UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission Registrant, State of Incorporation, IRS Employer
File Number Address, and Telephone Number Identification No.
1-10568 LG&E Energy Corp. 61-1174555
(A Kentucky Corporation)
220 West Main Street
P.O. Box 32030
Louisville, Ky. 40232
(502) 627-2000
2-26720 Louisville Gas and Electric Company 61-0264150
(A Kentucky Corporation)
220 West Main Street
P.O. Box 32010
Louisville, Ky. 40232
(502) 627-2000
1-3464 Kentucky Utilities Company 61-0247570
(A Kentucky and Virginia Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
LG&E Energy Corp.
129,677,030 shares, without par value, as of April 30,October 29, 1999.
Louisville Gas and Electric Company
21,294,223 shares, without par value, as of April 30,October 29, 1999,
all held by LG&E Energy Corp.
Kentucky Utilities Company
37,817,878 shares, without par value, as of April 30,October 29, 1999,
all held by LG&E Energy Corp.
This combined Form 10-Q is separately filed by LG&E Energy Corp.,
Louisville Gas and Electric Company and Kentucky Utilities Company.
Information contained herein related to any individual registrant is filed
by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants. In
particular, information contained herein related to LG&E Energy Corp. or
any of its direct or indirect subsidiaries other than Louisville Gas and
Electric Company or Kentucky Utilities Company is provided solely by LG&E
Energy Corp., not Louisville Gas and Electric Company or Kentucky Utilities
Company, and shall be deemed not included in the Form 10-Q of Louisville
Gas and Electric Company or the Form 10-Q of Kentucky Utilities Company.
TABLE OF CONTENTS
PART I
Item 1 Financial Statements
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income 1
Consolidated Balance Sheets 34
Consolidated Statements of Cash Flows 56
Consolidated Statements of Retained Earnings 78
Consolidated Statements of Comprehensive Income 89
Louisville Gas and Electric Company
Statements of Income 910
Balance Sheets 1011
Statements of Cash Flows 1213
Statements of Retained Earnings 1314
Statements of Comprehensive Income 1415
Kentucky Utilities Company
Statements of Income 1516
Balance Sheets 1617
Statements of Cash Flows 1819
Statements of Retained Earnings 1920
Notes to Financial Statements 2021
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 2732
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 3646
PART II
Item 1 Legal Proceedings 3748
Item 6 Exhibits and Reports on Form 8-K 3849
Signatures 3950
Part I. Financial Information - Item 1. Financial Statements
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income
(Unaudited - Thousands of $ Except Per Share Data)
Three Months Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
1999 1998 1999 1998
REVENUES:
Electric utility $361,673 $323,795$ 557,711 $ 447,796 $1,325,642 $1,130,062
Gas utility 75,779 92,75917,623 16,978 117,054 136,277
International and
non-utility 128,511 34,170297,391 164,402 652,951 315,589
Total revenues 565,963 450,724872,725 629,176 2,095,647 1,581,928
Provision for rate
refunds (Note 12) (7,335) - (7,335) -
Net revenues 865,390 629,176 2,088,312 1,581,928
OPERATING EXPENSES:
Operation and maintenance:
Fuel and power purchased 205,088 115,765413,713 206,044 869,795 457,984
Gas supply expenses 66,619 79,71482,248 53,137 234,232 220,671
Utility operation and
maintenance 103,705 102,983103,789 106,997 322,686 320,061
International and non-utilitynon-
utility operation
and maintenance 41,254 13,32148,905 57,003 141,303 96,907
Depreciation and
amortization 52,538 50,07254,664 51,378 162,879 155,030
Merger costs to
achieve - - - 65,318
Total operating expenses 469,204 361,855703,319 474,559 1,730,895 1,315,971
Equity in earnings
of uncon-
solidatedunconsolidated
ventures (Note 4) 21,656 5,981(Notes 5 and 6) 10,092 2,744 43,799 59,607
OPERATING INCOME 118,415 94,850172,163 157,361 401,216 325,564
Other income and (deductions) 6,453 2,7035,863 2,840 14,862 572
Interest charges and
preferred dividends 30,520 26,05732,414 26,833 95,177 79,127
Minority interest 1,571 1,3434,735 4,459 10,148 9,104
Income before income taxes 92,777 70,153140,877 128,909 310,753 237,905
Income taxes 35,210 23,47953,711 50,055 116,843 99,830
Income from continuing
operations 57,567 46,674
Loss from discontinued
operations, net of income
tax benefit of $1,985 (Note 3) - (3,506)
Income before cumulative
effect of change in
accounting principle $ 57,56787,166 $ 43,16878,854 $ 193,910 $ 138,075
- 1 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Income (cont.)
(Unaudited - Thousands of $ Except Per Share Data)
Three Months Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
1999 1998 1999 1998
Income from continuing
operations $ 87,166 $ 78,854 $ 193,910 $ 138,075
Loss from discontinued
operations, net of income tax
expense benefit of $15,008
(Notes 2 and 3) - - - (22,852)
Income (loss) on disposal of dis-
continued operations, net of
income tax (expense) benefit
of $(243), $(328) and
$124,757 (Notes 2 and 3) - 658 788 (224,342)
Income (loss) before cumulativecum-
ulative effect of change
in accounting principle $ 57,567 $ 43,16887,166 79,512 194,698 (109,119)
Cumulative effect of change
in accounting for start-up
costs, net of income tax
benefit of $5,061 - - - (7,162)
NET INCOME (LOSS) $ 57,56787,166 $ 36,006
Average common shares
outstanding 129,677 129,683
Earnings (loss) per share - basic and diluted:
Continuing operations79,512 $ .44194,698 $ .36
Discontinued operations .00 (.02)
Cumulative effect of
accounting change .00 (.06)
Total $ .44 $ .28
The accompanying notes are an integral part of these financial statements.(116,281)
- 2 -
LG&E Energy Corp. and Subsidiaries
Consolidated Balance Sheets
(ThousandsStatements of $)
ASSETS
(Unaudited)
Mar. 31, Dec. 31,Income (cont.)
(Unaudited - Thousands of $ Except Per Share Data)
Three Months Nine Months
Ended Ended
Sep. 30, Sep. 30,
1999 1998 CURRENT ASSETS:
Cash and temporary cash investments1999 1998
Average common shares
outstanding 129,677 129,683 129,677 129,683
Earnings (loss) per share -
basic:
Continuing operations $ 128,548.67 $ 108,723
Marketable securities 18,253 20,862
Accounts receivable - less reserve 270,105 285,794
Materials and supplies - primarily at average cost:
Fuel (predominantly coal) 85,072 78,855
Gas stored underground 11,895 34,144
Other 74,553 72,457
Net assets.61 $ 1.49 $ 1.06
Discontinued operations .00 .00 .00 (.17)
Income (loss) on dis-
posal of discontinued
opera-
tions (Note 3) 146,613 143,651
Prepayments and other 35,390 37,784operations .00 .00 .01 (1.73)
Cumulative effect of
accounting change .00 .00 .00 (.06)
Total current assets 770,429 782,270
UTILITY PLANT:
At original cost 5,615,225 5,581,667
Less: reserve for depreciation 2,396,575 2,352,306
Net utility plant 3,218,650 3,229,361
OTHER PROPERTY AND INVESTMENTS$ .67 $ .61 $ 1.50 $ (.90)
Earnings (loss) per share -
LESS RESERVES:
Investment in unconsolidated
ventures (Notes 2 and 4) 225,695 167,877
Non-utility property and plant, net 298,768 285,899
Other 139,260 117,321diluted:
Continuing operations $ .67 $ .61 $ 1.49 $ 1.06
Discontinued operations .00 .00 .00 (.16)
Income (loss) on dis-
posal of discontinued
operations .00 .00 .01 (1.73)
Cumulative effect of
accounting change .00 .00 .00 (.06)
Total other property and investments 663,723 571,097
DEFERRED DEBITS AND OTHER ASSETS 196,487 190,540
Total assets $4,849,289 $4,773,268$ .67 $ .61 $ 1.50 $ (.89)
The accompanying notes are an integral part of these financial statements.
- 3 -
LG&E Energy Corp. and Subsidiaries
Consolidated Balance Sheets
(cont.)
(Thousands of $)
CAPITAL AND LIABILITIESASSETS
(Unaudited)
Mar. 31,Sep. 30, Dec. 31,
1999 1998
CURRENT LIABILITIES:
Notes payableASSETS:
Cash and temporary cash investments $ 434,74693,007 $ 365,135105,726
Marketable securities 11,458 20,862
Accounts payable 183,304 237,820receivable - less reserve 377,693 293,219
Materials and supplies - primarily at average cost:
Fuel (predominantly coal) 82,614 78,855
Gas stored underground 49,143 39,249
Other 291,055 243,69993,797 72,457
Net assets of discontinued opera-
tions (Notes 2 and 3) 36,380 3,219
Prepayments and other 41,810 38,287
Total current liabilities 909,105 846,654
Long-term debt 1,510,816 1,510,775assets 785,902 651,874
UTILITY PLANT:
At original cost 5,851,448 5,581,667
Less: reserve for depreciation 2,478,866 2,352,306
Net utility plant 3,372,582 3,229,361
OTHER PROPERTY AND INVESTMENTS - LESS RESERVES:
Investment in unconsolidated
ventures (Notes 5 and 6) 231,690 167,877
Non-utility property and plant, net 493,623 447,372
Other 36,393 117,321
Total other property and investments 761,706 732,570
DEFERRED CREDITSDEBITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 522,535 520,721
Investment tax credit, in
process of amortization 91,877 93,844
Regulatory liability 107,223 109,411
Other 206,963 206,280ASSETS 267,894 214,152
Total deferred credits and other liabilities 928,598 930,256
Minority interests 106,236 107,815
Cumulative preferred stock 135,328 136,530
COMMON EQUITY:
Common stock, without par value -
129,677,030 shares outstanding 778,273 778,273
Other (3,037) (3,314)
Retained earnings 483,970 466,279
Total common equity 1,259,206 1,241,238
Total liabilities and capital $4,849,289 $4,773,268assets $5,188,084 $4,827,957
The accompanying notes are an integral part of these financial statements.
- 4 -
LG&E Energy Corp. and Subsidiaries
Consolidated Balance Sheets (cont.)
(Thousands of $)
CAPITAL AND LIABILITIES
(Unaudited)
Sep. 30, Dec. 31,
1999 1998
CURRENT LIABILITIES:
Long-term debt due within one year $ 111,590 $ -
Notes payable 393,202 365,135
Accounts payable 218,882 243,968
Other 351,523 242,479
Total current liabilities 1,075,197 851,582
Long-term debt 1,599,603 1,510,775
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 558,609 570,698
Investment tax credit, in
process of amortization 87,844 93,844
Regulatory liability 102,844 109,411
Other 201,013 206,064
Total deferred credits and other liabilities 950,310 980,017
Minority interests 109,075 107,815
Cumulative preferred stock 135,328 136,530
COMMON EQUITY:
Common stock, without par value -
129,677,030 shares outstanding 778,273 778,273
Other 245 (3,314)
Retained earnings 540,053 466,279
Total common equity 1,318,571 1,241,238
Total liabilities and capital $5,188,084 $4,827,957
The accompanying notes are an integral part of these financial statements.
- 5 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited - Thousands of $)
ThreeNine Months
Ended
Mar. 31,Sep. 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 57,567194,698 $ 36,006(116,281)
Items not requiring cash currently:
Depreciation and amortization 52,538 50,072162,879 155,030
Deferred income taxes - net 2,185 2,942(11,822) (11,471)
Loss from discontinued operations
-
net of tax (Note(Notes 2 and 3) - 3,50622,852
(Gain) loss on disposal of discon-
tinued operations (Notes 2 and 3) (788) 224,342
Cumulative effect of change
in accounting principle - net of tax - 7,162
Other (15,372) (3,885)(17,480) (9,276)
Change in net current assets 21,736 65,708(73,790) (118,416)
Other (11,172) (19,156)4,933 (45,059)
Net cash flows from operating activities 107,482 142,355258,630 108,883
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (223) (3,584)(917) (18,783)
Proceeds from sales of securities 3,075 96110,040 16,777
Construction expenditures (79,002) (36,615)(291,942) (151,158)
Investments in unconsolidated
ventures (Note 2) (74,250) (886)5) (74,498) (1,010)
Investment in subsidiary, net of cash
and temporary cash investments
acquired (Note 4) (39,693) -
Proceeds from sale of investment
in affiliate and sale of
leveraged leases (Note 4) 33,8216) 53,384 16,000
Net cash flows from investing activities (116,579) (24,124)(343,626) (138,174)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of medium-term notes -200,000 150,000
Retirement of bonds - (21)(35,268) (20,021)
Short-term borrowings 416,174 1,222,8433,927,792 4,753,762
Repayment of short-term borrowings (346,174)(1,410,824)(3,899,417)(4,743,743)
Redemption of preferred stock (1,202) -(1,823)
Payment of common dividends (39,876) (36,810)(119,628) (100,855)
Net cash flows from financing activities 28,922 (74,812)72,277 37,320
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS 19,825 43,419(12,719) 8,029
BEGINNING CASH AND TEMPORARY
CASH INVESTMENTS 108,723 111,003105,726 111,512
ENDING CASH AND TEMPORARY
CASH INVESTMENTS $ 128,54893,007 $ 154,422119,541
- 56 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Cash Flows (cont.)
(Unaudited - Thousands of $)
ThreeNine Months
Ended
Mar. 31,Sep. 30,
1999 1998
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 2,96924,871 $ 2,66038,137
Interest on borrowed money 23,533 22,54978,483 70,414
For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.
The accompanying notes are an integral part of these financial statements.
- 67 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Retained Earnings
(Unaudited - Thousands of $)
Three Months Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
1999 1998 1999 1998
Balance at beginning
of period $466,279 $722,584$ 494,059 $ 445,729 $ 466,279 $ 722,584
Net income 57,567 36,006(loss) 87,166 79,512 194,698 (116,281)
Cash dividends declared on
common stock ($.30750.3175, $.3075,
$.9325 and $.28386$.93259 per share) 39,876 36,81041,172 39,877 120,924 120,939
Balance at end of period $483,970 $721,780$ 540,053 $ 485,364 $ 540,053 $ 485,364
The accompanying notes are an integral part of these financial statements.
- 78 -
LG&E Energy Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited - Thousands of $)
Three Months Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
1999 1998 1999 1998
Net income $57,567 $36,006(loss) $ 87,166 $79,512 $194,698 $(116,281)
Unrealized holding gains (losses)
on available-for-sale securities
arising during the period 192 (14)(287) (50) (250) (42)
Reclassification adjustment for
realized gains and losses(losses) on
available-for-sale securities
included in net income 5 111(89) 90 (247) 124
Other comprehensive income
(loss), before tax 197 97(376) 40 (497) 82
Income tax expensebenefit (expense) related
to items of other comprehensive
income (64) (37)142 (29) 188 (44)
Comprehensive income $57,700 $36,066
The accompanying notes are an integral part of these financial statements.
