**Exhibit 99.02**

 

**LOUISVILLE GAS AND ELECTRICCOMPANY**

**AND**

**KENTUCKY UTILITIES COMPANY**

**DIRECTOR AND OFFICER INFORMATION**

 

The outstanding stock of Louisville Gas and ElectricCompany (“LG&E”) is divided into three classes: Common Stock, PreferredStock (without par value), and Preferred Stock, par value **$**25per share. At the close of business on February 28, 2006, the following sharesof such classes were outstanding:

 
| Common Stock, without par value                                                         |   | 21,294,223 shares |
|-----------------------------------------------------------------------------------------|--------|-------------------|
| Preferred Stock, par value **$**25  per share, 5% Series                                |   | 860,287 shares    |
| Preferred Stock, without par value, **$**5.875 Series                                   |   | 212,500 shares    |
| Preferred Stock,  without par value (stated value $100 per share) Auction Rate Series A |   | 500,000 shares    |

 

The outstanding stock of Kentucky Utilities Company (“KU”)is divided into three classes: Common Stock, without par value, PreferredStock, without par value, and Preference Stock, without par value. As of theclose of business on February 28, 2006, the following shares of such classeswere outstanding:

 
| Common Stock, without par value | 37,817,878 shares |
|---------------------------------|-------------------|

 

All of the outstanding LG&E Common Stock and KUCommon Stock are owned by E.ON U.S. LLC (formerly LG&E Energy LLC). Basedon information contained in a Schedule 13G originally filed with the Securitiesand Exchange Commission in October 1998, AMVESCAP PLC, a parent holdingcompany, reported certain holdings in excess of five percent of LG&E’sPreferred Stock. AMVESCAP PLC, with offices at 1315 Peachtree Street, N.W.,Atlanta, Georgia 30309, and certain of its subsidiaries reported sole votingand dispositive power as to no shares and shared voting and dispositive poweras to 43,000 shares of LG&E Preferred Stock, without par value, **$**5.875 Series, representing 17.2% of that class of PreferredStock. The reporting companies indicated that they hold the shares on behalf ofother persons who have the right to receive or the power to direct the receiptof dividends or the proceeds of sales of the shares. No other persons or groupsare known by management to be beneficial owners of more than five percent ofLG&E’s Preferred Stock.

 

As of February 28, 2006, all directors, nominees fordirector and executive officers of LG&E and KU as a group beneficiallyowned no shares of LG&E Preferred Stock or KU Preferred Stock and less than1% of the shares of E.ON AG, the ultimate parent of LG&E and KU.

 

On December 11, 2000, Powergen plc, a public limitedcompany with registered offices in England and Wales (“Powergen”) completed itsacquisition of LG&E Energy Corp., then the parent corporation of LG&Eand KU. In connection with such transaction, certain officers and directors ofPowergen were appointed to fill vacancies in the Board of Directors of LG&Eand KU that occurred by resignation of prior directors. In January 2003,Powergen was reregistered as Powergen Limited.

 

On July 1, 2002, E.ON AG, a German corporation (“E.ON”),completed the acquisition of Powergen. In connection with such transaction,certain officers or directors of E.ON and Powergen were appointed to fillvacancies in the Board of Directors of LG&E and KU occurring by resignationof prior directors.

 

On December 30, 2003, LG&E Energy LLC (“LG&EEnergy”) became the successor, by assignment and subsequent merger, to theassets and liabilities of LG&E Energy Corp.

 

On December 1, 2005, LG&E Energy was renamed E.ONU.S. LLC (“E.ON U.S.”)

 

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**INFORMATION ABOUT DIRECTORS**

 

The number of members of each of the Boards ofDirectors of LG&E and KU is currently fixed at five, pursuant to theCompanies’ bylaws and resolutions adopted by the Boards of Directors.Generally, directors are elected at each year’s Annual Meeting to serve for one-yearterms and to continue in office until their successors are elected andqualified.

 

The following contains certain information, as ofFebruary 28, 2006, concerning the directors of LG&E and KU:

 

# **Directors with Terms Expiring at the 2006 AnnualMeeting of Shareholders**

 

***VictorA. Staffieri* (Age 50):**   Mr. Staffieri is Chairman, President and Chief Executive Officer of E.ONU.S., LG&E and KU, serving from April 2001 to the present. He served asPresident and Chief Operating Officer of LG&E Energy, LG&E and KU fromFebruary 1999 to April 2001; Chief Financial Officer of LG&E Energy andLG&E from May 1997 to February 2000; Chief Financial Officer of KU from May1998 to February 2000; President, Distribution Services Division of LG&EEnergy from December 1995 to May 1997; President of LG&E from January 1994to May 1997; and Senior Vice President, General Counsel and Public Policy ofLG&E Energy and LG&E from November 1992 to December 1993. Mr. Staffierihas been a director of E.ON U.S. (including predecessors), LG&E and KUsince April 2001 and was a director of Powergen from April 2001 until January2004.

 

***JohnR. McCall *(Age 62):**    Mr. McCall is Executive Vice President,General Counsel and Corporate Secretary of E.ON U.S., LG&E and KU. Mr.McCall has held these positions at LG&E Energy and LG&E since July 1994and at KU since May 1998. Mr. McCall has been a director of E.ON U.S.(including predecessors), LG&E and KU since January 2004.

 

***S. Bradford Rives*(Age 47):             **Mr. Rives isChief Financial Officer of E.ON U.S., LG&E and KU, serving from September2003 until the present. He served as Senior Vice President – Finance andController of LG&E Energy, LG&E and KU from December 2000 untilSeptember 2003; Senior Vice President – Finance and Business Development ofLG&E Energy and LG&E from February 1999 to December 2000; and VicePresident – Finance and Controller of LG&E Energy and LG&E from March1996 to February 1999. Mr. Rives has been a director of E.ON U.S. (includingpredecessors), LG&E and KU since January 2004.

 

***Paul W. Thompson*(Age 49):          **Mr. Thompson is SeniorVice President – Energy Services of E.ON U.S., LG&E and KU, serving from June2000 until the present. He served as Senior Vice President – Energy Services ofLG&E Energy from August 1999 until June 2000; Vice President, RetailElectric Business of LG&E from December 1998 to August 1999; and Group VicePresident – Energy Marketing of LG&E Energy from June 1998 to August 1999. Mr.Thompson has been a director of E.ON U.S. (including predecessors), LG&Eand KU since January 2005.

 

***Chris Hermann*(Age 58):                 **Mr. Hermann is Senior Vice President – EnergyDelivery of E.ON U.S., LG&E and KU, serving from February 2003 until thepresent. He served as Senior Vice President – Distribution Operations ofLG&E Energy, LG&E and KU from December 2000 until February 2003; VicePresident, Supply Chain and Operating Services of LG&E Energy and LG&Efrom December 1999 to December 2000; and Vice President, Power Generation andEngineering Services of LG&E from May 1998 to December 1999. Mr. Hermann hasbeen a director of E.ON U.S. (including predecessors), LG&E and KU sinceJanuary 2005.

 

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**INFORMATION CONCERNING THE BOARDSOF DIRECTORS**

 

The Boards of Directors of LG&E and KU contain thesame members. Each member is also a director of E.ON U.S., as described above.

 

During 2005, therewere a total of 7 and 8 meetings of the LG&E and KU Boards, respectively,including actions taken by unanimous written consent. All directors attended75% or more of the total number of meetings or consents of the Boards ofDirectors and committees of the Boards on which they served.

 

## **Compensation of Directors**

 

Directors who are also officers of E.ON U.S. or theirsubsidiaries receive no compensation in their capacities as directors ofLG&E and KU.

