LG&E ENERGY CORP, 10-K405, 1996-03-27

LG&E ENERGY CORP
10-K405, 1996-03-27
ELECTRIC & OTHER SERVICES COMBINED

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<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, 1995
-----------------

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. /X/

As of February 29, 1996, the aggregate market value of the registrant's voting
stock held by non-affiliates was $1,421,815,597 and the number of outstanding
shares of the registrant's common stock, without par value, was 33,124,377.

DOCUMENTS INCORPORATED BY REFERENCE

The Company's proxy statement filed with the Commission on March 13, 1996, is
incorporated by reference into Part III of this Form 10-K.

<PAGE>

TABLE OF CONTENTS

PART I

Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview of Operations. . . . . . . . . . . . . . . . . . . . 1
Louisville Gas and Electric Company
General. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Electric Operations. . . . . . . . . . . . . . . . . . . . 5
Gas Operations . . . . . . . . . . . . . . . . . . . . . . 6
Regulation and Rates . . . . . . . . . . . . . . . . . . . 7
Construction Program and Financing . . . . . . . . . . . . 8
Coal Supply. . . . . . . . . . . . . . . . . . . . . . . . 9
Gas Supply . . . . . . . . . . . . . . . . . . . . . . . . 10
Environmental Matters. . . . . . . . . . . . . . . . . . . 11
LG&E Energy Systems Inc . . . . . . . . . . . . . . . . . . . 11
LG&E Gas Systems Inc. . . . . . . . . . . . . . . . . . . . . 14
Labor Relations . . . . . . . . . . . . . . . . . . . . . . . 17
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 21
Executive Officers of the Company. . . . . . . . . . . . . . . . . . . 22

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . 23
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 24
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . 25
Item 8. Financial Statements and Supplementary Data . . . . . . . . . 37
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . 68

PART III

Item 10. Directors and Executive Officers of the Registrant (a). . . . 69
Item 11. Executive Compensation (a). . . . . . . . . . . . . . . . . . 69
Item 12. Security Ownership of Certain Beneficial Owners
and Management (a) . . . . . . . . . . . . . . . . . . . . 69
Item 13. Certain Relationships and Related Transactions (a). . . . . . 69

PART IV

Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 69
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Exhibit 21 - Subsidiaries of the Registrant. . . . . . . . . . . . . . 83
Exhibit 23 - Consent of Independent Public Accountants . . . . . . . . 84

(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 three direct subsidiaries:
Louisville Gas and Electric Company (LG&E), LG&E Energy Systems Inc. (Energy
Systems) and LG&E Gas Systems Inc. (Gas Systems).

LG&E is a regulated public utility that supplies natural gas to approximately
272,000 customers and electricity to approximately 346,000 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 transports gas and provides 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 natural gas storage fields help LG&E provide economical and reliable
gas service to customers. During 1995, 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, the Company began to explore business opportunities consistent with its
strategy to expand its energy services platform, including cogeneration and
independent power production and fuel-related businesses such as gathering,
storing, transporting and marketing natural gas. LG&E Energy Systems Inc. was
formed in 1991 as the first of two subsidiaries intended to hold the Company's
investments in non-utility businesses and to separate these investments from the
regulated utility. The second, LG&E Gas Systems Inc., was formed in 1995.

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, 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 6 of Notes to
Financial Statements under Item 8 for a further discussion of the sale of NGC.

In 1994, LG&E Power Marketing Inc. (LPM), an indirect wholly-owned subsidiary of
LPI, was formed to market power throughout the United States. LPM 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.

In November 1994, the Company announced that one of its subsidiaries, LG&E
International Inc. (LII), a wholly-owned subsidiary of Energy Systems, had
formed a joint venture to build and operate a natural gas-fired power plant in
north central Argentina. The plant was completed in 1995 and began commercial
operation in early 1996. The Company intends to continue to pursue
international development opportunities that have an acceptable level of risk
and a reasonable rate of return.

<PAGE>

In May 1995, Gas Systems acquired all of the outstanding common stock of Hadson
Corporation, now known as LG&E Natural Inc. (LG&E Natural), a company engaged in
the marketing, gathering, processing, storage and transportation of natural gas.

Effective December 15, 1995, the Company modified its organizational structure.
The changes are designed to facilitate decision making, improve response to
customers and better align operating units with the changing competitive
marketplace. Four operating divisions were established:

Distribution Services Division - which includes the distribution resources
of Louisville Gas and Electric Company (LG&E), is responsible for expanding
and developing the distribution businesses and investing in enhanced
service offerings behind the customer's meter.

Gas Marketing Division - primarily consists of the operations of LG&E
Natural, which markets gas throughout the United States and Canada.

Power Marketing Division - which includes LG&E Power Marketing Inc. (LPM),
and is responsible for project development and the marketing and sale of
wholesale power throughout the United States.

Power Generation Division - which includes the generation resources of
LG&E, LG&E Power Inc. (LPI), and LG&E International Inc. (LII), has
responsibility for all utility and non-utility power plant operations,
asset management and development functions both domestically and
internationally.

In addition, LPI has reduced its capability to construct power generation
facilities consistent with the trend of lower construction activity within the
independent power industry. LPI expects its development and power marketing
activities to be the major source of revenue in the future.

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.

The Company has taken many steps to prepare for the expected increase in
competition in its regulated and non-regulated 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; a
major realignment and formation of new business units; and a modification of its
organization structure. With these steps, the Company is preparing for
increased competition in both the regulated and non-regulated energy services
industries.

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

<PAGE>

the ability to regulate certain inter-company transactions between LG&E and the
Company, including the Company's non-utility subsidiaries.

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 had been subject
to numerous reviews by the Kentucky Commission. On December 8, 1995, the
Commission approved a settlement agreement filed by LG&E and all intervenors in
the Trimble County proceedings, including various consumer interest groups and
government agencies, that in effect, resolves all of the regulatory and legal
issues related to the appropriate ratemaking treatment to exclude 25% of the
Trimble County costs from customer rates. LG&E has sold a 25% ownership
interest in the Unit. For a more detailed discussion of the proceedings
relating to Trimble County and the sale of 25% of the Unit, see Electric
Operations and Notes 17 and 18 of Notes to Financial Statements under Item 8.

The Clean Air Act Amendments of 1990 (the Act) 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 $22 million to date and anticipates
incurring capital expenditures of approximately $8 million in 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 16 of the Notes to Financial Statements under Item 8.

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.

Pursuant to the Energy Policy Act, the Federal Energy Regulatory Commission
(FERC) earlier this year issued a Notice of Proposed Rulemaking on Open Access
Non-discriminatory Transmission Services and a Supplemental Notice of Proposed
Rulemaking on Stranded Investment (collectively, the Mega-NOPR). The Mega-NOPR
is intended, among other things, to create a vigorous wholesale electric market
by requiring transmission providers to offer open access to their transmission
systems. LG&E is supportive of proposals to increase competition at all levels
of the electric power market and intends to pursue opportunities created by a
more competitive market.

To prepare for these opportunities, the Company modified its organizational
structure and took other steps as described on pages two and three effective
December 15, 1995. The realignment does not affect the regulation of LG&E by
the Commission.

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

3
<PAGE>

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.

During the last quarter of 1995, LG&E negotiated a five-year transportation
agreement with Tennessee Gas Pipeline Company (Tennessee) to become LG&E's
second natural gas pipeline transporter. The agreement with Tennessee becomes
effective November 1, 1996. For many years, Texas Gas Transmission Corporation
(Texas Gas) has been the sole provider of gas transport services to LG&E. For
further discussion, see Gas Supply.

On July 31, 1995, Vantage Consulting, Inc. released its report on the Kentucky
Commission's management audit of LG&E. This comprehensive audit, which began in
September 1994, included more than 300 interviews and over 875 requests for
information. This was the second management audit of LG&E mandated by the
Kentucky Commission, the first being completed in 1986. The overall audit
findings were very favorable and recognized that LG&E has become an innovative
industry leader that has implemented many performance improvements to lower
costs, improve efficiency, prepare for increased competition, and increase its
focus on customer satisfaction. For further discussion, see Regulation and
Rates.

For the year ended December 31, 1995, 75% of LG&E's total operating revenues was
derived from electric operations and 25% 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 $201,357 $107,762 $309,119 44%
Commercial 160,571 38,161 198,732 29
Industrial 110,800 17,430 128,230 18
Public authorities 53,861 8,679 62,540 9
-------- -------- -------- ---
Total service revenues 526,589 172,032 698,621 100%
---
---
Refund - Trimble County settlement (28,300)(a) - (28,300)
-------- -------- --------
Total - ultimate consumers 498,289 172,032 670,321
Sales for resale 37,471 - 37,471
Gas transported - net - 7,821 7,821
Miscellaneous 7,026 1,273 8,299
-------- -------- --------
Total $542,786 $181,126 $723,912
-------- -------- --------
-------- -------- --------

(a)See Note 17 of Notes to Financial Statements under Item 8.

</TABLE>

See Note 19 of Notes to Financial Statements under Item 8 for financial
information concerning segments of business for the three years ended December
31, 1995.

<PAGE>

Electric Operations

The sources of LG&E's electric operating revenues and the volumes of sales for
the three years ended December 31, 1995, were as follows:

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
ELECTRIC OPERATING REVENUES
(Thousands of $):
Residential $201,357 $194,145 $195,273
Small commercial and industrial 73,074 70,916 70,106
Large commercial 87,497 84,931 84,231
Large industrial 110,800 108,004 104,506
Public authorities 53,861 53,191 52,183
Refund - Trimble County settlement (28,300) -- --
---------- -------- --------
Total - ultimate consumers 498,289 511,187 506,299
Sales for resale 37,471 42,720 60,060
Miscellaneous 7,026 5,420 5,268
---------- -------- --------
Total $542,786 $559,327 $571,627
---------- -------- --------
---------- -------- --------

ELECTRIC SALES (Thousands of kwh):
Residential 3,415,225 3,204,330 3,230,463
Small commercial and industrial 1,112,130 1,073,152 1,056,977
Large commercial 1,802,035 1,729,668 1,696,686
Large industrial 3,023,543 2,874,411 2,736,269
Public authorities 1,113,063 1,085,741 1,053,928
---------- --------- ----------
Total-ultimate consumers 10,465,996 9,967,302 9,774,323
Sales for resale 2,000,607 2,315,311 3,346,107
----------- ---------- ----------
Total 12,466,603 12,282,613 13,120,430
----------- ---------- ----------
----------- ---------- ----------
</TABLE>

At December 31, 1995, LG&E had 346,099 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 1995 was approximately .85 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 Thursday, August 17, 1995, LG&E set a record local peak load of 2,357 Mw,
when the temperature at the time of peak reached 94 degrees Fahrenheit (average
for the day was 86 degrees Fahrenheit). The 1994 maximum local peak load of
2,219 Mw occurred on Wednesday, June 15, when the temperature at 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 29, 1996, LG&E owned steam
and combustion turbine generating facilities with a capacity of 2,512 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 whose primary customer is the Portsmouth Area uranium-
enrichment complex of the U.S. Department of Energy at Piketon, Ohio. LG&E has
direct interconnections with 11 utility companies in the area and has agreements
with each interconnected utility for the purchase and sale of capacity and
energy. LG&E also

<PAGE>

has agreements with an increasing number of entities throughout the United
States for the purchase and/or sale of capacity and energy and for the
utilization of their bulk transmission system.

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
$83 million since 1987 in its investigation and research with regard to possible
health effects posed by exposure to electric and magnetic fields.

Gas Operations

The sources of LG&E's gas operating revenues and the volumes of sales for the
three years ended December 31, 1995, were as follows:

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
GAS OPERATING REVENUES
(Thousands of $):
Residential $107,762 $110,553 $112,508
Commercial 38,161 40,474 43,568
Industrial 17,430 27,956 28,310
Public authorities 8,679 12,930 13,846
------- ------- -------
Total-ultimate consumers 172,032 191,913 198,232
Gas transported-net 7,821 6,759 5,147
Miscellaneous 1,273 1,457 1,536
------- ------- -------
Total $181,126 $200,129 $204,915
------- ------- -------
------- ------- -------

GAS SALES (Millions of cu. ft.):
Residential 24,242 22,935 24,330
Commercial 9,885 9,450 10,308
Industrial 5,188 7,505 7,817
Public authorities 2,423 3,268 3,515
------ ------ -------
Total-ultimate consumers 41,738 43,158 45,970
Gas transported 12,241 6,854 5,249
------ ------- -------
Total 53,979 50,012 51,219
------ ------- -------
------ ------- -------

</TABLE>

At December 31, 1995, LG&E had 272,135 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.

<PAGE>

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 1995, the maximum day gas sendout was 454,000 Mcf, occurring on December
9, when the average temperature for the day was 9 degrees Fahrenheit. Supply on
that day consisted of 208,000 Mcf from purchases, 199,000 Mcf delivered from
underground storage, and 47,000 Mcf transported for industrial customers. For
further discussion, see Gas Supply.

Under FERC Order No. 636, pipelines may recover costs associated with the
transition to and implementation of this order from pipeline customers,
including LG&E. During 1995, LG&E paid and began recovering from its customers
approximately $4.8 million in transition costs under Order No. 636. It is
estimated that about $1.4 million in additional transition costs will be
incurred by LG&E during 1996 and about $1.3 million in 1997, and these costs are
also expected to be recovered from customers. See Note 16 of Notes to Financial
Statements under Item 8 for further discussion of FERC Order No. 636.

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 3 and 17 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.

<PAGE>

The overall audit findings were very favorable and recognized that LG&E has
become an innovative industry leader that has implemented many performance
improvements to lower costs, improve efficiency, prepare for increased
competition, and increase its focus on customer satisfaction. The audit report
identified additional improvement opportunities and contained a series of
recommendations which should assist LG&E with its future plans. It is estimated
that implementation of the audit recommendations could provide LG&E with as much
as $11 million in annual gross savings. However, incremental costs will be
incurred to achieve the full benefits of the recommendations and the ultimate
savings will be realized over the long-term.

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.

As part of the corporate reorganization whereby LG&E became the subsidiary of
the Company, LG&E obtained the approval of the Kentucky Commission. The order
of the Kentucky Commission authorizing 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 and reliability to meet the 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

<PAGE>

changes in rates, economic conditions, construction costs, and new
environmental or other governmental laws and regulations.

During the five years ended December 31, 1995, gross property additions amounted
to $476 million. Internally generated funds for the five year period were
sufficient to provide for all of these gross additions. The gross additions
during this period amounted to approximately 18% of total utility plant at
December 31, 1995, and consisted of $356 million for electric properties and
$120 million for gas properties. Gross retirements during the same period were
$82 million, consisting of $67 million for electric properties and $15 million
for gas properties.

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

Coal Supply

Over 90% 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.

In January 1996, LG&E bought out the last year of its three year contract with
Andalex Resources, Inc. at a cost of $3.5 million. LG&E has filed an
application with the Kentucky Commission to recover the cost of the buyout
through the fuel adjustment clause. As a result of the buyout of the coal
contract, LG&E's customers will realize a net savings in excess of $1 million.

LG&E has entered into coal supply agreements with various suppliers for coal
deliveries for 1996 and beyond. LG&E normally augments its coal supply
agreements with spot market purchases which, during 1995, 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, 1995, a
coal inventory of approximately 600,000 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%-4.5% 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.

Coal for LG&E's Mill Creek plant is delivered by rail and barge. Deliveries to
the Cane Run and Trimble County plants are by rail and barge, respectively.

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

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Per ton $23.68 $25.27 $26.58
Per million Btu 1.04 1.10 1.14

</TABLE>

<PAGE>

This downward trend in the delivered cost of coal is expected to continue
through 1996.

Gas Supply

Prior to the implementation of FERC Order No. 636, LG&E had 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 many other sources under contracts for varying
periods of time. See Management's Discussion and Analysis, Future Outlook,
under Item 7.

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 1995, LG&E paid Texas Gas and began recovering from its customers
approximately $4.8 million in transition costs. It is estimated that about $1.4
million in additional transition costs will be incurred by LG&E during 1996 and
about $1.3 million in 1997, and these costs are also expected to be recovered
from customers. These transition costs are billed by Texas Gas pursuant to
orders issued by FERC in transition cost regulatory proceedings in which LG&E is
a party. Pursuant to these FERC orders, no additional transition costs are
expected to be billed after 1997.

During 1995, LG&E participated in several regulatory proceedings at FERC. These
proceedings resolved, subject to final FERC approval, issues in Texas Gas' rate
case as well as transition cost issues from the implementation of Order No. 636
by Texas Gas. LG&E does not expect significant regulatory initiatives by Texas
Gas at FERC during 1996.

LG&E transports on the Texas Gas System under No-Notice Service (NNS) and Firm
Transportation (FT) rates. In 1995, LG&E made two important modifications to
its transportation agreements with Texas Gas. During the winter months, LG&E
has 184,900 MMBtu (180,390 mcf) per day in NNS. During 1995, LG&E's summer NNS
level was reduced from 135,000 MMBtu (131,708 Mcf) per day to 111,000 MMBtu
(108,293 Mcf), and 24,000 MMBtu (23,415 Mcf) per day was converted to FT
service. Each of these NNS and FT agreements with Texas Gas expire in equal
portions in 1998, 2000, and 2001. Each agreement includes a unilateral five
year roll-over provision exercisable at LG&E's option.

LG&E also has a transportation agreement with Texas Gas which provides for
30,000 MMBtu (29,268 Mcf) per day in FT service throughout the year. The
primary term of this FT agreement expired October 31, 1995, subject to a
year-to-year termination by either party. During 1995, LG&E provided the
required one year prior written notice to terminate this FT agreement effective
November 1, 1996.

During the last quarter of 1995, LG&E negotiated a five-year transportation
agreement with Tennessee Gas Pipeline Company (Tennessee) for 30,000 MMBtu
(29,268 Mcf) per day in Firm Transportation service under Tennessee's Rate FT-A.
This agreement with Tennessee becomes effective November 1, 1996. For many
years, Texas Gas had been the sole provider of gas transport services to LG&E.

LG&E also has a portfolio of supply arrangements with various suppliers in order
to meet its firm sales obligations. These gas supply arrangements include
pricing provisions which are market-responsive. These firm supplies, in tandem
with pipeline transportation services, provide the reliability and flexibility
necessary to serve LG&E's customers.

<PAGE>

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
1994-1995 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 $2.62 in 1995,
$2.78 in 1994, and $2.91 in 1993.

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 1995, expenditures for
pollution control facilities represented $90 million or 19% of total
construction expenditures. The cost of operating and maintaining
scrubber-related facilities amounted to $21 million in 1995 and $22 million in
1994. LG&E's anticipated capital expenditures for 1996 to comply with
environmental laws are approximately $8 million. See Note 16 of Notes to
Financial Statements under Item 8 for a discussion of specific environmental
proceedings affecting LG&E.

LG&E ENERGY SYSTEMS INC.

LG&E Energy Systems Inc. (Energy Systems) was formed in 1991 as the first of two
subsidiaries intended to hold the Company's investments in non-utility
businesses. 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. See Note 6 of
Notes to Financial Statements under Item 8.

LPI develops, 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 275 employees. It currently has ownership interests in
projects capable of generating over 700 megawatts of electric power capacity in
North Carolina, Virginia, New York, California, Minnesota, Texas and abroad. In
November 1994, the Company announced that LG&E International Inc. (LII), a
wholly-owned subsidiary of Energy Systems, had formed a joint venture to build
and operate a natural-gas-fired power plant in north central Argentina. The
plant was completed in 1995 and began commercial operation in early 1996. 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. In 1995, LII also invested $4.5
million into a partnership that acquired a 44% interest in a 30 Mw wind facility
in Tarifa, Spain. The partners in the project include Kenetech International,
Ltd. and other local Spanish companies. The Company intends to continue to
pursue international development opportunities that have an acceptable level of
risk and a reasonable rate of return.

Except for its investments in wind power and its Roanoke Valley I facility (ROVA
I) (see Item 2, Properties), each of the projects LPI has in operation within
the United States is a qualifying cogeneration

<PAGE>

facility (QF) under the Public Utility Regulatory Policy Act of 1978 (PURPA).
See Item 3 and Note 16 of Notes to Financial Statements under Item 8 for a
discussion of certain issues regarding past operations at certain of these
facilities. Certain partnerships, in which LPI has an ownership interest, are
operating wind power facilities which are qualifying small power production
facilities under PURPA. In addition, LPI has obtained exempt wholesale
generator (EWG) status for the entities which own the ROVA I and Roanoke Valley
II (ROVA II) projects in North Carolina, the Rensselaer facility in Rensselaer,
New York, and the Southampton, Altavista and Hopewell projects in Virginia.
Except for ROVA I, these projects continue to maintain QF status under PURPA.

Generally, QF 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. EWGs 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. EWGs also are subject to non-rate regulation under state laws
governing electric utilities. While QF or EWG 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.

Effective December 15, 1995, the Company modified its organizational structure
as described on pages two and three. The changes are designed to facilitate
decision making, improve response to customers and better align operating units
with the changing competitive marketplace.

As part of the realignment, LPI has reduced its capability to construct power
generation facilities consistent with the trend of lower construction activity
within the independent power industry. LPI expects its development and power
marketing activities to be the major source of revenue in the future.

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.

Wholesale power will continue to be marketed and brokered under the new
structure by LPM, a wholly-owned subsidiary of LPI. LPM 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.
During 1995, its first full year of operations, LPM sold or brokered 1.8 million
megawatt-hours of power in 30 states. This volume of activity placed LPM among
the five largest marketers of wholesale energy in 1995 and the largest seller
affiliated with a regulated electric utility. LPM is predicting that the market
for electric energy will expand and its revenues will increase in future years.

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
immaterial at December 31, 1995. Such commitments were $27 million at December
31, 1994. Contingent construction and project performance guarantees totaled
approximately $12.3 million and $64.5 million at December 31, 1995, and 1994,
respectively.

Energy Systems has provided letters of credit and various other guarantees to
third parties which totaled approximately $33.7 million and $39.2 million as of
December 31, 1995 and 1994, respectively.

<PAGE>

Westmoreland Energy, Inc. (WEI) is a partner along with LPI in six cogeneration
projects. 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 Roanoke Valley I, Roanoke Valley II and
Rensselaer projects. In connection with that guarantee, WEI agreed to reimburse
Energy Systems in the event it were ever required to perform thereunder, and WEI
pledged certain of its assets to Energy Systems to secure that reimbursement
obligation. Equity commitments for these projects were funded in late 1994 and
1995. There are no outstanding commitments resulting from Energy Systems'
guarantee commitment, and the parties have agreed to terminate the WEI
reimbursement obligation and related security interests.

The preceding equity funding and performance guarantees are subject to Support
Agreements as more fully described in Note 15 of Notes to Financial Statements
under Item 8.

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 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 QF 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.

In late August 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. In September 1994, the
Partnership filed with FERC its answer to Virginia Power's motion and response.
Also in September 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 FERC had not acted
on the Partnership's request for rehearing, in December 1995, the Partnership
filed with FERC a motion to request a settlement conference. Virginia Power
subsequently filed a response in which it did not object to the proposed
settlement conference. The parties are awaiting FERC action, but expect a
settlement proceeding to be initiated in the first half of 1996.

The Company believes 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, third party
lawsuits, 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.

<PAGE>

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
1995, Virginia Power withheld approximately $8.5 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. In October 1994, WLP filed a complaint against Virginia
Power seeking damages of at least $5.7 million, contending that Virginia Power
breached the PPA in withholding such payments. In June 1995, the Circuit Court
of the City of Richmond, Virginia denied Virginia Power's motion to dismiss
WLP's complaint. In early March 1996, Virginia Power filed a motion for
summary judgment, and on March 22, 1996, the court granted Virginia Power's
motion as to all counts. The Company plans to appeal the court's ruling.

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 23 years of the PPA. However, the Company is unable to predict
the outcome of this proceeding, or the amount of capacity payments, if any,
which Virginia Power may be ordered to pay to WLP.

The Company has been informed through public filings that Niagara Mohawk Power
Corporation (NIMO) (which is the purchasing utility for the Company's Rensselaer
cogeneration facility) has indicated that, absent significant relief from its
power purchase arrangements with independent power producers (including
qualifying cogenerators), it may be forced either to file voluntary bankruptcy
or attempt to condemn and purchase the cogeneration facilities through eminent
domain. The Company intends to oppose any efforts by NIMO to nullify its
contract for the Rensselaer project.

LG&E GAS SYSTEMS INC.

LG&E Gas Systems Inc. (Gas Systems) was formed in 1995 as the second of two
subsidiaries intended to hold the Company's investments in non-utility
businesses. In May 1995, Gas Systems acquired all of the outstanding common
stock of Hadson Corporation, now known as LG&E Natural Inc. (LG&E Natural), a
company primarily involved in the marketing, gathering, processing, storage and
transportation of natural gas.

LG&E Natural's business is seasonal and affected by weather patterns in the
market areas it serves. West Coast, Southwest and Southeast markets typically
have higher demand for LG&E Natural's products in the summer months, while the
Northeast and Midwest market demand is generally greater in the winter.

As part of the natural gas marketing services it offers customers, LG&E Natural
aggregates supplies of natural gas from gas producers and processors, contracts
for transportation services on both interstate and intrastate pipelines, and
provides a variety of re-bundled services to end users and local distribution
companies. The Company believes that the growth of LG&E Natural's gas marketing
business depends primarily upon its ability to provide quality services in
response to evolving customer needs and market conditions.

The volume of gas transported and marketed by LG&E Natural has increased from an
average of approximately 600 million cubic feet per day in May 1995, when LG&E
Natural was acquired, to approximately 2.1 billion cubic feet per day by the end
of 1995. As of December 31, 1995, LG&E

<PAGE>

Natural had approximately 891 direct gas sales contracts with industrial firms,
local gas distribution companies, electric utilities, large commercial entities
and institutions such as hospitals, military bases and universities. LG&E
Natural maintains a diverse customer base in order to limit its reliance on any
one industry or region. During 1995, no customer accounted for more than 10% of
LG&E Natural's total gas sales. LG&E Natural competes with other gas marketers
and producers primarily on the basis of market-responsive pricing and
flexibility of deal structure, including the use of financial instruments,
reliability of performance and customer service.

The majority of natural gas purchased and sold by LG&E Natural is generally
under spot contracts of thirty days or less. LG&E Natural also has long-term
sales and purchase arrangements with a variety of customers, with terms of one
to five years.

LG&E Natural (through a wholly-owned subsidiary) and Santa Fe Energy Resources
Inc. (Santa Fe) are parties to a Master Gas Purchase Contract (Gas Contract),
which was entered into in December 1993. The Gas Contract provides for the
dedication by Santa Fe to LG&E Natural of all of its domestic natural gas
production from specified existing wells, which consist of essentially all of
such entity's domestic natural gas production (except to the extent such
production is dedicated under pre-existing contracts) and certain domestic
development and exploration wells. Production of gas wells acquired by Santa Fe
may, by mutual agreement, be dedicated under the Gas Contract. LG&E Natural is
obligated to analyze and provide its recommendation regarding the method of
gathering and transporting production from exploration wells, whether by Santa
Fe, LG&E Natural or third parties.

LG&E Natural is required to release gas production dedicated under the Gas
Contract under certain circumstances, including, if LG&E Natural's financial
condition changes materially and adversely and LG&E Natural does not provide
financial assurances (such as letters of credit) for the value of such gas
acceptable to Santa Fe. To date, Santa Fe has not elected to request any such
financial assurances. Pursuant to the Gas Contract, LG&E Natural is required to
pay Santa Fe, for all production delivered, the fair market price for such gas.
LG&E Natural is obligated to use its best efforts to receive gas from Santa Fe
at delivery points so as to maximize the set price received by Santa Fe for such
production.

The term of the Gas Contract runs until March 31, 2001. However, either LG&E
Natural or Santa Fe has the right to terminate the contract upon a material
breach of the contract or the occurrence of certain events. In addition, Santa
Fe has the right to terminate the contract or suspend performance if (i)
payments are overdue by more than three working days, or (ii) LG&E Natural fails
to purchase specified percentages of available production from Santa Fe.

LG&E Natural's natural gas gathering and processing operations are concentrated
in southeastern New Mexico, the Louisiana Gulf Coast and the Permian Basin of
West Texas. Assets employed to conduct these operations include a 90-mile
intrastate pipeline in southeastern New Mexico (the Llano pipeline), eleven
separate gathering systems consisting of 1,253 miles of pipeline, five gas
processing facilities (two of which are inactive), an underground gas storage
facility with a current working capacity of approximately six billion cubic feet
(BCF) of gas, and two gas transmission systems located in Texas which total 76
miles. LG&E Natural owns 100% of six of the gathering systems, and it has
ownership interests in the other five ranging from 11% to 50%.

The Llano pipeline, which has a design capacity of approximately 180,000 MCF of
gas per day, is capable of delivering gas to four different interstate pipelines
and directly to three end users, as well as receiving gas from three interstate
pipelines. LG&E Natural, through its various subsidiaries, purchases gas from
over 100 producers connected to the Llano pipeline and sells the gas directly to
end-user customers or

<PAGE>

delivers the gas into one of the interstate pipelines for sale. LG&E Natural,
through its various subsidiaries, also transports natural gas through the Llano
pipeline for third parties and is paid a transportation fee for such services.
From May 15, 1995, through December 31, 1995, an average of approximately 55,000
MCF of natural gas per day moved through the Llano pipeline.

The eleven gathering systems gathered approximately 104,000 MCF (net to LG&E
Natural ownership interests) of natural gas per day during 1995. Connected to
the Llano pipeline are two operating natural gas processing facilities capable
of processing approximately 85,000 MMBtu of natural gas per day. These
facilities extract natural gas liquids, including propane, ethane, butanes and
natural gasoline, from the natural gas stream, at which point the mixed stream
of liquids is sold. From May 15, 1995, through December 31, 1995, approximately
189,000 gallons per day of natural gas liquids were extracted and sold from
these facilities.

Also connected to the Llano pipeline is a natural gas storage facility. This
facility has current working capacity of approximately six BCF. LG&E Natural,
through a subsidiary, offers this storage capacity to third parties on a fee
basis. As of December 31, 1995, storage capacity of approximately 5.1 BCF was
leased to other parties.

Through infusions of working capital and other financial support, the Company
has enhanced LG&E Natural's ability to secure trade credit for natural gas
purchases. This has enabled LG&E Natural to significantly increase levels of
natural gas marketing and management expects this trend to continue in the
foreseeable future.

Gas Systems has guaranteed letters of credit issued to third parties to secure
certain off-balance sheet obligations (including contingent obligations) of LG&E
Natural and its subsidiaries. The letters of credit securing such obligations
totaled approximately $11 million at December 31, 1995. The lenders under the
credit facilities for Gas Systems are entitled to the benefits of Support
Agreements with LG&E Energy Corp. The Support Agreements state, in substance,
that LG&E Energy Corp. will provide Gas Systems with the necessary funds and
financial support to meet its obligations under the credit facilities.

LG&E Natural uses financial instruments in its natural gas marketing activities.
These financial instruments are used to hedge price and geographic basis risk
for its purchase and sales commitments and to enhance its overall portfolio of
natural gas trading activities. See Note 4 of Notes to Financial Instruments
under Item 8 for an overall discussion of these activities.

