<PAGE>
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549

                               ------------------

                                   FORM 10-K

|X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 (NO FEE REQUIRED)

For the fiscal year ended December 31, 1996

                                      OR

|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                          Commission File No. 2-26720

--------------------------------------------------------------------------------

                      LOUISVILLE GAS AND ELECTRIC COMPANY
            (Exact name of registrant as specified in its charter)

--------------------------------------------------------------------------------

           KENTUCKY                                             61-0264150
(State or other jurisdiction of                               (I.R.S.Employer
incorporation or organization)                              Identification No.)

220 W. Main Street
P. O. Box 32010                                               (502) 627-2000
Louisville, Kentucky 40232                              (Registrant's telephone
(Address of principal executive offices             number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

                                                        Name of each exchange on
                  Title of each class                       which registered
                  -------------------                   ------------------------
First Mortgage Bonds, Series due July 1, 2002, 7 1/2%   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

                  5% Cumulative Preferred Stock, $25 Par Value
              $5.875 Cumulative Preferred Stock, Without Par Value
            Auction Rate Series A Preferred Stock, Without Par Value
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|.  No |_|.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

As of February 28, 1997, the aggregate market value of the registrant's voting
stock held by non-affiliates was $15,162,170 and the number of outstanding
shares of the registrant's common stock, without par value, was 21,294,223 all
of which were held by LG&E Energy Corp.

                       DOCUMENTS INCORPORATED BY REFERENCE

The proxy statement of Louisville Gas and Electric Company filed with the
Commission on March 26, 1997, is incorporated by reference into Part III of this
Form 10-K.
<PAGE>

                                TABLE OF CONTENTS


                                     PART I                              PAGE
                                                                         ----

   Item  1. Business...................................................     1
              General..................................................     1
              Electric Operations......................................     3
              Gas Operations...........................................     5
              Regulation and Rates.....................................     6
              Construction Program and Financing.......................     7
              Coal Supply..............................................     7
              Gas Supply...............................................     8
              Environmental Matters....................................     9
              Labor Relations..........................................    10
              Employees................................................    10

   Item  2. Properties.................................................    11

   Item  3. Legal Proceedings..........................................    12

   Item  4. Submission of Matters to a Vote of Security Holders........    13

   Executive Officers of the Company...................................    13

                                     PART II

   Item  5. Market for the Registrant's Common Equity and Related
              Stockholder Matters......................................    15

   Item  6. Selected Financial Data....................................    15

   Item  7. Management's Discussion and Analysis of Results of
              Operations and Financial Condition.......................    16

   Item  8. Financial Statements and Supplementary Data................    24

   Item  9. Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure.................................    45

                                    PART III

   Item 10. Directors and Executive Officers of the Registrant (a).....    46

   Item 11. Executive Compensation (a).................................    46

   Item 12. Security Ownership of Certain Beneficial Owners
              and Management (a).......................................    46

   Item 13. Certain Relationships and Related Transactions (a).........    46

                                     PART IV

   Item 14. Exhibits, Financial Statement Schedules,
              and Reports on Form 8-K..................................    46

   Signatures .........................................................    63

(a) Incorporated by reference.
<PAGE>

                                      PART I

ITEM 1.  BUSINESS.

General

Incorporated July 2, 1913, Louisville Gas and Electric Company (the Company) is
an operating public utility that supplies natural gas to approximately 277,000
customers and electricity to approximately 351,000 customers in Louisville and
adjacent areas in Kentucky. The Company's service area covers approximately 700
square miles in 17 counties and has an estimated population of 800,000. Included
in this area is the Fort Knox Military Reservation, to which the Company
transports gas and provides electric service, but which maintains its own
distribution systems. The Company also provides gas service in limited
additional areas. The Company's coal-fired electric generating plants, which are
all equipped with systems to remove sulfur dioxide, produce most of the
Company's electricity; the remainder is generated by a hydroelectric power plant
and combustion turbines. Underground natural gas storage fields help the Company
provide economical and reliable gas service to customers.

In August 1990, the Company and LG&E Energy Corp. (Energy Corp.) implemented a
corporate reorganization pursuant to a mandatory share exchange whereby each
share of outstanding common stock of the Company was exchanged on a
share-for-share basis for the common stock of Energy Corp. The reorganization
created a corporate structure that gives the holding company the flexibility to
take advantage of opportunities to expand into other businesses while insulating
the Company's utility customers and senior security holders from risks
associated with such businesses. The Company's preferred stock and first
mortgage bonds were not exchanged and remained securities of the Company.

The Company's Trimble County Unit 1 (Trimble County), a 495-megawatt, coal-fired
electric generating unit, which the Company began constructing in 1979, was
placed in commercial operation on December 23, 1990. Trimble County had been
subject to numerous reviews by the Public Service Commission of Kentucky
(Kentucky Commission or Commission). On December 8, 1995, the Commission
approved a settlement agreement filed by the Company and all intervenors in the
Trimble County proceedings, including various consumer interest groups and
government agencies, that in effect, resolved all of the regulatory and legal
issues related to the appropriate ratemaking treatment to exclude 25% of the
Trimble County costs from customer rates. The Company owns a 75% undivided
interest in Trimble County. For a more detailed discussion of the proceedings
relating to Trimble County, see Electric Operations and Notes 14 and 15 of Notes
to Financial Statements under Item 8.

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


                                       -1-
<PAGE>

allegedly contribute to ozone problems in the Northeast. While management is
unable to predict the outcome or exact impact of these ongoing regulatory
proceedings, the Company continues to be well-positioned in the market to be a
"clean" power provider without the large capital expenditures that are expected
to be incurred by many other utilities. For a more detailed discussion of the
Clean Air Act and other environmental issues, see Environmental Matters under
this Item, Item 3, Item 7, and Note 13 of the Notes to Financial Statements
under Item 8.

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

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

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

By using gas storage fields strategically, the Company can buy gas when prices
are low, store it, and retrieve the gas when demand is high. Accessing least
cost gas was made easier in November 1993 when the Federal Energy Regulatory
Commission Order No. 636 went into effect. Previously, the Company and other
utilities purchased most of their gas services from pipeline companies. The
order "unbundled" gas services, allowing utilities to purchase gas,
transportation, and storage services separately from many different sources.
Currently, the Company buys competitively priced gas from several large
producers under contracts of varying duration. By purchasing from multiple
suppliers and storing any excess gas, the Company is able to secure favorably
priced gas for its customers. Without storage capacity, the Company would be
forced to buy additional gas when customer demand increases, which is usually
when the price is highest.

During 1995, the Company negotiated a five year transportation agreement with
Tennessee Gas Pipeline Company (Tennessee) to become the Company's second
natural gas pipeline transporter. The agreement with Tennessee became effective
November 1, 1996. For many years, Texas Gas Transmission Corporation (Texas Gas)
has been the sole provider of gas transport services to the Company. For further
discussion, see Gas Supply.


                                       -2-
<PAGE>

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

                                                (Thousands of $)
                                  ---------------------------------------------
                                  Electric      Gas       Combined   % Combined
                                  --------    --------    --------   ----------
Residential ...................   $202,318    $125,327    $327,645        44%
Commercial ....................    163,027      47,415     210,442        29
Industrial ....................    110,914      21,229     132,143        18
Public authorities ............     54,318      11,731      66,049         9
                                  --------    --------    --------       ---
  Total-ultimate consumers ....    530,577     205,702     736,279       100%
                                                                         ===
Sales for resale ..............     67,854        --        67,854
Gas transportation-net ........       --         6,850       6,850
Miscellaneous .................      8,265       1,867      10,132
                                  --------    --------    --------
  Total .......................   $606,696    $214,419    $821,115
                                  ========    ========    ========

See Note 16 of Notes to Financial Statements under Item 8 for financial
information concerning segments of business for the three years ended
December 31, 1996.

Electric Operations

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

                                            1996          1995          1994
                                         -----------  ------------   -----------
ELECTRIC OPERATING REVENUES
(Thousands of $):
  Residential .........................  $   202,318  $    201,357   $   194,145
  Small commercial and industrial .....       74,034        73,074        70,916
  Large commercial ....................       88,993        87,497        84,931
  Large industrial ....................      110,914       110,800       108,004
  Public authorities ..................       54,318        53,861        53,191
  Refund - Trimble County settlement ..         --         (28,300)         --
                                         -----------  ------------   -----------
   Total-ultimate consumers ...........      530,577       498,289       511,187
  Sales for resale ....................       67,854        37,471        42,720
  Miscellaneous .......................        8,265         6,577         5,039
                                         -----------  ------------   -----------
   Total ..............................  $   606,696  $    542,337   $   558,946
                                         ===========  ============   ===========

ELECTRIC SALES (Thousands of kwh):
  Residential .........................    3,382,124     3,415,225     3,204,330
  Small commercial and industrial .....    1,130,558     1,112,130     1,073,152
  Large commercial ....................    1,850,294     1,802,035     1,729,668
  Large industrial ....................    3,058,723     3,023,543     2,874,411
  Public authorities ..................    1,122,147     1,113,063     1,085,741
                                         -----------  ------------   -----------
   Total-ultimate consumers ...........   10,543,846    10,465,996     9,967,302
  Sales for resale ....................    3,589,090     2,000,607     2,315,311
                                         -----------  ------------   -----------
   Total ..............................   14,132,936    12,466,603    12,282,613
                                         ===========  ============   ===========

At December 31, 1996, the Company had 351,295 electric customers.

The Company uses efficient coal-fired boilers that are fully equipped with
sulfur dioxide removal systems to generate electricity. The Company's system
wide emission rate for sulfur dioxide in 1996 was approximately .96 lbs./MMBtu
of heat input, which is significantly below the Phase II limit of 1.2 lbs./MMBtu
established by the Clean Air Act Amendments for the year 2000.


                                       -3-
<PAGE>

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

The Company's current reserve margin is 16%. At February 28, 1997, the Company
owned steam and combustion turbine generating facilities with a capacity of
2,512 Mw and an 80 Mw hydroelectric facility on the Ohio River. See Item 2,
Properties.

The Company is a participating owner with 14 other electric utilities of Ohio
Valley Electric Corporation whose primary customer is the Portsmouth Area
uranium-enrichment complex of the U.S. Department of Energy at Piketon, Ohio.
The Company has direct interconnections with 11 utility companies in the area
and has agreements with each interconnected utility for the purchase and sale of
capacity and energy. The Company also has agreements with an increasing number
of entities throughout the United States for the purchase and/or sale of
capacity and energy and for the utilization of their bulk transmission system.

The Illinois Municipal Electric Agency (IMEA), based in Springfield, Illinois,
which is an agency of 30 municipalities that own and operate their own electric
systems, has a 12.12% ownership interest in the Company's Trimble County Unit 1.
The Indiana Municipal Power Agency (IMPA), based in Carmel, Indiana, has a
12.88% ownership interest in the Trimble County Unit. IMPA is composed of 31
municipalities that have joined together to meet their long-term electric power
needs. Both IMEA and IMPA pay their proportionate share for operation and
maintenance expenses of Trimble County and for fuel and reactant used. They are
also responsible for their proportionate share of incremental capital assets
acquired. See Note 15 of Notes to Financial Statements under Item 8 for further
discussion.


                                       -4-
<PAGE>

Gas Operations

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

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

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

At December 31, 1996, the Company had 277,493 gas customers.

The Company has underground natural gas storage fields that help provide
economical and reliable gas service to ultimate consumers.

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

The all-time maximum day gas sendout of 545,000 Mcf occurred on Sunday, January
20, 1985, when the average temperature for the day was -11 degrees Fahrenheit.
During 1996, the maximum day gas sendout was 521,000 Mcf, occurring on February
2, when the average temperature for the day was 6 degrees Fahrenheit. Supply on
that day consisted of 202,000 Mcf from purchases, 275,000 Mcf delivered from
underground storage, and 44,000 Mcf transported for industrial customers. For
further discussion, see Gas Supply.

Under FERC Order No. 636, pipelines may recover costs associated with the
transition to and implementation of this order from pipeline customers,
including the Company. The Company is recovering these costs from its customers
through its gas supply clause.


                                       -5-
<PAGE>

Regulation and Rates

The Kentucky Commission has regulatory jurisdiction over the rates and service
of the Company and over the issuance of certain of its securities. The Company
is a "public utility" as defined in the Federal Power Act, and is subject to the
jurisdiction of the Department of Energy and the FERC with respect to the
matters covered in such Act, including the sale of electric energy at wholesale
in interstate commerce. In addition, the FERC has sole jurisdiction over the
issuance by the Company of short-term securities.

For a discussion of current regulatory matters, see Rates and Regulation under
Item 7 and Note 2 of Notes to Financial Statements under Item 8.

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

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

On December 8, 1995, the Commission approved a settlement agreement that, in
effect, resolved all the regulatory and legal issues related to the appropriate
ratemaking treatment to exclude 25% of the Trimble County plant costs from
customer rates. See Note 14 of Notes to Financial Statements under Item 8 for
further discussion of this matter.

On April 6, 1995, in response to an application filed by the Company, the
Commission approved, with modifications, an environmental cost recovery
surcharge that increased electric revenues by $3.2 million in 1995 and $2.4
million in 1996. The surcharge became effective May 1, 1995. An appeal of the
Commission's April 6 order by various intervenors in the proceeding (including
the Kentucky Attorney General) is currently pending in the Franklin Circuit
Court of Kentucky. The Company is contesting the legal challenges to the
surcharge, but cannot predict the outcome of the appeal. The amount of refunds
that may be ordered, if any, are not expected to have a material adverse effect
on the Company's financial position or results of operations. See Rates and
Regulation under Item 7 for a further discussion.

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


                                       -6-
<PAGE>

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

As part of the corporate reorganization whereby the Company became the
subsidiary of LG&E Energy Corp., the Company obtained the approval of the
Kentucky Commission. The order of the Kentucky Commission authorizing the
Company to reorganize into a holding company structure contains certain
provisions, which, among other things, ensure the Kentucky Commission access to
books and records of Energy Corp. and its affiliates which relate to
transactions with the Company; requires Energy Corp. and its subsidiaries to
employ accounting and other procedures and controls to protect against
subsidization of non-utility activities by the Company's customers; and
precludes the Company from guaranteeing any obligations of Energy Corp. without
prior written consent from the Kentucky Commission. In addition, the order
provides that the Company's Board of Directors has the responsibility to use its
dividend policy consistent with preserving the financial strength of the Company
and that the Kentucky Commission, through its authority over the Company's
capital structure, can protect the Company's ratepayers from the financial
effects resulting from non-utility activities.

