LG&E ENERGY CORP, 10-K405, 1997-03-28

LG&E ENERGY CORP
10-K405, 1997-03-28
ELECTRIC & OTHER SERVICES COMBINED

Previous: SOONER HOLDINGS INC /OK/, NT 10-K, 1997-03-28

Next: JSB FINANCIAL INC, 10-K405, 1997-03-28

<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO 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, 1996

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 28, 1997, the aggregate market value of the registrant's voting
stock held by non-affiliates was $1,855,880,404 and the number of outstanding
shares of the registrant's common stock, without par value, was 66,377,022.

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

The Company's proxy statement filed with the Commission on March 26, 1997, 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.......................... 9
Coal Supply................................................. 9
Gas Supply.................................................. 10
Environmental Matters....................................... 11
LG&E Energy Systems Inc.......................................... 11
LG&E Gas Systems Inc............................................. 13
Employees and Labor Relations.................................... 16
Item 2. Properties....................................................... 17
Item 3. Legal Proceedings................................................ 19
Item 4. Submission of Matters to a Vote of Security Holders.............. 21
Executive Officers of the Company........................................... 21

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 22
Item 6. Selected Financial Data.......................................... 23
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition.......................... 24
Item 8. Financial Statements and Supplementary Data...................... 35
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 66

PART III

Item 10. Directors and Executive Officers of the Registrant (a)........... 66
Item 11. Executive Compensation (a)....................................... 66
Item 12. Security Ownership of Certain Beneficial Owners
and Management (a).......................................... 66
Item 13. Certain Relationships and Related Transactions (a)............... 66

PART IV

Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K..................................... 66
Signatures ............................................................ 80

(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
277,000 customers and electricity to approximately 351,000 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 reduce sulfur dioxide emissions, 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 1996, 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.

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

1
<PAGE>

and transportation of natural gas.

On February 13, 1997, the Company acquired interests in two Argentine natural
gas distribution companies through its global venture unit, LG&E International
Inc. (LII). LII purchased a controlling interest in Distribuidora de Gas del
Centro (Centro) and acquired a minority interest in Distribuidora de Gas del
Cuyana (Cuyana). Centro serves approximately 372,000 customers in Cordoba
Province, Argentina; Cuyana serves approximately 305,000 customers in Mendoza
Province, Argentina. The investment in these companies totaled approximately
$140 million. The Company intends to continue to pursue international
development opportunities that have an acceptable level of risk and a reasonable
rate of return.

On March 19, 1997, the U.S. Bankruptcy Court selected the Company's proposal
to lease all of the generating assets of Big Rivers Electric Corporation
("Big Rivers") in a court-ordered auction. Big Rivers, a Henderson, Kentucky,
based power generation cooperative with 1,459 Mw of owned net generating
capacity, currently is in bankruptcy proceedings. Under the terms of the
Company's proposal, the Company will lease the generating assets of Big
Rivers for 25 years and provide power to Big Rivers to serve its member
cooperatives and their customers at reduced rates. Prior to the court-ordered
auction, Pacificorp had signed a 25-year lease arrangement with Big Rivers
that called for Pacificorp to pay approximately $30.1 million annually.
Although the Company has not yet finalized with Big Rivers all aspects of the
proposed transaction, the Company expects to provide $50 million of
additional value over the Pacificorp arrangement. Pacificorp has challenged
the Bankruptcy Court's decision to hold an auction. Consummation of the
transaction is subject to a number of conditions, including submission of a
detailed reorganization plan and approval of such a plan by the Bankruptcy
Court, completion of successful negotiations with the creditors and customers
of Big Rivers and receipt of certain regulatory approvals.

With respect to the regulated utility operations of LG&E, The Kentucky Public
Service Commission (Kentucky Commission) has held a series of meetings with
electric utilities operating in Kentucky to discuss the potential impact of the
major restructuring of the industry that is being driven by competition and
market forces. Specifically, the Kentucky Commission has indicated it wants to
ensure that ratepayers in Kentucky will continue to receive the current low
electric rates and high reliability and quality of service during and after the
restructuring of the industry. Topics discussed have included the regulatory
treatment of potential stranded costs or benefits, the utility's historical
obligation to serve, the functional separation of utilities, regulatory and
legal changes that may be needed in a restructured electric industry and many
other issues. These wide-ranging discussions, which are expected to continue in
the future, centered around the theme of how the Kentucky Commission and
utilities can best work together to benefit energy consumers in Kentucky.

LG&E is exploring steps that it can take to maintain or even improve its
position as a low-cost producer of electricity and evaluating other actions,
including an analysis associated with the future recovery of certain regulatory
assets, that will enable the Company to continue to offer favorable electric
rates to its customers.

The Company operates three divisions that are designed to facilitate decision
making, improve response to customers and align operating units with
the changing competitive marketplace. The operating divisions are:

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.

Energy Marketing Division - consists of the operations of LG&E
Natural, which markets gas throughout the United States and Canada and
the operations of LG&E Power Marketing Inc. (LPM), which is responsible
for project development and the marketing and sale of wholesale power
throughout the United States.

2
<PAGE>

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.

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

The Company is not a public utility under the laws of the Commonwealth of
Kentucky and is not subject to regulation as such by the Kentucky Commission.
See Louisville Gas and Electric Company - Regulation and Rates below for a
description of the regulation of LG&E by the Kentucky Commission, which includes
the ability to regulate certain intercompany 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), a 495-megawatt, coal-fired
electric generating unit, which LG&E began constructing in 1979, was placed in
commercial operation on December 23, 1990. Trimble County had been subject to
numerous reviews by the Public Service Commission of Kentucky (Kentucky
Commission or 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, resolved 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 owns a 75% undivided interest in Trimble County. For a more
detailed discussion of the proceedings relating to Trimble County, see Electric
Operations and Notes 17 and 18 of Notes to Financial Statements under Item 8.

With the passage of the Clean Air Act Amendments of 1990 (the Act), LG&E already
complied with the stringent sulfur dioxide emission limits required by the year
2000 as it had previously installed scrubbers on all of its coal-fired
generating units. Since then, as part of its ongoing construction program, LG&E
has spent $29 million through 1996 for remedial measures necessary to meet the
Act's requirements for nitrogen oxides. The overall financial impact of the Act
on LG&E has been minimal. However, LG&E is closely monitoring a number of
significant regulatory developments. In November 1996, the United States
Environmental Protection Agency (USEPA) announced its proposal to revise the
National Ambient Air Quality Standards for ozone and particulate matter. In
November 1996, USEPA also announced its intent to direct certain states to
address long range ozone transport from Midwest emission sources which allegedly
contribute to ozone problems in the Northeast. While management is unable to
predict the outcome or exact impact of these ongoing regulatory proceedings,
LG&E continues to be 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

3
<PAGE>

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.

LG&E has taken many steps to prepare for the expected increase in competition in
its industry, including a reduction in the number of employees; aggressive cost
cutting; a write-off of previously deferred expenses; an increase in focus on
not only commercial and industrial customers, but residential customers as well;
an increase in employee involvement and training; a major realignment and
formation of new business units, and continuous modifications of its
organizational structure.

In 1996, the Power Generation Division of the Company introduced initiatives
designed to maintain LG&E's low-cost advantage in this increasingly competitive
segment of the energy-services industry. To optimize the daily operation of the
plants, LG&E established new work processes that encourage decision making at
the optimal level.

LG&E is continually developing ways to enhance the service it provides to
customers, including the formation of strategic partnerships with other service
providers. These partnerships increase the product offerings available to
customers, allow LG&E to leverage existing systems and position it in new
markets for the future. Partnerships also allow LG&E to be more innovative by
creating cutting-edge offerings that might not be possible otherwise. LG&E is
now using its customer service centers as a central portal for other utility
services. Through a joint effort with the Louisville Water Company, customers
can now arrange for new services or make payment to both utilities through LG&E.
Customers can also apply for low-interest loans to purchase a variety of
energy-efficient household appliances and equipment, such as natural gas
furnaces, through the Company's Home Energy Loan Program. These are conveniences
that enhance customers' lives and help secure our relationships for the future.

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 the Federal Energy Regulatory Commission 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.

During 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 became effective November 1, 1996. For
many years, Texas Gas Transmission Corporation (Texas Gas) has been the sole

4
<PAGE>

provider of gas transport services to LG&E. For further discussion, see Gas
Supply.

For the year ended December 31, 1996, 74% of total operating revenues was
derived from electric operations and 26% from gas operations. Electric and gas
operating revenues and the percentages by classes of service on a combined basis
for this period were as follows:

(Thousands of $)
Electric Gas Combined % Combined
-------- --- -------- ----------

Residential $202,318 $125,327 $327,645 44%
Commercial 163,027 47,415 210,442 29
Industrial 110,914 21,229 132,143 18
Public authorities 54,318 11,731 66,049 9
-------- -------- -------- ---
Total - ultimate consumers 530,577 205,702 736,279 100%
===
Sales for resale 67,854 -- 67,854
Gas transported - net -- 6,850 6,850
Miscellaneous 8,729 1,867 10,596
-------- -------- --------
Total $607,160 $214,419 $821,579
======== ======== ========

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, 1996.

Electric Operations

The sources of LG&E's electric operating revenues and the volumes of sales for
the three years ended December 31, 1996, were as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
ELECTRIC OPERATING REVENUES (Thousands of $):
Residential $ 202,318 $ 201,357 $ 194,145
Small commercial and industrial 74,034 73,074 70,916
Large commercial 88,993 87,497 84,931
Large industrial 110,914 110,800 108,004
Public authorities 54,318 53,861 53,191
Refund - Trimble County settlement -- (28,300) --
----------- ------------ -----------
Total - ultimate consumers 530,577 498,289 511,187
Sales for resale 67,854 37,471 42,720
Miscellaneous 8,729 7,026 5,420
----------- ------------ -----------
Total $ 607,160 $ 542,786 $ 559,327
=========== ============ ===========
ELECTRIC SALES (Thousands of kwh):
Residential 3,382,124 3,415,225 3,204,330
Small commercial and industrial 1,130,558 1,112,130 1,073,152
Large commercial 1,850,294 1,802,035 1,729,668
Large industrial 3,058,723 3,023,543 2,874,411
Public authorities 1,122,147 1,113,063 1,085,741
----------- ------------ -----------
Total-ultimate consumers 10,543,846 10,465,996 9,967,302
Sales for resale 3,589,090 2,000,607 2,315,311
----------- ------------ -----------
Total 14,132,936 12,466,603 12,282,613
=========== ============ ===========
</TABLE>

At December 31, 1996, LG&E had 351,295 electric customers.

5
<PAGE>

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 1996 was approximately .96 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.

The 1996 maximum local peak load of 2,282 Mw occurred on Wednesday, August 7
when the temperature at the time of peak was 93(degree)F (average for the day
was 84(degree)F). On Thursday, August 17, 1995, LG&E set its all-time record
local peak load of 2,357 Mw, when the temperature at the time of peak reached
94(degree)F (average for the day was 86(degree)F). The record system peak of
3,223 Mw (which included purchases from and short-term sales to other electric
utilities) occurred on Thursday, May 30, 1991.

LG&E's current reserve margin is 16%. At February 28, 1997, 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 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.

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, has a 12.12% ownership interest in LG&E's Trimble County Unit 1. The
Indiana Municipal Power Agency (IMPA), based in Carmel, Indiana, has 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
Trimble County and for fuel and reactant used. They are also responsible for
their proportionate share of incremental capital assets acquired. See Note 18 of
Notes to Financial Statements under Item 8 for further discussion.

Gas Operations

The sources of LG&E's gas operating revenues and the volumes of sales for the
three years ended December 31, 1996, were as follows:

6
<PAGE>

1996 1995 1994
---- ---- ----
GAS OPERATING REVENUES (Thousands of $):
Residential $125,327 $107,762 $110,553
Commercial 47,415 38,161 40,474
Industrial 21,229 17,430 27,956
Public authorities 11,731 8,679 12,930
-------- -------- --------
Total - ultimate consumers 205,702 172,032 191,913
Gas transported - net 6,850 7,821 6,759
Miscellaneous 1,867 1,273 1,457
-------- -------- --------
Total $214,419 $181,126 $200,129
======== ======== ========

GAS SALES (Millions of cu. ft.):
Residential 25,531 24,242 22,935
Commercial 10,656 9,885 9,450
Industrial 5,190 5,188 7,505
Public authorities 2,790 2,423 3,268
-------- -------- --------
Total - ultimate consumers 44,167 41,738 43,158
Gas transported 12,540 12,241 6,854
-------- -------- --------
Total 56,707 53,979 50,012
======== ======== ========

At December 31, 1996, LG&E had 277,493 gas customers.

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

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

The all-time maximum day gas sendout of 545,000 Mcf occurred on Sunday, January
20, 1985, when the average temperature for the day was -11(degree)F. During
1996, the maximum day gas sendout was 521,000 Mcf, occurring on February 2, when
the average temperature for the day was 6(degree)F. Supply on that day consisted
of 202,000 Mcf from purchases, 275,000 Mcf delivered from underground storage,
and 44,000 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. LG&E is recovering these costs from its customers through its
gas supply clause.

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. The Kentucky
Commission has the ability to examine the rates LG&E charges its retail
customers at any time. 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 Note 3 of Notes to

7
<PAGE>

Financial Statements under Item 8.

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

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

On December 8, 1995, the Commission approved a settlement agreement that, in
effect, resolved all the regulatory and legal issues related to the appropriate
ratemaking treatment to exclude 25% of the Trimble County plant costs from
customer rates. See Note 17 of Notes to Financial Statements under Item 8 for
further discussion of this matter.

On April 6, 1995, in response to an application filed by LG&E, the Commission
approved, with modifications, an environmental cost recovery surcharge that
increased electric revenues by $3.2 million in 1995 and $2.4 million in 1996.
The surcharge became effective May 1, 1995. 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. LG&E is 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 Item
7 for a further discussion.

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

On April 24, 1996, the Federal Energy Regulatory Commission (FERC) issued Orders
888 and 889. Order 888 requires all public utilities to file Open Access
Transmission Tariffs. These tariffs will allow third parties to utilize a
utility's transmission assets under comparable terms and conditions as the
utility. LG&E filed its Open Access Transmission Tariff on July 9, 1996, to
comply with FERC's Order 888. See Rates and Regulation under Item 7 for a
further discussion of this matter.

As part of the corporate reorganization whereby LG&E became the subsidiary of
LG&E Energy Corp., 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 Energy Corp. and its
affiliates which relate to transactions with LG&E; requires Energy Corp. 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
precludes LG&E from guaranteeing any obligations of Energy Corp. without prior
written consent from the Kentucky Commission. In addition, the 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

8
<PAGE>

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

During the five years ended December 31, 1996, gross property additions amounted
to $496 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, 1996, and consisted of $368 million for electric properties and
$128 million for gas properties. Gross retirements during the same period were
$94 million, consisting of $76 million for electric properties and $18 million
for gas properties.

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. The Kentucky Commission
allowed the recovery of the buyout expense through LG&E's fuel adjustment
clause. As a result of the buyout of the coal contract, LG&E's customers
realized a net savings in excess of $1 million.

LG&E has entered into coal supply agreements with various suppliers for coal
deliveries for 1997 and beyond. LG&E normally augments its coal supply
agreements with spot market purchases which, during 1996, 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, 1996, a
coal inventory of approximately 650,000 tons, or a 36 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:

9
<PAGE>

1996 1995 1994
---- ---- ----

Per ton $ 21.73 $ 23.68 $ 25.27
Per million Btu .97 1.04 1.10

This downward trend in the delivered cost of coal is expected to continue
through 1997.

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,
beginning in 1996, Tennessee Gas Pipeline Company (Tennessee). In addition, LG&E
purchases natural gas from many other sources under contracts for varying
periods of time.

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.
Transition costs are billed pursuant to orders issued by FERC in transition cost
regulatory proceedings.

LG&E transports on the Texas Gas system under No-Notice Service (NNS) and Firm
Transportation (FT) rates. During the winter months, LG&E has 184,900 MMBtu
(180,390 Mcf) per day in NNS. LG&E does not transport on the Texas Gas system
under FT rates during the winter months. During the summer months, LG&E's NNS
level is 111,000 MMBtu (108,293 Mcf) per day, and its FT service level is 24,000
MMBtu (23,415 Mcf) per day. 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. Effective
November 1, 1996, LG&E also terminated a transportation agreement with Texas Gas
which provided for 30,000 MMBtu (29,268 Mcf) per day in FT service throughout
the year. On November 1, 1996, LG&E initiated service under a five year
transportation agreement with Tennessee for 30,000 MMBtu (28,986 Mcf) per day in
firm transportation service under Tennessee's Rate FT-A. For the previous thirty
years, Texas Gas had been the sole provider of gas transportation services to
LG&E.

During 1996, LG&E participated in several regulatory proceedings at FERC. During
1997, Texas Gas is expected to file for a change in its rates as required under
the settlement in its last rate case in Docket RP94-423. LG&E plans to
participate in that and other proceedings, as appropriate.

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.

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
1995-1996 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.

10
<PAGE>

The average cost per Mcf of natural gas purchased by LG&E was $3.46 in 1996,
$2.62 in 1995, and $2.78 in 1994.

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 1996, expenditures for
pollution control facilities represented $101 million or 20% of total
construction expenditures. The cost of operating and maintaining
scrubber-related facilities amounted to $22 million in 1996 and $21 million in
1995. See Note 16 of Notes to Financial Statements under Item 8 for a discussion
of specific environmental proceedings affecting the Company.

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 utility and industrial customers. LPI, through
its predecessor, has been in the independent power business since 1982 and has
approximately 310 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, and Texas. 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.

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 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.

11
<PAGE>

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.

LII has ownership interests in a wind facility in Tarifa, Spain, a natural gas
combustion turbine and associated electrical and natural gas equipment in
Tucuman Province, Argentina, and two natural gas distribution companies in
Argentina. Each of these entities has obtained foreign utility company (FUCO)
status under the Holding Company Act. Generally, FUCO status exempts these
facilities from application of the Holding Company Act.

LPM, a wholly-owned subsidiary of LPI, markets and brokers wholesale power. 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 1996, LPM sold or brokered 17.4 million
megawatt-hours of power in 35 states. This volume of activity placed LPM among
the three largest marketers of wholesale energy in 1996 and the largest seller
affiliated with a regulated electric utility. Although a portion of LPM's 1996
sales came from the Tennessee Valley Authority (TVA) and, as described below,
such sales to TVA have been discontinued, LPM is predicting that the market for
electric energy will expand and its revenues will increase in future years.

In November 1996, LPM and the Company entered into a purchase and sale
agreement with Oglethorpe Power Corporation ("OPC") pursuant to which LPM
will have access to approximately half of OPC's 5,000 Mw of generation
resources. LPM also will be required to cover approximately half of the
energy needs of OPC's other member cooperatives. OPC will pay a fixed price
for the energy over the term of the agreement. The term of the agreement is
fifteen years. After a specified period, each party has the ability to
terminate the agreement upon advance written notice. In January 1997, LPM,
LPI and OPC entered into a similar agreement with two member cooperatives who
did not opt to participate in the November agreement. Both agreements were
approved by the Rural Utilities Services in February 1997. Over the course of
the fifteen-year agreement, LPM is expected to provide more than 200 million
megawatt-hours of electricity to OPC.

LPM uses financial instruments in its power 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 electric
power trading activities. See Note 4 and Note 16 of Notes to Financial
Instruments under Item 8 for an overall discussion of these activities.

LPM competes with other power marketers, including utility affiliated power
marketers and gas marketers that have expanded into the electric power
market. The power marketing industry is very competitive, particularly with
respect to price and service.

Energy Systems has provided letters of credit and various other guarantees to
third parties which totaled approximately $31.4 million and $33.7 million as of
December 31, 1996 and 1995, respectively.

12
<PAGE>

The letters of credit are subject to Support Agreements as more fully described
in Note 16 of Notes to Financial Statements under Item 8.

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

On December 23, 1996, Westmoreland Coal Company and its four first tier
subsidiaries filed for reorganization under Section 11 of the U.S. Bankruptcy
Code. One of these subsidiaries, Westmoreland Energy, Inc., is the direct parent
of the various entities that are partners in partnerships with LG&E Energy
subsidiaries which own six independent generating facilities. See Note 16 of
Notes to Financial Statements under Item 8.

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 has appealed the court's ruling and the
Virginia Supreme Court has granted review. See Note 16 of Notes to Financial
Statements under Item 8.

Niagara Mohawk Corporation (NIMO) has proposed to buy out the Power Purchase
Agreements NIMO has with a group of independent power projects. The Rensselaer
cogeneration facility, in which the Company has a 50% interest through an
indirect subsidiary, is one of the projects affected by this initiative. While
discussions among the projects and NIMO are continuing, the Company is not able
to predict the outcome of this event. Based upon the status of current
negotiations, the Company does not expect the ultimate resolution of this matter
to have a material adverse effect on its results of operations or financial
condition. See Note 16 of Notes to Financial Statements under Item 8.

In May 1996, Kenetech Windpower, Inc. (Kenetech) filed in the United States
Bankruptcy Court in the Northern District of California for protection under
Chapter 11 of the United States Bankruptcy Code seeking, among other things, to
restructure certain contractual commitments between Kenetech and its
subsidiaries, on the one hand, and various windpower projects located in the
U.S. and abroad, on the other hand. Included in these projects are the Windpower
Partners 1993 (WPP 93), Windpower Partners 1994 (WPP 94) and KW Tarifa, S.A.
(Tarifa) wind projects in which the Company has invested, collectively,
approximately $31 million. See Note 16 of Notes to Financial Statements under
Item 8.

The Alabama Power Company, Georgia Power Company and Mississippi Power Company
(the Plaintiffs) filed a Complaint for Declaratory Judgment and Injunctive
Relief against the Tennessee Valley Authority (TVA) and LPM in the United States
District court for the Northern District of Alabama. The court ruled that TVA
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.
See Note 16 of Notes to Financial Statements under Item 8.

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,

13
<PAGE>

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 3.6 billion cubic feet per day by the end
of 1996. As of December 31, 1996, LG&E Natural had approximately 721 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 1996, 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 60
days to nine 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 and which expires in December 2001. 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 of all 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. LG&E Natural currently
receives about 80,000 MMBtu per day under the contract. 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

14
<PAGE>

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 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. An average of approximately 60,000 MCF of natural gas per
day moved through the Llano pipeline in 1996.

The eleven gathering systems gathered approximately 104,000 MCF (net to LG&E
Natural ownership interests) of natural gas per day during 1996. 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. Approximately 189,000 gallons per day of natural gas liquids
were extracted and sold from these facilities in 1996.

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, 1996, storage capacity of approximately 2.5 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 provided 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 $6.6 million and $11 million at December 31, 1996 and
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

15
<PAGE>

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 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.

For a discussion of lawsuits filed as a result of LG&E Natural's discovery in
the fourth quarter of 1996 that unauthorized transactions had occurred,
resulting in losses of $17.1 million after tax, see Note 16 of Notes to
Financial Statements under Item 8.

EMPLOYEES AND LABOR RELATIONS

The Company and its subsidiaries had 3,069 full-time employees at December 31,
1996. LG&E's approximately 1,500 operating, maintenance, and construction
employees are members of the International Brotherhood of Electrical Workers
(IBEW) Local 2100. The current three year contract will expire in November 1998.

16
<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 28, 1997, 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 Trimble County.
LG&E is responsible for operation of Unit 1 and is reimbursed
by IMEA and IMPA for expenditures related to Trimble County
based on their proportionate share of ownership interest. See
Note 18 of Notes to Financial Statements, Jointly Owned
Electric Utility Plant, under Item 8 for further discussion on
ownership.

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

At December 31, 1996, LG&E's electric transmission system included 21
substations with a total capacity of approximately 11,026,897 Kva and
approximately 652 structure miles of lines. The electric distribution system
included 83 substations with a total capacity of approximately 3,383,530 Kva,
3,537 structure miles of overhead lines, 274 miles of underground conduit, and
5,420 miles of underground conductors.

LG&E's gas transmission system includes 178 miles of transmission mains, and the
gas distribution system includes 3,528 miles of distribution mains.

LG&E operates underground gas storage facilities with a current working gas
capacity of approximately 14.6

17
<PAGE>

million Mcf. See Gas Supply under Item 1.

In 1990, LG&E entered into an operating lease for its corporate office building
located in downtown Louisville, Kentucky. The lease is for a period of 15 years
and is scheduled to expire June 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 three office facilities that expire in
1997, 1999 and 2001. LG&E Natural has six office leases that expire between 1997
and 2004.

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 much of the property owned by LG&E.

At December 31, 1996, LPI owned the percentage indicated of the following joint
ventures:

<TABLE>
<CAPTION>
Net
Ownership Capability Year in
Name Interest % Fuel Rating (Mw) Service
---- ---------- ---- ----------- -------

<S> <C> <C> <C> <C>
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 50 Coal 165 1994
(Roanoke Valley I)
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 50 Coal 44 1995
(Roanoke Valley II)
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>

18
<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. See Note 16 of Notes to Financial
Statements under Item 8 for a discussion of the bankruptcy filing of an
affiliate of LPI's partner in the Southampton, Altavista, Hopewell, Rensselaer
and Roanoke Valley joint ventures.

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 LG&E Natural 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%
interests in three of these plants, and a majority 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

In March 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. In an order
issued 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 to
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.

19
<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 (WLP), 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 December 1996, the Virginia Supreme
Court agreed to hear the Company's appeal of an adverse lower court 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 (the Plaintiffs) 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 claimed that TVA violated the Tennessee Valley Authority Act (TVA
Act) by entering into an interchange agreement with LPM (Interchange Agreement)
and that TVA was 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. In September
1996, the Court granted the Plaintiffs Motion for Summary Judgment, finding that
LPM is not a power generating organization with which TVA had an exchange power
arrangement on July 1, 1957, and that the contract is null and void. This
decision became final on November 23, 1996. This decision is not expected to
have a material effect on the Company's financial position or results of
operations.

Calgary

On November 22, 1996 LG&E Natural Canada Inc., a subsidiary of LG&E Natural,
initiated action in the Court of the Queens Bench of Alberta, Calgary against
a former employee. That action and an additional action, filed on the same
date in the General Division of the Calgary Court, also named a natural gas
sales and marketing company and the director, president and secretary of that
company. An amended statement of claim was filed in the Calgary action on
December 23, 1996, naming additional parties. These lawsuits were filed as a
result of LG&E Natural's discovery in the fourth quarter of 1996 that the
former employee had engaged in unauthorized transactions. Counterclaims have
been filed seeking damages of approximately forty million dollars for, among
other things, defamation and breach of contract. See Note 8, Non-Recurring
Charges, and Note 16, Commitments and Contingencies, under Item 8. The
Company does not expect the ultimate resolution of this matter to have a
material adverse effect on its results of operations or financial condition.

20
<PAGE>

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.

Executive Officers of the Company.

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

Roger W. Hale 53 Chairman of the Board, August 17, 1990
President and Chief
Executive Officer

Victor A. Staffieri 41 President - Distribution December 15, 1995
Services Division
President - Louisville Gas
and Electric Company

Walter Z. Berger 41 Group President - January 3, 1997
Energy Marketing

John R. McCall 53 Executive Vice President, July 1, 1994
General Counsel and
Corporate Secretary

Stephen R. Wood 54 Executive Vice January 1, 1994
President and Chief
Administrative Officer

George W. Basinger 51 Senior Vice President - August 1, 1996
Power Operations

Charles A. Markel III 49 Vice President - January 1, 1993
Finance and Treasurer

S. Bradford Rives 38 Vice President - March 15, 1996
Finance and Controller

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 May 8, 1997.

21
<PAGE>

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

Messrs. Hale, Staffieri, 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. 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. Berger was Vice President
and Chief Financial Officer of Tri-State Oil, a subsidiary of Baker Hughes,
Inc., from January 1988 to February 1992; Controller of Enron America, Inc.
from February 1992 to July 1992; General Manager of Enron America, Inc. from
August 1992 to November 1992; Vice President, Finance and Business
Development of Enron Oil Trading and Transportation from November 1992 to
February 1996; and Executive Vice President and Chief Financial Officer of
LG&E Energy Corp. and of LG&E from February 1996 to January 1997.

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. Basinger was Partner of
National Power Company prior to November 1993; Vice President of Venture
Management for LG&E Power Inc. from December 1993 to November 1994; and Senior
Vice President of Operations for LG&E Power Inc. from November 1994 to August
1996.

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.

Before he was elected to his current position, Mr. Rives was Director -
Corporate Finance prior to February 1992; Assistant Treasurer from February 1992
to December 1992; Director - Business Development from January 1993 to December
1993; Associate General Counsel from January 1994 to June 1994; Vice President
and Treasurer of LG&E Power from June 1994 to March 1995; Vice President,
Controller and Treasurer of LG&E Power from March 1995 to December 1995; and
Vice President - Finance, Non-Utility Business from January 1996 to March 1996.

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.

22
<PAGE>

<TABLE>
<CAPTION>
1996 1995
---- ----

Dividend High Low Dividend High Low
Paid Price Price Paid Price Price
---- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
First quarter $.2775 $22.000 $20.750 $.26875 $20.0000 $18.4375
Second quarter .2775 22.875 20.875 .26875 20.1875 18.6875
Third quarter .2775 23.625 21.625 .26875 20.0625 19.0000
Fourth quarter .2875 24.625 22.375 .27750 21.5625 20.0000
</TABLE>

The number of record holders of Common Stock at December 31, 1996, was 30,927.
The book value of the Company's Common Stock at December 31, 1996, was $12.23
per share.

ITEM 6. Selected Financial Data.

Years Ended December 31
(Thousands of $ Except per Share Data)
--------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Revenues $ 3,589,465 (a) $ 1,402,980 (a) $ 829,663 $ 900,027 $ 834,739
Refund - Trimble County
settlement -- (28,300) -- -- --
------------ ------------ ------------ ----------- -----------
Revenues 3,589,465 1,374,680 829,663 900,027 834,739
============ ============ ============ =========== ===========
Operating income:
Before non-recurring items 237,771 205,357 189,087 189,122 174,504
Trimble County settlement -- (29,800) -- -- --
Non-recurring charges (26,330) -- (48,743) -- --
------------ ------------ ------------ ----------- -----------
Operating income 211,441 175,557 140,344 189,122 174,504
============ ============ ============ =========== ===========
Net income:
Continuing operations:
Before non-recurring items 121,117 100,682 95,525 80,825 71,437
Trimble County settlement -- (17,852) -- -- --
Non-recurring charges (17,114) -- (38,696) -- --
------------ ------------ ------------ ----------- -----------
Total 104,003 82,830 56,829 80,825 71,437
Discontinued operations -- -- -- 7,435 4,177
Gain on sale of
discontinued operations -- -- 51,805 -- --
Cumulative effect of
accounting change -- -- (3,369) -- --
------------ ------------ ------------ ----------- -----------
Net income $ 104,003 $ 82,830 $ 105,265 $ 88,260 $ 75,614
============ ============ ============ =========== ===========

Average number of com-
mon shares outstanding 66,293,670 66,105,175 65,981,870 65,377,181 64,614,969
</TABLE>

23
<PAGE>

Years Ended December 31
(Thousands of $ Except per Share Data)
--------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings per share of
common stock:
Continuing operations:
Before non-recurring items $1.83 $1.52 $1.45 $1.24 $1.11
Trimble County settlement -- (.27) -- -- --
Non-recurring charges (.26) -- (.59) -- --
----- ----- ----- ----- ----
Total 1.57 1.25 .86 1.24 1.11
Discontinued operations -- -- -- .11 .06
Gain on sale of
discontinued operations -- -- .79 -- --
Cumulative effect of
accounting change -- -- (.05) -- --
----- ----- ----- ----- ----
Earnings per share $1.57 $1.25 $1.60 $1.35 $1.17
===== ===== ===== ===== =====

Cash dividends declared per
share of common stock $1.13 $1.0925 $1.0575 $1.023 $.991
Payout ratio 72.1%(b) 87.2%(b) 66.3%(b) 75.9% 84.7%

Total assets $3,011,892 $2,628,920 $2,217,464 $2,186,468 $2,148,398

Long-term obligations
(including amounts
due within one year) 646,800 662,800 662,800 662,800 686,262
</TABLE>

(a) The significant increases in revenues in 1996 and 1995 resulted
primarily from acquiring LG&E Natural in May 1995. See Note 2 of
Notes to Financial Statements under Item 8 and Management's
Discussion and Analysis under Item 7.

(b) Excluding mark-to-market, 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 70.8%, 71.8% and 73.1% in 1996, 1995 and 1994, respectively.

Management's Discussion and Analysis of Results of Operations and
Financial Condition and the Notes to Financial Statements should be read
in conjunction with the above information.

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 1996, 1995, and 1994 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 energy marketing and
related services, energy generation, and gas distribution in addition to the
financial results provided by LG&E.

Some of the following discussion may contain forward looking statements that are
subject to certain risks, uncertainties and assumptions. Such forward looking
statements are intended to be identified in this document by the words
"anticipate," "estimate," "objective," "possible," "potential" and similar
expressions. Actual

24
<PAGE>

results may vary materially. Factors that could cause actual results to differ
materially include: general economic conditions; business and competitive
conditions in the energy industry; change in federal or state legislation;
unusual weather; actions by state or federal regulatory agencies affecting
rates; and other factors described from time to time in LG&E Energy Corp.'s
reports to the Securities and Exchange Commission.

RESULTS OF OPERATIONS

Earnings per Share

Earnings per share data contained herein for periods prior to 1996 have been
restated to reflect a two-for-one stock split that occurred in 1996.

Earnings per share of common stock for 1996 of $1.57 increased 32 cents over the
$1.25 per share reported for 1995. Excluding the one-time non-recurring charges
as discussed in the following paragraph, earnings per share were $1.83 in 1996,
or 31 cents more than comparable 1995 earnings of $1.52. The 31-cent increase
resulted from higher earnings at LG&E of 14 cents and higher energy marketing
and other earnings of 27 cents, partially offset by an increase in corporate and
other expenses of (10 cents). The LG&E increase of 14 cents is primarily the
result of a significantly higher level of wholesale electric sales and increased
retail sales of electricity and natural gas, partially offset by increased
operation and maintenance expenses. The increase in non-utility earnings
reflects growth in the Company's energy marketing and trading business and a
strong performance by the independent power ventures. Also, earnings
attributable to energy marketing and trading for 1996 include an increase for
contracts accounted for under the mark-to-market method of accounting of 23
cents per share.

The reported earnings per share in 1996 of $1.57 include a one-time charge of 26
cents, which resulted from unauthorized transactions in LG&E Natural Inc.'s
(LG&E Natural) Calgary, Alberta, Canada, office. See Note 8 of the Notes to
Financial Statements under Item 8. Earnings per share for 1995 include a
one-time charge of 27 cents to recognize the settlement of the long-standing
issues surrounding LG&E's Trimble County electric generating plant.

Earnings per share of common stock for 1995 were $1.25, a decrease of 35 cents
from the $1.60 earned in 1994. The decrease primarily reflects a 27-cent charge
taken to recognize the Trimble County settlement mentioned in the preceding
paragraph. In addition, earnings in 1994 included a gain on the sale of the
Company's interest in Natural Gas Clearinghouse (NGC) of 79 cents, partially
offset by non-recurring charges (46 cents), the expense of establishing a
charitable foundation (13 cents) and the adoption of a new accounting standard
for post-employment benefits (5 cents). When considered together, these 1994
items produced a 15-cent 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 7 cents during
1995 ($1.52 in 1995 as compared to $1.45 in 1994). This increase resulted
primarily from an increase in earnings from investments in joint ventures 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. 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.

Utility Results

Revenues

A comparison of LG&E's revenues for the years 1996 and 1995, excluding the
Trimble County settlement

25
<PAGE>

(which reduced electric revenues by $28.3 million in 1995), with the immediately
preceding year reflects both increases and decreases, which have been segregated
by the following principal causes (in thousands of $):

<TABLE>
<CAPTION>
Increase (Decrease) From Prior Period
Electric Revenues Gas Revenues
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales to ultimate consumers:
Fuel and gas supply adjustments, etc $ (4,652) $(10,566) $ 21,176 $(16,940)
Demand side management/decoupling 5,429 (4,619) (1,989) 479
Environmental cost recovery surcharge 2,410 3,205 -- --
Variation in sales volumes 801 27,382 14,483 (3,420)
-------- -------- -------- --------
Total 3,988 15,402 33,670 (19,881)
Sales for resale 30,383 (5,249) -- --
Gas transportation-net -- -- (971) 1,062
Other 1,703 1,606 594 (184)
-------- -------- -------- --------
Total $ 36,074 $ 11,759 $ 33,293 $(19,003)
======== ======== ======== ========
</TABLE>

Electric revenues increased in 1996 compared with 1995 primarily because of an
increase in sales of electricity for resale which resulted from aggressive
marketing efforts. Gas revenues increased as a result of the higher cost of
natural gas in 1996 and because of increased sales to ultimate consumers (6%)
caused mainly by colder weather experienced in the first quarter of the year.

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.

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 Public Service Commission of Kentucky (Kentucky
Commission or Commission).

Fuel expenses increased $11.7 million (8%) in 1996 primarily because of a 12%
increase in generation ($16 million), partially offset by a decrease in the cost
of coal burned ($4.3 million). Fuel expenses decreased $5.6 million (4%) in 1995
as compared to 1994 due to a decrease in the cost of coal burned ($7.5 million)
partially offset by increased generation of 2%. The average delivered cost per
ton of coal purchased was $21.73 in 1996, $23.68 in 1995, and $25.27 in 1994.
This downward trend in the delivered cost of coal is expected to continue
through 1997.

Power purchased expense in 1996 of $16.6 million was approximately the same as
in 1995. Power was purchased in 1996 primarily to supplement generation
requirements related to wholesale electric power sales. Power purchased in 1995
increased $7.1 million over 1994 primarily because of increased purchases
resulting from unplanned outages at the electric generating plants during the
extremely hot summer weather.

Gas supply expenses increased $29.7 million (27%) mainly because of the higher
unit cost of net gas supply ($21.8 million) and an increase in the volume of gas
delivered to the distribution system ($7.9 million). 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). The average

26
<PAGE>

unit cost per Mcf of purchased gas was $3.46 in 1996, $2.62 in 1995, and $2.78
in 1994.

Operation and maintenance expense increased $11.5 million (6%) over 1995
primarily because of increased costs to operate the Company's electric power
plants ($2.9 million), the electric and gas transmission and distribution
systems ($1.9 million), increased storm damage expenses ($2.2 million) and
because of the recognition of credits to expense in 1995 for settlement proceeds
received related to a commercial dispute. In 1995 LG&E 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
recognized $6 million as a reduction of 1995 operation expense. After further
study and the resolution of the remaining legal issues, the $2 million balance
was applied as a reduction of operation expense in 1996.

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 as discussed above.

Depreciation and amortization increased in both 1996 and 1995 primarily because
of additional utility plant in service.

Non-recurring charges in 1994 of $38.6 million 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. See Note 8 of Notes to Financial Statements under Item 8.

Other income decreased about $3 million in 1996 because of a decrease in income
earned from investments and lower gains realized from the sale of property as
compared to 1995. See Note 12 of Notes to Financial Statements under Item 8.

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

Interest charges for 1996 decreased $1.7 million (4%) primarily because of the
retirement of outstanding debt. The Company's First Mortgage Bonds, 5.625%
Series of $16 million were retired at maturity on June 1, 1996 and $50 million
in other debt was refinanced at more favorable rates. Interest charges for 1995
decreased $.9 million primarily due to a reversal of an interest expense reserve
resulting from a favorable ruling on certain income tax matters. The embedded
cost of long-term debt at December 31, 1996, was 6.05%; at December 31, 1995,
6.32%. See Note 14, First Mortgage Bonds and Pollution Control Bonds, for
further discussion.

Preferred dividends decreased $1.7 million (28%) due primarily to the redemption
of the 7.45% Series Cumulative Preferred Stock in December 1995. Preferred
dividends increased $.5 million in 1995 because of a higher rate associated with
the Auction Rate Series.

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

The rate of inflation may have a significant impact on LG&E's operations, its
ability to control costs, and the

27
<PAGE>

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.

Energy Marketing, Trading and Other Results

Revenues and cost of revenues increased substantially in 1996 compared to 1995
primarily due to increased volumes and higher prices associated with the
Company's energy marketing and trading operations. Energy marketing and trading
includes the operations of LG&E Natural which was acquired in May 1995 and LG&E
Power Marketing Inc. (LPM), both of which substantially increased their levels
of activity during 1996. Revenues also increased approximately $26.2 million due
to adoption of the mark-to-market method of accounting for the Company's energy
trading and price risk management activities. See Notes 1 and 20 of Notes to
Financial Statements under Item 8. Additionally, LPI recorded approximately $7.6
million in revenues from development activities associated with an independent
power project in the Northeast, which is included in other revenues.

Revenues and cost of revenues for energy marketing and trading increased in 1995
compared to 1994 mainly due to acquiring LG&E Natural in May 1995. Higher power
marketing volumes in 1995 also contributed to the increases. Decreases in other
revenues were primarily due to the completion of construction activities at
LPI's ROVA I and Rensselaer projects in the second quarter of 1994 and the ROVA
II project in May 1995. The decrease in construction activity reflects a trend
in the domestic independent power production industry.

Operation and maintenance expenses increased $28 million in 1996 compared to
1995 primarily due to the LG&E Natural acquisition. Approximately $7 million of
the increase resulted from reclassification of expenses included in cost of
revenues in 1995 to operation and maintenance in 1996. Higher levels of energy
marketing and trading activities also contributed to the increase.

Operation and maintenance expenses increased $15.2 million in 1995 compared to
1994 mainly due to the May 1995 LG&E Natural acquisition. Also, LPI incurred
costs in 1995 to exit the engineering and construction business which
contributed to the increase, as did costs resulting from LPI's acquiring
operation and maintenance contracts from UCOS in 1995. See Note 7 of Notes to
Financial Statements under Item 8.

Depreciation and amortization increased $5.9 million in 1996 and $7 million in
1995 primarily due to the LG&E Natural acquisition.

Non-recurring charges in 1996 resulted from losses recognized when an internal
investigation uncovered unauthorized transactions by a marketer in LG&E
Natural's Calgary, Alberta, Canada, office. Non-recurring charges in 1994
included costs related to LPI's vacating leased office space. See Notes 8 and 16
of Notes to Financial Statements under Item 8.

The decrease in equity in earnings of joint ventures in 1996 compared to 1995
mainly resulted from the sale of power purchase contracts by two partnerships in
June 1995. The sales resulted in gains totaling $9.7 million in 1995. Also,
earnings from the three windpower joint ventures formerly managed by Kenetech
Windpower, Inc. (Kenetech) decreased $1.1 million. This was primarily due to an
increased level of expense incurred because of a change in operations management
at the ventures during 1996 after Kenetech filed for Chapter 11 bankruptcy
protection. The Company now manages operations at two of the projects, and
another venture partner manages the third. See Notes 7 and 16 of Notes to
Financial Statements under Item 8.

The increase in equity in earnings of joint ventures in 1995 compared to 1994
mainly resulted from the $9.7 million gain mentioned above and the startup of
operations at newly-completed power plants. Operations began at LPI's ROVA I and
Rensselaer plants in the second quarter of 1994, and at the ROVA II project in
May 1995.

