<PAGE>
Exhibit O-1
LOUISVILLE GAS AND ELECTRIC COMPANY
ANALYSIS OF THE ECONOMIC IMPACT
OF A DIVESTITURE OF THE GAS OPERATIONS OF
LOUISVILLE GAS AND ELECTRIC COMPANY
This study was performed by The Prime Group, LLC to quantify the economic impact
on shareholders and customers of divesting the natural gas assets and businesses
of Louisville Gas and Electric Company into a stand-alone gas company.
August, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
I. EXECUTIVE SUMMARY................................................... 1
II. CONCLUSIONS.......................................................... 3
III. COMPANY DESCRIPTIONS................................................. 5
IV. METHODOLOGY.......................................................... 5
V. STUDY ASSUMPTIONS.................................................... 7
VI. ORGANIZATIONAL STRUCTURE............................................. 9
VII. ANALYSIS............................................................. 10
VIII. OTHER CUSTOMER IMPACTS............................................... 13
APPENDIXES
----------
A. CUSTOMER STATISTICS
B. INCREASE IN OPERATION AND MAINTENANCE EXPENSES
C. INCREASED PLANT INVESTMENT
D. REVENUE REQUIREMENT ANALYSIS
E. LOST ECONOMIES - RATEPAYER
F. INVESTOR IMPACT OF LOST ECONOMIES
<PAGE>
I. EXECUTIVE SUMMARY
The Prime Group, LLC has prepared this "Analysis of the Economic Impact of
a Divestiture of the Gas Operations of Louisville Gas and Electric Company"
("Study") on behalf of Louisville Gas and Electric Company ("LG&E") in order to
quantify the economic impact on LG&E's shareholders and customers of spinning
off its Kentucky natural gas assets and business. LG&E currently provides
electric and natural gas service in the north central area of Kentucky and is a
first-tier utility operating company subsidiary of LG&E Energy Corp.
The Study quantifies the economic impacts of operating LG&E's gas business
if it were spun-off into a new organization called, for the purpose of this
Study, "NewLouGas", and operated as an independent, stand-alone company. The
economic impact of operating the electric business as an independent, stand-
alone company, "NewLouElectric", is also analyzed.
The Study evaluates the increased costs or "lost economies" associated with
divestiture of LG&E's gas business from two perspectives -- shareholders and
customers. The effect on shareholders is the direct result of the increased
costs or lost economies resulting from a spin-off or divestiture, absent
regulatory rate relief to recoup these lost economies. The effect on
shareholders is measured by the change in net income before and after the
divestiture. The effect on customers assumes recovery of these lost economies
through rate increases, and is divided into two parts. The potential effects on
customers have first been evaluated in terms of increased revenue requirements
and rates, and second in terms of the impact of other quantifiable and non-
quantifiable costs.
The projected impacts on the shareholders of the lost economies resulting
from the spin-off of LG&E's gas business into NewLouGas, assuming no rate
adjustments to recover the lost economies and associated incomes taxes, are
shown in Table I-1.
--------------------------------------------------------------------------------
Table I-1
--------------------------------------------------------------------------------
Annual Percentage Impact of Lost
Lost Economies As a Percent Of: Economies on LG&E Shareholders
--------------------------------------------------------------------------------
Total Gas Operating Revenue 8.15%
--------------------------------------------------------------------------------
Total Gas Operating Revenue Deductions 9.85%
--------------------------------------------------------------------------------
Gross Gas Income 47.30%
--------------------------------------------------------------------------------
Net Gas Income 69.04%
--------------------------------------------------------------------------------
In Table I-1, the percentage increases are calculated by dividing the lost
economies shown in Appendix F by various revenue and income components shown in
Appendix D. Total Gas Operating Revenue is the Base Case revenue requirement
shown on the summary page of Appendix D for 12 months ending December 31,
1999./1/ Total Gas Operating Revenue Deductions include all operation and
maintenance expenses, administrative and general
_________________________
/1/ The dollar amounts contained in the Study are expressed in 1999 dollars.
1
<PAGE>
expenses, depreciation and all taxes, except income taxes. Gross Gas Income is
the difference between Total Gas Operating Revenue and Total Gas Operating
Revenue Deductions. Net Gas Income is Gross Gas Income minus Income Taxes.
Alternatively, assuming that NewLouGas is allowed to increase its rate
revenue to recover these lost economies and attendant income taxes through rate
increases, the projected impact on LG&E's customers is shown in Table I-2.
------------------------------------------------
Table I-2
------------------------------------------------
Rate Revenue NewLouGas
------------------------------------------------
Pre Spin-off $204,675,655
------------------------------------------------
Post Spin-off $235,792,342
------------------------------------------------
Increase $ 31,116,687
------------------------------------------------
Percent Increase 15.2%
------------------------------------------------
The Pre Spin-off revenue requirement shown in Table I-2 is the gas base
case revenue requirement from the summary page of Appendix D, and represents
actual revenue adjusted for the expected return requirements filed in Case No.
2000-080. Likewise, the Post Spin-off Revenue requirement shown in Table I-2 is
the gas stand-alone case revenue requirement from the summary page of Appendix D
and also reflects the return requirements filed in Case No. 2000-080.
In addition to the foregoing impacts, the Table I-3 sets forth the impact
on LG&E's electric business. This impact is primarily due to the expense of
additional employees required to perform a multitude of functions accomplished
by employees who currently work for both the electric and gas businesses and
assumes that rate recovery of the lost economies and attendant income taxes is
allowed by the appropriate regulatory agencies.
-----------------------------------------------------------
Table I-3
-----------------------------------------------------------
Rate Revenue Annual Electric Customer Impact
of Lost Economies
-----------------------------------------------------------
Pre Spin-off $768,400,832
-----------------------------------------------------------
Post Spin-off $781,170,285
-----------------------------------------------------------
Increase $ 12,769,453
-----------------------------------------------------------
Percent Increase 1.7%
-----------------------------------------------------------
The Pre Spin-off revenue requirement shown in Table I-3 is the electric
base case revenue requirement from the summary page of Appendix D, and
represents actual revenue adjusted for the expected return requirements filed in
Case No. 2000-080. Likewise, the Post Spin-off Revenue requirement shown in
Table I-2 is the electric stand-alone case revenue
2
<PAGE>
requirement from the summary page of Appendix D and also reflects the return
requirements filed in Case No. 2000-080.
Finally, NewLouGas's customers who currently purchase both gas and electric
service from LG&E would personally incur additional costs, such as postage on a
separate envelope, and additional check costs to mail payments to two utilities
rather than one. This does not include additional customer confusion resulting
from doing business with two utilities rather than one. The increased postage
expense alone is $3.96 per customer per year (i.e., $0.33 x 12 = $3.96), which
corresponds to $1,054,900 for LG&E's 266,389 combination gas and electric
customers.
II. CONCLUSIONS
A. Impact on Gas Operations
The spin-off of LG&E's current gas business into a stand-alone company is
estimated to result in a substantial increase in costs and therefore a
substantial decrease in earnings to shareholders absent rate relief to recoup
these increased costs. Without an increase in rates, the immediate negative
effect on shareholders earnings would be substantial. For example, the earnings
contribution related to LG&E's gas business would be decreased by approximately
69 percent as shown in Table I-1. Such a decline would make ownership of shares
in this stand-alone company unattractive.
The recovery of these cost increases through rates charged to customers in
Kentucky would result in a significant increase in the level of cost borne by
these customers with no attendant increase in the level or quality of service.
The rate increases required to provide the level of revenue needed to cover
costs to operate NewLouGas will be significant, amounting to approximately $31.1
million, as shown in Table I-2. Such a rate increase would negatively impact
NewLouGas's competitive position at a time when competition in the energy
industry is rapidly increasing due to Federal Energy Regulatory Commission
("FERC") Order No. 636 and other FERC and state regulatory initiatives, such as
the current trend toward retail service unbundling.
The potential by-pass of Local Distribution Companies ("LDCs") is becoming
a reality that LDCs must face daily, along with the commensurate possibility of
a decreasing customer base, resultant rate increases, and potential stranded
costs. The FERC has sanctioned the bypass of LDC systems by interstate pipelines
in recent years in the interest of competition./2/ In addition, natural gas
service continues to compete with alternative fuels.
_____________________
/2/ See KN Wattenberg Transmission LLC's ("KNW") - Front Runner Pipeline
application in FERC Docket No. CP98-49-000 for a pipeline that would
compete with PSCo's existing pipeline. Also, see FERC Docket No. CP97-256,
authorizing KNW to build a 6 mile pipeline lateral bypassing the City of
Ft. Morgan's municipal gas system.
3
<PAGE>
The focus on competition is beginning to require the unbundling of LDC
services. This trend is occurring as state commissions, LDCs, and their
customers, call for a change in the way LDCs do business. While the objectives
of these groups are not always consistent, the result will likely be the same --
increased competition. LDCs already face fierce price competition, and must
remain competitive to avoid shareholder losses and a reduced customer base. As
a result of the increased costs discussed herein, the competitive position of
NewLouGas's bundled and unbundled services will be negatively impacted as the
pass through of these cost increases result in higher rates.
B. Impact on Electric Operations
Divesting the LG&E's gas operation would also adversely impact the
remaining electric operations. The rate increases required to provide the level
of revenue needed to cover costs to operate NewLouElectric will also be
significant, amounting to approximately $12.8 million, as shown in Table I-2.
In addition, the FERC's Order No. 888 rulemaking requiring wholesale
electric open access nondiscriminatory transmission services by public utilities
and state retail wheeling initiatives are expected to increase competition in
the electric industry./3/ The lost economies estimated for LG&E's remaining
electric company, if divestiture of gas operations were required, would also
have an adverse impact on its ability to successfully compete in the electric
industry. A forced divestiture would result in the remaining electric company
being less competitive than it would be as part of a combined company.
C. Divestiture Would Impede the Economic and Efficient Development of an
Integrated Public Utility System
As previously discussed in the Executive Summary, there is approximately
$31.1 million in annual revenue increases needed for NewLouGas, shown in Table
I-2, and an additional $12.8 million in annual revenue increases as a result of
lost economies, including income taxes, that would impact LG&E's remaining
electric company and its customers as shown in Table I-3. Therefore, the total
rate increases that would be required are approximately $43.9 million annually.
Based on the foregoing conclusions, spinning off the gas business would
adversely impact shareholders and both electric and gas customers through higher
costs and thus higher rates, and would tend toward uneconomical and inefficient
public utility systems. By contrast,
__________________________
/3/ Promoting Wholesale Competition Through Open Access Non-Discriminatory
Transmission Service by Public Utilities; Recovery of Stranded Costs by
Public Utilities and Transmitting Utilities, Order N. 888, FERC Stats. and
Regs. (Regulations Preambles, 1991-1996) (P) 31,036 (1996), order on
rehearing, Order 888-A III FERC Stats & Regs. (Regulations Preambles)
(P) 31,048 (1997), order on rehearing, Order No. 888-B, 81 FERC (P) 61,248
(1997), order on rehearing, Order No. 888-C, 82 FERC (P) 61,046 (1998),
appeals pending in D.C. Cir. Case Nos. 97-1715.
4
<PAGE>
allowing LG&E to retain its gas assets and business would not impede the
economical and efficient development of an integrated public utility system.
III. COMPANY DESCRIPTIONS
LG&E is a combination electric and gas utility, engaged in the generation,
purchase, transmission, distribution and sale of electricity, and in the
purchase, distribution, and sale of natural gas. Total actual gas revenues for
the year ended 1999 are approximately $177.6 million. They have not been
adjusted to reflect the return requirement filed in Case No. 2000-080. Annual
gas sales to ultimate consumers are approximately 49.6 million Mcf. Total
actual electric revenues for the year ended 1999 are approximately $790.7
million and annual sales to ultimate consumers are approximately 11.2 million
megawatt hours (Mwh).
LG&E served an average of 293,090 natural gas customers and 365,150
electric customers for the calendar year of 1999.