Construction Program and Financing

The Company's construction program is designed to ensure that there will be
adequate capacity and reliability to meet the electric and gas needs of its
service area. These needs are continually being reassessed and appropriate
revisions are made, when necessary, in construction schedules. The Company's
estimates of its construction expenditures can vary substantially due to
numerous items beyond the Company's control, such as changes in rates, economic
conditions, construction costs, and new environmental or other governmental laws
and regulations.

During the five years ended December 31, 1996, gross property additions amounted
to $496 million. Internally generated funds for the five year period were
sufficient to provide for all of these gross additions. The gross additions
during this period amounted to approximately 18% of total utility plant at
December 31, 1996, and consisted of $368 million for electric properties and
$128 million for gas properties. Gross retirements during the same period were
$94 million, consisting of $76 million for electric properties and $18 million
for gas properties.

At December 31, 1996, the Company's embedded cost of long-term debt was 6.05%
and its ratio of earnings to fixed charges was 5.07. See Exhibit 12. For a
further discussion of construction expenditures and financing, see Liquidity and
Capital Resources under Item 7.

Coal Supply

Over 90% of the Company's present electric generating capacity is coal-fired,
the remainder being made up of a hydroelectric plant and combustion turbine
peaking units fueled by natural gas and oil. Coal will be the predominant fuel
used by the Company in the foreseeable future, with natural gas and oil being
used for peaking capacity and flame stabilization in coal-fired boilers or in
emergencies. The Company has no nuclear generating units and has no plans to
build any in the foreseeable future.


                                       -7-
<PAGE>

In January 1996, the Company bought out the last year of its three year contract
with Andalex Resources, Inc. at a cost of $3.5 million. The Kentucky Commission
allowed the recovery of the buyout expense through the Company's fuel adjustment
clause. As a result of the buyout of the coal contract, the Company's customers
realized a net savings in excess of $1 million.

The Company has entered into coal supply agreements with various suppliers for
coal deliveries for 1997 and beyond. The Company normally augments its coal
supply agreements with spot market purchases which, during 1996, were about 10%
of total purchases. The Company has a coal inventory policy, which is in
compliance with the Kentucky Commission's directives and which the Company
believes provides adequate protection under most contingencies. The Company had
on hand at December 31, 1996, a coal inventory of approximately 650,000 tons, or
a 36 day supply.

The Company expects, for the foreseeable future, to continue purchasing most of
its coal from western Kentucky and southwest Indiana, which has a sulfur content
in the 2%-4.5% range. The abundant supply of this relatively low priced coal,
combined with present and future desulfurization technologies, is expected to
enable the Company to continue to provide adequate electric service in a manner
acceptable under existing environmental laws and regulations.

Coal for the Company's Mill Creek plant is delivered by rail and barge.
Deliveries to the Cane Run and Trimble County plants are by rail and barge,
respectively.

The average delivered cost of coal purchased by the Company, per ton and per
million Btu, for the periods shown were as follows:

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

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

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

Gas Supply

Prior to the implementation of FERC Order No. 636, the Company had purchased
natural gas and pipeline transportation services from Texas Gas Transmission
Corporation (Texas Gas). The Company now purchases only transportation services
from Texas Gas and, beginning in 1996, Tennessee Gas Pipeline Company
(Tennessee). In addition, the Company purchases natural gas from many other
sources under contracts for varying periods of time.

Under Order No. 636, pipelines may recover costs associated with the transition
to and implementation of this order from pipeline customers, including the
Company. The Commission issued an order, based on proceedings that were held to
investigate the impact of Order No. 636 on utilities and ratepayers in Kentucky,
providing that transition costs assessed on utilities by the pipelines, which
are clearly identifiable as being related to the cost of the commodity itself,
are appropriate to be recovered from customers through the gas supply clause.
Transition costs are billed pursuant to orders issued by FERC in transition cost
regulatory proceedings.


                                       -8-
<PAGE>

The Company transports on the Texas Gas system under No-Notice Service (NNS) and
Firm Transportation (FT) rates. During the winter months, the Company has
184,900 MMBtu (180,390 Mcf) per day in NNS. The Company does not transport on
the Texas Gas system under FT rates during the winter months. During the summer
months, the Company's NNS level is 111,000 MMBtu (108,293 Mcf) per day, and its
FT service level is 24,000 MMBtu (23,415 Mcf) per day. Each of these NNS and FT
agreements with Texas Gas expire in equal portions in 1998, 2000, and 2001. Each
agreement includes a unilateral five year roll-over provision exercisable at the
Company's option. Effective November 1, 1996, the Company also terminated a
transportation agreement with Texas Gas which provided for 30,000 MMBtu (29,268
Mcf) per day in FT service throughout the year. On November 1, 1996, the Company
initiated service under a five year transportation agreement with Tennessee for
30,000 MMBtu (28,986 Mcf) per day in firm transportation service under
Tennessee's Rate FT-A. For the previous thirty years, Texas Gas had been the
sole provider of gas transportation services to the Company.

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

The Company also has a portfolio of supply arrangements with various suppliers
in order to meet its firm sales obligations. These gas supply arrangements
include pricing provisions which are market-responsive. These firm supplies, in
tandem with pipeline transportation services, provide the reliability and
flexibility necessary to serve the Company's customers.

The Company operates five underground gas storage fields with a current working
gas capacity of 14.6 million Mcf. Gas is purchased and injected into storage
during the summer season and is then withdrawn to supplement pipeline supplies
to meet the gas-system load requirements during the winter heating season.

The estimated maximum deliverability from storage during the early part of the
1995-1996 heating season was approximately 373,000 Mcf per day. Deliverability
decreases during the latter portion of the heating season as the storage
inventory is reduced by seasonal withdrawals.

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

Environmental Matters

Protection of the environment is a major priority for the Company. The Company
engages in a variety of activities within the jurisdiction of federal, state,
and local regulatory agencies. Those agencies have issued the Company permits
for various activities subject to air quality, water quality, and waste
management laws and regulations. For the five year period ending with 1996,
expenditures for pollution control facilities represented $101 million or 20% of
total construction expenditures. The cost of operating and maintaining
scrubber-related facilities amounted to $22 million in 1996 and $21 million in
1995. See Note 13 of Notes to Financial Statements under Item 8 for a discussion
of specific environmental proceedings affecting the Company.


                                       -9-
<PAGE>

Labor Relations

The Company's approximately 1,500 operating, maintenance, and construction
employees are members of the International Brotherhood of Electrical Workers
(IBEW) Local 2100. The current three year contract will expire in November 1998.

Employees

The Company had 2,500 full-time employees at December 31, 1996.


                                       -10-
<PAGE>

ITEM 2.  PROPERTIES.

The Company's power generating system consists of the coal-fired units operated
at its three steam generating stations. Combustion turbines supplement the
system during peak or emergency periods. At February 28, 1997, the Company owned
the following electric generating stations:

                                      Year in
Steam Stations:                       Service       Capability Rating (Kw)
                                      -------       ----------------------
  Mill Creek-Kosmosdale, Ky.
   Unit 1..........................    1972         303,000
   Unit 2..........................    1974         301,000
   Unit 3..........................    1978         386,000
   Unit 4..........................    1982         480,000    1,470,000
                                                    -------
  Cane Run-near Louisville, Ky.
   Unit 4..........................    1962         155,000
   Unit 5..........................    1966         168,000
   Unit 6..........................    1969         240,000      563,000
                                                    -------
  Trimble County-Bedford, Ky.
   Unit 1..........................    1990                      371,000(a)

Combustion Turbine Generators
 (Peaking capability):
  Zorn.............................    1969          16,000
  Paddy's Run......................    1968          43,000
  Cane Run.........................    1968          16,000
  Waterside........................    1964          33,000      108,000
                                                     -------   ----------
                                                               2,512,000
                                                               ==========

     (a)  Amount shown represents the Company's 75% interest in Trimble County.
          The Company is responsible for operation of Unit 1 and is reimbursed
          by IMEA and IMPA for expenditures related to Trimble County based on
          their proportionate share of ownership interest. See Note 15 of Notes
          to Financial Statements, Jointly Owned Electric Utility Plant, under
          Item 8 for further discussion on ownership.

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

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

The Company's gas transmission system includes 178 miles of transmission mains,
and the gas distribution system includes 3,528 miles of distribution mains.

The Company operates underground gas storage facilities with a current working
gas capacity of approximately 14.6 million Mcf. See Gas Supply under Item 1.

In 1990, the Company entered into an operating lease for its corporate office
building located in downtown Louisville, Kentucky. The lease is for a period of
15 years and is scheduled to expire in June 2005.


                                       -11-
<PAGE>

Other properties owned by the Company include office buildings, service centers,
warehouses, garages, and other structures and equipment, the use of which is
common to both the electric and gas departments.

The trust indenture securing the Company's First Mortgage Bonds constitutes a
direct first mortgage lien upon much of the property owned by the Company.

ITEM 3. LEGAL PROCEEDINGS.

Rates, Regulatory Matters, and Trimble County Generating Plant

For a discussion of current regulatory matters and a detailed discussion of the
Trimble County Unit 1 settlement agreement, see Rates and Regulation under
Item 7 and Notes 2 and 14 of Notes to Financial Statements under Item 8.

Statewide Power Planning

In March 1995, the Commission staff issued its report on its review of the
Company's 1993 biennial Integrated Resource Plan. The Staff Report specifically
found that the Company's plan contained some of the better analyses among those
filed by the electric utilities under the Commission's jurisdiction, and
presented several suggestions for the Company's consideration when it develops
its next plan. In an order issued March 17, 1995, the Commission formally closed
its proceeding for the review of the Company's plan. On May 5, 1995, the
Commission granted the Company's request to waive the requirement that the
Company file an Integrated Resource Plan during 1995. On July 21, 1995, the
Kentucky Commission amended its Integrated Resource Planning regulations to
replace the biennial filing requirement with a triennial requirement. The
amended regulations also specified that the Company's next Integrated Resource
Plan is to be filed 39 months from the effective date of the amended regulation,
or October 21, 1998.

Environmental

For a complete discussion of the Company's environmental issues concerning its
Mill Creek and Cane Run generating plants, manufactured gas plant sites, and
certain other environmental issues, see Note 13 of Notes to Financial Statements
under Item 8.

Other

In the normal course of business, other lawsuits, claims, environmental actions,
and other governmental proceedings arise against the Company. To the extent that
damages are assessed in any of these lawsuits, the Company believes that its
insurance coverage is adequate. Management, after consultation with legal
counsel, does not anticipate that liabilities arising out of other currently
pending or threatened lawsuits and claims will have a material adverse effect on
the Company's consolidated financial position or results of operations.


                                       -12-
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

                             ---------------------

Executive Officers of the Company.

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

Roger W. Hale           53     Chairman of the Board and
                               Chief Executive Officer       January 1, 1992

Victor A. Staffieri     41     President                     January 1, 1994

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

Rebecca L. Farrar       37     Vice President, Gas Service
                               Business                      February 15, 1995

M. Lee Fowler           60     Vice President and
                               Controller                    September 1, 1988

Wendy C. Heck           43     Vice President, Information
                               Services                      January 1, 1994

Chris Hermann           49     Vice President and General
                               Manager, Wholesale
                               Electric Business             January 1, 1993

Paul W. Thompson        40     Vice President, Retail
                               Electric Business             September 15, 1996

Charles A. Markel III   49     Treasurer                     January 1, 1993


The present term of office of each of the above executive officers extends to
the meeting of the Board of Directors following the Annual Meeting of
Stockholders, scheduled to be held May 8, 1997.

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

Mr. Hale, Mr. Fowler, Ms. Heck, Mr. Hermann, and Mr. Markel have been employed
for more than five years in executive or management positions with the Company.
Prior to election to the position shown in the table, the following executive
officers held other positions with the Company since January 1, 1992: Ms. Heck
was Vice President-Fuels and Operating Services prior to January 1993, and Vice
President-Fuels and Information Services thereafter; Mr. Hermann was General
Manager-Wholesale Electric prior to January 1993; Mr. Markel was Senior Vice
President and Chief


                                       -13-
<PAGE>

Financial Officer prior to January 1993. Effective January 1993, Mr. Markel was
named Corporate Vice President-Finance, and Treasurer of the parent company,
LG&E Energy Corp.

Prior to election to his current position, Mr. Staffieri was Senior Vice
President-Public Policy, and General Counsel of the Company, and prior to
November 1992, Senior Vice President, General Counsel and Corporate Secretary.
Prior to March 1992, Mr. Staffieri was employed by Long Island Lighting Company
and held the position of General Counsel and Secretary.

Prior to election to his current position, Mr. McCall was Partner and Litigation
Chairman of Brown, Todd & Heyburn, a law firm.

Prior to election to her current position, Ms. Farrar was employed by South
Carolina Electric and Gas Company and held the position of General Manager, Gas
Operations from July 1994 to February 1995; Division Manager, Central
Division-Gas Operations prior to July 1994; and General Manager, Northern
Division-Gas Operations prior to February 1992.

Prior to election to his current position, Mr. Thompson was Vice
President-Business Development for the parent company, LG&E Energy Corp. from
July 1994 to September 1996; General Manager-Gas Operations for the Company
prior to July 1994; and Director-Business Development for Energy Corp. prior to
December 1993.


                                       -14-
<PAGE>

                                      PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

All Louisville Gas and Electric Company common stock, 21,294,223 shares, is held
by LG&E Energy Corp. Therefore, there is no public trading market for the
Company's common stock.

The following table sets forth the cash distributions on common stock paid to
LG&E Energy Corp. for the periods indicated:

                                          1996        1995
                                          ----        ----
                                          (Thousands of $)
First Quarter.............              $18,500     $18,000
Second Quarter............               18,500      34,000
Third Quarter.............               18,500      18,000
Fourth Quarter............               19,200      18,500


ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                            Years Ended December 31
                                         --------------------------------------------------------------
                                            1996         1995          1994         1993        1992
                                         ----------  -----------   -----------   ----------  ----------

<S>                                      <C>         <C>           <C>           <C>         <C>
Operating Revenues ....................  $  821,115  $   723,463   $   759,075   $  775,125  $  700,195
                                         ----------  -----------   -----------   ----------  ----------
Net Operating Income:
   Before Unusual Items ...............     147,263      138,203       134,393      136,118     125,829
   Trimble County Settlement ..........        --        (16,877)         --           --          --
   Non-Recurring Charges ..............        --           --         (23,353)        --          --
                                         ----------  -----------   -----------   ----------  ----------
      Total Net Operating Income ......     147,263      121,326       111,040      136,118     125,829
                                         ----------  -----------   -----------   ----------  ----------
Net Income:
   Before Unusual Items ...............     107,941      100,061        94,423       90,535      73,793
   Trimble County Settlement ..........        --        (16,877)         --           --          --
   Non-Recurring Charges,
      Charitable Foundation, etc.......        --           --         (32,734)        --          --
   Cumulative Effect of
      Accounting Change ...............        --           --          (3,369)        --          --
                                         ----------  -----------   -----------   ----------  ----------
      Total Net Income ................     107,941       83,184        58,320       90,535      73,793
                                         ----------  -----------   -----------   ----------  ----------
Net Income Available for
  Common Stock ........................     103,373       76,873        52,492       84,554      66,620
                                         ----------  -----------   -----------   ----------  ----------

Total Assets ..........................   2,006,712    1,979,490     1,966,590    1,974,584   1,960,860
Long-Term Obligations (including
  amounts due within one year) ........     646,800      662,800       662,800      662,800     686,262
</TABLE>

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


                                       -15-
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION.