The production, transportation and certain sales of natural gas are subject to
federal, state or local regulations which have a significant impact upon LG&E
Natural's energy products and services business. Regulation at the federal
level of domestically produced or transported natural gas is administered
primarily by the FERC pursuant to the Natural Gas Act (NGA) and the Natural Gas
Policy Act of 1978 (NGPA). Maximum selling prices of certain categories of gas,
whether sold in interstate or intrastate commerce, previously were regulated
pursuant to NGPA. The NGPA established various categories of gas and provided
for graduated deregulation of price controls of several categories of gas and
the deregulation of sales of certain categories of gas. All price deregulation
contemplated under the NGPA has already taken place. Subsequently, the Natural
Gas Wellhead Decontrol Act of 1989 terminated all NGA and NGPA regulation of
"first sales" of domestic natural gas on January 1, 1993. The sale for resale
of certain natural gas in interstate commerce is regulated, in part, pursuant to
the NGA, which requires certificate and abandonment authority to initiate and
terminate such sales. In addition, natural gas marketed by LG&E Natural is
usually transported by interstate pipeline companies that are subject to the
jurisdiction of the FERC. Similarly, some of the transportation and storage
services provided by Llano are subject to FERC

<PAGE>

regulation under section 311 of the NGPA. These services are frequently sold to
gas distribution companies that contract with interstate pipeline companies for
transportation from the Llano facility to their respective service areas.
Section 311 permits intrastate pipelines under certain circumstances to sell gas
to, transport gas for, or have gas transported by, interstate pipeline
companies, and assign contract rights to purchase surplus gas from producers to
interstate pipeline companies without being regulated as interstate pipelines
under the NGA.

LABOR RELATIONS

On December 8, 1995, members of the International Brotherhood of Electrical
Workers Local 2100 ratified a new three-year collective bargaining agreement
with LG&E which covers approximately 1600 LG&E Employees. The contract provides
wage and employment protection for employees participating in the Company's
continuous improvement initiative, greater workforce flexibility to help the
Company respond to growing competition, and improved retirement benefits.

EMPLOYEES

The Company and its subsidiaries had 3,122 full-time employees at December 31,
1995.

<PAGE>

ITEM 2. Properties.

LG&E's power generating system consists of the coal-fired units operated at its
three steam generating stations. Combustion turbines supplement the system
during peak or emergency periods. At February 29, 1996, LG&E owned the
following electric generating stations:

<TABLE>
<CAPTION>
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 480,000
----------
Total Mill Creek 1,470,000

Cane Run-near Louisville, Ky.
Unit 4 1962 155,000
Unit 5 1966 168,000
Unit 6 1969 240,000
----------
Total Cane Run 563,000

Trimble County-Bedford, Ky. (a)
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 2,512,000
---------
---------
</TABLE>

(a) Amount shown represents LG&E's 75% interest in the Unit. See Note 18 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.

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

At December 31, 1995, LG&E's electric transmission system included 21
substations with a total capacity of approximately 11,026,897 Kva and
approximately 651 structure miles of lines. The electric distribution system
included 82 substations with a total capacity of approximately 3,193,127 Kva,
3,507 structure miles of overhead lines, 233 miles of underground conduit, and
5,380 miles of underground conductors.

LG&E's gas transmission system includes 177 miles of transmission mains, and the
gas distribution system includes 3,466 miles of distribution mains.

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.

<PAGE>

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 2005. LG&E Energy Corp. has an operating lease
for its corporate office space with an expiration date of 1997. LPI has
operating lease commitments related to two office facilities that expire in 1999
and 2001. LG&E Natural has three office leases that expire in 1996, 1997, and
2003.

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, 1995, LPI owned the percentage indicated of the following joint
ventures:

<TABLE>
<CAPTION>
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 Dormant
Washington County, Maine

Babcock-Ultrapower West Enfield 17 Wood 25 Dormant
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

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

K.W. Tarifa, S.A. 44 Wind 30 1995
Tarifa, Spain

Central Termica San Miguel de Tucuman 33 Natural 114 1996
Tucuman Province, Argentina Gas
</TABLE>

19
<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.

LG&E Natural, through certain subsidiaries, owns or has an interest in eleven
gas gathering systems. LG&E Natural owns a 100% interest in six of these
systems, a 50% interest in one of the systems and interests ranging from 11% to
24% in the four remaining systems. These systems are located in Texas, New
Mexico, Louisiana, Montana and Oklahoma.

LG&E Natural, through a subsidiary, owns the Llano pipeline, a 90-mile
intrastate pipeline system in southeastern New Mexico with a throughput capacity
of 180,000 MCF of gas per day. LG&E Natural, through subsidiaries, owns the
Power-Tex system, a 74-mile gas transmission system located in Texas. This
system has a design capacity of 90,000 MCF of gas per day. LG&E Natural,
through certain subsidiaries, also owns, or has interests in, and operates five
natural gas processing plants located in southeastern New Mexico and western
Texas with a total design capacity of 125,000 MCF of gas per day. LG&E Natural
owns 100% of three of these plants, and 94% and 67% of the two remaining plants.
Through a subsidiary, it owns and operates an underground natural gas storage
facility adjacent to the Llano pipeline in southeastern New Mexico with a
current working capacity of approximately six BCF of natural gas.

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
Trimble County Unit 1 settlement agreement, see Rates and Regulation under Item
7 and Notes 3 and 17 of Notes to Financial Statements under Item 8.

Statewide Power Planning

On March 14, 1995, the Commission staff issued its report on its review of
LG&E's 1993 biennial Integrated Resource Plan. The Staff Report specifically
found that LG&E's plan contained some of the better analyses among those filed
by the electric utilities under the Commission's jurisdiction, and presented
several suggestions for LG&E's consideration when it develops its next plan. By
order issued on March 17, 1995, the Commission formally closed its proceeding
for the review of LG&E's plan. On May 5, 1995, the Commission granted LG&E's
request that the Commission waive the requirement that LG&E file an Integrated
Resource Plan during 1995. On July 21, 1995, the Kentucky Commission amended
its Integrated Resource Planning regulations to replace the biennial filing
requirement with a triennial requirement. The amended regulations also
specified that LG&E's next Integrated Resource Plan is to be filed 39 months
from the effective date of the amended regulation, or October 21, 1998.

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 other
environmental issues affecting LG&E, LPI, and LG&E Natural, see Note 16 of Notes
to Financial Statements under Item 8.

20
<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 Item 1 and Note
16 of Notes to Financial Statements under Item 8.

Roanoke Valley I

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. In early March 1996, Virginia Power filed a
motion for summary judgment, and on March 22, 1996, the court granted
Virginia Power's motion as to all counts. The Company plans to appeal the
court's ruling. See Item 1 and Note 16 of Notes to Financial Statements under
Item 8.

Rensselaer

TVA/LPM Interchange Agreement

On January 12, 1996, the Alabama Power Company, Georgia Power Company and
Mississippi Power Company filed a Complaint for Declaratory Judgment and
Injunctive Relief against the Tennessee Valley Authority (TVA) and LG&E Power
Marketing Inc. (LPM), a wholly-owned subsidiary of the Company, in the United
States District Court for the Northern District of Alabama. The Plaintiffs
claim that TVA has violated the Tennessee Valley Authority Act (TVA Act) by
entering into an interchange agreement with LPM (Interchange Agreement) and
that TVA is prohibited from selling or delivering any power to LPM, to any
other broker or marketer of power, or to any other unauthorized recipient or
from otherwise engaging in unlawful power supply arrangements. The Complaint
as drafted seeks no direct remedy from LPM. LPM filed its Answer to the
Complaint on March 1, 1996, alleging that the Interchange Agreement complies
with all applicable laws and regulations, and is consistent with the
longstanding practices of the industry. On March 15, 1996, TVA filed a
Motion to Dismiss, Or, In the Alternative, For Summary Judgment. Discovery
is now ongoing.

In the Company's opinion, the Interchange Agreement complies with all
applicable laws and regulations. LPM is and intends to continue to
vigorously defend itself in this matter. However, an adverse decision could
have the effect of enjoining TVA from further selling or delivering any power
to LPM under existing provisions of the TVA Act. The ultimate resolution of
this matter is not expected to have a material adverse effect on the
Company's results of operations or financial condition, however, management
is unable to predict the outcome of this proceeding.

Other

In the normal course of business, other lawsuits, claims, environmental actions,
and other governmental proceedings arise against the Company. To the extent
that damages are assessed in any of these lawsuits, the Company believes that
its insurance coverage is adequate. Management, after consultation with legal
counsel, does not anticipate that liabilities arising out of other currently
pending or threatened lawsuits and claims will have a material adverse effect on
the Company's consolidated financial position or results of operations.

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

None.

21
<PAGE>

Executive Officers of the Company.

<TABLE>
<CAPTION>
Effective Date of
Election to Present
Name Age Position Position
- ---- --- -------- --------
<S> <C> <C> <C>
Roger W. Hale 52 Chairman of the Board, August 17, 1990
President and Chief
Executive Officer

Victor A. Staffieri 40 President - Distribution December 15, 1995
Services Division
President - Louisville Gas
and Electric Company

Michael L. McInnis 42 President - Power December 15, 1995
Marketing Division

David R. Carey 42 President - Gas December 15, 1995
Marketing Division

Walter Z. Berger 40 Executive Vice President February 5, 1996
and Chief Financial Officer

John R. McCall 52 Executive Vice President, July 1, 1994
General Counsel and
Corporate Secretary

Stephen R. Wood 53 Executive Vice January 1, 1994
President and Chief
Administrative Officer

Charles A. Markel III 48 Corporate Vice January 1, 1993
President - Finance
</TABLE>

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
Shareholders, scheduled to be held April 23, 1996.

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

Messrs. Hale, Staffieri, Berger, McCall, and Markel are also executive officers
of the Company's principal subsidiary, LG&E. Mr. Hale is Chairman of the Board
and Chief Executive Officer of LG&E; Mr. Staffieri is President of LG&E; Mr.
Berger is Executive Vice President and Chief Financial 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.

Before he was elected to his current position, Mr. Staffieri was General Counsel
and Secretary of Long Island Lighting Company from April 1989 to March 1992;
Senior Vice President, General Counsel and Corporate Secretary of the Company
from March 1992 to November 1992; Senior Vice President, Public Policy and
General Counsel of the Company and LG&E from November 1992 to January 1994; and
President of LG&E from January 1994 to the present.

Before he was elected to his current position, Mr. McInnis was Director of
Business Development of the Company prior to August 1992; Vice President of LG&E
Energy Systems Inc. from August 1992 to

22
<PAGE>

January 1994; and Senior Vice President, Power Marketing and Brokering of LG&E
Power Inc. from January 1994 to December 1995.

Before he was elected to his current position, Mr. Carey was Vice President -
Marketing and Planning of LG&E prior to January 1992; Vice President - Marketing
and General Manager, Electric Service of LG&E from January 1992 to January 1993;
and Vice President and General Manager, Retail Electric Business of LG&E from
January 1993 to January 1994; and Senior Vice President, Operations of LG&E from
January 1994 to December 1995.

Before he was elected to his current position, Mr. Berger was Vice President and
Chief Financial Officer of Baker Hughes, Inc. prior to February 1992; Controller
of Enron America, Inc. from February 1992 to November 1992; and Vice President,
Finance and Business Development of Enron Oil Trading and Transportation from
November 1992 to February 1996.

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

Before he was elected to his current position, 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 from December 1992 to January 1994.

Before he was elected to his current position, Mr. Markel was Vice President -
Finance and Treasurer prior to January 1992; and Senior Vice President and Chief
Financial Officer from January 1992 to January 1993.

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.

<TABLE>
<CAPTION>
1995 1994
---- ----
Dividend High Low Dividend High Low
Paid Price Price Paid Price Price
---- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
First quarter $.5375 $40.000 $36.875 $.5200 $41.000 $34.375
Second quarter .5375 40.250 37.375 .5200 38.625 33.625
Third quarter .5375 40.125 38.000 .5200 39.125 36.000
Fourth quarter .5550 43.125 40.000 .5375 39.000 36.250
</TABLE>

The number of record holders of Common Stock at December 31, 1995, was 30,487.
The book value of the Company's Common Stock at December 31, 1995, was $23.54
per share.

The Company announced on March 6, 1996, that its Board of Directors approved a
two-for-one split of its common stock, without par value, by declaring a 100%
stock dividend payable April 15, 1996. Accordingly, each shareholder of record
of the common stock on April 1, 1996, will be entitled to one additional full

23
<PAGE>

share of common stock for each share of common stock held on that date. None
of the information in this item or in Item 6 has been restated to reflect the
split.

ITEM 6. Selected Financial Data.

<TABLE>
<CAPTION>
Years Ended December 31
(Thousands of $ Except per Share Data)
--------------------------------------

1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Revenues $1,402,980 $829,663 $900,027 $834,739 $714,965
Refund - Trimble County
settlement (28,300) -- -- -- --
--------- -------- -------- -------- --------
Revenues 1,374,680 829,663 900,027 834,739 714,965
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------

Operating income:
Before non-recurring items 205,357 189,087 189,122 174,504 188,131
Trimble County settlement (29,800) -- -- -- --
Non-recurring charges -- (48,743) -- -- --
--------- -------- -------- -------- --------
Operating income 175,557 140,344 189,122 174,504 188,131
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------

Net income:
Continuing operations:
Before non-recurring items 100,682 95,525 80,825 71,437 82,951
Trimble County settlement (17,852) -- -- -- --
Non-recurring charges,
charitable founda-
tion, etc. -- (38,696) -- -- --
-------- -------- --------- --------- --------
Total 82,830 56,829 80,825 71,437 82,951
Discontinued operations -- -- 7,435 4,177 --
Gain on sale of
discontinued operations -- 51,805 -- -- --
Cumulative effect of
accounting change -- (3,369) -- -- --
-------- -------- -------- -------- --------
Net income $ 82,830 $105,265 $ 88,260 $ 75,614 $ 82,951
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------

Average number of com-
mon shares outstanding 33,052,587 32,990,935 32,688,592 32,307,441 32,256,624

Earnings per share of
common stock:
Continuing operations:
Before non-recurring items $3.05 $2.90 $2.47 $2.21 $2.57
Trimble County settlement (.54) -- -- -- --
Non-recurring charges,
charitable founda-
tion, etc. -- (1.18) -- -- --
-------- -------- -------- ------- -------
Total 2.51 1.72 2.47 2.21 2.57
Discontinued operations -- -- .23 .13 --
Gain on sale of
discontinued operations -- 1.57 -- -- --
Cumulative effect of
accounting change -- (.10) -- -- --
-------- -------- -------- ------- -------
Earnings per share $2.51 $3.19 $2.70 $2.34 $2.57
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Years Ended December 31
(THOUSANDS OF $ EXCEPT PER SHARE DATA)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Dividends declared per
common share $2.185 $2.115 $2.045 $1.985 $1.92
Payout ratio 87.2%(a) 66.3%(a) 75.9% 84.7% 74.7%
Total assets $2,628,920 $2,217,464 $2,186,468 $2,148,398 $2,042,655
Long-term obligations
(including amounts
due within one year) 662,800 662,800 662,800 686,262 687,662

</TABLE>

(a) Excluding the Trimble County settlement, non-recurring charges, gain on
sale of discontinued operations, and cumulative effect of accounting
change, the payout ratios would have been 71.8% and 73.1% in 1995 and 1994,
respectively.

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 1995, 1994 and 1993 and should be read in connection
with the consolidated financial statements and notes thereto. The Company's
financial results and conditions have been 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. Future financial results
from the Company's operations will become increasingly reflective of the returns
earned from its portfolio of non-utility investments in electric and gas
marketing and related services, and energy generation, in addition to the
financial results provided by LG&E.

RESULTS OF OPERATIONS

Earnings per Share

Earnings per share of common stock for 1995 were $2.51, a decrease of 68CENTS
from the $3.19 earned in 1994. The decrease primarily reflects a 54CENTS charge
taken in December 1995 to recognize the settlement of the long-standing issues
surrounding LG&E's Trimble County electric generating plant. In addition,
earnings in 1994 included a gain on the sale of the Company's interest in
Natural Gas Clearinghouse (NGC) of $1.57, partially offset by non-recurring
charges of (91CENTS), the expense of establishing a charitable foundation
(27CENTS) and the adoption of a new accounting standard for post-employment
benefits (10CENTS). When considered together, these 1994 items produced a
29CENTS net increase in earnings of a non-recurring nature. Comparison of
earnings for the two years without the significant non-recurring items discussed
above indicates an improvement in earnings of 15CENTS during 1995 ($3.05 in 1995
as compared to $2.90 in 1994). This increase resulted primarily from an
increase in earnings from investments in joint ventures owned and higher
earnings at LG&E, partially offset by a decrease in gross profits at LG&E Power
Inc. (LPI), lower fee income, and an increase in interest expense resulting from
the Company's borrowings to finance the acquisition of LG&E Natural Inc. (LG&E
Natural), formerly known as Hadson Gas Services Inc. LG&E's earnings increase
was primarily due to higher retail electric sales, positive cost containment
efforts and a reduction in expenses due to the settlement of a commercial
dispute. These factors were partially offset by increased purchased power
expenses at LG&E primarily as a result of unplanned power plant outages last
summer.

<PAGE>

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
non-recurring items in 1994 that generated a net increase of 29 Cents as
discussed in the preceding paragraph. Without consideration of the
net increase of 29 Cents 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 included an increase
in earnings from investments in joint ventures owned by 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.

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 3 of
Notes to Financial Statements under Item 8.

On December 8, 1995, the Commission approved a settlement agreement filed by
LG&E and all intervenors in the Trimble County proceedings, including various
consumer interest groups and government agencies, that, in effect, resolves all
of the regulatory and legal issues related to the appropriate ratemaking
treatment to exclude 25% of the Trimble County plant costs from customer rates.
Under the settlement, ratepayers are to receive $22 million in refunds, most of
which is to be refunded over a five-year period, commencing in 1996, based on a
per kilowatt-hour credit. In addition, LG&E also agreed to provide $900,000
annually for five years to fund low-income energy assistance programs and to
revise the decoupling methodology described in this section in a manner that
will reduce revenues collected from residential customers during 1996 and 1997
by a total of approximately $1.8 million.

The overall effect of the settlement, which the Company recognized in its
entirety in the fourth quarter of 1995, was to reduce electric revenues by $28.3
million and increase operating expenses by $1.5 million. Thus the settlement
reduced net income by $17.9 million, and earnings per share by 54CENTS. See
Note 17 of Notes to Financial Statements under Item 8 for further discussion.

<PAGE>

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. On April 6, 1995, the Commission approved, with
modifications, an environmental cost recovery surcharge that increased electric
revenues by approximately $3.2 million in 1995 and will increase revenues by an
estimated $5.7 million in 1996. The surcharge became effective on May 1, 1995.
LG&E, the Kentucky Attorney General (KAG) and the Kentucky Industrial Utility
Customers (KIUC) filed applications for rehearing on certain issues in the
April 6 order. Among other things, the KAG and KIUC requested a reduction of
the amounts recoverable by LG&E through the surcharge. The Commission denied
all motions for rehearing, and appeals are currently pending in Franklin Circuit
Court. The amount of refunds that may be ordered, if any, are not expected to
have a material adverse effect on the Company's financial position or results of
operations.

On January 1, 1994, LG&E implemented a Commission approved demand side
management (DSM) program that LG&E, KAG, the Jefferson County Attorney, and
representatives of several customer-interest groups had filed with the
Commission. Under the agreement, LG&E committed 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. The agreement also provided for a formal collaborative process to
develop future DSM programs. The agreement contains a rate mechanism that (1)
provides LG&E concurrent recovery of DSM program costs, (2) provides an
incentive for implementing DSM programs, and (3) allows LG&E to recover revenues
from 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. To the extent that actual revenues are different from the
predetermined level of revenues, rates are subsequently adjusted to correct for
any over or under recoveries. 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.

On December 1, 1995, LG&E and the DSM collaborative members filed a plan which
would modify the existing programs and add five new programs. The proposed
filing would increase LG&E's commitment to DSM programs by approximately $4.1
million. LG&E expects the Commission to rule on the filing in the second
quarter of 1996.

In 1993, the Federal Energy Regulatory Commission (FERC) gave final approval for
a market-based generation sales tariff and two transmission service tariffs
which were filed by LG&E. The market-based tariff enables LG&E to sell up to 75
Mw of firm generation capacity and an unlimited amount of non-firm power at
market-based rates. On July 26, 1995, FERC approved a new network transmission
service and a flexible point-to-point transmission service which will provide
transmission service to other parties comparable to the transmission service
utilized by LG&E to serve retail customers.

<PAGE>

LG&E last filed for a rate increase with the Commission in June 1990 based on
the test-year ended April 30, 1990. The Commission issued a final order 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%.

Revenues

A comparison of LG&E's revenues for the years 1995 and 1994, excluding the
Trimble County settlement (which reduced electric revenues by $28.3 million),
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
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales to ultimate consumers:
Fuel and gas supply adjustments, etc. $(10,566) $ (841) $(16,940) $ 1,823
Demand side management/decoupling (4,619) 1,853 479 3,997
Environmental cost recovery surcharge 3,205 - - -
Variation in sales volumes 27,382 3,876 (3,420) (12,139)
-------- -------- --------- --------
Total 15,402 4,888 (19,881) (6,319)
Sales for resale (5,249) (17,340) - -
Gas transportation-net - - 1,062 1,612
Other 1,606 152 (184) (79)
-------- -------- --------- --------
Total $ 11,759 $(12,300) $(19,003) $ (4,786)
-------- -------- --------- --------
-------- -------- --------- --------

</TABLE>

Electric revenues increased in 1995 mainly because of an increase in sales to
ultimate consumers as a result of the warmer summer weather and improved
economic conditions in LG&E's service territory. Gas revenues decreased as a
result of lower gas supply adjustment revenues which reflected the lower cost of
natural gas in 1995.

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.

The Company's non-utility revenues consist primarily of revenues from the
natural gas marketing, gathering and processing activities of LG&E Natural,
electric power marketing and brokering by LG&E Power Marketing Inc. (LPM) and
development, construction and operation of power plants by LG&E Power Inc.
(LPI). LPI's operating profit consists of plant development and construction
profits in addition to equity in earnings from joint venture power projects.
The increase in non-utility revenues of $581 million for 1995 compared to 1994
was due primarily to the acquisition of LG&E Natural in May 1995 and higher
revenues from LPM. LPM had sales of $40.3 million compared to $1.3 million in
1994 which is attributable to the continuing expansion of LPM's business and
access to markets across much of the United States. The increase in non-utility
revenues was partially offset by a decrease in LPI's revenues of $48.4 million,
which primarily reflects completed construction activities at LPI's Roanoke
Valley I (ROVA I) and Rensselaer projects in the second quarter of 1994, and
completion of the Roanoke Valley II (ROVA II) project in May 1995. LPI's
decrease in engineering and construction activities is also indicative of the
trend toward lower levels of construction activity within the independent power
production industry. 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 ROVA I and Rensselaer projects,
offset in part by an increase in construction at LPI's ROVA II project.

<PAGE>

The Company uses financial instruments in its natural gas marketing activities.
These financial instruments are used to hedge price and geographic basis risk
for its purchase and sales commitments and to enhance its overall portfolio of
natural gas trading activities. See Note 4 of Notes to Financial Statements
under Item 8, Financial Instruments, for an overall discussion of these
activities.

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 $5.6 million (4%) in 1995 due to a decrease in the cost
of coal burned ($7.5 million) partially offset by increased generation of 2%.
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%. The average delivered cost per ton of coal purchased for LG&E was $23.68 in
1995, $25.27 in 1994, and $26.58 in 1993. This downward trend in the delivered
cost of coal is expected to continue through 1996.

Power purchased increased $7.1 million in 1995 primarily because of increased
purchases resulting from unplanned outages at LG&E's electric generating plants
during the extremely hot summer weather. The decrease of $7.5 million in 1994
was primarily due to less power wheeled for other utilities as a result of
milder weather in the region.

Gas supply expenses decreased $20.8 million (16%) in 1995 because of the lower
cost of net gas supply ($18.7 million) and a decrease in the volume of gas
delivered to the distribution system ($2.1 million). 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). The average unit cost per Mcf
of purchased gas for LG&E was $2.62 in 1995, $2.78 in 1994 and $2.91 in 1993.

Non-utility cost of revenues for 1995 increased $567 million compared to 1994
mainly due to the acquisition of LG&E Natural and because of an increase in
LPM's electric power marketing volumes. Partially offsetting these increases
were decreases in development and construction costs at LPI resulting from
completed construction on the Rensselaer, ROVA I and ROVA II projects. Cost of
revenues for 1994 decreased $45.6 million (44%) compared to 1993 because of
lower levels of construction activity on LPI's ROVA I and Rensselaer projects;
partially offset by greater LPM sales volumes and an increase in construction
activity on LPI's ROVA II project.

Utility operation and maintenance expenses increased $1.2 million (less than 1%)
in 1995, as compared to 1994, primarily as a result of an increase in repairs at
the electric power plants ($4.2 million), an increase in labor related expenses
($3.8 million) and an increase in various administrative expenses ($1.8
million). These increases were partially offset by a decrease in storm damage
expenses ($1 million), property damage claims ($1.2 million), and because of a
credit to expense representing a portion of the proceeds received in a
commercial dispute. During 1995, the Company received cash proceeds of $8
million in connection with the settlement of a commercial dispute. Pursuant to
a study to determine the proper amount of income to be recognized, LG&E recorded
$6 million as a reduction of utility operation and maintenance expenses. The
remaining $2 million was recorded as a reserve for future payments in connection
with the dispute.

<PAGE>

Operation and maintenance expenses for LG&E increased $.8 million in 1994 over
1993 primarily as a result of increased costs to operate the electric generating
plants and gas and electric distribution systems ($.7 million), an increase in
the provision for uncollectible accounts ($.6 million) and increased property
and payroll related taxes ($1 million). These increases were partially offset
by decreases in various administrative expenses ($1.8 million).

Non-utility operation and maintenance expenses increased $15.2 million (62%) in
1995 compared to 1994 primarily as the result of the acquisition of LG&E
Natural. Also contributing to the increase were costs incurred by LPI to exit
the engineering and construction business and costs to operate and maintain
power plants in connection with contracts obtained from UC Operating Services.
See Note 7 of Notes to Financial Statements under Item 8.

Depreciation and amortization increased in both 1995 and 1994 primarily because
of additional utility plant in service. The amount for 1995 also includes
depreciation and amortization resulting from the acquisition of LG&E Natural.

Non-recurring charges in 1994 include LG&E's write-off of costs in connection
with early retirements and workforce 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 in 1994 also include a reserve to record costs
related to LPI's vacating leased office space. See Note 8 of Notes to Financial
Statements under Item 8.

Equity in earnings of joint ventures increased approximately $15.3 million in
1995 primarily due to a gain of $9.7 million on the sale of power purchase
contracts by Babcock-Ultrapower West Enfield and Babcock-Ultrapower Jonesboro,
two partnerships which are 17% owned by LPI. Other factors contributing to the
improvement over 1994 included full year operations at LPI's Rensselaer and ROVA
I power plants compared to partial year operations at those plants in 1994, and
the mid-year completion and start-up of operations at LPI's ROVA II plant in
1995. The increase in equity in earnings of joint ventures in 1994 was due to
the start-up of operations at LPI's Rensselaer and ROVA I cogeneration projects
and at its Windpower projects in California and Minnesota. 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 16 of Notes to
Financial Statements under Item 8 for a discussion of certain legal and
regulatory contingencies relating to the ROVA I, Rensselaer and Southampton
projects.

Other income and deductions decreased $8.3 million in 1995 compared to 1994.
The 1994 amount was higher due to fee income received from Westmoreland Energy,
Inc. (WEI) for LG&E Energy Systems Inc.'s (Energy Systems) guarantee of WEI's
equity funding commitments on various cogeneration projects. Other income for
1995 was also lower due to a reduction in the level of investments in marketable
securities which were sold to provide funding for the acquisition of LG&E
Natural. Other income and deductions increased in 1994 compared to 1993 due to
an increase in fee income, an increase in interest and dividend income generated
from investing the proceeds received from the Company's sale of its interest in
NGC and from recording a net gain on sales of construction equipment, partially
offset by realized losses on investments. See Note 12 of Notes to Financial
Statements under Item 8 for further detail.

Contribution to the Company's charitable foundation reflects the expense
associated with establishing a tax-exempt foundation during 1994. Contributions
made from this foundation are not charged against

<PAGE>

income, and therefore, do not affect the Company's net income. See Note 8 of
Notes to Financial Statements under Item 8.

Interest charges increased $4.5 million in 1995 compared to 1994 primarily
because of an increase in notes payable outstanding and a higher composite
interest rate on outstanding debt. 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 requirements
in 1993 included interest charges related to debt issued for the Company's
expansion into non-utility businesses. Since 1993, an immaterial component of
interest expense has been the cost associated with interest rate swaps. See
Note 4 of Notes to Financial Statements under Item 8, Financial Instruments, for
further discussion.

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

Preferred dividends increased $.5 million in 1995 because of a higher rate
associated with the Auction Rate Series. Preferred dividends in 1994 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. See Liquidity and Capital
Resources.

Income from discontinued operations and related gain on sale reflect the sale of
the Company's investment in NGC in January 1994. See Note 6 of Notes to
Financial Statements under Item 8.

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 and other energy-related growth or acquisition opportunities within the
non-utility business segment.

1995 Capital Requirements

Utility construction expenditures for 1995 were $93 million compared with $95
million for 1994 and $99 million for 1993. Non-utility construction
expenditures (other than generating plant expenditures incurred by joint
ventures) were approximately $11 million in 1995 and were not material in 1994
and 1993. Non-utility construction expenditures are not expected to vary
significantly in 1996 and 1997 from the 1995 level. In 1995, LPI invested
equity of $16.3 million in its ROVA I and ROVA II power plants, a wind power
project in Texas and the redemption of its interest in the partnership that
operated many of its power generation plants. In addition, LG&E International
Inc. (LII) invested $4.5 million in a wind project in Tarifa, Spain and $13.3
million in a natural gas-fired generation facility in Tucuman, Argentina. 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 and $18.9 million in its ROVA I and Rensselaer power plants.

<PAGE>

Past Financing Activities

During 1995, 1994, and 1993, 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 1995, 1994, and 1993. The Company acquired LG&E Natural on May
15, 1995 for $143 million, plus acquisition-related fees and expenses. The
acquisition was financed with cash and lines of credit. The Company also
provided LG&E Natural with additional cash through December 1995 to meet general
working capital needs, including margin calls. Margin calls are generally
required on certain of LG&E Natural's hedge and trading financial instruments to
address changes in market prices. LG&E Natural had approximately $12 million of
net margin deposits as of December 31, 1995.

The Company's combined cash and marketable securities balance decreased $79.6
million during 1995. The decrease reflects the acquisition of LG&E Natural,
additional investments in affiliates, and dividends, partially offset by cash
flows from operations, an increase in borrowings, and an increase resulting from
reclassifying investments in certain available-for-sale securities from
noncurrent to current. The significant increases during 1995 in non-utility
property and plant, accounts receivable, gas stored underground, goodwill, and
accounts payable resulted from acquiring LG&E Natural. 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, and as it relates to LG&E
Natural, throughout the United States, which has a direct effect on sales of
electricity and natural 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.

In December 1995, LG&E redeemed the outstanding shares of its 7.45% Cumulative
Preferred Stock with a par value of $25 per share at a redemption price of
$25.75 per share. LG&E funded the $22 million redemption with cash generated
internally.

In April 1995, LG&E issued $40 million of Jefferson County, Kentucky, Pollution
Control Revenue Bonds, 5.90% Series, due April 15, 2023. The proceeds of the
bonds were used to redeem the outstanding 9.25% Series of Pollution Control
Bonds due July 1, 2015.

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 funded through
project debt.

The Company had short-term borrowings outstanding of $173 million as of
December 31, 1995, and $32 million as of December 31, 1994. The increase
primarily relates to the acquisition of LG&E Natural.