IV. METHODOLOGY
The Base Case for the Study is a revenue requirement analysis developed
from LG&E's FERC Form 1 and FERC Form 2 for the twelve months ended December 31,
1999. The impact of the spin-off is determined by comparing the results for the
stand-alone gas company and the remaining electric company to the Base Case.
Costs for the stand-alone companies were estimated on a function-by-
function basis using one of three methodologies to estimate costs.
1. Functions that Vary with the Number of Customers Served. The first
methodology assumes that the number of customers is the principal cost
driver for the function and assumes that the cost of performing a
function per customer will remain the same after the divestiture as
before. These costs are determined by multiplying the cost per
customer by the number of customers served by the stand-alone company.
At year-end, LG&E served 26,715 customers that purchase only natural
gas service, 90,093 customers that purchase only electric service, and
266,389 customers that purchase both natural gas and electric service
from LG&E. Thus, a stand-alone gas company, such as NewLouGas, would
serve 293,104 customers, and the remaining electric company would
serve 356,482 customers if LG&E's natural gas business were divested.
These statistics are shown in Appendix A. Functions for which costs
were estimated in this manner include: customer service centers,
business offices, customer service, revenue collection, field
services, meter reading, collection/service, revenue protection,
office services, customer accounting, remittance, and certain
information technology ("IT") responsibility centers related to
performing customer transactions.
5
<PAGE>
2. Functions that Vary with the Number of Employees. The second
methodology assumes that the number of employees is the principal cost
driver for the function and assumes that the cost of performing a
function per employee will remain the same after the divestiture.
These costs are determined by multiplying the cost per employee by the
number of employees served by the stand-alone gas company and stand-
alone electric company. Functions for which costs were estimated in
this manner include: information technology desktop ("ITD") finance
and materials, IT desktop operations, network architecture, technology
support services, and IT webmaster and administration.
3. Functions that are Invariant with the Number of Customers and
Employees. The third methodology assumes that, to provide an
equivalent quality of service, the function currently performed in the
combined company would need to be duplicated in the stand-alone
company, i.e., each company would need a separate organization to
perform the function. These costs were determined based on information
provided by the department heads regarding the staffing level and
other resources required to perform the function in each stand-alone
company. The costs were estimated by assigning the current dollar
amount for performing these functions after adjusting for staffing
levels required to perform the function for the stand-alone companies.
Functions for which costs were estimated in this manner are: employee
benefits, employee development, major accounts, economic development,
market research, forecasting, load research, rates and regulatory,
residential sales, marketing, operating services, strategic sourcing,
inventory management, investment recovery, facilities management, real
estate and right of way, corporate security, occupational health and
safety services, environmental, budgeting, financial planning,
financial forecasting, utility tax, property accounting, general
accounting, financial reporting, accounts payable, payroll, finance,
risk management, internal auditing, IT security, external affairs,
corporate law, corporate communication, internal communications,
marketing communications, public information.
As a result of discussions with numerous personnel in LG&E's gas business,
the major functional cost components associated with a divestiture were
identified, quantified, and included in the Study results. Because costs were
analyzed on a functional basis and The Prime Group did not conduct an exhaustive
analysis of every cost component that might be associated with a divestiture,
the Study results are likely to be conservative and at the low end of the actual
divestiture costs.
6
<PAGE>
V. STUDY ASSUMPTIONS
Employees with experience in all major facets of LG&E's gas operations were
consulted regarding the assumptions and information utilized in the analysis.
The major assumptions that were employed in developing the Study are:
A. For the purposes of developing the financial impacts of divesting the
gas business, it is assumed that LG&E's natural gas business is spun-
off and will be operated as an independent, stand-alone company.
Therefore, it will have all of the necessary management and personnel,
along with the computer systems, facilities, equipment, materials and
supplies required to operate as a stand-alone gas company. The Study
assumes that it would be possible to spin-off LG&E's gas business into
a stand-alone company for the following reasons:
1. The electric and gas systems are physically separate;
2. A large number of personnel who are directly involved in the day-
to-day operations of the electric and gas physical plant
("systems") are dedicated electric-only or gas-only;
3. The regulatory treatment of the respective electric and gas
revenue requirements and tariff filings is, for the most part,
handled separately; and,
4. In other parts of the country, stand-alone electric and gas
companies routinely share overlapping service territories.
B. The guiding principle for determining the staffing requirements for
the stand-alone gas company was that sufficient personnel would be
employed to assure that all functions necessary to maintain the
present level and quality of service would be adequately performed.
The management of LG&E's gas business provided estimates of the
staffing levels, as well as any other operational and administrative
changes necessary to maintain the same level and quality of service to
its gas customers after a spin-off of the gas business.
C. Labor costs are assumed to change in direct proportion with changes in
the number of employees.
D. All gas related costs, such as the cost of gas, have been included in
the costs for the stand-alone company.
E. All direct costs for operating the gas business, such as gas control
and storage and distribution operation and maintenance, are assumed to
remain the same.
7
<PAGE>
F. Annual facility costs related to the additional employees required to
maintain the current levels of service have been incorporated into the
analysis.
G. For the purpose of showing the final impact on customers, it is
assumed that full recovery of all of the lost economies, including
income taxes, would be allowed in a formal rate proceeding after
divestiture, and that the current rate levels remain unchanged until
that time.
H. It is assumed that the stand-alone company would be subject to the
regulation of the same state and federal agencies that currently
regulate the combined company.
I. If there currently exists a contract for services from independent
third-parties, the contract will continue for the spun-off company.
(For example, LG&E currently purchases gas transportation service from
Texas Gas Transmission Corporation and Tennessee Gas Pipeline Company.
This analysis assumes that the current contractual arrangements with
these interstate pipelines will remain in place.)
J. The LG&E organizational structure as of December 31, 1999 was used as
the basis (or template) for developing the NewLouGas and
NewLouElectric organizational structures.
K. Pensions, benefits and other overheads are assumed to change in direct
proportion with changes in labor costs.
L. Executive and administrative support from LG&E would cease upon any
divestiture, and these functions have been provided for in the
NewLouGas organizational structure.
M. Separate gas bills will be provided for each customer of NewLouGas.
N. In the event LG&E was required to divest its gas operations, and
assuming the assets were spun-off into a new stand-alone corporation,
the requirements of the existing indentures would result in the need
to recapitalize at the time of the spin-off. It was assumed that the
cost of capital would be the same for the two new companies as for the
combined company. This is a very conservative assumption, because (i)
the stand-alone companies would be riskier, (ii) the stand-alone gas
company would have to recapitalize at higher market rates, and (iii)
the stand-alone gas company would incur additional costs associated
with the issuance of securities.
O. The current capital structure of LG&E is used for the purpose of
analyzing capital costs for NewLouGas. As of December 31, 1999,
LG&E's gas rate base was capitalized as follows:
8
<PAGE>
<TABLE>
<CAPTION>
Ratio Cost Composite Cost
----- ---- ---------------
<S> <C> <C> <C>
Long Term Debt 48.96% 5.55% 2.71%
Preferred 6.25% 5.19% 0.32%
Common Equity 44.79% 12.00% 5.37%
------ ----
Total: 100.00% 8.40%
</TABLE>
The 12.00% rate of return on equity is based on cost of equity
estimates in Case No. 2000-080 before the Kentucky Public Service
Commission, submitted by LG&E on March 30, 2000. The revenue
calculations for the Base Case and for the stand-alone companies are
calculated using the above cost of capital.
P. All electric related costs, such as the cost of purchased power, have
been included in the costs for the stand-alone electric company.
Q. All direct costs for operating the electric business, such as the
control center and electric transmission and distribution operations
and maintenance, are assumed to remain the same.
VI. ORGANIZATIONAL STRUCTURE FOR REPORTING RESULTS
Results of the functional analysis of cost changes due to divestiture are
reported by combining each of the identified functions under the officer
responsible for each function. The organizational structure used to report
the results of the analysis is as follows:
Chief Executive Officer (CEO) -- The CEO reports to the Board of
-----------------------------
Directors and is responsible for overseeing the entire Company. The
CEO oversees four direct-report executives: 1) President & Chief
Operating Officer; 2) Vice President & Chief Financial Officer; 3)
Vice President, General Counsel and Secretary; and 4) Vice President &
Chief Administrative officer.
President & Chief Operating Officer (COO) -- The President & COO
-----------------------------------------
reports directly to the CEO and is responsible for the overall
operating activities of the Company. The President & COO oversees the
following areas: power generation, distribution operations, retail
electric business, retail gas business, marketing, customer service,
regulatory affairs, environmental affairs, and energy services.
Vice President and Chief Financial Officer (CFO) -- The CFO reports
------------------------------------------------
directly to the CEO and is responsible for the following areas:
strategic planning, business development, planning & budgeting,
accounting, corporate tax, payroll, treasurer, risk management and
claims, and information technology.
9
<PAGE>
Vice President, General Counsel and Secretary -- The General Counsel
---------------------------------------------
reports directly to the CEO and oversees: legal counsel, the
governmental affairs, corporate communications and external affairs.
Vice President and Chief Administrative Officer -- The Chief
-----------------------------------------------
Administrative Officer reports directly to the CEO and oversees: human
resources, health & safety, industrial relations, supply & logistics
and strategic sourcing.
VII. ANALYSIS
A. Annual Increases in Operation and Maintenance Expense
Increased operation and maintenance expenses were estimated by function and
summarized on the basis of the responsible executive officer of the NewLouGas to
which the functional area would report. Based upon the foregoing assumptions and
staffing requirements, NewLouGas would realize the following cost increases:
1. Chief Executive Officer $ 501,700
2. Chief Operating Officer $ 6,472,753
3. Chief Financial Officer $ 8,458,125
4. General Counsel & Secretary $ 1,576,454
5. Chief Administrative Officer $ 4,342,133
-----------
Total $21,351,145
A summary of the cost increases reported for each major functional area
for both NewLouGas and NewLouElectric is shown in Appendix B in this study.
B. Capital Cost Increases
Using the capital as discussed earlier, and recasting the cost of
capitalizing the gas assets using LG&E's existing capital structure as a proxy
for NewLouGas results in the following:
<TABLE>
<CAPTION>
Ratio Cost Composite Cost
----- ---- --------------
<S> <C> <C> <C>
Long Term Debt 48.96% 5.55% 2.71%
Preferred 6.25% 5.19% 0.32%
Common Equity 44.79% 12.00% 5.37%
------ ----
Total: 100.00% 8.40%
</TABLE>
As shown in Appendix D, applying the foregoing capital cost to NewLouGas
results in the following increased annual capital costs:
10
<PAGE>
Capital Costs $ 2,930,426
This represents the additional return requirement associated with common plant
that must be duplicated in the stand-alone gas company as compared to the base
case.
C. Additional Plant Investments
In order to operate as a stand-alone business, NewLouGas would have to
replicate certain plant items such as service centers and office space, computer
and office equipment, software, and transportation equipment. These plant
additions are detailed in Appendix C.