The following discussion and analysis by management focuses on those factors
that had a material effect on the Company's financial results of operations and
financial condition during 1996, 1995, and 1994 and should be read in connection
with the financial statements and notes thereto.

Some of the following discussion may contain forward looking statements that are
subject to certain risks, uncertainties and assumptions. Such forward looking
statements are intended to be identified in this document by the words
"anticipate," "estimate," "objective," "possible," "potential" and similar
expressions. Actual results may vary materially. Factors that could cause actual
results to differ materially include: general economic conditions; business and
competitive conditions in the energy industry; change in federal or state
legislation; unusual weather; actions by state or federal regulatory agencies
affecting rates; and other factors described from time to time in Louisville Gas
and Electric Company's reports to the Securities and Exchange Commission.

RESULTS OF OPERATIONS

Net Income

Net income for 1996 increased $7.9 million over 1995 excluding a $16.9 million
charge against net income in 1995 to recognize the effects of a settlement of
the long-standing issues surrounding the Company's Trimble County electric
generating plant. Without excluding the Trimble County charge-off, net income
increased $24.8 million over 1995. The $7.9 million increase in net income is
primarily the result of a significantly higher level of wholesale electric sales
and increased retail sales of electricity and natural gas, partially offset by
increased operation and maintenance expenses.

The Company's net income increased $24.9 million for 1995 over 1994 in spite of
recording the Trimble County settlement charge mentioned in the preceding
paragraph. In 1994 net income of $58.3 million included the write-off of certain
non-recurring items ($23.9 million), the expense of establishing a charitable
foundation ($8.9 million), and the adoption of Statement of Financial Accounting
Standards No. 112, Employers' Accounting for Post-Employment Benefits ($3.4
million). Without consideration of the unusual charges against income in 1995
and 1994 as discussed above, the Company's 1995 net income increased $5.6
million over 1994. This improvement was primarily due to higher retail electric
sales during 1995 partially offset by increased purchased power expenses
resulting from unplanned power plant outages.


                                       -16-
<PAGE>

Revenues

A comparison of operating revenues for the years 1996 and 1995, excluding the
Trimble County settlement (which reduced electric revenues by $28.3 million in
1995), with the immediately preceding year reflects both increases and
decreases, which have been segregated by the following principal causes (in
thousands of $):

<TABLE>
<CAPTION>
                                             Increase (Decrease) From Prior Period
                                           -----------------------------------------
                                            Electric Revenues       Gas Revenues
                                           -------------------   -------------------
          Cause                              1996       1995       1996       1995
          -----                              ----       ----       ----       ----
Sales to Ultimate Consumers:
<S>                                        <C>        <C>        <C>        <C>
    Fuel and gas supply adjustments, etc   $ (4,652)  $(10,566)  $ 21,176   $(16,940)
    Demand side management/decoupling ...     5,429     (4,619)    (1,989)       479
    Environmental cost recovery surcharge     2,410      3,205       --         --
    Variation in sales volumes ..........       801     27,382     14,483     (3,420)
                                           --------   --------   --------   --------
      Total .............................     3,988     15,402     33,670    (19,881)
Sales for resale ........................    30,383     (5,249)      --         --
Gas transportation-net ..................      --         --         (971)     1,062
Other ...................................     1,688      1,538        594       (184)
                                           --------   --------   --------   --------
      Total .............................  $ 36,059   $ 11,691   $ 33,293   $(19,003)
                                           ========   ========   ========   ========
</TABLE>

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

Electric revenues increased in 1995 mainly because of an increase in sales to
ultimate consumers as a result of the warmer summer weather and improved
economic conditions in the Company's service territory. Gas revenues decreased
as a result of lower gas supply adjustment revenues, which reflected the lower
cost of natural gas in 1995.

Expenses

Fuel for electric generation and gas supply expenses comprise a large segment of
the Company's total operating costs. The Company's electric and gas rates
contain a fuel adjustment clause and a gas supply clause, respectively, whereby
increases or decreases in the cost of fuel and gas supply are reflected in the
Company's rates, subject to approval by the Public Service Commission of
Kentucky (Kentucky Commission or Commission).

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

Power purchased expense in 1996 of $16.6 million was approximately the same as
in 1995. Power was purchased in 1996 primarily to supplement generation
requirements related to wholesale electric power sales. Power purchased in 1995
increased $7.1 million over 1994 primarily because of


                                       -17-
<PAGE>

increased purchases resulting from unplanned outages at the electric generating
plants during the extremely hot summer weather.

Gas supply expenses increased $29.7 million (27%) mainly because of the higher
unit cost of net gas supply ($21.8 million) and an increase in the volume of gas
delivered to the distribution system ($7.9 million). Gas supply expenses
decreased $20.8 million (16%) in 1995 because of the lower cost of net gas
supply ($18.7 million) and a decrease in the volume of gas delivered to the
distribution system ($2.1 million). The average unit cost per Mcf of purchased
gas was $3.46 in 1996, $2.62 in 1995, and $2.78 in 1994.

Other operation expenses increased $8.7 million (6%) over 1995 primarily because
of increased costs to operate the Company's electric power plants ($2.9
million), the electric and gas transmission and distribution systems ($1.9
million), and because of the recognition of credits to expense in 1995 for
settlement proceeds received related to a commercial dispute ($6.0 million).

In 1995 the Company received cash proceeds of $8 million in connection with the
settlement of a commercial dispute. Pursuant to a study to determine the proper
amount of income to be recognized, the Company recognized $6 million as a
reduction of 1995 operation expense. After further study and the resolution of
the remaining legal issues, the $2 million balance was applied as a reduction of
operation expense in 1996.

Maintenance expenses increased $2.7 million (5%) over 1995 primarily due to
increased storm damage repairs ($1.8 million) and an increase in electric power
plant expenses ($.9 million). Maintenance increased $3.4 million in 1995 over
1994 primarily as a result of an increase in repairs at the electric power
plants ($4.2 million), partially offset by a decrease in storm damage expenses
($1 million).

Non-recurring charges in 1994 of $38.6 million include the Company's write-off
of costs in connection with early retirements and workforce reductions that
occurred in 1992 and 1993, costs in connection with property damage claims
pertaining to particulate emissions from the Mill Creek electric generating
plant, and certain costs previously deferred resulting from adoption of
Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS. See Note 3 of Notes to Financial
Statements under Item 8.

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

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

Other income decreased about $3 million in 1996 because of a decrease in income
earned from investments and lower gains realized from the sale of property as
compared to 1995. See Note 9 of Notes to Financial Statements under Item 8.

Contribution to the Company's charitable foundation reflects the expense
associated with establishing a tax-exempt foundation during 1994. Contributions
made from this Foundation are not charged against income, and therefore, do not
affect the Company's net income. See Note 3 of Notes to Financial Statements
under Item 8.


                                       -18-
<PAGE>

Interest charges for 1996 decreased $1.7 million (4%) primarily because of the
retirement of outstanding debt. The Company's First Mortgage Bonds, 5.625%
Series of $16 million were retired at maturity on June 1, 1996 and $50 million
in other debt was refinanced at more favorable rates. Interest charges for 1995
decreased $.9 million primarily due to a reversal of an interest expense reserve
resulting from a favorable ruling on certain income tax matters. The embedded
cost of long-term debt at December 31, 1996, was 6.05%; at December 31, 1995,
6.32%. See Note 11 under Item 8, First Mortgage Bonds and Pollution Control
Bonds, for further discussion.

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

The rate of inflation may have a significant impact on the Company's operations,
its ability to control costs, and the need to seek timely and adequate rate
adjustments. However, relatively low rates of inflation in the past few years
have moderated the impact on current operating results.

LIQUIDITY AND CAPITAL RESOURCES

The Company's need for capital funds is primarily related to the construction of
plant and equipment necessary to meet the needs of electric and gas utility
customers and protection of the environment.

Capital Requirements

New construction expenditures for 1996 were $108 million compared with $93
million for 1995 and $95 million for 1994.

Past Financing Activities

During 1996, 1995, and 1994, the Company's primary source of capital was
internally generated funds from operating cash flows. Internally generated funds
provided financing for 100% of the Company's construction expenditures for 1996,
1995, and 1994.

Variations in accounts receivable and accounts payable are not generally
significant indicators of the Company's liquidity, as such variations are
primarily attributable to fluctuations in weather in the Company's service
territory, which has a direct affect on sales of electricity and natural gas.

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

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


                                       -19-
<PAGE>

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

In December 1995, the Company redeemed the outstanding shares of its 7.45%
Cumulative Preferred Stock with a par value of $25 per share at a redemption
price of $25.75 per share. The Company funded the $22 million redemption with
cash generated internally.

Future Capital Requirements

Future financing requirements may be affected in varying degrees by factors such
as load growth, changes in construction expenditure levels, rate actions allowed
by regulatory agencies, new legislation, market entry of competing electric
power generators, changes in environmental regulations and other regulatory
requirements. The Company estimates construction expenditures will total $250
million for 1997 and 1998. In addition, capital requirements for 1998 include
$20 million to retire long-term debt that is scheduled to mature.

Future Sources of Financing

Internally generated funds from operations are expected to fund substantially
all anticipated construction expenditures in 1997 and 1998.

At December 31, 1996, the Company had unused lines of credit of $200 million for
which it pays commitment fees. These credit facilities are scheduled to expire
during the year 2001. Management expects to renegotiate them when they expire.

To the extent permanent financings are needed in 1997 and 1998, the Company
expects that it will have ready access to the securities markets to raise needed
funds.

Year 2000 Computer Software Modification Costs

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


                                       -20-
<PAGE>

Rates and Regulation

The Company is subject to the jurisdiction of the Kentucky Commission in
virtually all matters related to electric and gas utility regulation, and as
such, its accounting is subject to Statement of Financial Accounting Standards
No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS No. 71).
Given the Company's competitive position in the market and the status of
regulation in the state of Kentucky, the Company has no plans or intentions to
discontinue its application of SFAS No. 71. See Note 2 of Notes to Financial
Statements under Item 8.

On December 8, 1995, the Commission approved a settlement agreement filed by the
Company and all intervenors in the Trimble County proceedings, including various
consumer interest groups and government agencies, that, in effect, resolved all
of the regulatory and legal issues related to the appropriate ratemaking
treatment to exclude 25% of the Trimble County plant costs from customer rates.
Under the settlement, ratepayers are to receive $22 million in refunds, most of
which is being refunded over the five-year period, 1996 through 2000, based on a
per kilowatt-hour credit. In addition, the Company also agreed to provide
$900,000 annually for five years, beginning in 1996, to fund low-income energy
assistance programs and agreed to revise the decoupling methodology in a manner
that was to reduce revenues collected from residential customers during 1996 and
1997 by a total of approximately $1.8 million.

The overall effect of the settlement, which the Company recognized in its
entirety in the fourth quarter of 1995, was to reduce electric revenues by $28.3
million and net income by $16.9 million. See Note 14 of Notes to Financial
Statements under Item 8 for further discussion.

In May 1995, the Company implemented a Commission approved environmental cost
recovery (ECR) surcharge to recover certain costs required to comply with the
Federal Clean Air Act, as amended, and those federal, state, and local
environmental requirements which apply to coal combustion wastes and by-products
from facilities utilized for production of energy from coal. As a result of this
surcharge, the Company's electric revenues increased $3.2 million in 1995, an
additional $2.4 million in 1996 and a further increase in revenues of
approximately $1 million is projected for 1997. The Kentucky Attorney General
(KAG), and the Kentucky Industrial Utility Customers (KIUC) have filed an appeal
in Franklin Circuit Court on various issues related to the Commission's order in
this proceeding, including the constitutionality of the Kentucky statute that
authorizes the surcharge. In an order dated April 10, 1996, associated with the
first six-month review of the operation of the surcharge, the Commission stated
that all environmental surcharge revenues collected from the date of the April
10 order will be subject to refund, pending the final determination of the April
6, 1995, order. The Company is contesting the legal challenges but cannot
predict the outcome of this litigation. However, the amount of refunds, if any,
that may ultimately be ordered, are not expected to have a material adverse
effect on the Company's financial position or results of operation.

In January 1994, the Company implemented a Commission approved demand side
management (DSM) program that the Company, KAG, the Jefferson County Attorney,
and representatives of several customer-interest groups had filed with the
Commission. The Company committed up to $3.3 million over three years (from 1994
through 1996) for initial programs that include a residential energy
conservation and education program and a commercial conservation audit program.
The approved program includes a formal collaborative process to develop future
DSM programs and also contains a rate mechanism that (1) provides the Company
concurrent recovery of DSM costs, (2) provides an incentive for implementing DSM
programs, and (3) allows the Company to recover revenues from lost sales
associated with the DSM programs through a decoupling mechanism.


                                       -21-
<PAGE>

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

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

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

The Company last filed for a rate increase with the Commission in June 1990
based on the test-year ended April 30, 1990. The Commission issued a final order
in September 1991 that effectively granted the Company an annual increase in
rates of $6.8 million ($6.1 million electric and $.7 million gas).

Environmental Matters

With the passage of the Clean Air Act Amendments of 1990 (the Act), the Company
already complied with the stringent sulfur dioxide emission limits required by
the year 2000 as it had previously installed scrubbers on all of its coal-fired
generating units. Since then, as part of its ongoing construction program, the
Company has spent $29 million through 1996 for remedial measures necessary to
meet the Act's requirements for nitrogen oxides. These expenditures are being
recovered under the environmental cost recovery mechanism as more fully
discussed in Note 2 of the Notes to Financial Statements under Item 8. The
overall financial impact of the Act on the Company has been minimal. However,
the Company is closely monitoring a number of significant regulatory
developments. In November 1996, the United States Environmental Protection
Agency (USEPA) announced its proposal to revise the National Ambient Air Quality
Standards for ozone and particulate matter. In November 1996, the USEPA also
announced its intent to direct certain states to address long range ozone
transport from Midwest emission sources which allegedly contribute to ozone
problems in the Northeast. While management is unable to predict the outcome or
exact impact of these ongoing regulatory proceedings, the Company continues to
be well-positioned in the market to be a "clean" power provider without the
large capital expenditures that are expected to be incurred by many other
utilities.

