1993-Palm Springs 50 Wind 43 1994
Palm Springs, California

Windpower Partners 1993-Buffalo Ridge 50 Wind 25 1994
Buffalo Ridge, Minnesota

Windpower Partners 1994 25 Wind 25-35 1995
Culberson County, Texas

Central Termica San Miguel de Tucuman 33 Natural 114 1995
Tucuman Province, Argentina Gas

Westmoreland-LG&E Partners
(Roanoke Valley II) 50 Coal 44 1995
Weldon, North Carolina

</TABLE>

<PAGE>

LPI's ownership interests in these projects and the revenues from the sale of
electricity and steam from the projects are pledged as security to the lenders
who provided the financing for the project.

ITEM 3. Legal Proceedings.

Rates, Regulatory Matters, and Trimble County Generating Plant

For a discussion of current regulatory matters and a detailed discussion of the
current status concerning Trimble County Unit 1, see Rates and Regulation under
Item 7 and Notes 2 and 14 of Notes to Financial Statements under Item 8.

Statewide Power Planning

As required by the regulations of the Kentucky Commission, on November 15, 1993,
LG&E filed its 1993 biennial Integrated Resource Plan with the Kentucky
Commission. The plan, which updates LG&E's first Integrated Resource Plan filed
in 1991, proposes to meet customers' future demand through 2007 by adding
resources in small increments such as short-term power purchases (1996-1999), a
customer-owned standby generation program (1997), two combustion turbines
(1999-2000), an air conditioner load controls program (1997, 2001-2003), an
upgrade to LG&E's existing hydroelectric plant (2003), and a compressed air
energy storage plant (2004). The Kentucky Commission staff is reviewing LG&E's
plan, and is expected to issue its report and recommendations concerning the
plan during the first quarter of 1995. The Kentucky Commission's regulations do
not require it to hold any hearings or issue any formal orders regarding the
plan.

Environmental

For a complete discussion of LG&E's environmental issues concerning its Mill
Creek and Cane Run generating plants, manufactured gas plant sites, and certain
other environmental issues, see Note 13 of Notes to Financial Statements under
Item 8.

Like LG&E, LPI and its subsidiaries are subject to extensive federal, state, and
local environmental laws and regulations governing the operations of the various
power plants in which they participate as an owner or managing operator. Among
other things, these laws and regulations govern the discharge of materials into
waterways, the air, and the ground and, if violated, may require the owner or
operator to take remedial action to maintain the affected facility's operating
status. To the extent any such remedial environmental actions have been
required of LPI or its subsidiaries in the past, related expenditures have not
been material. Management believes the Company and its subsidiaries are in
material compliance with existing environmental laws, and does not anticipate
incurring significant environmental compliance or remediation costs in the
future.

Westmoreland Bankruptcy

For a discussion of the bankruptcy of Westmoreland Coal Company and its impact
on the Company, see Note 13 of Notes to Financial Statements under Item 8, and
the discussion under Item 1 that begins on page 13.

<PAGE>

Southampton

For a discussion of the request for rehearing filed with FERC by LG&E-
Westmoreland Southampton, the partnership that owns the Southampton facility,
regarding the partnership's request for an order from FERC stating that the
Southampton facility remains a qualifying facility for 1992, see Note 13 of
Notes to Financial Statements under Item 8, and the discussion under Item 1 that
begins on page 13.

Rensselaer

For a discussion of the request for a temporary waiver of certain qualifying
standards in 1994 and 1993 filed with FERC by LG&E-Westmoreland Rensselaer, the
partnership which owns the Rensselaer facility, see Note 13 of Notes to
Financial Statements under Item 8, and the discussion under Item 1 that begins
on page 14.

Roanoke Valley I

For a discussion of the proceeding in which Westmoreland-LG&E Partners, the
partnership that owns the Roanoke Valley I and II facilities, is seeking the
recovery of capacity payments withheld by Virginia Electric and Power Company,
see Note 13 of Notes to Financial Statements under Item 8, and the discussion
under Item 1 that begins on page 14.

Other

LG&E is a defendant in lawsuits seeking compensatory and, in certain instances,
punitive damages. To the extent that damages are assessed in any of these
lawsuits, LG&E believes that its insurance coverage is adequate and that the
effect of any such damages will not be material to the Company's consolidated
results of operations or financial position.

LPI and its subsidiaries are defendants in lawsuits seeking compensatory damages
primarily associated with various employment related matters. To the extent
that damages are assessed in any of these lawsuits, LPI believes that the effect
will not be material to the Company's consolidated results of operations or
financial position.

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

None

<PAGE>

Executive Officers of the Company.

Effective Date of
Election to Present
Name Age Position Position
---- --- -------- --------

Roger W. Hale 51 Chairman of the Board, August 17, 1990
President and Chief
Executive Officer

Edward J. Casey, Jr. 37 Group President-LG&E January 1, 1994
Energy Services

John R. McCall 51 Executive Vice President,July 1, 1994
General Counsel and
Corporate Secretary

Stephen R. Wood 52 Executive Vice January 1, 1994
President and Chief
Administrative Officer

Charles A. Markel III 47 Corporate Vice January 1, 1993
President - Finance

Paul W. Thompson 38 Vice President, June 15, 1994
Business Development

Each of the following officers is an executive officer of a subsidiary of the
Company and for purposes of the requirements of this report may also be
considered an executive officer of the Company:

Victor A. Staffieri 39 President - LG&E January 1, 1994

David A. Carey 41 Senior Vice President, January 1, 1994
Operations - LG&E

M. Lee Fowler 58 Vice President and September 1, 1988
Controller - LG&E

Wendy C. Heck 41 Vice President, January 1, 1994
Information Services -
LG&E

Chris Hermann 47 Vice President and January 1, 1993
General Manager,
Wholesale Electric
Business - LG&E

Rebecca L. Holt 35 Vice President, Gas February 15, 1995
Service Business - LG&E

The present term of office of each of the above executive officers extends to
the meeting of the Board of Directors following the Annual Meeting of
Stockholders, scheduled to be held April 25, 1995.

There are no family relationships between executive officers of the Company or
executive officers of its subsidiaries.

<PAGE>

Messrs. Hale, McCall and Markel are also executive officers of the Company's
subsidiary, LG&E. Mr. Hale is Chairman of the Board and Chief Executive Officer
of LG&E; Mr. McCall is Executive Vice President, General Counsel and Corporate
Secretary of LG&E; and Mr. Markel is Treasurer of LG&E.

Prior to election to his current position, Mr. Casey was Executive Vice
President and Chief Financial Officer of LG&E and the Company, and prior to
January 1, 1993, he was President of LG&E Energy Systems (a subsidiary of the
Company). Prior to January 1, 1992, he was Vice President - Business
Development of the Company, and prior to July 1990, he was employed by The
Blackstone Group, L.P., where he held the position of Vice President from
November 1988 to July 1990.

Prior to election to his current position, Mr. McCall was Partner and Litigation
Chairman of Brown, Todd & Heyburn, a law firm.

Prior to election to his current position, Mr. Thompson was General Manager -
Gas Operations of LG&E, and prior to December 1993, Director of Business
Development of the Company. Prior to March 1991, Mr. Thompson was Sales Manager
- - Americas of Koch Membrane Systems, and prior to October 1990, Vice President -
International of John Zink Company.

Prior to election to his current position, Mr. Staffieri was Senior Vice
President-Public Policy, and General Counsel of the Company and LG&E, and prior
to November 15, 1992, Senior Vice President, General Counsel and Corporate
Secretary. Prior to March 15, 1992, Mr. Staffieri was employed by Long Island
Lighting Company and held the position of General Counsel and Secretary from
April 1989 to March 1992, and Deputy General Counsel prior to April 1989.

Prior to election to her current position, Ms. Holt was employed by South
Carolina Electric and Gas Company and held the position of General Manager, Gas
Operations from July 1994 to February 1995, Division Manager, Central Division -
Gas Operations prior to July 1994, General Manager, Northern Division - Gas
Operations prior to February 1992, and Manager, Columbia Gas Operations prior to
July 1990.

Messrs. Hale, Wood, Markel, Carey, Fowler, and Hermann and Ms. Heck have been
employed for more than five years in executive or management positions with the
Company or its subsidiary, LG&E. Prior to election to the position shown in the
table, the following executive officers held the following positions with the
Company or LG&E since January 1, 1990:

Mr. Hale was President and Chief Executive Officer of LG&E prior to February 1,
1990, and Chairman of the Board, President and Chief Executive Officer of LG&E
thereafter;

Mr. Wood was Senior Vice President and Chief Administrative Officer of LG&E and
the Company prior to December 1992 and Senior Vice President and Chief
Administrative Officer of LG&E thereafter;

Mr. Markel was Vice President and Treasurer prior to March 1, 1990, Vice
President - Finance and Treasurer prior to January 1, 1992, and Senior Vice
President and Chief Financial Officer thereafter;

Mr. Carey was Vice President - Marketing and Sales of LG&E prior to July 14,
1990, Vice President - Marketing and Planning of LG&E prior to January 1, 1992,
Vice President - Marketing and General Manager, Electric Service of LG&E prior
to January 1, 1993, and Vice President and General Manager, Retail Electric
Business of LG&E thereafter;

<PAGE>

Mr. Hermann was General Manager - Power Production of LG&E prior to January 1992
and General Manager - Wholesale Electric of LG&E thereafter;

Ms. Heck was Vice President - Internal Auditing of LG&E prior to January 1,
1992, Vice President - Fuels and Operating Services of LG&E prior to January 1,
1993, and Vice President - Fuels and Information Services of LG&E thereafter.

PART II.

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

The Company's Common Stock is listed on the New York and Chicago Stock
Exchanges. The ticker symbol is "LGE." The newspaper stock exchange listings
are "LGE Energy" or "LGE EN." The following table gives information with
respect to price ranges, as reported in THE WALL STREET JOURNAL as New York
Stock Exchange Composite Transactions, and dividends paid for the periods shown.

1994 1993
---- ----

Dividend High Low Dividend High Low
Paid Price Price Paid Price Price
---- ----- ----- ---- ----- -----

<S> <C> <C> <C> <C> <C> <C>
First quarter $.5200 $41.000 $34.375 $.5025 $39.500 $33.750
Second quarter .5200 38.625 33.625 .5025 39.875 36.625
Third quarter .5200 39.125 36.000 .5025 43.375 38.750
Fourth quarter .5375 39.000 36.250 .5200 42.125 37.375

</TABLE>

The number of record holders of Common Stock at December 31, 1994, was 31,711.
The book value of the Company's Common Stock at December 31, 1994, was $23.10
per share.

<PAGE>

ITEM 6. Selected Financial Data.

Years Ended December 31
(Thousands of $ Except per Share Data)
--------------------------------------

1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $829,663 $900,027 $834,739 $714,965 $698,959
Operating income:
Before non-recurring charges 189,087 189,122 174,504 188,131 186,350
Non-recurring charges 48,743 - - - -
--------- ------- ------- ------- -------
Total 140,344 189,122 174,504 188,131 186,350
--------- ------- ------- ------- -------
--------- ------- ------- ------- -------
Net income:
Continuing operations:
Before non-recurring
charges, etc. 95,525 80,825 71,437 82,951 73,186
Non-recurring charges,
charitable founda-
tion, etc. 38,696 - - - -
-------- ------- ------- ------- -------
Total 56,829 80,825 71,437 82,951 73,186
Discontinued operations - 7,435 4,177 - -
Gain on sale of
discontinued operations 51,805 - - - -
Cumulative effect of
accounting change (3,369) - - - 18,236
--------- ------- ------- ------- -------
Total $105,265 $ 88,260 $ 75,614 $ 82,951 $ 91,422
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Average number of com-
mon shares outstanding 32,990,935 32,688,592 32,307,441 32,256,624 31,856,469
Earnings per share of
common stock:
Continuing operations:
Before non-recurring
charges, etc. $2.90 $2.47 $2.21 $2.57 $2.30
Non-recurring charges,
charitable founda-
tion, etc. 1.18 - - - -
-------- -------- -------- -------- --------
Total 1.72 2.47 2.21 2.57 2.30
Discontinued operations - .23 .13 - -
Gain on sale of
discontinued operations 1.57 - - - -
Cumulative effect of
accounting change (.10) - - - .57
----- ----- ----- ----- -----
Total $3.19 $2.70 $2.34 $2.57 $2.87
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Dividends declared per
common share $2.115 $2.045 $1.985 $1.92 $1.87
Payout ratio 66.3% 75.9% 84.7% 74.7% 81.6%
Total assets $2,217,464 $2,186,468 $2,148,398 $2,042,655 $1,991,444
Long-term obligations
(including amounts
due within one year) 662,800 662,800 686,262 687,662 688,250

</TABLE>

The financial statements and related notes contained under item 8 of this Form
10-K should be read in conjunction with the selected financial data presented
above.

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

The following discussion and analysis by management focuses on those factors
that had a material effect on the Company's financial results of operations and
financial condition during 1994, 1993, and 1992 and

<PAGE>

should be read in connection with the consolidated financial statements and
notes thereto. The Company's financial results and conditions are largely
dependent on the financial results and conditions of its principal subsidiary,
Louisville Gas and Electric Company (LG&E), a regulated electric and gas
utility. Financial results for the Company's non-utility operations are
increasingly dependent upon the returns earned from its portfolio of investments
in energy generation and related services. The returns earned from these
investments will reduce the financial impacts of revenue fluctuations caused by
the timing of development and construction activities.

RESULTS OF OPERATIONS

Earnings per Share

Earnings per share of common stock for 1994 were $3.19, a 49 CENTS increase over
the $2.70 earned in 1993. This increase was primarily attributable to the sale
of the Company's interest in Natural Gas Clearinghouse (NGC) which generated a
gain of $1.57 per share. Partially offsetting the gain were the write-off of
certain non-recurring charges (91 CENTS), the expense of establishing a
charitable foundation (27 CENTS) and the adoption of a new accounting standard
for post-employment benefits (10 CENTS). Without consideration of the gain and
the charges against income discussed above, the Company's 1994 earnings per
share would have been $2.90, an increase of 20 CENTS over 1993. This
improvement in earnings is primarily attributable to increased sales of
electricity to LG&E's retail customers and reduced interest on debt due to
favorable refinancing activities in 1993. The Company's non-utility operations
include an increase in earnings from investments in joint ventures owned by LG&E
Power Inc. (LPI) and fee income generated from the guarantee of certain equity
funding commitments. Income from investments in marketable securities also
added to improved 1994 earnings performance.

The Company's earnings per common share increased 36 CENTS for 1993 over 1992,
including the 10 CENTS per common share gain recognized from the sale of a
12.88% portion of the Trimble County plant to the Indiana Municipal Power Agency
(IMPA). LG&E's contribution to earnings came from increased electric sales as a
result of the warmer summer weather experienced in 1993, higher sales to other
utilities and reduced costs for debt and preferred stock attributable to
favorable refinancing activities. Contributions to earnings from the
non-utility businesses came from construction profits recognized by LPI,
earnings from operating power projects, a financial closing related to a power
project and strong performance by NGC.

Rates and Regulation

LG&E is subject to the jurisdiction of the Public Service Commission of Kentucky
(Kentucky Commission or Commission) in virtually all matters related to electric
and gas utility regulation, and as such, its accounting is subject to Statement
of Financial Accounting Standards No. 71, ACCOUNTING FOR THE EFFECTS OF CERTAIN
TYPES OF REGULATION (SFAS No. 71). Given LG&E's competitive position in the
market and the status of regulation in the state of Kentucky, LG&E has no plans
or intentions to discontinue its application of SFAS No. 71. See Note 2 of
Notes to Financial Statements under Item 8.

LG&E last filed for a rate increase with the Commission in June 1990 based on
the test-year ended April 30, 1990. A final order was issued in September 1991
that effectively granted LG&E an annual increase in rates of $6.8 million ($6.1
million electric and $.7 million gas). The Commission's order authorized a rate
of return on common equity of 12.5%.

<PAGE>

Federal Clean Air Act, as amended, and those federal, state, and local
environmental requirements which apply to coal combustion wastes and by-products
from facilities utilized for production of energy from coal. Under state law,
the Commission has until April 7, 1995, to rule on the application. If LG&E's
application is approved as filed, the surcharge will increase electric revenues
by approximately $5.5 million in 1995 and $8.3 million in 1996. The Commission
has previously approved environmental cost recovery surcharges for two other
regulated electric utilities in Kentucky.

On January 1, 1994, LG&E implemented a Commission approved demand side
management (DSM) program that LG&E, the Kentucky Attorney General, the Jefferson
County Attorney, and representatives of several customer-interest groups had
filed with the Commission. Under the agreement, LG&E will commit up to $3.3
million over three years (from 1994 through 1996) for initial programs that
include a residential energy conservation and education program and a commercial
conservation audit program. Future programs will be developed through a formal
collaborative process. The agreement contains a rate mechanism that will (1)
provide LG&E concurrent recovery of DSM program costs, (2) provide LG&E an
incentive for implementing DSM programs, and (3) allow LG&E to recover revenues
due to lost sales associated with the DSM programs.

