Item 1. Business.
OVERVIEW OF OPERATIONS
LG&E Energy Corp. (the Company), incorporated November 14, 1989, is a diversified energy-services holding company with two direct subsidiaries: Louisville Gas and Electric Company (LG&E) and LG&E Energy Systems Inc. (Energy Systems). In August 1990, the Company and LG&E implemented a corporate reorganization pursuant to a mandatory share exchange whereby each share of outstanding common stock of LG&E was exchanged on a share-for-share basis for the common stock of LG&E Energy Corp. The reorganization created a corporate structure that gives the Company the flexibility to take advantage of opportunities to expand into other businesses while insulating LG&E's utility customers and senior security holders from risks associated with such businesses. LG&E preferred stock and first mortgage bonds were not exchanged and remained securities of LG&E. The Company is not currently engaged in any business activity independent of LG&E and Energy Systems.
LG&E is a regulated public utility that supplies natural gas to approximately 266,000 customers and electricity to approximately 341,000 customers in Louisville and adjacent areas in Kentucky. LG&E's service area covers approximately 700 square miles in 17 counties and has an estimated population of 800,000. Included in this area is the Fort Knox Military Reservation, to which LG&E provides both gas and electric service, but which maintains its own distribution systems. LG&E also provides gas service in limited additional areas. LG&E's coal-fired electric generating plants, which are all equipped with systems to remove sulfur dioxide, produce most of LG&E's electricity; the remainder is generated by a hydroelectric power plant and combustion turbines. Underground gas storage fields help LG&E provide economical and reliable gas service to customers. During 1994, the Company's financial condition and results of operation depended to a large degree on the financial condition and results of operations of LG&E.
In 1991, LG&E Energy Systems Inc. was formed to direct the Company's expansion into the non-utility marketplace and to separate the regulated utility from new business initiatives. This subsidiary explores business opportunities that fit the corporate strategy aimed at energy services opportunities, including cogeneration and independent power production; and fuel-related businesses, such as gathering, storing, transporting and marketing natural gas.
Consistent with the Company's expansion strategy, Energy Systems purchased Hadson Power Systems, Incorporated, of Irvine, California, from Hadson Corporation in December 1991. Following the acquisition, Hadson Power Systems was renamed LG&E Power Systems Inc. and has been subsequently renamed LG&E Power Inc. (LPI). LPI develops, designs, builds, owns, operates, and maintains power generation facilities that sell energy to local industries and utilities.
In 1992, Energy Systems acquired a 36.5% interest in Natural Gas Clearinghouse (NGC), and in January 1994, it sold that interest. See Note 3 of Notes to Financial Statements under Item 8 for a further discussion of the sale of NGC.
Effective January 1, 1994, the Company realigned its business to reflect its outlook for rapidly emerging competition in all segments of the energy services industry. Under the realignment, a national business unit, LG&E Energy Services was formed to develop and manage all of its utility and non-utility electric power generation and concentrate on the marketing and brokering of wholesale electric power on a regional and national basis. The realignment has allowed Louisville Gas and Electric Company, the Company's
principal subsidiary, to increase its focus on customer service and develop more customer options as the utility industry becomes more competitive.
As part of the business realignment, a new subsidiary was formed to market power throughout the United States. LG&E Power Marketing Inc. (LPM), an indirect wholly owned subsidiary of the Company, was among the first utility-affiliated marketers in the country to secure FERC approval to sell power at market-based rates and engage in wholesale power marketing activities.
The realignment does not affect the Company's legal structure, regulation of LG&E by the Public Service Commission of Kentucky (Kentucky Commission or Commission) or the Company's status as an exempt holding company.
In August 1994, a partnership formed by LPI and Kenetech Windpower Inc. for the purpose of owning and operating power plants producing electricity from wind turbines, completed two projects in Buffalo Ridge, Minnesota, and Palm Springs, California. LPI's investment in the projects totaled $20.4 million.
In November 1994, the Company announced that one of its subsidiaries, LG&E International Inc., had formed a joint venture that will build and operate a natural-gas-fired power plant in north central Argentina. The plant is scheduled to be built and operational by the third quarter of 1995. The other partners in the project are Sideco Americana, S.A., an Argentine engineering and construction company, and Charter Oak Energy, Inc., a non-utility subsidiary of Northeast Utilities. The Company intends to continue to pursue international projects that have an acceptable level of risk and provide an opportunity to earn an above average rate of return.
The Company has also announced that LPI has formed a joint venture for the purpose of owning and operating power plants producing electricity from wind turbines in Culberson County, Texas. The project will be constructed by CNF Constructors Inc., a Kenetech Windpower Inc. affiliate. The other partners in the venture will be Kenetech Windpower Inc. and Quixx Corporation, a wholly owned subsidiary of Southwestern Public Service Company. Operations are expected to begin in the fourth quarter of 1995.
On February 10, 1995, LG&E Energy Corp. signed definitive agreements to purchase Hadson Corporation (Hadson) for $143 million, plus acquisition related fees and expenses. Hadson, based in Dallas, Texas, is involved in the marketing, gathering, processing, storage and transportation of natural gas and natural gas liquids. The sale is subject to necessary regulatory filings and approvals, and satisfaction of certain other conditions. Closing is scheduled to occur in the second quarter of 1995.
The Company and its subsidiaries currently are exempt from all provisions, except Section 9(a)(2), of the Public Utility Holding Company Act of 1935 (the "Holding Company Act") on the basis that the Company and LG&E are incorporated in the same state and their business is predominately intrastate in character and carried on substantially in the state of incorporation. It is necessary for the Company to file an annual exemption statement with the Securities and Exchange Commission (SEC).
The Company is not a public utility under the laws of the Commonwealth of Kentucky and is not subject to regulation as such by the Kentucky Commission. See Louisville Gas and Electric Company - Regulation and Rates below for a description of the regulation of LG&E by the Kentucky Commission, which includes the ability to regulate certain inter-company transactions between LG&E and the Company, including the Company's non-utility subsidiaries.
LOUISVILLE GAS AND ELECTRIC COMPANY
General
LG&E's Trimble County Unit 1 (Trimble County or the Unit), a 495-megawatt, coal-fired electric generating unit, which LG&E began constructing in 1979, was placed in commercial operation on December 23, 1990. The Unit has been subject to numerous reviews by the Kentucky Commission. In July 1988, the Kentucky Commission issued an order stating that 25% of the total cost of the Unit would not be allowed for ratemaking purposes. LG&E has sold a 25% ownership interest in the Unit. For a more detailed discussion of the proceedings relating to Trimble County Unit 1 and the sale of 25% of the Unit, see Electric Operations and Notes 14 and 15 of Notes to Financial Statements under Item 8.
The Clean Air Act Amendments of 1990 impose stringent limits on emissions of sulfur dioxide and nitrogen oxides by electric generating plants. LG&E is closely monitoring the continuing rule-making process in order to assess the precise impact of the legislation on LG&E. All of LG&E's coal-fired boilers are equipped with sulfur dioxide "scrubbers" and already achieve the final sulfur dioxide emission rates required by the year 2000 under the legislation. However, as part of its ongoing capital construction program, LG&E has spent $10 million to date and anticipates incurring capital expenditures of approximately $29 million through 1996 for remedial measures necessary to meet the Act's requirements for nitrogen oxides. The overall financial impact of the legislation on LG&E is expected to be minimal. LG&E is well-positioned in the market to be a "clean" power provider without the large capital expenditures that are expected to be incurred by many other utilities. For a more detailed discussion of the Clean Air Act and other environmental issues, see Environmental Matters under this Item, Item 3, Item 7, and Note 13 of Notes to Financial Statements under Item 8.
Competition among energy suppliers is increasing. In particular, competition for off-system sales, which is based primarily on price and availability of energy, has become much more intense in recent years. The addition of electric generating capacity by other utilities in the Midwest has reduced the opportunities for LG&E to make interchange sales and has heightened price competition for such sales. However, such additional capacity has made lower cost power available for purchase by LG&E which, in certain instances, is at a cost lower than the variable cost of generating power from the generating stations owned by LG&E. In addition, the 1992 Energy Policy Act provides utilities a wider choice of sources for their electrical supply than previously available. The Act also creates generating supply options that did not exist under previous legislation and is expected to increase competition for wholesale electric sales. See Energy Policy Act of 1992 under Item 7 for a further discussion. LG&E is responding to increased competition in a number of ways designed to lower its costs and increase sales.
One such response has been the realignment by LG&E Energy Corp. into new business units as described on pages 1 and 2 effective January 1, 1994. The realignment will allow LG&E to increase its focus on customer service and to develop more customer options as the utility industry becomes more competitive. The realignment does not affect the regulation of LG&E by the Commission.
LG&E envisions an open electricity transmission system that facilitates delivery of competitively priced power to all customers in the region. Toward that vision, LG&E filed tariffs with FERC in 1994 which would provide transmission service to wholesale customers at rates, terms, and conditions which are comparable to those which LG&E applies to itself. This comparable transmission service is a key feature of a more competitive electric utility industry.
As part of its efforts to retain existing customers and expand to new customers, in 1994 LG&E began securing long-term, mutually beneficial written contracts with key customers. By entering into such agreements, LG&E is assured of a market for its energy and can prudently invest in plant and equipment upgrades and enhanced delivery services that will benefit customers and make the utility more competitive. In 1994, LG&E also formalized its economic development strategic plan, integrating many of its industry-attraction efforts with that of the city of Louisville and other regional businesses.
By using gas storage fields strategically, LG&E can buy gas when prices are low, store it, and retrieve the gas when demand is high. Accessing least cost gas was made easier in November 1993 when FERC's Order No. 636 went into effect. Previously, LG&E and other utilities purchased most of their gas services from pipeline companies. The order "unbundled" gas services, allowing utilities to purchase gas, transportation, and storage services separately from many different sources. Currently, LG&E buys competitively priced gas from several large producers under contracts of varying duration. By purchasing from multiple suppliers, and storing any excess gas, LG&E is able to secure favorably priced gas for its customers. Without storage capacity, LG&E would be forced to buy additional gas when customer demand increases, which is usually when the price is highest. See FERC Order No. 636 under Item 7 for a further discussion.
LG&E is experiencing some of the issues common to electric and gas utility companies, namely, increased competition for customers and costs of compliance with environmental laws and regulations.
For the year ended December 31, 1994, 74% of total utility revenues was derived from electric operations and 26% from gas operations. Electric and gas operating revenues and the percentages by classes of service on a combined basis for this period were as follows:
See Note 17 of Notes to Financial Statements under Item 8 for financial information concerning segments of business for the three years ended December 31, 1994.
Electric Operations
The sources of electric operating revenues and the volumes of sales for the three years ended December 31, 1994, were as follows:
At December 31, 1994, LG&E had 340,810 electric customers.
LG&E uses efficient coal-fired boilers that are fully equipped with sulfur dioxide removal systems to generate electricity. LG&E's system wide emission rate for sulfur dioxide in 1994 was approximately .84 lbs./MMBtu of heat input, which is significantly below the Phase II limit of 1.2 lbs./MMBtu established by the Clean Air Act Amendments for the year 2000.
On Monday, August 30, 1993, LG&E set a record local peak load of 2,239 Mw, when the temperature at the time of peak reached 94 degrees Fahrenheit (average for the day was 84 degrees Fahrenheit). The 1994 maximum local peak load of 2,219 Mw occurred on Wednesday, June 15, when the temperature at the time of peak was 95 degrees Fahrenheit (average for the day was 85 degrees Fahrenheit). The record system peak of 3,223 Mw (which included purchases from and short-term sales to other electric utilities) occurred on Thursday, May 30, 1991.
LG&E's current reserve margin is 16%. At February 28, 1995, LG&E owned steam and combustion turbine generating facilities with a capacity of 2,613 Mw and an 80 Mw hydroelectric facility on the Ohio River. See Item 2, Properties.
LG&E is a participating owner with 14 other electric utilities of Ohio Valley Electric Corporation (OVEC) whose primary customer is the Portsmouth Area uranium-enrichment complex of the U.S. Department of Energy at Piketon, Ohio. LG&E has electric transmission interconnections and/or interconnection/interchange agreements with PSI Energy, Kentucky Utilities Company, Southern Indiana Gas and Electric Company, The Cincinnati Gas & Electric Company, Indiana Michigan Power Company, OVEC, Big Rivers Electric Corporation, Tennessee Valley Authority, Wabash Valley Power Association, Indiana
Municipal Power Agency, East Kentucky Power Cooperative (East Kentucky), Illinois Municipal Electric Agency, Jacksonville Electric Authority, and Ogelthorpe Power Corporation providing for various interchanges, emergency services, and other working arrangements.
LG&E entered into an agreement with East Kentucky to provide about 40 megawatts of electricity to Gallatin Steel Company's (Gallatin) new steel mill in north central Kentucky. The agreement will continue for 10 years and is expected to result in approximately $6 million of revenues annually. Gallatin makes steel for manufacturing plants in Kentucky. LG&E will supply the electricity from its power plants in the Louisville area. This transaction was negotiated by LPM, an affiliate of the Company, and the terms of the transaction were approved by the Kentucky Commission.
LG&E and East Kentucky had an agreement that allowed East Kentucky to purchase power during its peak season, and LG&E to sell power during its off-peak season. The agreement entitled East Kentucky to buy from LG&E up to 145 megawatts from mid-December to mid-February through 1994-95.
On February 28, 1991, LG&E sold a 12.12% ownership interest in Trimble County Unit 1 to the Illinois Municipal Electric Agency (IMEA), based in Springfield, Illinois, which is an agency of 30 municipalities that own and operate their own electric systems. On February 1, 1993, the Indiana Municipal Power Agency (IMPA), based in Carmel, Indiana, purchased a 12.88% interest in the Trimble County Unit. IMPA is composed of 31 municipalities that have joined together to meet their long-term electric power needs. Both IMEA and IMPA pay their proportionate share for operation and maintenance expenses of the Unit and for fuel and reactant used. They are also responsible for their proportionate share of incremental capital assets acquired.
Electric and magnetic fields (sometimes referred to as EMF) surround electric wires or conductors of electricity such as electrical tools, household wiring and appliances, and high voltage electric transmission lines such as those owned by LG&E. Certain studies have suggested a possible association between electric and magnetic fields and adverse health effects. The Electric Power Research Institute, of which LG&E is a participating member, has expended approximately $75 million since 1987 in its investigation and research with regard to possible health effects posed by exposure to electric and magnetic fields.
Gas Operations
The sources of gas operating revenues and the volumes of sales for the three years ended December 31, 1994, were as follows:
At December 31, 1994, LG&E had 265,688 gas customers.
LG&E has underground natural gas storage fields that help provide economical and reliable gas service to ultimate consumers.
Reflecting the changing nature of the gas business, a number of industrial customers purchase their natural gas requirements directly from alternate suppliers for delivery through LG&E's distribution system. Generally, transportation of natural gas for LG&E's customers does not have an adverse effect on earnings because of the offsetting decrease in gas supply expenses. Transportation rates are designed to make LG&E economically indifferent as to whether gas is sold or merely transported.
The all-time maximum day gas sendout of 545,000 Mcf occurred on Sunday, January 20, 1985, when the average temperature for the day was -11 degrees Fahrenheit. During 1994, the maximum day gas sendout was 524,000 Mcf, occurring on January 15, when the average temperature for the day was 2 degrees Fahrenheit. Supply on that day consisted of 176,000 Mcf from purchases, 314,000 Mcf delivered from underground storage, and 34,000 Mcf transported for industrial customers. For further discussion, see Gas Supply.
In 1994, LG&E experienced its first full year operating under FERC Order No. 636. While LG&E had previously been able to purchase natural gas and pipeline transportation services from Texas Gas Transmission Corporation (Texas Gas), LG&E now purchases only transportation services from Texas Gas pursuant to its FERC-approved tariff and acquires its supply of natural gas from other sources. For further discussion see Gas Supply and Note 13 of Notes to Financial Statements under Item 8.
Regulation and Rates
The Kentucky Commission has regulatory jurisdiction over the rates and service of LG&E and over the issuance of certain of its securities. LG&E is a "public utility" as defined in the Federal Power Act, and is subject to the jurisdiction of the Department of Energy and the FERC with respect to the matters covered in such Act, including the sale of electric energy at wholesale in interstate commerce. In addition, the FERC has sole jurisdiction over the issuance by LG&E of short-term securities.
For a discussion of current regulatory matters, see Rates and Regulation under Item 7 and Notes 2 and 14 of Notes to Financial Statements under Item 8.
Increases and decreases in the cost of fuel for electric generation are reflected in the rates charged to all of LG&E's electric customers by means of LG&E's fuel adjustment clause. The Kentucky Commission requires public hearings at six-month intervals to examine past fuel adjustments, and at two-year intervals for the purpose of additional examination and transfer of the then current fuel adjustment charge or credit to the base charges. The Commission also requires that electric utilities, including LG&E, file certain documents relating to fuel procurement and the purchase of power and energy from other utilities.