D. Additional Revenue Requirements
Set forth below is a table summarizing the increase in annual revenue
requirements of forming a new stand-alone gas business, both including and
excluding, gas supply Expenses:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Table VI-1
Increase in Annual Revenue Requirements
For a Stand-Alone Gas Business
--------------------------------------------------------------------------------
Annual Revenue Annual Revenue
Requirement Excl. Gas Cost Requirement Incl. Gas Cost
--------------------------------------------------------------------------------
<S> <C> <C>
Base Case - Gas $ 89,930,232 $204,675,655
--------------------------------------------------------------------------------
NewLouGas $121,046,919 $235,792,342
--------------------------------------------------------------------------------
Increase $ 31,116,687 $ 31,116,687
--------------------------------------------------------------------------------
Percentage Increase 34.6% 15.2%
--------------------------------------------------------------------------------
</TABLE>
Set forth below is a table summarizing the increase in annual revenue
requirements of forming a new stand-alone electric business:
11
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Table VI-2
Increase in Annual Revenue Requirements
For a Stand-Alone Electric Business
--------------------------------------------------------------------------------
Annual Revenue Requirement
To Retail Customers
(Excl. Sales for Resale)
--------------------------------------------------------------------------------
<S> <C>
Base Case - Electric $547,064,927
--------------------------------------------------------------------------------
NewLouElectric $559,834,380
--------------------------------------------------------------------------------
Increase $ 12,769,453
--------------------------------------------------------------------------------
Percentage Increase 2.3%
--------------------------------------------------------------------------------
</TABLE>
The detailed calculations showing the revenue requirement analysis are
included in Appendix D. The revenue requirements shown in Table VI-2 are
reduced by sales for resale (Account 447) of $221,335,905. This analysis shows
the impact on customer rates as a result of a divestiture of LG&E's gas
business. The additional revenue requirement includes the increase in the
following costs: (1) operation and maintenance expenses, (2) depreciation on the
additional investment, (3) taxes other than income taxes, (4) return on
additional investment, and (5) the effect of income taxes.
D. Total Lost Economies
Summarizing the increased cost and additional investments that were
incurred compared to the Base Case Study yields the following total lost
economies before the effect of income taxes:
Lost Economies - Gas $29,770,087
Lost Economies - Electric $12,419,982
Total Lost Economies $42,190,069
The calculation of the lost economies is shown in Appendix E.
E. Income Taxes
Recovery of the foregoing lost economies in a general rate proceeding would
also require an increase to recover income taxes associated with the lost
economies. The following is a summary of the revenue requirement impact of
income taxes:
12
<PAGE>
Additional Income Taxes - Gas $1,346,600
Additional Income Taxes - Electric $ 349,471
Total Additional Income Taxes $1,696,071
The calculation of the additional income taxes is also shown in
Appendix E.
If the additional revenue requirement is not recovered through rates, the
lost economies would have to be absorbed by investors. However, the reduction in
operating income would reduce the taxable income of both utilities. Appendix F
shows the investor impact of the lost economies on NewLouGas.
VIII. OTHER CUSTOMER IMPACTS
A. Quantifiable Postage Costs
Customers who currently pay their monthly bill with one check and one
stamp will be required to use two separate checks and two separate stamps in
paying the remaining electric company and NewLouGas. For the gas and electric
customers of LG&E, the doubling of postage cost alone, not counting check and
envelope costs, will result in a total annual out-of-pocket cost increase to
customers of over $1,054,900 annually (calculated as 266,389 customers x $0.33 x
12 months). This calculation is shown in Appendix A.
B. Non-quantifiable
In addition to the quantifiable increased costs or lost economies that
have been evaluated and included in the Study, there are other non-quantifiable
costs which have not been included. The reason for not attempting to quantify
these costs is that a meaningful estimate of these costs is beyond the scope of
the present analysis. However these costs do exist, and the following are a few
examples of these non-quantifiable costs.
. The cost of additional regulation for the Kentucky Public Service
Commission. The staffs of these agencies would undoubtedly experience
additional duties and responsibilities as a result of dealing with an
additional utility.
. The cost to customers as a result of doing business with two
utilities instead of one, including additional telephone calls for
service questions or bill inquiries.
. The cost to customers of providing access to meters and other
facilities for two utilities.
13
<PAGE>
. The cost to customers, especially contractors and builders, of
dealing with two utilities rather than one, for installation or
maintenance of electric and gas service facilities.
14
<PAGE>
Appendix A
Customer Statistics
<PAGE>
<TABLE>
<CAPTION>
Divested Gas Company
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Combination
Estimated Divested Present Gas & Percent of
Costs based on Combined Gas Only Electric Total Gas Combined
Customer-Transactions Company Customers Customers Customers Company
----------
383,197 26,715 266,389 293,104 76.49%
----------
<CAPTION>
Divested Electric Company
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Combination
Estimated Divested Gas & Percent of
Costs based on Electric Only Electric Total Electric Combined
Customer-Transactions Customers Customers Customers Company
--------
90,093 266,389 356,482 93.03%
--------
<CAPTION>
Customer Impact - Postage:
-------------------------
<S> <C>
Additional Customer Bills 266,389
Postage Rate $ 0.33
----------
Monthly $ 87,908
Months 12
----------
Annual Impact $1,054,900
----------
</TABLE>
<PAGE>
Appendix B
Annual Increase in
Operation and Maintenance Expenses
<PAGE>
ANNUAL COST INCREASES - (900 Accounts)
--------------------------------------
Includes - Cust. Accts., Cust. Serv., Sales,
Admin. & Gen. and Mtce. Of Gen. Plt. Expenses
<TABLE>
<CAPTION>
Total LouGasCo LouElecCo
----------------------------------------------------
<S> <C> <C> <C>
Chief Executive Officer $ 539,000 $ 501,700 $ 37,300
Chief Operating Officer
Customer Support 10,418,539 5,940,302 4,478,237
Regulatory & Other 994,965 532,451 462,513
----------------------------------------------------
Total COO $ 11,413,504 $ 6,472,753 $ 4,940,751
Chief Financial Officer
Information Technology 6,892,303 5,422,969 1,469,334
Accounting & Other 3,837,728 3,035,156 802,572
----------------------------------------------------
Total CFO $ 10,730,031 $ 8,458,125 $ 2,271,906
General Counsel & Secretary $ 1,668,939 $ 1,576,454 $ 92,484
Chief Administrative Officer
Human Resources 1,964,369 1,539,599 424,770
Customer Bills & Other Mailings 1,478,508 885,870 592,637
Operating Services 1,751,178 1,010,276 740,902
Other 690,159 906,367 (216,208)
----------------------------------------------------
Total CAO $ 5,884,214 $ 4,342,113 $ 1,542,101
Total Increase - A & G Expenses $ 30,235,688 $ 21,351,145 $ 8,884,542
</TABLE>
<PAGE>
LOUIS GAS AND ELECTRIC COMPANY
Estimated Annual Increase in Gas and Electric Expenses- (900 Accounts)
Assuming Divestiture of Gas Business
<TABLE>
<CAPTION>
TOTAL EXPENSES - ACTUAL TOTAL EXPENSES - DIVESTED
------------------------------- -------------------------------
COMBINED GAS ELECTRIC COMBINED GAS ELECTRIC
<S> <C> <C> <C> <C> <C> <C>
Chairman & CEO 197,356 37,300 160,055 736,356 539,000 197,356
President & COO (Vice Chairman & COO) 239,352 45,238 194,115 578,152 338,800 239,352
Exec. VP Power Generation 236,547 44,707 191,840 236,547 - 236,547
Dir. HR Power Generation
Dir. Fuels Mgmt.
Dir. Systems Operations
Pwr. Gen & Eng. Serv. - LG&E
VP Generation 55,343 - 55,343 55,343 - 55,343
Power Gen. Overheads Expenses 6,393,196 47 6,393,149 6,393,196 - 6,393,196
--------- --------- --------- --------- --------- ---------
Total Power Generation 6,685,086 44,755 6,640,332 6,685,086 - 6,685,086
--------- --------- --------- --------- --------- ---------
Sr. VP Distribution Operations
VP Electric Retail Business 316,368 - 316,368 501,168 184,800 316,368
VP Gas Service Business 476,548 476,548 - 476,548 476,548 -
Retail Elec. Overheads Expenses 3,218,077 158 3,217,918 3,218,077 - 3,218,077
Gas Overheads Expenses 2,392,995 2,392,995 - 2,392,995 2,392,995 -
--------- --------- --------- --------- --------- ---------
Total Distribution Operations 6,403,989 2,869,702 3,534,286 6,588,789 3,054,344 3,534,445
--------- --------- --------- --------- --------- ---------
Group Exec. Retail Business 671,459 135,621 535,838 825,459 154,000 671,459
VP Sales & Service 50,452 9,535 40,917 50,452 - 50,452
Dir. Home Serv. & Gas Sales 10,459 10,459 - 10,459 10,459 -
Dir Marketing 28,342 26,465 1,877 28,342 28,342 -
Dir. Customer Service 316,764 100,370 216,394 536,970 242,290 294,680
Revenue Collection 1,018,196 412,416 605,780 1,726,021 778,809 947,211
Meter Reading 3,903,810 1,651,179 2,252,631 6,617,641 2,985,990 3,631,651
Meter Reading - Office 640,075 261,565 378,510 1,085,039 489,588 595,451
Revenue Protection 108,476 44,428 64,048 183,886 82,973 100,914
Customer Accounting 1,098,916 438,053 660,863 1,862,855 840,551 1,022,304
Remittance 551,432 189,161 362,270 934,773 421,785 512,988
Major Accts - Industr. 317,952 60,222 257,730 635,904 317,952 317,952
Major Accts - Comm. 283,122 66,020 217,102 566,245 283,122 283,122
Econ Devel. - Major Accts 231,092 55,034 176,058 462,183 231,092 231,092
Market Research 642,675 150,726 491,949 1,285,351 642,675 642,675
Marketing 475,409 90,855 384,553 792,348 396,174 396,174
Residential Sales 321,863 75,172 246,691 590,082 268,219 321,863
Gas Sales 877,108 877,108 - 877,108 877,108 -
Customer Service Center 453,347 163,388 289,958 768,502 346,761 421,741
Business Offices 645,328 237,922 407,406 1,093,944 493,606 600,338
Customer Service 2,093,159 838,835 1,254,324 3,548,272 1,601,039 1,947,232
Uncollectible Accounts 1,925,000 462,000 1,463,000 1,925,000 462,000 1,463,000
Field Service 245,646 86,567 159,079 416,414 187,893 228,521
Collection Service 726,971 315,076 411,895 1,232,343 556,054 676,289
--------- --------- --------- --------- --------- ---------
Total Group Exec. Retail Business 17,637,053 6,758,178 10,878,875 28,055,592 12,698,481 15,357,112
--------- --------- --------- --------- --------- ---------
<CAPTION>
ADDITIONAL EXPENSES
--------------------------------------
COMBINED GAS ELECTRIC
<S> <C> <C> <C>
Chairman & CEO 539,000 501,700 37,300
President & COO (Vice Chairman & COO) 338,800 293,562 45,238
Exec. VP Power Generation - (44,707) 44,707
Dir. HR Power Generation
Dir. Fuels Mgmt.