 

## **Committees**

 

There are currently no formal committees of the Boardsof Directors of the Companies. Due to the small Board size of five members, eachBoard as a whole performs the functions that might otherwise be performed byaudit or nominating committees.

 

In July 2002, upon completion of the E.ON-Powergenacquisition, the structures of the LG&E and KU Boards were changed torecognize practical and administrative efficiencies. The LG&E and KU Boardsand LG&E Energy Board, respectively, adopted resolutions providing that (i)the functions of the former Audit Committee would be performed by the LG&Eand KU Boards as a whole and (ii) certain functions of the former RemunerationCommittee under certain E.ON U.S. executive compensation plans would beperformed by the Senior Vice President – Corporate Executive Human Resources ofE.ON AG, currently Ms. Mirjam Arnold. Through May 2005, this duty was performedby Dr. Stefan Vogg.

 

**Audit and Auditor Matters**

 

Due to their small size, the LG&E and KU Boards asa whole perform the functions generally associated with an audit committee. TheBoards have determined that each of Victor A. Staffieri and S. Bradford Rivesis an audit committee financial expert as defined by Item 401(h) of RegulationS-K. All members of the Boards are officers or employees of LG&E or KU andtherefore are not independent within the meaning of Item 7(d)(3)(iv) ofSchedule 14A of the Securities Exchange Act of 1934.

 

During 2005, the Boards maintained direct and indirectcontact with the independent registered public accounting firm and with LG&E’sand KU’s internal Audit Services to review the following matters pertaining toLG&E and KU:  fees and servicesrelating to the independent registered public accounting firm; the adequacy ofaccounting and financial reporting procedures; the adequacy and effectivenessof internal accounting controls; the scope and results of the annual audit andany other matters relative to the audit of the Companies’ accounts andfinancial affairs that the Boards, Audit Services or the independent registeredpublic accounting firm deemed necessary. A report of the Boards acting as auditcommittee is included in the “Report on 2005 Audit Committee Matters” sectionof this document. A copy of the charter applicable to the Boards acting as auditcommittee is included as Appendix A of this document.

 

TheBoards are responsible for approving all audit and permissible non-auditservices to be provided by the independent registered public accounting firm inaccordance with LG&E’s and KU’s Pre-Approval Policy. Under the policy, theBoards annually review and pre-approve the services that may be provided by theindependent registered public accounting firm. These include audit services,audit-related services, tax services and some permissible non-audit services,up to designated fee or budget levels. New services or services exceeding theselevels will require separate pre-approval by the Boards. Under the policy, theBoards may delegate pre-approval authority to one or more of its members,subject to reporting of any decisions by such member to the Boards, or may relyupon certain annual or other pre-approvals by the E.ON Audit Committee underits policy, subject to certain reporting to the Boards.

 

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**Nominations**

 

Due to the small size of the Boards and the fact that E.ONU.S. owns all of LG&E’s and KU’s common stock and approximately 96% ofLG&E’s voting stock, the Boards have determined that it is appropriate notto have a standing nominating committee, nominating committee charter or policyregarding consideration of candidates for director, including shareholdernominees. The full Boards, with input from E.ON officers, select directornominees but have not established specific qualifications for nominees or aformal process for identifying and evaluating such nominees. All members of theBoards are officers or employees of LG&E or KU and therefore are notindependent within the meaning of Item 7(d)(2)(ii)(D) of Schedule 14A of theSecurities Exchange Act of 1934.

 

Nominations for the election of directors may be madeby the Boards, a committee thereof or by shareholders entitled to vote in theelection of directors generally. Shareholder nominations must provide timelywritten notice in writing to the Companies’ Secretary in accordance with theprocedures set forth in the section “Shareholder Proposals and Nominations” of thisdocument. The Boards’ chairman may void the nomination of any candidate forelection which was not made in compliance with applicable procedures.

 

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**COMPENSATION REPORT**

 

Following the July 1, 2002 completion of E.ON’sacquisition of Powergen, the Remuneration Committee of the Boards of Directorsof LG&E and KU was terminated.  As stated above, the former LG&E Energy,LG&E and KU Boards adopted resolutions providing that certain functions ofthe former Remuneration Committee under certain executive compensation planswould be performed by the Senior Vice President - Corporate Executive HumanResources of E.ON, currently Ms. Mirjam Arnold and, prior to May 2005, Dr.Stefan Vogg.  This report describes the compensation policies applicableto the Companies’ executive officers for the last completed fiscal year.

 

With respect to 2005, Dr. Vogg and Ms. Arnold, inconsultation with certain officers and the Management Board of E.ON AG and withthe Chief Executive Officer of E.ON U.S., LG&E and KU, who is also a memberof the Companies’ Boards of Directors (collectively, the “Compensation Group”),arrived at decisions regarding the compensation of LG&E’s and KU’sexecutive officers, including the setting of base pay levels for 2005, and theadministration and determination of awards under the E.ON Group Stock OptionProgram (the “E.ON SAR Plan”) and the LG&E Energy Corp. Performance UnitPlan (the “Long-Term Plan”) and of payments under the Short-Term Incentive Plan(the “Short-Term Plan”) as applicable to LG&E and KU.

 

The Companies’ executive compensation program and thetarget awards and opportunities for executives are designed to be competitivewith the compensation and pay programs of comparable companies, includingutilities, utility holding companies and companies in general industry, whereappropriate. The executive compensation program has been developed and implementedover time through consultation with, and upon the recommendations of,recognized executive compensation consultants. The Compensation Group and theBoards of Directors have continuing access to such consultants as desired, andare provided with independent compensation data for their review.

 

Set forth below is a report addressing LG&E’s andKU’s compensation policies during 2005 for their officers, including theexecutive officers named in the following tables. In many cases, the executiveofficers also serve in similar capacities for affiliates of LG&E and KU,including E.ON U.S. For each of the executive officers of LG&E and KU, thepolicies and amounts discussed below are for all services to LG&E, KU andtheir affiliates, during the relevant period.

 

**Compensation Philosophy**

 

During 2005, LG&E’s and KU’s executivecompensation program had three major components: (1) base salary; (2)short-term incentives; and (3) long-term incentives. The Companies developedtheir executive compensation program to focus on both short-term and long-termbusiness objectives that are designed to enhance overall shareholder value. Theshort-term and long-term incentives were premised on the belief that theinterests of executives should be closely aligned with those of shareholders.Based on this philosophy, these two portions of each executive’s totalcompensation package were linked to the accomplishment of specific results thatwere designed to benefit shareholders in both the short-term and long-term.

 

The executive compensation program also recognizedthat compensation practices must be competitive not only with utilities andutility holding companies, but also with companies in general industry toensure that a stable and successful management team can be recruited andretained.

 

Pursuant to this competitive market positioningphilosophy, in establishing compensation levels for all executive positions for2005, the Compensation Group reviewed and updated, by applying inflation ormarket index increases, competitive compensation information previouslygathered for United States general industry companies with revenue ofapproximately $3 billion****(the “SurveyGroup”) and established targeted total direct compensation (base salary plusshort-term incentives and long-term incentives) for each executive for 2005 togenerally approach the 50th percentile of the competitive range from the SurveyGroup.  Salaries, short-term incentives and long-term incentives for 2005are described below. (The composition of the Survey Group not necessarily thesame as that of the Dow Jones Utility Average or other comparative indices usedin a company performance graph in any proxy statement.)

 

The 2005 compensation information set forth in othersections of this document, particularly with respect to the

 

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tabular informationpresented, reflects the considerations set forth in this report. The BaseSalary, Short-Term Incentives, and Long-Term Incentives sections that followaddress the compensation philosophy for 2005 for all executive officers exceptthe Chief Executive Officer. The compensation of the Chief Executive Officer isdiscussed below under the heading “Chief Executive Officer Compensation.”