Reference is made to Environmental under Note 13 of Notes to Financial
Statements under Item 8 for a complete discussion of the Company's environmental
issues concerning its Mill Creek and Cane Run electric generating plants,
manufactured gas plant sites, and certain other environmental issues.


                                       -22-
<PAGE>

FUTURE OUTLOOK

Electric Industry Restructuring

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

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

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


                                       -23-
<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       LOUISVILLE GAS AND ELECTRIC COMPANY
                              STATEMENTS OF INCOME
                                (Thousands of $)

<TABLE>
<CAPTION>
                                                           Years Ended December 31
                                                       -------------------------------
                                                         1996      1995        1994
                                                       --------  ---------   ---------
<S>                                                    <C>       <C>         <C>
Operating Revenues
  Electric ..........................................  $606,696  $ 570,637   $ 558,946
  Gas ...............................................   214,419    181,126     200,129
  Refund - Trimble County Settlement (Note 14) ......      --      (28,300)       --
                                                       --------  ---------   ---------

   Total operating revenues (Note 1) ................   821,115    723,463     759,075
                                                       --------  ---------   ---------

Operating Expenses
  Fuel for electric generation ......................   149,697    138,002     143,602
  Power purchased ...................................    16,626     16,830       9,754
  Gas supply expenses ...............................   140,482    110,738     131,561
  Other operation expenses ..........................   143,338    134,655     136,214
  Maintenance .......................................    54,790     52,101      48,731
  Non-recurring charges (Note 3) ....................      --         --        38,613
  Depreciation and amortization .....................    89,002     85,759      82,519
  Federal and State income taxes (Note 8) ...........    63,259     47,524      39,922
  Property and other taxes ..........................    16,658     16,528      17,119
                                                       --------  ---------   ---------
   Total operating expenses .........................   673,852    602,137     648,035
                                                       --------  ---------   ---------

Net Operating Income ................................   147,263    121,326     111,040

Other Income and (Deductions) (Note 9) ..............       920      3,776       2,451
Contribution to Charitable Foundation - net (Note 3)       --         --         8,946
Interest Charges ....................................    40,242     41,918      42,856
                                                       --------  ---------   ---------

Income before Cumulative Effect of a Change in
  Accounting Principle ..............................   107,941     83,184      61,689

Cumulative Effect of a Change in Accounting for
  Post-Employment Benefits, net of income taxes
  of $2,280 .........................................      --         --        (3,369)
                                                       --------  ---------   ---------

Net Income ..........................................   107,941     83,184      58,320
Preferred Stock Dividends ...........................     4,568      6,311       5,828
                                                       --------  ---------   ---------

Net Income Available for Common Stock ...............  $103,373  $  76,873   $  52,492
                                                       ========  =========   =========
</TABLE>


                         STATEMENTS OF RETAINED EARNINGS
                                (Thousands of $)

                                                     Years Ended December 31
                                                  ------------------------------
                                                    1996       1995       1994
                                                  --------   --------   --------
Balance January 1 .............................   $181,049   $193,895   $194,903
Add net income ................................    107,941     83,184     58,320
                                                  --------   --------   --------
                                                   288,990    277,079    253,223
                                                  --------   --------   --------

Deduct: Cash dividends declared on stock:
        5% cumulative preferred ...............      1,075      1,075      1,075
        7.45% cumulative preferred ............       --        1,527      1,598
        Auction rate cumulative preferred .....      2,024      2,240      1,686
        $5.875 cumulative preferred ...........      1,469      1,469      1,469
        Common ................................     75,200     89,000     53,500
      Preferred stock redemption expense ......       --          719       --
                                                  --------   --------   --------
                                                    79,768     96,030     59,328
                                                  --------   --------   --------

Balance December 31 ...........................   $209,222   $181,049   $193,895
                                                  ========   ========   ========

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


                                      -24-
<PAGE>

                       LOUISVILLE GAS AND ELECTRIC COMPANY
                            STATEMENTS OF CASH FLOWS
                                (Thousands of $)

<TABLE>
<CAPTION>
                                                                       Years Ended December 31
                                                                  ---------------------------------
                                                                    1996        1995        1994
                                                                  ---------   ---------   ---------
<S>                                                               <C>         <C>         <C>
Cash Flows from Operating Activities
  Net Income ...................................................  $ 107,941   $  83,184   $  58,320
  Items not requiring cash currently:
   Depreciation and amortization ...............................     89,002      85,759      82,519
   Deferred income taxes-net ...................................     26,055       7,049      (2,274)
   Investment tax credit-net ...................................     (3,997)     (4,742)     (4,619)
   Cumulative effect of change in accounting principle .........       --          --         3,369
   Non-recurring charges .......................................       --          --        38,613
   Other .......................................................      3,911       3,958       6,603
 (Increases) decreases in certain net current assets:
   Accounts receivable .........................................     (9,555)    (19,531)     18,339
   Materials and supplies ......................................     (1,418)      1,428       3,280
   Trimble County Settlement ...................................    (10,789)     28,300        --
   Accounts payable ............................................      3,772      22,936     (22,781)
   Accrued taxes ...............................................      4,168        (433)     (1,247)
   Accrued interest ............................................     (1,070)     (2,330)        530
   Prepayments and other .......................................        685         (61)       (743)
  Other ........................................................    (23,153)     (6,917)        972
                                                                  ---------   ---------   ---------
   Net cash provided by operating activities ...................    185,552     198,600     180,881
                                                                  ---------   ---------   ---------

Cash Flows from Investing Activities
  Purchases of securities ......................................    (11,039)   (119,151)    (87,896)
  Proceeds from sales of securities ............................     28,605     151,422      56,085
  Construction expenditures ....................................   (107,879)    (93,423)    (95,398)
                                                                  ---------   ---------   ---------
   Net cash used for investing activities ......................    (90,313)    (61,152)   (127,209)
                                                                  ---------   ---------   ---------

Cash Flows from Financing Activities
  Issuance of first mortgage bonds and pollution control bonds .     49,745      39,914        --
  Redemption of preferred stock ................................       --       (22,108)       --
  Retirement of first mortgage bonds and pollution control bonds    (67,013)    (41,055)       --
  Payment of dividends .........................................    (79,310)    (95,206)    (58,639)
                                                                  ---------   ---------   ---------
   Net cash used for financing activities ......................    (96,578)   (118,455)    (58,639)
                                                                  ---------   ---------   ---------

Net Increase (Decrease) in Cash and Temporary Cash Investments .     (1,339)     18,993      (4,967)

Cash and Temporary Cash Investments at Beginning of Year .......     58,131      39,138      44,105
                                                                  ---------   ---------   ---------

Cash and Temporary Cash Investments at End of Year .............  $  56,792   $  58,131   $  39,138
                                                                  =========   =========   =========


Supplemental Disclosures of Cash Flow Information
  Cash paid during the year for:
   Income taxes ................................................  $  41,508   $  40,049   $  42,803
   Interest on borrowed money ..................................     40,334      42,589      40,827
</TABLE>

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


                                      -25-
<PAGE>

                       LOUISVILLE GAS AND ELECTRIC COMPANY
                                 BALANCE SHEETS
                                (Thousands of $)

<TABLE>
<CAPTION>
                                     Assets                       December 31
                                                            ----------------------
                                                               1996        1995
                                                            ----------  ----------
<S>                                                         <C>         <C>
Utility Plant, at original cost
  Electric ...............................................  $2,192,557  $2,123,699
  Gas ....................................................     320,791     299,070
  Common .................................................     130,678     128,902
                                                            ----------  ----------
                                                             2,644,026   2,551,671
  Less:  Reserve for depreciation ........................     999,987     934,942
                                                            ----------  ----------
                                                             1,644,039   1,616,729
  Construction work in progress ..........................      41,183      47,189
                                                            ----------  ----------
                                                             1,685,222   1,663,918
                                                            ----------  ----------
Other Property and Investments - less reserve ............       1,028         760
                                                            ----------  ----------
Current Assets
  Cash and temporary cash investments ....................      56,792      58,131
  Marketable securities (Note 6) .........................       3,595      20,449
  Accounts receivable-less reserve of $1,470
   in 1996 and $1,360 in 1995 ............................     115,144     105,589
  Materials and supplies-at average cost
   Fuel (predominantly coal) .............................      14,576      14,996
   Gas stored underground ................................      35,510      31,714
   Other .................................................      32,426      34,384
  Prepayments ............................................       2,480       2,108
                                                            ----------  ----------
                                                               260,523     267,371
                                                            ----------  ----------
Deferred Debits and Other Assets
  Unamortized debt expense ...............................       6,933       7,710
  Regulatory assets (Note 2) .............................      27,729      29,926
  Other ..................................................      25,277       9,805
                                                            ----------  ----------
                                                                59,939      47,441
                                                            ----------  ----------
                                                            $2,006,712  $1,979,490
                                                            ==========  ==========
                              Capital and Liabilities

Capitalization (see Statements of Capitalization)
  Common equity ..........................................  $  633,757  $  605,157
  Cumulative preferred stock .............................      95,328      95,328
  Long-term debt .........................................     646,835     646,845
                                                            ----------  ----------
                                                             1,375,920   1,347,330
                                                            ----------  ----------
Current Liabilities
  Long-term debt due within one year .....................        --        16,000
  Accounts payable .......................................      97,478      93,706
  Trimble County Settlement (Note 14) ....................      17,511      28,300
  Dividends declared .....................................      20,131      19,672
  Accrued taxes ..........................................      11,982       7,814
  Accrued interest .......................................       9,994      11,064
  Other ..................................................      13,128      12,071
                                                            ----------  ----------
                                                               170,224     188,627
                                                            ----------  ----------
Deferred Credits and Other Liabilities
  Accumulated deferred income taxes (Notes 1 and 8) ......     241,681     204,816
  Investment tax credit, in process of amortization ......      80,040      84,037
  Accumulated provision for pensions and related benefits       42,554      47,099
  Customers' advances for construction ...................      10,033       9,251
  Regulatory liability (Note 2) ..........................      77,287      88,242
  Other ..................................................       8,973      10,088
                                                            ----------  ----------
                                                               460,568     443,533
                                                            ----------  ----------
Commitments and Contingencies (Note 13)
                                                            $2,006,712  $1,979,490
                                                            ==========  ==========
</TABLE>

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


                                      -26-
<PAGE>

                       LOUISVILLE GAS AND ELECTRIC COMPANY
                          STATEMENTS OF CAPITALIZATION
                                (Thousands of $)

<TABLE>
<CAPTION>
                                                                                                     December 31
                                                                                              -------------------------
                                                                                                 1996          1995
                                                                                              -----------   -----------
<S>                                                                                           <C>           <C>
Common Equity
  Common stock, without par value -
   Authorized 75,000,000 shares, outstanding 21,294,223 shares ....                           $   425,170   $   425,170
  Common stock expense ............................................                                  (836)         (836)
  Unrealized gain (loss) on marketable securities, net of income
    taxes of $136 in 1996 and $153 in 1995 (Note 6)  ..............                                   201          (226)
  Retained earnings ...............................................                               209,222       181,049
                                                                                              -----------   -----------
                                                                                                  633,757       605,157
                                                                                              -----------   -----------
Cumulative Preferred Stock
  Redeemable on 30 days notice by the Company except, $5.875 series

                                                           Shares           Current
                                                         Outstanding    Redemption Price
                                                         -----------    ----------------
  $25 par value, 1,720,000 shares authorized -
   5% series ..........................................    860,287         $   28.00               21,507        21,507
  Without par value, 6,750,000 shares authorized -
   Auction Rate .......................................    500,000            100.00               50,000        50,000
   $5.875 series ......................................    250,000       Not redeemable            25,000        25,000
  Preferred stock expense .........................................                                (1,179)       (1,179)
                                                                                              -----------   -----------
                                                                                                   95,328        95,328
                                                                                              -----------   -----------

Long-Term Debt (Note 11)
  First mortgage bonds -
   Series due June 1, 1998, 6 3/4% ................................                                20,000        20,000
   Series due July 1, 2002, 7 1/2% ................................                                20,000        20,000
   Series due August 15, 2003, 6% .................................                                42,600        42,600
   Pollution control series:
     K due December 1, 2016, 7 1/4% ...............................                                  --          27,500
     L due December 1, 2016, 7 1/4% ...............................                                  --          22,500
     N due February 1, 2019, 7 3/4% ...............................                                35,000        35,000
     O due February 1, 2019, 7 3/4% ...............................                                35,000        35,000
     P due June 15, 2015, 7.45% ...................................                                25,000        25,000
     Q due November 1, 2020, 7 5/8% ...............................                                83,335        83,335
     R due November 1, 2020, 6.55% ................................                                41,665        41,665
     S due September 1, 2017, variable ............................                                31,000        31,000
     T due September 1, 2017, variable ............................                                60,000        60,000
     U due August 15, 2013, variable ..............................                                35,200        35,200
     V due August 15, 2019, 5 5/8% ................................                               102,000       102,000
     W due October 15, 2020, 5.45% ................................                                26,000        26,000
     X due April 15, 2023, 5.90% ..................................                                40,000        40,000
                                                                                              -----------   -----------
   Total first mortgage bonds .....................................                               596,800       646,800
  Pollution control bonds (unsecured) -
     Jefferson County Series due September 1, 2026, variable ......                                22,500          --
     Trimble County Series due September 1, 2026, variable ........                                27,500          --
                                                                                              -----------   -----------
   Total unsecured long-term debt .................................                                50,000          --
                                                                                              -----------   -----------
   Total long-term bonds ..........................................                               646,800       646,800
  Unamortized premium on bonds ....................................                                    35            45
                                                                                              -----------   -----------
                                                                                                  646,835       646,845
                                                                                              -----------   -----------

Total Capitalization ..............................................                           $ 1,375,920   $ 1,347,330
                                                                                              ===========   ===========
</TABLE>

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


                                      -27-
<PAGE>

                        LOUISVILLE GAS AND ELECTRIC COMPANY

                           NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Louisville Gas and Electric Company (the Company) is the primary subsidiary of
LG&E Energy Corp. The Company is a regulated public utility that is engaged in
the generation, transmission, distribution, and sale of electric energy and the
storage, distribution, and sale of natural gas in Louisville and adjacent areas
in Kentucky. LG&E Energy Corp. is an exempt energy services holding company with
wholly-owned subsidiaries consisting of the Company, LG&E Energy Systems Inc.,
and LG&E Gas Systems Inc. All of the Company's Common Stock is held by LG&E
Energy Corp.

Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation with no impact on previously reported income.

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

The cost of plant retired or disposed of in the normal course of business is
deducted from plant accounts and such cost plus removal expense less salvage
value is charged to the reserve for depreciation. When complete operating units
are disposed of, appropriate adjustments are made to the reserve for
depreciation and gains and losses, if any, are recognized.