- 8 -
Louisville Gas and Electric Company
Statements of Income
(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
1999 1998
REVENUES:
Electric $152,721 $140,585
Gas 75,779 92,759
Rate refund (Note 10) (1,881) -
Total operating revenues 226,619 233,344
OPERATING EXPENSES:
Fuel for electric generation 32,457 36,041
Power purchased 23,026 9,600
Gas supply expenses 50,492 64,076
Other operation expenses 40,192 40,368
Maintenance 14,702 10,266
Depreciation and amortization 24,144 23,294
Federal and state
income taxes 9,556 12,417
Property and other taxes 5,036 4,956
Total operating expenses 199,605 201,018
NET OPERATING INCOME 27,014 32,326
Other income and (deductions) 1,080 311
Interest charges 9,178 9,238
NET INCOME 18,916 23,399
Preferred stock dividends 1,089 1,123
NET INCOME AVAILABLE
FOR COMMON STOCK(loss) $ 17,827 $ 22,27686,932 $79,523 $194,389 $(116,243)
The accompanying notes are an integral part of these financial statements.
- 9 -
Louisville Gas and Electric Company
Balance SheetsStatements of Income
(Unaudited)
(Thousands of $)
ASSETS
(Unaudited)
Mar. 31, Dec. 31,Three Months Nine Months
Ended Ended
Sep. 30, Sep. 30,
1999 1998 UTILITY PLANT:
At original cost $2,913,378 $2,896,139
Less: reserve1999 1998
OPERATING REVENUES:
Electric $279,907 $212,907 $621,693 $528,341
Gas 17,623 16,978 117,054 136,277
Provision for depreciation 1,168,270 1,144,123
Net utility plant 1,745,108 1,752,016
OTHER PROPERTY AND INVESTMENTSrate
refunds (Note 12) (1,135) - less reserve 1,347 1,154
CURRENT ASSETS:
Cash(1,635) -
Total operating revenues 296,395 229,885 737,112 664,618
OPERATING EXPENSES:
Fuel for electric generation 45,361 41,205 117,199 118,488
Power purchased 85,156 18,057 139,040 42,883
Gas supply expenses 8,763 8,950 72,650 89,308
Other operation expenses 39,452 41,976 119,101 122,850
Maintenance 12,800 10,666 47,730 33,985
Depreciation and temporary cash investments 38,859 31,730
Marketable securities 15,093 17,851
Accounts receivable - less reserve 151,972 142,580
Materialsamortization 24,143 23,294 72,428 69,883
Federal and supplies - at average cost:
Fuel (predominantly coal) 21,596 23,993
Gas stored underground 11,215 33,485
Other 34,097 33,103
Prepayments 2,438 2,285
Total current assets 275,270 285,027
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 5,841 5,919
Regulatory assets 36,467 37,643
Other 17,988 22,878
Total deferred debitsstate
income taxes 25,683 27,403 47,317 53,485
Property and other assets 60,296 66,440taxes 4,001 4,914 12,999 14,361
Total assets $2,082,021 $2,104,637operating expenses 245,359 176,465 628,464 545,243
NET OPERATING INCOME 51,036 53,420 108,648 119,375
Merger costs to
achieve - - - 34,134
Other income 336 359 1,648 10,668
Interest charges 9,668 8,918 27,636 27,629
NET INCOME 41,704 44,861 82,660 68,280
Preferred stock dividends 1,090 1,135 3,266 3,400
NET INCOME AVAILABLE
FOR COMMON STOCK $ 40,614 $ 43,726 $ 79,394 $ 64,880
The accompanying notes are an integral part of these financial statements.
- 10 -
Louisville Gas and Electric Company
Balance Sheets
(cont.)
(Thousands of $)
CAPITALIZATION AND LIABILITIESASSETS
(Unaudited)
Mar. 31,Sep. 30, Dec. 31,
1999 1998
CAPITALIZATION:
Common stock, without par valueUTILITY PLANT:
At original cost $3,034,699 $2,896,139
Less: reserve for depreciation 1,211,971 1,144,123
Net utility plant 1,822,728 1,752,016
OTHER PROPERTY AND INVESTMENTS -
Outstanding 21,294,223 shares $ 425,170 $ 425,170
Retained earnings 243,289 247,462less reserve 1,348 1,154
CURRENT ASSETS:
Cash and temporary cash investments 16,572 31,730
Marketable securities 8,274 17,851
Accounts receivable - less reserve 191,017 142,580
Materials and supplies - at average cost:
Fuel (predominantly coal) 12,142 23,993
Gas stored underground 41,778 33,485
Other (736) (786)
Total common equity 667,723 671,846
Cumulative preferred stock 95,328 95,328
Long-term debt 626,800 626,800
Total capitalization 1,389,851 1,393,974
CURRENT LIABILITIES:
Accounts payable 114,208 133,673
Provision for rate refunds 13,401 13,261
Dividends declared 23,090 23,168
Accrued taxes 27,020 31,929
Accrued interest 7,615 8,038
Other 18,436 15,24234,586 33,103
Prepayments and other 1,748 2,285
Total current liabilities 203,770 225,311assets 306,117 285,027
DEFERRED CREDITSDEBITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 259,117 254,589
Investment tax credit, in
process of amortization 70,470 71,542
Accumulated provision for pensions
and related benefits 60,177 59,529ASSETS:
Unamortized debt expense 5,685 5,919
Regulatory liability 62,685 63,529assets 34,117 37,643
Other 35,951 36,16315,217 22,878
Total deferred creditsdebits and other liabilities 488,400 485,352assets 55,019 66,440
Total capital and liabilities $2,082,021assets $2,185,212 $2,104,637
The accompanying notes are an integral part of these financial statements.
- 11 -
Louisville Gas and Electric Company
Balance Sheets (cont.)
(Thousands of $)
CAPITALIZATION AND LIABILITIES
(Unaudited)
Sep. 30, Dec. 31,
1999 1998
CAPITALIZATION:
Common stock, without par value -
Outstanding 21,294,223 shares $ 425,170 $ 425,170
Retained earnings 259,856 247,462
Other (960) (786)
Total common equity 684,066 671,846
Cumulative preferred stock 95,328 95,328
Long-term debt 626,800 626,800
Total capitalization 1,406,194 1,393,974
CURRENT LIABILITIES:
Accounts payable 218,056 133,673
Provision for rate refunds 11,126 13,261
Dividends declared 24,090 23,168
Accrued taxes 37,370 31,929
Accrued interest 7,786 8,038
Other 15,978 15,242
Total current liabilities 314,406 225,311
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 252,021 254,589
Investment tax credit, in
process of amortization 68,325 71,542
Accumulated provision for pensions
and related benefits 45,860 59,529
Regulatory liability 60,998 63,529
Other 37,408 36,163
Total deferred credits and other liabilities 464,612 485,352
Total capital and liabilities $2,185,212 $2,104,637
The accompanying notes are an integral part of these financial statements.
- 12 -
Louisville Gas and Electric Company
Statements of Cash Flows
(Unaudited - Thousands of $)
ThreeNine Months
Ended
Mar. 31,Sep. 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,91682,660 $ 23,39968,280
Items not requiring cash currently:
Depreciation and amortization 24,143 23,29472,428 69,883
Deferred income taxes - net 3,650 2,547(4,981) 373
Investment tax credit - net (1,072) (1,078)(3,217) (3,180)
Other 1,772 1,0005,255 2,862
Changes in net current assets:
Accounts receivable (9,392) 22,202
Materialsassets and supplies 23,673 22,185
Provision for rate refunds 140 (1,706)
Accounts payable (19,465) (26,547)
Accrued taxes (4,909) 9,180
Accrued interest (423) 114
Prepayments and other 3,041 2,111liabilities 42,348 (22,279)
Other 4,704 4,710(7,663) 24,132
Net cash flows from operating activities 44,778 81,411186,830 140,071
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities (223) (3,096)(668) (17,784)
Proceeds from sales of securities 3,065 4449,955 15,623
Construction expenditures (17,323) (19,064)(141,932) (72,950)
Net cash flows from investing activities (14,481) (21,716)(132,645) (75,111)
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of first mortgage bonds - (20,000)
Payment of dividends (23,168) (21,152)(69,343) (64,417)
Net cash flows from financing activities (23,168) (21,152)(69,343) (84,417)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS 7,129 38,543(15,158) (19,457)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 31,730 50,472
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 38,85916,572 $ 89,01531,015
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:DISCLOSURES:
Cash paid during the period for:
Income taxes $ 11,28853,326 $ 4,27637,396
Interest on borrowed money 8,811 8,70525,497 26,195
For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.
The accompanying notes are an integral part of these financial statements.
- 1213 -
Louisville Gas and Electric Company
Statements of Retained Earnings
(Unaudited)
(Thousands of $)
Three Months Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
1999 1998 1999 1998
Balance at beginning
of period $242,242 $239,064 $247,462 $258,910
Net income 18,916 23,39941,704 44,861 82,660 68,280
Subtotal 266,378 282,309283,946 283,925 330,122 327,190
Cash dividends declared on stock:
5% cumulative preferred 269 269
Auction rate cumulative
preferred 453 487
$5.875 cumulative preferred 367 367Preferred 1,090 1,135 3,266 3,400
Common 23,000 22,000 19,80067,000 63,000
Subtotal 23,089 20,92324,090 23,135 70,266 66,400
Balance at end of period $243,289 $261,386$259,856 $260,790 $259,856 $260,790
The accompanying notes are an integral part of these financial statements.
- 1314 -
Louisville Gas and Electric Company
Statements of Comprehensive Income
(Unaudited - Thousands of $)
Three Months Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
1999 1998 1999 1998
Net income available
for common stock $17,827 $22,276$40,614 $43,726 $79,394 $64,880
Unrealized holding (losses) gains (losses)
on available-for-sale securities
arising during the period 84 (27)
Reclassification adjustment for realized
gains on available-for-sale securities
included in net income - 66
Other comprehensive income, before tax 84(199) 32 (293) 39
Income tax expensebenefit (expense)
related to items
of other comprehensive income (34)unrealized holding
gains and losses 80 (14) 118 (16)
Comprehensive income $17,877 $22,299
The accompanying notes are an integral part of these financial statements.
- 14 -
Kentucky Utilities Company
Statements of Income
(Unaudited)
(Thousands of $)
Three Months
Ended
Mar. 31,
1999 1998
OPERATING REVENUES $217,349 $183,219
OPERATING EXPENSES:
Fuel for electric generation 58,155 48,347
Power purchased 39,317 17,989
Other operation expenses 27,142 29,973
Maintenance 12,520 13,333
Depreciation and amortization 21,991 21,486
Federal and state
income taxes 17,144 14,968
Property and other taxes 4,113 4,088
Total operating expenses 180,382 150,184
NET OPERATING INCOME 36,967 33,035
Other income and (deductions) 2,168 1,714
Interest charges 9,507 9,700
NET INCOME 29,628 25,049
Preferred stock dividends 564 564
NET INCOME AVAILABLE
FOR COMMON STOCK $ 29,064 $ 24,485$40,495 $43,744 $79,219 $64,903
The accompanying notes are an integral part of these financial statements.
- 15 -
Kentucky Utilities Company
Balance SheetsStatements of Income
(Unaudited)
(Thousands of $)
ASSETS
(Unaudited)
Mar. 31, Dec. 31,Three Months Nine Months
Ended Ended
Sep. 30, Sep. 30,
1999 1998 UTILITY PLANT:
At original cost $2,701,846 $2,685,528
Less: reserve1999 1998
OPERATING REVENUES:
Electric $287,703 $246,117 $730,846 $622,415
Provision for depreciation 1,228,305 1,208,183rate refunds
(Note 12) (6,200) - (6,200) -
Net utility plant 1,473,541 1,477,345
OTHER PROPERTY AND INVESTMENTS -
less reserve 14,408 14,238
CURRENT ASSETS:
Cashoperating revenues 281,503 246,117 724,646 622,415
OPERATING EXPENSES:
Fuel for electric generation 60,770 65,586 168,338 168,623
Power purchased 104,213 40,134 195,136 82,725
Other operation expenses 30,403 31,100 89,359 92,531
Maintenance 13,649 15,630 42,113 45,578
Depreciation and temporary cash investments 56,838 59,071
Accounts receivable - less reserve 104,163 106,003
Materialsamortization 22,546 21,749 66,694 64,852
Federal and supplies - at average cost:
Fuel (predominantly coal) 21,993 23,927
Other 26,050 24,877
Prepayments 3,783 2,427
Total current assets 212,827 216,305
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 5,127 5,227
Regulatory assets 26,972 28,228
Other 25,356 19,859
Total deferred debitsstate
income taxes 13,910 23,325 47,130 50,024
Property and other assets 57,455 53,314taxes 3,483 3,916 11,384 12,225
Total assets $1,758,231 $1,761,202operating expenses 248,974 201,440 620,154 516,558
NET OPERATING INCOME 32,529 44,677 104,492 105,857
Merger costs to
achieve - - - 21,830
Other income 1,604 1,899 5,767 5,806
Interest charges 9,707 9,596 28,448 28,923
NET INCOME 24,426 36,980 81,811 60,910
Preferred stock dividends 564 564 1,692 1,692
NET INCOME AVAILABLE
FOR COMMON STOCK $ 23,862 $ 36,416 $ 80,119 $ 59,218
The accompanying notes are an integral part of these financial statements.
- 16 -
Kentucky Utilities Company
Balance Sheets
(Thousands of $)
ASSETS
(Unaudited)
Sep. 30, Dec. 31,
1999 1998
UTILITY PLANT:
At original cost $2,816,749 $2,685,528
Less: reserve for depreciation 1,266,895 1,208,183
Net utility plant 1,549,854 1,477,345
OTHER PROPERTY AND INVESTMENTS -
less reserve 14,165 14,238
CURRENT ASSETS:
Cash and temporary cash investments 37,129 59,071
Accounts receivable - less reserve 135,287 106,003
Materials and supplies - at average cost:
Fuel (predominantly coal) 29,246 23,927
Other 25,461 24,877
Prepayments 2,595 2,427
Total current assets 229,718 216,305
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense 4,927 5,227
Regulatory assets 24,393 28,228
Other 22,871 19,859
Total deferred debits and other assets 52,191 53,314
Total assets $1,845,928 $1,761,202
The accompanying notes are an integral part of these financial statements.
- 17 -
Kentucky Utilities Company
Balance Sheets (cont.)