 

**Base Salary**

 

The base salaries for LG&E and KU executiveofficers for 2005 were intended to be competitive with the Survey Group atapproximately the 50th percentile of the base salary range for executives insimilar positions with companies in the Survey Group. Actual base salaries weredetermined based on a combination of market position, individual performanceand experience.

 

**Short-Term Incentives**

 

The Short-Term Plan provided for Company PerformanceAwards and Individual Performance Awards, each of which is expressed as apercentage of base salary and each of which is determined independent of theother. The Compensation Group established the performance goals for the CompanyPerformance Awards and Individual Performance Awards at the beginning of the2005 performance year. Payment of Company Performance Awards for executiveofficers was based on varying performance measures tied to each officer’sresponsible areas. These measures and goals included, among others, E.ON, E.ONU.S., LG&E and KU earnings before interest and taxes (“EBIT”)****targets.  The Compensation Group retains discretion toadjust the measures and goals as deemed appropriate. Payment of IndividualPerformance Awards was based 100% on management effectiveness. As stated, the measuresand goals varied within the executive officer group based upon the nature ofeach individual’s functional responsibilities.

 

For 2005, the aggregate short term incentive targetsfor named executive officers were based 60% on Company Performance Awardtargets and 40% on Individual Performance Award targets. The CompanyPerformance Award targets for named executive officers were****establishedat 30% of base salary, and the Individual Performance Award targets were establishedat 20% of base salary. Both awards were intended to be competitive with the 50thpercentile of such awards granted to comparable executives employed bycompanies in the Survey Group. The individual officers were eligible to receivefrom 0% to 200% of their targeted Company Performance Award amounts, dependentupon Company performance as measured by the relevant performance goals, andwere eligible to receive from 0% to 200% of their targeted IndividualPerformance Award amounts dependent upon individual performance as measured bymanagement effectiveness.

 

Using the relevant E.ON, E.ON U.S., LG&E/KU andother subsidiaries’ performance against goals in 2005, the Compensation Groupdetermined relative annual performance against targets for Company PerformanceAwards. Based upon this determination, Company Performance Awards for 2005 paidto the named executive officers were 116% of target and 35% of base salary.Based on determinations of management effectiveness, payouts for IndividualPerformance Awards to the named executive officers ranged from 150% to 165% oftarget and 30% to 33% of base salary.

 

**Long-Term Incentives**

 

The Compensation Group made competitive long-termgrants under the Long-Term Plan and the E.ON SAR Plan for each executive basedon the historic long-term compensation grants. The aggregate expected value ofthe awards is intended to approach the expected value of long-term incentivespayable to executives in similar positions for companies in the 50th percentileof the Survey Group, depending upon achievement of targeted Company andIndividual performance.

 

In 2005, the Compensation Group granted performanceunits under the Long-Term Plan to executive officers and senior management andstock appreciation rights (“SAR’s”) under the E.ON SAR Plan to executiveofficers. The amounts of the executive’s long-term award to be delivered in SAR’sand performance units were 25% and 75% respectively.  Under the Long-TermPlan, the future value of grants of performance units is dependent upon companyperformance against a value-added target.  The ultimate value of theperformance unit can range from 0% to 150% of the grant. Under the E.ON SARPlan, the amount paid to executives when they exercise their SAR’s, aftersatisfaction

 

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of two-year vesting andperformance criteria, is the difference between E.ON’s stock price at the timeof exercise and the stock price at the time of issuance, multiplied by thenumber of SAR’s exercised multiplied by the foreign exchange rate at the timeof the grant. ****The price atissuance is the average of the XETRA closing quotations for E.ON stock duringthe December prior to issuance.  The future value of the 2005 grants ofSAR’s was substantially dependent upon the changing value of E.ON shares in themarketplace.

 

**Chief Executive Officer Compensation**

 

Mr. Victor A. Staffieri was appointed Chief ExecutiveOfficer of LG&E and KU effective May 1, 2001. Mr. Staffieri’s compensationwas governed by the terms of an Employment and Severance Agreement entered intoon February 25, 2000, as amended (including upon his appointment as ChiefExecutive Officer) (the “2000 Agreement”). The 2000 Agreement was for aninitial term of two years commencing on December 11, 2000, with automaticannual extensions thereafter unless E.ON, the Companies or Mr. Staffieri givenotice of non-renewal. During 2004, Mr. Staffieri entered into an amendment tohis employment and severance agreement.

 

The 2000 Agreement, as amended, established theminimum levels of Mr. Staffieri’s base compensation, although the Chairman ofE.ON retains discretion to increase such compensation. For 2005, theCompensation Group established Mr. Staffieri’s compensation and short-term and long-termawards using adjusted comparisons (as described above under the heading “CompensationPhilosophy”) to relevant officers of companies in the Survey Group, includingutilities, and survey data from various compensation consulting firms. Mr.Staffieri also received Company contributions to the savings plan, similar tothose of other officers and employees. Details of Mr. Staffieri’s 2005compensation are set forth below.

 

***Base Salary***.     Mr. Staffieri was paid a total base salary of $700,164 during 2005, pursuant to the 2000 Agreement, as amended.The Compensation Group, in determining Mr. Staffieri’s 2005 annual salary, consideredthe general rate of growth in compensation levels as described above.

 

***Short-Term Incentives***.     Mr. Staffieri’s short-term incentive target award as Chief Executive Officerwas 70% of his 2005 base salary. As with other executive officers receivingshort-term incentive awards, Mr. Staffieri was eligible to receive more or lessthan the targeted amount, based on Company performance and individualperformance. His 2005 aggregate short-term incentive target was based 60% onachievement of Company Performance Award targets and 40% on achievement ofIndividual Performance Award targets.

 

For 2005, the Company Performance Award payout for Mr.Staffieri was 116% of target and 49% of his 2005 base salary and the IndividualPerformance Award payout was 170% of target and 48% of his 2005 basesalary.  Mr. Staffieri’s Company Performance Award was based on E.ON’s andE.ON U.S.’s EBIT and was calculated based upon annual Company performance asdescribed above under the heading “Short-Term Incentives.”  In determiningthe Individual Performance Award, the Compensation Group considered Mr.Staffieri’s effectiveness in several areas, including the financial andoperational performance of E.ON U.S., LG&E, KU and other subsidiaries andsatisfaction of individual goals such as implementing regulatory strategy andoverall management of E.ON U.S.

 

***Long-Term Incentive Grant***.     In 2005, Mr. Staffieri received 918,964 performance units for the 2005-2007performance period under the Long-Term Plan and 16,372 SAR’s under the E.ON SARPlan. These amounts were determined pursuant to the terms of his 2000Agreement, as amended, with an aggregate expected value representingapproximately 175% of his base salary. The terms of the performance units andSAR’s for Mr. Staffieri are the same as for other executive officers, asdescribed under the heading “Long-Term Incentives.”

 

***Long-Term Incentive Payout***.      Mr. Staffieri exercised SAR’s during 2005 as indicated in the “Option/SARExercises and Year-End Value Table.”

 

***Other***.     In2005, Mr. Staffieri also received a retention payment in connection with a 2002amendment to his employment and severance agreement in the amount of $891,670,including interest, as indicated in the Summary Compensation Table.