28
<PAGE>

Other income and deductions decreased in 1996 by approximately $1.6 million
primarily due to reduced interest and dividend income earned on investments in
marketable securities due primarily to lower levels of investments. Other income
and deductions decreased $8.8 million in 1995 compared to 1994. The 1994 amount
included a fee received from Westmoreland Energy, Inc. for a guarantee by the
Company of certain cogeneration project funding commitments. Lower investment
income resulting from a lower level of investments in marketable securities also
contributed to the decrease. See Note 12 of Notes to Financial Statements under
Item 8.

Interest charges increased $3.5 million in 1996 and $5.4 million in 1995 due to
increases in notes payable. Notes payable increased significantly in May 1995,
when the Company acquired LG&E Natural.

Gain on sale of discontinued operations reflects the sale of the Company's
investment in NGC in January 1994. See Note 6 of Notes to Financial Statements
under Item 8.

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 among the
non-utility businesses. Fluctuations in the Company's energy marketing and
trading activities also affect liquidity throughout the year. Lines of credit
are maintained to fund these temporary capital requirements.

Capital Requirements

Utility construction expenditures for 1996 were $108 million compared with $93
million for 1995 and $95 million for 1994. Non-utility construction expenditures
(other than generating plant expenditures incurred by joint ventures) were
approximately $8 million in 1996, $11 million in 1995, and were not material in
1994. Non-utility construction expenditures are not expected to vary
significantly in 1997 from the 1996 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.

Past Financing Activities

During 1996, 1995, and 1994, 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 1996, 1995, and 1994. 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 1996 to meet general working capital
needs, including margin calls. Margin calls are generally required on certain of
the Company's hedge and trading financial instruments to address changes in
market prices. The Company had approximately $9.7 million of net margin deposits
as of December 31, 1996.

The Company's combined cash and marketable securities balance increased $11.3
million in 1996. The increase reflects cash flows from operations, partly offset
by capital expenditures, dividends paid, and a net decrease in borrowings. In
1995, combined cash and marketable securities decreased $79.6 million compared
to 1994 which primarily resulted from the acquisition of LG&E Natural and
related working capital needs, additional

29
<PAGE>

investments in affiliates, and dividends paid; offset by cash flows from
operations, an increase in borrowings and changes in classification of
investments from non-current to current assets. The Company's liquidity was
positively affected in 1994 by the sale of its investment in Natural Gas
Clearinghouse. This sale enabled the Company to invest $123 million in
marketable securities.

The increases in accounts receivable and accounts payable during 1996 resulted
from increased energy marketing volumes. The increases in price risk management
assets and liabilities resulted from adopting the mark-to-market method of
accounting for the Company's energy marketing and trading activities in 1996.
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 and LPM, throughout the United States, which
has a direct effect on sales of electricity and natural gas.

On June 1, 1996, LG&E's First Mortgage Bonds, 5.625% Series of $16 million
matured and were retired by LG&E. The bonds were redeemed with available funds.

In October 1996, LG&E issued $22.5 million of Jefferson County, Kentucky and
$27.5 million of Trimble County, Kentucky, Pollution Control Bonds, Flexible
Rate Series, due September 1, 2026. Interest rates for these bonds were 3.60%
and 3.57%, respectively, at December 31, 1996. The proceeds from these bonds
were applied in December 1996 to redeem the outstanding 7.25% Series of
Jefferson County, Kentucky and Trimble County, Kentucky, Pollution Control Bonds
due December 1, 2016.

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

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.

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 non-utility short-term borrowings outstanding of $158 million as
of December 31, 1996. Short-term borrowings were $173 million as of December 31,
1995, and $32 million as of December 31, 1994. The increase in 1995 primarily
relates to the acquisition of LG&E Natural.

The Company issued $2 million of new common stock in 1996 and $3 million in
1995, under various employee plans. See Note 13 of Notes to Financial Statements
under Item 8.

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
actions 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 $250 million for 1997 and 1998. In addition, LG&E's
capital requirements for 1998 include $20 million to retire long-term debt that
is scheduled to mature. Capital expenditures for the non-utility businesses are
anticipated to total $54 million for 1997 and 1998. Ascertainable non-utility
equity funding commitments were immaterial at December 31, 1996.

30
<PAGE>

As discussed below and in Note 2 of Notes to Financial Statements under Item 8,
the Company acquired interests in two Argentine natural gas distribution
companies in February 1997. The Company borrowed approximately $100 million to
finance these purchases. 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.

Future Sources of Financing

Internally generated funds from operations are expected to fund substantially
all of LG&E's anticipated construction expenditures in 1997 and 1998. Similarly,
the Company anticipates having sufficient internal cash generation, borrowing
capacity and access to securities markets to meet anticipated equity investments
and non-utility capital expenditures in 1997 and 1998.

At December 31, 1996, loan agreements and lines of credit were in place totaling
$590 million ($25 million for LG&E Energy Corp., $200 million for LG&E, $215
million for LG&E Gas Systems Inc. and $150 million for LG&E Energy Systems Inc.)
for which the companies pay commitment or facility fees. These credit facilities
are scheduled to expire at various points in time from 1997 through 2001.
Management expects to renegotiate them when they expire. Also, a new $100
million borrowing facility was opened in February 1997 to fund a portion of the
Argentine natural gas distribution company investments discussed above.

The lenders under the credit facilities for LG&E Energy Systems Inc. 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.

Year 2000 Computer Software Modification Costs

Based on a preliminary study, the Company expects to spend approximately $12
million to $15 million from 1997 through 1999 to modify its computer information
systems enabling proper processing of transactions relating to the year 2000 and
beyond. The Company continues to evaluate appropriate courses of corrective
action, including replacement of certain systems whose associated costs would be
recorded as assets and amortized. Accordingly, the Company does not expect the
amounts required to be expensed over the next three years to have a material
effect on its financial position or results of operations. The amount expensed
in 1996 was immaterial.

Rates and Regulation

LG&E is subject to the jurisdiction of the Kentucky 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, resolved 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 being refunded over the five-year period, 1996 through 2000, based on a
per kilowatt-hour credit. In addition, LG&E also agreed to provide $900,000
annually for five years, beginning in 1996, to fund low-income energy assistance
programs and agreed to revise the decoupling methodology in a manner that was to
reduce revenues collected from residential customers during 1996 and 1997 by a
total of

31
<PAGE>

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 27(cent). See
Note 17 of Notes to Financial Statements under Item 8 for further discussion.

In May 1995, LG&E implemented a Commission approved environmental cost recovery
(ECR) 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. As a result of this
surcharge, LG&E's electric revenues increased $3.2 million in 1995, an
additional $2.4 million in 1996 and a further increase in revenues of
approximately $1 million is projected for 1997. The Kentucky Attorney General
(KAG), and the Kentucky Industrial Utility Customers (KIUC) have filed an appeal
in Franklin Circuit Court on various issues related to the Commission's order in
this proceeding, including the constitutionality of the Kentucky statute that
authorizes the surcharge. In an order dated April 10, 1996, associated with the
first six-month review of the operation of the surcharge, the Commission stated
that all environmental surcharge revenues collected from the date of the April
10 order will be subject to refund, pending the final determination of the April
6, 1995, order. LG&E is contesting the legal challenges but cannot predict the
outcome of this litigation. However, the amount of refunds, if any, that may
ultimately be ordered, are not expected to have a material adverse effect on
LG&E's financial position or results of operation.

In January 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. 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 approved program
includes a formal collaborative process to develop future DSM programs and also
contains a rate mechanism that (1) provides LG&E concurrent recovery of DSM
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
through a decoupling mechanism.

In 1996, the Commission approved the addition of six new programs that increased
LG&E's commitment to DSM by approximately $4 million over the next two years.

On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued Orders
888 and 889. Order 888 requires all public utilities to file Open Access
Transmission Tariffs. These tariffs will allow third parties to utilize a
utility's transmission assets under comparable terms and conditions as the
utility. LG&E filed its Open Access Transmission Tariff on July 9, 1996, to
comply with FERC's Order 888.

Order 889 requires public utilities to implement standards of conduct and an
Open Access Same-time Information System (OASIS). The standards of conduct
require that public utilities functionally separate their transmission and
wholesale power merchant functions. OASIS will allow other parties to obtain
information about a utility's transmission system in the same manner that the
utility's wholesale power merchant function does. OASIS ensures that relevant
information is passed from the utility's transmission function to the purchaser
of transmission service in a non-discriminatory manner. LG&E has made a
functional separation of its transmission and wholesale power merchant function.
A filing of LG&E's standards of conduct was made with the FERC on December 31,
1996. In January 1997, LG&E began operation of its OASIS system in accordance
with the FERC Order.

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

32
<PAGE>

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).

Environmental Matters

With the passage of the Clean Air Act Amendments of 1990 (the Act), LG&E already
complied with the stringent sulfur dioxide emission limits required by the year
2000 as it had previously installed scrubbers on all of its coal-fired
generating units. Since then, as part of its ongoing construction program, LG&E
has spent $29 million through 1996 for remedial measures necessary to meet the
Act's requirements for nitrogen oxides. These expenditures are being recovered
under the environmental cost recovery mechanism as more fully discussed in Note
3 of the Notes to Financial Statements under Item 8. LPI's 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. The overall
financial impact of the Act on LG&E has been minimal. However, LG&E is closely
monitoring a number of significant regulatory developments. In November 1996,
the United States Environmental Protection Agency (USEPA) announced its proposal
to revise the National Ambient Air Quality Standards for ozone and particulate
matter. In November 1996, USEPA also announced its intent to direct certain
states to address long range ozone transport from Midwest emission sources which
allegedly contribute to ozone problems in the Northeast. While management is
unable to predict the outcome or exact impact of these ongoing regulatory
proceedings, LG&E continues to be well-positioned in the market to be a "clean"
power provider without the large capital expenditures that are expected to be
incurred by many other utilities.

Reference is made to 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.

Public Utility Regulatory Policies Act

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. Niagara Mohawk Corporation (NIMO) has proposed to buy out the
Power Purchase Agreements NIMO has with a group of independent power projects.
The Rensselaer cogeneration facility, in which the Company has a 50% interest
through an indirect subsidiary, is one of the projects affected by this
initiative. While discussions among the projects and NIMO are continuing, the
Company is not able to predict the outcome of this event. See Note 16 of the
Notes to Financial Statements under Item 8.

FUTURE OUTLOOK

Big Rivers Electric Corporation

33
<PAGE>

Argentine Natural Gas Distribution Companies Acquisitions

Electric Industry Restructuring

The Kentucky Public Service Commission (Kentucky Commission) has held a series
of meetings with electric utilities operating in Kentucky to discuss the
potential impact of the major restructuring of the industry that is being driven
by competition and market forces. Specifically, the Kentucky Commission has
indicated it wants to ensure that ratepayers in Kentucky will continue to
receive the current low electric rates and high reliability and quality of
service during and after the restructuring of the industry.

Topics discussed have included the regulatory treatment of potential stranded
costs or benefits, the utility's historical obligation to serve, the functional
separation of utilities, regulatory and legal changes that may be needed in a
restructured electric industry and many other issues. These wide-ranging
discussions, which are expected to continue in the future, centered around the
theme of how the Kentucky Commission and utilities can best work together to
benefit energy consumers in Kentucky.

34
<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
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Energy marketing and trading ......................... $ 2,736,940 $ 630,249 $ 1,289
Electric utility ..................................... 607,160 571,086 559,327
Refund - Trimble County Settlement (Note 17) ......... -- (28,300) --
Gas utility .......................................... 214,419 181,126 200,129
Other ................................................ 30,946 20,519 68,918
----------- ----------- -----------
Total revenues (Note 1) ........................... 3,589,465 1,374,680 829,663
----------- ----------- -----------
COST OF REVENUES:
Energy marketing and trading ......................... 2,663,902 604,302 1,222
Fuel and power purchased ............................. 166,323 154,832 153,356
Gas supply expenses .................................. 140,482 110,738 131,561
Other ................................................ 13,556 19,858 56,395
----------- ----------- -----------
Total cost of revenues (Note 1) ................... 2,984,263 889,730 342,534
----------- ----------- -----------
Gross profit ............................................. 605,202 484,950 487,129

OPERATING EXPENSES:
Operation and maintenance:
Utility ........................................... 214,786 203,284 202,123
Energy marketing and trading and other ............ 67,907 39,874 24,629
Depreciation and amortization ........................ 103,556 94,393 84,173
Non-recurring charges (Note 8) ....................... 26,330 -- 48,743
----------- ----------- -----------
Total operating expenses .......................... 412,579 337,551 359,668
----------- ----------- -----------
Equity in earnings of joint ventures (Note 7) ............ 18,818 28,158 12,883
----------- ----------- -----------

OPERATING INCOME ......................................... 211,441 175,557 140,344

Other income and (deductions) (Note 12) .................. 3,808 5,389 13,718
Contribution to charitable foundation (Note 8) ........... -- -- 15,000
Interest charges and preferred dividends ................. 53,887 53,822 48,839
----------- ----------- -----------
Income from continuing operations before income taxes .... 161,362 127,124 90,223

Income taxes (Note 11) ................................... 57,359 44,294 33,394
----------- ----------- -----------

INCOME FROM CONTINUING OPERATIONS ........................ 104,003 82,830 56,829

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 ................................. 104,003 82,830 108,634

Cumulative effect of change in accounting for post-
employment benefits, net of income taxes of $2,280 ... -- -- (3,369)
----------- ----------- -----------
NET INCOME ............................................... $ 104,003 $ 82,830 $ 105,265
=========== =========== ===========

Average common shares outstanding (Note 1) ............... 66,294 66,105 65,982

Earnings per share of common stock (Note 1):
From continuing operations ........................... $ 1.57 $ 1.25 $ .86
Gain on sale of discontinued operations .............. -- -- .79
Cumulative effect of accounting change ............... -- -- (.05)
----------- ----------- -----------
Total ............................................. $ 1.57 $ 1.25 $ 1.60
=========== =========== ===========
</TABLE>

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

35
<PAGE>

LG&E Energy Corp. and Subsidiaries
Consolidated Balance Sheets
(Thousands of $)
<TABLE>
<CAPTION>
December 31
1996 1995
---- ----
<S> <C> <C>
ASSETS:
Current assets:
Cash and temporary cash investments ................... $ 114,669 $ 80,144
Marketable securities (Note 9) ........................ 5,815 29,060
Accounts receivable - less reserve of $6,601 in
1996 and $6,269 in 1995 ............................ 545,729 314,153
Materials and supplies - primarily at average cost:
Fuel (predominantly coal) .......................... 14,576 14,996
Gas stored underground ............................. 43,258 47,530
Other .............................................. 32,426 34,384
Price risk management assets (Note 4) ................. 86,844 --
Prepayments and other ................................. 14,255 27,245
---------- ----------
Total current assets ............................... 857,572 547,512
---------- ----------

Other property and investments - less reserve:
Investments in affiliates (Note 7) .................... 126,099 123,338
Non-utility property and plant, net (Notes 1 and 2) ... 171,338 173,410
Price risk management assets (Note 4) ................. 36,623 --
Other ................................................. 21,465 23,720
---------- ----------
Total other property and investments ............... 355,525 320,468
---------- ----------

Utility plant, at original cost:
Electric .............................................. 2,218,577 2,160,062
Gas ................................................... 327,116 305,609
Common ................................................ 139,516 133,189
---------- ----------
Gross utility plant (Note 1) ....................... 2,685,209 2,598,860
Less: reserve for depreciation ....................... 999,987 934,942
---------- ----------
Net utility plant .................................. 1,685,222 1,663,918
---------- ----------
Deferred debits and other assets:
Regulatory assets (Note 3) ............................ 27,729 29,926
Goodwill, net (Notes 1 and 2) ......................... 47,318 46,501
Other ................................................. 38,526 20,595
---------- ----------
Total deferred debits and other assets ............. 113,573 97,022
---------- ----------
Total assets ................................... $3,011,892 $2,628,920
========== ==========
CAPITAL AND LIABILITIES:
Current liabilities:
Long-term debt due within one year .................... $ -- $ 16,000
Notes payable (Note 15) ............................... 158,000 173,000
Accounts payable ...................................... 528,556 287,457
Trimble County settlement (Note 17) ................... 17,511 29,800
Common dividends declared ............................. 19,073 18,369
Accrued taxes ......................................... -- 9,812
Accrued interest ...................................... 10,338 11,372
Price risk management liabilities (Note 4) ............ 108,402 --
Other ................................................. 33,955 42,635
---------- ----------
Total current liabilities .......................... 875,835 588,445
---------- ----------

Long-term debt ............................................ 646,835 646,845

Deferred credits and other liabilities:
Accumulated deferred income taxes (Notes 1 and 11) .... 288,107 233,481
Investment tax credit, in process of amortization ..... 80,040 84,037
Accumulated provision for pensions and related benefits 44,773 48,427
Customers' advances for construction .................. 10,033 9,251
Regulatory liability (Note 3) ......................... 77,287 88,242
Price risk management liabilities (Note 4) ............ 27,482 --
Other ................................................. 54,954 55,730
---------- ----------
Total deferred credits and other liabilities ....... 582,676 519,168
---------- ----------

Cumulative preferred stock ................................ 95,328 95,328

Commitments and contingencies (Note 16)

Common equity ............................................. 811,218 779,134
---------- ----------

Total capital and liabilities ......................... $3,011,892 $2,628,920
========== ==========
</TABLE>

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

36
<PAGE>

LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Thousands of $)
<TABLE>
<CAPTION>
Years Ended December 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 104,003 $ 82,830 $ 105,265
Items not requiring cash currently:
Depreciation and amortization ..................... 103,556 94,393 84,173
Deferred income taxes - net ....................... 49,894 13,113 (4,502)
Investment tax credit - net ....................... (3,997) (4,742) (4,619)
Change in net price risk management assets ........ (13,913) -- --
Undistributed earnings of joint ventures .......... (2,581) 16,269 (7,887)
Cumulative effect of change in accounting principle -- -- 3,369
Non-recurring charges ............................. 26,330 -- 48,743
Gain on sale of discontinued operations ........... -- -- (90,878)
Other ............................................. 8,267 5,351 10,698
Change in certain net current assets:
Accounts receivable ............................... (231,576) (161,649) 26,577
Materials and supplies ............................ 6,650 (8,756) 3,280
Trimble County settlement ......................... (12,289) 29,800 --
Accounts payable .................................. 241,099 139,991 (32,938)
Accrued taxes ..................................... (9,812) (5,935) 4,480
Accrued interest .................................. (1,034) (2,056) 564
Prepayments and other ............................. 4,310 (22,421) (6,596)
Other ................................................ (38,526) (7,106) (4,170)
--------- --------- ---------
Net cash flows from operating activities .......... 230,381 169,082 135,559
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities .............................. (20,625) (204,391) (318,450)
Proceeds from sales of securities .................... 44,609 319,731 190,636
Construction expenditures ............................ (115,450) (104,527) (96,258)
Acquisition of LG&E Natural Inc., net of cash
and temporary cash investments acquired (Note 2) .. -- (146,104) --
Investment in affiliates (Note 7) .................... (180) (34,045) (44,292)
Proceeds from sale of discontinued operations ........ -- -- 170,000
--------- --------- ---------
Net cash flows from investing activities .......... (91,646) (169,336) (98,364)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock ............................. 2,293 2,711 2,025
Issuance of bonds .................................... 49,745 39,914 --
Redemption of preferred stock ........................ -- (22,108) --
Retirement of bonds .................................. (67,013) (43,579) --
Repayment of short-term borrowings ................... (229,500) (119,632) (20,000)
Short-term borrowings ................................ 214,500 245,315 32,000
Payment of common dividends .......................... (74,235) (71,630) (69,190)
--------- --------- ---------
Net cash flows from financing activities .......... (104,210) 30,991 (55,165)
--------- --------- ---------

Change in cash and temporary cash investments ............ 34,525 30,737 (17,970)

Beginning cash and temporary cash investments ............ 80,144 49,407 67,377
--------- --------- ---------

Ending cash and temporary cash investments ............... $ 114,669 $ 80,144 $ 49,407
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes ...................................... $ 22,005 $ 37,771 $ 81,468
Interest on borrowed money ........................ 49,316 48,916 41,042
</TABLE>

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

37
<PAGE>

LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Capitalization
(Thousands of $)
<TABLE>
<CAPTION>
December 31
1996 1995
---- ----
<S> <C> <C>
COMMON EQUITY:
Common stock, without par value -
Authorized 125,000,000 shares, outstanding 66,341,444
shares in 1996 and 66,194,766 shares in 1995 (Note 13) .................. $ 466,329 $ 463,705
Common stock expense ....................................................... (1,259) (928)
Unrealized gain (loss) on marketable securities, net of income
taxes $122 in 1996 and $328 in 1995 (Note 9) ............................ 154 (573)
Retained earnings .......................................................... 345,994 316,930
------- -------
Total common equity ................................................. 811,218 779,134
------- -------
</TABLE>

CUMULATIVE PREFERRED STOCK (Note 13):
Redeemable on 30 days notice by Louisville Gas and Electric
Company, except $5.875 series

<TABLE>
<CAPTION>
Shares Current
Outstanding Redemption Price
----------- ----------------
<S> <C> <C> <C> <C>
$25 par value, 1,720,000 shares authorized -
5% series ................................... 860,287 $ 28.00 21,507 21,507
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) (1,179)
------ -------
Total cumulative preferred stock ........................................ 95,328 95,328
------ -------
LONG-TERM DEBT (Note 14):
First mortgage bonds -
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:
K due December 1, 2016, 7 1/4% ...................................... -- 27,500
L due December 1, 2016, 7 1/4% ...................................... -- 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 40,000
---------- ----------
Total first mortgage bonds ....................................... 596,800 646,800
Pollution control bonds (unsecured) -
Jefferson County due September 1, 2026, variable 22,500 --
Trimble County due September 1, 2026, variable 27,500 --
---------- ----------
Total unsecured long-term debt ...................................... 50,000 --
---------- ----------
Total long-term bonds ............................................ 646,800 646,800
Unamortized premium on bonds ............................................... 35 45
---------- ----------
Total long-term debt .................................................... 646,835 646,845
---------- ----------
Total capitalization ................................................ $1,553,381 $1,521,307
========== ==========
</TABLE>

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

38
<PAGE>

LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Retained Earnings
(Thousands of $)
<TABLE>
<CAPTION>
Years Ended December 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance January 1 ....................................... $316,930 $307,072 $271,606
Add net income .......................................... 104,003 82,830 105,265
Deduct: Cash dividends declared on common stock
($1.13 per share in 1996, $1.0925 in 1995, and
$1.0575 in 1994) ............................. 74,939 72,253 69,799
Preferred stock redemption expense ........... -- 719 --
-------- -------- --------

Balance December 31 ..................................... $345,994 $316,930 $307,072
======== ======== ========
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation. The consolidated financial statements include the
accounts of LG&E Energy Corp., Louisville Gas and Electric Company (LG&E), LG&E
Energy Systems Inc. (Energy Systems) and LG&E Gas Systems Inc. (Gas Systems) and
their respective wholly-owned subsidiaries, collectively referred to herein as
the "Company." All significant intercompany items and transactions have been
eliminated from the consolidated financial statements. Certain reclassification
entries have been made to the 1995 and 1994 financial statements to conform to
the 1996 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).

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.

Gas Stored Underground. The costs of natural gas inventories are included in gas
stored underground in the balance sheets as of December 31, 1996, and 1995.
Utility and non-utility gas inventories were $36 million and $7 million,
respectively, at December 31, 1996, and $32 million and $16 million,
respectively, at December 31, 1995. 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.

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

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 1996 and 1995 were 3.3%

39
<PAGE>

(3.2% electric, 3.3% gas, and 6% common); and for 1994, 3.3% (3.2% electric,
3.3% 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.

Financial Instruments. The Company uses financial instruments associated with
its energy trading and price risk management activities which are accounted for
using the mark-to-market method.

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 interest-rate swaps used to hedge
interest rate risk are reflected in interest charges monthly. 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 losses on marketable
securities in common equity and then charged or credited to other income and
deductions when the securities are sold. See Note 4, Price Risk Management and
Financial Instruments.

Debt Premium and Expense. Utility debt premium and expense are amortized over
the lives of the related debt issues, consistent with regulatory practices.

Deferred Income Taxes. Deferred income taxes have been provided for all material
book-tax temporary differences.

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. Deferred investment tax credits
are being amortized to income over the estimated lives of the related property
that gave rise to the credits.

Common Stock. Effective April 15, 1996, the outstanding shares of the Company's
common stock were split on a two-for-one basis. The new shares were issued to
shareholders of record on April 1, 1996. Prior period shares, dividends, and
earnings per share of common stock have been restated to reflect the stock
split.

Revenue Recognition. Effective January 1, 1996, the Company adopted the
mark-to-market method of accounting for its energy trading and price risk
management activities conducted by LG&E Natural Inc. (LG&E Natural) and LG&E
Power Inc. (LPI). Under mark-to-market accounting, the Company's electric power
and natural gas trading contracts, including both physical transactions and
financial instruments, are recorded at market value, net of future servicing
costs and reserves. The market prices used to value these transactions reflect
management's best estimates considering various factors including closing
exchange and over-the-counter quotations, time value and volatility factors of
the underlying commitments. The values are adjusted to reflect the potential
impact of liquidating a position in an orderly manner over a reasonable period
of time under present market conditions.

Changes in the market value of the contract portfolio resulting from newly
originated transactions and price movements are recognized as energy marketing
and trading revenues in the period of the change. The resultant unrealized gains
and losses and related reserves are recorded as price risk management assets and
liabilities.

The Company's prior method of accounting recognized gains and losses when the
underlying physical commodity was delivered. This change in accounting was made
to more fairly present the current results of the Company's operations and to
recognize value creation as contracts are finalized. The effect of this change
was immaterial for prior periods and increased 1996 Energy Marketing and Trading
revenues and income from

40
<PAGE>

operations by $26.2 million ($15.3 million after tax).

Utility revenues are recorded based on service rendered to customers through
month end. LG&E accrues an estimate for unbilled revenues from each meter
reading date to the end of the accounting period. Under an agreement approved by
the Public Service Commission of Kentucky (Kentucky Commission or Commission),
LG&E has implemented a demand side management program and a "decoupling
mechanism," which allows LG&E to recover a predetermined level of revenue on
electric and gas residential sales. See Management's Discussion and Analysis,
Rates and Regulation, for further discussion. The Company recognized 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.

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 assets and liabilities
and disclosure of contingent items 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, Commitments and
Contingencies, for a further discussion.

New Accounting Pronouncements.

Stock-Based Compensation. The Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation in the first quarter
of 1996. It elected to continue to account for its stock-based compensation
plans using the intrinsic-value method. If the Company had used the fair-value
method to account for its plans, net income and earnings per share for all years
presented would not have differed materially from reported amounts.

Long-Lived Assets. The Company adopted 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) in the first quarter of 1996.
This new standard requires that long-lived assets and certain intangibles be
reviewed for impairment and possible write-down to fair value whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company has performed these impairment reviews on certain
long-lived assets and has determined their carrying amounts to be recoverable.
Management continues to monitor current and anticipated future operating
conditions, legal requirements and regulatory environment for circumstances that
may trigger potential asset impairments.

Transfers and Extinguishments. In June 1996, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
(SFAS No. 125), effective for all transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The
Company plans to adopt the provisions of SFAS No. 125 in the first quarter of
1997. The Company does not expect the adoption of SFAS No. 125 to have a
material adverse impact on its financial position or results of operation.

Environmental Remediation. Effective January 1, 1997, the Company will adopt the
provisions of Statement of Position (SOP) 96-1, Environmental Remediation
Liabilities. This statement provides authoritative guidance for recognition,
measurement, and disclosure of environmental remediation liabilities in
financial statements. Due to the Company's previous recognition of this type of
liability, adoption is not expected to have a material impact on its financial
position or results of operation. See Note 16, Commitments and Contingencies,
for a further discussion on the Company's environmental commitments and
contingencies.

41
<PAGE>

Note 2 - Acquisitions

Argentine Natural Gas Distribution Companies. On February 13, 1997, the Company
acquired interests in two Argentine natural gas distribution companies through
its global venture unit, LG&E International Inc. (LII). LII purchased a
controlling interest in Distribuidora de Gas del Centro and acquired a minority
interest in Distribuidora de Gas del Cuyana. The investment in these companies
totaled approximately $140 million.

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 at the time of purchase. In 1996, after
final determination of liabilities assumed and asset fair values, the Company
increased this amount to $37 million.

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

Fair value of assets acquired $277,059
Liabilities assumed 133,948
--------
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
========

LG&E Natural's revenues, cost of revenues, and operating expenses since the date
of acquisition are classified as Energy Marketing and Trading in the 1996 and
1995 Statements 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 is included in the balance sheet under
Non-utility property and plant.

Note 3 - Utility 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 $):

42
<PAGE>

1996 1995
---- ----

Unamortized loss on bonds $ 17,162 $ 16,443
Unamortized extraordinary retirements 4,087 6,935
Manufactured gas sites 3,244 3,220
Other 3,236 3,328
-------- --------
Total regulatory assets 27,729 29,926
Deferred income taxes - net (77,287) (88,242)
-------- --------
Regulatory assets and liabilities - net $(49,558) $(58,316)
======== ========

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. On April 6, 1995, in response to an application
filed by LG&E, the Commission approved, with modifications, an environmental
cost recovery surcharge that increased electric revenues by $3.2 million in 1995
and $2.4 million in 1996. The surcharge became effective May 1, 1995.

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. LG&E is 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 - Price Risk Management and Financial Instruments

Price Risk Management. The Company engages in price risk management activities
related to electricity and natural gas. In addition to the purchase and sale of
these physical commodities, the following instruments are utilized by the
Company: forward contracts which commit the Company to purchase or sell energy
in the future; swap agreements, which require payments to (or receipt of
payments from) counterparties based on the differential between a fixed price
and index-based price for the underlying commodity; written and purchased
options settled in delivery of the underlying commodity; exchange traded and
over-the-counter futures and options contracts; as well as tolling and other
contractual arrangements.

The availability and use of these types of contracts allow the Company to manage
and hedge its contractual commitments, reduce its exposure relative to the
volatility of cash market prices, and take advantage of selected arbitrage
opportunities via open positions. The Company is also able to secure additional
sources of physical supply or create additional markets for existing supply
through the use of exchange for physical (EFP) transactions allowed by the New
York Mercantile Exchange.

The notional amounts and terms of such contracts held by the Company at December
31, 1996, in which the Company receives or pays a fixed price for the underlying
commodity are as follows:

Fixed Fixed Maximum
Unit of Price Price Term in
Product Measure Payor Receiver Years
------- ------- ----- -------- -----

Electricity Thousands of Mwh 63,481 60,696 10
Natural gas Millions of MBtu 1,147,990 1,117,732 3

The weighted average term of the Company's natural gas price risk management
contracts as of December 31, 1996 was approximately eight months. The weighted
average term of the Company's electric power price risk

43
<PAGE>

management contracts at that date was approximately one year.

The Company will at times create a net open position or allow a net open
position to continue when it believes that future changes in prices will make
the positions profitable. These net open positions could result in losses for
the Company if prices do not move in the manner or direction expected. The
Company has established trading policies designed to limit the Company's
exposure to price risk, and it continually monitors and reviews these policies
to ensure they are responsive to changing business conditions. Based on the
Company's net positions at December 31, 1996, a 3% movement in electric and
natural gas market prices would have affected net income by approximately $4.6
million.

The fair value of the price risk management assets and liabilities as of
December 31, 1996 and the average fair value of those instruments held during
the year are set forth below (in thousands of $):

<TABLE>
<CAPTION>
Average Fair
Fair Value Value for the
as of Year Ended
12/31/96 12/31/96

Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
By Counterparty:
Marketers $ 56,148 $ 77,931 $45,897 $47,719
Energy producers 40,729 9,322 20,373 5,856
Financial institutions 10,505 21,366 10,292 13,394
Industrial and commercial users 3,390 2,308 1,589 1,045
Gas transmission companies 70 2,204 68 1,382
Other 12,625 15,512 11,721 8,696
-------- --------- ------ -----

Total 123,467 128,643 $89,940 $78,092
======= =======
Reserves -- 7,241
-------- ---------

Net values $123,467 $135,884
======== ========
</TABLE>

The values assigned to the Company's price risk management assets and
liabilities reflect quotes from exchanges and over-the-counter markets, use of
established pricing models, the time value of money, and price volatility
factors. They also reflect counterparty credit risk, location differentials, and
the potential impact of liquidating the Company's position in an orderly manner
over a reasonable period of time under present market conditions.

The Company maintains policies intended to minimize counterparty credit risk.
With respect to the Company's price risk management assets, commitments with 35
customers represent approximately 70% of these assets at December 31, 1996.

Other Financial Instruments. At December 31, 1996, the Company had a short
position in U.S. Treasury note and bond futures contracts with notional amounts
totaling $3 million. These contracts are used to hedge price risk associated
with certain marketable securities and mature in March 1997.

At December 31, 1996, the Company was a party to six interest-rate swap
agreements. Two of the swaps have notional amounts of $15 million each, and the
Company uses them to hedge its exposure to changes in the interest rates paid on
$30 million of LG&E's Pollution Control Bonds, Variable Rate Series, due
September 1, 2017. One of these swaps will mature in September 1997, and the
other in September 1999. The Company paid interest at average fixed rates on the
swaps of 4.55% in 1996, 1995, and 1994, and received interest at

44
<PAGE>

average variable rates based on the JJ Kenny Index of 3.46% in 1996, 3.87% in
1995, and 2.84% in 1994.

The Company entered into the other four swaps in the first quarter of 1996 to
hedge some of its notes payable. The notional amounts on these swaps total $75
million, and they mature at various times from February 1997 through April 1997.
In 1996, the Company paid an average fixed rate on the swaps of 4.94% and
received an average variable rate based on the three-month London Interbank
offered rate of 5.46%.

The Company entered into two additional interest-rate swaps in January 1997 to
hedge some of its notes payable. The notional amounts on these swaps total $50
million, and they mature in November 1997 and January 1998. The Company will pay
an average fixed rate on the swaps of 5.82%. The average variable receive rate
is based on the three-month London Interbank offered rate and currently equals
5.59%.

The cost and estimated fair values of the Company's financial instruments
(excluding the fair values of the Company's price risk management assets and
liabilities) used for non-trading as of December 31, 1996 and 1995 follow (in
thousands of $):

<TABLE>
<CAPTION>
1996 1995
---- ----
Fair Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Marketable securities $ 5,539 $ 5,815 $ 29,961 $ 29,060
Long-term investments:
Not practicable to estimate
fair value 4,156 4,156 4,083 4,083
Preferred stock subject
to mandatory redemption 25,000 24,938 25,000 25,000
Long-term debt 646,800 662,721 662,800 688,977
U.S. Treasury note and
bond futures -- 10 -- (187)
Interest rate swaps -- (192) -- (522)
</TABLE>

All of the above valuations reflect prices quoted by exchanges except for the
swaps and the long-term investments. The fair values of the swaps reflect price
quotes from dealers or amounts calculated using accepted pricing models. The
fair values of the long-term investments reflect cost, since the Company cannot
reasonably estimate fair value.

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.

LG&E's customer receivables and gas and electric revenues arise from deliveries
of natural gas to approximately 277,000 customers and electricity to
approximately 351,000 customers in Louisville and adjacent areas in Kentucky.
For the year ended December 31, 1996, 74% of total utility revenue was derived
from electric operations and 26% from gas operations.

The financial position and results of operations of the domestic joint ventures
described in Note 7, Investments in Joint Ventures, and Note 16, Commitments and
Contingencies, are dependent upon the continuation of long-term power sales
contracts with neighboring utilities.

45
<PAGE>

Refer to Note 4, Price Risk Management and Financial Instruments, for a
discussion of concentrations relating to price risk management activities.

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 approximately $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.

Note 7 - Investments in Joint Ventures

The Company's investments in joint ventures reflect interests in general
partnerships and foreign entities held by LPI and LII in electric power and
steam producing plants. These investments are accounted for using the equity
method.

The fuel type, ownership percentages and carrying amounts of the joint ventures
as of December 31, 1996 are summarized below (in thousands of $):

<TABLE>
<CAPTION>
Carrying
Fuel Type % Owned Amount
--------- ------- ------
<S> <C> <C> <C>
LG&E Westmoreland - Southampton Coal 50 $ 14,758
LG&E Westmoreland - Altavista Coal 50 11,704
LG&E Westmoreland - Hopewell Coal 50 10,591
LG&E Westmoreland - Rensselaer Natural Gas 50 10,052
Westmoreland - LG&E Partners Coal 50 28,581
Windpower Partners 1993 Wind 50 22,766
Windpower Partners 1994 Wind 25 4,996
Central Termica San Miguel de Tucuman, S.A Natural Gas 33 18,198
KW Tarifa, S.A Wind 46 4,453
--------

Total $126,099
</TABLE>

With respect to the first seven projects listed above, certain of the Company's
partners (or affiliates of such partners) are in bankruptcy proceedings. See
Note 16, Commitments and Contingencies.

The Company's carrying amount exceeded the underlying equity in joint ventures
by $25.3 million and $26.4 million at December 31, 1996, and 1995, respectively.
This difference, which is being amortized, 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.

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 also have an
ownership interest. The operation and maintenance contracts have remaining terms
ranging from 20 to 23 years. LPI is amortizing consideration paid for the
contracts over a similar period.

46
<PAGE>

In June 1995, Babcock-Ultrapower West Enfield and Babcock-Ultrapower Jonesboro,
two partnerships which were 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. In October 1996, the plants were sold to a third party and the Company's
interests in the partnerships were liquidated.

Note 8 - Non-Recurring Charges

In the fourth quarter of 1996, LG&E Natural discovered that a marketer in its
Calgary, Alberta, office had engaged in unauthorized transactions, resulting in
significant losses in the Company's Canadian natural gas marketing business. The
Company recorded an expense of $17.1 million (U.S.) after income taxes to
reflect the losses. The activities of the marketer, which occurred primarily
within the last weeks prior to discovery, included creating unsupported purchase
and sales agreements. Management believes it has taken appropriate steps
necessary to mitigate the likelihood of these events recurring. The Company is
pursuing criminal and civil actions associated with this event. See Note 16,
Commitments and Contingencies. Also, LG&E Natural's insurance carrier has been
notified of the Company's intent to pursue claims under the Company's blanket
crime policy, which covers certain losses up to $10 million per event.

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. LPI
recorded a reserve for $10.1 million, before taxes, for the costs related to
vacating leased office space.

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. The Foundation is exempt from Federal income tax
under the Internal Revenue Code.

Note 9 - Marketable Securities

The Company's marketable securities have been determined to be
"available-for-sale" under the provisions of Statement of Financial Accounting
Standards SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Proceeds from sales of available-for-sale securities in 1996 were
approximately $44.6 million, which resulted in realized gains of approximately
$.5 million and losses of approximately $1.4 million, calculated using the
specific identification method. Proceeds from sales of available-for-sale
securities in 1995 were approximately $319.7 million, which resulted in realized
gains of approximately $3.4 million and losses of approximately $6.9 million.

Approximate cost, fair value, and other required information about the Company's
available-for-sale securities by major security type as of December 31, 1996 and
1995, follow (in thousands of $):

47
<PAGE>

<TABLE>
<CAPTION>
Fixed
Equity Income Total
------ ------ -----
<S> <C> <C> <C>
1996:
Cost $ 4,833 $ 706 $ 5,539
Unrealized gains 2,109 -- 2,109
Unrealized losses (1,789) (44) (1,833)
------- -------- --------
Fair values $ 5,153 $ 662 $ 5,815
======= ======== ========
Fair values:
No maturity $ 4,255 $ -- $ 4,255
Contractual maturities:
Less than one year 898 -- 898
One to five years -- -- --
Five to ten years -- -- --
Over ten years -- 662 662
Not due at a single maturity date -- -- --
------- -------- --------
Total fair values $ 5,153 $ 662 $ 5,815
======= ======== ========
1995:
Cost $ 9,187 $ 20,774 $ 29,961
Unrealized gains 58 4 62
Unrealized losses (312) (651) (963)
------- -------- --------
Fair values $ 8,933 $ 20,127 $ 29,060
======= ======== ========
Fair values:
No maturity $ 8,222 $ -- $ 8,222
Contractual maturities:
Less than one year 711 6,424 7,135
One to five years -- 9,283 9,283
Five to ten years -- 831 831
Over ten years -- 2,912 2,912
Not due at a single maturity date -- 677 677
------- -------- --------
Total fair values $ 8,933 $ 20,127 $ 29,060
======= ======== ========
</TABLE>

Note 10 - Pension Plans and Retirement Benefits

Pension Plans. The Company has two non-contributory, defined-benefit pension
plans, that cover eligible employees of the LG&E Energy Corp. corporate staff
and LG&E. 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 eligible
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
employers, 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.

Pension costs were $5,403,000 for 1996, $5,768,000 for 1995, and $4,996,000 for
1994, of which approximately $751,000, $761,000, and $693,000, respectively, was
charged to construction.

48
<PAGE>

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

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 5,566 $ 4,805 $ 5,134
Interest cost on projected benefit obligation 17,276 14,761 13,377
Actual return on plan assets (32,250) (46,107) (494)
Amortization of transition asset (1,079) (1,079) (1,079)
Net amortization and deferral 15,890 33,388 (11,942)
-------- -------- --------
Net pension cost $ 5,403 $ 5,768 $ 4,996
======== ======== ========
</TABLE>

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

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested $ 182,490 $ 169,812
Non-vested 21,770 9,807
--------- ---------
Accumulated benefit obligation 204,260 179,619
Effect of projected future compensation 33,417 33,741
--------- ---------
Projected benefit obligation 237,677 213,360
Plan assets at fair value 240,733 209,931
--------- ---------
Plan assets in excess of (less than)
projected benefit obligation 3,056 (3,429)
Unrecognized net transition asset (10,088) (11,166)
Unrecognized prior service cost 45,064 29,434
Unrecognized net gain (65,009) (42,937)
--------- ---------

Accrued pension liability $ (26,977) $ (28,098)
========= =========
</TABLE>

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

1996 1995
---- ----

Assumed discount rate to determine
projected benefit obligation 7.75% 7.50%
Assumed long-term rate of return
on plan assets 8.50% 8.50%
Assumed annual rate of increase in
future compensation levels 2.00% - 4.25% 3.50% - 4.00%

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
accrues for the expected cost of post-retirement benefits other than pensions
during the employee's years of service with the Company. The discounted present
value of the post-retirement benefit obligation at the date of adoption is being
amortized over 20 years.

49
<PAGE>

Post-retirement benefit costs are shown below (in thousands of $):

1996 1995 1994
---- ---- ----

Service cost $ 803 $ 614 $ 647
Interest cost 2,994 2,717 2,400
Amortization of transition obligation 1,341 1,341 1,341
Amortization of prior service cost 332 -- --
------ ------ ------

Post-retirement benefit cost $5,470 $4,672 $4,388
====== ====== ======

The accumulated post-retirement benefit obligation at December 31 is shown below
(in thousands of $):

1996 1995
---- ----

Retirees $(18,568) $(19,965)
Fully eligible active employees (4,837) (2,780)
Other active employees (16,819) (15,267)
-------- --------
Accumulated post-retirement benefit obligation (40,224) (38,012)
Plan assets at fair value 2,297 --
Unrecognized prior service cost 3,788 --
Unrecognized transition obligation 21,452 22,793
Unrecognized net loss 500 3,513
-------- --------
Accrued post-retirement benefit liability $(12,187) $(11,706)
======== ========

The accumulated post-retirement benefit obligation was determined using an
assumed discount rate of 7.75% for 1996 and 7.5% for 1995. Assumed compensation
increases for projected life insurance benefits for affected groups was 4% for
1996 and 1995. An assumed health care cost trend rate of 10% was assumed for
1996, gradually decreasing to 5% in eight years and thereafter.

