<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C.  20549

                                      FORM 10-K

(Mark One)
/X/              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

                                          OR

/ /            TRANSITION 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, 1995
                                               -----------------

                           Commission file number 1 - 10568

                                  LG&E ENERGY CORP.
                                  -----------------
                (Exact name of registrant as specified in its charter)

               Kentucky                              61  -  1174555
               --------                              --------------
    (State or other jurisdiction of                  (I.R.S. Employer
    incorporation or organization)                  Identification No.)

         220 West Main Street                             40232
            P.O. Box 32030                                -----
            Louisville, KY                             (Zip Code)
            --------------
 Address of principal executive offices)


                                    (502) 627-2000
                                    --------------
                           (Registrant's telephone number)

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

                                                      Name of each exchange on
         Title of each class                               which registered
         -------------------                               ----------------
    Common Stock, without par value                   New York Stock Exchange
                                                                and
    Rights to Purchase Series A Preferred              Chicago Stock Exchange
         Stock, without par value

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 29, 1996, the aggregate market value of the registrant's voting
stock held by non-affiliates was $1,421,815,597 and the number of outstanding
shares of the registrant's common stock, without par value, was 33,124,377.

                         DOCUMENTS INCORPORATED BY REFERENCE

The Company's proxy statement filed with the Commission on March 13, 1996, is
incorporated by reference into Part III of this Form 10-K. 

<PAGE>

                                  TABLE OF CONTENTS

                                        PART I

Item  1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . .       1
         Overview of Operations. . . . . . . . . . . . . . . . . . . .       1
         Louisville Gas and Electric Company
            General. . . . . . . . . . . . . . . . . . . . . . . . . .       3
            Electric Operations. . . . . . . . . . . . . . . . . . . .       5
            Gas Operations . . . . . . . . . . . . . . . . . . . . . .       6
            Regulation and Rates . . . . . . . . . . . . . . . . . . .       7
            Construction Program and Financing . . . . . . . . . . . .       8
            Coal Supply. . . . . . . . . . . . . . . . . . . . . . . .       9
            Gas Supply . . . . . . . . . . . . . . . . . . . . . . . .      10
            Environmental Matters. . . . . . . . . . . . . . . . . . .      11
         LG&E Energy Systems Inc . . . . . . . . . . . . . . . . . . .      11
         LG&E Gas Systems Inc. . . . . . . . . . . . . . . . . . . . .      14
         Labor Relations . . . . . . . . . . . . . . . . . . . . . . .      17
         Employees . . . . . . . . . . . . . . . . . . . . . . . . . .      17
Item  2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . .      18
Item  3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .      20
Item  4. Submission of Matters to a Vote of Security Holders . . . . .      21
Executive Officers of the Company. . . . . . . . . . . . . . . . . . .      22

                                       PART II

Item  5. Market for the Registrant's Common Equity and Related
            Stockholder Matters. . . . . . . . . . . . . . . . . . . .      23
Item  6. Selected Financial Data . . . . . . . . . . . . . . . . . . .      24
Item  7. Management's Discussion and Analysis of Results of
            Operations and Financial Condition . . . . . . . . . . . .      25
Item  8. Financial Statements and Supplementary Data . . . . . . . . .      37
Item  9. Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure . . . . . . . . . . . . . . . . .      68

                                       PART III

Item 10. Directors and Executive Officers of the Registrant (a). . . .      69
Item 11. Executive Compensation (a). . . . . . . . . . . . . . . . . .      69
Item 12. Security Ownership of Certain Beneficial Owners
            and Management (a) . . . . . . . . . . . . . . . . . . . .      69
Item 13. Certain Relationships and Related Transactions (a). . . . . .      69

                                       PART IV

Item 14. Exhibits, Financial Statement Schedules,
            and Reports on Form 8-K. . . . . . . . . . . . . . . . . .      69
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      82
Exhibit 21 - Subsidiaries of the Registrant. . . . . . . . . . . . . .      83
Exhibit 23 - Consent of Independent Public Accountants . . . . . . . .      84

(a) Incorporated by reference.

<PAGE>

                                       Part I.

Item 1.  Business.

                                OVERVIEW OF OPERATIONS

LG&E Energy Corp. (the Company), incorporated November 14, 1989, is a
diversified energy-services holding company with three direct subsidiaries:
Louisville Gas and Electric Company (LG&E), LG&E Energy Systems Inc. (Energy
Systems) and LG&E Gas Systems Inc. (Gas Systems).

LG&E is a regulated public utility that supplies natural gas to approximately
272,000 customers and electricity to approximately 346,000 customers in
Louisville and adjacent areas in Kentucky.  LG&E's service area covers
approximately 700 square miles in 17 counties and has an estimated population of
800,000.  Included in this area is the Fort Knox Military Reservation, to which
LG&E transports gas and provides electric service, but which maintains its own
distribution systems.  LG&E also provides gas service in limited additional
areas.  LG&E's coal-fired electric generating plants, which are all equipped
with systems to remove sulfur dioxide, produce most of LG&E's electricity; the
remainder is generated by a hydroelectric power plant and combustion turbines.
Underground natural gas storage fields help LG&E provide economical and reliable
gas service to customers.  During 1995, the Company's financial condition and
results of operation depended to a large degree on the financial condition and
results of operations of LG&E.

In 1991, the Company began to explore business opportunities consistent with its
strategy to expand its energy services platform, including cogeneration and
independent power production and fuel-related businesses such as gathering,
storing, transporting and marketing natural gas.  LG&E Energy Systems Inc. was
formed in 1991 as the first of two subsidiaries intended to hold the Company's
investments in non-utility businesses and to separate these investments from the
regulated utility.  The second, LG&E Gas Systems Inc., was formed in 1995.

Consistent with the Company's expansion strategy, Energy Systems purchased
Hadson Power Systems, Incorporated, of Irvine, California, from Hadson
Corporation in December 1991.  Following the acquisition, Hadson Power Systems
was renamed LG&E Power Systems Inc. and has been subsequently renamed LG&E Power
Inc. (LPI).  LPI develops, designs, owns, operates, and maintains power
generation facilities that sell energy to local industries and utilities.

In 1992, Energy Systems acquired a 36.5% interest in Natural Gas Clearinghouse
(NGC), and in January 1994, it sold that interest.  See Note 6 of Notes to
Financial Statements under Item 8 for a further discussion of the sale of NGC.

In 1994, LG&E Power Marketing Inc. (LPM), an indirect wholly-owned subsidiary of
LPI, was formed to market power throughout the United States.  LPM was among the
first utility-affiliated marketers in the country to secure FERC approval to
sell power at market-based rates and engage in wholesale power marketing
activities.

In November 1994, the Company announced that one of its subsidiaries, LG&E
International Inc. (LII), a wholly-owned subsidiary of Energy Systems, had
formed a joint venture to build and operate a natural gas-fired power plant in
north central Argentina.  The plant was completed in 1995 and began commercial
operation in early 1996.  The Company intends to continue to pursue
international development opportunities that have an acceptable level of risk
and a reasonable rate of return.

                                          1

<PAGE>

In May 1995, Gas Systems acquired all of the outstanding common stock of Hadson
Corporation, now known as LG&E Natural Inc. (LG&E Natural), a company engaged in
the marketing, gathering, processing, storage and transportation of natural gas.

Effective December 15, 1995, the Company modified its organizational structure.
The changes are designed to facilitate decision making, improve response to
customers and better align operating units with the changing competitive
marketplace.  Four operating divisions were established:

     Distribution Services Division - which includes the distribution resources
     of Louisville Gas and Electric Company (LG&E), is responsible for expanding
     and developing the distribution businesses and investing in enhanced 
     service offerings behind the customer's meter.

     Gas Marketing Division - primarily consists of the operations of LG&E 
     Natural, which markets gas throughout the United States and Canada.

     Power Marketing Division - which includes LG&E Power Marketing Inc. (LPM),
     and is responsible for project development and the marketing and sale of 
     wholesale power throughout the United States.

     Power Generation Division - which includes the generation resources of 
     LG&E, LG&E Power Inc. (LPI), and LG&E International Inc. (LII), has 
     responsibility for all utility and non-utility power plant operations, 
     asset management and development functions both domestically and 
     internationally.

In addition, LPI has reduced its capability to construct power generation
facilities consistent with the trend of lower construction activity within the
independent power industry.  LPI expects its development and power marketing
activities to be the major source of revenue in the future.

The realignment does not affect the Company's legal structure, regulation of
LG&E by the Public Service Commission of Kentucky (Kentucky Commission or
Commission) or the Company's status as an exempt holding company.

The Company has taken many steps to prepare for the expected increase in
competition in its regulated and non-regulated energy services businesses,
including a reduction in the number of employees; aggressive cost cutting; a
write-off of previously deferred expenses; an increase in focus on commercial
and industrial customers; an increase in employee involvement and training; a
major realignment and formation of new business units; and a modification of its
organization structure.  With these steps, the Company is preparing for
increased competition in both the regulated and non-regulated energy services
industries.

The Company and its subsidiaries currently are exempt from all provisions,
except Section 9(a)(2), of the Public Utility Holding Company Act of 1935 (the
"Holding Company Act") on the basis that the Company and LG&E are incorporated
in the same state and their business is predominately intrastate in character
and carried on substantially in the state of incorporation.  It is necessary for
the Company to file an annual exemption statement with the Securities and
Exchange Commission (SEC).

The Company is not a public utility under the laws of the Commonwealth of
Kentucky and is not subject to regulation as such by the Kentucky Commission.
See Louisville Gas and Electric Company - Regulation and Rates below for a
description of the regulation of LG&E by the Kentucky Commission, which includes

                                          2

<PAGE>

the ability to regulate certain inter-company transactions between LG&E and the
Company, including the Company's non-utility subsidiaries.

                         LOUISVILLE GAS AND ELECTRIC COMPANY

General

LG&E's Trimble County Unit 1 (Trimble County or the Unit), a 495-megawatt,
coal-fired electric generating unit, which LG&E began constructing in 1979, was
placed in commercial operation on December 23, 1990.  The Unit had been subject
to numerous reviews by the Kentucky Commission.  On December 8, 1995, the
Commission approved a settlement agreement filed by LG&E and all intervenors in
the Trimble County proceedings, including various consumer interest groups and
government agencies, that in effect, resolves all of the regulatory and legal
issues related to the appropriate ratemaking treatment to exclude 25% of the
Trimble County costs from customer rates.  LG&E has sold a 25% ownership
interest in the Unit.  For a more detailed discussion of the proceedings
relating to Trimble County and the sale of 25% of the Unit, see Electric
Operations and Notes 17 and 18 of Notes to Financial Statements under Item 8.

The Clean Air Act Amendments of 1990 (the Act) impose stringent limits on
emissions of sulfur dioxide and nitrogen oxides by electric utility generating
plants.  All of LG&E's coal-fired boilers are equipped with sulfur dioxide
"scrubbers" and already achieve the final sulfur dioxide emission rates required
by the year 2000 under the legislation.  However, as part of its ongoing
construction program, LG&E has spent $22 million to date and anticipates
incurring capital expenditures of approximately $8 million in 1996 for remedial
measures necessary to meet the Act's requirements for nitrogen oxides.  The
overall financial impact of the legislation on LG&E is expected to be minimal.
LG&E is well-positioned in the market to be a "clean" power provider without the
large capital expenditures that are expected to be incurred by many other
utilities.  For a more detailed discussion of the Clean Air Act and other
environmental issues, see Environmental Matters under this Item, Item 3, Item 7,
and Note 16 of the Notes to Financial Statements under Item 8.

The Energy Policy Act of 1992 is designed to give utilities a wider choice of
sources for their electrical supply than previously available, while creating
generating supply options that did not exist under the old law.  In passing this
legislation, Congress also anticipated that greater competition among electric
supply options should result in lower consumer rates.

Pursuant to the Energy Policy Act, the Federal Energy Regulatory Commission
(FERC) earlier this year issued a Notice of Proposed Rulemaking on Open Access
Non-discriminatory Transmission Services and a Supplemental Notice of Proposed
Rulemaking on Stranded Investment (collectively, the Mega-NOPR).  The Mega-NOPR
is intended, among other things, to create a vigorous wholesale electric market
by requiring transmission providers to offer open access to their transmission
systems.  LG&E is supportive of proposals to increase competition at all levels
of the electric power market and intends to pursue opportunities created by a
more competitive market.

To prepare for these opportunities, the Company modified its organizational
structure and took other steps as described on pages two and three effective
December 15, 1995.  The realignment does not affect the regulation of LG&E by
the Commission.

By using gas storage fields strategically, LG&E can buy gas when prices are low,
store it, and retrieve the gas when demand is high.  Accessing least cost gas
was made easier in November 1993 when FERC's

                                          3
<PAGE>

Order No. 636 went into effect.  Previously, LG&E and other utilities purchased
most of their gas services from pipeline companies.  The order "unbundled" gas
services, allowing utilities to purchase gas, transportation, and storage
services separately from many different sources.  Currently, LG&E buys
competitively priced gas from several large producers under contracts of varying
duration.  By purchasing from multiple suppliers, and storing any excess gas,
LG&E is able to secure favorably priced gas for its customers.  Without storage
capacity, LG&E would be forced to buy additional gas when customer demand
increases, which is usually when the price is highest.  See FERC Order No. 636
under Item 7 for a further discussion.

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

On July  31, 1995, Vantage Consulting, Inc. released its report on the Kentucky
Commission's management audit of LG&E.  This comprehensive audit, which began in
September 1994, included more than 300 interviews and over 875 requests for
information.  This was the second management audit of LG&E mandated by the
Kentucky Commission, the first being completed in 1986.  The overall audit
findings were very favorable and recognized that LG&E has become an innovative
industry leader that has implemented many performance improvements to lower
costs, improve efficiency, prepare for increased competition, and increase its
focus on customer satisfaction.  For further discussion, see Regulation and
Rates.

For the year ended December 31, 1995, 75% of LG&E's total operating revenues was
derived from electric operations and 25% 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:

 
<TABLE>
<CAPTION>

                                                       (Thousands of $)
                                         Electric             Gas      Combined     % Combined
                                         --------             ---      --------     ----------
    <S>                                  <C>             <C>           <C>           <C>
    Residential                          $201,357        $107,762      $309,119             44%
    Commercial                            160,571          38,161       198,732             29
    Industrial                            110,800          17,430       128,230             18
    Public authorities                     53,861           8,679        62,540              9
                                         --------        --------      --------            ---
    Total service revenues                526,589         172,032       698,621            100%
                                                                                           ---
                                                                                           ---
    Refund - Trimble County settlement    (28,300)(a)           -       (28,300)
                                         --------        --------      --------
       Total - ultimate consumers         498,289         172,032       670,321
    Sales for resale                       37,471               -        37,471
    Gas transported - net                       -           7,821         7,821
    Miscellaneous                           7,026           1,273         8,299
                                         --------        --------      --------
       Total                             $542,786        $181,126      $723,912
                                         --------        --------      --------
                                         --------        --------      --------

    (a)See Note 17 of Notes to Financial Statements under Item 8.

</TABLE>
 
See Note 19 of Notes to Financial Statements under Item 8 for financial
information concerning segments of business for the three years ended December
31, 1995.

                                          4

<PAGE>

Electric Operations

The sources of LG&E's electric operating revenues and the volumes of sales for
the three years ended December 31, 1995, were as follows:

<TABLE>
<CAPTION>


                                                 1995          1994         1993
                                                 ----          ----         ----
          <S>                                <C>          <C>           <C>
          ELECTRIC OPERATING REVENUES
          (Thousands of $):
          Residential                        $201,357      $194,145     $195,273
          Small commercial and industrial      73,074        70,916       70,106
          Large commercial                     87,497        84,931       84,231
          Large industrial                    110,800       108,004      104,506
          Public authorities                   53,861        53,191       52,183
          Refund - Trimble County settlement  (28,300)           --           --
                                            ----------     --------     --------
             Total - ultimate consumers       498,289       511,187      506,299
          Sales for resale                     37,471        42,720       60,060
          Miscellaneous                         7,026         5,420        5,268
                                            ----------     --------     --------
             Total                           $542,786      $559,327     $571,627
                                            ----------     --------     --------
                                            ----------     --------     --------

          ELECTRIC SALES (Thousands of kwh):
          Residential                        3,415,225    3,204,330    3,230,463
          Small commercial and industrial    1,112,130    1,073,152    1,056,977
          Large commercial                   1,802,035    1,729,668    1,696,686
          Large industrial                   3,023,543    2,874,411    2,736,269
          Public authorities                 1,113,063    1,085,741    1,053,928
                                            ----------    ---------   ----------
             Total-ultimate consumers       10,465,996    9,967,302    9,774,323
          Sales for resale                   2,000,607    2,315,311    3,346,107
                                            -----------  ----------   ----------
             Total                          12,466,603   12,282,613   13,120,430
                                            -----------  ----------   ----------
                                            -----------  ----------   ----------
</TABLE>


At December 31, 1995, LG&E had 346,099 electric customers.

LG&E uses efficient coal-fired boilers that are fully equipped with sulfur
dioxide removal systems to generate electricity.  LG&E's system-wide emission
rate for sulfur dioxide in 1995 was approximately .85 lbs./MMBtu of heat input,
which is significantly below the Phase II limit of 1.2 lbs./MMBtu established by
the Clean Air Act Amendments for the year 2000.

On Thursday, August 17, 1995, LG&E set a 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 1994 maximum local peak load of
2,219 Mw occurred on Wednesday, June 15, when the temperature at time of peak
was 95 degrees Fahrenheit (average for the day was 85 degrees Fahrenheit).  The
record system peak of 3,223 Mw (which included purchases from and short-term
sales to other electric utilities) occurred on Thursday, May 30, 1991.

LG&E's current reserve margin is 16%.  At February 29, 1996, LG&E 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.

LG&E 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.  LG&E 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.  LG&E also

                                          5

<PAGE>

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.

On February 28, 1991, LG&E sold a 12.12% ownership interest in Trimble County
Unit 1 to the Illinois Municipal Electric Agency (IMEA), based in Springfield,
Illinois, which is an agency of 30 municipalities that own and operate their own
electric systems.  On February 1, 1993, the Indiana Municipal Power Agency
(IMPA), based in Carmel, Indiana, purchased a 12.88% interest in the Trimble
County Unit.  IMPA is composed of 31 municipalities that have joined together to
meet their long-term electric power needs.  Both IMEA and IMPA pay their
proportionate share for operation and maintenance expenses of the Unit and for
fuel and reactant used.  They are also responsible for their proportionate share
of incremental capital assets acquired.

Electric and magnetic fields (sometimes referred to as EMF) surround electric
wires or conductors of electricity such as electrical tools, household wiring
and appliances, and high voltage electric transmission lines such as those owned
by LG&E.  Certain studies have suggested a possible association between electric
and magnetic fields and adverse health effects.  The Electric Power Research
Institute, of which LG&E is a participating member, has expended approximately
$83 million since 1987 in its investigation and research with regard to possible
health effects posed by exposure to electric and magnetic fields.

Gas Operations

The sources of LG&E's gas operating revenues and the volumes of sales for the
three years ended December 31, 1995, were as follows:

<TABLE>
<CAPTION>

                                                  1995       1994        1993
                                                  ----       ----        ----
     <S>                                      <C>        <C>         <C>
     GAS OPERATING REVENUES
     (Thousands of $):
     Residential                              $107,762   $110,553    $112,508
     Commercial                                 38,161     40,474      43,568
     Industrial                                 17,430     27,956      28,310
     Public authorities                          8,679     12,930      13,846
                                               -------    -------     -------
        Total-ultimate consumers               172,032    191,913     198,232
     Gas transported-net                         7,821      6,759       5,147
     Miscellaneous                               1,273      1,457       1,536
                                               -------    -------     -------
        Total                                 $181,126   $200,129    $204,915
                                               -------    -------     -------
                                               -------    -------     -------

     GAS SALES (Millions of cu. ft.):
     Residential                                24,242     22,935      24,330
     Commercial                                  9,885      9,450      10,308
     Industrial                                  5,188      7,505       7,817
     Public authorities                          2,423      3,268       3,515
                                                ------     ------     -------
        Total-ultimate consumers                41,738     43,158      45,970
     Gas transported                            12,241      6,854       5,249
                                                ------    -------     -------
        Total                                   53,979     50,012      51,219
                                                ------    -------     -------
                                                ------    -------     -------

</TABLE>

At December 31, 1995, LG&E had 272,135 gas customers.

LG&E has underground natural gas storage fields that help provide economical and
reliable gas service to ultimate consumers.

Reflecting the changing nature of the gas business, a number of industrial
customers purchase their natural gas requirements directly from alternate
suppliers for delivery through LG&E's distribution system.

                                          6

<PAGE>

Generally, transportation of natural gas for LG&E's customers does not have an
adverse effect on earnings because of the offsetting decrease in gas supply
expenses.  Transportation rates are designed to make LG&E economically
indifferent as to whether gas is sold or merely transported.

The all-time maximum day gas sendout of 545,000 Mcf occurred on Sunday, January
20, 1985,  when the average temperature for the day was -11 degrees Fahrenheit.
During 1995, the maximum day gas sendout was 454,000 Mcf, occurring on December
9, when the average temperature for the day was 9 degrees Fahrenheit.  Supply on
that day consisted of 208,000 Mcf from purchases, 199,000 Mcf delivered from
underground storage, and 47,000 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 LG&E.  During 1995, LG&E paid and began recovering from its customers
approximately $4.8 million in transition costs under Order No. 636.  It is
estimated that about $1.4 million in additional transition costs will be
incurred by LG&E during 1996 and about $1.3 million in 1997, and these costs are
also expected to be recovered from customers.  See Note 16 of Notes to Financial
Statements under Item 8 for further discussion of FERC Order No. 636.

Regulation and Rates

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

For a discussion of current regulatory matters, see Rates and Regulation under
Item 7 and Notes 3 and 17 of Notes to Financial Statements under Item 8.

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

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

On December 8, 1995, the Commission approved a settlement agreement filed by
LG&E and all intervenors in the Trimble County proceedings, including various
consumer interest groups and government agencies, that, in effect, resolves 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
17 of Notes to Financial Statements under Item 8 for further discussion of this
matter.

                                          7

<PAGE>

On July 31, 1995, Vantage Consulting, Inc. released its report on the Kentucky
Commission's management audit of LG&E.  This comprehensive audit, which began in
September 1994, included more than 300 interviews and over 875 requests for
information.  This was the second management audit of LG&E mandated by the
Kentucky Commission, the first being completed in 1986.

The overall audit findings were very favorable and recognized that LG&E has
become an innovative industry leader that has implemented many performance
improvements to lower costs, improve efficiency, prepare for increased
competition, and increase its focus on customer satisfaction.  The audit report
identified additional improvement opportunities and contained a series of
recommendations which should assist LG&E with its future plans.  It is estimated
that implementation of the audit recommendations could provide LG&E with as much
as $11 million in annual gross savings.  However, incremental costs will be
incurred to achieve the full benefits of the recommendations and the ultimate
savings will be realized over the long-term.

On October 7, 1994, LG&E filed an application with the Kentucky Commission in
which it requested approval of an environmental cost recovery surcharge to
recover certain costs required to comply with the Federal Clean Air Act, as
amended, and those federal, state, and local environmental requirements which
apply to coal combustion wastes and by-products from facilities utilized for
production of energy from coal.  On April 6, 1995, the Commission approved, with
modifications, an environmental cost recovery surcharge that increased electric
revenues by $3.2 million in 1995 and will increase revenues by an estimated $5.7
million in 1996.  LG&E, the Kentucky Attorney General, and the Kentucky
Industrial Utility Customers have filed appeals on certain issues included in
the April 6 order.  See Rates and Regulation under Item 7 for a further
discussion of the surcharge.

On January 1, 1994, LG&E implemented a Commission approved demand side
management (DSM) program.  The program contains a rate mechanism that provides
for the recovery of DSM program costs, allows LG&E to recover revenues due to
lost sales associated with the DSM programs and provides LG&E an incentive for
implementing DSM programs.  See Rates and Regulation under Item 7 for a further
discussion of DSM.