 

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Members of the Companies’ Boards of Directors

 

Victor A. Staffieri

John R. McCall

S. Bradford Rives

Paul W. Thompson

Chris Hermann

 

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**EXECUTIVE COMPENSATION AND OTHERINFORMATION**

 

The following table shows the cash compensation paidor to be paid by LG&E, KU or E.ON U.S., as well as certain othercompensation paid or accrued for those years, to the Chief Executive Officerand the next four highest compensated executive officers of LG&E and KU whowere serving as such at December 31, 2005, as required, in all capacities inwhich they served LG&E, KU, E.ON U.S. or its subsidiaries during 2003, 2004and 2005:

 

**SUMMARY COMPENSATION TABLE**

 
| ** **                             | ** ** | **Annual Compensation** | ** ** | **Long-Term Compensation** | ** ** | ** ** | ** **      |
|----------------------------------------|------------|------------------------------|------------|---------------------------------|------------|------------|-----------------|
| ** **                             | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** ** | ** **      | ** ** | ** ** | **Awards** | ** ** | **Payouts** | ** ** | ** ** | ** ** |
| ** **                             | ** ** | ** **                   | ** ** | **Salary**                      | ** ** | **Bonus**  | ** **      | **Other  Annual** | ** ** | **Restricted  Stock** | ** ** | **Securities  Underlying** | ** ** | **LTIP** | ** ** | **All Other** | ** ** |
| **Name and**                      | ** ** | ** **                   | **Comp.**  | ** **                      | **Awards** | ** ** | **Options/SAR** | ** ** | **Payouts** | ** ** | **Compensation** | ** ** |
| **Principal Position**            | ** ** | **Year**                     | ** ** | **($)**                         | ** ** | **($)**    | ** **      | **($)** | ** ** | **($)** | ** ** | **(#) (1)** | ** ** | **($) (2)** | ** ** | **($)** | ** ** |
| ** **                             | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Victor A.  Staffieri                   |       | 2005                         |       | 700,164                         |       | 674,985    |            | 38,011 |   | — |   | 16,372 |   | 0 |   | 950,900 | (3) |
| Chairman of the  Board,                |       | 2004                         |       | 673,236                         |       | 728,159    |            | 31,572 |   | — |   | 24,778 |   | 0 |   | 941,069 | (4) |
| President and Chief  Executive Officer |       | 2003                         |       | 648,902                         |       | 741,340    |            | 39,461 |   | — |   | 25,282 |   | 0 |   | 902,945 | (5) |
|                                   |       |                         |       |                            |       |       |            |   |   |   |   |   |   |   |   |   |   |
| John R. McCall                         |       | 2005                         |       | 425,401                         |       | 288,677    |            | 15,020 |   | — |   | 5,684 |   | 0 |   | 47,642 | (3) |
| Executive Vice  President,             |       | 2004                         |       | 408,949                         |       | 296,015    |            | 9,365 |   | — |   | 8,600 |   | 0 |   | 670,532 | (4) |
| General Counsel  and                   |       | 2003                         |       | 389,475                         |       | 313,933    |            | 198,681 | (6) | — |   | 8,671 |   | 0 |   | 47,529 | (5) |
| Corporate  Secretary                   |       |                         |       |                            |       |       |            |   |   |   |   |   |   |   |   |   |   |
|                                   |       |                         |       |                            |       |       |            |   |   |   |   |   |   |   |   |   |   |
| S. Bradford  Rives                     |       | 2005                         |       | 345,301                         |       | 223,962    |            | 9,429 |   | — |   | 3,691 |   | 0 |   | 48,312 | (3) |
| Chief Financial  Officer               |       | 2004                         |       | 332,001                         |       | 230,355    |            | 7,293 |   | — |   | 5,586 |   | 0 |   | 517,626 | (4) |
|                                   |       | 2003                         |       | 305,495                         |       | 243,607    |            | 6,880 |   | — |   | 5,345 |   | 0 |   | 423,923 | (5) |
|                                   |       |                         |       |                            |       |       |            |   |   |   |   |   |   |   |   |   |   |
| Paul W. Thompson                       |       | 2005                         |       | 322,303                         |       | 215,490    |            | 7,702 |   | — |   | 3,445 |   | 0 |   | 21,801 | (3) |
| Senior Vice  President -               |       | 2004                         |       | 286,258                         |       | 209,048    |            | 8,273 |   | — |   | 4,697 |   | 0 |   | 435,220 | (4) |
| Energy Services                        |       | 2003                         |       | 260,071                         |       | 187,526    |            | 7,232 |   | — |   | 4,792 |   | 0 |   | 10,151 | (5) |
|                                   |       |                         |       |                            |       |       |            |   |   |   |   |   |   |   |   |   |   |
| Chris Hermann                          |       | 2005                         |       | 273,004                         |       | 177,068    |            | 9,830 |   | — |   | 2,188 |   | 0 |   | 25,228 | (3) |
| Senior Vice  President -               |       | 2004                         |       | 262,412                         |       | 179,732    |            | 7,891 |   | — |   | 3,311 |   | 0 |   | 416,884 | (4) |
| Energy Delivery                        |       | 2003                         |       | 252,928                         |       | 166,267    |            | 4,905 |   | — |   | 3,378 |   | 0 |   | 22,463 | (5) |
|                                        |            |                              |            |                                 |            |            |                 |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**(1)**                                  Amounts for all years reflect E.ON SAR Plan grants.

 

**(2)**                                  No regular payouts were made under the Long-Term Planduring years 2005, 2004 or 2003 as the three-year performance periods had not yetbeen completed.

 

**(3)**                                  Includes employer contributions to 401(k) plan, nonqualifiedthrift plan, employer paid life insurance premiums, vacation sell back andretention payments in 2005 as follows: Mr. Staffieri $6,300, $36,550, $16,380,$0 and $891,670, respectively; Mr. McCall $6,300, $13,036, $23,398, $4,908and $0,  respectively; Mr. Rives $6,300,$40,970, $1,042, $0 and $0, respectively; Mr. Thompson, $4,883, $11,157, $2,430,$3,331 and $0, respectively; and Mr. Hermann, $6,300, $7,408, $7,320, $4,200and $0, respectively. The retention payments above are discussed in the “CompensationReport” and “Employment Contracts and Termination of Employment Arrangementsand Change in Control Provisions”.

 

(4)                                  Includesretention payments in 2004 as follows: Mr. Staffieri, $872,032; Mr. McCall,$613,425; Mr. Rives, $498,000; Mr. Thompson, $418,747; and Mr. Hermann, $393,615, respectively.

 

(5)                                  Includesretention payments in 2003 as follows: Mr. Staffieri, $837,375;Mr. McCall, $0; Mr. Rives, $403,556; Mr. Thompson, $0; and Mr. Hermann, $0,respectively.

 

(6)                                  Includesoverseas compensation or tax payments in 2003 of $178,445.