Revenues from lost sales to residential customers are collected through a
"decoupling mechanism." LG&E's residential decoupling mechanism breaks the link
between the level of LG&E's residential kilowatt-hour and Mcf sales and its non-
fuel revenues. Under traditional regulation, a utility's revenue varies with
changes in its level of kilowatt-hour or Mcf sales. The residential decoupling
mechanism allows LG&E to recover a predetermined level of revenue per
residential customer based on the rate set in LG&E's last rate case, which will
not vary with the level of kilowatt-hour or Mcf sales. Residential revenues
will be adjusted to reflect (1) changes in the number of residential customers
and (2) a pre-established annual growth factor in residential revenue per
customer. Decoupling, in effect, removes the impact on LG&E's non-fuel revenues
from changes in kilowatt-hour or Mcf sales due to weather, fluctuations in the
economy, and conservation efforts. Under this mechanism, if actual sales
produce lower revenues than are produced by the predetermined per-customer
amount, the difference is deferred for recovery from customers through an
adjustment in rates over a period that will not exceed two years. Conversely,
if actual sales produce more revenues than would be realized using the
predetermined per-customer amount, the difference will be returned to customers
through subsequent rate adjustments over a period not to exceed two years.
Residential revenues reported in the financial statements for 1994 through 1996
will be determined in accordance with the predetermined amount per customer plus
growth, and recovery of fuel and gas costs. The difference between the revenues
shown in the financial statements and the amounts billed to customers will be
deferred for future recovery from, or return to, customers.

As more fully discussed in Note 14 of Notes to Financial Statements under Item
8, the Commission has scheduled a formal hearing on May 9, 1995, to determine
the appropriate ratemaking treatment to exclude 25% of the Trimble County plant
costs from customer rates. 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.

On May 24, 1993, the Federal Energy Regulatory Commission (FERC) gave final
approval for a market-based rate tariff and two transmission service tariffs
that were filed by LG&E. This market-based tariff enables LG&E to sell up to 75
Mw of firm generation capacity at market-based rates. It also enables LG&E to
sell an unlimited amount of non-firm power at market-based rates, as long as the
power is from LG&E's own generation resources. In 1994, LG&E made its first
power sales under its market-based tariff.

<PAGE>

Although LG&E has both firm and non-firm open access transmission rate schedules
which were approved by FERC in 1994, LG&E took the additional steps of filing a
new network transmission service and a new flexible point-to-point transmission
service to provide transmission service to other parties comparable to the
transmission service LG&E provides itself.

LG&E is currently undergoing a planned management and operations audit initiated
by the Kentucky Commission. The audit results will include an evaluation of
LG&E's operations and identify opportunities for improvements. An audit report
is scheduled to be issued by mid-1995.

Revenues

A comparison of LG&E's revenues for the years 1994 and 1993 with the immediately
preceding years reflects both increases and decreases, which have been
segregated by the following principal causes (in thousands of $):

Increase (Decrease) From Prior Period
Electric Revenues Gas Revenues
1994 1993 1994 1993
---- ---- ---- ----

<S> <C> <C> <C> <C>
Sales to ultimate consumers:
Fuel and gas supply adjustments, etc. $ (841) $ 6,832 $ 1,823 $19,479
Demand side management/decoupling 1,853 - 3,997 -
Variation in sales volumes 3,876 27,386 (12,139) 5,737
------- ------- -------- ------
Total 4,888 34,218 (6,319) 25,216
Sales for resale (17,340) 9,963 - -
Gas transportation-net - - 1,612 978
Other 152 1,303 (79) 195
------- ------ ------- ------
Total $(12,300) $45,484 $ (4,786) $26,389
--------- ------- --------- -------
--------- ------- --------- -------

</TABLE>

LG&E's electric revenues decreased in 1994 compared with 1993 primarily because
of a decrease in sales of electricity for resale. Gas sales to ultimate
consumers decreased 6% due primarily to the warmer than normal weather in the
last quarter of 1994.

Electric revenues increased in 1993 primarily because of the warmer summer
weather. Sales of electricity for resale increased over 1992 levels due to
LG&E's aggressive efforts in marketing off-system sales of energy. The increase
in gas sales for 1993 is largely attributable to cooler winter weather in the
region and customer growth.

The majority of non-utility revenues relate to LPI's construction of power
plants, while its operating profit consists of plant development and
construction profits in addition to equity in earnings from operating power
projects. Non-utility revenues decreased $53 million in 1994 primarily because
of lower engineering and construction activity by LPI. The decrease in 1994
engineering and construction revenues when compared to 1993 reflects lower
levels of construction at LPI's Roanoke Valley I and Rensselaer projects, offset
in part by an increase in construction at LPI's Roanoke Valley II project. The
1993 non-utility revenues of $123.5 million were $6.6 million (5%) lower than
1992 due to lower project development fees and revenues. Construction revenues
in 1993 of $120 million were roughly equal to 1992, as progress continued on
LPI's projects at Roanoke Valley I and II in North Carolina, and Rensselaer in
New York.

<PAGE>

Expenses

Fuel for electric generation and gas supply expenses comprise a large segment of
the Company's total operating costs. LG&E'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 are reflected in LG&E's rates,
subject to approval by the Commission.

Fuel expenses decreased $5.8 million (4%) in 1994 primarily because of a
decrease in the cost of coal burned ($3.9 million) and decreased generation of
3%. Fuel expenses for 1993 increased $13.8 million over 1992 because of
increased generation. The average delivered cost per ton of coal purchased for
LG&E was $25.27 in 1994, $26.58 in 1993, and $25.17 in 1992.

Power purchased decreased $7.5 million in 1994 primarily because less power was
wheeled for other utilities as a result of milder weather in the region. The
increase of $5.2 million in 1993 was largely attributable to more power
purchased because of wheeling arrangements with other utilities.

Gas supply expenses decreased $7.5 million (5%) in 1994 due mainly to a decrease
in the volume of gas delivered to the distribution system ($9.2 million),
partially offset by an increase in net gas supply cost ($1.7 million). Gas
supply expenses for 1993 increased $23.5 million primarily because of an
increase in net gas supply cost ($17.6 million) and a 5% increase in the volume
of gas delivered to the distribution system. The average unit cost per Mcf of
purchased gas for LG&E was $2.78 in 1994, $2.91 in 1993, and $2.77 in 1992.

Development and construction costs for 1994 decreased $45.6 million (44%)
compared to 1993 because of lower levels of construction activity on LPI's
Roanoke Valley I and Rensselaer projects; partially offset by an increase in
construction activity on LPI's Roanoke Valley II project. Development and
construction costs for 1993 were only slightly lower than 1992 due to the
continued progress on LPI's Roanoke Valley I and Rensselaer projects.

Utility operation expenses decreased $.5 million in 1994 mainly as a result of
decreases in various administrative expenses ($1.8 million), partially offset by
increased costs to operate electric generating plants and gas and electric
distribution systems ($.7 million), and an increase in the provision for
uncollectible accounts ($.6 million). Maintenance expenses for the utility were
up only slightly over 1993. In 1993, utility operation expenses increased $6
million (5%) over 1992 primarily because of increased costs of electric
generating plants ($2 million), and an increase in various administrative
expenses ($4.2 million). The 1993 utility maintenance expenses increased $1.5
million (3%), primarily due to increased repairs at the electric generating
plants.

Operation and maintenance expenses also reflect operating and business
development expenses associated with the Company's non-utility operations and
corporate overhead costs.

Depreciation and amortization increased in both 1994 and 1993 because of
additional depreciable plant in service.

Non-recurring charges include LG&E's 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. Non-
recurring charges also

<PAGE>

include a reserve to record costs related to LPI's vacating leased office space.
See Notes 2 and 5 of Notes to Financial Statements under Item 8.

The increase in equity in earnings of joint ventures in 1994 was due to the
start-up of operations at LPI's Rensselaer and Roanoke Valley I (ROVA I)
cogeneration projects and at its Windpower projects in California and Minnesota.
Equity in earnings of joint ventures in 1993 were not significantly higher than
in 1992 due to relatively similar levels of activity at the joint ventures in
both years. With the start of commercial operations of cogeneration projects,
each of the joint ventures receives revenues related to available capacity and
electricity sold pursuant to a power purchase agreement with a neighboring
utility. See Note 13 of Notes to Financial Statements under Item 8 for a
discussion of the lawsuit against Virginia Power relating to Virginia Power's
failure to pay amounts owed under the power purchase agreement for electricity
sold from the ROVA I project, and of the filing of a bankruptcy petition by
Westmoreland Coal Company, the parent company of several subsidiaries that are
partners with LPI in some cogeneration projects.

Other income and (deductions) increased in 1994 because of fee income from
Westmoreland Energy, Inc. (WEI) for LG&E Energy Systems' guarantee of WEI's
equity funding commitments on various cogeneration projects; interest and
dividend income generated primarily from the investment of proceeds received
from the sale of the Company's interest in NGC; net gains on the sale of
construction equipment, offset by realized net losses on investments. The
change in other income and (deductions) in 1993 compared to 1992 is primarily
due to a one-time fee to a financial institution, offset by increased interest
and dividend earnings on investments. Other income and (deductions) in 1993
also included a gain ($3.9 million) recognized on the sale of a 12.88% ownership
interest in LG&E's Trimble County Unit 1 to IMPA, offset by net losses on
disposal of other property and equipment ($3.5 million). See Note 9 of Notes to
Financial Statements under Item 8 for further detail.

Contribution to the charitable foundation reflects the expense associated with
establishing a tax-exempt foundation during 1994. Contributions made from this
foundation will not be charged against income, and therefore, will not affect
the Company's net income in the future. See Note 5 of Notes to Financial
Statements under Item 8.

Interest charges decreased in 1994 because of the lower composite interest rate
on outstanding debt, which reflects the full year effect of LG&E's 1993
aggressive program to refinance approximately $205 million of outstanding debt
at lower interest rates. Interest charges also decreased in 1993 as compared to
1992 primarily because of this refinancing program. The lower interest
requirement for LG&E in 1993 was partially offset by interest charges related to
debt issued for the Company's expansion into non-utility businesses. Since
1992, an immaterial component of interest expense has been the cost associated
with interest rate swaps. See Liquidity and Capital Resources.

Variations in income tax expenses are largely attributable to changes in pre-tax
income and an increase in the corporate Federal income tax rate from 34% to 35%,
effective January 1, 1993.

Preferred dividends reflect the lower dividends that resulted from LG&E's
refunding of its $25 million, $8.90 Series with a $5.875 Series in May 1993.

Income from discontinued operations and related gain on sale reflect the sale of
the Company's investment in NGC in January 1994. See Note 3 of Notes to
Financial Statements under Item 8.

<PAGE>

The rate of inflation may have a significant impact on LG&E's operations, its
ability to control costs, and the need to seek timely and adequate rate
adjustments. However, relatively low rates of inflation in the past few years
have moderated the impact on current operating results.

LIQUIDITY AND CAPITAL RESOURCES

The Company's need for capital funds is primarily related to the construction of
plant and equipment necessary to meet the needs of electric and gas utility
customers' and equity investments in connection with independent power
production projects in the non-utility business.

1994 Capital Requirements

Utility construction expenditures for 1994 were $95 million compared with $99
million for 1993 and $101 million for 1992. Non-utility construction
expenditures (other than generating plant expenditures incurred by joint
ventures) were not material in 1994, 1993, and 1992 and are not expected to vary
significantly in 1995 and 1996.

In 1994, LPI invested $20.4 million in a partnership with Kenetech Windpower
Inc. for the purpose of owning and operating power plants producing electricity
from wind turbines.

Past Financing Activities

During 1994, 1993, and 1992, the Company's primary source of capital was
internally generated funds from operating cash flows. Internally generated
funds provided financing for 100% of the Company's utility construction
expenditures for 1994 and 1993 and 87% of utility capital expenditures in 1992.
Variations in accounts receivable and accounts payable are not generally
significant indicators of the Company's liquidity, as such variations are
primarily attributable to fluctuations in weather in LG&E's service territory,
which has a direct effect on sales of electricity and gas. In 1994, accounts
receivable and accounts payable were lower due to warmer weather in the last
quarter of the year as compared to 1993.

The Company's equity investments in non-utility projects and non-utility
construction expenditures (other than generating plant expenditures during 1994)
were financed through internally generated funds and short-term borrowings.
Construction expenditures for new generating projects were fulfilled through
project debt.

The Company had short-term borrowings outstanding of $32 million as of
December 31, 1994 and $20 million as of December 31, 1993.

The Company issued $2 million of new common stock in 1994 under various employee
plans and issued $24 million of common stock in 1993 under its Dividend
Reinvestment Plan and various employee plans. In 1993, LG&E refinanced
approximately $205 million of its long-term debt and $25 million of its
preferred stock. These refinancings produced significant savings from lower
interest rates and preferred dividend rates in 1994 and 1993. See Notes 10 and
11 of Notes to Financial Statements under Item 8.

The Company's liquidity was also positively affected in 1994 through the sale of
its investment in NGC and in 1993 by the sale of a 12.88% portion of LG&E's
Trimble County Generating Unit. Proceeds from the NGC sale enabled the Company
to invest $123 million in marketable securities during 1994. At December 31,
1994, marketable securities amounted to $140 million ($90 million classified as
Marketable

<PAGE>

Securities and $50 million classified as Other Property and Investments). See
Note 6 of Notes to Financial Statements under Item 8.

LG&E has outstanding interest rate swap agreements with a notional amount of $30
million. These swaps were entered into as a standard hedging device in
connection with the 1992 issuance of LG&E's Pollution Control Bonds Series S,
due September 1, 2017. The swaps are designed to reduce LG&E's exposure to
interest rate risk. Under the agreements, LG&E pays a fixed rate of 4.35% on
$15 million for a five-year period and 4.74% on $15 million for a seven-year
period resulting in interest payments based on a composite rate of 4.55% in
1994, 1993, and 1992. In return, LG&E receives a floating rate based on the
weighted average JJ Kenny index. The Company received interest at composite
rates of 2.84%, 2.38%, and 2.73% in 1994, 1993, and 1992, respectively.

Future Capital Requirements

Future utility financing requirements may be affected in varying degrees by
factors such as load growth, changes in construction expenditure levels, rate
increases allowed by regulatory agencies, new legislation, market entry of
competing electric power generators, changes in environmental regulations and
other regulatory requirements. The Company estimates that LG&E's construction
expenditures will total $200 million for 1995 and 1996. In addition, expected
capital requirements for 1996 include $16 million to retire long-term debt.
Ascertainable non-utility equity funding commitments at December 31, 1994 were
$27 million. As discussed in Note 16 of Notes to Financial Statements under
Item 8, LG&E Energy Corp. has signed definitive agreements to acquire Hadson
Corporation for $143 million, plus acquisition related fees and expenses. The
Company expects to fund the acquisition through a partial liquidation of its
marketable securities portfolio and borrowed funds. Other future capital
funding requirements are dependent upon the identification of suitable
investment opportunities to enhance shareholder returns and achieve long-term
financial objectives through development and acquisition. Long-term financing
may be required for such acquisitions.

Future Sources of Financing

Internally generated funds from LG&E's operations are expected to fund
substantially all of LG&E's anticipated construction expenditures in 1995 and
1996. Similarly, the Company anticipates having sufficient internal cash
generation to meet anticipated equity investments and non-utility capital
expenditures in 1995 and 1996.

At December 31, 1994, loan agreements and lines of credit were in place totaling
$320 million ($25 million for LG&E Energy Corp., $145 million for LG&E and $150
million for LG&E Energy Systems Inc.) for which the companies pay commitment or
facility fees. These credit facilities are scheduled to expire at various
periods during 1995 and 1996 and management intends to renegotiate them when
they expire.

The lenders under the credit facility for LG&E Energy Systems Inc. (Energy
Systems) are entitled to the benefits of a Support Agreement between LG&E Energy
Corp. and Energy Systems. The Support Agreement states, in substance, that LG&E
Energy Corp. will provide Energy Systems with the necessary funds and financial
support to meet its obligations under the credit facility. See Note 13 of Notes
to Financial Statements, Equity Funding and Performance Guarantees, under Item 8
for further discussion.

To the extent permanent financings are needed in 1995 and 1996, the Company
expects that it will have ready access to the securities markets to raise needed
funds.

<PAGE>

Environmental Matters

The Clean Air Act Amendments of 1990 impose stringent limits on emissions of
sulfur dioxide and nitrogen oxides by electric utility generating plants. All
of LG&E's coal-fired boilers are equipped with sulfur dioxide "scrubbers" and
already achieve the final sulfur dioxide emission rates required by the year
2000 under the legislation. However, as part of its ongoing construction
program, LG&E has spent $10 million to date and anticipates incurring capital
expenditures of approximately $29 million through 1996 for remedial measures
necessary to meet the Act's requirements for nitrogen oxides. The overall
financial impact of the legislation on LG&E is expected to be minimal. LG&E is
well-positioned in the market to be a "clean" power provider without the large
capital expenditures that are expected to be incurred by many other utilities.

Reference is made to Note 13 of Notes to Financial Statements, Environmental,
under Item 8 for a complete discussion of LG&E's environmental issues concerning
its Mill Creek and Cane Run electric generating plants, manufactured gas plant
sites, and certain other environmental issues.

Energy Policy Act of 1992

The Energy Policy Act of 1992 is designed to give utilities a wider choice of
sources for their electrical supply than previously available, while creating
generating supply options that did not exist under the old law. In passing this
legislation, Congress also anticipated that greater competition among electric
supply options should result in lower consumer rates. The Company plans to
aggressively pursue opportunities created by a more competitive electric power
market.

FERC Order No. 636

In 1994, LG&E experienced its first full year of operations under the provisions
of Order No. 636. During 1994, LG&E paid and began recovering from its
customers approximately $2.8 million in transition costs under Order No. 636.
It is estimated that $6 million to $8 million in additional transition costs
will be incurred by LG&E during 1995, and these costs are also expected to be
recovered from customers. See Note 13 of Notes to Financial Statements, FERC
Order No. 636, under Item 8 for further discussion.

