SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities exchange Act of 1934
Date of Report: September 19, 1997
LG&E ENERGY CORP.
(Exact name of registrant as specified in its charter)
Kentucky 1-10568 61 - 1174555
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
220 West Main Street
P.O. Box 32030
Louisville, KY 40232
(Address of principal executive offices)
(502) 627-2000
(Registrant's telephone number)
Item 5. Other Events.
On September 12, 1997 the Kentucky Public Service Commission ("Kentucky
PSC") entered an Order (the "Kentucky Order") approving the proposed merger
of KU Energy Corporation ("KU Energy") with LG&E Energy Corp. ("LG&E
Energy"). The companies entered into an Agreement and Plan of Merger (the
"Merger Agreement") on May 20, 1997. Pursuant to the Merger Agreement,
holders of KU Energy will receive 1.67 shares of LG&E Energy common stock
for each share of KU Energy common stock held at the effective date of the
merger. As a result of the merger, LG&E Energy will become the parent
holding company of Kentucky Utilities Company ("KU") and Louisville Gas and
Electric Company ("LG&E") and the non-utility subsidiaries of each party.
In the application filed with the Kentucky PSC, the utilities proposed that
net non-fuel cost savings expected to result from the merger be spread
among the shareholders, wholesale requirements customers and the retail
electric customers in each state jurisdiction. The Kentucky Order approved
this regulatory plan submitted by the companies. Fuel cost savings will be
passed on to Kentucky retail customers through fuel adjustment clauses. In
the Kentucky Order, the Kentucky PSC approved proposed surcredit tariffs
which will result in reductions in Kentucky retail electric customers'
bills in amounts based on 50% of the currently estimated gross non-fuel
cost savings to be achieved during the first five years as a result of the
merger, less 50% of the actual costs to achieve such savings (but not in
excess of the currently estimated costs to achieve), in each of the five
years following effectiveness of the merger. Under the surcredit tariffs,
as approved by the Kentucky PSC, Kentucky retail customers will be entitled
to such reductions whether or not such level of cost savings is actually
achieved.
Total currently estimated merger savings for the 10 years following the
merger are $765 million with costs to achieve the savings estimated at
$77.2 million.
The Kentucky Order requires KU and LG&E to initiate a formal proceeding no
later than midway through the fifth year following the merger to present a
plan for sharing with ratepayers the then projected levels of merger
savings for periods following the initial five years. In addition, the
parties have proposed a base rate cap for five years after consummation of
the merger, except in the event of extraordinary circumstances such as a
significant increase in the federal corporate tax rate. The Kentucky Order
notes that the Kentucky PSC has the statutory jurisdiction to regulate
utility rates including the authority to investigate and review LG&E's and
KU's earnings at any time.
The Kentucky Order also requires KU and LG&E to file by September 14, 1998,
or the consummation of the merger, whichever is later, detailed plans to
address any future rate regulation that may be adopted in the state. If
either utility elects to remain under traditional rate of return
regulation, it must state the reasons and include an analysis and proposals
relative to its earnings at that time. Alternatively, the Kentucky Order
provides that if either utility elects non-traditional regulation, the
reasons for this choice must be disclosed, along with details of a proposal
and how it will achieve the Kentucky PSC's goals of providing incentives to
utilities and a sharing of resulting benefits with ratepayers. The
Kentucky Order further provides that the Kentucky PSC will at that time
determine on the basis of the described filings and other information
whether changes should be made to the existing regulation of KU and LG&E.
The Kentucky Order also imposes certain routine record keeping and
reporting requirements on KU and LG&E, including quarterly financial
analyses to be submitted to the Kentucky PSC beginning with the last
quarter of 1997. The Kentucky Order is subject to a petition for rehearing
until October 6, 1997, or appeal until October 15, 1997.
The merger is also subject to approval by KU Energy's and LG&E Energy's
shareholders. Special meetings of shareholders are scheduled for October
14, 1997. Approvals are also required from the Federal Energy Regulatory
commission, the Virginia State Corporation Commission and the Securities
and Exchange Commission under the Public Utility Holding Company Act of
1935. Notices will be filed with the Federal Trade Commission and the U.S.
Department of Justice as well as the Tennessee Regulatory Authority.