LG&E's gas rates contain a gas supply clause (GSC), whereby increases or decreases in the cost of gas supply are reflected in LG&E's rates, subject to approval of the Kentucky Commission. The GSC procedure prescribed by order of the Commission provides for quarterly rate adjustments to reflect the expected cost of gas supply in that quarter. In addition, the GSC contains a mechanism whereby any over- or under-recoveries of gas supply cost from prior quarters will be refunded to or recovered from customers through the adjustment factor determined for subsequent quarters.
On January 1, 1994, LG&E implemented a Commission approved demand side management (DSM) program. The program contains a rate mechanism that provides for the recovery of DSM program costs, allows LG&E to recover revenues due to lost sales associated with the DSM programs and provides LG&E an incentive for implementing DSM programs. See Rates and Regulation under Item 7 for a further discussion of DSM.
On October 7, 1994, LG&E filed an application with the Kentucky Commission in which it requested approval of an environmental cost recovery surcharge to recover certain costs required to comply with the Federal Clean Air Act, as amended, and those federal, state, and local environmental requirements which apply to coal combustion wastes and by-products from facilities utilized for production of energy from coal. Under state law, the Commission has until April 7, 1995, to rule on the application. If LG&E's application is approved as filed, the surcharge will increase electric revenues by approximately $5.5 million in 1995 and $8.3 million in 1996. The Commission has previously approved environmental cost recovery surcharges for two other regulated electric utilities in Kentucky.
A management audit of LG&E, which began in September 1994, is nearing completion. Vantage Consulting Inc. is conducting the audit under contract to the Kentucky Commission. Vantage has interviewed some 300 employees and LG&E has made written responses to more than 800 requests for data and documents. The final report is not expected until June. A similar audit of LG&E was conducted in 1986 under a mandate from the 1984 Kentucky General Assembly that requires such audits of the Commonwealth's 10 largest utilities.
As part of the corporate reorganization whereby the Company became the parent of LG&E, LG&E obtained the approval of the Kentucky Commission. The order of the Kentucky Commission authorizing
LG&E to reorganize into a holding company structure contains certain provisions, which, among other things, ensure the Kentucky Commission access to books and records of the Company and its affiliates which relate to transactions with LG&E; require the Company and its subsidiaries to employ accounting and other procedures and controls to protect against subsidization of non-utility activities by LG&E's customers; and preclude LG&E from guaranteeing any obligations of the Company without prior written consent from the Kentucky Commission. In addition, such order provides that LG&E's Board of Directors has the responsibility to use its dividend policy consistent with preserving the financial strength of LG&E and that the Kentucky Commission, through its authority over LG&E's capital structure, can protect LG&E's ratepayers from the financial effects resulting from non-utility activities.
Construction Program and Financing
LG&E's construction program is designed to assure that there will be adequate capacity to meet the future electric and gas needs of its service area. These needs are continually being reassessed and appropriate revisions are made, when necessary, in construction schedules. LG&E's estimates of its construction expenditures can vary substantially due to numerous items beyond LG&E's control, such as changes in rates, economic conditions, construction costs, and new environmental or other governmental laws and regulations.
For a further discussion of construction expenditures and financing, see Liquidity and Capital Resources under Item 7.
During the five years ended December 31, 1994, LG&E's gross property additions amounted to $501 million. Internally generated funds for the five year period were sufficient to provide for all of these gross additions. LG&E's gross additions during this period amounted to approximately 20% of total utility plant at December 31, 1994, and consisted of $391 million for electric properties and $110 million for gas properties. LG&E's gross retirements during the same period were $55 million, consisting of $44 million for electric properties and $11 million for gas properties.
Coal Supply
Approximately 90% percent of LG&E's present electric generating capacity is coal-fired, the remainder being made up of a hydroelectric plant and combustion turbine peaking units fueled by natural gas and oil. Coal will be the predominant fuel used by LG&E in the foreseeable future, with natural gas and oil being used for peaking capacity and flame stabilization in coal-fired boilers or in emergencies. LG&E has no nuclear generating units and has no plans to build any in the foreseeable future.
LG&E has entered into coal supply agreements with various suppliers for coal deliveries for 1995 and beyond. LG&E normally augments its coal supply agreements with spot market purchases which, during 1994, were about 10% of total purchases. LG&E has a coal inventory policy, which is in compliance with the Kentucky Commission's directives and which LG&E believes provides adequate protection under most contingencies. LG&E had on hand at December 31, 1994, a coal inventory of approximately 580,000 tons, or a 35 day supply.
LG&E expects, for the foreseeable future, to continue purchasing most of its coal from western Kentucky and southwest Indiana, which has a sulfur content in the 2%-3.5% range. The abundant supply of this relatively low priced coal, combined with present and future desulfurization technologies, is expected to enable LG&E to continue to provide adequate electric service in a manner acceptable under existing environmental laws and regulations.
Coal for LG&E's Mill Creek plant is delivered by rail and barge, whereas deliveries to the Cane Run plant are primarily by rail and also by truck. Deliveries to the Trimble County plant are by barge only.
The average delivered cost of coal purchased by LG&E, per ton and per million Btu, for the periods shown were as follows:
Gas Supply
During 1994, LG&E experienced its first full year of operation under FERC Order No. 636. Although LG&E continues to transport natural gas supplies through Texas Gas at rates and terms regulated by the FERC, LG&E now purchases its supply of natural gas from other sources.
As a result of FERC Order No. 636 and effective November 1, 1993, LG&E entered into new transportation service agreements with Texas Gas. These agreements provide for 30,000 MMBtu (29,268 Mcf) per day in Firm Transportation (FT) throughout the year. This FT agreement expires October 31, 1995. During the winter months, LG&E also has 184,900 MMBtu (180,390 Mcf) per day in No-Notice Service (NNS); during the summer months that NNS level is 135,000 MMBtu (131,707 Mcf) per day. LG&E's NNS agreements with Texas Gas incorporate terms of two, five, and eight years, and include unilateral roll-over provisions at LG&E's option. These transportation services are provided by Texas Gas pursuant to its FERC-approved tariff.
LG&E has also entered into a series of long-term firm supply arrangements with various suppliers in order to meet its firm sales obligations. The gas supply arrangements include pricing provisions which are market-responsive. These firm supplies, in tandem with pipeline transportation services, provide the reliable and flexible supply needed to replace the bundled sales service supplied by the pipeline prior to the implementation of FERC Order No. 636.
During 1995, LG&E will be participating in several regulatory proceedings at FERC. In particular, LG&E will be involved in reviewing Texas Gas' most recent rate filing, and Texas Gas' filing to recover certain transition costs associated with the FERC-mandated implementation of FERC Order No. 636. As a separate matter, the Kentucky Commission has indicated in an order issued in its Administrative Case No. 346 that transition costs, which are clearly identified as being related to the cost of the commodity itself, are appropriately recoverable as a gas cost through LG&E's gas supply clause. See Note 13 of Notes to Financial Statements under Item 8.
LG&E operates five underground gas storage fields with a current working gas capacity of 14.6 million Mcf. Gas is purchased and injected into storage during the summer season and is then withdrawn to supplement pipeline supplies to meet the gas-system load requirements during the winter heating season.
The estimated maximum deliverability from storage during the early part of the 1993-1994 heating season was approximately 373,000 Mcf per day. Deliverability decreases during the latter portion of the heating season as the storage inventory is reduced by seasonal withdrawals.
The average cost per Mcf of natural gas purchased by LG&E was $2.78 in 1994, $2.91 in 1993, and $2.77 in 1992.
Environmental Matters
Protection of the environment is a major priority for LG&E. LG&E engages in a variety of activities within the jurisdiction of federal, state, and local regulatory agencies. Those agencies have issued LG&E permits for various activities subject to air quality, water quality, and waste management laws and regulations. For the five year period ending with 1994, expenditures for pollution control facilities represented $106 million or 21% of total construction expenditures. The cost of operating and maintaining scrubber- related facilities amounted to $22 million in both 1994 and 1993. LG&E's anticipated capital expenditures for 1995 to comply with environmental laws are approximately $16 million. See Note 13 of Notes to Financial Statements under Item 8 for a discussion of specific environmental proceedings affecting LG&E.
LG&E ENERGY SYSTEMS INC.
In 1991, the Company formed LG&E Energy Systems Inc. (Energy Systems) to direct the Company's expansion into the non-utility marketplace. In December 1991, Energy Systems purchased Hadson Power Systems, Incorporated, which was renamed at the time of purchase to LG&E Power Systems Inc, and subsequently renamed LG&E Power Inc. (together with its subsidiaries, "LPI"). In 1992, Energy Systems acquired a 36.5% interest in Natural Gas Clearinghouse (NGC). In January 1994, the Company completed the sale of its equity interest in NGC to NOVA Corporation of Alberta, Canada. Accordingly, the Company's investment in NGC, equity interest in NGC's earnings and the related gain on sale has been classified as discontinued operations in the accompanying consolidated financial statements. See Note 3, Discontinued Operations.
LPI develops, designs, builds, owns, operates, and maintains power generation facilities that sell electric and steam energy to industrial and utility customers. LPI, through its predecessor, has been in the independent power business since 1982 and has approximately 300 employees. It currently has in operation or under construction, projects capable of generating over 700 megawatts of electric power capacity in Maine, North Carolina, Virginia, New York, California, Minnesota, and Texas. In November, 1994, the Company announced that one of its subsidiaries, LG&E International Inc., had formed a joint venture that will build and operate a natural gas fired power plant in north central Argentina. The Company intends to continue to pursue international projects that have an acceptable level of risk and provide an opportunity to earn an above average rate of return.
Except for its investments in wind power (see Item 2, Properties), each of the projects LPI has in operation or under construction within the United States will be a qualifying cogeneration facility under the Public Utility Regulatory Policy Act of 1978 (PURPA). See Item 3 and Note 13 of Notes to Financial Statements under Item 8 for a discussion of certain waiver requests regarding past operations at certain of these facilities. Certain partnerships, in which LPI has an ownership interest, are constructing or operating wind power facilities which are or will be qualifying small power production facilities under PURPA. In addition, LPI has obtained exempt wholesale generator (EWG) status for the entity which owns the Roanoke Valley I project in North Carolina. Such status will allow LPI to own and operate the 165 megawatt Roanoke Valley I facility without complying with PURPA's qualifying cogeneration facility operating standards. EWGs are not required to comply with such standards if the rates charged for a facility's electric generation have been accepted for filing by FERC. Such a filing was made and accepted for the Roanoke Valley I facility in December 1993.
In January 1995, four partnerships in which LPI has an ownership interest - LG&E-Westmoreland Hopewell, LG&E-Westmoreland Altavista, LG&E-Westmoreland Southampton and LG&E-Westmoreland
Rensselaer - applied to FERC for EWG status. In February 1995, FERC granted the applications and determined that each partnership is an EWG under PUHCA. These partnerships continue to maintain their QF status under PURPA.
Generally, qualifying facility status exempts projects from the application of the Holding Company Act, many provisions of the Federal Power Act, and state laws and regulations respecting rates and financial or organization regulation of electric utilities. Exempt wholesale generators also are exempt from application of the Holding Company Act and many provisions of the Federal Power Act, but once such an entity files its electric generation rates with FERC, it becomes a jurisdictional public utility under the Federal Power Act. As such a "public utility," an EWG's rates and some of its corporate activities are subject to FERC regulation. Exempt wholesale generators also are subject to non-rate regulation under state laws governing electric utilities. While qualifying facility or exempt wholesale generator status entitles LPI's projects to certain regulatory exceptions and benefits under PURPA and the Holding Company Act, each project must still comply with other federal, state, and local laws, including those regarding siting, construction, operation, licensing, and pollution abatement. Through an affiliate, LPI also operates and maintains 12 projects in which it does not have an ownership interest that are located in California, Pennsylvania, and Montana. In order to permit it to operate EWGs, such affiliate also has been designated as an exempt wholesale generator under the Holding Company Act.
Effective January 1, 1994, the Company realigned its business to reflect its outlook for rapidly emerging competition in all segments of the energy services industry. Under the realignment, a national business unit, LG&E Energy Services was formed to develop and manage all of its utility and non-utility electric power generation and concentrate on the marketing and brokering of wholesale electric power on a regional and national basis. As part of the business realignment, a new subsidiary was formed to market power throughout the United States. LG&E Power Marketing Inc. (LPM), an indirect wholly-owned subsidiary of the Company, was among the first utility marketers in the country to secure FERC approval for wholesale power marketing activities. The realignment does not affect the Company's legal structure, regulation of LG&E by the Commission or the Company's status as an exempt holding company.
LPI is currently involved in the construction of the Roanoke Valley II project. This project is owned with Westmoreland Energy, Inc., a subsidiary of the Westmoreland Coal Company (Westmoreland) and is expected to begin commercial operations in 1995. The construction of the Roanoke Valley I project in Weldon, North Carolina was completed and began commercial operations in 1994. Both facilities will share certain common facilities and sell electricity to Virginia Power and steam to Patch Rubber Company.
The financing and overall structure of the Roanoke Valley II project is similar to that followed for previous LPI cogeneration projects. Subsidiaries of LPI, as builder of the projects, are contractually obligated to construct the project and to assure it meets certain performance standards. Financing for the construction of the project is provided to a partnership which is the owner of the project and in which LPI (or a wholly owned entity) is a partner. The partners are obligated to make equity contributions to the project at various stages prior to its completion. Each project has a long-term contract with the local utility to purchase electricity generated by the project and for those projects which are qualifying cogeneration facilities, with an industrial company to purchase the steam for the project. Revenues from the sale of electricity and steam are designed to be sufficient to repay the debt incurred in financing the project. LPI's ownership interest in the project and the revenues from the sale of steam and electricity from the project are pledged as security to the lenders providing financing for the project. Although the financing of the project is non-recourse to the partnership owning the project, the various obligations of LPI under the contracts for construction of the project and LPI's equity commitments are guaranteed by Energy Systems.
In connection with the financing of various power projects, Energy Systems and LPI provide equity funding commitments and guarantee the construction and performance of the projects. Ascertainable equity funding commitments were $27 million and $36 million at December 31, 1994, and 1993, respectively. Contingent construction and project performance guarantees totaled approximately $104 million and $198 million at December 31, 1994, and 1993, respectively.
Through a support agreement with Energy Systems for the benefit of certain Energy Systems' lenders, LG&E Energy Corp. has agreed to provide Energy Systems with the necessary funds and financial support to meet the foregoing contingencies.
Westmoreland Energy, Inc. (WEI) is a partner along with LPI in six cogeneration projects in operation or under construction. Under an agreement signed on April 15, 1993, Energy Systems guaranteed (in exchange for fees and other consideration) the equity funding commitment of WEI in connection with the following three projects: Roanoke Valley I, Roanoke Valley II and Rensselaer. The outstanding commitments resulting from this agreement total $4.6 million and $35.5 million as of December 31, 1994, and 1993, respectively. WEI funded their equity commitments for the Roanoke Valley I and Rensselaer projects on December 30, 1994.
During 1993, the Company signed an agreement with Greyrock Capital Group, Inc. (Greyrock, formerly known as Nations Financial Capital Corporation) under which Greyrock agreed, in exchange for fees, to assume $26.9 million of the Company's contingent equity funding commitment for Roanoke Valley I and II resulting from its April 15, 1993, agreement with WEI. As a result of WEI's equity funding on December 30, 1994, the Greyrock obligation to fund was reduced to $4.6 million, related solely to Roanoke Valley II.
On November 8, 1994, Westmoreland Coal Company (Westmoreland), the parent of WEI, together with certain of Westmoreland's subsidiaries other than WEI, filed for protection under Chapter 11 of the U.S. Bankruptcy Code. According to Westmoreland, this filing was made in order to facilitate the sale of its Kentucky Criterion Coal unit (Kentucky Criterion), and would leave unaffected all of Westmoreland's existing debt obligations and stockholder interests. On December 16, 1994, the United States Bankruptcy Court for the District of Delaware issued an order confirming the Westmoreland Plan of Reorganization (the Plan). Pursuant to the Plan, Westmoreland completed its sale of Kentucky Criterion to CONSOL of Kentucky, Inc. on December 22, 1994. The proceeds from the sale were used to pay in full Westmoreland's outstanding indebtedness to its principal creditors. After these payments, Westmoreland emerged from bankruptcy. The proceeds from the sale of Kentucky Criterion were also used to fund Westmoreland's equity commitments related to Roanoke Valley I and Rensselaer on December 30, 1994, as discussed above.
Technical defaults may have resulted with certain project lenders by reason of the bankruptcy filing. However, based upon discussions with the projects' lenders and their consent to the Kentucky Criterion sale, the Company does not anticipate that the projects' lenders or others will take action, as a result of the technical defaults, that would adversely affect the projects or the Company's interests, or that would have a material adverse effect on the Company's financial position or its consolidated results of operations.