DEPRECIATION. Depreciation is provided on the straight-line method over the
estimated service lives of depreciable plant. The amounts provided for 1996 and
1995 were 3.3% (3.2% electric, 3.3% gas, and 6% common); and for 1994, 3.3%
(3.2% electric, 3.3% gas, and 5% common) of average depreciable plant.

CASH AND TEMPORARY CASH INVESTMENTS. The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. Temporary cash investments are carried at cost, which approximates
fair value.

FINANCIAL INSTRUMENTS. The Company uses over-the-counter interest-rate swap
agreements to hedge its exposure to fluctuations in the interest rates it pays
on variable-rate debt, and it uses exchange-traded U.S. Treasury note and bond
futures to hedge its exposure to fluctuations in the value of its investments in
the preferred stocks of other companies. Gains and losses on interest-rate swaps
used to hedge interest rate risk are reflected in interest charges monthly.
Gains and losses on U.S. Treasury note and bond futures used to hedge
investments in preferred stocks are initially deferred and classified as
unrealized gains or losses on marketable securities in common equity and then
charged or credited to other income and deductions when the securities are sold.
See Note 4, Financial Instruments.


                                      -28-
<PAGE>

DEBT PREMIUM AND EXPENSE. Debt premium and expense are amortized over the lives
of the related debt issues, consistent with regulatory practices.

DEFERRED INCOME TAXES. Deferred income taxes have been provided for all material
book-tax temporary differences.

INVESTMENT TAX CREDITS. Investment tax credits resulted from provisions of the
tax law that permitted a reduction of the Company's tax liability based on
credits for certain construction expenditures. Deferred investment tax credits
are being amortized to income over the estimated lives of the related property
that gave rise to the credits.

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

FUEL AND GAS COSTS. The cost of fuel for electric generation is charged to
expense as used, and the cost of gas supply is charged to expense as delivered
to the distribution system.

MANAGEMENT'S USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported assets and liabilities
and disclosure of contingent items at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. See Note 13, Commitments and
Contingencies, for a further discussion.

NEW ACCOUNTING PRONOUNCEMENTS. LONG-LIVED ASSETS. The Company adopted Statement
of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS No. 121) in
the first quarter of 1996. This new standard requires that long-lived assets and
certain intangibles be reviewed for impairment and possible write-down to fair
value whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company has performed these
impairment reviews on certain long-lived assets and has determined their
carrying amounts to be recoverable. Management continues to monitor current and
anticipated future operating conditions, legal requirements and regulatory
environment for circumstances that may trigger potential asset impairments.

TRANSFERS AND EXTINGUISHMENTS. In June 1996, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 125, ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES
(SFAS No. 125), effective for all transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The
Company plans to adopt the provisions of SFAS No. 125 in the first quarter of
1997. The Company does not expect the adoption of SFAS No. 125 to have a
material adverse impact on its financial position or results of operation.


                                       -29-
<PAGE>

ENVIRONMENTAL REMEDIATION. Effective January 1, 1997, the Company will adopt the
provisions of Statement of Position (SOP) 96-1, ENVIRONMENTAL REMEDIATION
LIABILITIES. This statement provides authoritative guidance for recognition,
measurement, and disclosure of environmental remediation liabilities in
financial statements. Due to the Company's previous recognition of this type of
liability, adoption is not expected to have a material impact on its financial
position or results of operation. See Note 13, Commitments and Contingencies,
for a further discussion on the Company's environmental commitments and
contingencies.

NOTE 2 - RATES AND REGULATORY MATTERS

The Company conforms with generally accepted accounting principles as applied to
regulated public utilities and as prescribed by the Federal Energy Regulatory
Commission (FERC) and the Kentucky Commission. The Company is subject to
Statement of Financial Accounting Standards No. 71, ACCOUNTING FOR THE EFFECTS
OF CERTAIN TYPES OF REGULATION (SFAS No. 71). Under SFAS No. 71, certain costs
that would otherwise be charged to expense are deferred as regulatory assets
based on expected recovery from customers in future rates. Likewise, certain
credits that would otherwise be reflected as income are deferred as regulatory
liabilities based on expected flowback to customers in future rates.
Management's expected recovery of deferred costs and expected flowback of
deferred credits is generally based on specific ratemaking decisions or
precedent for each item. The following regulatory assets and liabilities were
included in the balance sheets as of December 31 (in thousands of $):

                                                           1996          1995
                                                         --------      --------
Unamortized loss on bonds ..........................     $ 17,162      $ 16,443
Unamortized extraordinary retirements ..............        4,087         6,935
Manufactured gas sites .............................        3,244         3,220
Other ..............................................        3,236         3,328
                                                         --------      --------
Total regulatory assets ............................       27,729        29,926

Deferred income taxes - net ........................      (77,287)      (88,242)
                                                         --------      --------

Regulatory assets and (liabilities) - net ..........     $(49,558)     $(58,316)
                                                         ========      ========

Substantially all of the Company's regulatory assets are being recovered through
rates charged to customers. The Company expects to seek regulatory approval to
recover any remaining regulatory assets in its next general rate case.

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

An appeal of the Commission's April 6 order by various intervenors in the
proceeding (including the Kentucky Attorney General) is currently pending in the
Franklin Circuit Court of Kentucky. The Company is contesting the legal
challenges to the surcharge, but cannot predict the outcome of the appeal. The
amount of refunds that may be ordered, if any, are not expected to have a
material adverse effect on the Company's financial position or results of
operations. See Rates and Regulation under Management's Discussion and Analysis
under Item 7 for a further discussion.


                                      -30-
<PAGE>

NOTE 3 - NON-RECURRING CHARGES

As part of a study of LG&E Energy Corp.'s business strategy and realignment
during 1994, the Company re-evaluated its regulatory strategy which previously
had been to seek full recovery of certain costs deferred in accordance with
prior precedents established by the Commission. As a result of this
re-evaluation, the Company wrote off certain expenses that had previously been
deferred amounting to approximately $38.6 million before taxes. While the
Company continues to believe that it could have reasonably expected to recover
these costs in future rate proceedings before the Commission, the Company
decided to deduct these expenses currently and not seek recovery for such
expenses in future rates due to increasing competitive pressures and the
existing and anticipated future economic conditions.

In the first quarter of 1994, the Board of Directors of the Company approved the
formation of a tax-exempt charitable foundation (Foundation) that makes
charitable contributions to qualified persons and entities. In 1994, the Company
recorded a pre-tax charge against income and made an irrevocable payment of $15
million to fund the Foundation. The Foundation is exempt from federal income tax
under the Internal Revenue Code.

NOTE 4 - FINANCIAL INSTRUMENTS

The Company uses over-the-counter interest-rate swap agreements to hedge its
exposure to fluctuations in the interest rates it pays on variable-rate debt,
and it uses exchange-traded U.S. Treasury note and bond futures to hedge its
exposure to fluctuations in the value of its investments in the preferred stocks
of other companies.

At December 31, 1996, the Company had a short position in U.S. Treasury note and
bond futures contracts with notional amounts totaling $1.3 million. These
contracts are used to hedge price risk associated with certain marketable
securities and mature in March 1997.

At December 31, 1996, the Company was a party to two interest-rate swap
agreements. The swaps have notional amounts of $15 million each, and the Company
uses them to hedge its exposure to changes in the interest rates paid on $30
million of the Company's Pollution Control Bonds, Variable Rate Series, due
September 1, 2017. One of these swaps will mature in September 1997, and the
other will mature in September 1999. The Company paid interest at average fixed
rates on the swaps of 4.55% in 1996, 1995, and 1994, and received interest at
average variable rates based on the JJ Kenny Index of 3.46% in 1996, 3.87% in
1995, and 2.84% in 1994.


                                       -31-
<PAGE>

     The cost and estimated fair values of the Company's financial instruments
     as of December 31, 1996 and 1995 follow (in thousands of $):

<TABLE>
<CAPTION>
                                                        1996                  1995
                                                 -------------------   -------------------
                                                             Fair                  Fair
                                                   Cost      Value       Cost      Value
                                                   ----      -----       ----      -----
<S>                                              <C>       <C>         <C>       <C>
Marketable securities .........................  $  3,258  $   3,595   $ 20,828  $  20,449
Long-term investments -
  Not practicable to estimate fair value ......       744        744        740        740
Preferred stock subject to mandatory redemption    25,000     24,938     25,000     25,000
Long-term debt ................................   646,800    662,721    662,800    688,977
U.S. Treasury note and bond futures ...........      --            6       --         (105)
Interest-rate swaps ...........................      --         (319)      --         (522)
</TABLE>

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

NOTE 5 - CONCENTRATIONS OF CREDIT AND OTHER RISK

Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties (See Note 4, Financial Instruments, for further
discussion) failed completely to perform as contracted. Concentrations of credit
risk (whether on- or off-balance sheet) relate to groups of customers or
counterparties that have similar economic or industry characteristics that would
cause their ability to meet contractual obligations to be similarly affected by
changes in economic or other conditions.

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

The Company's operation and maintenance employees are members of the
International Brotherhood of Electrical Workers (IBEW) Local 2100 which
represents approximately one-half of the Company's workforce. The Company's
collective bargaining agreement with IBEW employees expires in November 1998.

NOTE 6 - MARKETABLE SECURITIES

The Company's marketable securities have been determined to be
"available-for-sale" under the provisions of Statement of Financial Accounting
Standards SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES. The available-for-sale category of investments results in the
classification of unrealized gains and losses on investments in common equity,
net of income taxes, until such gains and losses are realized, at which time
they are recognized in earnings. Proceeds from sales of available-for-sale
securities in 1996 were $28.6 million, which resulted in realized gains of $.3
million and losses of $.8 million, calculated using the specific identification
method. Proceeds from sales of available-for-sale securities in 1995 were $151.4
million, which resulted in realized gains of $1.6 million and losses of
approximately $3.4 million.


                                      -32-
<PAGE>

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

<TABLE>
<CAPTION>
                                                    1996                            1995
                                       -----------------------------   ------------------------------
                                                   Fixed                           Fixed
                                        Equity     Income    Total      Equity     Income     Total
                                       --------   --------  --------   --------   --------   --------
<S>                                    <C>        <C>       <C>        <C>        <C>        <C>
Cost ................................  $  3,258   $   --    $  3,258   $  5,342   $ 15,486   $ 20,828
Unrealized gains ....................       572       --         572         55          4         59
Unrealized losses ...................      (235)      --        (235)      (193)      (245)      (438)
                                       --------   --------  --------   --------   --------   --------
Fair values .........................  $  3,595   $   --    $  3,595   $  5,204   $ 15,245   $ 20,449
                                       ========   ========  ========   ========   ========   ========

-----------------------------------------------------------------------------------------------------

Fair Values:
  No maturity .......................  $  2,126   $   --    $  2,126   $  4,565   $   --     $  4,565
  Contractual Maturities:
    Less than one year ..............     1,469       --       1,469        639      2,710      3,349
    One to five years ...............      --         --        --         --        8,808      8,808
    Five to ten years ...............      --         --        --         --          831        831
    Over ten years ..................      --         --        --         --        2,219      2,219
    Not due at a single maturity date      --         --        --         --          677        677
                                       --------   --------  --------   --------   --------   --------
Total Fair Values ...................  $  3,595   $   --    $  3,595   $  5,204   $ 15,245   $ 20,449
                                       ========   ========  ========   ========   ========   ========
</TABLE>

NOTE 7 - PENSION PLANS AND RETIREMENT BENEFITS

PENSION PLANS. The Company has two non-contributory, defined-benefit pension
plans, that cover all eligible employees. Retirement benefits are based on the
employee's years of service, age at retirement and compensation. The Company's
policy is to fund annual actuarial costs, up to the maximum amount deductible
for income tax purposes, as determined under the frozen entry age actuarial cost
method. The assets of the plans consist primarily of common stocks, corporate
bonds and United States government securities.

The Company also has a supplemental executive retirement plan that covers
officers of the Company. The plan provides retirement benefits based on average
earnings during the final three years prior to retirement, reduced by social
security benefits, any pension benefits received from plans of prior employers,
and by amounts received under the pension plans referred to in the preceding
paragraph.


                                      -33-
<PAGE>

Pension costs were $4.3 million for 1996, $5 million for 1995, and $4.4 million
for 1994, of which approximately $751,000, $761,000, and $693,000, respectively,
were charged to construction. The components of periodic pension expense are
shown below (in thousands of $):

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

Service cost-benefits earned during the period   $  4,989   $  4,361   $  4,813
Interest cost on projected benefit obligation .    16,697     14,328     13,057
Actual return on plan assets ..................   (31,931)   (45,608)      (489)
Amortization of transition asset ..............    (1,112)    (1,112)    (1,112)
Net amortization and deferral .................    15,669     33,008    (11,846)
                                                 --------   --------   --------
Net pension cost ..............................  $  4,312   $  4,977   $  4,423
                                                 ========   ========   ========

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

                                                            1996        1995
                                                          ---------   ---------
Actuarial present value of accumulated plan benefits:
  Vested ...............................................  $ 178,534   $ 166,525
  Non-Vested ...........................................     19,913       8,577
                                                          ---------   ---------

  Accumulated benefit obligation .......................    198,447     175,102
  Effect of projected future compensation ..............     30,902      31,764
                                                          ---------   ---------

  Projected benefit obligation .........................    229,349     206,866
  Plan assets at fair value ............................    238,026     207,470
                                                          ---------   ---------

  Plan assets in excess of projected
    benefit obligation .................................      8,677         604
  Unrecognized net transition asset ....................    (10,300)    (11,412)
  Unrecognized prior service cost ......................     44,142      28,938
  Unrecognized net gain ................................    (65,891)    (43,652)
                                                          ---------   ---------

Accrued pension liability ..............................  $ (23,372)  $ (25,522)
                                                          =========   =========

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

                                                          1996            1995
                                                         -------         -------

Assumed discount rate to determine
  projected benefit obligation ..................         7.75%            7.5%
Assumed long-term rate of return
  on plan assets ................................          8.5%            8.5%
Assumed annual rate of increase in
  future compensation levels ....................    2% - 4.25%       3.5% - 4%

POST-RETIREMENT BENEFITS. The Company provides certain health care and life
insurance benefits for eligible retired employees. Post-retirement health care
benefits are subject to a maximum amount payable by the Company. The Company
accrues for the expected cost of post-retirement benefits other than pensions
during the employee's years of service with the Company. The discounted present
value of the post-retirement benefit obligation at the date of adoption is being
amortized over 20 years.