FUTURE OUTLOOK

Business Realignment

Effective January 1, 1994, the Company 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. Louisville Gas and Electric
Company, the Company's principal subsidiary, will increase its focus on customer
service and develop more customer options as the utility industry becomes more
competitive.

As part of the business realignment a new subsidiary was formed to market power
throughout the United States. LG&E Power Marketing Inc. (LPM), an indirect
wholly owned subsidiary of the Company, was among the first utility-affiliated
marketers in the country to secure FERC approval to sell power at market-based
rates and engage in wholesale power marketing activities.

<PAGE>

The realignment does not affect the Company's legal structure, regulation of
LG&E by the Commission or the Company's status as an exempt holding company.

Gallatin Steel Company

LG&E entered into an agreement with East Kentucky Power Cooperative, Inc. to
provide about 40 megawatts of electricity to Gallatin Steel Company's (Gallatin)
new steel mill in north central Kentucky. The agreement 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. LG&E will
supply the electricity from its power plants in the Louisville area. This
transaction was negotiated by LPM and the terms of the transaction were approved
by the Commission.

International Projects

Windpower Venture

Competition

The Company has taken many steps to prepare for the expected increase in
competition in its energy services businesses, including a reduction in the
number of employees; aggressive cost cutting; a write-off of previously deferred
expenses; an increase in focus on commercial and industrial customers; an
increase in employee involvement and training; and a major realignment and
formation of new business units. With these steps, the Company is preparing for
increased competition in both the regulated and non-regulated energy services
industries.

Proposed Acquisition of Hadson Corporation

On February 10, 1995, LG&E Energy Corp. signed definitive agreements to acquire
Hadson Corporation (Hadson) for $143 million, plus acquisition-related fees and
expenses. Hadson, whose common stock is listed on the New York Stock Exchange,
is involved in the marketing, gathering, processing, storage and transportation
of natural gas and natural gas liquids. The sale is subject to necessary
regulatory filings and approvals, and satisfaction of certain other conditions.
Closing is scheduled to occur during the second quarter of 1995.

<PAGE>

ITEM 8. Financial Statements and Supplementary Data.

LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income
(Thousands of $ Except Per Share Data)

Years Ended December 31
1994 1993 1992
---- ---- ----

<S> <C> <C> <C>
REVENUES:
Electric. . . . . . . . . . . . . $559,327 $571,627 $526,143
Gas . . . . . . . . . . . . . . . 200,129 204,915 178,526
Non-utility . . . . . . . . . . . 70,207 123,485 130,070
-------- -------- --------
Total revenues (Note 1) . . . 829,663 900,027 834,739
-------- -------- --------

COST OF REVENUES:
Fuel and power purchased. . . . . 153,356 166,664 147,679
Gas supply expenses . . . . . . . 131,561 139,054 115,521
Development and construction
costs. . . . . . . . . . . . . . 57,617 103,217 107,791
-------- -------- --------
Total cost of revenues
(Note 1) . . . . . . . . . . 342,534 408,935 370,991
-------- -------- --------

Gross profit . . . . . . . . . . . . . 487,129 491,092 463,748

OPERATING EXPENSES:
Operation and maintenance . . . . 226,752 227,835 216,380
Depreciation and amortization . . 84,173 82,660 81,065
Non-recurring charges (Note 5). . 48,743 - -
-------- -------- --------
Total operating expenses. . . 359,668 310,495 297,445
-------- -------- --------

Equity in earnings of joint ventures
(Note 4). . . . . . . . . . . . . . . 12,883 8,525 8,201
-------- -------- --------

OPERATING INCOME . . . . . . . . . . . 140,344 189,122 174,504

Other income and (deductions) (Note 9) 13,718 (1,727) (740)
Contribution to charitable foundation
(Note 5). . . . . . . . . . . . . . . 15,000 - -
Interest charges . . . . . . . . . . . 43,011 48,210 50,410
-------- -------- --------

Income from continuing operations
before income taxes . . . . . . . . . 96,051 139,185 123,354

Income taxes (Note 8). . . . . . . . . 33,394 52,379 44,744
-------- -------- --------

Income from continuing operations
before preferred dividends. . . . . . 62,657 86,806 78,610

Preferred dividends. . . . . . . . . . 5,828 5,981 7,173
-------- -------- --------

INCOME FROM CONTINUING OPERATIONS. . . 56,829 80,825 71,437

Income from discontinued operations,
net of income taxes of $4,760 in
1993 and $2,660 in 1992 (Note 3) . . . - 7,435 4,177
Gain on sale of discontinued
operations, net of income taxes of
$35,048 (Note 3). . . . . . . . . . . . 51,805 - -
-------- -------- --------

Income before cumulative effect of
change in accounting principle . . . . . 108,634 88,260 75,614

Cumulative effect of change in
accounting for post-employment
benefits, net of income taxes
of $2,280 (Note 7) . (3,369) - -
-------- -------- --------

NET INCOME . . . . . . . . . . . . . . $105,265 $ 88,260 $ 75,614
-------- -------- --------
-------- -------- --------

Average common shares outstanding. . . 32,991 32,689 32,307

Earnings per share of common stock:
From continuing operations. . . . $1.72 $2.47 $2.21
From discontinued operations. . . - .23 .13
Gain on sale of discontinued
operations . . . . . . . . . . . 1.57 - -
Cumulative effect of accounting
change . . . . . . . . . . . . . (.10) - -
------- ------- --------
Total . . . . . . . . . . . . $3.19 $2.70 $2.34
------- ------- --------
------- ------- --------

</TABLE>

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

<PAGE>

LG&E Energy Corp. and Subsidiaries
Consolidated Balance Sheets
(Thousands of $)

December 31
1994 1993
---- ----
<S> <C> <C>
ASSETS:
Utility plant, at original cost:
Electric. . . . . . . . . . . . . . . . . . . $2,084,334 $2,019,139
Gas . . . . . . . . . . . . . . . . . . . . . 280,877 260,485
Common. . . . . . . . . . . . . . . . . . . . 137,662 132,692
---------- ----------
Total utility plant . . . . . . . . . . . 2,502,873 2,412,316
Less: reserve for depreciation . . . . . . . 881,861 823,141
---------- ----------
Total utility plant less depreciation . . 1,621,012 1,589,175
Construction work in progress . . . . . . . . 35,022 51,785
---------- ----------
Net utility plant . . . . . . . . . . . . 1,656,034 1,640,960
---------- ----------

Other property and investments - less reserve:
Investments in affiliates (Note 4). . . . . . 115,420 63,241
Other (Notes 1 and 6) . . . . . . . . . . . . 53,483 24,949
Investment in discontinued operations (Note 3) - 84,284
---------- ----------
Total other property and investments. . . 168,903 172,474
---------- ----------

Current assets:
Cash and temporary cash investments . . . . . 49,407 67,377
Marketable securities (Note 6). . . . . . . . 89,431 -
Accounts receivable - less reserve of $1,539
in 1994 and $1,769 in 1993. . . . . . . . 97,927 124,504
Materials and supplies - at average cost:
Fuel (predominantly coal) . . . . . . . . 13,869 12,075
Gas stored underground. . . . . . . . . . 31,354 33,370
Other . . . . . . . . . . . . . . . . . . 37,299 40,357
Prepayments and other . . . . . . . . . . . . 4,020 1,600
---------- ----------
Total current assets. . . . . . . . . . . 323,307 279,283
---------- ----------

Deferred debits and other assets:
Unamortized debt expense. . . . . . . . . . . 7,776 8,076
Regulatory assets (Note 2). . . . . . . . . . 31,726 61,642
Other . . . . . . . . . . . . . . . . . . . . 29,718 24,033
---------- ----------
Total deferred debits and other assets. . 69,220 93,751
---------- ----------
Total assets . . . . . . . . . . . . . $2,217,464 $2,186,468
---------- ----------
---------- ----------

CAPITAL AND LIABILITIES:
Capitalization (see statements of capitalization):
Common equity . . . . . . . . . . . . . . . . $ 762,515 $ 729,647
Cumulative preferred stock. . . . . . . . . . 116,716 116,716
Long-term debt. . . . . . . . . . . . . . . . 662,862 662,879
---------- ----------
Total capitalization. . . . . . . . . . . 1,542,093 1,509,242
---------- ----------

Current liabilities:
Notes payable (Note 12) . . . . . . . . . . . 32,000 20,000
Accounts payable. . . . . . . . . . . . . . . 78,254 111,192
Common dividends declared . . . . . . . . . . 17,746 17,137
Accrued taxes . . . . . . . . . . . . . . . . 15,747 11,267
Accrued interest. . . . . . . . . . . . . . . 13,428 12,864
Other . . . . . . . . . . . . . . . . . . . . 34,218 38,394
---------- ----------
Total current liabilities . . . . . . . . 191,393 210,854
---------- ----------

Deferred credits and other liabilities:
Accumulated deferred income taxes
(Notes 1 and 8). . . . . . . . . . . . . . . 269,828 286,956
Investment tax credit, in process of
amortization. . . . . . . . . . . . . . . . 88,779 91,572
Accumulated provision for pensions and
related benefits . . . . . . . . . . . . . . 48,126 31,536
Customers' advances for construction. . . . . 8,621 7,384
Regulatory liability (Note 2) . . . . . . . . 8,914 6,876
Other . . . . . . . . . . . . . . . . . . . . 59,710 42,048
---------- ----------
Total deferred credits and other
liabilities . . . . . . . . . . . . . . 483,978 466,372
---------- ----------
Commitments and contingencies (Notes 13, 14 and 16)
Total capital and liabilities . . . . . . $2,217,464 $2,186,468
---------- ----------
---------- ----------

</TABLE>

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

<PAGE>

LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Thousands of $)

Years Ended December 31
1994 1993 1992
---- ---- ----

<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . $ 105,265 $ 88,260 $ 75,614
Items not requiring cash currently:
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . 3,369 - -
Non-recurring charges . . . . . . . . . . . . 48,743 - -
Depreciation and amortization . . . . . . . . 84,173 82,660 81,065
Deferred income taxes - net . . . . . . . . . (4,502) (190) 27,535
Investment tax credit - net . . . . . . . . . (4,619) (7,821) (5,033)
Gain on sale of capital asset . . . . . . . . - (3,869) -
Undistributed earnings of joint ventures. . . (7,887) (3,968) (3,870)
Income from discontinued operations . . . . . - (7,435) (4,177)
Gain on sale of discontinued operations . . . (90,878) - -
Other . . . . . . . . . . . . . . . . . . . . 10,698 26,184 4,095
(Increase) decrease in certain net current assets:
Accounts receivable . . . . . . . . . . . . . 26,577 (22,409) (796)
Materials and supplies. . . . . . . . . . . . 3,280 10,671 (8,014)
Accounts payable. . . . . . . . . . . . . . . (32,938) 22,577 3,783
Accrued taxes . . . . . . . . . . . . . . . . 4,480 288 6,226
Accrued interest. . . . . . . . . . . . . . . 564 540 (1,499)
Prepayments and other . . . . . . . . . . . . (6,596) 2,671 3,572
Other . . . . . . . . . . . . . . . . . . . . . . (4,170) (8,828) 1,168
---------- ---------- ----------
Net cash provided from operating activities . 135,559 179,331 179,669
---------- ---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of capital asset . . . . . . . . . . . . . . - 91,076 -
Purchases of securities . . . . . . . . . . . . . (318,450) (38,398) (26,677)
Proceeds from sales of securities . . . . . . . . 190,636 27,301 16,236
Construction expenditures . . . . . . . . . . . . (96,258) (99,999) (102,079)
Acquisition of and investment in affiliates
(Note 4). . . . . . . . . . . . . . . . . . . . (44,292) - (88,013)
Proceeds from sale of discontinued operations . . 170,000 - -
---------- ---------- ----------
Net cash used for investing activities. . . . (98,364) (20,020) (200,533)
---------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock. . . . . . . . . . . . . 2,025 23,941 1,232
Issuance of preferred stock . . . . . . . . . . . - 24,716 49,099
Issuance of first mortgage bonds and pollution
control bonds . . . . . . . . . . . . . . . . - 198,918 88,462
Redemption of preferred stock . . . . . . . . . . - (25,558) (51,443)
Retirement of first mortgage bonds and pollution
control bonds . . . . . . . . . . . . . . . . - (231,876) (92,400)
Repayment of short-term borrowings. . . . . . . . (20,000) (38,000) (14,000)
Short-term borrowings . . . . . . . . . . . . . . 32,000 - 60,000
Payment of common dividends . . . . . . . . . . . (69,190) (66,072) (63,507)
---------- ---------- ----------
Net cash used for financing activities. . . . (55,165) (113,931) (22,557)
---------- ---------- ----------

Net (decrease) increase in cash and temporary cash
investments . . . . . . . . . . . . . . . . . . . (17,970) 45,380 (43,421)

Cash and temporary cash investments at beginning of year 67,377 21,997 65,418
---------- ---------- ----------

Cash and temporary cash investments at end of year . . $ 49,407 $ 67,377 $ 21,997
---------- ---------- ----------
---------- ---------- ----------

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes. . . . . . . . . . . . . . . . . $ 81,468 $ 58,014 $ 20,832
Interest on borrowed money. . . . . . . . . . 41,042 47,389 51,604

</TABLE>

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

<PAGE>

LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Capitalization
(Thousands of $)

December 31
1994 1993
---- ----
<S> <C> <C>
COMMON EQUITY:
Common stock, without par value -
Authorized 75,000,000 shares, outstanding
33,015,951 shares in 1994 and 32,956,148
shares in 1993 (Note 10) . . . . . . . . . $ 460,980 $ 458,940
Common stock expense . . . . . . . . . . . . . (914) (899)
Unrealized loss on marketable securities, net
of income taxes of $2,980 (Note 6) . . . . (4,623) -
Retained earnings. . . . . . . . . . . . . . . 307,072 271,606
---------- ----------
Total common equity. . . . . . . . . . 762,515 729,647
---------- ----------

CUMULATIVE PREFERRED STOCK (Note 10):
Redeemable on 30 days notice by Louisville Gas
and Electric Company, except $5.875 series
<CAPTION>

Shares Current
Outstanding Redemption Price
----------- ----------------
<S> <C> <C> <C> <C>
$25 par value, 1,720,000 shares authorized -

5% series. . . . . . . . . . . . . . . . . . 860,287 $ 28.00 21,507 21,507
7.45% series . . . . . . . . . . . . . . . . 858,128 25.75 21,453 21,453
Without par value, 6,750,000 shares authorized -
Auction rate . . . . . . . . . . . . . . . . 500,000 100.00 50,000 50,000
$5.875 series. . . . . . . . . . . . . . . . 250,000 Not redeemable 25,000 25,000
Preferred stock expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,244) (1,244)
-------- --------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . . . . 116,716 116,716
-------- --------

LONG-TERM DEBT (Note 11):
First mortgage bonds -
Series due June 1, 1996, 5 5/8%. . . . . . . . . . . . . . . . . . . . . . . 16,000 16,000
Series due June 1, 1998, 6 3/4%. . . . . . . . . . . . . . . . . . . . . . . 20,000 20,000
Series due July 1, 2002, 7 1/2%. . . . . . . . . . . . . . . . . . . . . . . 20,000 20,000
Series due August 15, 2003, 6% . . . . . . . . . . . . . . . . . . . . . . . 42,600 42,600
Pollution control series:
J due July 1, 2015, 9 1/4% . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
K due December 1, 2016, 7 1/4% . . . . . . . . . . . . . . . . . . . . . 27,500 27,500
L due December 1, 2016, 7 1/4% . . . . . . . . . . . . . . . . . . . . . 22,500 22,500
N due February 1, 2019, 7 3/4% . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
O due February 1, 2019, 7 3/4% . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
P due June 15, 2015, 7.45% . . . . . . . . . . . . . . . . . . . . . . . 25,000 25,000
Q due November 1, 2020, 7 5/8% . . . . . . . . . . . . . . . . . . . . . 83,335 83,335
R due November 1, 2020, 6.55%. . . . . . . . . . . . . . . . . . . . . . 41,665 41,665
S due September 1, 2017, variable. . . . . . . . . . . . . . . . . . . . 31,000 31,000
T due September 1, 2017, variable. . . . . . . . . . . . . . . . . . . . 60,000 60,000
U due August 15, 2013, variable. . . . . . . . . . . . . . . . . . . . . 35,200 35,200
V due August 15, 2019, 5 5/8%. . . . . . . . . . . . . . . . . . . . . . 102,000 102,000
W due October 15, 2020, 5.45%. . . . . . . . . . . . . . . . . . . . . . 26,000 26,000
-------- --------
Total bonds outstanding. . . . . . . . . . . . . . . . . . . . . . . 662,800 662,800
Unamortized premium on bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 62 79
-------- --------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662,862 662,879
-------- --------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,542,093 $1,509,242
---------- ----------
---------- ----------

</TABLE>

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

<PAGE>

LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Retained Earnings
(Thousands of $)

Years Ended December 31
1994 1993 1992
---- ---- ----

<S> <C> <C> <C>
Balance January 1. . . . . . . . . . . . $271,606 $251,121 $241,702
Add net income . . . . . . . . . . . . . 105,265 88,260 75,614
-------- -------- --------
Total . . . . . . . . . . . . . . . 376,871 339,381 317,316
-------- -------- --------

Deduct: Cash dividends declared on
common stock ($2.115 per share
in 1994, $2.045 in 1993,
and $1.985 in 1992). . . . . . 69,799 66,957 64,048
Preferred stock redemption
expense. . . . . . . . . . . . - 818 2,147
-------- -------- --------

Balance December 31. . . . . . . . . . . $307,072 $271,606 $251,121
-------- -------- --------
-------- -------- --------

</TABLE>

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

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CORPORATE STRUCTURE AND BASIS OF CONSOLIDATION. The consolidated financial
statements include the accounts of LG&E Energy Corp. and its wholly owned
subsidiaries - Louisville Gas and Electric Company (LG&E) and LG&E Energy
Systems Inc. (Energy Systems), collectively referred to herein as the "Company."
LG&E is a regulated public utility that is engaged in the generation,
transmission, distribution, and sale of electric energy and the storage,
distribution, and sale of natural gas in Louisville and adjacent areas in
Kentucky. Energy Systems was formed to hold the Company's investments in
certain non-utility businesses. LG&E Power Inc. (LPI), a wholly owned
subsidiary of Energy Systems, develops, designs, builds, owns, operates, and
maintains power generation facilities that sell electric and steam energy to
industrial and utility customers. LPI's revenues are classified as
"non-utility" in the accompanying consolidated statements of income. LG&E
International Inc. (LII) is a subsidiary of Energy Systems that holds the
Company's investments in business ventures outside the United States.