Dir. Systems Operations
Pwr. Gen & Eng. Serv. - LG&E
VP Generation - - -
Power Gen. Overheads Expenses - (47) 47
---------- --------- ---------
Total Power Generation - (44,755) 44,755
---------- --------- ---------
Sr. VP Distribution Operations
VP Electric Retail Business 184,800 184,800 -
VP Gas Service Business - - -
Retail Elec. Overheads Expenses - (158) 158
Gas Overheads Expenses - - -
---------- --------- ---------
Total Distribution Operations 184,800 184,642 158
---------- --------- ---------
Group Exec. Retail Business 154,000 18,379 135,621
VP Sales & Service - (9,535) 9,535
Dir. Home Serv. & Gas Sales - - -
Dir Marketing - 1,877 (1,877)
Dir. Customer Service 220,206 141,920 78,286
Revenue Collection 707,824 366,394 341,431
Meter Reading 2,713,831 1,334,811 1,379,021
Meter Reading - Office 444,964 228,023 216,941
Revenue Protection 75,410 38,545 36,865
Customer Accounting 763,939 402,498 361,441
Remittance 383,342 232,624 150,718
Major Accts - Industr. 317,952 257,730 60,222
Major Accts - Comm. 283,122 217,102 66,020
Econ Devel. - Major Accts 231,092 176,058 55,034
Market Research 642,675 491,949 150,726
Marketing 316,939 305,319 11,620
Residential Sales 268,219 193,047 75,172
Gas Sales - - -
Customer Service Center 315,155 183,373 131,783
Business Offices 448,616 255,684 192,932
Customer Service 1,455,112 762,204 692,908
Uncollectible Accounts - - -
Field Service 170,767 101,325 69,442
Collection Service 505,372 240,978 264,395
---------- --------- ---------
Total Group Exec. Retail Business 10,418,539 5,940,302 4,478,237
---------- --------- ---------
</TABLE>
<PAGE>
LOUIS GAS AND ELECTRIC COMPANY
Estimated Annual Increase in Gas and Electric Expenses- (900 Accounts)
Assuming Divestiture of Gas Business
<TABLE>
<CAPTION>
TOTAL EXPENSES - ACTUAL TOTAL EXPENSES - DIVESTED
------------------------------- -------------------------------
COMBINED GAS ELECTRIC COMBINED GAS ELECTRIC
<S> <C> <C> <C> <C> <C> <C>
President & COO (continued)
----------------------------
Group Exec. Regulatory Affairs 451,348 85,305 366,043 451,348 - 451,348
Dir. Exvironmental Affairs 1,161,719 226,482 935,237 1,394,062 232,344 1,161,719
VP Regulatory Mgmt. 476,294 92,198 384,096 715,315 298,339 416,976
--------- --------- --------- --------- --------- ---------
Total Regulatory Affairs 2,089,361 403,985 1,685,376 2,560,726 530,683 2,030,043
--------- --------- --------- --------- --------- ---------
Sr. VP Energy Services
VP Energy Marketing 716,075 27,696 688,378 716,075 - 716,075
--------- --------- --------- --------- --------- ---------
Total Energy Services 716,075 27,696 688,378 716,075 - 716,075
--------- --------- --------- --------- --------- ---------
Total President & COO 33,770,916 10,149,554 23,621,362 45,184,420 16,622,308 28,562,112
Exec. VP & CFO 141,197 26,686 114,511 433,797 292,600 141,197
Sr. VP Strategic Planning
Dir. Product & Service Develop.
Dir. Strategic Planning
Total Strategic Planning
Sr. VP Finance & Business Devel. 10,254 1,938 8,316 10,254 - 10,254
Dir. Business Development
Dir. Planning & Budgeting
Distribution Budgeting 98,610 - 98,610 98,610 - 98,610
Forecasting & Load Research 437,403 125,542 311,861 656,105 218,702 437,403
Forecasting 137,648 26,015 111,632 206,472 68,824 137,648
Budgeting 80,660 15,245 65,415 161,319 80,660 80,660
Fin. Planning & Budgeting 203,182 38,401 164,781 338,637 135,455 203,182
--------- --------- --------- --------- --------- ---------
Total Finance & Bus. Develop. 967,757 207,142 760,615 1,471,397 503,640 967,757
--------- --------- --------- --------- --------- ---------
VP & Controller 265,891 50,253 215,638 419,891 154,000 265,891
Dir. Accounting Reporting 127,590 24,115 103,476 255,181 127,590 127,590
Property Accounting 388,360 73,400 314,960 665,760 332,880 332,880
Accounting & Fin. Rept. 660,181 125,401 534,780 1,140,071 539,939 600,132
Accounts Payable 489,877 92,587 397,290 668,013 267,205 400,808
Dir. Corporate Tax 316,172 59,757 256,416 632,345 316,172 316,172
Dir. Energy Mktg. Accounting 144,984 27,402 117,582 144,984 - 144,984
Payroll 254,218 48,047 206,171 381,327 190,664 190,664
Corporate 3,188,977 (530,522) 3,719,499 3,188,977 (530,522) 3,719,499
Corporate Overheads (197,995) 184,249 (382,244) (197,995) 184,249 (382,244)
Holding Co. - Clearing (240,347) (17,308) (223,039) (240,347) (17,308) (223,039)
--------- --------- --------- --------- --------- ---------
Total VP & Contoller 5,397,909 137,380 5,260,529 7,058,207 1,564,869 5,493,339
--------- --------- --------- --------- --------- ---------
VP & Treasurer 618,970 117,748 501,222 772,970 154,000 618,970
Finance 733,566 162,935 570,631 1,367,132 683,566 683,566
Risk Mgmt. & Claims 328,292 61,690 266,602 459,609 196,975 262,634
--------- --------- --------- --------- --------- ---------
Total VP & Treasurer 1,680,828 342,373 1,338,455 2,599,711 1,034,541 1,565,170
--------- --------- --------- --------- --------- ---------
<CAPTION>
ADDITIONAL EXPENSES
------------------------------------------
COMBINED GAS ELECTRIC
<S> <C> <C> <C>
President & COO (continued)
----------------------------
Group Exec. Regulatory Affairs - (85,305) 85,305
Dir. Exvironmental Affairs 232,344 5,862 226,482
VP Regulatory Mgmt. 239,021 206,141 32,880
---------- --------- ---------
Total Regulatory Affairs 471,365 126,698 344,667
---------- --------- ---------
Sr. VP Energy Services
VP Energy Marketing - (27,696) 27,696
---------- --------- ---------
Total Energy Services - (27,696) 27,696
---------- ---------- ---------
Total President & COO 11,413,504 6,472,753 4,940,751
292,600 265,914 26,686
Exec. VP & CFO
Sr. VP Strategic Planning
Dir. Product & Service Develop.
Dir. Strategic Planning
Total Strategic Planning
- (1,938) 1,938
Sr. VP Finance & Business Devel.
Dir. Business Development
Dir. Planning & Budgeting - - -
Distribution Budgeting 218,702 93,159 125,542
Forecasting & Load Research 68,824 42,808 26,015
Forecasting 80,660 65,415 15,245
Budgeting 135,455 97,053 38,401
Fin. Planning & Budgeting ---------- --------- ---------
503,640 296,498 207,142
Total Finance & Bus. Develop. ---------- --------- ---------
VP & Controller 154,000 103,747 50,253
Dir. Accounting Reporting 127,590 103,476 24,115
Property Accounting 277,400 259,480 17,920
Accounting & Fin. Rept. 479,890 414,538 65,352
Accounts Payable 178,137 174,619 3,518
Dir. Corporate Tax 316,172 256,416 59,757
Dir. Energy Mktg. Accounting - (27,402) 27,402
Payroll 127,109 142,616 (15,507)
Corporate - - -
Corporate Overheads - - -
Holding Co. - Clearing - - -
---------- --------- ---------
Total VP & Contoller 1,660,298 1,427,489 232,809
---------- --------- ---------
VP & Treasurer 154,000 36,252 117,748
Finance 633,566 520,631 112,935
Risk Mgmt. & Claims 131,317 135,285 (3,969)
---------- --------- ---------
Total VP & Treasurer 918,883 692,169 226,714
---------- --------- ---------
</TABLE>
<PAGE>
LOUISVILLE GAS AND ELECTRIC COMPANY
Estimated Annual Increase in Gas and Electric Expenses - (900 Accounts)
Assuming Divestiture of Gas Business
<TABLE>
<CAPTION>
TOTAL EXPENSES - ACTUAL TOTAL EXPENSES - DIVESTED
------------------------------------- ----------------------------------
COMBINED GAS ELECTRIC COMBINED GAS ELECTRIC
<S> <C> <C> <C> <C> <C> <C>
VP Information Technology 184,800 184,800
IS Rollup 88,986 16,818 72,168 150,847 68,065 82,783
Customer Relations Manager
CRM-Distrib Operations 32,916 32,916 - 32,916 32,916 -
CRM-Shared Services 472,563 89,314 383,249 801,077 361,459 439,618
Dir. IT Development 270,424 51,110 219,314 458,415 206,845 251,571
ITD-Distrib. Operations 296,135 64,768 231,367 502,000 226,511 275,489
ITD-Retail Business 847,743 315,022 532,721 1,437,073 648,431 788,642
Year 2000 2,029,056 382,841 1,646,216 2,029,056 382,841 1,646,216
ITD-Fin & Materials 474,863 89,868 384,994 522,373 126,386 395,987
Dir. IT Operations 363,286 68,661 294,625 615,834 277,874 337,959
ITD Shared Services 413,487 78,239 335,248 700,933 316,273 384,661
ITD Energy Marketing 1,608 304 1,304 1,608 - 1,608
ITD Power Gen. 58,414 8,906 49,508 58,414 - 58,414
ITD-Fin & Materials 27,474 5,193 22,282 27,474 - 27,474
ITD Desktop Oper. 1,312,944 248,146 1,064,797 1,444,181 348,979 1,095,202
Network Architecture 3,112,867 659,439 2,453,428 3,450,881 927,398 2,523,483
Technology Support Serv. 403,307 76,225 327,082 443,620 107,199 336,422
Computing Architecture
Dir. IT Strat.. Plng. & Security
IT Security 309,397 58,476 250,921 618,795 309,397 309,397
IT Production 4,672,616 992,253 3,680,363 7,920,902 3,574,043 4,346,860
IT Research & Mitigation Plng. 612,580 115,778 496,802 1,038,430 468,557 569,873
IT Program Mgmt. & Finance 153,416 28,996 124,421 260,067 117,347 142,721
IT Webmaster & Admin. 99,169 18,743 80,426 109,082 26,359 82,723
IT Mitigating Plng. 196,748 37,185 159,563 333,522 150,491 183,032
---------- --------- ---------- ---------- ---------- ----------
Total VP Information Technology 16,250,001 3,439,202 12,810,799 23,142,304 8,862,170 14,280,133
---------- --------- ---------- ---------- ---------- ----------
---------- --------- ---------- ---------- ---------- ----------
Dir. Internal Auditing 577,883 109,220 468,663 1,040,190 462,307 577,883
---------- --------- ---------- ---------- ---------- ----------
========== ========= ========== ========== ========== ==========
Total Exec. VP & CFO 25,015,575 4,262,002 20,753,573 35,745,606 12,720,127 23,025,479
========== ========= ========== ========== ========== ==========
---------- --------- ---------- ---------- ---------- ----------
Exec. VP & Gen. Counsel & Secretary 2,232 422 1,810 248,632 246,400 2,232
---------- --------- ---------- ---------- ---------- ----------
Legal 2,535,108 585,457 1,949,650 3,379,266 1,339,466 2,039,800
---------- --------- ---------- ---------- ---------- ----------
---------- --------- ---------- ---------- ---------- ----------
Dir. Corporate Communications 864,242 186,773 677,469 1,234,631 493,853 740,779
---------- --------- ---------- ---------- ---------- ----------
---------- --------- ---------- ---------- ---------- ----------
Dir. External Affairs 727,967 146,593 581,374 935,957 415,981 519,976
---------- --------- ---------- ---------- ---------- ----------
VP Governmental Affairs
========== ========= ========== ========== ========== ==========
Total Exec. VP & Gen Consl. & Secr. 4,129,548 919,245 3,210,303 5,798,487 2,495,699 3,302,787