The Southampton plant, a 63 megawatt coal-fired cogeneration facility in Franklin, Virginia, supplies process steam to a nearby chemical manufacturer and bulk electric power under contract to Virginia Electric and Power Company (Virginia Power) as a qualifying facility (QF) under the Public Utility Regulatory Policies Act (PURPA). The plant began commercial operation in 1992. On July 7, 1994, FERC denied the request of LG&E-Westmoreland Southampton (the Partnership) for a waiver of certain
qualifying facility requirements and directed the Partnership to show cause as to why it should not be required to file new cost-based rates for its 1992 electric sales to Virginia Power.
The Partnership filed a request for rehearing and a motion to consider its request for rehearing as timely filed, or in the alternative, to treat its request for rehearing as a motion for reconsideration, in August 1994, one day out of time. The Partnership is seeking a reversal of FERC's prior order, or, in the alternative, a clarification of FERC's order stating that, with the exception of rates, the Partnership remains a QF for 1992 exempt from regulation as a public utility under PUHCA, utility laws in Virginia and various portions of the Federal Power Act.
On August 24, 1994, Virginia Power filed a motion for leave to respond to the Partnership's request for rehearing and response to request for rehearing, and a response to the Partnership's show cause order. On September 6, 1994, the Partnership filed with FERC its answer to Virginia Power's motion and response. On September 6, 1994, FERC granted itself an extension of time to act on the Partnership's request for rehearing, tolling the 30-day period in which FERC was to have acted on the Partnership's rehearing request.
The parties have fully briefed and submitted to FERC their respective motions with respect to the request for rehearing and are awaiting FERC's decision. As of January 30, 1995, FERC had not acted on the Partnership's request for rehearing. The Company expects that FERC will grant the Partnership the relief that it is seeking and, accordingly, the ultimate resolution of the matter is not expected to have a material adverse effect on its consolidated results of operations or its financial condition. However, in light of FERC's July 7, 1994, order, and the arguable lateness of the filing of the request for rehearing one day out of time, the Company cannot predict what action FERC ultimately will take. Possible consequences from an adverse decision include refunds and potential regulatory and other problems under PUHCA, Virginia utility law and the Federal Power Act, the scope and amount of which cannot be determined at this time.
The Rensselaer plant, a 79 megawatt, natural-gas-fired facility in Rensselaer, New York, produces steam and electricity from a combined-cycle gas and steam turbine-generator system as a QF under PURPA. The project is jointly owned by LPI and WEI through a general partnership - LG&E-Westmoreland Rensselaer (LWR).
As a result of delays encountered during the start-up and testing of the facility, the facility's commercial operation date was pushed back from February 1994 to April 1994, and the Rensselaer facility was prevented from meeting FERC's operating or efficiency standard for the last month of 1993, and for 1994. LWR filed a waiver request with FERC on October 17, 1994, requesting a temporary waiver of the operating and efficiency standards for 1993 and the efficiency standard for 1994. As of January 30, 1995, FERC had not acted on LWR's waiver request.
The Company, which indirectly owns a 50% interest in the project, based upon past precedent, expects that FERC will grant the waiver and, accordingly, that the ultimate resolution of this matter should not have a material adverse effect on its consolidated results of operations or its financial condition. While the resolution of the Rensselaer matter is not expected to have a material adverse effect, the Company cannot predict what action FERC may take. Possible consequences could include potential regulatory and other problems under PUHCA, New York utility laws and the Federal Power Act, the scope and amount of which cannot be determined at this time.
The Company owns a 50% interest in Westmoreland-LG&E Partners (WLP), the sole owner of Roanoke Valley I, a cogeneration facility selling electric power to Virginia Power and steam energy to Patch Rubber
Company. Under the Power Purchase Agreement (PPA) between WLP and Virginia Power, WLP is entitled to receive capacity payments based on availability. From May 1994 through December 1994, Virginia Power withheld approximately $6 million of these capacity payments during periods of forced outages. To date, the Company has not realized any income on its 50% portion of the capacity payments being withheld by Virginia Power. On October 31, 1994, WLP filed a complaint against Virginia Power seeking damages of at least $5.7 million, contending that Virginia Power has breached the PPA in withholding such payments. Virginia Power filed a motion to dismiss, in which it denied that its actions were in breach of the PPA. On March 17, 1995, the Circuit Court of the City of Richmond, Virginia, dismissed WLP's complaint. WLP is considering further action to protect its interests. In the Company's opinion, WLP is entitled to recover the capacity payments withheld by Virginia Power and should prevail in this matter ensuring receipt of future capacity payments during forced outages billable to Virginia Power during the remaining 25 years of the PPA. However, the Company is unable to predict the outcome of this matter, or the amount of capacity payments, if any, which Virginia Power may be ordered to pay to WLP.
On February 10, 1995, the Company announced that it reached definitive agreements with Hadson Corporation to purchase the Dallas-based natural gas marketing, gathering and processing company for $143 million. The acquisition involves Hadson Corporation and all of its subsidiaries, including Hadson Gas Systems, Inc., its natural gas marketing subsidiary, as well as the company's 1,300 miles of gas gathering systems, gas transmission systems, and gas processing and storage facilities. Hadson has marketing contracts and agreements with local distribution companies or industrial users in 36 states. Santa Fe Energy Resources, Inc., and The Prudential Insurance Company of America, which together own 65% of Hadson's common stock, have agreed to sell all of their Hadson equity securities and long-term debt to a subsidiary of the Company. The subsidiary will also acquire by merger all remaining Hadson common stock at a price of $2.75 a share. The acquisition is subject to necessary regulatory filings and approvals, and satisfaction of certain other conditions. The companies expect to close the transaction following Hadson's shareholders' meeting currently scheduled in the second quarter of this year. The boards of both companies have unanimously approved the transaction.
LABOR RELATIONS
LG&E's 1,625 operating, maintenance, and construction employees are members of the International Brotherhood of Electrical Workers (IBEW) Local 2100. The current three-year contract will expire in November 1995.
EMPLOYEES
The Company and its subsidiaries had 2,971 full-time employees at December 31, 1994. During the last quarter of 1993, LG&E eliminated a number of full-time positions. See Note 7 of Notes to Financial Statements under Item 8 for a further discussion of this matter.
ITEM 2.
ITEM 2. Properties.
At February 28, 1995, LG&E owned the following electric generating stations:
LG&E's steam stations consist mainly of coal-fired units except for Cane Run Unit 3 which must use natural gas because of restrictions mandated by environmental regulations.
LG&E also owns an 80 Mw hydroelectric generating station located in Louisville, operated under license issued by the FERC.
At December 31, 1994, LG&E's electric transmission system included 21 substations with a total capacity of approximately 10,623,697 Kva and approximately 648 structure miles of lines. The electric distribution system included 83 substations with a total capacity of approximately 3,068,277 Kva, 3,505 structure miles of overhead lines, 233 miles of underground conduit, and 5,335 miles of underground conductors.
LG&E's gas transmission system includes 177 miles of transmission mains, and the gas distribution system includes 3,312 miles of distribution mains.
LG&E operates underground gas storage facilities with a current working gas capacity of approximately 14.6 million Mcf. See Gas Supply under Item 1.
In 1990, LG&E entered into an operating lease for its corporate office building located in downtown Louisville, Kentucky. The lease is for a period of 15 years and is scheduled to expire June 30, 2005.
Other properties owned by LG&E include office buildings, service centers, warehouses, garages, and other structures and equipment, the use of which is common to both the electric and gas departments.
The trust indenture securing LG&E's First Mortgage Bonds constitutes a direct first mortgage lien upon substantially all property owned by LG&E.
At December 31, 1994, LPI owned the percentage indicated of the following joint ventures producing electricity either in operation or being constructed:
LPI's ownership interests in these projects and the revenues from the sale of electricity and steam from the projects are pledged as security to the lenders who provided the financing for the project.
ITEM 3.
ITEM 3. Legal Proceedings.
Rates, Regulatory Matters, and Trimble County Generating Plant
For a discussion of current regulatory matters and a detailed discussion of the current status concerning Trimble County Unit 1, see Rates and Regulation under Item 7 and Notes 2 and 14 of Notes to Financial Statements under Item 8.
Statewide Power Planning
As required by the regulations of the Kentucky Commission, on November 15, 1993, LG&E filed its 1993 biennial Integrated Resource Plan with the Kentucky Commission. The plan, which updates LG&E's first Integrated Resource Plan filed in 1991, proposes to meet customers' future demand through 2007 by adding resources in small increments such as short-term power purchases (1996-1999), a customer-owned standby generation program (1997), two combustion turbines (1999-2000), an air conditioner load controls program (1997, 2001-2003), an upgrade to LG&E's existing hydroelectric plant (2003), and a compressed air energy storage plant (2004). The Kentucky Commission staff is reviewing LG&E's plan, and is expected to issue its report and recommendations concerning the plan during the first quarter of 1995. The Kentucky Commission's regulations do not require it to hold any hearings or issue any formal orders regarding the plan.
Environmental
For a complete discussion of LG&E's environmental issues concerning its Mill Creek and Cane Run generating plants, manufactured gas plant sites, and certain other environmental issues, see Note 13 of Notes to Financial Statements under Item 8.
Like LG&E, LPI and its subsidiaries are subject to extensive federal, state, and local environmental laws and regulations governing the operations of the various power plants in which they participate as an owner or managing operator. Among other things, these laws and regulations govern the discharge of materials into waterways, the air, and the ground and, if violated, may require the owner or operator to take remedial action to maintain the affected facility's operating status. To the extent any such remedial environmental actions have been required of LPI or its subsidiaries in the past, related expenditures have not been material. Management believes the Company and its subsidiaries are in material compliance with existing environmental laws, and does not anticipate incurring significant environmental compliance or remediation costs in the future.
Westmoreland Bankruptcy
For a discussion of the bankruptcy of Westmoreland Coal Company and its impact on the Company, see Note 13 of Notes to Financial Statements under Item 8, and the discussion under Item 1 that begins on page 13.
Southampton
For a discussion of the request for rehearing filed with FERC by LG&E- Westmoreland Southampton, the partnership that owns the Southampton facility, regarding the partnership's request for an order from FERC stating that the Southampton facility remains a qualifying facility for 1992, see Note 13 of Notes to Financial Statements under Item 8, and the discussion under Item 1 that begins on page 13.
Rensselaer
For a discussion of the request for a temporary waiver of certain qualifying standards in 1994 and 1993 filed with FERC by LG&E-Westmoreland Rensselaer, the partnership which owns the Rensselaer facility, see Note 13 of Notes to Financial Statements under Item 8, and the discussion under Item 1 that begins on page 14.
Roanoke Valley I
For a discussion of the proceeding in which Westmoreland-LG&E Partners, the partnership that owns the Roanoke Valley I and II facilities, is seeking the recovery of capacity payments withheld by Virginia Electric and Power Company, see Note 13 of Notes to Financial Statements under Item 8, and the discussion under Item 1 that begins on page 14.
Other
LG&E is a defendant in lawsuits seeking compensatory and, in certain instances, punitive damages. To the extent that damages are assessed in any of these lawsuits, LG&E believes that its insurance coverage is adequate and that the effect of any such damages will not be material to the Company's consolidated results of operations or financial position.
LPI and its subsidiaries are defendants in lawsuits seeking compensatory damages primarily associated with various employment related matters. To the extent that damages are assessed in any of these lawsuits, LPI believes that the effect will not be material to the Company's consolidated results of operations or financial position.
ITEM 4.
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 51 Chairman of the Board, August 17, 1990 President and Chief Executive Officer
Edward J. Casey, Jr. 37 Group President-LG&E January 1, 1994 Energy Services
John R. McCall 51 Executive Vice President,July 1, 1994 General Counsel and Corporate Secretary
Stephen R. Wood 52 Executive Vice January 1, 1994 President and Chief Administrative Officer
Charles A. Markel III 47 Corporate Vice January 1, 1993 President - Finance
Paul W. Thompson 38 Vice President, June 15, 1994 Business Development
Each of the following officers is an executive officer of a subsidiary of the Company and for purposes of the requirements of this report may also be considered an executive officer of the Company:
Victor A. Staffieri 39 President - LG&E January 1, 1994
David A. Carey 41 Senior Vice President, January 1, 1994 Operations - LG&E
M. Lee Fowler 58 Vice President and September 1, 1988 Controller - LG&E
Wendy C. Heck 41 Vice President, January 1, 1994 Information Services - LG&E
Chris Hermann 47 Vice President and January 1, 1993 General Manager, Wholesale Electric Business - LG&E
Rebecca L. Holt 35 Vice President, Gas February 15, 1995 Service Business - LG&E
The present term of office of each of the above executive officers extends to the meeting of the Board of Directors following the Annual Meeting of Stockholders, scheduled to be held April 25, 1995.
There are no family relationships between executive officers of the Company or executive officers of its subsidiaries.
Messrs. Hale, McCall and Markel are also executive officers of the Company's subsidiary, LG&E. Mr. Hale is Chairman of the Board and Chief Executive Officer of LG&E; Mr. McCall is Executive Vice President, General Counsel and Corporate Secretary of LG&E; and Mr. Markel is Treasurer of LG&E.
Prior to election to his current position, Mr. Casey was Executive Vice President and Chief Financial Officer of LG&E and the Company, and prior to January 1, 1993, he was President of LG&E Energy Systems (a subsidiary of the Company). Prior to January 1, 1992, he was Vice President - Business Development of the Company, and prior to July 1990, he was employed by The Blackstone Group, L.P., where he held the position of Vice President from November 1988 to July 1990.
Prior to election to his current position, Mr. McCall was Partner and Litigation Chairman of Brown, Todd & Heyburn, a law firm.
Prior to election to his current position, Mr. Thompson was General Manager - Gas Operations of LG&E, and prior to December 1993, Director of Business Development of the Company. Prior to March 1991, Mr. Thompson was Sales Manager - - Americas of Koch Membrane Systems, and prior to October 1990, Vice President - International of John Zink Company.
Prior to election to his current position, Mr. Staffieri was Senior Vice President-Public Policy, and General Counsel of the Company and LG&E, and prior to November 15, 1992, Senior Vice President, General Counsel and Corporate Secretary. Prior to March 15, 1992, Mr. Staffieri was employed by Long Island Lighting Company and held the position of General Counsel and Secretary from April 1989 to March 1992, and Deputy General Counsel prior to April 1989.
Prior to election to her current position, Ms. Holt was employed by South Carolina Electric and Gas Company and held the position of General Manager, Gas Operations from July 1994 to February 1995, Division Manager, Central Division - Gas Operations prior to July 1994, General Manager, Northern Division - Gas Operations prior to February 1992, and Manager, Columbia Gas Operations prior to July 1990.
Messrs. Hale, Wood, Markel, Carey, Fowler, and Hermann and Ms. Heck have been employed for more than five years in executive or management positions with the Company or its subsidiary, LG&E. Prior to election to the position shown in the table, the following executive officers held the following positions with the Company or LG&E since January 1, 1990:
Mr. Hale was President and Chief Executive Officer of LG&E prior to February 1, 1990, and Chairman of the Board, President and Chief Executive Officer of LG&E thereafter;
Mr. Wood was Senior Vice President and Chief Administrative Officer of LG&E and the Company prior to December 1992 and Senior Vice President and Chief Administrative Officer of LG&E thereafter;
Mr. Markel was Vice President and Treasurer prior to March 1, 1990, Vice President - Finance and Treasurer prior to January 1, 1992, and Senior Vice President and Chief Financial Officer thereafter;
Mr. Carey was Vice President - Marketing and Sales of LG&E prior to July 14, 1990, Vice President - Marketing and Planning of LG&E prior to January 1, 1992, Vice President - Marketing and General Manager, Electric Service of LG&E prior to January 1, 1993, and Vice President and General Manager, Retail Electric Business of LG&E thereafter;
Mr. Hermann was General Manager - Power Production of LG&E prior to January 1992 and General Manager - Wholesale Electric of LG&E thereafter;
Ms. Heck was Vice President - Internal Auditing of LG&E prior to January 1, 1992, Vice President - Fuels and Operating Services of LG&E prior to January 1, 1993, and Vice President - Fuels and Information Services of LG&E thereafter.
PART II.
ITEM 5.
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.
The number of record holders of Common Stock at December 31, 1994, was 31,711. The book value of the Company's Common Stock at December 31, 1994, was $23.10 per share.
ITEM 6.
ITEM 6. Selected Financial Data.
The financial statements and related notes contained under item 8 of this Form 10-K should be read in conjunction with the selected financial data presented above.
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Results of Operations and Financial Condition.
The following discussion and analysis by management focuses on those factors that had a material effect on the Company's financial results of operations and financial condition during 1994, 1993, and 1992 and
should be read in connection with the consolidated financial statements and notes thereto. The Company's financial results and conditions are largely dependent on the financial results and conditions of its principal subsidiary, Louisville Gas and Electric Company (LG&E), a regulated electric and gas utility. Financial results for the Company's non-utility operations are increasingly dependent upon the returns earned from its portfolio of investments in energy generation and related services. The returns earned from these investments will reduce the financial impacts of revenue fluctuations caused by the timing of development and construction activities.