                                       -34-
<PAGE>

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

                                                     1996       1995       1994
                                                    ------     ------     ------
Service cost ..................................     $  773     $  595     $  621
Interest cost .................................      2,976      2,706      2,386
Amortization of transition obligation .........      1,337      1,337      1,337
Amortization of prior service cost ............        328       --         --
                                                    ------     ------     ------

Post-retirement benefit cost ..................     $5,414     $4,638     $4,344
                                                    ======     ======     ======

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

                                                            1996         1995
                                                          --------     --------
Retirees .............................................    $(18,568)    $(19,965)
Fully eligible active employees ......................      (4,808)      (2,768)
Other active employees ...............................     (16,575)     (15,082)
                                                          --------     --------

Accumulated post-retirement benefit obligation .......     (39,951)     (37,815)
Plan assets at fair value ............................       2,284         --
Unrecognized prior service cost ......................       3,738         --
Unrecognized transition obligation ...................      21,390       22,727
Unrecognized net loss ................................         493        3,480
                                                          --------     --------

Accrued post-retirement benefit liability ............    $(12,046)    $(11,608)
                                                          ========     ========

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

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

THRIFT SAVINGS PLAN. The Company has a Thrift Savings Plan under Section 401(k)
of the Internal Revenue Code. The plan covers all regular full-time employees
with one year or more of service at the Company. Under the plan, eligible
employees may defer and contribute to the plan a portion of current compensation
in order to provide future retirement benefits. The Company makes contributions
to the plan by matching a portion of employee contributions. These costs were
approximately $1.8 million for 1996 and 1995, and $1.7 million for 1994.


                                      -35-
<PAGE>

NOTE 8 - INCOME TAXES

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

                                                   1996       1995       1994
                                                 --------   --------   --------
Included in Operating Expenses:
  Current  - Federal ...........................  $ 33,823   $ 36,379   $ 35,552
           - State ..............................     7,685      9,138     9,003
  Deferred - Federal-net ......................    19,161      4,021       (969)
           - State-net ..........................     6,587      2,728      955
  Deferred investment tax credit ..............       409       --         --
  Amortization of investment tax credit .......    (4,406)    (4,742)    (4,619)
                                                 --------   --------   --------

        Total .................................  $ 63,259   $ 47,524   $ 39,922
                                                 --------   --------   --------

Included in Other Income and (Deductions):
  Current  - Federal ..........................  $    196   $   (555)  $ (4,626)
           - State ............................       (96)      (343)    (1,277)
  Deferred - Federal-net ......................       246        240         19
           - State-net ........................        61         60          1
                                                 --------   --------   --------

        Total .................................  $    407   $   (598)  $ (5,883)
                                                 --------   --------   --------

Total Income Tax Expense ......................  $ 63,666   $ 46,926   $ 34,039
                                                 ========   ========   ========

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

                                                               1996       1995
                                                             --------   --------
Deferred Tax Liabilities:
  Depreciation and other plant-related items .............   $314,692   $297,929
  Other liabilities ......................................     14,864      7,714
                                                             --------   --------
                                                              329,556    305,643
                                                             --------   --------
Deferred Tax Assets:
  Investment tax credit ..................................     32,305     33,919
  Income taxes due to customers ..........................     31,195     32,363
  Pension overfunding ....................................      7,860      9,075
  Accrued expenses not currently deductible and other ....     16,515     25,470
                                                             --------   --------
                                                               87,875    100,827
                                                             --------   --------

    Net Deferred Income Tax Liability ....................   $241,681   $204,816
                                                             ========   ========

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

                                                   1996       1995       1994
                                                  ------     ------     ------
Statutory federal income tax rate .............     35.0%      35.0%      35.0%
State income taxes net of federal benefit .....      5.4        5.8        5.9
Amortization of investment tax credit .........     (2.6)      (3.6)      (5.1)
Other differences-net .........................      (.7)      (1.1)       (.5)
                                                  ------     ------     ------

Effective Income Tax Rate .....................     37.1%      36.1%      35.3%
                                                  ======     ======     ======


                                       -36-
<PAGE>

NOTE 9 - OTHER INCOME AND DEDUCTIONS

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

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

Interest and dividend income ...............    $ 4,096     $ 5,732     $ 4,568
(Losses) gains on fixed asset disposal .....        (36)      1,090       1,427
Donations ..................................       (150)       (144)     (1,015)
Income taxes and other .....................     (2,990)     (2,902)     (2,529)
                                                -------     -------     -------

Total other income and deductions ..........    $   920     $ 3,776     $ 2,451
                                                =======     =======     =======

NOTE 10 - PREFERRED STOCK

In December 1995, the Company redeemed the 858,128 outstanding shares of its
7.45% Cumulative Preferred Stock with a par value of $25 per share at a
redemption price of $25.75 per share.

NOTE 11 - FIRST MORTGAGE BONDS AND POLLUTION CONTROL BONDS

Annual requirements for the sinking funds of the Company's First Mortgage Bonds
(other than the First Mortgage Bonds issued in connection with the Pollution
Control Bonds) are the amounts necessary to redeem 1% of the highest principal
amount of each series of bonds at any time outstanding. Property additions (166
2/3% of principal amounts of bonds otherwise required to be so redeemed) have
been applied in lieu of cash. It is the intent of the Company to apply property
additions to meet 1997 sinking fund requirements of the First Mortgage Bonds.

The trust indenture securing the First Mortgage Bonds constitutes a direct first
mortgage lien upon substantially all property owned by the Company. The
indenture, as supplemented, provides in substance that, under certain specified
conditions, portions of retained earnings will not be available for the payment
of dividends on common stock. No portion of retained earnings is presently
restricted by this provision.

Pollution Control Bonds (Louisville Gas and Electric Company Projects) issued by
Jefferson and Trimble Counties, Kentucky, are secured by the assignment of loan
payments by the Company to the Counties pursuant to loan agreements, and further
secured by the delivery from time to time of an equal amount of the Company's
First Mortgage Bonds, Pollution Control Series. First Mortgage Bonds so
delivered are summarized in the Statements of Capitalization. No principal or
interest on these First Mortgage Bonds is payable unless default on the loan
agreements occurs. The interest rate reflected in the Statements of
Capitalization applies to the Pollution Control Bonds.

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


                                       -37-
<PAGE>

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

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

The Company's First Mortgage Bonds, 6.75% Series of $20 million is scheduled to
mature in 1998. There are no scheduled maturities of Pollution Control Bonds for
the five years subsequent to December 31, 1996. The Company has no cash sinking
fund requirements.

NOTE 12 - NOTES PAYABLE

The Company had no notes payable at December 31, 1996, and 1995.

At December 31, 1996, the Company had unused lines of credit of $200 million,
for which it pays commitment fees. The credit lines are scheduled to expire
during the year 2001. Management expects to renegotiate these lines when they
expire.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

CONSTRUCTION PROGRAM. The Company had commitments in connection with its
construction program aggregating approximately $7 million at December 31, 1996.
Construction expenditures for the years 1997 and 1998 are estimated to total
approximately $250 million.

OPERATING LEASE. The Company has an operating lease for its corporate office
building that is scheduled to expire in June 2005. The Company's total expense
in connection with this lease for 1996, 1995, and 1994, less amounts contributed
by the parent company, was $1.9 million, $2 million, and $2.2 million,
respectively. The future minimum annual lease payments under the lease agreement
for years subsequent to December 31, 1996, are as follows (in thousands of $):


1997 ...................................................       $ 2,850
1998 ...................................................         2,850
1999 ...................................................         2,850
2000 ...................................................         3,178
2001 ...................................................         3,507
Thereafter .............................................        12,275
                                                               -------
  Total ................................................       $27,510
                                                               =======

ENVIRONMENTAL. With the passage of the Clean Air Act Amendments of 1990 (the
Act), the Company already complied with the stringent sulfur dioxide emission
limits required by the year 2000 as it had previously installed scrubbers on all
of its coal-fired generating units. Since then, as part of its ongoing
construction program, the Company has spent $29 million through 1996 for
remedial measures necessary to meet the Act's requirements for nitrogen oxides.
The overall financial impact of the Act on the Company has been minimal.
However, the Company is closely monitoring a number of significant regulatory
developments. In November 1996, the United States Environmental Protection
Agency (USEPA) announced its proposal to revise the


                                      -38-
<PAGE>

National Ambient Air Quality Standards for ozone and particulate matter. In
November 1996, USEPA also announced its intent to direct certain states to
address long range ozone transport from Midwest emission sources which allegedly
contribute to ozone problems in the Northeast. While management is unable to
predict the outcome or exact impact of these ongoing regulatory proceedings, the
Company continues to be well-positioned in the market to be a "clean" power
provider without the large capital expenditures that are expected to be incurred
by many other utilities.

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

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

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

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


                                      -39-
<PAGE>

emissions are warranted at this time, but reserved the right to impose
additional reductions if necessary in the future.

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

The Company, along with a number of other companies, has been identified as a
potentially responsible party (PRP) allegedly liable for cleanup under the
Comprehensive Environmental Response Compensation and Liability Act, as amended,
at four off-site waste treatment or disposal sites. Under the law, each PRP
potentially could be held jointly and severally liable for the cost of cleanup,
but would have the right to seek contribution from other PRPs. The sites
targeted for cleanup in which the Company has been identified as a PRP include
the Smith's Farm site located in Bullitt County, Kentucky, the Sonora and Carlie
Middleton Burn sites located in Hardin County, Kentucky, and the M.T. Richards
site located in Crossville, Illinois. With respect to the Smith's Farm site,
USEPA has identified the Company as a de minimis PRP and is currently pursuing
other parties for the vast majority of the $44 million in cleanup costs as
estimated by USEPA. The Company is participating in settlement discussions in an
effort to resolve any alleged liability which it may have. With respect to the
Sonora site and Carlie Middleton Burn site, the Company is involved in
litigation with USEPA and approximately 50 companies in an effort to resolve
liability for approximately $2.5 million in cleanup costs incurred by USEPA.
With respect to the M.T. Richards site, the Company has been identified as a de
minimis party and has reached a tentative settlement for $7,500, subject to
approval by the government and entry by the court. While it is not possible at
this time to predict the exact outcome or precise impact of these matters,
management believes that these matters should not have a material adverse impact
on the financial position or results of operations of the Company.


                                      -40-
<PAGE>

NOTE 14 - TRIMBLE COUNTY GENERATING PLANT

Trimble County Unit 1 (Trimble County), a 495-megawatt coal-fired electric
generating unit placed into service in December 1990, has been the subject of
numerous legal and regulatory proceedings to determine the appropriate
ratemaking treatment to implement the Kentucky Public Service Commission's 1988
decision that the Company should not be allowed to recover 25% of the cost of
Trimble County from ratepayers.

On December 1, 1995, the Company and other parties filed with the Commission a
unanimous settlement agreement that was approved by the Commission on December
8, 1995. Under the agreement, which resolves all outstanding issues, the Company
agreed to refund approximately $22 million to current electric customers, most
of which is being refunded by credits to customers' bills over the five years
1996 through 2000. In addition, the Company has agreed to pay $900,000 per year
for five years beginning in 1996 to the Metro Human Needs Alliance, Inc., a
not-for-profit Louisville-based corporation, for the sole purpose of funding
low-income energy assistance programs in the service territory. The Company also
agreed to revise the residential decoupling methodology approved by the
Commission in 1994 in a manner that will reduce revenues collected from
residential customers during 1996 and 1997 by a total of approximately $1.8
million. Finally, the parties agreed to dismiss all appeals currently pending in
state courts regarding the Commission's orders in the Company's last general
rate case.

NOTE 15 - JOINTLY OWNED ELECTRIC UTILITY PLANT

The Company owns a 75% undivided interest in Trimble County Unit 1. Accounting
for the 75% portion of the Unit, which the Commission has allowed to be
reflected in customer rates, is similar to the Company's accounting for other
wholly-owned utility plants.

Of the remaining 25% of the Unit, Illinois Municipal Electric Agency (IMEA) owns
a 12.12% undivided interest in the Unit, and Indiana Municipal Power Agency
(IMPA) owns a 12.88% undivided interest. Each is responsible for their
proportionate ownership share of operation and maintenance expenses and
incremental assets, and for fuel used.

The following data represent shares of the jointly owned property:

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


                                      -41-
<PAGE>

NOTE 16 - SEGMENTS OF BUSINESS

The Company is a regulated public utility engaged in the generation,
transmission, distribution, and sale of electricity and the storage,
distribution, and sale of natural gas.

                                              1996        1995           1994
                                           ----------  ----------     ----------
                                                    (Thousands of $)
Operating Information
  Operating Revenues
   Electric .............................  $  606,696  $  542,337(a)  $  558,946
   Gas ..................................     214,419     181,126        200,129
                                           ----------  ----------     ----------
     Total ..............................  $  821,115  $  723,463     $  759,075
                                           ==========  ==========     ==========

  Pre-tax Operating Income
   Electric .............................  $  192,129  $  152,199     $  139,594
   Gas ..................................      18,393      16,651         11,368
                                           ----------  ----------     ----------
     Total ..............................  $  210,522  $  168,850     $  150,962
                                           ==========  ==========     ==========

Other Information
  Depreciation and Amortization
   Electric .............................  $   76,929  $   74,437     $   71,882
   Gas ..................................      12,073      11,322         10,637
                                           ----------  ----------     ----------
     Total ..............................  $   89,002  $   85,759     $   82,519
                                           ==========  ==========     ==========

  Construction Expenditures (b)
   Electric .............................  $   79,541  $   66,661     $   71,592
   Gas ..................................      28,338      26,762         23,806
                                           ----------  ----------     ----------
     Total ..............................  $  107,879  $   93,423     $   95,398
                                           ==========  ==========     ==========

Investment Information-December 31
  Identifiable Assets
   Electric .............................  $1,505,508  $1,501,568     $1,514,287
   Gas ..................................     300,550     268,840        252,946
                                           ----------  ----------     ----------
     Total ..............................   1,806,058   1,770,408      1,767,233
  Other Assets (c) ......................     200,654     209,082        199,357
                                           ----------  ----------     ----------
     Total Assets .......................  $2,006,712  $1,979,490     $1,966,590
                                           ==========  ==========     ==========

(a)  Net of Refund - Trimble County Settlement of $28.3 million.
(b)  Excluding cost of removal and salvage.
(c)  Includes cash and temporary cash investments, marketable securities,
     accounts receivable, unamortized debt expense, and other property and
     investments.


                                      -42-
<PAGE>

                               REPORT OF MANAGEMENT

The management of Louisville Gas and Electric Company is responsible for the
preparation and integrity of the financial statements and related information
included in this Annual Report. These statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and, necessarily, include amounts that reflect the best estimates and
judgment of management.

The Company's financial statements have been audited by Arthur Andersen LLP,
independent public accountants. Management has made available to Arthur Andersen
LLP all the Company's financial records and related data as well as the minutes
of shareholders' and directors' meetings.