A 1% increase in the assumed health care cost trend rate would increase the
accumulated post-retirement benefit obligation by approximately $2 million and
the annual service and interest cost by approximately $200,000. In 1996, the
Company began funding certain liabilities for post-retirement benefits through a
tax-deductible funding vehicle. The plan assets are being held in two voluntary
employee benefit association (VEBA) trusts and are invested primarily in
short-term United States government securities.

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. These costs were approximately
$2.9 million for 1996, $3.1 million for 1995, and $3.3 million for 1994.

50
<PAGE>

Note 11 - Federal and State Income Taxes

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

1996 1995 1994
---- ---- ----

Included in Income Taxes:
Current - federal $ 18,193 $ 32,526 $ 33,483
- state (6,731) 3,397 9,032
Deferred- federal - net 34,246 8,943 (4,560)
- state - net 15,648 4,170 58
Deferred investment tax credit 409 -- --
Amortization of investment tax credit (4,406) (4,742) (4,619)
-------- -------- --------

Total $ 57,359 $ 44,294 $ 33,394
======== ======== ========

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

1996 1995
---- ----

Deferred tax liabilities:
Depreciation and other
plant-related items $403,934 $375,963
Other liabilities 29,568 11,990
-------- --------
433,502 387,953
-------- --------
Deferred tax assets:
Investment tax credit 32,306 33,919
Income taxes due to customers 31,195 32,363
Net operating loss carryforward 22,857 20,956
Deferred income 13,430 13,179
Accrued liabilities not currently
deductible and other 45,607 54,055
-------- --------
145,395 154,472
-------- --------

Net deferred income tax liability $288,107 $233,481
======== ========

Net operating loss carryforwards related to the LG&E Natural acquisition total
$121 million at December 31, 1996. These carryforwards, which expire in 1997
through 2009, are subject to an annual limitation of approximately $5.5 million
under Sections 382 and 383 of the Internal Revenue Code, and realization is
dependent upon generating sufficient taxable income prior to their expiration.
At December 31, 1996 and 1995, the Company recorded valuation allowances of
$25.6 million and $29.5 million, respectively, related to these deferred tax
assets. Unamortized goodwill will be reduced if unrecorded net operating loss
carryforwards are realized.

A reconciliation of differences between the statutory U.S. federal income tax
rate and the Company's effective income tax rate for continuing operations
follows:

51
<PAGE>

1996 1995 1994
---- ---- ----

Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes net of federal benefit 6.2 5.0 6.2
Investment and other tax credits (3.9) (4.7) (5.6)
Reduction of taxes provided in prior years (3.0) (1.3) --
Other differences - net .3 (.8) (.8)
---- ---- ----

Effective income tax rate 34.6% 33.2% 34.8%
==== ==== ====

Note 12 - Other Income and Deductions

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

1996 1995 1994
---- ---- ----

Fee income (expense) $ -- $ -- $ 6,092
Losses on securities - net (953) (3,465) (2,138)
Interest and dividend income 5,965 10,195 11,690
Gains on fixed asset disposals - net (36) 1,089 1,772
Donations (361) (356) (1,285)
Other (807) (2,074) (2,413)
------- -------- --------

Total other income and (deductions) $ 3,808 $ 5,389 $ 13,718
======= ======== ========

Note 13 - Capital Stock

Effective April 15, 1996, the outstanding shares of the Company's common stock
were split on a two-for-one basis. In addition, the Company's shareholders
approved an increase in the Company's authorized shares from 75,000,000 to
125,000,000 on April 23, 1996. Prior period shares of common stock have been
restated in the financial statements and in this note to reflect the stock
split.

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

1996 1995 1994
---- ---- ----

Outstanding January 1 66,195 66,032 65,912
Issues under the Employee
Common Stock Purchase
Plan (1996, $1,457;
1995, $1,354; 1994, $1,377) 77 80 82
Issues under the Omnibus
Long-Term Incentive Plan
(1996, $1,167; 1995, $1,371;
1994, $663) 69 83 38
------ ------ ------

Outstanding December 31 66,341 66,195 66,032
====== ====== ======

The Company has a Long-Term Incentive Plan, under which nonqualified stock
options, performance units and stock appreciation rights have been granted to
key personnel. A total of 2,699,250 shares of common stock have been reserved
for issuance under the plan. Directors of the Company receive stock options
pursuant to the Stock Option Plan for Non-Employee Directors. A total of 500,000
shares of common stock have been reserved for issuance under this plan. Each
option entitles the holder to acquire one share of the Company's stock no

52
<PAGE>

earlier than one year from the date granted. The options are granted at market
value and generally expire 10 years from the date granted. Performance units are
paid out on a three year rolling basis in 50% stock and 50% cash based on
Company performance.

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

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

As of December 31, 1993 307,766 153,756 $12.93 - $19.60
Options granted and
exercisable 240,630 154,010 $15.28 - $19.60
Options exercised (32,094) (32,094) $12.93 - $18.02
Options cancelled (31,774) (19,090) $15.28 - $19.60
-------- -------- ---------------

As of December 31, 1994 484,528 256,582 $12.93 - $19.60
Options granted and
exercisable 150,690 137,946 $18.08 - $19.71
Options exercised (60,522) (60,522) $12.93 - $19.30
Options cancelled (61,146) (1,620) $18.69 - $19.71
-------- -------- ---------------

As of December 31, 1995 513,550 332,386 $12.93 - $19.71
Options granted and
exercisable 415,348 158,914 $18.69 - $21.22
Options exercised (48,226) (48,226) $12.93 - $19.71
Options cancelled (16,328) -- $19.71 - $21.22
-------- -------- ---------------

As of December 31, 1996 864,344 443,074 $12.93 - $21.22
======== ======== ===============

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.

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 one-third 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 and Pollution Control 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 1997 sinking fund requirements of the First Mortgage Bonds.

53
<PAGE>

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

In October 1996, LG&E issued $22.5 million of Jefferson County, Kentucky, and
$27.5 million of Trimble County, Kentucky, Pollution Control Bonds, Flexible
Rate Series, due September 1, 2026. Interest rates for these bonds were 3.60%
and 3.57%, respectively, as of December 31, 1996. In December 1996, the proceeds
from the bonds were used to redeem the outstanding 7.25% Series of Jefferson
County and Trimble County Pollution Control Bonds due December 1, 2016.

On June 1, 1996, LG&E's First Mortgage Bonds, 5.625% Series of $16 million
matured and were retired by the Company.

In April 1995, LG&E issued $40 million of Jefferson County, Kentucky, Pollution
Control 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.

LG&E's First Mortgage Bonds, 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, 1996. The Company has no cash sinking fund
requirements.

Note 15 - Notes Payable

Energy Systems had notes payable of $47 million at December 31, 1996, and 1995,
at weighted average interest rates of 5.83% and 6.13%, respectively. Gas Systems
had notes payable of $111 million and $126 million at a weighted average
interest rate of 5.83% and 5.98%, respectively, at December 31, 1996 and 1995.
LG&E Energy Corp. and LG&E had no notes payable at December 31, 1996, and 1995.

At December 31, 1996, lines of credit were in place totaling $590 million ($200
million for LG&E, $150 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. Unused capacity under these lines totaled $375.5 million after
consideration of the above borrowings and approximately $56.5 million in letters
of credit securing on and off balance sheet commitments. The credit lines are
scheduled to expire at various points in time from 1997 through 2001. 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.

54
<PAGE>

Note 16 - Commitments and Contingencies

Construction Program. The Company had commitments, primarily in connection with
the construction program of LG&E, aggregating approximately $7 million at
December 31, 1996. LG&E's construction expenditures for the years 1997 and 1998
are estimated to total approximately $250 million. Non-utility construction
expenditures for the same two year period are estimated to be $44 million.

Letters of Credit. Energy Systems has provided letters of credit and various
other guarantees to third parties which totaled approximately $31.4 million and
$33.7 million as of December 31, 1996 and 1995, respectively.

These letters of credit 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. In July 1994, FERC denied the request of LG&E-Westmoreland Southampton
(the Partnership) for a waiver of certain QF requirements. The Partnership
subsequently filed a request seeking a reversal of FERC's 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 July 1996, the FERC entered an order in the Southampton case which included a
policy statement regarding all QF facilities which fail temporarily to meet QF
standards. The order affirmed the continued availability to Southampton of
exemptions from PUHCA and state law for the year 1992, supporting the
Partnership's request that the ruling on non-compliance should have no effect on
the exemptions from regulations that would have classified the plant as a public
utility. The FERC's decision to uphold these exemptions eliminates potential
issues involving provisions of PUHCA, Virginia utility law and the non-rate
provisions of the Federal Power Act.

The FERC also concluded that the Partnership should refund a portion of the
rates it received from Virginia Power during 1992. The Company had anticipated
that the Partnership could be required to make a refund to Virginia Power in the
event the QF standards for 1992 were not waived. The order calls for a refund
with interest from the Partnership of the difference between the amount paid by
Virginia Power during the period and the amount Virginia Power would have paid
for energy if it had purchased energy at its incremental energy rate. The
Company's share of the revenues received by the Partnership in 1992 is
approximately $9.5 million. The amount of the refund is currently unknown,
pending further FERC review. In August 1996 the Partnership filed a Request for
Clarification to better understand what the Commission intended and filed a
Request for Rehearing on the grounds that the order violated the statutory
standard for just and reasonable rates. In September 1996, the Partnership filed
a motion for review at the U.S. Court of Appeals for the District of Columbia
Circuit. In November 1996, the Partnership requested FERC approval for the
contract rates it charged during the period of non-compliance minus a $500,000
refund offered by the Partnership. The Company continues to study the order and,
at this time,

55
<PAGE>

cannot predict what, if any, further action it may take, cannot predict the
determinations of FERC on the pending motions, and cannot predict what action
Virginia Power may take.

Westmoreland Bankruptcy. On December 23, 1996, Westmoreland Coal Company and its
four first tier subsidiaries filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code. One of these subsidiaries, Westmoreland Energy, Inc. (WEI)
is the direct parent of the various entities that are partners in partnerships
with LG&E Energy subsidiaries (including the Partnership and WLP (as defined
herein)) which own six independent generating facilities. None of those
partnerships and no partner of those partnerships is under bankruptcy court
protection. It is unclear at this time what effect these filings will have on
the value of the partnerships. Although there is no current default occasioned
by the filings, defaults could occur under project loan agreements if not
remedied within the specified time period. If a default occurred which was not
cured within the allowed time, the lenders would have the right, among other
things, to accelerate the outstanding loans. These loans, which are non-recourse
to the Company above the partnership level, totaled $622.4 million at December
31, 1996.

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 1996, Virginia Power withheld approximately $12.5 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 in the Circuit
Court of the City of Richmond, Virginia seeking damages of at least $5.7
million, contending that Virginia Power breached the PPA in withholding such
payments. In June 1995, the court denied Virginia Power's motion to dismiss
WLP's complaint. In March 1996, Virginia Power filed a motion for summary
judgment which was subsequently granted by the court as to all counts. WLP filed
a petition for appeal with the Virginia Supreme Court in July 1996, asserting
three separate errors committed by the trial court. The Virginia Supreme Court
granted review in December 1996. WLP's brief on the merits was filed January 29,
1997. If WLP is successful in its appeal before the Virginia Supreme Court, the
case will be remanded to the trial court, and WLP will be entitled to submit its
case to a jury.

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 22 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. However, the Company does not
expect the ultimate resolution of this matter to have a material adverse effect
on its results of operations or financial condition.

Rensselaer. Niagara Mohawk Corporation (NIMO) has proposed to buy out the Power
Purchase Agreements NIMO has with a group of 19 independent power producers
(IPPs). The Rensselaer cogeneration facility, in which the Company has a 50%
interest through an indirect subsidiary, is one of the projects affected by this
initiative. The Company and the other IPPs, as a group, have negotiated with
NIMO an agreement in principle to restructure all the power purchase agreements.
Substantial further negotiation with NIMO, suppliers and lenders to the
Rensselaer Project are required to finalize the terms delineated in the
agreement in principle. The Company is under no obligation to amend or terminate
the Rensselaer Project power purchase agreement if a satisfactory restructuring
cannot ultimately be achieved. The Company is not able to predict the outcome of
the project restructuring effort or the potential actions by NIMO if the
proposed IPP group restructuring is not accomplished. Based upon the status of
current negotiations, the Company does not

56
<PAGE>

expect the ultimate resolution of this matter to have a material adverse effect
on its results of operations or financial condition.

Kenetech Bankruptcy. In May 1996, Kenetech Windpower, Inc. (Kenetech) filed in
the United States Bankruptcy Court in the Northern District of California for
protection under Chapter 11 of the United States Bankruptcy Code seeking, among
other things, to restructure certain contractual commitments between Kenetech
and its subsidiaries, on the one hand, and various windpower projects located in
the U.S. and abroad, on the other hand. Included in these projects are the
Windpower Partners 1993 (WPP 93), Windpower Partners 1994 (WPP 94) and KW
Tarifa, S.A. (Tarifa) wind projects in which the Company has invested,
collectively, approximately $31 million. As a part of the bankruptcy proceeding,
Kenetech is also seeking to void certain warranty commitments made to the owners
of those projects with respect to the operation and output of the facilities,
and the repair and replacement of the windpower generation equipment located
there. LPI has been named to the creditors' committee in the Kenetech bankruptcy
on behalf of the three projects, and has been working with representatives of
Kenetech and other secured and unsecured creditors to ensure that the project
owners' interests are equitably treated in the bankruptcy. On January 31, 1997,
the projects filed their respective breach of contract and other claims against
Kenetech in the bankruptcy proceeding. In September 1996, LG&E Power Operating
Services Inc., an affiliate of the Company (LPOS), assumed operating control
over the WPP 93 and WPP 94 facilities, pursuant to Facility Operating Agreements
with the owners of those facilities. Those agreements replaced the interim
operations and maintenance agreements between the owners and Kenetech that were
implemented at the time of the Kenetech bankruptcy filing. The owners of the
Tarifa windpower project assumed operating control over that facility shortly
after the bankruptcy filing, and are considering the merits of retaining a
third-party contractor to operate and maintain these facilities.

In November, 1996, KW Tarifa, S.A., certain of its shareholders and an affiliate
of the Company, LG&E Power Finance Inc. (LPF) completed separate Settlement
Transactions with affiliates of Kenetech, whereby the equity interests of
Kenetech's affiliate in KW Tarifa S.A. were purchased by the other shareholders,
and certain subordinated indebtedness of KW Tarifa S.A. to another Kenetech
affiliate was purchased by LPF and subsequently retired by KW Tarifa S.A.

The Company is unable to predict the outcome of the bankruptcy proceeding or the
settlement negotiations. However, the Company does not expect the ultimate
resolution of the bankruptcy to have a material adverse effect on its results of
operations or financial condition.

TVA/LPM Interchange Agreement. The Alabama Power Company, Georgia Power Company
and Mississippi Power Company (the Plaintiffs) 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 claimed that TVA violated the Tennessee Valley Authority Act by
entering into an interchange agreement with LPM and that TVA was 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. In September 1996, the Court granted the
Plaintiffs Motion for Summary Judgment, finding that LPM is not a power
generating organization with which TVA had an exchange power arrangement on July
1, 1957, and that the contract is null and void. This decision became final on
November 23, 1996. This decision is not expected to have a material effect on
the Company's financial position or results of operations.

Calgary. On November 22, 1996, LG&E Natural Canada Inc., a subsidiary of LG&E
Natural, filed a claim in Alberta, Calgary against a former employee; a natural
gas sales and marketing company incorporated in Ontario; and the director,
president and secretary of that sales and marketing company. An amended
statement of claim was filed in that same action on December 23, 1996, against
additional parties. These lawsuits were

57
<PAGE>

filed as a result of LG&E Natural's discovery in the fourth quarter of 1996 that
unauthorized transactions had occurred. See Note 8, Non-Recurring Charges. A
criminal investigation has been opened by the Commercial Crime Unit of the
Calgary Police Service and is under way. The Company intends to aggressively
pursue all civil, criminal, and other available remedies.

The former employee and other defendants have filed counterclaims seeking
aggregate damages of approximately $40 million for defamation and breach of
contract. The Company does not expect the ultimate resolution of these
counterclaims to have a material adverse effect on its results of operations or
financial condition.

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 six office leases that expire in 1997 through 2004.
Total lease expense for 1996, 1995, and 1994, was $4.1 million, $5.5 million,
and $4.9 million, respectively. The future minimum annual lease payments under
these lease agreements for years subsequent to December 31, 1996, are as follows
(in thousands of $):

1997 $ 6,079
1998 5,080
1999 4,501
2000 4,855
2001 4,774
Thereafter 13,991
-------
Total $39,280
=======

Operating lease commitments have been reduced for annual rental payments to be
received from noncancelable subleases of $1.5 million in 1997, approximately
$1.8 million per year from 1998 through 2000, and $1.3 million in 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, 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 $1,065,000 in 1997, $1,000,000 per year for
1998 through 2001, and $1,250,000 thereafter.

Environmental. With the passage of the Clean Air Act Amendments of 1990 (the
Act), LG&E already complied with the stringent sulfur dioxide emission limits
required by the year 2000 as it had previously installed scrubbers on all of its
coal-fired generating units. Since then, as part of its ongoing construction
program, LG&E has spent $29 million through 1996 for remedial measures necessary
to meet the Act's requirements for nitrogen oxides. The overall financial impact
of the Act on LG&E has been minimal. However, LG&E is closely monitoring a
number of significant regulatory developments. In November 1996, the United
States Environmental Protection Agency (USEPA) announced its proposal to revise
the National Ambient Air Quality Standards for ozone and particulate matter. In
November 1996, USEPA also announced its intent to direct certain states to
address long range ozone transport from Midwest emission sources which allegedly
contribute to ozone problems in the Northeast. While management is unable to
predict the outcome or exact impact of these ongoing regulatory proceedings,
LG&E continues to be well-positioned in the market to be a "clean" power
provider without the large capital expenditures that are expected to be incurred
by many other utilities.

In recent years, LG&E has undertaken extensive modifications at its Mill Creek
plant aimed at controlling

58
<PAGE>

certain particulate emissions which allegedly damaged metal surfaces on adjacent
properties. The Air Pollution Control District of Jefferson County (APCD) and
LG&E are reviewing the results of a field sampling program to demonstrate the
effectiveness of the plant modifications. In an effort to resolve the associated
property damage claims, LG&E also established a claims resolution process which
resulted in property damage settlements with adjacent residents at an aggregate
cost of approximately $15 million.

In August 1993, 34 persons filed a complaint in Jefferson Circuit Court against
LG&E seeking certification of a class consisting of certain persons in the
vicinity of the Mill Creek plant who have allegedly suffered personal injury or
property damage as a result of emissions from the plant. The court denied the
Plaintiffs' initial motion for class certification, but allowed the Plaintiffs
to bring a total of 537 individual claimants into the litigation. As part of its
ongoing claims resolution process, as described above, LG&E subsequently settled
the claims of approximately half of the individual claimants. In December 1996,
the court granted Plaintiff counsel's motion to withdraw from representation of
all remaining claimants who have not settled with LG&E. If those parties fail to
obtain alternate counsel or otherwise pursue the litigation, their claims will
be subject to dismissal. LG&E intends to vigorously defend itself against any
claims which remain. In management's opinion, resolution of any remaining claims
should not have a material adverse impact on the financial position or results
of operations of LG&E.

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

The APCD is reviewing potential reductions in emissions of ozone precursors
necessary to bring Jefferson County, Kentucky into compliance with the National
Ambient Air Quality Standards for ozone. As described above, LG&E has installed
controls which result in substantial reductions in nitrogen oxide (NOX)
emissions from its plants. In March 1994, the APCD adopted a regulation
requiring a 15% reduction in volatile organic compound (VOC) emissions from
industrial sources, including LG&E's Cane Run and Mill Creek plants. Because
there are currently no demonstrated technologies for control of VOC emissions
from coal-fired boilers, the regulation raised the prospect of potential limits
on generation at those two plants. After extensive negotiation with affected
parties, in December 1996, the APCD amended its regulation to delete the
requirement for VOC reductions from LG&E's plants. The APCD also determined that
no additional reductions in either industrial VOC or NOX emissions are warranted
at this time, but reserved the right to impose additional reductions if
necessary in the future.

LG&E owns or formerly owned three primary sites where manufactured gas plant
operations were conducted. Remedial investigations performed at these sites have
identified coal tar and other contaminants typical of manufactured gas plant
operations. In December 1996 LG&E conveyed one of the sites to a new owner, for
a nominal sum in return for the new owner assuming certain environmental
liabilities and cleanup obligations. LG&E does not expect to incur any further
remedial investigation or cleanup costs at this site. LG&E is awaiting
regulatory determinations from the Kentucky Natural Resources and Environmental
Protection Cabinet on the level of remediation required at both other sites.
Until such regulatory determinations are made, LG&E is unable to precisely
determine the liability for cleanup costs. However, based on the results of
studies at the sites, management currently estimates total cleanup costs will
fall within a range of $3 million to $8 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 Liability

59
<PAGE>

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 $44 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 sites, LG&E is involved in litigation with USEPA
and approximately 50 companies in an effort to resolve liability for
approximately $2.5 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 Trimble
County from ratepayers.

On December 1, 1995, LG&E and other parties 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 agreed
to refund approximately $22 million to current electric customers, most of which
is being refunded by credits to customers' bills over the five years 1996
through 2000. In addition, LG&E agreed to pay $900,000 per year for five years
beginning in 1996 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 will reduce revenues collected from residential customers during
1996 and 1997 by a total of approximately $1.8 million. Finally, the parties
agreed to dismiss all appeals currently pending in state courts regarding the
Commission's orders in LG&E's last general rate case.

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) owns
a 12.12% undivided interest in the Unit, and Indiana Municipal Power Agency
(IMPA) owns a 12.88% undivided interest. Each is responsible for their
proportionate ownership share of operation and maintenance expenses and
incremental

60
<PAGE>

assets, and for fuel used.

The following data represent shares of the jointly owned property:

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

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), an 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 of Kentucky.

The non-utility businesses include LG&E Power Inc. (LPI), LG&E International
Inc. (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
throughout the United States. LII develops and owns international
power-generation assets located in Spain and Argentina and acquired interests in
two natural gas distribution companies located in Argentina in February 1997.
LG&E Natural and LPM primarily engage in retail and wholesale marketing of
natural gas and electric power, respectively, throughout the United States; LG&E
Natural also operates in Canada. LG&E Natural and LPM make up the energy
marketing and trading segment of the business. Other primarily relates to
non-utility power generation activities.

<TABLE>
<CAPTION>
(Thousands of $) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Information:
Revenues:
Electric $ 607,160 $ 542,786(a) $ 559,327
Gas 214,419 181,126 200,129
----------- ----------- ---------
Total utility 821,579 723,912 759,456
Energy marketing and trading 2,736,940 630,249 1,289
Other 30,946 20,519 68,918
----------- ----------- ---------
Total $ 3,589,465 $ 1,374,680 $ 829,663
=========== =========== =========

Operating Income:
Electric $ 192,593 $ 152,648 $ 139,916
Gas 18,393 16,651 11,368
----------- ----------- ---------
Total utility 210,986 169,299 151,284
Energy marketing and trading 2,916 (959) (410)
Other 13,491 18,187 4,573
Corporate (15,952) (10,970) (15,103)
----------- ----------- ---------
Total $ 211,441 $ 175,557 $ 140,344
=========== =========== =========
</TABLE>

61
<PAGE>

<TABLE>
<CAPTION>
(Thousands of $) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Other Information:
Depreciation and Amortization:
Electric $ 76,929 $ 74,437 $ 71,882
Gas 12,073 11,322 10,637
---------- ---------- ----------
Total utility 89,002 85,759 82,519
Energy marketing and trading 12,482 6,961 --
Other 1,661 1,189 1,072
Corporate 411 484 582
---------- ---------- ----------
Total $ 103,556 $ 94,393 $ 84,173
========== ========== ==========
Construction Expenditures:
Electric $ 79,541 $ 66,661 $ 71,592
Gas 28,338 26,762 23,806
---------- ---------- ----------
Total utility (b) 107,879 93,423 95,398
Energy marketing and trading 6,081 9,020 --
Other 1,154 1,916 663
Corporate 336 168 197
---------- ---------- ----------
Total $ 115,450 $ 104,527 $ 96,258
========== ========== ==========
Identifiable Assets - December 31:
Electric $1,505,508 $1,501,568 $1,514,287
Gas 300,550 268,840 252,946
Other 186,346 208,517 199,078
---------- ---------- ----------
Total utility 1,992,404 1,978,925 1,966,311
Energy marketing and trading 827,913 470,440 3,573
Other 181,946 171,261 246,408
Corporate 9,629 8,294 1,172
---------- ---------- ----------
Total $3,011,892 $2,628,920 $2,217,464
========== ========== ==========
</TABLE>

(a) Net of Refund - Trimble County Settlement of $28.3 million.
(b) Excluding cost of removal and salvage.

Note 20 - Selected Quarterly Data (Unaudited)

Selected financial data for the four quarters of 1996 and 1995 are shown below.
Because of seasonal fluctuations in temperature and other factors, results for
quarters may fluctuate throughout the year. The Company restated its results for
the first three quarters of 1996 to reflect adoption of the mark-to-market
method of accounting for its energy trading and price risk management
activities. See Note 1, Summary of Significant Accounting Policies and Note 4,
Price Risk Management and Financial Instruments.

<TABLE>
<CAPTION>
Quarters Ended
(Thousands of $ except per share data) March June September December
----- ---- --------- --------
<S> <C> <C> <C> <C>
1996
Revenues $875,429 $760,913 $853,928 $1,099,195
Operating income 59,060 48,692 70,307 33,382
Net income:
Originally reported 21,535 23,796 41,104 11,350
Effect of change to mark-to-market 5,560 26 632 --
-------- -------- -------- ----------
Restated 27,095 23,822 41,736 11,350
</TABLE>

62
<PAGE>

<TABLE>
<CAPTION>
Quarters Ended
(Thousands of $ except per share data) March June September December
----- ---- --------- --------
<S> <C> <C> <C> <C>
1996 (cont.)
Earnings per share:
Originally reported $.33 $.36 $.62 $.17
Effect of change to mark-to-market .08 -- .01 --
-------- -------- -------- --------
Restated .41 .36 .63 .17

1995
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 .30 .37 .59 (.01)
</TABLE>

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

63
<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, 1996, did not identify any material weaknesses 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.

64
<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, 1996 and 1995, and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period ended December
31, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1996, the Company changed its method of accounting for price risk
management activities.

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 29, 1997 (Except with
respect to the matters discussed
in the first paragraph of Note 2
and the twelfth paragraph of
Note 16, as to which the date
is March 12, 1997.)

65
<PAGE>

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

None.

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 26, 1997, 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, 1996 (page 35).
Consolidated Balance Sheets - December 31, 1996, and 1995 (page 36).
Consolidated Statements of Cash Flows for the three years ended
December 31, 1996 (page 37).
Consolidated Statements of Capitalization - December 31, 1996, and
1996 (page 38).
Consolidated Statements of Retained Earnings for the three years
ended December 31, 1996 (page 39).
Notes to Consolidated Financial Statements (pages 39-63).
Report of Management (page 64).
Report of Independent Public Accountants (page 65).

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

Schedule II - Valuation and Qualifying Accounts for the three years
ended December 31, 1996 (page 79).

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 Restated Articles of Incorporation, dated November 6, 1996. [Filed
as Exhibit 3.06 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, and incorporated by reference herein]

3.02 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]

4.01 Copy of Trust Indenture dated November 1, 1949, from LG&E to Harris Trust
and Savings Bank,

66
<PAGE>

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]

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]

67
<PAGE>

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]

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

68
<PAGE>

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]

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

69
<PAGE>

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 10.06
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]

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]

70
<PAGE>

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]

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 incorpo-

71
<PAGE>

rated 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 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]

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

10.29 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]

10.30 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]

10.31 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]

10.32 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]

10.33 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]

10.34 Copy of Firm No Notice Transportation Agreement effective November 1,
1993, between Texas Gas Transmission Corporation and LG&E (expires October
31, 2001) covering the transmission of natural gas.

72
<PAGE>

Copy of Firm No Notice Transportation Agreement effective November 1,
1993, between Texas Gas Transmission Corporation and LG&E (expires October
31, 2000) covering the transmission of natural gas.

Copy of Firm No Notice Transportation Agreement effective November 1,
1993, between Texas Gas Transmission Corporation and LG&E (expires October
31, 1998) 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]

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

10.36 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]

10.37 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 LG&E covering the transmission of
natural gas. [Filed as Exhibit 10.44 of LG&E's Annual Report on Form 10-K
for the year ended December 31, 1995, and incorporated by reference
herein]

10.38 Copy of Modification No. 9, dated August 17, 1995, to the Inter-Company
Power Agreement dated July 10, 1953, among Ohio Valley Electric
Corporation and the Sponsoring Companies. [Filed as Exhibit 10.39 to
LG&E's Annual Report on Form 10-K for the year ended December 31, 1996,
and incorporated by reference herein]

10.39 Copy of 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]

10.40 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.

Copy of 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. [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]

10.41 Copy of Firm Transportation Agreement, dated March 1, 1995, between Texas
Gas Transmission Corporation and the Company (expires October 31, 2000)
covering the transportation of natural gas [Filed as Exhibit 10.41 to
LG&E's Annual Report on Form 10-K for the year ended December 31, 1996,
and incorporated by reference herein]

10.42 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

73
<PAGE>

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

10.43 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]

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

10.45 Copy of Coal Supply Agreement, dated June 1, 1996, between Kindill Mining,
Inc. and LG&E 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, 1996,
and incorporated by reference herein]

10.46 Copy of Letter Amendment, dated October 31, 1996, to the Coal Supply
Agreement dated June 1, 1996, between Kindill Mining, Inc. and LG&E
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, 1996, and incorporated
by reference herein]

10.47 Copy of Amended and Restated Omnibus Long-Term Incentive Plan effective
January 1, 1996, covering officers and key employees of the Company.
[Filed as Exhibit 10.52 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated by reference herein]

10.48 Copy of Short-Term Incentive Plan effective January 1, 1996, covering
officers and key employees of the Company. [Filed as Exhibit 10.53 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995,
and incorporated by reference herein]

10.49 Copy of form of first amendment to change in control agreement for
officers of the Company and key employees date as of January 1, 1996.
[Filed as Exhibit 10.54 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated by reference herein]

10.50 Copy of Amendment to the Non-Qualified Savings Plan, effective January 1,
1992. [Filed as Exhibit 10.55 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, and incorporated by reference
herein]

10.51 Copy of Amendment to the Non-Qualified Savings Plan, effective January 1,
1995. [Filed as Exhibit 10.56 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, and incorporated by reference
herein]

10.52 Copy of Amendment to the Non-Qualified Savings Plan, effective January 1,
1995. [Filed as Exhibit 10.57 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, and incorporated by reference
herein]

10.53 Copy of Amendment to the Supplemental Executive Retirement Plan, effective
January 1, 1992. [Filed as Exhibit 10.58 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and incorporated by
reference herein]

74
<PAGE>

10.54 Copy of Amendment to the Supplemental Executive Retirement Plan, effective
January 1, 1993. [Filed as Exhibit 10.59 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and incorporated by
reference herein]

10.55 Copy of Amendment to the Supplemental Executive Retirement Plan, effective
January 1, 1995. [Filed as Exhibit 10.60 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and incorporated by
reference herein]

10.56 Copy of Amendment to the Supplemental Executive Retirement Plan, effective
May 1, 1995. [Filed as Exhibit 10.61 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and incorporated by
reference herein]

10.57 Copy of 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]

10.58 Copy of Credit Agreement, dated as of January 29, 1996, among LG&E Energy
Systems Inc., as Borrower, the Banks named therein, Citibank, N.A. as
Agent and Bank of Montreal as Co-Agent. [Filed as Exhibit 10.01 to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended March 31,
1996, and incorporated by reference herein]

10.59 Copy of Support Agreement, dated as of December 6, 1995, between the
Company and LG&E Energy Systems Inc. [Filed as Exhibit 10.02 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, and incorporated by reference herein]

10.60 Copy of Credit Agreement, dated as of May 12, 1995, among LG&E Gas Systems
Inc., as Borrower, the Banks named therein and Bank of Montreal as Agent.
[Filed as Exhibit 10.03 to the Company's Quarterly Report on Form 10-Q/A
for the quarter ended March 31, 1996, and incorporated by reference
herein]

10.61 Copy of Support Agreement, dated as of December 6, 1995, between the
Company and LG&E Energy Systems Inc. [Filed as Exhibit 10.04 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, and incorporated by reference herein]

10.62 Copy of Credit Agreement, dated as of December 18, 1995, among LG&E, as
Borrower, the Banks named therein, PNC Bank, Kentucky, Inc. as Agent and
Bank of Montreal as Co-Agent. [Filed as Exhibit 10.01 to the LG&E's
Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1996, and
incorporated by reference herein]

10.64 Copy of Firm Transportation Agreement, dated November 1, 1996, between
LG&E and Tennessee Gas Pipeline Company for 30,000 MMBtu per day in Firm
Transportation Service under Tennessee's Rate FT-A (expires October 31,
2001). [Filed as Exhibit 10.42 to LG&E's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated by reference herein]

10.65 Amendment No. 1, dated as of November 5, 1996, to Credit Agreement dated
as of December 18, 1995, by and among Louisville Gas and Electric Company,
the Banks party thereto, and PNC Bank, Kentucky, Inc. as Agent and Bank of
Montreal as Co-Agent. [Filed as Exhibit 10.59 to LG&E's Annual Report on
Form 10-K for the year ended December 31, 1996, and incorporated by
reference herein]

75
<PAGE>

10.66 Copy of Power Purchase and Sale Agreement, dated as of November 19, 1996,
among the Company, LG&E Power Marketing Inc., and Oglethorpe Power
Corporation. [Certain portions of this exhibit have been omitted pursuant
to a confidential treatment request filed with the Securities and Exchange
Commission]

10.67 Copy of Power Purchase and Sale Agreement, dated as of January 1, 1997,
among LG&E Power Marketing Inc., LG&E Power Inc., and Oglethorpe Power
Corporation. [Certain portions of this exhibit have been omitted pursuant
to a confidential treatment request filed with the Securities and Exchange
Commission]

10.68 Copy of Amendment No. 1, dated November 27, 1996, to the Credit Agreement
dated as of May 12, 1995, among LG&E Gas Systems Inc., as Borrower, the
Banks named therein and Bank of Montreal as Agent.

10.69 LG&E Energy Corp. and Louisville Gas and Electric Company Non-Officer
Senior Management Pension Restoration Plan, effective May 1, 1996.

10.70 Copy of Employment Contract between the Company and Roger W. Hale
effective January 1, 1997.

18 Letter Regarding Change in Accounting Method.

21 Subsidiaries of the Registrant.

23 Consent of Independent Public Accountants.

24 Power of Attorney.

27 Financial Data Schedule.

99.01 Cautionary Statement for purposes of the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995.

99.02 Description of Common Stock.

(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

76
<PAGE>

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]

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. [Filed as
Exhibit 10.52 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated by reference herein]

Short-Term Incentive Plan effective January 1, 1996, covering officers and
key employees of the Company. [Filed as Exhibit 10.53 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated by reference herein]

Form of first amendment to change in control agreement for officers of the
Company and key employees dated as of January 1, 1996. [Filed as Exhibit
10.54 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated by reference herein]

Amendment to the Non-Qualified Savings Plan, effective January 1, 1992.
[Filed as Exhibit 10.55 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated by reference herein]

Amendment to the Non-Qualified Savings Plan, effective January 1, 1995.
[Filed as Exhibit 10.56 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated by reference herein]

Amendment to the Non-Qualified Savings Plan, effective January 1, 1995.
[Filed as Exhibit 10.57 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated by reference herein]

Amendment to the Supplemental Executive Retirement Plan, effective January
1, 1992. [Filed as Exhibit 10.58 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated by reference
herein]

Amendment to the Supplemental Executive Retirement Plan, effective January
1, 1993. [Filed as Exhibit 10.59 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated by reference
herein]

Amendment to the Supplemental Executive Retirement Plan, effective January
1, 1995. [Filed as Exhibit 10.60 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated by reference
herein]

Amendment to the Supplemental Executive Retirement Plan, effective May 1,
1995. [Filed as Exhibit 10.61 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, and incorporated by reference
herein]

77
<PAGE>

Copy of Employment Contract between the Company and Roger W. Hale
effective January 1, 1997.

LG&E Energy Corp. and Louisville Gas and Electric Company Non-Officer
Senior Management Pension Restoration Plan, effective May 1, 1996.

On November 22, 1996, the Company filed a report on Form 8-K stating that
LG&E Natural announced the discovery of certain unauthorized transactions
by an individual in its Calgary, Alberta, office. LG&E Natural is a
wholly-owned subsidiary of LG&E Energy Corp.

On December 20, 1996, the Company filed a report on Form 8-K announcing
that it had agreed to acquire interests in two Argentine natural gas
distribution companies.

On January 6, 1997, the Company filed a report on Form 8-K announcing that
it had named its Chief Financial Officer, Walter Z. Berger, to a new
position of Group President - Energy Marketing.

On February 10, 1997, the Company filed a report on Form 8-K announcing
that it had submitted a proposal to the Board of Directors of Big Rivers
Electric Corporation to lease or acquire the assets of the Henderson,
KY-based cooperative, which is currently in bankruptcy proceedings.

On February 14, 1997, the Company filed a report on Form 8-K announcing
that it had completed its previously announced $140-million acquisition of
interests in two Argentine natural gas distribution companies.

On February 25, 1997, the Company filed a report on Form 8-K announcing
that its board of directors gave approval for the Company to replace
Pacificorp in the existing reorganization plan of Big Rivers Electric
Corporation.

On March 20, 1997, the Company filed a report on Form 8-K announcing
that a federal bankruptcy court selected the Company's proposal to
lease the generating assets of Big Rivers Electric Corporation in a
court ordered auction.

78
<PAGE>

LG&E Energy Corp. and Subsidiaries Schedule II
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended December 31, 1996
(Thousands of $)

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

Additions:
Charged to costs and expenses 10,934 2,940 7,241 --
Other additions 641 616 -- --
Deductions:
Net charges of nature for which
reserves were created -- 3,224 -- --
Other deductions 1,479 -- -- 3,900
------- ------ ------ -------

Balance December 31, 1996 $18,703 $6,601 $7,241 $25,601
======= ====== ====== =======
</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.

79
<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 26, 1997 /s/ Charles A. Markel III
(Date) _____________________________________
Charles A. Markel III
Vice President - Finance and Treasurer

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

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

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

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

William C. Ballard, Jr. Director;

Ronald L. Bittner Director

Owsley Brown, II Director;

S. Gordon Dabney Director;

Gene P. Gardner Director;

J. David Grissom Director;

David B. Lewis Director;

Anne H. McNamara Director;

T. Ballard Morton, Jr. Director; and

Dr. Donald C. Swain Director.

By /s/ Charles A. Markel III
________________________________ March 26, 1997
Charles A. Markel III
(Attorney-In-Fact)

<PAGE>
EXHIBIT 10.66

POWER PURCHASE AND SALE AGREEMENT
AMONG
LG&E POWER MARKETING INC.,
LG&E ENERGY CORP.
AND
OGLETHORPE POWER CORPORATION
(AN ELECTRIC MEMBERSHIP GENERATION AND TRANSMISSION CORPORATION)

Dated as of November 19, 1996
<PAGE>

POWER PURCHASE AND SALE AGREEMENT
AMONG
LG&E POWER MARKETING INC.,
LG&E ENERGY CORP.
AND
OGLETHORPE POWER CORPORATION
(AN ELECTRIC MEMBERSHIP GENERATION AND TRANSMISSION CORPORATION)

Table of Contents Page

Article 1. Definitions.........................................................2

Article 2. Purchases and Sales.................................................3
2.1. Sales by LPM................................................3
2.2. Sales by OPC................................................4
2.2.1. Must Run Resources...................................4
2.2.2. Dispatchable OPC Resources...........................4
2.2.3. Manner of Request....................................5
2.3. Remedy for Breach of MW Representation......................5
2.4. Customer Choice Load........................................5
2.5. Failure to Deliver or Receive...............................6
2.6. Stranded Costs..............................................7

Article 3. OPC Resources.......................................................7
3.1. OPC Contracts..............................................7
3.2. Information on OPC Resources and System....................8
3.3. Allocation of OPC Resources................................8
3.4. RESERVED...................................................8
3.5. Dispersed Generation.......................................8
3.6. Load Management............................................8
3.7. Hartwell Fuel..............................................9
3.8. Coal.......................................................9
3.8.1 [**].......................................................9
3.8.2 [**].......................................................9
3.8.3 [**].......................................................9
3.9. SEPA Energy................................................9
3.10. Block Power Sale Agreements................................9
3.11. New Resources..............................................9
3.12. Emission Allowances[**]....................................9

Article 4. Transmission........................................................9
4.1. Transmission and Scheduling.................................9
4.2. Title and Risk of Loss.....................................10

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

i
<PAGE>

4.3. Scheduling.................................................10
4.4. Delivery Points............................................10
4.5. Transformer and Transmission Loss Adjustments..............10
4.6. Imbalances and Regulation Deviation Errors.................10
4.7. Non-Territorial Contractual Delivery Obligations...........11
4.8. Control Area...............................................11
4.9. Other OPC or GTC Responsibilities..........................11

Article 5. Price .............................................................12
5.1 OPC's Contract Price.....................................12
5.2 [**].....................................................12
5.3 LPM's Contract Price.....................................12
5.4 Amounts Due to OPC and LPM...............................12
5.4.1. [**].....................................................12
5.4.2. RESERVED.................................................12
5.4.3. Rocky Mountain "True-Up" Adjustment......................12
5.4.4. RESERVED.................................................12
5.4.5. [**].....................................................13
5.4.6. [**].....................................................13
5.4.7. [**].....................................................13
5.4.8. [**].....................................................13
5.5 RESERVED.................................................13
5.6 Levelized Payments.......................................13

Article 6. Term ..............................................................13
6.1. Term.....................................................13
6.2. [**].....................................................14

Article 7. Confidential Information...........................................14
7.1. Prior Confidentiality Agreement Superseded;
Authorization to Use Information.........................14
7.2. Authorized Disclosure....................................14
7.3. Return of Confidential Information.......................15
7.4. Right to Remedies........................................15
7.5. Georgia Trade Secrets Act................................15

Article 8. Billing, Payment and Records.......................................15
8.1. Billing Statements.......................................15
8.2. Offset of Payment Obligations............................16
8.3. Payments.................................................16
8.4. Audit Rights.............................................16
8.5. Subsequent Payment Adjustments...........................17
8.6. Records..................................................17

Article 9. Taxes .............................................................17
9.1. Seller's Obligation......................................17

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

ii
<PAGE>

9.2. Buyer's Obligation.......................................17
9.3. Exemption Certificates...................................17
9.4. [**].....................................................17

Article 10. Indemnification and Remedies......................................18
10.1. General Indemnity........................................18
10.2. Limitation on Remedies...................................18
10.3. Duty to Mitigate.........................................18
10.4. DISCLAIMER...............................................18
10.5. [**].....................................................18

Article 11. Conditions Precedent to Extension of Term.........................19
11.1. Regulatory Authorizations................................19
11.2. OPC Restructuring........................................19
11.3. Administrative Procedures................................19

Article 12. Representations and Warranties....................................19
12.1. Mutual Representations...................................20
12.2. Additional OPC Representations...........................20
12.3. Additional LG&E Parties Representations..................21
12.4. Mutual Assistance........................................21
12.5. Good Title...............................................21
12.6. Power Quality............................................21
12.7. Other Contracts..........................................21
12.8. Continuing Representations and Warranties................21

Article 13. Defaults and Remedies.............................................22
13.1. Events of Default........................................22
13.2. Early Termination; Remedies..............................22
13.3. [**].....................................................23
13.4. Failure to Pay...........................................23
13.5. Effect of Regulation.....................................23
13.6. Notice to LEC............................................23

Article 14. Arbitration.......................................................23
14.1. Applicability; Selection of Arbitrators..................23
14.2. Discovery, Hearing.......................................24
14.3. Decision.................................................25
14.4. Expenses.................................................25

Article 15. Force Majeure.....................................................25
15.1. Effect of Force Majeure..................................25

Article 16. Material Changes..................................................25
16.1. [**].....................................................25
16.2. [**].....................................................25

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

iii
<PAGE>

Article 17. Miscellaneous.....................................................26
17.1. Assignment...............................................26
17.1.1. General..........................................26
17.1.2. Assignment for Security..........................26
17.2. Notices..................................................26
17.3. Applicable Law...........................................27
17.4. Survival of Obligations..................................27
17.5. Entire Agreement.........................................27
17.6. No Partnership...........................................27
17.7. Amendment................................................27
17.8. Third Parties............................................27
17.9. Waiver...................................................27
17.10. Character of Sales by OPC................................27
17.11. Severability.............................................27
17.12. RESERVED.................................................28
17.13. Headings.................................................28
17.14. Counterparts.............................................28
17.15. LEC Obligations..........................................28
17.15.1. Failure of Performance of LPM...................28
17.15.2. Further Covenants of LEC........................28
17.15.3. No Discharge....................................28
17.16. Administration...........................................29
17.17. Scheduling Members.......................................30
17.18. Further Assurances.......................................30
17.19. RUS Approval.............................................30
17.20. Other....................................................30

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

Schedule A

Exhibits

1.25(iii) Energy Costs for Certain OPC Resources
1.25(iv) Energy Costs for Qualifying Facilities
1.43 Level B-1 Diagram
1.62 EMC Customers
2.1 Off-System Sales Contracts
2.2.1 [**]
2.2.2 [**]
3.2(i) OPC Resources
3.2(ii) [**]
3.3 LPM's Share of OPC Resources
3.8.1 [**]
3.8.3 [**]
4.1(b) [**]
5.3 LPM Sales Price
5.4.1(a) [**]
5.4.1(b) [**]
5.4.5 [**]
5.4.6 [**]
5.4.7(a) [**]
5.4.7(b) [**]
5.4.8(a) [**]
5.4.8(b) [**]
17.2 Notices and Payment
17.17 Lists of Scheduling Members
18 Map of EMC Service Territory

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

v
<PAGE>

POWER PURCHASE AND SALE AGREEMENT
AMONG
LG&E POWER MARKETING INC.
LG&E ENERGY CORP.
AND
OGLETHORPE POWER CORPORATION
(AN ELECTRIC MEMBERSHIP GENERATION AND TRANSMISSION CORPORATION)

This Power Purchase and Sale Agreement dated as of November 19, 1996,
together with permitted amendments ("Agreement") is entered into by and among
Oglethorpe Power Corporation (An Electric Membership Generation and Transmission
Corporation), a corporation organized and existing under Title 46 of the
Official Code of Georgia Annotated, together with any permitted successor or
assign ("OPC"), LG&E Energy Corp., a corporation organized and existing under
the laws of the Commonwealth of Kentucky, together with any permitted successor
or assign ("LEC"), and LG&E Power Marketing Inc., a corporation organized and
existing under the laws of the State of California, together with any permitted
successor or assign ("LPM") (collectively, LEC and LPM are referred to herein as
"LG&E Parties").