========== ========= ========== ========== ========== ==========
<CAPTION>
ADDITIONAL EXPENSES
-------------------------------------------
COMBINED GAS ELECTRIC
<S> <C> <C> <C>
VP Information Technology 184,800 184,800 -
IS Rollup 61,861 51,246 10,615
Customer Relations Manager
CRM-Distrib Operations - - -
CRM-Shared Services 328,514 272,145 56,369
Dir. IT Development 187,992 155,735 32,257
ITD-Distrib. Operations 205,865 161,743 44,123
ITD-Retail Business 589,330 333,409 255,921
Year 2000 - - -
ITD-Fin & Materials 47,511 36,518 10,993
Dir. IT Operations 252,548 209,213 43,334
ITD Shared Services 287,446 238,034 49,412
ITD Energy Marketing - (304) 304
ITD Power Gen. - (8,906) 8,906
ITD-Fin & Materials - (5,193) 5,193
ITD Desktop Oper. 131,237 100,833 30,404
Network Architecture 338,014 267,959 70,055
Technology Support Serv. 40,313 30,974 9,339
Computing Architecture
Dir. IT Strat.. Plng. & Security
IT Security 309,397 250,921 58,476
IT Production 3,248,286 2,581,790 666,496
IT Research & Mitigation Plng 425,850 352,779 73,071
IT Program Mgmt. & Finance 106,651 88,351 18,300
IT Webmaster & Admin. 9,913 7,616 2,296
IT Mitigating Plng. 136,774 113,305 23,469
Total VP Information Technology ---------- --------- ---------
6,892,303 5,422,969 1,469,334
---------- --------- ---------
---------- --------- ---------
462,307 353,087 109,220
Dir. Internal Auditing ---------- --------- ---------
========== ========= =========
10,730,031 8,458,125 2,271,906
Total Exec. VP & CFO ========== ========= =========
---------- --------- ---------
246,400 245,978 422
Exec. VP & Gen. Counsel & Secretary ---------- --------- ---------
844,159 754,009 90,150
Legal ---------- --------- ---------
---------- --------- ---------
370,389 307,080 63,310
Dir. Corporate Communications ---------- --------- ---------
---------- --------- ---------
207,991 269,388 (61,397)
Dir. External Affairs ---------- --------- ---------
VP Governmental Affairs
========== ========= =========
1,668,939 1,576,454 92,484
Total Exec. VP & Gen Consl. & Secr. ========== ========= =========
</TABLE>
Page 3
<PAGE>
LOUISVILLE GAS AND ELECTRIC COMPANY
Estimated Annual Increase in Gas and Electric Expenses - (900 Accounts)
Assuming Divestiture of Gas Business
<TABLE>
<CAPTION>
TOTAL EXPENSES - ACTUAL TOTAL EXPENSES - DIVESTED
------------------------------------ -----------------------------------
COMBINED GAS ELECTRIC COMBINED GAS ELECTRIC
<S> <C> <C> <C> <C> <C> <C>
---------- ----------- ---------- ----------- ---------- ----------
Sr. VP & Chief Administrative Officer 303,733 57,406 246,327 488,533 184,800 303,733
---------- ----------- ---------- ----------- ---------- ----------
Dir. Human Resources
HR Rollup 675,704 127,708 547,996 675,704 127,708 547,996
Utility Re-Engineering 207,704 39,256 168,448 207,704 39,256 168,448
Employee Benefits 1,632,061 308,460 1,323,602 3,264,123 1,632,061 1,632,061
Employee Development 332,308 61,263 271,044 664,615 332,308 332,308
HRIS Adminstr. 416 79 338 416 79 338
HR Distrib. Svcs. 545,327 139 545,188 545,327 - 545,327
Field HR-Rtl. Ops. 240,194 54,908 185,286 240,194 - 240,194
HR Power Generation 87,243 - 87,243 87,243 - 87,243
---------- ----------- ---------- ----------- ---------- ----------
Total Human Resources 3,720,957 591,813 3,129,144 5,685,326 2,131,412 3,553,914
---------- ----------- ---------- ----------- ---------- ----------
Dir. Energy Marketing & Corp. Staff
---------- ----------- ---------- ----------- ---------- ----------
Health & Safety 314,419 59,438 254,982 445,427 209,613 235,814
---------- ----------- ---------- ----------- ---------- ----------
Industrial Relations
VP Supply & Logistics 1 0 1 1 - 1
Dir. Operating Services
3 Operating Services (11,141) (2,106) (9,035) (14,854) (7,427) (7,427)
3 Facilities Mgmt. 70,147 9,687 60,460 140,294 70,147 70,147
5 Facilities Services - East 30,804 5,832 24,973 61,609 30,804 30,804
12 Facilities Mtce. 35,556 4,151 31,406 35,556 - 35,556
8 Fire Protection 44,842 4,036 40,806 89,684 44,842 44,842
4 Transportation 5,308 1,003 4,305 10,616 5,308 5,308
3 Project Mtce. Plng. 314,971 59,529 255,441 629,942 314,971 314,971
2 Facilities Services - North 2,941,343 555,916 2,385,427 3,746,843 805,500 2,941,343
1 Office Services (mailings) 2,126,814 740,911 1,385,903 3,605,321 1,626,781 1,978,540
8 Real Estate & Right-of-Way 323,718 61,193 262,525 431,623 143,874 287,749
3 Corporate Security 375,414 73,915 301,498 750,828 375,414 375,414
---------- ----------- ---------- ----------- ---------- ----------
52 Total Operating Services 6,257,777 1,514,068 4,743,709 9,487,463 3,410,214 6,077,249
---------- ----------- ---------- ----------- ---------- ----------
Dir. Strategic Sourcing
Supply Chain 231,161 43,690 187,472 462,322 231,161 231,161
Strategic Sourcing 1,654,021 312,610 1,341,411 1,757,397 723,634 1,033,763
Inventory Mgmt. 171,941 32,497 139,444 200,598 57,314 143,284
Investment Recovery 100,413 16,829 83,584 111,570 22,314 89,256
---------- ----------- ---------- ----------- ---------- ----------
Total Strategic Sourcing 2,157,536 405,625 1,751,911 2,531,887 1,034,423 1,497,464
---------- ----------- ---------- ----------- ---------- ----------
========== ========== ========== =========== ========== ==========
Total Sr. VP & Chief Admin. Officer 12,754,421 2,628,349 10,126,073 18,638,636 6,970,462 11,668,174
========== ========== ========== =========== ========== ==========
========== ========== ========== =========== ========== ==========
GRAND TOTAL 75,867,816 17,996,450 57,871,366 106,103,504 39,347,596 66,755,908
========== ========== ========== =========== ========== ==========
<CAPTION>
ADDITIONAL EXPENSES
-------------------------------------
COMBINED GAS ELECTRIC
<S> <C> <C> <C>
---------- ---------- ---------
Sr. VP & Chief Administrative Officer 184,800 127,394 57,406
---------- ---------- ---------
Dir. Human Resources
HR Rollup - - -
Utility Re-Engineering - - -
Employee Benefits 1,632,061 1,323,602 308,460
Employee Development 332,308 271,044 61,263
HRIS Adminstr. - - -
HR Distrib. Svcs. - (139) 139
Field HR-Rtl. Ops. - (54,908) 54,908
HR Power Generation - - -
---------- ---------- ---------
Total Human Resources 1,964,369 1,539,599 424,770
---------- ---------- ---------
Dir. Energy Marketing & Corp. Staff
---------- ---------- ---------
Health & Safety 131,008 150,175 (19,167)
---------- ---------- ---------
Industrial Relations
VP Supply & Logistics - (0) 0
Dir. Operating Services
3 Operating Services (3,714) (5,322) 1,608
3 Facilities Mgmt. 70,147 60,460 9,687
5 Facilities Services - East 30,804 24,973 5,832
12 Facilities Mtce. - (4,151) 4,151
8 Fire Protection 44,842 40,806 4,036
4 Transportation 5,308 4,305 1,003
3 Project Mtce. Plng. 314,971 255,441 59,529
2 Facilities Services - North 805,500 249,584 555,916
1 Office Services (mailings) 1,478,508 885,870 592,637
8 Real Estate & Right-of-Way 107,906 82,682 25,224
3 Corporate Security 375,414 301,498 73,915
---------- ---------- ---------
52 Total Operating Services 3,229,686 1,896,147 1,333,539
---------- ---------- ---------
Dir. Strategic Sourcing
Supply Chain 231,161 187,472 43,690
Strategic Sourcing 103,376 411,024 (307,648)
Inventory Mgmt. 28,657 24,817 3,840
Investment Recovery 11,157 5,485 5,672
---------- ---------- ---------
Total Strategic Sourcing 374,351 628,798 (254,447)
---------- ---------- ---------
========== ========== =========
Total Sr. VP & Chief Admin. Officer 5,884,214 4,342,113 1,542,101
========== ========== =========
========== ========== =========
GRAND TOTAL 30,235,688 21,351,145 8,884,542
========== ========== =========
</TABLE>
Page 4
<PAGE>
Appendix C
Increased Plant Investment
<PAGE>
Louisville Gas and Electric Company
Re-Determination of Common Utility Plant
as December 31, 1999
<TABLE>
<CAPTION>
Original Cost Depreciation Net Book New Electric
As of Reserve As of New Electric Depreciation
12/31/99 12/31/1999 12/31/1999 Plant Reserve
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Intagible Plant
301 Organization 83,782.29 83,782.29 83,782.29 -
302 Franchises and Consents 4,400.00 4,900.00 (500.00) 4,400.00 4,900.00
303 Miscellaneous Intangible Plant
Developmental Software
Customer Information System 5,413,293.44 4,956,255.58 457,037.86 5,413,293 4,956,256
Wholesale Electric (WELOB) 84,094.69 76,994.69 7,100.00 84,095 76,995
Law Library 78,799.60 71,800.00 6,999.60 78,800 71,800
Purchased Software -
Oracle Financials 6,449,445.68 1,952,483.16 4,496,962.52 6,449,446 1,952,483
Oracle Materials 5,075,934.05 1,536,670.94 3,539,263.11 5,075,934 1,536,671
Peoplesoft 1,714,138.58 518,932.47 1,195,206.11 1,714,139 518,932
Maximo (CMMS) 822,914.02 249,126.21 573,787.81 822,914 249,126
Field Service Mobile Computing 581,254.02 175,966.86 405,287.16 581,254 175,967
Automated Design Software 539,474.20 163,318.58 376,155.62 539,474 163,319
Mapping/Imaging 381,219.68 115,409.15 265,810.53 381,220 115,409
Gas Maps and Records 335,343.29 101,520.66 233,822.63 - -
Automated Mapping 241,830.04 88,044.25 153,785.79 241,830 88,044
Acufile Tax 182,910.20 55,373.60 127,536.60 182,910 55,374
Symantic 150,609.26 45,594.94 105,014.32 150,609 45,595
Gas Billing 139,421.74 42,208.05 97,213.69 - -
Micropads Reporting 123,182.10 37,291.75 85,890.35 123,182 37,292
Saratoga Systems 117,286.05 35,506.79 81,779.26 117,286 35,507
Barcoding 106,995.27 32,391.37 74,603.90 106,995 32,391
Software under $100,000 708,124.36 198,924.54 509,199.82 708,124 198,925
-------------------------------------------------------------------------
Sub-Total Software and Law Library 23,246,270.27 10,453,813.59 12,792,456.68 22,771,505.24 10,310,084.88
=========================================================================
Total Intangible 23,334,452.56 10,458,713.59 12,875,738.97 22,859,687.53 10,314,984.88
<CAPTION>
New Gas
New Gas Depreciation
Plant Reserve
----------------------------
<S> <C> <C>
Intagible Plant
301 Organization
302 Franchises and Consents
303 Miscellaneous Intangible Plant
Developmental Software
Customer Information System 5,413,293
Wholesale Electric (WELOB)
Law Library 78,800
Purchased Software
Oracle Financials 6,449,446
Oracle Materials 5,075,934
Peoplesoft 1,714,139
Maximo (CMMS) -
Field Service Mobile Computing 581,254
Automated Design Software 539,474
Mapping/Imaging 381,220
Gas Maps and Records 335,343 101,520.66