(Thousands of $)
CAPITALIZATION AND LIABILITIES
(Unaudited)
Mar. 31,Sep. 30, Dec. 31,
1999 1998
CAPITALIZATION:
Common stock, without par value -
Outstanding 37,817,878 shares $ 308,140 $ 308,140
Retained earnings 310,231324,286 299,168
Other (595) (595)
Total common equity 617,776631,831 606,713
Cumulative preferred stock 40,000 40,000
Long-term debt 546,330484,830 546,330
Total capitalization 1,204,1061,156,661 1,193,043
CURRENT LIABILITIES:
Long-term debt due within one year 61,500 -
Accounts payable 56,497148,093 100,012
Provision for rate refunds 21,50027,700 21,500
Dividends declared 18,18819,282 18,188
Accrued taxes 39,52325,107 16,733
Accrued interest 10,5599,714 8,110
Other 35,31933,945 31,226
Total current liabilities 181,586325,341 195,769
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
taxes 243,443239,351 244,493
Investment tax credit, in
process of amortization 21,40719,519 22,302
Accumulated provision for pensions
and related benefits 52,73655,165 50,044
Regulatory liability 44,53741,846 45,882
Other 10,4168,045 9,669
Total deferred credits and other liabilities 372,539363,926 372,390
Total capital and liabilities $1,758,231$1,845,928 $1,761,202
The accompanying notes are an integral part of these financial statements.
- 1718 -
Kentucky Utilities Company
Statements of Cash Flows
(Unaudited - Thousands of $)
ThreeNine Months
Ended
Mar. 31,Sep. 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,62881,811 $ 25,04960,910
Items not requiring cash currently:
Depreciation and amortization 21,991 21,48666,694 64,852
Deferred income taxes - net (2,396) 847(9,178) (331)
Investment tax credit - net (895) (968)(2,783) (2,875)
Changes in net current assets:
Accounts receivable 1,840 4,600
Materialsassets and supplies 1,934 4,907
Provision for rate refunds (1,173) (456)
Accounts payable (43,515) (5,269)
Accrued taxes 22,790 18,475
Accrued interest 2,449 (87)
Prepayments and other (1,356) 1,803liabilities 31,623 49,426
Other 3,215 2,16911,116 3,149
Net cash flows from operating activities 34,512 72,556179,283 175,131
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from insurance reimbursement 59 8
Construction expenditures (18,240) (15,299)(145,628) (53,498)
Net cash flows from investing activities (18,181) (15,291)(145,628) (53,498)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings - 381,500
Repayments of short-term borrowings - (415,100)
Retirement of debt - (21)
Payment of dividends (18,564) (17,582)(55,597) (41,783)
Net cash flows from financing activities (18,564) (51,203)(55,597) (75,383)
CHANGE IN CASH AND TEMPORARY
CASH INVESTMENTS (2,233) 6,062(21,942) 46,250
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD 59,071 5,453
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD $ 56,83837,129 $ 11,51551,703
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:DISCLOSURES:
Cash paid during the period for:
Income taxes $ -53,778 $ 13843,556
Interest on borrowed money 6,079 6,47624,078 24,244
For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.
The accompanying notes are an integral part of these financial statements.
- 1819 -
Kentucky Utilities Company
Statements of Retained Earnings
(Unaudited)
(Thousands of $)
Three Months Nine Months
Ended Mar. 31,Ended
Sep. 30, Sep. 30,
1999 1998 1999 1998
Balance at beginning
of period $319,424 $287,461 $299,167 $304,750
Net income 29,628 25,04924,426 36,980 81,811 60,910
Subtotal 328,795 329,799343,850 324,441 380,978 365,660
Cash dividends declared on stock:
4.75% preferred 237 237
6.53% preferred 327 327Preferred 564 564 1,692 1,692
Common 19,000 18,000 17,01855,000 58,091
Subtotal 19,564 18,564 17,58256,692 59,783
Balance at end of period $310,231 $312,217$324,286 $305,877 $324,286 $305,877
The accompanying notes are an integral part of these financial statements.
- 1920 -
LG&E Energy Corp. and Subsidiaries
Louisville Gas and Electric Company
Kentucky Utilities Company
Notes to Financial Statements
(Unaudited)
1. Effective May 4, 1998, following the receipt of all required state and
federal regulatory approvals, LG&E Energy Corp. (LG&E Energy or the
Company) and KU Energy Corporation (KU Energy) merged, with LG&E Energy
as the surviving corporation (the Merger). The accompanying unaudited
consolidated financial statements reflect the accounting for the merger
as a pooling of interests and are presented as if the companies were
combined as of the earliest period presented. However, the financial
information is not necessarily indicative of the results of operations,
financial position or cash flows that would have occurred had the
merger been consummated for the periods for which it is given effect,
nor is it necessarily indicative of future results of operations,
financial position, or cash flows. The financial statements reflect
the conversion of each outstanding share of KU Energy common stock into
1.67 shares of LG&E Energy common stock. The outstanding preferred
stock of Louisville Gas and Electric Company (LG&E), a subsidiary of
LG&E Energy, and Kentucky Utilities Company (KU), a subsidiary of KU
Energy, were not affected by the Merger.
KU Capital Corporation, a subsidiary of KU Energy, was merged into LG&E
Capital Corp. (Capital Corp.) on July 24, 1998, with the latter as the
surviving corporation. The consolidated financial statements include
the accounts of LG&E Energy, LG&E, Capital Corp., and KU and their
respective wholly-owned subsidiaries, collectively referred to herein
as the "Company." All significant intercompany items and transactions
have been eliminated from the unaudited consolidated financial
statements.
In the opinion of management, all adjustments, including those of a
normal recurring nature, have been made to present fairly the
consolidated financial position, results of operations and cash flows
for the periods indicated. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to SEC rules and regulations, although
the Company believes that the disclosures included herein are adequate
to make the information presented not misleading.
See the Company's, LG&E's and KU's Reports on Form 10-K for 1998 for
information relevant to the accompanying financial statements,
including information as to the significant accounting policies of the
Company.
2. On March 30, 1999, the Company acquired an indirect 19.6% ownership
interest in Gas Natural BAN, S.A. (BAN), a natural gas distribution
company that serves 1.1 million customers in the northern portion of
the province of Buenos Aires, Argentina. The purchase price totaled
$74.3 million, including transaction costs, which has been reflected in
investments in unconsolidated ventures in the accompanying balance
sheet. The Company accounted for the acquisition using the purchase
method, and will record its share of earnings using the equity method.
The purchase price exceeded the underlying equity in BAN by $13.0
million. The Company allocated this difference to the assets and
liabilities acquired based on their estimated fair values.
3. Effective June 30, 1998, the Company discontinued its merchant energy
trading and sales business. This business consisted primarily of a
portfolio of energy marketing contracts entered into in 1996 and early
1997, nationwide deal origination and some level of speculative trading
activities, which were not directly supported by the Company's physical
assets. The Company's decision to discontinue these operations was
primarily based on the impact that volatility and rising prices in the
power mar
- 20 -
ketmarket had on its portfolio of energy marketing contracts.
Exiting the merchant energy trading and sales business enables the
Company to focus on optimizing the value of physical assets it owns or
controls, and to reduce the earnings impact on continuing operations of
extreme market volatility in its portfolio of energy marketing
contracts. The Company is in the process of settling commitments that
obligate it to buy and sell natural gas and electric power. It also plans to sell its natural
gas gathering and processing business. If the
Company is unable to dispose of these commitments or assets it will
continue to meet its obligations under the contracts. The Company,
however, has maintained sufficient market knowledge, risk management
skills, technical systems and experienced personnel to maximize the
value of
- 21 -
power sales from physical assets it owns or controls, including LG&E,
KU and thoseWestern Kentucky Energy Corp. (WKE).
At the time the Company decided to discontinue its merchant energy
trading and sales business, it also decided to sell its natural gas
gathering and processing business. Subsequently, effective June 30,
1999, the Company decided to retain this business. The accompanying
financial statements reflect the reclassification of the Big Rivers Electric Corporation (Big Rivers).natural gas
gathering and processing business as continuing operations for all
periods presented. See Note 3 below.
As a result of the Company's decision to discontinue its merchant
energy trading and sales activity, and the initial decision to sell the
associated gas gathering and processing business, the Company recorded
an after-tax loss on disposal of discontinued operations of $225
million in the second quarter of 1998. The loss on disposal of
discontinued operations resultsresulted primarily from several fixed-price
energy marketing contracts entered into in 1996 and early 1997,
including the Company's long-term contract with Oglethorpe Power
Corporation (OPC). Other components of the write-off include costs
relating to certain peaking options, goodwill associated with the
Company's 1995 purchase of merchant energy trading and sales operations
and exit costs, including labor and related benefits, severance and
retention payments, and other general and administrative expenses.
Although the Company used what it believesbelieved to be appropriate estimates
for future energy prices, among other factors, to calculate the net
realizable value of discontinued operations, it also recognizes that
there are inherent
limitations in models to accurately predict future events. As a result, there is no guarantee that higher-than-
anticipated future commodity prices,
or load demands lower-than-
estimated asset sales prices orand other factors could not result in
additional losses.events.
Operating results for discontinued operations follow. All amounts
exclude the Company's natural gas gathering and processing business.
The Company charged its loss from discontinued operations for the three-
and nine-month periods ended September 30, 1999, to accrued loss on
disposal of discontinued operations.
Three Months Nine Months
Ended Ended
Sep. 30, Sep. 30,
1999 1998 1999 1998
Revenues $ 386,038 $1,870,301 $ 675,820 $3,466,093
Loss before taxes (148,464) (76,367) (175,187) (114,227)
Loss from discontinued
operations, net of
income taxes (88,514) (38,911) (104,505) (61,763)
- 22 -
Net assets of discontinued operations at September 30, 1999, follow.
All amounts exclude the Company's natural gas gathering and processing
business.
Accounts receivable $ 69,290
Price risk management assets 33,384
Accounts payable (83,390)
Price risk management
liabilities (10,499)
Other assets and liab-
ilities, net 26,306
Net assets before balance
of reserve for discontinued
operations 35,091
Reserve for discontinued
operations (4,950)
Income tax benefit 6,239
Net assets of discon-
tinued operations $ 36,380
Total charges against the accrued loss on disposal of discontinued
operations through September 30, 1999, include $250.8 million for
commitments prior to disposal, $69.6 million for transaction
settlements, $11.1 million for goodwill, and $25.9 million for other
exit costs. While the Company has been successful in settling portions
of its discontinued operations, but significant assets, operations and
obligations remain. The Company continues to manage the remaining
portfolio, has successfully hedged certain of its future exposures, and
has initiated arbitration proceedings with OPC over the terms of its
contract.
As discussed in Part II, Item 1, Legal Proceedings below, LG&E Energy
Marketing Inc. initiated arbitration proceedings against OPC related to
LEM's long-term contract to supply approximately one-half of OPC's
systemwide power needs. While the Company expects a favorable outcome
in the OPC arbitration proceeding, no assurances can be given as to
such an event. Should OPC prevail, the Company may be required to
increase its after-tax accrued loss on disposal of discontinued
operations by approximately $150 million as a result of higher than
anticipated future commodity prices, increased load demands, and other
factors. Any such increase in the loss reserve will be recorded in
discontinued operations. This amount is subject to continuing analysis
and estimation. Management does not expect this to have a material
effect on income from continuing operations. See Part II, Item 1,
Legal Proceedings below.
If the Company is unable to dispose of its remaining commitments, it
will continue to meet its obligations through the terms of the
contracts. The net fair value of these commitments as of September 30,
1999, are currently estimated to be approximately $7 million favorable
for the remainder of 1999, offset by negative $5 million to $27 million
each year in 2000 through 2004 and $9 million in the aggregate
thereafter.
As of March 31,September 30, 1999, the Company's discontinued operations were
under various contracts to buy and sell power and gas with net notional
amounts of 23.8 million MWh's of power and 38.5 million MMBTU's of
natural gas with a volumetric weighted-average period of approximately
39 and 50 months, respectively. These notional amounts are based on
estimated loads since various commitments do not include specified firm
volumes. The Company is also under contract to buy or sell immaterial
amounts of coal and SO2 allowances in support of its power contracts.
Notional amounts reflect the nominal volume of transactions included in
the Company's price
- 23 -
risk management commitments, but do not reflect actual amounts of cash,
financial instruments, or quantities of the underlying commodity which
may ultimately be exchanged between the parties.
As of October 19, 1999, the Company estimates that a $1 change in
electricity prices and a 10 centscent change in natural gas prices across
all geographic areas and time periods could change the value of the
Company's remaining energy portfolio by approximately $7.5 million. In
addition to price risk, the value of the Company's remaining energy
portfolio is subject to operational and event risks including, among
others, increases in load demand, regulatory changes, and forced
outages at units providing supply for the Company. As of March 31,October 19,
1999, the Company estimates that a 1% change in the forecasted load
demand could change the value of the Company's remaining energy
portfolio by $8.3$9.6 million.
- 21 -
Operating results for discontinued operations follow. The Company
charged its loss from discontinued operations for the three months
ended March 31, 1999, to accrued loss on disposal of discontinued
operations.
Three Months
Ended
Mar. 31,
1999 1998
Revenues $166,739 $940,699
Income (loss) before taxes (6,054) (5,491)
Income (loss) from dis-
continued operations,
net of income taxes (3,709) (3,506)
Net assets of discontinued operations at March 31, 1999, follow.
Cash and temporary cash
investments $ 4,317
Accounts receivable 56,637
Price risk management assets 86,611
Non-utility property and
plant, net 161,839
Accounts payable (58,032)
Price risk management
liabilities (27,733)
Goodwill and other assets
and liabilities, net 38,567
Net assets before accrued
loss on disposal of dis-
continued operations 262,206
Accrued loss on disposal
of discontinued operations,
net of income tax benefit
of $66,009 (115,593)
Net assets of discon-
tinued operations $146,613
Total charges against the accrued loss on disposal of discontinued
operations through March 31, 1999, include $85.3 million for
commitments prior to disposal, $51.2 million for transaction
settlements, $11.1 million for goodwill, and $20.8 million for other
exit costs. The reserve as of March 31, 1999, represents management's
best estimate of the loss from remaining discontinued operations until
disposal and the costs of disposing of these operations.
As of March 31, 1999, the Company's discontinued operations were under
various contracts to buy and sell power and gas with net notional
amounts of 28.1 million MWh's of power and 22.0 million MMBTU's of
natural gas with a volumetric weighted-average period of approximately
42 and 60 months, respectively. These notional amounts are based on
estimated loads since various commitments do not include specified firm
volumes. The Company is also under contract to buy or sell immaterial
amounts of coal and SO2 allowances in support of its power contracts.
Notional amounts reflect the nominal volume of transactions included in
the Company's price risk management commitments, but do not reflect
actual amounts of cash, financial instruments, or quan
- 22 -
tities of the underlying commodity which may ultimately be exchanged
between the parties.
The fair values of discontinued operations' price risk management
assets and liabilities as of March 31, 1999, and the averages for the
three months then ended follow (in thousands of $):
Average
Fair Value Fair Value
Liabil- Liabil-
Commodity Assets ities Assets ities
Electricity $ 86,611 $ 27,256 $ 92,367 $ 28,367
Natural gas - - 3,389 -
Totals 86,611 27,256 $ 95,756 $ 28,367
Reserves - 477
Net values $ 86,611 $ 27,733
The table above does not include the fair value of various transactions
not previously recorded using mark to market accounting since these
transactions commit the Company to the sale or purchase of electricity
or natural gas without specified firm volumes.