WITNESSETH

WHEREAS, OPC is an electric generation corporation which operates on a
cooperative basis and which supplies certain electric requirements of its member
cooperatives for electric power and energy supplied to their wholesale and
retail customers;

WHEREAS, LPM is a power marketer authorized by the Federal Energy
Regulatory Commission to purchase and sell electric energy for resale at
negotiated, market-based rates;

WHEREAS, LPM is an indirect, wholly owned subsidiary of LEC;

WHEREAS, the existing OPC Resources are demonstrably insufficient to
supply the anticipated peak electric requirements of OPC and its member
cooperatives in 1998, in light of the 1996 Official Load Forecast, and the
termination of uneconomic existing power purchase resources;

WHEREAS, OPC has reasonably determined that it is not economically
efficient at this time for OPC to plan for the construction or acquisition of
additional generating facilities to supply the electric requirements of OPC and
its member cooperatives, and that the native load electric requirements of its
cooperative members can economically and efficiently be supplied through the
purchase from a power marketer of such requirements for electric energy;

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.
<PAGE>

WHEREAS, in accordance with such strategic plan for serving its member
cooperatives, OPC has requested bids from various power marketers, and LPM has
been selected as a successful bidder to supply certain electric requirements of
its member cooperatives;

WHEREAS, the Parties recognize that OPC's right to require LPM to
procure coal for OPC's fossil resources in accordance with the terms
contemplated herein represents a material part of the consideration to OPC for
execution of this Agreement;

WHEREAS, LPM desires to purchase Electric Energy from OPC for resale
(i) to OPC at prices consistent with this Agreement and (ii) to third parties at
such prices as LPM shall determine;

WHEREAS, the Parties believe that their respective objectives can be
achieved if OPC sells to LPM a portion of the Electric Energy that OPC is
obligated to take or purchase from Must Run Resources and offers to sell to LPM
certain other Electric Energy which OPC is entitled to take or purchase, as more
specifically set forth herein, and LPM agrees to supply OPC at wholesale with
Electric Energy it has purchased from OPC or from other sources;

WHEREAS, the Parties recognize that this Agreement is one of two power
purchase and sales agreements OPC is currently arranging with power marketers in
order to supply certain electric requirements of its member cooperatives, and
that the administration and implementation of this Agreement will require
coordination with the administration and implementation under the other
agreement; and

WHEREAS, the Parties recognize that Scheduling Members may enter into
purchase and sale agreements with power marketers;

WHEREAS, the Parties recognize that OPC may in the future enter into
additional agreements with power marketers to serve Customer Choice Load or
other load growth not served under this Agreement; provided, that such
additional agreements shall not interfere with OPC's ability to perform under
this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, and for other good and valuable consideration, OPC and the
LG&E Parties hereby agree as follows:

Article 1.

Definitions

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

2
<PAGE>

the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. Any reference in this Agreement to "Section,"
"Article," "Exhibit" or "Schedule" shall be references to this Agreement. Unless
the context requires otherwise, any reference in this Agreement to any document
shall mean such document and all schedules, exhibits, and attachments thereto as
amended and in effect from time to time. Unless otherwise stated, any reference
in this Agreement to any person shall include its permitted successors and
assigns and, in the case of any governmental authority, any person succeeding to
its functions and capacities. The words "hereof," "herein," "hereto" and
"hereunder" and words of similar import when used in this Agreement shall,
unless otherwise expressly specified, refer to this Agreement as a whole and not
to any particular provision of this Agreement. Whenever the term "including" is
used herein in connection with a listing of items included within a prior
reference, such listing shall be interpreted to be illustrative only, and shall
not be interpreted as a limitation on or exclusive listing of the items included
within the prior reference.

In the event of a conflict between the text of this Agreement and any
Exhibit or Schedule, the terms of the Agreement shall prevail. The Parties
acknowledge that each Party and its counsel have reviewed and revised this
Agreement and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement.

Article 2.

Purchases and Sales

2.1. Sales by LPM. (a) In each Interval of the Term, LPM shall sell and
deliver, or cause to be delivered, and OPC shall purchase and receive, or cause
to be received, an amount of Electric Energy equal to the sum of (i) LPM's Share
of OPC Load in that Interval, plus (ii) LPM's Share of OPC Off-System Sales in
that Interval, plus (iii) LPM's Share of Customer Choice Load in that Interval.
This Agreement shall constitute the single agreement under which LPM is
obligated to supply at wholesale Electric Energy to serve LPM's Share of OPC
Load, LPM's Share of Customer Choice Load, and LPM's Share of OPC Off-System
Sales in accordance with the terms hereof, and no further request, schedule or
agreement by OPC is needed.

(b) The Parties recognize and agree [**] (iii) neither of the
foregoing shall entitle LPM to avoid its obligations hereunder or to adjust
the LPM Sales Price, except as expressly permitted under the provisions of
this Agreement.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

3
<PAGE>

(c) In lieu of selling or buying Electric Energy, LPM reserves the
right to broker Electric Energy from or to Louisville Gas and Electric Company
and OPC agrees to accept or supply such Electric Energy pursuant to its
Interchange Agreement or other existing contracts with Louisville Gas and
Electric Company in complete satisfaction of LPM's obligations hereunder;
provided, that any such arrangements shall be performed at a price and under
terms and conditions that are the same as those specified herein; and provided,
further, that OPC shall have no obligation to participate in any such
arrangement unless LPM establishes to OPC's satisfaction that Louisville Gas and
Electric Company has all requisite regulatory authorization to perform in
accordance with the foregoing.

(d) LPM shall be obligated within [**] hours after OPC's request to
bid on a case by case basis to serve all of the requirements of [**] and in
excess of the [**] referenced in Section 2.1(e). To the extent OPC accepts
such bid, then LPM shall be obligated to serve 100% of such excess requirements
in accordance with such bid, and such excess requirements shall be included in
LPM's Share of OPC Load. Notwithstanding anything to the contrary contained in
this Agreement, OPC or [**] shall have the right to seek and accept bids from
third parties to serve all the excess requirements described in this paragraph
(d).

(e) LPM shall be obligated to supply at the LPM Sales Price up to 100%
of [**]. Such load may be served by OPC through sales directly to [**] or
indirectly through sales by OPC to [**]. Such sales shall be included in LPM's
Share of OPC Load.

2.2. Sales by OPC. OPC shall on a real time basis inform LPM of LPM's
Share of OPC Resources, including Must Run Resources and Dispatchable Resources,
that are available for the delivery of OPC Energy, in accordance with the terms
of this Agreement, the OPC Contracts and the Administrative Procedures.

2.2.1. Must Run Resources. In each Interval of the Term, OPC
shall sell and LPM shall purchase all of the OPC Energy from LPM's
Share of OPC Resources associated with Must Run Resources (other than
purchased power resources) that are actually available during such
Interval. OPC represents that the Must Run Resources are currently as
of the Effective Date and shall, except for Allowed Must Run Outage
Hours, remain during each Interval of the Term capable of the
production and sale of at least [**] set forth in Exhibit 3.2(i).
Exhibit 2.2.1 sets forth by calendar quarter, the number of hours
("Allowed Must Run Outage Hours") for which the Must Run Resources may
generate [**] set forth in Exhibit 3.2(i).

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

4
<PAGE>

and shall, except for Allowed Dispatchable Outage Hours, remain during
each Interval of the Term capable of the production and sale [**] set
forth in Exhibit 3.2(i), and that LPM shall have the right, during each
Interval during the Term to Schedule Electric Energy from each
Dispatchable Resource to the extent of its availability. Exhibit 2.2.2
sets forth by Summer and Non-Summer Period designation the number of
hours ("Allowed Dispatchable Outage Hours") for which the Dispatchable
Resources may generate [**] set forth in Exhibit 3.2(i).

(b) LPM shall effect the acceptance of an OPC offer made
pursuant to paragraph (a) of this Section 2.2.2 by complying with the
provisions of 2.2.3 and the Scheduling procedures set forth in Article
4. OPC shall sell and LPM shall purchase all such Electric Energy
Properly Requested by LPM.

2.2.3. Manner of Request. LPM shall Properly Request OPC
Energy from LPM's Share of OPC Resources through (i) a recorded
telephone conversation between the Parties, or (ii) such other method
of communication, including electronic communication, as the
Administrative Committee may determine is appropriate. Such requests
shall be confirmed in the manner, if any, established by the
Administrative Committee for the type of communication in question. The
Parties agree not to contest or assert any defense to the validity or
enforceability of telephonic requests under Laws relating to whether
certain agreements are to be in writing or signed by the party to be
thereby bound, or the authority of any employee of such Party to make
such communication. Each Party consents to the recording of its
representatives' telephone conversations without any further notice.
All recordings or electronic communications may be introduced into
evidence to prove oral agreements between the Parties.

2.3. Remedy for Breach of MW Representation. If at any time during the
Term either OPC's representation set forth in Section 2.2.1 or Section 2.2.2(a)
ceases to be correct (i.e. the OPC Resource is not capable of producing the
required Mws), [**]

2.4. Customer Choice Load. (a) Subject to paragraph (b) below, LPM
shall be obligated to serve [**] of the requirements for Electric Energy of
any Customer Choice Customer [**]; provided, that such obligation shall not
entitle LPM to serve any portion of such requirements, and OPC or the EMC
Customers shall have the right to seek and accept bids from third parties for
all or any portion of such requirements; and provided further, that LPM shall
have the option but not the obligation to submit a bid to serve a greater
percentage than that designated above of any such Customer Choice Customer's
requirements on such price and other terms as may be mutually agreeable with OPC
or the affected EMC.

(b) LPM shall be obligated within [**] hours after OPC's request to
bid on a case by case basis to serve all of the requirements of (i) any Customer
Choice Customer [**] and (ii) any Customer Choice Customer whose load is [**],
at such price and on such other terms as may be acceptable to LPM. To the
extent OPC accepts such bid, then LPM shall be obligated to

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

5
<PAGE>

serve 100% of such Customer Choice Customer's requirements in accordance with
such bid, and such requirements shall be included in LPM's Share of Customer
Choice Load. Notwithstanding anything to the contrary contained in this
Agreement, OPC or an EMC shall have the right to seek and accept bids from third
parties to serve all of the requirements of the Customer Choice Customers
described in this paragraph (b).

(c) The aggregate of all Customer Choice Load that LPM either is
obligated to serve, or agrees to serve, as the case may be, shall be LPM's Share
of Customer Choice Load.

(d) The price applicable to LPM's Share of Customer Choice Load shall
be the Customer Choice Price; provided, that if LPM offers, other than pursuant
to this Agreement, to directly serve a Customer Choice Customer at a price that
is less than the applicable Customer Choice Price, then LPM shall be obligated
to serve 100% of the requirements of such Customer Choice Customer under this
Agreement at a comparable price.

2.5. Failure to Deliver or Receive. (a) Unless excused by Force
Majeure or the unexcused failure of Buyer's performance, if Seller fails to
deliver, or cause to be delivered, the Contract Quantity, [**]

(b) Unless excused by Force Majeure or the unexcused failure of
Seller's performance, if Buyer fails to receive, or cause to be received, the
Contract Quantity, [**]

(c) The parties recognize that GSOC shall be responsible for
maintaining the stability and reliability of OPC's generation and GTC's
transmission system. OPC or its designee, GSOC, shall use commercially
reasonable efforts to provide LPM with advance notice of possible transmission
constraints, voltage deterioration, or similar system events or occurrences that
might result in a prospective failure by, or inability of OPC to Schedule or
deliver Electric Energy Properly Requested by LPM, such that LPM, to the extent
practicable, shall be able to determine whether or not to modify the OPC
Resources from which it desires to receive Electric Energy or the amount thereof
or to bear the risk associated with its original request, and OPC and LPM shall
each use commercially reasonable efforts to discuss and agree upon the necessary
redispatching. In the event OPC and LPM are unable to agree in advance, and OPC
or its designee determines in good faith that in order to assure the stability
and reliability of OPC's generation and GTC's transmission system, it is
necessary in accordance with Prudent Utility Practice to deliver Electric Energy
from an OPC Resource other than the OPC Resource associated with Electric Energy
Properly Requested by LPM, then the further provisions of this paragraph 2.5(c)
shall apply. The Administrative Committee shall review all relevant facts
concerning the alternative delivery Scheduled and dispatched by OPC or its
designee. If the Administrative Committee determines unanimously that the
actions taken by both OPC and LPM were consistent with Prudent Utility Practice
and their respective obligations under this Section 2.5(c), then any additional
costs associated [**]. If the Administrative Committee does not so determine,
then the Party determined unanimously by the Administrative Committee to be at

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

6
<PAGE>

fault shall bear [**]. If the Administrative Committee cannot in good faith
reach a unanimous decision, then the matter shall be subject to arbitration
under Article 14.

(d) The provisions of this Section 2.5 shall not apply to the
circumstances in which adjustments have been made pursuant to Section 5.4.

2.6. Stranded Costs. In the event retail wheeling is instituted in
Georgia, for whatever reason, and OPC or the EMC Customers may be entitled to
receive compensation associated with stranded generating or other assets, the
LG&E Parties shall have no claim or entitlement to any such compensation, nor
shall the LG&E Parties have any obligation or liability for the payment of any
such compensation, attributable to OPC Resources.

Article 3.

OPC Resources

3.1. OPC Contracts. (a) OPC shall be responsible for compliance with
the OPC Contracts. In connection therewith, OPC shall be permitted to make OPC
Off-System Sales to comply with the OPC Off-System Sales Contracts, which
Electric Energy for LPM's Share of OPC Off-System Sales shall be provided to OPC
by LPM pursuant to Section 2.1 and at the prices set forth in Section 5.3. OPC
shall have the right during the Term to enter into new contracts or other
agreements to make sales, purchases or exchanges of Electric Energy, without the
prior consent of LPM, including new contracts for (i) sales of capacity and
Electric Energy from resources not included within OPC Resources, (ii) purchases
and sales of capacity and Electric Energy to serve Customer Choice Customers as
provided in Section 2.4, (iii) sales of capacity and Electric Energy under the
EMC Contracts, and (iv) purchases and sales of capacity and Electric Energy as
required to serve OPC Load not included within LPM's Share of OPC Load, or to
serve LPM's Share of OPC Load after the Term, and (v) as expressly set forth
elsewhere in this Agreement; provided, that such contracts or agreements shall
not adversely affect or otherwise interfere with OPC's ability to perform its
obligation to sell Electric Energy to or to purchase Electric Energy from LPM
hereunder.

(b) Nothing in this Agreement shall be construed to assign, impose or
otherwise transfer any rights or obligations under the OPC Off-System Sales
Contracts to the LG&E Parties, and OPC shall retain all of its rights and
obligations, including its obligation to maintain, or cause to be maintained,
generation and transmission system stability and reliability. Notwithstanding
any other provision of this Agreement, OPC shall not be required to take any
action inconsistent with its rights and obligations under the OPC Contracts.
Notwithstanding any other provision of this Agreement, no Party shall be
required to take any action inconsistent with its rights and obligations under
the NERC or SERC guidelines. Nothing in this Agreement shall affect the rights
or obligations of the parties to the EMC Contracts. OPC shall have the right to
terminate, amend, or otherwise modify the OPC Contracts, subject to the
provisions of Section 16.1.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

7
<PAGE>

3.2. Information on OPC Resources and System. (a) OPC acknowledges and
agrees that LPM requires information concerning OPC Contracts, OPC Resources,
OPC Load and Energy Cost in order to satisfy LPM's obligations hereunder.

(b) OPC has delivered to LPM the following information: (i) a list of
all OPC Resources and OPC Contracts, which list is attached as Exhibit 3.2(i);
(ii) a statement of the expected availability and current transformer loss
factor of each OPC Resource, including nuclear generating units, which statement
is attached as Exhibit 3.2(ii); and (iii) a schedule of forecast OPC Load, which
was delivered to LPM on February 7, 1996. OPC hereby agrees to update such
information promptly as new information becomes available to OPC during the Term
and to promptly provide such updated information to LPM.

3.3. Allocation of OPC Resources. (a) LPM's Share of OPC Resources is
specified in Exhibit 3.3. LPM shall not be entitled to purchase OPC Energy in
excess of the quantity of Electric Energy associated with the OPC Resource, or
portion thereof (in the case of certain OPC Resources comprised of more than one
generating unit) designated in such Exhibit; provided, that with respect to any
OPC Resource with a minimum operating level under the applicable OPC Contracts
that exceeds the amount of Electric Energy associated with such percentage, LPM
shall be entitled to purchase such minimum level under the terms of this
Agreement, but only if such purchase is in accordance with the Administrative
Procedures and necessary to commit such OPC Resource.

(b) OPC shall have the right to expand, retrofit, upgrade, or otherwise
modify the OPC Resources, subject to the provisions of Section 16.1; provided,
that such expansion, retrofit, upgrade, or other modification shall not
adversely affect or otherwise interfere with OPC's ability to perform its
obligation to sell Electric Energy to or to purchase Electric Energy from LPM
hereunder. OPC shall bear the costs of such expansion, retrofit, upgrade, or
other modification, and any incremental or expanded capacity and Electric Energy
associated with such activity, shall not be included within OPC Resources.

3.4. RESERVED.

3.5. Dispersed Generation. Generating facilities currently owned by
individual EMCs will not be an OPC Resource, but will remain the property of
each such EMC which may use such generating facilities as it shall determine
from time to time.

3.6. Load Management. Load management switching equipment and any
other demand side management of individual EMCs will not be an OPC Resource, but
will remain the property of such EMCs which may use, or direct OPC on such EMC's
behalf to coordinate the use of such load management switching equipment or
other demand side management as it shall determine from time to time.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

8
<PAGE>

3.7. Hartwell Fuel. LPM will provide fuel to generate the Electric
Energy it purchases associated with Hartwell, in accordance with the fuel
procurement provisions of that certain agreement between OPC and Hartwell Energy
Limited Partnership, dated June 12, 1992.

3.8. Coal. Coal for Plant Scherer and/or for Plant Wansley shall be
procured in accordance with this Section 3.8.

3.8.1. [**]

3.8.2. [**]

3.8.3. [**]

3.9. SEPA Energy. Each of the EMC Customers is presently entitled to an
allocation of hydro-electric power from SEPA, the cost of which is billed
directly by SEPA to each EMC. As provided in the definition of OPC Load in
Schedule A, LPM's Share of OPC Load does not include requirements supplied by
SEPA Energy Scheduled for delivery to the EMC Customers pursuant to the SEPA
Contracts; provided, however, that OPC shall Schedule delivery of SEPA Energy to
the EMC Customers as requested by LPM, to the extent permitted by SEPA under the
SEPA Contracts and consistent with the CSA.

3.10. Block Power Sale Agreements . OPC has canceled Block 3 of the
Georgia Power Block Power Sale Agreement, and OPC has given timely notice to
Georgia Power to cancel Block 4 as of August 31, 1997 and Block 2 as of August
31, 1998. [**].

3.11. New Resources. OPC shall have the right during the Term to
construct, purchase, lease, or otherwise acquire additional generating or
purchased power resources, including entering into agreements with Qualifying
Facilities, which resources shall not be included within OPC Resources;
provided, that such construction, purchase, lease or other arrangement shall not
adversely affect or otherwise interfere with OPC's ability to perform its
obligation to sell Electric Energy to or to purchase Electric Energy from LPM
hereunder.

3.12. Emission Allowances. [**]

Article 4.

Transmission

4.1. Transmission and Scheduling

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

9
<PAGE>

(a) [**]

(b) [**]

4.2. Title and Risk of Loss. As between LPM and OPC, Seller shall be
deemed to be in exclusive control (and responsible for any damages or injury
caused thereby) of the Contract Quantity prior to the Delivery Point, and Buyer
shall be deemed to be in exclusive control (and responsible for any damages or
injury caused thereby) of the Contract Quantity at and from the Delivery Point.
Title to and risk of loss of Electric Energy shall transfer from Seller to Buyer
at and from the Delivery Point.

4.3. Scheduling. OPC and LPM agree to adopt and maintain reasonable
procedures to facilitate LPM's ability on an hourly basis to (i) supply LPM's
Share of OPC Load and (ii) purchase OPC Energy associated with LPM's Share of
OPC Resources. The Parties shall also establish procedures whereby (a) OPC shall
communicate to LPM on a same-time basis the availability of, and estimated
Energy Cost for, each OPC Resource, as such availability and Energy Cost may
change from time to time, and the projected LPM's Share of OPC Load; and (b) LPM
shall provide all necessary Scheduling information, including the duration of
proposed transactions, [**]. Upon communication of such information, LPM shall
Properly Request the amounts of Electric Energy that LPM desires to purchase
from each such OPC Resource within LPM's Share of OPC Resources. [**]

4.4. Delivery Points. (a) LPM shall specify one or more Delivery Points
for (i) OPC Energy Scheduled and purchased by LPM from OPC and (ii) Electric
Energy Scheduled and sold by LPM to OPC. [**]

(b) [**]

4.5. Transformer and Transmission Loss Adjustments. (a) With respect to
LPM purchases of OPC Energy from an OPC Resource that is a generating plant
which interconnects directly into the ITS, [**]

(b) For purposes of supplying OPC with Electric Energy to serve LPM's
Share of OPC Load and LPM's Share of Customer Choice Load, [**]

(c) For purposes of supplying OPC with Electric Energy to satisfy LPM's
Share of OPC's Off-System Sales obligations, [**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

10
<PAGE>

(d) For purposes of supplying Electric Energy to satisfy LPM's sales to
third parties that accept delivery on the ITS or for delivery at Points of
Interconnection, [**]

(e) For purposes of supplying Electric Energy to permit OPC to pump
water to the upper reservoir at the Rocky Mountain Pumped Storage Hydroelectric
Generating Facility ("Rocky Mountain"), [**]

(f) The Parties agree and understand [**]

4.6. Imbalances and Regulation Deviation Errors. (a) The Parties
recognize that actual LPM's Share of OPC Load, LPM's Share of Customer Choice
Load, and LPM's Share of OPC Off-System Sales may vary in any Interval even when
the foregoing have been reasonably forecast by LPM and Electric Energy has been
Scheduled as Properly Requested by LPM. [**]

(b) [**]

4.7. Non-Territorial Contractual Delivery Obligations. For purposes of
supplying Electric Energy to satisfy OPC's sales obligations to LPM of Electric
Energy to be resold by LPM to third parties that accept delivery on the ITS or
delivery at Points of Interconnection, [**]

4.8. Control Area. OPC reserves the right, at any point during the
Term, to establish and operate a Control Area, or to contract with others to
establish and operate a Control Area. Such Control Area would be utilized
pursuant to 18 C.F.R. Part 35 to match Electric Energy input and output within
the electric system, maintain scheduled interchange with other Control Areas,
maintain the frequency of the Electric Energy system within reasonable limits
and provide sufficient generating capacity to maintain operating services.

4.9. Other OPC or GTC Responsibilities . In addition to the above, OPC
or GTC shall also be responsible for the following:

(a) all communications with other owners of the ITS and for
discharging all obligations for the Oglethorpe Power System under the
ITSA, except for ITS related costs otherwise expressly addressed
herein.

(b) OPC, or GTC, as the case may be, shall be responsible for
responding to any transmission requests filed under its open access
transmission tariff or pursuant to Section 211 of the Federal Power
Act, or other applicable legal requirements. OPC, or GTC, as the case
may be, shall represent such interest before FERC or any other
regulatory agency or court.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

11
<PAGE>

Article 5.

Price

5.1. OPC's Contract Price. Subject to Section 5.4, the Contract Price
for Electric Energy sold by OPC to LPM shall be the Energy Cost for OPC Energy
that LPM Properly Requests.

5.2. [**].

5.3. LPM's Contract Price. Subject to Section 5.4, (i) with respect
to sales of Electric Energy by LPM to OPC relating to LPM's Share of OPC
Load, the Contract Price shall be, during each calendar year of the Term, the
LPM Sales Price [**] as set forth in Exhibit 5.3; (ii) with respect to LPM's
Share of Customer Choice Load which LPM is required to serve, the Contract
Price shall be the Customer Choice Price; (iii) with respect to LPM's Share
of Customer Choice Load served at a price quoted by LPM, the Contract Price
shall be the price quoted by LPM; and (iv) with respect to sales of Electric
Energy by LPM to OPC relating to LPM's Share of OPC Off-System Sales, the
Contract Price shall be as agreed to by the Parties (the "LPM Off-System
Sales Price"); provided, [**]

5.4. Amounts Due to OPC and LPM. Each month OPC shall charge LPM an
amount equal to the aggregate Energy Costs attributable to the OPC Energy that
is Properly Requested by and delivered to LPM. Each month LPM shall charge OPC
an amount equal to the sum of the following products: (i) the LPM's Share of OPC
Load [**], as set forth in Exhibit 5.3; (ii) LPM's share of Customer Choice Load
attributable to a Customer Choice Customer and purchased by and delivered to OPC
during the month, multiplied by the applicable Customer Choice Price; (iii) each
OPC Off-System Sales quantity purchased by and delivered to OPC from LPM during
the month, multiplied by the LPM Off-System Sales Price applicable to each such
OPC Off-System Sale; provided, that the amounts so determined shall be subject
to the following adjustments:

5.4.1. [**].

(b) Exhibit 5.4.1(b) sets forth an example of the intended
operation of this Section.

5.4.2. RESERVED

5.4.3. Rocky Mountain "True-Up" Adjustment. On January 1, 1997
OPC shall determine the water level in the upper reservoir of Rocky
Mountain. On the date of

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

12
<PAGE>

termination of this Agreement LPM shall be responsible for replacing to
the same level as on January 1, 1997 its proportionate share of such
water; provided, that if such replacement is not physically possible
prior to termination, [**]

5.4.4. RESERVED

5.4.5. [**].

5.4.6. [**].

5.4.7. [**].

(b) Exhibit 5.4.7(b) sets forth an example of the intended
operation of this Section.

(b) Exhibit 5.4.8(b) sets forth an example of the intended
operation of this Section.

5.5. RESERVED

5.6. Levelized Payments. The Parties recognize that an important
objective of OPC and the EMC Customers is to spread cost savings associated with
an extension of this Agreement across the Term. If the Term is extended, as
provided in Section 6.1(b), then to accomplish this objective, the individual
LPM Sales Price applicable to each EMC Customer as set forth in Exhibit 5.3 may
be levelized. [**]

Article 6.

Term

6.1. Term. (a) This Agreement shall become effective on the date first
written above (the "Effective Date"), provided that the delivery of Electric
Energy pursuant to this Agreement shall commence at 00:00:01 CPT on January 1,
1997, and shall remain in effect until 24:00 CPT on December 31, 1997 (the
"Termination Date"), subject to Section 6.1(b), [**] (the "Term"). The
applicable provisions of this Agreement shall continue in effect after the
Termination Date in accordance with the provisions of Section 17.4.

(b) In the event the conditions precedent set forth in Article 11 are
satisfied on or before June 1, 1997, then the Term shall be extended until 24:00
CPT on December 31, 2011, [**] and the Term shall be deemed to include any
such extension. OPC shall provide LPM with

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

13
<PAGE>

written notice promptly following the satisfaction of the conditions precedent
described in Article 11, which notice shall specify the date ("Long Term
Commencement Date") on which such conditions precedent were satisfied. In the
event a condition precedent set forth in Article 11 has not been satisfied on or
before June 1, 1997, then the extension provision in this Section 6.1(b) shall
be of no further force and effect, [**]

6.2. [**].

(b) [**].

Article 7.

Confidential Information

7.1. Prior Confidentiality Agreement Superseded; Authorization to Use
Information. The Parties expressly agree that the Confidentiality Agreement
entered into by OPC, LPM and Cooperative Power, Inc. ("CPI") dated as of
February 6, 1996, as amended, automatically and immediately and with no further
action by the Parties shall terminate as of the Effective Date of this
Agreement. OPC represents that in connection with such termination it is duly
authorized to act on behalf of and to bind CPI. OPC expressly authorizes and
grants its consent to LPM to use Confidential Information, whether acquired
before or after the Effective Date, pertaining to, without limitation, OPC, OPC
Resources, OPC Load, OPC Off-System Sales and the EMC Customers, for the purpose
of exercising LPM's rights under this Agreement, including LPM's right to buy
Electric Energy from OPC or any other person and to sell Electric Energy to OPC
or any other person, whether Electric Energy is produced by or attributable to
OPC Resources or other resources. Each Party agrees that it shall not disclose
Confidential Information whether acquired before or after the Effective Date, to
any third party other than each Party's officers, directors, employees, advisors
or representatives, or each Party's Affiliates (or as to OPC, the EMCs), their
officers, directors, employees, advisors or representatives who need to know and
agree to maintain the confidentiality of the Confidential Information
(collectively, "Representatives") during the Term and for a period of not more
than three (3) years after the Termination Date. Each Party shall be responsible
for any breach of this Agreement by its Representatives.

7.2. Authorized Disclosure. Notwithstanding anything contained in this
Article 7, Confidential Information may be disclosed to any governmental,
judicial or regulatory authority requiring such Confidential Information,
provided that: (i) such Confidential Information is submitted under applicable
provisions, if any, for confidential treatment by such governmental, judicial or
regulatory authority; (ii) prior to such disclosure, the Party who supplied the
information is given notice of the disclosure requirement so that it may take
whatever action it deems appropriate, including intervention in any proceeding
and the seeking of an injunction to prohibit such disclosure; and (iii) the
Party subject to the governmental, judicial or regulatory

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

14
<PAGE>

authority endeavors to protect the confidentiality of any Confidential
Information to the extent reasonable under the circumstances and to use its good
faith efforts to prevent the further disclosure of any Confidential Information
provided to any governmental judicial or regulatory authority.

7.3. Return of Confidential Information. Upon (i) the termination of
this Agreement and (ii) the request of a Party, the other Party shall return all
written Confidential Information (including written confirmation of oral
communications) provided by the requesting Party which was stamped
"confidential" and shall not retain any copies of such written Confidential
Information. In the event of such request, all documents, analyses,
compilations, studies or other materials prepared by the returning Party or its
Representatives that contain or reflect Confidential Information (other than
computer archival and backup tapes or archival and backup files (collectively
"Computer Tapes") and billing and trading records (collectively, "Other
Records")) shall be destroyed and no copy thereof shall be retained (such
destruction to be confirmed in writing by a duly authorized officer of the
returning Party). Computer Tapes and Other Records shall be kept confidential in
accordance with the terms of this Agreement.

7.4. Right to Remedies. In the event of an unauthorized disclosure to a
third party, the limitations on remedies contained in Section 10.2 shall not
apply, and in the event of a breach no Party will have an adequate remedy at law
and accordingly shall, in addition to any other available legal or equitable
remedies, be entitled to an injunction against such breach without any
requirement to post a bond as a condition of such relief.

7.5. Georgia Trade Secrets Act. Except as expressly provided in Article
7 of this Agreement, including OPC's consent to the use by LPM of Confidential
Information in its trading operations pursuant to this Agreement, the rights of
the Parties under this Agreement are in addition to and not in lieu of their
rights under Georgia law, including the Georgia Trade Secrets Act of 1990.
Nothing in this Article 7 shall be construed as a waiver on the part of any
Party of any privilege or objection of any kind to the disclosure or use of
Confidential Information.

Article 8.

Billing, Payment and Records

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

15
<PAGE>

date, OPC may set forth on such Statement its good-faith estimate of the Energy
Cost of an OPC Resource, for such OPC Resource; and provided, that OPC shall
compile the actual Energy Costs and "true-up" such estimates as promptly as
practicable pursuant to Section 8.5.

8.2. Offset of Payment Obligations. The Parties shall discharge their
obligations to pay through netting, in which case the Party, if any, owing the
greater aggregate amount shall pay to the other Party the difference between the
amounts owed, as set forth in Section 8.3. Each Party reserves to itself all
rights, setoffs, counterclaims and other remedies and defenses, consistent with
Article 10, which such Party has or may be entitled to arising from or out of
this Agreement. All outstanding obligations to make payments under this
Agreement may be offset against each other, set-off or recouped therefrom.

8.3. Payments. The Party owing the other shall pay the amount owing
under the Statement, which payment shall be due on or before the later of the
following: (i) the tenth (10th) Business Day after receipt of the Statement or
(ii) the twentieth (20th) day of the month in which the Statement is received
(or the first Business Day thereafter). Payment shall be made by wire transfer
to the payment address provided in Exhibit 17.2. If either Party, in good faith,
disputes any part of any Statement, it shall provide a written explanation of
the basis for the dispute and pay the portion of such Statement conceded to be
correct no later than the due date as calculated in accordance with the
preceding sentence. If any amount disputed is determined to be due to the other
Party, it shall be paid within ten (10) days of such determination, along with
interest calculated at the Interest Rate from the original due date until the
date paid. Absent such a good faith dispute, overdue payments shall bear
interest from, and including, the due date to, but excluding, the date of
payment at a rate equal to the Interest Rate.

8.4. Audit Rights. (a) Each Party or any third party representative of
a Party shall have the right, at its sole expense and during normal working
hours, to examine the records of the other Party to the extent reasonably
necessary to verify the accuracy of any Statement, charge or computation made
pursuant to this Agreement. If requested, a Party shall provide to the other
Party statements evidencing the quantities of Electric Energy delivered at the
Delivery Point. With respect to records held in the custody of a third party
pursuant to a confidentiality provision of an OPC Contract, if an audit is
requested by a Party, the Parties shall select an independent auditor to perform
the audit consistent with the rights of OPC under the contract and such
confidentiality arrangements as may be required by the contract in question.
Subject to any additional limitations that may be imposed under the OPC Contract
in question, such examinations by an independent auditor shall not be performed
more frequently than once each calendar year. The Party requesting the audit
shall pay all costs, including those of the independent auditor, associated with
the audit.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

16
<PAGE>

objection to the accuracy thereof was made prior to the lapse of two (2) years
from the rendition thereof; and provided, further, that this provision of this
Agreement will survive any termination of this Agreement for a period of two (2)
years from the date of such termination for the purpose of such statement and
payment objections.

8.5. Subsequent Payment Adjustments. The Parties understand that in
certain cases monthly billings will need to be made on an estimated basis,
including with respect to the calculation of Energy Cost for each of the OPC
Resources. In addition, the Parties understand that after the fact adjustments
to amounts owed or revenues received may be made pursuant to the CSA or other
OPC Contracts, which adjustments may affect the Energy Cost and associated
amounts payable by LPM to OPC under this Agreement. Each Party shall cooperate
in good-faith with the other Party to obtain the requisite information and
perform the necessary computations so as to "true-up" or otherwise adjust any
estimated or adjusted billings promptly.

8.6. Records. Each Party shall keep such records as may be needed to
afford a clear history of the Scheduled purchases and sales hereunder. In
maintaining such records, OPC and LPM may rely upon the logs and other meter
information routinely recorded by Transmission Providers or utilities
responsible for coordination of the purchases and sales.

Article 9.

Taxes

9.1. Seller's Obligation. Seller is liable for and shall pay, or cause
to be paid, or reimburse Buyer if Buyer has paid, all Taxes applicable to the
sale of Electric Energy arising prior to the Delivery Point(s). If Buyer is
required to remit any such Tax, the amount shall be deducted from any sums
becoming due to Seller. Seller shall indemnify, defend and hold harmless Buyer
from any Claims for such Taxes.

9.2. Buyer's Obligation. Buyer is liable for and shall pay, cause to be
paid, or reimburse Seller if Seller has paid, all Taxes applicable to a purchase
of Electric Energy arising at and from the Delivery Point(s), including any
Taxes imposed or collected by a taxing authority with jurisdiction over Buyer.
Buyer shall indemnify, defend and hold harmless Seller from any Claims for such
Taxes.

9.3. Exemption Certificates. Either Party, upon written request of the
other, shall provide a certificate of exemption or other reasonably satisfactory
evidence of exemption if either Party or a purchase or sale is exempt from
Taxes, and shall use reasonable efforts to obtain and cooperate with obtaining
any exemption from or reduction of any Taxes. Each Party shall use reasonable
efforts to administer this Agreement and implement the provisions in accordance
with the intent to minimize Taxes.

9.4. [**].

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

17
<PAGE>

Article 10.

Indemnification and Remedies

10.1. General Indemnity. Subject to Section 10.2, Seller and Buyer
shall each indemnify, defend and hold harmless the other Party from any Claims
or other losses arising from (i) any act or incident occurring when title to the
Contract Quantity is vested in the indemnifying Party pursuant to Section 4.2
and (ii) any Event of Default.

10.2. Limitation on Remedies. THE PARTIES CONFIRM THAT THE EXPRESS
REMEDIES AND MEASURES OF DAMAGES PROVIDED IN THIS AGREEMENT SATISFY THE
ESSENTIAL PURPOSES HEREOF. FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS
REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF
DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, THE RESPONSIBLE PARTY'S
LIABILITY SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION AND ALL OTHER REMEDIES
OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED REGARDLESS OF THE FAULT, NEGLIGENCE OR
STRICT LIABILITY OF THE PARTY WHOSE LIABILITY IS RELEASED OR LIMITED THEREBY. IF
NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY HEREIN PROVIDED, THE RESPONSIBLE
PARTY'S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES (INCLUDING INTEREST
AS PERMITTED BY APPLICABLE LAW) ONLY, SUCH DIRECT ACTUAL DAMAGES SHALL BE THE
SOLE AND EXCLUSIVE REMEDY AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY
ARE WAIVED. UNLESS EXPRESSLY HEREIN PROVIDED, NO PARTY SHALL BE LIABLE FOR
CONSEQUENTIAL, INCIDENTAL, PUNITIVE, MULTIPLE, EXEMPLARY OR INDIRECT DAMAGES,
LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR IN
CONTRACT UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE
PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF
DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE
NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT,
OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER
ARE LIQUIDATED, INCLUDING DAMAGES PROVIDED IN SECTION 2.5 AND 4.4, THE PARTIES
ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OTHERWISE
OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT, AND THE LIQUIDATED DAMAGES
CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS.

10.3. Duty to Mitigate. Each Party agrees that it has a duty to
mitigate damages and covenants that it will use commercially reasonable efforts
to minimize any damages it may incur as a result of the other Party's
performance or nonperformance of this Agreement.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

18
<PAGE>

10.4. DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH HEREIN, OPC, WITH
RESPECT TO THE SALE OF ELECTRIC ENERGY TO LPM, AND LPM, WITH RESPECT TO THE SALE
OF ELECTRIC ENERGY TO OPC, EXPRESSLY NEGATES ANY OTHER REPRESENTATION OR
WARRANTY, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
ANY REPRESENTATION OR WARRANTY WITH RESPECT TO CONFORMITY TO MODELS OR SAMPLES,
MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE.

10.5. [**].

Article 11.

Conditions Precedent to Extension of Term

11.1. Regulatory Authorizations. The Parties' obligations to commence
delivery of Electric Energy under the long term arrangement contemplated by
Section 6.1(b) of this Agreement shall be subject to receipt of any governmental
consents or approvals required to perform this Agreement, including approval by
the RUS without modification of this Agreement and the OPC Restructuring.

11.2. OPC Restructuring. The Parties' obligations to commence delivery
of Electric Energy under the long term arrangement contemplated by Section
6.1(b) of this Agreement shall be subject to completion of the OPC
Restructuring, and execution of new wholesale power contracts with OPC, as
contemplated pursuant to such OPC Restructuring, by EMCs (whose total
requirements in the aggregate represent at least eighty (80) percent of OPC
Load).