The consolidated financial statements for years prior to 1994 also include the
results of financial transactions associated with Energy Systems' 36.5%
partnership interest in Natural Gas Clearinghouse (NGC), a natural gas marketing
company based in Houston, Texas, which was acquired in 1992 and sold in January
1994. Accordingly, the Company's investment in NGC, equity interest in NGC's
earnings and the related gain on sale have been classified as discontinued
operations in the accompanying consolidated financial statements. See Note 3,
Discontinued Operations.

All significant intercompany items and transactions have been eliminated from
the consolidated financial statements. Certain reclassifications have been made
to the 1993 and 1992 financial statements to conform with the 1994 presentation
with no impact on previously reported earnings. The Company is exempt from
regulation as a registered holding company under the Public Utility Holding
Company Act of 1935 (PUHCA).

UTILITY PLANT. LG&E's utility plant is stated at original cost, which includes
payroll-related costs such as taxes, fringe benefits, and administrative and
general costs. Construction work in progress has been included in the rate
base, and, accordingly, LG&E has not recorded any allowance for funds used
during construction.

<PAGE>

The cost of utility plant retired or disposed of in the normal course of
business is deducted from utility plant accounts and such cost plus removal
expense less salvage value is charged to the reserve for depreciation. When
complete operating units are disposed of, appropriate adjustments are made to
the reserve for depreciation and gains and losses, if any, are recognized.

DEPRECIATION AND AMORTIZATION. Depreciation is provided on the straight-line
method over the estimated service lives of depreciable plant. The amounts
provided for LG&E in 1994 were 3.3% (3.2% electric, 3.3% gas, and 5% common);
and for 1993 and 1992 were 3.3% (3.2% electric, 3.2% gas, and 5% common) of
average depreciable plant. Goodwill recorded as a result of the Company's
acquisition of LPI is being amortized using the straight-line method over a
period of 40 years. Subsequent to an acquisition, the Company evaluates whether
later events and circumstances have occurred that indicate the remaining useful
life of goodwill may warrant revision or that the remaining balance of goodwill
may not be recoverable. When factors indicate that goodwill should be evaluated
for possible impairment, the Company uses estimates such as undiscounted net
income and cash flow estimates, among other factors, in measuring whether the
goodwill is recoverable.

CASH AND TEMPORARY CASH INVESTMENTS. The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. Temporary cash investments are carried at cost, which approximates
fair value.

DEFERRED INCOME TAXES. Deferred income taxes have been provided for all
book-tax temporary differences.

The Company adopted Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES (SFAS No. 109), effective January 1, 1993.
Regulatory assets and liabilities have been established to recognize the future
revenue requirement impact from the deferred income taxes which were not
immediately recognized in operating results because of ratemaking treatment.
The adoption of SFAS No. 109 did not have a material impact on the results of
operations or financial position for either the regulated or non-regulated
companies.

INVESTMENT TAX CREDITS. Investment tax credits resulted from provisions of the
tax law that permitted a reduction of the Company's tax liability based on
credits for certain construction expenditures. Investment tax credits deferred
and charged to income in prior years are being amortized to income over the
estimated lives of the related property that gave rise to the credits.

DEBT PREMIUM AND EXPENSE. Debt premium and expense are amortized over the lives
of the related debt issues, consistent with regulatory practices.

REVENUE RECOGNITION. Utility revenues are recorded based on service rendered to
customers through month end. LG&E accrues an estimate for unbilled revenues
from the date of each meter reading date to the end of the accounting period.
Effective January 1, 1994, under an agreement approved by the Public Service
Commission of Kentucky (Kentucky Commission or Commission), LG&E implemented a
demand side management program and a "decoupling mechanism," which allows LG&E
to recover a predetermined level of revenue on electric and gas residential
sales. See Management's Discussion and Analysis, Rates and Regulation, for
further discussion. The Company recognizes revenues from non-utility
construction activities using the percentage of completion method of accounting.

FUEL AND GAS COSTS. The cost of fuel for electric generation is charged to
expense as used, and the cost of gas supply is charged to expense as delivered
to the distribution system.

<PAGE>

INTEREST RATE CONTRACTS. Interest rate swaps are used by LG&E to convert
variable rate debt to a fixed rate. The cost or benefit of the interest rate
swaps is recorded as a component of interest expense.

REVENUES AND CUSTOMER RECEIVABLES. LG&E customer receivables and gas and
electric revenues arise from deliveries of natural gas and electric energy to a
diversified base of residential, commercial and industrial customers and to
public authorities and other utilities. LG&E supplies gas to approximately
266,000 customers and electricity to approximately 341,000 customers in
Louisville and adjacent areas in Kentucky. For the year ended December 31,
1994, 74% of total utility revenue was derived from electric operations and 26%
from gas operations.

NOTE 2 - RATES AND REGULATORY MATTERS

Accounting for the regulated utility business conforms with generally accepted
accounting principles as applied to regulated public utilities and as prescribed
by the Federal Energy Regulatory Commission (FERC) and the Kentucky Commission.
LG&E is subject to Statement of Financial Accounting Standards No. 71,
ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION (SFAS No. 71). Under
SFAS No. 71, certain costs that would otherwise be charged to expense are
deferred as regulatory assets based on expected recovery from customers in
future rates. Likewise, certain credits that would otherwise be reflected as
income are deferred as regulatory liabilities based on expected flowback to
customers in future rates. Management's expected recovery of deferred costs and
expected flowback of deferred credits is generally based on specific ratemaking
decisions or precedent for each item. The following regulatory assets and
liabilities were included in the consolidated balance sheets as of December 31
(in thousands of $):

1994 1993
---- ----
<S> <C> <C>
Unamortized loss on bonds $15,704 $16,622
Unamortized extraordinary retirements 9,752 12,540
Post-retirement benefits - 1,200
Early retirement/workforce reduction - 17,617
Property damage settlements - 9,817
Manufactured gas sites 3,149 926
Other 3,121 2,920
Deferred income taxes - net (8,914) (6,876)
------- -------

Regulatory assets and liabilities - net $22,812 $54,766
------- -------
------- -------

</TABLE>

As of December 31, 1994, approximately $15 million of LG&E's net regulatory
assets are being recovered through rates charged to customers over periods
ranging from three to 22 years. LG&E expects to obtain recovery of the
remaining regulatory assets in its next general rate case. For additional
information regarding post-retirement benefits and early retirement/workforce
reduction costs, deferred income taxes, and environmental costs, see Notes 7, 8,
and 13, respectively. In early 1994, LG&E, based on a re-evaluation of its
regulatory strategy, wrote off certain regulatory assets included in the 1993
consolidated balance sheet. See Note 5, Non-Recurring Charges, for a further
discussion.

In October 1994, LG&E filed an application with the Kentucky Commission to
implement an environmental cost recovery surcharge. The surcharge will allow
LG&E to recover certain costs incurred to comply with federal, state, and local
environmental requirements. If approved by the Commission, the surcharge will
take effect in May 1995. See Rates and Regulation under Management's Discussion
and Analysis for a further discussion.

<PAGE>

NOTE 3 - DISCONTINUED OPERATIONS

In January 1994, the Company sold its 36.5% partnership interest in NGC for $170
million. The transaction resulted in an after-tax gain of $52 million. The
Company's interest in NGC was acquired in 1992 at a cost of approximately $70
million and was accounted for as a purchase. Accordingly, the Company's
investment in NGC, equity interest in NGC's earnings and the related gain on
sale have been classified as discontinued operations in the accompanying
consolidated financial statements.

NOTE 4 - INVESTMENTS IN JOINT VENTURES

The Company's investments in joint ventures mainly reflect interests in
partnerships owned by LPI and LII in electric power and steam producing plants.
These investments are accounted for using the equity method. The Company's
investments in these joint ventures were $115,420,000 and $63,241,000 at
December 31, 1994 and 1993, respectively.

The ownership percentages of joint ventures are summarized below:

% Owned
-------
<S> <C>
Babcock - Ultrapower West Enfield 17
Babcock - Ultrapower Jonesboro 17
LG&E Westmoreland - Southampton 50
LG&E Westmoreland - Altavista 50
LG&E Westmoreland - Hopewell 50
LG&E Westmoreland - Rensselaer 50
Westmoreland - LG&E Partners 50
UC Operating Services 50
Windpower Partners 1993 50
Windpower Partners 1994 25
Central Termica San Miguel de Tucuman, S.A. 33

</TABLE>

The Company's carrying amount exceeded the underlying equity in joint ventures
by $33,174,000 and $34,618,000 at December 31, 1994, and 1993, respectively.
The difference represents adjustments to reflect the fair value of the
underlying net assets acquired in 1991, in conjunction with the purchase of LPI,
and related goodwill. The fair value adjustments are being amortized over
periods ranging from two to 25 years, and the goodwill is being amortized over
40 years.

NOTE 5 - NON-RECURRING CHARGES

As part of a study of its business strategy and realignment during 1994, 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 Commission. As a result of this re-evaluation, LG&E wrote
off certain expenses that had previously been deferred amounting to
approximately $38.6 million before taxes. While LG&E continues to believe that
it could have reasonably expected to recover these costs in future rate
proceedings before the Commission, 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

<PAGE>

deferred resulting from adoption in January 1993 of Statement of Financial
Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR POST-RETIREMENT BENEFITS
OTHER THAN PENSIONS. LPI recorded a reserve for $10.1 million, before taxes,
for the costs related to vacating leased office space. See Operating Leases
under Note 13, Commitments and Contingencies.

In the first quarter of 1994, the Board of Directors of the Company approved the
formation of a tax-exempt charitable foundation (Foundation) which will make
charitable contributions to qualified persons and entities. In 1994, the
Company recorded a pre-tax charge against income and made an irrevocable payment
of $15 million to fund the Foundation. 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.

NOTE 6 - MARKETABLE SECURITIES AND OTHER FINANCIAL INSTRUMENTS

MARKETABLE SECURITIES. The Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES, effective January 1, 1994. Accordingly, the
Company's marketable securities have been determined to be "available-for-sale"
and are stated at market value in the accompanying December 31, 1994,
consolidated balance sheet. The available-for-sale category of investments
results in the classification of unrealized gains and losses on investments in
common equity, net of income taxes, until such gains and losses are realized, at
which time they are recognized in earnings. Proceeds from sales of
available-for-sale securities were $190,636,000, which resulted in realized
gains of $2,993,000 and losses of $5,131,000, calculated using the specific
identification method. The difference between amortized and unamortized cost
basis of the Company's investments in marketable securities as of December 31,
1994, was immaterial.

Approximate cost, fair value, and other required information about the Company's
available-for-sale securities by major security type as of December 31, 1994,
follows (in thousands of $):

Fixed
Equity Income Total
------ ------ -----
<S> <C> <C> <C>
Cost $39,840 $107,332 $147,172
Unrealized gains 61 362 423
Unrealized losses (4,045) (3,981) (8,026)
------- ------- -------
Fair values $35,856 $103,713 $139,569
------- -------- --------
------- -------- --------

Fair values:
No maturity $34,511 $ - $ 34,511
Contractual maturities:
Less than one year 1,345 5,767 7,112
One to five years - 53,101 53,101
Five to ten years - 11,575 11,575
Over ten years - 15,690 15,690
Not due at a single maturity date - 17,580 17,580
------- -------- --------
Total fair values $35,856 $103,713 $139,569
------- -------- --------
------- -------- --------

</TABLE>

The Company's available-for-sale securities above include approximately $1.1
million market value ($33.1 million notional amount) of short futures on U.S.
Treasury Notes and Bonds maturing March 1995. The Company uses such instruments
to hedge a major portion of its preferred equity portfolio to substantially
reduce price volatility of the securities due to interest rate changes. The
Company does not maintain any margin accounts relative to its investment
positions.

<PAGE>

The Company's available-for-sale securities consisted of $89,431,000 classified
as Marketable Securities and $50,138,000 classified as Other Property and
Investments in the accompanying 1994 consolidated balance sheet.

FINANCIAL INSTRUMENTS. Pursuant to Statement of Financial Accounting Standards
No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, the Company is
required to disclose the fair value of financial instruments where practicable.
The disclosure of such information does not purport to be a market valuation of
the Company as a whole. The carrying amounts of cash, accounts receivable,
notes payable, and accounts payable reflected on the consolidated balance sheets
approximates the fair value of these instruments due to the short duration to
maturity.

The fair value for certain of the Company's investments and debt are estimated
based on quoted market prices for those or similar instruments. Investments for
which there are no quoted market prices are stated at cost because a reasonable
estimate of fair value cannot be made without incurring excessive costs. The
fair value of interest rate swaps is based on the quoted market price as
provided by the financial institution which is the counterparty to the swap.

The cost and estimated fair value of the Company's financial instruments as of
December 31, 1994 and 1993, are as follows (in thousands of $):

1994 1993
---- ----
Fair Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Marketable securities $ 93,849 $ 89,431 $ - $ -
Long-term investments:
Practicable to estimate
fair value 53,323 50,138 21,186 21,538
Not practicable 490 490 490 490
Preferred stock subject
to mandatory redemption 25,000 22,125 25,000 24,750
Long-term debt 662,800 648,697 662,800 706,078
Interest rate swaps - 965 - (896)

</TABLE>

NOTE 7 - PENSION PLANS AND RETIREMENT BENEFITS

PENSION PLANS. The Company has two non-contributory, defined-benefit pension
plans, covering all eligible employees. Retirement benefits are based on the
employee's years of service and compensation. The Company's policy is to fund
annual actuarial costs, up to the maximum amount deductible for income tax
purposes, as determined under the frozen entry age actuarial cost method.

In addition, the Company has a supplemental executive retirement plan that
covers officers of the Company. The plan provides retirement benefits based on
average earnings during the final three or five years prior to retirement,
reduced by social security benefits, any pension benefits received from plans of
prior employers, and by amounts received under the pension plans mentioned in
the preceding paragraph.

Pension costs were $4,996,000 for 1994, $3,048,000 for 1993, and $2,664,000 for
1992, of which approximately $693,000, $425,000, and $241,000, respectively,
were charged to construction.

<PAGE>

The components of periodic pension expense are shown below (in thousands of $):

1994 1993 1992
---- ---- ----

<S> <C> <C> <C>
Service cost - benefits earned during the period$ 5,134 $ 4,730 $ 5,524
Interest cost on projected benefit obligation 13,377 12,314 11,060
Actual return on plan assets (494) (13,676) (8,903)
Amortization of transition asset (1,079) (1,079) (1,076)
Net amortization and deferral (11,942) 759 (3,941)
-------- ------- --------
Net pension cost $ 4,996 $ 3,048 $ 2,664
--------- --------- --------
--------- --------- --------

</TABLE>

The assets of the plans consist primarily of common stocks, corporate bonds,
United States government securities, and interests in a pooled real estate
investment fund.

The funded status of the pension plans at December 31 is shown below (in
thousands of $):

1994 1993
---- ----
<S> <C> <C>
Actuarial present value of
accumulated plan benefits:
Vested $134,273 $138,384
Non-vested 14,756 18,322
--------- --------
Accumulated benefit obligation 149,029 156,706
Effect of projected future compensation 19,971 26,357
--------- --------
Projected benefit obligation 169,000 183,063
Plan assets at fair value 161,299 166,035
--------- --------
Plan assets less than projected
benefit obligation (7,701) (17,028)
Unrecognized net transition asset (12,245) (13,324)
Unrecognized prior service cost 24,270 28,657
Unrecognized net gain (35,860) (22,590)
--------- --------

Accrued pension liability $(31,536) $(24,285)
--------- ---------
--------- ---------

</TABLE>

The projected benefit obligation was determined using an assumed discount rate
of 8.5% for 1994 and 7.5% for 1993. An assumed annual rate of increase in
future compensation levels ranged from 4.5% to 5% for 1994 and 3.5% to 4.5% for
1993. The assumed long-term rate of return on plan assets was 8.5% for 1994 and
1993. Transition assets and prior service costs are being amortized over the
average remaining service period of active participants.