The fair values above are based on quotes from exchanges and over-the-
counter markets, price volatility factors, the use of established
pricing models and the time value of money. They also reflect
management estimates of counterparty credit risk, location
differentials and the potential impact of liquidating the Company's
position in an orderly manner over a reasonable period of time under
present market conditions. The change in values from December 31,
1998, to March 31, 1999, resulted from volatility and risk management
actions taken in connection with discontinuing the merchant energy
trading and sales business.
If the Company is unable to dispose of its remaining commitments, it
will continue to meet its obligations through the terms of the
contracts. The net fair value of these commitments as of March 31,
1999, are currently estimated to be approximately $63.3 million in
1999, $28.8 million to $37.4 million each year in 2000 through 2004,
and $4.7 million for later years.
The Company's discontinued operations maintain policies intended to
minimize credit risk and revalue credit exposures daily to monitor
compliance with those policies. As of March 31,September 30, 1999, over 78%95% of
the Company's price risk management commitments were with
counterparties rated BBB equivalent or better. As of March 31,September 30,
1999, seven counterparties represented 91%80% of the Company's price risk
management commitments.
3. Effective June 30, 1999, the Company reclassified its natural gas
gathering and processing business to continuing operations from
discontinued operations. The Company chose to retain rather than
dispose of this business at the end of the one-year period established
by accounting standards because of management's expectation of more
favorable future energy prices and the related impact on this business.
The Company has reflected the operating results and net assets of the
natural gas gathering and processing business as continuing operations
in the accompanying financial statements for all periods presented.
Operating results for the natural gas gathering and processing business
follow.
Year Ended December 31,
1998 1997 1996
Revenues $109,833 $107,691 $85,259
(Loss) income before taxes (2,593) 2,829 4,888
Net (loss) income (1,599) 1,323 2,873
Three Months Nine Months
Ended Ended
Sep. 30, Sep. 30,
1999 1998 1999 1998
Revenues $40,229 $25,321 $115,666 $86,212
(Loss) income before taxes (321) (901) (1,171) (1,547)
Net (loss) income (312) (658) (1,060) (1,405)
- 24 -
Net assets of the natural gas gathering and processing business follow.
Sep. 30, Dec. 31, Dec. 31,
1999 1998 1997
Cash and temporary cash
investments $ 6,440 $ - $ 509
Accounts receivable 20,303 7,425 13,948
Non-utility property and
plant, net 157,539 161,473 171,114
Accounts payable (20,819) (6,148) (13,449)
Goodwill and other assets
and liabilities, net (6,553) (22,318) (20,043)
Net assets $156,910 $140,432 $152,079
The Company recorded an after-tax loss on disposal of discontinued
operations of $225 million in the second quarter of 1998. No loss on
disposal of the net assets of the natural gas gathering and processing
business was included because the Company assumed it would sell these
assets for an amount equal to or greater than book value. It also
included an after-tax reserve of approximately $1.6 million for
estimated losses from operations of the natural gas gathering and
processing business through the date of disposal. Since this amount
equaled the estimated losses from operations included in the original
accrued loss on disposal of discontinued operations, no reversal of the
accrued loss was included in income for the three- and nine-month
periods ended September 30, 1999. The Company has recorded no
impairment losses related to the net assets of its natural gas
gathering and processing business.
4. In July 1999, the Company purchased 100% of the outstanding common
stock of CRC-Evans Pipeline International, Inc. and affiliates (CRC)
for initial consideration of $45.6 million and retirement of
approximately $37.9 million in CRC debt. CRC, based in Houston, Texas,
is a provider of specialized equipment and services used in the
construction and rehabilitation of gas and oil transmission pipelines.
The purchase agreement provides for future annual earn-out payments to
the previous owners based on CRC's meeting certain financial targets
over the next three years. The agreement caps the total of these
payments at $31.0 million.
The purchase consideration, including the potential earn-out payments,
was paid 55% in cash and 45% in LG&E Energy common stock. LG&E Energy
will repurchase common stock from time to time in the open market or
through privately negotiated transactions in amounts equal to the stock
portions of the initial and subsequent earn-out payments. During the
third quarter 1999, the Company purchased approximately 935,000 shares
in this regard and completed the initial purchase installment.
The Company accounted for the acquisition using the purchase method.
Management recorded goodwill of approximately $51.1 million from the
initial transaction and may record additional goodwill contingent upon
future earn-out payments. Goodwill is being amortized over a period of
twenty years.
- 25 -
The fair values of the net assets acquired follow:
Assets $132,501
Liabilities 87,956
Cash paid, excluding transaction costs 44,545
Cash and cash equivalents acquired 5,943
Net cash paid, excluding transaction costs 38,602
Transaction costs 1,091
Net cash paid $ 39,693
5. On March 15,30, 1999, the Company acquired an indirect 19.6% ownership
interest in Gas Natural BAN, S.A. (BAN), a natural gas distribution
company that serves 1.1 million customers in the northern portion of
the province of Buenos Aires, Argentina. The purchase price totaled
$73.5 million, which has been reflected in investments in
unconsolidated ventures in the accompanying balance sheet. The Company
accounted for the acquisition using the purchase method, and it records
its share of earnings using the equity method. The purchase price
exceeded the underlying equity in BAN by $13.0 million. The Company
allocated this difference to the assets and liabilities acquired based
on their estimated fair values.
6. In March 1999, LG&E-Westmoreland Rensselaer, a California general
partnership in which the Company owns a 50% interest, sold
substantially all the assets and major contracts of its 79 MW gas-fired
cogeneration facility in Rensselaer, New York, with net proceeds to the
Company of approximately $34 million. The sale resulted in an after-
tax gain to the Company of approximately $8.9 million.
5.7. The Company adopted Emerging Issues Task Force Issue No. 98-10,
Accounting for Energy Trading and Risk Management Activities (EITF No.
98-10) in the first quarter of 1999. The task force concluded that
energy trading contracts should be recorded using mark to marketmark-to-market
valuation on the balance sheet, with the gains and losses shown net in
the income statement. EITF No. 98-10 more broadly defines energy
trading to include cer
- 23 -
taincertain financial activities related to physical
assets which were not previously marked to market by established
industry practice. The
effectsInitial adoption of adopting EITF No. 98-10 did not have a
material impact on the Company's consolidated results of operations or
financial position. 6. OnFor the three- and nine- month periods ended
September 30, 1999, the Company recorded approximately $6.2 million of
expense and $.8 million of income, respectively, in consolidated pre-
tax income as a result of valuing the Company's electric energy trading
contracts using the mark-to-market method.
8. In April 5, 1999, LG&E and KU filed a joint agreement among the companies
and the Kentucky Attorney General to amend the companies' previously-filedpreviously-
filed performance-based ratemaking (PBR) plan. The amendment requested
Kentucky Public Service Commission (the Commission) approval of a five-yearfive-
year rate reduction plan, which would reduce electric rates by $20
million in the first year (beginning July 1,
1999), and by $8 million
annually for each of the next four years (through June 30, 2004), for a
total five-year savings to customers of $52 million. The reductions
will be distributed between LG&E and KU customers based on the same
methodology the Commission approved in its previous merger order for
allocating the merger savings to the utilities' customers (53 percent
to KU customers; 47 percent to LG&E customers). The joint agreement
includes adoption of the PBR plan as proposed by the companies.
The amended filing also includes the establishment of a $6 million
program over the five-year period to assist low-income customers in
paying their energy bills.
In addition to the rate reductions and energy assistance program, the
amended filing calls for LG&E and KU to extend for an additional year
(through June 30, 2004) both the rate cap and the merger-savings surcredit
the utilities established as part of their
- 26 -
earlier merger plan. Under the rate cap, the companies agreed, in the
absence of extraordinary circumstances, not to adjustincrease base electric
rates for five years following the merger. They also agreed to a
monthly surcredit to customers' bills reflecting the 50 percent share
of the non-fuel merger savings allocated to the utilities' customers in
the first five years following the merger.
As part of the amended PBR filing, LG&E also agreed to refrain from
filing for an increase in natural gas rates over the five-year period
(through June 30, 2004).
OnIn April 13, 1999, the Commission issued initial orders implementing the
amended PBR plan, effective July 2, 1999, and subject to modification.
The Commission has adopted a procedural schedule, which
provides for discovery, hearings and public comment. The Commission
has also consolidated into the continuing PBR proceedings an
earlier March 8, 1999, rate complaint by a group of industrial
intervenors, the Kentucky Industrial Utility Consumers, Inc. (KIUC) in
which the intervenors haveKIUC requested significant reductions in electric rates.
Hearings were conducted before the electric ratesCommission on LG&E's and KU's
amended PBR plans and the KIUC rate reduction petitions in August and
September 1999. Legal briefs of the parties were filed with the
Commission in October 1999. KIUC's current position calls for annual
revenue reductions for LG&E and KU. TheKU of $69.6 million and $61.5 million,
respectively. A decision from the Commission is expected by the end of
the fourth quarter of 1999 or in early 2000.
9. In September 1999, Capital Corp. issued $50 million of floating rate
notes under its medium-term note program. The notes mature in
September 2000 and pay interest at a rate equal to issue a
final ruling during 1999.
7. Onthe one-month LIBOR
plus 0.10%.
In May 7, 1999, Capital Corp. issued $150.0 million of medium-term notes
due May 2004, with a stated interest rate on the notes of 6.205%.
After taking into account the forward-starting interest-rate swap
entered into onin April 9, 1999, to hedge the entire issuance, the effective
rate will beamounted to 6.13%. The proceeds were used to repay a portion of
Capital Corp.'s outstanding commercial paper, which had been used to
fund the BAN acquisition and other working capital needs.
In May 1999, KU entered into an interest-rate swap agreement to hedge a
portion of its outstanding first mortgage bonds. The swap has a
notional amount of $53 million and expires in May 2004. KU pays a
variable rate based on the six-month London Interbank Offered Rate
(LIBOR) plus 1.88% and receives a fixed rate of 7.92%. The agreement
provides for a collar on the variable rate paid by KU with a floor of
4.65% and a cap of 6.78%. The agreement suspends the collar during
periods when the London Interbank Offered Rate moves outside a
specified range. As of September 30, 1999, the rate payable by KU
equaled 5.18%.
- 2427 -
8.10.External and intersegment revenues and income from continuing
operations by business segment for the three months ended September 30,
1999, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $273,836 $ 4,936 $ 39,771
LG&E gas 17,623 - 843
KU electric 276,540 4,963 23,862
Independent Power
Operations 5,366 - 5,573
Western Kentucky
Energy 144,434 - 12,377
Argentine Gas
Distribution 48,479 - 6,632
Other Capital Corp. 99,112 - 1,754
All Other - (9,899) (3,646)
Consolidated $865,390 $ - $ 87,166
External and intersegment revenues and income from continuing
operations by business segment for the nine months ended September 30,
1999, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $ 607,681 $ 12,377 $ 78,124
LG&E gas 117,054 - 1,270
KU electric 710,626 14,020 80,119
Independent Power
Operations 18,467 - 26,850
Western Kentucky
Energy 273,462 - 10,889
Argentine Gas
Distribution 123,422 - 11,785
Other Capital Corp. 237,600 - (3,842)
All Other - (26,397) (11,285)
Consolidated $2,088,312 $ - $193,910
- 28 -
External and intersegment revenues and income from continuing
operations by business segment for the three months ended March 31,
1999,September 30,
1998, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $148,326$209,431 $ 2,5143,475 $ 17,61341,935
LG&E gas 75,77916,978 - 2141,790
KU electric 213,347 4,002 29,064238,365 7,752 36,416
Independent Power
Operations 6,9045,108 - 14,1801,812
Western Kentucky
Energy 59,97866,246 - (1,024)5,451
Argentine Gas
Distribution 29,79747,399 - 3573,406
Other Capital Corp. 31,83245,649 - 1,676(2,645)
All Other - (6,516) (4,513)(11,227) (9,311)
Consolidated $565,963$629,176 $ - $ 57,56778,854
External and intersegment revenues and income from continuing
operations by business segment for the threenine months ended March 31,September 30,
1998, follow:
Income
(Loss)
Inter- from
External segment Cont.
Revenues Revenues Oper.
LG&E electric $140,585 $ -520,539 $ 21,4217,801 $ 62,434
LG&E gas 92,759136,277 - 8552,446
KU electric 183,210 24 24,485609,523 12,892 59,218
Independent Power
Operations 5,22715,001 - 3,98430,962
Western Kentucky
Energy 66,246 - 5,451
Argentine Gas
Distribution 27,411118,051 - 1966,115
Other Capital Corp. 1,532116,291 - (715)(5,257)
All Other - (24) (3,552)(20,693) (23,294)
Consolidated $450,724$1,581,928 $ - $ 46,674$138,075
The assets of the Company's Argentine Gas Distribution segment
increased from $346.3 million at December 31, 1998, to $418.4$441.9 million
at March 31,September 30, 1999, due mainly to acquiring a 19.6% ownership
interest in BAN. SeeBAN (see Note 25 of Notes to Financial Statements.
9. On March 15, 1999,Statements) and to
construction expenditures at Distribuidora de Gas del Centro. The
assets of the Other Capital Corp. segment increased from $121.0 million
at December 31, 1998, to $439.8 million at June 30, 1999. This
increase resulted from reclassifying the assets of the natural gas
gathering and processing business from discontinued to continuing
operations (see Note 3 of Notes to Financial Statements) and acquiring
CRC-Evans in July 1999 (see Note 4 of Notes to Financial Statements).
A decrease resulting from transferring costs related to gas turbine
peaking units to LG&E and KU
- 29 -
partially offset these increases (see Management's Discussion and
Analysis of Results of Operations and Financial Condition in Item 2).
11.In August 1999, a Capital Corp. subsidiary entered into a letter of intent toan operating
lease or acquirefor three combustion turbines. The lease has a five year term,
but no rent is payable until the turbines have been completed and
is currently negotiating
the terms of a definitive agreement. The aggregate price, including
construction ofinstalled. Certain related facilities are expected to be added to the
same lease in the fourth quarter of 1999. The turbines are expected to
be used in a 450 Mw gas fired merchant combustion turbine power
generation facility, located in Monroe, Georgia, which is estimatedexpected to
be completed in June 2001. At the end of the lease term, the Company
may purchase the leased assets or assist the lessor in selling them.
If the assets are sold, the Company is obligated to make up any
deficiency between the lease balance and the proceeds subject to a cap.
The total value of the assets under the existing lease is expected to
be approximately $125 million and is expected to increase to
approximately $175 million. Capital Corp. is considering various financing
alternatives.
10.LGmillion in the fourth quarter of 1999.