11.3. Administrative Procedures. The Parties' obligations to commence
delivery of Electric Energy under this Agreement shall be subject to the
development of mutually acceptable Administrative Procedures on or before
January 1, 1997. The Parties agree to use good faith efforts to promptly develop
the Administrative Procedures.

Article 12.

Representations and Warranties

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

19
<PAGE>

power to own, operate and lease its properties and carry on its business as now
conducted; (iii) it has all regulatory authorizations, including any required
authorization from the Rural Utilities Service of the United States Department
of Agriculture ("RUS"), necessary for it to legally perform its obligations
under this Agreement; (iv) the execution, delivery and performance of this
Agreement are within its powers, have been duly authorized by all necessary
action and do not violate any of the terms or conditions in its governing
documents, any contract or other agreement to which it is a party or any Law
applicable to it; (v) this Agreement constitutes each Party's legally valid and
binding obligation enforceable against it in accordance with the terms thereof,
subject to any Equitable Defenses; (vi) there are no Bankruptcy Proceedings
pending or being contemplated by it or, to its knowledge, threatened against it;
(vii) there are no Legal Proceedings that would be reasonably likely to
materially adversely affect its ability to perform this Agreement; and (viii) it
has knowledge and experience in financial matters and in the electric industry
that enable it to evaluate the merits and risks of this Agreement.

12.2. Additional OPC Representations. (a) OPC further represents and
warrants that on the Effective Date, January 1, 1997, the Long Term Commencement
Date and the date of entering into each purchase or sale of Electric Energy
hereunder: (i) the EMC Contracts are and will be in full force and effect
throughout the Term and will not be amended so as to adversely affect OPC's
ability to perform its obligations under this Agreement; (ii) Exhibit 3.2(i)
sets forth a true and complete list of each OPC Resource and each material
written OPC Contract; (iii) correct and complete copies of the OPC Contracts
listed on Exhibit 3.2(i) have previously been delivered to LPM by OPC; (iv)
except as stated on Exhibit 3.2(i), no amendments to the OPC Contracts are
proposed or pending as of the Effective Date; (v) each OPC Contract is valid,
binding and in full force and effect and enforceable by or against the
respective parties thereto in accordance with its terms; (vi) OPC has fulfilled,
and will continue to fulfill during the Term, all of its obligations under each
OPC Contract; (vii) there has not occurred any default by OPC or any event
which, with the lapse of time or the giving of notice or both will become a
default of OPC under any of the OPC Contracts; (viii) OPC is not in arrears in
respect of the performance or satisfaction of the terms or conditions to be
performed or satisfied by it under any of the OPC Contracts, and, to the best
knowledge of OPC, no waiver of any of such terms or conditions has been granted
thereunder by any of the parties thereto; and (ix) OPC shall maintain or cause
to be maintained the OPC Resources which are generating facilities owned by OPC,
in accordance with Prudent Utility Practice.

(b) OPC further represents and warrants that Exhibit 3.2(ii) and the
schedule of forecast load described in Section 3.2(b) reflect its best
RUS-approved forecasts and estimates as of the Effective Date of the matters
reflected therein and that any updates of such Exhibits required to be provided
hereunder shall be its best forecasts and estimates of the matters reflected
therein as of the date that the same are updated from time to time.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

20
<PAGE>

act in good faith in the development of the Administrative Procedures, and (iii)
no terms, conditions or covenants that are inconsistent with OPC's obligations
hereunder or which would reasonably be expected to adversely affect LPM's
ability to perform hereunder.

12.3. Additional LG&E Parties Representations. (a) LPM further
represents and warrants that on the Effective Date, January 1, 1997, the Long
Term Commencement Date, and the date of entering into each purchase or sale of
Electric Energy hereunder (i) LPM is a power marketer authorized by the FERC to
purchase and sell Electric Energy at negotiated, market-based rates pursuant to
its Rate Schedule on file with and approved by the FERC; (ii) neither LPM nor
any of its Affiliates or subsidiaries will, during the Term, take any action
that could reasonably be anticipated to cause LPM to lose its authority as a
power marketer under the Federal Power Act to make wholesale sales of power at
market-based, negotiated rates; and (iii) LPM will, at all times during the
Term, act in accordance with Prudent Utility Practice and will comply with all
applicable regulatory requirements including SERC/NERC guidelines.

(b) LPM represents and warrants that it will cooperate with the Power
Marketer regarding administrative matters during the Term.

(c) LEC represents that neither it nor any of its affiliates or
subsidiaries will, during the Term, take any action that could reasonably be
anticipated to (i) cause LPM to lose its authority as a power marketer under the
Federal Power Act to make wholesale sales of power at market-based, negotiated
rates; or (ii) impair LPM's ability to perform its obligations under this
Agreement, or LEC's ability to perform its obligations under Section 17.15.

(d) LEC further represents and warrants that as of the Effective Date
and January 1, 1997, it is not a "public utility" within the meaning of the
Federal Power Act, as amended.

12.4. Mutual Assistance. Each Party represents and warrants that it
will assist the other to the extent practicable with (i) obtaining all required
Regulatory Approvals associated with this Agreement; (ii) defending transmission
capacity reservations; and (iii) defending Qualifying Facility avoided cost
calculations.

12.5. Good Title. Each of OPC and LPM represents and warrants that it
will deliver to the other good title to Electric Energy delivered hereunder,
free and clear of all liens, claims and encumbrances arising prior to transfer
of title at the Delivery Point.

12.6. Power Quality. Each of OPC and LPM represents and warrants that
it will deliver to the other Electric Energy at the Delivery Point that is three
phase, sixty hertz, and at system nominal voltages.

12.7. Other Contracts. Neither OPC nor LPM nor any of its Affiliates or
subsidiaries will, during the Term, take any action, enter into any contracts or
otherwise incur obligations that could reasonably be anticipated to interfere
with or adversely affect its ability to perform its obligations under this
Agreement.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

21
<PAGE>

12.8. Continuing Representations and Warranties. Each Party covenants
that it will cause these representations and warranties to be materially true
and correct throughout the Term.

Article 13.

Defaults and Remedies

13.1. Events of Default. An "Event of Default" shall mean with respect
to a Party ("Defaulting Party"):

13.1.1. The failure by the Defaulting Party to make, when due,
any payment required if such failure is not remedied within five (5)
Business Days after written notice of such failure is given to the
Defaulting Party by the other Party ("Notifying Party"); provided, that
the payment is not the subject of a good faith dispute as described in
Section 8.3; or

13.1.2. Any representation or warranty made by the Defaulting
Party herein shall prove to have been false or misleading in any
material respect when made or deemed to be repeated; or

13.1.3. The failure by the Defaulting Party to perform any
obligation or covenant set forth in this Agreement (other than its
obligations to make any payment or obligations which are otherwise
specifically covered in this Section 13.1 as a separate Event of
Default, or its obligations to deliver or receive Electric Energy, a
remedy for which is provided in Section 2.5) and such failure is not
excused by Force Majeure or cured within five (5) Business Days after
written notice thereof to the Defaulting Party;

13.1.4. The Defaulting Party shall be subject to a Bankruptcy
Proceeding; or

13.1.5. LPM's loss of FERC authorization to charge the prices
for the sale of Electric Energy included in this Agreement or otherwise
to perform its obligations hereunder in accordance with the terms of
this Agreement.

13.2. Early Termination; Remedies. If an Event of Default occurs with
respect to a Defaulting Party at any time during the Term, the other party
("Non-Defaulting Party") may, for so long as the Event of Default is continuing,
(i) establish a date (which date shall be between five (5) and ten (10) Business
Days after the Non-Defaulting Party delivers notice to the Defaulting Party)
("Early Termination Date") on which this Agreement shall terminate and (ii)
withhold any payments due to the Defaulting Party under this Agreement;
provided, however, that if the Event of Default is that the Defaulting Party
becomes subject to a Bankruptcy Proceeding, then this Agreement shall
automatically terminate without notice and without any other action by either
Party as if an Early Termination Date had been immediately declared prior to
such Event of Default. Regardless of whether an Early Termination Date is
declared, if an

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

22
<PAGE>

Event of Default shall have occurred, the Non-Defaulting Party shall be entitled
to exercise any remedy available at law or equity consistent with Article 10 to
recover its damages, including attorneys' fees, resulting from any Event of
Default.

13.3. [**].

13.4. Failure to Pay. Notwithstanding any other provision of this
Agreement, if either Party fails to pay the other any amounts when due, the
other Party shall have the right to (i) suspend performance under this Agreement
until such amounts plus interest have been paid and/or (ii) exercise any remedy
available at law or in equity to enforce payment of such amount plus interest;
provided, however, that if the Defaulting Party, in good faith, shall dispute
the amount of any such billing or part thereof and shall pay such amounts as it
concedes to be correct, no suspension shall be permitted.

13.5. Effect of Regulation. In the event OPC is or becomes regulated by
a federal, state or local regulatory body, and (i) such body shall disallow all
or any portion of any costs incurred or yet to be incurred by OPC under any
provision of this Agreement, such action shall not operate to excuse OPC from
performance of any obligation nor shall such action give rise to any right of
OPC to any refund or retroactive adjustment of any amounts payable hereunder; or
(ii) [**] then the sole and exclusive remedy for such default in performance
shall be as set forth in Section 4.4(b).

13.6. Notice to LEC. OPC shall provide a copy to LEC of any notice OPC
gives LPM under the provisions of this Article.

Article 14.

Arbitration

14.1. Applicability; Selection of Arbitrators. (a) Except as otherwise
expressly provided in Sections 2.5, 4.4, 7.4 and Article 13 of this Agreement,
any dispute arising out of or in connection with this Agreement, or its
performance including the existence and validity of this Agreement, which cannot
be resolved after discussion between the Parties as set forth herein shall be
submitted to binding arbitration.

(b) Prior to initiating arbitration hereunder, a Party shall provide
the other Party with a written notice of the dispute, a proposed means for
resolving the same, and the support for such position. Thereafter,
representatives of the Parties shall meet to discuss the matter and attempt in
good faith to reach a negotiated resolution of the dispute. If the Parties have
not agreed upon a resolution of the dispute within ninety (90) days after the
date of the original notice provided under this paragraph, or such other time
period as the Parties may agree in writing to allow for discussions
("Negotiation Period"), then at any time after the end of the Negotiation
Period, a

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

23
<PAGE>

Party may provide written notice to the other declaring an impasse ("Impasse
Notice") and initiating binding arbitration in accordance with the further
provisions of this Article 14.

(c) Arbitration will be deemed to be initiated when an Impasse Notice,
properly addressed and stamped, is deposited with the United States Postal
Service. The Party initiating arbitration shall nominate one (1) arbitrator at
the same time it initiates arbitration. The other Party shall nominate one (1)
arbitrator within ten (10) calendar days of receiving the notice of arbitration.
The two arbitrators shall appoint a third, neutral arbitrator. The third,
neutral arbitrator shall be competent and experienced in matters involving the
energy business in the United States, with at least 15 years of electric
industry experience as a practicing attorney, and shall be unaffiliated and
without prior financial alliances with any Party, or either of the other
arbitrators.

(d) If the two arbitrators are unable to agree on a third arbitrator
within thirty (30) calendar days from initiation of arbitration, then a third
arbitrator shall be selected by the CPR Institute for Dispute Resolution ("CPR")
with due regard given to the selection criteria above and input from the Parties
and other arbitrators. Parties shall undertake to request CPR to complete
selection of the third arbitrator no later than sixty (60) calendar days from
initiation of arbitration. Costs charged by CPR for this service shall be borne
equally by OPC and the LG&E Parties.

(e) In the event CPR should fail to select the third arbitrator within
sixty (60) calendar days from initiation of arbitration, then any Party may
petition a court of competent jurisdiction in Georgia to select the third
arbitrator. Due regard shall be given to the selection criteria above and input
from the Parties and other arbitrators.

(f) If prior to the conclusion of the arbitration any arbitrator
becomes incapacitated or otherwise unable to serve, then a replacement
arbitrator shall be appointed in the manner described above and applicable to
the original arbitrator being replaced.

14.2. Discovery, Hearing. Discovery and other pre-hearing procedures
shall be conducted as agreed by the parties, or if they cannot agree, as
determined by a majority of the arbitrators. Within fifteen (15) days after
completion of discovery, the Party submitting the Impasse Notice initiating
arbitration shall submit by overnight delivery to the other Party and the
arbitrators a precise statement of the dispute, means of resolving the dispute,
and the factual and/or legal support therefor. Within ten (10) days after
receiving such statement, the other Party shall submit by overnight mail to the
first Party and the arbitrators a precise statement of the alternative means of
resolving the dispute and the factual and/or legal support therefor. The Parties
shall conduct a hearing in Atlanta no later than sixty (60) days following
selection of the third arbitrator, or thirty (30) days after all prehearing
discovery has been completed, whichever is later, at which the Parties shall
present such evidence and witnesses as they may choose. Arbitration shall be
conducted in accordance with the non-administered arbitration rules and
procedures of the CPR, except where specifically modified by this Agreement.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

24
<PAGE>

14.3. Decision. The arbitrators shall consider the terms and conditions
of this Agreement, and any relevant evidence and testimony, and shall render
their decision within thirty (30) calendar days following conclusion of the
hearing. The arbitrators' decision will be limited to selecting one of the
alternatives specified in the statements of the Parties referred to in Section
14.2. The decision rendered by a majority of the arbitrators, made in writing,
shall be final and binding upon the Parties. Any such decision may be filed in a
court of competent jurisdiction and may be enforced by any Party as a final
judgment in such court. The arbitrators shall have no authority to award
special, exemplary, or consequential damages.

14.4. Expenses. The expenses of arbitration shall be borne equally by
OPC and the LG&E Parties, except that each Party shall bear the compensation and
expenses of its nominated arbitrator, own counsel, witnesses and employees;
provided further, that any costs incurred by a Party in seeking judicial
enforcement of any decision rendered in writing by the arbitrators, or a
majority of the arbitrators, shall be chargeable to and borne exclusively by the
Party against whom such court order is obtained.

Article 15.

Force Majeure

15.1. Effect of Force Majeure. (a) If either OPC or LPM is rendered
unable by an event of Force Majeure to carry out, in whole or part, its
obligations hereunder and such Party gives notice and full details of the event
to the other Party as soon as practicable after the occurrence of the event,
then during the pendency of such Force Majeure but for no longer period, the
obligations of the Party affected by the event (other than the obligation to
make payments then due or becoming due with respect to performance prior to the
event) shall be canceled to the extent required, and if applicable subject to
the provisions of Section 15.1(b). The Party affected by the Force Majeure shall
remedy the Force Majeure with all reasonable dispatch.

(b) If due to Force Majeure, any portion of LPM's Share of OPC
Resources is not available, then LPM shall not be obligated to deliver the
amount of Electric Energy which is not available to LPM from LPM's Share of OPC
Resources, and at OPC's option, exercisable at the time OPC gives or receives
notice of the Force Majeure, either (i) [**].

Article 16.

Material Changes

16.1. [**]

16.2. [**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

25
<PAGE>

Article 17.

Miscellaneous

17.1. Assignment.

17.1.1. General. (a) This Agreement shall be binding upon and
inure to the benefit of the permitted successors and permitted assigns
of the Parties, except that this Agreement may not be assigned by any
Party unless prior consent to such assignment is given in writing by
the other Parties and, if any Party is then an RUS borrower, the
Administrator. Any assignment made without a consent required hereunder
shall be void and of no force or effect as against the non-consenting
party.

(b) No sale, assignment, transfer or other disposition
permitted by this Agreement shall affect, release or discharge any
Party from its rights or obligations under this Agreement, except as
may be expressly provided by this Agreement.

17.1.2. Assignment for Security. (a) Notwithstanding any other
provision of this Agreement, a Party, without the other Parties'
consent but, if such assigning Party is then a borrower of the RUS,
only with the consent of the Administrator, may assign, transfer,
mortgage or pledge its interest in this Agreement as security (an
"Assignment for Security") for any obligation secured by any indenture,
mortgage or similar lien on its system assets without limitation on the
right of the secured party to further assign this Agreement, including
the assignment to create a security interest for the benefit of the
Government, acting through the Administrator, or for the benefit of any
third party.

(b) After any Assignment for Security to the Administrator or
other secured party (including any indenture trustee under any
indenture securing the obligations of the Seller), the Administrator or
other secured party, without the approval of the other Parties to this
Agreement, may (i) cause this Agreement to be sold, assigned,
transferred or otherwise disposed of to a third party pursuant to the
terms governing such Assignment for Security, or (ii) if the
Administrator or other secured party first acquires this Agreement,
sell, assign, transfer or otherwise dispose of this Agreement to a
third party; provided, however, that in either case the Party who made
the Assignment for Security is in default of its obligations to the
Administrator or other secured party that are secured by such security
interest.

17.2. Notices. All notices, requests, statements or payments shall be
made as specified in Exhibit 17.2. Notices required to be in writing shall be
delivered by letter, facsimile or other documentary form. Notice by facsimile or
hand delivery shall be deemed to have been received by the close of the Business
Day on which it was transmitted or hand delivered (unless transmitted or hand
delivered after close, in which case it shall be deemed received at the close of
the next Business Day). Notice by overnight mail or courier shall be deemed to
have been

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

26
<PAGE>

received two (2) Business Days after it was sent. A Party may change its address
by providing notice of same in accordance herewith.

17.3. Applicable Law. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE
PARTIES ARISING OUT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED,
ENFORCED AND PERFORMED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

17.4. Survival of Obligations. Upon the expiration of the Parties' sale
and purchase obligations under this Agreement, any monies, penalties or other
charges due and owing Seller shall be paid, any corrections or adjustments to
payments previously made shall be determined, and any refunds due Buyer made, as
soon as practicable. All indemnity and confidentiality obligations and audit
rights shall survive the termination of this Agreement in accordance with their
respective terms. The Parties' obligations provided in this Agreement shall
remain in effect for the purpose of complying with the provisions of this
Section.

17.5. Entire Agreement. This Agreement, together with the attached
Exhibits, constitutes the entire agreement between the Parties relating to the
subject matter contemplated by this Agreement and supersedes all prior
agreements, whether oral or written.

17.6. No Partnership. Nothing in this Agreement shall ever be deemed to
create or constitute a partnership, joint venture or association between the
Parties, or to impose a trust or partnership duty, obligation or liability on or
with regard to the Parties.

17.7. Amendment. No amendment or modification to this Agreement shall
be enforceable unless reduced to writing and executed by both Parties.

17.8. Third Parties. The provisions of this Agreement shall not impart
rights enforceable by any person or entity not a Party or not a permitted
successor or assignee of a Party bound by this Agreement.

17.9. Waiver. No waiver by any Party of any one or more defaults by the
other in the performance of any of the provisions of this Agreement shall be
construed as a waiver of any other default or defaults, whether of a like kind
or different nature.

17.10. Character of Sales by OPC. The sale by OPC to LPM of OPC Energy
under this Agreement does not constitute either a sale, lease, or the dedication
of ownership of any OPC Resource.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

27
<PAGE>

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 Agreement as near as possible to its
original intent and effect.

(b) The obligations of LEC and LPM are severable under this Agreement,
such that the invalidity or unenforceability of all or any portion of the
obligations of LPM or LEC under this Agreement shall not affect the validity or
enforceability of the obligations of the other.

17.12. RESERVED.

17.13. Headings. The headings used for the Articles are for convenience
and reference purposes only, and shall not be construed to modify, expand, or
restrict the provisions of this Agreement.

17.14. Counterparts. This Agreement may be executed in multiple
counterparts to be construed as one effective as of the Effective Date.

17.15. LEC Obligations.

17.15.1. Failure of Performance of LPM. (a) In the event LPM
fails, refuses, or is otherwise unable to make full and timely
performance of all obligations under this Agreement, LEC
unconditionally and irrevocably agrees to indemnify and hold harmless
OPC from and against any cost, expense or loss associated with such
breach in excess of the amounts contemplated under the Agreement.
Subject to Section 10.3, OPC shall have the right to seek replacement
service from any available source. Nor shall it be necessary for OPC,
in order to enforce the performance of LEC under this Section, to first
pursue its remedies respecting the LPM obligations under the Agreement
against LPM or any other person.

(b) Alternatively, if OPC consents and LEC has previously
obtained market rate authority from FERC, LEC may assume LPM's rights,
duties, and obligations under this Agreement. OPC's approval of this
alternative does not waive LEC's obligation under Section 17.15.1(a) to
indemnify and hold harmless OPC from and against any cost, expense or
loss associated with such breach by LPM in excess of the amounts
contemplated under the Agreement.

(c) LEC acknowledges and agrees that it has received
reasonable consideration for its guarantee of LPM's performance, and
the Parties acknowledge that this consideration is unrelated to the
revenue or profits earned by LPM under this Agreement.

17.15.2.Further Covenants of LEC. (a) Any other provision of
this Agreement notwithstanding, LEC shall have neither the obligation
nor the right to engage in, control or otherwise influence any FERC
jurisdictional transactions under this Agreement unless

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

28
<PAGE>

LEC shall have previously obtained market rate authority from FERC and
approval from OPC. Except as provided by Section 17.15.1(c) and Section
17.15.1(b) above, LEC shall not directly derive any income from any
transaction under this Agreement.

(b) LEC agrees to indemnify and hold harmless OPC from and
against any and all cost, expense, or loss in excess of amounts
contemplated to be paid by OPC under this Agreement, and which arises
from any or all regulatory consequences of LEC becoming a "public
utility" within the meaning of the Federal Power Act, as amended.

(c) In the event the FERC determines that LEC is a public
utility responsible for delivering Electric Energy to OPC under the
terms of this Agreement, then LEC agrees to take all necessary and
appropriate steps to obtain all authorizations required to perform this
Agreement in accordance with its terms, and shall indemnify and hold
harmless OPC for the difference, if any, between the Contract Price
applicable for purchases by OPC of Electric Energy under this Agreement
and the rate approved by FERC.

(d) LEC acknowledges that the provisions of this Section 17.15
constitute a material portion of the consideration to OPC for entering
into this Agreement, and that OPC is executing this agreement in
reliance on the enforceability and legality of such provisions. LEC
unconditionally and irrevocably agrees not to challenge, question, or
otherwise seek to undermine in any manner the enforceability or
legality of this Section 17.15, and agrees to file and diligently
prosecute such applications, briefs, testimony, or other pleadings as
may be necessary or appropriate in connection with any Legal Proceeding
to support the enforceability and legality of this Section 17.15.

17.15.3. No Discharge. The obligations of LEC under this
Section 17.15 shall, to the fullest extent permitted by law, remain in
full force and effect without regard to , and shall not be released,
discharged or in any way affected by, (i) an amendment to the
Agreement; (ii) the merger or consolidation of LEC or OPC with or into
any entity, or (iii) any sale, lease or transfer of all of the assets
of LEC or OPC.

17.16. Administration. OPC and LPM recognize that Administrative
Procedures need to be developed to govern operations, such as those described in
Section 4.3, under this Agreement that require coordination among OPC; LPM, and
Power Marketer, or their designees. The Administrative Committee shall be
composed of one representative of each of the foregoing, and shall meet at such
times and locations as are mutually agreed, but at least once a calendar quarter
to address all matters relating to such coordination of operations. The
Administrative Committee may also meet by conference telephone or other similar
communications method that permits all persons participating to hear each other
clearly. The Administrative Committee shall have the authority, by unanimous
vote of its members, to make such changes to the Administrative Procedures as it
deems appropriate and in accordance with Prudent Utility Practice, and to
resolve disputes concerning the application of the Administrative Procedures;
provided, however,

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

29
<PAGE>

that the Administrative Committee shall not take any action in conflict with the
terms of this Agreement or the OPC Contracts, nor otherwise modify the terms of
this Agreement.

17.17. Scheduling Members. Exhibit 17.17 lists the EMCs that are
Scheduling Members. Scheduling Members shall be allocated a portion of OPC
Resources and shall have such scheduling and other rights pertaining thereto as
are provided in the EMC Contracts.

17.18. Further Assurances. If any Party reasonably determines or is
reasonably advised that any further instruments or any other things are
necessary or desirable to carry out the terms of the Agreement, the other
Parties shall execute and deliver all such instruments and assurances and do all
things reasonably necessary and proper to carry out the terms of this Agreement.

17.19. RUS Approval. OPC shall use its best reasonable efforts to
obtain RUS approval of the long term arrangement contemplated in Section 6.1(b).

17.20. Other. LPM agrees that if at any time during the Term it is
asked to supply Electric Energy to any OPC member cooperative (other than
indirectly as contemplated herein, including supplies to Customer Choice
Customers under Section 2.4) then LPM shall either (i) decline to supply such
Electric Energy or (ii) offer to supply such Electric Energy through OPC or its
designee.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

30
<PAGE>

IN WITNESS WHEREOF, the Parties have caused this Agreement to
be executed by their duly authorized officers and copies delivered to each
Party.

OGLETHORPE POWER CORPORATION

By: /s/ Attest: /s/
T. D. Kilgore --------------------------
Title: President and Chief Patricia Nash
Executive Officer Title: Assistant Secretary

LG&E POWER MARKETING INC.

By: /s/ Attest: /s/
Larry K. Watson, Jr. -------------------------
Title: Director, Valuation & David G. Schwartz
Competitive Analysis Title: Secretary

LG&E ENERGY CORP.

By: /s/ Attest: /s/
Roger W. Hale --------------------------
Title: Chairman of the Board John R. McCall
Chief Executive Officer Title: Corporate Secretary, General
Counsel, Executive Vice President

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

31
<PAGE>

SCHEDULE A

Definitions

[**]

"Administrative Committee" means the committee described in Section
17.16.

"Administrative Procedures" mean the procedures to be developed by LPM,
OPC and Power Marketer in accordance with Section 11.3, as such procedures may
be modified from time to time pursuant to Section 17.16, which procedures will
address the Scheduling and dispatch of the OPC Resources.

"Affiliate" means, with respect to any person, any other person (other
than an individual) that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such person. For this purpose, "control" means the direct or indirect ownership
interest of more than fifty (50) percent of the outstanding capital stock or
other equity interests having ordinary voting power.

[**]

"Assignment for Security" has the meaning specified in Section 17.1.2.

"Bankruptcy Proceeding" means, with respect to a Party, that such Party
(i) makes any general assignment or any general arrangement for the benefit of
creditors, (ii) files a petition or otherwise commences, authorizes or
acquiesces in the commencement of a proceeding or cause of action under any
bankruptcy or similar law for the protection of creditors, or has such a
petition involuntarily filed against it and such petition is not withdrawn or
dismissed within thirty (30) days after such filing, (iii) otherwise becomes
bankrupt or insolvent (however evidenced), or (iv) is unable to pay its debts as
they fall due.

"Business Day" means a day on which the Federal Reserve Member Banks in
New York City are open for business; and a Business Day shall open at 8:00 a.m.
and close at 5:00 p.m. local time for each Party's principal place of business.

"Buyer" means either LPM or OPC, as the case may be, when it is the
Party who is obligated to purchase and receive, or cause to be received,
Electric Energy in connection with a sale hereunder.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

32
<PAGE>

"Claims" means all claims or actions, threatened or filed and whether
groundless, false or fraudulent, that directly or indirectly relate to the
subject matter of an indemnity, and the resulting losses, damages, expenses,
attorneys' fees and court costs, whether incurred by settlement or otherwise,
and whether such claims or actions are threatened or filed prior to or after the
termination of this Agreement.

"Computer Tapes" has the meaning specified in Section 7.3.

"Confidential Information" means this Agreement and any other written
data or information (or an oral communication if the party requesting
confidentiality for such oral communication promptly confirms such communication
in writing) which is privileged, confidential or proprietary or which
constitutes a trade secret under the Georgia Trade Secrets Act of 1990, except
information which (i) is a matter of public knowledge at the time of its
disclosure or is thereafter published in or otherwise ascertainable from any
source available to the public without breach of this Agreement, (ii)
constitutes information which is obtained from a third party (who or which is
not an Affiliate of one of the Parties) other than by or as a result of
unauthorized disclosure, or (iii) prior to the time of disclosure had been
independently developed by the receiving Party or its Affiliates not utilizing
improper means.

"Contract Price" means the price in United States dollars (per MWh) to
be paid by Buyer to Seller for the purchase of Electric Energy that is Scheduled
or Properly Requested pursuant to this Agreement.

"Contract Quantity" means the amount of Electric Energy that Seller
agrees to sell and deliver, or cause to be delivered, to Buyer and Buyer agrees
to purchase and receive, or cause to be received, from Seller pursuant to the
terms of this Agreement.

"Control Area" means an electric power system or combination of
electric power systems to which a common automatic generation control scheme is
applied.

"CPR" has the meaning specified in Section 14.1(d).

"CPT" means Central Prevailing Time and refers to the time in effect in
the Central Time Zone of the United States, whether Central Standard Time or
Central Daylight Savings Time.

"CSA" means that certain Coordination Services Agreement between
Georgia Power Company and Oglethorpe Power Corporation (An Electric Membership
Generation and Transmission Corporation), dated as of November 12, 1990, as
amended from time to time.

"Customer Choice Customer" means a retail customer or prospective
customer of an EMC Customer which has a choice of supplier under Georgia law as
defined under the Georgia Territorial Electric Services Act, whether or not such
customer exercises its rights under the applicable statute on or after the
Effective Date of this Agreement, but shall not include any such

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

33
<PAGE>

retail customer whose requirements are being served by an EMC Customer, under an
existing agreement or rate schedule as of the Effective Date until after
expiration of the applicable agreement or rate schedule.

"Customer Choice Load" means the Electric Energy requirements of
Customer Choice Customers.

"Customer Choice Price" means the price at which LPM will serve LPM's
Share of Customer Choice Load, as set forth in Exhibit 5.3 in the case of
Customer Choice Customers described in Section 2.4(a), and as set forth in the
applicable bid accepted by OPC in the case of Customer Choice Customers
described in Section 2.4(b). In the case of the Customer Choice Customers
described in Section 2.4(a), the applicable price set forth in Exhibit 5.3 shall
be the price stated for the EMC listed in such Exhibit in whose service
territory, as depicted in Exhibit 18, the Customer Choice Customer is located.
If a Customer Choice Customer described in Section 2.4(a) is not located in the
service territory of an EMC listed on Exhibit 5.3, including a Customer Choice
Customer within another supplier's service territory that is physically within
the boundaries of an EMC's service territory, the applicable Customer Choice
Customer Price shall be the OPC price listed in Exhibit 5.3.

"Defaulting Party" has the meaning specified Section 13.1.

[**]

"Dispatchable Resources" means the OPC Resources that are so designated
in Exhibit 3.2(i).

[**]

"Effective Date" has the meaning specified in Section 6.1.

"Electric Energy" means energy in the form of electricity expressed in
megawatt-hours (MWh) (or in kilowatt-hours when energy is measured at the points
of delivery to the EMCs).

"EMC" means an electric membership corporation as defined in Section
46-3-171(3) of the Georgia Electric Membership Corporation Act.

"EMC Contract" means one of those certain Wholesale Power Contracts
between OPC and an EMC, which contract is dated on or after December 1, 1988, as
restated and/or amended from time to time, pursuant to which OPC sells and such
EMC purchases certain Electric Energy required to meet the energy requirements
of its customers for the operation of its system.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

34
<PAGE>

"EMC Customer" means an electric corporation that is a member of OPC
and which is not a Scheduling Member. EMC Customers are listed in Exhibit 1.62.

"EMC Metering Point" means that certain point at which deliveries of
Electric Energy to each EMC, respectively, are measured and received pursuant to
the EMC Contracts.

"Energy Cost" with respect to the OPC Energy in question means [**]

"Equitable Defenses" means bankruptcy, insolvency, reorganization and
other laws affecting creditors' rights generally, and with regard to equitable
remedies, the discretion of the court before which proceedings to obtain the
same may be pending.

"Event of Default" has the meaning specified in Section 13.1.
"FERC" means the Federal Energy Regulatory Commission or any successor
agency which enforces the Federal Power Act, as amended from time to time.

"FOB the Plant" means FOB railcar or FOB truck at Plant Wansley or
Plant Scherer, as applicable, at LPM's expense for unloading by OPC at OPC's
expense.

"Force Majeure" means an event which is not within the reasonable
control of the Party (or, in the case of third party obligations or facilities,
the third party) claiming suspension (the "Claiming Party"), and which by the
exercise of due diligence the Claiming Party is unable to overcome in a
commercially reasonable manner or obtain or cause to be obtained a commercially
reasonable substitute performance therefor. Force Majeure includes, but is not
restricted to: [**]

[**]

"GPC" means Georgia Power Company.

"GSOC" means Georgia System Operations Corporation, a non-profit
corporation organized under the laws of the State of Georgia, or any successor
thereto.

"GTC" means Georgia Transmission Corporation, an electric membership
corporation organized and existing under Title 46 of the Official Code of
Georgia Annotated, or any successor thereto.

"Hartwell" means the simple cycle gas turbine Units 1 and 2, as
described in the power purchase agreement between OPC and Hartwell Energy
Limited Partnership, which is listed on Exhibit 3.2(i).

"Impasse Notice" has the meaning specified in Section 14.1(b).

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

35
<PAGE>

"Integrated Transmission System" or "ITS" means the Transmission
Facilities as defined in the Revised and Restated Integrated Transmission System
Agreement between Oglethorpe Power Corporation (An Electric Membership
Generation & Transmission Corporation) and Georgia Power Company, dated as of
November 12, 1990, as amended from time to time.

"Interest Rate" means the Prime Rate plus two percent, or the maximum
lawful rate permitted by applicable Law, whichever is less.

"Interruptible Load" means any load that can be interrupted in a power
control center.

"Interval" means an hour, or such other period of time as the
Administrative Committee may determine is appropriate in accordance with the
provisions of Section 17.16.

"ITS Loss Factor" means the EMC transmission loss factor determined
from time to time pursuant to the ITSA applicable to deliveries of Electric
Energy from any point on the ITS to any EMC Metering Point, [**]

"ITSA" means the Revised and Restated Integrated Transmission System
Agreement between Oglethorpe Power Corporation (An Electric Membership
Generation & Transmission Corporation) and Georgia Power Company, dated as of
November 12, 1980, as amended from time to time.

"Law" means any law, rule, regulation, order, writ, judgment, decree or
other legal or regulatory determination by a court, regulatory agency or
governmental authority of competent jurisdiction.

"LEC" means LG&E Energy Corp., or any successor thereto.

"Legal Proceeding" means any suit, proceeding, judgment, ruling or
order by or before any court or any governmental authority.

"Level B-1" means the high side of the step-up transformer of a
generating plant that is an OPC Resource, or other input to the transmission
system (other than Points of Interconnection), either of which interconnects
directly into the ITS. Exhibit 1.43 illustrates Level B-1.

"LG&E Parties" means LPM and LEC.

"Long Term Commencement Date" has the meaning specified in Section
6.1(b).

"LPM" means LG&E Power Marketing Inc., or any successor thereto.

"LPM Off-System Sales Price" has the meaning specified in Section 5.3.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

36
<PAGE>

"LPM Sales Price" means [**] the price
for Electric Energy set forth for the applicable period in Exhibit 5.3.

"LPM's Share of Customer Choice Load" means the applicable percentage
of Customer Choice Load served by the EMC Customers with Electric Energy
acquired by OPC at the Contract Price established in Section 5.3(ii) or
5.3(iii), as determined in accordance with the provisions of Section 2.4.

"LPM's Share of OPC Load" means the percentage reflected in Exhibit
1.62 of each EMC Customer's requirements for Electric Energy.

"LPM's Share of OPC Off-System Sales" means 44.178% of OPC's Off-System
Sales under the OPC Off-System Sales Contract listed in Exhibit 2.2.2, and the
applicable percentage to which LPM commits for OPC Off-System Sales under other
OPC Off-System Sales Contracts.

"LPM's Share of OPC Resources" means the percentage of each OPC
Resource, or portion thereof, shown on Exhibit 3.3, excluding any portion of
such OPC Resources allocated to a Scheduling Member.

"Must Run Resources" means the OPC Resources that are so designated in
Exhibit 3.2(i).

"MWh" means megawatt-hour.

"Negotiation Period" has the meaning specified in Section 14.1(b).

"NERC" means the North American Electric Reliability Council.

"Non-Defaulting Party" has the meaning specified in Section 13.2.

"Non-Summer Period" has the meaning specified in Section 5.4.7.

"Non-Territorial Contractual Delivery Obligations" means an obligation,
based on a quantity of capacity, energy, or both, which an ITS participant is
contractually committed to deliver or make available from or through the ITS to
a nonterritorial entity, as further defined in the ITSA.

"Notifying Party" has the meaning specified in Section 13.1.1.

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

37
<PAGE>

"OASIS" means Open Access Same-Time Information System, the information
system and standards of conduct contained in Part 37 of the FERC's regulations
(18 C.F.R. Part 37), as amended from time to time.

"OPC Contracts" means, as of a particular date, all EMC Contracts, the
CSA, other contracts, operating procedures and understandings (whether written
or oral, and if oral, written statements of the terms thereof) in effect on such
date affecting OPC's rights and obligations with respect to OPC Resources and to
the ITS.

"OPC Energy" means all of the available Electric Energy which OPC owns,
purchases or otherwise has a right to take from OPC Resources.

"OPC Load" means, as of a particular Interval, the entire Electric
Energy requirements (including the requirements of any retail customer with a
choice of supplier under applicable Law, which customer is being served by an
EMC Customer as of the Effective Date) of the EMC Customers listed in Exhibit
1.62, measured at each EMC Metering Point [**], [**]

"OPC Off-System Sales" means transactions undertaken by OPC or any EMC
Customer pursuant to the OPC Off-System Sales Contracts.

"OPC Off-System Sales Contracts" means the contract listed on Exhibit
2.2.1 and, subject to the consent of LPM as to those contracts for which LPM
will supply Electric Energy under this Agreement, contracts entered into after
the Effective Date, between OPC or an EMC Customer and third parties whose
facilities are not directly inter-connected to the facilities of either GTC or
an EMC Customer, pursuant to which OPC or an EMC Customer sells Electric Energy
to such third parties.

"OPC Resources" means the capacity entitlement or other rights with
respect to generating facilities from which, or power purchase contracts, or
other contracts or agreements, under which OPC is required or has the right to
take, purchase or otherwise acquire Electric Energy during the Term and which,
are listed in Exhibit 3.2(i).

"OPC Restructuring" means the transaction by which OPC shall
restructure to divide its business and assets into three specialized companies
and, among other things, place its transmission assets into GTC.

"Other Records" has the meaning specified in Section 7.3.

"Party" means OPC, LPM, or LEC, as applicable, including permitted
assignees of each pursuant to this Agreement.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

38
<PAGE>

"Plant Hatch" means the Edwin I. Hatch Nuclear Plant, consisting of two
nuclear generating facilities (and associated common facilities) having a
current name plate capacity of 810 MW for Unit 1 and 820 MW for Unit 2.

"Plant Scherer" means the Robert W. Scherer Plant, consisting of two
coal generating facilities (and associated common facilities) having a current
total name plate capacity (including interests of all owners) of 818 MW for Unit
1 and 818 MW for Unit 2.

"Plant Vogtle" means the Alvin W. Vogtle Nuclear Plant, consisting of
two nuclear generating facilities (and associated common facilities) having a
current total name plate capacity (including interests of all owners) of 1160 MW
for Unit 1 and 1160 MW for Unit 2.

"Plant Wansley" means the Hal B. Wansley Plant, consisting of two coal
generating facilities (and associated common facilities) having a current total
name plate capacity (including interests of all owners) of 865 MW for Unit 1 and
865 MW for Unit 2.

[**]

"Power Marketer" means a third party who is authorized by the FERC to
sell Electric Energy at market-based, negotiated rates, and with whom OPC
contracts on a long-term basis for the purchase of Electric Energy required to
supply the portion of OPC Load not supplied under this Agreement.

"Prime Rate" means for any date, the per annum rate of interest
announced from time to time by Citibank, N.A., as its "prime" rate for
commercial loans, effective for such date as established from time to time by
such bank.

"Properly Requested" or "Properly Requests" means that LPM has notified
or notifies OPC of specified amounts of OPC Energy that LPM desires to purchase
from specific OPC Resources at specified times during the Term in accordance
with Section 4.3; provided, that any such request must be consistent with the
terms of this Agreement, the OPC Contracts, and the Administrative Procedures;
and provided, further, that all Electric Energy attributable to LPM's Share of
OPC Resources that are Must Run Resources (which LPM is obligated to purchase
pursuant to Section 2.2.1) shall be deemed to be Properly Requested for purposes
of this Agreement.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

39
<PAGE>

known at the time the decision was made, could have been expected to accomplish
the desired result at lowest reasonable cost consistent with good business
practices, reliability, safety, and expedition. Prudent Utility Practice is not
intended to be limited to the optimum practice, method or act, to the exclusion
of all others, but rather to include a spectrum of possible practices, methods,
or acts generally acceptable in the region in light of the circumstances.

"Qualifying Facility" means a facility as defined in Section 210 of the
Public Utilities Regulatory Policy Act of 1978, as amended, and applicable FERC
regulations promulgated thereunder.

"Regulatory Approvals" means all current and future valid and
applicable orders, approvals, consents, authorizations, permits or certificates
issued by any courts or regulatory bodies (state or federal) having jurisdiction
over a Party, this Agreement, or the performance hereof.

[**]

"Representatives" has the meaning specified in Section 7.1.

"Rocky Mountain" means the Rocky Mountain Pumped Storage Hydroelectric
Generating Facility.

"RUS" has the meaning specified in Section 12.l(iii).

"Sales Price" has the meaning specified in Section 2.5(b).

"Scheduling," "Scheduled" or "Schedule" means or relates to the acts of
Seller, Buyer and their designated representatives, including each Party's
Transmission Providers, if applicable, of notifying, requesting and confirming
to each other the quantity of Electric Energy to be delivered in each Interval
on any given day or days at a specified Delivery Point.

"Scheduling Member" means any of the EMCs listed in Exhibit 17.17.

"Seller" means either LPM or OPC, as the case may be, when it is the
Party who is obligated to sell and deliver, or cause to be delivered, Electric
Energy.

"SEPA" means the Southeastern Power Administration, a federal agency of
the United States Government, or any successor.

"SEPA Contracts" means those certain power purchase and sale agreements
between each EMC and SEPA pursuant to which each EMC Customer purchases Electric
Energy from SEPA.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

40
<PAGE>

"SEPA Energy" means the aggregate amount of Electric Energy Scheduled
for delivery to the EMC Customers pursuant to the SEPA Contracts.

"SERC" means the Southeastern Electric Reliability Council or any
successor.

"Statement" has the meaning specified in Section 8.1.

[**]

"Taxes" means any or all ad valorem, property, occupation, severance,
generation, first use, conservation, Btu or energy, transmission, utility, gross
receipts, privilege, sales, use, consumption, excise, lease, transaction, and
other or new Taxes, governmental charges, licenses, fees, permits and
assessments, or increases therein, other than taxes based on net income or net
worth.

"Term" has the meaning specified in Section 6.1.