POST-RETIREMENT BENEFITS. The Company adopted Statement of Financial Accounting
Standards No. 106, EMPLOYERS' ACCOUNTING FOR POST-RETIREMENT BENEFITS OTHER THAN
PENSIONS (SFAS No. 106), effective January 1, 1993. SFAS No. 106 requires the
accrual of the expected cost of retiree benefits other than pensions during the
employee's years of service with the Company. The Company is amortizing the
discounted present value of the post-retirement benefit obligation at the date
of adoption over 20 years.

The Company provides certain health care and life insurance benefits for
eligible retired employees. Post-retirement health care benefits are subject to
a maximum amount payable by the Company. Prior to January 1, 1993, the cost of
retiree health care and life insurance benefits was generally recognized when
paid. This cost was $1,078,000 for 1992. Beginning in 1993, the Company began
to account for post-retirement benefits according to the provisions of SFAS
No. 106.

<PAGE>

In 1993, LG&E, based on an order from the Commission, created a regulatory asset
and deferred the level of SFAS No. 106 expense in excess of the previous level
of pay-as-you-go expense. Therefore, the adoption of SFAS No. 106 did not have
an effect on results of operations in 1993. However, in the first quarter of
1994, LG&E began recognizing the excess SFAS No. 106 expense currently,
including the amount previously deferred. See Note 5, Non-Recurring Charges.

The components of the net periodic post-retirement benefit cost as calculated
under SFAS No. 106 are as follows (in thousands of $):

1994 1993
---- ----
<S> <C> <C>
Service cost $ 647 $ 710
Interest cost 2,400 2,621
Amortization of transition obligation 1,341 1,399
------ ------

Post-retirement benefit cost $4,388 $4,730
------ ------
------ ------

</TABLE>

The accumulated post-retirement benefit obligation as calculated under SFAS
No. 106 at December 31 is shown below (in thousands of $):

1994 1993
----- ----
<S> <C> <C>
Retirees $(18,487) $(17,826)
Fully eligible active employees (1,965) (4,022)
Other active employees (9,940) (16,042)
--------- ---------
Accumulated post-retirement benefit obligation (30,392) (37,890)
Unrecognized net (gain) loss (3,220) 4,990
Unrecognized transition obligation 24,134 26,582
Previously recognized amount - 3,696
--------- ---------
Accrued post-retirement benefit liability $ (9,478) $ (2,622)
--------- ---------
--------- ---------

</TABLE>

The accumulated post-retirement benefit obligation was determined using an
assumed discount rate of 8.5% for 1994 and 7.5% for 1993. Assumed compensation
increases for projected life insurance benefits for affected groups was 5% for
1994 and 4.5% for 1993. An assumed health care cost trend rate of 10.5% was
assumed for 1994, gradually decreasing to 5.25% in ten years and thereafter.

A 1% increase in the assumed health care cost trend rate would increase the
accumulated post-retirement benefit obligation by approximately $1 million and
the annual service and interest cost by approximately $100,000. No funding has
been established by the Company for post-retirement benefits.

POST-EMPLOYMENT BENEFITS. The Company adopted Statement of Financial Accounting
Standards No. 112, EMPLOYERS' ACCOUNTING FOR POST-EMPLOYMENT BENEFITS on (SFAS
No. 112) January 1, 1994, as required. 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.

EARLY RETIREMENT/WORK FORCE REDUCTION. During the last quarter of 1993, LG&E
eliminated approximately 350 full-time positions. The cost of the employee
reduction program was approximately $11.5 million, and consisted primarily of
separation payments, enhanced early retirement benefits, and health care
benefits.

<PAGE>

In 1992, an early retirement program was made available to all LG&E union
employees who had reached age 55, or who had 35 years or more of continuous
service regardless of age. The cost of the program was approximately $7 million
and consisted primarily of enhanced early retirement and health care benefits.

THRIFT SAVINGS PLAN. The Company has Thrift Savings Plans under Section 401(k)
of the Internal Revenue Code. Under these plans, eligible employees may defer
and contribute to the plan a portion of current compensation in order to provide
future retirement benefits. The Company makes contributions to the plans by
matching a portion of employee's contributions according to a formula
established by the plans. These costs were approximately $3,304,000 for 1994,
$3,542,000 for 1993, and $2,204,000 for 1992. The increase in 1993 401(k)
expenses over 1992 is due to the expansion of the program to LG&E union
employees.

NOTE 8 - FEDERAL AND STATE INCOME TAXES

Components of income tax expense from continuing operations are shown in the
table below (in thousands of $):

1994 1993 1992
----- ----- ----

<S> <C> <C> <C>
Included in Income Taxes:
Current- Federal $33,483 $45,194 $17,536
- State 9,032 15,196 4,706
Deferred - Federal - net (4,560) 198 19,186
- State - net 58 (388) 8,349
Deferred investment tax credit - - 390
Amortization of investment tax credit (4,619) (7,821) (5,423)
-------- -------- --------

Total $33,394 $52,379 $44,744
-------- -------- --------
-------- -------- --------

</TABLE>

Variations in income tax expense are largely attributable to changes in pre-tax
income.

Provisions for deferred income taxes - net from continuing operations consist of
the tax effects of the following temporary differences (in thousands of $):

1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Depreciation and amortization $20,772 $ 3,593 $38,624
Alternative minimum tax - 5,995 (5,995)
Deferred income (2,588) (7,295) (3,483)
Pension overfunding (4,380) (857) (940)
Accrued liabilities not currently
deductible (9,169) (1,715) (811)
Other (9,137) 89 140
-------- ------- --------

Total $ (4,502) $ (190) $27,535
--------- -------- -------
--------- -------- -------

</TABLE>

The net provisions for deferred income taxes decreased in 1994 due largely to
recording certain liabilities which are not deductible until such liabilities
are paid. Deferred income taxes attributable to depreciation and amortization
decreased in 1993 because of the reversal of prior years' accumulated taxes as a
result of the sale of a portion of Trimble County Unit 1. See Note 15, Jointly
Owned Electric Utility Plant, for a further discussion of the sale.

<PAGE>

Net deferred tax liabilities resulting from book-tax temporary differences are
shown below (in thousands of $):

December 31, December 31, January 1,
1994 1993 1993
---- ---- ----

<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation and other
plant-related items $353,437 $338,914 $334,186
Income taxes due from customers 10,179 10,233 14,608
Other liabilities 11,025 11,838 4,308
-------- -------- --------
$374,641 $360,985 $353,102
-------- -------- --------

Deferred tax assets:
Investment tax credit $ 35,833 $ 36,961 $ 42,229
Income taxes due to customers 13,942 14,361 15,477
Pension overfunding 12,207 7,306 6,129
Deferred income 13,251 11,028 3,389
Accrued liabilities not currently
deductible and other 29,580 4,373 6,367
-------- -------- --------
$104,813 $74,029 $73,591
-------- -------- --------

Net deferred income tax liability $269,828 $286,956 $279,511
-------- -------- --------
-------- -------- --------

</TABLE>

The Company's effective income tax rate is computed by dividing the aggregate of
current income taxes, deferred income taxes-net, and the amortization of
investment tax credit by income from continuing operations before income taxes.
Reconciliation of the statutory Federal income tax rate to the effective income
tax rate for continuing operations is shown in the table below:

1994 1993 1992
---- ---- ----

<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 34.0%
State income taxes net of federal benefit 6.2 6.9 7.0
Investment and other tax credits (5.6) (5.6) (4.4)
Other differences - net (.8) 1.3 (.3)
----- ----- -----

Effective income tax rate 34.8% 37.6% 36.3%
----- ----- -----
----- ----- -----
</TABLE>

NOTE 9 - OTHER INCOME AND (DEDUCTIONS)

Other income and (deductions) consisted of the following at December 31 (in
thousands of $):

1994 1993 1992
---- ---- ----

<S> <C> <C> <C>
Fee income (expense) $ 6,092 $(1,850) $ -
Gains (losses) on securities - net (2,138) (54) -
Interest and dividend income 11,690 3,112 1,980
Gains on fixed asset disposals - net 1,772 346 608
Donations (1,285) (1,255) (903)
Other (2,413) (2,026) (2,425)
------- ------- -------

Total $13,718 $(1,727) $ (740)
------- ------- -------
------- ------- -------
</TABLE>

<PAGE>

NOTE 10 - CAPITAL STOCK

Changes in shares of common stock outstanding are shown in the table below (in
thousands):

1994 1993 1992
---- ---- ----

<S> <C> <C> <C>
Outstanding January 1 32,956 32,328 32,284
Issues under the Employee
Common Stock Purchase
Plan (1994, $1,377;
1993, $1,296; 1992, $1,129) 41 37 40
Issues under the Automatic
Dividend Reinvestment and Stock
Purchase Plan ($21,740) - 560 -
Issues under the Omnibus
Long-Term Incentive Plan
(1994, $663; 1993, $953;
1992, $103) 19 31 4
------ ------ ------

Outstanding December 31 33,016 32,956 32,328
------ ------ ------
------ ------ ------
</TABLE>

In 1992, the Company's Automatic Dividend Reinvestment and Stock Purchase Plan
provided that reinvested dividends and optional cash payments would be used to
buy shares of common stock on the open market. The plan was changed in 1993 to
issue authorized but unissued common stock under the plan effective with the
January 15, 1993, dividend. Effective January 15, 1994, the plan was revised
and reinvested dividends and optional cash payments are again being used to
purchase shares of the Company's stock on the open market.

The Company has a Long-Term Incentive Plan (the Long-Term Plan) whereby, in
addition to other types of stock-based and related awards, incentive and
nonqualified stock options can be granted to key personnel. A total of 299,250
shares of common stock have been registered under the Long-Term Plan. Under the
nonqualified stock option portion of the Long-Term Plan, the Company may grant
stock options at an exercise price approximating market value. Each option
entitles the holder to acquire one share of the Company's common stock no
earlier than one year from the date granted. The options generally expire ten
years from the date granted.

Non-employee directors receive stock options pursuant to the Stock Option Plan
for Non-Employee Directors (the Directors' Plan), which was approved by the
Company's shareholders at the 1994 annual meeting. A total of 250,000 shares of
common stock have been registered under the Directors' Plan. Under the
Directors' Plan, upon initial appointment or election to the Board, each new
director, who has not been an employee or officer of the Company within the
preceding three years, receives an option grant for 2,000 shares of common
stock. Following this initial grant, eligible directors receive an annual grant
of an option for 2,000 shares in February of each year. The terms of the
options are similar to those granted under the Long-Term Plan.

Common stock equivalents resulting from the options granted under both the
Long-Term Plan and the Directors' Plan would not have a material dilutive effect
on reported earnings per share.

<PAGE>

A summary of the status of the Company's nonqualified stock options follows:

Out- Exer- Option Price
standing cisable per Share
-------- ------- ---------

<S> <C> <C> <C>
As of December 31, 1991 66,608 22,316 $25.86 - $27.97
Options granted and
exercisable 49,174 44,292 $25.86 - $30.56
Options exercised (7,853) (7,853) $25.86 - $27.14
Options cancelled (3,841) (3,841) $25.86 - $30.56
------- ------- ---------------

As of December 31, 1992 104,088 54,914 $25.86 - $30.56
Options granted and
exercisable 77,005 49,174 $30.56 - $39.19
Options exercised (21,274) (21,274) $25.86 - $30.56
Options cancelled (5,936) (5,936) $33.90 - $36.04
------- ------- ---------------

As of December 31, 1993 153,883 76,878 $25.86 - $39.19
Options granted and
exercisable 120,315 77,005 $30.56 - $39.19
Options exercised (16,047) (16,047) $25.86 - $36.04
Options cancelled (15,887) (9,545) $30.56 - $39.19
------- ------- ---------------

As of December 31, 1994 242,264 128,291 $25.86 - $39.19
------- ------- ---------------
------- ------- ---------------
</TABLE>

The Company has a Shareholders Rights Plan designed to protect shareholders'
interests in the event the Company is ever confronted with an unfair or
inadequate acquisition proposal. Pursuant to the plan, each share of common
stock has two-thirds of a "right" entitling the holder to purchase from the
Company one one-hundredth of a share of new preferred stock of the Company under
certain circumstances. The holders of the rights will, under certain
conditions, also be entitled to purchase either shares of common stock of LG&E
Energy Corp. or common stock of the acquirer at a reduced percentage of market
value. The rights will expire in the year 2000.

In May 1993, LG&E issued $25 million of $5.875 Cumulative Preferred Stock. The
proceeds from the sale were used to redeem the outstanding $8.90 Cumulative
Preferred Stock.

NOTE 11 - FIRST MORTGAGE BONDS

Annual requirements for the sinking funds of LG&E's First Mortgage Bonds (other
than the First Mortgage Bonds issued in connection with the Pollution Control
Bonds) are the amounts necessary to redeem 1% of the highest principal amount of
each series of bonds at any time outstanding. Property additions (166 2/3% of
principal amounts of bonds otherwise required to be so redeemed) have been
applied in lieu of cash. It is the intent of LG&E to apply property additions
to meet 1995 sinking fund requirements of the First Mortgage Bonds.

The trust indenture securing the First Mortgage Bonds constitutes a direct first
mortgage lien upon substantially all property owned by LG&E. The indenture, as
supplemented, provides in substance that, under certain specified conditions,
portions of retained earnings will not be available for the payment of dividends
on common stock. No portion of retained earnings is presently restricted by
this provision.

Pollution Control Bonds (LG&E Projects) issued by Jefferson and Trimble
Counties, Kentucky, are secured by the assignment of loan payments by LG&E to
the Counties pursuant to loan agreements, and further secured by the delivery
from time to time of an equal amount of LG&E's First Mortgage Bonds, Pollution

<PAGE>

Control Series. First Mortgage Bonds so delivered are summarized in the
Statements of Capitalization. No principal or interest on these First Mortgage
Bonds is payable unless default on the loan agreements occurs. The interest
rate reflected in the Statements of Capitalization applies to the Pollution
Control Bonds.

In March 1993, due to the sale of 12.88% of Trimble County Unit 1, LG&E
completed the defeasance of $25 million of its Pollution Control Bonds ($16.665
million of the 7.625% Series and $8.335 million of the 6.55% Series).

LG&E issued several series of lower interest bearing First Mortgage and
Pollution Control Bonds in 1993 to refinance bonds with higher interest rates.
In August 1993, LG&E issued two separate series of Pollution Control Bonds (a
$35.2 million, Variable Rate Series, which had an average interest rate of
3.740% at December 31, 1994, and 2.586% at December 31, 1993, and a $102
million, 5.625% Series) and redeemed five series of Pollution Control Bonds
totaling $137.2 million with interest rates ranging from 6.125% to 6.7%. In
August 1993, LG&E also issued $42.6 million of 6% First Mortgage Bonds and
redeemed two series of First Mortgage Bonds ($19.7 million at 8.25% and $21.362
million at 8.5%). In November 1993, LG&E issued $26 million of Pollution
Control Bonds, 5.45% Series and redeemed the $26 million, 9.75% Series.

LG&E entered into an agreement in November 1993 with Goldman, Sachs & Co. to
issue $40 million of tax-exempt Pollution Control Bonds in 1995 at a rate of
5.9%. The issuance of the bonds in 1995 is subject to certain conditions. If
issued, the proceeds will be used to redeem, in 1995, the outstanding 9.25%
Series of Pollution Control Bonds due July 1, 2015.

LG&E has outstanding interest rate swap agreements totaling $30 million. Under
the agreements, which were entered into in 1992, LG&E pays a fixed rate of 4.35%
on $15 million for a five-year period and 4.74% on $15 million for a seven-year
period. In return, LG&E receives a floating rate based on the weighted average
JJ Kenny index. The JJ Kenny index is a tax-exempt municipal bond interest rate
index. These swaps were entered into as a standard hedging device in connection
with the issuance of the Series S Pollution Control Bonds due September 1, 2017.
The swaps are designed to reduce LG&E's exposure to interest rate risk. LG&E
received interest at composite rates of 2.84%, 2.38%, and 2.73% in 1994, 1993,
and 1992, respectively and paid interest at a composite rate of 4.55% pursuant
to the swaps.

LG&E's First Mortgage Bonds, 5.625% Series of $16 million is scheduled to mature
in 1996 and the 6.75% Series of $20 million is scheduled to mature in 1998.
There are no scheduled maturities of Pollution Control Bonds for the five years
subsequent to December 31, 1994. The Company has no cash sinking fund
requirements.

NOTE 12 - NOTES PAYABLE

At December 31, 1994, Energy Systems had notes payable outstanding of $32
million at a weighted average interest rate of 6.44%; at December 31, 1993,
notes payable were $20 million at 3.75%. LG&E had no notes payable at
December 31, 1994, or December 31, 1993.

At December 31, 1994, lines of credit were in place totaling $320 million ($145
million for LG&E, $150 million for Energy Systems, and $25 million for LG&E
Energy Corp.), for which the companies pay commitment or facility fees. These
lines of credit were unused, except for the $32 million of Energy Systems' notes
payable mentioned above. The credit lines are scheduled to expire at various
periods during 1995 and 1996. Management intends to renegotiate these lines
when they expire.

<PAGE>

NOTE 13 - COMMITMENTS AND CONTINGENCIES

CONSTRUCTION PROGRAM. The Company had commitments, primarily in connection with
the construction program of LG&E, aggregating approximately $8 million at
December 31, 1994. LG&E's construction expenditures for the calendar years 1995
and 1996 are estimated to total approximately $200 million.

EQUITY FUNDING AND PERFORMANCE GUARANTEES. In connection with the financing of
various power projects, Energy Systems and LPI provide equity funding
commitments and guarantee the construction and performance of the projects.
Ascertainable equity funding commitments were $27 million and $36 million at
December 31, 1994, and 1993, respectively. Contingent construction and project
performance guarantees totaled approximately $104 million and $198 million at
December 31, 1994, and 1993, respectively.