 

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**OPTION/SARGRANTS TABLE**

**Option/SARGrants in 2005 Fiscal Year**

 

The following tablecontains information at December 31, 2005, with respect to grants of E.ONAG stock appreciation rights (“SAR’s”) to the named executive officers:

 
| ** **           | ** ** | **Individual Grants**                                              | ** ** | ** **                                                                         | ** ** | ** **                                   | ** ** | ** **     | ** ** | **Potential**                                                                                                                        | ** ** | ** **      | ** ** |
|----------------------|------------|-------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **           | ** ** | **Number of  Securities  Underlying  Options/SAR’s  Granted** | ** ** | **Percent of  Total  Options/SAR’s  Granted to  Employees in** | ** ** | **Exercise  Or Base  Price  ($ /** | ** ** | **Expiration** | ** ** | **Realizable Value At  Assumed Annual  Rates of Stock  Price Appreciation  For Option Term** | ** ** | ** **      | ** ** |
| **Name**             | ** ** | **(#) (1)**                                                        | ** ** | **Fiscal Year (2)**                                                      | ** ** | **Share)**                                   | ** ** | **Date**       | ** ** | **0%($)**                                                                                                                            | ** ** | **5% ($)** | ** ** | **10%($)** | ** ** |
| ** **           | ** ** | ** **                                                              | ** ** | ** **                                                                         | ** ** | ** **                                   | ** ** | ** **     | ** ** | ** **                                                                                                                           | ** ** | ** **      | ** ** | ** ** | ** ** |
| Victor  A. Staffieri |       | 16,372                                                                  |       | 38.8                                                                               | %          | 88.27                                        |       | 12/31/2011     |       | 0                                                                                                                                    |       | 588,324         |       | 1,371,045 |   |
| John  R. McCall      |       | 5,684                                                                   |       | 13.5                                                                               | %          | 88.27                                        |       | 12/31/2011     |       | 0                                                                                                                                    |       | 204,253         |       | 475,997 |   |
| S.  Bradford Rives   |       | 3,691                                                                   |       | 8.7                                                                                | %          | 88.27                                        |       | 12/31/2011     |       | 0                                                                                                                                    |       | 132,635         |       | 309,096 |   |
| Paul  W. Thompson    |       | 3,445                                                                   |       | 8.2                                                                                | %          | 88.27                                        |       | 12/31/2011     |       | 0                                                                                                                                    |       | 123,795         |       | 288,496 |   |
| Chris  Hermann       |       | 2,188                                                                   |       | 5.2                                                                                | %          | 88.27                                        |       | 12/31/2011     |       | 0                                                                                                                                    |       | 78,625          |       | 183,230 |   |

 

----

| (1)    | E.ON SAR’s were awarded  with an exercise price at issuance equal to the average XETRA closing  quotations for E.ON stock during the December prior to issuance. The  SAR’s are exercisable over a seven-year period from their issuance date,  assuming satisfaction of an included initial two-year vesting and performance  criteria period. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                           |
| (2)    | Represents percentage  grants to E.ON U.S., LG&E and KU officers** **only.                                                                                                                                                                                                                                                                            |

 

11

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**OPTION/SAREXERCISES AND YEAR-END VALUE TABLE**

**AggregatedOption/SAR Exercises in 2005 Fiscal Year**

**AndFY-End Option/SAR Values**

 

The following table setsforth information with respect to the named executive officers concerning the valueof E.ON SAR's exercised during 2005 and of unexercised E.ON SAR’s held by themas of December 31, 2005:

 
| **Name**             | ** ** | **Shares  Acquired  On Exercise (#)(1)** | ** ** | **Value Realized  ($)** | ** ** | **Number of Securities  Underlying  Unexercised  Options/SAR’s  at FY-End (#)  Exercisable/Unexercisable** | ** ** | **Value of Unexercised  In-The-Money  Options/SAR’s at FY-End  ($)  Exercisable/Unexercisable** | ** ** |
|----------------------|------------|----------------------------------------------------|------------|------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|
|                 |       |                                               |       |                         |       |                                                                                                                                |       |                                                                                                                     |       |
| Victor  A. Staffieri |       | 25,282                                             |       | 599,233                      |       | 0 / 41,150                                                                                                                          |       | 0 / 1,286,048                                                                                                            |       |
| John  R. McCall      |       | 8,671                                              |       | 228,164                      |       | 0 / 14,284                                                                                                                          |       | 0 / 446,388                                                                                                              |       |
| S. Bradford  Rives   |       | 5,345                                              |       | 126,687                      |       | 0 / 9,277                                                                                                                           |       | 0 / 289,930                                                                                                              |       |
| Paul  W. Thompson    |       | 7,396                                              |       | 157,147                      |       | 0 / 8,142                                                                                                                           |       | 0 / 249,009                                                                                                              |       |
| Chris  Hermann       |       | 5,826                                              |       | 109,839                      |       | 0 / 5,499                                                                                                                           |       | 0 / 171,854                                                                                                              |       |

 

----

| (1) | Amounts shown are E.ON  SAR’s exercised. Under the E.ON SAR Plan no actual shares of E.ON are  acquired. |
|-----|---------------------------------------------------------------------------------------------------------------|

 

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**LONG-TERMINCENTIVE PLAN AWARDS TABLE**

**Long-TermIncentive Plan Awards in 2005 Fiscal Year**

 

The following tableprovides information concerning awards of performance units made in fiscal year2005 to the named executive officers under the Long-Term Plan.

 
| ** **           | ** ** | **Number  of Shares,  Units or  Other** | ** ** | **Performance or  Other Period  Until  Maturation** | ** ** | **Estimated Future Payouts under  Non-Stock Price Based Plans  (number of units)** | ** ** |
|----------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|
| **Name**             | ** ** | **Rights**                                        | ** ** | **Or Payout**                                            | ** ** | **Threshold(#)**                                                                                                           | ** ** | **Target(#)** | ** ** | **Maximum(#)** | ** ** |
| ** **           | ** ** | ** **                                        | ** ** | ** **                                                    | ** ** | ** **                                                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Victor  A. Staffieri |       | 918,964                                           |       | 12/31/2007                                                    |       | 459,482                                                                                                                    |       | 918,964 |   | 1,378,446 |   |
| John  R. McCall      |       | 319,050                                           |       | 12/31/2007                                                    |       | 159,525                                                                                                                    |       | 319,050 |   | 478,575 |   |
| S.  Bradford Rives   |       | 207,180                                           |       | 12/31/2007                                                    |       | 103,590                                                                                                                    |       | 207,180 |   | 310,770 |   |
| Paul  W. Thompson    |       | 193,380                                           |       | 12/31/2007                                                    |       | 96,690                                                                                                                     |       | 193,380 |   | 290,070 |   |
| Chris  Hermann       |       | 122,850                                           |       | 12/31/2007                                                    |       | 61,425                                                                                                                     |       | 122,850 |   | 184,275 |   |

 

Each performance unit awarded under the Long-Term Planrepresented the right to receive an amount payable in cash on the date ofpayout. The amount of the payout is determined by company performance over athree-year cycle. For awards made in 2005, the Long-Term Plan awards wereintended to reward executives on a three-year rolling basis dependent upon theachievement of a value-added target****by E.ON U.S.

 

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**Pension Plans**

 

The following table showsthe estimated pension benefits payable to a covered participant at normalretirement age under E.ON U.S.’s qualified defined benefit pension plans, aswell as non-qualified supplemental pension plans that provide benefits thatwould otherwise be denied participants by reason of certain Internal RevenueCode limitations for qualified plan benefits, based on the compensation that iscovered under the plan and years of service with E.ON U.S. and its predecessorsand subsidiaries:

 