Automated Mapping 241,830
Acufile Tax 182,910
Symantic 150,609
Gas Billing 139,422 42,208.05
Micropads Reporting 123,182
Saratoga Systems 117,286
Barcoding 106,995
Software under $100,000 708,124
----------------------------
Sub-Total Software and Law Library 22,339,261.56 143,728.71
============================
Total Intangible 22,339,261.56 143,728.71
</TABLE>
Page 1
<PAGE>
Louisville Gas and Electric Company
Re-Determination of Common Utility Plant
as December 31, 1999
<TABLE>
<CAPTION>
Original Cost Depreciation Net Book
As of Reserve As of New Electric
12/31/99 12/31/1999 12/31/1999 Plant
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General Plant
389.1 Land 1,661,503.17 1,661,503.17 1,661,503
389.2 Land Rights 202,094.94 68,079.00 134,015.94 66,033
390 Structures and Improvements -
Actors Theater 766,672.66 211,757.00 554,915.66 766,673
LG&E Building 1,642,633.16 670,257.00 972,376.16 1,642,633
Broadway Office Complex 20,054,455.77 6,868,821.24 13,185,634.53 20,054,456
Auburndale Service Center 22,651,482.77 3,307,199.91 19,344,282.86 22,651,483
East Service Center 6,901,355.91 1,853,119.04 5,048,236.87 6,901,356
South Service Center 3,858,688.59 1,492,797.58 2,365,891.01 3,858,689
Central Service Center, Misc. Bldg 2,426,178.87 1,775,411.26 650,767.61 2,426,179
----------------------------------------------------------------
58,301,467.73 16,179,363.03 42,122,104.70 58,301,467.73
391 Office Furniture and Equipment
Personal Computer Equipment 11,086,206.45 8,955,362.78 2,130,843.67 8,688,455
Computer Equipment 6,844,669.68 5,177,924.13 1,666,745.55 5,364,288
Office Furniture 10,592,140.75 2,778,609.51 7,813,531.24 8,301,247
Office Equipment 2,930,237.14 755,723.06 2,174,514.08 2,296,478
Security Equipment 1,679,089.13 402,970.91 1,276,118.22 1,315,932
----------------------------------------------------------------
33,132,343.15 18,070,590.39 15,061,752.76 25,966,400.26
392.1 Transportation Equipment - Cars and Trucks 354,836.98 605,281.21 (250,444.23) 330,105
392.2 Transportation Equipment - Trailers 66,516.63 19,867.76 46,648.87 61,880
393 Stores Equipment 1,238,479.65 206,146.99 1,032,332.66 1,238,480
394.2 Garage Equipment 945,528.68 158,000.27 787,528.41 945,529
394.3 Other Equipment 558,025.71 93,247.52 464,778.19 396,198
395 Laboratory Equipment 22,281.50 4,342.29 17,939.21 19,162
396.1 Power Operated Equipment - Hourly Rated 462,708.04 904,166.34 (441,458.30) 393,302
396.2 Power Operated Equipment - Other 16,343.51 6,411.55 9,931.96 11,604
397 Communication Equipment
Communications Equipment - Other 19,010,524.89 5,028,693.64 13,981,831.25 19,010,525
Communications Equipment - Computer 1,417,620.27 111,744.19 1,305,876.08 1,417,620
----------------------------------------------------------------
20,428,145.16 5,140,437.83 15,287,707.33 20,428,145.16
398 Miscellaneous Equipment 284,299.59 85,905.75 198,393.84 201,853
----------------------------------------------------------------
Total General Plant 117,674,574.44 41,541,839.93 76,132,734.51 110,021,661.63
Total Common Plant 141,009,027.00 52,000,553.52 89,008,473.48 132,881,349.16
<CAPTION>
New Electric New Electric
Depreciation New Gas Depreciation
Reserve Plant Reserve
-------------------------------------------
<S> <C> <C> <C>
General Plant
389.1 Land -
389.2 Land Rights 22,244 136,062 45,835
390 Structures and Improvements -
Actors Theater 211,757
LG&E Building 670,257
Broadway Office Complex 6,868,821 $ 6,600,000 0
Auburndale Service Center 3,307,200 6,900,000 0
East Service Center 1,853,119 4,600,000 0
South Service Center 1,492,798
Central Service Center, Misc. Bldg 1,775,411
-------------------------------------------
16,179,363.03 18,100,000.00 -
391 Office Furniture and Equipment
Personal Computer Equipment 6,823,633 3,711,279 2,131,729
Computer Equipment 3,945,374 2,291,359 1,232,550
Office Furniture 2,117,191 3,545,883 661,419
Office Equipment 575,831 980,942 179,892
Security Equipment 307,048 562,101 95,923
-------------------------------------------
13,769,077.51 11,091,563.14 4,301,512.88
392.1 Transportation Equipment - Cars and Trucks 332,169 271,415 273,112
392.2 Transportation Equipment - Trailers 10,903 50,879 8,965
393 Stores Equipment 206,146.99 12,385
394.2 Garage Equipment 158,000 397,122
394.3 Other Equipment 66,206 161,827 27,042
395 Laboratory Equipment 3,734 3,119 608
396.1 Power Operated Equipment - Hourly Rated 768,541 69,406 135,625
396.2 Power Operated Equipment - Other 4,552 4,740 1,859
397 Communication Equipment
Communications Equipment - Other 5,028,694 6,364,067
Communications Equipment - Computer 111,744 474,570
-------------------------------------------
5,140,437.83 6,838,636.82 -
398 Miscellaneous Equipment 60,993 82,447 24,913
-------------------------------------------
Total General Plant 36,722,368.95 37,219,601.76 4,819,470.98
Total Common Plant 47,037,353.83 59,558,863.32 4,963,199.69
</TABLE>
Page 2
<PAGE>
Appendix D
Revenue Requirement Analysis
<PAGE>
LOUISVILLE GAS AND ELECTRIC COMPANY
Summary of Revenue Requirement Analysis
<TABLE>
<CAPTION>
Base Case
-------------------------------------------------------
Base Case Electric Gas Combined
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Revenue Requirement $ 768,400,832 $ 204,675,655 $ 973,076,487
Total Operation and Maintenance Expenses 504,484,532 151,906,879 656,391,411
Depreciation and Amortization Expenses 83,619,014 13,601,848 97,220,862
Taxes Other Than Income Taxes 13,033,513 3,896,709 16,930,222
Income before Interest and Income Taxes 167,263,773 35,270,219 202,533,992
Income Taxes 52,662,167 11,104,653 63,766,820
Operating Income 114,601,606 24,165,566 138,767,172
Rate Base 1,364,304,838 287,685,310 1,651,990,149
Return 8.40% 8.40% 8.40%
<CAPTION>
Stand Alone
-------------------------------------------------------
Stand Alone Electric Gas Combined
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Revenue Requirement $ 781,170,285 $ 235,792,342 $1,016,962,626
Total Operation and Maintenance Expenses 513,369,073 173,258,025 686,627,098
Depreciation and Amortization Expenses 86,059,765 18,337,193 104,396,958
Taxes Other Than Income Taxes 13,367,694 4,649,879 18,017,572
Income before Interest and Income Taxes 168,373,753 39,547,245 207,920,998
Income Taxes 53,011,638 12,451,253 65,462,892
Operating Income 115,362,114 27,095,992 142,458,106
Rate Base 1,373,358,504 322,571,331 1,695,929,835
Return 8.40% 8.40% 8.40%
</TABLE>
<PAGE>
Louisville Gas and Electric Company
Net Cost Rate Base - Gas
Base Case
Gas Plant at Original Cost
--------------------------
Underground Storage Plant
350-357 Underground Storage Plant $ 43,574,097
Total Storage Plant $ 43,574,097
Transmission Plant
365-371 Transmission $ 12,414,634
Distribution Plant
374 Land and Land Rights $ 136,062
375 Structures & Improvements 895,210
376 Mains 170,695,366
378 Meas. & Reg. Sta. Equip. - General 3,740,924
379 Meas. & Reg. Sta. Equip. - City Gate 2,247,764
380 Services 92,298,997
381 Meters 17,245,534
382 Meter Installations 4,813,932
383 House Regulators 3,162,805
384 House Regulator Installations 1,026,389
385 Industrial Meas. & Reg. Equip. 124,036
387 Other Equipment 27,952
Sub-Total Distribution Plant $ 296,414,971
U-T-D Subtotal $ 352,403,702
117 Gas Stored Underground/Non-Current $ 2,139,990
301-303 Intangible Plant 800
389-399 General Plant 10,583,031
Common Utility Plant 35,252,257
Total Plant in Service $ 400,379,780
Construction Work In Progress
Underground Storage $ 7,204,673
Transmission 147,433
Distribution Mains 25,128,814
Other Distribution 1,388,363
Common 5,332,184
Total CWIP $ 39,201,467
Total Gas Plant at Original Cost $ 439,581,247
Page 1
<PAGE>
Louisville Gas and Electric Company
Net Cost Rate Base - Gas
Base Case
Net Cost Rate Base
------------------
Total Gas Utility Plant at Original Cost $ 439,581,247
Less:
Reserve for Depreciation
Underground Storage $ 26,465,494
Transmission 10,258,744
Distribution 91,913,853
General 6,413,836
Common 13,000,938
Total Depreciation Reserve $ 148,052,865
Customer Advances For Construction $ 10,444,203
Accum. Deferred Income Taxes 21,021,338
Investment Tax Credit 29,222
Deferred Income Taxes-FAS 109 5,331,604
PLUS:
Materials and Supplies $ 1,371,734
Prepayments 301,815
Gas Stored Underground 26,664,564
Cash Working Capital 4,645,182
Adjustments:
Unamortized Debt $ -
Regulatory 0
Customer Advances for Construction -
Depreciation Adjustment -
Net Cost Rate Base $ 287,685,310
Page 2
<PAGE>
Louisville Gas and Electric Company
Revenue Requirement
Base Case - Gas
<TABLE>
<S> <C> <C> <C>
Total Revenue (Form 2, Page 300, Line 27) $ 177,578,924
Less:
Total Gas Supply Expenses (Form 2, Page 320, Line 97) 114,745,423
Total Underground Storage Expenses (Form 2, Page 322, Line 177) 5,027,863
Total Transmission O & M (Form 2, Page 323, Line 201) 590,108
Total Distribution O & M (Form 2, Page 324, Line 229) 13,547,035
-----------
Total Operation and Maintenance Expenses $ 133,910,429
901 Supervision (Form 2, Page 324, Line 232) 477,873
902 Meter Reading Expenses (Form 2, Page 324, Line 232) 1,748,152
903 Customer Records and Collection Expenses (Form 2, Page 324, Line 234) 2,879,886
904 Uncollectible Accounts (Form 2, Page 324, Line 235) 471,319
905 Misc. Customer Accounts Expenses (Form 2, Page 324, Line 236) 136,630
-----------
Total Customer Accounts Expenses (Form 2, Page 324, Line 237) 5,713,860
907 Supervision (Form 2, Page 325, Line 240) 15,581
908 Customer Assistance Expenses (Form 2, Page 325, Line 241) 23,670
909 Informational and Instructional Expenses (Form 2, Page 325, Line 242) 49,160
910 Misc. Customer Service and Information Expenses (Form 2, Page 325, Line 243) 254
-----------
Total Customer Service and Information Expense (Form 2, Page 325, Line 244) 88,665
911 Supervision (Form 2, Page 325, Line 247) -
912 Demonstrating and Selling Expenses (Form 2, Page 325, Line 248) 1,244,178
913 Advertising Expenses (Farm 2, Page 325, Line 249) 21,526
916 Miscellaneous Sales Expenses (Form 2, Page 325, Line 250) 53,482
-----------
Total Sales Expense (Form 2, Page 325, Line 251) 1,319,186
920 Administrative and General Salaries (Form 2, Page 325, Line 254) 2,578,051
921 Office Supplies and Expenses (Form 2, Page 325, Line 255) 1,168,712
922 (Less) Administrative Expenses Transferred -- Cr. (Form 2, Page 325, Line 256) (557,755)