The Company issued $3 million of new common stock in 1995 and $2 million in
1994, under various employee plans. See Note 13 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. Proceeds from the NGC sale enabled the Company to invest
$123 million in marketable securities during 1994. As of December 31, 1995,
marketable securities were $29.1 million, a decrease from 1994 of $111 million,
primarily resulting from the sale of securities to fund the acquisition of LG&E
Natural and to fund existing and future working capital needs. See Note 9 of
Notes to Financial Statements under Item 8.

<PAGE>

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 $220 million for 1996 and 1997. In addition, capital
requirements for 1996 include $16 million to retire long-term debt.
Ascertainable non-utility equity funding commitments were immaterial at
December 31, 1995. Such commitments were $27 million at December 31, 1994.
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 business acquisitions. Long-term
financing may be required for such acquisitions.

Future Sources of Financing

Internally generated funds from operations are expected to fund substantially
all of LG&E's anticipated construction expenditures in 1996 and 1997.
Similarly, the Company anticipates having sufficient internal cash generation to
meet anticipated equity investments and non-utility capital expenditures in 1996
and 1997.

At December 31, 1995, loan agreements and lines of credit were in place totaling
$600 million ($25 million for LG&E Energy Corp., $160 million for LG&E, $215
million for LG&E Gas Systems Inc. and $200 million for Energy Systems) for which
the companies pay commitment or facility fees. These credit facilities are
scheduled to expire at various points in time from 1996 through 2000.
Management expects to renegotiate them when they expire.

The lenders under the credit facilities for Energy Systems and LG&E Gas Systems
Inc. are entitled to the benefits of Support Agreements with LG&E Energy Corp.
See Note 15 of Notes to Financial Statements under Item 8 for further
discussion.

To the extent permanent financings are needed in 1996 and 1997, the Company
expects that it will have ready access to the securities markets to raise needed
funds.

Environmental Matters

The Clean Air Act Amendments of 1990 (the Act) 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 $22 million to date and anticipates
incurring capital expenditures of approximately $8 million in 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. LG&E Power Inc.'s (LPI) coal-fired power plants are also equipped
with scrubbers or related equipment and they meet the sulfur dioxide and
nitrogen oxide limits imposed by the Act.

Reference is made to Environmental under Note 16 of Notes to Financial
Statements 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.

<PAGE>

Energy Policy Act of 1992 and Related Matters

Pursuant to the Energy Policy Act, FERC earlier this year issued a Notice of
Proposed Rule-making on Open Access Non-discriminatory Transmission Services and
a Supplemental Notice of Proposed Rulemaking on Stranded Investment
(collectively, the Mega-NOPR). The Mega-NOPR is intended, among other things,
to create a vigorous wholesale electric market by requiring transmission
providers to offer open access to their transmission systems. The Company is
supportive of proposals to increase competition at all levels of the electric
power market and intends to pursue opportunities created by a more competitive
market.

Proposals also have been introduced in Congress to repeal all or portions of the
Public Utility Regulatory Policies Act (PURPA). PURPA and its implementing
regulations require, among other things, that electric utilities purchase
electricity generated by qualifying cogeneration facilities at a price based on
the purchasing utility's avoided costs. LPI is the partial owner of several
qualifying cogeneration facilities. While the Company supports the repeal of
PURPA, the Company intends to oppose any efforts to nullify existing Contracts
between electric utilities and qualifying cogeneration facilities. The Company
is involved in proceedings before FERC regarding its Southampton cogeneration
facility and in litigation with the purchasing utility of the energy from its
ROVA I project. See Note 16 of the Notes to Financial Statements under Item 8.
Also, the Company has been informed through public filings that Niagara Mohawk
Power Corporation (NIMO) (which is the purchasing utility for the Company's
Rensselaer cogeneration facility) has indicated that, absent significant relief
from its power purchase arrangements with independent power producers (including
the Company's Rensselaer facility), it may be forced either to file voluntary
bankruptcy or attempt to condemn and purchase the cogeneration facilities
through eminent domain. The Company intends to oppose any efforts by NIMO to
nullify its Contract with the Rensselaer project.

FERC Order No. 636

Under Order No. 636, pipelines may recover costs associated with the transition
to and implementation of this order from pipeline customers, including LG&E.
During 1995, LG&E paid and began recovering from its customers approximately
$4.8 million in transition costs under Order No. 636. It is estimated that
about $1.4 million in additional transition costs will be incurred by LG&E
during 1996 and about $1.3 million in 1997, and these costs are also expected to
be recovered from customers. See FERC Order No. 636 under Note 16 of Notes to
Financial Statements under Item 8 for further discussion.

FUTURE OUTLOOK

Business Realignment

<PAGE>

Distribution Services Division - which includes the
distribution resources of Louisville Gas and Electric
Company (LG&E), is responsible for expanding and developing
the distribution businesses and investing in enhanced
service offerings behind the customer's meter.

Gas Marketing Division - primarily consists of the
businesses of LG&E Natural, which markets gas throughout the
United States and Canada.

Power Marketing Division - which includes LG&E Power
Marketing Inc. (LPM), and is responsible for project
development and the marketing and sale of wholesale power
throughout the United States.

Power Generation Division - which includes the generation
resources of LG&E, LG&E Power Inc. (LPI), and LG&E
International Inc. (LII), has responsibility for all utility
and non-utility power plant operations, asset management and
development functions both domestically and internationally.

Wholesale power will continue to be marketed and brokered by LPM, a wholly-owned
subsidiary of the Company. LPM 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. During 1995, its first full
year of operations, LPM sold or brokered 1.8 million megawatt-hours of power in
30 states. This volume of activity placed LPM among the five largest marketers
of wholesale energy in 1995 and the largest seller affiliated with a regulated
electric utility. LPM is predicting that the market for electric energy will
expand and its revenues will increase in future years.

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.

Gas Marketing and Related Services

International Projects

In November 1994, the Company announced that one of its subsidiaries, LII, had
formed a joint venture to build and operate a natural-gas-fired power plant in
north central Argentina. The plant was completed in 1995 and is scheduled for
commercial operation in early 1996. 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. In
1995, LII also invested $4.5 million into a partnership that acquired a 44%
interest in a 30 Mw wind facility in Tarifa, Spain. The partners in the project
include Kenetech International, Ltd. and other local Spanish companies. The
Company intends to continue to pursue international development opportunities
that have an acceptable level of risk and a reasonable rate of return.

<PAGE>

Tennessee Gas Pipeline Company

During the last quarter of 1995, LG&E negotiated a five-year transportation
agreement with Tennessee Gas Pipeline Company (Tennessee) to become LG&E's
second natural gas pipeline transporter. The agreement with Tennessee becomes
effective November 1, 1996. For many years, Texas Gas Transmission Corporation
has been the sole provider of gas transport services to LG&E.

Union Contract

On December 8, 1995, members of the International Brotherhood of Electrical
Workers Local 2100 ratified a new three-year collective bargaining agreement
with LG&E which covers approximately 1600 LG&E Employees. The Contract provides
wage and employment protection for employees participating in the Company's
continuous improvement initiative, greater workforce flexibility to help the
Company respond to growing competition, and improved retirement benefits.

Competition

The Company has taken many steps to prepare for the expected increase in
competition in its regulated and non-regulated 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; a
major realignment and formation of new business units, and a modification of its
organization structure. With these steps, the Company is preparing for
increased competition in both the regulated and non-regulated energy services
industries.

<PAGE>

ITEM 8. Financial Statements and Supplementary Data.

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

Years Ended December 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Electric utility $ 571,086 $559,327 $571,627
Refund - Trimble County Settlement (Note 17)....... (28,300) - -
Gas utility........................................ 181,126 200,129 204,915
Non-utility........................................ 650,768 70,207 123,485
--------- -------- --------
Total revenues (Note 1).......................... 1,374,680 829,663 900,027
--------- -------- --------
COST OF REVENUES:
Fuel and power purchased........................... 154,832 153,356 166,664
Gas supply expenses................................ 110,738 131,561 139,054
Non-utility........................................ 624,160 57,617 103,217
--------- -------- --------
Total cost of revenues (Note 1)....................... 889,730 342,534 408,935
--------- -------- --------
Gross profit.......................................... 484,950 487,129 491,092

OPERATING EXPENSES:
Operation and maintenance:
Utility............................................ 203,284 202,123 201,300
Non-utility........................................ 39,874 24,629 26,535
Depreciation and amortization......................... 94,393 84,173 82,660
Non-recurring charges (Note 8)........................ - 48,743 -
--------- -------- --------
Total operating expenses 337,551 359,668 310,495
--------- -------- --------

Equity in earnings of joint ventures (Note 7) 28,158 12,883 8,525
--------- -------- --------

OPERATING INCOME...................................... 175,557 140,344 189,122

Other income and (deductions) (Note 12) .............. 5,389 13,718 (1,727)
Contribution to charitable foundation (Note 8)........ - 15,000 -
Interest charges...................................... 47,511 43,011 48,210
--------- -------- --------
Income from continuing operations before income taxes 133,435 96,051 139,185
Income taxes (Note 11)................................ 44,294 33,394 52,379
--------- -------- --------
Income from continuing operations before preferred
dividends............................................. 89,141 62,657 86,806

Preferred dividends 6,311 5,828 5,981
--------- -------- --------

INCOME FROM CONTINUING OPERATIONS 82,830 56,829 80,825

Income from discontinued operations, net of income
taxes of $4,760 (Note 6)........................... - - 7,435
Gain on sale of discontinued operations, net of income
taxes of $35,048 (Note 6).......................... - 51,805 - -
--------- -------- --------
Income before cumulative effect of change in
accounting principle............................... 82,830 108,634 88,260

Cumulative effect of change in accounting for post-employ-
ment benefits, net of income taxes of $2,280 (Note 10) - (3,369) -
--------- -------- --------

NET INCOME............................................ $ 82,830 $105,265 $ 88,260
--------- -------- --------
--------- -------- --------

Average common shares outstanding 33,053 32,991 32,689

Earnings per share of common stock:
From continuing operations......................... $2.51 $1.72 $2.47
From discontinued operations....................... - - .23
Gain on sale of discontinued operations............ - 1.57 -
Cumulative effect of accounting change............. - (.10) -
--------- -------- --------
Total............................................ $2.51 $3.19 $2.70
--------- -------- --------
--------- -------- --------

</TABLE>
The accompanying notes are an integral part of these financial statements.

<PAGE>

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

December 31
1995 1994
---- ----
<S> <C> <C>
ASSETS:
Utility plant, at original cost:
Electric............................................................. $2,160,062 $2,115,635
Gas.................................................................. 305,609 282,793
Common............................................................... 133,189 139,467
---------- ----------
Gross utility plant................................................ 2,598,860 2,537,895
Less: reserve for depreciation...................................... 934,942 881,861
---------- ----------
Net utility plant.................................................. 1,663,918 1,656,034
---------- ----------

Other property and investments - less reserve:
Investments in affiliates (Note 7)................................... 123,338 115,420
Non-utility property and plant, net (Note 2)......................... 173,410 2,802
Other (Notes 1 and 9)................................................ 23,720 50,681
---------- ----------
Total other property and investments............................... 320,468 168,903
---------- ----------

Current assets:
Cash and temporary cash investments.................................. 80,144 49,407
Marketable securities (Note 9)....................................... 29,060 89,431
Accounts receivable - less reserve of $6,269 in 1995
and $1,539 in 1994 314,153 97,927
Materials and supplies - primarily at average cost:
Fuel (predominantly coal).......................................... 14,996 13,869
Gas stored underground............................................. 47,530 31,354
Other.............................................................. 34,384 37,299
Prepayments and other................................................ 27,245 4,020
---------- ----------
Total current assets............................................... 547,512 323,307
---------- ----------
Deferred debits and other assets:........................................
Regulatory assets (Note 3)........................................... 29,926 31,726
Goodwill, net (Notes 1 and 2)........................................ 46,501 14,881
Other................................................................ 20,595 22,613
---------- ----------
Total deferred debits and other assets............................. 97,022 69,220
---------- ----------
Total assets.................................................... $2,628,920 $2,217,464
---------- ----------
---------- ----------
CAPITAL AND LIABILITIES:
Capitalization (see statements of capitalization):
Common equity........................................................ $ 779,134 $ 762,515
Cumulative preferred stock........................................... 95,328 116,716
Long-term debt....................................................... 646,845 662,862
---------- ----------
Total capitalization............................................... 1,521,307 1,542,093
---------- ----------
Current liabilities:
Long-term debt due within one year................................... 16,000 -
Notes payable (Note 15).............................................. 173,000 32,000
Accounts payable..................................................... 287,457 78,254
Trimble County settlement (Note 17).................................. 29,800 -
Common dividends declared............................................ 18,369 17,746
Accrued taxes........................................................ 9,812 15,747
Accrued interest..................................................... 11,372 13,428
Other................................................................ 42,635 34,218
---------- ----------
Total current liabilities.......................................... 588,445 191,393
---------- ----------
Deferred credits and other liabilities:
Accumulated deferred income taxes (Notes 1 and 11)................... 233,481 187,250
Investment tax credit, in process of amortization.................... 84,037 88,779
Accumulated provision for pensions and related benefits.............. 48,427 48,126
Customers' advances for construction................................. 9,251 8,621
Regulatory liability (Note 3)........................................ 88,242 91,492
Other................................................................ 55,730 59,710
---------- ----------
Total deferred credits and other liabilities....................... 519,168 483,978
Commitments and contingencies (Note 16) ---------- ----------
Total capital and liabilities...................................... $2,628,920 $2,217,464
---------- ----------
---------- ----------
</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 $)
<TABLE>
<CAPTION>
Years Ended December 31
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 82,830 $ 105,265 $ 88,260
Items not requiring cash currently:
Depreciation and amortization.............................. 94,393 84,173 82,660
Deferred income taxes - net................................ 13,113 (4,502) (190)
Investment tax credit - net................................ (4,742) (4,619) (7,821)
Change in undistributed earnings of joint ventures......... 16,269 (7,887) (3,968)
Cumulative effect of change in accounting principle........ - 3,369 -
Non-recurring charges...................................... - 48,743 -
Gain on sale of discontinued operations.................... - (90,878) -
Other...................................................... 5,351 10,698 14,880
(Increase) decrease in certain net current assets:
Accounts receivable........................................ (161,649) 26,577 (22,409)
Materials and supplies..................................... (8,756) 3,280 10,671
Trimble County settlement.................................. 29,800 - -
Accounts payable........................................... 139,991 (32,938) 22,577
Accrued taxes.............................................. (5,935) 4,480 288
Accrued interest........................................... (2,056) 564 540
Prepayments and other...................................... (22,421) (6,596) 2,671
Other......................................................... (7,106) (4,170) (8,828)
--------- --------- ---------
Net cash provided from operating activities................ 169,082 135,559 179,331
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities.................................... (204,391) (318,450) (38,398)
Proceeds from sales of securities.......................... 319,731 190,636 27,301
Construction expenditures.................................. (104,527) (96,258) (99,999)
Acquisition of LG&E Natural Inc., net of cash..............
and temporary cash investments acquired (Note 2)......... (146,104) - -
Investment in affiliates (Note 7).......................... (34,045) (44,292) -
Proceeds from sale of discontinued operations.............. - 170,000 -
Sale of capital asset...................................... - - 91,076
--------- --------- ---------
Net cash used for investing activities................... (169,336) (98,364) (20,020)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock................................... 2,711 2,025 23,941
Issuance of preferred stock................................ - - 24,716
Issuance of first mortgage bonds and pollution control
bonds 39,914 - 198,918
Redemption of preferred stock.............................. (22,108) - (25,558)
Retirement of first mortgage bonds and pollution control
bonds (43,579) - (231,876)
Repayment of short-term borrowings......................... (119,632) (20,000) (38,000)
Short-term borrowings...................................... 245,315 32,000 -
Payment of common dividends................................ (71,630) (69,190) (66,072)
--------- --------- ---------
Net cash provided from (used for) financing activities... 30,991 (55,165) (113,931)
--------- --------- ---------
Net increase (decrease) in cash and temporary cash investments 30,737 (17,970) 45,380

Cash and temporary cash investments at beginning of year...... 49,407 67,377 21,997
--------- --------- ---------
Cash and temporary cash investments at end of year............ $ 80,144 $ 49,407 $ 67,377
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes............................................. $ 37,771 $ 81,468 $ 58,014
Interest on borrowed money............................... 48,916 41,042 47,389

</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 $)
<TABLE>
<CAPTION>

December 31
1995 1994
---- ----
<S> <C> <C>
COMMON EQUITY:
Common stock, without par value -
Authorized 75,000,000 shares, outstanding 33,097,383
shares in 1995 and 33,015,951 shares in 1994 (Note 13) $ 463,705 $ 460,980
Common stock expense (928) (914)
Unrealized loss on marketable securities, net of income
taxes $328 in 1995 and $2,980 in 1994 (Note 9) (573) (4,623)
Retained earnings 316,930 307,072
---------- ----------
Total common equity 779,134 762,515
---------- ----------
CUMULATIVE PREFERRED STOCK (Note 13):
Redeemable on 30 days notice by Louisville Gas and Electric
Company, except $5.875 series

<CAPTION> Current
Shares Redemption
Outstanding 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............................................. - - - 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............................................................. (1,179) (1,244)
---------- ----------
Total cumulative preferred stock................................................. 95,328 116,716
---------- ----------
LONG-TERM DEBT (Note 14):
First mortgage bonds -
Series due June 1, 1996, 5 5/8%.................................................. - 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
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
X due April 15, 2023, 5.90%...................................................... 40,000 -
---------- ----------
Total long-term bonds outstanding 646,800 662,800
Unamortized premium on bonds 45 62
---------- ----------
Total long-term debt 646,845 662,862
---------- ----------
Total capitalization $1,521,307 $1,542,093
---------- ----------
---------- ----------
</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 $)

<TABLE>
<CAPTION> Years Ended December 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance January 1 . . . . . . . . . . . . . . . . . . . . . . . $307,072 $271,606 $251,121
Add net income. . . . . . . . . . . . . . . . . . . . . . . . . 82,830 105,265 88,260
Deduct: Cash dividends declared on common stock
($2.185 per share in 1995, $2.115 in 1994, and
$2.045 in 1993) . . . . . . . . . . . . . . . . . 72,253 69,799 66,957
Preferred stock redemption expense. . . . . . . . 719 - 818
-------- ------- --------
Balance December 31 . . . . . . . . . . . . . . . . . . . . . . $316,930 $307,072 $271,606
-------- -------- --------
-------- -------- --------
</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. LG&E Energy Corp. is the parent
holding company of Louisville Gas and Electric Company (LG&E), LG&E Energy
Systems Inc. (Energy Systems) and LG&E Gas Systems Inc. (Gas Systems),
collectively referred to herein as the "Company." LG&E is a regulated electric
and gas public utility 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. LG&E Power Inc. (LPI) and
LG&E International Inc. (LII) are wholly-owned non-utility subsidiaries of
Energy Systems engaged in the design, development, operation and maintenance of
power generation facilities. LG&E Power Marketing Inc. (LPM), a subsidiary of
LPI, is engaged in the marketing and brokering of wholesale electric power.
Operations of Energy Systems' subsidiaries are located throughout the United
States and also include investments in Spain and Argentina. LG&E Natural Inc.
(LG&E Natural) formerly Hadson Gas Services Inc., a wholly-owned non-utility
subsidiary of Gas Systems, is primarily involved in the marketing, gathering,
processing, storage and transportation of natural gas. LG&E Natural operates
throughout the United States and in Alberta, Canada serving a diversified base
of industrial customers and local distribution companies.

The consolidated financial statements include the accounts of LG&E Energy Corp.,
LG&E, Energy Systems and Gas Systems and their respective wholly-owned
subsidiaries. All significant intercompany items and transactions have been
eliminated from the consolidated financial statements. Certain reclassification
entries have been made to the 1994 and 1993 financial statements to conform to
the 1995 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).

The consolidated financial statements for 1993 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. See Note 6
of Notes to Financial Statements under Item 8, Discontinued Operations.

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

<PAGE>

included in the rate base, and, accordingly, LG&E has not recorded any allowance
for funds used during construction.

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. Utility depreciation is provided on the
straight-line method over the estimated service lives of depreciable plant. The
amounts provided for LG&E in 1995 were 3.3% (3.2% electric, 3.3% gas, and 6%
common); for 1994, 3.3% (3.2% electric, 3.3% gas, and 5% common); and for 1993,
3.3% (3.2% electric, 3.2% gas, and 5% common). Depreciation of non-utility
plant and equipment is based on the straight-line method over periods ranging
from 3 to 25 years. Intangible assets have been allocated to the subsidiaries'
lines of business and are being amortized over periods ranging from 7 to 40
years. Intangible assets include certain favorable gas contracts and goodwill
purchased in the acquisitions of LG&E Natural and LPI.

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.

FINANCIAL INSTRUMENTS. The Company uses various exchange-traded and over-the-
counter financial instruments in its natural gas marketing activities to hedge
its exposure to changes in the prices it receives and pays for natural gas, and
for trading purposes. The Company also uses over-the-counter interest-rate swap
agreements to hedge its exposure to fluctuations in the interest rates it pays
on variable-rate debt, and it uses exchange-traded U.S. Treasury note and bond
futures to hedge its exposure to fluctuations in the value of its investments in
the preferred stocks of other companies.

Gains and losses on natural gas financial instruments used to hedge anticipated
commitments to buy and sell natural gas are initially deferred in other current
assets or liabilities, and then charged or credited to non-utility revenues or
non-utility cost of revenues when the hedged transaction occurs. Gains and
losses on natural gas financial instruments used for trading purposes are
included in non-utility revenues based on changes in the market values of such
instruments. Margin deposits on natural gas futures are included in other
current assets. Premiums paid for outstanding natural gas options purchased are
included in other current assets, and premiums received for outstanding natural
gas options sold are included in other current liabilities. The Company began
using natural gas financial instruments in May 1995, when it acquired LG&E
Natural.

Gains and losses on U.S. Treasury note and bond futures used to hedge
investments in preferred stocks are initially deferred and classified as
unrealized loss on marketable securities in common equity and then charged or
credited to other income and deductions when the securities are sold. Gains and
losses on interest-rate swaps are reflected in interest charges monthly. See
Note 4 of Notes to Financial Statements under Item 8, Financial Instruments.

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) January 1, 1993. Regulatory assets
and liabilities have been established to recognize the

<PAGE>

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. Utility 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. Gas marketing and power marketing revenues are recognized
when natural gas is transported or electric energy is transmitted to customers.
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.

GAS STORED UNDERGROUND. The costs of natural gas inventories are included in
gas stored underground in the balance sheets as of December 31, 1995, and 1994.
Utility and non-utility gas inventories were $32 million and $16 million,
respectively, at December 31, 1995. Prior to 1995, gas stored underground
consisted solely of utility gas inventories. LG&E accounts for gas inventories
using the average-cost method. Non-utility gas inventories are stated at the
lower of average cost or market.

MANAGEMENT'S USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
See Note 16 of Notes to Financial Statements under Item 8, Commitments and
Contingencies, for further discussion.

NEW ACCOUNTING PRONOUNCEMENTS.

LONG-LIVED ASSETS. In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SFAS No. 121), effective for fiscal years beginning after December 15, 1995.
The Company plans to adopt the provisions of SFAS No. 121 in the first quarter
of 1996. The new standard requires that long-lived assets and certain
identified intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing such impairment reviews, companies will be required
to estimate the sum of future cash flows from an asset and compare such amount
to the asset's carrying amount. Any excess of

<PAGE>

carrying amount over expected cash flows will result in a possible write-down of
an asset to its fair value. Based on current operating conditions, legal
requirements and regulatory environment, the Company does not expect adoption of
SFAS No. 121 to have a material adverse impact on its financial position or
results of operations.

STOCK-BASED COMPENSATION. In October 1995, Statement of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS No. 123) was
issued. SFAS No. 123 encourages, but does not require, companies to measure and
record as compensation expense the fair value of stock-based compensation
granted to employees, directors, and others. The new standard permits companies
electing not to record compensation expense for these arrangements to provide
disclosures of net income and earnings per share as if the compensation expense
had been recorded. The Company will adopt SFAS No. 123 in the first quarter of
1996 as required and will elect the disclosure option.

NOTE 2 - ACQUISITION OF LG&E NATURAL INC.

On May 15, 1995, Gas Systems acquired all of the outstanding common stock of
Hadson Corporation, now known as LG&E Natural Inc., a company engaged in natural
gas marketing, gathering and processing, for $143 million, plus transaction-
related costs and expenses. The Company accounted for the acquisition as a
purchase, and the purchase price was allocated to the assets and liabilities
acquired based on their estimated fair values. Approximately $33.4 million of
goodwill was recorded.

A summary of the estimated fair value of the net assets acquired follows (in
thousands of $):

<S> <C>
Fair value of assets acquired $279,534
Liabilities assumed 136,423
--------
Cash paid, excluding transaction costs 143,111
Cash and cash equivalents acquired 4,924
-------
Net cash paid, excluding transaction costs 138,187
Transaction costs 7,917
-------
Net cash paid $146,104
--------
--------
</TABLE>

LG&E Natural's revenues, cost of revenues, and operating expenses since the date
of acquisition are classified as non-utility in the 1995 statement of income.
LG&E Natural's operations did not have a material impact on consolidated gross
profit or operating income in 1995.

LG&E Natural's property and equipment and favorable gas contracts are included
in the balance sheet under non-utility property and plant at December 31, 1995.

NOTE 3 - 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 $; see next page):

<PAGE>

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Unamortized loss on bonds $ 16,443 $ 15,704
Unamortized extraordinary retirements 6,935 9,752
Manufactured gas sites 3,220 3,149
Other 3,328 3,121
-------- --------
Total regulatory assets 29,926 31,726
Deferred income taxes - net (88,242) (91,492)
-------- --------
Regulatory assets and liabilities - net $(58,316) $(59,766)
-------- --------
-------- --------
</TABLE>

Substantially all of LG&E's regulatory assets are being recovered through rates
charged to customers. LG&E expects to seek regulatory approval to recover any
remaining regulatory assets in its next general rate case.

ENVIRONMENTAL COST RECOVERY. LG&E filed an application with the Kentucky
Commission in October 1994, in which it requested approval of an environmental
cost recovery surcharge to recover certain costs incurred to comply with
federal, state, and local environmental requirements. On April 6, 1995, the
Commission approved the surcharge with modifications. The surcharge became
effective on May 1, 1995. LG&E recovered $3.2 million in 1995 and expects to
recover an additional $5.7 million in 1996 through the surcharge.

An appeal of the Commission's April 6 order by various intervenors in the
proceeding (including the Kentucky Attorney General) is currently pending in the
Franklin Circuit Court of Kentucky. The intervenors are contesting the validity
of the order on several grounds, including the constitutionality of the Kentucky
statute that authorizes the surcharge. LG&E is vigorously contesting the legal
challenges to the surcharge, but cannot predict the outcome of the appeal. The
amount of refunds that may be ordered, if any, are not expected to have a
material adverse effect on the Company's financial position or results of
operations. See Rates and Regulation under Management's Discussion and Analysis
for a further discussion.

NOTE 4 - FINANCIAL INSTRUMENTS

INSTRUMENTS USED IN HEDGING ACTIVITIES. The Company uses exchange-traded and
over-the-counter (OTC) futures, options and swap contracts to hedge its exposure
to changes in natural gas prices, valuation of investments in marketable
securities and changes in interest rates on variable rate debt. Futures reduce
exposure to fluctuations in pricing for natural gas and marketable securities as
of a future delivery date. Swaps allow the Company to change certain fixed-
price commitments to indexed or floating prices and change certain floating or
index-based pricing to fixed-price commitments. Options give the Company or
other counterparties the right, but not the obligation, to purchase or sell
natural gas for a predetermined price at a specified future delivery date.

The following summarizes the Company's use of financial instruments for hedging
purposes at December 31, 1995 (in millions of $; see next page):

<PAGE>

Notional Amount/
Category Maturity Cost(a)
-------- -------- -------
<S> <C> <C>
NATURAL GAS - notional amounts
are stated in billions of cubic
feet (BCF):

Natural gas futures, options
and swaps - open positions:

Short/sell positions 38 BCF, delivery dates $(.1)
from January 1996 to
November 1998

Long/buy positions 60 BCF, delivery dates .4
from January 1996 to
October 1998

------
Total $ .3
------
------

MARKETABLE SECURITIES AND DEBT:

Exchange-traded U.S Treasury $7.8 million, matures
note and bond futures March 1996 -

OTC interest rate swaps $15 million, matures -
September 1997;
$15 million, matures
September 1999
</TABLE>

(a)Cost represents net premiums paid or (received) for options.

The natural gas hedge instruments presented above are used to reduce exposure to
price risk caused by market fluctuations and price differences among geographic
regions resulting from changing supply and demand patterns and transportation
costs. The exchange-traded U.S. Treasury note and bond futures reduce the
Company's exposure to changes in the market value of investments in preferred
stock caused by movement in market interest rates. The OTC interest rate swaps
reduce the Company's exposure to changes in interest rates by converting $30
million of Series S variable rate Pollution Control Bonds to an average fixed
rate of 4.55%. Average variable rates received based upon the JJ Kenny index
were 3.87%, 2.84% and 2.38% in 1995, 1994 and 1993, respectively.

Deferred gross losses at December 31, 1995, on closed hedging financial
instruments amounted to $1.8 million for short positions and $.7 million for
long positions. The underlying transactions related to these deferred losses
are anticipated to be completed during 1996. Initial margin requirements and
daily margin calls for exchange-traded futures are met in cash and all
transactions are settled in cash or through delivery of the underlying
commodity.

INSTRUMENTS USED IN TRADING ACTIVITIES. The Company began using exchange-traded
and OTC natural gas futures, options and swap contracts for trading purposes in
the latter part of 1995. The nature of these instruments is identical to the
descriptions contained above under hedging activities.

The following summarizes the Company's use of financial instruments for trading
purposes at December 31, 1995 (in millions of $; see next page):

<PAGE>

Notional Amount/
Category Maturity Cost(a)
-------- -------- ----

<S> <C> <C>
Natural gas futures, options
and swaps - open positions:

Short/sell positions 287 BCF, delivery dates $ (8.9)
from January 1996 to
December 1998

Long/buy positions 308 BCF, delivery dates 7.8
from January 1996 to
December 1998
------
Total $ (1.1)
------
------
</TABLE>

(a) Cost represents net premiums paid or (received) for options.

During the year, the Company recorded a net gain of $4.4 million from trading
activities. The average fair values of these instruments varied during 1995.
The highest monthly average fair values of these instruments, which occurred in
December 1995, included assets of $148 million and liabilities of $143.6
million.

Use of financial instruments for hedging and trading purposes exposes the
Company to market risk and credit risk. Market risk is the potential loss
created by a change in the market value of a financial instrument. Current
operating policies and procedures, which are subject to continuing review and
enhancement, are designed to employ probabilistic and other techniques to allow
management to evaluate market risks and take mitigating action. See Note 5 of
Notes to Financial Statements under Item 8, Concentrations of Credit and Other
Risk, for a discussion of credit risk.

FAIR VALUES OF FINANCIAL INSTRUMENTS. 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 exchange-traded financial
instruments reflects market prices reported by the exchanges. Fair values of
certain OTC instruments such as options and swaps are based on price quotes
obtained from dealers or assumptions used by management in industry accepted
pricing models. Fair value estimates are made at a certain point in time and
changes in assumptions, economic conditions, risk characteristics of various
instruments and other factors could cause significant changes in these
estimates.

The fair value information contained herein is based on all financial
instruments used by the Company except those that could be settled with the
underlying commodity (primarily natural gas). Such information does not include
an assessment of assets and liabilities that are not financial instruments, such
as property and equipment or other assets and liabilities. Accordingly, these
fair value disclosures are not intended to present a valuation of the Company
taken as a whole.