**2005 PENSION PLAN TABLE**

 
| ** **       | ** ** | **Years of Service** | ** ** |
|------------------|------------|--------------------------------|------------|
| **Remuneration** | ** ** | **15**                         | ** ** | **20** | ** ** | **25** | ** ** | **30 or more** | ** ** |
|             |       |                           |       |   |   |   |   |   |   |
| $                | 100,000    |                           | $          | 41,512 |   | $ | 41,512 |   | $ | 41,512 |   | $ | 41,512 |   |
| $                | 200,000    |                           | $          | 105,512 |   | $ | 105,512 |   | $ | 105,512 |   | $ | 105,512 |   |
| $                | 300,000    |                           | $          | 169,512 |   | $ | 169,512 |   | $ | 169,512 |   | $ | 169,512 |   |
| $                | 400,000    |                           | $          | 233,512 |   | $ | 233,512 |   | $ | 233,512 |   | $ | 233,512 |   |
| $                | 500,000    |                           | $          | 297,512 |   | $ | 297,512 |   | $ | 297,512 |   | $ | 297,512 |   |
| $                | 600,000    |                           | $          | 361,512 |   | $ | 361,512 |   | $ | 361,512 |   | $ | 361,512 |   |
| $                | 700,000    |                           | $          | 425,512 |   | $ | 425,512 |   | $ | 425,512 |   | $ | 425,512 |   |
| $                | 800,000    |                           | $          | 489,512 |   | $ | 489,512 |   | $ | 489,512 |   | $ | 489,512 |   |
| $                | 900,000    |                           | $          | 553,512 |   | $ | 553,512 |   | $ | 553,512 |   | $ | 553,512 |   |
| $                | 1,000,000  |                           | $          | 617,512 |   | $ | 617,512 |   | $ | 617,512 |   | $ | 617,512 |   |
| $                | 1,100,000  |                           | $          | 681,512 |   | $ | 681,512 |   | $ | 681,512 |   | $ | 681,512 |   |
| $                | 1,200,000  |                           | $          | 745,512 |   | $ | 745,512 |   | $ | 745,512 |   | $ | 745,512 |   |
| $                | 1,300,000  |                           | $          | 809,512 |   | $ | 809,512 |   | $ | 809,512 |   | $ | 809,512 |   |
| $                | 1,400,000  |                           | $          | 873,512 |   | $ | 873,512 |   | $ | 873,512 |   | $ | 873,512 |   |
| $                | 1,500,000  |                           | $          | 937,512 |   | $ | 937,512 |   | $ | 937,512 |   | $ | 937,512 |   |
| $                | 1,600,000  |                           | $          | 1,001,512 |   | $ | 1,001,512 |   | $ | 1,001,512 |   | $ | 1,001,512 |   |
| $                | 1,700,000  |                           | $          | 1,065,512 |   | $ | 1,065,512 |   | $ | 1,065,512 |   | $ | 1,065,512 |   |
| $                | 1,800,000  |                           | $          | 1,129,512 |   | $ | 1,129,512 |   | $ | 1,129,512 |   | $ | 1,129,512 |   |
| $                | 1,900,000  |                           | $          | 1,193,512 |   | $ | 1,193,512 |   | $ | 1,193,512 |   | $ | 1,193,512 |   |

 

A participant’sremuneration covered by the Retirement Income Plan (the “Retirement IncomePlan”) is his or her average base salary and short-term incentive payment (asreported in the Summary Compensation Table) for the five calendar plan yearsduring the last ten years of the participant’s career for which such average isthe highest. The years of service for each named executive employed by E.ONU.S. at December 31, 2005 were as follows: 13 years for Mr. Staffieri; 11 years for Mr. McCall; 22 yearsfor Mr. Rives; 14 years for Mr. Thompson; and 35 years forMr. Hermann. Benefits shown are computed as a straight life single annuitybeginning at age 65.

 

Current Federal lawprohibits paying benefits under the Retirement Income Plan in excess****of $165,000 per year. Officers of E.ON U.S., LG&E andKU with at least one year of service with any company are eligible toparticipate in LG&E Energy’s Supplemental Executive Retirement Plan (the“Supplemental Executive Retirement Plan”), which is an unfunded supplementalplan that is not subject to the $165,000 limit. Presently, participants in theSupplemental Executive Retirement Plan consist of all of the eligible officersof E.ON U.S., LG&E and KU. This plan provides generally for retirementbenefits equal to 64% of average current earnings during the highest 36consecutive months prior to retirement, reduced by Social Security benefits, byamounts received under the Retirement Income Plan and by benefits from otheremployers. As with all other officers, Mr. Staffieri participates in theSupplemental Executive Retirement Plan described above.

 

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Estimated annual benefitsto be received under the Retirement Income Plan and the Supplemental ExecutiveRetirement Plan upon normal retirement at age 65 and after deduction of SocialSecurity benefits will be $860,577 for Mr. Staffieri; $398,253 forMr. McCall; $327,169 for Mr. Rives; $280,971 for Mr. Thompson;and $246,952 for Mr. Hermann.

 

**EMPLOYMENTCONTRACTS AND TERMINATION OF EMPLOYMENT**

**ARRANGEMENTSAND CHANGE IN CONTROL PROVISIONS**

 

In connection with theE.ON-Powergen merger, Messrs. Staffieri and McCall entered into amendmentsto their employment and severance agreements and Mr. Staffieri enteredinto a further amendment in early 2004. The original agreements, effective uponthe LG&E Energy-Powergen merger for two year terms, contained change incontrol provisions and the benefits described below. Pursuant to the amendedagreements, Mr. Staffieri received certain retention payments during 2003,2004 and 2005 described in the Compensation Report and the Summary CompensationTable.

 

Under the terms of hisrevised employment and severance agreement, Mr. Staffieri was entitled toadditional retentions payment of $800,570, plus interest, on each ofJuly 1, 2004 and January 1, 2005 (the two year and thirty monthanniversaries, respectively, of the E.ON-Powergen merger), which was initiallyto be credited into a deferred compensation account and which was then payablein a lump sum in cash. If during the term of his agreement, which isautomatically extended for subsequent one year terms unless terminated upon 90days notice, and within twenty four months following a change in control,Mr. Staffieri’s employment is terminated for reasons other than cause,disability or death, or for good reason, Mr. Staffieri shall be entitledto a severance amount equal to 2.99 times the sum of (1) his annual basesalary and (2) his bonus or “target” award paid or payable. If during theterm of his agreement but prior to a change in control, Mr. Staffieri’semployment is terminated for reasons other than cause, disability or death, orfor good reason, Mr. Staffieri will be entitled an amount equal to twotimes the sum of (a) his annual base salary and (b) target annualbonus.

 

Under the terms of hisrevised employment and severance agreement, on July 1, 2004,Mr. McCall received a lump sum cash payment equal to his annual salaryplus target annual bonus. If during the term of his agreement, which isautomatically extended for subsequent one year terms unless terminated upon 90days notice, and within twenty four months following a change in control orwithin forty-eight months of the E.ON-Powergen merger, Mr. McCall’semployment is terminated for reasons other than cause, disability or death, orfor good reason, Mr. McCall shall be entitled to a severance amount equalto 2.99 times the sum of (1) his annual base salary and (2) his bonusor “target” award paid or payable.

 

During 2002, inconnection with the E.ON-Powergen merger, Messrs. Thompson, Rives andHermann entered into new retention agreements under which these officers wereentitled to a payment equal to the sum of (1) their annual base salary and(2) their annual bonus or “target” award, in the event of their continuedemployment through the second anniversary of the E.ON-Powergen merger. During 2001,Messrs. Thompson, Rives and Hermann also entered into change of controlagreements with terms of 24 months, with automatic one year renewals if notterminated, which provide that, in the event of termination of employment forreasons other than cause, disability or death, or for good reason within the 24months following a change in control, these officers shall be entitled to aseverance amount equal to 2.99 times the sum of (1) their annual basesalary and (2) their bonus or “target” award paid or payable.

 

Pursuant to theemployment and change in control agreements, payments may be made toexecutives which would equal or exceed an amount which would constitute anondeductible payment pursuant to Section 280G of the Internal RevenueCode, if any. Additionally, executives receive continuation of certain welfarebenefits and payments in respect of accrued but unused vacation days and forout-placement assistance. A change in control encompasses certain merger andacquisition events, changes in board membership and acquisitions of votingsecurities.

 

**EQUITY COMPENSATION PLANINFORMATION**

 

The executive officers ofLG&E and KU do not participate in any compensation plans under which equitysecurities of LG&E, KU or any affiliate are authorized for issuance.