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

Construction Program and Financing

LG&E's construction program is designed to assure that there will be adequate
capacity 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.  LG&E's estimates of its construction
expenditures can vary substantially due to numerous items beyond LG&E's control,
such as

                                          8

<PAGE>

changes in rates, economic conditions,  construction costs, and new
environmental or other governmental laws and regulations.

During the five years ended December 31, 1995, gross property additions amounted
to $476 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, 1995, and consisted of $356 million for electric properties and
$120 million for gas properties.  Gross retirements during the same period were
$82 million, consisting of $67 million for electric properties and $15 million
for gas properties.

For a further discussion of construction expenditures and financing, see
Liquidity and Capital Resources under Item 7.

Coal Supply

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

In January 1996, LG&E bought out the last year of its three year contract with
Andalex Resources, Inc. at a cost of $3.5 million.  LG&E has filed an
application with the Kentucky Commission to recover the cost of the buyout
through the fuel adjustment clause.  As a result of the buyout of the coal
contract, LG&E's customers will realize a net savings in excess of $1 million.

LG&E has entered into coal supply agreements with various suppliers for coal
deliveries for 1996 and beyond.  LG&E normally augments its coal supply
agreements with spot market purchases which, during 1995, were about 10% of
total purchases.  LG&E has a coal inventory policy, which is in compliance with
the Kentucky Commission's directives and which LG&E believes provides adequate
protection under most contingencies.  LG&E had on hand at December 31, 1995, a
coal inventory of approximately 600,000 tons, or a 35 day supply.

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

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

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

<TABLE>
<CAPTION>

                                                  1995       1994        1993
                                                  ----       ----        ----
<S>                                             <C>        <C>         <C>
Per ton                                         $23.68     $25.27      $26.58
Per million Btu                                   1.04       1.10        1.14


</TABLE>

                                          9

<PAGE>

This downward trend in the delivered cost of coal is expected to continue
through 1996.

Gas Supply

Prior to the implementation of FERC Order No. 636, LG&E had purchased natural
gas and pipeline transportation services from Texas Gas Transmission Corporation
(Texas Gas).  LG&E now purchases only transportation services from Texas Gas and
purchases natural gas from many other sources under contracts for varying
periods of time.  See Management's Discussion and Analysis, Future Outlook,
under Item 7.

Under Order No. 636, pipelines may recover costs associated with the transition
to and implementation of this order from pipeline customers, including LG&E.
The Commission issued an order, based on proceedings that were held to
investigate the impact of Order No. 636 on utilities and ratepayers in Kentucky,
providing that transition costs assessed on utilities by the pipelines, which
are clearly identifiable as being related to the cost of the commodity itself,
are appropriate to be recovered from customers through the gas supply clause.
During 1995, LG&E paid Texas Gas and began recovering from its customers
approximately $4.8 million in transition costs.  It is estimated that about $1.4
million in additional transition costs will be incurred by LG&E during 1996 and
about $1.3 million in 1997, and these costs are also expected to be recovered
from customers.  These transition costs are billed by Texas Gas pursuant to
orders issued by FERC in transition cost regulatory proceedings in which LG&E is
a party.  Pursuant to these FERC orders, no additional transition costs are
expected to be billed after 1997.

During 1995, LG&E participated in several regulatory proceedings at FERC.  These
proceedings resolved, subject to final FERC approval, issues in Texas Gas' rate
case as well as transition cost issues from the implementation of Order No. 636
by Texas Gas.  LG&E does not expect significant regulatory initiatives by Texas
Gas at FERC during 1996.

LG&E transports on the Texas Gas System under No-Notice Service (NNS) and Firm
Transportation (FT) rates.  In 1995, LG&E made two important modifications to
its transportation agreements with Texas Gas.  During the winter months, LG&E
has 184,900 MMBtu (180,390 mcf) per day in NNS.  During 1995, LG&E's summer NNS
level was reduced from 135,000 MMBtu (131,708 Mcf) per day to 111,000 MMBtu
(108,293 Mcf), and 24,000 MMBtu (23,415 Mcf) per day was converted to FT
service.  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 LG&E's option.

LG&E also has a transportation agreement with Texas Gas which provides for
30,000 MMBtu (29,268 Mcf) per day in FT service throughout the year.  The
primary term of this FT agreement expired October 31, 1995, subject to a
year-to-year termination by either party.  During 1995, LG&E provided the
required one year prior written notice to terminate this FT agreement effective
November 1, 1996.

During the last quarter of 1995, LG&E negotiated a five-year transportation
agreement with Tennessee Gas Pipeline Company (Tennessee) for 30,000 MMBtu
(29,268 Mcf) per day in Firm Transportation service under Tennessee's Rate FT-A.
This agreement with Tennessee becomes effective November 1, 1996.  For many
years, Texas Gas had been the sole provider of gas transport services to LG&E.

LG&E 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 LG&E's customers.

                                          10

<PAGE>

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

The estimated maximum deliverability from storage during the early part of the
1994-1995 heating season was approximately 373,000 Mcf per day.  Deliverability
decreases during the latter portion of the heating season as the storage
inventory is reduced by seasonal withdrawals.

The average cost per Mcf of natural gas purchased by LG&E was $2.62 in 1995,
$2.78 in 1994, and $2.91 in 1993.

Environmental Matters

Protection of the environment is a major priority for LG&E.  LG&E engages in a
variety of activities within the jurisdiction of federal, state, and local
regulatory agencies.  Those agencies have issued LG&E permits for various
activities subject to air quality, water quality, and waste management laws and
regulations.  For the five year period ending with 1995, expenditures for
pollution control facilities represented $90 million or 19% of total
construction expenditures. The cost of operating and maintaining
scrubber-related facilities amounted to $21 million in 1995 and $22 million in
1994.  LG&E's anticipated capital expenditures for 1996 to comply with
environmental laws are approximately $8 million.  See Note 16 of Notes to
Financial Statements under Item 8 for a discussion of specific environmental
proceedings affecting LG&E.

                               LG&E ENERGY SYSTEMS INC.

LG&E Energy Systems Inc. (Energy Systems) was formed in 1991 as the first of two
subsidiaries intended to hold the Company's investments in non-utility
businesses.  In December 1991, Energy Systems purchased Hadson Power Systems,
Incorporated, which was renamed at the time of purchase to LG&E Power Systems
Inc, and subsequently renamed LG&E Power Inc. (together with its subsidiaries,
"LPI").  In 1992, Energy Systems acquired a 36.5% interest in Natural Gas
Clearinghouse (NGC).  In January 1994, the Company completed the sale of its
equity interest in NGC to NOVA Corporation of Alberta, Canada.  See Note 6 of
Notes to Financial Statements under Item 8.

LPI develops, owns, operates, and maintains power generation facilities that
sell electric and steam energy to industrial and utility customers.  LPI,
through its predecessor, has been in the independent power business since 1982
and has approximately 275 employees.  It currently has ownership interests in
projects capable of generating over 700 megawatts of electric power capacity in
North Carolina, Virginia, New York, California, Minnesota, Texas and abroad.  In
November 1994, the Company announced that LG&E International Inc. (LII), a
wholly-owned subsidiary of Energy Systems, had formed a joint venture to build
and operate a natural-gas-fired power plant in north central Argentina.  The
plant was completed in 1995 and began commercial operation in early 1996.  The
other partners in the project are Sideco Americana, S.A., an Argentine
engineering and construction company, and Charter Oak Energy, Inc., a non-
utility subsidiary of Northeast Utilities.  In 1995, LII also invested $4.5
million into a partnership that acquired a 44% interest in a 30 Mw wind facility
in Tarifa, Spain.  The partners in the project include Kenetech International,
Ltd. and other local Spanish companies.  The Company intends to continue to
pursue international development opportunities that have an acceptable level of
risk and a reasonable rate of return.

Except for its investments in wind power and its Roanoke Valley I facility (ROVA
I) (see Item 2, Properties), each of the projects LPI has in operation within
the United States is a qualifying cogeneration

                                          11

<PAGE>

facility (QF) under the Public Utility Regulatory Policy Act of 1978 (PURPA).
See Item 3 and Note 16 of Notes to Financial Statements under Item 8 for a
discussion of certain issues regarding past operations at certain of these
facilities.  Certain partnerships, in which LPI has an ownership interest, are
operating wind power facilities which are qualifying small power production
facilities under PURPA.  In addition, LPI has obtained exempt wholesale
generator (EWG) status for the entities which own the ROVA I and Roanoke Valley
II (ROVA II) projects in North Carolina, the Rensselaer facility in Rensselaer,
New York, and the Southampton, Altavista and Hopewell projects in Virginia.
Except for ROVA I, these projects continue to maintain QF status under PURPA.

Generally, QF status exempts projects from the application of the Holding
Company Act, many provisions of the Federal Power Act, and state laws and
regulations respecting rates and financial or organization regulation of
electric utilities.  EWGs also are exempt from application of the Holding
Company Act and many provisions of the Federal Power Act, but once such an
entity files its electric generation rates with FERC, it becomes a
jurisdictional public utility under the Federal Power Act.  As such a "public
utility," an EWG's rates and some of its corporate activities are subject to
FERC regulation.  EWGs also are subject to non-rate regulation under state laws
governing electric utilities.  While QF or EWG status entitles LPI's projects to
certain regulatory exceptions and benefits under PURPA and the Holding Company
Act, each project must still comply with other federal, state and local laws,
including those regarding siting, construction, operation, licensing and
pollution abatement.

Effective December 15, 1995, the Company modified its organizational structure
as described on pages two and three.  The changes are designed to facilitate
decision making, improve response to customers and better align operating units
with the changing competitive marketplace.

As part of the realignment, LPI has reduced its capability to construct power
generation facilities consistent with the trend of lower construction activity
within the independent power industry.  LPI expects its development and power
marketing activities to be the major source of revenue in the future.

The realignment does not affect the Company's legal structure, regulation of
LG&E by the Commission or the Company's status as an exempt holding company.

Wholesale power will continue to be marketed and brokered under the new
structure by LPM, a wholly-owned subsidiary of LPI.  LPM was among the first
utility-affiliated marketers in the country to secure FERC approval to sell
power at market-based rates and engage in wholesale power marketing activities.
During 1995, its first full year of operations, LPM sold or brokered 1.8 million
megawatt-hours of power in 30 states.  This volume of activity placed LPM among
the five largest marketers of wholesale energy in 1995 and the largest seller
affiliated with a regulated electric utility.  LPM is predicting that the market
for electric energy will expand and its revenues will increase in future years.

In connection with the financing of various power projects, Energy Systems and
LPI provide equity funding commitments and guarantee the construction and
performance of the projects.  Ascertainable equity funding commitments were
immaterial at December 31, 1995.  Such commitments were $27 million at December
31, 1994.  Contingent construction and project performance guarantees totaled
approximately $12.3 million and $64.5 million at December 31, 1995, and 1994,
respectively.

Energy Systems has provided letters of credit and various other guarantees to
third parties which totaled approximately $33.7 million and $39.2 million as of
December 31, 1995 and 1994, respectively.

                                          12

<PAGE>

Westmoreland Energy, Inc. (WEI) is a partner along with LPI in six cogeneration
projects.  Under an agreement signed on April 15, 1993, Energy Systems
guaranteed (in exchange for fees and other consideration) the equity funding
commitment of WEI in connection with the Roanoke Valley I, Roanoke Valley II and
Rensselaer projects.  In connection with that guarantee, WEI agreed to reimburse
Energy Systems in the event it were ever required to perform thereunder, and WEI
pledged certain of its assets to Energy Systems to secure that reimbursement
obligation.  Equity commitments for these projects were funded in late 1994 and
1995.  There are no outstanding commitments resulting from Energy Systems'
guarantee commitment, and the parties have agreed to terminate the WEI
reimbursement obligation and related security interests.

The preceding equity funding and performance guarantees are subject to Support
Agreements as more fully described in Note 15 of Notes to Financial Statements
under Item 8.

The Southampton plant, a 63 megawatt coal-fired cogeneration facility in
Franklin, Virginia, supplies process steam to a nearby chemical manufacturer and
bulk electric power under contract to Virginia Electric and Power Company
(Virginia Power) as a qualifying facility under the Public Utility Regulatory
Policies Act (PURPA).  The plant began commercial operation in 1992.  On July 7,
1994, FERC denied the request of LG&E-Westmoreland Southampton (the Partnership)
for a waiver of certain QF requirements and directed the Partnership to show
cause as to why it should not be required to file new cost-based rates for its
1992 electric sales to Virginia Power.

The Partnership filed a request for rehearing and a motion to consider its
request for rehearing as timely filed, or in the alternative, to treat its
request for rehearing as a motion for reconsideration, in August 1994, one day
out of time.  The Partnership is seeking a reversal of FERC's prior order, or,
in the alternative, a clarification of FERC's order stating that, with the
exception of rates, the Partnership remains a QF for 1992 exempt from regulation
as a public utility under PUHCA, utility laws in Virginia and various portions
of the Federal Power Act.

In late August 1994, Virginia Power filed a motion for leave to respond to the
Partnership's request for rehearing, and response to request for rehearing, and
a response to the Partnership's show cause order.  In September 1994, the
Partnership filed with FERC its answer to Virginia Power's motion and response.
Also in September 1994, FERC granted itself an extension of time to act on the
Partnership's  request for rehearing, tolling the 30-day period in which FERC
was to have acted on the Partnership's rehearing request.  The parties have
fully briefed and submitted to FERC their respective motions with respect to the
request for rehearing and are awaiting FERC's decision.  As FERC had not acted
on the Partnership's request for rehearing, in December 1995, the Partnership
filed with FERC a motion to request a settlement conference.  Virginia Power
subsequently filed a response in which it did not object to the proposed
settlement conference.  The parties are awaiting FERC action, but expect a
settlement proceeding to be initiated in the first half of 1996.

The Company believes that FERC will grant the Partnership the relief that it is
seeking and, accordingly, the ultimate resolution of the matter is not expected
to have a material adverse effect on its consolidated results of operations or
its financial condition.  However, in light of FERC's July 7, 1994 order, and
the arguable lateness of the filing of the request for rehearing one day out of
time, the Company cannot predict what action FERC ultimately will take.
Possible consequences from an adverse decision include refunds, third party
lawsuits, and potential regulatory and other problems under PUHCA, Virginia
utility law and the Federal Power Act, the scope and amount of which cannot be
determined at this time.


                                          13


<PAGE>

The Company owns a 50% interest in Westmoreland-LG&E Partners (WLP), the sole
owner of Roanoke Valley I, a cogeneration facility selling electric power to
Virginia Power and steam energy to Patch Rubber Company.  Under the Power
Purchase Agreement (PPA) between WLP and Virginia Power, WLP is entitled to
receive capacity payments based on availability.  From May 1994 through December
1995, Virginia Power withheld approximately $8.5 million of these capacity
payments during periods of forced outages.  To date, the Company has not
realized any income on its 50% portion of the capacity payments being withheld
by Virginia Power.  In October 1994, WLP filed a complaint against Virginia
Power seeking damages of at least $5.7 million, contending that Virginia Power
breached the PPA in withholding such payments.  In June 1995, the Circuit Court
of the City of Richmond, Virginia denied Virginia Power's motion to dismiss
WLP's complaint.  In early March 1996, Virginia Power filed a motion for
summary judgment, and on March 22, 1996, the court granted Virginia Power's
motion as to all counts.  The Company plans to appeal the court's ruling.

In the Company's opinion, WLP is entitled to recover the capacity payments
withheld by Virginia Power and should prevail in this matter ensuring receipt of
future capacity payments during forced outages billable to Virginia Power during
the remaining 23 years of the PPA.  However, the Company is unable to predict
the outcome of this proceeding, or the amount of capacity payments, if any,
which Virginia Power may be ordered to pay to WLP.

The Company has been informed through public filings that Niagara Mohawk Power
Corporation (NIMO) (which is the purchasing utility for the Company's Rensselaer
cogeneration facility) has indicated that, absent significant relief from its
power purchase arrangements with independent power producers (including
qualifying cogenerators), it may be forced either to file voluntary bankruptcy
or attempt to condemn and purchase the cogeneration facilities through eminent
domain.  The Company intends to oppose any efforts by NIMO to nullify its
contract for the Rensselaer project.

                                LG&E GAS SYSTEMS INC.

LG&E Gas Systems Inc. (Gas Systems) was formed in 1995 as the second of two
subsidiaries intended to hold the Company's investments in non-utility
businesses.  In May 1995, Gas Systems acquired all of the outstanding common
stock of Hadson Corporation, now known as LG&E Natural Inc. (LG&E Natural), a
company primarily involved in the marketing, gathering, processing, storage and
transportation of natural gas.

LG&E Natural's business is seasonal and affected by weather patterns in the
market areas it serves.  West Coast, Southwest and Southeast markets typically
have higher demand for LG&E Natural's products in the summer months, while the
Northeast and Midwest market demand is generally greater in the winter.

As part of the natural gas marketing services it offers customers, LG&E Natural
aggregates supplies of natural gas from gas producers and processors, contracts
for transportation services on both interstate and intrastate pipelines, and
provides a variety of re-bundled services to end users and local distribution
companies.  The Company believes that the growth of LG&E Natural's gas marketing
business depends primarily upon its ability to provide quality services in
response to evolving customer needs and market conditions.

The volume of gas transported and marketed by LG&E Natural has increased from an
average of approximately 600 million cubic feet per day in May 1995, when LG&E
Natural was acquired, to approximately 2.1 billion cubic feet per day by the end
of 1995.  As of December 31, 1995, LG&E


                                          14


<PAGE>

Natural had approximately 891 direct gas sales contracts with industrial firms,
local gas distribution companies, electric utilities, large commercial entities
and institutions such as hospitals, military bases and universities.  LG&E
Natural maintains a diverse customer base in order to limit its reliance on any
one industry or region.  During 1995, no customer accounted for more than 10% of
LG&E Natural's total gas sales.  LG&E Natural competes with other gas marketers
and producers primarily on the basis of market-responsive pricing and
flexibility of deal structure, including the use of financial instruments,
reliability of performance and customer service.

The majority of natural gas purchased and sold by LG&E Natural is generally
under spot contracts of thirty days or less.  LG&E Natural also has long-term
sales and purchase arrangements with a variety of customers, with terms of one
to five years.

LG&E Natural (through a wholly-owned subsidiary) and Santa Fe Energy Resources
Inc. (Santa Fe) are parties to a Master Gas Purchase Contract (Gas Contract),
which was entered into in December 1993.  The Gas Contract provides for the
dedication by Santa Fe to LG&E Natural of all of its domestic natural gas
production from specified existing wells, which consist of essentially all of
such entity's domestic natural gas production (except to the extent such
production is dedicated under pre-existing contracts) and certain domestic
development and exploration wells.  Production of gas wells acquired by Santa Fe
may, by mutual agreement, be dedicated under the Gas Contract.  LG&E Natural is
obligated to analyze and provide its recommendation regarding the method of
gathering and transporting production from exploration wells, whether by Santa
Fe, LG&E Natural or third parties.

LG&E Natural is required to release gas production dedicated under the Gas
Contract under certain circumstances, including, if LG&E Natural's financial
condition changes materially and adversely and LG&E Natural does not provide
financial assurances (such as letters of credit) for the value of such gas
acceptable to Santa Fe.  To date, Santa Fe has not elected to request any such
financial assurances.  Pursuant to the Gas Contract, LG&E Natural is required to
pay Santa Fe, for all production delivered, the fair market price for such gas.
LG&E Natural is obligated to use its best efforts to receive gas from Santa Fe
at delivery points so as to maximize the set price received by Santa Fe for such
production.

The term of the Gas Contract runs until March 31, 2001.  However, either LG&E
Natural or Santa Fe has the right to terminate the contract upon a material
breach of the contract or the occurrence of certain events.  In addition, Santa
Fe has the right to terminate the contract or suspend performance if (i)
payments are overdue by more than three working days, or (ii) LG&E Natural fails
to purchase specified percentages of available production from Santa Fe.

LG&E Natural's natural gas gathering and processing operations are concentrated
in southeastern New Mexico, the Louisiana Gulf Coast and the Permian Basin of
West Texas.  Assets employed to conduct these operations include a 90-mile
intrastate pipeline in southeastern New Mexico (the Llano pipeline), eleven
separate gathering systems consisting of 1,253 miles of pipeline, five gas
processing facilities (two of which are inactive), an underground gas storage
facility with a current working capacity of approximately six billion cubic feet
(BCF) of gas, and two gas transmission systems located in Texas which total 76
miles.  LG&E Natural owns 100% of six of the gathering systems, and it has
ownership interests in the other five ranging from 11% to 50%.

The Llano pipeline, which has a design capacity of approximately 180,000 MCF of
gas per day, is capable of delivering gas to four different interstate pipelines
and directly to three end users, as well as receiving gas from three interstate
pipelines.  LG&E Natural, through its various subsidiaries, purchases gas from
over 100 producers connected to the Llano pipeline and sells the gas directly to
end-user customers or



                                          15

<PAGE>

delivers the gas into one of the interstate pipelines for sale.  LG&E Natural,
through its various subsidiaries, also transports natural gas through the Llano
pipeline for third parties and is paid a transportation fee for such services.
From May 15, 1995, through December 31, 1995, an average of approximately 55,000
MCF of natural gas per day moved through the Llano pipeline.

The eleven gathering systems gathered approximately 104,000 MCF (net to LG&E
Natural ownership interests) of natural gas per day during 1995.  Connected to
the Llano pipeline are two operating natural gas processing facilities capable
of processing approximately 85,000 MMBtu of natural gas per day.  These
facilities extract natural gas liquids, including propane, ethane, butanes and
natural gasoline, from the natural gas stream, at which point the mixed stream
of liquids is sold.  From May 15, 1995, through December 31, 1995, approximately
189,000 gallons per day of natural gas liquids were extracted and sold from
these facilities.

Also connected to the Llano pipeline is a natural gas storage facility.  This
facility has current working capacity of approximately six BCF.  LG&E Natural,
through a subsidiary, offers this storage capacity to third parties on a fee
basis.  As of December 31, 1995, storage capacity of approximately 5.1 BCF was
leased to other parties.

Through infusions of working capital and other financial support, the Company
has enhanced LG&E Natural's ability to secure trade credit for natural gas
purchases.  This has enabled LG&E Natural to significantly increase levels of
natural gas marketing and management expects this trend to continue in the
foreseeable future.

Gas Systems has guaranteed letters of credit issued to third parties to secure
certain off-balance sheet obligations (including contingent obligations) of LG&E
Natural and its subsidiaries.  The letters of credit securing such obligations
totaled approximately $11 million at December 31, 1995.  The lenders under the
credit facilities for Gas Systems are entitled to the benefits of Support
Agreements with LG&E Energy Corp.  The Support Agreements state, in substance,
that LG&E Energy Corp. will provide Gas Systems with the necessary funds and
financial support to meet its obligations under the credit facilities.

LG&E Natural uses financial instruments in its natural gas marketing activities.
These financial instruments are used to hedge price and geographic basis risk
for its purchase and sales commitments and to enhance its overall portfolio of
natural gas trading activities.  See Note 4 of Notes to Financial Instruments
under Item 8 for an overall discussion of these activities.