RESULTS OF OPERATIONS
Earnings per Share
Earnings per share of common stock for 1994 were $3.19, a 49 CENTS increase over the $2.70 earned in 1993. This increase was primarily attributable to the sale of the Company's interest in Natural Gas Clearinghouse (NGC) which generated a gain of $1.57 per share. Partially offsetting the gain were the write-off of certain non-recurring charges (91 CENTS), the expense of establishing a charitable foundation (27 CENTS) and the adoption of a new accounting standard for post-employment benefits (10 CENTS). Without consideration of the gain and the charges against income discussed above, the Company's 1994 earnings per share would have been $2.90, an increase of 20 CENTS over 1993. This improvement in earnings is primarily attributable to increased sales of electricity to LG&E's retail customers and reduced interest on debt due to favorable refinancing activities in 1993. The Company's non-utility operations include an increase in earnings from investments in joint ventures owned by LG&E Power Inc. (LPI) and fee income generated from the guarantee of certain equity funding commitments. Income from investments in marketable securities also added to improved 1994 earnings performance.
The Company's earnings per common share increased 36 CENTS for 1993 over 1992, including the 10 CENTS per common share gain recognized from the sale of a 12.88% portion of the Trimble County plant to the Indiana Municipal Power Agency (IMPA). LG&E's contribution to earnings came from increased electric sales as a result of the warmer summer weather experienced in 1993, higher sales to other utilities and reduced costs for debt and preferred stock attributable to favorable refinancing activities. Contributions to earnings from the non-utility businesses came from construction profits recognized by LPI, earnings from operating power projects, a financial closing related to a power project and strong performance by NGC.
Rates and Regulation
LG&E is subject to the jurisdiction of the Public Service Commission of Kentucky (Kentucky Commission or Commission) in virtually all matters related to electric and gas utility regulation, and as such, its accounting is subject to Statement of Financial Accounting Standards No. 71, ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION (SFAS No. 71). Given LG&E's competitive position in the market and the status of regulation in the state of Kentucky, LG&E has no plans or intentions to discontinue its application of SFAS No. 71. See Note 2 of Notes to Financial Statements under Item 8.
ITEM 8. Financial Statements and Supplementary Data.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
LG&E Energy Corp. and Subsidiaries Consolidated Statements of Retained Earnings (Thousands of $)
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATE STRUCTURE AND BASIS OF CONSOLIDATION. The consolidated financial statements include the accounts of LG&E Energy Corp. and its wholly owned subsidiaries - Louisville Gas and Electric Company (LG&E) and LG&E Energy Systems Inc. (Energy Systems), collectively referred to herein as the "Company." LG&E is a regulated public utility that is engaged in the generation, transmission, distribution, and sale of electric energy and the storage, distribution, and sale of natural gas in Louisville and adjacent areas in Kentucky. Energy Systems was formed to hold the Company's investments in certain non-utility businesses. LG&E Power Inc. (LPI), a wholly owned subsidiary of Energy Systems, develops, designs, builds, owns, operates, and maintains power generation facilities that sell electric and steam energy to industrial and utility customers. LPI's revenues are classified as "non-utility" in the accompanying consolidated statements of income. LG&E International Inc. (LII) is a subsidiary of Energy Systems that holds the Company's investments in business ventures outside the United States.
The consolidated financial statements for years prior to 1994 also include the results of financial transactions associated with Energy Systems' 36.5% partnership interest in Natural Gas Clearinghouse (NGC), a natural gas marketing company based in Houston, Texas, which was acquired in 1992 and sold in January 1994. Accordingly, the Company's investment in NGC, equity interest in NGC's earnings and the related gain on sale have been classified as discontinued operations in the accompanying consolidated financial statements. See Note 3, Discontinued Operations.
All significant intercompany items and transactions have been eliminated from the consolidated financial statements. Certain reclassifications have been made to the 1993 and 1992 financial statements to conform with the 1994 presentation with no impact on previously reported earnings. The Company is exempt from regulation as a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA).
UTILITY PLANT. LG&E's utility plant is stated at original cost, which includes payroll-related costs such as taxes, fringe benefits, and administrative and general costs. Construction work in progress has been included in the rate base, and, accordingly, LG&E has not recorded any allowance for funds used during construction.
The cost of utility plant retired or disposed of in the normal course of business is deducted from utility plant accounts and such cost plus removal expense less salvage value is charged to the reserve for depreciation. When complete operating units are disposed of, appropriate adjustments are made to the reserve for depreciation and gains and losses, if any, are recognized.
DEPRECIATION AND AMORTIZATION. Depreciation is provided on the straight-line method over the estimated service lives of depreciable plant. The amounts provided for LG&E in 1994 were 3.3% (3.2% electric, 3.3% gas, and 5% common); and for 1993 and 1992 were 3.3% (3.2% electric, 3.2% gas, and 5% common) of average depreciable plant. Goodwill recorded as a result of the Company's acquisition of LPI is being amortized using the straight-line method over a period of 40 years. Subsequent to an acquisition, the Company evaluates whether later events and circumstances have occurred that indicate the remaining useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses estimates such as undiscounted net income and cash flow estimates, among other factors, in measuring whether the goodwill is recoverable.
CASH AND TEMPORARY CASH INVESTMENTS. The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Temporary cash investments are carried at cost, which approximates fair value.
DEFERRED INCOME TAXES. Deferred income taxes have been provided for all book-tax temporary differences.
The Company adopted Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES (SFAS No. 109), effective January 1, 1993. Regulatory assets and liabilities have been established to recognize the future revenue requirement impact from the deferred income taxes which were not immediately recognized in operating results because of ratemaking treatment. The adoption of SFAS No. 109 did not have a material impact on the results of operations or financial position for either the regulated or non-regulated companies.
INVESTMENT TAX CREDITS. Investment tax credits resulted from provisions of the tax law that permitted a reduction of the Company's tax liability based on credits for certain construction expenditures. Investment tax credits deferred and charged to income in prior years are being amortized to income over the estimated lives of the related property that gave rise to the credits.
DEBT PREMIUM AND EXPENSE. Debt premium and expense are amortized over the lives of the related debt issues, consistent with regulatory practices.
REVENUE RECOGNITION. Utility revenues are recorded based on service rendered to customers through month end. LG&E accrues an estimate for unbilled revenues from the date of each meter reading date to the end of the accounting period. Effective January 1, 1994, under an agreement approved by the Public Service Commission of Kentucky (Kentucky Commission or Commission), LG&E implemented a demand side management program and a "decoupling mechanism," which allows LG&E to recover a predetermined level of revenue on electric and gas residential sales. See Management's Discussion and Analysis, Rates and Regulation, for further discussion. The Company recognizes revenues from non-utility construction activities using the percentage of completion method of accounting.
FUEL AND GAS COSTS. The cost of fuel for electric generation is charged to expense as used, and the cost of gas supply is charged to expense as delivered to the distribution system.
INTEREST RATE CONTRACTS. Interest rate swaps are used by LG&E to convert variable rate debt to a fixed rate. The cost or benefit of the interest rate swaps is recorded as a component of interest expense.
REVENUES AND CUSTOMER RECEIVABLES. LG&E customer receivables and gas and electric revenues arise from deliveries of natural gas and electric energy to a diversified base of residential, commercial and industrial customers and to public authorities and other utilities. LG&E supplies gas to approximately 266,000 customers and electricity to approximately 341,000 customers in Louisville and adjacent areas in Kentucky. For the year ended December 31, 1994, 74% of total utility revenue was derived from electric operations and 26% from gas operations.
NOTE 2 - RATES AND REGULATORY MATTERS
Accounting for the regulated utility business conforms with generally accepted accounting principles as applied to regulated public utilities and as prescribed by the Federal Energy Regulatory Commission (FERC) and the Kentucky Commission. LG&E is subject to Statement of Financial Accounting Standards No. 71, ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION (SFAS No. 71). Under SFAS No. 71, certain costs that would otherwise be charged to expense are deferred as regulatory assets based on expected recovery from customers in future rates. Likewise, certain credits that would otherwise be reflected as income are deferred as regulatory liabilities based on expected flowback to customers in future rates. Management's expected recovery of deferred costs and expected flowback of deferred credits is generally based on specific ratemaking decisions or precedent for each item. The following regulatory assets and liabilities were included in the consolidated balance sheets as of December 31 (in thousands of $):
As of December 31, 1994, approximately $15 million of LG&E's net regulatory assets are being recovered through rates charged to customers over periods ranging from three to 22 years. LG&E expects to obtain recovery of the remaining regulatory assets in its next general rate case. For additional information regarding post-retirement benefits and early retirement/workforce reduction costs, deferred income taxes, and environmental costs, see Notes 7, 8, and 13, respectively. In early 1994, LG&E, based on a re-evaluation of its regulatory strategy, wrote off certain regulatory assets included in the 1993 consolidated balance sheet. See Note 5, Non-Recurring Charges, for a further discussion.
In October 1994, LG&E filed an application with the Kentucky Commission to implement an environmental cost recovery surcharge. The surcharge will allow LG&E to recover certain costs incurred to comply with federal, state, and local environmental requirements. If approved by the Commission, the surcharge will take effect in May 1995. See Rates and Regulation under Management's Discussion and Analysis for a further discussion.
NOTE 3 - DISCONTINUED OPERATIONS
In January 1994, the Company sold its 36.5% partnership interest in NGC for $170 million. The transaction resulted in an after-tax gain of $52 million. The Company's interest in NGC was acquired in 1992 at a cost of approximately $70 million and was accounted for as a purchase. Accordingly, the Company's investment in NGC, equity interest in NGC's earnings and the related gain on sale have been classified as discontinued operations in the accompanying consolidated financial statements.
NOTE 4 - INVESTMENTS IN JOINT VENTURES
The Company's investments in joint ventures mainly reflect interests in partnerships owned by LPI and LII in electric power and steam producing plants. These investments are accounted for using the equity method. The Company's investments in these joint ventures were $115,420,000 and $63,241,000 at December 31, 1994 and 1993, respectively.
The ownership percentages of joint ventures are summarized below:
The Company's carrying amount exceeded the underlying equity in joint ventures by $33,174,000 and $34,618,000 at December 31, 1994, and 1993, respectively. The difference represents adjustments to reflect the fair value of the underlying net assets acquired in 1991, in conjunction with the purchase of LPI, and related goodwill. The fair value adjustments are being amortized over periods ranging from two to 25 years, and the goodwill is being amortized over 40 years.
NOTE 5 - NON-RECURRING CHARGES
As part of a study of its business strategy and realignment during 1994, LG&E re-evaluated its regulatory strategy which previously had been to seek full recovery of certain costs deferred in accordance with prior precedents established by the Commission. As a result of this re-evaluation, LG&E wrote off certain expenses that had previously been deferred amounting to approximately $38.6 million before taxes. While LG&E continues to believe that it could have reasonably expected to recover these costs in future rate proceedings before the Commission, LG&E decided to deduct these expenses currently and not seek recovery for such expenses in future rates due to increasing competitive pressures and the existing and anticipated future economic conditions. The items written off include costs incurred in connection with early retirements and work force reductions that occurred in 1992 and 1993 which consist primarily of separation payments, enhanced early retirement benefits, and health care benefits; costs associated with property damage claims pertaining to particulate emissions from its Mill Creek electric generating plant which primarily consist of spotting on automobile finish and aluminum siding; and certain costs previously
deferred resulting from adoption in January 1993 of Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR POST-RETIREMENT BENEFITS OTHER THAN PENSIONS. LPI recorded a reserve for $10.1 million, before taxes, for the costs related to vacating leased office space. See Operating Leases under Note 13, Commitments and Contingencies.
In the first quarter of 1994, the Board of Directors of the Company approved the formation of a tax-exempt charitable foundation (Foundation) which will make charitable contributions to qualified persons and entities. In 1994, the Company recorded a pre-tax charge against income and made an irrevocable payment of $15 million to fund the Foundation. On June 6, 1994, the Internal Revenue Service issued a letter stating that it had determined the Foundation was exempt from Federal income tax under the Internal Revenue Code.
NOTE 6 - MARKETABLE SECURITIES AND OTHER FINANCIAL INSTRUMENTS
MARKETABLE SECURITIES. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, effective January 1, 1994. Accordingly, the Company's marketable securities have been determined to be "available-for-sale" and are stated at market value in the accompanying December 31, 1994, consolidated balance sheet. The available-for-sale category of investments results in the classification of unrealized gains and losses on investments in common equity, net of income taxes, until such gains and losses are realized, at which time they are recognized in earnings. Proceeds from sales of available-for-sale securities were $190,636,000, which resulted in realized gains of $2,993,000 and losses of $5,131,000, calculated using the specific identification method. The difference between amortized and unamortized cost basis of the Company's investments in marketable securities as of December 31, 1994, was immaterial.
Approximate cost, fair value, and other required information about the Company's available-for-sale securities by major security type as of December 31, 1994, follows (in thousands of $):
The Company's available-for-sale securities above include approximately $1.1 million market value ($33.1 million notional amount) of short futures on U.S. Treasury Notes and Bonds maturing March 1995. The Company uses such instruments to hedge a major portion of its preferred equity portfolio to substantially reduce price volatility of the securities due to interest rate changes. The Company does not maintain any margin accounts relative to its investment positions.
The Company's available-for-sale securities consisted of $89,431,000 classified as Marketable Securities and $50,138,000 classified as Other Property and Investments in the accompanying 1994 consolidated balance sheet.
FINANCIAL INSTRUMENTS. Pursuant to Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, the Company is required to disclose the fair value of financial instruments where practicable. The disclosure of such information does not purport to be a market valuation of the Company as a whole. The carrying amounts of cash, accounts receivable, notes payable, and accounts payable reflected on the consolidated balance sheets approximates the fair value of these instruments due to the short duration to maturity.
The fair value for certain of the Company's investments and debt are estimated based on quoted market prices for those or similar instruments. Investments for which there are no quoted market prices are stated at cost because a reasonable estimate of fair value cannot be made without incurring excessive costs. The fair value of interest rate swaps is based on the quoted market price as provided by the financial institution which is the counterparty to the swap.
The cost and estimated fair value of the Company's financial instruments as of December 31, 1994 and 1993, are as follows (in thousands of $):
NOTE 7 - PENSION PLANS AND RETIREMENT BENEFITS
PENSION PLANS. The Company has two non-contributory, defined-benefit pension plans, covering all eligible employees. Retirement benefits are based on the employee's years of service and compensation. The Company's policy is to fund annual actuarial costs, up to the maximum amount deductible for income tax purposes, as determined under the frozen entry age actuarial cost method.
In addition, the Company has a supplemental executive retirement plan that covers officers of the Company. The plan provides retirement benefits based on average earnings during the final three or five years prior to retirement, reduced by social security benefits, any pension benefits received from plans of prior employers, and by amounts received under the pension plans mentioned in the preceding paragraph.
Pension costs were $4,996,000 for 1994, $3,048,000 for 1993, and $2,664,000 for 1992, of which approximately $693,000, $425,000, and $241,000, respectively, were charged to construction.
The components of periodic pension expense are shown below (in thousands of $):
The assets of the plans consist primarily of common stocks, corporate bonds, United States government securities, and interests in a pooled real estate investment fund.
The projected benefit obligation was determined using an assumed discount rate of 8.5% for 1994 and 7.5% for 1993. An assumed annual rate of increase in future compensation levels ranged from 4.5% to 5% for 1994 and 3.5% to 4.5% for 1993. The assumed long-term rate of return on plan assets was 8.5% for 1994 and 1993. Transition assets and prior service costs are being amortized over the average remaining service period of active participants.
POST-RETIREMENT BENEFITS. The Company adopted Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR POST-RETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS No. 106), effective January 1, 1993. SFAS No. 106 requires the accrual of the expected cost of retiree benefits other than pensions during the employee's years of service with the Company. The Company is amortizing the discounted present value of the post-retirement benefit obligation at the date of adoption over 20 years.
The Company provides certain health care and life insurance benefits for eligible retired employees. Post-retirement health care benefits are subject to a maximum amount payable by the Company. Prior to January 1, 1993, the cost of retiree health care and life insurance benefits was generally recognized when paid. This cost was $1,078,000 for 1992. Beginning in 1993, the Company began to account for post-retirement benefits according to the provisions of SFAS No. 106.
In 1993, LG&E, based on an order from the Commission, created a regulatory asset and deferred the level of SFAS No. 106 expense in excess of the previous level of pay-as-you-go expense. Therefore, the adoption of SFAS No. 106 did not have an effect on results of operations in 1993. However, in the first quarter of 1994, LG&E began recognizing the excess SFAS No. 106 expense currently, including the amount previously deferred. See Note 5, Non-Recurring Charges.