The cost and estimated fair values of the Company's financial instruments as of
December 31, 1995 and 1994 follow (in thousands of $; see next page):

<PAGE>

1995 1994
---- ----
Fair Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Marketable securities $ 29,961 $ 29,060 $ 93,849 $ 89,431
Long-term investments:
Practicable to estimate
fair value - - 53,323 50,138
Not practicable 4,083 4,083 515 515
Preferred stock subject
to mandatory redemption 25,000 25,000 25,000 22,125
Long-term debt 662,800 688,977 662,800 648,697
Natural gas options,
and swaps (831)(a) 2,963(b) - -
U.S. Treasury note and
bond futures - (187)(b) - (710)
OTC interest rate swaps - (522) - 965

</TABLE>

(a) Cost represents net premiums paid or (received) for options.
(b) Gains and losses realized on the future sale or purchase of the
underlying natural gas and marketable securities will generally offset
the deferred losses and unrealized gains and losses shown above.

See Note 5 of Notes to Financial Statements under Item 8, Concentrations of
Credit and Other Risk, for a discussion of credit risk as it pertains to certain
of the above financial instruments.

NOTE 5 - CONCENTRATIONS OF CREDIT AND OTHER RISK

Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on- or off-balance sheet) relate to
groups of customers or counterparties that have similar economic or industry
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic or other conditions. The
Company does not have a significant loss exposure to any individual customer or
counterparty.

LG&E's customer receivables and gas and electric revenues arise from deliveries
of natural gas to approximately 272,000 customers and electricity to
approximately 346,000 customers in Louisville and adjacent areas in Kentucky.
For the year ended December 31, 1995, 75% of total utility revenue was derived
from electric operations and 25% from gas operations.

LG&E Natural's customer receivables relate primarily to sales of natural gas and
related services to industrial customers, public authorities, utilities and
resellers. Credit terms, typical of industry standards, are of a short-term
nature and may include letters of credit.

Credit risk exists from LG&E Natural's use of financial instruments such as
over-the-counter swap agreements and option contracts to purchase and sell
natural gas. See Note 4 of Notes to Financial Statements under Item 8,
Financial Instruments, for further discussion. LG&E Natural is exposed to
credit risk in the event of nonperformance by counterparties to these
agreements. LG&E Natural maintains credit policies with regard to its
counterparties that management believes significantly mitigate overall credit
risk. These policies include thorough review of counterparties' financial
condition, credit rating and letters of credit. Other performance guarantees
are obtained when appropriate.

<PAGE>

The financial position and results of operations of the domestic joint ventures
described in Note 7, Investments in Joint Ventures, are dependent upon the
continuation of long-term power sales contracts with neighboring utilities.

LG&E's operation and maintenance employees are members of the International
Brotherhood of Electrical Workers (IBEW) Local 2100 which represents
approximately one-half of the Company's workforce. LG&E's collective bargaining
agreement with IBEW employees expires in November 1998.

NOTE 6 - DISCONTINUED OPERATIONS

In January 1994, the Company sold its 36.5% partnership interest in Natural Gas
Clearinghouse (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 7 - INVESTMENTS IN JOINT VENTURES

The Company's investments in joint ventures reflect interests in general
partnerships and foreign entities held by LG&E Power Inc. (LPI) and LG&E
International Inc. (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 $123.3 million and $115.4 million at
December 31, 1995 and 1994, respectively.

The fuel type and ownership percentages of joint ventures are summarized below:

<TABLE>
<CAPTION>
Fuel Type % Owned
--------- -------
<S> <C> <C>
Babcock - Ultrapower West Enfield Wood 17
Babcock - Ultrapower Jonesboro Wood 17
LG&E Westmoreland - Southampton Coal 50
LG&E Westmoreland - Altavista Coal 50
LG&E Westmoreland - Hopewell Coal 50
LG&E Westmoreland - Rensselaer Natural Gas 50
Westmoreland - LG&E Partners Coal 50
Windpower Partners 1993 Wind 50
Windpower Partners 1994 Wind 25
Central Termica San Miguel de Tucuman, S.A. Natural Gas 33
KW Tarifa, S.A. Wind 44
</TABLE>

The Company's carrying amount exceeded the underlying equity in joint ventures
by $26.4 million and $33.2 million at December 31, 1995, and 1994, 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.

During 1995, LII invested $13.3 million in a natural gas-fired generation
facility in Tucuman, Argentina and $4.5 million in a wind power project in
Tarifa, Spain.

In August 1995, LPI redeemed its 50% ownership interest in UC Operating Services
(UCOS), a partnership with Constellation Energy, Inc. formed to provide
operation and maintenance services to independent power production facilities.
LPI purchased for $3.2 million the existing operation and maintenance contracts
and certain net assets relating to the facilities in which they have an
ownership interest. The

<PAGE>

operation and maintenance contracts have remaining terms ranging from 21 to 24
years. LPI is amortizing consideration paid for the contracts over a similar
period.

In June 1995, Babcock-Ultrapower West Enfield and Babcock-Ultrapower Jonesboro,
two partnerships which are 17%-owned by LPI, sold power purchase contracts to
Bangor Hydro-Electric Company. Subsequent to the sale, the partnerships reduced
the carrying amounts of their remaining assets to estimated net realizable
value. Equity in earnings of joint ventures in the Company's statement of
income for 1995 includes $9.7 million representing LPI's interest in the gains
on the sales.

NOTE 8 - 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 workforce reductions that occurred in 1992 and 1993,
which consist primarily of separation payments, enhanced early retirement
benefits, and health care benefits; costs associated with property damage claims
pertaining to particulate emissions from its Mill Creek electric generating
plant which primarily consist of spotting on automobile finish and aluminum
siding; and certain costs previously deferred resulting from adoption in January
1993 of Statement of Financial Accounting Standards No. 106, EMPLOYERS'
ACCOUNTING FOR POST-RETIREMENT BENEFITS OTHER THAN PENSIONS. LPI recorded a
reserve for $10.1 million, before taxes, for the costs related to vacating
leased office space. See Operating Leases under Note 16, 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) that makes
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 9 - MARKETABLE SECURITIES

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES 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 consolidated balance sheets. 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 in 1995 were $319,731,000,
which resulted in realized gains of $3,446,000 and losses of $6,911,000,
calculated using the specific identification method. Proceeds from sales of
available-for-sale securities in 1994 were $190,636,000, which resulted in
realized gains of $2,993,000 and losses of $5,131,000. The differences between
amortized and unamortized cost basis of the Company's investments in marketable
securities as of December 31, 1995, and 1994, were immaterial.

<PAGE>

Approximate cost, fair value, and other required information about the Company's
available-for-sale securities by major security type as of December 31, 1995 and
1994, follow (in millions of $):

<TABLE>
<CAPTION>
Fixed
Equity Income Total
------ ------ -----
1995:
-----
<S> <C> <C> <C>
Cost $11.9 $18.0 $29.9
Unrealized gains .1 - .1
Unrealized losses (.3) (.6) (.9)
------ ------- -------
Fair values $11.7 $17.4 $29.1
------ ------ ------
------ ------ ------

Fair values:
No maturity $11.0 $ - $ 11.0
Maturities:
Less than one year .7 6.4 7.1
One to five years - 9.3 9.3
Five to ten years - .8 .8
Over ten years - .2 .2
No single date - .7 .7
------ ------ ------
Total fair values $11.7 $17.4 $29.1
------ ------ ------
------ ------ ------

1994:
-----
Cost $39.8 $107.3 $147.1
Unrealized gains .1 .4 .5
Unrealized losses (4.0) (4.0) (8.0)
------ ------- -------
Fair values $35.9 $103.7 $139.6
----- ------ ------
----- ------ ------

Fair values:
No maturity $34.5 $ - $ 34.5
Maturities:
Less than one year 1.4 5.7 7.1
One to five years - 53.1 53.1
Five to ten years - 11.6 11.6
Over ten years - 15.7 15.7
No single date - 17.6 17.6
------ ------- -------
Total fair values $35.9 $103.7 $139.6
------ ------- -------
------ ------- -------
</TABLE>

All of the Company's available-for-sale securities were classified as marketable
securities at December 31, 1995. In 1994, available-for-sale securities
consisted of $89.4 million classified as marketable securities and $50.1 million
classified as other property and investments in the accompanying consolidated
balance sheets.

NOTE 10 - 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, age at retirement 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. The assets of the plans consist primarily of common stocks, corporate
bonds and United States government securities.

The Company also has supplemental executive retirement plans that cover officers
of the Company. The plans provide 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 employ-

<PAGE>

ers, and by amounts received under the pension plans mentioned in the preceding
paragraph. For LPI officers, retirement benefits are reduced by an equivalent
pension amount derived from contributions to their 401(k) savings plan in lieu
of pension plan reductions.

Pension costs were $5,768,000 for 1995, $4,996,000 for 1994, and $3,048,000 for
1993, of which approximately $761,000, $693,000, and $425,000, respectively,
were charged to construction.

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

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 4,805 $ 5,134 $ 4,730
Interest cost on projected benefit obligation 14,761 13,377 12,314
Actual return on plan assets (46,107) (494) (13,676)
Amortization of transition asset (1,079) (1,079) (1,079)
Net amortization and deferral 33,388 (11,942) 759
-------- -------- ---------
Net pension cost $ 5,768 $ 4,996 $ 3,048
-------- -------- --------
-------- -------- --------
</TABLE>

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

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of
accumulated plan benefits:
Vested $169,812 $134,273
Non-vested 9,807 14,756
-------- -------
Accumulated benefit obligation 179,619 149,029
Effect of projected future compensation 33,741 19,971
------- -------
Projected benefit obligation 213,360 169,000
Plan assets at fair value 209,931 161,299
------- -------
Plan assets less than projected
benefit obligation (3,429) (7,701)
Unrecognized net transition asset (11,166) (12,245)
Unrecognized prior service cost 29,434 24,270
Unrecognized net gain (42,937) (35,860)
------- -------

Accrued pension liability $(28,098) $(31,536)
-------- --------
-------- --------
</TABLE>

The assumptions used in determining the actuarial valuations are as follows:

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Assumed discount rate to determine
projected benefit obligation 7.5% 8.5%
Assumed long-term rate of return
on plan assets 8.5% 8.5%
Assumed annual rate of increase in
future compensation levels 3.5% - 4.0% 4.5% - 5.0%
</TABLE>

POST-RETIREMENT BENEFITS. 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. The Company
adopted Statement of Financial Accounting Standards No. 106, EMPLOYERS'
ACCOUNTING FOR POST-RETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS No. 106)
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

<PAGE>

of the post-retirement benefit obligation at the date of adoption over 20
years. Prior to January 1, 1993, the cost of retiree health care and life
insurance benefits was generally recognized when paid.

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

1995 1994 1993
---- ----- ----
<S> <C> <C> <C>
Service cost $ 614 $ 647 $ 710
Interest cost 2,717 2,400 2,621
Amortization of transition obligation 1,341 1,341 1,399
------ ------ ------

Post-retirement benefit cost $4,672 $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 $):

1995 1994
---- ----
<S> <C> <C>
Retirees $(19,965) $(18,487)
Fully eligible active employees (2,780) (1,965)
Other active employees (15,267) (9,940)
--------- ---------
Accumulated post-retirement benefit obligation (38,012) (30,392)
Unrecognized net loss (gain) 3,513 (3,220)
Unrecognized transition obligation 22,793 24,134
--------- ---------
Accrued post-retirement benefit liability $(11,706) $ (9,478)
--------- ---------
--------- ---------

</TABLE>
The accumulated post-retirement benefit obligation was determined using an
assumed discount rate of 7.5% for 1995 and 8.5% for 1994. Assumed compensation
increases for projected life insurance benefits for affected groups was 4% for
1995 and 5% for 1994. An assumed health care cost trend rate of 10% was assumed
for 1995, gradually decreasing to 5% 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 $1.5 million and
the annual service and interest cost by approximately $200,000. 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 (SFAS
NO. 112) January 1, 1994. SFAS No. 112 requires the accrual of the expected
cost of benefits to former or inactive employees after employment but before
retirement. The cumulative effect of the accounting change was recorded in the
first quarter of 1994 and decreased net income by $3.4 million.

EARLY RETIREMENT/WORKFORCE 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. See Note 8 of Notes to Financial Statements under Item 8,
Non-Recurring Charges.

THRIFT SAVINGS PLANS. 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

<PAGE>

plans. These costs were approximately $3,063,000 for 1995, $3,304,000 for 1994,
and $3,542,000 for 1993.

NOTE 11 - FEDERAL AND STATE INCOME TAXES

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

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Included in Income Taxes:
Current - federal $32,526 $33,483 $45,194
- state 3,397 9,032 15,196
Deferred - federal - net 8,943 (4,560) 198
- state - net 4,170 58 (388)
Amortization of investment tax credit (4,742) (4,619) (7,821)
------- ------- -------
Total $44,294 $33,394 $52,379
------- ------- -------
------- ------- -------
</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 $):

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Depreciation and amortization $18,489 $20,772 $ 3,593
Alternative minimum tax - - 5,995
Deferred income 393 (2,588) (7,295)
Pension overfunding 2,094 (4,380) (857)
Accrued liabilities not currently deductible (5,128) (9,169) (1,715)
Other (2,735) (9,137) 89
------- -------- -------
Total $13,113 $ (4,502) $ (190)
------- -------- -------
------- -------- -------
</TABLE>

The net provisions for deferred income taxes increased in 1995 largely due to
current year funding of one of the Company's defined-benefit pension plans.
Fluctuations in deferred income taxes attributable to liabilities accrued for
financial reporting, which are not currently deductible on the Company's tax
return, occurred in 1995 and 1994 due to the timing of when such liabilities are
paid. Deferred income taxes attributable to depreciation and amortization in
1993 reflect the reversal of prior years' accumulated deferred income taxes as a
result of the sale of a portion of Trimble County Unit 1. See Note 18 of Notes
to Financial Statements under Item 8, Jointly Owned Electric Utility Plant, for
a further discussion of the sale.

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

1995 1994
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation and other
plant-related items $375,963 $300,881
Other liabilities 11,068 10,353
-------- --------
$387,031 $311,234
-------- --------

Deferred tax assets:
Investment tax credit $ 33,919 $ 35,833
Income taxes due to customers 32,363 33,456
Pension overfunding 12,758 12,207
Deferred income 13,179 13,251
Accrued liabilities not currently
deductible and other 40,375 29,237
Net operating loss carryforward 20,956 -
-------- --------

$153,550 $123,984
-------- --------

Net deferred income tax liability $233,481 $187,250
-------- --------
-------- --------

</TABLE>

The 1995 increase in net deferred tax liabilities is largely due to the
acquisition of LG&E Natural. When acquired by the Company, LG&E Natural had a
total of $126 million of net operating loss carryforwards available. The
carryforwards expire in 1997 through 2009 and are subject to an annual
limitation of approximately $5.5 million under Sections 382 and 383 of the
Internal Revenue Code. At December 31, 1995, LG&E Natural had a valuation
allowance of $29.5 million related to deferred tax assets which will reduce
goodwill if certain unrecorded net operating loss carryforwards are realized.

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:
<TABLE>
<CAPTION>

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes net of federal benefi 5.0 6.2 6.9
Investment and other tax credits (4.7) (5.6) (5.6)
Reduction of taxes provided in prior years (1.3) - -
Other differences - net (.8) (.8) 1.3
----- ----- -----

Effective income tax rate 33.2% 34.8% 37.6%
----- ----- -----
----- ----- -----
</TABLE>

NOTE 12 - OTHER INCOME AND DEDUCTIONS

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

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Fee income (expense) $ - $ 6,092 $(1,850)
Gains (losses) on securities - net (3,465) (2,138) (54)
Interest and dividend income 10,195 11,690 3,112
Gains on fixed asset disposals - net 1,089 1,772 346
Donations (356) (1,285) (1,255)
Other (2,074) (2,413) (2,026)
------- ------- -------
Total other income and (deductions) $ 5,389 $13,718 $(1,727)
------- ------- -------
------- ------- -------
</TABLE>

<PAGE>

NOTE 13 - CAPITAL STOCK

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

<TABLE>
<CAPTION>
1995 1994 1993
----- ------ ------
<S> <C> <C> <C>
Outstanding January 1 33,016 32,956 32,328
Issues under the Employee
Common Stock Purchase
Plan (1995, $1,354;
1994, $1,377; 1993, $1,296) 40 41 37
Issues under the Automatic
Dividend Reinvestment and Stock
Purchase Plan ($21,740) - - 560
Issues under the Omnibus
Long-Term Incentive Plan
(1995, $1,371; 1994, $663;
1993, $953) 41 19 31
------- ------- -------

Outstanding December 31 33,097 33,016 32,956
------- ------- -------
------- ------- -------
</TABLE>

In 1993, 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 authorized but unissued common stock. Effective January 15, 1994,
the plan was revised and reinvested dividends and optional cash payments are
being used to purchase shares of the Company's common 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. In 1996,
the Company's shareholders are being asked to approve the reservation of an
additional 1,200,000 shares for future issuance 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). 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. See Note 1 of Notes to Financial Statements
under Item 8, Summary of Significant Accounting Policies, for a discussion of
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.

<PAGE>

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

<TABLE>
<CAPTION>
Out- Exer- Option Price
standing cisable per Share
-------- ------- -----------
<S> <C> <C> <C>
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
Options granted and
exercisable 75,345 68,973 $36.15 - $39.41
Options exercised (30,261) (30,261) $25.86 - $38.59
Options cancelled (30,573) (810) $37.38 - $39.41
------- ------- ---------------

As of December 31, 1995 256,775 166,193 $25.86 - $39.41
------- ------- ---------------
------- ------- ---------------
</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 December 1995, LG&E redeemed the 858,128 outstanding shares of its 7.45%
Cumulative Preferred Stock with a par value of $25 per share at a redemption
price of $25.75 per share.

NOTE 14 - 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 1996 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.

LG&E has outstanding interest rate swap agreements totaling $30 million related
to its Pollution Control Revenue Bonds, Variable Rate Series, due September 1,
2017. See Note 4 of Notes to Financial Statements under Item 8, Financial
Instruments.

LG&E's First Mortgage Bonds, 5.625% Series of $16 million is scheduled to mature
June 1, 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, 1995. The Company has no cash sinking fund
requirements.

NOTE 15 - NOTES PAYABLE

At December 31, 1995 and 1994, Energy Systems had notes payable of $47 million
and $32 million at weighted average interest rates of 6.13% and 6.44%,
respectively. Gas Systems had notes payable of $126 million at a weighted
average interest rate of 5.98% at December 31, 1995. LG&E Energy Corp. and LG&E
had no notes payable at December 31, 1995, and 1994.

At December 31, 1995, lines of credit were in place totaling $600 million ($160
million for LG&E, $200 million for Energy Systems, $215 million for Gas 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 amounts
mentioned above. The credit lines are scheduled to expire at various points in
time from 1996 through 2000. Management expects to renegotiate these lines when
they expire.

The lenders under the credit facilities for Energy Systems and Gas Systems are
entitled to the benefits of Support Agreements with LG&E Energy Corp. The
Support Agreements state, in substance, that LG&E Energy Corp. will provide
Energy Systems and Gas Systems with the necessary funds and financial support to
meet their obligations under the credit facilities.

NOTE 16 - COMMITMENTS AND CONTINGENCIES

CONSTRUCTION PROGRAM. The Company had commitments, primarily in connection with
the construction program of LG&E, aggregating approximately $11 million at
December 31, 1995. LG&E's construction expenditures for the years 1996 and 1997
are estimated to total approximately $220 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 immaterial at December 31, 1995.
Such commitments were $27 million at December 31, 1994. Contingent construction
and project performance guarantees totaled approximately $12.3 million and $64.5
million at December 31, 1995, and 1994, respectively.

<PAGE>

Energy Systems has provided letters of credit and various other guarantees to
third parties which totaled approximately $33.7 million and $39.2 million as of
December 31, 1995 and 1994, respectively.

The preceding equity funding and performance guarantees are subject to Support
Agreements as more fully described in Note 15, Notes Payable.

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 QF 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.

In late August 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. In September 1994, the
Partnership filed with FERC its answer to Virginia Power's motion and response.
Also in September 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 FERC had not acted
on the Partnership's request for rehearing, in December 1995, the Partnership
filed with FERC a motion to request a settlement conference. Virginia Power
subsequently filed a response in which it did not object to the proposed
settlement conference. The parties are awaiting FERC action, but expect a
settlement proceeding to be initiated in the first half of 1996.

<PAGE>

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 1995, Virginia Power withheld approximately $8.5 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. In October 1994, WLP filed a complaint against
Virginia Power seeking damages of at least $5.7 million, contending that
Virginia Power breached the PPA in withholding such payments. In June 1995, the
Circuit Court of the City of Richmond, Virginia denied Virginia Power's motion
to dismiss WLP's complaint. In early March 1996, Virginia Power filed a
motion for summary judgment, and on March 22, 1996, the court granted
Virginia Power's motion as to all counts. The Company plans to appeal the
court's ruling.

RENSSELAER. The Company has been informed through public filings that Niagara
Mohawk Power Corporation (NIMO) (which is the purchasing utility for the
Company's Rensselaer cogeneration facility) has indicated that, absent
significant relief from its power purchase arrangements with independent power
producers (including qualifying cogenerators), it may be forced either to file
voluntary bankruptcy or attempt to condemn and purchase the cogeneration
facilities through eminent domain. The Company intends to oppose any efforts by
NIMO to nullify its contract for the Rensselaer project.

FERC ORDER NO. 636. Prior to the implementation of Order No. 636, LG&E had
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 many other sources under
contracts for varying periods of time. See Future Outlook under Management's
Discussion and Analysis.

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 1995, LG&E paid Texas Gas and began recovering from its customers
approximately $4.8 million in transition costs. It is estimated that about $1.4
million in additional transition costs will be incurred by LG&E during 1996 and
about $1.3 million in 1997, and these costs are

<PAGE>

also expected to be recovered from customers. These transition costs are billed
by Texas Gas pursuant to orders issued by FERC in transition cost regulatory
proceedings in which LG&E is a party. Pursuant to these FERC orders, no
additional transition costs are expected to be billed after 1997.

OPERATING LEASES. LG&E Energy Corp. has an operating lease for its corporate
office space with an expiration date of 1997. 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 that expire in 1999
and 2001. LG&E Natural has three office leases that expire in 1996, 1997, and
2003. Total lease expense for 1995, 1994, and 1993, was $5,531,000, $4,895,000,
and $4,526,000, respectively. The future minimum annual lease payments under
these lease agreements for years subsequent to December 31, 1995, are as follows
(in thousands of $):

<TABLE>

<S> <C>
1996 $ 6,404
1997 5,506
1998 4,825
1999 4,242
2000 4,718
Thereafter 18,693
-------
Total $44,388
-------
-------

</TABLE>

Operating lease commitments have been reduced for annual rental payments to be
received from noncancelable subleases of $723,000 in 1996, $1,540,000 in 1997,
and approximately $1,800,000 per year from 1998 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 8 of Notes to Financial Statements under
Item 8, Non-Recurring Charges.

CONTRACTED DATA PROCESSING SERVICES. LG&E Natural has an agreement to receive
contracted data processing services through March 2003. The agreement calls for
LG&E Natural to make payments of $1,070,000 in 1996, $1,065,000 in 1997,
$1,000,000 per year in 1998 through 2000, and $2,250,000 in the aggregate
thereafter.

ENVIRONMENTAL. The Clean Air Act Amendments of 1990 (the Act) impose stringent
limits on emissions of sulfur dioxide and nitrogen oxides by electric utility
generating plants. 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. 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 $22 million to date and,
based on engineering estimates from contractors, anticipates incurring
additional capital expenditures of approximately $8 million in 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.

In May 1994, LG&E completed extensive modification at its Mill Creek plant aimed
at controlling certain particulate emissions which have allegedly damaged metal
surfaces on adjacent properties. The Air Pollution Control District of
Jefferson County (APCD) and LG&E are currently conducting a field sampling
program to demonstrate the effectiveness of the plant modifications. In an
effort to resolve property damage claims of adjacent residents, LG&E commenced
extensive negotiations and property damage settlements with residents who are
not parties to any pending litigation. Through December 1995, LG&E has settled
property damage claims filed by residents at an aggregate cost of approximately
$14.7

<PAGE>

million. In management's opinion, settlement of the limited number of remaining
claims should not have a material adverse impact on the financial position or
results of operations of LG&E.

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 who have allegedly suffered personal injury or property
damage as a result of emissions from the plant. The plaintiffs sought
compensation for personal injury and property damage, 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. In August 1995, the court granted the plaintiffs' motion
for leave to file an amended complaint to bring a total of 537 individual
plaintiffs into the pending litigation. The plaintiffs subsequently filed a
motion to certify a class consisting of all persons within 3.5 miles of the
plant who have allegedly suffered property damage. The court has not yet ruled
on that motion. In January 1996, the plaintiffs waived all claims for
compensation for personal injuries, fear of cancer, emotional distress, loss of
income, injunctive relief, and medical monitoring. LG&E stipulated nuisance as
to plaintiffs located within 2.5 miles of the plant, but reserved the right to
assert lack of causation and all affirmative defenses including statute of
limitations. The plaintiffs also waived claims for punitive damages with
respect to all plaintiffs located within 2.5 miles. The plaintiffs are
currently pursuing claims solely for property damage and annoyance allegedly due
to emissions from the plant. LG&E intends to vigorously defend itself in the
pending litigation.

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 the United States Environmental Protection Agency
(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 in an effort
to ensure compliance with the National Ambient Air Quality Standards for ozone.
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. LG&E is currently negotiating with the APCD for an exclusion from
the VOC reduction requirements. As an alternative, the APCD is considering
additional nitrogen oxide reduction requirements for LG&E. LG&E cannot
determine the precise impact of the matter.

LG&E owns or formerly owned three primary sites where manufactured gas plant
operations were conducted. Remedial investigations performed at the three sites
have identified coal tar and other contaminants typical of manufactured gas
plant operations. LG&E is currently awaiting regulatory determinations from the
Kentucky Natural Resources and Environmental Protection Cabinet on the level of
remediation required for each site. Until such regulatory determinations are
made, LG&E is unable to precisely determine cleanup costs for these sites.
However, based on the results of studies at the three sites, management
currently estimates that total cleanup costs 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.

LG&E, along with a number of other companies, has been identified as a
potentially responsible party (PRP) allegedly liable for cleanup under the
Comprehensive Environmental Response Compensation and

<PAGE>

Liability Act as amended at four off-site waste treatment or disposal sites.
Under the law, each PRP potentially could be held jointly and severally liable
for the cost of cleanup, but would have the right to seek contribution from
other PRPs. The sites targeted for cleanup in which LG&E has been identified as
a PRP include: the Smith's Farm site located in Bullitt County, Kentucky, the
Sonora and Carlie Middleton Burn sites located in Hardin County, Kentucky, and
the M.T. Richards site located in Crossville, Illinois. With respect to the
Smith's Farm site, USEPA has identified LG&E as a de minimis PRP and is
currently pursuing other parties for the vast majority of the $60 million in
cleanup costs as estimated by USEPA. LG&E is participating in settlement
discussions in an effort to resolve any alleged liability which it may have.
With respect to the Sonora Site and Carlie Middleton Burn Site, LG&E is involved
in litigation with USEPA and approximately 10 companies in an effort to resolve
liability for approximately $1.8 million in cleanup costs incurred by USEPA.
With respect to the M.T. Richards site, LG&E has been identified as a de minimis
party and has reached a tentative settlement for $7,500, subject to approval by
the government and entry by the court. While it is not possible at this time to
predict the exact outcome or precise impact of these matters, management
believes that these matters should not have a material adverse impact on the
financial position or results of operations of LG&E.

Like LG&E, LPI, LG&E Natural and their subsidiaries are subject to extensive
federal, state, and local environmental laws and regulations governing the
operation of the various facilities 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, LG&E Natural or their
subsidiaries in the past, related expenditures have not been material.

NOTE 17 - TRIMBLE COUNTY GENERATING PLANT.

Trimble County Unit 1 (Trimble County), a 495-megawatt coal-fired electric
generating unit placed into service in December 1990 has been the subject of
numerous legal and regulatory proceedings to determine the appropriate
ratemaking treatment to implement the Kentucky Public Service Commission's 1988
decision that LG&E should not be allowed to recover 25% of the cost of the Unit
from ratepayers.

On July 19, 1995, the Commission issued an order in which it ruled that LG&E
refund $33.8 million to its electric customers, including interest. The
Commission stated in its July 19 order that the principal amount to be refunded
represented 25% of the revenues collected by LG&E, during the period May 1988
through December 1990, on Trimble County construction work in progress (CWIP)
included in LG&E's rate base in the 1988 rate case. The order also required
LG&E to file a plan for implementing the refund.

On December 1, 1995, LG&E and the other parties to the proceedings filed with
the Commission a unanimous settlement agreement that was approved by the
Commission on December 8, 1995. Under the agreement, which resolves all
outstanding issues, LG&E has agreed to refund approximately $22 million to
current electric customers, the majority of which will be paid by credits to
customers' bills over five years. In addition, LG&E has agreed to pay $900,000
per year for five years to the Metro Human Needs Alliance, Inc., a not-for-
profit, Louisville-based corporation, for the sole purpose of funding low-income
energy assistance programs in the service territory. LG&E also agreed to revise
the residential decoupling methodology approved by the Commission in 1994 in a
manner that would reduce revenues collected from residential customers during
1996 and 1997 by a total of approximately $1.8 million. Finally, the parties
agreed that all appeals currently pending in state courts regarding the
Commission's orders in LG&E's most recent general rate case would be dismissed.

<PAGE>

Reference is made to Note 18, Jointly Owned Electric Utility Plant, for a
discussion of the sale of 25% of Trimble County.

NOTE 18 - 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>

NOTE 19 - 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
Louisville Gas and Electric Company (LG&E), a public utility. The non-utility
business includes LG&E Power Inc. (LPI), LG&E International (LII), LG&E Natural
Inc. (LG&E Natural) and LG&E Power Marketing Inc. (LPM).

LPI and its subsidiaries develop, design, own, operate, and maintain power
generation facilities that sell energy to local industries and utilities. LII
primarily develops and owns international power-generation assets. LG&E Natural
and LPM primarily engage in retail and wholesale marketing of natural gas and
electric power, respectively.

<TABLE>
<CAPTION>
(Thousands of $) 1995 1994 1993
---- ---- ----

<S> <C> <C> <C>
Operating Information:
Revenues:
Electric $ 542,786(a) $559,327 $571,627
Gas 181,126 200,129 204,915
----------- --------- --------
Total utility 723,912 759,456 776,542
Non-utility 650,768 70,207 123,485
----------- --------- --------
Total $1,374,680 $829,663 $900,027
---------- -------- --------
---------- -------- --------

Operating Income:
Electric $ 152,648 $139,916 $172,201
Gas 16,651 11,368 17,436
--------- -------- --------
Total utility 169,299 151,284 189,637
Non-utility 17,228 4,163 9,466
Corporate (10,970) (15,103) (9,981)
--------- -------- --------
Total $ 175,557 $140,344 $189,122
---------- -------- --------
---------- -------- --------

</TABLE>

<PAGE>

(Thousands of $) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Other Information:
Depreciation and Amortization:
Electric $ 74,437 $71,882 $69,985
Gas 11,322 10,637 9,902
--------- ------- -------
Total utility 85,759 82,519 79,887
Non-utility 8,150 1,072 2,253
Corporate 484 582 520
--------- ------- -------
Total $ 94,393 $84,173 $82,660
---------- ------- -------
---------- ------- -------

Construction Expenditures:
Electric $ 66,661 $71,592 $ 74,165
Gas 26,762 23,806 24,622
--------- ------- --------
Total utility 93,423 95,398 98,787
Non-utility 10,936 663 871
Corporate 168 197 341
--------- ------- -------
Total $ 104,527 $96,258 $99,999
---------- ------- -------
---------- ------- -------

Identifiable Assets - December 31:
Electric $1,501,568 $1,514,287 $1,537,387
Gas 268,840 252,946 241,930
Other 208,517 199,078 195,057
--------- --------- ---------
Total utility 1,978,925 1,966,311 1,974,374
Non-utility 641,701 249,981 116,434
Discontinued operations - - 84,284
Corporate 8,294 1,172 11,376
--------- --------- ---------
Total $2,628,920 $2,217,464 $2,186,468
---------- ---------- ----------
---------- ---------- ----------

</TABLE>

(a)Net of Refund - Trimble County Settlement of $28.3 million.