12.Prior to implementation of the PBR, LG&E and KU employemployed a fuel
adjustment clause (FAC) mechanism, which under Kentucky law allowsallowed the
companies to recover from customers, the actual fuel costs associated
with retail electric sales. In February 1999, LG&E received orders
from the Kentucky Commission requiring a refund to retail electric
customers of approximately $3.9 million - 25 -
resulting from reviews of the
FAC from November 1994 through April 1998.1998, of which $1.9 million was
refunded in April 1999 for the period beginning November 1994 and
ending October 1996. The orders changed the Company's method of
computing fuel costs associated with electric line losses on off-system
sales appropriate for recovery through the FAC. The Kentucky Commission has not issued LG&E an orderrequested that
the Commission grant rehearing on the February orders, and further
requested that the Commission stay the refund requirement until it
could rule on the rehearing request. The Commission granted the
request for a stay, and in March 1999 granted part of the request for
rehearing. The Commission also granted rehearing on the KIUC's request
for rehearing on the Commission's determination that it lacked
authority to require the Companies to pay interest on the refund
amounts. The Commission conducted a hearing on the rehearing issues in
June 1999 and is expected to issue a final ruling on rehearing by the
end of 1999. LG&E and KIUC have each filed separate appeals from the
Commission's February 1999 orders with the Franklin Circuit Court. A
decision on the appeals by the Court is not expected until next year.
In July 1999, the Commission issued a series of orders requiring KU to
refund approximately $10.1 million resulting from reviews of the FAC
from November 1994 to October 1998. The orders changed KU's method of
computing fuel costs associated with electric line losses on off-system
sales appropriate for recovery through the FAC, and KU's method for
computing system line losses for the review
period May 1998purpose of calculating the system
sales component of the FAC charge. At KU's request, on July 23, 1999,
the Commission stayed the refund requirement pending the Commission's
final determination of any rehearing request that KU may file. In
August 1999, KU filed its request for rehearing of the July orders.
In August 1999, the Commission issued a Final Order in the KU
proceedings, agreeing, in part, with the Company's arguments outlined
in its Petition for Rehearing. While the Commission confirmed that the
Company should change its method of computing the fuel costs associated
with electric line losses, it agreed with KU that the line loss
percentage should be based on the Company's actual line losses incurred
in making off-system sales rather than the percentage used in its Open
Access Transmission Tariff. The Commission also upheld its previous
ruling concerning the computation of system line losses in the
calculation of the FAC. The net effect of the Commission's Final Order
was to reduce the refund obligation to $5.8 million from the original
Order amount of $10.1 million. In August 1999, LG&E and KU each
recorded its estimated share of anticipated FAC refunds of $8.7
million. KU began implementing the refund
- 30 -
in October and will continue the refund through September 2000. Both
KU and the KIUC have appealed the Order to the Franklin Circuit Court.
A decision is not expected on the appeal until next year.
13.In August 1999, the Company received a Final Order from the PSC
relating to its Environmental Cost Recovery mechanism which resulted in
the reversal of approximately $1.4 million of the provision for refunds
by KU and LG&E in December 1998.
14.In October 1998, nor have they issued orders
pertainingCapital Corp. purchased two natural gas combustion
turbines and began to KU's FAC for review periods after November 1994.
However, followinginstall them. In July 1999, Capital Corp.
completed installation of the methods set forth in the LG&E orders the Company
estimates up to an additional $4.8 million could be refundableturbines and sold them at cost to LG&E
and KU retail electric customers for open review periods through
December 1998.
On March 11, 1999, the Commission denied LG&E's Petition for Rehearing
for the period November 1994 through October 1996$45.7 million and directed LG&E to
reduce future fuel expense by $1.9$76.7 million, in the first billing month
after the Order. LG&E recorded a provision for the rate refund of
$1,881,000 in March and refunded the amount through the fuel adjustment
clause in April 1999. In a separate series of Orders on March 11,
1999, the PSC granted LG&E's Petition for Rehearing for the period
November 1996 through April 1998 and established a procedural schedule
for LG&E and other parties to submit evidence and for a hearing beforerespectively, following
approval from the Commission. In the same Orders the PSC granted the Petition for
Rehearing of the KIUC to determine if interest should be paid on any
fuel refunds for this latter period.
11.ReferenceThe turbines began commercial operation
in early August 1999.
15.Reference is made to Part II, Legal Proceedings, below and Part I, Item
3, Legal Proceedings, of the Company's, KU Energy's, LG&E's and KU's (and Note 18 of
the Company's Notes to Financial Statements) Annual Reports on Form 10-K10-
K for the year ended December 31, 1998.1998, and Part II, Item 1, Legal
Proceedings, of the Form 10-Q for the quarters ended March 31, 1999,
and June 30, 1999.
- 2631 -
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Recent Developments
OnIn April 13, 1999, the Kentucky Public Service Commission (PSC)(the Commission)
issued initial orders in the performance-based ratemaking proceedings for
LG&E and KU. The PSCCommission orders implement, effective July 2, 1999, and
subject to modification, the companies' pending performance-based
ratemaking proposals, including a five-year, $52 million rate reduction
plan jointly filed by LG&E, KU and the Kentucky Attorney General's Office
with the PSC onCommission in April 5, 1999. SeeFor more information, see Note 68 to the
Notes to Financial Statements under Item 1 and Commodity Price Risk under
Item 3.
In October 1999, a Capital Corp. subsidiary entered into an initial
agreement to purchase six natural gas combustion turbines and is
negotiating terms of a definitive agreement. In connection therewith,
Capital Corp. is pursuing initial development of a possible 1,600 Mw
generation facility in Anderson County, Texas. Should the plant be
developed as presently planned, the aggregate cost is estimated to be
approximately $760 million, portions of which may be independently financed
or shared with eventual outside partners.
In October 1999, a partnership in which Capital Corp. owns an interest sold
to an Ameren Energy Corporation affiliate the natural gas combustion
turbine previously leased by such partnership in Ferndale, Washington. The
Company's indirect proceeds from such sale were approximately $4.5 million.
In August 1999, a Capital Corp. subsidiary entered into an operating lease
for three combustion turbines. The lease has a five year term, but no rent
is payable until the turbines have been completed and installed. Certain
related facilities are expected to be added to the same lease in the fourth
quarter of 1999. The turbines are expected to be used in a 450 Mw gas
fired merchant combustion turbine power generation facility, located in
Monroe, Georgia, which is expected to be completed in June 2001. At the
end of the lease term, the Company may purchase the leased assets or assist
the lessor in selling them. If the assets are sold, the Company is
obligated to make up any deficiency between the lease balance and the
proceeds subject to a cap. The total value of the assets under the
existing lease is expected to be approximately $125 million and is expected
to increase to approximately $175 million in the fourth quarter of 1999.
For more information, see Note 11 to the Notes to Financial Statements
under Item 1.
In July 1999, the Company purchased 100% of the outstanding common stock of
CRC-Evans Pipeline International, Inc. and affiliates (CRC) for initial
consideration of $45.6 million and retirement of approximately $37.9
million in CRC debt. CRC, based in Houston, Texas, is a provider of
specialized equipment and services used in the construction and
rehabilitation of gas and oil transmission pipelines. For more
information, see Note 4 of Notes to Financial Statements under Item 1.
In July 1999, Capital Corp. completed installation of two natural gas
turbines (purchased in October 1998) and sold them at cost to LG&E and KU
containedfor $45.7 million and $76.7 million, respectively, following approval from
the Commission. The turbines began commercial operation in Item
1 of this Form 10-Q for further discussion of this matter.
On Marchearly August
1999.
Effective June 30, 1999, the Company reclassified its natural gas gathering
and processing business to continuing operations from discontinued
operations. For more information, see Note 3 to the Notes to Financial
Statements under Item 1.
In March 1999, the Company acquired aan indirect 19.6% ownership interest in
Gas Natural BAN, S.A. (BAN), a natural gas distribution company that serves
1.1 million customers in
- 32 -
the northern portion of the province of Buenos Aires, Argentina. SeeFor more
information, see Note 25 of Notes to Financial Statements under Item 1 for
more information.
OnIn March 15, 1999, Capital Corp. entered into a letter of intent to lease
or acquire three combustion turbines and is currently negotiating the terms
of a definitive agreement. The aggregate price, including construction of
related facilities, is estimated to be approximately $175 million. Capital
Corp. is considering various financing alternatives.
As of March 31, 1999, Capital Corp. had expended approximately $82.5
million in connection with its October 1998 purchase of two natural gas
combustion turbines. The aggregate purchase price, including costs of
installation, is approximately $125 million, which is expected to be
largely funded through additional borrowing by Capital Corp. Capital Corp.
expects to complete the purchase by August 1999. In addition, LG&E and KU
have filed an application with the PSC requesting approval for the purchase
of these turbines from Capital Corp. at cost. Assuming approval is
granted, the transfer of the turbines is expected to occur in August 1999.
If approval is not granted by the PSC, Capital Corp. will operate and
market the power of these gas turbines.
On March 15, 1999, the partnership that owns the Rensselaer cogeneration
facility sold substantially all the assets and major contracts of the
facility. For more information, see "Results of Operations" below, Note 46
of Notes to Financial Statements under Item 1 and the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
General
The Company's principal subsidiaries are LG&E, an electric and gas utility,
KU, an electric utility, and Capital Corp., the holding company for all non-
utility investments. LG&E's and KU's results of operations and liquidity
and capital resources are important factors affecting the Company's
consolidated results of operations and capital resources and liquidity.
Some of the matters discussed in the Notes to Consolidated Financial
Statements and Management's Discussion and Analysis may contain forward-
looking statements that are subject to certain risks, uncertainties and
assumptions. Actual results may vary materially. Factors that could cause
actual results to differ materially include, but are not limited to:
general economic conditions; business and competitive conditions in the
energy industry; future prices or usage loads of power and natural gas;
unusual weather; regulatory decisions, including decisions relating to the
Company's performance-based ratemaking proceedings, legal proceedings,
including the arbitration matter relating to the OPC power contract, and
decisions resulting from the combination of LG&E Energy and KU Energy; the
Company's ability to resolve Year 2000 issues in a timely manner and other
factors described from time to time in the Company's reports to the
Securities and Exchange Commission, including Exhibit 99.01 to the Form 10-K10-
K for the year ended December 31, 1998.
- 27 -
Results of Operations
The results of operations for LG&E, KU and Capital Corp.'s Argentine gas
distribution, CRC and WKE operations are affected by seasonal fluctuations
in temperature and other weather-related factors. Because of these and
other factors, the results of one interim period are not necessarily
indicative of results or trends to be expected for the full year.
Three Months Ended March 31,September 30, 1999, Compared to
Three Months Ended March 31,September 30, 1998
The Company's primary and diluted earnings per share from continuing
operations increased to $.44$.67 in 1999 from $.36$.61 in 1998. TheResults for 1999
included $.04 of after-tax charges for fuel adjustment refunds. Excluding
this item, income from continuing operations increased to $.71 in 1999 from
$.61 in 1998. This increase resulted from higher earningsstrong off-system sales at KU, an after-tax gain of $8.9 million ($.07) on the sale
of the Company's interestWKE,
increases resulting from acquiring CRC and BAN in the Rensselaer, New York, project1999, and after-
tax income of $5.3 million ($.04) for fees related to the development of an
independent power project in Gregory, Texas.lower corporate
expenses. Lower earnings at LG&E an
increase in interest expense at Capital Corp. and higher corporate expensesKU partially offset these increases.
LG&E Results:
LG&E's net income decreased $4.5$3.2 million (19%) for the quarter ended March
31,September
30, 1999, as compared to the quarter ended March 31,September 30, 1998, primarily becausedue
to implementation of increased maintenance expenses and lower gasthe Company's performance based ratemaking proposal
which resulted in a reduction of electric revenues resulting
from a decline in gas prices. These expenses were partially offset by
increased retail and wholesale sales of electricity. Heating degree days
were 17% above 1998.$ 3.2 million.
- 33 -
A comparison of LG&E's revenues for the quarter ended March 31,September 30, 1999,
with the quarter ended March 31,September 30, 1998, excluding the FAC refund (which reduced
electric revenues by $1.9 million),provision for rate
refunds of $1.1 million, reflects increases and decreases which have been
segregated by the following principal causes:
Increase or
(Decrease)
(Thousands of $)
Electric Gas
Cause Revenues Revenues
Sales to ultimate consumers:
Fuel and gas supply adjustments $ 2,983 $(20,019)$(2,190) $(1,100)
Merger surcredit (1,390)(900) -
Performance based rate bill reduction (3,159) -
Demand side management/revenue
decoupling (2,396) (5,395)20 -
Environmental cost recovery (137) -
Variation in sales volume, etc. 6,976 9,24810,116 1,395
Total retail sales 6,173 (16,166)3,750 295
Sales for resale 5,925 (411)63,789 8
Gas transportation - net - (364)(144)
Other 38 (39)(539) 486
Total $12,136 $(16,980)$67,000 $ 645
Electric sales for resale increased $59.1 million due to brokered sales
activities.
Fuel for electric generation and gas supply expenses comprise a large
component of LG&E's total operating expenses. LG&E's&E had an electric and gas
rates contain a fuel
adjustment clause and a gas supply clause,
respectively,(FAC) whereby increases or decreases in the cost of fuel and gas
supply maywould be reflected
in retail rates, subject to the approval of the Public Service Commission
of Kentucky.Kentucky (PSC). Effective July 2, 1999 the FAC was discontinued and
replaced with an amended electric performance based rate mechanism (PBR).
The PBR is subject to PSC modification. See Note 8 for a further
discussion of the PBR mechanism and Note 12 for a further discussion of the
FAC. LG&E gas rates contain a gas supply clause whereby increases and
decreases in the cost of gas supply may be reflected in retail rates,
subject to PSC approval. Fuel for electric generation decreased $3.6increased $4.2
million (10%)
- 28 -
for the quarter because of an increase in generation due to
warmer weather ($5.2 million), partially offset by a decrease in generationthe cost
of coal burned ($3.61 million). Gas supply expenses decreased $13.6 million (21%) due to decreases in net gas
supply cost.$.2 million.
Power purchased increased $13.4$67 million (140%)primarily due to increased purchases
for sales for resale.resale, including approximately $2 million of expenses
recorded as a result of valuing the Company's electric energy trading
contracts using the mark-to-market method. See Note 7 of Notes to
Financial Statements.
Other operation expenses decreased $2.5 million (6%) primarily due to
decreased operation of steam power production ($2.1 million).
Maintenance expenses increased $4.4$2.1 million (43%(20%) in 1999 primarilymainly due to
forcedincreases in scheduled outages at the Mill Creek generating station Units 1,units 3
and 4 ($3.51.4 million), and increased storm related electric distribution expensesthe Cane Run generating station units 4 and 6
($.4.7 million) and maintenance of general plant ($.4 million).
- 34 -
Depreciation and amortization increased $.8 million in 1999 because of
additional utility plant in service.
Property and other taxes decreased $.9 million due to a sales tax accrual
recorded as a result of a sales tax audit in the third quarter of last
year.
Variations in income tax expense are largely attributable to changes in pre-
tax income.
KU Results:
KU's net income increased $4.6decreased $12.6 million (18%) for the quarter ended March
31,September 30,
1999, as compared to the quarter ended March 31,September 30, 1998. The increase
was mainlyThis decrease
is partially due to increases in retail electric sales caused by an increase
in heating degree days.recording a net provision for the refund of certain
revenues under the fuel adjustment clause and environmental cost recovery
mechanism, as well as the implementation of the Commission ordered
performance-based ratemaking proposal. The after-tax impact of these
regulatory actions is $6.4 million. See Notes 8 and 12 of Notes to
Financial Statements.