923 Outside Services Employed (Form 2, Page 325, Line 257) 2,020,941
924 Property Insurance (Form 2, Page 325, Line 258) 73,001
925 Injuries and Damages (Form 2, Page 325, Line 259) 1,048,283
926 Employee Pensions and Benefits (Form 2, Page 325, Line 260) 2,517,274
927 Franchise Requirements (Form 2, Page 325, Line 261) 417,009
928 Regulatory Commission Expenses (Form 2, Page 325, Line 261) 8,930
929 (Less) Duplicate Charges -- Cr. (Form 2, Page 325, Line 262) (316,768)
930.1 General Advertising Expenses (Form 2, Page 325, Line 264) 60,634
</TABLE>
Page 1
<PAGE>
Louisville Gas and Electric Company
Revenue Requirement
Base Case - Gas
<TABLE>
<S> <C> <C> <C>
930.2 Miscellaneous General Expenses (Form 2, Page 325, Line 265) 367,074
931 Rents (Form 2, Page 325, Line 266) 622,070
935 Maintenance of General Plant (Form 2, Page 325, Line 269) 867,283
---------
Total Administrative and General Expense (Form 2, Page 325, Line 270) 10,874,739
Underground Storage Depr. & Amort. Expense (Form 2, Page 336, Line 5) 1,661,696
Transmission Plant Depr. & Amort. Expense (Form 2, Page 336, Line 9) 290,550
Distribution Plant Depr. & Amort. Expense (Form 2, Page 336, Line 10) 8,266,056
General Plant Depr. & Amort. Expense (Form 2, Page 336, Line 11) 100,568
Common Plant Depr. & Amort. Expense (Form 2, Page 336, Line 12) 3,282,978
---------
Total Depreciation and Amortization Expense (Form 2, Page 336, Line 25) 13,601,848
Real Estate Taxes 1,654,032
Personal Property Taxes 735,624
Unemployment Insurance (8,053)
Federal Old Age & Survivor Insurance 1,250,251
Public Service Commission Fee 349,307
Miscellaneous (84,452)
---------
Total Taxes Other Than Income Taxes 3,896,709
----------
Total Expenses Net of Income tax and Interest $ 169,405,436
-------------
Operating Income $ 8,173,488
Income Taxes 890,568
-------------
Net Operating Income $ 7,282,920
Net Cost Rate Base 287,685,310
Rate of Return - 1999 Actual 2.53%
Adjustment to Reflect Expected Return Filed in Rate Case
Expected Return 8.40%
Total Expenses Net of Income tax and Interest - Page 2 $ 169,405,436
Net Operating Income 24,165,566
State and Federal Income Taxes at .403625 11,104,653
-------------
Total Revenue Requirement at Expected Return $ 204,675,655
</TABLE>
Page 2
<PAGE>
Louisville Gas and Electric Company
Revenue Requirement
Base Case - Gas
Weighted Grossed up
Percent Cost Cost For Taxes
Debt 48.96% 5.55% 2.71% 2.71%
Prefferred Stock 6.25% 5.19% 0.32% 0.54%
Common Equity 44.79% 12.00% 5.37% 9.00%
------ ----- -----
100.00% 8.40% 12.26%
Page 3
<PAGE>
Louisville Gas and Electric Company
Net Cost Rate Base - Gas
Stand-alone Company
Gas Plant at Original Cost
--------------------------
Underground Storage Plant
350-357 Underground Storage Plant $ 43,574,097
Total Storage Plant $ 43,574,097
Transmission Plant
365-371 Transmission $ 12,414,634
Distribution Plant
374 Land and Land Rights $ 136,062
375 Structures & Improvements 895,210
376 Mains 170,695,366
378 Meas. & Reg. Sta. Equip. - General 3,740,924
379 Meas. & Reg. Sta. Equip. - City Gate 2,247,764
380 Services 92,298,997
381 Meters 17,245,534
382 Meter Installations 4,813,932
383 House Regulators 3,162,805
384 House Regulator Installations 1,026,389
385 Industrial Meas. & Reg. Equip. 124,036
387 Other Equipment 27,952
Sub-Total Distribution Plant $ 296,414,971
U-T-D Subtotal $ 352,403,702
117 Gas Stored Underground/Non-Current $ 2,139,990
301-303 Intangible Plant 800
389-399 General Plant 10,583,031
Common Utility Plant 59,558,863
Total Plant in Service $ 424,686,387
Gas Plant at Original Cost (Continued)
-------------------------------------
Construction Work In Progress
Underground Storage $ 7,204,673
Transmission 147,433
Distribution Mains 25,128,814
Other Distribution 1,388,363
Common 5,332,184
Total CWIP $ 39,201,467
Total Gas Plant at Original Cost $ 463,887,854
Page 1
<PAGE>
Louisville Gas and Electric Company
Net Cost Rate Base - Gas
Stand-alone Company
Net Cost Rate Base
------------------
Total Gas Utility Plant at Original Cost $ 463,887,854
Less:
Reserve for Depreciation
Underground Storage $ 26,465,494
Transmission 10,258,744
Distribution 91,913,853
General 6,413,836
Common 4,963,200
Total Depreciation Reserve $ 140,015,127
Customer Advances For Construction $ 10,444,203
Accum. Deferred Income Taxes 20,314,604
Investment Tax Credit 29,222
Deferred Income Taxes-FAS 109 6,182,244
PLUS:
Materials and Supplies $ 1,371,734
Prepayments 318,504
Gas Stored Underground 26,664,564
Cash Working Capital 7,314,075
Adjustments:
Unamortized Debt $ -
Regulatory 0
Customer Advances for Construction -
Depreciation Adjustment -
Net Cost Rate Base $ 322,571,331
Page 2
<PAGE>
Louisville Gas and Electric Company
Revenue Requirement
Stand-alone Gas Company
<TABLE>
<S> <C> <C> <C>
Total Revenue (Form 2, Page 300, Line 27) $ 177,578,924
Less:
Total Gas Supply Expenses (Form 2, Page 320, Line 97) 114,745,423
Total Underground Storage Expenses (Form 2, Page 322, Line 177) 5,027,863
Total Transmission O & M (Form 2, Page 323, Line 201) 590,108
Total Distribution O & M (Form 2, Page 324, Line 229) 13,547,035
----------
Total Operation and Maintenance Expenses $ 133,910,429
901 Supervision 830,729
902 Meter Reading Expenses 3,038,892
903 Customer Records and Collection Expenses 4,986,308
904 Uncollectible Accounts 471,319
905 Misc. Customer Accounts Expenses 172,993
----------
Total Customer Accounts Expenses 9,500,241
907 Supervision 48,798
908 Customer Assistance Expenses 29,147
909 Informational and Instructional Expenses 108,701
910 Misc. Customer Service and Information Expenses 3,023
----------
Total Customer Service and Information Expense 189,669
911 Supervision -
912 Demonstrating and Selling Expenses 2,651,751
913 Advertising Expenses 50,099
916 Miscellaneous Sales Expenses 57,431
---------
Total Sales Expense 2,759,282
920 Administrative and General Salaries 7,795,012
921 Office Supplies and Expenses 3,116,085
922 (Less) Administrative Expenses Transferred -- Cr. (557,755)
923 Outside Services Employed 5,246,041
924 Property Insurance 81,692
925 Injuries and Damages 1,244,173
926 Employee Pensions and Benefits 4,586,473
927 Franchise Requirements 417,009
928 Regulatory Commission Expenses 20,411
</TABLE>
Page 1
<PAGE>
Louisville Gas and Electric Company
Revenue Requirement
Stand-alone Gas Company
<TABLE>
<S> <C> <C> <C>
929 (Less) Duplicate Charges -- Cr. (316,768)
930 General Advertising Expenses 1,032,185
931 Rents 2,176,241
935 Maintenance of General Plant 2,057,605
----------
Total Administrative and General Expense 26,898,404
Underground Storage Depr. & Amort. Expense (Form 2, Page 336, Line 5) 1,661,696
Transmission Plant Depr. & Amort. Expense (Form 2, Page 336, Line 9) 290,550
Distribution Plant Depr. & Amort. Expense (Form 2, Page 336, Line 10) 8,266,056
General Plant Depr. & Amort. Expense (Form 2, Page 336, Line 11) 100,568
Common Plant Depr. & Amort. Expense 8,018,323
---------
Total Depreciation and Amortization Expense (Form 2, Page 336, Line 25) 18,337,193
Real Estate Taxes 1,745,492
Personal Property Taxes 776,300
Unemployment Insurance (11,739)
Federal Old Age & Survivor Insurance 1,822,575
Public Service Commission Fee 401,703
Miscellaneous (84,452)
----------
Total Taxes Other Than Income Taxes 4,649,879
---------
Total Expenses Net of Income tax and Interest $ 196,245,097
-------------
Return Expected in Rate Case 8.40%
Net Cost Rate Base 322,571,331
Net Operating Income $ 27,095,992
State and Federal Income Taxes at .403625 12,451,253
-------------
Total Revenue Requirement at Expected Return $ 235,792,342
</TABLE>
Weighted Grossed up
Percent Cost Cost For Taxes
Debt 48.96% 5.55% 2.71% 2.71%
Prefferred Stock 6.25% 5.19% 0.32% 0.54%
Common Equity 44.79% 12.00% 5.37% 9.00%
------ ---- -----
100.00% 8.40% 12.26%
Page 2
<PAGE>
Louisville Gas and Electric company
Net Coat Rate Base - Electric
Base Case
Electric Plant at Original Cost
-------------------------------
Production Plant
310-346 Production Plant $ 1,619,153,844
Transmission Plant
350-359 Transmission Plant $ 192,144,167
Distribution Plant
360 Land and Land Rights $ 1,944,027
361 Structures & Improvements 5,653,623
362 Station Equipment 73,860,667
364 Poles, Towers, & Fixtures 82,950,556
365 OH Conductors & Devices 108,597,725
366 Underground Conduit 45,391,879
367 UG Conductors & Devices 60,520,829
368 Line Transformers 85,618,246
369 Services 22,506,932
370 Meters 30,301,866
373 St. Lighting & Signal Systems 45,258,695
Total Distribution Plant $ 562,605,045
P-T-D Subtotal $ 2,373,903,056
301-303 Intangible Plant 2,340
389-399 General Plant 21,984,014
Common Utility Plant 105,756,770
Total Plant in Service $ 2,501,646,180
Plant Held For Future Use 817,841
Total CWIP $ 123,793,419
Total Electric Plant at Original Cost $ 2,626,257,440
Page 1
<PAGE>
Louisville Gas and Electric company
Net Coat Rate Base - Electric
Base Case
Net Cost Rate Base
------------------
Total Gas Utility Plant at Original Cost $ 2,626,257,440
Less:
Reserve for Depreciation
Production $ 686,135,958
Transmission 100,398,497
Distribution 226,772,846
General 14,671,180
Common 39,000,516
Total Depreciation Reserve $ 1,066,978,997
Customer Advances For Construction $ 660,151
Accum. Deferred Income Taxes 234,888,530
Investment Tax Credit 72,506
Deferred Income Taxes-FAS 109 51,435,440
PLUS:
Materials and Supplies $ 48,851,588
Prepayments 1,367,448
Cash Working Capital 41,863,986
Adjustments:
Unamortized Debt $ -
Regulatory 0
Customer Advances for Construction -
Depreciation Adjustment -
Net Cost Rate Base $ 1,364,304,838
Page 2
<PAGE>
Louisville Gas and Electric Company
Revenue Requirement - Electric
Base Case
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total Revenue (Form 1, Page 300, Line 27) $ 790,670,128
Less:
Total Power Production Expenses (Form 1, Page 320, Line 80) 415,270,461
Total Transmission Expenses (Form 1, Page 321, Line 100) 8,000,238
Total Distribution Expenses (Form 1, Page 322, Line 126) 23,342,466
-----------
Total Operation and Maintenance Expenses $ 446,613,165
901 Supervision (Form 1, Page 322, Line 129) 608,202
902 Meter Reading Expenses (Form 1, Page 322, Line 130) 2,552,427
903 Customer Records and Collection Expenses (Form 1, Page 322, Line 131) 3,794,017
904 Uncollectible Accounts (Form 1, Page 322, Line 132) 1,492,509
905 Misc. Customer Accounts Expenses (Form 1, Page 322, Line 133) 224,067
-----------