[**]

"Transmission Provider" means the entity or entities transmitting
Electric Energy on behalf of Seller or Buyer to or from the Delivery Point(s) in
connection with a particular purchase or sale.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

41
<PAGE>

EXHIBIT 1.25(iii)

Energy Costs for Certain OPC Resources

- --------------------------------------------------------------------------------
OPC Resource Costs Included in Energy Cost
- --------------------------------------------------------------------------------
Big Rivers [**]
- --------------------------------------------------------------------------------
GPC [**]
Block 1
Block 2
Block 4
Block 5
Block 6
- --------------------------------------------------------------------------------
Florida Power Corp. [**]
- --------------------------------------------------------------------------------
Entergy Power Inc. [**]
- --------------------------------------------------------------------------------

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

EXHIBIT 1.25(iv)

Energy Costs Paid by LPM for Certain Qualifying Facilities[**]

Year Energy Charges ($/MWh)
---- ----------------------
1997 [**]
1998 [**]
1999 [**]
2000 [**]
2001 [**]
2002 [**]
2003 [**]
2004 [**]
2005 [**]
2006 [**]
2007 [**]
2006 [**]
2009 [**]
2010 [**]
2011 [**]

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

EXHIBIT 1.43

Level B-1 Diagram

[Diagram Omitted From Electronic Filing]

<PAGE>

EXHIBIT 1.62

EMC Customers

EMC Percent of Requirements
--- -----------------------
ALTAMAHA EMC 50%
AMICALOLA EMC 50%
CANOOCHEE EMC 50%
CARROLL EMC 50%
CENTRAL GEORGIA EMC 50%
COASTAL EMC 50%
COBB EMC 50%
COLQUITT EMC 50%
COWETA-FAYETTE EMC 0%
EXCELSIOR EMC 50%
FLINT EMC 50%
GRADY EMC 50%
GREYSTONE POWER CORPORATION, AN EMC 50%
HABERSHAM EMC 50%
HART EMC 50%
IRWIN EMC 50%
JACKSON EMC 50%
JEFFERSON EMC 50%
LAMAR EMC 50%
LITTLE OCMULGEE EMC 50%
MIDDLE GEORGIA EMC 50%
MITCHELL EMC 50%
OCMULGEE EMC 50%
OCONEE EMC 50%
OKEFENOKE RURAL EMC* 50%
PATAULA EMC 50%
PLANTERS EMC 50%
RAYLE EMC 50%
SATILLA RURAL EMC 50%
SAWNEE EMC 0%
SLASH PINE EMC 50%
SNAPPING SHOALS EMC 50%
SUMTER EMC 50%
THREE NOTCH EMC 50%
TRI-COUNTY EMC 50%
TROUP EMC 50%
UPSON COUNTY EMC 50%
WALTON EMC 50%
WASHINGTON EMC 50%

* Subject to Sections 2.1(d) and (e).

<PAGE>

EXHIBIT 2.1
Off-System Sales Contracts

Sales Agreement with Alabama Electric Cooperation ("AEC"), dated March 31, 1994.

<PAGE>

EXHIBIT 2.2.1
Page 1 of 1

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

EXHIBIT 2.2.2
Page 1 of 1

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

EXHIBIT 3.2(i)

OPC Resources(1)

------------------------------------
Type of Resource OPC Resources
that are Dispatch- Minimum Maximum
able (OPC Resource) (OPC Resource)
Resources (MW) (MW)
------------------------------------
Generating Units Rocky Mountain 1 110.0 212.0
------------------------------------
Rocky Mountain 2 110.0 212.0
------------------------------------
Rocky Mountain 3 110.0 212.0
------------------------------------
Scherer1(2) 195.0 496.2
------------------------------------
Scherer1(2) 195.0 498.0
------------------------------------
Tallassee N/A 2.0
------------------------------------
Wansley 1(3) 121.0 253.8
------------------------------------
Wansley 2(3) 122.0 253.8
------------------------------------
16.2 (summer)
Wansley CT N/A 19.8 (winter)
------------------------------------

- ----------
(1) The figures contained in this Exhibit shall not serve to limit the
actual output available from any OPC Resource.

(2) Scherer minimum could be 330 MW if Georgia Power is not taking electric
energy from its ownership share of the generating facility.

(3) Wansley minimum could be 430 if other co-owners are not taking electric
energy from their ownership share of the generating facility.
<PAGE>

EXHIBIT 3.2(i)

(continued)

------------------------------------
Minimum Minimum
(OPC Resource) (OPC Resource)
(MW) (MW)
------------------------------------
Purchased Power GPC Block 1(4) 100 215
------------------------------------
GPC Block 2(4) 100 215
------------------------------------
GPC Block 4(4) 100 215
------------------------------------
GPC Block 5(4) 0 107
------------------------------------
GPC Block 6(4) 0 108
------------------------------------
Big Rivers 25 100
------------------------------------
Entergy 25 100
------------------------------------
74 (summer) 148 (summer)
Hartwell 1(5) 91 (winter) 182 (winter)
------------------------------------
74 (summer) 148 (summer)
Hartwell 2(5) 91 (winter) 182 (winter)
------------------------------------
Florida Power(6) 0 50 (1997)
275 (1998)
------------------------------------

- ----------
(4) 100% availability - minimum applies when energy is being scheduled
under the particular block.

(5) Unit minimums are governed by Section 7.2.1 of PPA: "Unit to be
dispatched at a level no less than 50% of the maximum operating
levels." See Schedule K of the Hartwell PPA for minimum and maximum
capacities at certain temperatures. If unit is on AGC, unit minimum is
100 MW and maximum is 150 MW. Hartwell unit operation constrained to no
more than 2500 hours per unit annually.

(6) Available only during 1997 and 1998 in the months of June through
September.

<PAGE>

EXHIBIT 3.2(i)

(continued)

OPC Resources ------------------------------------
that are Minimum Maximum
Must Run (OPC Resource) (OPC Resource)
Resources (MW) (MW)
------------------------------------
Generating Units Hatch 1 N/A 234.9
------------------------------------
Hatch 2 N/A 242.1
------------------------------------
Vogtle 1 N/A 348.6
------------------------------------
Vogtle 2 N/A 348.6
------------------------------------
Purchased Power QF N/A 15.6
------------------------------------
<PAGE>

EXHIBIT 3.2(i) (continued)

OPC Resources and OPC Contracts

OPC Resource Operations Governed By
- ------------ ----------------------

Georgia Power Blocks Block Power Sale Agreement between Georgia Power
Company and OPC, dated as of November 12, 1990.
Letters dated as of December 30, 1992 and
December 8, 1993, extending term of Block Power
Sale Agreement. Letter dated as of August 30,
1994, electing to reduce capacity OPC is
obligated to purchase under Block Power Sale
Agreement.

Vogtle, Units 1 & 2 Alvin W. Vogtle Nuclear Units Numbers One and
Two Purchase and Ownership Participation
Agreement among Georgia Power Company, OPC,
Municipal Electric Authority of Georgia and City
of Dalton, Georgia, dated as of August 27, 1976;
Amendment, dated as of January 18, 1977;
Amendment Number Two, dated as of February 24,
1977. Alvin W. Vogtle Nuclear Units One and Two
Operating Agreement among Georgia Power Company,
OPC, Municipal Electric Authority of Georgia and
City of Dalton, Georgia, dated as of August 27,
1976.

Hatch, Units 1 & 2 Edwin I. Hatch Nuclear Plant Purchase and
Ownership Participation Agreement between
Georgia Power Company and OPC, dated as of
January 6, 1975. Hatch Operating Agreement
between Georgia Power Company and OPC, dated as
of January 6, 1975.

Scherer, Units 1 & 2 Plant Robert W. Scherer Units Numbers One and
Two Purchase and Ownership Participation
Agreement among Georgia Power Company, OPC,
Municipal Electric Authority of Georgia and City
of Dalton, Georgia, dated as of May 15, 1980;
Amendment, dated as of December 30, 1985;
Amendment Number Two, dated as of July 1, 1986;
Amendment Number Three, dated as of August 1,
1988; Amendment Number Four, dated as of
December 31, 1990. Plant Robert W. Scherer Units
Numbers One and Two Operating Agreement among
Georgia Power Company, OPC, Municipal Electric
Authority of Georgia and City of Dalton,
Georgia, dated as of May 15, 1980; Amendment,
dated as of December 30, 1985; Amendment Number
Two, dated as of December 31, 1990. Plant
Scherer Managing Board Agreement among Georgia
Power Company, OPC, Municipal Electric Authority
of Georgia and City of Dalton, Georgia, dated as
of December 31, 1990. Letter of Intent re: Use
of Eastern and Western Coal at Scherer, dated as
of January 16, 1992; Letter Agreement re:
Capital Modifications and Expenditures for the
use of Western Coal at Plant Scherer, dated as
of July 7, 1992

<PAGE>

EXHIBIT 3.2(i) (continued)

(partially executed). Letter Agreement re:
Additional Amendments to the Scherer and Wansley
Agreements, dated as of December 31, 1990.

Wansley, Units 1, 2, & CT Plant Hal B. Wansley Purchase and Ownership
Participation Agreement between Georgia Power
Company and OPC, dated as of March 26, 1976;
Plant Hal Wansley Operating Agreement between
Georgia Power Company and OPC, dated as of March
26, 1976. Plant Hal Wansley Combustion Turbine
Agreement between Georgia Power Company and OPC,
dated as of August 2, 1982; Amendment dated as
of October 20, 1982.

Tallassee, Units 1 & 2 No Operative Documents.

Big Rivers Purchase Long Term Firm Power Purchase Agreement between
Big Rivers Electric Corporation and OPC, dated
as of December 17, 1990. Letter dated March 12,
1992. Long Term Firm Power Purchase Agreement,
dated as of July 19, 1989, by and between OPC
and Big Rivers Electric Corporation.

Entergy Purchase Unit Capacity and Entergy Purchase Agreement
between OPC and Entergy Power, Incorporated,
dated as of October 11, 1990, Amendment dated
September 29, 1992.

Hartwell Energy Limited
Partnership Purchase Power Purchase Agreement between OPC and
Hartwell Energy Limited Partnership, dated as of
June 12, 1992. Agreement for Purchase of 230KVS
Switchyard and ITS Interconnection Facilities
Agreement, dated as of August 31, 1992.

Rocky Mountain Pumped
Storage Resource Rocky Mountain Pumped Storage Hydroelectric
Project Ownership Participation Agreement, dated
as of November 18, 1988, by and between OPC and
Georgia Power Company. Rocky Mountain Pumped
Storage Hydroelectric Project Operating
Agreement by and between OPC and Georgia Power
Company, dated as of November 18, 1988. Pumped
Storage Hydroelectric Project Option Agreement,
dated as of November 18, 1988. Reciprocity
Letter Agreement, dated as of November 18, 1988.
Letters Relating to Rocky Mountain (Title
Defects Letter; Floyd County Prepayment Letter;
Letter Re: Other Commitments; Letter Re: Cost of
Construction).

<PAGE>
EXHIBIT 3.2(i) (continued)

from Southeast Paper Manufacturing Co., dated as
of February 29, 1988; Amendment, dated as of
November 11, 1991. Agreement for Purchase of
Power from Spartan Mills, dated as of April 6,
1992. Agreement for Purchase of Power from
Buckeye Cellulose Corporation, executed August
6, 1983. Amendment dated September 21, 1993;
Second Amendment dated February 11, 1985; Third
Amendment dated December 10, 1991; and Fourth
Amendment dated September 1, 1996.

Other Agreements
- ----------------

Integrated Transmission
System Agreement Revised and Restated Integrated Transmission
System Agreement between OPC and Georgia Power
Company, dated as of November 12, 1990. ITSA,
Power Sale and Coordination Umbrella Agreement
between OPC and Georgia Power Company, dated as
of November 12, 1990.

Coordination Services Coordination Services Agreement between Georgia
Power Company and OPC, dated as of November 12,
1990.

Transmission O&M Transmission Facilities Operation and
Maintenance Contract between Georgia Power
Company and OPC, dated as of June 9, 1986.

ITS Transfer Capability Purchase of TVA ITS Interface
capability from Municipal Electric
Authority of Georgia to OPC dated December 17,
1990. Purchase of TVA ITS Interface capability
from GPC to OPC dated November 12, 1990. Sale of
FLA ITS Interface capability to GPC and from OPC
dated May 30, 1995.

SEPA SEPA Contract No. 89-00-1501-912 between SEPA
and OPC dated May 28, 1991 and amended in
Supplemental Agreement No. 1 dated November 26,
1991, Supplemental Agreement No. 2 dated May 23,
1994, Supplemental Agreement No. 3 dated January
30, 1995. SEPA Contract No. 89-00-1501-916
between SEPA and OPC dated December 29, 1993 and
amended in Supplemental Agreement No. 1 dated
June 17, 1994, Supplemental Agreement No. 2
dated July 28, 1995, Supplemental Agreement No.
3 dated November 24, 1995.

<PAGE>
EXHIBIT 3.2(i) (continued)

Rev. 6. Hartwell Energy Facility Operation and
Maintenance Procedure for Unit Dispatch
effective June 6, 1994. Operating Procedures for
use between System Control Center and Rocky
Mountain Plant effective November 18, 1994.

<PAGE>

EXHIBIT 3.2(ii)

[**]

OPC Resource Total Forced Loss Factor
- ------------ ------------ -----------
and Scheduled
-------------
Outage Rate
-----------
--------------------------------------
Hatch 1(7) [**] [**]
--------------------------------------
Hatch 2(7) [**] [**]
--------------------------------------
Rocky Mountain [**] [**]
--------------------------------------
o Unit 1 [**] [**]
--------------------------------------
o Unit 2 [**] [**]
--------------------------------------
o Unit 3 [**] [**]
--------------------------------------
Scherer 1 [**] [**]
--------------------------------------
Scherer 2 [**] [**]
--------------------------------------
Tallassee 1 & 2 [**] [**]
--------------------------------------
Vogtle 1(7) [**] [**]
--------------------------------------
Vogtle 2(7) [**] [**]
--------------------------------------
Wansley 1 [**] [**]
--------------------------------------
Wansley 2 [**] [**]
--------------------------------------
Wansley CT [**] [**]
--------------------------------------

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
(7) Nuclear planned outages exclude ramp down period prior to full expected
planned outages above.

<PAGE>

EXHIBIT 3.3

LPM's Share of OPC Resources

Resource Percentage Share

Plant Hatch
Unit 1 44.178% of unit
Unit 2 44.178% of unit
Plant Vogtle
Unit 1 44.178% of unit
Unit 2 44.178% of unit
Plant Scherer
Unit 1 44.178% of unit
Unit 2 44.178% of unit
Plant Wansley
Unit 1 44.178% of unit
Unit 2 44.178% of unit
CT 44.178% of unit
Rocky Mountain
Unit 1 44.178% of unit
Unit 2 44.178% of unit
Unit 3 44.178% of unit
Tallassee 44.178% of total plant

Hartwell-Units 1 and 2 44.178% of total plant
Big Rivers Contract 44.178% of contract entitlement
Entergy 44.178% of contract entitlement
GPC Block 1 44.178% of contract entitlement
GPC Block 2 44.178% of contract entitlement
GPC Block 4 44.178% of contract entitlement
GPC Block 5 44.178% of contract entitlement
GPC Block 6 44.178% of contract entitlement
Florida Power Corp. 44.178% of contract entitlement
Southwire Company (QF) 44.178% of contract entitlement
Herschel Webster (QF) 44.178% of contract entitlement
Georgia Waste Systems, Inc. (QF) 44.178% of contract entitlement
Southeast Paper Manufacturing Co. (QF) 44.178% of contract entitlement
Spartan Mills (QF) 44.178% of contract entitlement

<PAGE>

EXHIBIT 3.8.1
[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 3.8.3
[**] Page 1 of 4

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 4.1(b)
[**] Page 1 of 23

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 5.3
Page 1 of 1

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 5.4.1(a)
Page 1 of 4

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 5.4.1(a)
Page 2 of 4

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.1(a)
Page 3 of 4

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.1(a)
Page 4 of 4

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.1(b)
Page 1 of 1

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.5
Page 1 of 1

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.6

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.7(a)
Page 1 of 4

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 5.4.7(a)
Page 2 of 4

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.7(a)
Page 3 of 4

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.7(a)
Page 4 of 4

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.7(b)
Page 1 of 1

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.8(a)
Page 1 of 3

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.8(a)
Page 2 of 3

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.8(a)
Page 3 of 3

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.8(b)
Page 1 of 1

[**]

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 17.2

Notices and Payment

LG&E Power Marketing, Inc.:

NOTICES AND CORRESPONDENCE PAYMENTS

LG&E Power Marketing Inc. PNC Bank, KY
12500 Fair Lake Circle, Ste. 350 for LG&E Power Marketing, Inc.
Fairfax, VA 22033-3804 [**]
Attn: President [**]
FAX # (703) 968-7145 Confirmation: LG&E Power Marketing Inc.
Credit and Collections
Attn: Accounts Payable
FAX # (502) 627-4177

[**]

INVOICES

LG&E Power Marketing, Inc.
220 West Main Street
Louisville, KY 40202
Attn: Trading Accounts Payable,
7th Floor
FAX # (502) 627-4177

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

Oglethorpe Power Corporation:

NOTICES AND CORRESPONDENCE PAYMENTS

2100 East Exchange Place SunTrust Bank Atlanta
P.O. Box 1349 for Oglethorpe Power Corporation Master
Tucker, Georgia 30085-1349 Account
Attn: Manager, System Control [**]
FAX# (404) 270-7663 [**]
Confirmation: Oglethorpe Power Corporation
Samantha Cofield
Phone: (770) 270-7191
Fax: (770) 270-7872

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 17.17

List of Scheduling Members

Coweta-Fayette EMC
Sawnee EMC

<PAGE>

EXHIBIT 18

Map of EMC Service Territory

[Omitted From Electronic Filing]

<PAGE>
EXHIBIT 10.67

POWER PURCHASE AND SALE AGREEMENT
AMONG
LG&E POWER MARKETING INC.,
LG&E POWER INC.
AND
OGLETHORPE POWER CORPORATION
(AN ELECTRIC MEMBERSHIP GENERATION AND TRANSMISSION CORPORATION)

Dated as of January 1, 1997
<PAGE>

POWER PURCHASE AND SALE AGREEMENT
AMONG
LG&E POWER MARKETING INC.,
LG&E POWER INC.
AND
OGLETHORPE POWER CORPORATION
(AN ELECTRIC MEMBERSHIP GENERATION AND TRANSMISSION CORPORATION)

Table of Contents Page

Article 1. Definitions and Construction........................................3

Article 2. Purchases and Sales.................................................4
2.1. Sales by LPM...................................................4
2.2. Sales by OPC...................................................4
2.2.1. Must Run Resources......................................4
2.2.2. Dispatchable OPC Resources..............................5
2.2.3. Manner of Request.......................................5
2.3. Remedy for Breach of MW Representation.........................5
2.4. Customer Choice Load...........................................5
2.5. Failure to Deliver or Receive..................................6
2.6. Stranded Costs.................................................7

Article 5. Price...............................................................7
3.1. OPC Contracts..................................................7
3.2. Information on OPC Resources and System........................8
3.3. Allocation of OPC Resources....................................8
3.4. RESERVED ......................................................8
3.5. Dispersed Generation...........................................8
3.6. Load Management................................................8
3.7. Hartwell Fuel..................................................9
3.8. Coal ..........................................................9
3.9. SEPA Energy....................................................9
3.10. Block Power Sale Agreements....................................9
3.11. New Resources..................................................9
3.12. Emission Allowances............................................9

Article 4. Transmission........................................................9
4.1. Transmission and Scheduling....................................9
4.2. Title and Risk of Loss.........................................9
4.3. Scheduling ...................................................10
4.4. Delivery Points...............................................10
4.5. Transformer and Transmission Loss Adjustments.................10

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

4.6. Imbalances and Regulation Deviation Errors....................11
4.7. Non-Territorial Contractual Delivery Obligations..............11
4.8. Control Area..................................................11
4.9. Other OPC or GTC Responsibilities.............................11

Article 5. Price .............................................................11
5.1. OPC's Contract Price..........................................11
5.2. RESERVED......................................................11
5.3. LPM's Contract Price..........................................11
5.4. Amounts Due to OPC and LPM....................................12
5.4.1. [**] ..................................................12
5.4.2. RESERVED ..............................................12
5.4.3. RESERVED ..............................................12
5.4.4. RESERVED ..............................................12
5.4.5. [**] ..................................................12
5.4.6. [**] ..................................................12
5.4.7. [**] ..................................................12
5.4.8. [**] ..................................................13
5.5. RESERVED .....................................................13
5.6. RESERVED .....................................................13

Article 6. Term ..............................................................13
6.1. Term .........................................................13
6.2. RESERVED .....................................................13

Article 7. Confidential Information...........................................14
7.1. Confidentiality and Authorization to Use Information..........14
7.2. Authorized Disclosure.........................................14
7.3. Return of Confidential Information............................14
7.4. Right to Remedies.............................................14
7.5. Georgia Trade Secrets Act.....................................15

Article 8. Billing, Payment and Records.......................................15
8.1. Billing Statements............................................15
8.2. Offset of Payment Obligations.................................15
8.3. Payments .....................................................15
8.4. Audit Rights..................................................16
8.5. Subsequent Payment Adjustments................................16
8.6. Records ......................................................16

Article 9. Taxes .............................................................17
9.1. Seller's Obligation...........................................17
9.2. Buyer's Obligation............................................17
9.3. Exemption Certificates........................................17
9.4. [**] .........................................................17

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

ii
<PAGE>

Article 10. Indemnification and Remedies......................................17
10.1. General Indemnity.............................................17
10.2. Limitation on Remedies........................................17
10.3. Duty to Mitigate..............................................18
10.4. DISCLAIMER ...................................................18
10.5. [**] .........................................................18
10.6. Relation with November 1996 Agreement.........................18

Article 11. Conditions Precedent to Extension of Term.........................18
11.1. Regulatory Authorizations.....................................18
11.2. OPC Restructuring.............................................19
11.3. Board Approval................................................19

Article 12. Representations and Warranties....................................19
12.1. Mutual Representations........................................19
12.2. Additional OPC Representations................................19
12.3. Additional LG&E Parties Representations.......................20
12.4. Mutual Assistance.............................................21
12.5. Good Title ...................................................21
12.6. Power Quality.................................................21
12.7. Other Contracts...............................................21
12.8. Continuing Representations and Warranties.....................21

Article 13. Defaults and Remedies.............................................21
13.1. Events of Default.............................................21
13.2. Early Termination; Remedies...................................22
13.3. [**] .........................................................22
13.4. Failure to Pay................................................22
13.5. Effect of Regulation..........................................22
13.6. Notice to LPI.................................................22

Article 14. Arbitration.......................................................23
14.1. Applicability; Selection of Arbitrators.......................23
14.2. Discovery, Hearing............................................24
14.3. Decision .....................................................24
14.4. Expenses .....................................................24

Article 15. Force Majeure.....................................................24
15.1. Effect of Force Majeure.......................................24

Article 16. Material Changes..................................................25
16.1. [**] .........................................................25
16.2. [**] .........................................................25

Article 17. Miscellaneous.....................................................25
17.1. Assignment ...................................................25

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

iii
<PAGE>

17.1.1. General............................................25
17.1.2. Assignment for Security............................25
17.2. Notices ....................................................26
17.3. Applicable Law..............................................26
17.4. Survival of Obligations.....................................26
17.5. Entire Agreement............................................26
17.6. No Partnership..............................................26
17.7. Amendment ..................................................26
17.8. Third Parties...............................................26
17.9. Waiver .....................................................27
17.10. Character of Sales by OPC...................................27
17.11. Severability................................................27
17.12. RESERVED ...................................................27
17.13. Headings ...................................................27
17.14. Counterparts................................................27
17.15. LPI Obligations.............................................27
17.15.1. Failure of Performance of LPM......................27
17.15.2. Further Covenants of LPI...........................28
17.15.3. No Discharge.......................................28
17.16. Administration..............................................28
17.17. RESERVED ...................................................29
17.18. Further Assurances..........................................29
17.19. RUS Approval................................................29
17.20. Other ......................................................29
17.21. Novation of Interim Agreement...............................29

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

iv
<PAGE>

Schedule A

Exhibits

1.25(iii) Energy Costs for Certain OPC Resources
1.25(iv) Energy Costs for Qualifying Facilities
1.43 Level B-1 Diagram
1.62 Participating Members
2.1 Off-System Sales Contracts
2.2.1 [**]
2.2.2 [**]
3.2(i) OPC Resources
3.2(ii) [**]
3.3 LPM's Share of Participating Member OPC Resources
4.1(b) [**]
5.3 LPM Sales Price
5.4.1(a) [**]
5.4.1(b) [**]
5.4.5 [**]
5.4.6 [**]
5.4.7(a) [**]
5.4.7(b) [**]
5.4.8(a) [**]
5.4.8(b) [**]
17.2 Notices and Payment
18 Map of EMC Service Territory

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

v
<PAGE>

POWER PURCHASE AND SALE AGREEMENT
AMONG
LG&E POWER MARKETING INC.
LG&E POWER INC.
AND
OGLETHORPE POWER CORPORATION
(AN ELECTRIC MEMBERSHIP GENERATION AND TRANSMISSION CORPORATION)

This Power Purchase and Sale Agreement dated as of January 1, 1997,
together with any permitted future amendments ("Agreement") is entered into by
and among Oglethorpe Power Corporation (An Electric Membership Generation and
Transmission Corporation), a corporation organized and existing under Title 46
of the Official Code of Georgia Annotated, together with any permitted successor
or assign ("OPC"), LG&E Power Inc., a corporation organized and existing under
the laws of the State of Delaware, together with any permitted successor or
assign ("LPI"), and LG&E Power Marketing Inc., a corporation organized and
existing under the laws of the State of California, together with any permitted
successor or assign ("LPM") (collectively, LPI and LPM are referred to herein as
"LG&E Parties").

WITNESSETH

WHEREAS, LPM is a power marketer authorized by the Federal Energy
Regulatory Commission to purchase and sell electric energy for resale at
negotiated, market-based rates;

WHEREAS, LPM is an indirect, wholly owned subsidiary of LPI;

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

WHEREAS, LPM desires to purchase Electric Energy from OPC for resale
(i) to OPC at prices consistent with this Agreement and (ii) to third parties at
such prices as LPM shall determine;

WHEREAS, on November 19, 1996, LPM, LG&E Energy Corp., and OPC entered
into a long-term power purchase and sales agreement pursuant to which LPM has
agreed to sell Electric Energy to OPC to satisfy certain of OPC's requirements
for Electric Energy (the "November 1996 Agreement");

WHEREAS, in the November 1996 Agreement, OPC agreed to sell to LPM a
portion of the Electric Energy that OPC is obligated to take or purchase from
Must Run Resources (as defined in the November 1996 Agreement) and to offer and
to sell to LPM certain other Electric Energy which OPC is entitled to take or
purchase, as more specifically set forth therein;

WHEREAS, Sawnee EMC and Coweta-Fayette EMC chose not to participate in
the November 1996 Agreement;

WHEREAS, the Parties entered into an Interim Agreement on December 31,
1996, ("Interim Agreement") under which OPC is required to sell or to offer to
sell, and LPM shall be required to purchase or entitled to purchase, certain of
the OPC Resources;

WHEREAS, under the Interim Agreement, LPM is required to sell to OPC at
certain prices Electric Energy it has purchased from OPC or from other sources;

WHEREAS, the Interim Agreement will terminate upon the execution of
this Agreement or on 24:00 CPT on January 23, 1997, whichever is earlier;

WHEREAS, the Parties intend this Agreement to cover the purchase and
sale of Electric Energy by LPM to OPC to satisfy certain OPC requirements for
Electric Energy; specifically for Sawnee EMC and Coweta-Fayette EMC, which were
not included in the November 1996 Agreement;

WHEREAS, the Parties intend this Agreement to operate as a novation of
the Interim Agreement and to be interpreted as if it was in full force and
effect as of January 1, 1997;

WHEREAS, OPC intends to enter into a second long-term contract with
another power marketer to provide on a long-term basis all or a portion of OPC's
requirements for Electric Energy that are not provided under the November 1996
Agreement or this Agreement, but which is not in place at the time of execution
of this Agreement;

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

2
<PAGE>

WHEREAS, the Parties recognize that until implementation of the second
long-term contract with another power marketer, OPC will operate portions of the
OPC Resources that are not allocated to LPM under either the November 1996
Agreement or under this Agreement, and that after implementation of the second
long-term contract with another power marketer LPM will be one of two power
marketers supplying certain electric requirements of OPC's member cooperatives,
and that the administration and implementation of this Agreement will require
coordination with OPC and the administration and implementation of the second
long-term contract with another power marketer and OPC;

NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, and for other good and valuable consideration, OPC and the
LG&E Parties hereby agree as follows:

Article 1.

Definitions and Construction

All capitalized terms used herein and not otherwise defined, whether
singular or plural, shall have the respective meanings set forth in Schedule A.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural number the singular. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
Any reference in this Agreement to "Section," "Article," "Exhibit" or "Schedule"
shall be references to this Agreement. Unless the context requires otherwise,
any reference in this Agreement to any document shall mean such document and all
schedules, exhibits, and attachments thereto as amended and in effect from time
to time. Unless otherwise stated, any reference in this Agreement to any person
shall include its permitted successors and assigns and, in the case of any
governmental authority, any person succeeding to its functions and capacities.
The words "hereof," "herein," "hereto" and "hereunder" and words of similar
import when used in this Agreement shall, unless otherwise expressly specified,
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Whenever the term "including" is used herein in connection with a
listing of items included within a prior reference, such listing shall be
interpreted to be illustrative only, and shall not be interpreted as a
limitation on or exclusive listing of the items included within the prior
reference.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

3
<PAGE>

Article 2.

Purchases and Sales

2.1. Sales by LPM. (a) In each Interval of the Term, LPM shall sell
and deliver, or cause to be delivered, and OPC shall purchase and receive, or
cause to be received, an amount of Electric Energy equal to the sum of (i) LPM's
Share of Participating Member Load in that Interval, plus (ii) LPM's Share of
Participating Member Off-System Sales in that Interval, plus (iii) LPM's Share
of Participating Member Customer Choice Load in that Interval. This Agreement
shall constitute the single agreement under which LPM is obligated to supply at
wholesale Electric Energy to serve LPM's Share of Participating Member Load,
LPM's Share of Participating Member Customer Choice Load, and LPM's Share of
Participating Member Off-System Sales in accordance with the terms hereof, and
no further request, schedule or agreement by OPC is needed.

(b) The Parties recognize and agree that [**] (iii) neither of the
foregoing shall entitle LPM to avoid its obligations hereunder or to adjust the
LPM Sales Price, except as expressly permitted under the provisions of this
Agreement.

2.2. Sales by OPC. OPC shall on a real time basis inform LPM of LPM's
Share of Participating Member OPC Resources, including Must Run Resources and
Dispatchable Resources, that are available for the delivery of OPC Energy, in
accordance with the terms of this Agreement, the OPC Contracts and the
Administrative Procedures.

2.2.1. Must Run Resources. In each Interval of the Term, OPC
shall sell and LPM shall purchase all of the OPC Energy from LPM's
Share of Participating Member OPC Resources associated with Must Run
Resources (other than purchased power resources) that are actually
available during such Interval. OPC represents that the Must Run
Resources are currently as of the Effective Date and shall, except for
Allowed Must Run Outage Hours, remain during each Interval of the Term
capable of the production

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

4
<PAGE>

and sale of at least [**] set forth in Exhibit 3.2(i). Exhibit 2.2.1
sets forth by calendar quarter, the number of hours ("Allowed Must Run
Outage Hours") for which the Must Run Resources may generate [**] set
forth in Exhibit 3.2(i).

2.2.2. Dispatchable OPC Resources. (a) With respect to
Dispatchable Resources, OPC hereby offers to sell to LPM on an
exclusive basis, and LPM has the exclusive right, but not the
obligation, to purchase from OPC any OPC Energy from LPM's Share of
Participating Member OPC Resources associated with Dispatchable
Resources which is available during each Interval of the Term. OPC
represents that the Dispatchable Resources (other than purchased power
resources) are currently as of the Effective Date and shall, except for
Allowed Dispatchable Outage Hours, remain during each Interval of the
Term capable of the production and sale [**] set forth in Exhibit
3.2(i), and that LPM shall have the right, during each Interval during
the Term to Schedule Electric Energy from each Dispatchable Resource to
the extent of its availability. Exhibit 2.2.2 sets forth by Summer and
Non-Summer Period designation the number of hours ("Allowed
Dispatchable Outage Hours") for which the Dispatchable Resources may
generate [**] set forth in Exhibit 3.2(i).

2.2.3. Manner of Request. LPM shall Properly Request OPC
Energy from LPM's Share of Participating Member OPC Resources through
(i) a recorded telephone conversation between the Parties, or (ii) such
other method of communication, including electronic communication, as
the Administrative Committee may determine is appropriate. Such
requests shall be confirmed in the manner, if any, established by the
Administrative Committee for the type of communication in question. The
Parties agree not to contest or assert any defense to the validity or
enforceability of telephonic requests under Laws relating to whether
certain agreements are to be in writing or signed by the party to be
thereby bound, or the authority of any employee of such Party to make
such communication. Each Party consents to the recording of its
representatives' telephone conversations without any further notice.
All recordings or electronic communications may be introduced into
evidence to prove oral agreements between the Parties.

2.4. Customer Choice Load. (a) Subject to paragraph (b) below, LPM
shall be obligated to serve [**] of the requirements for Electric Energy of
any Customer Choice Customer [**]; provided, that such obligation shall not
entitle LPM to serve any portion of such requirements, and OPC or the
Participating Member shall have the right to seek and accept bids from third
parties for all or any portion of such requirements; and provided further, that
LPM shall have the option but not the obligation to submit a bid to serve a
greater percentage than that

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

5
<PAGE>

designated above of any such Customer Choice Customer's requirements on such
price and other terms as may be mutually agreeable with OPC or the affected
Participating Member.

(b) LPM may within forty-eight (48) hours after OPC's request bid on a
case by case basis to serve all of the requirements of (i) any Customer Choice
Customer whose [**] and (ii) any Customer Choice Customer whose load is [**],
at such price and on such other terms as may be acceptable to LPM. To the
extent OPC accepts such bid, then LPM shall be obligated to serve 100% of such
Customer Choice Customer's requirements in accordance with such bid, and such
requirements shall be included in LPM's Share of Participating Member Customer
Choice Load. Notwithstanding anything to the contrary contained in this
Agreement, OPC or a Participating Member shall have the right to seek and accept
bids from third parties to serve all of the requirements of the Customer Choice
Customers described in this paragraph (b).

(c) The aggregate of all Customer Choice Load that LPM either is
obligated to serve, or agrees to serve, as the case may be, shall be LPM's Share
of Participating Member Customer Choice Load.

(d) The price applicable to LPM's Share of Participating Member
Customer Choice Load shall be the Customer Choice Price; provided, that if LPM
offers, other than pursuant to this Agreement, to directly serve a Customer
Choice Customer at a price that is less than the applicable Customer Choice
Price, then LPM shall be obligated to serve 100% of the requirements of such
Customer Choice Customer under this Agreement at a comparable price.

(b) Unless excused by Force Majeure or the unexcused failure of
Seller's performance, if Buyer fails to receive, or cause to be received, the
Contract Quantity, [**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

6
<PAGE>

concerning the alternative delivery Scheduled and dispatched by OPC or its
designee. If the Administrative Committee determines unanimously that the
actions taken by both OPC and LPM were consistent with Prudent Utility Practice
and their respective obligations under this Section 2.5(c), then any additional
costs associated [**]. If the Administrative Committee does not so determine,
then the Party determined unanimously by the Administrative Committee to be at
fault shall bear [**]. If the Administrative Committee cannot in good faith
reach a unanimous decision, then the matter shall be subject to arbitration
under Article 14.

(d) The provisions of this Section 2.5 shall not apply to the
circumstances in which adjustments have been made pursuant to Section 5.4.

2.6. Stranded Costs. In the event retail wheeling is instituted in
Georgia, for whatever reason, and OPC or any Participating Member, may be
entitled to receive compensation associated with stranded generating or other
assets, the LG&E Parties shall have no claim or entitlement to any such
compensation, nor shall the LG&E Parties have any obligation or liability for
the payment of any such compensation, attributable to OPC Resources.

Article 3.

OPC Resources

3.1. OPC Contracts. (a) OPC shall be responsible for compliance with
the OPC Contracts. In connection therewith, OPC shall be permitted to make OPC
Off-System Sales to comply with the OPC Off-System Sales Contracts, which
Electric Energy for LPM's Share of Participating Member Off-System Sales shall
be provided to OPC by LPM pursuant to Section 2.1 and at the prices set forth in
Section 5.3. OPC shall have the right during the Term to enter into new
contracts or other agreements to make sales, purchases or exchanges of Electric
Energy, without the prior consent of LPM, including new contracts for (i) sales
of capacity and Electric Energy from resources not included within OPC
Resources, (ii) purchases and sales of capacity and Electric Energy to serve
Customer Choice Customers as provided in Section 2.4, (iii) sales of capacity
and Electric Energy under the EMC Contracts, (iv) purchases and sales of
capacity and Electric Energy as required to serve OPC Load and Participating
Member Load not included within LPM's Share of Participating Member Load, or to
serve LPM's Share of Participating Member Load after the Term, and (v) as
expressly set forth elsewhere in this Agreement and in the November 1996
Agreement; provided, that such contracts or agreements shall not adversely
affect or otherwise interfere with OPC's ability to perform its obligation to
sell Electric Energy to or to purchase Electric Energy from LPM hereunder.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

7
<PAGE>

its rights and obligations under the NERC or SERC guidelines. Nothing in this
Agreement shall affect the rights or obligations of the parties to the EMC
Contracts. OPC shall have the right to terminate, amend, or otherwise modify the
OPC Contracts, subject to the provisions of Section 16.1.

3.2. Information on OPC Resources and System. (a) OPC acknowledges and
agrees that LPM requires information concerning OPC Contracts, OPC Resources,
Participating Member Load and Energy Cost in order to satisfy LPM's obligations
hereunder.

3.4. RESERVED.

3.5. Dispersed Generation. Generating facilities currently owned by
individual Participating Members will not be an OPC Resource, but will remain
the property of each such Participating Member which may use such generating
facilities as it shall determine from time to time.

3.6. Load Management. Load management switching equipment and any
other demand side management of individual Participating Members will not be an
OPC Resource, but will remain the property of such Participating Members which
may use, or direct OPC on such

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

8
<PAGE>

Participating Member's behalf to coordinate the use of such load management
switching equipment or other demand side management as it shall determine from
time to time.

3.8. Coal. The November 1996 Agreement sets forth procedures, prices,
and terms relating to acquisition of and payment for coal for Plant Scherer and
Plant Wansley. The procurement of coal for the purpose of performing this
Agreement shall be governed by and subject to the procedures, terms, conditions,
and prices set forth in Section 3.8 and all associated exhibits of the November
1996 Agreement, which are incorporated herein by reference.

3.9. SEPA Energy. Each of the Participating Members is presently
entitled to an allocation of hydro-electric power from SEPA, the cost of which
is billed directly by SEPA to each EMC. As provided in the definition of
Participating Member Load, LPM's Share of Participating Member Load does not
include requirements supplied by SEPA Energy Scheduled for delivery to the
Participating Members pursuant to the SEPA Contracts; provided, however, that
OPC shall Schedule delivery of SEPA Energy to the Participating Members as
requested by LPM, to the extent permitted by SEPA under the SEPA Contracts and
consistent with the CSA.

3.10. Block Power Sale Agreements. OPC has canceled Block 3 of the
Georgia Power Block Power Sale Agreement, and OPC has given timely notice to
Georgia Power to cancel Block 4 as of August 31, 1997 and Block 2 as of August
31, 1998. [**]

3.12. Emission Allowances. [**]

Article 4.

Transmission

4.1. Transmission and Scheduling. (a) [**]

(b) [**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

9
<PAGE>

responsible for any damages or injury caused thereby) of the Contract Quantity
at and from the Delivery Point. Title to and risk of loss of Electric Energy
shall transfer from Seller to Buyer at and from the Delivery Point.

4.3. Scheduling. OPC and LPM agree to adopt and maintain reasonable
procedures to facilitate LPM's ability on an hourly basis to (i) supply LPM's
Share of Participating Member Load and (ii) purchase OPC Energy associated with
LPM's Share of OPC Resources. The Parties shall also establish procedures
whereby (a) OPC shall communicate to LPM on a same-time basis the availability
of, and estimated Energy Cost for, each OPC Resource, as such availability and
Energy Cost may change from time to time, and the projected LPM's Share of
Participating Member Load; and (b) LPM shall provide all necessary Scheduling
information, including the duration of proposed transactions, [**]. Upon
communication of such information, LPM shall Properly Request the amounts of
Electric Energy that LPM desires to purchase from each such OPC Resource within
LPM's Share of OPC Resources. [**]

4.4. Delivery Points. (a) LPM shall specify one or more Delivery
Points for (i) OPC Energy Scheduled and purchased by LPM from OPC and (ii)
Electric Energy Scheduled and sold by LPM to OPC. [**]

(b) [**]

4.5. Transformer and Transmission Loss Adjustments. (a) With respect to
LPM purchases of OPC Energy from an OPC Resource that is a generating plant
which interconnects directly into the ITS, [**]

(b) For purposes of supplying OPC with Electric Energy to serve LPM's
Share of Participating Member Load and LPM's Share of Participating Member
Customer Choice Load, [**]

(c) For purposes of supplying OPC with Electric Energy to satisfy LPM's
Share of OPC's Off-System Sales obligations, [**]

(d) For purposes of supplying Electric Energy to satisfy LPM's sales to
third parties that accept delivery on the ITS or for delivery at Points of
Interconnection, [**]

(e) For purposes of supplying Electric Energy to permit OPC to pump
water to the upper reservoir at the Rocky Mountain Pumped Storage Hydroelectric
Generating Facility ("Rocky Mountain"), [**]

(f) The Parties agree and understand [**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

10
<PAGE>

4.6. Imbalances and Regulation Deviation Errors. (a) The Parties
recognize that actual LPM's Share of Participating Member Load, LPM's Share of
Participating Member Customer Choice Load, and LPM's Share of Participating
Member Off-System Sales may vary in any Interval even when the foregoing have
been reasonably forecast by LPM and Electric Energy has been Scheduled as
Properly Requested by LPM. [**]

(b) [**]

4.9. Other OPC or GTC Responsibilities. In addition to the above, OPC
or GTC shall also be responsible for the following:

Article 5.

Price

5.1. OPC's Contract Price. Subject to Section 5.4, the Contract Price
for Electric Energy sold by OPC to LPM shall be the Energy Cost for OPC Energy
that LPM Properly Requests.

5.2. RESERVED

5.3. LPM's Contract Price. Subject to Section 5.4, (i) with respect to
sales of Electric Energy by LPM to OPC relating to LPM's Share of Participating
Member Load, the Contract Price shall be, during each calendar year of the Term,
the LPM Sales Price [**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

11
<PAGE>

[**] as set forth in Exhibit 5.3; (ii) with respect to LPM's Share of
Participating Member Customer Choice Load which LPM is required to serve, the
Contract Price shall be the Customer Choice Price; (iii) with respect to LPM's
Share of Participating Member Customer Choice Load served at a price quoted
by LPM, the Contract Price shall be the price quoted by LPM; and (iv) with
respect to sales of Electric Energy by LPM to OPC relating to LPM's Share of
Participating Member Off-System Sales, the Contract Price shall be as agreed
to by the Parties (the "LPM Off-System Sales Price"); provided,[**]

5.4. Amounts Due to OPC and LPM. Each month OPC shall charge LPM an
amount equal to the aggregate Energy Costs attributable to the OPC Energy that
is Properly Requested by and delivered to LPM. Each month LPM shall charge OPC
an amount equal to the sum of the following products: (i) the LPM's Share of
Participating Member Load [**] as set forth in Exhibit 5.3; (ii) LPM's Share
of Participating Member Customer Choice Load attributable to a Customer Choice
Customer and purchased by and delivered to OPC during the month, multiplied by
the applicable Customer Choice Price; (iii) each OPC Off-System Sales quantity
purchased by and delivered to OPC from LPM during the month, multiplied by the
LPM Off-System Sales Price applicable to each such OPC Off-System Sale;
provided, that the amounts so determined shall be subject to the following
adjustments:

5.4.1. [**]

(b) Exhibit 5.4.1(b) sets forth an example of the intended
operation of this Section.