 

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**Report on 2005 Audit CommitteeMatters**

 

The Boards of Directors, consisting of five members, performed thefunctions of an audit committee (“Audit Committee”). The Audit Committee isgoverned by a charter adopted by the Boards of Directors, which sets forth theresponsibilities of the Audit Committee members. The Audit Committee held sixmeetings during 2005.

 

The financial statementsof Louisville Gas and Electric Company and of Kentucky Utilities Company areprepared by management, which is responsible for their objectivity andintegrity. With respect to the financial statements for the calendar year endedDecember 31, 2005, the Audit Committee reviewed and discussed the auditedfinancial statements and the quality of the financial reporting with managementand the independent registered public accounting firm. It also discussed withthe independent registered public accounting firm the matters required to bediscussed by Statement on Auditing Standards No. 61, *Communicationwith Audit Committees,* as amended, and received and discussed withthe independent registered public accounting firm the matters in the writtendisclosures required by Independence Standards Board Standard No. 1, *Independence Discussions with Audit Committees*.

 

Based upon the reviewsand discussions referred to above, the Audit Committee recommended to theBoards of Directors the inclusion of the audited financial statements inLouisville Gas and Electric Company’s and Kentucky Utilities Company’s AnnualReport on Form 10-K for the year ended December 31, 2005, for filingwith the Securities and Exchange Commission.

 

The following informationon independent audit fees and services is being provided in compliance with theSecurities and Exchange Commission rules on auditor independence.

 

1.               PricewaterhouseCoopersLLP fees for the periods ended December 31, 2005 and December 31,2004 are as follows:

 
| ** **                   | ** ** | **LG&E** | ** ** | ** ** | ** ** | **KU**   | ** ** | ** ** | ** ** |
|------------------------------|------------|--------------|------------|------------|------------|----------|------------|------------|------------|
| ** **                   | ** ** | **2005**     | ** ** | **2004**   | ** ** | **2005** | ** ** | **2004**   | ** ** |
| **AUDIT FEES**               |       |         |       |       |       |     |       |       |       |
| Audit  Fees                  |       | $            | 200,000    |       | $          | 188,333  |       | $          | 200,000    |   | $ | 188,333 |   |
| Internal  Controls           |       |         |       | 16,667     |       |     |       | 16,667     |       |
| Comfort  Letter Procedures   |       | 37,565       |       | —     |       | 81,160   |       | 34,360     |       |
| TOTAL  AUDIT FEES            |       | 237,565      |       | 205,000    |       | 281,160  |       | 239,360    |       |
|                         |       |         |       |       |       |     |       |       |       |
| **AUDIT RELATED FEES**       |       |         |       |       |       |     |       |       |       |
| Pension  Plan Audits         |       | 1,042        |       | 36,667     |       | 1,023    |       | 36,667     |       |
| Compliance  Related Software |       | 12,400       |       | —     |       | 12,393   |       | —     |       |
| TOTAL  AUDIT RELATED FEES    |       | 13,442       |       | 36,667     |       | 13,416   |       | 36,667     |       |
|                         |       |         |       |       |       |     |       |       |       |
| **TAX FEES**                 |       |         |       |       |       |     |       |       |       |
| Sales  Tax Services          |       | —       |       | 11,200     |       | —   |       | 4,480      |       |
| TOTAL  TAX FEES              |       | —       |       | 11,200     |       | —   |       | 4,480      |       |
|                         |       |         |       |       |       |     |       |       |       |
| **ALL OTHER FEES**           |       |         |       |       |       |     |       |       |       |
| Assorted  Fees               |       | —       |       | 405        |       | —   |       | 405        |       |
| TOTAL  ALL OTHER FEES        |       | —       |       | 405        |       | —   |       | 405        |       |
|                              |            |              |            |            |            |          |            |            |            |  |  |  |  |

 

2.               The Audit Committeeconsidered whether the independent registered public accounting firm’s provisionof non-audit services is compatible with maintaining the registered publicaccounting firm’s independence.

 

3.               The Audit Committeehas been advised by PricewaterhouseCoopers LLP that hours expended on the auditengagement were entirely performed by PricewaterhouseCoopers’ personnel.

 

16

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This report has beenprovided by the Board of Directors performing the functions of the AuditCommittee.

 

Victor A. Staffieri,Chairman

John R. McCall

S. Bradford Rives

Paul W. Thompson

Chris Hermann

 

17

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**SECTION 16(A) BENEFICIALOWNERSHIP REPORTING COMPLIANCE**

 

LG&E and KU have inplace procedures to assist their directors and officers in complying withSection 16(a) of the Exchange Act of 1934, which includes assistingthe director or officer in preparing forms for filing. Based upon informationprovided to LG&E and KU by individual directors and officers, LG&E andKU believe that in respect of the year ended December 31, 2005, all filingrequirements have been complied with.

 

**SHAREHOLDERPROPOSALS AND NOMINATIONS**

 

Under LG&E’s By-laws,shareholders intending to nominate a director for election at, or otherwisebring business before, the annual meeting must provide advance written notice.In general, such notice must be received by the Secretary of LG&E(a) not less than 90 days prior to the meeting date or (b) ifthe meeting date is not publicly announced more than 100 days prior to themeeting, by the tenth day following such announcement. Under KU’s By-laws,shareholders intending to nominate a director for election at, or otherwisebring business before, the annual meeting must provide advance written notice.In general, such notice must be received by the Secretary of KU (a) notless than 60 days prior to the meeting date or (b) if the meetingdate is not publicly announced more than 70 days prior to the meeting, bythe tenth day following such announcement.

 

To be proper, writtennotice must generally include (a) the name and address of the shareholderand of each nominee, (b) a representation that the shareholder is a holderof record entitled to vote at such meeting and intends to appear in person orby proxy, (c) a description of all arrangements between the shareholderand each nominee, (d) such other information regarding each nominee aswould be required to be included in a proxy statement under the Securities andExchange Commission rules had the nominee been nominated by the Board and(e) the consent of the each nominee to serve if elected. LG&Eshareholder proponents must also include the class and number of sharesbeneficially owned by the proponent. Proposals not properly submitted will beconsidered untimely.

 

**SHAREHOLDERCOMMUNICATIONS**

 

Shareholders can communicatewith the Boards by submitting a letter or writing addressed to a director careof:  John R. McCall, Secretary,Louisville Gas and Electric Company/Kentucky Utilities Company, P.O. Box32010, 220 West Main Street, Louisville, KY 40232. The Secretary may initiallyreview communications with directors and transmit a summary to the directors,but has discretion to exclude from transmittal any communications that arecommercial advertisements or other forms of solicitation or individual serviceor billing complaints (although all communications are available to thedirectors upon request). The Secretary will forward to the directors anycommunications raising substantial issues.

 

We encourage all directors to attend our annualmeeting. Three of our five directors were in attendance at the LG&E and KUannual meeting in 2005.

 

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**APPENDIXA**

 

**LOUISVILLEGAS AND ELECTRIC COMPANY**

**AND**

**KENTUCKYUTILITIES COMPANY**

 

**AUDITCOMMITTEE CHARTER**

**(Revisedand Approved January 20, 2006)**

 

**Mission Statement**

 

The Audit Committee (the “Committee”) is a Committee, respectively, ofthe Boards of Directors (each, separately, the “Board”) of Louisville Gas andElectric Company and of Kentucky Utilities Company (each, separately, the “Company”).Its primary function is to assist the Board in fulfilling its oversightresponsibilities by reviewing the integrity and internal controls over theCompany’s financial reporting process, and other systems of internal controlswhich management and the Board of Directors have established; the independenceand performance of the Independent Registered Public Accounting Firm(independent accountant) and the Audit Services function; and the process formonitoring compliance with the Code of Business Conduct and the Code of Ethicsfor the Chief Executive Officer (CEO) and Senior Financial Officers. Althoughoperating as a combined Committee, actions of the Committee related to anindividual Company only are applicable to such Company only, as appropriate.