The components of the net periodic post-retirement benefit cost as calculated under SFAS No. 106 are as follows (in thousands of $):
The accumulated post-retirement benefit obligation as calculated under SFAS No. 106 at December 31 is shown below (in thousands of $):
The accumulated post-retirement benefit obligation was determined using an assumed discount rate of 8.5% for 1994 and 7.5% for 1993. Assumed compensation increases for projected life insurance benefits for affected groups was 5% for 1994 and 4.5% for 1993. An assumed health care cost trend rate of 10.5% was assumed for 1994, gradually decreasing to 5.25% in ten years and thereafter.
A 1% increase in the assumed health care cost trend rate would increase the accumulated post-retirement benefit obligation by approximately $1 million and the annual service and interest cost by approximately $100,000. No funding has been established by the Company for post-retirement benefits.
POST-EMPLOYMENT BENEFITS. The Company adopted Statement of Financial Accounting Standards No. 112, EMPLOYERS' ACCOUNTING FOR POST-EMPLOYMENT BENEFITS on (SFAS No. 112) January 1, 1994, as required. SFAS No. 112 requires the accrual of the expected cost of benefits to former or inactive employees after employment but before retirement. The cumulative effect of the accounting change was recorded in the first quarter of 1994 and decreased net income by $3.4 million.
EARLY RETIREMENT/WORK FORCE REDUCTION. During the last quarter of 1993, LG&E eliminated approximately 350 full-time positions. The cost of the employee reduction program was approximately $11.5 million, and consisted primarily of separation payments, enhanced early retirement benefits, and health care benefits.
In 1992, an early retirement program was made available to all LG&E union employees who had reached age 55, or who had 35 years or more of continuous service regardless of age. The cost of the program was approximately $7 million and consisted primarily of enhanced early retirement and health care benefits.
THRIFT SAVINGS PLAN. The Company has Thrift Savings Plans under Section 401(k) of the Internal Revenue Code. Under these plans, eligible employees may defer and contribute to the plan a portion of current compensation in order to provide future retirement benefits. The Company makes contributions to the plans by matching a portion of employee's contributions according to a formula established by the plans. These costs were approximately $3,304,000 for 1994, $3,542,000 for 1993, and $2,204,000 for 1992. The increase in 1993 401(k) expenses over 1992 is due to the expansion of the program to LG&E union employees.
NOTE 8 - FEDERAL AND STATE INCOME TAXES
Variations in income tax expense are largely attributable to changes in pre-tax income.
The net provisions for deferred income taxes decreased in 1994 due largely to recording certain liabilities which are not deductible until such liabilities are paid. Deferred income taxes attributable to depreciation and amortization decreased in 1993 because of the reversal of prior years' accumulated taxes as a result of the sale of a portion of Trimble County Unit 1. See Note 15, Jointly Owned Electric Utility Plant, for a further discussion of the sale.
The Company's effective income tax rate is computed by dividing the aggregate of current income taxes, deferred income taxes-net, and the amortization of investment tax credit by income from continuing operations before income taxes. Reconciliation of the statutory Federal income tax rate to the effective income tax rate for continuing operations is shown in the table below:
NOTE 9 - OTHER INCOME AND (DEDUCTIONS)
NOTE 10 - CAPITAL STOCK
In 1992, the Company's Automatic Dividend Reinvestment and Stock Purchase Plan provided that reinvested dividends and optional cash payments would be used to buy shares of common stock on the open market. The plan was changed in 1993 to issue authorized but unissued common stock under the plan effective with the January 15, 1993, dividend. Effective January 15, 1994, the plan was revised and reinvested dividends and optional cash payments are again being used to purchase shares of the Company's stock on the open market.
The Company has a Long-Term Incentive Plan (the Long-Term Plan) whereby, in addition to other types of stock-based and related awards, incentive and nonqualified stock options can be granted to key personnel. A total of 299,250 shares of common stock have been registered under the Long-Term Plan. Under the nonqualified stock option portion of the Long-Term Plan, the Company may grant stock options at an exercise price approximating market value. Each option entitles the holder to acquire one share of the Company's common stock no earlier than one year from the date granted. The options generally expire ten years from the date granted.
Non-employee directors receive stock options pursuant to the Stock Option Plan for Non-Employee Directors (the Directors' Plan), which was approved by the Company's shareholders at the 1994 annual meeting. A total of 250,000 shares of common stock have been registered under the Directors' Plan. Under the Directors' Plan, upon initial appointment or election to the Board, each new director, who has not been an employee or officer of the Company within the preceding three years, receives an option grant for 2,000 shares of common stock. Following this initial grant, eligible directors receive an annual grant of an option for 2,000 shares in February of each year. The terms of the options are similar to those granted under the Long-Term Plan.
Common stock equivalents resulting from the options granted under both the Long-Term Plan and the Directors' Plan would not have a material dilutive effect on reported earnings per share.
The Company has a Shareholders Rights Plan designed to protect shareholders' interests in the event the Company is ever confronted with an unfair or inadequate acquisition proposal. Pursuant to the plan, each share of common stock has two-thirds of a "right" entitling the holder to purchase from the Company one one-hundredth of a share of new preferred stock of the Company under certain circumstances. The holders of the rights will, under certain conditions, also be entitled to purchase either shares of common stock of LG&E Energy Corp. or common stock of the acquirer at a reduced percentage of market value. The rights will expire in the year 2000.
In May 1993, LG&E issued $25 million of $5.875 Cumulative Preferred Stock. The proceeds from the sale were used to redeem the outstanding $8.90 Cumulative Preferred Stock.
NOTE 11 - FIRST MORTGAGE BONDS
Annual requirements for the sinking funds of LG&E's First Mortgage Bonds (other than the First Mortgage Bonds issued in connection with the Pollution Control Bonds) are the amounts necessary to redeem 1% of the highest principal amount of each series of bonds at any time outstanding. Property additions (166 2/3% of principal amounts of bonds otherwise required to be so redeemed) have been applied in lieu of cash. It is the intent of LG&E to apply property additions to meet 1995 sinking fund requirements of the First Mortgage Bonds.
The trust indenture securing the First Mortgage Bonds constitutes a direct first mortgage lien upon substantially all property owned by LG&E. The indenture, as supplemented, provides in substance that, under certain specified conditions, portions of retained earnings will not be available for the payment of dividends on common stock. No portion of retained earnings is presently restricted by this provision.
Pollution Control Bonds (LG&E Projects) issued by Jefferson and Trimble Counties, Kentucky, are secured by the assignment of loan payments by LG&E to the Counties pursuant to loan agreements, and further secured by the delivery from time to time of an equal amount of LG&E's First Mortgage Bonds, Pollution
Control Series. First Mortgage Bonds so delivered are summarized in the Statements of Capitalization. No principal or interest on these First Mortgage Bonds is payable unless default on the loan agreements occurs. The interest rate reflected in the Statements of Capitalization applies to the Pollution Control Bonds.
In March 1993, due to the sale of 12.88% of Trimble County Unit 1, LG&E completed the defeasance of $25 million of its Pollution Control Bonds ($16.665 million of the 7.625% Series and $8.335 million of the 6.55% Series).
LG&E issued several series of lower interest bearing First Mortgage and Pollution Control Bonds in 1993 to refinance bonds with higher interest rates. In August 1993, LG&E issued two separate series of Pollution Control Bonds (a $35.2 million, Variable Rate Series, which had an average interest rate of 3.740% at December 31, 1994, and 2.586% at December 31, 1993, and a $102 million, 5.625% Series) and redeemed five series of Pollution Control Bonds totaling $137.2 million with interest rates ranging from 6.125% to 6.7%. In August 1993, LG&E also issued $42.6 million of 6% First Mortgage Bonds and redeemed two series of First Mortgage Bonds ($19.7 million at 8.25% and $21.362 million at 8.5%). In November 1993, LG&E issued $26 million of Pollution Control Bonds, 5.45% Series and redeemed the $26 million, 9.75% Series.
LG&E entered into an agreement in November 1993 with Goldman, Sachs & Co. to issue $40 million of tax-exempt Pollution Control Bonds in 1995 at a rate of 5.9%. The issuance of the bonds in 1995 is subject to certain conditions. If issued, the proceeds will be used to redeem, in 1995, the outstanding 9.25% Series of Pollution Control Bonds due July 1, 2015.
LG&E has outstanding interest rate swap agreements totaling $30 million. Under the agreements, which were entered into in 1992, LG&E pays a fixed rate of 4.35% on $15 million for a five-year period and 4.74% on $15 million for a seven-year period. In return, LG&E receives a floating rate based on the weighted average JJ Kenny index. The JJ Kenny index is a tax-exempt municipal bond interest rate index. These swaps were entered into as a standard hedging device in connection with the issuance of the Series S Pollution Control Bonds due September 1, 2017. The swaps are designed to reduce LG&E's exposure to interest rate risk. LG&E received interest at composite rates of 2.84%, 2.38%, and 2.73% in 1994, 1993, and 1992, respectively and paid interest at a composite rate of 4.55% pursuant to the swaps.
LG&E's First Mortgage Bonds, 5.625% Series of $16 million is scheduled to mature in 1996 and the 6.75% Series of $20 million is scheduled to mature in 1998. There are no scheduled maturities of Pollution Control Bonds for the five years subsequent to December 31, 1994. The Company has no cash sinking fund requirements.
NOTE 12 - NOTES PAYABLE
At December 31, 1994, Energy Systems had notes payable outstanding of $32 million at a weighted average interest rate of 6.44%; at December 31, 1993, notes payable were $20 million at 3.75%. LG&E had no notes payable at December 31, 1994, or December 31, 1993.
At December 31, 1994, lines of credit were in place totaling $320 million ($145 million for LG&E, $150 million for Energy Systems, and $25 million for LG&E Energy Corp.), for which the companies pay commitment or facility fees. These lines of credit were unused, except for the $32 million of Energy Systems' notes payable mentioned above. The credit lines are scheduled to expire at various periods during 1995 and 1996. Management intends to renegotiate these lines when they expire.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
CONSTRUCTION PROGRAM. The Company had commitments, primarily in connection with the construction program of LG&E, aggregating approximately $8 million at December 31, 1994. LG&E's construction expenditures for the calendar years 1995 and 1996 are estimated to total approximately $200 million.
EQUITY FUNDING AND PERFORMANCE GUARANTEES. In connection with the financing of various power projects, Energy Systems and LPI provide equity funding commitments and guarantee the construction and performance of the projects. Ascertainable equity funding commitments were $27 million and $36 million at December 31, 1994, and 1993, respectively. Contingent construction and project performance guarantees totaled approximately $104 million and $198 million at December 31, 1994, and 1993, respectively.
Through a support agreement with Energy Systems for the benefit of certain Energy Systems' lenders, LG&E Energy Corp. has agreed to provide Energy Systems with the necessary funds and financial support to meet the foregoing contingencies.
Westmoreland Energy, Inc. (WEI) is a partner along with LPI in six cogeneration projects in operation or under construction. Under an agreement signed on April 15, 1993, Energy Systems guaranteed (in exchange for fees and other consideration) the equity funding commitment of WEI in connection with the following three projects: Roanoke Valley I, Roanoke Valley II and Rensselaer. The outstanding commitments resulting from this agreement total $4.6 million and $35.5 million as of December 31, 1994, and 1993, respectively. WEI funded their equity commitments for the Roanoke Valley I and Rensselaer projects on December 30, 1994.
During 1993, the Company signed an agreement with Greyrock Capital Group, Inc. (Greyrock, formerly known as Nations Financial Capital Corporation) under which Greyrock agreed, in exchange for fees, to assume $26.9 million of the Company's contingent equity funding commitment for Roanoke Valley I and II resulting from its April 15, 1993, agreement with WEI. As a result of WEI's equity funding on December 30, 1994, the Greyrock obligation to fund was reduced to $4.6 million, related solely to Roanoke Valley II.
On November 8, 1994, Westmoreland Coal Company (Westmoreland), the parent of WEI, together with certain of Westmoreland's subsidiaries other than WEI, filed for protection under Chapter 11 of the U.S. Bankruptcy Code. According to Westmoreland, this filing was made in order to facilitate the sale of its Kentucky Criterion Coal unit (Kentucky Criterion), and would leave unaffected all of Westmoreland's existing debt obligations and stockholder interests. On December 16, 1994, the United States Bankruptcy Court for the District of Delaware issued an order confirming the Westmoreland Plan of Reorganization (the Plan). Pursuant to the Plan, Westmoreland completed its sale of Kentucky Criterion to CONSOL of Kentucky, Inc. on December 22, 1994. The proceeds from the sale were used to pay in full Westmoreland's outstanding indebtedness to its principal creditors. After these payments, Westmoreland emerged from bankruptcy. The proceeds from the sale of Kentucky Criterion were also used to fund Westmoreland's equity commitments related to Roanoke Valley I and Rensselaer on December 30, 1994, as discussed above.
Technical defaults may have resulted with certain project lenders by reason of the bankruptcy filing. However, based upon discussions with the projects' lenders and their consent to the Kentucky Criterion sale, the Company does not anticipate that the projects' lenders or others will take action, as a result of the technical defaults, that would adversely affect the projects or the Company's interests, or that would have a material adverse effect on the Company's financial position or its consolidated results of operations.
PROJECT CONTINGENCIES
SOUTHAMPTON. The Southampton plant, a 63 megawatt coal-fired cogeneration facility in Franklin, Virginia, supplies process steam to a nearby chemical manufacturer and bulk electric power under contract to Virginia Electric and Power Company (Virginia Power) as a qualifying facility (QF) under the Public Utility Regulatory Policies Act (PURPA). The plant began commercial operation in 1992. On July 7, 1994, FERC denied the request of LG&E-Westmoreland Southampton (the Partnership) for a waiver of certain qualifying facility requirements and directed the Partnership to show cause as to why it should not be required to file new cost-based rates for its 1992 electric sales to Virginia Power.
The Partnership filed a request for rehearing and a motion to consider its request for rehearing as timely filed, or in the alternative, to treat its request for rehearing as a motion for reconsideration, in August 1994, one day out of time. The Partnership is seeking a reversal of FERC's prior order, or, in the alternative, a clarification of FERC's order stating that, with the exception of rates, the Partnership remains a QF for 1992 exempt from regulation as a public utility under PUHCA, utility laws in Virginia and various portions of the Federal Power Act.
On August 24, 1994, Virginia Power filed a motion for leave to respond to the Partnership's request for rehearing and response to request for rehearing, and a response to the Partnership's show cause order. On September 6, 1994, the Partnership filed with FERC its answer to Virginia Power's motion and response. On September 6, 1994, FERC granted itself an extension of time to act on the Partnership's request for rehearing, tolling the 30-day period in which FERC was to have acted on the Partnership's rehearing request.
The parties have fully briefed and submitted to FERC their respective motions with respect to the request for rehearing and are awaiting FERC's decision. As of January 30, 1995, FERC had not acted on the Partnership's request for rehearing. The Company expects that FERC will grant the Partnership the relief that it is seeking and, accordingly, the ultimate resolution of the matter is not expected to have a material adverse effect on its consolidated results of operations or its financial condition. However, in light of FERC's July 7, 1994, order, and the arguable lateness of the filing of the request for rehearing one day out of time, the Company cannot predict what action FERC ultimately will take. Possible consequences from an adverse decision include refunds and potential regulatory and other problems under PUHCA, Virginia utility law and the Federal Power Act, the scope and amount of which cannot be determined at this time.
RENSSELAER. The Rensselaer plant, a 79 megawatt, natural-gas-fired facility in Rensselaer, New York, produces steam and electricity from a combined-cycle gas and steam turbine-generator system as a QF under PURPA. The project is jointly owned by LPI and WEI through a general partnership - LG&E-Westmoreland Rensselaer (LWR).
As a result of problems encountered during the start-up and testing of the facility, the facility's commercial operation date was pushed back from February 1994 to April 1994, and the Rensselaer facility was prevented from meeting FERC's operating or efficiency standard for the last month of 1993, and for 1994. LWR filed a waiver request with FERC on October 17, 1994, requesting a temporary waiver of the operating and efficiency standards for 1993 and the efficiency standard for 1994. As of January 30, 1995, FERC had not acted on LWR's waiver request.
The Company, which indirectly owns a 50% interest in the project, based upon past precedent, expects that FERC will grant the waiver and, accordingly, that the ultimate resolution of this matter should not have a material adverse effect on its consolidated results of operations or its financial condition. While the
resolution of the Rensselaer matter is not expected to have a material adverse effect, the Company cannot predict what action FERC may take. Possible consequences could include potential regulatory and other problems under PUHCA, New York utility laws and the Federal Power Act, the scope and amount of which cannot be determined at this time.