5.4.2. RESERVED.

5.4.3. RESERVED.

5.4.4. RESERVED.

5.4.5. [**]

5.4.6. [**]

5.4.7. [**]

(b) Exhibit 5.4.7(b) sets forth an example of the intended
operation of this Section.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

12
<PAGE>

5.4.8. [**]

(b) Exhibit 5.4.8(b) sets forth an example of the intended
operation of this Section.

5.5. RESERVED.

5.6. RESERVED

Article 6.

Term

6.1. Term. (a) This Agreement shall be deemed effective as of 00:00:01
CPT on January 1, 1997, and shall remain in effect until 24:00 CPT on April 30,
1997 (the "Termination Date"), subject to Sections 6.1(b) [**] (the "Term"). The
applicable provisions of this Agreement shall continue in effect after the
Termination Date in accordance with the provisions of Section 17.4.

(b) Upon approval of this Agreement by the Board of Directors of
Oglethorpe Power Corporation as evidenced by a properly attested corporate
resolution, the Termination Date set forth in Section 6.1(a), shall be extended
to 24:00 CPT on December 31, 1997, subject to Section 6.1(c), unless earlier
terminated pursuant to this Agreement. The Term shall be deemed to include any
extension effective by virtue of this Section 6.1(b).

(c) In the event the conditions precedent set forth in Article 11 are
satisfied on or before June 1, 1997, then the Term shall be further extended
until 24:00 CPT on December 31, 1999, unless earlier terminated pursuant to this
Agreement, and the Term shall be deemed to include any such extension. OPC shall
provide LPM with written notice promptly following the satisfaction of the
conditions precedent described in Article 11, which notice shall specify the
date ("Long Term Commencement Date") on which such conditions precedent were
satisfied. In the event a condition precedent set forth in Article 11 has not
been satisfied on or before June 1, 1997, then the extension provision in this
Section 6.1(c) shall be of no further force and effect.

6.2. RESERVED

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

13
<PAGE>

Article 7.

Confidential Information

7.1. Confidentiality and Authorization to Use Information. OPC
expressly authorizes and grants its consent to LPM to use Confidential
Information, whether acquired before or after the Effective Date, pertaining to,
without limitation, OPC, OPC Resources, OPC Load, Participating Member Load, OPC
Off-System Sales and the Participating Members, for the purpose of exercising
LPM's rights under this Agreement, including LPM's right to buy Electric Energy
from OPC or any other person and to sell Electric Energy to OPC or any other
person, whether Electric Energy is produced by or attributable to OPC Resources
or other resources. Each Party agrees that it shall not disclose Confidential
Information whether acquired before or after the Effective Date, to any third
party other than each Party's officers, directors, employees, advisors or
representatives, or each Party's Affiliates (or as to OPC, the EMCs), their
officers, directors, employees, advisors or representatives who need to know and
agree to maintain the confidentiality of the Confidential Information
(collectively, "Representatives") during the Term and for a period of not more
than three (3) years after the Termination Date. Each Party shall be responsible
for any breach of this Agreement by its Representatives.

7.4. Right to Remedies. In the event of an unauthorized disclosure to
a third party, the limitations on remedies contained in Section 10.2 shall not
apply, and in the event of a breach no

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

14
<PAGE>

Party will have an adequate remedy at law and accordingly shall, in addition to
any other available legal or equitable remedies, be entitled to an injunction
against such breach without any requirement to post a bond as a condition of
such relief.

7.5. Georgia Trade Secrets Act. Except as expressly provided in
Article 7 of this Agreement, including OPC's consent to the use by LPM of
Confidential Information in its trading operations pursuant to this Agreement,
the rights of the Parties under this Agreement are in addition to and not in
lieu of their rights under Georgia law, including the Georgia Trade Secrets Act
of 1990. Nothing in this Article 7 shall be construed as a waiver on the part of
any Party of any privilege or objection of any kind to the disclosure or use of
Confidential Information.

Article 8.

Billing, Payment and Records

8.1. Billing Statements. OPC shall deliver to LPM no later than on the
tenth (10th) day of each month (or the first Business Day thereafter), a
statement (the "Statement") setting forth for the immediately prior month the
amounts of Electric Energy purchased by OPC from LPM at the applicable LPM Sales
Price, the respective LPM Off-System Sales Prices, and the respective Customer
Choice Prices, all as adjusted pursuant to Section 5.4, and the amounts of
Electric Energy purchased by LPM from OPC at the applicable Energy Cost. To the
extent that OPC has not yet received or been able to compile the applicable
Energy Cost figures as of such date, OPC may set forth on such Statement its
good-faith estimate of the Energy Cost of an OPC Resource, for such OPC
Resource; and provided, that OPC shall compile the actual Energy Costs and
"true-up" such estimates as promptly as practicable pursuant to Section 8.5. It
is expressly agreed that during the Term, the Statements related to amounts due
pursuant to this Agreement shall be consolidated with Statements submitted
pursuant to the November 1996 Agreement.

8.2. Offset of Payment Obligations. The Parties shall discharge their
obligations to pay through netting, consolidating obligations incurred under
this Agreement and the November 1996 Agreement, in which case the Party, if any,
owing the greater aggregate amount shall pay to the other Party the difference
between the amounts owed, as set forth in Section 8.3. Each Party reserves to
itself all rights, setoffs, counterclaims and other remedies and defenses,
consistent with Article 10, which such Party has or may be entitled to arising
from or out of this Agreement. All outstanding obligations to make payments
under this Agreement may be offset against each other, set-off or recouped
therefrom.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

15
<PAGE>

be due to the other Party, it shall be paid within ten (10) days of such
determination, along with interest calculated at the Interest Rate from the
original due date until the date paid. Absent such a good faith dispute, overdue
payments shall bear interest from, and including, the due date to, but
excluding, the date of payment at a rate equal to the Interest Rate.

(b) If any such examination reveals any inaccuracy in any statement,
the necessary adjustments in such statement and the payments thereof will be
promptly made and shall bear interest calculated at the Interest Rate from the
date the overpayment or underpayment was made; provided, however, that no
adjustment for any statement or payment will be made unless objection to the
accuracy thereof was made prior to the lapse of two (2) years from the rendition
thereof; and provided, further, that this provision of this Agreement will
survive any termination of this Agreement for a period of two (2) years from the
date of such termination for the purpose of such statement and payment
objections.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

16
<PAGE>

Article 9.

Taxes

9.2. Buyer's Obligation. Buyer is liable for and shall pay, cause to
be paid, or reimburse Seller if Seller has paid, all Taxes applicable to a
purchase of Electric Energy arising at and from the Delivery Point(s), including
any Taxes imposed or collected by a taxing authority with jurisdiction over
Buyer. Buyer shall indemnify, defend and hold harmless Seller from any Claims
for such Taxes.

9.4. [**]

Article 10.

Indemnification and Remedies

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

17
<PAGE>

ONLY, SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY AND ALL
OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. UNLESS EXPRESSLY
HEREIN PROVIDED, NO PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL,
PUNITIVE, MULTIPLE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER
BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR IN CONTRACT UNDER ANY
INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE
LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT
REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY
PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR
PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED,
INCLUDING DAMAGES PROVIDED IN SECTION 2.5 AND 4.4, THE PARTIES ACKNOWLEDGE THAT
THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OTHERWISE OBTAINING AN
ADEQUATE REMEDY IS INCONVENIENT, AND THE LIQUIDATED DAMAGES CONSTITUTE A
REASONABLE APPROXIMATION OF THE HARM OR LOSS.

10.5. [**]

10.6. Relation with November 1996 Agreement. The Parties agree that
Proper Requests, Schedules, information regarding OPC Load, Participating Member
Load, and OPC Resources, and other information required to be provided under
this Agreement may be consolidated with Proper Requests, Schedules, and
information required to be provided under the November 1996 Agreement.

Article 11.
Conditions Precedent to Extension of Term

11.1. Regulatory Authorizations. The Parties' obligations to commence
delivery of Electric Energy under the long term arrangement contemplated by
Section 6.1(c) of this Agreement shall be subject to receipt of any governmental
consents or approvals required to

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

18
<PAGE>

perform this Agreement, including approval by the RUS without modification of
this Agreement and the OPC Restructuring.

11.2. OPC Restructuring. The Parties' obligations to commence delivery
of Electric Energy under the long term arrangement contemplated by Section
6.1(c) of this Agreement shall be subject to completion of the OPC
Restructuring, and execution of new wholesale power contracts with OPC, as
contemplated pursuant to such OPC Restructuring, by EMCs (whose total
requirements in the aggregate represent at least eighty (80) percent of OPC
Load).

11.3. Board Approval. The Parties' obligations to commence delivery of
Electric Energy under the long-term arrangement contemplated by Section 6.1(b)
and (c) of this Agreement shall be subject to the approval by the Board of
Directors of Oglethorpe Power Corporation.

Article 12.

Representations and Warranties

12.1. Mutual Representations. On the Effective Date, January 1, 1997,
the Long Term Commencement Date, and the date of entering into each purchase or
sale of Electric Energy, each Party represents and warrants to the other Party:
(i) it is duly organized, validly existing and in good standing under the laws
of the state of its incorporation and, in the case of LPM, is doing business as
a foreign corporation in the State of Georgia; (ii) it has all requisite
corporate power to own, operate and lease its properties and carry on its
business as now conducted; (iii) it has all regulatory authorizations, including
any required authorization from the Rural Utilities Service of the United States
Department of Agriculture ("RUS"), necessary for it to legally perform its
obligations under this Agreement; (iv) the execution, delivery and performance
of this Agreement are within its powers, have been duly authorized by all
necessary action and do not violate any of the terms or conditions in its
governing documents, any contract or other agreement to which it is a party or
any Law applicable to it; (v) this Agreement constitutes each Party's legally
valid and binding obligation enforceable against it in accordance with the terms
thereof, subject to any Equitable Defenses; (vi) there are no Bankruptcy
Proceedings pending or being contemplated by it or, to its knowledge, threatened
against it; (vii) there are no Legal Proceedings that would be reasonably likely
to materially adversely affect its ability to perform this Agreement; and (viii)
it has knowledge and experience in financial matters and in the electric
industry that enable it to evaluate the merits and risks of this Agreement.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

19
<PAGE>

binding and in full force and effect and enforceable by or against the
respective parties thereto in accordance with its terms; (vi) OPC has fulfilled,
and will continue to fulfill during the Term, all of its obligations under each
OPC Contract; (vii) there has not occurred any default by OPC or any event
which, with the lapse of time or the giving of notice or both will become a
default of OPC under any of the OPC Contracts; (viii) OPC is not in arrears in
respect of the performance or satisfaction of the terms or conditions to be
performed or satisfied by it under any of the OPC Contracts, and, to the best
knowledge of OPC, no waiver of any of such terms or conditions has been granted
thereunder by any of the parties thereto; and (ix) OPC shall maintain or cause
to be maintained the OPC Resources which are generating facilities owned by OPC,
in accordance with Prudent Utility Practice.

(c) OPC further represents and warrants that the power purchase and
sales agreement with Power Marketer shall contain (i) a representation and
warranty at least as favorable to LPM as the representation set forth in Section
12.3(b), (ii) a covenant on the part of Power Marketer to act in good faith in
the development of the Administrative Procedures, and (iii) no terms, conditions
or covenants that are inconsistent with OPC's obligations hereunder or which
would reasonably be expected to adversely affect LPM's ability to perform
hereunder.

(b) LPM represents and warrants that it will cooperate with the Power
Marketer regarding administrative matters during the Term.

(c) LPI represents that neither it nor any of its affiliates or
subsidiaries will, during the Term, take any action that could reasonably be
anticipated to (i) cause LPM to lose its authority as a power marketer under the
Federal Power Act to make wholesale sales of power at market-based, negotiated
rates; or (ii) impair LPM's ability to perform its obligations under this
Agreement, or LPI's ability to perform its obligations under Section 17.15.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

20
<PAGE>

(d) LPI further represents and warrants that as of the Effective Date
and January 1, 1997, it is not a "public utility" within the meaning of the
Federal Power Act, as amended.

12.7. Other Contracts. Neither OPC nor LPM nor any of its Affiliates
or subsidiaries will, during the Term, take any action, enter into any contracts
or otherwise incur obligations that could reasonably be anticipated to interfere
with or adversely affect its ability to perform its obligations under this
Agreement.

12.8. Continuing Representations and Warranties. Each Party covenants
that it will cause these representations and warranties to be materially true
and correct throughout the Term.

Article 13.

Defaults and Remedies

13.1. Events of Default. An "Event of Default" shall mean with respect
to a Party ("Defaulting Party"):

13.1.2. Any representation or warranty made by the Defaulting
Party herein shall prove to have been false or misleading in any
material respect when made or deemed to be repeated; or

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

21
<PAGE>

13.1.4. The Defaulting Party shall be subject to a Bankruptcy
Proceeding; or

13.3. [**]

13.5. Effect of Regulation. In the event OPC is or becomes regulated
by a federal, state or local regulatory body, and (i) such body shall disallow
all or any portion of any costs incurred or yet to be incurred by OPC under any
provision of this Agreement, such action shall not operate to excuse OPC from
performance of any obligation nor shall such action give rise to any right of
OPC to any refund or retroactive adjustment of any amounts payable hereunder; or
(ii) [**] then the sole and exclusive remedy for such default in performance
shall be as set forth in Section 4.4(b).

13.6. Notice to LPI. OPC shall provide a copy to LPI of any notice OPC
gives LPM under the provisions of this Article.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

22
<PAGE>

Article 14.

Arbitration

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

23
<PAGE>

14.3. Decision. The arbitrators shall consider the terms and
conditions of this Agreement, and any relevant evidence and testimony, and shall
render their decision within thirty (30) calendar days following conclusion of
the hearing. The arbitrators' decision will be limited to selecting one of the
alternatives specified in the statements of the Parties referred to in Section
14.2. The decision rendered by a majority of the arbitrators, made in writing,
shall be final and binding upon the Parties. Any such decision may be filed in a
court of competent jurisdiction and may be enforced by any Party as a final
judgment in such court. The arbitrators shall have no authority to award
special, exemplary, or consequential damages.

Article 15.

Force Majeure

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

24
<PAGE>

Article 16.
Material Changes

16.1. [**]

16.2. [**]

Article 17.

Miscellaneous

17.1. Assignment.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

25
<PAGE>

for Security, or (ii) if the Administrator or other secured party first
acquires this Agreement, sell, assign, transfer or otherwise dispose of
this Agreement to a third party; provided, however, that in either case
the Party who made the Assignment for Security is in default of its
obligations to the Administrator or other secured party that are
secured by such security interest.

17.4. Survival of Obligations. Upon the expiration of the Parties'
sale and purchase obligations under this Agreement, any monies, penalties or
other charges due and owing Seller shall be paid, any corrections or adjustments
to payments previously made shall be determined, and any refunds due Buyer made,
as soon as practicable. All indemnity and confidentiality obligations and audit
rights shall survive the termination of this Agreement in accordance with their
respective terms. The Parties' obligations provided in this Agreement shall
remain in effect for the purpose of complying with the provisions of this
Section.

17.6. No Partnership. Nothing in this Agreement shall ever be deemed
to create or constitute a partnership, joint venture or association between the
Parties, or to impose a trust or partnership duty, obligation or liability on or
with regard to the Parties.

17.7. Amendment. No amendment or modification to this Agreement shall
be enforceable unless reduced to writing and executed by both Parties.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

26
<PAGE>

17.9. Waiver. No waiver by any Party of any one or more defaults by
the other in the performance of any of the provisions of this Agreement shall be
construed as a waiver of any other default or defaults, whether of a like kind
or different nature.

17.10. Character of Sales by OPC. The sale by OPC to LPM of OPC Energy
under this Agreement does not constitute either a sale, lease, or the dedication
of ownership of any OPC Resource.

17.11. Severability. (a) Subject to the provisions of Article 16,
should any provision of this Agreement for any reason be declared invalid or
unenforceable by a final, non-appealable order of any court or regulatory body
having jurisdiction, such decision shall not affect the validity of the
remaining portions of the Agreement, and such 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 Agreement as near as possible
to its original intent and effect.

(b) The obligations of LPI and LPM are severable under this Agreement,
such that the invalidity or unenforceability of all or any portion of the
obligations of LPM or LPI under this Agreement shall not affect the validity or
enforceability of the obligations of the other.

17.12. RESERVED.

17.13. Headings. The headings used for the Articles are for
convenience and reference purposes only, and shall not be construed to modify,
expand, or restrict the provisions of this Agreement.

17.14. Counterparts. This Agreement may be executed in multiple
counterparts to be construed as one effective as of the Effective Date.

17.15. LPI Obligations.

17.15.1. Failure of Performance of LPM. (a) In the event LPM
fails, refuses, or is otherwise unable to make full and timely
performance of all obligations under this Agreement, LPI
unconditionally and irrevocably agrees to indemnify and hold harmless
OPC from and against any cost, expense or loss associated with such
breach in excess of the amounts contemplated under the Agreement.
Subject to Section 10.3, OPC shall have the right to seek replacement
service from any available source. Nor shall it be necessary for OPC,
in order to enforce the performance of LPI under this Section, to first
pursue its remedies respecting the LPM obligations under the Agreement
against LPM or any other person.

(b) Alternatively, if OPC consents and LPI has previously
obtained market rate authority from FERC, LPI may assume LPM's rights,
duties, and obligations under this Agreement. OPC's approval of this
alternative does not waive LPI's obligation under Section 17.15.1(a) to
indemnify and hold harmless OPC from and against any cost,

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

27
<PAGE>

expense or loss associated with such breach by LPM in excess of the
amounts contemplated under the Agreement.

(c) LPI acknowledges and agrees that it has received
reasonable consideration for its guarantee of LPM's performance, and
the Parties acknowledge that this consideration is unrelated to the
revenue or profits earned by LPM under this Agreement.

17.15.2. Further Covenants of LPI. (a) Any other provision of
this Agreement notwithstanding, LPI shall have neither the obligation
nor the right to engage in, control or otherwise influence any FERC
jurisdictional transactions under this Agreement unless LPI shall have
previously obtained market rate authority from FERC and approval from
OPC. Except as provided by Section 17.15.1(c) and Section 17.15.1(b)
above, LPI shall not directly derive any income from any transaction
under this Agreement.

(b) LPI agrees to indemnify and hold harmless OPC from and
against any and all cost, expense, or loss in excess of amounts
contemplated to be paid by OPC under this Agreement, and which arises
from any or all regulatory consequences of LPI becoming a "public
utility" within the meaning of the Federal Power Act, as amended.

(c) In the event the FERC determines that LPI is a public
utility responsible for delivering Electric Energy to OPC under the
terms of this Agreement, then LPI agrees to take all necessary and
appropriate steps to obtain all authorizations required to perform this
Agreement in accordance with its terms, and shall indemnify and hold
harmless OPC for the difference, if any, between the Contract Price
applicable for purchases by OPC of Electric Energy under this Agreement
and the rate approved by FERC.

(d) LPI acknowledges that the provisions of this Section 17.15
constitute a material portion of the consideration to OPC for entering
into this Agreement, and that OPC is executing this agreement in
reliance on the enforceability and legality of such provisions. LPI
unconditionally and irrevocably agrees not to challenge, question, or
otherwise seek to undermine in any manner the enforceability or
legality of this Section 17.15, and agrees to file and diligently
prosecute such applications, briefs, testimony, or other pleadings as
may be necessary or appropriate in connection with any Legal Proceeding
to support the enforceability and legality of this Section 17.15.

17.15.3. No Discharge. The obligations of LPI under this
Section 17.15 shall, to the fullest extent permitted by law, remain in
full force and effect without regard to , and shall not be released,
discharged or in any way affected by, (i) an amendment to the
Agreement; (ii) the merger or consolidation of LPI or OPC with or into
any entity, or (iii) any sale, lease or transfer of all of the assets
of LPI or OPC.

17.16. Administration. OPC and LPM recognize that Administrative
Procedures are required to govern operations, such as those described in Section
4.3, under this Agreement that require coordination among OPC, LPM, and Power
Marketer, or their designees. The Administrative Procedures developed pursuant
to the November 1996 Agreement shall be

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

28
<PAGE>

applicable to this Agreement to the same extent that such procedures are
applicable to transactions and matters under the November 1996 Agreement, and
the Administrative Committee shall be constituted by those same Parties, shall
operate, and shall have the authority and powers set forth in Section 17.16 of
the November 1996 Agreement.

17.17. RESERVED.

17.19. RUS Approval. OPC shall use its best reasonable efforts to
obtain RUS approval of the long term arrangement contemplated in Section 6.1(c).

17.21. Novation of Interim Agreement. The Parties agree that upon the
execution of this Agreement by each of the Parties, this Agreement shall act as
a novation of the Interim Agreement. All transactions entered into between the
Parties pursuant to the Interim Agreement shall be treated for all purposes as
if such transactions had been entered into pursuant to the terms and conditions
of this Agreement.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

29
<PAGE>

IN WITNESS WHEREOF, the Parties have caused this Agreement to
be executed by their duly authorized officers and copies delivered to each
Party.

OGLETHORPE POWER CORPORATION

By: /s/ Attest: /s/
T. D. Kilgore -----------------------------
Title: President and Chief Patricia Nash
Executive Officer Title: Assistant Secretary

LG&E POWER MARKETING INC.

By: /s/James W. Kasee Attest: /s/
-----------------------------
Title: Vice President David G. Schwartz
Title: Secretary

LG&E POWER INC.

By: /s/ Scott S. Nuell Attest: /s/
----------------------------
Title: Senior Vice President David G. Schwartz
Title: Secretary

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

30
<PAGE>

SCHEDULE A

Definitions

[**]

"Administrative Committee" means the committee described in Section
17.16.

"Administrative Procedures" mean the procedures developed by LPM, OPC
and Power Marketer pursuant to Section 17.16, which procedures address the
Scheduling and dispatch of the OPC Resources.

[**]

"Assignment for Security" has the meaning specified in Section 17.1.2.

"Buyer" means either LPM or OPC, as the case may be, when it is the
Party who is obligated to purchase and receive, or cause to be received,
Electric Energy in connection with a sale hereunder.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

31
<PAGE>

settlement or otherwise, and whether such claims or actions are threatened or
filed prior to or after the termination of this Agreement.

"Computer Tapes" has the meaning specified in Section 7.3.

"Control Area" means an electric power system or combination of
electric power systems to which a common automatic generation control scheme is
applied.

"CPR" has the meaning specified in Section 14.1(d).

"CPT" means Central Prevailing Time and refers to the time in effect in
the Central Time Zone of the United States, whether Central Standard Time or
Central Daylight Savings Time.

"Customer Choice Customer" means a retail customer or prospective
customer of a Participating Member which has a choice of supplier under Georgia
law as defined under the Georgia Territorial Electric Services Act, whether or
not such customer exercises its rights under the applicable statute on or after
the Effective Date of this Agreement, but shall not include any such retail
customer whose requirements are being served by a Participating Member, under an
existing agreement or rate schedule as of the Effective Date until after
expiration of the applicable agreement or rate schedule.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

32
<PAGE>

"Customer Choice Load" means the Electric Energy requirements of
Customer Choice Customers.

"Customer Choice Price" means the price at which LPM will serve LPM's
Share of Participating Member Customer Choice Load, as set forth in Exhibit 5.3
in the case of Customer Choice Customers described in Section 2.4(a), and as set
forth in the applicable bid accepted by OPC in the case of Customer Choice
Customers described in Section 2.4(b). In the case of the Customer Choice
Customers described in Section 2.4(a), the applicable price set forth in Exhibit
5.3 shall be the price stated for the Participating Member listed in such
Exhibit in whose service territory, as depicted in Exhibit 18, the Customer
Choice Customer is located. If a Customer Choice Customer described in Section
2.4(a) is not located in the service territory of a Participating Member listed
on Exhibit 5.3, including a Customer Choice Customer within another supplier's
service territory that is physically within the boundaries of an EMC's service
territory, the applicable Customer Choice Customer Price shall be such price as
LPM may bid and such Customer Choice Customer shall accept.

"Defaulting Party" has the meaning specified Section 13.1.

[**]

"Dispatchable Resources" means the OPC Resources that are so designated
in Exhibit 3.2(i).

[**]

"Effective Date" has the meaning specified in Section 6.1.

"Electric Energy" means energy in the form of electricity expressed in
megawatt-hours (MWh) (or in kilowatt-hours when energy is measured at the points
of delivery to the EMCs).

"EMC" means an electric membership corporation as defined in Section
46-3-171(3) of the Georgia Electric Membership Corporation Act.

"EMC Metering Point" means that certain point at which deliveries of
Electric Energy to each EMC, respectively, are measured and received pursuant to
the EMC Contracts.

"Energy Cost" with respect to the OPC Energy under both this Agreement
and the November 1996 Agreement [**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

33
<PAGE>

"Event of Default" has the meaning specified in Section 13.1.

"FERC" means the Federal Energy Regulatory Commission or any successor
agency which enforces the Federal Power Act, as amended from time to time.

"FOB the Plant" means FOB railcar or FOB truck at Plant Wansley or
Plant Scherer, as applicable, at LPM's expense for unloading by OPC at OPC's
expense.

[**]

"GPC" means Georgia Power Company.

"GSOC" means Georgia System Operations Corporation, a non-profit
corporation organized under the laws of the State of Georgia, or any successor
thereto.

"GTC" means Georgia Transmission Corporation, an electric membership
corporation organized and existing under Title 46 of the Official Code of
Georgia Annotated, or any successor thereto.

"Hartwell" means the simple cycle gas turbine Units 1 and 2, as
described in the power purchase agreement between OPC and Hartwell Energy
Limited Partnership, which is listed on Exhibit 3.2(i).

"Impasse Notice" has the meaning specified in Section 14.1(b).

"Interest Rate" means the Prime Rate plus two percent, or the maximum
lawful rate permitted by applicable Law, whichever is less.

"Interruptible Load" means any load that can be interrupted in a power
control center.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

34
<PAGE>

"Interval" means an hour, or such other period of time as the
Administrative Committee may determine is appropriate in accordance with the
provisions of Section 17.16.

"ITS Loss Factor" means the Participating Member transmission loss
factor determined from time to time pursuant to the ITSA applicable to
deliveries of Electric Energy from any point on the ITS to any Participating
Member Metering Point, [**]

"Law" means any law, rule, regulation, order, writ, judgment, decree or
other legal or regulatory determination by a court, regulatory agency or
governmental authority of competent jurisdiction.

"Legal Proceeding" means any suit, proceeding, judgment, ruling or
order by or before any court or any governmental authority.

"LG&E Parties" means LPM and LPI.

"LPI" means LG&E Power Inc., or any successor thereto.

"Long Term Commencement Date" has the meaning specified in Section
6.1(c).

"LPM" means LG&E Power Marketing Inc., or any successor thereto.

"LPM Off-System Sales Price" has the meaning specified in Section 5.3.

"LPM Sales Price" means [**] the price for Electric Energy set forth
for the applicable period in Exhibit 5.3.

"LPM's Share of Participating Member Customer Choice Load" means the
applicable percentage of Customer Choice Load served by the Participating Member
with Electric Energy acquired by OPC at the Contract Price established in
Section 5.3(ii) or 5.3(iii), as determined in accordance with the provisions of
Section 2.4.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

35
<PAGE>

"LPM's Share of Participating Member Load" means the percentage
reflected in Exhibit 1.62 of each Participating Member.

"LPM's Share of Participating Member Off-System Sales" means 5.822% of
OPC's Off-System Sales under the OPC Off-System Sales Contract listed in Exhibit
2.1, and the applicable percentage to which LPM expressly commits in writing for
OPC Off-System Sales under other OPC Off-System Sales Contracts by specific
reference to this Agreement.

"LPM's Share of OPC Resources" means the percentage of each OPC
Resource, or portion thereof, shown on Exhibit 3.3.

"Must Run Resources" means the OPC Resources that are so designated in
Exhibit 3.2(i).

"MWh" means megawatt-hour.

"Negotiation Period" has the meaning specified in Section 14.1(b).

"NERC" means the North American Electric Reliability Council.

"Non-Defaulting Party" has the meaning specified in Section 13.2.

"Non-Summer Period" has the meaning specified in Section 5.4.7.

"Notifying Party" has the meaning specified in Section 13.1.1.

[**]

"OPC Energy" means all of the available Electric Energy which OPC owns,
purchases or otherwise has a right to take from OPC Resources.

"OPC Load" has the meaning set forth in the November 1996 Agreement.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

36
<PAGE>

"OPC Off-System Sales" means transactions undertaken by OPC or any
Participating Member pursuant to the OPC Off-System Sales Contracts.

"OPC Off-System Sales Contracts" means the contract listed on Exhibit
2.1 and, subject to the consent of LPM as to those contracts for which LPM will
supply Electric Energy under this Agreement, contracts entered into after the
Effective Date, between OPC or a Participating Member and third parties whose
facilities are not directly inter-connected to the facilities of either GTC or a
Participating Member, pursuant to which OPC or a Participating Member sells
Electric Energy to such third parties.

"Other Records" has the meaning specified in Section 7.3.

"Participating Member" means Coweta-Fayette EMC and Sawnee EMC as
listed in Exhibit 1.62.

"Participating Member Load" means, as of a particular Interval, the
entire Electric Energy requirements (including the requirements of any retail
customer with a choice of supplier under applicable Law, which customer is being
served by a Participating Member as of the Effective Date) of the Participating
Member listed in Exhibit 1.62, measured at each Participating Member Metering
Point, after reducing such requirements to reflect the Participating Members'
aggregate allocation of SEPA Energy Scheduled for delivery to the Participating
Members and after reducing such requirements to reflect the Participating
Member's allocated share of total Electric Energy purchased by OPC under
contracts with Qualifying Facilities entered into after the Effective Date;
provided, that Participating Member Load shall not include requirements for
sales for resale of Electric Energy (i) by OPC other than sales for resale to a
Participating Member; or (ii) by a Participating Member, other than to load
physically located within the service territory assigned to such Participating
Member as of the Effective Date, as reflected in Exhibit 18.

"Party" means OPC, LPM, or LPI, as applicable, including permitted
assignees of each pursuant to this Agreement.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

37
<PAGE>

[**]

"Prudent Utility Practice" means any of the practices, methods and acts
engaged in or approved by a significant portion of the electric industry during
the relevant time period, or any of the practices, methods and acts that, in the
exercise of reasonable judgment in light of the facts known at the time the
decision was made, could have been expected to accomplish the desired result at
lowest reasonable cost consistent with good business practices, reliability,
safety, and expedition. Prudent Utility Practice is not intended to be limited
to the optimum practice, method or act, to the exclusion of all others, but
rather to include a spectrum of possible practices, methods, or acts generally
acceptable in the region in light of the circumstances.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

38
<PAGE>

"Qualifying Facility" means a facility as defined in Section 210 of the
Public Utilities Regulatory Policy Act of 1978, as amended, and applicable FERC
regulations promulgated thereunder.

[**]

"Representatives" has the meaning specified in Section 7.1.

"Rocky Mountain" means the Rocky Mountain Pumped Storage Hydroelectric
Generating Facility.

"RUS" has the meaning specified in Section 12.l(iii).

"Sales Price" has the meaning specified in Section 2.5(b).

"Seller" means either LPM or OPC, as the case may be, when it is the
Party who is obligated to sell and deliver, or cause to be delivered, Electric
Energy.

"SEPA" means the Southeastern Power Administration, a federal agency of
the United States Government, or any successor.

"SEPA Contracts" means those certain power purchase and sale agreements
between each Participating Member and SEPA pursuant to which each Participating
Member purchases Electric Energy from SEPA.

"SEPA Energy" means the aggregate amount of Electric Energy Scheduled
for delivery to the Participating Members pursuant to the SEPA Contracts.

"SERC" means the Southeastern Electric Reliability Council or any
successor.

"Statement" has the meaning specified in Section 8.1.

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

39
<PAGE>

"Term" has the meaning specified in Section 6.1.

[**]

"Transmission Provider" means the entity or entities transmitting
Electric Energy on behalf of Seller or Buyer to or from the Delivery Point(s) in
connection with a particular purchase or sale.

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

40
<PAGE>

EXHIBIT 1.25(iii)

Energy Costs for Certain OPC Resources

- ----------
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

EXHIBIT 1.25(iv)

Energy Costs Paid by LPM for Certain Qualifying Facilities[**]

Year Energy Charges ($/MWh)
---- ----------------------

1997 [**]

1998 [**]

1999 [**]

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

EXHIBIT 1.43

Level B-1 Diagram

[Diagram Omitted From Electronic Filing]

<PAGE>

EXHIBIT 1.62

Participating Members

EMC Percent of Requirements
--- -----------------------
COWETA-FAYETTE EMC 50%
SAWNEE EMC 50%

<PAGE>

EXHIBIT 2.1
Off-System Sales Contracts

Sales Agreement with Alabama Electric Cooperative ("AEC"), dated March 31, 1994.

<PAGE>

EXHIBIT 2.2.1
Page 1 of 1

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

EXHIBIT 2.2.2
Page 1 of 1

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the Commission.

<PAGE>

EXHIBIT 3.2(i)

OPC Resources(1)

------------------------------------
Type of Resource OPC Resources
that are Dispatch- Minimum Maximum
able (OPC Resource) (OPC Resource)
Resources (MW) (MW)
------------------------------------
Generating Units Rocky Mountain 1 110.0 210.9
------------------------------------
Rocky Mountain 2 110.0 210.9
------------------------------------
Rocky Mountain 3 110.0 210.9
------------------------------------
Scherer(2) 195.0 496.2
------------------------------------
Scherer 2(2) 195.0 498.0
------------------------------------
Tallassee N/A 2.0
------------------------------------
Wansley 1(3) 121.0 253.8
------------------------------------
Wansley 2(3) 122.0 253.8
------------------------------------
16.2 (summer)
Wansley CT N/A 19.8 (winter)
------------------------------------

- ----------
(1) The figures contained in this Exhibit shall not serve to limit the
actual output available from any OPC Resource.

(2) Scherer minimum could be 330 MW if Georgia Power is not taking electric
energy from its ownership share of the generating facility.

(3) Wansley minimum could be 430 if other co-owners are not taking electric
energy from their ownership share of the generating facility.

(4) 100% availability - minimum applies when energy is being scheduled
under the particular block.

<PAGE>

EXHIBIT 3.2(i)

(continued)

74 (summer) 148 (summer)
Hartwell 1(5) 91 (winter) 182 (winter)
------------------------------------
74 (summer) 148 (summer)
Hartwell 2(5) 91 (winter) 182 (winter)
------------------------------------
Florida Power(6) 0 50 (1997)
275 (1998)
------------------------------------

- ----------
(5) Unit minimums are governed by Section 7.2.1 of PPA: "Unit to be
dispatched at a level no less than 50% of the maximum operating
levels." See Schedule K of the Hartwell PPA for minimum and maximum
capacities at certain temperatures. If unit is on AGC, unit minimum is
100 MW and maximum is 150 MW. Hartwell unit operation constrained to no
more than 2500 hours per unit annually.

(6) Available only during 1997 and 1998 in the months of June through
September.
<PAGE>

EXHIBIT 3.2(i) (continued)

OPC Resources and OPC Contracts

OPC Resource Operations Governed By
- ------------ ----------------------

<PAGE>

EXHIBIT 3.2(i) (continued)

Tallassee, Units 1 & 2 No Operative Documents.

Entergy Purchase Unit Capacity and Entergy Purchase Agreement
between OPC and Entergy Power, Incorporated,
dated as of October 11, 1990, Amendment dated
September 29, 1992.

<PAGE>

EXHIBIT 3.2(i) (continued)

QF Agreements Interconnection Policy of OPC and Members for
Cogeneration and Small Power Producers, dated as
of January, 1994. Agreement for Purchase of
Power from Georgia Waste Systems, Inc., dated
January 1993. Agreement for Purchase of Power
from Southeast Paper Manufacturing Co., dated as
of February 29, 1988; Amendment, dated as of
November 11, 1991. Agreement for Purchase of
Power from Spartan Mills, dated as of April 6,
1992. Agreement for Purchase of Power from
Buckeye Cellulose Corporation, executed August
6, 1983. Amendment dated September 21, 1993;
Second Amendment dated February 11, 1985; Third
Amendment dated December 10, 1991; and Fourth
Amendment dated September 1, 1996.

<PAGE>

EXHIBIT 3.2(i) (continued)

Other Agreements
- ----------------

Coordination Services Coordination Services Agreement between Georgia
Power Company and OPC, dated as of November 12,
1990.

Transmission O&M Transmission Facilities Operation and
Maintenance Contract between Georgia Power
Company and OPC, dated as of June 9, 1986.

ITS Transfer Capability Purchase of TVA ITS Interface capability from
Municipal Electric Authority of Georgia to OPC
dated December 17, 1990. Purchase of TVA ITS
Interface capability from GPC to OPC dated
November 12, 1990. Sale of FLA ITS Interface
capability to GPC and from OPC dated
May 30, 1995.

Operating Procedures Rocky Mountain Pumped Storage Hydroelectric
Plant Coordination Procedures Agreement between
Oglethorpe Power Corporation and Georgia Power
Company effective June 1, 1995. Plant Scherer
Units #1 and #2 Dispatch Procedures Rev. 6.
Hartwell Energy Facility Operation and
Maintenance Procedure for Unit Dispatch
effective June 6, 1994. Operating Procedures
for use between System Control Center and
Rocky Mountain Plant effective
November 18, 1994.

<PAGE>

EXHIBIT 3.2(ii)

[**]

- ----------
(7) Nuclear planned outages exclude ramp down period prior to full expected
planned outages above.
** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 3.3

LPM's Share of OPC Resources

Resource Percentage Share

Plant Hatch
Unit 1 5.822% of unit
Unit 2 5.822% of unit
Plant Vogtle
Unit 1 5.822% of unit
Unit 2 5.822% of unit
Plant Scherer
Unit 1 5.822% of unit
Unit 2 5.822% of unit
Plant Wansley
Unit 1 5.822% of unit
Unit 2 5.822% of unit
CT 5.822% of unit
Rocky Mountain
Unit 1 5.822% of unit
Unit 2 5.822% of unit
Unit 3 5.822% of unit
Tallassee 5.822% of total plant

Hartwell-Units 1 and 2 5.822% of total plant
Big Rivers Contract 5.822% of contract entitlement
Entergy 5.822% of contract entitlement
GPC Block 1 5.822% of contract entitlement
GPC Block 2 5.822% of contract entitlement
GPC Block 4 5.822% of contract entitlement
GPC Block 5 5.822% of contract entitlement
GPC Block 6 5.822% of contract entitlement
Florida Power Corp. 5.822% of contract entitlement
Southwire Company (QF) 5.822% of contract entitlement
Herschel Webster (QF) 5.822% of contract entitlement
Georgia Waste Systems, Inc. (QF) 5.822% of contract entitlement
Southeast Paper Manufacturing Co. (QF) 5.822% of contract entitlement
Spartan Mills (QF) 5.822% of contract entitlement

<PAGE>

EXHIBIT 4.1(b)
[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 5.3

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 5.4.1(a)
Page 1 of 4

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 5.4.1(a)
Page 2 of 4

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.1(a)
Page 3 of 4

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.1(a)
Page 4 of 4

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.1(b)
Page 1 of 1

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.5
Page 1 of 1

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.6

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.7(a)
Page 1 of 4

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 5.4.7(a)
Page 2 of 4

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.7(a)
Page 3 of 4

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.7(a)
Page 4 of 4

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.7(b)
Page 1 of 1

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.8(a)
Page 1 of 3

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.8(a)
Page 2 of 3

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.8(a)
Page 3 of 3

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.
<PAGE>

EXHIBIT 5.4.8(b)
Page 1 of 1

[**]

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

EXHIBIT 17.2

Notices and Payment

LG&E Power Marketing, Inc.:

NOTICES AND CORRESPONDENCE PAYMENTS

[**]

INVOICES

LG&E Power Marketing, Inc.
220 West Main Street
Louisville, KY 40202
Attn: Trading Accounts Payable,
7th Floor
FAX # (502) 627-4177

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>

Oglethorpe Power Corporation:

NOTICES AND CORRESPONDENCE PAYMENTS

** Material has been omitted pursuant to a request to the Commission for
confidential treatment and has been filed separately with the
Commission.

<PAGE>
Exhibit 10.68

FIRST AMENDMENT TO CREDIT AGREEMENT

This First Amendment to Credit Agreement (this "Amendment") dated as of
November 27, 1996, among LG&E Gas Systems Inc. ("the Borrower"), the Lenders
party hereto and Bank of Montreal, as Agent;

W I T N E S S E T H:

WHEREAS, the Borrower, the Lenders and the Agent have heretofore
executed and delivered a Credit Agreement dated as of May 12, 1995 (the "Credit
Agreement"); and

WHEREAS, the Borrower has requested that the Lenders amend the
definition of Consolidated Net Income;

WHEREAS, the parties hereto desire to amend the Credit Agreement as
herein provided for; NOW,

THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
Credit Agreement shall be and hereby is amended as follows:

1. The definition of Consolidated Net Income contained in Section 1.01
of the Credit Agreement is hereby amended by inserting the following immediately
at the end thereof:

The foregoing to the contrary notwithstanding, Consolidated Net Income
for the quarter ended December 31, 1996 shall be computed prior to
giving effect to up to $27,000,000 (a pre-tax number) of non-recurring
gas marketing losses suffered by a Subsidiary of the Borrower as a
result of actions in its Calgary office.

2. The Borrower represents and warrants to each Lender and the Agent
that (a) each of the representations and warranties set forth in Article IV of
the Credit Agreement is true and correct on and as of the date of this Amendment
as if made on and as of the date hereof and as if each reference therein to the
Credit Agreement referred to the Credit Agreement as amended hereby; (b) No
Event of Default or event which with the lapse of time or the giving of notice
would constitute an Event of Default has occurred and is continuing; and (c)
without limiting the effect of the foregoing, the Borrower's execution, delivery
and performance of this Amendment have been duly authorized, and this Amendment
has been executed and delivered by a duly authorized officer of the Borrower.
<PAGE>

3. This Amendment shall become effective when the Borrower, the
Majority Lenders and the Agent shall have executed and delivered this Amendment.

This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each of which
when so executed shall be an original but all of which shall constitute one and
the same instrument. Except as specifically amended and modified hereby, all of
the terms and conditions of the Credit Agreement shall remain unchanged and in
full force and effect. All references to the Credit Agreement in any document
shall be deemed to be references to the Credit Agreement as amended hereby. All
capitalized terms used herein without definition shall have the same meaning
herein as they have in the Credit Agreement. This Amendment shall be construed
and governed by and in accordance with the internal laws of the State of
Illinois.

Dated as of the date first above written.

LG & E GAS SYSTEMS INC.

By ____________________________________________
Its ___________________________________________

Accepted and Agreed to as of the day and year
first above written.