The production, transportation and certain sales of natural gas are subject to
federal, state or local regulations which have a significant impact upon LG&E
Natural's energy products and services business.  Regulation at the federal
level of domestically produced or transported natural gas is administered
primarily by the FERC pursuant to the Natural Gas Act (NGA) and the Natural Gas
Policy Act of 1978 (NGPA).  Maximum selling prices of certain categories of gas,
whether sold in interstate or intrastate commerce, previously were regulated
pursuant to NGPA.  The NGPA established various categories of gas and provided
for graduated deregulation of price controls of several categories of gas and
the deregulation of sales of certain categories of gas.  All price deregulation
contemplated under the NGPA has already taken place.  Subsequently, the Natural
Gas Wellhead Decontrol Act of 1989 terminated all NGA and NGPA regulation of
"first sales" of domestic natural gas on January 1, 1993.  The sale for resale
of certain natural gas in interstate commerce is regulated, in part, pursuant to
the NGA, which requires certificate and abandonment authority to initiate and
terminate such sales.  In addition, natural gas marketed by LG&E Natural is
usually transported by interstate pipeline companies that are subject to the
jurisdiction of the FERC.  Similarly, some of the transportation and storage
services provided by Llano are subject to FERC


                                          16

<PAGE>

regulation under section 311 of the NGPA.  These services are frequently sold to
gas distribution companies that contract with interstate pipeline companies for
transportation from the Llano facility to their respective service areas.
Section 311 permits intrastate pipelines under certain circumstances to sell gas
to, transport gas for, or have gas transported by, interstate pipeline
companies, and assign contract rights to purchase surplus gas from producers to
interstate pipeline companies without being regulated as interstate pipelines
under the NGA.

                                   LABOR RELATIONS

On December 8, 1995, members of the International Brotherhood of Electrical
Workers Local 2100 ratified a new three-year collective bargaining agreement
with LG&E which covers approximately 1600 LG&E Employees.  The contract provides
wage and employment protection for employees participating in the Company's
continuous improvement initiative, greater workforce flexibility to help the
Company respond to growing competition, and improved retirement benefits.

                                      EMPLOYEES

The Company and its subsidiaries had 3,122 full-time employees at December 31,
1995.


                                          17

<PAGE>

ITEM 2.  Properties.

LG&E'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 29, 1996, LG&E owned the
following electric generating stations:

<TABLE>
<CAPTION>
                                                            Year in       Capability
                                                            Service      Rating (Kw)
                                                            -------      -----------
       <S>                                                  <C>          <C>
       Steam Stations:
       Mill Creek-Kosmosdale, Ky.

          Unit 1                                               1972         303,000 
          Unit 2                                               1974         301,000 
          Unit 3                                               1978         386,000 
          Unit 4                                               1982         480,000 
                                                                         ---------- 
             Total Mill Creek                                             1,470,000 
                                                                                    
       Cane Run-near Louisville, Ky.                                                
          Unit 4                                               1962         155,000 
          Unit 5                                               1966         168,000 
          Unit 6                                               1969         240,000 
                                                                         ---------- 
             Total Cane Run                                                 563,000 
                                                                                    
       Trimble County-Bedford, Ky. (a)                                              
          Unit 1                                               1990         371,000 
                                                                                    
       Combustion Turbine Generators (Peaking capability):
       Zorn                                                    1969          16,000 
       Paddy's Run                                             1968          43,000 
       Cane Run                                                1968          16,000 
       Waterside                                               1964          33,000 
                                                                          --------- 
             Total combustion turbine generators                            108,000 
                                                                          --------- 
                                                                                    
       Total capability rating                                            2,512,000 
                                                                          --------- 
                                                                          --------- 
</TABLE>

(a)  Amount shown represents LG&E's 75% interest in the Unit.  See Note 18 of
     Notes to Financial Statements, Jointly Owned Electric Utility Plant, under
     Item 8 for a discussion of the sale of 25% of the Unit to IMEA and IMPA.  
     LG&E is responsible for operation of the Unit and is reimbursed by IMEA 
     and IMPA for expenditures related to the Unit based on their proportionate
     share of ownership interest.

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

At December 31, 1995, LG&E's electric transmission system included 21
substations with a total capacity of approximately 11,026,897 Kva and
approximately 651 structure miles of lines.  The electric distribution system
included 82 substations with a total capacity of approximately 3,193,127 Kva,
3,507 structure miles of overhead lines, 233 miles of underground conduit, and
5,380 miles of underground conductors.

LG&E's gas transmission system includes 177 miles of transmission mains, and the
gas distribution system includes 3,466 miles of distribution mains.

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


                                          18

<PAGE>

In 1990, LG&E entered into an operating lease for its corporate office building
located in downtown Louisville, Kentucky.  The lease is for a period of 15 years
and is scheduled to expire June 2005.  LG&E Energy Corp. has an operating lease
for its corporate office space with an expiration date of 1997.  LPI has
operating lease commitments related to two office facilities that expire in 1999
and 2001.  LG&E Natural has three office leases that expire in 1996, 1997, and
2003.

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

The trust indenture securing LG&E's First Mortgage Bonds constitutes a direct
first mortgage lien upon substantially all property owned by LG&E.

At December 31, 1995, LPI owned the percentage indicated of the following joint
ventures:
 
<TABLE>
<CAPTION>
                                                                                Actual or      Actual or
                                                                             Proposed Net        Planned
                                                  Ownership                    Capability        Year in
Name                                             Interest %           Fuel    Rating (Mw)        Service
----                                             ----------           ----   ------------      ---------
<S>                                              <C>               <C>       <C>               <C>
Babcock-Ultrapower Jonesboro                             17           Wood             25        Dormant
Washington County, Maine

Babcock-Ultrapower West Enfield                          17           Wood             25        Dormant
Penobscot County, Maine

LG&E Westmoreland-Southampton                            50           Coal             63           1992
Franklin, Virginia

LG&E Westmoreland-Altavista                              50           Coal             63           1992
Altavista, Virginia

LG&E Westmoreland-Hopewell                               50           Coal             63           1992
Hopewell, Virginia

Westmoreland-LG&E Partners (Roanoke Valley I)            50           Coal            165           1994
Weldon, North Carolina

LG&E Westmoreland-Rensselaer                             50        Natural             79           1994
Rensselaer, New York                                                   Gas

Windpower Partners 1993-Palm Springs                     50           Wind             43           1994
Palm Springs, California

Windpower Partners 1993-Buffalo Ridge                    50           Wind             25           1994
Buffalo Ridge, Minnesota

Windpower Partners 1994                                  25           Wind          25-35           1995
Culberson County, Texas

Westmoreland-LG&E Partners (Roanoke Valley II)           50           Coal             44           1995
Weldon, North Carolina

K.W. Tarifa, S.A.                                        44           Wind             30           1995
Tarifa, Spain

Central Termica San Miguel de Tucuman                    33        Natural            114           1996
Tucuman Province, Argentina                                            Gas
</TABLE>


                                       19
<PAGE>

LPI's ownership interests in these projects and the revenues from the sale of
electricity and steam from the projects are pledged as security to the lenders
who provided the financing for the project.

LG&E Natural, through certain subsidiaries, owns or has an interest in eleven
gas gathering systems.  LG&E Natural owns a 100% interest in six of these
systems, a 50% interest in one of the systems and interests ranging from 11% to
24% in the four remaining systems.  These systems are located in Texas, New
Mexico, Louisiana, Montana and Oklahoma.

LG&E Natural, through a subsidiary, owns the Llano pipeline, a 90-mile
intrastate pipeline system in southeastern New Mexico with a throughput capacity
of 180,000 MCF of gas per day.  LG&E Natural, through subsidiaries, owns the
Power-Tex system, a 74-mile gas transmission system located in Texas.  This
system has a design capacity of 90,000 MCF of gas per day.  LG&E Natural,
through certain subsidiaries, also owns, or has interests in, and operates five
natural gas processing plants located in southeastern New Mexico and western
Texas with a total design capacity of 125,000 MCF of gas per day.  LG&E Natural
owns 100% of three of these plants, and 94% and 67% of the two remaining plants.
Through a subsidiary, it owns and operates an underground natural gas storage
facility adjacent to the Llano pipeline in southeastern New Mexico with a
current working capacity of approximately six BCF of natural gas.

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 3 and 17 of Notes to Financial Statements under Item 8.

Statewide Power Planning

On March 14, 1995, the Commission staff issued its report on its review of
LG&E's 1993 biennial Integrated Resource Plan.  The Staff Report specifically
found that LG&E'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 LG&E's consideration when it develops its next plan.  By
order issued on March 17, 1995, the Commission formally closed its proceeding
for the review of LG&E's plan.  On May 5, 1995, the Commission granted LG&E's
request that the Commission waive the requirement that LG&E 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 LG&E'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 LG&E's environmental issues concerning its Mill
Creek and Cane Run generating plants, manufactured gas plant sites, and other
environmental issues affecting LG&E, LPI, and LG&E Natural, see Note 16 of Notes
to Financial Statements under Item 8.


                                       20
<PAGE>

Southampton

For a discussion of the request for rehearing filed with FERC by LG&E-
Westmoreland Southampton, the partnership that owns the Southampton facility,
regarding the partnership's request for an order from FERC stating that the
Southampton facility remains a qualifying facility for 1992, see Item 1 and Note
16 of Notes to Financial Statements under Item 8.

Roanoke Valley I

Westmoreland-LG&E Partners, the partnership that owns the Roanoke Valley I and
II facilities, is seeking the recovery of capacity payments withheld by Virginia
Electric and Power Company.  In early March 1996, Virginia Power filed a 
motion for summary judgment, and on March 22, 1996, the court granted 
Virginia Power's motion as to all counts.  The Company plans to appeal the 
court's ruling.  See Item 1 and Note 16 of Notes to Financial Statements under 
Item 8.

Rensselaer


The Company has been informed through public filings that Niagara Mohawk Power
Corporation (NIMO) (which is the purchasing utility for the Company's Rensselaer
cogeneration facility) has indicated that, absent significant relief from its
power purchase arrangements with independent power producers (including
qualifying cogenerators), it may be forced either to file voluntary bankruptcy
or attempt to condemn and purchase the cogeneration facilities through eminent
domain.  The Company intends to oppose any efforts by NIMO to nullify its
contract for the Rensselaer project.  See Note 16 of Notes to Financial
Statements under Item 8.

TVA/LPM Interchange Agreement

On January 12, 1996, the Alabama Power Company, Georgia Power Company and 
Mississippi Power Company filed a Complaint for Declaratory Judgment and 
Injunctive Relief against the Tennessee Valley Authority (TVA) and LG&E Power 
Marketing Inc. (LPM), a wholly-owned subsidiary of the Company, in the United 
States District Court for the Northern District of Alabama.  The Plaintiffs 
claim that TVA has violated the Tennessee Valley Authority Act (TVA Act) by 
entering into an interchange agreement with LPM (Interchange Agreement) and 
that TVA is prohibited from selling or delivering any power to LPM, to any 
other broker or marketer of power, or to any other unauthorized recipient or 
from otherwise engaging in unlawful power supply arrangements.  The Complaint 
as drafted seeks no direct remedy from LPM.  LPM filed its Answer to the 
Complaint on March 1, 1996, alleging that the Interchange Agreement complies 
with all applicable laws and regulations, and is consistent with the 
longstanding practices of the industry.  On March 15, 1996, TVA filed a 
Motion to Dismiss, Or, In the Alternative, For Summary Judgment.  Discovery 
is now ongoing.

In the Company's opinion, the Interchange Agreement complies with all 
applicable laws and regulations.  LPM is and intends to continue to 
vigorously defend itself in this matter.  However, an adverse decision could 
have the effect of enjoining TVA from further selling or delivering any power 
to LPM under existing provisions of the TVA Act.  The ultimate resolution of 
this matter is not expected to have a material adverse effect on the 
Company's results of operations or financial condition, however, management 
is unable to predict the outcome of this proceeding.

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.

ITEM 4.  Submission of Matters to a Vote of Security Holders.

None.


                                       21
<PAGE>

Executive Officers of the Company.

<TABLE>
<CAPTION>
                                                            Effective Date of
                                                            Election to Present
Name                   Age    Position                      Position
----                   ---    --------                      --------
<S>                    <C>    <C>                           <C>
Roger W. Hale          52     Chairman of the Board,        August 17, 1990
                              President and Chief
                              Executive Officer

Victor A. Staffieri    40     President - Distribution      December 15, 1995
                              Services Division
                              President - Louisville Gas
                              and Electric Company

Michael L. McInnis     42     President - Power             December 15, 1995
                              Marketing Division

David R. Carey         42     President - Gas               December 15, 1995
                              Marketing Division

Walter Z. Berger       40     Executive Vice President      February 5, 1996
                              and Chief Financial Officer

John R. McCall         52     Executive Vice President,     July 1, 1994
                              General Counsel and
                              Corporate Secretary

Stephen R. Wood        53     Executive Vice                January 1, 1994
                              President and Chief
                              Administrative Officer

Charles A. Markel III  48     Corporate Vice                January 1, 1993
                              President - Finance
</TABLE>

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
Shareholders, scheduled to be held April 23, 1996.

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

Messrs. Hale, Staffieri, Berger, McCall, and Markel are also executive officers
of the Company's principal subsidiary, LG&E.  Mr. Hale is Chairman of the Board
and Chief Executive Officer of LG&E; Mr. Staffieri is President of LG&E; Mr.
Berger is Executive Vice President and Chief Financial Officer of LG&E; Mr.
McCall is Executive Vice President, General Counsel and Corporate Secretary of
LG&E; and Mr. Markel is Treasurer of LG&E.

Before he was elected to his current position, Mr. Staffieri was General Counsel
and Secretary of Long Island Lighting Company from April 1989 to March 1992;
Senior Vice President, General Counsel and Corporate Secretary of the Company
from March 1992 to November 1992; Senior Vice President, Public Policy and
General Counsel of the Company and LG&E from November 1992 to January 1994; and
President of LG&E from January 1994 to the present.

Before he was elected to his current position, Mr. McInnis was Director of
Business Development of the Company prior to August 1992; Vice President of LG&E
Energy Systems Inc. from August 1992 to


                                       22
<PAGE>

January 1994; and Senior Vice President, Power Marketing and Brokering of LG&E
Power Inc. from January 1994 to December 1995.

Before he was elected to his current position, Mr. Carey was Vice President -
Marketing and Planning of LG&E prior to January 1992; Vice President - Marketing
and General Manager, Electric Service of LG&E from January 1992 to January 1993;
and Vice President and General Manager, Retail Electric Business of LG&E from
January 1993 to January 1994; and Senior Vice President, Operations of LG&E from
January 1994 to December 1995.

Before he was elected to his current position, Mr. Berger was Vice President and
Chief Financial Officer of Baker Hughes, Inc. prior to February 1992; Controller
of Enron America, Inc. from February 1992 to November 1992; and Vice President,
Finance and Business Development of Enron Oil Trading and Transportation from
November 1992 to February 1996.

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

Before he was elected to his current position, Mr. Wood was Senior Vice
President and Chief Administrative Officer of LG&E and the Company prior to
December 1992; and Senior Vice President and Chief Administrative Officer of
LG&E from December 1992 to January 1994.

Before he was elected to his current position, Mr. Markel was Vice President -
Finance and Treasurer prior to January 1992; and Senior Vice President and Chief
Financial Officer from January 1992 to January 1993.

                                       PART II.

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

The Company's Common Stock is listed on the New York and Chicago Stock
Exchanges.  The ticker symbol is "LGE."  The newspaper stock exchange listings
are "LGE Energy" or "LGE EN."  The following table gives information with
respect to price ranges, as reported in THE WALL STREET JOURNAL as New York
Stock Exchange Composite Transactions, and dividends paid for the periods shown.

<TABLE>
<CAPTION>
                               1995                              1994
                               ----                              ----
                 Dividend      High       Low      Dividend      High       Low
                     Paid     Price     Price          Paid     Price     Price
                     ----     -----     -----          ----     -----     -----
<S>              <C>       <C>       <C>           <C>       <C>       <C>
First quarter     $.5375   $40.000   $36.875        $.5200   $41.000   $34.375
Second quarter     .5375    40.250    37.375         .5200    38.625    33.625
Third quarter      .5375    40.125    38.000         .5200    39.125    36.000
Fourth quarter     .5550    43.125    40.000         .5375    39.000    36.250
</TABLE>

The number of record holders of Common Stock at December 31, 1995, was 30,487.
The book value of the Company's Common Stock at December 31, 1995, was $23.54
per share.

The Company announced on March 6, 1996, that its Board of Directors approved a
two-for-one split of its common stock, without par value, by declaring a 100%
stock dividend payable April 15, 1996.  Accordingly, each shareholder of record
of the common stock on April 1, 1996, will be entitled to one additional full


                                       23
<PAGE>

share of common stock for each share of common stock held on that date.  None
of the information in this item or in Item 6 has been restated to reflect the
split.

ITEM 6.  Selected Financial Data.
 
<TABLE>
<CAPTION>
                                                                Years Ended December 31
                                                          (Thousands of $ Except per Share Data)
                                                          --------------------------------------

                                             1995           1994           1993           1992           1991
                                             ----           ----           ----           ----           ----
<S>                                    <C>            <C>            <C>            <C>            <C>
Revenues:
Revenues                               $1,402,980       $829,663       $900,027       $834,739       $714,965
Refund - Trimble County
   settlement                             (28,300)            --             --             --             --
                                        ---------       --------       --------       --------       --------
   Revenues                             1,374,680        829,663        900,027        834,739        714,965
                                        ---------       --------       --------       --------       --------
                                        ---------       --------       --------       --------       --------

Operating income:
Before non-recurring items                205,357        189,087        189,122        174,504        188,131
Trimble County settlement                 (29,800)            --             --             --             --
Non-recurring charges                          --        (48,743)            --             --             --
                                        ---------       --------       --------       --------       --------
   Operating income                       175,557        140,344        189,122        174,504        188,131
                                        ---------       --------       --------       --------       --------
                                        ---------       --------       --------       --------       --------

Net income:
Continuing operations:
   Before non-recurring items             100,682         95,525         80,825         71,437         82,951
   Trimble County settlement              (17,852)            --             --             --             --
   Non-recurring charges,
     charitable founda-
     tion, etc.                                --        (38,696)            --             --             --
                                         --------       --------      ---------      ---------       --------
         Total                             82,830         56,829         80,825         71,437         82,951
Discontinued operations                        --             --          7,435          4,177             --
Gain on sale of
   discontinued operations                     --         51,805             --             --             --
Cumulative effect of
   accounting change                           --         (3,369)            --             --             --
                                         --------       --------       --------       --------       --------
      Net income                         $ 82,830       $105,265       $ 88,260       $ 75,614       $ 82,951
                                         --------       --------       --------       --------       --------
                                         --------       --------       --------       --------       --------

Average number of com-
   mon shares outstanding              33,052,587     32,990,935     32,688,592     32,307,441     32,256,624

Earnings per share of
   common stock:
   Continuing operations:
      Before non-recurring items            $3.05          $2.90          $2.47          $2.21          $2.57
      Trimble County settlement              (.54)            --             --             --             --
      Non-recurring charges,
        charitable founda-
        tion, etc.                             --          (1.18)            --             --             --
                                         --------       --------       --------        -------        -------
           Total                             2.51           1.72           2.47           2.21           2.57
   Discontinued operations                     --             --            .23            .13             --
   Gain on sale of
      discontinued operations                  --           1.57             --             --             --
   Cumulative effect of
      accounting change                        --           (.10)            --             --             --
                                         --------       --------       --------        -------        -------
         Earnings per share                 $2.51          $3.19          $2.70          $2.34          $2.57
                                         --------       --------       --------        -------        -------
                                         --------       --------       --------        -------        -------
</TABLE>


                                       24


<PAGE>


<TABLE>
<CAPTION>
                                                           Years Ended December 31
                                                   (THOUSANDS OF $ EXCEPT PER SHARE DATA)
                                   1995              1994              1993              1992              1991
                                   ----              ----              ----              ----              ----
<S>                          <C>               <C>               <C>               <C>               <C>
Dividends declared per
  common share                   $2.185            $2.115            $2.045            $1.985             $1.92
Payout ratio                      87.2%(a)          66.3%(a)          75.9%             84.7%             74.7%
Total assets                 $2,628,920        $2,217,464        $2,186,468        $2,148,398        $2,042,655
Long-term obligations
    (including amounts
    due within one year)        662,800           662,800           662,800           686,262           687,662

</TABLE>

(a) Excluding the Trimble County settlement, non-recurring charges, gain on 
    sale of discontinued operations, and cumulative effect     of accounting 
    change, the payout ratios would have been 71.8% and 73.1% in 1995 and 1994, 
    respectively.

    The financial statements and related notes contained under item 8 of this 
    Form 10-K should be read in conjunction with the selected financial data
    presented above.

ITEM 7.  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 1995, 1994 and 1993 and should be read in connection
with the consolidated financial statements and notes thereto.  The Company's
financial results and conditions have been largely dependent on the financial
results and conditions of its principal subsidiary, Louisville Gas and Electric
Company (LG&E), a regulated electric and gas utility.  Future financial results
from the Company's operations will become increasingly reflective of the returns
earned from its portfolio of non-utility investments in electric and gas
marketing and related services, and energy generation, in addition to the
financial results provided by LG&E.

RESULTS OF OPERATIONS

Earnings per Share

Earnings per share of common stock for 1995 were $2.51, a decrease of 68CENTS
from the $3.19 earned in 1994.  The decrease primarily reflects a 54CENTS charge
taken in December 1995 to recognize the settlement of the long-standing issues
surrounding LG&E's Trimble County electric generating plant.  In addition,
earnings in 1994 included a gain on the sale of the Company's interest in
Natural Gas Clearinghouse (NGC) of $1.57, partially offset by non-recurring
charges of (91CENTS), the expense of establishing a charitable foundation
(27CENTS) and the adoption of a new accounting standard for post-employment
benefits (10CENTS).  When considered together, these 1994 items produced a
29CENTS net increase in earnings of a non-recurring nature.  Comparison of
earnings for the two years without the significant non-recurring items discussed
above indicates an improvement in earnings of 15CENTS during 1995 ($3.05 in 1995
as compared to $2.90 in 1994).  This increase resulted primarily from an
increase in earnings from investments in joint ventures owned and higher
earnings at LG&E, partially offset by a decrease in gross profits at LG&E Power
Inc. (LPI), lower fee income, and an increase in interest expense resulting from
the Company's borrowings to finance the acquisition of LG&E Natural Inc. (LG&E
Natural), formerly known as Hadson Gas Services Inc.  LG&E's earnings increase
was primarily due to higher retail electric sales, positive cost containment
efforts and a reduction in expenses due to the settlement of a commercial
dispute.  These factors were partially offset by increased purchased power
expenses at LG&E primarily as a result of unplanned power plant outages last
summer.

                                          25

<PAGE>

Earnings per share of common stock for 1994 were $3.19, a 49 Cents increase over
the $2.70 earned in 1993.  This increase was primarily attributable to the
non-recurring items in 1994 that generated a net increase of 29 Cents as
discussed in the preceding paragraph.  Without consideration of the
net increase of 29 Cents discussed above, the Company's 1994 earnings per share
would have been $2.90, an increase of 20 Cents over 1993.  This improvement in
earnings is primarily attributable to increased sales of electricity to LG&E's
retail customers and reduced interest on debt due to favorable refinancing
activities in 1993.  The Company's non-utility operations included an increase
in earnings from investments in joint ventures owned by LPI and fee income
generated from the guarantee of certain equity funding commitments.  Income from
investments in marketable securities also added to improved 1994 earnings
performance.

Rates and Regulation

LG&E is subject to the jurisdiction of the Public Service Commission of Kentucky
(Kentucky Commission or Commission) in virtually all matters related to electric
and gas utility regulation, and as such, its accounting is subject to Statement
of Financial Accounting Standards No. 71, ACCOUNTING FOR THE EFFECTS OF CERTAIN
TYPES OF REGULATION (SFAS No. 71).  Given LG&E's competitive position in the
market and the status of regulation in the state of Kentucky, LG&E has no plans
or intentions to discontinue its application of SFAS No. 71.  See Note 3 of
Notes to Financial Statements under Item 8.

On December 8, 1995, the Commission approved a settlement agreement filed by
LG&E and all intervenors in the Trimble County proceedings, including various
consumer interest groups and government agencies, that, in effect, resolves 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 to be refunded over a five-year period, commencing in 1996, based on a
per kilowatt-hour credit.  In addition, LG&E also agreed to provide $900,000
annually for five years to fund low-income energy assistance programs and to
revise the decoupling methodology described in this section in a manner that
will 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 increase operating expenses by $1.5 million.  Thus the settlement
reduced net income by $17.9 million, and earnings per share by 54CENTS.  See
Note 17 of Notes to Financial Statements under Item 8 for further discussion.