<PAGE>

PROJECT CONTINGENCIES

SOUTHAMPTON. The Southampton plant, a 63 megawatt coal-fired cogeneration
facility in Franklin, Virginia, supplies process steam to a nearby chemical
manufacturer and bulk electric power under contract to Virginia Electric and
Power Company (Virginia Power) as a qualifying facility (QF) under the Public
Utility Regulatory Policies Act (PURPA). The plant began commercial operation
in 1992. On July 7, 1994, FERC denied the request of LG&E-Westmoreland
Southampton (the Partnership) for a waiver of certain qualifying facility
requirements and directed the Partnership to show cause as to why it should not
be required to file new cost-based rates for its 1992 electric sales to Virginia
Power.

RENSSELAER. The Rensselaer plant, a 79 megawatt, natural-gas-fired facility in
Rensselaer, New York, produces steam and electricity from a combined-cycle gas
and steam turbine-generator system as a QF under PURPA. The project is jointly
owned by LPI and WEI through a general partnership - LG&E-Westmoreland
Rensselaer (LWR).

As a result of problems encountered during the start-up and testing of the
facility, the facility's commercial operation date was pushed back from February
1994 to April 1994, and the Rensselaer facility was prevented from meeting
FERC's operating or efficiency standard for the last month of 1993, and for
1994. LWR filed a waiver request with FERC on October 17, 1994, requesting a
temporary waiver of the operating and efficiency standards for 1993 and the
efficiency standard for 1994. As of January 30, 1995, FERC had not acted on
LWR's waiver request.

<PAGE>

resolution of the Rensselaer matter is not expected to have a material adverse
effect, the Company cannot predict what action FERC may take. Possible
consequences could include potential regulatory and other problems under PUHCA,
New York utility laws and the Federal Power Act, the scope and amount of which
cannot be determined at this time.

ROANOKE VALLEY I. The Company owns a 50% interest in Westmoreland-LG&E Partners
(WLP), the sole owner of Roanoke Valley I, a cogeneration facility selling
electric power to Virginia Power and steam energy to Patch Rubber Company.
Under the Power Purchase Agreement (PPA) between WLP and Virginia Power, WLP is
entitled to receive capacity payments based on availability. From May 1994
through December 1994, Virginia Power withheld approximately $6 million of these
capacity payments during periods of forced outages. To date, the Company has
not realized any income on its 50% portion of the capacity payments being
withheld by Virginia Power. On October 31, 1994, WLP filed a complaint against
Virginia Power seeking damages of at least $5.7 million, contending that
Virginia Power has breached the PPA in withholding such payments. Virginia
Power filed a motion to dismiss, in which it denied that its actions were in
breach of the PPA. On March 17, 1995, the Circuit Court of the City of
Richmond, Virginia, dismissed WLP's complaint. WLP is considering further
action to protect its interests. In the Company's opinion, WLP is entitled to
recover the capacity payments withheld by Virginia Power and should prevail in
this matter ensuring receipt of future capacity payments during forced outages
billable to Virginia Power during the remaining 25 years of the PPA. However,
the Company is unable to predict the outcome of this matter, or the amount of
capacity payments, if any, which Virginia Power may be ordered to pay to WLP.

FERC ORDER NO. 636. In 1994, LG&E experienced its first full year operating
under Order No. 636. Whereas LG&E had previously purchased natural gas and
pipeline transportation services from Texas Gas Transmission Corporation (Texas
Gas), LG&E now purchases only transportation services from Texas Gas and
purchases natural gas from other sources.

Under Order No. 636 pipelines may recover costs associated with the transition
to and implementation of this order from pipeline customers, including LG&E.
The Commission issued an order, based on proceedings that were held to
investigate the impact of Order No. 636 on utilities and ratepayers in Kentucky,
providing that transition costs assessed on utilities by the pipelines, which
are clearly identifiable as being related to the cost of the commodity itself,
are appropriate to be recovered from customers through the gas supply clause.
During 1994, LG&E paid and began recovering from its customers approximately
$2.8 million in transition costs. It is estimated that $6 million to $8 million
in additional transition costs will be incurred by LG&E in 1995, and these costs
are also expected to be recovered from customers. LG&E is a party to
proceedings before FERC which will determine a number of pipeline transition
issues. Because of the impact such issues may have on future costs, management
is unable to estimate the level of transition costs, if any, for years
subsequent to 1995.

<PAGE>

OPERATING LEASES. LG&E Energy Corp. has an operating lease for its corporate
office space with an expiration date of 1996. LG&E has an operating lease for
its corporate office building that is scheduled to expire in June 2005. LPI has
operating lease commitments related to two office facilities with expiration
dates ranging from four to seven years. Total lease expense for 1994, 1993, and
1992 was $4,895,000, $4,526,000, and $5,454,000, respectively. The future
minimum annual lease payments under these lease agreements for years subsequent
to December 31, 1994, are as follows (in thousands of $):

<S> <C>
1995 $ 4,566
1996 4,855
1997 4,774
1998 4,738
1999 4,451
Thereafter 21,783
-------
Total $45,167
-------
-------
</TABLE>

Operating lease commitments have been reduced for annual rental payments to be
received from noncancelable subleases of approximately $900,000 per year from
1995 through 2001. Future lease payments associated with facilities vacated in
mid-1994 were included in the non-recurring charges recorded during 1994 and
therefore, do not represent future operating expenses. See Note 5,
Non-Recurring Charges.

ENVIRONMENTAL. The Clean Air Act Amendments of 1990 impose stringent limits on
emissions of sulfur dioxide and nitrogen oxides by electric utility generating
plants. The legislation is extremely complex and its effect will substantially
depend on regulations issued by the U.S. Environmental Protection Agency
(USEPA). LG&E is closely monitoring the continuing rule-making process in order
to assess the precise impact of the legislation on the Company. All of LG&E's
coal-fired boilers are equipped with sulfur dioxide "scrubbers" and already
achieve the final sulfur dioxide emission rates required by the year 2000 under
the legislation. However, as part of its ongoing capital construction program,
LG&E has spent $10 million to date and anticipates incurring additional capital
expenditures of approximately $29 million through 1996 for remedial measures
necessary to meet the Act's requirements for nitrogen oxides. The overall
financial impact of the legislation on LG&E is expected to be minimal. LG&E is
well-positioned in the market to be a "clean" power provider without the large
capital expenditures that are expected to be incurred by many other utilities.

In 1992, LG&E entered two agreed orders with the Air Pollution Control District
(APCD) of Jefferson County in which LG&E committed to undertake remedial
measures to address certain particulate emissions and alleged excess sulfur
dioxide emissions from its Mill Creek generating plant. In May 1994, LG&E
completed all specified remedial measures in accordance with the terms of the
agreed orders. LG&E has agreed to commence a joint field sampling program with
the APCD to demonstrate the effectiveness of the remedial measures.

In August 1993, 34 persons filed a complaint in Jefferson Circuit Court against
LG&E seeking certification of a class consisting of all persons within 2.5 miles
of the Mill Creek 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 future 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. LG&E intends to
vigorously defend itself in the pending litigation.

In an effort to resolve property damage claims relating to particulate emissions
from the Mill Creek plant, in July 1993, LG&E commenced extensive negotiations
and property damage settlements with adjacent

<PAGE>

residents who are not parties to the pending litigation. The negotiations and
settlements are continuing and LG&E currently estimates that property damage
claims for the particulate emissions should be settled for an aggregate amount
of approximately $15 million. Accordingly, the Company has recorded an accrual
of this amount.

In response to a notification from the APCD that LG&E's Cane Run plant may be
the source of a potential exceedance of the National Ambient Air Quality
Standards for sulfur dioxide, LG&E submitted a draft action plan and modeling
schedule to the APCD and USEPA. The APCD and USEPA have approved the
submittals, and an LG&E contractor is currently conducting additional modeling
activities. Although it is expected that corrective action will be accomplished
through capital improvements, until the modeling activities are complete, LG&E
cannot determine the precise impact of this matter.

In March 1994, the APCD adopted a regulation requiring a 15% reduction from 1990
volatile organic compound (VOC) emissions from industrial sources. There are
currently no demonstrated technologies for control of VOC emissions from
coal-fired 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.

LG&E owns or formerly owned three primary sites where manufactured gas plant
operations were located. Such manufactured gas plant operations, conducted in
the 1838 to 1960 time period, typically produced coal tar byproducts and other
constituents that may necessitate cleanup measures. LG&E has completed an
investigation of the level of contaminants present at the two company-owned
sites, and LG&E, along with the current owner of the third site and another
party completed an investigation of the third site. Investigation and testing
at these three sites has identified the presence of contaminants typical of
manufactured gas operations. A report on the results of the investigation at
each site has been prepared and submitted to the Kentucky Natural Resources and
Environmental Protection Cabinet (KNREPC). The KNREPC will review the findings
submitted by the Company, and through negotiations with LG&E, the level of
remediation required at each site will be determined. Although a precise
determination of the costs associated with cleanup activities at these three
sites cannot be made until the required level of remediation is established,
LG&E's management currently estimates that the total cost will fall within a
range of $3 million to $12 million and has recorded an accrual of approximately
$3 million in the accompanying financial statements.

In November 1993, LG&E was served with a third-party complaint filed in federal
district court in Illinois by three third-party plaintiffs. The third-party
plaintiffs allege that LG&E and 31 other parties are liable under the
Comprehensive Environmental Response, Compensation, and Liability Act as amended
(CERCLA) for $1.4 million in costs allegedly incurred by USEPA in conducting
cleanup activities at the M.T. Richards site in Crossville, Illinois. A number
of de minimis third-party defendants, including LG&E, have commenced settlement
discussions with the third-party plaintiffs. In LG&E's opinion, the resolution
of this issue will not have a material adverse impact on its financial position
or results of operations.

In June 1992, USEPA identified LG&E as a potentially responsible party (PRP)
allegedly liable under 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 U.S. District Court against LG&E and six
other parties. In LG&E's

<PAGE>

opinion, the resolution of this issue will not have a material adverse impact on
its financial position or results of operations.

In 1987, USEPA identified LG&E as one of the numerous PRPs allegedly liable
under CERCLA for the Smith's Farm site in Bullitt County, Kentucky. In March
1990, USEPA issued an administrative order requiring LG&E and 35 other PRPs to
conduct certain cleanup activities. In February 1992, four PRPs filed a
complaint in federal district court in Kentucky against LG&E and 52 other PRPs.
Under the law, each PRP could be held jointly and severally liable for the cost
of site cleanup but would have the right to seek contribution from other PRPs.
In July 1993, upon motion of the plaintiffs, the federal court dismissed LG&E
and a number of others from the litigation in order to facilitate settlement
negotiations among the parties. Cleanup costs for the site are currently
estimated at approximately $70 million. LG&E and several other parties have
shared certain cleanup costs in the interim until a voluntary allocation of
liability can be reached among the parties. It is not possible at this time to
predict the outcome or precise impact of this matter. However, management
believes that this matter should not have a material adverse impact on the
financial position or results of operations of LG&E as other financially viable
PRPs appear to have primary liability for the site.

Like LG&E, LPI and its subsidiaries are subject to extensive federal, state, and
local environmental laws and regulations governing the operation of the various
power plants in which they participate as an owner or managing operator. Among
other things, these laws and regulations govern the discharge of materials into
waterways, the air and the ground and, if violated, may require the owner or
operator to take remedial action to maintain the affected facility's operating
status. To the extent any such remedial environmental actions have been
required of LPI or its subsidiaries in the past, related expenditures have not
been material.

NOTE 14 - TRIMBLE COUNTY GENERATING PLANT

Trimble County Unit 1 (Trimble County), a 495-megawatt, coal-fired electric
generating unit placed into service in December 1990, is currently the subject
of an administrative proceeding before the Commission. This proceeding, which
originally began in 1988, was initiated by the Commission to determine the
appropriate ratemaking treatment to implement its 1988 decision that LG&E should
not be allowed to recover 25% of the cost of the Unit from ratepayers. As a
result of a non-unanimous settlement agreement in the initial 1989 proceedings
reached between LG&E and the Commission staff, which was approved by the
Kentucky Commission in October 1989, LG&E returned to its customers $11.1
million through refunds and rate reductions. The Commission's approval of the
settlement agreement was appealed by certain intervenors in the case who had not
joined in the agreement. In April 1993, the Kentucky Court of Appeals held that
the Commission exceeded its authority in approving the agreement, and ordered
the Commission to hold new hearings on the underlying issues.

Pursuant to a Commission procedural order, LG&E filed direct testimony on
January 7, 1994, in which LG&E recommended that the Commission allow it to
recover the $11.1 million it refunded to customers under the 1989 settlement
agreement. Testimony filed by intervenors recommended that the Commission order
LG&E to refund approximately $183 million, based upon their argument that LG&E
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 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

<PAGE>

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 LG&E should refund 25% of
all revenues associated with Trimble County CWIP collected through rates during
the course of the plant's construction.

On July 8, 1994, the Commission entered an order which denied the intervenors'
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 all other 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 LG&E on notice that in future rate cases the
continuation of allowing a return on further additions to Trimble County CWIP
would be an issue.

LG&E 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 LG&E refund approximately $183 million to its
customers. LG&E 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. As discussed above,
approximately $11.1 million has already been returned to ratepayers under the
1989 settlement agreement. However, LG&E is unable to predict the outcome of
the Commission proceedings, or the amount of additional refunds or recoveries,
if any, that may be ordered.

The Commission has set May 9, 1995, as the formal hearing date in the Trimble
County proceedings. The purpose of the hearing is to determine the proper
ratemaking treatment to exclude 25% of Trimble County from customer rates for
the period from May 1988 to December 31, 1990. LG&E's current rates, which
became effective January 1, 1991, reflect the disallowance of 25% of the plant.

Reference is made to Note 15, Jointly Owned Electric Utility Plant, for a
discussion of the sale of 25% of Trimble County.

NOTE 15 - JOINTLY OWNED ELECTRIC UTILITY PLANT

LG&E owns a 75% undivided interest in Trimble County Unit 1. Accounting for the
75% portion of the Unit, which the Commission has allowed to be reflected in
customer rates, is similar to LG&E's accounting for other wholly owned utility
plants.

Of the remaining 25% of the Unit, Illinois Municipal Electric Agency (IMEA)
purchased a 12.12% undivided interest in the Unit on February 28, 1991, and
Indiana Municipal Power Agency (IMPA) purchased a 12.88% undivided interest on
February 1, 1993. Each is responsible for their proportionate ownership share
of operation and maintenance expenses and incremental assets, and for fuel used.

The following data represent shares of the jointly owned property:

Trimble County
LG&E IMPA IMEA Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
Ownership interest 75% 12.88% 12.12% 100%
Mw capacity 371.25 63.75 60 495

</TABLE>

<PAGE>

NOTE 16 - SUBSEQUENT EVENT - PROPOSED ACQUISITION OF HADSON CORPORATION

NOTE 17 - SEGMENTS OF BUSINESS

LG&E Energy Corp. has business operations in both the regulated and
non-regulated energy markets. The regulated business is conducted through LG&E,
a public utility engaged in the generation, transmission, distribution, and sale
of electricity, and the transmission, distribution and sale of natural gas.

The non-regulated energy business is conducted through Energy Systems, which
manages the Company's non-utility operations. Energy Systems directly owns LPI
and LII. LPI and its subsidiaries develop, design, build, own, operate, and
maintain power generation facilities that sell energy to local industries and
utilities.

(Thousands of $) 1994 1993 1992
---- ---- ----

<S> <C> <C> <C>
Operating Information:
Revenues:
Electric $559,327 $571,627 $526,143
Gas 200,129 204,915 178,526
-------- -------- --------
Total Utility 759,456 776,542 704,669
Non-Utility 70,207 123,485 130,070
-------- -------- --------
Total $829,663 $900,027 $834,739
-------- -------- --------
-------- -------- --------

Operating Income:
Electric $139,916 $172,201 $150,810
Gas 11,368 17,436 15,122
-------- -------- --------
Total Utility 151,284 189,637 165,932
Non-Utility 4,163 9,466 14,632
Corporate (15,103) (9,981) (6,060)
-------- -------- --------
Total $140,344 $189,122 $174,504
-------- -------- --------
-------- -------- --------

Other Information:
Depreciation and Amortization:
Electric $71,882 $69,985 $70,652
Gas 10,637 9,902 9,034
-------- -------- --------
Total Utility 82,519 79,887 79,686
Non-Utility 1,072 2,253 967
Corporate 582 520 412
-------- -------- --------
Total $84,173 $82,660 $81,065
-------- -------- --------
-------- -------- --------

Construction Expenditures:
Electric $71,592 $74,165 $ 75,630
Gas 23,806 24,622 25,545
-------- -------- --------
Total Utility 95,398 98,787 101,175
Non-Utility 663 871 331
Corporate 197 341 573
-------- -------- --------
Total $96,258 $99,999 $102,079
-------- -------- --------
-------- -------- --------

<PAGE>

(Thousands of $) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Identifiable Assets - December 31:
Electric $1,514,287 $1,537,387 $1,528,123
Gas 252,946 241,930 222,958
Other 199,078 195,057 121,473
Trimble County - not allowed
in customer rates - - 87,794
----------- ---------- ----------
Total Utility 1,966,311 1,974,374 1,960,348
Non-Utility 249,981 116,434 108,896
Discontinued Operations - 84,284 75,786
Corporate 1,172 11,376 3,368
----------- ---------- ----------
Total $2,217,464 $2,186,468 $2,148,398
----------- ---------- ----------
----------- ---------- ----------
</TABLE>

<PAGE>

REPORT OF MANAGEMENT

The management of LG&E Energy Corp. and subsidiaries is responsible for the
preparation and integrity of the consolidated financial statements and related
information included in this Annual Report. These statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis and, necessarily, include amounts that reflect the best
estimates and judgment of management.