Consummation of the merger is currently contemplated in the second half of
1998.
In an unrelated matter, LG&E Energy announced on September 17, 1997, that
its 1997 earnings would be lower than 1996 earnings of $1.57 per share and
could be in a range of $1.40 to $1.48 per share. LG&E Energy's press
release on this issue is filed as Exhibit 99.03 hereto.
Statements contained in this Form 8-K that state LG&E Energy's or
management's intentions, expectations or predictions of the future are
forward looking statements. LG&E Energy's actual results could differ
materially from those projected in the forward looking statements, and
there can be no assurance that estimates of future results will be
achieved. LG&E Energy's SEC filings contain additional information
concerning factors that could cause actual results to differ materially
from those in the forward looking statements.
Item 7(c). Exhibits Filed.
Exhibit
Number Description
99.01 News Release from LG&E Energy Corp. dated September 12,
1997.
99.02 News Release from the Kentucky Public Service
Commission dated September 12, 1997.
99.03 News Release from LG&E Energy Corp. dated September 17,
1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LG&E ENERGY CORP.
Registrant
Date: September 19, 1997 /s/ John R. McCall
John R. McCall
Executive Vice President, General
Counsel and Corporate Secretary
Exhibit 99.01
For Immediate Release: September 12, 1997
For More Information: Grant Ringel
LG&E Energy Corp.
502/627-2877
Kentucky PSC Unanimously Approves LG&E Energy/KU Energy Merger;
Joins with Governor and State Legislature in Positioning State
To be a National Energy Leader
LOUISVILLE, Ky. -- The Kentucky Public Service Commission today positioned
the state to continue to be a low-cost energy provider with a unanimous
approval of the merger as proposed between Louisville-based LG&E Energy
Corp. (NYSE:LGE) and Lexington-based KU Energy Corp. (NYSE:KU). No changes
were made in the regulatory plan proposed by the companies.
The merger will consolidate in Kentucky a leading, Fortune 500 energy
company uniquely positioned for the coming competitive energy market.
"We are very pleased that Kentucky's government leaders have continued
their reputation of making wise energy decisions that have for many years
provided Kentuckians with some of the lowest energy costs in the nation,"
said Roger W. Hale, LG&E Energy Corp. chairman and chief executive officer.
"The Kentucky Public Service Commission, the governor and legislature have
demonstrated the foresight necessary for Kentucky to take a leadership role
in the future of the energy industry in America. We're eager to complete
the federal regulatory process and deliver the benefits of this merger to
the citizens of our commonwealth," Hale added.
"Lower energy bills are only the beginning of great things for our
customers, the communities we serve and for the commonwealth of Kentucky,"
said Michael R. Whitley, KU Energy Corp. chairman and chief executive
officer. "As a stronger energy services company headquartered in Kentucky,
the combined company will enhance economic development in the commonwealth,
enhancing business' ability to run successfully, and strengthening
Kentucky's prospects of attracting new business and creating new jobs."
As part of their merger proposal, LG&E Energy and KU Energy have guaranteed
benefits to customers of the two utilities - Louisville Gas and Electric
Company and Kentucky Utilities Company. Customers can expect to see an
average reduction in their energy bills of about two percent for five
years, beginning with final federal regulatory approval next year.
The commission's decision came after an in-depth review of the merger
proposal which included approximately 10,000 pages of prepared testimony
and days of witness cross-examination. "This order demonstrates that after
all the tough questions were answered, there is a consensus among everyone
involved that this merger will be good for Kentucky, our customers,
employees and shareholders," Hale said.
The merger approval calls for the company to explore additional
opportunities in the area of performance-based rates. "We welcome this
directive and believe it will further our company's efforts to prepare for
a more competitive marketplace," Whitley said.
Shareholders of both companies will meet separately, in Louisville and
Lexington, on October 14 to vote on the proposed merger. The boards of
directors of both companies already have voted unanimously in favor of the
merger.
LG&E Energy and KU Energy announced their agreement to merge on May 21,
1997. The combination will create one of the largest, low-cost energy
services holding companies in the nation. The transaction is valued in
excess of $3 billion and the combined companies will have assets in excess
of $4.7 billion.