ROANOKE VALLEY I. The Company owns a 50% interest in Westmoreland-LG&E Partners (WLP), the sole owner of Roanoke Valley I, a cogeneration facility selling electric power to Virginia Power and steam energy to Patch Rubber Company. Under the Power Purchase Agreement (PPA) between WLP and Virginia Power, WLP is entitled to receive capacity payments based on availability. From May 1994 through December 1994, Virginia Power withheld approximately $6 million of these capacity payments during periods of forced outages. To date, the Company has not realized any income on its 50% portion of the capacity payments being withheld by Virginia Power. On October 31, 1994, WLP filed a complaint against Virginia Power seeking damages of at least $5.7 million, contending that Virginia Power has breached the PPA in withholding such payments. Virginia Power filed a motion to dismiss, in which it denied that its actions were in breach of the PPA. On March 17, 1995, the Circuit Court of the City of Richmond, Virginia, dismissed WLP's complaint. WLP is considering further action to protect its interests. In the Company's opinion, WLP is entitled to recover the capacity payments withheld by Virginia Power and should prevail in this matter ensuring receipt of future capacity payments during forced outages billable to Virginia Power during the remaining 25 years of the PPA. However, the Company is unable to predict the outcome of this matter, or the amount of capacity payments, if any, which Virginia Power may be ordered to pay to WLP.
FERC ORDER NO. 636. In 1994, LG&E experienced its first full year operating under Order No. 636. Whereas LG&E had previously purchased natural gas and pipeline transportation services from Texas Gas Transmission Corporation (Texas Gas), LG&E now purchases only transportation services from Texas Gas and purchases natural gas from other sources.
Under Order No. 636 pipelines may recover costs associated with the transition to and implementation of this order from pipeline customers, including LG&E. The Commission issued an order, based on proceedings that were held to investigate the impact of Order No. 636 on utilities and ratepayers in Kentucky, providing that transition costs assessed on utilities by the pipelines, which are clearly identifiable as being related to the cost of the commodity itself, are appropriate to be recovered from customers through the gas supply clause. During 1994, LG&E paid and began recovering from its customers approximately $2.8 million in transition costs. It is estimated that $6 million to $8 million in additional transition costs will be incurred by LG&E in 1995, and these costs are also expected to be recovered from customers. LG&E is a party to proceedings before FERC which will determine a number of pipeline transition issues. Because of the impact such issues may have on future costs, management is unable to estimate the level of transition costs, if any, for years subsequent to 1995.
OPERATING LEASES. LG&E Energy Corp. has an operating lease for its corporate office space with an expiration date of 1996. LG&E has an operating lease for its corporate office building that is scheduled to expire in June 2005. LPI has operating lease commitments related to two office facilities with expiration dates ranging from four to seven years. Total lease expense for 1994, 1993, and 1992 was $4,895,000, $4,526,000, and $5,454,000, respectively. The future minimum annual lease payments under these lease agreements for years subsequent to December 31, 1994, are as follows (in thousands of $):
Operating lease commitments have been reduced for annual rental payments to be received from noncancelable subleases of approximately $900,000 per year from 1995 through 2001. Future lease payments associated with facilities vacated in mid-1994 were included in the non-recurring charges recorded during 1994 and therefore, do not represent future operating expenses. See Note 5, Non-Recurring Charges.
ENVIRONMENTAL. The Clean Air Act Amendments of 1990 impose stringent limits on emissions of sulfur dioxide and nitrogen oxides by electric utility generating plants. The legislation is extremely complex and its effect will substantially depend on regulations issued by the U.S. Environmental Protection Agency (USEPA). LG&E is closely monitoring the continuing rule-making process in order to assess the precise impact of the legislation on the Company. All of LG&E's coal-fired boilers are equipped with sulfur dioxide "scrubbers" and already achieve the final sulfur dioxide emission rates required by the year 2000 under the legislation. However, as part of its ongoing capital construction program, LG&E has spent $10 million to date and anticipates incurring additional capital expenditures of approximately $29 million through 1996 for remedial measures necessary to meet the Act's requirements for nitrogen oxides. The overall financial impact of the legislation on LG&E is expected to be minimal. LG&E is well-positioned in the market to be a "clean" power provider without the large capital expenditures that are expected to be incurred by many other utilities.
In 1992, LG&E entered two agreed orders with the Air Pollution Control District (APCD) of Jefferson County in which LG&E committed to undertake remedial measures to address certain particulate emissions and alleged excess sulfur dioxide emissions from its Mill Creek generating plant. In May 1994, LG&E completed all specified remedial measures in accordance with the terms of the agreed orders. LG&E has agreed to commence a joint field sampling program with the APCD to demonstrate the effectiveness of the remedial measures.
In August 1993, 34 persons filed a complaint in Jefferson Circuit Court against LG&E seeking certification of a class consisting of all persons within 2.5 miles of the Mill Creek plant. The plaintiffs seek compensation for alleged personal injury and property damage attributable to emissions from the Mill Creek plant, injunctive relief, a fund to finance future medical monitoring of area residents, and other relief. In June 1994, the court denied the plaintiffs' motion for certification of the class and thus limited the scope of the litigation to the claims of the individual plaintiffs. LG&E intends to vigorously defend itself in the pending litigation.
In an effort to resolve property damage claims relating to particulate emissions from the Mill Creek plant, in July 1993, LG&E commenced extensive negotiations and property damage settlements with adjacent
residents who are not parties to the pending litigation. The negotiations and settlements are continuing and LG&E currently estimates that property damage claims for the particulate emissions should be settled for an aggregate amount of approximately $15 million. Accordingly, the Company has recorded an accrual of this amount.
In response to a notification from the APCD that LG&E's Cane Run plant may be the source of a potential exceedance of the National Ambient Air Quality Standards for sulfur dioxide, LG&E submitted a draft action plan and modeling schedule to the APCD and USEPA. The APCD and USEPA have approved the submittals, and an LG&E contractor is currently conducting additional modeling activities. Although it is expected that corrective action will be accomplished through capital improvements, until the modeling activities are complete, LG&E cannot determine the precise impact of this matter.
In March 1994, the APCD adopted a regulation requiring a 15% reduction from 1990 volatile organic compound (VOC) emissions from industrial sources. There are currently no demonstrated technologies for control of VOC emissions from coal-fired boilers. Consequently, compliance with the regulation could require limits on generation at the Mill Creek and Cane Run plants, unless the APCD adopts a provision for compliance through utilization of banked emission allowances. The Company is currently negotiating with the APCD in an effort to demonstrate its eligibility for an exclusion from the VOC reduction requirements.
LG&E owns or formerly owned three primary sites where manufactured gas plant operations were located. Such manufactured gas plant operations, conducted in the 1838 to 1960 time period, typically produced coal tar byproducts and other constituents that may necessitate cleanup measures. LG&E has completed an investigation of the level of contaminants present at the two company-owned sites, and LG&E, along with the current owner of the third site and another party completed an investigation of the third site. Investigation and testing at these three sites has identified the presence of contaminants typical of manufactured gas operations. A report on the results of the investigation at each site has been prepared and submitted to the Kentucky Natural Resources and Environmental Protection Cabinet (KNREPC). The KNREPC will review the findings submitted by the Company, and through negotiations with LG&E, the level of remediation required at each site will be determined. Although a precise determination of the costs associated with cleanup activities at these three sites cannot be made until the required level of remediation is established, LG&E's management currently estimates that the total cost will fall within a range of $3 million to $12 million and has recorded an accrual of approximately $3 million in the accompanying financial statements.
In November 1993, LG&E was served with a third-party complaint filed in federal district court in Illinois by three third-party plaintiffs. The third-party plaintiffs allege that LG&E and 31 other parties are liable under the Comprehensive Environmental Response, Compensation, and Liability Act as amended (CERCLA) for $1.4 million in costs allegedly incurred by USEPA in conducting cleanup activities at the M.T. Richards site in Crossville, Illinois. A number of de minimis third-party defendants, including LG&E, have commenced settlement discussions with the third-party plaintiffs. In LG&E's opinion, the resolution of this issue will not have a material adverse impact on its financial position or results of operations.
In June 1992, USEPA identified LG&E as a potentially responsible party (PRP) allegedly liable under CERCLA for $1.6 million in costs allegedly incurred by USEPA in cleanup of the Sonora Site and Carlie Middleton Burn site located in Hardin County, Kentucky. The USEPA has since increased the amount of its demand to $1.8 million to reflect additional cleanup costs. In September 1994, USEPA filed a CERCLA cost recovery action in U.S. District Court against LG&E and six other parties. In LG&E's
opinion, the resolution of this issue will not have a material adverse impact on its financial position or results of operations.
In 1987, USEPA identified LG&E as one of the numerous PRPs allegedly liable under CERCLA for the Smith's Farm site in Bullitt County, Kentucky. In March 1990, USEPA issued an administrative order requiring LG&E and 35 other PRPs to conduct certain cleanup activities. In February 1992, four PRPs filed a complaint in federal district court in Kentucky against LG&E and 52 other PRPs. Under the law, each PRP could be held jointly and severally liable for the cost of site cleanup but would have the right to seek contribution from other PRPs. In July 1993, upon motion of the plaintiffs, the federal court dismissed LG&E and a number of others from the litigation in order to facilitate settlement negotiations among the parties. Cleanup costs for the site are currently estimated at approximately $70 million. LG&E and several other parties have shared certain cleanup costs in the interim until a voluntary allocation of liability can be reached among the parties. It is not possible at this time to predict the outcome or precise impact of this matter. However, management believes that this matter should not have a material adverse impact on the financial position or results of operations of LG&E as other financially viable PRPs appear to have primary liability for the site.
Like LG&E, LPI and its subsidiaries are subject to extensive federal, state, and local environmental laws and regulations governing the operation of the various power plants in which they participate as an owner or managing operator. Among other things, these laws and regulations govern the discharge of materials into waterways, the air and the ground and, if violated, may require the owner or operator to take remedial action to maintain the affected facility's operating status. To the extent any such remedial environmental actions have been required of LPI or its subsidiaries in the past, related expenditures have not been material.
NOTE 14 - TRIMBLE COUNTY GENERATING PLANT
Trimble County Unit 1 (Trimble County), a 495-megawatt, coal-fired electric generating unit placed into service in December 1990, is currently the subject of an administrative proceeding before the Commission. This proceeding, which originally began in 1988, was initiated by the Commission to determine the appropriate ratemaking treatment to implement its 1988 decision that LG&E should not be allowed to recover 25% of the cost of the Unit from ratepayers. As a result of a non-unanimous settlement agreement in the initial 1989 proceedings reached between LG&E and the Commission staff, which was approved by the Kentucky Commission in October 1989, LG&E returned to its customers $11.1 million through refunds and rate reductions. The Commission's approval of the settlement agreement was appealed by certain intervenors in the case who had not joined in the agreement. In April 1993, the Kentucky Court of Appeals held that the Commission exceeded its authority in approving the agreement, and ordered the Commission to hold new hearings on the underlying issues.
Pursuant to a Commission procedural order, LG&E filed direct testimony on January 7, 1994, in which LG&E recommended that the Commission allow it to recover the $11.1 million it refunded to customers under the 1989 settlement agreement. Testimony filed by intervenors recommended that the Commission order LG&E to refund approximately $183 million, based upon their argument that LG&E should refund 25% of the revenue requirements associated with Trimble County's construction-work-in-progress (CWIP) collected through rates over the course of the Trimble County construction project.
On March 25, 1994, the Kentucky Attorney General and the Jefferson County Attorney filed a motion with the Commission in which they requested that two of the three members of the Commission and certain unspecified Commission staff employees be recused from further participation in the case. The intervenors
supported the motion by arguing that past statements and orders of the Commission in this and other proceedings showed that the Commissioners had prejudged the issues relevant to the current proceeding. The issues referred to in the motion centered on the intervenors' claims that LG&E should refund 25% of all revenues associated with Trimble County CWIP collected through rates during the course of the plant's construction.
On July 8, 1994, the Commission entered an order which denied the intervenors' motion. In the order, the Commission stated that it had not prejudged any issues but rather had decided a number of issues in past proceedings which are binding on it and all other parties. The Commission also stated that it had never implied in prior orders that the amounts of Trimble County CWIP included in rate base prior to the issuance of its July 1, 1988, order in Case No. 10064, a general rate case, would be subject to later review. The Commission concluded that the scope of the present case had been limited since at least 1985 when the Commission issued an order that put LG&E on notice that in future rate cases the continuation of allowing a return on further additions to Trimble County CWIP would be an issue.
LG&E believes that the Commission's July 8 order makes it unlikely that the Commission will entertain the position that the intervenors have taken in their previously-filed testimony that LG&E refund approximately $183 million to its customers. LG&E believes that remaining at issue is what amount, if any, of the approximately $30 million it collected subject to refund under a rate case order issued in 1988 should be returned to ratepayers. As discussed above, approximately $11.1 million has already been returned to ratepayers under the 1989 settlement agreement. However, LG&E is unable to predict the outcome of the Commission proceedings, or the amount of additional refunds or recoveries, if any, that may be ordered.
The Commission has set May 9, 1995, as the formal hearing date in the Trimble County proceedings. The purpose of the hearing is to determine the proper ratemaking treatment to exclude 25% of Trimble County from customer rates for the period from May 1988 to December 31, 1990. LG&E's current rates, which became effective January 1, 1991, reflect the disallowance of 25% of the plant.
Reference is made to Note 15, Jointly Owned Electric Utility Plant, for a discussion of the sale of 25% of Trimble County.
NOTE 15 - JOINTLY OWNED ELECTRIC UTILITY PLANT
LG&E owns a 75% undivided interest in Trimble County Unit 1. Accounting for the 75% portion of the Unit, which the Commission has allowed to be reflected in customer rates, is similar to LG&E's accounting for other wholly owned utility plants.
Of the remaining 25% of the Unit, Illinois Municipal Electric Agency (IMEA) purchased a 12.12% undivided interest in the Unit on February 28, 1991, and Indiana Municipal Power Agency (IMPA) purchased a 12.88% undivided interest on February 1, 1993. Each is responsible for their proportionate ownership share of operation and maintenance expenses and incremental assets, and for fuel used.
NOTE 16 - SUBSEQUENT EVENT - PROPOSED ACQUISITION OF HADSON CORPORATION
On February 10, 1995, LG&E Energy Corp. signed definitive agreements to purchase Hadson Corporation (Hadson) for $143 million, plus acquisition related fees and expenses. Hadson, based in Dallas, Texas, is involved in the marketing, gathering, processing, storage and transportation of natural gas and natural gas liquids. The sale is subject to necessary regulatory filings and approvals, and satisfaction of certain other conditions. Closing is scheduled to occur in the second quarter of 1995.
NOTE 17 - SEGMENTS OF BUSINESS
LG&E Energy Corp. has business operations in both the regulated and non-regulated energy markets. The regulated business is conducted through LG&E, a public utility engaged in the generation, transmission, distribution, and sale of electricity, and the transmission, distribution and sale of natural gas.
The non-regulated energy business is conducted through Energy Systems, which manages the Company's non-utility operations. Energy Systems directly owns LPI and LII. LPI and its subsidiaries develop, design, build, own, operate, and maintain power generation facilities that sell energy to local industries and utilities.
REPORT OF MANAGEMENT
The management of LG&E Energy Corp. and subsidiaries is responsible for the preparation and integrity of the consolidated financial statements and related information included in this Annual Report. These statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis and, necessarily, include amounts that reflect the best estimates and judgment of management.
The Company's financial statements have been audited by Arthur Andersen LLP, independent public accountants. Management has made available to Arthur Andersen LLP all the Company's financial records and related data as well as the minutes of shareholders' and directors' meetings.
Management has established and maintains a system of internal controls that provides reasonable assurance that transactions are completed in accordance with management's authorization, that assets are safeguarded and that financial statements are prepared in conformity with generally accepted accounting principles. Management believes that an adequate system of internal controls is maintained through the selection and training of personnel, appropriate division of responsibility, establishment and communication of policies and procedures and by regular reviews of internal accounting controls by the Company's internal auditors. Management reviews and modifies its system of internal controls in light of changes in conditions and operations, as well as in response to recommendations from the internal auditors. These recommendations for the year ended December 31, 1994 did not identify any significant deficiencies in the design and operation of the Company's internal control structure.
The Audit Committee of the Board of Directors is composed entirely of outside directors. In carrying out its oversight role for the financial reporting and internal controls of the Company, the Audit Committee meets regularly with the Company's independent public accountants, internal auditors and management. The Audit Committee reviews the results of the independent accountants' audit of the consolidated financial statements and their audit procedures, and discusses the adequacy of internal accounting controls. The Audit Committee also approves the annual internal auditing program, and reviews the activities and results of the internal auditing function. Both the independent public accountants and the internal auditors have access to the Audit Committee at any time.
LG&E Energy Corp. and subsidiaries maintain and internally communicate a written code of business conduct that addresses, among other items, potential conflicts of interest, compliance with laws, including those relating to financial disclosure, and the confidentiality of proprietary information.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To LG&E Energy Corp.:
We have audited the consolidated balance sheets and statements of capitalization of LG&E Energy Corp. (a Kentucky corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements and schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LG&E Energy Corp. and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As further discussed in Note 14, the potential amount of future rate refunds that may be required, if any, once the outcome of the legal and regulatory process is known, is uncertain at this time.