BANK OF MONTREAL, in its individual capacity as
a Lender and as Agent

By ____________________________________________
Its ___________________________________________

THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION)

By_____________________________________________
Its ___________________________________________

2
<PAGE>

PNC BANK, KENTUCKY, INC.

By ___________________________________
Its __________________________________

FIRST NATIONAL BANK OF CHICAGO

By ___________________________________
Its __________________________________

MELLON BANK, N.A.

By ___________________________________
Its___________________________________

UNION BANK OF SWITZERLAND

By ___________________________________
Its __________________________________

THE BANK OF NEW YORK

By ___________________________________
Its __________________________________

BANQUE PARIBAS

3
<PAGE>

By____________________________________
Its __________________________________

CIBC INC.

By____________________________________
Its __________________________________

CITIBANK, N.A.

By ___________________________________
Its __________________________________

<PAGE>
Exhibit 10.69

LG&E ENERGY CORP. AND LOUISVILLE GAS AND ELECTRIC COMPANY
NON-OFFICER SENIOR MANAGEMENT
PENSION RESTORATION PLAN

Effective May 1, 1996
<PAGE>

LG&E ENERGY CORP. AND LOUISVILLE GAS AND ELECTRIC COMPANY
NON-OFFICER SENIOR MANAGEMENT
PENSION RESTORATION PLAN

TABLE OF CONTENTS

DEFINITIONS....................................................................1

ELIGIBILITY AND MEMBERSHIP.....................................................1

PLAN BENEFITS..................................................................2

SOURCE OF BENEFITS.............................................................2

TERMINATION, AMENDMENT, MODIFICATION OR
SUPPLEMENT OF PLAN...........................................................3

RESTRICTIONS ON BENEFITS.......................................................3

ADMINISTRATION OF THE PLAN.....................................................4

MISCELLANEOUS..................................................................4

SIGNATURES.....................................................................5

i
<PAGE>

LG&E ENERGY CORP. AND LOUISVILLE GAS AND ELECTRIC COMPANY
NON-OFFICER SENIOR MANAGEMENT
PENSION RESTORATION PLAN

Effective May 1, 1996, LG&E Energy Corp. and Louisville Gas and
Electric Company, both Kentucky corporations with principal offices located at
Louisville, Kentucky (each hereinafter referred to as an "Employer") established
the LG&E Energy Corp. and Louisville Gas and Electric Company Non-officer Senior
Management Pension Restoration Plan (hereinafter referred to as the "Plan"), the
terms of which are hereinafter stated.

The purpose of the Plan is to provide additional retirement security to
certain senior management employees of the Employers to supplement the benefit
payable under the Employer's qualified defined benefit and defined contribution
plans and the benefit payable under the Federal Social Security program.

ARTICLE 1

DEFINITIONS

Section 1.1 Definitions

As used herein, the capitalized words shall have the meanings specified
in the LG&E Energy Corp. and Louisville Gas and Electric Company
Retirement Income Plan (hereinafter referred to as the "Qualified
Plan"), except that Average Monthly Earnings shall be computed without
regard to any limitations imposed by Section 401(a)(17) of the Internal
Revenue Code and before any deferrals to a non-qualified plan of
deferred compensation.

ARTICLE 2

ELIGIBILITY AND MEMBERSHIP

Section 2.1 Conditions

In order to be eligible for membership, an Employee must have been
credited with at least one (1) year of Service and be a non-officer
senior manager who is eligible to participate in the LG&E Energy Corp.
Nonqualified Savings Plan and who is employed by LG&E Energy Corp. or
Louisville Gas and Electric Company.
<PAGE>

ARTICLE 3

PLAN BENEFITS

Section 3.1 Plan Benefits

This Plan is intended to provide benefits that supplement the benefits
provided by the Qualified Plan to the extent such Qualified Plan
benefits are limited because of the provisions of the Internal Revenue
Code. In order to carry out the purpose of the Plan, benefits from this
Plan shall be calculated on the basis of a straight life annuity as
provided in the Qualified Plan, except as otherwise provided in Article
1 hereof, and shall be offset by the amount of the benefit payable from
the Qualified Plan in the form of a straight life annuity. Benefits
from this Plan shall be payable at the time and in accordance with the
terms of the Qualified Plan, except that the Member shall not be
required to receive his benefit from this Plan in the form of a
qualified joint and survivor annuity.

ARTICLE 4

SOURCE OF BENEFITS

Section 4.1 General Assets of the Employers

Benefits payable hereunder shall be paid exclusively from the general
assets of the Employers, and no person entitled to payment hereunder
shall have any claim, right, security interest or other interest in any
asset of the Employers which may be looked to for such payment. The
Employers' liability for the payment of benefits hereunder shall be
evidenced only by this Plan.

Section 4.2 The Employers' Obligation

The Employers shall have no obligation of any nature whatsoever to a
Member under the Plan except as otherwise expressly provided under the
Plan.

Section 4.3 Rights at Termination of Employment

This Plan does not in any way obligate the Employers or any subsidiary
of the Employers to continue the employment of any Member of employee
with the Employers, nor does it limit the right of the Employers or
subsidiaries at any time and for any reason to terminate the Member's
employment. Termination of a Member's employment with the Employers or
any subsidiaries for any reason, whether by action of an Employer, a
subsidiary, or the Member, shall immediately terminate the Member's
participation in the Plan and all future obligations of the Employers
hereunder. In no event shall the Plan, by

2
<PAGE>

its terms or implications, constitute an employment contract of any
nature whatsoever with the Employers or any subsidiary and any Member.

ARTICLE 5

TERMINATION, AMENDMENT, MODIFICATION OR SUPPLEMENT OF PLAN

Section 5.1 Reservation of the Employers' Rights

The Employers reserve the right to terminate, amend, modify or
supplement this Plan, wholly or partially, at any time, by written
action of the Compensation Committee of the Board of Directors of LG&E
Energy Corp.

Section 5.2 Plan Obligations

In the event the Employers terminate 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
at the time of Plan termination, the Employers shall determine the
value of the retirement benefit accrued to the date of termination and
shall at that time determine the timing for providing such benefits to
the Member or his beneficiary.

ARTICLE 6

RESTRICTIONS ON BENEFITS

Section 6.1 Anti-alienation Provisions

No benefit or right under the Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance or charge, and any
attempt to anticipate, alienate, sell, assign, pledge, encumber or
charge the same shall be void. No right or benefit hereunder shall in
any way be liable for or subject to the debts, contracts, liabilities,
or torts of the person entitled to such benefit. If any Member or
beneficiary under the Plan should become bankrupt or attempt to
anticipate, alienate, sell, assign, pledge, encumber or charge any
right to a benefit hereunder, then such right or benefit, in the
discretion of the Employer, shall cease and, in such event, the
Employer may hold or apply the same or any part thereof for the benefit
of such Member or beneficiary, his or her spouse, children or other
dependents, or any of them, in any manner and in such portion as the
Company may deem proper.

Section 6.2 Forfeitable Interest

A member shall forfeit his interest under the Plan upon his commission
of and conviction

3
<PAGE>

for a criminal act against the Employers or for any conduct, before or
after his retirement from the Employers, that is, in the opinion of the
Committee, detrimental to the interests of the Employers.

ARTICLE 7

ADMINISTRATION OF THE PLAN

Section 7.1 Plan Administration

The Plan will be administered as provided in Article IX of the LG&E
Energy Corp. Supplemental Executive Retirement Plan, which Article is
hereby incorporated herein by reference.

ARTICLE 8

MISCELLANEOUS

Section 8.1 Notices

Any notices which shall or may be given under this Plan shall be in
writing and shall be mailed by United States mail, postage prepaid. If
notice is to be given to an Employer, such notice shall be addressed to
the Employer, marked for the attention of the senior Human Resources
person, LG&E Energy Corp., or, if notice is to a Member, addressed to
the address shown on such Member's personnel records. Any party may,
from time to time, change the address to which notices shall be mailed
by giving written notice of such new address.

Section 8.2 Plan Binding

The Plan shall be binding upon the Employers and their successors and
assign, and upon a Member, his beneficiary, assigns, heirs, executors
and administrators.

Section 8.3 Claims Procedure

The Employers shall establish a claims procedure by which Members or
persons claiming on their behalf may claim the benefits payable
hereunder and appeal any denied claims.

Section 8.4 Reimbursement of Member Expenses

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

4
<PAGE>

Section 8.5 Construction

The Plan shall be construed in accordance with the laws of the
Commonwealth of Kentucky.

Section 8.6 Pronouns

Masculine pronouns wherever used shall include feminine pronouns and
the singular shall include the plural.

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

SIGNATURES

IN WITNESS WHEREOF, the Employers have caused this Plan to be executed
this ____ day of _______________________, 1996, but to be effective May 1, 1996.

Attest: (SEAL) LG&E ENERGY CORP.

______________________________ _________________________________________

Attest: (SEAL) LOUISVILLE GAS AND ELECTRIC COMPANY

______________________________ _________________________________________

<PAGE>
Exhibit 10.70

EMPLOYMENT CONTRACT

AMONG

LOUISVILLE GAS AND ELECTRIC COMPANY,

LG&E ENERGY CORP.

AND

ROGER W. HALE

WHEREAS, the Louisville Gas and Electric Company and its parent, LG&E
Energy Corp., (collectively the "Company") desire to continue to employ Roger W.
Hale (the "Executive") as its Chairman and Chief Executive Officer;

WHEREAS, the Company desires to provide the Executive with compensation
and benefits that are appropriate for its senior executive and desires to create
incentives for the Executive to remain in the employ of the Company;

WHEREAS, the Executive now serves as Chairman and Chief Executive
officer of the Company pursuant to an employment contract which became effective
on May 24, 1989, said contract having been amended from time to time since its
effective date; and

WHEREAS, the Company and the Executive desire that the terms and
conditions of the Executive's continued employment be set forth in a new
employment contract.

NOW, THEREFORE, the Company and Executive, as of the effective date
hereof, agree as follows:
<PAGE>

1. Duties. The Company shall employ and the Executive agrees to serve as
Chairman and Chief Executive Officer of the Company. During the Term of the
Contract, the Executive shall devote his full business and professional
time to the Company.

2. Term of Contract. The term of the employment contract shall commence on the
Effective Date hereof, and shall continue in effect until December 31,
2001.

3. Base Salary. The Company shall pay the Executive an annual base salary of
not less than Executive's 1997 salary of $580,000. Said annual salary shall
be reviewed by the Compensation Committee of the Board of Directors as of
January 1 of each year during the term of this agreement.

4. Short-Term Incentives. The Executive shall be eligible to participate in he
Company's short-term incentive program. The short-term incentive program
shall provide the Executive with an annual target award of 60 percent of
his base salary.

5. Long-Term Incentives. The Executive shall be eligible to participate in the
Company's long-term incentive program. The Executive shall have annual
grants with a present value of not less than 110 percent of his base salary
(per outside consultant's present value calculation). The annual grants
will be delivered two-thirds in the form of performance units/shares and
one-third in the form of nonqualified Stock Options.

2
<PAGE>

6. Retirement Benefits.

a) Pension Benefits. The Company shall provide the Executive with a
pension benefit based on his combined service with the Company and his
prior employers. The total benefit paid to the Executive from the
Company and his prior employers shall not be less than a benefit equal
to the product of (1) and (2), reduced by (3) where--

1) shall be the annual average of the Executive's cash compensation
for the preceding five years (base salary plus short-term
incentive pay);

2) shall be a percent based on service at retirement equivalent to 2
percent for each of the first 20 years of service plus 1.5
percent for each of the next ten years of service plus 1.0
percent for each of any remaining years of service completed
prior to age 65; and

3) shall be the Executive's primary Social Security benefit payable
at age 65.

The Company shall provide a benefit to the Executive that shall not be
less than the benefit calculated in accordance with the formula
described above, less any pension benefits provided to the Executive
from the Executive's prior employers, whether from qualified plans or
SERPS. The company-provided portion shall be paid, to the maximum
extent possible, from the Retirement Income Plan for The Executives of
Louisville Gas and Electric Company Who Are Not Members of a
Bargaining Unit.

3
<PAGE>

Subject to the terms of the final paragraph of this Section 6, the
Executive may elect to commence payment of his pension benefit as
early as age 50. If the Executive retires before attaining age 65, the
pension benefit shall be reduced in accordance with the following
factors to reflect Executive's age at the date his benefits commence:

Age Percentage Payable
--- ------------------
62-65 One Hundred Percent
61 Ninety-Seven Percent
60 Ninety-Four Percent
59 Ninety-One Percent
58 Eighty-Eight Percent
57 Eighty-Five Percent
56 Eighty-Two Percent
55 Seventy-Nine Percent
54 Seventy-Three Percent
53 Sixty-Seven Percent
52 Sixty-One Percent
51 Fifty-Five Percent
50 Forty-Nine Percent

4
<PAGE>

In applying these reductions the net benefit from the Company will be
determined first and then those reductions will be applied to the net
amount.

If Executive is terminated prior to age 55 without cause ("cause"
defined as conviction by a court of competent jurisdiction of
commission of a felony; however, a felony conviction derivatively
arising from an environmental violation shall not constitute "cause"
for purposes of this agreement), or if Executive resigns for good
reason (defined as a breach by the Company of a material term of this
Contract), Executive's pension benefit shall be determined as if he
had retired age 55.

For purposes of this Section 6, "prior employers" shall include
BellSouth Corporation and AT&T Corporation.

Notwithstanding the above, if Executive resigns for other than good
reason and elects early retirement prior to age 55, Executive shall
not be entitled to receive the prescribed early retirement benefits if
Executive shall accept a senior executive position with a
publicly-traded company or its subsidiary within one year of his
election of early retirement under this Section 6. Should such event
occur, Executive shall notify the Company and return any retirement
benefits so received. Executive thereafter shall be entitled to
receive retirement benefits at age 55, consistent with the reduction
factors set forth above, but shall receive no credit for years of
service between the time of resignation from the Company and age 55.

5
<PAGE>

7. Other Benefits. During the term of his employment, the Executive shall be
entitled to participate in the employee welfare benefit, savings, thrift,
and vacation plans or programs of the Company on a basis which is
consistent with other senior corporate officers of the Company. In
addition, Executive shall be provided, at the Company's expense, with not
less than $2,000,000 in life insurance until age 75, regardless of
employment status. The Company shall also pay Executive an additional
payment such that, after payment by Executive of all taxes imposed as a
result of the life insurance benefit, the Executive retains an amount equal
to the taxes imposed upon the Executive as a result of the life insurance
benefit.

The Company shall reimburse Executive's reasonable legal fees and expenses
in connection with any dispute under this agreement, without regard to
which party prevails.

8. Perquisites. The Company shall provide the Executive with the following
perquisites during the term of his employment:

a) an automobile and all related maintenance and insurance expenses;

b) initiation fees and dues at a luncheon club and a country club;

c) the preparation of the Executive's income tax returns by the
Company's independent accounting firm; and,

d) reasonable costs for annual financial planning by an independent
financial planner of the Executive's choice.

6
<PAGE>

To the extent required by law, the Executive may incur taxable income
related to some of these perquisites.

9. Reimbursement of Expenses. The Company shall reimburse the Executive for
all authorized and approved expenses incurred and paid by him in the course
of the performance of his duties and consistent with policies and rules of
the Company relating to the reimbursement of such business expenses.

10. Termination by the Company. The Board of Directors of the Company may, in
its sole and absolute discretion, terminate the Executive's employment at
any time. Such action shall require a majority vote of the entire Board of
Directors and shall become effective upon written notice to the Executive
or at such time as may be specified in such notice. Upon such termination
or resignation for good reason, all rights, duties, and obligations of both
parties shall cease, except as provided under Section of this agreement. In
such event, the Company shall--

a) continue to pay the Executive his then current annual base salary plus
his target short-term compensation award for the remaining term of the
employment contract, but not less than two years. At the Executive's
option, payments under this Section 10(a) shall be made (1) on a lump
sum basis within 30 days from effective date of termination with
payment equal to the present value of future payments discounted at

7
<PAGE>

the prime interest rate then in effect or (2) on a monthly basis for
the remaining term of this agreement but in no event less than two
years.

b) provide the Executive with continued health insurance benefits to the
extent required by law.

The payments described in subparagraph (a), however, shall not be made if
the Executive is terminated for cause, or Executive resigns for other than
good reason during the term of the employment contract.

11. Interpretation with Other Agreements. Furthermore, if any Company payment
either pursuant to this agreement the agreement dated March 4, 1993,
between the Executive and the Company, or any other agreement, is subject
to an excise tax pursuant to Section 4999 of the code (the "Excise Tax"),
then the Company shall pay Executive an additional amount (the "Gross-Up
Payment") such that, after payment by Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including any
Excise Taxes imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
original payment triggering the Excise Tax.

12. Permanent and Total Disability. In the event the Executive becomes totally
disabled during the term of the contract, he shall be entitled to a benefit
equal to 60 percent of current annual base salary less 100 percent of the
Social Security disability benefit should he become

8
<PAGE>

qualified for such benefit. Benefits will begin after Executive has been
totally disabled for 22 weeks and will continue for as long as the
Executive remains totally disabled or until age 65. Upon attaining age 65,
the Executive shall be entitled to the pension benefits described in
Section 6 based on service that includes the period of disability and
compensation paid up to the point of disability.

During the first 24 months in which the Executive receives benefits in
accordance with this provision, total disability means an on or off the job
injury or illness that makes it impossible for the Executive to engage in
his present occupation. After 24 months, total disability means an on or
off job illness or injury that makes it impossible for the Executive to
engage in an occupation or profession for which he is reasonably qualified
by reason of education, experience, capability, and training.

11. Successors and Assigns. This agreement shall be binding upon the Company
and its successors and assigns.

12. Effective Date. _______________________________

________________ _____________________________________________________
Date ROGER W. HALE
Chairman and Chief Executive Officer

________________ _____________________________________________________
Date J. DAVID GRISSOM
Chairman, Compensation Committee

<PAGE>
Exhibit 18

Louisville Galleria
2300 Meidinger Tower
Louisville, KY 40202-3460
January 29, 1997

LG&E Energy Corp.
220 W. Main Street
Louisville, Kentucky 40202

Dear Gentlemen:

This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.

Effective January 1, 1996, LG&E Energy Corp. changed from the accrual method of
accounting for its price risk management activities to the mark-to-market
method. According to the management of the Company, this change was made to more
fairly present the current results of the Company's operations related to this
business and to recognize that value is created, and the earnings process
completed, when the contractual commitments are finalized.

A complete, coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this matter.

We are of the opinion the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.

Very truly yours,

/s/ Arthur Andersen LLP
Arthur Andersen LLP

<PAGE>
Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

Louisville Gas and Electric Company (a Kentucky corporation), LG&E Power Inc. (a
Delaware corporation), and LG&E Natural Inc. (a Delaware corporation) are
significant subsidiaries of the Registrant. The registrant owns 100% of the
common stock of Louisville Gas and Electric Company. LG&E Power Inc., an
indirect wholly-owned subsidiary of the Registrant, together with 33
subsidiaries operating in the United States, 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., an
indirect wholly-owned subsidiary of the Registrant, together with 20
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 29, 1997 (except with respect to the
matters discussed in the first paragraph of Note 2 and the twelfth paragraph of
Note 16, as to which the date is March 12, 1997), included in this Form 10-K,
into the Company's previously filed Post-Effective Amendment No. One to
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, Registration Statement No.
333-05457 and Post-Effective Amendment No. 2-C to Registration Statement No.
33-33687 relating to the Employee Common Stock Purchase Plan of the Company,
Registration Statement No. 333-05459 and Post-Effective Amendment No. Two to
Registration Statement No. 33-38557 relating to the Omnibus Long-Term Incentive
Plan of the Company, Post-Effective Amendment No. One to Registration Statement
No. 33-56525 relating to the Stock Option Plan for Non-Employee Directors of the
Company, and Post-Effective Amendment No. One to Registration Statement No.
33-60765 relating to the Deferred Stock Compensation Plan for Non-Employee
Directors of the Company.

______________________________________
Arthur Andersen LLP

Louisville, Kentucky
March 26, 1997

<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, 1996 (the 1996 Form 10-K); and

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

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints ROGER W.
HALE and CHARLES A. MARKEL III, and each of them, individually, his attorney,
with full power to act for him and in his name, place, and stead, to sign his
name in the capacity or capacities set forth below to the 1996 Form 10-K and to
any and all amendments to such 1996 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
5th day of March 1997.

/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/ Ronald L. Bittner /s/ Charles A. Markel III
- -------------------------- --------------------------
RONALD L. BITTNER Charles A. Markel III, Principal
Director Financial and Accounting Officer

STATE OF KENTUCKY )
)ss.
COUNTY OF JEFFERSON )

1
<PAGE>

Exhibit 24

POWER OF ATTORNEY (cont.)

On this 5th day of March 1997, 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, 2000 ------------------------
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-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,685,222
<OTHER-PROPERTY-AND-INVEST> 355,525
<TOTAL-CURRENT-ASSETS> 857,572
<TOTAL-DEFERRED-CHARGES> 113,573
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,011,892
<COMMON> 465,070 <F1>
<CAPITAL-SURPLUS-PAID-IN> 154 <F2>
<RETAINED-EARNINGS> 345,994
<TOTAL-COMMON-STOCKHOLDERS-EQ> 811,218
0
95,328
<LONG-TERM-DEBT-NET> 646,835
<SHORT-TERM-NOTES> 158,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,300,511
<TOT-CAPITALIZATION-AND-LIAB> 3,011,892
<GROSS-OPERATING-REVENUE> 3,589,465
<INCOME-TAX-EXPENSE> 57,359
<OTHER-OPERATING-EXPENSES> 3,378,024 <F3>
<TOTAL-OPERATING-EXPENSES> 3,435,383
<OPERATING-INCOME-LOSS> 154,082
<OTHER-INCOME-NET> 3,808
<INCOME-BEFORE-INTEREST-EXPEN> 157,890
<TOTAL-INTEREST-EXPENSE> 49,319
<NET-INCOME> 108,571
4,568
<EARNINGS-AVAILABLE-FOR-COMM> 104,003
<COMMON-STOCK-DIVIDENDS> 74,939
<TOTAL-INTEREST-ON-BONDS> 39,771
<CASH-FLOW-OPERATIONS> 230,381
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.57
<FN>
<F1>Includes common stock expense of $1,259.
<F2>Represents unrealized loss on marketable securities,
net of taxes.
<F3>Includes equity in earnings of affiliates of
$18,818.
</FN>

</TABLE>

<PAGE>

Exhibit 99.01

LG&E Energy Corp. Cautionary Factors

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage such disclosures without the
threat of litigation providing those statements are identified as
forward-looking and are accompanied by meaningful, cautionary statements
identifying important factors that could cause the actual results to differ
materially from those projected in the statement. Forward-looking statements
have been and will be made in written documents and oral presentations of LG&E
Energy Corp. (the "Company"). Such statements are based on management's beliefs
as well as assumptions made by and information currently available to
management. When used in the Company's documents or oral presentations, the
words "anticipate", "estimate", "expect", "objective" and similar expressions
are intended to identify forward-looking statements. In addition to any
assumptions and other factors referred to specifically in connection with such
forward-looking statements, factors that could cause the Company's actual
results to differ materially from those contemplated in any forward-looking
statements include, among others, the following:

* Increased competition in the utility industry, including effects of:
decreasing margins as a result of competitive pressures; industry
restructuring initiatives; transmission system operation and/or
administration initiatives; recovery of investments made under traditional
regulation; nature of competitors entering the industry; retail wheeling;
a new pricing structure; and former customers entering the generation
market;

* Changing market conditions and a variety of other factors associated with
physical energy and financial trading activities including, but not
limited to, price, basis, credit, liquidity, volatility, capacity,
transmission, currency, interest rate and warranty risks;

* Risks associated with price risk management strategies intended to
mitigate exposure to adverse movement in the prices of electricity and
natural gas on both a global and regional basis;

* Legal, regulatory, economic and other factors which may result in
redetermination or cancellation of revenue payment streams under power
sales agreements resulting in reduced operating income and potential asset
impairment related to the Company's investments in independent power
production ventures;

* Economic conditions including inflation rates and monetary fluctuations;

* Trade, monetary, fiscal, taxation, and environmental policies of
governments, agencies and similar organizations in geographic areas where
the Company has a financial interest;

* Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their products
and services;

* Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission, state public utility
commissions, state entities which regulate natural gas transmission,
gathering and processing and similar entities with regulatory oversight;

* Availability or cost of capital such as changes in: interest rates, market
perceptions of the

1
<PAGE>

utility and energy-related industries, the Company or security ratings;

* Factors affecting utility operations such as unusual weather conditions;
catastrophic weather-related damage; unscheduled generation outages,
unusual maintenance or repairs; unanticipated changes to fossil fuel, or
gas supply costs or availability due to higher demand, shortages,
transportation problems or other developments; environmental incidents; or
electric transmission or gas pipeline system constraints;

* Employee workforce factors including changes in key executives, collective
bargaining agreements with union employees, or work stoppages;

* Rate-setting policies or procedures of regulatory entities, including
environmental externalities;

* Social attitudes regarding the utility, natural gas and power industries;

* Identification of suitable investment opportunities to enhance shareholder
returns and achieve long-term financial objectives through business
acquisitions;

* Some future project investments made by the Company could take the form of
minority interests, which would limit the Company's ability to control the
development or operation of the project;

* Legal and regulatory delays and other unforeseeable obstacles associated
with mergers, acquisitions and investments in joint ventures;

* Costs and other effects of legal and administrative proceedings,
settlements, investigations, claims and matters, including but not limited
to those described in Note 13 of the Notes to Financial Statements of the
Company's Annual Report on Form 10-K for the year ended December 31, 1996,
under the caption Commitments and Contingencies;

* Technological developments, changing markets and other factors that result
in competitive disadvantages and create the potential for impairment of
existing assets;

* Factors associated with non-regulatory investments, including but not
limited to: continued viability of partners, foreign government actions,
foreign economic and currency risks, political instability in foreign
countries, partnership actions, competition, operating risks, dependence
on certain customers, third-party operators, suppliers and domestic and
foreign environmental and energy regulations;

* Other business or investment considerations that may be disclosed from
time to time in the Company's Securities and Exchange Commission filings
or in other publicly disseminated written documents.

The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

<PAGE>

EXHIBIT 99.02

DESCRIPTION OF COMMON STOCK

The information under this caption is a succinct summary of certain provisions
and is subject to the detailed provisions of the Company's Restated Articles of
Incorporation, as amended, and of its By-Laws, which have been filed (or
incorporated by reference) as exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, and which are incorporated herein by
this reference.

Authorized Stock

Under the Company's Articles of Incorporation, the Company is authorized to
issue 125,000,000 shares of Common Stock, without par value (the "Common
Stock"), of which approximately 66,377,022 shares were outstanding on February
28, 1997.

The Company is also authorized to issue 5,000,000 shares of preferred stock,
without par value (the "Preferred Stock"). As discussed below under the caption
"Rights to Purchase Series A Preferred Stock," the Company has created a series
of Preferred Stock designated as "Series A Preferred Stock," and the number of
shares constituting such series is 750,000. No shares of such Series A Preferred
Stock and no shares of any other Preferred Stock are currently outstanding.
Preferred Stock may be issued in the future in such series as may be designated
by the Company's Board of Directors. In creating any such series, the Company's
Board of Directors has the authority to fix the rights and preferences of each
series with respect to, among other things, the dividend rate, redemption
provisions, liquidation preferences, and sinking fund provisions.

Dividend Rights

Subject to the prior payment in full of all accrued and unpaid dividends on the
Series A Preferred Stock and possible prior rights of holders of other Preferred
Stock that may be issued in the future, holders of the Company's Common Stock
are entitled to receive such dividends as may be declared from time to time by
the Board of Directors of the Company out of funds legally available therefor.

The funds required by the Company to enable it to pay dividends on its Common
Stock are expected to be derived principally from dividends paid by Louisville
Gas and Electric Company, the Company's principal subsidiary ("LG&E"), on LG&E's
Common Stock. The Company's ability to receive dividends on LG&E's Common Stock
is subject to the prior rights of the holders of LG&E's preferred stock and the
covenants of debt instruments limiting the ability of LG&E to pay dividends.

The only existing covenant limiting LG&E's ability to pay dividends is in LG&E's
trust indenture, as supplemented, securing LG&E's first mortgage bonds. It
provides in substance that retained income of LG&E equal to the amount by which
the aggregate of (a) provisions for retirement and depreciation and (b)
expenditures for maintenance, for the period from January 1,

1
<PAGE>

1978, to the end of the last preceding month for which a balance sheet of LG&E
is available, is less than 2.25% of depreciable property, including construction
work in progress, as of the end of that period, shall not be available for the
payment of cash dividends on the Common Stock of LG&E. No portion of retained
income of LG&E is presently restricted by this provision.

Voting Rights

Every holder of Common Stock and every holder of Series A Preferred Stock that
may be issued in the future is entitled to one vote per share for the election
of directors and upon all other matters on which such holder is entitled to
vote. At all elections of directors, any eligible shareholder may vote
cumulatively. The Board of Directors of the Company has the authority to fix
conversion and voting rights for any new series of Preferred Stock (including
the right to elect directors upon a failure to pay dividends), provided that no
share of Preferred Stock can have more than one vote per share.

Notwithstanding the foregoing, if any Series A Preferred Stock is issued in the
future and if and when dividends payable on such Series A Preferred Stock that
may be issued in the future shall be in default for six full quarterly dividends
and thereafter until all defaults shall have been paid, the holders of the
Series A Preferred Stock, voting separately as one class, to the exclusion of
the holders of Common Stock, will be entitled to elect two (2) directors of the
Company.

The Company's Articles of Incorporation contain "fair price" provisions, which
require that mergers and certain other business combinations or transactions
involving the Company and any substantial (10% or more) holder of the Company's
Voting Stock (as defined below) must be approved by the holders of at least 80%
of the voting power of the Company's outstanding Voting Stock and by the holders
of at least 66-2/3% of the voting power of the Company's Voting Stock not
beneficially owned by the 10% owner unless the transaction is either approved by
a majority of the members of the Board of Directors who are unaffiliated with
the substantial holder or certain minimum price and procedural requirements are
met. Any amendment to the foregoing provisions must be approved by the holders
of at least 80% of the voting power of the Company's outstanding Voting Stock
and by the holders of at least 66-2/3% of the voting power of the Company's
Voting Stock not beneficially owned by any 10% owner. The Company's Voting Stock
consists of all outstanding shares of the Company generally entitled to vote in
the election of directors and currently consists of the Company's Common Stock.

Subject to the rights of the Series A Preferred Stock (if any are issued) to
elect directors under certain circumstances described above and any voting
rights of the holders of the Company's Preferred Stock that may be issued in the
future, the Company's Articles and By-Laws contain provisions stating that: (a)
the Board of Directors shall be divided into three classes, as nearly equal in
number as possible, each of which, after an interim arrangement, will serve for
three years, with one class being elected each year, (b) directors may be
removed only with the approval of the holders of at least 80% of the voting
power of the shares of the Company generally entitled to vote, except that so
long as cumulative voting applies no director may be removed if the votes cast
against removal would be sufficient to elect the director if cumulatively voted
at an election of the class of directors of which such director is a part, (c)
any vacancy on the Board of Directors shall be filled by the remaining directors
then in office, though less than a

2
<PAGE>

quorum, (d) advance notice of introduction by shareholders of business at annual
shareholders' meetings and of shareholder nominations for the election of
directors shall be given and that certain information be provided with respect
to such matters, (e) shareholder action may be taken only by unanimous written
consent or at an annual meeting of shareholders or a special meeting of
shareholders called by the President, the Board of Directors or, to the extent
required by Kentucky law, shareholders, and (f) the foregoing provisions may be
amended only by the approval of the holders of at least 80% of the voting power
of the shares of the Company generally entitled to vote. These provisions along
with the "fair price" provisions and cumulative voting provisions discussed
above and the Rights described below, may deter attempts to change control of
the Company (by proxy contest, tender offer or otherwise) and will make more
difficult a change in control of the Company that is opposed by the Company's
Board of Directors.

Liquidation Rights

Subject to the prior rights of the holders of the Series A Preferred Stock that
may be issued in the future and the possible prior rights of holders of other
Preferred Stock that may be issued in the future, in the event of liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of the Common Stock are entitled to the remaining assets.

Other Provisions

No holder of Common Stock or any future holder of Preferred Stock has the
preemptive right to subscribe for and purchase any part of any new or additional
issue of stock or securities convertible into stock. The Common Stock is not
subject to redemption and does not have any conversion or sinking fund
provisions. The issued and outstanding shares of Common Stock are fully paid and
nonassessable shares of Common Stock of the Company.

Under the Company's Articles of Incorporation, the Board of Directors may issue
additional shares of authorized but unissued Common Stock for such consideration
as it may from time to time determine.

Rights to Purchase Series A Preferred Stock

On December 5, 1990, the Board of Directors of the Company: (i) declared a
dividend distribution of one Preferred Stock purchase right (a "Right" or
"Rights") for each outstanding share of Common Stock to shareholders of record
on December 19, 1990, and issuable as of such Record Date and (ii) further
authorized the issuance of one Right with respect to each share of Common Stock
of the Company that becomes outstanding after such Record Date and before the
Distribution Date (as defined below).

The Company declared a three-for-two split of the Common Stock to shareholders
of record on April 30, 1992. As a result of the stock split and in accordance
with the terms of the Rights, the number of Rights associated with a share of
Common Stock was reduced, effective May 15, 1992, from one Right per share to
two-thirds of a Right per share. The Company declared a two-for-one split of the
Common Stock to shareholders of record on April 1, 1996. As a result of the

3
<PAGE>

two-for-one split and in accordance with the terms of the Rights, the number of
Rights associated with a share of Common Stock was reduced from two-thirds of a
Right per share to one-third of a Right per share, effective April 15, 1996.

On June 7, 1995, the Board of Directors approved the First Amendment to Rights
Agreement, whereby the definition of "Acquiring Person" (see below) was modified
to provide that an "Acquiring Person" shall be any person who has acquired, or
obtained the rights to acquire, beneficial ownership of 15% or more of the
outstanding Common Stock of the Company. The previous ownership threshold was
20%.

Each whole Right entitles the holder of record to purchase from the Company one
one-hundredth of a share of Series A Preferred Stock, without par value, of the
Company ("Series A Preferred Stock") at a price of $110 per one one-hundredth of
a share (the "Purchase Price"). The description and terms of the Rights are set
forth in the Rights Agreement, as amended (the "Rights Agreement").

Initially the Rights will not be exercisable, certificates will not be sent to
shareholders and the rights will automatically trade with the Common Stock.

The Rights will be evidenced by the Common Stock certificates until the close of
business on the earlier to occur of the tenth day following (i) a public
announcement (or, if earlier, the date a majority of the Board of Directors of
the Company becomes aware) that a person or group of affiliated or associated
persons has become an "Acquiring Person", which is defined as a person who has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding Common Stock of the Company (the "Stock Acquisition Date"),
or (ii) the commencement of, or public announcement of an intention to commence,
a tender or exchange offer the consummation of which would result in the
ownership of 15% or more of the outstanding Common Stock (the earlier of the
dates in clause (i) or (ii) being called the "Distribution Date").
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a person who would otherwise be an "Acquiring
Person," has become such inadvertently and without any intention of changing or
influencing control of the Company, and such person, as promptly as practicable
after being advised of such determination, divests himself or itself of
beneficial ownership of a sufficient number of shares of Common Stock so that
such person would no longer be an "Acquiring Person," then such person shall not
be deemed to be an "Acquiring Person" for any purposes of the Rights Agreement.
Until the Distribution Date, (i) the Rights will be evidenced by the Common
Stock certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate.

As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Company's Common Stock as of the close of business on the Distribution
Date, and such separate certificates alone will evidence the rights from and
after the Distribution Date.

4
<PAGE>

Each of the following persons (an "Exempt Person") will not be deemed to be an
Acquiring Person, even if they have acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding Common Stock of the
Company: (i) the Company, any subsidiary of the Company, any employee benefit
plan or employee stock plan of the Company or of any subsidiary of the Company;
and (ii) any person who becomes an Acquiring Person solely by virtue of a
reduction in the number of outstanding shares of Common Stock, unless and until
such person shall become the beneficial owner of, or make a tender offer for,
any additional shares of Common Stock.

The Rights are not exercisable until the Distribution Date. The Rights will
expire at the close of business on December 19, 2000, unless earlier redeemed or
exchanged by the Company as described below.

The Purchase Price payable, and the number of shares of Series A Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series A Preferred Stock, (ii) upon the grant to holders of the Series A
Preferred Stock of certain rights or warrants to subscribe for Series A
Preferred Stock or convertible securities at less than the current market price
of the Series A Preferred Stock or (iii) upon the distribution to holders of the
Series A Preferred Stock of evidences of indebtedness or assets (excluding
dividends payable in Series A Preferred Stock) or of subscription rights or
warrants (other than those referred to above). The number of Rights associated
with a share of the Company's Common Stock is subject to adjustment from time to
time in the event of a stock dividend on, or a subdivision or combination of,
the Common Stock.

In the event any Person (other than an Exempt Person) becomes the beneficial
owner of 15% or more of the then outstanding shares of Common Stock (except
pursuant to an offer for all outstanding shares of Common Stock that the
independent directors determine to be fair to and otherwise in the best interest
of the Company and its shareholders) or any Exempt Person who is the beneficial
owner of 15% or more of the outstanding Common Stock fails to continue to
qualify as an Exempt Person, then each holder of record of a whole Right, other
than the Acquiring Person, will thereafter have the right to receive, upon
payment of the Purchase Price, Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a market value at the time
of the transaction equal to twice the Purchase Price. However, Rights are not
exercisable following such event until such time as the Rights are no longer
redeemable by the Company as set forth below. Any Rights that are or were at any
time, on or after the Distribution Date, beneficially owned by an Acquiring
Person shall become null and void.

For example, at an exercise price of $110 per Right, each whole Right not owned
by an Acquiring Person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase $220 worth
of Common Stock (or other consideration, as noted above) for $110. Assuming that
the Common Stock had a per share value of $22 at such time, the holder of each
valid Right would be entitled to purchase 10 shares of Common Stock for $110.

5
<PAGE>

After the Rights have become exercisable, if the Company is acquired in a merger
or other business combination (in which any shares of the Company's Common Stock
are changed into or exchanged for other securities or assets) or more than 50%
of the assets or earning power of the Company and its subsidiaries (taken as a
whole) are sold or transferred in one or a series of related transactions, the
Rights Agreement provides that proper provision shall be made so that each
holder of record of a whole Right will have the right to receive, upon payment
of the Purchase Price, that number of shares of common stock of the acquiring
company having a market value at the time of such transaction equal to two times
the Purchase Price.

After any such event, to the extent that insufficient shares of Common Stock are
available for the exercise in full of the Rights, holders of Rights will receive
upon exercise shares of Common Stock to the extent available and then other
securities of the Company, including units of shares of Series A Preferred Stock
with rights substantially comparable to those of the Common Stock, property, or
cash, in proportions determined by the Company, so that the aggregate value
received is equal to twice the Purchase Price. The Company, however, shall not
be required to issue any cash, property or debt securities upon exercise of the
Rights to the extent their aggregate value would exceed the amount of cash the
Company would otherwise be entitled to receive upon exercise in full of the then
exercisable Rights.

No fractional shares of Series A Preferred Stock or Common Stock will be
required to be issued upon exercise of the Rights and, in lieu thereof, a
payment in cash may be made to the holder of such Rights equal to the same
fraction of the current market value of a share of Series A Preferred Stock or,
if applicable, Common Stock.

At any time until ten days after the Stock Acquisition Date (subject to
extension by the Board of Directors), the Company may redeem the Rights in
whole, but not in part, at a price of $0.01 per Right (subject to certain
anti-dilution adjustments) (the "Redemption Price"). After such redemption
period, the Company's right of redemption may be reinstated, under certain
circumstances, if an Acquiring Person reduces his beneficial ownership of Common
Stock to below 10% and there is no other Acquiring Person. Immediately upon the
action of the Board of Directors of the Company authorizing redemption of the
Rights, the right to exercise the rights will terminate, and the only right of
the holders of Rights will be to receive the Redemption Price without any
interest thereon.

The Board of Directors may, at its option, at any time after any Person becomes
an Acquiring Person, exchange all or part of the outstanding Rights (other than
Rights held by the Acquiring Person and certain related parties) for shares of
Common Stock at an exchange ratio of three (3) shares of Common Stock per Right
(subject to certain anti-dilution adjustments). However, the Board may not
effect such an exchange at any time any Person or group owns 50% or more of the
shares of Common Stock then outstanding. Immediately after the Board orders such
an exchange, the right to exercise the Rights shall terminate and the holders of
Rights shall thereafter only be entitled to receive shares of Common Stock at
the applicable exchange ratio.

The Board of Directors of the Company may amend the Rights Agreement. After the
Distribution Date, however, the provisions of the Rights Agreement may be
amended by the Board only to cure any ambiguity, to make changes which do not
adversely affect the interests of holders of

6
<PAGE>

Rights (excluding the interests of any Acquiring Person or an affiliate or
associate of an Acquiring Person), or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to adjust the
time period governing redemption shall be made at such time as the Rights are
not redeemable. In addition, no supplement or amendment may be made which
changes the Redemption Price, the final expiration date, the Purchase Price or
the number one one-hundredths of a share of Series A Preferred Stock for which a
Right is exercisable, unless at the time of such supplement or amendment there
has been no occurrence of a Stock Acquisition Date and such supplement or
amendment does not adversely affect the interests of the holders of Rights
(other than an Acquiring Person or an associate or affiliate of an Acquiring
Person).

Until a Right is exercised, the holder, as such, will have no rights as a
shareholder of the Company, including, without limitation, the right to vote or
to receive dividends.

The issuance of the Rights is not taxable to the Company or to shareholders
under presently existing federal income tax law, and will not change the way in
which shareholders can presently trade the Company's shares of Common Stock. If
the Rights should become exercisable, shareholders, depending on then existing
circumstances, may recognize taxable income.

The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors and, accordingly, will make more
difficult a change of control that is opposed by the Company's Board of
Directors. However, the Rights should not interfere with a proposed change of
control (including a merger or other business combination) approved by a
majority of the Board of Directors since the Rights may be redeemed by the
Company at the Redemption Price at any time until ten days after the Stock
Acquisition Date (subject to extension by the Board of Directors). Thus, the
Rights are intended to encourage persons who may seek to acquire control of the
Company to initiate such an acquisition through negotiations with the Board of
Directors. Nevertheless, the Rights also may discourage a third party from
making a partial tender offer or otherwise attempting to obtain a substantial
equity position in, or seeking to obtain control of, the Company. To the extent
any potential acquirors are deterred by the Rights, the Rights may have the
effect of preserving incumbent management in office.

A copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to the Company's Registration Statement on Form S-8,
Registration No. 33-38557. A copy of the First Amendment to Rights Agreement has
been filed with the SEC as an Exhibit to the Company's Registration Statement on
Form 8-A/A, Registration No. 1-10568, filed on June 20, 1995. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is incorporated in this
summary description herein by reference.

Miscellaneous

The Company's outstanding Common Stock is listed on the New York and Chicago
Stock Exchanges.

7
<PAGE>

Transfer Agents and Registrar

The Transfer Agents for the Common Stock are the Company and Norwest Bank
Minnesota, N.A., Minneapolis, Minnesota. Registrar for the Common Stock is PNC
Bank, Kentucky, Inc., Louisville, Kentucky.