<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, 1995 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 the Stockholders of 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, 1995 and 1994, and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

As discussed in Notes 1 and 10 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, 1996 (Except with respect
to the matters discussed in paragraph
11 of Note 16, as to which the date is
March 22, 1996.)

<PAGE>

SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

Selected financial data for the four quarters of 1995 and 1994 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
----- ---- --------- --------

1995
- ----

<S> <C> <C> <C> <C>
Revenues $208,101 $249,057 $410,161 $507,361 (a)
Operating income 44,444 52,468 73,957 4,688
Net income (loss) 19,692 24,650 39,091 (603)
Earnings per share of common stock .60 .75 1.18 (.02)

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) 22,093 37,076 17,624
Gain on sale of discontinued
operations 51,805 - - -
Cumulative effect of
accounting change (3,369) - - -
-------- -------- -------- --------
Total $ 28,472 $ 22,093 $ 37,076 $ 17,624
-------- -------- -------- --------
-------- -------- -------- --------

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

</TABLE>

(a) Net of Refund - Trimble County Settlement of $28.3 million.

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 13, 1996, 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):

Consolidated Statements of Income for the three years ended December
31, 1995 (page 37).
Consolidated Balance Sheets - December 31, 1995, and 1994 (page 38).
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995 (page 39).
Consolidated Statements of Capitalization - December 31, 1995, and
1994 (page 40).
Consolidated Statements of Retained Earnings for the three years ended
December 31, 1995 (page 41).
Notes to Consolidated Financial Statements (pages 41-65).
Report of Management (page 66).
Report of Independent Public Accountants (page 67).
Selected Quarterly Financial Data for 1995 and 1994 (page 68).

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

Schedule II - Valuation and Qualifying Accounts for the three
years ended December 31, 1995 (page 81).

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 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]

10.02 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]

10.03 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]

10.04 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]

10.05 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]

10.06 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]

10.07 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]

10.08 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]

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

<PAGE>

10.10 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]

10.11 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]

10.12 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]

10.13 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]

10.14 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]

10.15 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]

10.16 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]

10.17 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]

10.18 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]

10.19 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]

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

<PAGE>

10.21 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]

10.22 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]

10.23 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]

10.24 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]

10.25 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]

10.26 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]

10.27 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]

10.28 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]

10.29 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]

10.30 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]

<PAGE>

10.31 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]

10.32 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]

10.33 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]

10.34 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]

10.35 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]

10.36 Copy of 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]

10.37 Copy of 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]

10.38 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]

10.39 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]

<PAGE>

10.40 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]

10.41 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]

10.42 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]

10.43 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]

10.44 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]

10.45 Agreement and Plan of Merger, dated February 10, 1995, between
LG&E Natural Inc., formerly known as 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]

10.46 Copy of Modification No. 8 dated January 19, 1994, to
Intercompany Power Agreement, dated July 10, 1953, among Ohio
Valley Electric Corporation and the Sponsoring Companies. [Filed
as Exhibit 10.43 to LG&E's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated by reference
herein]

10.47 Copy of Amendment dated March 1, 1995, to Firm No-Notice
Transportation Agreements dated November 1, 1993 (2-Year, 5-Year
and 8-Year), between Texas Gas Transmission Corporation and the
Company covering the transmission of natural gas. [Filed as
Exhibit 10.44 to LG&E's Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated by reference herein]

10.48 Copy of Firm Transportation Agreement, dated March 1, 1995,
between Texas Gas Transmission Corporation and the Company
(expires October 31, 1998) covering the transportation of natural
gas.

Firm Transportation Agreement, dated March 1,1995, between
Texas Gas Transmission Corporation and the Company (expires
October 31, 2001) covering the transportation of natural gas.

<PAGE>

[Filed as Exhibit 10.45 to LG&E's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated by reference
herein]

10.49 Copy of Coal Supply Agreement, dated January 1, 1996, between
Lafayette Coal Company, Black Beauty Coal Company and the Company
covering the purchase of coal. [Filed as Exhibit 10.46 to LG&E's
Annual Report on Form 10-K for the year ended December 31, 1995,
and incorporated by reference herein]

10.50 Copy of Coal Supply Agreement, dated January 1, 1996, between
Green Coal Company and the Company covering the purchase of coal.
[Filed as Exhibit 10.47 to LG&E's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated by reference
herein]

10.51 Copy of Coal Supply Agreement, dated December 15, 1995, between
W.B. Coal Company, Inc., Windsor Coal Company and the Company
covering the purchase of coal. [Filed as Exhibit 10.48 to LG&E's
Annual Report on Form 10-K for the year ended December 31, 1995,
and incorporated by reference herein]

10.52 Copy of Amended and Restated Omnibus Long-Term Incentive Plan
effective January 1, 1996, covering officers and key employees of
the Company.

10.53 Copy of Short-Term Incentive Plan effective January 1, 1996,
covering officers and key employees of the Company.

10.54 Copy of form of first amendment to change in control agreement
for officers of the Company and key employees.

10.55 Copy of Amendment to the Non-Qualified Savings Plan, effective
January 1, 1992.

10.56 Copy of Amendment to the Non-Qualified Savings Plan, effective
January 1, 1995.

10.57 Copy of Amendment to the Non-Qualified Savings Plan, effective
January 1, 1995.

10.58 Copy of Amendment to the Supplemental Executive Retirement Plan,
effective January 1, 1992.

10.59 Copy of Amendment to the Supplemental Executive Retirement Plan,
effective January 1, 1993.

10.60 Copy of Amendment to the Supplemental Executive Retirement Plan,
effective January 1, 1995.

10.61 Copy of Amendment to the Supplemental Executive Retirement Plan,
effective May 1, 1995.

10.62 Form of Master Gas Purchase Agreement, dated December 14, 1993,
among Santa Fe, SFEOP and AGPC. [Filed as Exhibit 10.23 to LG&E
Natural Inc.'s Registration Statement on Form S-4, File No. 33-
68224, and incorporated by reference herein]

10.63 Copy of Coal Supply Agreement dated January 1, 1996, between
Peabody Coalsales Company and the Company covering the purchase
of coal. [Filed as Exhibit 10.49 of LG&E's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated by
reference herein]

<PAGE>

10.64 Copy of Transaction Confirmation Letter, dated February 22, 1996,
between Ohio Edison Company and LG&E Power Marketing Inc.
regarding the sale of coal processing services by Ohio Edison to
LG&E Power Marketing.

10.65 Copy of Energy and Operating Capacity Purchase Agreement between
Baltimore Gas and Electric Company and LG&E Power Marketing Inc.
covering the purchase of energy and operating capacity from LG&E
Power Marketing.

21 Subsidiaries of the Registrant

23 Consent of Independent Public Accountants

24 Power of Attorney

27 Financial Data Schedule

(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]

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]

Amended and Restated Omnibus Long-Term Incentive Plan effective
January 1, 1996, covering officers and key employees of the Company.

<PAGE>

Short-Term Incentive Plan effective January 1, 1996, covering officers
and key employees of the Company.

Form of first amendment to change in control agreement for officers of
the Company and key employees.

Amendment to the Non-Qualified Savings Plan, effective January 1,
1992.

Amendment to the Non-Qualified Savings Plan, effective January 1,
1995.

Amendment to the Supplemental Executive Retirement Plan, effective
January 1, 1992.

Amendment to the Supplemental Executive Retirement Plan, effective
January 1, 1993.

Amendment to the Supplemental Executive Retirement Plan, effective
January 1, 1995.

Amendment to the Supplemental Executive Retirement Plan, effective
January 1, 1996.

On December 12, 1995, a report on Form 8-K was filed announcing the
Public Service Commission of Kentucky's approval of LG&E's Trimble
County power plant settlement agreement.

On March 7, 1996, a report on Form 8-K was filed stating that the
Company announced on March 6, 1996, that its Board of Directors
approved a two-for-one split of its common stock, without par value,
by declaring a 100% stock dividend payable April 15, 1996.

<PAGE>

Schedule II
LG&E Energy Corp. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended December 31, 1995
(Thousands of $)

<TABLE>
<CAPTION>
(a)
Accumulated
Other Accounts Deferred
Property Receivable Income Taxes
and (Uncollectible (NOL Carry-
Investments Accounts) forwards)
----------- --------------- ------------
<S> <C> <C> <C>
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 --

Additions:
Charged to costs and expenses 6,523 4,039 --
Other additions 41 4,614 29,501
Deductions:
Net charges of nature for which
reserves were created -- 3,923 --
Other deductions 502 -- --
------ ------- -------

Balance December 31, 1995 $8,607 $6,269 $29,501
------ ------ -------
------ ------ -------

</TABLE>

(a) Partially offsets a deferred tax debit included in accumulated deferred
income taxes. The debit represents LG&E Natural's net operating loss
carryforwards available when acquired by the Company.

<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 27, 1996 /s/ Walter Z. Berger
--------------------
(Date) Walter Z. Berger
Executive Vice President and
Chief Financial Officer

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);

Walter Z. Berger Executive Vice President and
Chief Financial Officer
(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/ Walter Z. Berger March 27, 1996
--------------------
Walter Z. Berger
(Attorney-In-Fact)

<PAGE>

Exhibit 10.52
LG&E ENERGY CORP.
AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN

Effective January 1, 1996

ARTICLE 1 ESTABLISHMENT, PURPOSE, AND DURATION

1.1. ESTABLISHMENT OF THE PLAN. Louisville Gas and Electric Company
(hereinafter referred to as "LG&E"), a Kentucky corporation, established,
effective January 1, 1990, an incentive compensation plan known as the "Omnibus
Long-Term Incentive Plan" (hereinafter referred to as the "Plan"), which permits
the grant of Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Units and Performance Shares.
The Plan was originally approved by the Board of Directors of LG&E in 1989, and
was ratified by a majority of the stockholders of LG&E on June 11, 1990.

As part of the restructuring of LG&E pursuant to which LG&E Energy Corp.
(hereinafter referred to as the "Company") became the parent holding company of
LG&E, and pursuant to the authority granted by the Board of Directors of LG&E
and the Board of Directors of the Company, the Plan was amended and restated,
effective August 18, 1990, to provide for the issuance under the Plan of common
stock of the Company in lieu of common stock of LG&E and to provide for the
assumption of the Plan by the Company, which actions were also approved by the
shareholders of LG&E as part of their approval of the restructuring.

The Plan is hereby amended and restated, effective January 1, 1996;
provided that the Plan, as amended and restated, shall be approved by the
affirmative vote of a majority of the shares of common stock of the Company
present or represented and entitled to vote at a meeting of the Company's
shareholders. The Plan is being amended and restated, among other things, to
extend the term of the Plan, to increase the number of shares of common stock of
the Company that may be delivered under the Plan, and to comply with the
performance-based compensation exemption under the proposed regulations to
Internal Revenue Code Section 162(m) issued by the Department of Treasury.

This Plan as amended and restated includes adjustments made to reflect
the effects of a 2-for-1 stock split authorized by the Board of Directors on
March 6, 1996.

All Awards granted prior to the amendment and restatement of the Plan are
hereby ratified and shall remain in full force and effect, subject to possible
amendment, adjustment, modification or termination as hereinafter provided.

1.2. PURPOSE OF THE PLAN. The purpose of the Plan is to promote the
success of the Company and its Subsidiaries by providing incentives to Key
Employees that will link their personal interests to the long-term financial
success of the Company and its Subsidiaries and to growth in shareholder value.
The Plan is designed to provide flexibility to the Company and its Subsidiaries
in their ability to motivate, attract, and retain the services of Key Employees
upon

<PAGE>

Whose judgment, interest, and special effort the successful conduct of their
operations is largely dependent.

1.3. DURATION OF THE PLAN. The Plan commenced on January 1, 1990, as
described in Section 1.1 herein. The Plan shall remain in effect, subject to
the right of the Board of Directors to terminate the Plan at any time pursuant
to Article 13 herein, until all Shares subject to it shall have been purchased
or acquired according to the provisions herein. However, in no event may an
Award be granted under the Plan on or after January 1, 2001, which is the fifth
(5th) anniversary of the effective date of this amendment and restatement of the
Plan.

ARTICLE 2. DEFINITIONS AND CONSTRUCTION

2.1. DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized:

(a) "Award" means, individually or collectively, a grant under this Plan
of Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Units, or
Performance Shares.

(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.

(d) "Cause" shall mean the occurrence of any one of the following:

(i) The willful and continued failure by a Participant to
substantially perform his/her duties (other than any such
failure resulting from the Participant's disability), after
a written demand for substantial performance is delivered to
the Participant that specifically identifies the manner in
which the Company or any of its Subsidiaries, as the case
may be, believes that the Participant has not substantially
performed his/her duties, and the Participant has failed to
remedy the situation within ten (10) business days of
receiving such notice; or

(ii) the Participant's conviction for committing a felony in
connection with the employment relationship; or

(iii) the willful engaging by the Participant in gross misconduct
materially and demonstrably injurious to the Company or any
of its Subsidiaries.

<PAGE>

However, no act, or failure to act, on the Participant's
part shall be considered "willful" unless done, or omitted
to be done, by the Participant not in good faith and without
reasonable belief that his/her action or omission was in the
best interest of the Company or any of its Subsidiaries.

(e) "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall
have been satisfied:

(i) any Person (other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or
any of its Subsidiaries, or a corporation owned directly or
indirectly by the common stockholders of the Company in
substantially the same proportions as their ownership of
Stock of the Company), is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company
representing 15% or more of the combined voting power of the
Company's then outstanding securities; or

(ii) during any period of two (2) consecutive years (not
including any period prior to the Effective Date),
individuals who at the beginning of such period constitute
the Board and any new director, whose election by the Board
or nomination for election by the Company's stockholders,
was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any
reason to constitute a majority thereof; or

(iii) the stockholders of the Company approve (A) a plan of
complete liquidation of the Company; or (B) an agreement for
the sale or disposition of all or substantially all the
Company's assets; or (C) a merger or consolidation of the
Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity),
at least 50% of the combined voting power of the voting
securities of the Company (or such surviving entity)
outstanding immediately after such merger or consolidation.

However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if the Participant is part
of a purchasing group which consummates the Change in Control
transaction. The Participant shall be deemed "part of a purchasing
group. . . " for purposes of the preceding sentence if the

<PAGE>

Participant is an equity participant or has agreed to become an
equity participant in the purchasing company or group (except for
(i) passive ownership of less than 5% of the voting securities of
the purchasing company or (ii) ownership of equity participation in
the purchasing company or group which is otherwise not deemed to be
significant, as determined prior to the Change in Control by a
majority of the nonemployee continuing members of the Board).

(f) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.

(g) "Committee" means the committee appointed by the Board to administer
the Plan pursuant to Article 3 herein.

(h) "Company" means LG&E Energy Corp., a Kentucky corporation, or any
successor thereto as provided in Article 15 herein.

(i) "Covered Employee" means any Participant designated prior to the
grant of Restricted Stock, Performance Units or Performance Shares
by the Committee who is or may be a "covered employee" within the
meaning of Section 162(m)(3) of the Code in the year in which such
Restricted Stock, Performance Units or Performance Shares are
taxable to such Participant.

(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.

(k) "Fair Market Value" means the average of the highest price and
lowest price at which the Stock was traded on the relevant date, or
on the most recent date on which the Stock was traded prior to such
date, as reported on the composite tape of the New York Stock
Exchange.

(l) "Incentive Stock Option" or "ISO" means an option to purchase Stock,
granted under Article 6 herein, which is designated as an incentive
stock option and is intended to meet the requirements of Section 422
of the Code.

(m) "Key Employee" means an employee of the Company or any of its
Subsidiaries, including an employee who is an officer or a director
of the Company or any of its Subsidiaries, who, in the opinion of
the Committee, can contribute significantly to the growth and
profitability of the Company and its Subsidiaries.

"Key Employee" also may include any other employee, identified by
the Committee, in special situations involving extraordinary
performance, promotion, retention, or recruitment. The granting of
an Award under this Plan shall be

<PAGE>

deemed a determination by the Committee that such employee is a Key
Employee, but shall not create a right to remain a Key Employee.

(n) "Nonqualified Stock Option" or "NQSO" means an option to purchase
Stock, granted under Article 6 herein, which is not intended to be
an Incentive Stock Option.

(o) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.

(p) "Outside Director" means any director who qualifies as an "outside
director" as that term is defined in Code Section 162(m) and the
regulations issued thereunder.

(q) "Participant" means a Key Employee who has been granted an Award
under the Plan.

(r) "Performance Share" means an Award, designated as a performance
share, granted to a Participant pursuant to Article 9 herein.

(s) "Performance Unit" means an Award, designated as a performance unit,
granted to a Participant pursuant to Article 9 herein.

(t) "Period of Restriction" means the period during which the transfer
of Shares of Restricted Stock is restricted, during which the
Participant is subject to a substantial risk of forfeiture, pursuant
to Article 8 herein.

(u) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.

(v) "Plan" means this Omnibus Long-Term Incentive Plan of LG&E Energy
Corp., as herein described and as hereafter from time to time
amended.

(w) "Restricted Stock" means an Award of Stock granted to a Participant
pursuant to Article 8 herein.

(x) "Subsidiary" shall mean any corporation of which more than 50% (by
number of votes) of the Voting Stock at the time outstanding is
owned, directly or indirectly, by the Company.

(y) "Stock" or "Shares" means the common stock without par value of the
Company.

<PAGE>

(z) "Stock Appreciation Right" or "SAR" means an Award, designated as a
Stock appreciation right, granted to a Participant pursuant to
Article 7 herein.

(aa) "Voting Stock" shall mean securities of any class or classes of
stock of a corporation, the holders of which are ordinarily, in the
absence of contingencies, entitled to elect a majority of the
corporate directors.

2.2. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.

2.3. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.

ARTICLE 3. ADMINISTRATION

3.1. THE COMMITTEE. The Plan shall be administered by a committee (the
"Committee") consisting of not less than three directors who shall be appointed
from time to time by, and shall serve at the discretion of, the Board of
Directors. To the extent required to comply with Rule 16b-3 under the Exchange
Act, each member of the Committee shall qualify as a "disinterested person" as
defined in Rule 16b-3 or any successor definition adopted by the Securities and
Exchange Commission. To the extent required to comply with Code Section 162(m),
each member of the Committee also shall be an Outside Director.

3.2. AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full power to construe and interpret the Plan; to
establish, amend or waive rules and regulations for its administration; to
accelerate the exercisability of any Award or the end of a performance period
or the termination of any Period of Restriction or any award agreement, or any
other instrument relating to an Award under the Plan; and (subject to the
provisions of Article 13 herein) to amend the terms and conditions of any
outstanding Option, Stock Appreciation Right or other Award to the extent such
terms and conditions are within the discretion of the Committee as provided in
the Plan. Notwithstanding the foregoing, the Committee shall have no authority
to adjust upwards the amount payable to a Covered Employee with respect to a
particular Award, to take any of the foregoing actions or to take any other
action to the extent that such action or the Committee's ability to take such
action would cause any Award under the Plan to any Covered Employee to fail to
qualify as "performance-based compensation" within the meaning of Code Section
162(m)(4) and the regulations issued thereunder. Also notwithstanding the
foregoing, no action of the Committee (other than pursuant to Section 4.3 hereof
or Section 9.4 hereof) may, without the consent of the person or persons

<PAGE>

entitled to exercise any outstanding Option or Stock Appreciation Right or to
receive payment of any other outstanding Award, adversely affect the rights of
such person or persons.

3.3. SELECTION OF PARTICIPANTS. The Committee shall have the authority
to grant Awards under the Plan, from time to time, to such Key Employees
(including officers and directors who are employees) as may be selected by it.
The Committee shall select Participants from among those who they have
identified as being Key Employees.

3.4. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive and binding
on all persons, including the Company and its Subsidiaries, its stockholders,
employees, and Participants and their estates and beneficiaries, and such
determinations and decisions shall not be reviewable.

3.5. DELEGATION OF CERTAIN RESPONSIBILITIES. The Committee may, in its
sole discretion, delegate to an officer or officers of the Company the
administration of the Plan under this Article 3; provided, however, that no
such delegation by the Committee shall be made with respect to the
administration of the Plan as it affects directors of the Company or officers
of the Company or its Subsidiaries and provided further that the Committee
may not delegate its authority to correct errors, omissions or inconsistencies
in the Plan. The Committee may delegate to the Chief Executive Officer of the
Company its authority under this Article 3 to grant Awards to Key Employees who
are not Covered Employees or who are not directors of the Company or officers
of the Company or its Subsidiaries subject to the reporting requirements of
Section 16(a) of the Exchange Act. All authority delegated by the Committee
under this Section 3.5 shall be exercised in accordance with the provisions of
the Plan and any guidelines for the exercise of such authority that may from
time to time be established by the Committee.

3.6. PROCEDURES OF THE COMMITTEE. All determinations of the Committee
shall be made by not less than a majority of its members present at the meeting
(in person or otherwise) at which a quorum is present. A majority of the
entire Committee shall constitute a quorum for the transaction of business.
Any action required or permitted to be taken at a meeting of the Committee may
be taken without a meeting if a unanimous written consent, which sets forth the
action, is signed by each member of the Committee and filed with the minutes
for proceedings of the Committee. Service on the Committee shall constitute
service as a director of the Company so that members of the Committee shall be
entitled to indemnification, limitation of liability and reimbursement of
expenses with respect to their services as members of the Committee to the same
extent that they are entitled under the Company's Articles of Incorporation and
Kentucky law for their services as directors of the Company.

3.7. AWARD AGREEMENTS. Each Award under the Plan shall be evidenced by
an award agreement which shall be signed by an authorized officer of the
Company and by the Participant,

<PAGE>

and shall contain such terms and conditions as may be approved by the Committee.
Such terms and conditions need not be the same in all cases.

3.8. RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Board or the Committee may impose such conditions on any Award
(including, without limitation, the right of the Board or the Committee to limit
the time of exercise to specified periods) as may be required to satisfy the
requirements of Rule 16b-3 (or any successor rule), under the Exchange Act
("Rule 16b-3").

Notwithstanding any other provisions of the Plan, all Awards under this
Plan shall be subject to the following conditions, as and to the extent required
by Rule 16b-3:

(i) Except in the case of disability or death, no SAR, ISO, NQSO or
other option granted pursuant to Article 6 shall be exercisable
for at least six months after its grant; and

(ii) Except in the case of disability or death, no Restricted Stock,
Performance Unit or Performance Share (or a Share issued in
payment thereof) shall be sold for at least six months after its
acquisition.

ARTICLE 4. STOCK SUBJECT TO THE PLAN

4.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
herein, the aggregate number of Shares that may be delivered under the Plan
at any time shall not exceed the lesser of (i) five percent (5%) of the total
outstanding Shares of common stock of the Company at such time or (ii) three
million (3,000,000) Shares of common stock of the Company. No more than
one-half of such aggregate number of such Shares shall be issued as
Restricted Stock under Article 8 of the Plan and no more than two hundred
thousand (200,000) shares shall be issued upon exercise of Incentive Stock
Options under Article 6 of the Plan. Stock delivered under the Plan may
consist, in whole or in part, of authorized and unissued Shares or treasury
Shares. The exercise of a Stock Appreciation Right, whether paid in cash or
Stock, shall be deemed to be an issuance of Stock under the Plan. The
payment of Performance Shares or Performance Units shall not be deemed to
constitute an issuance of Stock under the Plan unless payment is made in
Stock, in which case only the number of Shares issued in payment of the
Performance Share or Performance Unit Award shall constitute an issuance of
Stock under the Plan.

4.2. LAPSED AWARDS. If any Award (other than Restricted Stock) granted
under this Plan terminates, expires, or lapses for any reason, any Stock subject
to such Award again shall be available for the grant of an Award under the Plan,
subject to Section 7.2 herein.

<PAGE>

4.3. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, Stock
dividend, split-up, share combination, or other change in the corporate
structure of the Company affecting the Stock, such adjustment shall be made in
the number and class of shares which may be delivered under the Plan, and in the
number and class of and/or price of shares subject to outstanding Options, Stock
Appreciation Rights, Restricted Stock Awards, Performance Shares, and
Performance Units granted under the Plan, as may be determined to be appropriate
and equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; and provided that the number of shares subject to any
Award shall always be a whole number. Any adjustment of an Incentive Stock
Option under this paragraph shall be made in such a manner so as not to
constitute a modification within the meaning of Section 425(h)(3) of the Code.
In addition, notwithstanding any provision in this Plan or an award agreement to
the contrary, the Committee, in connection with the holding company
restructuring consummated on August 17, 1990, may make any adjustment that it
deems appropriate in its sole discretion in the number and class of shares which
may be delivered under the Plan and in the number and class of and/or price of
shares subject to outstanding Options, Stock Appreciation Rights, Restricted
Stock Awards, Performance Shares and Performance Units granted under the Plan,
including providing that Shares of the Company and no shares of LG&E or any
other Subsidiary shall be issued.

ARTICLE 5. ELIGIBILITY AND PARTICIPATION

5.1. ELIGIBILITY. Persons eligible to participate in this Plan include
all employees of the Company and its Subsidiaries who, in the opinion of the
Committee, are Key Employees. "Key Employees" may include employees who are
members of the Board, but may not include directors who are not employees.

5.2. ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may from time to time select those Key Employees to whom Awards shall
be granted and determine the nature and amount of each Award. No employee shall
have any right to be granted an Award under this Plan even if previously granted
an Award.

ARTICLE 6. STOCK OPTIONS

6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Key Employees at any time and from time to time as
shall be determined by the Committee. The maximum number of Shares subject
to Options granted to any individual Participant in any calendar year shall
be two hundred thousand (200,000) Shares. The Committee shall have the sole
discretion, subject to the requirements of the Plan, to determine the actual
number of Shares subject to Options granted to any Participant. The
Committee may grant any type of Option to purchase Stock that is permitted by
law at the time of grant including, but not limited to, ISOs and NQSOs.
However, no employee may receive an Award of Incentive Stock

<PAGE>

Options that are first exercisable during any calendar year to the extent that
the aggregate Fair Market Value of the Stock (determined at the time the options
are granted) exceeds $100,000. Nothing in this Article 6 shall be deemed to
prevent the grant of NQSOs in excess of the maximum established by Section 422
of the Code. Unless otherwise expressly provided at the time of grant, Options
granted under the Plan will be NQSOs.

6.2. OPTION AGREEMENT. Each Option grant shall be evidenced by an Option
agreement that shall specify the type of Option granted, the Option price, the
duration of the Option, the number of Shares to which the Option pertains, and
such other provisions as the Committee shall determine. The Option agreement
shall specify whether the Option is intended to be an Incentive Stock Option
within the meaning of Section 422 of the Code, or a Nonqualified Stock Option
whose grant is not intended to be subject to the provisions of Code Section 422.

6.3. OPTION PRICE. The purchase price per share of Stock covered by an
Option shall be determined by the Committee but, in the case of an ISO, shall
not be less than 100% of the Fair Market Value of such Stock on the date the
option is granted and, in the case of a NQSO, shall be not less than 100% of the
market price of such Stock on the date of grant.

An Incentive Stock Option granted to an Employee who, at the time of grant,
owns (within the meaning of Section 425(d) of the Code) Stock possessing more
than 10% of the total combined voting power of all classes of Stock of the
Company, shall have an exercise price which is at least 110% of the Fair Market
Value of the Stock subject to the Option.

6.4. DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant provided, however, that no ISO
shall be exercisable later than the tenth (10th) anniversary date of its grant.

6.5. EXERCISE OF OPTIONS. Subject to Section 3.8 herein, Options granted
under the Plan shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each instance approve,
which need not be the same for all Participants.

6.6. PAYMENT. Options shall be exercised by the delivery of a written
notice to the Company setting forth the number of Shares with respect to which
the Option is to be exercised, accompanied by full payment for the Shares. The
Option price upon exercise of any Option shall be payable to the Company in full
either (a) in cash or its equivalent, (b) by tendering shares of previously
acquired Stock having a Fair Market Value at the time of exercise equal to the
total Option price, (c) by foregoing compensation under rules established by the
Committee, or (d) by a combination of (a), (b), or (c). The proceeds from such
a payment shall be added to the general funds of the Company and shall be used
for general corporate purposes. As soon as practicable, after receipt of
written notification and payment, the Company shall deliver to the

<PAGE>

Participant Stock certificates in an appropriate amount based upon the number of
Options exercised, issued in the Participant's name.

6.7. RESTRICTIONS ON STOCK TRANSFERABILITY. The Committee shall impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
under the Plan as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities law, under the requirements of
any stock exchange upon which such Shares are then listed and under any blue sky
or state securities laws applicable to such Shares.

6.8. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
In the event the employment of a Participant is terminated by reason of death,
any of such Participant's outstanding Options shall become immediately
exercisable at any time prior to the expiration date of the Options or within
one year after such date of termination of employment, whichever period is
shorter, by such person or persons as shall have acquired the Participant's
rights under the Option pursuant to Article 10 hereof or by will or by the laws
of descent and distribution. In the event the employment of a Participant is
terminated by reason of disability (as defined under the then established rules
of the Company or any of its Subsidiaries, as the case may be), any of such
Participant's outstanding Options shall become immediately exercisable, at any
time prior to the expiration date of the Options or within one year after such
date of termination of employment, whichever period is shorter. In the event
the employment of a Participant is terminated by reason of retirement, any of
such Participant's outstanding Options shall become immediately exercisable
(subject to Section 3.8 herein) at any time prior to the expiration date of the
Options. In the case of Incentive Stock Options, the favorable tax treatment
prescribed under Section 422 of the Internal Revenue Code of l986, as amended,
may not be available if the Options are not exercised within the Code Section
422 prescribed time period after termination of employment for death,
disability, or retirement.

6.9. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a
Participant shall terminate for any reason other than death, disability,
retirement or for Cause, the Participant shall have the right to exercise such
Participant's outstanding Options within the 90 days after the date of his
termination, but in no event beyond the expiration of the term of the Options
and only to the extent that the Participant was entitled to exercise the Options
at the date of his termination of employment. In its sole discretion, the
Committee may extend the 90 days to up to one year but, however, in no event
beyond the expiration date of the Option.

If the employment of the Participant shall terminate for Cause, all of the
Participant's outstanding Options shall be immediately forfeited back to the
Company.

6.10. NONTRANSFERABILITY OF OPTIONS. No Option granted under the Plan may
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or

<PAGE>

by the laws of descent and distribution. Further, all Options granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant.

ARTICLE 7. STOCK APPRECIATION RIGHTS

7.1. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions of the Plan, Stock Appreciation Rights may be granted to
Participants, at the discretion of the Committee, in any of the following forms:

(a) In lieu of Options;
(b) In addition to Options;
(c) Independent of Options; or
(d) In any combination of (a), (b), or (c).

The maximum numbers of Shares subject to SARs granted to any individual
Participant in any calendar year shall be one hundred thousand (100,000) Shares.
Subject to the immediately preceding sentence, the Committee shall have the sole
discretion, subject to the requirements of the Plan, to determine the actual
number of Shares subject to SARs granted to any Participant.