As discussed in Notes 1 and 7 to the consolidated financial statements, effective January 1, 1993, the Company changed its methods of accounting for income taxes and post-retirement benefits other than pensions, and effective January 1, 1994, the Company changed its method of accounting for post-employment benefits.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Item 14(a)2 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
Louisville, Kentucky Arthur Andersen LLP January 30, 1995 (Except with respect to the matters discussed in Note 16, as to which the date is February 10, 1995, and the matters discussed in paragraph 15 of Note 13, as to which the date is March 17, 1995.)
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Selected financial data for the four quarters of 1994 and 1993 are shown below. Because of seasonal fluctuations in temperature and other factors, results for quarters may fluctuate throughout the year.
ITEM 9.
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 16, 1995, pursuant to Regulation 14A under the Securities Exchange Act of 1934. Such proxy statement is incorporated herein by this reference. In accordance with General Instruction G of Form 10-K, the information required by Item 10
Item 10 relating to executive officers has been included in Part I of this Form 10-K.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements (included in Item 8):
Statements of Income for the three years ended December 31, 1994 (page 33).
Balance Sheets - December 31, 1994, and 1993 (page 34).
Statements of Cash Flows for the three years ended December 31, 1994 (page 35).
Statements of Capitalization - December 31, 1994, and 1993 (page 36).
Statements of Retained Earnings for the three years ended December 31, 1994 (page 37).
Notes to Financial Statements (pages 37-58).
Report of Management (page 59).
Report of Independent Public Accountants (page 60).
Selected Quarterly Financial Data for 1994 and 1993 (page 61).
2. Financial Statement Schedules (included in Part IV):
Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 1994 (page 72).
All other schedules have been omitted as not applicable or not required or because the information required to be shown is included in the Financial Statements or the accompanying Notes to Financial Statements.
3. Exhibits:
Exhibit No. Description - --- -----------
3.01 Copy of Articles of Incorporation. [Filed as Exhibit 4.01 to Registration Statement 33-33687 and incorporated by reference herein]
3.02 Amendment to Articles of Incorporation dated December 5, 1990. [Filed as Exhibit 3.02 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated by reference herein]
3.03 Copy of Bylaws as amended through December 4, 1991. [Filed as Exhibit 3.03 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated by reference herein]
4.01 Copy of Trust Indenture dated November 1, 1949, from LG&E to Harris Trust and Savings Bank, Trustee. [Filed as Exhibit 7.01 to LG&E's Registration Statement 2-8283 and incorporated by reference herein]
4.02 Copy of Supplemental Indenture dated February 1, 1952, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.05 to LG&E's Registration Statement 2-9371 and incorporated by reference herein]
4.03 Copy of Supplemental Indenture dated February 1, 1954, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.03 to LG&E's Registration Statement 2-11923 and incorporated by reference herein]
4.04 Copy of Supplemental Indenture dated September 1, 1957, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.04 to LG&E's Registration Statement 2-17047 and incorporated by reference herein]
4.05 Copy of Supplemental Indenture dated October 1, 1960, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.05 to LG&E's Registration Statement 2-24920 and incorporated by reference herein]
4.06 Copy of Supplemental Indenture dated June 1, 1966, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.06 to LG&E's Registration Statement 2-28865 and incorporated by reference herein]
4.07 Copy of Supplemental Indenture dated June 1, 1968, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.07 to LG&E's Registration Statement 2-37368 and incorporated by reference herein]
4.08 Copy of Supplemental Indenture dated June 1, 1970, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.08 to LG&E's Registration Statement 2-37368 and incorporated by reference herein]
4.09 Copy of Supplemental Indenture dated August 1, 1971, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.09 to LG&E's Registration Statement 2-44295 and incorporated by reference herein]
4.10 Copy of Supplemental Indenture dated June 1, 1972, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.10 to LG&E's Registration Statement 2-52643 and incorporated by reference herein]
4.11 Copy of Supplemental Indenture dated February 1, 1975, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.11 to LG&E's Registration Statement 2-57252 and incorporated by reference herein]
4.12 Copy of Supplemental Indenture dated September 1, 1975, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.12 to LG&E's Registration Statement 2-57252 and incorporated by reference herein]
4.13 Copy of Supplemental Indenture dated September 1, 1976, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.13 to LG&E's Registration Statement 2-57252 and incorporated by reference herein]
4.14 Copy of Supplemental Indenture dated October 1, 1976, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.14 to LG&E's Registration Statement 2-65271 and incorporated by reference herein]
4.15 Copy of Supplemental Indenture dated June 1, 1978, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.15 to LG&E's Registration Statement 2-65271 and incorporated by reference herein]
4.16 Copy of Supplemental Indenture dated February 15, 1979, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.16 to LG&E's Registration Statement 2-65271 and incorporated by reference herein]
4.17 Copy of Supplemental Indenture dated September 1, 1979, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.17 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1980, and incorporated by reference herein]
4.18 Copy of Supplemental Indenture dated September 15, 1979, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.18 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1980, and incorporated by reference herein]
4.19 Copy of Supplemental Indenture dated September 15, 1981, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.19 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]
4.20 Copy of Supplemental Indenture dated March 1, 1982, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.20 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.21 Copy of Supplemental Indenture dated March 15, 1982, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.21 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.22 Copy of Supplemental Indenture dated September 15, 1982, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.22 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.23 Copy of Supplemental Indenture dated February 15, 1984, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.23 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1984, and incorporated by reference herein]
4.24 Copy of Supplemental Indenture dated July 1, 1985, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.24 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1985, and incorporated by reference herein]
4.25 Copy of Supplemental Indenture dated November 15, 1986, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.25 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1986, and incorporated by reference herein]
4.26 Copy of Supplemental Indenture dated November 16, 1986, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.26 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1986, and incorporated by reference herein]
4.27 Copy of Supplemental Indenture dated August 1, 1987, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.27 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1987, and incorporated by reference herein]
4.28 Copy of Supplemental Indenture dated February 1, 1989, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.28 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated by reference herein]
4.29 Copy of Supplemental Indenture dated February 2, 1989, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.29 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated by reference herein]
4.30 Copy of Supplemental Indenture dated June 15, 1990, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.30 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated by reference herein]
4.31 Copy of Supplemental Indenture dated November 1, 1990, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.31 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated by reference herein]
4.32 Copy of Supplemental Indenture dated September 1, 1992, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.32 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
4.33 Copy of Supplemental Indenture dated September 2, 1992, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.33 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
4.34 Copy of Supplemental Indenture dated August 15, 1993, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.34 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
4.35 Copy of Supplemental Indenture dated August 16, 1993, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.35 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
4.36 Copy of Supplemental Indenture dated October 15, 1993, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.36 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.01 Copy of Agreement dated September 1, 1970, between Texas Gas Transmission Corporation and LG&E covering the purchase of natural gas. [Filed as Exhibit 4.01 to LG&E's Registration Statement 2-40985 and incorporated by reference herein]
10.02 Copies of Agreement between Sponsoring Companies re: Project D of Atomic Energy Commission, dated May 12, 1952, Memorandums of Understanding between Sponsoring Companies re: Project D of Atomic Energy Commission, dated September 19, 1952 and October 28, 1952, and Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission, dated October 15, 1952. [Filed as Exhibit 13(y) to LG&E's Registration Statement 2-9975 and incorporated by reference herein]
10.03 Copy of Modification No. 1 dated July 23, 1953, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 4.03(b) to LG&E's Registration Statement 2-24920 and incorporated by reference herein]
10.04 Copy of Modification No. 2 dated March 15, 1964, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02c to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.05 Copy of Modification No. 3 and No. 4 dated May 12, 1966 and January 7, 1967, respectively, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibits 4(a)(13) and 4(a)(14) to LG&E's Registration Statement 2-26063 and incorporated by reference herein]
10.06 Copy of Modification No. 5 dated August 15, 1967, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 13(c) to LG&E's Registration Statement 2-27316 and incorporated by reference herein]
10.07 Copies of (i) Inter-Company Power Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies (which Agreement includes as Exhibit A the Power Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Indiana-Kentucky Electric Corporation); (ii) First Supplementary Transmission Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies; (iii) Inter-Company Bond Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies; (iv) Inter-Company Bank Credit Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 5.02f to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.08 Copy of Modification No. 1 and No. 2 dated June 3, 1966 and January 7, 1967, respectively, to Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibits 4(a)(8) and 4(a)(10) to LG&E's Registration Statement 2-26063 and incorporated by reference herein]
10.09 Copies of Amendments to Agreements (iii) and (iv) referred to under 10.07 above as follows: (i) Amendment to Inter-Company Bond Agreement and (ii) Amendment to Inter-Company Bank Credit Agreement. [Filed as Exhibit 5.02h to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.10 Copy of Modification No. 1, dated August 20, 1958, to First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring
Companies. [Filed as Exhibit 5.02i to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.11 Copy of Modification No. 2, dated April 1, 1965, to the First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 5.02j to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.12 Copy of Modification No. 3, dated January 20, 1967, to First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 4(a)(7) to LG&E's Registration Statement 2-26063 and incorporated by reference herein]
10.13 Copy of Modification No. 6 dated November 15, 1967, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 4(g) to LG&E's Registration Statement 2-28524 and incorporated by reference herein]
10.14 Copy of Modification No. 3 dated November 15, 1967, to the Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibit 4.02m to LG&E's Registration Statement 2-37368 and incorporated by reference herein]
10.15 Copy of Modification No. 7 dated November 5, 1975, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02n to LG&E's Registration Statement 2-56357 and incorporated by reference herein]
10.16 Copy of Modification No. 4 dated November 5, 1975, to the Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibit 5.02o to LG&E's Registration Statement 2-56357 and incorporated by reference herein]
10.17 Copy of Modification No. 4 dated April 30, 1976, to First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 5.02p to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.18 Copy of Modification No. 8 dated June 23, 1977, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02q to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.19 Copy of Modification No. 9 dated July 1, 1978, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02r to LG&E's Registration Statement 2-63149 and incorporated by reference herein]
10.20 Copy of Modification No. 10 dated August 1, 1979, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 2 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1979, and incorporated by reference herein]
10.21 Copy of Modification No. 11 dated September 1, 1979, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 3 to LG&E's
Annual Report on Form 10-K for the year ended December 31, 1979, and incorporated by reference herein]
10.22 Copy of Modification No. 5 dated September 1, 1979, to Inter-Company Power Agreement dated July 5, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 4 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1979, and incorporated by reference herein]
10.23 Copy of Modification No. 12 dated August 1, 1981, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.25 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]
10.24 Copy of Modification No. 6 dated August 1, 1981, to Inter-Company Power Agreement dated July 5, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 10.26 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]
10.25 Copy of Diversity Power Agreement dated September 9, 1987, between East Kentucky Power Cooperative and LG&E covering the purchase and sale of power between the two companies from 1988 through 1995. [Filed as Exhibit 10.28 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1987, and incorporated by reference herein]
10.26 Copy of Supplemental Executive Retirement Plan as amended through January 3, 1990, covering all officers of LG&E. [Filed as Exhibit 10.29 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated by reference herein]
10.27 Copy of Omnibus Long-Term Incentive Plan effective January 1, 1990, covering officers and key employees of LG&E. [Filed as Exhibit 4.01 to LG&E's Registration Statement 33-38557 and incorporated by reference herein]
10.28 Copy of Key Employee Incentive Plan effective January 1, 1990, covering officers and key employees of LG&E. [Filed as Exhibit 10.33 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated by reference herein]
10.29 Copy of LG&E Energy Corp. Deferred Stock Compensation Plan effective January 1, 1992, covering non-employee directors of the Company and its subsidiaries. [Filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated by reference herein]
10.30 Copy of Credit Agreement dated as of March 11, 1992, among LG&E Energy Systems Inc. as Borrower, the Banks named therein, and Citibank, N.A. as Agent. [Filed as Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.31 Copy of Support Agreement dated as of December 9, 1991, between LG&E Energy Corp. and LG&E Energy Systems Inc. [Filed as Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.32 Copy of form of change in control agreement for officers of LG&E Energy Corp. [Filed as Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.33 Copy of Supplemental Executive Retirement Plan for R. W. Hale, effective June 1, 1989. [Filed as Exhibit 10.42 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.34 Copy of Nonqualified Savings Plan covering officers of the Company, effective January 1, 1992. [Filed as Exhibit 10.43 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.35 Copy of Modification No. 13 dated September 1, 1989, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.42 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.36 Copy of Modification No. 14 dated January 15, 1992, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.43 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.37 Copy of Modification No. 7 dated January 15, 1992, to Inter-Company Power Agreement dated July 10, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 10.44 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.38 Copy of Modification No. 15 dated February 15, 1993, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.45 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.39 Firm Transportation Agreement, dated November 1, 1993, between Texas Gas Transmission Corporation and LG&E covering the transmission of natural gas. [Filed as Exhibit 10.46 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.40 Firm No Notice Transportation Agreement effective November 1, 1993, between Texas Gas Transmission Corporation and LG&E (8-year term) covering the transmission of natural gas.
Firm No Notice Transportation Agreement effective November 1, 1993, between Texas Gas Transmission Corporation and LG&E (2-year term) covering the transmission of natural gas.
Firm No Notice Transportation Agreement effective November 1, 1993, between Texas Gas Transmission Corporation and LG&E (5-year term) covering the transmission of natural gas.
[Filed as Exhibit 10.47 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.41 Employment Contract between the Company and Roger W. Hale effective November 3, 1993. [Filed as Exhibit 10.50 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.42 Copy of LG&E Energy Corp. Stock Option Plan for Non-Employee Directors. [Filed as Exhibit 10.51 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.43 Copy of Coal Supply Agreement dated August 9, 1989, between Shawnee Coal Company, Roberts Brothers Coal Company, and the Company covering the purchase of coal. [Filed as Exhibit 10.41 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.44 Copy of Amendment No. 1 dated January 1, 1991, to Coal Supply Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts Brothers Coal Company, and the Company covering the purchase of coal. [Filed as Exhibit 10.42 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.45 Copy of Amendment No. 2 dated November 27, 1991, to Coal Supply Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts Brothers Coal Company, and the Company covering the purchase of coal. [Filed as Exhibit 10.43 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.46 Copy of Amendment No. 3 dated January 1, 1994, to Coal Supply Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts Brothers Coal Company, and the Company covering the purchase of coal. [Filed as Exhibit 10.44 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.47 Copy of Amendment No. 4 dated January 1, 1995, to Coal Supply Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts Brothers Coal Company, and the Company covering the purchase of coal. [Filed as Exhibit 10.45 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.48 Copy of Coal Supply Agreement dated January 1, 1994, between Peabody Coalsales Company and the Company covering the purchase of coal. [Filed as Exhibit 10.46 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.49 Agreement and Plan of Merger, dated February 10, 1995, between Hadson Corporation, Carousel Acquisition Corporation and the Company. [Filed as Exhibit 2 of Schedule 13D by the Company on February 21, 1995, and incorporated by reference herein]
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
24 Power of Attorney
27 Financial Data Schedule
(b) Executive Compensation Plans and Arrangements:
Supplemental Executive Retirement Plan as amended through January 3, 1990, covering all officers of LG&E. [Filed as Exhibit 10.29 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated by reference herein]
Omnibus Long-Term Incentive Plan effective January 1, 1990, covering officers and key employees of LG&E. [Filed as Exhibit 4.01 to LG&E's Registration Statement 33-38557 and incorporated by reference herein]
Key Employee Incentive Plan effective January 1, 1990, covering officers and key employees of LG&E. [Filed as Exhibit 10.33 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated by reference herein]
LG&E Energy Corp. Deferred Stock Compensation Plan effective January 1, 1992, covering non-employee directors of the Company and its subsidiaries. [Filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated by reference herein]
Form of change in control agreement for officers of LG&E Energy Corp. [Filed as Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
Supplemental Executive Retirement Plan for R. W. Hale, effective June 1, 1989. [Filed as Exhibit 10.42 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
Nonqualified Savings Plan covering officers of the Company effective January 1, 1992. [Filed as Exhibit 10.43 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
Employment Contract between the Company and Roger W. Hale effective November 3, 1993. [Filed as Exhibit 10.50 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
LG&E Energy Corp. Stock Option Plan for Non-Employee Directors. [Filed as Exhibit 10.51 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
(c) Reports on Form 8-K:
The Company filed no Form 8-K reports during the fourth quarter of 1994.
A report on Form 8-K was filed on February 16, 1995, announcing that the Company signed definitive agreements on February 10, 1995, to purchase Hadson Corporation, the Dallas-based natural gas marketing, gathering and processing company, for $143 million. The acquisition is subject to regulatory filings and approvals and the satisfaction of certain other conditions. The transaction is expected to close in the second quarter of 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LG&E ENERGY CORP. Registrant
March 28, 1995 /s/ Charles A. Markel III - ------------- ------------------------- (Date) Charles A. Markel III Corporate Vice President, Finance and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date - --------- ----- ----
Roger W. Hale Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer);
Charles A. Markel III Corporate Vice President, Finance and Treasurer (Principal Financial and Accounting Officer);
William C. Ballard, Jr. Director;
Owsley Brown, II Director;
S. Gordon Dabney Director;
Gene P. Gardner Director;
J. David Grissom Director;
David B. Lewis Director;
Anne H. McNamara Director;
T. Ballard Morton, Jr. Director; and
Dr. Donald C. Swain Director.