Management has established and maintains a system of internal controls that
provide reasonable assurance that transactions are completed in accordance with
management's authorization, that assets are safeguarded and that financial
statements are prepared in conformity with generally accepted accounting
principles. Management believes that an adequate system of internal controls is
maintained through the selection and training of personnel, appropriate division
of responsibility, establishment and communication of policies and procedures
and by regular reviews of internal accounting controls by the Company's internal
auditors. Management reviews and modifies its system of internal controls in
light of changes in conditions and operations, as well as in response to
recommendations from the internal auditors. These recommendations for the year
ended December 31, 1996, did not identify any material weaknesses in the design
and operation of the Company's internal control structure.

The Audit Committee of the Board of Directors is composed entirely of outside
directors. In carrying out its oversight role for the financial reporting and
internal controls of the Company, the Audit Committee meets regularly with the
Company's independent public accountants, internal auditors and management. The
Audit Committee reviews the results of the independent accountants' audit of the
financial statements and their audit procedures, and discusses the adequacy of
internal accounting controls. The Audit Committee also approves the annual
internal auditing program, and reviews the activities and results of the
internal auditing function. Both the independent public accountants and the
internal auditors have access to the Audit Committee at any time.

Louisville Gas and Electric Company maintains and internally communicates a
written code of business conduct that addresses, among other items, potential
conflicts of interest, compliance with laws, including those relating to
financial disclosure, and the confidentiality of proprietary information.


                                       -43-
<PAGE>

                     REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Louisville Gas and Electric Company:

We have audited the accompanying balance sheets and statements of capitalization
of Louisville Gas and Electric Company (a Kentucky corporation and a wholly
owned subsidiary of LG&E Energy Corp.) as of December 31, 1996 and 1995, and the
related statements of income, retained earnings and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Louisville Gas and Electric
Company as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.



Louisville, Kentucky                                        Arthur Andersen LLP
January 29, 1997                                  -----------------------------
                                                            Arthur Andersen LLP


                           ---------------------------


                                       -44-
<PAGE>

                  SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
                                (Thousands of $)

Selected financial data for the four quarters of 1996 and 1995 are shown below.
Because of seasonal fluctuations in temperature and other factors, results for
quarters may fluctuate throughout the year.

                                                  Quarters Ended
                                    -------------------------------------------
                                      March      June     September  December
                                      -----      ----     ---------  --------
1996
Operating Revenues ..............   $226,744   $181,107   $203,818   $209,446
Net Operating Income ............     33,950     32,736     51,681     28,896
Net Income ......................     23,552     22,908     42,466     19,015
Net Income Available for
  Common Stock ..................     22,396     21,772     41,320     17,885


1995
Operating Revenues ..............   $199,517   $167,821   $196,351   $159,774(a)
Net Operating Income ............     32,409     30,015     47,774     11,128
Net Income ......................     21,839     21,085     38,346      1,914
Net Income Available for
  Common Stock ..................     20,222     19,458     36,780        413

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

                            -------------------------

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

      None.


                                      -45-
<PAGE>

                                    PART III

ITEMS 10, 11, 12, and 13 are omitted pursuant to General Instruction G, inasmuch
as the Company filed copies of a definitive proxy statement with the Commission
on March 26, 1997, pursuant to Regulation 14A under the Securities Exchange Act
of 1934. Such proxy statement is incorporated herein by this reference. In
accordance with General Instruction G of Form 10-K, the information required by
Item 10 relating to executive officers has been included in Part I of this Form
10-K. The Louisville Gas and Electric Company (LG&E) is a subsidiary of LG&E
Energy Corp. At December 31, 1996, LG&E Energy Corp. controlled 100% of the
common stock of LG&E. There are situations where LG&E Energy Corp. interacts
with its affiliated companies through the use of shared facilities, common
employees, and other business relationships. In these situations, LG&E receives
payment in accordance with regulatory requirements for the services provided to
affiliated companies.

                                      PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a) 1. Financial Statements (included in Item 8):
             Statements of Income for the three years ended December 31, 1996
              (page 24). 
             Statements of Retained Earnings for the three years
              ended December 31, 1996 (page 24).
             Statements of Cash Flows for the three years ended December 31,
              1996 (page 25).
             Balance Sheets - December 31, 1996, and 1995 (page 26). 
             Statements of Capitalization - December 31, 1996, and 
              1995 (page 27).
             Notes to Financial Statements (pages 28-42).
             Report of Management (page 43).
             Report of Independent Public Accountants (page 44).
             Selected Quarterly Financial Data for 1996 and 1995 (page 45).

         2. Financial Statement Schedule (included in Part IV):
             Schedule II - Valuation and Qualifying Accounts for the three
                           years ended December 31, 1996 (page 62).

All other schedules have been omitted as not applicable or not required or
because the information required to be shown is included in the Financial
Statements or the accompanying Notes to Financial Statements.


                                       -46-
<PAGE>

3. Exhibits:

   Exhibit
      No.                          Description
   -------                         -----------

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

      3.02  Copy of Bylaws, as amended through December 15, 1995. [Filed as
            Exhibit 3.06 to the Company's Form 10-K for the year ended December
            31, 1995, and incorporated by reference herein]

      4.01  Copy of Trust Indenture dated November 1, 1949, from the Company to
            Harris Trust and Savings Bank, Trustee. [Filed as Exhibit 7.01 to
            Registration Statement 2-8283 and incorporated by reference herein]

      4.02  Copy of Supplemental Indenture dated February 1, 1952, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.05 to Registration Statement 2-9371 and incorporated by reference
            herein]

      4.03  Copy of Supplemental Indenture dated February 1, 1954, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.03 to Registration Statement 2-11923 and incorporated by reference
            herein]

      4.04  Copy of Supplemental Indenture dated September 1, 1957, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.04 to Registration Statement 2-17047 and incorporated by reference
            herein]

      4.05  Copy of Supplemental Indenture dated October 1, 1960, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.05 to Registration Statement 2-24920 and incorporated by reference
            herein]

      4.06  Copy of Supplemental Indenture dated June 1, 1966, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.06 to Registration Statement 2-28865 and incorporated by reference
            herein]

      4.07  Copy of Supplemental Indenture dated June 1, 1968, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.07 to Registration Statement 2-37368 and incorporated by reference
            herein]


                                      -47-
<PAGE>

      4.08  Copy of Supplemental Indenture dated June 1, 1970, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.08 to Registration Statement 2-37368 and incorporated by reference
            herein]

      4.09  Copy of Supplemental Indenture dated August 1, 1971, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.09 to Registration Statement 2-44295 and incorporated by reference
            herein]

      4.10  Copy of Supplemental Indenture dated June 1, 1972, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.10 to Registration Statement 2-52643 and incorporated by reference
            herein]

      4.11  Copy of Supplemental Indenture dated February 1, 1975, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.11 to Registration Statement 2-57252 and incorporated by reference
            herein]

      4.12  Copy of Supplemental Indenture dated September 1, 1975, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.12 to Registration Statement 2-57252 and incorporated by reference
            herein]

      4.13  Copy of Supplemental Indenture dated September 1, 1976, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.13 to Registration Statement 2-57252 and incorporated by reference
            herein]

      4.14  Copy of Supplemental Indenture dated October 1, 1976, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.14 to Registration Statement 2-65271 and incorporated by reference
            herein]

      4.15  Copy of Supplemental Indenture dated June 1, 1978, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.15 to Registration Statement 2-65271 and incorporated by reference
            herein]

      4.16  Copy of Supplemental Indenture dated February 15, 1979, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            2.16 to Registration Statement 2-65271 and incorporated by reference
            herein]


                                      -48-
<PAGE>

      4.17  Copy of Supplemental Indenture dated September 1, 1979, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.17 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1980, and incorporated by reference herein]

      4.18  Copy of Supplemental Indenture dated September 15, 1979, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.18 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1980, and incorporated by reference herein]

      4.19  Copy of Supplemental Indenture dated September 15, 1981, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.19 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1981, and incorporated by reference herein]

      4.20  Copy of Supplemental Indenture dated March 1, 1982, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.20 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1982, and incorporated by reference herein]

      4.21  Copy of Supplemental Indenture dated March 15, 1982, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.21 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1982, and incorporated by reference herein]

      4.22  Copy of Supplemental Indenture dated September 15, 1982, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.22 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1982, and incorporated by reference herein]

      4.23  Copy of Supplemental Indenture dated February 15, 1984, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.23 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1984, and incorporated by reference herein]

      4.24  Copy of Supplemental Indenture dated July 1, 1985, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.24 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1985, and incorporated by reference herein]


                                      -49-
<PAGE>

      4.25  Copy of Supplemental Indenture dated November 15, 1986, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.25 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1986, and incorporated by reference herein]

      4.26  Copy of Supplemental Indenture dated November 16, 1986, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.26 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1986, and incorporated by reference herein]

      4.27  Copy of Supplemental Indenture dated August 1, 1987, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.27 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1987, and incorporated by reference herein]

      4.28  Copy of Supplemental Indenture dated February 1, 1989, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.28 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1988, and incorporated by reference herein]

      4.29  Copy of Supplemental Indenture dated February 2, 1989, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.29 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1988, and incorporated by reference herein]

      4.30  Copy of Supplemental Indenture dated June 15, 1990, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.30 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1990, and incorporated by reference herein]

      4.31  Copy of Supplemental Indenture dated November 1, 1990, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.31 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1990, and incorporated by reference herein]

      4.32  Copy of Supplemental Indenture dated September 1, 1992, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.32 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1992, and incorporated by reference herein]

      4.33  Copy of Supplemental Indenture dated September 2, 1992, which is a
            supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
            4.33 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1992, and incorporated by reference herein]


                                      -50-
<PAGE>

       4.34   Copy of Supplemental Indenture dated August 15, 1993, which is a
              supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
              4.34 to the Company's Annual Report on Form 10-K for the year
              ended December 31, 1993, and incorporated by reference herein]

       4.35   Copy of Supplemental Indenture dated August 16, 1993, which is a
              supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
              4.35 to the Company's Annual Report on Form 10-K for the year
              ended December 31, 1993, and incorporated by reference herein]

       4.36   Copy of Supplemental Indenture dated October 15, 1993, which is a
              supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit
              4.36 to the Company's Annual Report on Form 10-K for the year
              ended December 31, 1993, and incorporated by reference herein]

       10.01  Copies of Agreement between Sponsoring Companies re: Project D of
              Atomic Energy Commission, dated May 12, 1952, Memorandums of
              Understanding between Sponsoring Companies re: Project D of Atomic
              Energy Commission, dated September 19, 1952 and October 28, 1952,
              and Power Agreement between Ohio Valley Electric Corporation and
              Atomic Energy Commission, dated October 15, 1952. [Filed as
              Exhibit 13(y) to Registration Statement 2-9975 and incorporated by
              reference herein]

       10.02  Copy of Modification No. 1 dated July 23, 1953, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 4.03(b) to Registration
              Statement 2-24920 and incorporated by reference herein]

       10.03  Copy of Modification No. 2 dated March 15, 1964, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 5.02(c) to Registration
              Statement 2-61607 and incorporated by reference herein]

       10.04  Copy of Modification No. 3 and No. 4 dated May 12, 1966 and
              January 7, 1967, respectively, to the Power Agreement between Ohio
              Valley Electric Corporation and Atomic Energy Commission. [Filed
              as Exhibits 4(a)(13) and 4(a)(14) to Registration Statement
              2-26063 and incorporated by reference herein]

       10.05  Copy of Modification No. 5 dated August 15, 1967, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 13(c) to Registration
              Statement 2-27316 and incorporated by reference herein]


                                      -51-
<PAGE>

       10.06  Copies of (i) Inter-Company Power Agreement, dated July 10, 1953,
              between Ohio Valley Electric Corporation and Sponsoring Companies
              (which Agreement includes as Exhibit A the Power Agreement, dated
              July 10, 1953, between Ohio Valley Electric Corporation and
              Indiana-Kentucky Electric Corporation); (ii) First Supplementary
              Transmission Agreement, dated July 10, 1953, between Ohio Valley
              Electric Corporation and Sponsoring Companies; (iii) Inter-Company
              Bond Agreement, dated July 10, 1953, between Ohio Valley Electric
              Corporation and Sponsoring Companies; (iv) Inter-Company Bank
              Credit Agreement, dated July 10, 1953, between Ohio Valley
              Electric Corporation and Sponsoring Companies. [Filed as Exhibit
              5.02(f) to Registration Statement 2-61607 and incorporated by
              reference herein]

       10.07  Copy of Modification No. 1 and No. 2 dated June 3, 1966 and
              January 7, 1967, respectively, to Inter-Company Power Agreement
              dated July 10, 1953. [Filed as Exhibits 4(a)(8) and 4(a)(10) to
              Registration Statement 2-26063 and incorporated by reference
              herein]

       10.08  Copies of Amendments to Agreements (iii) and (iv) referred to
              under 10.06 above as follows: (i) Amendment to Inter-Company Bond
              Agreement and (ii) Amendment to Inter-Company Bank Credit
              Agreement. [Filed as Exhibit 5.02(h) to Registration Statement
              2-61607 and incorporated by reference herein]

       10.09  Copy of Modification No. 1, dated August 20, 1958, to the First
              Supplementary Transmission Agreement, dated July 10, 1953, among
              Ohio Valley Electric Corporation and the Sponsoring Companies.
              [Filed as Exhibit 5.02(i) to Registration Statement 2-61607 and
              incorporated by reference herein]

       10.10  Copy of Modification No. 2, dated April 1, 1965, to the First
              Supplementary Transmission Agreement, dated July 10, 1953, among
              Ohio Valley Electric Corporation and the Sponsoring Companies.
              [Filed as Exhibit 5.02(j) to Registration Statement 2-6l607 and
              incorporated by reference herein]

       10.11  Copy of Modification No. 3, dated January 20, 1967, to the First
              Supplementary Transmission Agreement, dated July 10, 1953, among
              Ohio Valley Electric Corporation and the Sponsoring Companies.
              [Filed as Exhibit 4(a)(7) to Registration Statement 2-26063 and
              incorporated by reference herein]

       10.12  Copy of Modification No. 6, dated November 15, 1967, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 4(g) to Registration
              Statement 2-28524 and incorporated by reference herein]


                                      -52-
<PAGE>

       10.13  Copy of Modification No. 3, dated November 15, 1967, to the
              Inter-Company Power Agreement dated July 10, 1953. [Filed as
              Exhibit 4.02(m) to Registration Statement 2-37368 and incorporated
              by reference herein]

       10.14  Copy of Modification No. 7, dated November 5, 1975, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 5.02(n) to Registration
              Statement 2-56357 and incorporated by reference herein]