7.2. EXERCISE OF SARS IN LIEU OF OPTIONS. SARs granted in lieu of Options
may be exercised for all or part of the Shares subject to the related Option
upon the surrender of the related Options representing the right to purchase an
equivalent number of Shares. The SAR may be exercised only with respect to the
Shares of Stock for which its related Option is then exercisable. Option Stock
with respect to which the SAR shall have been exercised may not be subject again
to an Award under the Plan.

Notwithstanding any other provision of the Plan to the contrary, with
respect to an SAR granted in lieu of an Incentive Stock Option, (i) the SAR will
expire no later than the expiration of the underlying Incentive Stock Option;
(ii) the SAR amount may be for no more than one hundred percent (100%) of the
difference between the exercise price of the underlying Incentive Stock Option
and the Fair Market Value of the Stock subject to the underlying Incentive Stock
Option at the time the SAR is exercised; and (iii) the SAR may be exercised only
when the Fair Market Value of the Stock subject to the Incentive Stock Option
exceeds the exercise price of the Incentive Stock Option.

7.3. EXERCISE OF SARS IN ADDITION TO OPTIONS. SARs granted in addition to
Options shall be deemed to be exercised upon the exercise of the related
Options. The deemed exercise of SARs granted in addition to Options shall not
necessitate a reduction in the number of related Options.

<PAGE>

7.4. EXERCISE OF SARS INDEPENDENT OF OPTIONS. Subject to Section 3.8
herein and Section 7.5 herein, SARs granted independently of Options may be
exercised upon whatever terms and conditions the Committee, in its sole
discretion, imposes upon the SARs, including, but not limited to, a
corresponding proportional reduction in previously granted Options.

7.5. PAYMENT OF SAR AMOUNT. Upon exercise of the SAR, the holder shall be
entitled to receive payment of an amount determined by multiplying:

(a) The difference between the Fair Market Value of a Share on the date
of exercise over the price fixed by the Committee at the date of
grant (which price shall not be less than 100% of the market price of
a Share on the date of grant) (the Exercise Price); by
(b) The number of Shares with respect to which the SAR is exercised.

7.6. FORM AND TIMING OF PAYMENT. Payment to a Participant, upon SAR
exercise, will be made in cash or stock, at the discretion of the Committee,
within ten calendar days of the exercise.

7.7. TERM OF SAR. The term of an SAR granted under the Plan shall not
exceed ten years.

7.8. TERMINATION OF EMPLOYMENT. In the event the employment of a
Participant is terminated by reason of death, disability, retirement, or any
other reason, the exercisability of any outstanding SAR granted in lieu of or in
addition to an Option shall terminate in the same manner as its related Option
as specified under Sections 6.8 and 6.9 herein. The exercisability of any
outstanding SARs granted independent of Options also shall terminate in the
manner provided under Sections 6.8 and 6.9 hereof.

7.9. NONTRANSFERABILITY OF SARS. No SAR granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution. Further, all
SARs granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant.

ARTICLE 8. RESTRICTED STOCK

8.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock under the Plan to such Participants and in such amounts as it
shall determine. In the case of Covered Employees, the Committee may condition
the vesting or lapse of the Period of Restriction established pursuant to
Section 8.3 upon the attainment of one or more of the performance goals utilized
for purposes of Performance Units and Performance Shares pursuant to Article 9
hereof.

<PAGE>

It is contemplated that Restricted Stock grants will be made only in
extraordinary situations of performance, promotion, retention, or recruitment.

8.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that shall specify the Period of
Restriction, or periods, the number of Shares of Restricted Stock granted, and
such other provisions as the Committee shall determine.

8.3. TRANSFERABILITY. Except as provided in this Article 8 or in Section
3.8 herein, the Shares of Restricted Stock granted hereunder may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
termination of the applicable Period of Restriction or for such period of time
as shall be established by the Committee and as shall be specified in the
Restricted Stock Agreement, or upon earlier satisfaction of other conditions
(including any performance goals) as specified by the Committee in its sole
discretion and set forth in the Restricted Stock Agreement. All rights with
respect to the Restricted Stock granted to a Participant under the Plan shall be
exercisable during his lifetime only by such Participant.

8.4. OTHER RESTRICTIONS. The Committee shall impose such other
restrictions on any Shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable including, without limitation, restrictions under
applicable Federal or state securities laws, and the Committee may legend
certificates representing Restricted Stock to give appropriate notice of such
restrictions.

8.5. CERTIFICATE LEGEND. In addition to any legends placed on
certificates pursuant to Section 8.4 herein, each certificate representing
Shares of Restricted Stock granted pursuant to the Plan shall bear the following
legend:

"The sale or other transfer of the shares of stock represented by
this certificate, whether voluntary, involuntary, or by operation of
law, is subject to certain restrictions on transfer set forth in the
Omnibus Long-Term Incentive Plan of LG&E Energy Corp., in the rules
and administrative procedures adopted pursuant to such Plan, and in a
Restricted Stock Agreement dated __________. A copy of the Plan,
such rules and procedures, and such Restricted Stock Agreement may be
obtained from the Secretary of LG&E Energy Corp."

8.6. REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Article, Shares of Restricted Stock covered by each Restricted Stock grant made
under the Plan shall become freely transferable by the Participant after the
last day of the Period of Restriction. Once the Shares are released from the
restrictions, the Participant shall be entitled to have the legend required by
Section 8.5 removed from his Stock certificate.

<PAGE>

8.7. VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.

8.8. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares while they are so held. If any such dividends or distributions are
paid in Shares, the Shares shall be subject to the same restrictions on
transferability as the Shares of Restricted Stock with respect to which they
were paid.

8.9. TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. In the event that a
Participant terminates his employment with the Company or any of its
Subsidiaries because of normal retirement (as defined under the then established
rules of the Company or any of its Subsidiaries, as the case may be), any
remaining Period of Restriction applicable to the Restricted Stock pursuant to
Section 8.3 hereof shall automatically terminate and, except as otherwise
provided in Section 8.4 or Section 3.8 hereof, the Shares of Restricted Stock
shall thereby be free of restrictions and be freely transferable. In the event
that a Participant terminates his employment with the Company or any of its
Subsidiaries because of early retirement (as defined under the then established
rules of the Company or any of its Subsidiaries, as the case may be), the
Committee in its sole discretion (subject to Section 3.8 herein) may waive the
restrictions remaining on any or all Shares of Restricted Stock pursuant to
Section 8.3 herein and add such new restrictions to those Shares of Restricted
Stock as it deems appropriate.

8.10. TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. In the event
a Participant's employment is terminated because of death or disability (as
defined under the then established rules of the Company or any of its
Subsidiaries, as the case may be) during the Period of Restriction, any
remaining Period of Restriction applicable to the Restricted Stock pursuant to
Section 8.3 herein shall automatically terminate and, except as otherwise
provided in Section 8.4. herein, the shares of Restricted Stock shall thereby be
free of restrictions and be fully transferable.

8.11. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant terminates his employment with the Company or any of its
Subsidiaries for any reason other than for death, disability, or retirement, as
set forth in Sections 8.9 and 8.10 herein, during the Period of Restriction,
then any shares of Restricted Stock still subject to restrictions as of the date
of such termination shall automatically be forfeited and returned to the
Company; provided, however, that in the event of an involuntary termination of
the employment of a Participant by the Company or any of its Subsidiaries other
than for Cause, the Committee, in its sole discretion (subject to Section 3.8
herein), may waive the automatic forfeiture of any or all such Shares and may
add such new restrictions to such Shares of Restricted Stock as it deems
appropriate.

<PAGE>

ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES

9.1. GRANT OF PERFORMANCE UNITS OR PERFORMANCE SHARES. Subject to the
terms and provisions of the Plan, Performance Units or Performance Shares may be
granted to Participants at any time and from time to time as shall be determined
by the Committee. The Committee shall have complete discretion in determining
the number of Performance Units or Performance Shares granted to each
Participant.

9.2. VALUE OF PERFORMANCE UNITS AND PERFORMANCE SHARES. The Committee
shall set performance goals over certain periods to be determined in advance by
the Committee ("Performance Periods"). Prior to each grant of Performance Units
or Performance Shares, the Committee shall establish an initial value for each
Performance Unit and an initial number of Shares for each Performance Share
granted to each Participant for that Performance Period. Prior to each grant of
Performance Units or Performance Shares, the Committee also shall set the
performance goals that will be used to determine the extent to which the
Participant receives a payment of the value of the Performance Units or number
of Shares for the Performance Shares awarded for such Performance Period. These
goals will be based on the attainment, by the Company or its Subsidiaries, of
certain objective performance measures, which shall include one or more of the
following: total shareholder return, return on equity, return on capital,
earnings per share, market share, stock price, sales, costs, net income, cash
flow, retained earnings, results of customer satisfaction surveys, aggregate
product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, and energy production
availability performance measures. Such performance goals also may be based
upon the attainment of specified levels of performance of the Company or one or
more Subsidiaries under one or more of the measures described above relative to
the performance of other corporations. With respect to each such performance
measure utilized during a Performance Period, the Committee shall assign
percentages to various levels of performance which shall be applied to determine
the extent to which the Participant shall receive a payout of the values of
Performance Units and number of Performance Shares awarded. With respect to
Covered Employees, all performance goals shall be objective performance goals
satisfying the requirements for "performance-based compensation" within the
meaning of Section 162(m)(4) of the Code, and shall be set by the Committee
within the time period prescribed by Section 162(m) of the Code and related
regulations.

9.3. PAYMENT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. After a
Performance Period has ended, the holder of a Performance Unit or Performance
Share shall be entitled to receive the value thereof as determined by the
Committee. The Committee shall make this determination by first determining the
extent to which the performance goals set pursuant to Section 9.2 have been met.
It will then determine the applicable percentage (which may exceed 100%) to be
applied to, and will apply such percentage to, the value of Performance Units or
number of Performance Shares to determine the payout to be received by the
Participant. In

<PAGE>

addition, with respect to Performance Units and Performance Shares granted to
any Covered Employee, no payout shall be made hereunder except upon written
certification by the Committee that the applicable performance goal or goals
have been satisfied to a particular extent. The maximum amount payable in
cash to any Covered Employee with respect to any Performance Period pursuant
to any Performance Unit or Performance Share award shall be $1,000,000, and
the maximum number of Shares that may be issued to any Covered Employee with
respect to any Performance Period pursuant to any Performance Unit or
Performance Share award is one hundred thousand (100,000) (subject to
adjustment as provided in Section 4.3).

9.4. COMMITTEE DISCRETION TO ADJUST AWARDS. Subject to Section 3.2
regarding Awards to Covered Employees, the Committee shall have the authority to
modify, amend or adjust the terms and conditions of any Performance Unit award
or Performance Share award, at any time or from time to time, including but not
limited to the performance goals.

9.5. FORM AND TIMING OF PAYMENT. The payment described in Section 9.3
herein shall be made in cash, Stock, or a combination thereof as determined by
the Committee. Payment may be made in a lump sum or installments as prescribed
by the Committee. If any payment is to be made on a deferred basis, the
Committee may provide for the payment of dividend equivalents or interest during
the deferral period. Any stock issued in payment of a Performance Unit or
Performance Share shall be subject to the restrictions on transfer in Section
3.8 herein.

9.6. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the case of death, disability, or retirement (each of disability and retirement
as defined under the established rules of the Company or any of its
Subsidiaries, as the case may be), the holder of a Performance Unit or
Performance Share shall receive a prorated payment based on the Participant's
number of full months of service during the Performance Period, further adjusted
based on the achievement of the performance goals during the entire Performance
Period, as computed by the Committee. Payment shall be made at the time
payments are made to Participants who did not terminate service during the
Performance Period.

9.7. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant terminates employment with the Company or any of its Subsidiaries
for any reason other than death, disability, or retirement, all Performance
Units and Performance Shares shall be forfeited; provided, however, that in the
event of an involuntary termination of the employment of the Participant by the
Company or any of its Subsidiaries other than for Cause, the Committee in its
sole discretion may waive the automatic forfeiture provisions and pay out on a
prorata basis.

9.8. NONTRANSFERABILITY. No Performance Units or Performance Shares
granted under the Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, otherwise than by will or by the laws of descent and
distribution until the termination of the applicable Performance Period. All
rights with respect to Performance Units and Performance

<PAGE>

Shares granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant.

ARTICLE 10. BENEFICIARY DESIGNATION

Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively and
who may include a trustee under a will or living trust) to whom any benefit
under the Plan is to be paid in case of his death before he receives any or all
of such benefit. Each designation will revoke all prior designations by the
same Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation or if all
designated beneficiaries predecease the Participant, benefits remaining unpaid
at the Participant's death shall be paid to the Participant's estate.

ARTICLE 11. RIGHTS OF EMPLOYEES

11.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company or any of its Subsidiaries to terminate any
Participant's employment at any time, nor confer upon any Participant any right
to continue in the employ of the Company or any of its Subsidiaries.

11.2. PARTICIPATION. No employee shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a Participant.

11.3. NO IMPLIED RIGHTS; RIGHTS ON TERMINATION OF SERVICE. Neither the
establishment of the Plan nor any amendment thereof shall be construed as giving
any Participant, beneficiary, or any other person any legal or equitable right
unless such right shall be specifically provided for in the Plan or conferred by
specific action of the Committee in accordance with the terms and provisions of
the Plan. Except as expressly provided in this Plan, neither the Company nor
any of its Subsidiaries shall be required or be liable to make any payment under
the Plan.

11.4. NO RIGHT TO COMPANY ASSETS. Neither the Participant nor any other
person shall acquire, by reason of the Plan, any right in or title to any
assets, funds or property of the Company or any of its Subsidiaries whatsoever
including, without limiting the generality of the foregoing, any specific funds,
assets, or other property which the Company or any of its Subsidiaries, in its
sole discretion, may set aside in anticipation of a liability hereunder. Any
benefits which become payable hereunder shall be paid from the general assets of
the Company or the applicable subsidiary. The Participant shall have only a
contractual right to the amounts, if any, payable hereunder unsecured by any
asset of the Company or any of its Subsidiaries. Nothing contained in the Plan
constitutes a guarantee by the Company or any of its Subsidiaries

<PAGE>

that the assets of the Company or the applicable subsidiary shall be sufficient
to pay any benefit to any person.

ARTICLE 12. CHANGE IN CONTROL

12.1. STOCK BASED AWARDS. Notwithstanding any other provisions of the Plan,
in the event of a Change in Control, all Stock based awards granted under this
Plan shall immediately vest 100% in each Participant (subject to Section 3.8
herein), including Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, and Restricted Stock.

12.2. PERFORMANCE BASED AWARDS. Notwithstanding any other provisions of
the Plan, in the event of a Change in Control, all performance based awards
granted under this Plan shall be immediately paid out in cash, including
Performance Units and Performance Shares. The amount of the payout shall be
based on the higher of: (i) the extent, as determined by the Committee, to
which performance goals, established for the Performance Period then in progress
have been met up through and including the effective date of the Change in
Control or (ii) 100% of the value on the date of grant of the Performance Units
or number of Performance Shares.

ARTICLE 13. AMENDMENT, MODIFICATION, AND TERMINATION

13.1. AMENDMENT, MODIFICATION, AND TERMINATION. At any time and from time
to time, the Board may terminate, amend, or modify the Plan. However, without
the approval of the stockholders of the Company if required by the Code, by the
insider trading rules of Section 16 of the Exchange Act, by any national
securities exchange or system on which the Stock is then listed or reported, or
by any regulatory body having jurisdiction with respect hereto, no such
termination, amendment, or modification may:

(a) Increase the total amount of Stock which may be issued under this
plan, except as provided in Section 4.3 herein; or
(b) Change the class of Employees eligible to participate in the Plan; or
(c) Materially increase the cost of the Plan or materially increase the
benefits to Participants; or
(d) Extend the maximum period after the date of grant during which Options
or Stock Appreciation Rights may be exercised.

13.2. AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification
of the Plan other than pursuant to Section 4.3 hereof shall in any manner
adversely affect any Award theretofore granted under the Plan, without the
written consent of the Participant.

<PAGE>

ARTICLE 14. WITHHOLDING

14.1. TAX WITHHOLDING. The Company and any of its Subsidiaries shall have
the power and the right to deduct or withhold, or require a Participant to remit
to the Company or any of its Subsidiaries, an amount sufficient to satisfy
Federal, state and local taxes (including the Participant's FICA obligation)
required by law to be withheld with respect to any grant, exercise, or payment
made under or as a result of this Plan.

14.2. STOCK DELIVERY OR WITHHOLDING. With respect to withholding required
upon the exercise of Nonqualified Stock Options, or upon the lapse of
restrictions on Restricted Stock, participants may elect, subject to the
approval of the Committee, to satisfy the withholding requirement, in whole or
in part, by tendering to the Company shares of previously acquired Stock or by
having the Company withhold Shares of Stock, in each such case in an amount
having a Fair Market Value equal to the amount required to be withheld to
satisfy the tax withholding obligations described in Section 14.1. The value of
the Shares to be tendered or withheld is to be based on the Fair Market Value of
the Stock on the date that the amount of tax to be withheld is to be determined.
All Stock withholding elections shall be irrevocable and made in writing, signed
by the Participant on forms approved by the Committee in advance of the day that
the transaction becomes taxable.

Stock withholding elections made by Participants who are subject to the
short-swing profit restrictions of Section 16 of the Exchange Act must comply
with the additional restrictions of Section 16 and Rule 16b-3 in making their
elections.

ARTICLE 15. SUCCESSORS

All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.

ARTICLE 16. REQUIREMENTS OF LAW

16.1. REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares of Stock under this Plan shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.

16.2. GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Kentucky.

<PAGE>

Exhibit 10.53

LG&E ENERGY CORP.
SHORT TERM INCENTIVE PLAN

Effective January 1, 1996

ARTICLE 1. ESTABLISHMENT AND PURPOSE

1.1. ESTABLISHMENT OF THE PLAN. LG&E Energy Corp. (hereinafter referred to
as the "Company"), a Kentucky corporation, hereby establishes an annual
incentive compensation plan to be known as the "Short Term Incentive Plan"
(hereinafter referred to as the "Plan") as set forth in this document. The Plan
permits the awarding of annual cash bonuses to Key Employees of the Company and
its Subsidiaries, based on the achievement of preestablished performance goals.

With approval by the Board of Directors of the Company, the Plan shall
become effective as of January 1, 1996, subject to the approval of the Plan by
the shareholders of the Company by the affirmative vote of a majority of the
shares of common stock of the Company present or represented and entitled to
vote at a meeting of the Company's shareholders. The Plan shall remain in
effect until terminated by the Board of Directors.

1.2. PURPOSE. The purpose of the Plan is to provide Key Employees of the
Company and its Subsidiaries with a meaningful annual incentive opportunity
geared toward the achievement of specific corporate, business unit, line of
business, and/or individual goals. Payments pursuant to Article 6 of the Plan
are intended to qualify under the performance-based compensation exemption of
Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended.

ARTICLE 2. DEFINITIONS

2.1. DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the defined meaning is intended, the
term is capitalized:

(a) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(c) "Cause" shall mean the occurrence of any one of the following:

(i) The willful and continued failure by a Participant to
substantially perform his/her duties (other than any such failure
resulting from the Participant's disability), after a written
demand for substantial performance is delivered to the
Participant that specifically identifies the manner in which the
Company or any of its Subsidiaries, as the case may be, believes
that the Participant has not substantially performed his/her
duties, and the Participant has failed to remedy the situation
within ten (10) business days of receiving such notice; or

<PAGE>

(ii) the Participant's conviction for committing a felony in
connection with the employment relationship; or

(iii) the willful engaging by the Participant in gross misconduct
materially and demonstrably injurious to the Company or any of
its Subsidiaries. However, no act, or failure to act, on the
Participant's part shall be considered "willful" unless done, or
omitted to be done, by the Participant not in good faith and
without reasonable belief that his/her action or omission was in
the best interest of the Company or any of its Subsidiaries.

(d) "Change in Control" shall be deemed to have occurred if the conditions
set forth in any one of the following paragraphs shall have been
satisfied:

(i) Any Person (other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
of its Subsidiaries, or a corporation owned directly or
indirectly by the common shareholders of the Company in
substantially the same proportions as their ownership of common
stock of the Company), is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing
15% or more of the combined voting power of the Company's then
outstanding securities; or

(ii) during any period of two (2) consecutive years (not including any
period prior to the effective date of the Plan), individuals who
at the beginning of such period constitute the Board and any new
director, whose election by the Board or nomination for election
by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; or

(iii) the shareholders of the Company approve (A) a plan of
complete liquidation of the Company; or (B) an agreement for the
sale or disposition of all or substantially all the Company's
assets; or (C) a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity), at least 50% of the combined
voting power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger or
consolidation.

However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if the Participant is
part of a

<PAGE>

purchasing group which consummates the Change in Control
transaction. The Participant shall be deemed "part of a
purchasing group..." for purposes of the preceding sentence if
the Participant is an equity participant or has agreed to become
an equity participant in the purchasing company or group (except
for (i) passive ownership of less than 5% of the voting
securities of the purchasing company or (ii) ownership of equity
participation in the purchasing company or group which is
otherwise not deemed to be significant, as determined prior to
the Change in Control by a majority of the nonemployee continuing
members of the Board).

(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.

(f) "Committee" means the committee of three or more persons appointed by
the Board to administer the Plan, pursuant to Article 3 herein.

(g) "Company" means LG&E Energy Corp., a Kentucky corporation, and any
successor thereto.

(h) "Company Performance Goals" shall have the meaning ascribed to it by
Section 6.1 hereof.

(i) "Company Performance Award" means an award established pursuant to
Article 6 hereof. Such Company Performance Awards shall be expressed
as a percentage of the Participant's base salary.

(j) "Earned Award" means the Earned Individual Award, if any, and the
Earned Company Award, if any, for a Participant for the applicable
Incentive Period.

(k) "Earned Company Award" means the actual award earned under a
Participant's Company Performance Award during an Incentive Period as
determined by the Committee at the end of the Incentive Period
(pursuant to Section 6.3 hereof).

(l) "Earned Individual Award" means the actual award earned under a
Participant's Individual Performance Award during an Incentive Period
as determined by the Committee at the end of the Incentive Period
(pursuant to Section 5.4 hereof).

(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.

(n) "Incentive Period" shall mean the period with respect to which a
Participant is eligible to earn an Earned Award. Subject to the
discretion of the Committee to select shorter or longer Incentive
Periods, the Incentive Period shall be the Plan Year.

<PAGE>

(o) "Individual Performance Award" means an award established pursuant to
Article 5 hereof. Such Individual Performance Award shall be
expressed as a percentage of the Participant's actual base salary.

(p) "Key Employee" means the Chief Executive Officer of the Company and
each employee of the Company or any of its Subsidiaries who, in the
opinion of the Chief Executive Officer of the Company, is in a
position to significantly contribute to the growth and profitability
of the Company or any of its Subsidiaries (see Article 4 herein).

(q) "Outside Director" means any director who qualifies as an "outside
director" as that term is defined in Code Section 162(m) and the
regulations issued thereunder.

(r) "Participant" means a Key Employee who is nominated for participation
by the Chief Executive Officer and then is selected by the Committee
to participate in the Plan (see Article 4 herein).

(s) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Section 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).

(t) "Plan Year" means the Company's fiscal year commencing January 1 and
ending December 31.

(u) "Subsidiary" shall mean any corporation of which more than 50% (by
number of votes) of the Voting Stock at the time outstanding is owned,
directly or indirectly, by the Company.

(v) "Target Performance Award" means the Individual Performance Award, if
any, and the Company Performance Award, if any, for a Participant for
the applicable Incentive Period.

(w) "Voting Stock" shall mean securities of any class or classes of stock
of a corporation, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect a majority of the corporate
directors.

2.2. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.

2.3. SEVERABILITY. In the event any provision of the Plan shall be held
legally invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.

<PAGE>

ARTICLE 3. ADMINISTRATION

3.1. THE COMMITTEE. This Plan shall be administered by the Committee in
accordance with rules that it may establish from time to time, that are not
inconsistent with the provisions of this Plan. To the extent required to comply
with Code Section 162(m) and the related regulations, each member of the
Committee shall be an Outside Director.

3.2. AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full power to construe and interpret the Plan and to
establish, amend or waive rules and regulations for its administration. The
determination of the Committee as to any disputed question arising under this
Plan, including questions of construction and interpretation shall be final,
binding, and conclusive upon all persons and shall not be reviewable.

3.3. DELEGATION OF CERTAIN RESPONSIBILITIES. The Committee may, in its
sole discretion, delegate to an officer or officers of the Company the
administration of the Plan under this Article 3; provided, however, that no
such delegation by the Committee shall be made with respect to the
administration of the Plan as it affects officers of the Company or its
Subsidiaries, and provided further that the Committee may not delegate its
authority to correct errors, omissions or inconsistencies in the Plan. All
authority delegated by the Committee under this Section 3.3 shall be exercised
in accordance with the provisions of the Plan and any guidelines for the
exercise of such authority that may from time to time be established by the
Committee.

3.4. PROCEDURES OF THE COMMITTEE. All determinations of the Committee
shall be made by not less than a majority of its members present at the meeting
(in person or otherwise) at which a quorum is present. A majority of the entire
Committee shall constitute a quorum for the transaction of business. Any action
required or permitted to be taken at a meeting of the Committee may be taken
without a meeting if a unanimous written consent, which sets forth the action,
is signed by each member of the Committee and filed with the minutes for
proceedings of the Committee.

3.5. INDEMNIFICATION. Service on the Committee shall constitute service as
a director of the Company so that members of the Committee shall be entitled to
indemnification, limitation of liability and reimbursement of expenses with
respect to their services as members of the Committee to the same extent that
they are entitled under the Company's Articles of Incorporation and Kentucky law
for their services as directors of the Company.

ARTICLE 4. ELIGIBILITY AND PARTICIPATION

4.1. ELIGIBILITY. Eligibility for participation in the Plan shall be
limited to those Key Employees who are nominated for participation by the Chief
Executive Officer of the Company and then selected by the Committee to
participate in the Plan.

4.2. PARTICIPATION. Participation in the Plan shall be determined annually
based upon nomination by the Chief Executive Officer and selection by the
Committee. Specific criteria for participation shall be determined by the
Committee prior to the beginning of each Incentive

5
<PAGE>

Period. Key Employees selected for participation shall be notified in writing
of their selection, and of their performance goals and related Target
Performance Awards, as soon after approval as is practicable.

4.3. PARTIAL INCENTIVE PERIOD PARTICIPATION. Subject to Article 6 herein,
the Committee may, upon recommendation of the Chief Executive Officer, allow an
individual who becomes eligible after the beginning of an Incentive Period to
participate in the Plan for that period. In such case, the Participant's Earned
Award normally shall be prorated based on the number of full months of
participation during such Incentive Period. However, subject to Article 6
herein, the Chief Executive Officer, subject to Committee approval, may
authorize an unreduced Earned Award.

4.4. TERMINATION OF APPROVAL. In its sole discretion, the Committee may
withdraw its approval for participation in the Plan with respect to an Incentive
Period for a Participant at any time during such Incentive Period; provided,
however that, such withdrawal must occur before the end of such Incentive Period
and provided further that, in the event a Change in Control occurs during an
Incentive Period, the Committee may not thereafter withdraw its approval for a
Participant during such Incentive Period. In the event of such withdrawal, the
employee concerned shall cease to be a Participant as of the date designated by
the Committee, and the employee shall not be entitled to any part of an Earned
Award for the Incentive Period in which such withdrawal occurs. Such employee
shall be notified of such withdrawal in writing as soon as practicable following
such action.

ARTICLE 5. INDIVIDUAL PERFORMANCE AWARDS

5.1. AWARD OPPORTUNITIES. At the beginning of each Incentive Period, the
Committee shall establish Individual Performance Award levels for each
Participant who is to be granted an Individual Performance Award. The
established levels may vary in relation to the responsibility level of the
Participant. In the event a Participant changes job levels during the Incentive
Period, the Individual Performance Award may be adjusted at the discretion of
the Committee to reflect the amount of time at each job level. Notwithstanding
any provision in this Plan to the contrary, Individual Performance Awards shall
not be dependent in any manner on, and shall be established independently of and
in addition to, the establishment of any Company Performance Awards or the
payout of any Earned Company Awards pursuant to Article 6 herein.

5.2. INDIVIDUAL PERFORMANCE GOALS. At the beginning of each Incentive
Period, the Chief Executive Officer shall establish individual performance goals
for each Participant who is granted an Individual Performance Award; provided,
however, that the Committee shall establish the individual performance goals for
the Chief Executive Officer. The level of achievement of the individual
performance goals by a Participant at the end of the Incentive Period, as
determined pursuant to Section 5.4 below, will determine such Participant's
Earned Individual Award, which may range from 0% to 175% of such Participant's
Individual Performance Award.

5.3. ADJUSTMENT OF INDIVIDUAL PERFORMANCE GOALS. The Chief Executive
Officer shall have the right to adjust the individual performance goals (either
up or down) during the Incentive

<PAGE>

Period if he determines that external changes or other unanticipated conditions
have materially affected the fairness of the goals and unduly influenced a
Participant's ability to meet them; provided, however, that no such adjustment
to the Chief Executive Officer's individual performance goals shall be made
unless approved by the Committee; and provided further that no adjustment of
such individual performance goals for any Participant shall be made based upon
the failure, or the expected failure, to attain or exceed the Company
Performance Goals for any Company Performance Award granted to such Participant
under Article 6 herein. Further, in the event of an Incentive Period of less
than twelve (12) months, the Chief Executive Officer shall have the right to
adjust the individual performance goals, at his discretion, to protect the
purpose and intent of the Plan.

5.4. EARNED INDIVIDUAL AWARD DETERMINATION. At the end of each Incentive
Period, the Chief Executive Officer shall review the performance of each
Participant who received an Individual Performance Award. Based on the Chief
Executive Officer's determination as to a Participant's level of achievement of
his or her individual performance goals, the Chief Executive Officer shall make
a recommendation to the Committee as to the Earned Individual Award to be
received by such Participant. Notwithstanding the foregoing, however, all
reviews and determinations with respect to the performance of the Chief
Executive Officer, and the payment of any Earned Individual Award to the Chief
Executive Officer, shall be made by the Committee. The payment of all Earned
Individual Awards is subject to approval by the Committee. The payment of an
Earned Individual Award to a Participant shall not be contingent in any manner
upon the attainment of, or failure to attain, the Company Performance Goals for
the Company Performance Awards granted to such Participant under Article 6.

5.5. MAXIMUM PAYABLE/AGGREGATE AWARD CAP. The maximum amount payable to a
Participant pursuant to this Article 5 for performance by the Participant during
any fiscal year of the Company shall be $500,000. The Committee also may
establish guidelines governing the maximum Earned Individual Awards that may be
earned by all Participants in the aggregate, in each Incentive Period. These
guidelines may be expressed as a percentage of a financial measure, or such
other measure as the Committee shall from time to time determine.

ARTICLE 6. COMPANY PERFORMANCE AWARDS

In addition to any Individual Performance Awards granted under Article 5,
Company Performance Awards based solely on Company performance may be
established under this Article 6 for Participants. Company Performance Awards
are intended to satisfy the performance-based compensation exemption under Code
Section 162(m)(4)(C) and the related regulations and shall thus be subject to
the requirements set forth in this Article 6.