The Company's financial statements have been audited by Arthur Andersen LLP,
independent public accountants. Management has made available to Arthur
Andersen LLP all the Company's financial records and related data as well as the
minutes of shareholders' and directors' meetings.

Management has established and maintains a system of internal controls that
provides reasonable assurance that transactions are completed in accordance with
management's authorization, that assets are safeguarded and that financial
statements are prepared in conformity with generally accepted accounting
principles. Management believes that an adequate system of internal controls is
maintained through the selection and training of personnel, appropriate division
of responsibility, establishment and communication of policies and procedures
and by regular reviews of internal accounting controls by the Company's internal
auditors. Management reviews and modifies its system of internal controls in
light of changes in conditions and operations, as well as in response to
recommendations from the internal auditors. These recommendations for the year
ended December 31, 1994 did not identify any significant deficiencies in the
design and operation of the Company's internal control structure.

The Audit Committee of the Board of Directors is composed entirely of outside
directors. In carrying out its oversight role for the financial reporting and
internal controls of the Company, the Audit Committee meets regularly with the
Company's independent public accountants, internal auditors and management. The
Audit Committee reviews the results of the independent accountants' audit of the
consolidated financial statements and their audit procedures, and discusses the
adequacy of internal accounting controls. The Audit Committee also approves the
annual internal auditing program, and reviews the activities and results of the
internal auditing function. Both the independent public accountants and the
internal auditors have access to the Audit Committee at any time.

LG&E Energy Corp. and subsidiaries maintain and internally communicate a written
code of business conduct that addresses, among other items, potential conflicts
of interest, compliance with laws, including those relating to financial
disclosure, and the confidentiality of proprietary information.

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To LG&E Energy Corp.:

We have audited the consolidated balance sheets and statements of capitalization
of LG&E Energy Corp. (a Kentucky corporation) and subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements and schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LG&E Energy Corp.
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.

As further discussed in Note 14, the potential amount of future rate refunds
that may be required, if any, once the outcome of the legal and regulatory
process is known, is uncertain at this time.

As discussed in Notes 1 and 7 to the consolidated financial statements,
effective January 1, 1993, the Company changed its methods of accounting for
income taxes and post-retirement benefits other than pensions, and effective
January 1, 1994, the Company changed its method of accounting for
post-employment benefits.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

Louisville, Kentucky Arthur Andersen LLP
January 30, 1995 (Except with respect
to the matters discussed in Note 16, as to
which the date is February 10, 1995,
and the matters discussed in paragraph 15
of Note 13, as to which the date is
March 17, 1995.)

<PAGE>

SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

Selected financial data for the four quarters of 1994 and 1993 are shown below.
Because of seasonal fluctuations in temperature and other factors, results for
quarters may fluctuate throughout the year.

Quarters Ended

(Thousands of $ except per share data) March June September December
----- ---- --------- --------

<S> <C> <C> <C> <C>
1994
----
Revenues $244,462 $192,354 $202,570 $190,277
Operating income (loss) (6,531) 41,051 70,027 35,797
Net income (loss):
Continuing operations (19,964) (1) 22,093 37,076 17,624
Gain on sale of discontinued
operations 51,805 - - -
Cumulative effect of
accounting change (3,369) (1) - - -
-------- -------- -------- --------
Total $ 28,472 $ 22,093 $ 37,076 $ 17,624
-------- -------- -------- --------
-------- -------- -------- --------

Earnings per share of common stock:
Continuing operations $(.61) (1) $.67 $1.12 $.54
Gain on sale of discontinued
operations 1.57 - - -
Cumulative effect of
accounting change (.10) (1) - - -
-------- -------- -------- --------
Total $ .86 $.67 $1.12 $.54
-------- -------- -------- --------
-------- -------- -------- --------

1993
----
Revenues $238,396 $200,368 $220,950 $240,313
Operating income 44,786 39,267 68,880 36,189
Net income:
Continuing operations 18,573 15,375 33,260 13,617
Discontinued operations 1,524 2,233 1,841 1,837
-------- -------- -------- --------
Total $ 20,097 $ 17,608 $ 35,101 $ 15,454
-------- -------- -------- --------
-------- -------- -------- --------

Earnings per share of common stock:
Continuing operations $.57 $.47 $1.02 $.41
Discontinued operations .05 .07 .05 .06
-------- -------- -------- --------
Total $.62 $.54 $1.07 $.47
-------- -------- -------- --------
-------- -------- -------- --------

<FN>

(1) See Notes 5 and 7 of Notes to Financial Statements under Item 8.

</TABLE>

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.

<PAGE>

PART III

ITEMS 10, 11, 12 and 13 are omitted pursuant to General Instruction G, inasmuch
as the Company filed copies of a definitive proxy statement with the Commission
on March 16, 1995, pursuant to Regulation 14A under the Securities Exchange Act
of 1934. Such proxy statement is incorporated herein by this reference. In
accordance with General Instruction G of Form 10-K, the information required by
Item 10 relating to executive officers has been included in Part I of this Form
10-K.

PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) 1. Financial Statements (included in Item 8):

Statements of Income for the three years ended December 31, 1994
(page 33).

Balance Sheets - December 31, 1994, and 1993 (page 34).

Statements of Cash Flows for the three years ended December 31,
1994 (page 35).

Statements of Capitalization - December 31, 1994, and 1993 (page
36).

Statements of Retained Earnings for the three years ended
December 31, 1994 (page 37).

Notes to Financial Statements (pages 37-58).

Report of Management (page 59).

Report of Independent Public Accountants (page 60).

Selected Quarterly Financial Data for 1994 and 1993 (page 61).

2. Financial Statement Schedules (included in Part IV):

Schedule II - Valuation and Qualifying Accounts for the three
years ended December 31, 1994 (page 72).

All other schedules have been omitted as not applicable or not required or
because the information required to be shown is included in the Financial
Statements or the accompanying Notes to Financial Statements.

3. Exhibits:

Exhibit
No. Description
- --- -----------

3.01 Copy of Articles of Incorporation. [Filed as Exhibit 4.01 to
Registration Statement 33-33687 and incorporated by reference herein]

3.02 Amendment to Articles of Incorporation dated December 5, 1990. [Filed
as Exhibit 3.02 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990, and incorporated by reference herein]

3.03 Copy of Bylaws as amended through December 4, 1991. [Filed as Exhibit
3.03 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated by reference herein]

<PAGE>

4.01 Copy of Trust Indenture dated November 1, 1949, from LG&E to Harris
Trust and Savings Bank, Trustee. [Filed as Exhibit 7.01 to LG&E's
Registration Statement 2-8283 and incorporated by reference herein]

4.02 Copy of Supplemental Indenture dated February 1, 1952, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.05 to LG&E's Registration Statement 2-9371 and incorporated by
reference herein]

4.03 Copy of Supplemental Indenture dated February 1, 1954, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.03 to LG&E's Registration Statement 2-11923 and incorporated by
reference herein]

4.04 Copy of Supplemental Indenture dated September 1, 1957, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.04 to LG&E's Registration Statement 2-17047 and incorporated by
reference herein]

4.05 Copy of Supplemental Indenture dated October 1, 1960, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.05 to LG&E's Registration Statement 2-24920 and incorporated by
reference herein]

4.06 Copy of Supplemental Indenture dated June 1, 1966, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.06 to LG&E's Registration Statement 2-28865 and incorporated by
reference herein]

4.07 Copy of Supplemental Indenture dated June 1, 1968, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.07 to LG&E's Registration Statement 2-37368 and incorporated by
reference herein]

4.08 Copy of Supplemental Indenture dated June 1, 1970, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.08 to LG&E's Registration Statement 2-37368 and incorporated by
reference herein]

4.09 Copy of Supplemental Indenture dated August 1, 1971, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.09 to LG&E's Registration Statement 2-44295 and incorporated by
reference herein]

4.10 Copy of Supplemental Indenture dated June 1, 1972, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.10 to LG&E's Registration Statement 2-52643 and incorporated by
reference herein]

4.11 Copy of Supplemental Indenture dated February 1, 1975, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.11 to LG&E's Registration Statement 2-57252 and incorporated by
reference herein]

4.12 Copy of Supplemental Indenture dated September 1, 1975, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.12 to LG&E's Registration Statement 2-57252 and incorporated by
reference herein]

<PAGE>

4.13 Copy of Supplemental Indenture dated September 1, 1976, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.13 to LG&E's Registration Statement 2-57252 and incorporated by
reference herein]

4.14 Copy of Supplemental Indenture dated October 1, 1976, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.14 to LG&E's Registration Statement 2-65271 and incorporated by
reference herein]

4.15 Copy of Supplemental Indenture dated June 1, 1978, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.15 to LG&E's Registration Statement 2-65271 and incorporated by
reference herein]

4.16 Copy of Supplemental Indenture dated February 15, 1979, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
2.16 to LG&E's Registration Statement 2-65271 and incorporated by
reference herein]

4.17 Copy of Supplemental Indenture dated September 1, 1979, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.17 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1980, and incorporated by reference herein]

4.18 Copy of Supplemental Indenture dated September 15, 1979, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.18 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1980, and incorporated by reference herein]

4.19 Copy of Supplemental Indenture dated September 15, 1981, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.19 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1981, and incorporated by reference herein]

4.20 Copy of Supplemental Indenture dated March 1, 1982, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.20 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1982, and incorporated by reference herein]

4.21 Copy of Supplemental Indenture dated March 15, 1982, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.21 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1982, and incorporated by reference herein]

4.22 Copy of Supplemental Indenture dated September 15, 1982, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.22 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1982, and incorporated by reference herein]

4.23 Copy of Supplemental Indenture dated February 15, 1984, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.23 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1984, and incorporated by reference herein]

4.24 Copy of Supplemental Indenture dated July 1, 1985, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.24 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1985, and incorporated by reference herein]

<PAGE>

4.25 Copy of Supplemental Indenture dated November 15, 1986, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.25 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1986, and incorporated by reference herein]

4.26 Copy of Supplemental Indenture dated November 16, 1986, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.26 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1986, and incorporated by reference herein]

4.27 Copy of Supplemental Indenture dated August 1, 1987, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.27 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1987, and incorporated by reference herein]

4.28 Copy of Supplemental Indenture dated February 1, 1989, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.28 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1988, and incorporated by reference herein]

4.29 Copy of Supplemental Indenture dated February 2, 1989, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.29 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1988, and incorporated by reference herein]

4.30 Copy of Supplemental Indenture dated June 15, 1990, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.30 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1990, and incorporated by reference herein]

4.31 Copy of Supplemental Indenture dated November 1, 1990, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.31 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1990, and incorporated by reference herein]

4.32 Copy of Supplemental Indenture dated September 1, 1992, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.32 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1992, and incorporated by reference herein]

4.33 Copy of Supplemental Indenture dated September 2, 1992, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.33 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1992, and incorporated by reference herein]

4.34 Copy of Supplemental Indenture dated August 15, 1993, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.34 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1993, and incorporated by reference herein]

4.35 Copy of Supplemental Indenture dated August 16, 1993, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.35 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1993, and incorporated by reference herein]

4.36 Copy of Supplemental Indenture dated October 15, 1993, which is a
supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
4.36 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1993, and incorporated by reference herein]

<PAGE>

10.01 Copy of Agreement dated September 1, 1970, between Texas Gas
Transmission Corporation and LG&E covering the purchase of natural
gas. [Filed as Exhibit 4.01 to LG&E's Registration Statement 2-40985
and incorporated by reference herein]

10.02 Copies of Agreement between Sponsoring Companies re: Project D of
Atomic Energy Commission, dated May 12, 1952, Memorandums of
Understanding between Sponsoring Companies re: Project D of Atomic
Energy Commission, dated September 19, 1952 and October 28, 1952, and
Power Agreement between Ohio Valley Electric Corporation and Atomic
Energy Commission, dated October 15, 1952. [Filed as Exhibit 13(y) to
LG&E's Registration Statement 2-9975 and incorporated by reference
herein]

10.03 Copy of Modification No. 1 dated July 23, 1953, to the Power Agreement
between Ohio Valley Electric Corporation and Atomic Energy Commission.
[Filed as Exhibit 4.03(b) to LG&E's Registration Statement 2-24920 and
incorporated by reference herein]

10.04 Copy of Modification No. 2 dated March 15, 1964, to the Power
Agreement between Ohio Valley Electric Corporation and Atomic Energy
Commission. [Filed as Exhibit 5.02c to LG&E's Registration Statement
2-61607 and incorporated by reference herein]

10.05 Copy of Modification No. 3 and No. 4 dated May 12, 1966 and January 7,
1967, respectively, to the Power Agreement between Ohio Valley
Electric Corporation and Atomic Energy Commission. [Filed as Exhibits
4(a)(13) and 4(a)(14) to LG&E's Registration Statement 2-26063 and
incorporated by reference herein]

10.06 Copy of Modification No. 5 dated August 15, 1967, to the Power
Agreement between Ohio Valley Electric Corporation and Atomic Energy
Commission. [Filed as Exhibit 13(c) to LG&E's Registration Statement
2-27316 and incorporated by reference herein]

10.07 Copies of (i) Inter-Company Power Agreement, dated July 10, 1953,
between Ohio Valley Electric Corporation and Sponsoring Companies
(which Agreement includes as Exhibit A the Power Agreement, dated July
10, 1953, between Ohio Valley Electric Corporation and
Indiana-Kentucky Electric Corporation); (ii) First Supplementary
Transmission Agreement, dated July 10, 1953, between Ohio Valley
Electric Corporation and Sponsoring Companies; (iii) Inter-Company
Bond Agreement, dated July 10, 1953, between Ohio Valley Electric
Corporation and Sponsoring Companies; (iv) Inter-Company Bank Credit
Agreement, dated July 10, 1953, between Ohio Valley Electric
Corporation and Sponsoring Companies. [Filed as Exhibit 5.02f to
LG&E's Registration Statement 2-61607 and incorporated by reference
herein]

10.08 Copy of Modification No. 1 and No. 2 dated June 3, 1966 and January 7,
1967, respectively, to Inter-Company Power Agreement dated July 10,
1953. [Filed as Exhibits 4(a)(8) and 4(a)(10) to LG&E's Registration
Statement 2-26063 and incorporated by reference herein]

10.09 Copies of Amendments to Agreements (iii) and (iv) referred to under
10.07 above as follows: (i) Amendment to Inter-Company Bond Agreement
and (ii) Amendment to Inter-Company Bank Credit Agreement. [Filed as
Exhibit 5.02h to LG&E's Registration Statement 2-61607 and
incorporated by reference herein]

10.10 Copy of Modification No. 1, dated August 20, 1958, to First
Supplementary Transmission Agreement, dated July 10, 1953, among Ohio
Valley Electric Corporation and the Sponsoring

<PAGE>

Companies. [Filed as Exhibit 5.02i to LG&E's Registration Statement
2-61607 and incorporated by reference herein]

10.11 Copy of Modification No. 2, dated April 1, 1965, to the First
Supplementary Transmission Agreement, dated July 10, 1953, among Ohio
Valley Electric Corporation and the Sponsoring Companies. [Filed as
Exhibit 5.02j to LG&E's Registration Statement 2-61607 and
incorporated by reference herein]

10.12 Copy of Modification No. 3, dated January 20, 1967, to First
Supplementary Transmission Agreement, dated July 10, 1953, among Ohio
Valley Electric Corporation and the Sponsoring Companies. [Filed as
Exhibit 4(a)(7) to LG&E's Registration Statement 2-26063 and
incorporated by reference herein]

10.13 Copy of Modification No. 6 dated November 15, 1967, to the Power
Agreement between Ohio Valley Electric Corporation and Atomic Energy
Commission. [Filed as Exhibit 4(g) to LG&E's Registration Statement
2-28524 and incorporated by reference herein]

10.14 Copy of Modification No. 3 dated November 15, 1967, to the
Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibit
4.02m to LG&E's Registration Statement 2-37368 and incorporated by
reference herein]

10.15 Copy of Modification No. 7 dated November 5, 1975, to the Power
Agreement between Ohio Valley Electric Corporation and Atomic Energy
Commission. [Filed as Exhibit 5.02n to LG&E's Registration Statement
2-56357 and incorporated by reference herein]

10.16 Copy of Modification No. 4 dated November 5, 1975, to the
Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibit
5.02o to LG&E's Registration Statement 2-56357 and incorporated by
reference herein]

10.17 Copy of Modification No. 4 dated April 30, 1976, to First
Supplementary Transmission Agreement, dated July 10, 1953, among Ohio
Valley Electric Corporation and the Sponsoring Companies. [Filed as
Exhibit 5.02p to LG&E's Registration Statement 2-61607 and
incorporated by reference herein]

10.18 Copy of Modification No. 8 dated June 23, 1977, to the Power Agreement
between Ohio Valley Electric Corporation and Atomic Energy Commission.
[Filed as Exhibit 5.02q to LG&E's Registration Statement 2-61607 and
incorporated by reference herein]