A comparison of KU's revenues for the quarter ended March 31,September 30, 1999,
with the quarter ended March 31,September 30, 1998, excluding the provision for rate
refunds of $6.2 million, reflects increases and decreases which have been
segregated by the following principal causes:
Sales to ultimate consumers:
Fuel clause adjustments $ (790)(2,921)
Environmental cost recovery (638)396
Merger surcredit (1,867)(603)
Performance based rate bill reduction (2,914)
Variation in sales volume, etc. 9,4152,066
Total retail sales 6,120(3,976)
Sales for resale 27,27044,438
Other 7401,124
Total $34,130
Retail sales increased due to a 5% increase in sales volumes in the
quarter, which is primarily the result of a 16% increase in heating degree
days.$41,586
The increase in sales for resale (1,895,289 megawatt-hours versus
529,472 megawatt-hours) was primarily due to more aggressive
marketing efforts, efficiencies achieved from coordinated dispatch of a larger
available pool of generation following completion of the merger in May 1998
of LG&E Energy and KU Energy, and sales to LG&E of $4 million due to
economic dispatch following the merger.efforts.
Fuel for electric generation comprises a large segmentcomponent of KU's total
operating expenses. KU's Kentucky jurisdictional electric rates contain awere
subject to an electric fuel adjustment clause (FAC), whereby increases or
decreases in the cost of fuel arewould be reflected in retail rates, subject to the approval of
the Public Service Commission of Kentucky (PSC). Effective July 2, 1999
the FAC was discontinued and replaced with an amended electric performance
based rate mechanism (PBR). The PBR is subject to PSC modification. See
Note 8 for a further discussion of the PBR mechanism and Note 12 for a
further discussion of the FAC. KU's wholesale and Virginia jurisdictional
electric rates contain a fuel adjustment clause whereby increases or
decreases in the cost of fuel are reflected in rates, subject to the
approval of the Virginia State Corporation Commission and the Federal
Energy Regulatory Commission. Fuel for electric generation increased $9.8expenses
decreased by $4.8 million (20%(7%) for the quarter because of an increase in generation ($10.2 million) which was partially
offset by the lower cost of coal burned ($.4 million).
- 29 -
Power purchased expense increased $21 million in 1999primarily because of a
94%decrease in generation.
Power purchased increased $64 million. The increase was primarily due to a
160% increase in megawatt-hour purchases which was primarily attributableused to increasedsupport the
aforementioned sales for resale and economic dispatch purchases from LG&E of
$2.5 million.
Other operatingas well as an increase in reserve margin
purchases.
- 35 -
Maintenance expense decreased by $2.8$2 million (9%(13%). The decrease was
mainly attributable due to a decrease in
administrative and general expenses.maintenance activities at the steam generating plants.
Variations in income tax expense are largely attributable to changes in pretaxpre-
tax income.
Capital Corp. Results:
Capital Corp., the holding company for all non-utility investments,
conducts its operations through three principal segments: Independent
Power Operations, WKE and Argentine Gas Distribution. Involvement in these
and other non-utility businesses represents the Company's commitment to
understand, respond to, and capitalize on the opportunities presented by an
emerging competitive energy services industry. Independent Power
Operations develops, operates, maintains and owns interests in domestic and
international power generation facilities that sell electric and steam
energy to utility and industrial customers, and owns equity interests in
combustion turbines which are leased to others. WKE leases and operates
the generating facilities of Big Rivers. Argentine Gas Distribution owns
interests in three natural gas distribution companies in Argentina.
Capital Corp. is also engagedengages in other energy-related businesses (Other Energy-
Related Businesses) which are not individual distinct segments of the
business. These include CRC, a provider of specialized equipment and
services used in the construction and rehabilitation of gas and oil
transmission pipelines, Enertech, a commercial and retail initiativesinitiative
designed to assess the energy and utility needs of large commercial and
industrial entities, provideand LG&E Home Services, a maintenance and repair
servicesservice for customers' major household appliances, and provide third party metering
and billing services. These also include the gas gathering and processing
business, which consists of certain natural gas transportation, storage,
gathering and processing operations and facilities.
Independent Power Operations
Independent Power Operations' revenues increased from $5.2 million in 1998
to $6.9 million in 1999 as a result of recognizing income previously
deferred related to the recently sold Rensselaer project. The project sold
substantially all of its assets and major contracts in March 1999. See
Note 4 of Notes to Financial Statements under Item 1.
Independent Power Operations' equity in earnings of unconsolidated ventures
increased from $5.6$1.8 million in 1998 to $21.4$5.4 million in 1999. The increase
reflected a pre-tax gainresulted mainly from writing off the $3.8 million investment in Windpower
Partners 1994 in the third quarter of $14.5 million that resulted1998, offset by lower equity in
earnings at the Rensselaer project in 1999 resulting from the Rensselaer
project's sale of substantially allthis
project in the first quarter, and lower ROVA I capacity payments from
Virginia Electric and Power during the third quarter of its assets and major contracts in
March 1999.
Independent Power Operations' other income increased by approximately $1.0
million in 1999 due primarily to the recognition of contract breakage
income associated with the Rensselaer sale in March 1999.
Western Kentucky Energy
WKEWestern Kentucky Energy (WKE) began operations in July 15, 1998, after closingupon
commencement of its lease transaction with Big Rivers.
WKE's revenues totaled $60.0and cost of revenues increased from $66.2 million and $29.3
million, respectively, in 1998 to $144.4 million and $100.8 million,
respectively, in 1999. These increases resulted mainly from higher off-
system sales in 1999.
WKE's operation and maintenance expenses decreased from $25.8 million in
1998 to $21.5 million in 1999 due to reclassifying reagent and disposal
expenses from operation and maintenance expenses in 1998 to cost of
revenues primarily composedin 1999. One-time expenses paid in 1998 to Big Rivers Electric
Corporation for storage and unloading of fuel and purchased power expenses,
amountedacquired at closing also
contributed to $35.7 million. Operation and maintenance expenses of $24.7
million include $7.0 million of rent expense associated with the lease of
Big Rivers' operating facilities. WKE incurred interest expense of
approximately $1.4 million associated with borrowings to fund the initial
purchase of certain materials and supplies from Big Rivers and to prepay
the first two years' lease payments of $55.9 million.decrease.
- 36 -
Argentine Gas Distribution
The Argentine Gas Distribution companies' revenues increased 9%2% or $2.4$1.1
million in 1999 to $29.5$48.5 million due to higher consumption per customer and
an increase in the customer base. - 30 -
Operation and maintenance expenses
increaseddecreased by 4.5%21.4% or $1.0$1.4 million over the same periodperiod.
The Argentine Gas Distribution companies' equity in earnings of
unconsolidated ventures increased from $1.0 million in 1998 to $4.7 million
in 1999 due to higher consumption.acquiring a 19.6% interest in BAN in March 1999. See Recent
Developments and Note 5 of Notes to Financial Statements in Item 1.
Other
TheAs a result of the reclassification of the gas gathering and processing
business from discontinued operations to continuing operations effective
June 30, 1999, the Company's activities include certain natural gas
transportation, storage, gathering and processing operations and
facilities, which businesses are conducted through Capital Corp. Its
activities also include those of CRC, a provider of specialized equipment
and services used in the construction and rehabilitation of gas and oil
transmission pipelines, which the Company has entered intoacquired in July 1999.
Additionally, the Company conducts various commercial and retail
initiatives, to
position itself for growth in the energy industry. The commercial
initiatives representprimarily energy-related new businesses and productsservices designed
to leverage the
Company'sits existing assets, operations and experience, and to gain access to new
markets. Our retail initiatives enhance value for LG&E's and KU's
customers and are designed to help ensure that LG&E and KU remain the
utility of choice within their respective service areas when a fully
competitive industry framework takes shape. Thesemarket presence, which
commercial and retail initiatives have not had a significant impact on the
Company's financial position or required significant capital investment.
We remain optimistic
that these non-traditional developing ventures will add to our knowledge
base as well as our financial results in the future.
Capital Corp.'s otherOther Energy-Related Businesses' revenues increased from $1.5$45.6 million in
1998 to $31.8$99.1 million in 1999, and its cost of revenues increased from
$38.4 million in 1998 to $73.1 million in 1999. These increases reflect
the CRC acquisition in July 1999 and higher natural gas sales. See Note 4
for a discussion of the CRC acquisition and see Note 3 for a discussion of
the Company's decision to retain its natural gas gathering and processing
business.
Other Energy-Related Businesses' operation and maintenance expense
increased from $9.0 million in 1998 to $14.9 million in 1999 due mainly to
Retail Access Services' startingacquiring CRC.
Capital Corp.'s interest expense increased from $6.6 million in 1998 to
$12.0 million in 1999 mainly due to funding the BAN and CRC acquisitions,
the WKE transaction, discontinued operations and corporate expenses.
Nine Months Ended September 30, 1999, Compared to
Nine Months Ended September 30, 1998
The Company's primary and diluted earnings per share from continuing
operations increased to $1.49 in 1999 from $1.06 in 1998. Results for 1998
included $.41 of after-tax charges for merger-related costs ($.19 for LG&E,
$.17 for KU, and $.05 for Corporate), and an after-tax gain of $.16
resulting from the Rensselaer project's Master Restructuring Agreement
(MRA) with Niagara Mohawk Power Corporation (NIMO). Results for 1999
included $.05 of after-tax charges for fuel adjustment refunds ($.04 for KU
and $.01 for LG&E). Excluding these items, income from continuing
operations increased to $1.54 in 1999 from $1.31 in 1998. This increase
resulted from higher earnings at Capital Corp, partially offset by lower
earnings at LG&E (excluding merger-related costs).
LG&E Results:
LG&E's net income increased $14.4 million for the first nine months of
1999, as compared to the first nine months of 1998, primarily because of
the charge incurred in 1998 for
- 37 -
LG&E's cost to merge LG&E Energy Corp. with KU Energy of $25 million.
Excluding this charge, LG&E's net income decreased $10.6 million for the
same period. This is primarily due to increased maintenance expenses at
electric generating plants.
A comparison of LG&E's revenues for the nine months ended September 30,
1999, with the nine months ended September 30, 1998, excluding the
provision for rate refunds of $1.6 million, reflects increases and
decreases which have been segregated by the following principal causes:
Increase or
(Decrease)
(Thousands of $)
Electric Gas
Cause Revenues Revenues
Sales to ultimate consumers:
Fuel and gas supply adjustments $(2,102) $(26,851)
Merger surcredit (3,756) -
Performance based rate bill reduction (3,159) -
Demand side management/revenue
decoupling (3,075) (6,220)
Environmental cost recovery (169) -
Variation in sales volume, etc. 17,750 13,049
Total retail sales 5,489 (20,022)
Sales for resale 88,341 420
Gas transportation - net - (412)
Other (478) 791
Total $93,352 $(19,223)
Sales for resale increased due to increased brokered sales.
Gas retail sales decreased from 1998 due to a decline in gas prices in the
first quarter of 1999.
Gas supply expenses decreased $16.7 million (19%) due to a decrease in net
gas supply costs ($20.7 million) partially offset by an increase in the
volume of gas delivered to the distribution system ($4.0 million).
Power purchased increased $96.2 million (224%) primarily due to increased
purchases for sales for resale.
Other operation expenses decreased $3.7 million (3%) for the nine months
ended September 1999 as compared to same period ended September 1998
primarily due to lower steam power production expenses.
Maintenance expenses for the first nine months of 1999 increased $13.7
million (40%) primarily due to increases in scheduled outages at the Mill
Creek generating station units 3 and 4, and the Cane Run generating station
units 4 and 6 ($7.5 million), increased forced outages at Mill Creek units
1 and 4 and Cane Run unit 5 ($3.9 million), and general repairs at the
electric generating plants ($2.4 million).
Depreciation and amortization increased $2.5 million in 1999 because of
additional utility plant in service.
- 38 -
A $34.1 million one-time charge was recorded in the second quarter of 1998
for costs associated with the merger of LG&E Energy Corp. and KU Energy
(the corresponding tax benefit of $9.1 million is recorded in Other
income).
Variations in income tax expense are largely attributable to changes in pre-
tax income as well as non-deductible merger expenses.
KU Results:
KU's net income increased $20.9 million for the nine months ended September
30, 1999, as compared to the nine months ended September 30, 1998,
primarily because of a $21.7 million one-time, after tax charge incurred in
1998 for KU's costs to merge LG&E Energy Corp. with KU Energy.
A comparison of KU's revenues for the nine months ended September 30, 1999,
with the nine months ended September 30, 1998, excluding the provision for
rate refunds of $6.2 million, reflects increases and decreases which have
been segregated by the following principal causes:
Sales to ultimate consumers:
Fuel clause adjustments $ (2,626)
Environmental cost recovery (684)
Merger surcredit (3,767)
Performance based rate bill reduction (2,914)
Variation in sales volume, etc. 12,499
Total retail sales 2,508
Sales for resale 104,065
Other 1,858
Total $108,431
The increase in sales for resale was primarily due to more aggressive
marketing efforts and efficiencies achieved from coordinated dispatch of a
larger available pool of generation following completion of the merger in
May 1998 of LG&E Energy and KU Energy.
Power purchased increased $112 million. The increase was primarily due to
a 53% increase in megawatt-hour purchases which was primarily used to
support the aforementioned sales for resale as well as an increase in
reserve margin purchases.
Maintenance expense decreased $3.5 million (8%) due to decreases in
maintenance at the steam generating plants and the transmission and
distribution systems.
A $21.8 million one-time charge was recorded in the second quarter of 1998
for the merger of LG&E Energy Corp. and KU Energy.
Variations in income tax expense are largely attributable to changes in pre-
tax income as well as non-deductible merger expenses.
Capital Corp. Results:
Independent Power Operations
Independent Power Operations' revenues increased from $15.0 million in 1998
to $18.5 million in 1999 due to recognizing previously deferred income
related to the sale of the
- 39 -
Rensselaer project in March 1999. See Note 6 of Notes to Financial
Statements under Item 1.
Independent Power Operations' depreciation and amortization decreased from
$4.3 million in 1998 to $2.6 million in 1999 due to writing off certain
capitalized interest and development costs related to the San Miguel
facility in the first quarter of 1998 and to Capital Corp.'s selling 50%write-offs related to the
Rensselaer project's MRA with NIMO in the second quarter of 1998.
Independent Power Operations' equity in earnings of unconsolidated ventures
decreased from $57.4 million in 1998 to $35.4 million in 1999. The
decrease resulted mainly from recognizing a gain in June 1998 related to
the Rensselaer project's NIMO MRA, partially offset by the Rensselaer
project's sale of substantially all of its assets and major contracts in
March 1999. An increase resulting from writing off the investment in
Windpower Partners 1994 in the third quarter of 1998 also offset the
overall decrease.