6.1. AWARD OPPORTUNITIES. On or before the 90th day of each Incentive
Period and in any event before 25% or more of the Incentive Period has elapsed,
the Committee shall establish in writing for each Participant for whom a Company
Performance Award is to be granted under this Article 6, the Company Performance
Award and specific objective performance goals for the Incentive Period, which
goals shall meet the requirements of Section 6.2 herein (such goals are
hereinafter referred to as "Company Performance Goals"). The extent, if any, to
which an

<PAGE>

Earned Company Award will be payable to a Participant will be based solely upon
the degree of achievement of such preestablished Company Performance Goals over
the specified Incentive Period; provided, however, that the Committee may, in
its sole discretion, reduce the amount which would otherwise be payable with
respect to an Incentive Period. Payment of an Earned Company Award to a
Participant shall consist of a cash award from the Company to be based upon a
percentage (which may exceed 100%) of the Participant's Company Performance
Award.

6.2. COMPANY PERFORMANCE GOALS. The Company Performance Goals established
by the Committee pursuant to Section 6.1 will be based on one or more of the
following: total shareholder return, return on equity, return on capital,
earnings per share, market share, stock price, sales, costs, net income, cash
flow, retained earnings, results of customer satisfaction surveys, aggregate
product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, and energy production
availability performance measures. At the time of establishing a Company
Performance Goal, the Committee shall specify the manner in which the Company
Performance Goal shall be calculated. In so doing, the Committee may exclude
the impact of certain specified events from the calculation of the Company
Performance Goal. For example, if the Company Performance Goal were earnings
per share, the Committee could, at the time this Company Performance Goal was
established, specify that earnings per share are to be calculated without regard
to any subsequent change in accounting standards required by the Financial
Accounting Standards Board. Company Performance Goals also may be based on the
attainment of specified levels of performance of the Company and/or any of its
Subsidiaries under one or more of the measures described above relative to the
performance of other corporations. As part of the establishment of Company
Performance Goals for an Incentive Period, the Company shall also establish a
minimum level of achievement of the Company Performance Goals that must be met
for a Participant to receive any portion of his Company Performance Award. All
of the provisions of this Section 6.2 are subject to the requirement that all
Company Performance Goals shall be objective performance goals satisfying the
requirement for "performance-based compensation" within the meaning of Section
162(m)(4) of the Code and the related regulations.

6.3. PAYMENT OF AN EARNED COMPANY AWARD. At the time the Company
Performance Award for a Participant is established, the Committee shall
prescribe a formula to determine the percentage (which may exceed 100%) of the
Company Performance Award which may be payable to the Participant based upon the
degree of attainment of the Company Performance Goals during the Incentive
Period. If the minimum level of achievement of Company Performance Goals
established by the Committee for a Participant for an Incentive Period is not
met, no payment of an Earned Company Award will be made to the Participant for
that Incentive Period. To the extent that the minimum level of achievement of
Company Performance Goals is satisfied or surpassed for a Participant for an
Incentive Period, and upon written certification by the Committee that the
Company Performance Goals have been satisfied to a particular extent and that
any other material terms and conditions of the Company Performance Awards have
been satisfied, payment of an Earned Company Award shall be made to the
Participant for that Incentive Period in accordance with the prescribed formula
unless the Committee determines, in its sole discretion, to reduce the payment
to be made.

<PAGE>

6.4. MAXIMUM PAYABLE. The maximum amount payable to a Participant pursuant
to this Article 6 for performance by the Participant during any fiscal year of
the Company shall be $1,000,000.

6.5. COMMITTEE DISCRETION. Notwithstanding Article 5 herein, the Committee
shall not have discretion to modify the terms of Company Performance Awards,
except as specifically set forth in this Article 6.

ARTICLE 7. FORM AND TIMING OF PAYMENT OF AWARDS

Subject to Article 6 herein, as soon as practicable following the release
of the Company's audited financial statements pertaining to the Plan Year ending
coincident with or immediately after the applicable Incentive Period, Earned
Award payments, if any, for such Incentive Period shall be paid in cash.
Subject to Article 6 herein, deferral of payments may be provided for under
rules to be determined by the Committee.

ARTICLE 8. TERMINATION OF EMPLOYMENT

8.1. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the event a Participant's employment is terminated by reason of death, total and
permanent disability (as determined by the Committee), or retirement (as
determined by the Committee), the Earned Award, determined in accordance with
Section 5.4 and Section 6.3 herein, shall be reduced to reflect participation
prior to termination. This reduction shall be determined by multiplying said
Earned Award by a fraction; the numerator of which is the months of
participation through the date of termination rounded up to whole months and the
denominator of which is the number of whole months in the applicable Incentive
Period. The Earned Award thus determined shall be paid as soon as practicable
following the release of the Company's audited financial statements pertaining
to the Plan Year ending coincident with or immediately after the applicable
Incentive Period.

8.2. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event a
Participant's employment is terminated for any reason other than death, total
and permanent disability, or retirement (of which the Committee shall be the
sole judge), all of the Participant's rights to an Earned Award for the
Incentive Period then in progress shall be forfeited. However, except in the
event of a termination of employment for Cause, the Committee, in its sole
discretion, may pay a prorated award for the portion of that Incentive Period
that the Participant was employed by the Company or any of its Subsidiaries,
computed as determined by the Committee.

ARTICLE 9. RIGHTS OF PARTICIPANTS

9.1. EMPLOYMENT. Nothing in this Plan shall interfere with or limit in any
way the right of the Company or any of its Subsidiaries to terminate any
Participant's employment at any time, nor confer upon any Participant any right
to continue in the employ of the Company or any of its Subsidiaries.

<PAGE>

9.2. PARTICIPATION. No Participant or other employee shall at any time
have a right to be selected for participation in the Plan for any Incentive
Period, despite having been selected for participation in a previous Incentive
Period. Except as otherwise provided in Article 8 or Article 11 herein and
subject to Section 4.4 herein, a Participant shall not have any right to an
Earned Award for an Incentive Period, unless the Participant is an employee of
the Company at the end of such Incentive Period.

9.3. NONTRANSFERABILITY. No right or interest of any Participant in this
Plan shall be assignable or transferable, or subject to any lien, directly, by
operation of law, or otherwise, including execution, levy, garnishment,
attachment, pledge, and bankruptcy.

9.4. NO IMPLIED RIGHTS; RIGHTS ON TERMINATION OF SERVICE. Neither the
establishment of the Plan nor any amendment thereof shall be construed as giving
any Participant, beneficiary, or any other person any legal or equitable right
unless such right shall be specifically provided for in the Plan or conferred by
specific action of the Committee in accordance with the terms and provisions of
the Plan. Except as expressly provided in this Plan, neither the Company nor
any of its Subsidiaries shall be required or be liable to make any payment under
the Plan.

9.5. NO RIGHT TO COMPANY ASSETS. Neither the Participant nor any other
person shall acquire, by reason of the Plan, any right in or title to any
assets, funds or property of the Company or any of its Subsidiaries whatsoever
including, without limiting the generality of the foregoing, any specific funds,
assets, or other property which the Company or any of its Subsidiaries, in its
sole discretion, may set aside in anticipation of a liability hereunder. Any
benefits which become payable hereunder shall be paid from the general assets of
the Company or the applicable Subsidiary. The Participant shall have only a
contractual right to the amounts, if any, payable hereunder unsecured by any
asset of the Company or any of its Subsidiaries. Nothing contained in the Plan
constitutes a guarantee by the Company or any of its Subsidiaries that the
assets of the Company or the applicable Subsidiary shall be sufficient to pay
any benefit to any person.

ARTICLE 10. BENEFICIARY DESIGNATION

Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively and
who may include a trustee under a will or living trust) to whom any benefit
under the Plan is to be paid in case of his death before he receives any or all
of such benefit. Each designation will revoke all prior designations by the
same Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation, or if all
designated beneficiaries predecease the Participant, benefits remaining unpaid
at the Participant's death shall be paid to the Participant's estate.

<PAGE>

ARTICLE 11. CHANGE IN CONTROL

Notwithstanding any other provisions of the Plan, in the event a
Participant's employment with the Company or any of its Subsidiaries is
terminated for any reason other than for Cause, within twenty-four (24) months
after a Change in Control of the Company or any of its Subsidiaries, all awards
previously deferred (with earnings) shall be paid to the Participant within ten
(10) business days of the termination; along with the Target Performance Award
established for the Participant for the Incentive Period in progress at the time
of the employment termination, prorated for the number of days in the Incentive
Period in which the Participant was employed by the Company or any of its
Subsidiaries, up to and including the date of termination.

In the event a Participant's employment with the Company or any of its
Subsidiaries is terminated for Cause, no Earned Award will be paid for the
Incentive Period in progress at the time of the employment termination.

ARTICLE 12. AMENDMENTS

The Board of Directors, in its absolute discretion, without notice, at any
time and from time to time, may modify or amend in whole or in part, any or all
of the provisions of this Plan, or suspend or terminate it entirely; provided,
that no such modification, amendment, suspension, or termination after an
Incentive Period, may without the consent of a Participant (or his beneficiary
in the case of the death of the Participant) reduce the right of a Participant
(or his beneficiary, as the case may be) to a payment or distribution hereunder
to which he is entitled for that Incentive Period.

ARTICLE 13. REQUIREMENTS OF LAW

13.1. GOVERNING LAW. The Plan, and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Kentucky.

13.2. WITHHOLDING TAXES. The Company shall have the right to deduct
from all payments under this Plan any Federal, state, or local taxes required by
the law to be withheld with respect to such payments.

<PAGE>

Exhibit 10.54

FIRST AMENDMENT
TO
CHANGE IN CONTROL AGREEMENT

THIS FIRST AMENDMENT TO CHANGE IN CONTROL AGREEMENT ("AMENDMENT") is made
and entered into as of this 1st day of January, 1996, by and among LG&E ENERGY
CORP. (the "COMPANY") and _____________________ (the "EXECUTIVE").

WHEREAS, the Company and the Executive entered into a Change in Control
Agreement, dated March 4, 1993 (the "Agreement"), to provide the Executive with
certain benefits in the event the Executive is terminated as a result of, or in
connection with, a Change in Control.

WHEREAS, on June 6, 1995, the Board of Directors approved a first amendment
to the Company's Rights Agreement, dated December 5, 1990, which modified the
definition of "Acquiring Person" under the Rights Agreement to be, among other
things, the beneficial owner of fifteen percent (15%) of the Company's
outstanding common stock, instead of twenty percent (20%).

WHEREAS, pursuant to Section 12 of the Agreement and in light of the change
to the definition of "Acquiring Person" under the Rights Agreement, the parties
to the Agreement desire to amend the Agreement to alter the definition of Change
in Control thereunder.

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:

1. DEFINED TERMS. All capitalized terms used but not defined in this
Amendment shall have their same respective meanings as in the Agreement. Unless
otherwise indicated, all Section and Subsection references are to the Agreement

2. AMENDMENT OF AGREEMENT. The first sentence of Section 2.3(a) of the
Agreement is hereby amended by deleting the reference to "twenty percent (20%)"
appearing in the eighth line thereof and inserting in lieu thereof "fifteen
percent (15%)".

3. CONTINUATION OF AGREEMENT. Except as amended hereby, the terms and
conditions of the Agreement, as amended by this Amendment, shall remain
unchanged and in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first written above.

LG&E ENERGY CORP.
---------------------------------

By:
--------------------------------- ---------------------------------
Roger W. Hale
Chairman of the Board and Chief
Executive Officer

<PAGE>

Exhibit 10.55

AMENDMENT NO. 1

LOUISVILLE GAS AND ELECTRIC COMPANY
NONQUALIFIED SAVINGS PLAN

WHEREAS Louisville Gas and Electric Company (hereinafter referred to as the
"Company") established the Louisville Gas and Electric Company Nonqualified
Savings Plan (hereinafter referred to as the "Plan"), effective January 1, 1992;
and

WHEREAS the Company reserved the right in Section 11.4 of the Plan to amend
said Plan by action of its Board of Directors; and

WHEREAS the Company is now desirous of amending said Plan to reflect the
formation of a new subsidiary corporation;

NOW, THEREFORE, Section 2.5 of the Plan is amended to read as follows,
effective January 1, 1992:

"Section 2.5 COMPANY. 'Company' means Louisville Gas and Electric
Company, LG&E Energy Corp., and LG&E Energy Systems
Inc., all Kentucky Corporations, and any subsidiary or
affiliated companies authorized by the Board of
Directors to participate in this Plan."

* * * * * * * *

IN WITNESS WHEREOF, Louisville Gas and Electric Company has caused this
Amendment No. 1 to be executed by its President an dits corporate seal to be
affixed by the Secretary, both duly authorized, this 4th day of March, 1992, but
to be effective January 1, 1992.

Attest: (SEAL) LOUISVILLE GAS AND ELECTRIC
COMPANY

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

<PAGE>

Exhibit 10.56

RESOLUTION OF THE BOARD OF DIRECTORS
OF LOUISVILLE GAS AND ELECTRIC COMPANY

RE: AMENDMENT OF NONQUALIFIED SAVINGS PLAN

DECEMBER 8, 1994

THE FOLLOWING RESOLUTION AMENDS THE NONQUALIFIED SAVINGS PLAN (THE "PLAN") TO
PROVIDE FOR ADDITIONAL MEMBERS, MODIFIES THE INTEREST CREDITING RATE, AND
TRANSFERS THE PLAN TO LG&E ENERGY CORP.

WHEREAS, the Board of Directors desires to amend the Louisville Gas and
Electric Company Nonqualified Savings Plan (the "Plan") to provide for
additional members, modify the interest crediting rate and transfer the
Plan to LG&E Energy Corp.

NOW, THEREFORE, BE IT RESOLVED, that the following amendments to the Plan
are hereby approved, effective as of January 1, 1995:

(1) Section 1.1, is amended in its entirety to read as follows:

"1.1 Title. This Plan shall be known as the LG&E Energy Corp.
Nonqualified Savings Plan ("Plan")."

(2) Section 2.2 is amended in its entirety to read as follows:

"2.2 Board of Directors. The Board of Directors means the Board of
Directors of LG&E Energy Corp."

(3) Section 2.5 is amended in its entirety to read as follows:

"2.25 Company. Company means LG&E Energy Corp., a Kentucky corporation
with principal offices located at Louisville, Kentucky."

(4) Section 2.10 is amended in its entirety to read as follows:

"2.10 Executive. Executive shall mean any officer or senior manager as
designated by the Committee."

(5) Section 2.14 is amended in its entirety to read as follows:

"2.14 Qualified Plan shall mean the LG&E Energy Corp. 401(k) Savings Plan,
as amended from time to time."

<PAGE>

(6) Article II, Section 2.20 is added to read as follows:

"2.20 Employer. Employer means Louisville Gas and Electric Company, LG&E
Energy Corp., and LG&E Energy Systems Inc., and Kentucky corporations, and
any subsidiary or affiliated companies authorized by the Board of Directors
to participate in this Plan."

(7) Section 5.3 is amended in its entirety to read as follows:

"5.3 Crediting of Interest. As of each Valuation Date, the amount in the
Participant's Bookkeeping Account shall be credited at an interest rate
equal to the rate for the average yield on five year Treasury Notes for the
latest calendar quarter. This rate shall be applied to the Participant's
Bookkeeping Account as the beginning of the period, minus any distributions
from the Participant's Bookkeeping Account since the preceding Valuation
Date and plus half of all deferred compensation and half of all Company
contributions during the period. In the case of a Termination of Service
or Retirement, interest shall be credited at the above rate through the
Valuation Date immediately proceeding the date the Participant's entire
interest in his Bookkeeping Account is distributed."

(8) Sections 8.4 and 11.4 are amended to substitute "LG&E Energy Corp."
for "Louisville Gas and Electric Company".

<PAGE>

Exhibit 10.57

RESOLUTIONS OF THE BOARD OF DIRECTORS
OF LG&E ENERGY CORP.

RE: AMENDMENT OF NONQUALIFIED SAVINGS PLAN

DECEMBER 6, 1995

THE COMPANY DESIRES TO AMEND THE LG&E ENERGY CORP. NONQUALIFIED SAVINGS PLAN
(THE "PLAN") TO ADD PROVISIONS FOR THE REIMBURSEMENT OF PARTICIPANT EXPENSES AND
PROVISIONS CONCERNING A CHANGE IN CONTROL. THE FOLLOWING RESOLUTIONS AUTHORIZE
AND APPROVE THESE AMENDMENTS.

WHEREAS, LG&E Energy Corp. (the "Company"), adopted the LG&E Energy
Corp. Nonqualified Savings Plan (hereinafter referred to as the
"Plan") effective January 1, 1992; and

WHEREAS, the Company reserved the right in Article 11 of the Plan to
amend the Plan by action of its Board of Directors; and

WHEREAS, the Company is now desirous of amending the Plan to make
certain substantive and technical changes therein;

NOW, THEREFORE, BE IT RESOLVED, that the Plan is amended, effective
January 1, 1995, as follows:

1. Article 11 is hereby amended by the addition of the following
Section 11.10 at the conclusion thereof, to read as follows:

"Section 11.10 REIMBURSEMENT OF PARTICIPANT EXPENSES. Upon
submission of proper documentation, the Company and any successor
employer shall reimburse a Participant for all reasonable legal
fees and expenses actually incurred in the enforcement or
attempted enforcement of rights under this Plan, without regard
to the success of any such attempt."

2. The Plan is amended by the addition of the following Article 12
at the conclusion thereof, to read as follows:

<PAGE>

"ARTICLE 12

PROVISIONS CONCERNING A CHANGE IN CONTROL

"Section 12.1 DEFINITION. For purposes of this Plan, a 'Change
in Control' shall mean the occurrence of any of the following
events:

"(1) an acquisition (other than directly from the Company)
of any securities of the Company entitled generally to
vote on the election of directors ('Voting Securities')
by any 'Person' (as the term is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended) (the '1934 Act') immediately after
which such Person has Beneficial Ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act)
of fifteen percent (15%) or more of the combined voting
power of the Company's then outstanding Voting
Securities; provided, however, in determining whether a
Change in Control has occurred, Voting Securities which
are acquired in a 'Non-Control Acquisition' (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A
Non-Control Acquisition' shall mean an acquisition by
(1) an employee benefit plan (or a trust forming a part
thereof) maintained by (a) the Company, or (b) any
corporation or other Person of which a majority of its
voting power or its equity securities or equity
interest is owned directly or indirectly by the
Company, or (2) the Company or any subsidiary.

"(2) the individuals who are members of the Board cease for
any reason to constitute at least two-thirds (2/3) of
the Board; provided, however, that if the election or
nomination for election by the Company's stockholders,
of any new director was approved by a vote of at least
two-thirds (2/3) of the incumbent Board, such new
director shall, for purposes of this Plan, be
considered as a member of the incumbent Board;
provided, further, however, that no individual shall be
considered a member of the incumbent Board if such
individual initially assumed office as a result of
either an actual or threatened 'Election Contest' (as
described in Rule 14a-11 promulgated under the 1934
Act) or other actual or threatened solicitation of
proxies or

<PAGE>

consents by or on behalf of a Person other than the Board (a
'Proxy Contest') including by reason of an agreement
intended to avoid or settle any Election Contest or Proxy
Contest; or

"(3) Approval by stockholders of the Company of (1) a
merger, consolidation or reorganization involving the
Company, unless (i) the stockholders of the Company
immediately before such merger, consolidation or
reorganization, own, directly or indirectly,
immediately following such merger, consolidation or
reorganization, at least seventy-five percent (75%) of
the combined voting power of the outstanding voting
securities of the corporation resulting from such
merger, consolidation or reorganization (the 'Surviving
Corporation') in substantially the same proportion as
their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization,
and (ii) the individuals who were members of the
incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds (2/3)
of the members of the board of directors of the
Surviving Corporation; (2) a complete liquidation or
dissolution of the Company; or (3) an agreement for the
sale or other disposition of all or substantially all
of the assets of the Company to any Person (other than
a transfer to a subsidiary.)

"Notwithstanding the preceding clauses (1), (2) and (3), a
Change in Control shall not be deemed to occur solely
because any Person (the 'Subject Person') acquired
Beneficial Ownership of more than the permitted amount of
the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially
Owned by the Subject Person, provided that if a Change in
Control would occur (but for the operation of this sentence)
as a result of the acquisition of Voting Securities by the
Company, and after such acquisition by the Company, the
Subject Person becomes the Beneficial Owner of any
additional Voting Securities which increases the percentage
of the then outstanding Voting Securities Beneficially Owned
by the Subject Person, then a Change in Control shall occur.

<PAGE>

"Section 12.2 RESTRICTIONS. Upon the occurrence of a Change in
Control, no reductions may be made in the interest credited to a
Participant's Bookkeeping Account. Further, no changes may be
made in the form or timing of Plan distributions upon the
occurrence of a Change in Control."

FURTHER RESOLVED, that the officers of the Company be and they are
hereby authorized, directed and empowered to do any and all things and
acts necessary or in their judgment advisable in order to carry out
the tenor and effect of the foregoing resolutions.

<PAGE>

Exhibit 10.58

AMENDMENT

LOUISVILLE GAS AND ELECTRIC COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

WHEREAS, Louisville Gas and Electric Company, a Kentucky corporation with
its principal office located in Louisville, Kentucky ("Company"), established
the Louisville Gas and Electric Company Supplemental Executive Retirement Plan
("Plan") effective as of May 1, 1987; and

WHEREAS, the Company reserved the right to amend the Plan by action of its
Board of Directors; and

WHEREAS, the Company now desires to amend said Plan to provide additional
benefits to certain employees;

NOW, THEREFORE, the Plan is amended, effective as of the date of the
adoption of this Amendment by the Board of Directors, in the following respects:

(1) Section 1.4 is amended to read as follows:

"1.4 'Company' means Louisville Gas and Electric Company, a Kentucky
corporation with principal offices located at Louisville,
Kentucky."

(2) Section 1.8 is amended to read as follows:

"1.8 'Employee' means any person who is an officer in the regular
full-time employ of the Company or a Participating Company, as
determined by the personnel rules and practices of the Company or
Participating Company."

(3) Section 1.9 is amended to read as follows:

"1.9 'Member' means any Employee who has satisfied the requirements
for membership set forth in Section 2.01."

(4) Sections 1.11, 1.12, 1.13 and 1.14 are renumbered as Sections 1.12, 1.13,
1.14 and 1.15, respectively, and a new Section 1.11 is added to read as
follows:

"1.11 'Participating Company' means any subsidiary or affiliate of
the Company listed in Appendix I."

<PAGE>

(5) Renumbered Section 1.14 is amended to read as follows:

"1.14 'Service' means the number of years of Service (as such term
is defined in the Retirement Income Plan for Employees of
Louisville Gas and Electric Company Who Are Not Members of a
Bargaining Unit) with the Company or a Participating
Company."

(6) Section 2.1 is amended to read as follows:

"2.1 An Employee shall become a Member of the Plan on the first
day of the month following the completion of one (1) year of
Service. An employee of the Company or a Participating
Company who becomes an Employee shall become a Member of the
Plan on the first day of the month following his becoming an
Employee, provided that he has completed at least one (1)
year of Service."

(7) Section 5.1 is amended to read as follows:

"5.1 This Plan does not in any way obligate the Company, a
Participating Company or any other subsidiary of the Company to
continue the employment of a Member with the Company,
participating Company or other subsidiary, nor does it limit the
right of the Company, a Participating Company or other subsidiary
at any time and for any reason to terminate the Member's
employment. Termination of a Member's employment with the
Company, a Participating Company or any subsidiary for any
reason, whether by action of the Company, the Participating
Company, the subsidiary, or the Member, shall immediately
terminate his participation in the Plan and all future
obligations of either party hereunder. In no event shall the
Plan, by its terms or implications, constitute an employment
contract of any nature whatsoever between the Company, a
Participating Company or any other subsidiary, and a Member."

(8) Section 7.1 is amended to read as follows:

"7.1 The benefits provided for a member and a Member's beneficiary
under the Plan are in addition to any other benefits available to
such member under any plan or program of the Company,
Participating Company or any other subsidiary for their employees
and, except as may otherwise be expressly provided for herein,
the Plan shall supplement and shall not supersede, modify or
amend any other plan or program of the Company, Participating
Company or any other subsidiary. Moreover, benefits under the
Plan shall

<PAGE>

not be considered compensation for the purpose of computing
contributions or benefits under any plan maintained by the Company,
Participating Company or any other subsidiary which is qualified
under Sections 401(a) and 501(a) of the Internal Revenue Code of
1986, as amended."

*******************************************************************************

IN WITNESS WHEREOF, the Company has caused this Amendment No. 6 to the Plan
to be executed this ____ day of March, 1992 but to be effective the 1st day of
January, 1992.

Attest: (SEAL) LOUISVILLE GAS AND ELECTRIC
COMPANY

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

<PAGE>

Exhibit 10.59

AMENDMENT
TO
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

RESOLVED, that the Board of Directors does hereby approve of, and
authorizes and directs the appropriate officers of LG&E to amend the
Supplemental Executive Retirement Plan to provide a monthly retirement
income in the following manner:

A new Section 3.6, effective January 1, 1993, shall be added:

"3.6 Upon termination of employment, an eligible Member shall be
entitled to receive a monthly retirement income in an amount
equal to sixty-four percent (64%) of his Average Monthly
Compensation, (a) less one hundred percent (100%) of his
retirement benefit payable at date of termination as a straight
line annuity under the Retirement Income Plan for Employees of
Louisville Gas and Electric Company Who Are Not Members of a
Bargaining Unit (without regard to any assignment of benefits
under a qualified domestic relations order) and (b) at age sixty-
two, less one hundred percent (100%) of his primary Social Security
benefit payable at age sixty-two (62) under the Social Security law in
effect for 1992 and based on his earnings for Social Security purposes
as of the date of his termination of employment. The benefits
provided for by this Section 3.6 shall be in lieu of any other benefit
provided for by this Plan.

<PAGE>

Exhibit 10.60

RESOLUTION OF THE BOARD OF DIRECTORS
OF LOUISVILLE GAS AND ELECTRIC COMPANY

RE: AMENDMENT OF SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

DECEMBER 8, 1994

THE FOLLOWING RESOLUTION AMENDS THE VESTING REQUIREMENTS ON REGULAR AND
DISABILITY BENEFITS PROVIDED UNDER THE LOUISVILLE GAS AND ELECTRIC COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (THE "PLAN"), TRANSFERS THE PLAN TO LG&E
ENERGY CORP., AND PROVIDES FOR ADDITIONAL MINOR REVISIONS IN THE PLAN.

WHEREAS, the Board of Directors desires to amend the Louisville Gas and
Electric Company Supplemental Executive Retirement Plan (the "Plan") to
provide additional benefits to certain employees, revise the vesting
requirements on regular and disability benefits, and transfer the Plan to
LG&E Energy Corp.

NOW, THEREFORE, BE IT RESOLVED, that the following amendments to the Plan
are hereby approved, effective as of January 1, 1995:

(1) Section 1.2 is hereby amended in its entirety to read as follows:

"1.2 Board of Directors' means the Board of Directors of LG&E Energy
Corp."

(2) Section 1.3 is amended in its entirety to read as follows:

"1.3 Committee means the Retirement Committee appointed pursuant to
Article XII of the Retirement Income Plan for Employees of LG&E Energy
Corp. Who Are Not Members of a Bargaining Unit."

(3) Section 1.4 is amended to read as follows:

"1.4 Company means LG&E Energy Corp., a Kentucky corporation with
principal offices located at Louisville, Kentucky."

(4) Section 1.6 is amended in its entirety to read as follows:

"1.6 Early Retirement Date means, in the case of Member who has been
credited with at least five (5) years of Service and whose age is at
least fifty (50), the first day of the month coincident with or
otherwise immediately following the later of the date the Member shall
leave the employ of the Employer or the date the Member reaches age
fifty-five (55). The Member may select the first day of any later
month as his Early Retirement Date."

<PAGE>

(5) Section 1.11 is amended in its entirety to read as follows:

"1.11 Plan means the LG&E Energy Corp. Supplemental Executive
Retirement Plan."

(6) Section 1.13 is amended in its entirety to read as follows:

"1.13 Service means the number of years of Service (as such term is
defined in the Retirement Income Plan for Employees of LG&E Energy
Corp. Who Are Not Members of a Bargaining Unit) with the Company or a
Participating Company."

(7) Section 1.14 is amended in its entirety to read as follows:

"1.14 Totally and Permanently Disabled refers to a Member's total
disability as defined in the Long-Term Disability Plan for Employees
of LG&E Energy Corp. Who Are Not Members of a Bargaining Unit."

(8) Article I shall be amended to add the following:

"Employer means LG&E Energy Corp. and any subsidiary or affiliated
company."

(9) Section 3.3 is amended in its entirety to read as follows:

"3.3 A Member whose age is at least fifty (50) and who has been
credited with five (5) years or more of Service may, after giving the
Company at least three (3) months written notice, retire as of an
Early Retirement Date. Commencing at his Early Retirement Date, such
Member shall be entitled to receive a monthly retirement income
calculated under the formula in Section 3.1 with the numerator of the
fraction to be the Member's years of Service at his Early Retirement
Date. In applying the formula, the retirement benefit payable under
the Retirement Income Plan will be the benefit payable at age sixty-
five (65), based on Average Monthly Compensation and Service to the
Member's Early Retirement Date. The Social Security benefit will be
the benefit payable at age sixty-five (65) based on the Member's
earnings to his Early Retirement Date. The benefit payable under any
other qualified plan will be the benefit payable at age sixty-five
(65). The Social Security benefit payable under any other qualified
plan will be the benefit payable at age sixty-five (65). The
amount so determined shall be reduced in accordance with the
following factors to reflect the Member's age at the date his
benefits commence:

<PAGE>

Age at Percentage of
Commencement Benefit Payable
------------ ---------------
<S> <C>
62 - 65 100%
61 90%
60 81%
59 73%
58 66%
57 60%
56 54%
55 49%"

</TABLE>

(10) Section 3.4 is amended to read as follows:

"3.4 In the event a Member who has completed five (5) or more years
of Service becomes Totally and Permanently Disabled before reaching
age sixty-five (65), he shall be entitled to a deferred benefit
beginning at his Normal Retirement Date computed in accordance with
Section 3.1 but based on the assumptions that his Compensation in
effect at date of disability continued without change to his Normal
Retirement Date and that the Member continued to earn Service to his
Normal Retirement Date."

(11) Section 3.5 is amended as follows:

"3.5 The title "Retirement Income Plan for Employees of LG&E Energy
Corp. Who Are Not Members of a Bargaining Unit" is substituted for
"Retirement Income Plan for Employees of Louisville Gas and Electric
Company Who Are Not Members of a Bargaining Unit."

(12) Article IX is amended to add Section 9.9 as follows:

"Upon submission of proper documentation, the Company and any
successor employer shall reimburse a Member for all reasonable legal
fees and expenses actually incurred in the enforcement or attempted
enforcement of rights under this Plan, without regard to the success
of any such attempt."

(13) Subsection (a) of Section 12.4 is amended in its entirety to read as
follows:

"12.4 (a) The reductions provided for in clause (a) of said Section
for benefits payable under the Retirement Income Plan for Employees of
LG&E Energy Corp. Who Are Not Members of a Bargaining Unit (Retirement
Income Plan) shall be calculated as if the Member continued full-time
employment until age sixty-five (65) at the same rate of compensation
as in effect at date of termination of

<PAGE>

employment based on the terms of said plan and the law in effect on
the date of the Member's termination of employment."

<PAGE>

Exhibit 10.61

RESOLUTIONS OF THE BOARD OF DIRECTORS
OF LG&E ENERGY CORP.

RE: AMENDMENT OF SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

DECEMBER 6, 1995

THE COMPANY DESIRES TO AMEND THE LG&E ENERGY CORP. SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN ("SERP") TO (I) AMEND THE DEFINITION OF AVERAGE MONTHLY
COMPENSATION; (II) CLARIFY THE PROVISIONS REGARDING EMPLOYMENT OF A MEMBER;
(III) AMEND PROVISIONS REGARDING AMENDMENT AND TERMINATION OF THE SERP; (IV) ADD
A NEW ARTICLE DEFINING "CHANGE IN CONTROL"; AND (V) ADD A NEW ARTICLE DEFINING
"CLAIMS PROCEDURE". THE FOLLOWING RESOLUTIONS AUTHORIZE AND APPROVE THESE
AMENDMENTS.