Following merger approval, the resulting holding company will be known as
LG&E Energy and will be headquartered in Louisville. The two utility
companies, Louisville Gas and Electric Company (LG&E) and Lexington-based
Kentucky Utilities Company (KU), will be wholly owned subsidiaries of the
holding company. The merged company will serve more than 1.1 million
customers throughout Kentucky, Virginia and internationally.
LG&E Energy Corp., a Fortune 500 company headquartered in Louisville, Ky.,
is a diversified energy services and marketing company with businesses in
energy marketing and trading; power generation and project development; and
retail gas and electric utility services. LG&E Energy has increased its
dividends paid to shareholders for 43 consecutive years. The company owns
and operates Louisville Gas and Electric Company, a regulated electric and
gas utility serving Louisville, Ky. and 17 surrounding counties, and owns
interests in two natural gas distribution companies in Argentina. The
company owns equity in and operates power plants in seven states, Argentina
and Spain. The company is one of the largest utility-affiliated energy
marketers in the U.S.
KU Energy, headquartered in Lexington, Ky., is a holding company committed
to building shareholder value, having increased its dividends to
shareholders for 16 consecutive years. KU Energy is the parent company of
Kentucky Utilities Company (KU). KU was among the first electric utility
companies in the country to advocate nationwide customer choice and
competition in the energy arena. KU is recognized as an international
model for efficient, low-cost energy production, solid financial management
and superior customer service. The company provides service to more than
464,000 customers in 77 Kentucky counties and five counties in Virginia.
# # #
Exhibit 99.02
COMMONWEALTH OF KENTUCKY
PUBLIC SERVICE COMMISSION
730 SCHENKEL LANE
POST OFFICE BOX 615
FRANKFORT, KY 40602
(502) 564-3940
FOR IMMEDIATE RELEASE CONTACT: Matthew Rhody
Statewide (502) 564-3940
FRANKFORT, KY (September 12, 1997) -- The Kentucky Public Service
Commission today approved the merger between LG&E Energy Corp. and KU
Energy Corporation affecting some 806,033 customers.
Once the merger is complete, KU Energy will be dissolved, leaving LG&E
Energy as the holding company for both Kentucky Utilities Company (KU) and
Louisville Gas and Electric Company (LG&E).
LG&E will continue its corporate existence under the laws of Kentucky,
while KU will continue its dual corporate existence under the laws of
Kentucky and Virginia.
The order states that the first five years of the merger should produce a
savings of $313,087,000 with estimated costs of $77,220,000 over the five-
year-period.
Both the cost and the savings will be shared on a 50/50 basis between
shareholders and ratepayers. Over the first five years, shareholders and
ratepayers will split a net savings of $235,867,000 which is an average
reduction of two percent for ratepayers over five years.
LG&E and KU originally proposed to share the ratepayers' savings on a 50/50
basis. However, the commission determined that a 53/47 basis was more
appropriate, based upon current revenues, with KU ratepayers receiving 53
percent and LG&E ratepayers receiving 47 percent.
KU's ratepayers will receive approximately $62.5 million in net non-fuel
savings over the first five years, and LG&E's ratepayers will receive
approximately $55.5 million.
Once merged, the LG&E Energy board of directors will be expanded and
reconstituted from 11 members to 15 members, of which eight will be
selected by LG&E Energy and seven by KU Energy.
The current board chairman and chief executive officer of LG&E Energy and
LG&E, Roger Hale, will, after the merger, remain in that position and head
the holding company.
The current board chairman and chief executive officer of KU Energy and KU,
Michael Whitley, will, after the merger, become vice chairman and chief
operating officer of LG&E Energy, LG&E, and KU.
Current shareholders of KU Energy will receive 1.67 shares of LG&E Energy
stock for each share of KU Energy stock.
Shareholders of both holding companies must approve the merger. That vote
is scheduled for October 14.
In the matter of rates, "The record in this case contains no analysis of
the reasonable cost of equity for either LG&E or KU and, with limited
evidence on current earnings, no definitive finding of overearning can be
made," the order said.
"The commission will continue to monitor LG&E's and KU's financial reports
and retains its statutory authority to initiate action, which may include
an investigation of rates, should circumstances warrant," the order said.