Independent Power Operations' other income and expense changed from $8.9
million expense in 1998 to $1.7 million income in 1999 due primarily to
reacquiring in 1998 half of the Company's interest in the partnership that
owned the Rensselaer project, and to recording related expenses.
Western Kentucky Energy
WKE began operations in July 1998, after closing its lease transaction with
Big Rivers. WKE's revenues and cost of revenues increased from $66.2
million and $29.3 million, respectively, in 1998 to $273.5 million and
$177.9 million, respectively, in 1999. These increases resulted from WKE's
operating for nine months in 1999, compared to only two and one-half months
in 1998. Increases in off-system sales in the third quarter of 1999 also
contributed to the increase.
WKE's operation and maintenance increased from $25.8 million in 1998 to
$72.1 million in 1999. This increase resulted from WKE's operating for
nine months in 1999, compared to only two and one-half months in 1998.
Argentine Gas Distribution
The Argentine Gas Distribution companies' revenues increased 4.5% or $5.4
million in 1999 to $123.4 million due to higher consumption per customer
and an independent power project it is developingincrease in Texas.
Capital Corp.'s other incomethe customer base. Operation and maintenance expenses
decreased by 6.7% or $1.2 million over the same period.
The Argentine Gas Distribution companies' equity in earnings of
unconsolidated ventures increased $2.6from $2.2 million in 1998 to $8.4 million
in 1999 due to acquiring a 19.6% interest in BAN in March 1999. See Note 5
of Notes to Financial Statements in Item 1.
Other
Other Energy-Related Businesses' revenues increased from $116.3 million in
1998 to $237.6 million in 1999, and its cost of revenues increased from
$94.0 million in 1998 to $185.9 million in 1999. These increases reflect
increases at Retail Access Services, higher natural gas sales, and the CRC
acquisition.
Other Energy-Related Businesses' operation and maintenance expense
increased from $21.6 million in 1998 to $31.6 million in 1999 due mainly to
acquiring CRC.
- 40 -
Other Energy-Related Businesses' other income increased from $3.0 million
in 1998 to $7.6 million in 1999 due mainly to receiving the initial settlement of a claim related to
an undeveloped independent power project in California.
InterestCapital Corp.'s interest expense increased by $4.7from $17.5 million (87%)in 1998 to
$35.1 million in 1999 due mainly due to funding the BAN and CRC acquisitions,
the WKE transaction, discontinued operations and corporate expenses. The Company's
consolidated effective income tax rate increased from 33.5% in 1998 to
38.0% in 1999 due to favorably resolving tax audits in 1998 and to changes
in the provision for state income taxes. A decrease in investment and
other tax credits as a percent of pretax income also contributed to the
increase.
Liquidity and Capital Resources
The Company's need for capital funds is largely related to the construction
of plant and equipment necessary to meet the needs of electric and gas
utility customers and equity investments in connection with independent
power production projects and other energy-related growth or acquisition
opportunities among the non-utility businesses. Capital funds are also
needed for the Company's capital obligations under the Big Rivers lease
arrangements, losses incurred in connection with the discontinuance of the
merchant energy trading and sales business and information system
enhancements, and other business development opportunities. Fluctuations
in the Company's discontinued energy marketing and trading activities also
affected liquidity throughout the quarter.enhancements. Lines of credit and commercial paper programs are maintained
to fund these temporary capital requirements.
Construction expenditures for the threenine months ended March 31,September 30, 1999, of
$79.0$291.9 million were financed with internally generated funds.funds and commercial
paper.
The Company's combined cash and marketable securities balance increased
$17.2decreased
$22.1 million during the threenine months ended March 31,September 30, 1999. The
increasedecrease reflects construction expenditures, the investment in BAN, the
acquisition of CRC and dividends paid, partially offset by cash flows from
operations, a net increase in debt, and the Company's portion of the proceeds
received by the Rensselaer project from the sale of its assets and major
contracts, partially offset by
construction expenditures,and proceeds received from the investment in BAN, and dividends paid.sale of four combustion turbines
held under a leveraged lease.
Variations in accounts receivable, accounts payable and materials and
supplies are generally not significant indicators of the Company's
liquidity. Such variations are primarily attributable to fluctuations in
weather, which have a direct effect on sales of electricity and natural
gas. The decreaseincrease in accounts receivable resulted primarily from seasonal
fluctua
- 31 -
tionsfluctuations in LG&E's, KU's, and Centro'sWKE's businesses, partially offset by an increase
resulting fromthe CRC acquisition,
and higher revenues at Retail Access Services.natural gas gathering and processing revenues. The decrease in
accounts payable resulted from fluctuations in LG&E's and KU's businesses,
partially offset by seasonal fluctuations in Distribuidora de Gas del
Centro's (Centro's) business and thean increase resulting from acquiring CRC.
The increase in other materials and supplies resulted from acquiring CRC.
The increase in net assets of discontinued operations resulted from a
decrease in gas stored undergroundthe reserve, partially offset by a decrease in net price risk
management assets, a seasonal increase in accounts payable and a decrease
in cash. The decrease in cash resulted from seasonal fluctuations in LG&E's business. The increase in other current liabilities
resultedand from
differences ina large transaction settlement near the timingend of income tax payments.the period.
The increase in investments in unconsolidated ventures resulted from the
investment in BAN and equity in earnings, partially offset by selling the
investment in the Rensselaer venture and distributions received.
The increase in non-utility property and plant resulted mainly from
acquiring CRC and from additions at Centro.Centro and WKE. The increasedecrease in other
property and investments resulted from expendituresreclassifying the two combustion
turbines purchased by Capital Corp. to LG&E's and KU's utility property
accounts. In July 1999, Capital Corp. completed installation of the
turbines and sold them at cost to LG&E and KU for $45.7 million and $76.7
million, respectively. The turbines began commercial operation in early
August 1999.
- 41 -
The increase in deferred debits and other assets resulted from recording
goodwill related to the purchase of two natural gas
turbines by Capital Corp.CRC acquisition, and to capitalizing costs related
to the combustion turbine power generation facility in Monroe, Georgia.
Long-term debt due within one year increased due to issuing new debt and
reclassifying amounts from noncurrent to current.
The Company issues commercial paper that has maturity dates ranging between
one and 270 days. The Company had outstanding commercial paper of $393.2
million at September 30, 1999, at a weighted-average interest rate of
5.65%. Because of the rollover of these maturity dates, total short-term
borrowings and repayments during the first threenine months of 1999 were $416.2
million and total repayments of short-term borrowings were $346.2 million.totaled $3.9
billion. See Note 16 of the Company's Notes to Financial Statements
contained in its Annual Report on Form 10-K for the year ended December 31,
1998.
The increase in other current liabilities resulted from acquiring CRC and
from differences in the timing of estimated income tax payments. The
increase in long-term debt resulted from additional borrowings, partially
offset by reclassifications to current.
In October 1998,1999, a Capital Corp. subsidiary entered into a contractan initial
agreement to purchase twosix natural gas turbines.combustion turbines and is
negotiating terms of a definitive agreement. In connection therewith,
Capital Corp. anticipates thatis pursuing initial development of a possible 1,600 Mw
generation facility in Anderson County, Texas. Should the plant be
developed as presently planned, the aggregate cost is estimated to be
approximately $760 million, portions of which may be independently financed
or shared with eventual outside partners.
In August 1999, a Capital Corp. subsidiary entered into an operating lease
for three combustion turbines. The lease has a five year term, but no rent
is payable until the turbines or their
electrical output, if operated, wouldhave been completed and installed. Certain
related facilities are expected to be marketed or soldadded to one or more
affiliated or unaffiliated third parties.the same lease in the fourth
quarter of 1999. The aggregate purchase price,
including costs of installation, for the turbines is approximately $125
million,are expected to be used in a 450 Mw gas
fired merchant combustion turbine power generation facility, located in
Monroe, Georgia, which is expected to be largely funded through additional
borrowing by Capital Corp. Ascompleted in June 2001. At the
end of March 31, 1999, Capital Corp. had
expended approximately $82.5 million for the turbineslease term, the Company may purchase the leased assets or assist
the lessor in selling them. If the assets are sold, the Company is
obligated to make up any deficiency between the lease balance and expectsthe
proceeds subject to completea cap. The total value of the purchase by August 1999.
On March 15, 1999, Capital Corp. entered into a letter of intent to acquire
three combustion turbines andassets under the
existing lease is currently negotiating the terms of a
definitive agreement. The aggregate price, including construction of
related facilities, is estimatedexpected to be approximately $125 million and is expected
to increase to approximately $175 million. Capital
Corp. is considering various financing alternatives.million in the fourth quarter of 1999.
At March 31,September 30, 1999, unused capacity under the Company's lines of credit
totaled $466.6$504.8 million after considering commercial paper support and
approximately $58.7$62.0 million in letters of credit securing on- and off-
balance sheet commitments. At December 31, 1998, unused capacity under the
lines of credit totaled $536.8 million. The decrease in unused capacity
resulted from additional borrowing fundsduring the nine months ended September
30, 1999.
Capital Corp. has provided letters of credit issued to meet working capital needs.third parties to
secure certain off-balance sheet obligations (including contingent
obligations) of its subsidiaries. The letters of credit securing such
obligations totaled approximately $23.0 million at September 30, 1999. For
more information, see Notes 17 and 18 of the Company's Notes to Financial
Statements in its Annual Report on Form 10-K for the year ended December
31, 1998.
- 42 -
The Company's capitalization ratios at March 31,September 30, 1999, and December 31,
1998, follow:
Mar. 31,Sep. 30, Dec. 31,
1999 1998
Long-term debt (including current portion) 45.2% 46.4%48.0% 46.5%
Notes payable 13.011.1 11.2
Preferred stock 4.13.8 4.2
Common equity 37.7 38.237.1 38.1
Total 100.0% 100.0%
- 32 -
LG&E's capitalization ratios at March 31,September 30, 1999, and December 31, 1998,
follow:
Mar. 31,Sep. 30, Dec. 31,
1999 1998
Long-term debt (including current portion) 45.1%44.6% 45.0%
Preferred stock 6.96.8 6.8
Common equity 48.048.6 48.2
Total 100.0% 100.0%
KU's capitalization ratios at March 31,September 30, 1999, and December 31, 1998,
follow:
Mar. 31,Sep. 30, Dec. 31,
1999 1998
Long-term debt (including current portion) 45.4%44.8% 45.7%
Preferred stock 3.3 3.4
Common equity 51.351.9 50.9
Total 100.0% 100.0%
OnIn May 7, 1999, Capital Corp. issued $150.0 million of medium-term notes due
May 2004, with a stated interest rate on the notes of 6.205%. After taking
into account the forward-starting interest-rate swap entered into onin April 9,
1999, to hedge the entire issuance, the effective rate will beamounted to 6.13%.
The proceeds were used to repay a portion of Capital Corp.'s outstanding
commercial paper, which had been used to fund the BAN acquisition and other
working capital needs.
In September 1999, Capital Corp. issued $50 million of floating rate notes
under its medium-term note program. The notes mature in September 2000 and
pay interest at a rate equal to the one-month LIBOR plus 0.10%.
LG&E implemented a new $200 million commercial paper program in November
1999. An initial issuance of notes totaling $120.1 million took place on
November 8. A majority of the proceeds were used in connection with
capital requirements relating to the joint acquisition by LG&E and KU of
combustion turbines from LG&E Capital Corp., which occurred in July 1999.
See Recent Developments for common stock repurchase activities in
connection with the CRC acquisition.
For a description of significant contingencies that may affect the Company,
LG&E and KU, reference is made to Part II herein - Item 1, Legal
Proceedings.
- 43 -
Year 2000 Computer Issue
The Company and its subsidiaries, including LG&E and KU, use various
software, systems and technology that may be affected by the "Year 2000
Issue." This concerns the ability of electronic processing equipment
(including microprocessors embedded in other equipment) to properly process
the millennium change to the year 2000 and related issues. A failure to
timely correct any such processing problems could result in material
operational and financial risks if significant systems either cease to
function or produce erroneous data. Such risks are more fully detailed in
the sections that follow, but could include an inability to operate its
generating plants, disruptions in the operation of transmission and
distribution systems and an inability to access interconnections with the
systems of neighboring utilities.
The Company began its project regarding the Year 2000 issue in 1996. The
Board of Directors has approved the general Year 2000 plan and receives
regular updates. In addition, monthly reporting procedures have been
established at senior management levels. Since 1996, a single-purpose Year
2000 team has been established in the Information Technology (IT)
Department. This team, which is headed by an officer of the Company, is
responsible for planning, implementing and documenting the Company's Year
2000 process. The team also provides direct and detailed assistance to the
Company's operational divisions and smaller units, where identified
personnel are responsible for Year 2000 work and remediation in their
specific areas. In many cases, the Company also uses the services of third
parties, including technical consultants, vendor representatives and
auditors.
- 33 -
The Company's Year 2000 effort generally follows a three phase process:
Phase I - inventory and identify potential Year 2000 issues, determine
solutions;
Phase II - survey vendors regarding their Year 2000 readiness, determine
solutions to deal with possible vendor non-compliance, develop work
plans regarding Company and vendors non-compliance issues; and
Phase III - implementation, testing, certification, contingency
planning.
The Company has long recognized the complexity of the Year 2000 issue.
Work has progressed concurrently on (a) replacing or modifying IT systems,
including mainframes, client-server, PCs and software applications, (b)
replacing or modifying non-IT systems, including embedded systems such as
mechanical control units and (c) evaluating the readiness of key third
parties, including customers, suppliers, business partners and neighboring
utilities.
State of Readiness
As of MarchOctober 1999, the Company and its subsidiaries have substantially
completed the
internal inventory, vendor survey, and compliance assessment, remediation and
testing and contingency planning portions (Phases I, II and II)III) of their
Year 2000 plan for mission critical mainframeequipment and PC hardwaresystems, including IT, non-IT and
software. Remediation efforts (Phase III) in
these areas are approximately 75% complete. With respect to non-IT
embedded systems, the Company, LG&Ecomponents. A substantially similar readiness state exists for
all non-critical systems. Training and KU alsodrill scenarios on contingency plan
actions have substantially
completed their Phase I and Phase II efforts and Phase III remediation
efforts are in progress. Testing has commenced and will continue as
remediation efforts are implemented and are expected to run until July
1999. Contingency planning has been initiated for all IT and non-IT
missionappropriate critical systems and will
continue throughout 1999.
As a general matter, corrective action for major IT systems, including
customer information, financial and trading systems, are in process or have
been completed. For smaller or more isolated systems, including embedded
and plant operational systems, the Company has completed much of the
evaluative process and is commencing corrective plans.
The Company has communicated with its key suppliers, customers and business
partners regarding their Year 2000 progress, particularly in the IT
software and embedded component areas, to determine the areas in which the
Company's operations are vulnerable to those parties' failure to complete
their remediation efforts. The Company is currently evaluatinghas evaluated and, in certain
cases, initiatinginitiated follow-up actions regarding the responses from these
parties.
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The Company regularly attends and participates in trade group efforts
focusing on Year 2000 issues in the energy industry.