On July  31, 1995, Vantage Consulting, Inc. released its report on the Kentucky
Commission's management audit of LG&E.  This comprehensive audit, which began in
September 1994, included more than 300 interviews and over 875 requests for
information.  This was the second management audit of LG&E mandated by the
Kentucky Commission, the first being completed in 1986.

The overall audit findings were very favorable and recognized that LG&E has
become an innovative industry leader that has implemented many performance
improvements to lower costs, improve efficiency, prepare for increased
competition, and increase its focus on customer satisfaction.  The audit report
identified additional improvement opportunities and contained a series of
recommendations which should assist LG&E with its future plans.  It is estimated
that implementation of the audit recommendations could provide LG&E with as much
as $11 million in annual gross savings.  However, incremental costs will be
incurred to achieve the full benefits of the recommendations and the ultimate
savings will be realized over the long-term.

                                          26

<PAGE>

On October 7, 1994, LG&E filed an application with the Kentucky Commission in
which it requested approval of an environmental cost recovery surcharge to
recover certain costs required to comply with the Federal Clean Air Act, as
amended, and those federal, state, and local environmental requirements which
apply to coal combustion wastes and by-products from facilities utilized for
production of energy from coal.  On April 6, 1995, the Commission approved, with
modifications, an environmental cost recovery surcharge that increased electric
revenues by approximately $3.2 million in 1995 and will increase revenues by an
estimated $5.7 million in 1996.  The surcharge became effective on May 1, 1995.
LG&E, the Kentucky Attorney General (KAG) and the Kentucky Industrial Utility
Customers (KIUC) filed applications for rehearing on certain issues in the
April 6 order.  Among other things, the KAG and KIUC requested a reduction of
the amounts recoverable by LG&E through the surcharge.  The Commission denied
all motions for rehearing, and appeals are currently pending in Franklin Circuit
Court.  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.

On January 1, 1994, LG&E implemented a Commission approved demand side
management (DSM) program that LG&E, KAG, the Jefferson County Attorney, and
representatives of several customer-interest groups had filed with the
Commission.  Under the agreement, LG&E 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 agreement also provided for a formal collaborative process to
develop future DSM programs.  The agreement contains a rate mechanism that (1)
provides LG&E concurrent recovery of DSM program costs, (2) provides an
incentive for implementing DSM programs, and (3) allows LG&E to recover revenues
from lost sales associated with the DSM programs.

Revenues from lost sales to residential customers are collected through a
"decoupling mechanism."  LG&E's residential decoupling mechanism breaks the link
between the level of LG&E's residential kilowatt-hour and Mcf sales and its non-
fuel revenues.  Under traditional regulation, a utility's revenue varies with
changes in its level of kilowatt-hour or Mcf sales.  The residential decoupling
mechanism allows LG&E to recover a predetermined level of revenue per
residential customer based on the rate set in LG&E's last rate case, which will
not vary with the level of kilowatt-hour or Mcf sales.  Residential revenues
will be adjusted to reflect (1) changes in the number of residential customers
and (2) a pre-established annual growth factor in residential revenue per
customer.  To the extent that actual revenues are different from the
predetermined level of revenues, rates are subsequently adjusted to correct for
any over or under recoveries.  Residential revenues reported in the financial
statements for 1994 through 1996 will be determined in accordance with the
predetermined amount per customer plus growth, and recovery of fuel and gas
costs.  The difference between the revenues shown in the financial statements
and the amounts billed to customers will be deferred for future recovery from,
or return to, customers.

On December 1, 1995, LG&E and the DSM collaborative members filed a plan which
would modify the existing programs and add five new programs.  The proposed
filing would increase LG&E's commitment to DSM programs by approximately $4.1
million.  LG&E expects the Commission to rule on the filing in the second
quarter of 1996.

In 1993, the Federal Energy Regulatory Commission (FERC) gave final approval for
a market-based generation sales tariff and two transmission service tariffs
which were filed by LG&E.  The market-based tariff enables LG&E to sell up to 75
Mw of firm generation capacity and an unlimited amount of non-firm power at
market-based rates.  On July 26, 1995, FERC approved a new network transmission
service and a flexible point-to-point transmission service which will provide
transmission service to other parties comparable to the transmission service
utilized by LG&E to serve retail customers.

                                          27

<PAGE>

LG&E 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 LG&E an annual increase in rates of $6.8
million ($6.1 million electric and $.7 million gas).  The Commission's order
authorized a rate of return on common equity of 12.5%.

Revenues

A comparison of LG&E's revenues for the years 1995 and 1994, excluding the
Trimble County settlement (which reduced electric revenues by $28.3 million),
with the immediately preceding years 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
                                                                      1995           1994           1995           1994
                                                                  --------       --------       --------       --------
<S>                                                               <C>            <C>            <C>            <C>
Sales to ultimate consumers:
    Fuel and gas supply adjustments, etc.                         $(10,566)      $   (841)      $(16,940)      $  1,823
    Demand side management/decoupling                               (4,619)         1,853            479          3,997
    Environmental cost recovery surcharge                            3,205              -              -              -
    Variation in sales volumes                                      27,382          3,876         (3,420)       (12,139)
                                                                  --------       --------      ---------       --------
         Total                                                      15,402          4,888        (19,881)        (6,319)
Sales for resale                                                    (5,249)       (17,340)             -              -
Gas transportation-net                                                   -              -          1,062          1,612
Other                                                                1,606            152           (184)           (79)
                                                                  --------       --------      ---------       --------
    Total                                                         $ 11,759       $(12,300)      $(19,003)      $ (4,786)
                                                                  --------       --------      ---------       --------
                                                                  --------       --------      ---------       --------

</TABLE>

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 LG&E'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.

LG&E's electric revenues decreased in 1994 compared with 1993 primarily because
of a decrease in sales of electricity for resale.  Gas sales to ultimate
consumers decreased 6% due primarily to the warmer than normal weather in the
last quarter of 1994.

The Company's non-utility revenues consist primarily of revenues from the
natural gas marketing, gathering and processing activities of LG&E Natural,
electric power marketing and brokering by LG&E Power Marketing Inc. (LPM) and
development, construction and operation of power plants by LG&E Power Inc.
(LPI).  LPI's operating profit consists of plant development and construction
profits in addition to equity in earnings from joint venture power projects.
The increase in non-utility revenues of $581 million for 1995 compared to 1994
was due primarily to the acquisition of LG&E Natural in May 1995 and higher
revenues from LPM.  LPM had sales of $40.3 million compared to $1.3 million in
1994 which is attributable to the continuing expansion of LPM's business and
access to markets across much of the United States.  The increase in non-utility
revenues was partially offset by a decrease in LPI's revenues of $48.4 million,
which primarily reflects completed construction activities at LPI's Roanoke
Valley I (ROVA I) and Rensselaer projects in the second quarter of 1994, and
completion of the Roanoke Valley II (ROVA II) project in May 1995.  LPI's
decrease in engineering and construction activities is also indicative of the
trend toward lower levels of construction activity within the independent power
production industry.  Non-utility revenues decreased $53 million in 1994
primarily because of lower engineering and construction activity by LPI.  The
decrease in 1994 engineering and construction revenues when compared to 1993
reflects lower levels of construction at LPI's ROVA I and Rensselaer projects,
offset in part by an increase in construction at LPI's ROVA II project.

                                          28

<PAGE>

The Company uses financial instruments in its natural gas marketing activities.
These financial instruments are used to hedge price and geographic basis risk
for its purchase and sales commitments and to enhance its overall portfolio of
natural gas trading activities.  See Note 4 of Notes to Financial Statements
under Item 8, Financial Instruments, for an overall discussion of these
activities.

Expenses

Fuel for electric generation and gas supply expenses comprise a large segment of
the Company's total operating costs.  LG&E'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 LG&E's rates,
subject to approval by the Commission.

Fuel expenses decreased $5.6 million (4%) in 1995 due to a decrease in the cost
of coal burned ($7.5 million) partially offset by increased generation of 2%.
Fuel expenses decreased $5.8 million (4%) in 1994 primarily because of a
decrease in the cost of coal burned ($3.9 million) and decreased generation of
3%.  The average delivered cost per ton of coal purchased for LG&E was $23.68 in
1995, $25.27 in 1994, and $26.58 in 1993.  This downward trend in the delivered
cost of coal is expected to continue through 1996.

Power purchased increased $7.1 million in 1995 primarily because of increased
purchases resulting from unplanned outages at LG&E's electric generating plants
during the extremely hot summer weather.  The decrease of $7.5 million in 1994
was primarily due to less power wheeled for other utilities as a result of
milder weather in the region.

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).  Gas supply expenses
decreased $7.5 million (5%) in 1994 due mainly to a decrease in the volume of
gas delivered to the distribution system ($9.2 million), partially offset by an
increase in net gas supply cost ($1.7 million).  The average unit cost per Mcf
of purchased gas for LG&E was $2.62 in 1995, $2.78 in 1994 and $2.91 in 1993.

Non-utility cost of revenues for 1995 increased $567 million compared to 1994
mainly due to the acquisition of LG&E Natural and because of an increase in
LPM's electric power marketing volumes.  Partially offsetting these increases
were decreases in development and construction costs at LPI resulting from
completed construction on the Rensselaer, ROVA I and ROVA II projects.  Cost of
revenues for 1994 decreased $45.6 million (44%) compared to 1993 because of
lower levels of construction activity on LPI's ROVA I and Rensselaer projects;
partially offset by greater LPM sales volumes and an increase in construction
activity on LPI's ROVA II project.

Utility operation and maintenance expenses increased $1.2 million (less than 1%)
in 1995, as compared to 1994, primarily as a result of an increase in repairs at
the electric power plants ($4.2 million), an increase in labor related expenses
($3.8 million) and an increase in various administrative expenses ($1.8
million).  These increases were partially offset by a decrease in storm damage
expenses ($1 million), property damage claims ($1.2 million), and because of a
credit to expense representing a portion of the proceeds received in a
commercial dispute.  During 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, LG&E recorded
$6 million as a reduction of utility operation and maintenance expenses.  The
remaining $2 million was recorded as a reserve for future payments in connection
with the dispute.

                                          29

<PAGE>

Operation and maintenance expenses for LG&E increased $.8 million in 1994 over
1993 primarily as a result of increased costs to operate the electric generating
plants and gas and electric distribution systems ($.7 million), an increase in
the provision for uncollectible accounts ($.6 million) and increased property
and payroll related taxes ($1 million).  These increases were partially offset
by decreases in various administrative expenses ($1.8 million).

Non-utility operation and maintenance expenses increased $15.2 million (62%) in
1995 compared to 1994 primarily as the result of the acquisition of LG&E
Natural.  Also contributing to the increase were costs incurred by LPI to exit
the engineering and construction business and costs to operate and maintain
power plants in connection with contracts obtained from UC Operating Services.
See Note 7 of Notes to Financial Statements under Item 8.

Depreciation and amortization increased in both 1995 and 1994 primarily because
of additional utility plant in service.  The amount for 1995 also includes
depreciation and amortization resulting from the acquisition of LG&E Natural.

Non-recurring charges in 1994 include LG&E'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.  Non-recurring charges in 1994 also include a reserve to record costs
related to LPI's vacating leased office space.  See Note 8 of Notes to Financial
Statements under Item 8.

Equity in earnings of joint ventures increased approximately $15.3 million in
1995 primarily due to a gain of $9.7 million on the sale of power purchase
contracts by Babcock-Ultrapower West Enfield and Babcock-Ultrapower Jonesboro,
two partnerships which are 17% owned by LPI.  Other factors contributing to the
improvement over 1994 included full year operations at LPI's Rensselaer and ROVA
I power plants compared to partial year operations at those plants in 1994, and
the mid-year completion and start-up of operations at LPI's ROVA II plant in
1995.  The increase in equity in earnings of joint ventures in 1994 was due to
the start-up of operations at LPI's Rensselaer and ROVA I cogeneration projects
and at its Windpower projects in California and Minnesota.  With the start of
commercial operations of cogeneration projects, each of the joint ventures
receives revenues related to available capacity and electricity sold pursuant to
a power purchase agreement with a neighboring utility.  See Note 16 of Notes to
Financial Statements under Item 8 for a discussion of certain legal and
regulatory contingencies relating to the ROVA I, Rensselaer and Southampton
projects.

Other income and deductions decreased $8.3 million in 1995 compared to 1994.
The 1994 amount was higher due to fee income received from Westmoreland Energy,
Inc. (WEI) for LG&E Energy Systems Inc.'s (Energy Systems) guarantee of WEI's
equity funding commitments on various cogeneration projects.  Other income for
1995 was also lower due to a reduction in the level of investments in marketable
securities which were sold to provide funding for the acquisition of LG&E
Natural.  Other income and deductions increased in 1994 compared to 1993 due to
an increase in fee income, an increase in interest and dividend income generated
from investing the proceeds received from the Company's sale of its interest in
NGC and from recording a net gain on sales of construction equipment, partially
offset by realized losses on investments.  See Note 12 of Notes to Financial
Statements under Item 8 for further detail.

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

                                          30

<PAGE>

income, and therefore, do not affect the Company's net income.  See Note 8 of
Notes to Financial Statements under Item 8.

Interest charges increased $4.5 million in 1995 compared to 1994 primarily
because of an increase in notes payable outstanding and a higher composite
interest rate on outstanding debt.  Interest charges decreased in 1994 because
of the lower composite interest rate on outstanding debt, which reflects the
full year effect of LG&E's 1993 aggressive program to refinance approximately
$205 million of outstanding debt at lower interest rates.  Interest requirements
in 1993 included interest charges related to debt issued for the Company's
expansion into non-utility businesses.  Since 1993, an immaterial component of
interest expense has been the cost associated with interest rate swaps.  See
Note 4 of Notes to Financial Statements under Item 8, Financial Instruments, for
further discussion.

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

Preferred dividends increased $.5 million in 1995 because of a higher rate
associated with the Auction Rate Series.  Preferred dividends in 1994 reflect
the lower dividends that resulted from LG&E's refunding of its $25 million,
$8.90 Series with a $5.875 Series in May 1993.  See Liquidity and Capital
Resources.

Income from discontinued operations and related gain on sale reflect the sale of
the Company's investment in NGC in January 1994.  See Note 6 of Notes to
Financial Statements under Item 8.

The rate of inflation may have a significant impact on LG&E'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 equity investments in connection with independent power production
projects and other energy-related growth or acquisition opportunities within the
non-utility business segment.

1995 Capital Requirements

Utility construction expenditures for 1995 were $93 million compared with $95
million for 1994 and $99 million for 1993.  Non-utility construction
expenditures (other than generating plant expenditures incurred by joint
ventures) were approximately $11 million in 1995 and were not material in 1994
and 1993.  Non-utility construction expenditures are not expected to vary
significantly in 1996 and 1997 from the 1995 level.  In 1995, LPI invested
equity of $16.3 million in its ROVA I and ROVA II power plants, a wind power
project in Texas and the redemption of its interest in the partnership that
operated many of its power generation plants.  In addition, LG&E International
Inc. (LII) invested $4.5 million in a wind project in Tarifa, Spain and $13.3
million in a natural gas-fired generation facility in Tucuman, Argentina.  In
1994, LPI invested $20.4 million in a partnership with Kenetech Windpower Inc.
for the purpose of owning and operating power plants producing electricity from
wind turbines and $18.9 million in its ROVA I and Rensselaer power plants.

                                          31

<PAGE>

Past Financing Activities

During 1995, 1994, and 1993, 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 utility construction
expenditures for 1995, 1994, and 1993.  The Company acquired LG&E Natural on May
15, 1995 for $143 million, plus acquisition-related fees and expenses.  The
acquisition was financed with cash and lines of credit.  The Company also
provided LG&E Natural with additional cash through December 1995 to meet general
working capital needs, including margin calls.  Margin calls are generally
required on certain of LG&E Natural's hedge and trading financial instruments to
address changes in market prices.  LG&E Natural had approximately $12 million of
net margin deposits as of December 31, 1995.

The Company's combined cash and marketable securities balance decreased $79.6
million during 1995.  The decrease reflects the acquisition of LG&E Natural,
additional investments in affiliates, and dividends, partially offset by cash
flows from operations, an increase in borrowings, and an increase resulting from
reclassifying investments in certain available-for-sale securities from
noncurrent to current.  The significant increases during 1995 in non-utility
property and plant, accounts receivable, gas stored underground, goodwill, and
accounts payable resulted from acquiring LG&E Natural.  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 LG&E's service territory, and as it relates to LG&E
Natural, throughout the United States, which has a direct effect on sales of
electricity and natural gas.  In 1994, accounts receivable and accounts payable
were lower due to warmer weather in the last quarter of the year as compared to
1993.

In December 1995, LG&E 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.  LG&E funded the $22 million redemption with cash generated
internally.

In April 1995, LG&E issued $40 million of Jefferson County, Kentucky, Pollution
Control Revenue 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 equity investments in non-utility projects and non-utility
construction expenditures (other than generating plant expenditures during 1994)
were financed through internally generated funds and short-term borrowings.
Construction expenditures for new generating projects were funded through
project debt.

The Company had short-term borrowings outstanding of $173 million as of
December 31, 1995, and $32 million as of December 31, 1994.  The increase
primarily relates to the acquisition of LG&E Natural.

The Company issued $3 million  of new common stock in 1995 and $2 million in
1994, under various employee plans.  See Note 13 of Notes to Financial
Statements under Item 8.

The Company's liquidity was also positively affected in 1994 through the sale of
its investment in NGC.  Proceeds from the NGC sale enabled the Company to invest
$123 million in marketable securities during 1994.  As of December 31, 1995,
marketable securities were $29.1 million, a decrease from 1994 of $111 million,
primarily resulting from the sale of securities to fund the acquisition of LG&E
Natural and to fund existing and future working capital needs.  See Note 9 of
Notes to Financial Statements under Item 8.

                                          32


<PAGE>

Future Capital Requirements

Future utility financing requirements may be affected in varying degrees by
factors such as load growth, changes in construction expenditure levels, rate
increases allowed by regulatory agencies, new legislation, market entry of
competing electric power generators, changes in environmental regulations and
other regulatory requirements.  The Company estimates that LG&E's construction
expenditures will total $220 million for 1996 and 1997.  In addition, capital
requirements for 1996 include $16 million to retire long-term debt.
Ascertainable non-utility equity funding commitments were immaterial at
December 31, 1995.  Such commitments were $27 million at December 31, 1994.
Other future capital funding requirements are dependent upon the identification
of suitable investment opportunities to enhance shareholder returns and achieve
long-term financial objectives through business acquisitions.  Long-term
financing may be required for such acquisitions.

Future Sources of Financing

Internally generated funds from operations are expected to fund substantially
all of LG&E's anticipated construction expenditures in 1996 and 1997.
Similarly, the Company anticipates having sufficient internal cash generation to
meet anticipated equity investments and non-utility capital expenditures in 1996
and 1997.

At December 31, 1995, loan agreements and lines of credit were in place totaling
$600 million ($25 million for LG&E Energy Corp., $160 million for LG&E, $215
million for LG&E Gas Systems Inc. and $200 million for Energy Systems) for which
the companies pay commitment or facility fees.  These credit facilities are
scheduled to expire at various points in time from 1996 through 2000.
Management expects to renegotiate them when they expire.

The lenders under the credit facilities for Energy Systems and LG&E Gas Systems
Inc. are entitled to the benefits of Support Agreements with LG&E Energy Corp.
See Note 15 of Notes to Financial Statements under Item 8 for further
discussion.

To the extent permanent financings are needed in 1996 and 1997, the Company
expects that it will have ready access to the securities markets to raise needed
funds.

Environmental Matters

The Clean Air Act Amendments of 1990 (the Act) impose stringent limits on
emissions of sulfur dioxide and nitrogen oxides by electric utility generating
plants.  All of LG&E's coal-fired boilers are equipped with sulfur dioxide
"scrubbers" and already achieve the final sulfur dioxide emission rates required
by the year 2000 under the legislation.  However, as part of its ongoing
construction program, LG&E has spent $22 million to date and anticipates
incurring capital expenditures of approximately $8 million in 1996 for remedial
measures necessary to meet the Act's requirements for nitrogen oxides.  The
overall financial impact of the legislation on LG&E is expected to be minimal.
LG&E is well-positioned in the market to be a "clean" power provider without the
large capital expenditures that are expected to be incurred by many other
utilities.  LG&E Power Inc.'s (LPI) coal-fired power plants are also equipped
with scrubbers or related equipment and they meet the sulfur dioxide and
nitrogen oxide limits imposed by the Act.

Reference is made to Environmental under Note 16 of Notes to Financial
Statements under Item 8 for a complete discussion of LG&E's environmental issues
concerning its Mill Creek and Cane Run electric generating plants, manufactured
gas plant sites, and certain other environmental issues.

                                          33

<PAGE>

Energy Policy Act of 1992 and Related Matters

The Energy Policy Act of 1992 is designed to give utilities a wider choice of
sources for their electrical supply than previously available, while creating
generating supply options that did not exist under the old law.  In passing this
legislation, Congress also anticipated that greater competition among electric
supply options should result in lower consumer rates.

Pursuant to the Energy Policy Act, FERC earlier this year issued a Notice of
Proposed Rule-making on Open Access Non-discriminatory Transmission Services and
a Supplemental Notice of Proposed Rulemaking on Stranded Investment
(collectively, the Mega-NOPR).  The Mega-NOPR is intended, among other things,
to create a vigorous wholesale electric market by requiring transmission
providers to offer open access to their transmission systems.  The Company is
supportive of proposals to increase competition at all levels of the electric
power market and intends to pursue opportunities created by a more competitive
market.

Proposals also have been introduced in Congress to repeal all or portions of the
Public Utility Regulatory Policies Act (PURPA).  PURPA and its implementing
regulations require, among other things, that electric utilities purchase
electricity generated by qualifying cogeneration facilities at a price based on
the purchasing utility's avoided costs.  LPI is the partial owner of several
qualifying cogeneration facilities.  While the Company supports the repeal of
PURPA, the Company intends to oppose any efforts to nullify existing Contracts
between electric utilities and qualifying cogeneration facilities.  The Company
is involved in proceedings before FERC regarding its Southampton cogeneration
facility and in litigation with the purchasing utility of the energy from its
ROVA I project.  See Note 16 of the Notes to Financial Statements under Item 8.
Also, the Company has been informed through public filings that Niagara Mohawk
Power Corporation (NIMO) (which is the purchasing utility for the Company's
Rensselaer cogeneration facility) has indicated that, absent significant relief
from its power purchase arrangements with independent power producers (including
the Company's Rensselaer facility), it may be forced either to file voluntary
bankruptcy or attempt to condemn and purchase the cogeneration facilities
through eminent domain.  The Company intends to oppose any efforts by NIMO to
nullify its Contract with the Rensselaer project.

FERC Order No. 636

Under Order No. 636, pipelines may recover costs associated with the transition
to and implementation of this order from pipeline customers, including LG&E.
During 1995, LG&E paid and began recovering from its customers approximately
$4.8 million in transition costs under Order No. 636.  It is estimated that
about $1.4 million in additional transition costs will be incurred by LG&E
during 1996 and about $1.3 million in 1997, and these costs are also expected to
be recovered from customers.  See FERC Order No. 636 under Note 16 of Notes to
Financial Statements under Item 8 for further discussion.

FUTURE OUTLOOK

Business Realignment

Effective December 15, 1995, the Company modified its organizational structure.
The changes are designed to facilitate decision making, improve response to
customers and better align operating units with the changing competitive
marketplace.  Four operating divisions were established (see next page):

                                          34

<PAGE>

         Distribution Services Division - which includes the
         distribution resources of Louisville Gas and Electric
         Company (LG&E), is responsible for expanding and developing
         the distribution businesses and investing in enhanced
         service offerings behind the customer's meter.