10.19 Copy of Modification No. 9 dated July 1, 1978, to the Power Agreement
between Ohio Valley Electric Corporation and Atomic Energy Commission.
[Filed as Exhibit 5.02r to LG&E's Registration Statement 2-63149 and
incorporated by reference herein]

10.20 Copy of Modification No. 10 dated August 1, 1979, to the Power
Agreement between Ohio Valley Electric Corporation and Atomic Energy
Commission. [Filed as Exhibit 2 to LG&E's Annual Report on Form 10-K
for the year ended December 31, 1979, and incorporated by reference
herein]

10.21 Copy of Modification No. 11 dated September 1, 1979, to the Power
Agreement between Ohio Valley Electric Corporation and Atomic Energy
Commission. [Filed as Exhibit 3 to LG&E's

<PAGE>

Annual Report on Form 10-K for the year ended December 31, 1979, and
incorporated by reference herein]

10.22 Copy of Modification No. 5 dated September 1, 1979, to Inter-Company
Power Agreement dated July 5, 1953, among Ohio Valley Electric
Corporation and Sponsoring Companies. [Filed as Exhibit 4 to LG&E's
Annual Report on Form 10-K for the year ended December 31, 1979, and
incorporated by reference herein]

10.23 Copy of Modification No. 12 dated August 1, 1981, to the Power
Agreement between Ohio Valley Electric Corporation and Atomic Energy
Commission. [Filed as Exhibit 10.25 to LG&E's Annual Report on Form
10-K for the year ended December 31, 1981, and incorporated by
reference herein]

10.24 Copy of Modification No. 6 dated August 1, 1981, to Inter-Company
Power Agreement dated July 5, 1953, among Ohio Valley Electric
Corporation and Sponsoring Companies. [Filed as Exhibit 10.26 to
LG&E's Annual Report on Form 10-K for the year ended December 31,
1981, and incorporated by reference herein]

10.25 Copy of Diversity Power Agreement dated September 9, 1987, between
East Kentucky Power Cooperative and LG&E covering the purchase and
sale of power between the two companies from 1988 through 1995.
[Filed as Exhibit 10.28 to LG&E's Annual Report on Form 10-K for the
year ended December 31, 1987, and incorporated by reference herein]

10.26 Copy of Supplemental Executive Retirement Plan as amended through
January 3, 1990, covering all officers of LG&E. [Filed as Exhibit
10.29 to LG&E's Annual Report on Form 10-K for the year ended December
31, 1989, and incorporated by reference herein]

10.27 Copy of Omnibus Long-Term Incentive Plan effective January 1, 1990,
covering officers and key employees of LG&E. [Filed as Exhibit 4.01
to LG&E's Registration Statement 33-38557 and incorporated by
reference herein]

10.28 Copy of Key Employee Incentive Plan effective January 1, 1990,
covering officers and key employees of LG&E. [Filed as Exhibit 10.33
to LG&E's Annual Report on Form 10-K for the year ended December 31,
1989, and incorporated by reference herein]

10.29 Copy of LG&E Energy Corp. Deferred Stock Compensation Plan effective
January 1, 1992, covering non-employee directors of the Company and
its subsidiaries. [Filed as Exhibit 10.34 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991, and
incorporated by reference herein]

10.30 Copy of Credit Agreement dated as of March 11, 1992, among LG&E Energy
Systems Inc. as Borrower, the Banks named therein, and Citibank, N.A.
as Agent. [Filed as Exhibit 10.36 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, and incorporated by
reference herein]

10.31 Copy of Support Agreement dated as of December 9, 1991, between LG&E
Energy Corp. and LG&E Energy Systems Inc. [Filed as Exhibit 10.37 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated by reference herein]

<PAGE>

10.32 Copy of form of change in control agreement for officers of LG&E
Energy Corp. [Filed as Exhibit 10.40 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, and incorporated by
reference herein]

10.33 Copy of Supplemental Executive Retirement Plan for R. W. Hale,
effective June 1, 1989. [Filed as Exhibit 10.42 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992, and
incorporated by reference herein]

10.34 Copy of Nonqualified Savings Plan covering officers of the Company,
effective January 1, 1992. [Filed as Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992, and
incorporated by reference herein]

10.35 Copy of Modification No. 13 dated September 1, 1989, to the Power
Agreement between Ohio Valley Electric Corporation and Atomic Energy
Commission. [Filed as Exhibit 10.42 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1993, and incorporated by
reference herein]

10.36 Copy of Modification No. 14 dated January 15, 1992, to the Power
Agreement between Ohio Valley Electric Corporation and Atomic Energy
Commission. [Filed as Exhibit 10.43 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1993, and incorporated by
reference herein]

10.37 Copy of Modification No. 7 dated January 15, 1992, to Inter-Company
Power Agreement dated July 10, 1953, among Ohio Valley Electric
Corporation and Sponsoring Companies. [Filed as Exhibit 10.44 to
LG&E's Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated by reference herein]

10.38 Copy of Modification No. 15 dated February 15, 1993, to the Power
Agreement between Ohio Valley Electric Corporation and Atomic Energy
Commission. [Filed as Exhibit 10.45 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1993, and incorporated by
reference herein]

10.39 Firm Transportation Agreement, dated November 1, 1993, between Texas
Gas Transmission Corporation and LG&E covering the transmission of
natural gas. [Filed as Exhibit 10.46 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1993, and incorporated by
reference herein]

10.40 Firm No Notice Transportation Agreement effective November 1, 1993,
between Texas Gas Transmission Corporation and LG&E (8-year term)
covering the transmission of natural gas.

Firm No Notice Transportation Agreement effective November 1, 1993,
between Texas Gas Transmission Corporation and LG&E (2-year term)
covering the transmission of natural gas.

Firm No Notice Transportation Agreement effective November 1, 1993,
between Texas Gas Transmission Corporation and LG&E (5-year term)
covering the transmission of natural gas.

[Filed as Exhibit 10.47 to LG&E's Annual Report on Form 10-K for the
year ended December 31, 1993, and incorporated by reference herein]

<PAGE>

10.41 Employment Contract between the Company and Roger W. Hale effective
November 3, 1993. [Filed as Exhibit 10.50 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993, and
incorporated by reference herein]

10.42 Copy of LG&E Energy Corp. Stock Option Plan for Non-Employee
Directors. [Filed as Exhibit 10.51 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, and incorporated by
reference herein]

10.43 Copy of Coal Supply Agreement dated August 9, 1989, between Shawnee
Coal Company, Roberts Brothers Coal Company, and the Company covering
the purchase of coal. [Filed as Exhibit 10.41 of LG&E's Annual Report
on Form 10-K for the year ended December 31, 1994, and incorporated by
reference herein]

10.44 Copy of Amendment No. 1 dated January 1, 1991, to Coal Supply
Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts
Brothers Coal Company, and the Company covering the purchase of coal.
[Filed as Exhibit 10.42 of LG&E's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated by reference herein]

10.45 Copy of Amendment No. 2 dated November 27, 1991, to Coal Supply
Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts
Brothers Coal Company, and the Company covering the purchase of coal.
[Filed as Exhibit 10.43 of LG&E's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated by reference herein]

10.46 Copy of Amendment No. 3 dated January 1, 1994, to Coal Supply
Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts
Brothers Coal Company, and the Company covering the purchase of coal.
[Filed as Exhibit 10.44 of LG&E's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated by reference herein]

10.47 Copy of Amendment No. 4 dated January 1, 1995, to Coal Supply
Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts
Brothers Coal Company, and the Company covering the purchase of coal.
[Filed as Exhibit 10.45 of LG&E's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated by reference herein]

10.48 Copy of Coal Supply Agreement dated January 1, 1994, between Peabody
Coalsales Company and the Company covering the purchase of coal.
[Filed as Exhibit 10.46 of LG&E's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated by reference herein]

10.49 Agreement and Plan of Merger, dated February 10, 1995, between Hadson
Corporation, Carousel Acquisition Corporation and the Company. [Filed
as Exhibit 2 of Schedule 13D by the Company on February 21, 1995, and
incorporated by reference herein]

21 Subsidiaries of the Registrant

23 Consent of Independent Public Accountants

24 Power of Attorney

27 Financial Data Schedule

<PAGE>

(b) Executive Compensation Plans and Arrangements:

Supplemental Executive Retirement Plan as amended through January 3, 1990,
covering all officers of LG&E. [Filed as Exhibit 10.29 to LG&E's Annual
Report on Form 10-K for the year ended December 31, 1989, and incorporated
by reference herein]

Omnibus Long-Term Incentive Plan effective January 1, 1990, covering
officers and key employees of LG&E. [Filed as Exhibit 4.01 to LG&E's
Registration Statement 33-38557 and incorporated by reference herein]

Key Employee Incentive Plan effective January 1, 1990, covering officers
and key employees of LG&E. [Filed as Exhibit 10.33 to LG&E's Annual
Report on Form 10-K for the year ended December 31, 1989, and incorporated
by reference herein]

LG&E Energy Corp. Deferred Stock Compensation Plan effective January 1,
1992, covering non-employee directors of the Company and its subsidiaries.
[Filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991, and incorporated by reference herein]

Form of change in control agreement for officers of LG&E Energy Corp.
[Filed as Exhibit 10.40 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992, and incorporated by reference herein]

Supplemental Executive Retirement Plan for R. W. Hale, effective June 1,
1989. [Filed as Exhibit 10.42 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992, and incorporated by reference
herein]

Nonqualified Savings Plan covering officers of the Company effective
January 1, 1992. [Filed as Exhibit 10.43 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, and incorporated by
reference herein]

Employment Contract between the Company and Roger W. Hale effective
November 3, 1993. [Filed as Exhibit 10.50 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, and incorporated by
reference herein]

LG&E Energy Corp. Stock Option Plan for Non-Employee Directors. [Filed as
Exhibit 10.51 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated by reference herein]

The Company filed no Form 8-K reports during the fourth quarter of 1994.

A report on Form 8-K was filed on February 16, 1995, announcing that the
Company signed definitive agreements on February 10, 1995, to purchase
Hadson Corporation, the Dallas-based natural gas marketing, gathering and
processing company, for $143 million. The acquisition is subject to
regulatory filings and approvals and the satisfaction of certain other
conditions. The transaction is expected to close in the second quarter of
1995.

<PAGE>

LG&E Energy Corp. and Subsidiaries Schedule II
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended December 31, 1994
(Thousands of $)

Reserves Deducted From
Assets in Balance Sheet
-----------------------

Other Accounts
Property Receivable
and (Uncollectible
Investments Accounts)
----------- ---------

<S> <C> <C>
Balance January 1, 1992 $2,862 $1,413

Additions:
Charged to costs and expenses -
Trimble County - Non-jurisdictional
depreciation 2,783 -
Other additions charged to costs
and expenses - 2,845
Deductions:
Net charges of nature for which
reserves were created - 2,886
------ ------

Balance December 31, 1992 5,645 1,372

Additions:
Charged to costs and expenses -
Trimble County - non-jurisdictional
depreciation 233 -
Other additions charged to costs
and expenses - 2,542
Deductions:
Net charges of nature for which
reserves were created - 2,145
Other deductions 5,815 -
------ ------

Balance December 31, 1993 63 1,769

Additions:
Charged to costs and expenses 968 3,166
Other additions 1,648 -
Deductions:
Net charges of nature for which
reserves were created - 3,396
Other deductions 134 -
------ ------

Balance December 31, 1994 $2,545 $1,539
------ ------
------ ------
</TABLE>

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

LG&E ENERGY CORP.
Registrant

March 28, 1995 /s/ Charles A. Markel III
- ------------- -------------------------
(Date) Charles A. Markel III
Corporate Vice President, Finance and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.

Signature Title Date
- --------- ----- ----

Roger W. Hale Chairman of the Board,
President and Chief Executive
Officer
(Principal Executive Officer);

Charles A. Markel III Corporate Vice President,
Finance and Treasurer
(Principal Financial and Accounting Officer);

William C. Ballard, Jr. Director;

Owsley Brown, II Director;

S. Gordon Dabney Director;

Gene P. Gardner Director;

J. David Grissom Director;

David B. Lewis Director;

Anne H. McNamara Director;

T. Ballard Morton, Jr. Director; and

Dr. Donald C. Swain Director.

By /s/ Charles A. Markel III March 28, 1995
-------------------------
Charles A. Markel III
(Attorney-In-Fact)

<PAGE>

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

Louisville Gas and Electric Company (incorporated in Kentucky) is the only
significant subsidiary of the Registrant.

<PAGE>

Exhibit 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 30, 1995 (except with respect to the
matters discussed in Note 16, as to which the date is February 10, 1995, and the
matters discussed in paragraph 15 of Note 13, as to which the date is March 17,
1995), included in this Form 10-K, into the Company's previously filed
Registration Statement No. 33-56942 and Post-Effective Amendment No. 1-C to
Registration Statement No. 33-33687 relating to the Automatic Dividend
Reinvestment and Stock Purchase Plan of the Company, Post-Effective Amendment
No. 2-B to Registration Statement No. 33-33687, relating to the Employee Common
Stock Purchase Plan and Post-Effective Amendment No. One to Registration
Statement No. 33-38557 relating to the Omnibus Long-Term Incentive Plan of the
Company.

/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP

Louisville, Kentucky
March 28, 1995

<PAGE>

Exhibit 24

POWER OF ATTORNEY

WHEREAS, LG&E ENERGY CORP., a Kentucky corporation, is to file with the
Securities and Exchange Commission, under the provisions of the Securities Act
of 1934, as amended, its Annual Report on Form 10-K for the year ended December
31, 1994 (the 1994 Form 10-K); and

WHEREAS, each of the undersigned holds the office or offices in LG&E ENERGY
CORP. set opposite his or her name;

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints ROGER W.
HALE and CHARLES A. MARKEL III, and each of them, individually, his attorney,
with full power to act for him and in his name, place, and stead, to sign his
name in the capacity or capacities set forth below to the 1994 Form 10-K and to
any and all amendments to such 1994 Form 10-K and hereby ratifies and confirms
all that said attorney may or shall lawfully do or cause to be done by virtue
hereof.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals this
1st day of March 1995.

/s/ Roger W. Hale /s/ Dr. Donald C. Swain
- ----------------- -----------------------
ROGER W. HALE DR. DONALD C. SWAIN
Principal Executive Director
Officer and Director

/s/ Anne H. McNamara /s/ William C. Ballard
- -------------------- ----------------------
ANNE H. McNAMARA WILLIAM C. BALLARD
Director Director

/s/ Owsley Brown, II /s/ J. David Grissom
- -------------------- --------------------
OWSLEY BROWN, II J. DAVID GRISSOM
Director Director

/s/ Gene P. Gardner /s/ T. Ballard Morton, Jr.
- ------------------- --------------------------
GENE P. GARDNER T. BALLARD MORTON, JR.
Director Director

/s/ S. Gordon Dabney /s/ David B. Lewis
- -------------------- ------------------
S. GORDON DABNEY DAVID B. LEWIS
Director Director

/s/ Charles A. Markel III
- --------------------------------
Charles A. Markel III, Principal
Financial and Accounting Officer

STATE OF KENTUCKY )
)ss.
COUNTY OF JEFFERSON )

<PAGE>

On this 1st day of March 1995, before me, Margaret L. Cowan, a Notary Public,
State of Kentucky at Large, personally appeared the above named directors and
officers of LG&E ENERGY CORP., a Kentucky corporation, and known to me to be the
persons whose names are subscribed to the foregoing instrument, and they
severally acknowledged to me that they executed the same as their own free act
and deed.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on
the date above set forth.

My Commission expires: /s/ Margaret L. Cowan
July 28, 1996 --------------------------------
Margaret L. Cowan, Notary Public
State of Kentucky at Large

<PAGE>
<ARTICLE> UT
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,656,034
<OTHER-PROPERTY-AND-INVEST> 168,903
<TOTAL-CURRENT-ASSETS> 323,307
<TOTAL-DEFERRED-CHARGES> 69,220
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,217,464
<COMMON> 460,066 <F1>
<CAPITAL-SURPLUS-PAID-IN> (4,623)<F2>
<RETAINED-EARNINGS> 307,072
<TOTAL-COMMON-STOCKHOLDERS-EQ> 762,515
0
116,716
<LONG-TERM-DEBT-NET> 662,862
<SHORT-TERM-NOTES> 32,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 643,371
<TOT-CAPITALIZATION-AND-LIAB> 2,217,464
<GROSS-OPERATING-REVENUE> 829,663
<INCOME-TAX-EXPENSE> 33,394
<OTHER-OPERATING-EXPENSES> 689,319 <F3>
<TOTAL-OPERATING-EXPENSES> 722,713
<OPERATING-INCOME-LOSS> 106,950
<OTHER-INCOME-NET> 47,154 <F4>
<INCOME-BEFORE-INTEREST-EXPEN> 154,104
<TOTAL-INTEREST-EXPENSE> 43,011
<NET-INCOME> 111,093
5,828
<EARNINGS-AVAILABLE-FOR-COMM> 105,265
<COMMON-STOCK-DIVIDENDS> 69,799
<TOTAL-INTEREST-ON-BONDS> 41,357
<CASH-FLOW-OPERATIONS> 135,559
<EPS-PRIMARY> 3.19
<EPS-DILUTED> 3.19
<FN>
<F1>Includes common stock expense of $914.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
<F3>Includes equity in earnings of affiliates of
$12,883.
<F4>Includes gain on sale of discontinued operations
of $51,805 (net of taxes) and cumulative effect
of accounting change of $3,369 (net of taxes).
</FN>

</TABLE>