Total Customer Accounts Expenses (Form 1, Page 322, Line 134) 8,671,222
907 Supervision (Form 1, Page 322, Line 137) 48,217
908 Customer Assistance Expenses (Form 1, Page 322, Line 138) 1,428,557
909 Informational and Instructional Expenses (Form 1, Page 322, Line 139) 204,217
910 Misc. Customer Service and Information Expenses (Form 1, Page 322, Line 140) 62,159
-----------
Total Customer Service and Information Expense (Form 1, Page 322, Line 141) 1,743,150
911 Supervision (Form 1, Page 322, Line 144) -
912 Demonstrating and Selling Expenses (Form 1, Page 322, Line 145) 1,579,228
913 Advertising Expenses (Farm 1, Page 322, Line 146) 68,167
916 Miscellaneous Sales Expenses (Form 1, Page 322, Line 147) 194,876
-----------
Total Sales Expense (Form 1, Page 322, Line 148) 1,842,271
920 Administrative and General Salaries (Form 1, Page 322, Line 151) 11,650,383
921 Office Supplies and Expenses (Form 1, Page 322, Line 152) 4,538,866
922 (Less) Administrative Expenses Transferred -- Cr. (Form 1, Page 322, Line 153) (2,831,388)
923 Outside Services Employed (Form 1, Page 323, Line 155) 8,622,051
924 Property Insurance (Form 1, Page 323, Line 156) 938,063
925 Injuries and Damages (Form 1, Page 323, Line 157) 1,912,057
926 Employee Pensions and Benefits (Form 1, Page 323, Line 158) 10,176,878
927 Franchise Requirements (Form 1, Page 323, Line 159) 15,610
928 Regulatory Commission Expenses (Form 1, Page 323, Line 160) 352,844
929 (Less) Duplicate Charges -- Cr. (Form 1, Page 323, Line 161) (91,780)
930.1 General Advertising Expenses (Form 1, Page 323, Line 162) 150,849
930.2 Miscellaneous General Expenses (Form 1, Page 323, Line 163) 4,863,715
</TABLE>
Page 1
<PAGE>
Louisville Gas and Electric Company
Revenue Requirement - Electric
Base Case
<TABLE>
<S> <C> <C> <C>
931 Rents (Form 1, Page 323, Line 164) 2,640,777
935 Maintenance of General Plant (Form 1, Page 323, Line 167) 2,675,799
-----------
Total Administrative and General Expense (Form 1, Page 323, Line 168) 45,614,724
Steam Production Plant Depr. & Amort. Expense (Form 1, Page 336, Line 2) 49,051,242
Hydrolic Production Plant Depr. & Amort. Expense (Form 1, Page 336, Line 4) 166,032
Other Production Plant Depr. & Amort. Expense (Form 1, Page 336, Line 6) 834,828
Transmission Plant Depr. & Amort. Expense (Form 1, Page 336, Line 7) 4,658,793
Distribution Plant Depr. & Amort. Expense (Form 1, Page 336, Line 8) 18,918,315
General Plant Depr. & Amort. Expense (Form 1, Page 336, Line 9) 146,012
Common Plant Depr. & Amort. Expense (Form 1, Page 336, Line 10) 9,843,792
-----------
Total Depreciation and Amortization Expense (Form 1, Page 336, Line 11) 83,619,014
Real Estate Taxes 1,374,940
Personal Property Taxes 5,609,044
Unemployment Insurance (35,615)
Federal Old Age & Survivor Insurance 5,530,473
Public Service Commission Fee 908,218
Miscellaneous (353,547)
-----------
Total Taxes Other Than Income Taxes 13,033,513
----------
Total Expenses Net of Income tax and Interest $ 601,137,059
--------------
Operating Income $ 189,533,069
Income Taxes 56,724,640
--------------
Net Operating Income $ 132,808,429
Net Cost Rate Base 1,364,304,838
Rate of Return 9.73%
Adjustment to Reflect Expected Return Filed in Gas Rate Case
Expected Return 8.40%
Total Expenses Net of Income tax and Interest - Page 2 $ 601,137,059
--------------
Net Operating Income $ 114,601,606
State and Federal Income Taxes at .403625 52,662,167
--------------
Total Revenue Requirement at Expected Return $ 768,400,832
</TABLE>
Page 2
<PAGE>
Louisville Gas and Electric Company
Revenue Requirement - Electric
Base Case
Weighted Grossed up
Percent Cost Cost For Taxes
Debt 48.96% 5.55% 2.71% 2.71%
Prefferred Stock 6.25% 5.19% 0.32% 0.54%
Common Equity 44.79% 12.00% 5.37% 9.00%
------ ---- -----
100.00% 8.40% 12.26%
Page 3
<PAGE>
Louisville Gas and Electric Company
Net Cost Rate Base - Electric
Stand-alone Company
Electric Plant at Original Cost
-------------------------------
Production Plant
310-346 Production Plant $ 1,619,153,844
Transmission Plant
350-359 Transmission Plant $ 192,144,167
Distribution Plant
360 Land and Land Rights $ 1,944,027
361 Structures & Improvements 5,653,623
362 Station Equipment 73,860,667
364 Poles, Towers, & Fixtures 82,950,556
365 OH Conductors & Devices 108,597,725
366 Underground Conduit 45,391,879
367 UG Conductors & Devices 60,520,829
368 Line Transformers 85,618,246
369 Services 22,506,932
370 Meters 30,301,866
373 St. Lighting & Signal Systems 45,258,695
Total Distribution Plant $ 562,605,045
P-T-D Subtotal $ 2,373,903,056
301-303 Intangible Plant 2,340
389-399 General Plant 21,984,014
Common Utility Plant 132,881,349
Total Plant in Service $ 2,528,770,759
Gas Plant at Original Cost (Continued)
--------------------------------------
Plant Held For Future Use 817,841
Total CWIP $ 123,793,419
Total Electric Plant at Original Cost $ 2,653,382,019
Net Cost Rate Base
------------------
Total Gas Utility Plant at Original Cost $ 2,653,382,019
Less:
Reserve for Depreciation
Production $ 686,135,958
Transmission 100,398,497
Distribution 226,772,846
Page 1
<PAGE>
Louisville Gas and Electric Company
Net Cost Rate Base - Electric
Stand-alone Company
General 14,671,180
Common 47,037,354
Total Depreciation Reserve $ 1,075,015,835
Customer Advances For Construction $ 10,444,203
Accum. Deferred Income Taxes 237,157,169
Investment Tax Credit 29,222
Deferred Income Taxes-FAS 109 50,584,799
PLUS:
Materials and Supplies $ 48,851,588
Prepayments 1,381,571
Cash Working Capital 42,974,554
Adjustments:
Unamortized Debt $ -
Regulatory -
Customer Advances for Construction -
Depreciation Adjustment -
Net Cost Rate Base $ 1,373,358,504
Page 2
<PAGE>
Louisville Gas and Electric Company
Revenue Requirement
Stand-alone Electric Company
<TABLE>
<S> <C> <C> <C>
Total Revenue (Form 1, Page 300, Line 27) $ 790,670,128
Less:
Total Power Production Expenses (Form 1, Page 320, Line 80) 415,270,461
Total Transmission Expenses (Form 1, Page 321, Line 100) 8,000,238
Total Distribution Expenses (Form 1, Page 322, Line 126) 23,342,466
-----------
Total Operation and Maintenance Expenses $ 446,613,165
901 Supervision 1,010,358
902 Meter Reading Expenses 4,023,406
903 Customer Records and Collection Expenses 6,194,742
904 Uncollectible Accounts 1,492,509
905 Misc. Customer Accounts Expenses 265,348
-----------
Total Customer Accounts Expenses 12,986,364
907 Supervision 59,350
908 Customer Assistance Expenses 1,430,334
909 Informational and Instructional Expenses 221,669
910 Misc. Customer Service and Information Expenses 61,897
-----------
Total Customer Service and Information Expense 1,773,249
911 Supervision -
912 Demonstrating and Selling Expenses 1,964,934
913 Advertising Expenses 76,542
916 Miscellaneous Sales Expenses 196,143
-----------
Total Sales Expense 2,237,619
920 Administrative and General Salaries 12,562,936
921 Office Supplies and Expenses 5,193,582
922 (Less) Administrative Expenses Transferred -- Cr. (2,831,388)
923 Outside Services Employed 9,509,512
924 Property Insurance 937,830
925 Injuries and Damages 1,947,160
926 Employee Pensions and Benefits 10,728,667
927 Franchise Requirements 15,610
928 Regulatory Commission Expenses 356,671
929 (Less) Duplicate Charges -- Cr. (91,780)
930 General Advertising Expenses 5,129,083
931 Rents 3,224,373
</TABLE>
<PAGE>
Louisville Gas and Electric Company
Revenue Requirement
Stand-alone Electric Company
<TABLE>
<S> <C> <C> <C>
935 Maintenance of General Plant 3,076,421
----------
Total Administrative and General Expense 49,758,677
Steam Production Plant Depr. & Amort. Expense (Form 1, Page 336, Line 2) 49,051,242
Hydrolic Production Plant Depr. & Amort. Expense (Form 1, Page 336, Line 4) 166,032
Other Production Plant Depr. & Amort. Expense (Form 1, Page 336, Line 6) 834,828
Transmission Plant Depr. & Amort. Expense (Form 1, Page 336, Line 7) 4,658,793
Distribution Plant Depr. & Amort. Expense (Form 1, Page 336, Line 8) 18,918,315
General Plant Depr. & Amort. Expense (Form 1, Page 336, Line 9) 146,012
Common Plant Depr. & Amort. Expense 12,284,543
----------
Total Depreciation and Amortization Expense (Form 1, Page 336, Line 11) 86,059,765
Real Estate Taxes 1,389,141
Personal Property Taxes 5,666,975
Unemployment Insurance (37,255)
Federal Old Age & Survivor Insurance 5,785,079
Public Service Commission Fee 917,300
Miscellaneous (353,547)
----------
Total Taxes Other Than Income Taxes 13,367,694
----------
Total Expenses Net of Income tax and Interest $ 612,796,532
--------------
Return Expected in Rate Case 8.40%
Net Cost Rate Base 1,373,358,504
Net Operating Income $ 115,362,114
State and Federal Income Taxes at .403625 53,011,638
--------------
Total Revenue Requirement at Expected Return $ 781,170,285
</TABLE>
Weighted Grossed up
Percent Cost Cost For Taxes
Debt 48.96% 5.55% 2.71% 2.71%
Prefferred Stock 6.25% 5.19% 0.32% 0.54%
Common Equity 44.79% 12.00% 5.37% 9.00%
------ ---- -----
100.00% 8.40% 12.26%
<PAGE>
Appendix E
Lost Economies
<PAGE>
LOUISVILLE GAS AND ELECTRIC COMPANY
Determination of Lost Economies From a Ratepayer Perspective
Gas Electric
----------- -----------
New Revenue Requirement 235,792,342 781,170,285
Old Revenue Requirement 204,675,655 768,400,832
----------- -----------
Increase in Revenue Requirement 31,116,687 12,769,453
New Income Tax 12,451,253 53,011,638
Old Income Tax 11,104,653 52,662,167
----------- ----------
Increase in Income Taxes 1,346,600 349,471
Lost Economics 29,770,087 12,419,982
<PAGE>
Appendix F
NewLouGas Investor
Impact of Lost Economies
<PAGE>
LOUISVILLE GAS AND ELECTRIC COMPANY
Determination of Lost Economies on Investors
<TABLE>
<CAPTION>
NewLouGas Gas
No Rate Increase Base Case
<S> <C> <C>
Total Revenue $ 204,675,655 $ 204,675,655
Total Administrative and General Expense 173,258,025 151,906,879
Total Depreciation and Amortization Expense 18,337,193 13,601,848
Total Taxes Other Than Income Taxes 4,649,879 3,896,709
Total Expenses Net of Income tax and Interest $ 196,245,097 $ 169,405,436
---------------- ---------------
Operating Income $ 8,430,558 $ 35,270,219
Interest Expense $ 8,764,733 $ 7,816,829
---------------- ---------------
Taxable Income (334,175) 27,453,390
---------------- ---------------
Income Taxes $ - 11,104,653
---------------- ---------------
Net Income $ (334,175) $ 16,348,737
Net Cost Rate Base 322,571,331 287,685,310
Lost Economies $ 16,682,912
</TABLE>