         Gas Marketing Division - primarily consists of the
         businesses of LG&E Natural, which markets gas throughout the
         United States and Canada.

         Power Marketing Division - which includes LG&E Power
         Marketing Inc. (LPM), and is responsible for project
         development and the marketing and sale of wholesale power
         throughout the United States.

         Power Generation Division - which includes the generation
         resources of LG&E, LG&E Power Inc. (LPI), and LG&E
         International Inc. (LII), has responsibility for all utility
         and non-utility power plant operations, asset management and
         development functions both domestically and internationally.

Wholesale power will continue to be marketed and brokered by LPM, a wholly-owned
subsidiary of the Company.  LPM was among the first utility-affiliated marketers
in the country to secure FERC approval to sell power at market-based rates and
engage in wholesale power marketing activities.  During 1995, its first full
year of operations, LPM sold or brokered 1.8 million megawatt-hours of power in
30 states.  This volume of activity placed LPM among the five largest marketers
of wholesale energy in 1995 and the largest seller affiliated with a regulated
electric utility.  LPM is predicting that the market for electric energy will
expand and its revenues will increase in future years.

In addition, LPI has reduced its capability to construct power generation
facilities consistent with the trend of lower construction activity within the
independent power industry.  LPI expects its development and power marketing
activities to be the major source of revenue in the future.

The realignment does not affect the Company's legal structure, regulation of
LG&E by the Commission or the Company's status as an exempt holding company.



Gas Marketing and Related Services

Through infusions of working capital and other financial support, the Company
has enhanced LG&E Natural's ability to secure trade credit for natural gas
purchases.  This has enabled LG&E Natural to significantly increase levels of
natural gas marketing and management expects this trend to continue in the
foreseeable future.

International Projects

In November 1994, the Company announced that one of its subsidiaries, LII, had
formed a joint venture to build and operate a natural-gas-fired power plant in
north central Argentina.  The plant was completed in 1995 and is scheduled for
commercial operation in early 1996.  The other partners in the project are
Sideco Americana, S.A., an Argentine engineering and construction company, and
Charter Oak Energy, Inc., a non-utility subsidiary of Northeast Utilities.  In
1995, LII also invested $4.5 million into a partnership that acquired a 44%
interest in a 30 Mw wind facility in Tarifa, Spain.  The partners in the project
include Kenetech International, Ltd. and other local Spanish companies.  The
Company intends to continue to pursue international development opportunities
that have an acceptable level of risk and a reasonable rate of return.

                                          35

<PAGE>

Tennessee Gas Pipeline Company

During the last quarter of 1995, LG&E negotiated a five-year transportation
agreement with Tennessee Gas Pipeline Company (Tennessee) to become LG&E's
second natural gas pipeline transporter.  The agreement with Tennessee becomes
effective November 1, 1996.  For many years, Texas Gas Transmission Corporation
has been the sole provider of gas transport services to LG&E.

Union Contract

On December 8, 1995, members of the International Brotherhood of Electrical
Workers Local 2100 ratified a new three-year collective bargaining agreement
with LG&E which covers approximately 1600 LG&E Employees.  The Contract provides
wage and employment protection for employees participating in the Company's
continuous improvement initiative, greater workforce flexibility to help the
Company respond to growing competition, and improved retirement benefits.

Competition

The Company has taken many steps to prepare for the expected increase in
competition in its regulated and non-regulated energy services businesses,
including a reduction in the number of employees; aggressive cost cutting; a
write-off of previously deferred expenses; an increase in focus on commercial
and industrial customers; an increase in employee involvement and training; a
major realignment and formation of new business units, and a modification of its
organization structure.  With these steps, the Company is preparing for
increased competition in both the regulated and non-regulated energy services
industries.

                                          36

<PAGE>

ITEM 8.  Financial Statements and Supplementary Data.

                          LG&E Energy Corp. and Subsidiaries
                          Consolidated Statements of Income
                        (Thousands of $ Except Per Share Data)
<TABLE>
<CAPTION>

                                                                       Years Ended December 31
                                                                 1995           1994           1993
                                                                 ----           ----           ---- 
<S>                                                        <C>              <C>            <C>
REVENUES:
   Electric utility                                        $  571,086       $559,327       $571,627
   Refund - Trimble County Settlement (Note 17).......       (28,300)              -              -
   Gas utility........................................        181,126        200,129        204,915
   Non-utility........................................        650,768         70,207        123,485
                                                            ---------       --------       --------
     Total revenues (Note 1)..........................      1,374,680        829,663        900,027
                                                            ---------       --------       --------
COST OF REVENUES:
   Fuel and power purchased...........................        154,832        153,356        166,664
   Gas supply expenses................................        110,738        131,561        139,054
   Non-utility........................................        624,160         57,617        103,217
                                                            ---------       --------       --------
Total cost of revenues (Note 1).......................        889,730        342,534        408,935
                                                            ---------       --------       --------
Gross profit..........................................        484,950        487,129        491,092

OPERATING EXPENSES:
Operation and maintenance:
   Utility............................................        203,284        202,123        201,300
   Non-utility........................................         39,874         24,629         26,535
Depreciation and amortization.........................         94,393         84,173         82,660
Non-recurring charges (Note 8)........................              -         48,743              -
                                                            ---------       --------       --------
     Total operating expenses                                 337,551        359,668        310,495
                                                            ---------       --------       --------

Equity in earnings of joint ventures (Note 7)                  28,158         12,883          8,525
                                                            ---------       --------       --------

OPERATING INCOME......................................        175,557        140,344        189,122

Other income and (deductions) (Note 12) ..............          5,389         13,718       (1,727)
Contribution to charitable foundation (Note 8)........              -         15,000              -
Interest charges......................................         47,511         43,011         48,210
                                                            ---------       --------       --------
Income from continuing operations before income taxes         133,435         96,051        139,185
Income taxes (Note 11)................................         44,294         33,394         52,379
                                                            ---------       --------       --------
Income from continuing operations before preferred
dividends.............................................         89,141         62,657         86,806

Preferred dividends                                             6,311          5,828          5,981
                                                            ---------       --------       --------

INCOME FROM CONTINUING OPERATIONS                              82,830         56,829         80,825

Income from discontinued operations, net of income
   taxes of $4,760 (Note 6)...........................              -              -          7,435
Gain on sale of discontinued operations, net of income
   taxes of $35,048 (Note 6)..........................              -         51,805       -      -
                                                            ---------       --------       --------
Income before cumulative effect of change in
   accounting principle...............................         82,830        108,634         88,260

Cumulative effect of change in accounting for post-employ-
   ment benefits, net of income taxes of $2,280 (Note 10)           -       (3,369)               -
                                                            ---------       --------       --------

NET INCOME............................................      $  82,830       $105,265       $ 88,260
                                                            ---------       --------       --------
                                                            ---------       --------       --------

Average common shares outstanding                              33,053         32,991         32,689

Earnings per share of common stock:
   From continuing operations.........................          $2.51          $1.72          $2.47
   From discontinued operations.......................              -              -            .23
   Gain on sale of discontinued operations............              -           1.57              -
   Cumulative effect of accounting change.............              -         (.10)               -
                                                            ---------       --------       --------
     Total............................................          $2.51          $3.19          $2.70
                                                            ---------       --------       --------
                                                            ---------       --------       --------


</TABLE>
 The accompanying notes are an integral part of these financial statements.

                                          37

<PAGE>

                          LG&E Energy Corp. and Subsidiaries
                             Consolidated Balance Sheets
                                   (Thousands of $)
<TABLE>
<CAPTION>

                                                                                    December 31
                                                                                1995           1994
                                                                                ----           ----
<S>                                                                           <C>              <C>
ASSETS:
Utility plant, at original cost:
    Electric.............................................................     $2,160,062       $2,115,635
    Gas..................................................................        305,609          282,793
    Common...............................................................        133,189          139,467
                                                                              ----------       ----------
      Gross utility plant................................................      2,598,860        2,537,895
    Less:  reserve for depreciation......................................        934,942          881,861
                                                                              ----------       ----------
      Net utility plant..................................................      1,663,918        1,656,034
                                                                              ----------       ----------

Other property and investments - less reserve:
    Investments in affiliates (Note 7)...................................        123,338          115,420
    Non-utility property and plant, net (Note 2).........................        173,410            2,802
    Other (Notes 1 and 9)................................................         23,720           50,681
                                                                              ----------       ----------
      Total other property and investments...............................        320,468          168,903
                                                                              ----------       ----------

Current assets:
    Cash and temporary cash investments..................................         80,144           49,407
    Marketable securities (Note 9).......................................         29,060           89,431
    Accounts receivable - less reserve of $6,269 in 1995
    and $1,539 in 1994                                                           314,153           97,927
    Materials and supplies - primarily at average cost:
      Fuel (predominantly coal)..........................................         14,996           13,869
      Gas stored underground.............................................         47,530           31,354
      Other..............................................................         34,384           37,299
    Prepayments and other................................................         27,245            4,020
                                                                              ----------       ----------
      Total current assets...............................................        547,512          323,307
                                                                              ----------       ----------
Deferred debits and other assets:........................................
    Regulatory assets (Note 3)...........................................         29,926           31,726
    Goodwill, net (Notes 1 and 2)........................................         46,501           14,881
    Other................................................................         20,595           22,613
                                                                              ----------       ----------
      Total deferred debits and other assets.............................         97,022           69,220
                                                                              ----------       ----------
         Total assets....................................................     $2,628,920       $2,217,464
                                                                              ----------       ----------
                                                                              ----------       ----------
CAPITAL AND LIABILITIES:
Capitalization (see statements of capitalization):
    Common equity........................................................     $  779,134       $  762,515
    Cumulative preferred stock...........................................         95,328          116,716
    Long-term debt.......................................................        646,845          662,862
                                                                              ----------       ----------
      Total capitalization...............................................      1,521,307        1,542,093
                                                                              ----------       ----------
Current liabilities:
    Long-term debt due within one year...................................         16,000                -
    Notes payable (Note 15)..............................................        173,000           32,000
    Accounts payable.....................................................        287,457           78,254
    Trimble County settlement (Note 17)..................................         29,800                -
    Common dividends declared............................................         18,369           17,746
    Accrued taxes........................................................          9,812           15,747
    Accrued interest.....................................................         11,372           13,428
    Other................................................................         42,635           34,218
                                                                              ----------       ----------
      Total current liabilities..........................................        588,445          191,393
                                                                              ----------       ----------
Deferred credits and other liabilities:
    Accumulated deferred income taxes (Notes 1 and 11)...................        233,481          187,250
    Investment tax credit, in process of amortization....................         84,037           88,779
    Accumulated provision for pensions and related benefits..............         48,427           48,126
    Customers' advances for construction.................................          9,251            8,621
    Regulatory liability (Note 3)........................................         88,242           91,492
    Other................................................................         55,730           59,710
                                                                              ----------       ----------
      Total deferred credits and other liabilities.......................        519,168          483,978
Commitments and contingencies (Note 16)                                       ----------       ----------
      Total capital and liabilities......................................     $2,628,920       $2,217,464
                                                                              ----------       ----------
                                                                              ----------       ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.



                                          38

<PAGE>

                          LG&E Energy Corp. and Subsidiaries
                        Consolidated Statements of Cash Flows
                                   (Thousands of $)
<TABLE>
<CAPTION>
                                                                             Years Ended December 31
<S>                                                                   <C>           <C>            <C>
                                                                         1995          1994            1993
                                                                         ----          ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income....................................................      $  82,830     $  105,265     $  88,260
  Items not requiring cash currently:
    Depreciation and amortization..............................          94,393         84,173        82,660
    Deferred income taxes - net................................          13,113         (4,502)         (190)
    Investment tax credit - net................................          (4,742)        (4,619)       (7,821)
    Change in undistributed earnings of joint ventures.........          16,269         (7,887)       (3,968)
    Cumulative effect of change in accounting principle........               -          3,369             -
    Non-recurring charges......................................               -         48,743             -
    Gain on sale of discontinued operations....................               -        (90,878)            -
    Other......................................................           5,351         10,698        14,880
  (Increase) decrease in certain net current assets:
    Accounts receivable........................................       (161,649)         26,577       (22,409)
    Materials and supplies.....................................         (8,756)          3,280        10,671
    Trimble County settlement..................................         29,800               -             -
    Accounts payable...........................................        139,991         (32,938)       22,577
    Accrued taxes..............................................         (5,935)          4,480           288
    Accrued interest...........................................         (2,056)            564           540
    Prepayments and other......................................        (22,421)         (6,596)        2,671
  Other.........................................................        (7,106)         (4,170)       (8,828)
                                                                     ---------       ---------     ---------
    Net cash provided from operating activities................        169,082         135,559       179,331
                                                                     ---------       ---------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of securities....................................       (204,391)       (318,450)      (38,398)
    Proceeds from sales of securities..........................        319,731         190,636        27,301
    Construction expenditures..................................       (104,527)        (96,258)      (99,999)
    Acquisition of LG&E Natural Inc., net of cash..............
     and temporary cash investments acquired (Note 2).........        (146,104)              -             -
    Investment in affiliates (Note 7)..........................        (34,045)        (44,292)            -
    Proceeds from sale of discontinued operations..............              -         170,000             -
    Sale of capital asset......................................              -               -        91,076
                                                                     ---------       ---------     ---------
      Net cash used for investing activities...................       (169,336)        (98,364)      (20,020)
                                                                     ---------       ---------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Issuance of common stock...................................          2,711           2,025        23,941
    Issuance of preferred stock................................              -               -        24,716
    Issuance of first mortgage bonds and pollution control
    bonds                                                               39,914               -       198,918
    Redemption of preferred stock..............................        (22,108)              -       (25,558)
    Retirement of first mortgage bonds and pollution control
    bonds                                                              (43,579)              -      (231,876)
    Repayment of short-term borrowings.........................       (119,632)        (20,000)      (38,000)
    Short-term borrowings......................................        245,315          32,000             -
    Payment of common dividends................................        (71,630)        (69,190)      (66,072)
                                                                     ---------       ---------     ---------
      Net cash provided from (used for) financing activities...         30,991         (55,165)     (113,931)
                                                                     ---------       ---------     ---------
  Net increase (decrease) in cash and temporary cash investments        30,737         (17,970)       45,380

  Cash and temporary cash investments at beginning of year......        49,407          67,377        21,997
                                                                     ---------       ---------     ---------
  Cash and temporary cash investments at end of year............     $  80,144       $  49,407     $  67,377
                                                                     ---------       ---------     ---------
                                                                     ---------       ---------     ---------
  Supplemental disclosures of cash flow information:
    Cash paid during the year for:
      Income taxes.............................................      $  37,771       $  81,468     $  58,014
      Interest on borrowed money...............................         48,916          41,042        47,389

</TABLE>

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

                                        39

<PAGE>
                           LG&E Energy Corp. and Subsidiaries
                      Consolidated Statements of Capitalization
                                   (Thousands of $)
<TABLE>
<CAPTION>

                                                                                            December 31
                                                                                        1995           1994
                                                                                        ----           ----
<S>                                                                                     <C>            <C>
COMMON EQUITY:
  Common stock, without par value -
    Authorized 75,000,000 shares, outstanding 33,097,383
    shares in 1995 and 33,015,951 shares in 1994 (Note 13)                               $  463,705     $  460,980
Common stock expense                                                                           (928)          (914)
Unrealized loss on marketable securities, net of income 
  taxes $328 in 1995 and $2,980 in 1994 (Note 9)                                               (573)        (4,623)
Retained earnings                                                                           316,930        307,072
                                                                                         ----------     ----------
       Total common equity                                                                  779,134        762,515
                                                                                         ----------     ----------
CUMULATIVE PREFERRED STOCK (Note 13):
  Redeemable on 30 days notice by Louisville Gas and Electric
    Company, except $5.875 series

<CAPTION>                                                                     Current
                                                                Shares       Redemption
                                                             Outstanding       Price
                                                             -----------     ----------
<S>                                                          <C>             <C>        <C>            <C>
$25 par value, 1,720,000 shares authorized -
   5% series................................................    860,287         $ 28.00      21,507        21,507
   7.45% series.............................................         -               -            -        21,453
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)       (1,244)
                                                                                         ----------    ----------
   Total cumulative preferred stock.................................................         95,328       116,716
                                                                                         ----------    ----------
LONG-TERM DEBT (Note 14):
  First mortgage bonds -
   Series due June 1, 1996, 5 5/8%..................................................              -        16,000
   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:
   J due July 1, 2015, 9 1/4%.......................................................             -         40,000
   K due December 1, 2016, 7 1/4%...................................................        27,500         27,500
   L due December 1, 2016, 7 1/4%...................................................        22,500         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              -
                                                                                        ----------     ----------
      Total long-term bonds outstanding                                                    646,800        662,800
  Unamortized premium on bonds                                                                  45             62
                                                                                        ----------     ----------
    Total long-term debt                                                                   646,845        662,862
                                                                                        ----------     ----------
Total capitalization                                                                    $1,521,307     $1,542,093
                                                                                        ----------     ----------
                                                                                        ----------     ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                      40

<PAGE>

                          LG&E Energy Corp. and Subsidiaries
                     Consolidated Statements of Retained Earnings
                                   (Thousands of $)

<TABLE>
<CAPTION>                                                                        Years Ended December 31
                                                                        1995               1994             1993
                                                                        ----               ----             ----
<S>                                                                 <C>                <C>              <C>
Balance January 1 . . . . . . . . . . . . . . . . . . . . . . .     $307,072           $271,606         $251,121
Add net income. . . . . . . . . . . . . . . . . . . . . . . . .       82,830            105,265           88,260
Deduct:  Cash dividends declared on common stock
              ($2.185 per share in 1995, $2.115 in 1994, and
              $2.045 in 1993) . . . . . . . . . . . . . . . . .       72,253             69,799           66,957
              Preferred stock redemption expense. . . . . . . .          719                   -             818
                                                                    --------             -------        --------
Balance December 31 . . . . . . . . . . . . . . . . . . . . . .     $316,930            $307,072        $271,606
                                                                    --------            --------        --------
                                                                    --------            --------        --------
</TABLE>
The accompanying notes are an integral part of these financial statements.


 
                            NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CORPORATE STRUCTURE AND BASIS OF CONSOLIDATION.  LG&E Energy Corp. is the parent
holding company of Louisville Gas and Electric Company (LG&E), LG&E Energy
Systems Inc. (Energy Systems) and LG&E Gas Systems Inc. (Gas Systems),
collectively referred to herein as the "Company."  LG&E is a regulated electric
and gas public utility 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 Power Inc. (LPI) and
LG&E International Inc. (LII) are wholly-owned non-utility subsidiaries of
Energy Systems engaged in the design, development, operation and maintenance of
power generation facilities. LG&E Power Marketing Inc. (LPM), a subsidiary of
LPI, is engaged in the marketing and brokering of wholesale electric power.
Operations of Energy Systems' subsidiaries are located throughout the United
States and also include investments in Spain and Argentina.  LG&E Natural Inc.
(LG&E Natural) formerly Hadson Gas Services Inc., a wholly-owned non-utility
subsidiary of Gas Systems, is primarily involved in the marketing, gathering,
processing, storage and transportation of natural gas.  LG&E Natural operates
throughout the United States and in Alberta, Canada serving a diversified base
of industrial customers and local distribution companies.

The consolidated financial statements include the accounts of LG&E Energy Corp.,
LG&E, Energy Systems and Gas Systems and their respective wholly-owned
subsidiaries.  All significant intercompany items and transactions have been
eliminated from the consolidated financial statements.  Certain reclassification
entries have been made to the 1994 and 1993 financial statements to conform to
the 1995 presentation with no impact on previously reported earnings.  The
Company is exempt from regulation as a registered holding company under the
Public Utility Holding Company Act of 1935 (PUHCA).

The consolidated financial statements for 1993 include the results of financial
transactions associated with Energy Systems' 36.5% partnership interest in
Natural Gas Clearinghouse (NGC), a natural gas marketing company based in
Houston, Texas, which was acquired in 1992 and sold in January 1994.  See Note 6
of Notes to Financial Statements under Item 8, Discontinued Operations.

UTILITY PLANT.  LG&E's utility plant is stated at original cost, which includes
payroll-related costs such as taxes, fringe benefits, and administrative and
general costs.  Construction work in progress has been

                                          41

<PAGE>

included in the rate base, and, accordingly, LG&E has not recorded any allowance
for funds used during construction.

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

DEPRECIATION AND AMORTIZATION.  Utility depreciation is provided on the
straight-line method over the estimated service lives of depreciable plant.  The
amounts provided for LG&E in 1995 were 3.3% (3.2% electric, 3.3% gas, and 6%
common); for 1994, 3.3% (3.2% electric, 3.3% gas, and 5% common); and for 1993,
3.3% (3.2% electric, 3.2% gas, and 5% common).  Depreciation of non-utility
plant and equipment is based on the straight-line method over periods ranging
from 3 to 25 years.  Intangible assets have been allocated to the subsidiaries'
lines of business and are being amortized over periods ranging from 7 to 40
years.  Intangible assets include certain favorable gas contracts and goodwill
purchased in the acquisitions of LG&E Natural and LPI.

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 various exchange-traded and over-the-
counter financial instruments in its natural gas marketing activities to hedge
its exposure to changes in the prices it receives and pays for natural gas, and
for trading purposes.  The Company also 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 natural gas financial instruments used to hedge anticipated
commitments to buy and sell natural gas are initially deferred in other current
assets or liabilities, and then charged or credited to non-utility revenues or
non-utility cost of revenues when the hedged transaction occurs.  Gains and
losses on natural gas financial instruments used for trading purposes are
included in non-utility revenues based on changes in the market values of such
instruments.  Margin deposits on natural gas futures are included in other
current assets.  Premiums paid for outstanding natural gas options purchased are
included in other current assets, and premiums received for outstanding natural
gas options sold are included in other current liabilities.  The Company began
using natural gas financial instruments in May 1995, when it acquired LG&E
Natural.

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 loss on marketable securities in common equity and then charged or
credited to other income and deductions when the securities are sold.  Gains and
losses on interest-rate swaps are reflected in interest charges monthly.  See
Note 4 of Notes to Financial Statements under Item 8, Financial Instruments.

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

The Company adopted Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES (SFAS No. 109) January 1, 1993.  Regulatory assets
and liabilities have been established to recognize the

                                          42


<PAGE>

future revenue requirement impact from the deferred income taxes which were not
immediately recognized in operating results because of ratemaking treatment.
The adoption of SFAS No. 109 did not have a material impact on the results of
operations or financial position for either the regulated or non-regulated
companies.

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

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

REVENUE RECOGNITION.  Utility revenues are recorded based on service rendered to
customers through month end.  LG&E accrues an estimate for unbilled revenues
from the date of each meter reading date to the end of the accounting period.
Effective January 1, 1994, under an agreement approved by the Public Service
Commission of Kentucky (Kentucky Commission or Commission), LG&E implemented a
demand side management program and a "decoupling mechanism," which allows LG&E
to recover a predetermined level of revenue on electric and gas residential
sales.  See Management's Discussion and Analysis, Rates and Regulation, for
further discussion.  Gas marketing and power marketing revenues are recognized
when natural gas is transported or electric energy is transmitted to customers.
The Company recognizes revenues from non-utility construction activities using
the percentage of completion method of accounting.

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

GAS STORED UNDERGROUND.  The costs of natural gas inventories are included in
gas stored underground in the balance sheets as of December 31, 1995, and 1994.
Utility and non-utility gas inventories were $32 million and $16 million,
respectively, at December 31, 1995.  Prior to 1995, gas stored underground
consisted solely of utility gas inventories.  LG&E accounts for gas inventories
using the average-cost method.  Non-utility gas inventories are stated at the
lower of average cost or market.

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 amounts of assets and
liabilities and disclosure of contingent assets and liabilities 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 16 of Notes to Financial Statements under Item 8, Commitments and
Contingencies, for further discussion.

NEW ACCOUNTING PRONOUNCEMENTS.