LG&E and KU must file detailed plans to address any future financial
situations and any proposed incentives to achieve the highest possible
level of performance by September 14, 1998 or the consummation of the
merger, whichever is later.
The order said, "If either utility elects to remain under traditional rate
of return regulation, it should state the reasons and include an analysis
and proposals relative to its earnings at that time."
"Alternatively, if either utility elects non-traditional regulation, the
reasons for this choice should be disclosed, along with the details of a
proposal and how it will achieve the commission's goals of providing
incentives to utilities and a sharing of resulting benefits with
ratepayers," the order stated.
These filings will be docketed as new cases and subjected to investigations
to the full extent necessary. The commission will then determine, based on
all relevant financial information, as well as current economic and
regulatory conditions, whether changes should be made to the existing
regulation of LG&E and KU.
In addition to the commission's approval, LG&E and KU must receive the
approval of the Federal Energy and Regulatory Commission, the Securities
and Exchange Commission and the Virginia State Corporation Commission.
LG&E and KU will file notifications with the Federal Trade Commission and
the U.S. Department of Justice. LG&E and KU will also file notification
with the Tennessee Regulatory Authority.
LG&E serves 349,866 customers in nine counties and KU serves 456,167
customers in 77 counties.
Exhibit 99.03
For Immediate Release: September 17, 1997
For More Information: Grant Ringel Steve Cave
LG&E Energy Corp. LG&E Energy Corp.
502/627-2877 502/627-2502
LG&E Energy Issues Cautionary Comments On Year-End Earnings
LOUISVILLE, Ky. -- LG&E Energy Corp. (NYSE:LGE) today announced it may
report 1997 earnings lower than those in 1996. These anticipated results
primarily reflect lower earnings from the company's unregulated energy
marketing and trading businesses due to abnormal weather, the volatility of
prices in the energy market and narrowing margins in the natural gas
business.
As a result, the company's 1997 earnings could be lower than 1996 earnings
of $1.57 per share. Earnings for 1997 could be in a range of $1.40 to
$1.48 per share. The company is exploring initiatives to offset some of
this decline.
"We have seen extraordinarily abrupt changes in electric demand and prices
in certain parts of the country this year, substantially greater than has
been experienced historically. This has had a significant impact on the
profitability of our energy marketing and trading operations. In addition,
the high level of competition in the natural gas industry continues to
erode profit margins," said LG&E Energy Corp. chairman and chief executive
officer Roger W. Hale. "This could be the first time in five years that
earnings, as adjusted, may not increase over the previous year," he said.
"However, LG&E Energy's non-utility energy businesses continue to grow and
will be profitable in 1997, although earnings will be lower than the
company expected."
"While we are disappointed in these results, the very nature of the
emerging energy marketing business is much more volatile - and less
predictable - than the traditional regulated utility business. We expect
our non-utility businesses to produce a substantial increase to earnings,
but those gains may not be realized each and every period," Hale said.
"Our fundamental strategic direction remains sound. We are committed to
continue as a leader in the important energy marketing business. LG&E
Energy remains one of the top five marketers of power in the nation, and
one of the largest utility-affiliated marketers of all forms of energy in
the country," Hale said. "We continue to strengthen our competitive
position in the energy marketplace with our transaction to lease the power
plants of the Big Rivers Electric Corporation and the pending merger with
KU Energy Corp., both of which will significantly strengthen our core
earnings and enhance our outstanding platform for growth in 1998 and
beyond," Hale said.
LG&E Energy Corp. is a Fortune 500 energy services holding company
headquartered in Louisville, Ky. The company owns and operates a portfolio
of energy businesses with assets of more than $3.0 billion. In addition to
its energy marketing businesses, the company owns Louisville Gas and
Electric Company, a regulated Kentucky utility, and interests in two
Argentine natural gas distribution facilities. LG&E Energy has offices and
operations throughout the U.S. as well as in Argentina and Spain.
Statements made in this news release that state the Company's or
management's intentions, expectations or predictions of the future are
forward looking statements. The Company's actual results could differ
materially from those projected in the forward looking statements, and
there can be no assurance that estimates of future results will be
achieved. The Company's SEC filings contain additional information
concerning factors that could cause actual results to differ materially
from those in the forward looking statements.
# # #