Costs of Year 2000 Issues
The Company's, LG&E's and KU's system modification costs related to the
Year 2000 issue are being expensed as incurred. Through MarchSeptember 1999,
the Company has incurred approximately $22.1$26.1 million in capital and operating
costs in connection with the Year 2000 issue. Based upon studies and
projections to date, the Company expects to spend an additional $10.0$6.0
million to complete its Year 2000 efforts.
Through MarchSeptember 1999, LG&E has incurred approximately $17.0$18.4 million in
capital and operating costs in connection with the Year 2000 issue. Based
upon studies and projections to date, LG&E expects to spend an additional
$3.6$2.2 million to complete its Year 2000 efforts.
Through MarchSeptember 1999, KU has incurred approximately $3.3$4.8 million in capital
and operating costs in connection with the Year 2000 issue. Based upon
studies and projections to date, KU expects to spend an additional $3.6$2.1
million to complete its Year 2000 efforts.
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It should be noted that these figures include total hardware, software,
embedded systems and consulting costs. In many cases, these costs include
system replacements which were already contemplated or which provided
additional benefits or efficiencies beyond the Year 2000 aspect.
Additionally, many costs are not incremental costs but constitute
redeployment of existing IT and other resources. These costs represent
management's current estimates; however, there can be no assurance that
actual costs associated with the Company's Year 2000 issues will not be
higher.
Risks of Year 2000 Issues
As described above, the Company has made significant progress insignificantly completed the
implementation of its Year 2000 plan. Based upon the information currently
known regarding its internal operations and assuming successful and timely
completion of itsremaining remediation and contingency plan actions, the
Company does not anticipate material business disruptions from its internal
systems due to the Year 2000 issue. However, the Company may possibly
experience limited interruptions to some aspects of its activities, whether
IT, generation, transmission or distribution, operational, administrative
functions or otherwise, and the Company is considering such potential
occurrences in planning for the most reasonably likely worst-case
scenarios.
Additionally, risk exists regarding the non-compliance of third parties
with key business or operational importance to the Company. Year 2000
problems affecting key customers, interconnected utilities, fuel suppliers
and transporters, telecommunications providers or financial institutions
could result in lost power or gas sales, reduced power production or
transmission capabilities or internal operational or administrative
difficulties on the part of the Company. The Company is not presently
aware of any such situations; however, severe occurrences of this type
could have material adverse impacts upon the business, operating results or
financial condition of the Company. There can be no assurance that the
Company will be able to identify and correct all aspects of the Year 2000
problem among these third parties that affect it in sufficient time, that
it will develop adequate contingency plans or that the costs of achieving
Year 2000 readiness will not be material.
Contingency planning is under wayhas been completed for material areas of Year 2000
risk. This effort will addresshas addressed certain areas, including the most
reasonably likely worst-case scenarios, and delays in completion in the Company'sof any
remaining remediation plans, failure or incomplete remediation results and
failure of key third parties to be Year 2000 compliant. Contingency plans will
include provisions for extra staffing, back-up communications, review of
unit dispatch and load shedding procedures, carrying of additional energy
reserves and manual energy accountingac
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counting procedures. Completion of
contingencyContingency plan formulation has been completed and
final implementation, resourcing and drilling of such plans is scheduled for June 1999.underway.
Forward Looking Statements
The foregoing discussion regarding the timing, effectiveness,
implementation, and cost of the Company's Year 2000 efforts, contains
forward-looking statements, which are based on management's best estimates
derived using assumptions. These forward-looking statements involve
inherent risks and uncertainties, and actual results could differ
materially from those contemplated by such statements. Factors that might
cause material differences include, but are not limited to, the
availability of key Year 2000 personnel, the Company's ability to locate
and correct all relevant computer codes, the readiness of third parties,
and the Company's ability to respond to unforeseen Year 2000 complications
and other factors described from time to time in the Company's reports to
the Securities and Exchange Commission, including Exhibit 99.01 to the Form
10-K for the year ended December 31, 1998. Such material differences could
result in, among other things, business disruption, operational problems,
financial loss, legal liability and similar risks.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
LG&E Energy is exposed to market risks in both its regulated and non-
utility operations. Both operations are exposed to market risks from
changes in interest rates and commodity prices, while the non-utility
operations are also exposed to changes in foreign exchange rates. To
mitigate changes in cash flows attributable to these exposures, the Company
has entered into various derivative financial instruments. Derivative
positions are monitored using techniques that include market value and
sensitivity analysis.
Interest Rate Risk
The potential change in interest expense resulting from changes in base
interest rates of the Company's unswapped debt did not change materially
induring the first quarter ofnine months ended September 30, 1999. The potential changes in
the fair values of the Company's interest-rate swaps resulting from changes
in interest rates and the yield curve also did not change materially induring
the first quarternine months ended September 30, 1999. See Item 7 of 1999.the Company's
report on Form 10-K for the year ended December 31, 1998.
Commodity Price Risk
The Company's exposure to market risks from changes in commodity prices did
not change materially during the nine months ended September 30, 1999.
However, as a result of the Commission's approval of the PBR effective July
1999, (subject to future change) LG&E's and KU's fuel adjustment clause
mechanism was withdrawn and replaced with a cap that limits recovery of
actual changes in fuel cost to changes in a fuel price index for a five-
state region. If the utilities outperform the index, benefits will be
shared equally between shareholders and customers. If the utilities' fuel
costs exceed the index, the difference will be absorbed by the Company's
shareholders.
Capital Corp. through its subsidiaries operates and controls the generating
capacity of Big Rivers and the City of Henderson. Some of the excess
capacity generated by Big Rivers and the City is currently being marketed
by WKE. To mitigate residual risks relative to the movements in
electricity prices, WKE has entered into primarily fixed-priced contracts
for the sale of electricity through the wholesale electricity market. At
September 30, 1999, exposure from these activities was not material to the
consolidated financial statements of the Company.
See Item 7 of the Company's report on Form 10-K for the year ended December
31, 1998.
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Foreign Exchange Risk
The Company has foreign exchange rates remained immaterialexposure to both the Spanish Peseta and
the Argentine Peso. During the second quarter of 1999, the Company's
exposure to the Argentine Peso increased due to the acquisition of BAN.
However, management believes the Company's foreign exchange exposure to a
10% change in the first quarterSpanish Peseta and Argentine Peso would not have a
material effect on the financial position or results of 1999.operations.
As a result of acquiring CRC, the Company also has foreign exchange
exposure to the Canadian dollar and the British pound. Management believes
the Company's foreign exchange exposure to a 10% change in the either of
these currencies would not have a material effect on the financial position
or results of operations.
See Item 7 of the Company's report on Form 10-K for the year ended December
31, 1998.
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Part II. Other Information
Item 1. Legal Proceedings.
For a description of the significant legal proceedings involving the
Company, LG&E and KU, reference is made to the information under the
following items and captions of (a) the Company's, LG&E's and KU's
respective combined Annual Report on Form 10-K for the year ended December
31, 1998: Item 1, Business; Item 3, Legal Proceedings; Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition; Notes 2, 5, 18 and 22 of the Company's Notes to Financial
Statements under Item 8; Notes 3, 12, 16 and 18 of LG&E's Notes to
Financial Statements under Item 8 and Notes 3, 11 and 13 of KU's Notes to
Financial Statements under Item 8.8 and (b) the Company's, LG&E's and KU's
respective combined Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999 and June 30, 1999: Part III, Item 1, Legal Proceedings.
Except as described herein, to date, the proceedings reported in the
Company's, LG&E's and KU's respective combined Annual
Report on Form 10-K10-K's and Form 10-Q's
have not changed materially.
Certain Fuel Adjustment Clause Proceedings
On April 1,August 30, 1999, LG&E filed a notice of appeal in the Circuit Court of
Franklin County, Kentucky appealing certain rulings of the Kentucky Public Service Commission (PSC) requiring refundsissued a
final order in these proceedings, agreeing with in part, and denying in
part, the arguments outlined by KU in its rehearing petition. A net effect
of approximately $3.9the PSC's final order is to reduce the refund obligation from $10.1
million, (asthe original order amount, to $5.8 million. The refund will be
implemented by KU from October 1999 to September 2000. Both KU and an
intervenor in the case have appealed the PSC final order to the Franklin
Circuit Court where a decision is anticipated in mid to late 2000. See
Note 12 of February 1999)Notes to Financial Statements, in costs previously recovered from customers under
the fuel adjustment clause mechanism. See Item 3 above; Legal
Proceedings, and Notes 5 and 22 to the Company's and NotesNote 3 and 16 of LG&E'sKU's
respective Notes to Financial Statements under Item 8 of the Company's and
LG&E'sKU's combined Annual Report on Form 10-K for the year ended December 31, 1998,
for further discussion of this matter.
Kenetech Bankruptcy
In April 1999, the Windpower Partners 1993, Windpower Partners 1994 and KW
Tarifa, S.A. projects in which the Company owns certain interests received
initial distributions aggregating approximately $12.7 million, as well as
certain other assets, in connection with these projects' claims in the
bankruptcy proceeding of Kenetech Windpower, Inc. The funds are currently
held in trust and will be used to pay legal fees and unpaid interest on
debt of the projects, as appropriate. The Company expects to record a pre-
tax gain of approximately $2.5 million during the second quarter of 1999 in
connection with these initial distributions. See Item 3, Legal
Proceedings, and Note 18 of the Company's Notes to Financial Statements
under Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31,
1998, for further discussion of this matter.
Performance-Based Ratemaking
On April 13,During August and September 1999, hearings were conducted before the PSC issued initial orders inon
LG&E's and KU's amended PBR plans. Initial briefs of the performance-based
ratemaking proceedings (PBR) for LG&E and KU. The PSC orders implement,
effective July 2, 1999, and subject to modification, the companies' pending
PBR proposals, including a five-year, $52 million rate reduction plan
agreed upon by LG&E, KU and the Kentucky Attorney General's Office and
previouslyparties were
filed with the PSC on April 5,October 7, 1999 and reply briefs were filed October
21, 1999. Further proceedingsA decision from the PSC is expected by the end of the fourth
quarter of 1999 or in the
PBR case, including consideration of rate reductions requested by certain
intervenors, are scheduled for the second and third quarters of 1999.early 2000. See Note 6 to the8 of Notes to Financial
Statements of the Company, LG&E and KU contained in Item 1 of this Form 10-Q10-
Q and Item 3, Legal Proceedings, to the Company's, LG&E's and KU's combined
Annual Report on Form 10-K for further discussion of this matter.
Oglethorpe Power Contract
Written submissions were filed by both parties during the third quarter in
the arbitration proceeding brought by LG&E Energy Marketing Inc. (LEM)
against Oglethorpe Power Corporation (OPC) regarding LEM's November 1996
power sales agreement with OPC and disputed load forecasts provided in
connection therewith. A hearing on the merits began on November 2, 1999,
and will end on November 19, 1999, with a final decision anticipated in mid
to late December 1999. While the Company anticipates a favorable outcome
in the proceeding, no assurances can be given as to such event. Should OPC
prevail, and as a result of higher than anticipated future commodity
prices, increased load demands, particularly at OPC, and other factors, the
Company may be required to increase its after-tax loss reserve by
approximately $150 million. Any such increase in the loss reserve will be
recorded in discontinued operations. This amount is subject to continuing
analysis and estimation. Management does not expect this to have a
material effect on income from continuing operations. See Note 2 in Notes
to Financial Statements under Item 1 above for a discussion of the
Company's discontinued operations and the reserve associated therewith.
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Springfield Municipal Contract
Trial is currently scheduled for January 2000 in the action filed by LEM
against the City of Springfield, Illinois City Water, Light and Power
Company concerning the parties' 1997 Interchange Agreement. LEM has
estimated damages in this matter of approximately $21 million. See Item 3,
Legal Proceedings and Note 18 to the Company's Notes to Financial
Statements under Item 8, respectively, of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 for further discussion of
this matter.
Environmental Matters
On October 2, 1999, approximately 38,000 gallons of diesel fuel leaked from
an underground pipeline at the E.W. Brown Station. Under the oversight of
EPA and state officials, KU commenced immediate spill containment and
recovery measures which prevented the spill from reaching the Kentucky
River. KU ultimately recovered approximately 34,000 gallons of diesel
fuel. On November 4, 1999, the Kentucky Division of Water issued a notice
of violation for the incident. KU has committed to undertake additional
mitigation measures and is currently negotiating a resolution of the state
regulatory aspects of this matter. To date, KU has incurred an estimated
$800,000 in remediation costs. KU is also investigating its possible
remedies against the manufacturer of a cracked valve at issue in the spill.
Item 6(a). Exhibits.
Exhibit
Number Description
27 Financial Data Schedules for LG&E Energy Corp.,
Louisville Gas and Electric Company, and Kentucky
Utilities Company.
Item 6(b). Reports on Form 8-K.
On February 11,July 14, 1999, the Company filed a report on Form 8-K announcing that it
had realigned its management structure to support its strategy of
aggressively growing the company as the energy services industry moves
toward deregulation.
On March 23, 1999, the Company filed a report on Form 8-K announcing that
on March 15, 1999, LG&E-Westmoreland Rensselaer, a California general
partnership in which LG&E Energy owns a 50% interest, completed the sale of
substantially all the assets and major contracts of its 79 MW gas-fired
cogeneration facility in Rensselaer, New York to Fulton Cogeneration
Associates, L.P., an affiliate of The Coastal Corporation.
On April 7, 1999, the Company, LG&E and KU filed reports on Form 8-K
announcing that on April 5, 1999, LG&E and KU had reached an agreement with
the Kentucky Attorney General's Office regarding LG&E's and KU's pending
performance-based ratemaking (PBR) proposal. In a filing with the PSC, the
parties amended the companies' PBR proposal to request approval of an
agreed-upon five-year rate reduction plan. In the same filing, the Company
announced that on March 30, 1999, it had acquired, an indirect ownership
interest of approximately 20 percent in Gas Natural BAN, S.A.
On April 20, 1999, the Company, LG&E and KU filed reports on Form 8-K
announcing orders of the PSC dated April 13, 1999, regarding LG&E and KU.
The PSC orders implement, effective July 2,8, 1999, CRC Holdings Corp., the companies' pending
performance-based ratemaking proposal, includingparent
company of CRC-Evans Pipeline International, Inc. and related companies, a
five-year rate reduction
plan agreed upon earlier byprovider of specialized equipment and services used in the companiesconstruction and
the Kentucky Attorney
General's Office.rehabilitation of gas and oil transmission pipelines.
- 3849 -
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LG&E Energy Corp.
Registrant
Date: May 14,November 15, 1999 /s/ Michael D. Robinson
Michael D. Robinson
Vice President and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Louisville Gas and Electric Company
Registrant
Date: May 14,November 15, 1999 /s/ Michael D. Robinson
Michael D. Robinson
Vice President and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Kentucky Utilities Company
Registrant
Date: May 14,November 15, 1999 /s/ Michael D. Robinson
Michael D. Robinson
Vice President and Controller
(On behalf of the registrant in his
capacity as Principal Accounting Officer)
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