By /s/ Charles A. Markel III March 28, 1995 ------------------------- Charles A. Markel III (Attorney-In-Fact)
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements (included in Item 8):
Statements of Income for the three years ended December 31, 1994 (page 33).
Balance Sheets - December 31, 1994, and 1993 (page 34).
Statements of Cash Flows for the three years ended December 31, 1994 (page 35).
Statements of Capitalization - December 31, 1994, and 1993 (page 36).
Statements of Retained Earnings for the three years ended December 31, 1994 (page 37).
Notes to Financial Statements (pages 37-58).
Report of Management (page 59).
Report of Independent Public Accountants (page 60).
Selected Quarterly Financial Data for 1994 and 1993 (page 61).
2. Financial Statement Schedules (included in Part IV):
Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 1994 (page 72).
All other schedules have been omitted as not applicable or not required or because the information required to be shown is included in the Financial Statements or the accompanying Notes to Financial Statements.
3. Exhibits:
Exhibit No. Description - --- -----------
3.01 Copy of Articles of Incorporation. [Filed as Exhibit 4.01 to Registration Statement 33-33687 and incorporated by reference herein]
3.02 Amendment to Articles of Incorporation dated December 5, 1990. [Filed as Exhibit 3.02 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated by reference herein]
3.03 Copy of Bylaws as amended through December 4, 1991. [Filed as Exhibit 3.03 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated by reference herein]
4.01 Copy of Trust Indenture dated November 1, 1949, from LG&E to Harris Trust and Savings Bank, Trustee. [Filed as Exhibit 7.01 to LG&E's Registration Statement 2-8283 and incorporated by reference herein]
4.02 Copy of Supplemental Indenture dated February 1, 1952, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.05 to LG&E's Registration Statement 2-9371 and incorporated by reference herein]
4.03 Copy of Supplemental Indenture dated February 1, 1954, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.03 to LG&E's Registration Statement 2-11923 and incorporated by reference herein]
4.04 Copy of Supplemental Indenture dated September 1, 1957, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.04 to LG&E's Registration Statement 2-17047 and incorporated by reference herein]
4.05 Copy of Supplemental Indenture dated October 1, 1960, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.05 to LG&E's Registration Statement 2-24920 and incorporated by reference herein]
4.06 Copy of Supplemental Indenture dated June 1, 1966, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.06 to LG&E's Registration Statement 2-28865 and incorporated by reference herein]
4.07 Copy of Supplemental Indenture dated June 1, 1968, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.07 to LG&E's Registration Statement 2-37368 and incorporated by reference herein]
4.08 Copy of Supplemental Indenture dated June 1, 1970, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.08 to LG&E's Registration Statement 2-37368 and incorporated by reference herein]
4.09 Copy of Supplemental Indenture dated August 1, 1971, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.09 to LG&E's Registration Statement 2-44295 and incorporated by reference herein]
4.10 Copy of Supplemental Indenture dated June 1, 1972, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.10 to LG&E's Registration Statement 2-52643 and incorporated by reference herein]
4.11 Copy of Supplemental Indenture dated February 1, 1975, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.11 to LG&E's Registration Statement 2-57252 and incorporated by reference herein]
4.12 Copy of Supplemental Indenture dated September 1, 1975, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.12 to LG&E's Registration Statement 2-57252 and incorporated by reference herein]
4.13 Copy of Supplemental Indenture dated September 1, 1976, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.13 to LG&E's Registration Statement 2-57252 and incorporated by reference herein]
4.14 Copy of Supplemental Indenture dated October 1, 1976, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.14 to LG&E's Registration Statement 2-65271 and incorporated by reference herein]
4.15 Copy of Supplemental Indenture dated June 1, 1978, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.15 to LG&E's Registration Statement 2-65271 and incorporated by reference herein]
4.16 Copy of Supplemental Indenture dated February 15, 1979, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.16 to LG&E's Registration Statement 2-65271 and incorporated by reference herein]
4.17 Copy of Supplemental Indenture dated September 1, 1979, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.17 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1980, and incorporated by reference herein]
4.18 Copy of Supplemental Indenture dated September 15, 1979, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.18 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1980, and incorporated by reference herein]
4.19 Copy of Supplemental Indenture dated September 15, 1981, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.19 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]
4.20 Copy of Supplemental Indenture dated March 1, 1982, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.20 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.21 Copy of Supplemental Indenture dated March 15, 1982, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.21 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.22 Copy of Supplemental Indenture dated September 15, 1982, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.22 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.23 Copy of Supplemental Indenture dated February 15, 1984, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.23 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1984, and incorporated by reference herein]
4.24 Copy of Supplemental Indenture dated July 1, 1985, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.24 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1985, and incorporated by reference herein]
4.25 Copy of Supplemental Indenture dated November 15, 1986, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.25 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1986, and incorporated by reference herein]
4.26 Copy of Supplemental Indenture dated November 16, 1986, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.26 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1986, and incorporated by reference herein]
4.27 Copy of Supplemental Indenture dated August 1, 1987, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.27 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1987, and incorporated by reference herein]
4.28 Copy of Supplemental Indenture dated February 1, 1989, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.28 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated by reference herein]
4.29 Copy of Supplemental Indenture dated February 2, 1989, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.29 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated by reference herein]
4.30 Copy of Supplemental Indenture dated June 15, 1990, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.30 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated by reference herein]
4.31 Copy of Supplemental Indenture dated November 1, 1990, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.31 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated by reference herein]
4.32 Copy of Supplemental Indenture dated September 1, 1992, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.32 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
4.33 Copy of Supplemental Indenture dated September 2, 1992, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.33 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
4.34 Copy of Supplemental Indenture dated August 15, 1993, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.34 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
4.35 Copy of Supplemental Indenture dated August 16, 1993, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.35 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
4.36 Copy of Supplemental Indenture dated October 15, 1993, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.36 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.01 Copy of Agreement dated September 1, 1970, between Texas Gas Transmission Corporation and LG&E covering the purchase of natural gas. [Filed as Exhibit 4.01 to LG&E's Registration Statement 2-40985 and incorporated by reference herein]
10.02 Copies of Agreement between Sponsoring Companies re: Project D of Atomic Energy Commission, dated May 12, 1952, Memorandums of Understanding between Sponsoring Companies re: Project D of Atomic Energy Commission, dated September 19, 1952 and October 28, 1952, and Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission, dated October 15, 1952. [Filed as Exhibit 13(y) to LG&E's Registration Statement 2-9975 and incorporated by reference herein]
10.03 Copy of Modification No. 1 dated July 23, 1953, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 4.03(b) to LG&E's Registration Statement 2-24920 and incorporated by reference herein]
10.04 Copy of Modification No. 2 dated March 15, 1964, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02c to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.05 Copy of Modification No. 3 and No. 4 dated May 12, 1966 and January 7, 1967, respectively, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibits 4(a)(13) and 4(a)(14) to LG&E's Registration Statement 2-26063 and incorporated by reference herein]
10.06 Copy of Modification No. 5 dated August 15, 1967, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 13(c) to LG&E's Registration Statement 2-27316 and incorporated by reference herein]
10.07 Copies of (i) Inter-Company Power Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies (which Agreement includes as Exhibit A the Power Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Indiana-Kentucky Electric Corporation); (ii) First Supplementary Transmission Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies; (iii) Inter-Company Bond Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies; (iv) Inter-Company Bank Credit Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 5.02f to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.08 Copy of Modification No. 1 and No. 2 dated June 3, 1966 and January 7, 1967, respectively, to Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibits 4(a)(8) and 4(a)(10) to LG&E's Registration Statement 2-26063 and incorporated by reference herein]
10.09 Copies of Amendments to Agreements (iii) and (iv) referred to under 10.07 above as follows: (i) Amendment to Inter-Company Bond Agreement and (ii) Amendment to Inter-Company Bank Credit Agreement. [Filed as Exhibit 5.02h to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.10 Copy of Modification No. 1, dated August 20, 1958, to First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring
Companies. [Filed as Exhibit 5.02i to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.11 Copy of Modification No. 2, dated April 1, 1965, to the First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 5.02j to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.12 Copy of Modification No. 3, dated January 20, 1967, to First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 4(a)(7) to LG&E's Registration Statement 2-26063 and incorporated by reference herein]
10.13 Copy of Modification No. 6 dated November 15, 1967, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 4(g) to LG&E's Registration Statement 2-28524 and incorporated by reference herein]
10.14 Copy of Modification No. 3 dated November 15, 1967, to the Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibit 4.02m to LG&E's Registration Statement 2-37368 and incorporated by reference herein]
10.15 Copy of Modification No. 7 dated November 5, 1975, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02n to LG&E's Registration Statement 2-56357 and incorporated by reference herein]
10.16 Copy of Modification No. 4 dated November 5, 1975, to the Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibit 5.02o to LG&E's Registration Statement 2-56357 and incorporated by reference herein]
10.17 Copy of Modification No. 4 dated April 30, 1976, to First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 5.02p to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.18 Copy of Modification No. 8 dated June 23, 1977, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02q to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.19 Copy of Modification No. 9 dated July 1, 1978, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02r to LG&E's Registration Statement 2-63149 and incorporated by reference herein]
10.20 Copy of Modification No. 10 dated August 1, 1979, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 2 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1979, and incorporated by reference herein]
10.21 Copy of Modification No. 11 dated September 1, 1979, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 3 to LG&E's
Annual Report on Form 10-K for the year ended December 31, 1979, and incorporated by reference herein]
10.22 Copy of Modification No. 5 dated September 1, 1979, to Inter-Company Power Agreement dated July 5, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 4 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1979, and incorporated by reference herein]
10.23 Copy of Modification No. 12 dated August 1, 1981, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.25 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]
10.24 Copy of Modification No. 6 dated August 1, 1981, to Inter-Company Power Agreement dated July 5, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 10.26 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]
10.25 Copy of Diversity Power Agreement dated September 9, 1987, between East Kentucky Power Cooperative and LG&E covering the purchase and sale of power between the two companies from 1988 through 1995. [Filed as Exhibit 10.28 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1987, and incorporated by reference herein]
10.26 Copy of Supplemental Executive Retirement Plan as amended through January 3, 1990, covering all officers of LG&E. [Filed as Exhibit 10.29 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated by reference herein]
10.27 Copy of Omnibus Long-Term Incentive Plan effective January 1, 1990, covering officers and key employees of LG&E. [Filed as Exhibit 4.01 to LG&E's Registration Statement 33-38557 and incorporated by reference herein]
10.28 Copy of Key Employee Incentive Plan effective January 1, 1990, covering officers and key employees of LG&E. [Filed as Exhibit 10.33 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated by reference herein]
10.29 Copy of LG&E Energy Corp. Deferred Stock Compensation Plan effective January 1, 1992, covering non-employee directors of the Company and its subsidiaries. [Filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated by reference herein]
10.30 Copy of Credit Agreement dated as of March 11, 1992, among LG&E Energy Systems Inc. as Borrower, the Banks named therein, and Citibank, N.A. as Agent. [Filed as Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.31 Copy of Support Agreement dated as of December 9, 1991, between LG&E Energy Corp. and LG&E Energy Systems Inc. [Filed as Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.32 Copy of form of change in control agreement for officers of LG&E Energy Corp. [Filed as Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.33 Copy of Supplemental Executive Retirement Plan for R. W. Hale, effective June 1, 1989. [Filed as Exhibit 10.42 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.34 Copy of Nonqualified Savings Plan covering officers of the Company, effective January 1, 1992. [Filed as Exhibit 10.43 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.35 Copy of Modification No. 13 dated September 1, 1989, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.42 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.36 Copy of Modification No. 14 dated January 15, 1992, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.43 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.37 Copy of Modification No. 7 dated January 15, 1992, to Inter-Company Power Agreement dated July 10, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 10.44 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.38 Copy of Modification No. 15 dated February 15, 1993, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.45 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.39 Firm Transportation Agreement, dated November 1, 1993, between Texas Gas Transmission Corporation and LG&E covering the transmission of natural gas. [Filed as Exhibit 10.46 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.40 Firm No Notice Transportation Agreement effective November 1, 1993, between Texas Gas Transmission Corporation and LG&E (8-year term) covering the transmission of natural gas.
Firm No Notice Transportation Agreement effective November 1, 1993, between Texas Gas Transmission Corporation and LG&E (2-year term) covering the transmission of natural gas.
Firm No Notice Transportation Agreement effective November 1, 1993, between Texas Gas Transmission Corporation and LG&E (5-year term) covering the transmission of natural gas.
[Filed as Exhibit 10.47 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.41 Employment Contract between the Company and Roger W. Hale effective November 3, 1993. [Filed as Exhibit 10.50 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.42 Copy of LG&E Energy Corp. Stock Option Plan for Non-Employee Directors. [Filed as Exhibit 10.51 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.43 Copy of Coal Supply Agreement dated August 9, 1989, between Shawnee Coal Company, Roberts Brothers Coal Company, and the Company covering the purchase of coal. [Filed as Exhibit 10.41 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.44 Copy of Amendment No. 1 dated January 1, 1991, to Coal Supply Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts Brothers Coal Company, and the Company covering the purchase of coal. [Filed as Exhibit 10.42 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.45 Copy of Amendment No. 2 dated November 27, 1991, to Coal Supply Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts Brothers Coal Company, and the Company covering the purchase of coal. [Filed as Exhibit 10.43 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.46 Copy of Amendment No. 3 dated January 1, 1994, to Coal Supply Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts Brothers Coal Company, and the Company covering the purchase of coal. [Filed as Exhibit 10.44 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.47 Copy of Amendment No. 4 dated January 1, 1995, to Coal Supply Agreement, dated August 9, 1989, between Shawnee Coal Company, Roberts Brothers Coal Company, and the Company covering the purchase of coal. [Filed as Exhibit 10.45 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.48 Copy of Coal Supply Agreement dated January 1, 1994, between Peabody Coalsales Company and the Company covering the purchase of coal. [Filed as Exhibit 10.46 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated by reference herein]
10.49 Agreement and Plan of Merger, dated February 10, 1995, between Hadson Corporation, Carousel Acquisition Corporation and the Company. [Filed as Exhibit 2 of Schedule 13D by the Company on February 21, 1995, and incorporated by reference herein]
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
24 Power of Attorney
27 Financial Data Schedule
(b) Executive Compensation Plans and Arrangements:
Supplemental Executive Retirement Plan as amended through January 3, 1990, covering all officers of LG&E. [Filed as Exhibit 10.29 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated by reference herein]
Omnibus Long-Term Incentive Plan effective January 1, 1990, covering officers and key employees of LG&E. [Filed as Exhibit 4.01 to LG&E's Registration Statement 33-38557 and incorporated by reference herein]
Key Employee Incentive Plan effective January 1, 1990, covering officers and key employees of LG&E. [Filed as Exhibit 10.33 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated by reference herein]
LG&E Energy Corp. Deferred Stock Compensation Plan effective January 1, 1992, covering non-employee directors of the Company and its subsidiaries. [Filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated by reference herein]
Form of change in control agreement for officers of LG&E Energy Corp. [Filed as Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
Supplemental Executive Retirement Plan for R. W. Hale, effective June 1, 1989. [Filed as Exhibit 10.42 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
Nonqualified Savings Plan covering officers of the Company effective January 1, 1992. [Filed as Exhibit 10.43 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
Employment Contract between the Company and Roger W. Hale effective November 3, 1993. [Filed as Exhibit 10.50 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
LG&E Energy Corp. Stock Option Plan for Non-Employee Directors. [Filed as Exhibit 10.51 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
(c) Reports on Form 8-K:
The Company filed no Form 8-K reports during the fourth quarter of 1994.
A report on Form 8-K was filed on February 16, 1995, announcing that the Company signed definitive agreements on February 10, 1995, to purchase Hadson Corporation, the Dallas-based natural gas marketing, gathering and processing company, for $143 million. The acquisition is subject to regulatory filings and approvals and the satisfaction of certain other conditions. The transaction is expected to close in the second quarter of 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LG&E ENERGY CORP. Registrant
March 28, 1995 /s/ Charles A. Markel III - ------------- ------------------------- (Date) Charles A. Markel III Corporate Vice President, Finance and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date - --------- ----- ----
Roger W. Hale Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer);
Charles A. Markel III Corporate Vice President, Finance and Treasurer (Principal Financial and Accounting Officer);
William C. Ballard, Jr. Director;
Owsley Brown, II Director;
S. Gordon Dabney Director;
Gene P. Gardner Director;
J. David Grissom Director;
David B. Lewis Director;
Anne H. McNamara Director;
T. Ballard Morton, Jr. Director; and
Dr. Donald C. Swain Director.
By /s/ Charles A. Markel III March 28, 1995 ------------------------- Charles A. Markel III (Attorney-In-Fact)