       10.15  Copy of Modification No. 4, dated November 5, 1975, to the
              Inter-Company Power Agreement dated July 10, 1953. [Filed as
              Exhibit 5.02(o) to Registration Statement 2-56357 and incorporated
              by reference herein]

       10.16  Copy of Modification No. 4, dated April 30, 1976, to the First
              Supplementary Transmission Agreement, dated July 10, 1953, among
              Ohio Valley Electric Corporation and the Sponsoring Companies.
              [Filed as Exhibit 5.02(p) to Registration Statement 2-6l607 and
              incorporated by reference herein]

       10.17  Copy of Modification No. 8, dated June 23, 1977, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 5.02(q) to Registration
              Statement 2-61607 and incorporated by reference herein]

       10.18  Copy of Modification No. 9, dated July 1, 1978, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 5.02(r) to Registration
              Statement 2-63149 and incorporated by reference herein]

       10.19  Copy of Modification No. 10, dated August 1, 1979, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 2 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1979, and
              incorporated by reference herein]

       10.20  Copy of Modification No. 11, dated September 1, 1979, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 3 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1979, and
              incorporated by reference herein]


                                      -53-
<PAGE>

       10.21  Copy of Modification No. 5, dated September 1, 1979, to the
              Inter-Company Power Agreement dated July 5, 1953, among Ohio
              Valley Electric Corporation and Sponsoring Companies. [Filed as
              Exhibit 4 to the Company's Annual Report on Form 10-K for the year
              ended December 31, 1979, and incorporated by reference herein]

       10.22  Copy of Modification No. 12, dated August 1, 1981, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 10.25 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1981, and
              incorporated by reference herein]

       10.23  Copy of Modification No. 6, dated August 1, 1981, to the
              Inter-Company Power Agreement dated July 5, 1953, among Ohio
              Valley Electric Corporation and Sponsoring Companies. [Filed as
              Exhibit 10.26 to the Company's Annual Report on Form 10-K for the
              year ended December 31, 1981, and incorporated by reference
              herein]

       10.24  Copy of Diversity Power Agreement dated September 9, 1987, between
              East Kentucky Power Cooperative and the Company covering the
              purchase and sale of power between the two companies from 1988
              through 1995. [Filed as Exhibit 10.28 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1987, and
              incorporated by reference herein]

       10.25  Copy of Supplemental Executive Retirement Plan as amended through
              January 3, 1990, covering all officers of the Company. [Filed as
              Exhibit 10.29 to the Company's Annual Report on Form 10-K for the
              year ended December 31, 1989, and incorporated by reference
              herein]

       10.26  Copy of LG&E Energy Corp. Deferred Stock Compensation Plan
              effective January 1, 1992, covering non-employee directors of LG&E
              Energy Corp. and its subsidiaries. [Filed as Exhibit 10.34 to LG&E
              Energy Corp.'s Annual Report on Form 10-K for the year ended
              December 31, 1991, and incorporated by reference herein]

       10.27  Copy of Form of Change in Control Agreement for officers of
              Louisville Gas and Electric Company. [Filed as Exhibit 10.38 to
              the Company's Annual Report on Form 10-K for the year ended
              December 31, 1992, and incorporated by reference herein]

       10.28  Copy of Supplemental Executive Retirement Plan for Roger W. Hale,
              effective June 1, 1989. [Filed as Exhibit 10.40 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 1992,
              and incorporated by reference herein]


                                      -54-
<PAGE>

       10.29  Copy of Nonqualified Savings Plan covering officers of the
              Company, effective January 1, 1992. [Filed as Exhibit 10.41 to the
              Company's Annual Report on Form 10-K for the year ended December
              31, 1992, and incorporated by reference herein]

       10.30  Copy of Modification No. 13, dated September 1, 1989, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 10.42 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1993, and
              incorporated by reference herein]

       10.31  Copy of Modification No. 14, dated January 15, 1992, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 10.43 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1993, and
              incorporated by reference herein]

       10.32  Copy of Modification No. 7, dated January 15, 1992, to the Inter-
              Company Power Agreement dated July 10, 1953, among Ohio Valley
              Electric Corporation and Sponsoring Companies. [Filed as Exhibit
              10.44 to the Company's Annual Report on Form 10-K for the year
              ended December 31, 1993, and incorporated by reference herein]

       10.33  Copy of Modification No. 15, dated February 15, 1993, to the Power
              Agreement between Ohio Valley Electric Corporation and Atomic
              Energy Commission. [Filed as Exhibit 10.45 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1993, and
              incorporated by reference herein]

       10.34  Copy of Firm No-Notice Transportation Agreement effective November
              1, 1993, between Texas Gas Transmission Corporation and the
              Company (expires October 31, 2001) covering the transmission of
              natural gas. [Filed as Exhibit 10.47 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1993, and
              incorporated by reference herein]

              Copy of Firm No-Notice Transportation Agreement effective November
              1, 1993, between Texas Gas Transmission Corporation and the
              Company (expires October 31, 2000) covering the transmission of
              natural gas. [Filed as Exhibit 10.47 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1993, and
              incorporated by reference herein]


                                      -55-
<PAGE>

              Copy of Firm No-Notice Transportation Agreement effective November
              1, 1993, between Texas Gas Transmission Corporation and the
              Company (expires October 31, 1998) covering the transmission of
              natural gas. [Filed as Exhibit 10.47 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1993, and
              incorporated by reference herein]

       10.35  Copy of Employment Contract between LG&E Energy Corp. and Roger W.
              Hale effective January 1, 1997. [Filed as Exhibit 10.70 to LG&E
              Energy Corp.'s Annual Report on Form 10-K for the year ended
              December 31, 1996, and incorporated by reference herein]

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

       10.37  Copy of Modification No. 8 dated January 19, 1994, to Intercompany
              Power Agreement, dated July 10, 1953, among Ohio Valley Electric
              Corporation and the Sponsoring Companies. [Filed as Exhibit 10.43
              to the Company's Annual Report on Form 10-K for the year ended
              December 31, 1995, and incorporated by reference herein]

       10.38  Copy of Amendment dated March 1, 1995, to Firm No-Notice
              Transportation Agreements dated November 1, 1993 (2-Year, 5-Year
              and 8-Year), between Texas Gas Transmission Corporation and LG&E
              covering the transmission of natural gas. [Filed as Exhibit 10.44
              to the Company's Annual Report on Form 10-K for the year ended
              December 31, 1995, and incorporated by reference herein]

       10.39  Copy of Modification No. 9, dated August 17, 1995, to the
              Inter-Company Power Agreement dated July 10, 1953, among Ohio
              Valley Electric Corporation and the Sponsoring Companies.

       10.40  Copy of Firm Transportation Agreement, dated March 1, 1995,
              between Texas Gas Transmission Corporation and the Company
              (expires October 31, 1998) covering the transportation of natural
              gas. [Filed as Exhibit 10.45 to the Company's Annual Report on
              Form 10-K for the year ended December 31, 1995, and incorporated
              by reference herein]


                                      -56-
<PAGE>

              Copy of Firm Transportation Agreement, dated March 1, 1995,
              between Texas Gas Transmission Corporation and the Company
              (expires October 31, 2001) covering the transportation of natural
              gas. [Filed as Exhibit 10.45 to the Company's Annual Report on
              Form 10-K for the year ended December 31, 1995, and incorporated
              by reference herein]

       10.41  Copy of Firm Transportation Agreement, dated March 1, 1995,
              between Texas Gas Transmission Corporation and the Company
              (expires October 31, 2000) covering the transportation of natural
              gas.

       10.42  Copy of Firm Transportation Agreement, dated November 1, 1996,
              between Tennessee Gas Pipeline Company and the Company (expires
              October 31, 2001) covering the transportation of natural gas.

       10.43  Copy of Coal Supply Agreement, dated January 1, 1996, between
              Lafayette Coal Company, Black Beauty Coal Company and the Company
              covering the purchase of coal. [Filed as Exhibit 10.46 to the
              Company's Annual Report on Form 10-K for the year ended December
              31, 1995, and incorporated by reference herein]

       10.44  Copy of Coal Supply Agreement, dated December 15, 1995, between W.
              B. Coal Company, Inc., Windsor Coal Company and the Company
              covering the purchase of coal. [Filed as Exhibit 10.48 to the
              Company's Annual Report on Form 10-K for the year ended December
              31, 1995, and incorporated by reference herein]

       10.45  Copy of Coal Supply Agreement dated January 1, 1996, between
              Peabody Coalsales Company and the Company covering the purchase of
              coal. [Filed as Exhibit 10.49 to the Company's Annual Report on
              Form 10-K for the year ended December 31, 1995, and incorporated
              by reference herein]

       10.46  Copy of Coal Supply Agreement dated June 1, 1996, between Kindill
              Mining, Inc. and the Company covering the purchase of coal.

       10.47  Copy of Amendment dated October 31, 1996, to the Coal Supply
              Agreement dated June 1, 1996, between Kindill Mining, Inc. and the
              Company covering the purchase of coal.

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


                                      -57-
<PAGE>

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

       10.50  Copy of form of first amendment to change in control agreement for
              officers of the Company and key employees. [Filed as Exhibit 10.54
              to LG&E Energy Corp.'s Annual Report on Form 10-K for the year
              ended December 31, 1995, and incorporated by reference herein]

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

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

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

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

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

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

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


                                      -58-
<PAGE>

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

       10.59  Copy of Amendment No. 1, dated as of November 5, 1996, to the
              Credit Agreement dated December 18, 1995, by and among the
              Company, the Banks party thereto, and PNC Bank, Kentucky, Inc. as
              agent for the banks.

       12     Computation of Ratio of Earnings to Fixed Charges

       23     Consent of Independent Public Accountants

       24     Power of Attorney

       27     Financial Data Schedule

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

(b) Executive Compensation Plans and Arrangements:

             Supplemental Executive Retirement Plan as amended through January
             3, 1990, covering all officers of the Company. [Filed as Exhibit
             10.29 to the Company's Annual Report on Form 10-K for the year
             ended December 31, 1989, and incorporated by reference herein]

             LG&E Energy Corp. Deferred Stock Compensation Plan effective
             January 1, 1992, covering non-employee directors of LG&E
             Energy Corp. and its subsidiaries.  [Filed as Exhibit 10.34 to
             LG&E Energy Corp.'s Annual Report on Form 10-K for the year
             ended December 31, 1991, and incorporated by reference herein]

             Form of change in control agreement for officers of Louisville Gas
             and Electric Company. [Filed as Exhibit 10.38 to the Company's
             Annual Report on Form 10-K for the year ended December 31, 1992,
             and incorporated by reference herein]

             Supplemental Executive Retirement Plan for R. W. Hale, effective
             June 1, 1989.  [Filed as Exhibit 10.40 to the Company's Annual
             Report on Form 10-K for the year ended December 31, 1992, and
             incorporated by reference herein]


                                      -59-
<PAGE>

             Nonqualified Savings Plan covering officers of the Company
             effective January 1, 1992. [Filed as Exhibit 10.41 to the Company's
             Annual Report on Form 10-K for the year ended December 31, 1992,
             and incorporated by reference herein]

             Employment Contract between LG&E Energy Corp. and Roger W.
             Hale effective November 3, 1993.  [Filed as Exhibit 10.50 to
             LG&E Energy Corp.'s Annual Report on Form 10-K for the year
             ended December 31, 1993, and incorporated by reference herein]

             Employment Contract between LG&E Energy Corp. and Roger W.
             Hale effective January 1, 1997.  [Filed as Exhibit 10.70 to LG&E
             Energy Corp.'s Annual Report on Form 10-K for the year ended
             December 31, 1996, and incorporated by reference herein]

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

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

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

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

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

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


                                      -60-
<PAGE>

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

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

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

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

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

             Non-Officer Senior Management Pension Restoration Plan, effective
             May 1, 1996 [Filed as Exhibit 10.69 to LG&E Energy Corp.'s Annual
             Report on Form 10-K for the year ended December 31, 1996, and
             incorporated by reference herein]

(c) Reports on Form 8-K:

             None.


                                      -61-
<PAGE>

                                                                     SCHEDULE II

                       LOUISVILLE GAS AND ELECTRIC COMPANY
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1996
                                (Thousands of $)

<TABLE>
<CAPTION>
                                                                Reserves Deducted from
                                                                Assets in Balance Sheet
                                                              -----------------------------
                                                                 Other          Accounts
                                                               Property        Receivable
                                                                  and        (Uncollectible
                                                              Investments       Accounts)
                                                              -----------       ---------

<S>                                                              <C>              <C>             
Balance January 1, 1994 ......................................   $   63           $1,474          
                                                                                 
  Additions:                                                                     
   Charged to costs and expenses .............................                     3,100          
  Deductions:                                                                                     
   Net charges of nature for which reserves were created .....                     3,371          
                                                                 ------           ------
                                                                                 
Balance December 31, 1994 ....................................       63            1,203
                                                                                 
  Additions:                                                                     
   Charged to costs and expenses .............................                     3,200          
  Deductions:                                                                                     
   Net charges of nature for which reserves were created .....                     3,043          
                                                                 ------           ------
                                                                                 
Balance December 31, 1995 ....................................   $   63           $1,360
                                                                                 
  Additions:                                                                     
   Charged to costs and expenses .............................                     2,600          
  Deductions:                                                                                     
   Net charges of nature for which reserves were created .....                     2,490          
                                                                 ------           ------
                                                                                 
Balance December 31, 1996 ....................................   $   63           $1,470
                                                                 ======           ======
</TABLE>
                                                                         


                                       -62-
<PAGE>

                                    SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
                                       LOUISVILLE GAS AND ELECTRIC COMPANY
                                                            Registrant

March 25, 1997                  By        /s/ M. L. FOWLER
--------------                      ----------------------------------------
    (Date)                                  M. L. Fowler
                                    Vice President and Controller

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

     Signature                            Title                         Date
     ---------                            -----                         ----
ROGER W. HALE                   Chairman of the Board and
                                Chief Executive Officer
                                (Principal Executive Officer);

CHARLES A. MARKEL III           Treasurer
                                (Principal Financial Officer);

M. L. FOWLER                    Vice President and Controller
                                (Principal Accounting Officer);

WILLIAM C. BALLARD, JR.         Director;

RONALD L. BITTNER               Director;

OWSLEY BROWN II                 Director;

S. GORDON DABNEY                Director;

GENE P. GARDNER                 Director;

J. DAVID GRISSOM                Director;

DAVID B. LEWIS                  Director;

ANNE H. MCNAMARA                Director;

T. BALLARD MORTON, JR.          Director; and

DR. DONALD C. SWAIN             Director.


By   /s/ M. L. FOWLER
     -------------------------------                              March 25, 1997
     M. L. FOWLER (Attorney-In-Fact)

                                       -63-