LONG-LIVED ASSETS.  In March 1995, the Financial Accounting Standards Board
issued 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), effective for fiscal years beginning after December 15, 1995.
The Company plans to adopt the provisions of SFAS No. 121 in the first quarter
of 1996.  The new standard requires that long-lived assets and certain
identified intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  In performing such impairment reviews, companies will be required
to estimate the sum of future cash flows from an asset and compare such amount
to the asset's carrying amount.  Any excess of

                                          43

<PAGE>

carrying amount over expected cash flows will result in a possible write-down of
an asset to its fair value.  Based on current operating conditions, legal
requirements and regulatory environment, the Company does not expect adoption of
SFAS No. 121 to have a material adverse impact on its financial position or
results of operations.

STOCK-BASED COMPENSATION.  In October 1995, Statement of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS No. 123) was
issued.  SFAS No. 123 encourages, but does not require, companies to measure and
record as compensation expense the fair value of stock-based compensation
granted to employees, directors, and others.  The new standard permits companies
electing not to record compensation expense for these arrangements to provide
disclosures of net income and earnings per share as if the compensation expense
had been recorded.  The Company will adopt SFAS No. 123 in the first quarter of
1996 as required and will elect the disclosure option.

NOTE 2 - ACQUISITION OF LG&E NATURAL INC.

On May 15, 1995, Gas Systems acquired all of the outstanding common stock of
Hadson Corporation, now known as LG&E Natural Inc., a company engaged in natural
gas marketing, gathering and processing, for $143 million, plus transaction-
related costs and expenses.  The Company accounted for the acquisition as a
purchase, and the purchase price was allocated to the assets and liabilities
acquired based on their estimated fair values.  Approximately $33.4 million of
goodwill was recorded.

A summary of the estimated fair value of the net assets acquired follows (in
thousands of $):

<TABLE>
<CAPTION>

     <S>                                              <C>
     Fair value of assets acquired                    $279,534
     Liabilities assumed                               136,423
                                                      --------
     Cash paid, excluding transaction costs            143,111
     Cash and cash equivalents acquired                  4,924
                                                       -------
     Net cash paid, excluding transaction costs        138,187
     Transaction costs                                   7,917
                                                       -------
     Net cash paid                                    $146,104
                                                      --------
                                                      --------
</TABLE>

LG&E Natural's revenues, cost of revenues, and operating expenses since the date
of acquisition are classified as non-utility in the 1995 statement of income.
LG&E Natural's operations did not have a material impact on consolidated gross
profit or operating income in 1995.

LG&E Natural's property and equipment and favorable gas contracts are included
in the balance sheet under non-utility property and plant at December 31, 1995.

NOTE 3 - RATES AND REGULATORY MATTERS

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

                                          44


<PAGE>

<TABLE>
<CAPTION>
                                                     1995           1994
                                                     ----           ----
     <S>                                         <C>            <C>
     Unamortized loss on bonds                   $ 16,443       $ 15,704
     Unamortized extraordinary retirements          6,935          9,752
     Manufactured gas sites                         3,220          3,149
     Other                                          3,328          3,121
                                                 --------       --------
     Total regulatory assets                       29,926         31,726
     Deferred income taxes - net                  (88,242)       (91,492)
                                                 --------       --------
     Regulatory assets and liabilities - net     $(58,316)      $(59,766)
                                                 --------       --------
                                                 --------       --------
</TABLE>

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

ENVIRONMENTAL COST RECOVERY. LG&E filed an application with the Kentucky
Commission in October 1994, in which it requested approval of an environmental
cost recovery surcharge to recover certain costs incurred to comply with
federal, state, and local environmental requirements.  On April 6, 1995, the
Commission approved the surcharge with modifications. The surcharge became
effective on May 1, 1995.  LG&E recovered $3.2 million in 1995 and expects to
recover an additional $5.7 million in 1996 through the surcharge.

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 intervenors are contesting the validity
of the order on several grounds, including the constitutionality of the Kentucky
statute that authorizes the surcharge.  LG&E is vigorously 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
for a further discussion.

NOTE 4 - FINANCIAL INSTRUMENTS

INSTRUMENTS USED IN HEDGING ACTIVITIES.  The Company uses exchange-traded and
over-the-counter (OTC) futures, options and swap contracts to hedge its exposure
to changes in natural gas prices, valuation of investments in marketable
securities and changes in interest rates on variable rate debt.  Futures reduce
exposure to fluctuations in pricing for natural gas and marketable securities as
of a future delivery date.  Swaps allow the Company to change certain fixed-
price commitments to indexed or floating prices and change certain floating or
index-based pricing to fixed-price commitments.  Options give the Company or
other counterparties the right, but not the obligation, to purchase or sell
natural gas for a predetermined price at a specified future delivery date.

The following summarizes the Company's use of financial instruments for hedging
purposes at December 31, 1995 (in millions of $; see next page):

                                      45


<PAGE>

<TABLE>
<CAPTION>

                                        Notional Amount/
     Category                           Maturity                    Cost(a)
     --------                           --------                    -------
     <S>                                <C>                         <C>
     NATURAL GAS - notional amounts
     are stated in billions of cubic
     feet (BCF):

     Natural gas futures, options
     and swaps - open positions:

     Short/sell positions               38 BCF, delivery dates      $(.1)
                                        from January 1996 to
                                        November 1998

     Long/buy positions                 60 BCF, delivery dates        .4
                                        from January 1996 to
                                        October 1998

                                                                    ------
                                        Total                       $ .3
                                                                    ------
                                                                    ------

     MARKETABLE SECURITIES AND DEBT:

     Exchange-traded U.S Treasury       $7.8 million, matures
     note and bond futures              March 1996                     -

     OTC interest rate swaps            $15 million, matures           -
                                        September 1997;
                                        $15 million, matures
                                        September 1999
</TABLE>

(a)Cost represents net premiums paid or (received) for options.

The natural gas hedge instruments presented above are used to reduce exposure to
price risk caused by market fluctuations and price differences among geographic
regions resulting from changing supply and demand patterns and transportation
costs.  The exchange-traded U.S. Treasury note and bond futures reduce the
Company's exposure to changes in the market value of investments in preferred
stock caused by movement in market interest rates.  The OTC interest rate swaps
reduce the Company's exposure to changes in interest rates by converting $30
million of Series S variable rate Pollution Control Bonds to an average fixed
rate of 4.55%.  Average variable rates received based upon the JJ Kenny index
were 3.87%, 2.84% and 2.38% in 1995, 1994 and 1993, respectively.

Deferred gross losses at December 31, 1995, on closed hedging financial
instruments amounted to $1.8 million for short positions and $.7 million for
long positions.  The underlying transactions related to these deferred losses
are anticipated to be completed during 1996.  Initial margin requirements and
daily margin calls for exchange-traded futures are met in cash and all
transactions are settled in cash or through delivery of the underlying
commodity.

INSTRUMENTS USED IN TRADING ACTIVITIES. The Company began using exchange-traded
and OTC natural gas futures, options and swap contracts for trading purposes in
the latter part of 1995.  The nature of these instruments is identical to the
descriptions contained above under hedging activities.

The following summarizes the Company's use of financial instruments for trading
purposes at December 31, 1995 (in millions of $; see next page):

                                          46

<PAGE>


<TABLE>
<CAPTION>

                                      Notional Amount/
    Category                          Maturity                        Cost(a)
    --------                          --------                        ----

    <S>                           <C>                                <C>
    Natural gas futures, options
    and swaps - open positions:

    Short/sell positions          287 BCF, delivery dates            $ (8.9)
                                  from January 1996 to
                                  December 1998

    Long/buy positions            308 BCF, delivery dates               7.8
                                  from January 1996 to
                                  December 1998
                                                                     ------
                                  Total                              $ (1.1)
                                                                     ------
                                                                     ------
</TABLE>

    (a)  Cost represents net premiums paid or (received) for options.

During the year, the Company recorded a net gain of $4.4 million from trading
activities.  The average fair values of these instruments varied during 1995.
The highest monthly average fair values of these instruments, which occurred in
December 1995, included assets of $148 million and liabilities of $143.6
million.

Use of financial instruments for hedging and trading purposes exposes the
Company to market risk and credit risk.  Market risk is the potential loss
created by a change in the market value of a financial instrument. Current
operating policies and procedures, which are subject to continuing review and
enhancement, are designed to employ probabilistic and other techniques to allow
management to evaluate market risks and take mitigating action.  See Note 5 of
Notes to Financial Statements under Item 8, Concentrations of Credit and Other
Risk, for a discussion of credit risk.

FAIR VALUES OF FINANCIAL INSTRUMENTS.  The carrying amounts of cash, accounts
receivable, notes payable, and accounts payable reflected on the consolidated
balance sheets approximates the fair value of these instruments due to the short
duration to maturity.  The fair value for certain of the Company's investments
and debt are estimated based on quoted market prices for those or similar
instruments.  Investments for which there are no quoted market prices are stated
at cost because a reasonable estimate of fair value cannot be made without
incurring excessive costs.  The fair value of exchange-traded financial
instruments reflects market prices reported by the exchanges.  Fair values of
certain OTC instruments such as options and swaps are based on price quotes
obtained from dealers or assumptions used by management in industry accepted
pricing models. Fair value estimates are made at a certain point in time and
changes in assumptions, economic conditions, risk characteristics of various
instruments and other factors could cause significant changes in these
estimates.

The fair value information contained herein is based on all financial
instruments used by the Company except those that could be settled with the
underlying commodity (primarily natural gas).  Such information does not include
an assessment of assets and liabilities that are not financial instruments, such
as property and equipment or other assets and liabilities.  Accordingly, these
fair value disclosures are not intended to present a valuation of the Company
taken as a whole.

The cost and estimated fair values of the Company's financial instruments as of
December 31, 1995 and 1994 follow (in thousands of $; see next page):

                                          47

<PAGE>

<TABLE>
<CAPTION>

                                                     1995                          1994
                                                     ----                          ----
                                                                 Fair                         Fair
                                             Cost               Value          Cost          Value
                                             ----               -----           ----          -----
   <S>                                   <C>                 <C>            <C>            <C>
   Marketable securities                 $ 29,961            $ 29,060       $ 93,849       $ 89,431
   Long-term investments:
     Practicable to estimate
       fair value                               -                   -         53,323         50,138
     Not practicable                        4,083               4,083            515            515
   Preferred stock subject
     to mandatory redemption               25,000              25,000         25,000         22,125
   Long-term debt                         662,800             688,977        662,800        648,697
   Natural gas options,
     and swaps                               (831)(a)           2,963(b)           -              -
   U.S. Treasury note and
     bond futures                               -                (187)(b)          -           (710)
   OTC interest rate swaps                      -                (522)             -            965

</TABLE>

   (a) Cost represents net premiums paid or (received) for options.
   (b) Gains and losses realized on the future sale or purchase of the
       underlying natural gas and marketable securities will generally offset
       the deferred losses and unrealized gains and losses shown above.

See Note 5 of Notes to Financial Statements under Item 8, Concentrations of
Credit and Other Risk, for a discussion of credit risk as it pertains to certain
of the above financial instruments.

NOTE 5 - CONCENTRATIONS OF CREDIT AND OTHER RISK

Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties 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 does not have a significant loss exposure to any individual customer or
counterparty.

LG&E's customer receivables and gas and electric revenues arise from deliveries
of natural gas to approximately 272,000 customers and electricity to
approximately 346,000 customers in Louisville and adjacent areas in Kentucky.
For the year ended December 31, 1995, 75% of total utility revenue was derived
from electric operations and 25% from gas operations.

LG&E Natural's customer receivables relate primarily to sales of natural gas and
related services to industrial customers, public authorities, utilities and
resellers.  Credit terms, typical of industry standards, are of a short-term
nature and may include letters of credit.

Credit risk exists from LG&E Natural's use of financial instruments such as
over-the-counter swap agreements and option contracts to purchase and sell
natural gas.  See Note 4 of Notes to Financial Statements under Item 8,
Financial Instruments, for further discussion.  LG&E Natural is exposed to
credit risk in the event of nonperformance by counterparties to these
agreements.  LG&E Natural maintains credit policies with regard to its
counterparties that management believes significantly mitigate overall credit
risk.  These policies include thorough review of counterparties' financial
condition, credit rating and letters of credit.  Other performance guarantees
are obtained when appropriate.

                                          48

<PAGE>

The financial position and results of operations of the domestic joint ventures
described in Note 7, Investments in Joint Ventures, are dependent upon the
continuation of long-term power sales contracts with neighboring utilities.

LG&E'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.  LG&E's collective bargaining
agreement with IBEW employees expires in November 1998.

NOTE 6 - DISCONTINUED OPERATIONS

In January 1994, the Company sold its 36.5% partnership interest in Natural Gas
Clearinghouse (NGC) for $170 million.  The transaction resulted in an after-tax
gain of $52 million.  The Company's interest in NGC was acquired in 1992 at a
cost of approximately $70 million and was accounted for as a purchase.
Accordingly, the Company's investment in NGC, equity interest in NGC's earnings
and the related gain on sale have been classified as discontinued operations in
the accompanying consolidated financial statements.

NOTE 7 - INVESTMENTS IN JOINT VENTURES

The Company's investments in joint ventures reflect interests in general
partnerships and foreign entities held by LG&E Power Inc. (LPI) and LG&E
International Inc. (LII) in electric power and steam producing plants.  These
investments are accounted for using the equity method.  The Company's
investments in these joint ventures were $123.3 million and $115.4 million at
December 31, 1995 and 1994, respectively.

The fuel type and ownership percentages of joint ventures are summarized below:

<TABLE>
<CAPTION>
                                                           Fuel Type  % Owned
                                                           ---------  -------
       <S>                                               <C>          <C>
       Babcock - Ultrapower West Enfield                        Wood      17
       Babcock - Ultrapower Jonesboro                           Wood      17
       LG&E Westmoreland - Southampton                          Coal      50
       LG&E Westmoreland - Altavista                            Coal      50
       LG&E Westmoreland - Hopewell                             Coal      50
       LG&E Westmoreland - Rensselaer                    Natural Gas      50
       Westmoreland - LG&E Partners                             Coal      50
       Windpower Partners 1993                                  Wind      50
       Windpower Partners 1994                                  Wind      25
       Central Termica San Miguel de Tucuman, S.A.       Natural Gas      33
       KW Tarifa, S.A.                                          Wind      44
</TABLE>

The Company's carrying amount exceeded the underlying equity in joint ventures
by $26.4 million and $33.2 million at December 31, 1995, and 1994, respectively.
The difference represents adjustments to reflect the fair value of the
underlying net assets acquired in 1991, in conjunction with the purchase of LPI,
and related goodwill.

During 1995, LII invested $13.3 million in a natural gas-fired generation
facility in Tucuman, Argentina and $4.5 million in a wind power project in
Tarifa, Spain.

In August 1995, LPI redeemed its 50% ownership interest in UC Operating Services
(UCOS), a partnership with Constellation Energy, Inc. formed to provide
operation and maintenance services to independent power production facilities.
LPI purchased for $3.2 million the existing operation and maintenance contracts
and certain net assets relating to the facilities in which they have an
ownership interest.  The

                                          49

<PAGE>

operation and maintenance contracts have remaining terms ranging from 21 to 24
years.  LPI is amortizing consideration paid for the contracts over a similar
period.

In June 1995, Babcock-Ultrapower West Enfield and Babcock-Ultrapower Jonesboro,
two partnerships which are 17%-owned by LPI, sold power purchase contracts to
Bangor Hydro-Electric Company.  Subsequent to the sale, the partnerships reduced
the carrying amounts of their remaining assets to estimated net realizable
value.  Equity in earnings of joint ventures in the Company's statement of
income for 1995 includes $9.7 million representing LPI's interest in the gains
on the sales.

NOTE 8 - NON-RECURRING CHARGES

As part of a study of its business strategy and realignment during 1994, LG&E
re-evaluated its regulatory strategy which previously had been to seek full
recovery of certain costs deferred in accordance with prior precedents
established by the Commission.  As a result of this re-evaluation, LG&E wrote
off certain expenses that had previously been deferred amounting to
approximately $38.6 million before taxes.  While LG&E continues to believe that
it could have reasonably expected to recover these costs in future rate
proceedings before the Commission, LG&E decided to deduct these expenses
currently and not seek recovery for such expenses in future rates due to
increasing competitive pressures and the existing and anticipated future
economic conditions.  The items written off include costs incurred in connection
with early retirements and workforce reductions that occurred in 1992 and 1993,
which consist primarily of separation payments, enhanced early retirement
benefits, and health care benefits; costs associated with property damage claims
pertaining to particulate emissions from its Mill Creek electric generating
plant which primarily consist of spotting on automobile finish and aluminum
siding; and certain costs previously deferred resulting from adoption in January
1993 of Statement of Financial Accounting Standards No. 106, EMPLOYERS'
ACCOUNTING FOR POST-RETIREMENT BENEFITS OTHER THAN PENSIONS.  LPI recorded a
reserve for $10.1 million, before taxes, for the costs related to vacating
leased office space.  See Operating Leases under Note 16, Commitments and
Contingencies.

In the first quarter of 1994, the Board of Directors of the Company approved the
formation of a tax-exempt charitable foundation (Foundation) 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.  On June 6, 1994, the Internal Revenue
Service issued a letter stating that it had determined the Foundation was exempt
from Federal income tax under the Internal Revenue Code.

NOTE 9 - MARKETABLE SECURITIES

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES January 1, 1994.  Accordingly, the Company's marketable securities
have been determined to be "available-for-sale" and are stated at market value
in the accompanying consolidated balance sheets.  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 1995 were $319,731,000,
which resulted in realized gains of $3,446,000 and losses of $6,911,000,
calculated using the specific identification method.  Proceeds from sales of
available-for-sale securities in 1994 were $190,636,000, which resulted in
realized gains of $2,993,000 and losses of $5,131,000.  The differences between
amortized and unamortized cost basis of the Company's investments in marketable
securities as of December 31, 1995, and 1994, were immaterial.

                                          50

<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, 1995 and
1994, follow (in millions of $):

<TABLE>
<CAPTION>
                                                         Fixed
                                              Equity    Income     Total
                                              ------    ------     -----
     1995:
     -----
    <S>                                      <C>       <C>        <C>
     Cost                                     $11.9     $18.0     $29.9
     Unrealized gains                            .1         -        .1
     Unrealized losses                          (.3)      (.6)      (.9)
                                              ------   -------   -------
     Fair values                              $11.7     $17.4     $29.1
                                              ------    ------    ------
                                              ------    ------    ------

     Fair values:
       No maturity                            $11.0     $   -    $ 11.0
       Maturities:
         Less than one year                      .7       6.4       7.1
         One to five years                         -      9.3       9.3
         Five to ten years                         -       .8        .8
         Over ten years                            -       .2        .2
         No single date                            -       .7        .7
                                              ------    ------    ------
     Total fair values                        $11.7     $17.4     $29.1
                                              ------    ------    ------
                                              ------    ------    ------

     1994:
     -----
     Cost                                     $39.8    $107.3    $147.1
     Unrealized gains                            .1        .4        .5
     Unrealized losses                         (4.0)     (4.0)     (8.0)
                                              ------   -------   -------
     Fair values                              $35.9    $103.7    $139.6
                                               -----    ------    ------
                                               -----    ------    ------

     Fair values:
       No maturity                            $34.5    $    -    $ 34.5
       Maturities:
         Less than one year                     1.4       5.7       7.1
         One to five years                         -     53.1      53.1
         Five to ten years                         -     11.6      11.6
         Over ten years                            -     15.7      15.7
         No single date                            -     17.6      17.6
                                              ------   -------   -------
     Total fair values                        $35.9    $103.7    $139.6
                                              ------   -------   -------
                                              ------   -------   -------
</TABLE>

All of the Company's available-for-sale securities were classified as marketable
securities at December 31, 1995.  In 1994, available-for-sale securities
consisted of $89.4 million classified as marketable securities and $50.1 million
classified as other property and investments in the accompanying consolidated
balance sheets.

NOTE 10 - PENSION PLANS AND RETIREMENT BENEFITS

PENSION PLANS.  The Company has two non-contributory, defined-benefit pension
plans, covering all eligible employees.  Retirement benefits are based on the
employee's years of service, 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 supplemental executive retirement plans that cover officers
of the Company.  The plans provide retirement benefits based on average earnings
during the final three or five years prior to retirement, reduced by social
security benefits, any pension benefits received from plans of prior employ-

                                          51

<PAGE>

ers, and by amounts received under the pension plans mentioned in the preceding
paragraph.  For LPI officers, retirement benefits are reduced by an equivalent
pension amount derived from contributions to their 401(k) savings plan in lieu
of pension plan reductions.

Pension costs were $5,768,000 for 1995, $4,996,000 for 1994, and $3,048,000 for
1993, of which approximately $761,000, $693,000, and $425,000, respectively,
were charged to construction.

The components of periodic pension expense are shown below (in thousands of $):

<TABLE>
<CAPTION>
 
                                                            1995           1994           1993
                                                            ----           ----           ----
     <S>                                               <C>             <C>           <C>
     Service cost - benefits earned during the period  $  4,805        $ 5,134       $  4,730
     Interest cost on projected benefit obligation       14,761         13,377         12,314
     Actual return on plan assets                       (46,107)          (494)       (13,676)
     Amortization of transition asset                    (1,079)        (1,079)        (1,079)
     Net amortization and deferral                       33,388        (11,942)           759
                                                        --------       --------      ---------
       Net pension cost                                $  5,768       $  4,996       $  3,048
                                                        --------       --------       --------
                                                        --------       --------       --------
</TABLE>

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

<TABLE>
<CAPTION>
                                                                           1995           1994
                                                                           ----           ----
     <S>                                                              <C>            <C>
     Actuarial present value of
       accumulated plan benefits:
         Vested                                                       $169,812       $134,273
         Non-vested                                                      9,807         14,756
                                                                       --------        -------
         Accumulated benefit obligation                                179,619        149,029
         Effect of projected future compensation                        33,741         19,971
                                                                        -------        -------
         Projected benefit obligation                                  213,360        169,000
         Plan assets at fair value                                     209,931        161,299
                                                                        -------        -------
         Plan assets less than projected
           benefit obligation                                           (3,429)        (7,701)
         Unrecognized net transition asset                             (11,166)       (12,245)
         Unrecognized prior service cost                                29,434         24,270
         Unrecognized net gain                                         (42,937)       (35,860)
                                                                        -------        -------

     Accrued pension liability                                        $(28,098)      $(31,536)
                                                                       --------       --------
                                                                       --------       --------
</TABLE>

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


<TABLE>
<CAPTION>
                                                                      1995           1994
                                                                      ----           ----
     <S>                                                       <C>            <C>
     Assumed discount rate to determine
       projected benefit obligation                                   7.5%           8.5%
     Assumed long-term rate of return
       on plan assets                                                 8.5%           8.5%
     Assumed annual rate of increase in
       future compensation levels                              3.5% - 4.0%    4.5% - 5.0%
</TABLE>
 
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
adopted Statement of Financial Accounting Standards No. 106, EMPLOYERS'
ACCOUNTING FOR POST-RETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS No. 106)
January 1, 1993.  SFAS No. 106 requires the accrual of the expected cost of
retiree benefits other than pensions during the employee's years of service with
the Company.  The Company is amortizing the discounted present value


                                          52

<PAGE>

of the post-retirement benefit obligation at the date of adoption over 20 
years. Prior to January 1, 1993, the cost of retiree health care and life 
insurance benefits was generally recognized when paid.