WHEREAS, LG&E Energy Corp. (the "Company"), adopted the LG&E Energy
Corp. Supplemental Executive Retirement Plan (hereinafter referred to
as the "SERP") effective May 1, 1987; and

WHEREAS, the Company reserved the right in Article VI of the SERP to
amend the SERP by action of its Board of Directors; and

WHEREAS, the Company is now desirous of amending the SERP to make
certain substantive and technical changes therein.

NOW, THEREFORE, BE IT RESOLVED, that the following sections of the
SERP are amended, effective May 1, 1995, to read in their entirety as
follows:

"1.1 'Average Monthly Compensation' shall mean the average of
Compensation as determined for the thirty-six (36) consecutive
months preceding the Member's disability, Early or Normal
Retirement Date that yield the highest average. If the Member
has fewer than thirty-six (36) consecutive months of continuous
employment, his Average Monthly Compensation shall be the average
of Compensation for all consecutive months of continuous
employment."

"5.1 This Plan does not in any way obligate the Company or any
subsidiary of the Company to continue the employment of a Member
with the Company, nor does it limit the right of the Company or
subsidiary at any time and for any reason to terminate the
Member's employment. Termination of a Member's employment with
the Company or any subsidiary for any reason, whether by action
of the Company, the subsidiary, or the Member, shall immediately
terminate his participation in the Plan and all future
obligations of either party hereunder; provided, however, that if
the Member has completed at least five (5) years of Service and
reached at

<PAGE>

least age fifty (50), he shall be vested in his benefit earned
hereunder, with such benefit to be payable no earlier than when the
Member reaches age fifty-five (55). In no event shall the Plan, by
its terms or implications, constitute an employment contract of any
nature whatsoever between the Company or any subsidiary and a Member."

"6.1 The Company reserves the right to terminate, amend, modify or
supplement this Plan, wholly or partially, at any time; provided,
however, that no amendment to the Plan shall retroactively reduce
benefits earned prior to the effective date of the amendment."

"6.2 In the event the Company terminates the Plan, no action will be
taken to terminate any benefit payments to a Member or
beneficiary that are in pay status. For those Members who are
not receiving benefit payments under the Plan at the time of Plan
termination, the Company shall determine the value of the
retirement benefit accrued to date of termination and shall at
that time determine the timing for providing such benefits to the
Member. In the event of Plan termination, all Participants shall
become fully vested in all benefits accrued to the date of Plan
termination."

"CHANGE IN CONTROL

"12. For purposes of this Plan, a 'Change in Control' shall mean the
occurrence of any of the following events.

"(1) an acquisition (other than directly from the Company)
of any securities of the Company entitled generally to
vote on the election of directors ('Voting Securities')
by any 'Person' (as the term is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended) (the '1934 Act') immediately after
which such Person has Beneficial Ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act)
of fifteen percent (15%) or more of the combined voting
power of the Company's then outstanding Voting
Securities; provided, however, in determining whether a
Change in Control has occurred, Voting Securities which
are acquired in a 'Non-Control Acquisition' (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A
'Non-Control Acquisition' shall mean an acquisition by
(1) an employee benefit plan (or a trust forming a part
thereof) maintained by (a) the Company or (b) any
corporation or other Person of which a majority of its
voting power or its equity securities or equity
interest is

<PAGE>

owned directly or indirectly by the Company, or (2) the
Company or any subsidiary.

<PAGE>

"Notwithstanding the preceding clauses (1), (2) and
(3), a Change in Control shall not be deemed to occur
solely because any Person (the 'Subject Person')
acquired Beneficial Ownership of more than the
permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by
the Company which, by reducing the number of Voting
Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject
Person, provided that if a Change in Control would
occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the
Company, and after such acquisition by the Company, the
Subject Person becomes the Beneficial Owner of any
additional Voting Securities which increases the
percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change
in Control shall occur.

"12.2 Upon the occurrence of a Change in Control, all Members of
the Plan as of the date of the Change in Control shall
immediately become fully vested."

"CLAIMS PROCEDURE"

"13.1 Benefits shall be paid in accordance with the provisions of
the Plan. The Member, or a designated recipient or any
other person claiming through the Member shall make a
written request for benefits under the Plan. This written
claim shall be mailed or delivered to the Committee. Such
claim shall be reviewed by the Committee or its delegate.

"13.2 If a claim is denied, in whole or in part, the Committee
shall provide written notice within ninety (90) days setting
forth the specific reasons for the denial, any additional
material or information necessary to perfect the claim, an
explanation of why such material or information is
necessary, and appropriate information and explanation of
the steps to be taken if a review of the denial is desired.

"13.3 If the claim is denied and a review is desired, the Member
or person claiming through him or on his behalf shall notify
the Committee in writing within sixty (60) days. If the
Committee has not responded to the initial claim within
ninety (90) days, the claim shall be deemed to have been
denied. In requesting a review, the Member or person
claiming through him or on his behalf may request a review
of the Plan document or other pertinent documents with
respect to the employee benefit plan created hereunder, may
submit written issues and comments, may request an extension
of time for such written submission of issues and comments,

<PAGE>

and may request that a hearing be held, but the decision to hold
a hearing shall be within the sole discretion of the Committee.

"13.4 The decision on review of the denied claim shall be rendered
by the Committee within sixty (60) days after the receipt of
the request for review (if no hearing is held) or within
sixty (60) days after the hearing, if one is held. The
decision shall be written and shall state the specific
reasons for the decision, including references to specific
Plan provisions on which the decision is based."

<PAGE>

Exhibit 10.64

February 22, 1996

Mr. Douglas K. Schetzel
LG&E Power Marketing Inc.
12500 Fair Lakes Circle, Suite 350
Fairfax, Virginia 22033-3804

Dear Doug:

TRANSACTION CONFIRMATION LETTER

This letter is to confirm the agreement made between Ohio Edison Company
("OE") and LG&E Power Marketing ("LPM") regarding the sale of coal processing
service by OE to LPM under the terms and conditions of this letter and the
Agreement for System Power Transactions filed with FERC on December 4, 1995.

A. CAPACITY AND ENERGY RESERVATION - LPM shall be entitled to the receive
power in the amount of 250 MW each hour in January and February, and
300 MW each hour in March through December, at the Delivery Points
which will be nominated in accordance with Section C below.

B. TERM - January 1 through December 31, 1996.

C. SCHEDULING OF ELECTRICITY - LPM shall provide OE with each day's
hourly energy Schedule including identification of the desired
Point(s) of delivery, no later than 11:00 a.m. prevailing time in
Wadsworth, Ohio on the last Business Day prior to receipt of the
energy.

<PAGE>

Mr. Douglas K. Schetzel
February 22, 1996
Page 2

There will be a maximum of six Schedules during any given hour. There
will be four free Schedule changes per month. Any additional changes
shall be charged at a rate equal to $500 per schedule change.

D. COAL SUPPLY -

LPM shall make available for delivery to the Burger Plant and/or
Mansfield Plant, as specified by OE, coal that is acceptable to OE
during the period December 15, 1995 through December 31, 1996. OE in
its sole discretion may refuse acceptance of any coal which does not
meet minimum specifications as stated in Attachment 1. LPM is to
provide OE "as loaded" coal quality information in a timely manner and
consistent with OE plant operation practices. This information will
be used to evaluate the acceptability of coal.

The point of coal delivery shall be F.O.B. barge to the specified
plant. Unless otherwise agreed, LPM shall arrange for purchase and
schedule barge freight relative to this transaction in accordance with
Section E of this agreement. Title to and custody of said coal shall
transfer from LPM to OE at the point of coal delivery. Delivery shall
be deemed to have been accomplished when the barges have been
adequately moored at the Burger or Mansfield Plants.

If quality of coal delivered results in operating problems, parties
will use best efforts to resolve the problems.

<PAGE>

Mr. Douglas K. Schetzel
February 22, 1996
Page 3

LPM is to be responsible for payment of all costs associated with the
procurement and delivery of coal including but not limited to
demurrage unless due to OE's failure to unload in a timely manner and
any payments that may be due to the rejection of any coal shipments.
Coal which is accepted by OE but which does not fall within the
quality specifications as stated in Attachment 1 will result in
additional payments by LPM to OE. The additional payments shall be
calculated using the quality adjustments formula in Attachment 1.

OE weights and analyses are to be the sole basis for establishing the
quantity and quality of coal actually delivered.

E. SCHEDULING OF COAL -

Coal deliveries shall be scheduled with the specified Plant no later
than Wednesday for deliveries for the following week. The primary
site for delivery shall be the Burger Plant, but at OE's request and
with adequate notification, coal may be received at the Mansfield
Plant. Commercially reasonable efforts shall be made to accommodate
Plant coal yard work schedules.

F. COAL TO ENERGY TOLLING

During the period January 1, 1996 through December 31, 1996 coal
furnished to OE under this letter shall be converted to energy and
made available at any point

<PAGE>

Mr. Douglas K. Schetzel
February 22, 1996
Page 4

of interconnection on the OE transmission system as agreed by LPM and
OE ("Point of Delivery") such that it does not violate transmission
constraints. BTU's supplied by said coal, as measured by OE, shall be
converted to energy by a heat rate factor of 10,500 BTU/kWh. An
example of this calculation is provided in Attachment 2.

LPM will pay OE $5.00/MWh for the conversion of coal to electrical
energy.

G. EMISSION ALLOWANCES

In addition to the $5.00/MWh, LPM shall provide emission allowances to
OE for this transaction on a quarterly basis. The number of emission
allowances to be transferred to OE shall be based on the sulfur
content of the coal, the quantity of coal received, and the output
factor of the plant to which the coal is delivered. A sample of this
calculation is included in Attachment 2.

H. FIRMNESS

1. Neither party may interrupt 100 MW of firm power, except for
force majeure.

2. OE may refuse to convert up to 200 MW of electricity during July
and August for LPM's use for a minimum of 16 Hrs/Day not to
exceed a total of 40,000 Mwh in 1996.

<PAGE>

Mr. Douglas K. Schetzel
February 22, 1996
Page 5

3. Whenever the Pennsylvania-New Jersey-Maryland (PJM) Pool declares
a minimum generation problem, LPM may refuse to accept up to 200
MW of electricity from OE during any day, not to exceed a total
of 50,000 Mwh in 1996.

4. Both parties will exercise best efforts to provide the other
party with notification of a refusal pursuant to Sections H.2 or
H.3.

I. DAMAGES FOR NON-PERFORMANCE

1. If OE fails to provide LPM with the amount of power as provided
for in this agreement, except as provided for in Section H.2, and
its failure to perform is not excused by a FORCE MAJEURE or by
LPM, OE will pay LPM (on the date payment would otherwise be due
under this transaction) an amount for each Mwh of such deficiency
equaling the sum of: (i) the price at which LPM is, or would be
able, to purchase or otherwise receive comparable supplies of
power at a commercially reasonable price (adjusted to reflect
difference in transmission costs, if any) minus (ii) $5.00/Mwh.

2. If LPM refuses to accept delivery, except as provided for in
Section H.3, and its failure to perform is not excused by a FORCE
MAJEURE or by OE, LPM will pay OE $5.00 for each Mwh of
deficiency. Payment will be

<PAGE>

Mr. Douglas K. Schetzel
February 22, 1996
Page 6

made by LPM on the date payment would otherwise be due under the
Agreement.

J. At the end of the Term, if LPM has delivered to OE more coal than
called for in the conversion formula specified in Attachment 2, OE
will reimburse LPM for the amount of coal at a mutually agreeable
price. In no event will OE reimburse LPM for more than 15,000 tons of
coal.

Please confirm that the terms stated herein accurately reflect the
agreement reached between OE and LPM by returning an executed copy of this
Confirmation Letter.

OHIO EDISON COMPANY LG&E POWER MARKETING

Name: Name:
------------------------ ------------------------
Title: Title:
------------------------ ------------------------

<PAGE>

Attachment 1
Ohio Edison - LG&E Power Marketing
Coal Tolling Arrangement
Burger Plant Coal Specifications

Plant Location: Dilles Bottom, Ohio (Belmont County)
Ohio River MM 102.3

Delivery Mode: Barge (Open hopper)

Coal Specifications: Avg. Month Barge Limits

Moisture 8.00% 9.00% Max.
Ash 11#/MMBTU 12#/MMBTU Max.
Sulfur 1.0-5.0% 5.0% Max
BTU/LB 11,500 11,500 Min.

Ash Fusion: 1950 Degrees Softening Spherical
(Minimum)(Reducing atmosphere)

Volatile: 30-40

Grind: 42 Minimum

Top Size: 4 Inches Maximum

Fines (3/8 x 0) 50% Maximum

Pounds of Ash: % Ash X 10,000
--------------
BTU/LB

Loading Requirements: Coal in each barge should be loaded evenly and in a
manner which reasonably facilitates unloading.

Delivery Requirements: Equal monthly shipments (subject to Burger Plant
modification as needed)

Weights & Analysis: Based on Ohio Edison Company Data

Rejection: Barges can be rejected if they contain foreign material
or excess moisture and fines which limit unloading
and/or handling ability.

Coal Sourcing: From mines which load upriver from Greenup Lock
and Dam (MM341 Ohio River)

<PAGE>

Quality Adjustment: "As Received" shipment quality will be provided to LPM
during the purchase period. Price adjustments due to
quality deviations will be made on a monthly basis.

The price adjustment for quality deviations will be
based on monthly as received data and will result in a
price adjustment as follows:

Ash $0.75/ton for each full 1 LB/MMBTU in excess
of 11 LB/MMBTU

BTU/LB - Any barge shipment not meeting BTU min.
spec. (11,500 BTU/LB) will be penalized $0.50/ton
for each 50 BTU below this spec.

<PAGE>

Attachment 2
Ohio Edison - LG&E Power Marketing
Coal Tolling Arrangement
Available Energy and Emission Allowance Calculation

A. Available Energy Calculation -
The Available Energy shall be equal to the amount of coal
received times the heat content of the coal, as measured by OE,
divided by the agreed conversion heat rate (10,500 BTU/KWh)

Example: Received 1064 Tons of Coal
at Burger Sulfur - 1.36%
Heat Content - 12313
BTU/lb

Mwh's =1064 Tons X (2000lb/1T) X (12,313 BTU/lb) X (1 Kwh/10,500BTU) X
(1MWh/1000 Kwh)

=2495 Mwh

B. Emission Allowance Calculation -
The number of Emission Allowances owed shall be equal to the amount of
coal received times the sulfur content of the coal, as measured by OE
times the output factor (amount of SO2 that goes up the stack). The
output factor for Burger and Mansfield are 1.00 and 0.50 respectively.
This number shall then be rounded to the nearest whole number.

Continuing the above example:

EA's = 1064 Tons X (0.135 Tons Sulfur/1 Ton Coal) X (2 Tons SO2/1 Ton
Sulfur)

=28.94 Mwh

Rounding yields 29 East

<PAGE>

Exhibit 10.65

ENERGY AND OPERATING CAPACITY PURCHASE AGREEMENT

BETWEEN

BALTIMORE GAS AND ELECTRIC COMPANY

AND

LG&E POWER MARKETING INC.

This Agreement enables Baltimore Gas and Electric Company to purchase energy and
operating capacity from LG&E Power Marketing Inc.

<PAGE>

ENERGY AND OPERATING CAPACITY PURCHASE AGREEMENT

BETWEEN

BALTIMORE GAS AND ELECTRIC COMPANY

AND

LG&E POWER MARKETING INC.

This Energy Purchase Agreement ("Agreement") dated May 15, 1995 by and between
Baltimore Gas and Electric Company, a Maryland corporation ("BGE") and LG&E
Power Marketing Inc., a California corporation ("Supplier"), hereinafter
referred to individually as a "Party" and collectively as "Parties". This
Agreement will enable BGE to purchase from Supplier energy and/or operating
capacity in accordance with the following terms and conditions. This Agreement
does not obligate the Supplier to make available or BGE to purchase any amount
of energy and/or operating capacity, except as mutually agreed by the Parties
pursuant to this Agreement.

1. SUPPLIER'S REPRESENTATIONS
Supplier represents that it is a power marketer as defined by the Federal
Energy Regulatory Commission ("FERC"). Sales to BGE under this Agreement
shall be made pursuant to Supplier's FERC Electric Rate Schedule Number 1
as accepted by FERC in Docket No. ER 941188000.

2. FORM OF CONTRACT
(a) At any time during the term of this Agreement, Supplier may notify BGE
that amounts of energy and/or operating capacity are available for
purchase. Transactions for the sale and delivery and purchase and receipt
of energy and/or operating capacity shall be documented by a Confirmation
Letter, the form of which is set forth herein as Exhibit "A", prior to the
commencement of a Transaction. The documentation of the Transaction shall
include, at a minimum (i) the period of delivery, (ii) the contract price,
(iii) the delivery point(s), (iv) the contract quantity and (v) the nature
of the transaction. Each Transaction, and the documentation of such
Transaction, shall constitute an integral part of this Agreement and shall
be read and construed as one with this Agreement. Any conflict not
reasonably capable of reconciliation between this Agreement and the
documentation of a Transaction shall be resolved in favor of this
Agreement. Nothing in this Agreement shall obligate BGE to purchase any
energy and/or operating capacity that Supplier makes available for
purchase.

(b) Terms and conditions for each Transaction shall be set forth in a
Confirmation Letter executed by both Parties prior to the commencement of
the Transaction. However, for Transactions of one (1) day or less, the
Parties may agree orally, provided

<PAGE>

that the terms and conditions are confirmed in writing and executed by both
Parties as soon as practicable, but in no event later than one (1) week
after commencement of the Transaction.

3. SERVICE RENDERED
(a) Unless mutually agreed to by the Parties, the Supplier shall be
responsible for obtaining any necessary transmission service (including
provision for losses) to deliver the energy and/or operating capacity to
the delivery point(s) and BGE shall be responsible for obtaining any
necessary transmission service (including provision for losses) to deliver
the energy and/or operating capacity after the delivery point(s).

(b) Unless otherwise agreed to by the Parties, if Supplier fails to
deliver capacity and energy under a Transaction, and such failure to
perform is not excused pursuant to Section 9 below, then BGE shall be
entitled to recover from the Supplier any additional cost incurred by BGE
attributable to Supplier's failure to perform ("Replacement Power Costs").
BGE's Replacement Power Costs, which shall be determined solely by BGE,
shall be calculated as the difference between BGE's total cost to replace
such energy and/or operating capacity under this Agreement (including any
self-generation costs) and the cost BGE would have incurred had Supplier
performed its obligation under the Transaction. BGE shall use reasonable
efforts to mitigate such Replacement Power Costs.

4. SERVICE REQUIREMENTS
(a) For all Transactions hereunder, all energy shall be of the character
commonly known as three-phase sixty (60) hertz energy and shall be
delivered by Supplier at the mutually agreed upon point(s) of delivery.

(b) Prior to the commencement of any Transaction hereunder, the Supplier
shall demonstrate to BGE's satisfaction that it has arranged for all
transmission service agreements necessary to deliver the capacity and/or
operating capacity to the delivery point(s) under the agreed upon terms and
conditions.

(c) The Supplier shall immediately contact BGE's schedulers in the event
of sudden curtailment or interruption of energy and/or operating capacity
under this Agreement. The Supplier shall contact BGE's schedulers as
appropriate with as much advance notice as possible regarding any such
impending curtailment or interruption.

(d) In addition to any interruption/curtailment rights BGE may have under
any Transaction, BGE shall also have the unilateral right to direct
Supplier to immediately curtail or interrupt a Transaction during system
conditions that prevent BGE from receiving energy or during times BGE
determines that an emergency condition exists.

5. TERM

<PAGE>

(a) This Agreement shall become effective on May 15 and shall remain in
effect until terminated by either party upon thirty (30) days advance
written notice to the other Party; provided, however, that no such
termination shall affect any existing Transaction(s) established hereunder,
unless otherwise agreed to by the Parties.

(b) In addition to any other remedy available to it, either Party may
terminate this Agreement or any Transaction hereunder if: (i) the other
party fails to make any payment due hereunder, with the exception of
payments in dispute pursuant to Section 6(d) below, and such failure shall
continue for twenty (20) days after it receives written notice demanding
such payment, or (ii) the other Party dissolves or liquidates.

(c) Notwithstanding the above, the applicable provisions of this Agreement
shall remain in effect after termination to the extent necessary to provide
for final billing, billing adjustments and payments, and to give effect to
those provisions of the Agreement, if any, which explicitly survive
termination.

6. BILLING AND PAYMENTS
(a) Unless otherwise agreed to by the Parties, all energy and/or operating
capacity purchases under this Agreement shall be accounted, billed and paid
for on the basis of delivered hourly quantities net of any Replacement
Power Costs pursuant to Section 3(b) above. The Parties involved in the
Transaction shall maintain records of hourly schedules for accounting and
operating purposes. The accounting period for Transaction hereunder shall
be one (1) calendar month ("Billing Period"). Both Parties shall maintain
or have available records of hourly schedules and deliveries made pursuant
to a Transaction.

(b) Supplier shall bill BGE for a Billing Period within six (6) working
days following the end of each Billing Period. BGE shall pay the bill on
the first banking day common to the Parties following the fourteenth (14)
day of the month following the Billing Period ("Due Date"). Payments shall
be made by electronic wire transfer to Supplier as set forth in Section
6(f) below.

(c) Amounts not paid by the Due Date shall be payable with interest
accrued daily at the prime rate of interest per annum established by Chase
Manhattan Bank (National Association) or its successor, on the last
business day of the month in which service was rendered, but in no event
greater than the maximum interest rate permitted by law.

(d) In the event that BGE disputes any portion of any bill, BGE shall have
the right to withhold the disputed amount. BGE shall have the right to
dispute any bill or portion thereof within twelve (12) months after its due
date. The Parties shall use their best efforts to amicably and promptly
resolve the dispute. Any underpayment, including amounts in dispute, shall
bear interest at the rate provided in Section 6(c) above and shall

<PAGE>

be assessed from the time of underpayment to the date of issuance of the
revised bill. Any overpayment shall bear interest at the rate provided in
Section 6(c) above and shall be assessed from the time of overpayment to he
date the amount is refunded to BGE. Payment for underpayments shall be
made as provided in 6(b) above. Refunds for overpayments shall be made in
the manner specified by BGE at the time.

(e) All billings to BGE shall be sent to:
Baltimore Gas and Electric Company
Attn.: Director, Bulk Power Arrangements
Energy Operations Building
P.O. Box 1475
Baltimore, MD 21203

(f) All payments to Supplier shall be wire transferred to:
LG&E Power Marketing Inc.
Wells Fargo Bank
2030 Main Street
Irvine, CA 92714
ABA #121000248
Account #4660018540

7. TAXES AND EXPENSES
The Seller shall be responsible for all costs, taxes, and charges of any
kind relating to the production and/or deliver of energy and/or capacity
prior to the delivery point(s). BGE shall be responsible for all costs,
taxes, and charges of any kind relating to the delivery of such energy
and/or capacity beyond the delivery point(s).

8. LIMITATIONS OF LIABILITY.
Neither Party hereto shall be liable for any consequential, incidental,
punitive or other special damages, with the exception of those damages
identified in Section 3(b) above, relating to the performance or
nonperformance of this Agreement or any Transaction hereunder. Each Party
shall be solely responsible, as between the Parties hereto, for any costs,
damages, charges or liabilities associated with its physical facilities and
shall hold the other Party harmless from such costs, damages, charges or
liabilities.

9. FORCE MAJEURE
The term "Force Majeure", as used herein, shall be physical causes of the
kind hereafter listed which are beyond the control of the Party affected:
flood, earthquake, tornado, storm, fire, civil disobedience, sabotage,
restraint by court order or public authority (whether valid or invalid),
and action or non-action by or inability to obtain or keep the necessary
authorizations or approvals from any governmental agency or authority,
which by exercise of due diligence such Party could not reasonably have
been expected to avoid and which by exercise of due diligence it has been
unable to overcome. Neither Party shall be considered to be in default in
the performance of any obligations under this Agreement when a failure of
performance shall be due to Force Majeure. No Party shall, however, be
relieved of liability for failure of performance if such failure is due

<PAGE>

to causes arising out of its own negligence or due to removable or
remediable causes which it fails to remove or remedy within a reasonable
time period. Either Party rendered unable to fulfill any of its obligations
under this Agreement by reason of Force Majeure shall give prompt written
notice of such fact to the other Party and shall exercise due diligence to
remove such inability with all reasonable efforts.

10. SECURITY PROVISIONS
In order to obtain adequate assurance of Supplier's ability to perform its
obligations under this Agreement, BGE may require the Supplier to furnish
sufficient security in advance of a Transaction(s). The need for and form
of such security shall be acceptable to BGE in its sole judgment.

11. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties
relating to the subject matter hereof and supersedes any other agreements,
written or oral, between the Parties concerning such subject matter.

12. CHOICE OF LAW
The formation, validity, interpretation, execution, amendment and
termination of this Agreement shall be governed by the laws of the State of
Maryland.

13. ASSIGNMENT
The rights of either Party under this Agreement shall not be assigned,
pledged or otherwise transferred without the prior written consent of the
other Party. In the event of such mutually agreed assignment, any such
assignee or transferee shall be required to assume all of the obligations
of the assignor or transferor under this Agreement pursuant to a written
agreement which is acceptable to the non-assigning Party.

14. NON-WAIVER OF DEFAULTS
No waiver by either Party of any default of the other Party under this
Agreement shall operate as a waiver of a future default whether of a like
or different character.

15. WRITTEN AMENDMENTS
No modification of the terms and provisions of this Agreement shall be or
become effective except by written amendment executed by the Parties.

16. SEVERABILITY AND RENEGOTIATION
Should any provision of this Agreement for any reason be declared invalid
or unenforceable by final and non-appealable order of any court or
regulatory body having jurisdiction, such decision shall not affect the
validity of the remaining portions, and the remaining portions shall remain
in full force and effect as if this Agreement had been executed without the
invalid portion. In the event any provision of this Agreement is declared
invalid, the parties shall promptly renegotiate to restore this Agreements
near as possible to its original intent and effect.

<PAGE>

17. CONFIDENTIALITY
The Parties shall keep the terms of any Transaction confidential, except to
the extent such information: (i) must be disclosed for the purposes of
effectuating any Transaction, (ii) is required by the Pennsylvania-New
Jersey-Maryland Power Pool of which BGE is a member, or (iii) is required
to be disclosed to a court or regulatory body.

ACCEPTED AND AGREED TO THIS 15TH DAY OF MAY, 1995.

Company: BALTIMORE GAS AND ELECTRIC COMPANY

By:
------------------------------------------
Name: Carserlo Doyle
Title: Vice President

Company: LG&E POWER MARKETING INC.

By:
------------------------------------------
Name: Ralph D. Daley
Title: Vice President

<PAGE>

EXHIBIT "A"

FORM OF CONFIRMATION LETTER

[DATE]

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

CONFIRMATION LETTER

This letter shall confirm the agreement reached on ____________________,
19___ between _____________________ ("Supplier") and Baltimore Gas and Electric
Company ("BGE") regarding the sale/purchase of energy and/or operating capacity
under the terms and conditions as follows:

BGE to purchase and receive; Supplier to sell and deliver.

CONTRACT QUANTITY:
------------------------------------

DELIVERY POINT(S):
------------------------------------

CONTRACT PRICE:
------------------------------------

NATURE OF TRANSACTION:
------------------------------------

PERIOD OF DELIVERY:
------------------------------------

OTHER:
------------------------------------

This Confirmation Letter is being provided pursuant to and in accordance
with the Energy and Operating Capacity Agreement dated ______________________,
19____ ("Agreement") between Supplier and BGE, and constitutes part of and is
subject to all of the terms and provisions of such Agreement. Terms used but
not defined herein shall have the meanings ascribed to them in the Agreement.

<PAGE>

Please confirm that the terms stated herein accurately reflect the
agreement reached on ____________________, 19___ between you and BGE by
returning an executed copy of this letter by facsimile to BGE. Your response
should reflect the appropriate Party in your organization who has the authority
to enter into this Transaction, and should be received by BGE no later than
____________________________.

- -------------------------------------------
BALTIMORE GAS AND ELECTRIC COMPANY

Title:
-------------------------------------

- -----------------------------------------------
Supplier:
-------------------------------------

Title:
-------------------------------------

<PAGE>

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

Louisville Gas and Electric Company, LG&E Power Inc., and LG&E Natural Inc. are
significant subsidiaries of the Registrant. LG&E Power Inc., together with 43
subsidiaries operating in the United States and two subsidiaries operating in
the Cayman Islands, is engaged in the design, development, operation and
maintenance of power generation facilities and the marketing and brokering of
wholesale electric power. LG&E Natural Inc., together with 21 subsidiaries
operating in the United States and one subsidiary operating in Canada, is
primarily involved in the marketing, gathering, processing, storage and
transportation of natural gas.

<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, 1996 (except with respect to the
matters discussed in paragraph 11 of Note 16, as to which the date is March
22, 1996), 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 of the Company, Post-Effective Amendment No. One
to Registration Statement No. 33-38557 relating to the Omnibus Long-Term
Incentive Plan of the Company, Registration Statement No. 33-56525 relating
to the Stock Option Plan for Non-Employee Directors of the Company, and
Registration Statement No. 33-60765 relating to the Deferred Stock
Compensation Plan for Non-Employee Directors of the Company.

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

Louisville, Kentucky
March 27, 1996

<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, 1995 (the 1995 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 WALTER Z. BERGER, 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 1995 Form 10-K and to any and
all amendments to such 1995 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
6th day of March 1996.

/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/ Walter Z. Berger
- --------------------
Walter Z. Berger, Principal
Financial and Accounting Officer

STATE OF KENTUCKY )
)ss.
COUNTY OF JEFFERSON )

<PAGE>

POWER OF ATTORNEY (cont.)

On this 6th day of March 1996, 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-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,663,918
<OTHER-PROPERTY-AND-INVEST> 320,468
<TOTAL-CURRENT-ASSETS> 547,512
<TOTAL-DEFERRED-CHARGES> 97,022
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,628,920
<COMMON> 462,777 <F1>
<CAPITAL-SURPLUS-PAID-IN> (573)<F2>
<RETAINED-EARNINGS> 316,930
<TOTAL-COMMON-STOCKHOLDERS-EQ> 779,134
0
95,328
<LONG-TERM-DEBT-NET> 646,845
<SHORT-TERM-NOTES> 173,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 16,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 918,613
<TOT-CAPITALIZATION-AND-LIAB> 2,628,920
<GROSS-OPERATING-REVENUE> 1,374,680
<INCOME-TAX-EXPENSE> 44,294
<OTHER-OPERATING-EXPENSES> 1,199,123 <F3>
<TOTAL-OPERATING-EXPENSES> 1,243,417
<OPERATING-INCOME-LOSS> 131,263
<OTHER-INCOME-NET> 5,389
<INCOME-BEFORE-INTEREST-EXPEN> 136,652
<TOTAL-INTEREST-EXPENSE> 47,511
<NET-INCOME> 89,141
6,311
<EARNINGS-AVAILABLE-FOR-COMM> 82,830
<COMMON-STOCK-DIVIDENDS> 72,253
<TOTAL-INTEREST-ON-BONDS> 41,259
<CASH-FLOW-OPERATIONS> 169,082
<EPS-PRIMARY> 2.51
<EPS-DILUTED> 2.51
<FN>
<F1>Includes common stock expense of $928.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
<F3>Includes equity in earnings of affiliates of
$28,158.
</FN>

</TABLE>