 

**Composition**

 

The Committee will becomposed of at least three members of the Board of Directors who shall serve atthe pleasure of the Board. At least one member of the Committee shall bedesignated as a financial expert. In the event that the Board of Directors doesnot appoint a Committee, the functions of the Committee shall be performed bythe Board of Directors or its members.

 

Audit Committee memberswill be appointed by the Board of Directors. One of the members will bedesignated as the Committee’s Chairman. The Chairman will preside over theCommittee meetings and report Committee actions to the Board of Directors.

 

**Meetings**

 

The Committee will meeton a regular basis, but not less than quarterly, and will call special meetingsas circumstances require. It will meet privately, as necessary, with theDirector of Audit Services and the independent accountant in separate executivesessions to discuss any matters that the Committee, the Director of AuditServices, or the independent accountant believe should be discussed privately.The Committee may ask members of management or others to attend meetingsand provide pertinent information, as necessary.

 

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**Responsibilities**

 

1.               Provide an openavenue of communication between the internal auditors, the independentaccountant, and the Board of Directors.

 

2.               Review and update,where appropriate, the Committee’s charter annually.

 

3.               Recommend to theBoard of Directors on an annual basis the independent accountant to benominated, approve the compensation of the independent accountant, and reviewand approve the discharge of the independent accountant. The independentaccountant is ultimately responsible to the Board of Directors and the AuditCommittee.

 

4.               Pre-approve theaudit and non-audit services performed by the independent accountant asprescribed under the Sarbanes-Oxley Act of 2002, and related regulations of theSecurities and Exchange Commission.

 

5.               Review and concurin the appointment, replacement, reassignment or dismissal of the Director ofAudit Services.

 

6.               Require theindependent accountant to submit to the Committee on a periodic basis a formalwritten statement regarding independence of such independent accountant and allfacts and circumstances relevant thereto; discuss with the independentaccountant its independence; confirm and assure the independence of the AuditServices Department and the independent accountant, including a review ofmanagement consulting services and related fees provided by the independentaccountant; and recommend to the Board of Directors actions necessary to ensureindependence of the Audit Services Department and the independent accountant.Ascertain that the lead audit partner for the independent accountant(s) servesin that capacity for no more than five years. In addition, ascertain that anypartner other than the lead or concurring partner serves no more than sevenyears at the partner level on the Company’s audit.

 

7.               Monitor theCompany’s practices relative to the hiring of current or former employees ofthe independent accountant.

 

8.               Inquire ofmanagement, the Director of Audit Services, and the independent accountantabout significant risks or exposures, assess the steps management has taken tominimize such risk to the Company, and periodically review compliance with suchsteps.

 

9.               Approve the annualaudit plan, ensuring provisions are made for the monitoring of the independentaccountant’s services as required by the Audit Committee Pre-Approval Policy,and review the three-year plan of the internal auditing function. Review theindependent accountant’s proposed audit plan, including coordination with AuditServices’ annual audit plan.

 

10.         Review with the Directorof Audit Services and the independent accountant the coordination of auditeffort to assure completeness of coverage, reduction of redundant efforts, andthe effective use of audit resources.

 

11.         Consider with managementand the independent accountant the rationale for employing audit firms otherthan the principal independent accountant.

 

12.         Consider and review withthe independent accountant and the Director of Audit Services:

 

**a.**               Theadequacy of the Company’s internal controls, including computerized informationsystem controls and security;

** **

b.              Any relatedsignificant issues identified by the independent accountant and Audit Services,together with management’s responses thereto;

 

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c.               Material writtencommunications between the independent accountant and management, such as anymanagement letter or schedule of unadjusted audit differences; and

 

d.              Significantdeficiencies and/or material weaknesses in the internal controls over financialreporting identified during the process of management’s assessment of suchinternal controls or by the independent accountant in their testing ofmanagement’s assessment to determine the proper disposition of deficienciesand/or weaknesses identified.

 

13.         Review with managementand the independent accountant at the completion of the annual 10Qs and 10Kaudits:

 

a.               The Company’sannual financial statements and related footnotes;

 

b.              The independentaccountant’s audit of the financial statements and the report thereon;

 

c.               The independentaccountant’s judgement about the quality and appropriateness of the Company’saccounting principals as applied to its financial reporting;

 

d.              Any significantchanges required in the independent accountant’s audit plan and scope;

 

e.               Any seriousdifficulties or disputes with management encountered during the course of theaudit; and

 

f.                 Other mattersrelated to the conduct of the audit which are to be communicated to theCommittee under generally accepted auditing standards.

 

14.         Review with managementsuch appropriate notices or reports as may be required to be filed onbehalf of the Committee with the regulatory authorities, exchanges or includedin the Company’s proxy materials or otherwise, pursuant to law or exchangeregulations. Review with management and the independent accountant the effectof any regulatory and accounting initiatives, as well as off-balance sheetstructures, if any.

 

15.         Consider and review withmanagement and the Director of Audit Services:

 

a.               Any difficultiesencountered in the course of their audits, including any restrictions on thescope of their work or access to required information;

 

b.              Any significantchanges required in their audit plan;

 

c.               Any significantaudit findings and management’s responses thereto;

 

d.              The Audit ServicesDepartment budget, staffing, and staff qualifications;

 

e.               The Audit ServicesDepartment charter; and

 

f.                 Audit Services’compliance with the Institute of Internal Auditors’ Standards for theProfessional Practice of Internal Auditing.

 

16.         Provide oversight of theCompany’s Code of Business Conduct, Code of Ethics for the CEO and SeniorFinancial Officers, and anti-fraud programs. The Committee’s oversight roleincludes:

 

a.               Periodic review,reassessment, and approval of the Company’s Code of Business Conduct and Codeof Ethics for the CEO and Senior Financial Officers;

 

b.              A review, with theDirector of Audit Services, of the results of the annual Code of BusinessConduct questionnaire;

 

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c.               Creation,maintenance, and review of procedures for:

 

i.                                          Receipt,retention, and treatment of complaints received by the Company through theemployee helpline, whistleblower process, or any other means regardingaccounting, internal accounting controls, or auditing matters that may besubmitted by any party internal or external to the organization;

 

ii.                                       Confidential,anonymous submissions by employees of concerns regarding questionableaccounting or auditing matters; and

 

iii.                                    Reviewof any complaints received for appropriate, timely follow-up and resolution bymanagement.

 

17.   Reviewthe results of any audits of officers’ expense reimbursements, perquisites, andofficer use of corporate assets by Audit Services or the independentaccountant. As considered necessary by the Committee, review policies andprocedures governing these areas.

 

18.   Reviewlegal and regulatory matters that may have a material impact on thefinancial statements, related Company compliance policies and programs, andreports received from regulators.

 

19.   ReportCommittee actions to the Board of Directors with such recommendations as theCommittee may deem appropriate.

 

20.   Conductor authorize investigations into any matters within the Committee’s scope ofresponsibilities, and retain independent counsel, accountants or others toassist it in the conduct of any investigation.

 

21.   Conducta periodic review of the Committee’s effectiveness and performance.

 

22.   Assumesuch other duties and considerations as may be delegated to the Committeeby the Board of Directors, or required of the Committee upon the request of theBoard of Directors from time to time pursuant to a duly adopted resolution ofthe Board of Directors.

 

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