The components of the net periodic post-retirement benefit cost as calculated
under SFAS No. 106 are as follows (in thousands of $):

<TABLE>
<CAPTION>

                                                  1995     1994      1993
                                                  ----     -----     ----
<S>                                              <C>      <C>       <C>
      Service cost                               $  614    $  647    $  710
      Interest cost                               2,717     2,400     2,621
      Amortization of transition obligation       1,341     1,341     1,399
                                                 ------    ------    ------

      Post-retirement benefit cost               $4,672    $4,388    $4,730
                                                 ------    ------    ------
                                                 ------    ------    ------

</TABLE>

The accumulated post-retirement benefit obligation as calculated under SFAS
No. 106 at December 31 is shown below (in thousands of $):

<TABLE>
<CAPTION>


                                                                1995        1994
                                                                ----        ----
<S>                                                           <C>          <C>
      Retirees                                                $(19,965)    $(18,487)
      Fully eligible active employees                           (2,780)      (1,965)
      Other active employees                                   (15,267)      (9,940)
                                                              ---------    ---------
      Accumulated post-retirement benefit obligation           (38,012)     (30,392)
      Unrecognized net loss (gain)                               3,513       (3,220)
      Unrecognized transition obligation                        22,793       24,134 
                                                              ---------    ---------
      Accrued post-retirement benefit liability               $(11,706)    $ (9,478)
                                                              ---------    ---------
                                                              ---------    ---------

</TABLE>
The accumulated post-retirement benefit obligation was determined using an
assumed discount rate of 7.5% for 1995 and 8.5% for 1994.  Assumed compensation
increases for projected life insurance benefits for affected groups was 4% for
1995 and 5% for 1994.  An assumed health care cost trend rate of 10% was assumed
for 1995, gradually decreasing to 5% in ten years and thereafter.

A 1% increase in the assumed health care cost trend rate would increase the
accumulated post-retirement benefit obligation by approximately $1.5 million and
the annual service and interest cost by approximately $200,000.  No funding has
been established by the Company for post-retirement benefits.

POST-EMPLOYMENT BENEFITS.  The Company adopted Statement of Financial Accounting
Standards No. 112, EMPLOYERS' ACCOUNTING FOR POST-EMPLOYMENT BENEFITS (SFAS
NO. 112) January 1, 1994.  SFAS No. 112 requires the accrual of the expected
cost of benefits to former or inactive employees after employment but before
retirement.  The cumulative effect of the accounting change was recorded in the
first quarter of 1994 and decreased net income by $3.4 million.

EARLY RETIREMENT/WORKFORCE REDUCTION.  During the last quarter of 1993, LG&E
eliminated approximately 350 full-time positions.  The cost of the employee
reduction program was approximately $11.5 million, and consisted primarily of
separation payments, enhanced early retirement benefits, and health care
benefits.  See Note 8 of Notes to Financial Statements under Item 8,
Non-Recurring Charges.

THRIFT SAVINGS PLANS.  The Company has Thrift Savings Plans under Section 401(k)
of the Internal Revenue Code.  Under these plans, eligible employees may defer
and contribute to the plan a portion of current compensation in order to provide
future retirement benefits.  The Company makes contributions to the plans by
matching a portion of employee's contributions according to a formula
established by the 

                                          53

<PAGE>

plans.  These costs were approximately $3,063,000 for 1995, $3,304,000 for 1994,
and $3,542,000 for 1993.

NOTE 11 - FEDERAL AND STATE INCOME TAXES

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

<TABLE>
<CAPTION>
                                                             1995        1994        1993
                                                             ----        ----        ----
<S>                                                       <C>         <C>         <C>
      Included in Income Taxes:
           Current   - federal                            $32,526     $33,483     $45,194 
                     - state                                3,397       9,032      15,196 
           Deferred  - federal - net                        8,943      (4,560)        198 
                     - state - net                          4,170          58        (388)
      Amortization of investment tax credit                (4,742)     (4,619)     (7,821)
                                                           -------     -------    -------
      Total                                                $44,294    $33,394     $52,379
                                                           -------    -------     -------
                                                           -------    -------     -------
</TABLE>

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

Provisions for deferred income taxes - net from continuing operations consist of
the tax effects of the following temporary differences (in thousands of $):

<TABLE>
<CAPTION>
                                                             1995        1994        1993 
                                                             ----        ----        ----
<S>                                                       <C>         <C>         <C>
      Depreciation and amortization                       $18,489     $20,772     $ 3,593 
      Alternative minimum tax                                   -           -       5,995 
      Deferred income                                         393      (2,588)     (7,295)
      Pension overfunding                                   2,094      (4,380)       (857)
      Accrued liabilities not currently deductible         (5,128)     (9,169)     (1,715)
      Other                                                (2,735)     (9,137)         89 
                                                          -------     --------    -------
      Total                                               $13,113    $ (4,502)    $  (190)
                                                          -------    --------     -------
                                                          -------    --------     ------- 
</TABLE>

The net provisions for deferred income taxes increased in 1995 largely due to
current year funding of one of the Company's defined-benefit pension plans. 
Fluctuations in deferred income taxes attributable to liabilities accrued for
financial reporting, which are not currently deductible on the Company's tax
return, occurred in 1995 and 1994 due to the timing of when such liabilities are
paid.  Deferred income taxes attributable to depreciation and amortization in
1993 reflect the reversal of prior years' accumulated deferred income taxes as a
result of the sale of a portion of Trimble County Unit 1.  See Note 18 of Notes
to Financial Statements under Item 8, Jointly Owned Electric Utility Plant, for
a further discussion of the sale.

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

                                          54

<PAGE>
<TABLE>
<CAPTION>

                                                         1995                1994 
                                                         ----                ----
<S>                                                  <C>                 <C>
      Deferred tax liabilities:
        Depreciation and other
          plant-related items                        $375,963            $300,881 
        Other liabilities                              11,068              10,353 
                                                     --------            --------
                                                     $387,031            $311,234 
                                                     --------            --------

      Deferred tax assets:
        Investment tax credit                        $ 33,919            $ 35,833 
        Income taxes due to customers                  32,363              33,456 
        Pension overfunding                            12,758              12,207 
        Deferred income                                13,179              13,251 
        Accrued liabilities not currently
          deductible and other                         40,375              29,237 
      Net operating loss carryforward                  20,956                   - 
                                                     --------            --------

                                                     $153,550            $123,984 
                                                     --------            --------

Net deferred income tax liability                    $233,481            $187,250 
                                                     --------            --------
                                                     --------            --------

</TABLE>

The 1995 increase in net deferred tax liabilities is largely due to the
acquisition of LG&E Natural.  When acquired by the Company, LG&E Natural had a
total of $126 million of net operating loss carryforwards available.  The
carryforwards expire in 1997 through 2009 and are subject to an annual
limitation of approximately $5.5 million under Sections 382 and 383 of the
Internal Revenue Code.  At December 31, 1995, LG&E Natural had a valuation
allowance of $29.5 million related to deferred tax assets which will reduce
goodwill if certain unrecorded net operating loss carryforwards are realized.

The Company's effective income tax rate is computed by dividing the aggregate of
current income taxes, deferred income taxes-net, and the amortization of
investment tax credit by income from continuing operations before income taxes. 
Reconciliation of the statutory federal income tax rate to the effective income
tax rate for continuing operations is shown in the table below:
<TABLE>
<CAPTION>

                                                       1995      1994      1993 
                                                       ----      ----      ----
<S>                                                    <C>       <C>       <C>
      Statutory federal income tax rate                35.0%     35.0%     35.0%
      State income taxes net of federal benefi          5.0       6.2       6.9
      Investment and other tax credits                 (4.7)     (5.6)     (5.6)
      Reduction of taxes provided in prior years       (1.3)        -         -
      Other differences - net                           (.8)      (.8)      1.3 
                                                       -----      -----    -----

      Effective income tax rate                        33.2%     34.8%     37.6%
                                                       -----     -----     -----
                                                       -----     -----     -----
</TABLE>


NOTE 12 - OTHER INCOME AND DEDUCTIONS

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

<TABLE>
<CAPTION>
                                                          1995        1994       1993 
                                                          ----        ----       ----
<S>                                                    <C>         <C>        <C>
      Fee income (expense)                             $   -       $ 6,092    $(1,850)
      Gains (losses) on securities - net                (3,465)     (2,138)       (54)
      Interest and dividend income                      10,195      11,690      3,112 
      Gains on fixed asset disposals - net               1,089       1,772        346 
      Donations                                           (356)     (1,285)    (1,255)
      Other                                             (2,074)     (2,413)    (2,026)
                                                       -------     -------    -------
      Total other income and (deductions)              $ 5,389     $13,718    $(1,727)
                                                       -------     -------    -------
                                                       -------     -------    -------
</TABLE>


                                          55

<PAGE>

NOTE 13 - CAPITAL STOCK

Changes in shares of common stock outstanding are shown in the table below (in
thousands):

<TABLE>
<CAPTION>
                                                 1995            1994           1993
                                                -----          ------         ------
<S>                                           <C>             <C>            <C>
      Outstanding January 1                    33,016          32,956         32,328
      Issues under the Employee
          Common Stock Purchase
          Plan (1995, $1,354;
          1994, $1,377; 1993, $1,296)              40              41             37
      Issues under the Automatic
          Dividend Reinvestment and Stock
          Purchase Plan ($21,740)                   -               -            560
      Issues under the Omnibus
          Long-Term Incentive Plan
          (1995, $1,371; 1994, $663;
          1993, $953)                              41              19             31
                                              -------          -------       -------

      Outstanding December 31                  33,097           33,016        32,956
                                              -------          -------       -------
                                              -------          -------       -------
</TABLE>

In 1993, the Company's Automatic Dividend Reinvestment and Stock Purchase Plan
provided that reinvested dividends and optional cash payments would be used to
buy shares of authorized but unissued common stock.  Effective January 15, 1994,
the plan was revised and reinvested dividends and optional cash payments are
being used to purchase shares of the Company's common stock on the open market.

The Company has a Long-Term Incentive Plan (the Long-Term Plan) whereby, in
addition to other types of stock-based and related awards, incentive and
nonqualified stock options can be granted to key personnel.  A total of 299,250
shares of common stock have been registered under the Long-Term Plan.  In 1996,
the Company's shareholders are being asked to approve the reservation of an
additional 1,200,000 shares for future issuance under the Long-Term Plan. Under
the nonqualified stock option portion of the Long-Term Plan, the Company may
grant stock options at an exercise price approximating market value.  Each
option entitles the holder to acquire one share of the Company's common stock no
earlier than one year from the date granted.  The options generally expire ten
years from the date granted.

Non-employee directors receive stock options pursuant to the Stock Option Plan
for Non-Employee Directors (the Directors' Plan).  A total of 250,000 shares of
common stock have been registered under the Directors' Plan.  Under the
Directors' Plan, upon initial appointment or election to the Board, each new
director, who has not been an employee or officer of the Company within the
preceding three years, receives an option grant for 2,000 shares of common
stock.  Following this initial grant, eligible directors receive an annual grant
of an option for 2,000 shares in February of each year.  The terms of the
options are similar to those granted under the Long-Term Plan.

Common stock equivalents resulting from the options granted under both the
Long-Term Plan and the Directors' Plan would not have a material dilutive effect
on reported earnings per share.  See Note 1 of Notes to Financial Statements
under Item 8, Summary of Significant Accounting Policies, for a discussion of
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.

                                          56

<PAGE>

A summary of the status of the Company's nonqualified stock options follows:

<TABLE>
<CAPTION>
                                               Out-        Exer-            Option Price
                                             standing     cisable              per Share
                                             --------     -------            -----------
<S>                                          <C>         <C>             <C>
      As of December 31, 1992                104,088      54,914         $25.86 - $30.56
         Options granted and
           exercisable                        77,005      49,174         $30.56 - $39.19
         Options exercised                   (21,274)    (21,274)        $25.86 - $30.56
         Options cancelled                    (5,936)     (5,936)        $33.90 - $36.04
                                             -------     -------         ---------------

      As of December 31, 1993                153,883      76,878         $25.86 - $39.19
         Options granted and
           exercisable                       120,315      77,005         $30.56 - $39.19
         Options exercised                   (16,047)    (16,047)        $25.86 - $36.04
         Options cancelled                   (15,887)     (9,545)        $30.56 - $39.19
                                             -------     -------         ---------------

      As of December 31, 1994                242,264     128,291         $25.86 - $39.19
         Options granted and
           exercisable                        75,345      68,973         $36.15 - $39.41
         Options exercised                   (30,261)    (30,261)        $25.86 - $38.59
         Options cancelled                   (30,573)       (810)        $37.38 - $39.41
                                             -------     -------         ---------------

      As of December 31, 1995                256,775     166,193         $25.86 - $39.41
                                             -------     -------         ---------------
                                             -------     -------         ---------------
</TABLE>

The Company has a Shareholders Rights Plan designed to protect shareholders'
interests in the event the Company is ever confronted with an unfair or
inadequate acquisition proposal.  Pursuant to the plan, each share of common
stock has two-thirds of a "right" entitling the holder to purchase from the
Company one one-hundredth of a share of new preferred stock of the Company under
certain circumstances.  The holders of the rights will, under certain
conditions, also be entitled to purchase either shares of common stock of LG&E
Energy Corp. or common stock of the acquirer at a reduced percentage of market
value.  The rights will expire in the year 2000.

In December 1995, LG&E 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 14 - FIRST MORTGAGE BONDS

Annual requirements for the sinking funds of LG&E's First Mortgage Bonds (other
than the First Mortgage Bonds issued in connection with the Pollution Control
Bonds) are the amounts necessary to redeem 1% of the highest principal amount of
each series of bonds at any time outstanding.  Property additions (166 2/3% of
principal amounts of bonds otherwise required to be so redeemed) have been
applied in lieu of cash.  It is the intent of LG&E to apply property additions
to meet 1996 sinking fund requirements of the First Mortgage Bonds.

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

Pollution Control Bonds (LG&E Projects) issued by Jefferson and Trimble
Counties, Kentucky, are secured by the assignment of loan payments by LG&E to
the Counties pursuant to loan agreements, and further secured by the delivery
from time to time of an equal amount of LG&E's First Mortgage Bonds, Pollution 

                                          57

<PAGE>

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 April 1995, LG&E issued $40 million of Jefferson County, Kentucky, Pollution
Control Revenue 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.

LG&E has outstanding interest rate swap agreements totaling $30 million related
to its Pollution Control Revenue Bonds, Variable Rate Series, due September 1,
2017.  See Note 4 of Notes to Financial Statements under Item 8, Financial
Instruments.

LG&E's First Mortgage Bonds, 5.625% Series of $16 million is scheduled to mature
June 1, 1996, and the 6.75% Series of $20 million is scheduled to mature in
1998.  There are no scheduled maturities of Pollution Control Bonds for the five
years subsequent to December 31, 1995.  The Company has no cash sinking fund
requirements.

NOTE 15 - NOTES PAYABLE

At December 31, 1995 and 1994, Energy Systems had notes payable of $47 million
and $32 million at weighted average interest rates of 6.13% and 6.44%,
respectively.  Gas Systems had notes payable of $126 million at a weighted
average interest rate of 5.98% at December 31, 1995.  LG&E Energy Corp. and LG&E
had no notes payable at December 31, 1995, and 1994.

At December 31, 1995, lines of credit were in place totaling $600 million ($160
million for LG&E, $200 million for Energy Systems, $215 million for Gas Systems,
and $25 million for LG&E Energy Corp.), for which the companies pay commitment
or facility fees.  These lines of credit were unused, except for the amounts
mentioned above.  The credit lines are scheduled to expire at various points in
time from 1996 through 2000.  Management expects to renegotiate these lines when
they expire.

The lenders under the credit facilities for Energy Systems and Gas Systems are
entitled to the benefits of Support Agreements with LG&E Energy Corp.  The
Support Agreements state, in substance, that LG&E Energy Corp. will provide
Energy Systems and Gas Systems with the necessary funds and financial support to
meet their obligations under the credit facilities.

NOTE 16 - COMMITMENTS AND CONTINGENCIES

CONSTRUCTION PROGRAM.  The Company had commitments, primarily in connection with
the construction program of LG&E, aggregating approximately $11 million at
December 31, 1995.  LG&E's construction expenditures for the years 1996 and 1997
are estimated to total approximately $220 million.

EQUITY FUNDING AND PERFORMANCE GUARANTEES.  In connection with the financing of
various power projects, Energy Systems and LPI provide equity funding
commitments and guarantee the construction and performance of the projects. 
Ascertainable equity funding commitments were immaterial at December 31, 1995. 
Such commitments were $27 million at December 31, 1994.  Contingent construction
and project performance guarantees totaled approximately $12.3 million and $64.5
million at December 31, 1995, and 1994, respectively.

                                          58

<PAGE>

Energy Systems has provided letters of credit and various other guarantees to
third parties which totaled approximately $33.7 million and $39.2 million as of
December 31, 1995 and 1994, respectively.

Gas Systems has guaranteed letters of credit issued to third parties to secure
certain off-balance sheet obligations (including contingent obligations) of LG&E
Natural and its subsidiaries.  The letters of credit securing such obligations
totaled approximately $11 million at December 31, 1995.

Westmoreland Energy, Inc. (WEI) is a partner along with LPI in six cogeneration
projects.  Under an agreement signed on April 15, 1993, Energy Systems
guaranteed (in exchange for fees and other consideration) the equity funding
commitment of WEI in connection with the Roanoke Valley I, Roanoke Valley II and
Rensselaer projects.  In connection with that guarantee, WEI agreed to reimburse
Energy Systems in the event it were ever required to perform thereunder, and WEI
pledged certain of its assets to Energy Systems to secure that reimbursement
obligation.  Equity commitments for these projects were funded in late 1994 and
1995.  There are no outstanding commitments resulting from Energy Systems'
guarantee commitment, and the parties have agreed to terminate the WEI
reimbursement obligation and related security interests.

The preceding equity funding and performance guarantees are subject to Support
Agreements as more fully described in Note 15, Notes Payable.

PROJECT CONTINGENCIES.

SOUTHAMPTON.  The Southampton plant, a 63 megawatt coal-fired cogeneration
facility in Franklin, Virginia, supplies process steam to a nearby chemical
manufacturer and bulk electric power under contract to Virginia Electric and
Power Company (Virginia Power) as a qualifying facility (QF) under the Public
Utility Regulatory Policies Act (PURPA).  The plant began commercial operation
in 1992.  On July 7, 1994, FERC denied the request of LG&E-Westmoreland
Southampton (the Partnership) for a waiver of certain QF requirements and
directed the Partnership to show cause as to why it should not be required to
file new cost-based rates for its 1992 electric sales to Virginia Power.

The Partnership filed a request for rehearing and a motion to consider its
request for rehearing as timely filed, or in the alternative, to treat its
request for rehearing as a motion for reconsideration, in August 1994, one day
out of time.  The Partnership is seeking a reversal of FERC's prior order, or,
in the alternative, a clarification of FERC's order stating that, with the
exception of rates, the Partnership remains a QF for 1992 exempt from regulation
as a public utility under PUHCA, utility laws in Virginia and various portions
of the Federal Power Act.

In late August 1994, Virginia Power filed a motion for leave to respond to the
Partnership's request for rehearing and response to request for rehearing, and a
response to the Partnership's show cause order.  In September 1994, the
Partnership filed with FERC its answer to Virginia Power's motion and response. 
Also in September 1994, FERC granted itself an extension of time to act on the
Partnership's  request for rehearing, tolling the 30-day period in which FERC
was to have acted on the Partnership's rehearing request.  The parties have
fully briefed and submitted to FERC their respective motions with respect to the
request for rehearing and are awaiting FERC's decision.  As FERC had not acted
on the Partnership's request for rehearing, in December 1995, the Partnership
filed with FERC a motion to request a settlement conference.  Virginia Power
subsequently filed a response in which it did not object to the proposed
settlement conference.  The parties are awaiting FERC action, but expect a
settlement proceeding to be initiated in the first half of 1996.

                                          59

<PAGE>

The Company believes that FERC will grant the Partnership the relief that it is
seeking and, accordingly, the ultimate resolution of the matter is not expected
to have a material adverse effect on its consolidated results of operations or
its financial condition.  However, in light of FERC's July 7, 1994 order, and
the arguable lateness of the filing of the request for rehearing one day out of
time, the Company cannot predict what action FERC ultimately will take. 
Possible consequences from an adverse decision include refunds, third party
lawsuits, and potential regulatory and other problems under PUHCA, Virginia
utility law and the Federal Power Act, the scope and amount of which cannot be
determined at this time.

ROANOKE VALLEY I.  The Company owns a 50% interest in Westmoreland-LG&E Partners
(WLP), the sole owner of Roanoke Valley I, a cogeneration facility selling
electric power to Virginia Power and steam energy to Patch Rubber Company. 
Under the Power Purchase Agreement (PPA) between WLP and Virginia Power, WLP is
entitled to receive capacity payments based on availability.  From May 1994
through December 1995, Virginia Power withheld approximately $8.5 million of
these capacity payments during periods of forced outages.  To date, the Company
has not realized any income on its 50% portion of the capacity payments being
withheld by Virginia Power.  In October 1994, WLP filed a complaint against
Virginia Power seeking damages of at least $5.7 million, contending that
Virginia Power breached the PPA in withholding such payments.  In June 1995, the
Circuit Court of the City of Richmond, Virginia denied Virginia Power's motion
to dismiss WLP's complaint.  In early March 1996, Virginia Power filed a 
motion for summary judgment, and on March 22, 1996, the court granted 
Virginia Power's motion as to all counts.  The Company plans to appeal the 
court's ruling.

In the Company's opinion, WLP is entitled to recover the capacity payments
withheld by Virginia Power and should prevail in this matter ensuring receipt of
future capacity payments during forced outages billable to Virginia Power during
the remaining 23 years of the PPA.  However, the Company is unable to predict
the outcome of this proceeding, or the amount of capacity payments, if any,
which Virginia Power may be ordered to pay to WLP.

RENSSELAER.  The Company has been informed through public filings that Niagara
Mohawk Power Corporation (NIMO) (which is the purchasing utility for the
Company's Rensselaer cogeneration facility) has indicated that, absent
significant relief from its power purchase arrangements with independent power
producers (including qualifying cogenerators), it may be forced either to file
voluntary bankruptcy or attempt to condemn and purchase the cogeneration
facilities through eminent domain.  The Company intends to oppose any efforts by
NIMO to nullify its contract for the Rensselaer project.

FERC ORDER NO. 636.  Prior to the implementation of Order No. 636, LG&E had
purchased natural gas and pipeline transportation services from Texas Gas
Transmission Corporation (Texas Gas).  LG&E now purchases only transportation
services from Texas Gas and purchases natural gas from many other sources under
contracts for varying periods of time.  See Future Outlook under Management's
Discussion and Analysis.

Under Order No. 636 pipelines may recover costs associated with the transition
to and implementation of this order from pipeline customers, including LG&E. 
The Commission issued an order, based on proceedings that were held to
investigate the impact of Order No. 636 on utilities and ratepayers in Kentucky,
providing that transition costs assessed on utilities by the pipelines, which
are clearly identifiable as being related to the cost of the commodity itself,
are appropriate to be recovered from customers through the gas supply clause. 
During 1995, LG&E paid Texas Gas and began recovering from its customers
approximately $4.8 million in transition costs.  It is estimated that about $1.4
million in additional transition costs will be incurred by LG&E during 1996 and
about $1.3 million in 1997, and these costs are

                                          60

<PAGE>



also expected to be recovered from customers.  These transition costs are billed
by Texas Gas pursuant to orders issued by FERC in transition cost regulatory
proceedings in which LG&E is a party.  Pursuant to these FERC orders, no
additional transition costs are expected to be billed after 1997.

OPERATING LEASES.  LG&E Energy Corp. has an operating lease for its corporate
office space with an expiration date of 1997.  LG&E has an operating lease for
its corporate office building that is scheduled to expire in June 2005.  LPI has
operating lease commitments related to two office facilities that expire in 1999
and 2001.  LG&E Natural has three office leases that expire in 1996, 1997, and
2003.  Total lease expense for 1995, 1994, and 1993, was $5,531,000, $4,895,000,
and $4,526,000, respectively.  The future minimum annual lease payments under
these lease agreements for years subsequent to December 31, 1995, are as follows
(in thousands of $):

<TABLE>

         <S>                         <C>
         1996                        $ 6,404
         1997                          5,506
         1998                          4,825
         1999                          4,242
         2000                          4,718
         Thereafter                   18,693
                                     -------
              Total                  $44,388
                                     -------
                                     -------

</TABLE>

Operating lease commitments have been reduced for annual rental payments to be
received from noncancelable subleases of $723,000 in 1996, $1,540,000 in 1997,
and approximately $1,800,000 per year from 1998 through 2001.  Future lease
payments associated with facilities vacated in mid-1994 were included in the
non-recurring charges recorded during 1994 and therefore, do not represent
future operating expenses.  See Note 8 of Notes to Financial Statements under
Item 8, Non-Recurring Charges.

CONTRACTED DATA PROCESSING SERVICES.  LG&E Natural has an agreement to receive
contracted data processing services through March 2003.  The agreement calls for
LG&E Natural to make payments of $1,070,000 in 1996, $1,065,000 in 1997,
$1,000,000 per year in 1998 through 2000, and $2,250,000 in the aggregate
thereafter.

ENVIRONMENTAL.  The Clean Air Act Amendments of 1990 (the Act) impose stringent
limits on emissions of sulfur dioxide and nitrogen oxides by electric utility
generating plants.  LG&E is well-positioned in the market to be a "clean" power
provider without the large capital expenditures that are expected to be incurred
by many other utilities.  All of LG&E's coal-fired boilers are equipped with
sulfur dioxide "scrubbers" and already achieve the final sulfur dioxide emission
rates required by the year 2000 under the legislation.  However, as part of its
ongoing capital construction program, LG&E has spent $22 million to date and,
based on engineering estimates from contractors, anticipates incurring
additional capital expenditures of approximately $8 million in 1996 for remedial
measures necessary to meet the Act's requirements for nitrogen oxides.  The
overall financial impact of the legislation on LG&E is expected to be minimal.

In May 1994, LG&E completed extensive modification at its Mill Creek plant aimed
at controlling certain particulate emissions which have allegedly damaged metal
surfaces on adjacent properties.  The Air Pollution Control District of
Jefferson County (APCD) and LG&E are currently conducting a field sampling
program to demonstrate the effectiveness of the plant modifications.  In an
effort to resolve property damage claims of adjacent residents, LG&E commenced
extensive negotiations and property damage settlements with residents who are
not parties to any pending litigation.  Through December 1995, LG&E has settled
property damage claims filed by residents at an aggregate cost of approximately
$14.7


                                          61

<PAGE>

million.  In management's opinion, settlement of the limited number of remaining
claims should not have a material adverse impact on the financial position or
results of operations of LG&E.

In August 1993, 34 persons filed a complaint in Jefferson Circuit Court against
LG&E seeking certification of a class consisting of all persons within 2.5 miles
of the Mill Creek plant who have allegedly suffered personal injury or property
damage as a result of emissions from the plant.  The plaintiffs sought
compensation for personal injury and property damage, injunctive relief, a fund
to finance future medical monitoring of area residents and other relief.  In
June 1994, the court denied the plaintiffs' motion for certification of the
class and thus limited the scope of the litigation to the claims of the
individual plaintiffs.  In August 1995, the court granted the plaintiffs' motion
for leave to file an amended complaint to bring a total of 537 individual
plaintiffs into the pending litigation.  The plaintiffs subsequently filed a
motion to certify a class consisting of all persons within 3.5 miles of the
plant who have allegedly suffered property damage.  The court has not yet ruled
on that motion.  In January 1996, the plaintiffs waived all claims for
compensation for personal injuries, fear of cancer, emotional distress, loss of
income, injunctive relief, and medical monitoring.  LG&E stipulated nuisance as
to plaintiffs located within 2.5 miles of the plant, but reserved the right to
assert lack of causation and all affirmative defenses including statute of
limitations.  The plaintiffs also waived claims for punitive damages with
respect to all plaintiffs located within 2.5 miles.  The plaintiffs are
currently pursuing claims solely for property damage and annoyance allegedly due
to emissions from the plant.  LG&E intends to vigorously defend itself in the
pending litigation.

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

In March 1994, the APCD adopted a regulation requiring a 15% reduction from 1990
volatile organic compound (VOC) emissions from industrial sources in an effort
to ensure compliance with the National Ambient Air Quality Standards for ozone.
There are currently no demonstrated technologies for control of VOC emissions
from coal-fired boilers.  Consequently, compliance with the regulation could
require limits on generation at the Mill Creek and Cane Run plants, unless the
APCD adopts a provision for compliance through utilization of banked emission
allowances.  LG&E is currently negotiating with the APCD for an exclusion from
the VOC reduction requirements.  As an alternative, the APCD is considering
additional nitrogen oxide reduction requirements for LG&E.  LG&E cannot
determine the precise impact of the matter.

LG&E owns or formerly owned three primary sites where manufactured gas plant
operations were conducted.  Remedial investigations performed at the three sites
have identified coal tar and other contaminants typical of manufactured gas
plant operations.  LG&E is currently awaiting regulatory determinations from the
Kentucky Natural Resources and Environmental Protection Cabinet on the level of
remediation required for each site.  Until such regulatory determinations are
made, LG&E is unable to precisely determine cleanup costs for these sites.
However, based on the results of studies at the three sites, management
currently estimates that total cleanup costs will fall within a range of $3
million to $12 million and has recorded an accrual of approximately $3 million
in the accompanying financial statements.

LG&E, 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


                                          62

<PAGE>

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 LG&E 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 LG&E as a de minimis PRP and is
currently pursuing other parties for the vast majority of the $60 million in
cleanup costs as estimated by USEPA.  LG&E 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, LG&E is involved
in litigation with USEPA and approximately 10 companies in an effort to resolve
liability for approximately $1.8 million in cleanup costs incurred by USEPA.
With respect to the M.T. Richards site, LG&E 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 LG&E.

Like LG&E, LPI, LG&E Natural and their subsidiaries are subject to extensive
federal, state, and local environmental laws and regulations governing the
operation of the various facilities in which they participate as an owner or
managing operator.  Among other things, these laws and regulations govern the
discharge of materials into waterways, the air and the ground and, if violated,
may require the owner or operator to take remedial action to maintain the
affected facility's operating status.  To the extent any such remedial
environmental actions have been required of LPI, LG&E Natural or their
subsidiaries in the past, related expenditures have not been material.

NOTE 17 - 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 LG&E should not be allowed to recover 25% of the cost of the Unit
from ratepayers.

On July 19, 1995, the Commission issued an order in which it ruled that LG&E
refund $33.8 million to its electric customers, including interest.  The
Commission stated in its July 19 order that the principal amount to be refunded
represented 25% of the revenues collected by LG&E, during the period May 1988
through December 1990, on Trimble County construction work in progress (CWIP)
included in LG&E's rate base in the 1988 rate case.  The order also required
LG&E to file a plan for implementing the refund.

On December 1, 1995, LG&E and the other parties to the proceedings 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, LG&E has agreed to refund approximately $22 million to
current electric customers, the majority of which will be paid by credits to
customers' bills over five years.  In addition, LG&E has agreed to pay $900,000
per year for five years 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.  LG&E also agreed to revise
the residential decoupling methodology approved by the Commission in 1994 in a
manner that would reduce revenues collected from residential customers during
1996 and 1997 by a total of approximately $1.8 million.  Finally, the parties
agreed that all appeals currently pending in state courts regarding the
Commission's orders in LG&E's most recent general rate case would be dismissed.



                                          63

<PAGE>

Reference is made to Note 18, Jointly Owned Electric Utility Plant, for a
discussion of the sale of 25% of Trimble County.

NOTE 18 - JOINTLY OWNED ELECTRIC UTILITY PLANT

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

Of the remaining 25% of the Unit, Illinois Municipal Electric Agency (IMEA)
purchased a 12.12% undivided interest in the Unit on February 28, 1991, and
Indiana Municipal Power Agency (IMPA) purchased a 12.88% undivided interest on
February 1, 1993.  Each is responsible for their proportionate ownership share
of operation and maintenance expenses and incremental assets, and for fuel used.

The following data represent shares of the jointly owned property:

<TABLE>
<CAPTION>

                                                    Trimble County
                                   LG&E           IMPA           IMEA           TOTAL
                                   ----           ----           ----           -----
       <S>                         <C>           <C>             <C>            <C>
       Ownership interest           75%          12.88%          12.12%          100%
       Mw capacity                 371.25         63.75             60           495

</TABLE>

NOTE 19 - SEGMENTS OF BUSINESS

LG&E Energy Corp. has business operations in both the regulated and
non-regulated energy markets.  The regulated business is conducted through
Louisville Gas and Electric Company (LG&E), a public utility.  The non-utility
business includes LG&E Power Inc. (LPI), LG&E International (LII), LG&E Natural
Inc. (LG&E Natural) and LG&E Power Marketing Inc. (LPM).

LPI and its subsidiaries develop, design, own, operate, and maintain power
generation facilities that sell energy to local industries and utilities.  LII
primarily develops and owns international power-generation assets.  LG&E Natural
and LPM primarily engage in retail and wholesale marketing of natural gas and
electric power, respectively.

<TABLE>
<CAPTION>
(Thousands of $)                       1995           1994          1993
                                       ----           ----          ----

<S>                           <C>                 <C>               <C>
Operating Information:
  Revenues:
    Electric                      $  542,786(a)    $559,327       $571,627
    Gas                              181,126        200,129        204,915
                                 -----------      ---------       --------
       Total utility                 723,912        759,456        776,542
    Non-utility                      650,768         70,207        123,485
                                 -----------      ---------       --------
       Total                      $1,374,680       $829,663       $900,027
                                  ----------       --------       --------
                                  ----------       --------       --------


  Operating Income:
    Electric                      $  152,648       $139,916       $172,201
    Gas                               16,651         11,368         17,436
                                   ---------       --------       --------
       Total utility                 169,299        151,284        189,637
    Non-utility                       17,228          4,163          9,466
    Corporate                        (10,970)       (15,103)        (9,981)
                                   ---------       --------       --------
       Total                      $  175,557       $140,344       $189,122
                                  ----------       --------       --------
                                  ----------       --------       --------

</TABLE>

                                          64

<PAGE>

<TABLE>
<CAPTION>

(Thousands of $)                                   1995           1994          1993
                                                   ----           ----          ----
<S>                                          <C>               <C>            <C>
Other Information:
   Depreciation and Amortization:
      Electric                               $   74,437        $71,882        $69,985
      Gas                                        11,322         10,637          9,902
                                              ---------        -------        -------
         Total utility                           85,759         82,519         79,887
      Non-utility                                 8,150          1,072          2,253
      Corporate                                     484            582            520
                                              ---------        -------        -------
         Total                               $   94,393        $84,173        $82,660
                                             ----------        -------        -------
                                             ----------        -------        -------

   Construction Expenditures:
      Electric                               $   66,661        $71,592       $ 74,165
      Gas                                        26,762         23,806         24,622
                                              ---------        -------       --------
         Total utility                           93,423         95,398         98,787
      Non-utility                                10,936            663            871
      Corporate                                     168            197            341
                                              ---------        -------        -------
         Total                               $  104,527        $96,258        $99,999
                                             ----------        -------        -------
                                             ----------        -------        -------

   Identifiable Assets - December 31:
      Electric                               $1,501,568     $1,514,287     $1,537,387
      Gas                                       268,840        252,946        241,930
      Other                                     208,517        199,078        195,057
                                              ---------      ---------      ---------
         Total utility                        1,978,925      1,966,311      1,974,374
      Non-utility                               641,701        249,981        116,434
      Discontinued operations                         -              -         84,284
      Corporate                                   8,294          1,172         11,376
                                              ---------      ---------      ---------
         Total                               $2,628,920     $2,217,464     $2,186,468
                                             ----------     ----------     ----------
                                             ----------     ----------     ----------

</TABLE>

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







                                          65

<PAGE>

                                  REPORT OF MANAGEMENT

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

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

Management has established and maintains a system of internal controls that
provides reasonable assurance that transactions are completed in accordance with
management's authorization, that assets are safeguarded and that financial
statements are prepared in conformity with generally accepted accounting
principles. Management believes that an adequate system of internal controls is
maintained through the selection and training of personnel, appropriate division
of responsibility, establishment and communication of policies and procedures
and by regular reviews of internal accounting controls by the Company's internal
auditors.  Management reviews and modifies its system of internal controls in
light of changes in conditions and operations, as well as in response to
recommendations from the internal auditors.  These recommendations for the year
ended December 31, 1995 did not identify any significant deficiencies in the
design and operation of the Company's internal control structure.

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

LG&E Energy Corp. and subsidiaries maintain and internally communicate a written
code of business conduct that addresses, among other items, potential conflicts
of interest, compliance with laws, including those relating to financial
disclosure, and the confidentiality of proprietary information.

                                          66

<PAGE>

                        REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of LG&E Energy Corp.:

We have audited the consolidated balance sheets and statements of capitalization
of LG&E Energy Corp. (a Kentucky corporation) and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period ended
December 31, 1995.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LG&E Energy Corp.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

As discussed in Notes 1 and 10 to the consolidated financial statements,
effective January 1, 1993, the Company changed its methods of accounting for
income taxes and post-retirement benefits other than pensions, and effective
January 1, 1994, the Company changed its method of accounting for
post-employment benefits.

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


Louisville, Kentucky                                         Arthur Andersen LLP
January 30, 1996 (Except with respect
to the matters discussed in paragraph
11 of Note 16, as to which the date is
March 22, 1996.)


                                          67

<PAGE>

                    SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

Selected financial data for the four quarters of 1995 and 1994 are shown below. 
Because of seasonal fluctuations in temperature and other factors, results for
quarters may fluctuate throughout the year.

<TABLE>
<CAPTION>
 

                                                                   Quarters Ended
(Thousands of $ except per share data)           March           June      September       December
                                                 -----           ----      ---------       --------

1995
----

<S>                                           <C>            <C>            <C>            <C>
Revenues                                      $208,101       $249,057       $410,161       $507,361 (a)
Operating income                                44,444         52,468         73,957          4,688
Net income (loss)                               19,692         24,650         39,091           (603)
Earnings per share of common stock                 .60            .75           1.18           (.02)

1994
----
Revenues                                      $244,462       $192,354       $202,570       $190,277
Operating income (loss)                         (6,531)        41,051         70,027         35,797
Net income (loss):
    Continuing operations                      (19,964)        22,093         37,076         17,624
    Gain on sale of discontinued
       operations                               51,805              -              -              -
    Cumulative effect of
       accounting change                        (3,369)             -              -              -
                                              --------       --------       --------       --------
         Total                                $ 28,472       $ 22,093       $ 37,076       $ 17,624
                                              --------       --------       --------       --------
                                              --------       --------       --------       --------

Earnings per share of common stock:
    Continuing operations                        $(.61)          $.67          $1.12           $.54
    Gain on sale of discontinued
       operations                                 1.57              -              -              -
    Cumulative effect of
       accounting change                          (.10)             -              -              -
                                                 -----           ----          -----           ----
          Total                                  $ .86           $.67          $1.12           $.54
                                                 -----           ----          -----           ----
                                                 -----           ----          -----           ----

</TABLE>
 


(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.

                                          68

<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 13, 1996, 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.

                                       PART IV

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

(a) 1.   Financial Statements (included in Item 8):

         Consolidated Statements of Income for the three years ended December
         31, 1995 (page 37).
         Consolidated Balance Sheets - December 31, 1995, and 1994 (page 38).
         Consolidated Statements of Cash Flows for the three years ended
         December 31, 1995 (page 39).
         Consolidated Statements of Capitalization - December 31, 1995, and
         1994 (page 40).
         Consolidated Statements of Retained Earnings for the three years ended
         December 31, 1995 (page 41).
         Notes to Consolidated Financial Statements (pages 41-65).
         Report of Management (page 66).
         Report of Independent Public Accountants (page 67).
         Selected Quarterly Financial Data for 1995 and 1994 (page 68).

    2.   Financial Statement Schedules (included in Part IV):

           Schedule II   -   Valuation and Qualifying Accounts for the three
                             years ended December 31, 1995 (page 81).

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

3. Exhibits:

Exhibit
No.                                  DESCRIPTION
---

3.01          Copy of Articles of Incorporation.  [Filed as Exhibit 4.01 to 
              Registration Statement 33-33687 and incorporated by reference 
              herein]

3.02          Amendment to Articles of Incorporation dated December 5, 1990.  
              [Filed as Exhibit 3.02 to the Company's Annual Report on Form 10-K
              for the year ended December 31, 1990, and incorporated by 
              reference herein]

3.03          Copy of Bylaws as amended through December 4, 1991.  [Filed as 
              Exhibit 3.03 to the Company's Annual Report on Form 10-K for the 
              year ended December 31, 1991, and incorporated by reference 
              herein]

                                          69

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

                                          70

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

                                          71

<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 LG&E's Annual Report on Form 10-K for the year ended 
              December 31, 1986, and incorporated by reference herein]

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

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

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

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

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

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

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

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

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

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

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

                                          72

<PAGE>

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
         LG&E's 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 LG&E's 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 5.02c to LG&E's 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 LG&E's 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 LG&E's Registration Statement
         2-27316 and incorporated by reference herein]

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 5.02f to
         LG&E's 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 LG&E's Registration
         Statement 2-26063 and incorporated by reference herein]

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

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

                                          73

<PAGE>

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 5.02j to LG&E's Registration Statement 2-61607 and
         incorporated by reference herein] 

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

10.12    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 LG&E's Registration Statement
         2-28524 and incorporated by reference herein]

10.13    Copy of Modification No. 3 dated November 15, 1967, to the
         Inter-Company Power Agreement dated July 10, 1953.  [Filed as Exhibit
         4.02m to LG&E's 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 5.02n to LG&E's 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
         5.02o to LG&E's Registration Statement 2-56357 and incorporated by
         reference herein]

10.16    Copy of Modification No. 4 dated April 30, 1976, to First
         Supplementary Transmission Agreement, dated July 10, 1953, among Ohio
         Valley Electric Corporation and the Sponsoring Companies.  [Filed as
         Exhibit 5.02p to LG&E's Registration Statement 2-61607 and
         incorporated by reference herein]

10.17    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 5.02q to LG&E's 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 5.02r to LG&E's 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 LG&E'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 LG&E's Annual Report on Form 10-K
         for the year ended December 31, 1979, and incorporated by reference
         herein] 

                                          74

<PAGE>


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

10.22         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 LG&E'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 Inter-Company
              Power Agreement dated July 5, 1953, among Ohio Valley Electric
              Corporation and Sponsoring Companies.  [Filed as Exhibit 10.26 to
              LG&E's Annual Report on Form 10-K for the year ended December 31,
              1981, and incorporated by reference herein]

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

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

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

10.27         Copy of Credit Agreement dated as of March 11, 1992, among LG&E
              Energy Systems Inc. as Borrower, the Banks named therein, and
              Citibank, N.A. as Agent.  [Filed as Exhibit 10.36 to the
              Company's Annual Report on Form 10-K for the year ended
              December 31, 1992, and incorporated by reference herein]

10.28         Copy of Support Agreement dated as of December 9, 1991, between
              LG&E Energy Corp. and LG&E Energy Systems Inc.  [Filed as
              Exhibit 10.37 to the Company's Annual Report on Form 10-K for the
              year ended December 31, 1992, and incorporated by reference
              herein]


10.29         Copy of form of change in control agreement for officers of LG&E
              Energy Corp.  [Filed as Exhibit 10.40 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1992, and
              incorporated by reference herein]

10.30         Copy of Supplemental Executive Retirement Plan for R. W. Hale,
              effective June 1, 1989.  [Filed as Exhibit 10.42 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 1992,
              and incorporated by reference herein]

                                          75

<PAGE>


10.31         Copy of Nonqualified Savings Plan covering officers of the
              Company, effective January 1, 1992.  [Filed as Exhibit 10.43 to
              the Company's Annual Report on Form 10-K for the year ended
              December 31, 1992, and incorporated by reference herein]

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

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

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

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

10.36         Copy of Firm Transportation Agreement, dated November 1, 1993,
              between Texas Gas Transmission Corporation and LG&E covering the
              transmission of natural gas.  [Filed as Exhibit 10.46 to LG&E's
              Annual Report on Form 10-K for the year ended December 31, 1993,
              and incorporated by reference herein]

10.37         Copy of Firm No Notice Transportation Agreement effective
              November 1, 1993, between Texas Gas Transmission Corporation and
              LG&E (8-year term) covering the transmission of natural gas.

              Firm No Notice Transportation Agreement effective November 1,
              1993, between Texas Gas Transmission Corporation and LG&E (2-year
              term) covering the transmission of natural gas.

              Firm No Notice Transportation Agreement effective November 1,
              1993, between Texas Gas Transmission Corporation and LG&E (5-year
              term) covering the transmission of natural gas.

              [Filed as Exhibit 10.47 to LG&E's Annual Report on Form 10-K for
              the year ended December 31, 1993, and incorporated by reference
              herein]

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

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

                                          76

<PAGE>



10.40         Copy of Coal Supply Agreement dated August 9, 1989, between
              Shawnee Coal Company, Roberts Brothers Coal Company, and the
              Company covering the purchase of coal.  [Filed as Exhibit 10.41
              of LG&E's Annual Report on Form 10-K for the year ended December
              31, 1994, and incorporated by reference herein]

10.41         Copy of Amendment No. 1 dated January 1, 1991, to Coal Supply
              Agreement, dated August 9, 1989, between Shawnee Coal Company,
              Roberts Brothers Coal Company, and the Company covering the
              purchase of coal.  [Filed as Exhibit 10.42 of LG&E's Annual
              Report on Form 10-K for the year ended December 31, 1994, and
              incorporated by reference herein]

10.42         Copy of Amendment No. 2 dated November 27, 1991, to Coal Supply
              Agreement, dated August 9, 1989, between Shawnee Coal Company,
              Roberts Brothers Coal Company, and the Company covering the
              purchase of coal.  [Filed as Exhibit 10.43 of LG&E's Annual
              Report on Form 10-K for the year ended December 31, 1994, and
              incorporated by reference herein]

10.43         Copy of Amendment No. 3 dated January 1, 1994, to Coal Supply
              Agreement, dated August 9, 1989, between Shawnee Coal Company,
              Roberts Brothers Coal Company, and the Company covering the
              purchase of coal.  [Filed as Exhibit 10.44 of LG&E's Annual
              Report on Form 10-K for the year ended December 31, 1994, and
              incorporated by reference herein]

10.44         Copy of Amendment No. 4 dated January 1, 1995, to Coal Supply
              Agreement, dated August 9, 1989, between Shawnee Coal Company,
              Roberts Brothers Coal Company, and the Company covering the
              purchase of coal.  [Filed as Exhibit 10.45 of LG&E's Annual
              Report on Form 10-K for the year ended December 31, 1994, and
              incorporated by reference herein]

10.45         Agreement and Plan of Merger, dated February 10, 1995, between
              LG&E Natural Inc., formerly known as Hadson Corporation, Carousel
              Acquisition Corporation and the Company.  [Filed as Exhibit 2 of
              Schedule 13D by the Company on February 21, 1995, and
              incorporated by reference herein]

10.46         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 LG&E's Annual Report on Form 10-K for the
              year ended December 31, 1995, and incorporated by reference
              herein]

10.47         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 the
              Company covering the transmission of natural gas.  [Filed as
              Exhibit 10.44 to LG&E's Annual Report on Form 10-K for the year
              ended December 31, 1995, and incorporated by reference herein]

10.48         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.

              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.

                                          77

<PAGE>


              [Filed as Exhibit 10.45 to LG&E's Annual Report on Form 10-K for
              the year ended December 31, 1995, and incorporated by reference
              herein]

10.49         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 LG&E's
              Annual Report on Form 10-K for the year ended December 31, 1995,
              and incorporated by reference herein]

10.50         Copy of Coal Supply Agreement, dated January 1, 1996, between
              Green Coal Company and the Company covering the purchase of coal.
              [Filed as Exhibit 10.47 to LG&E's Annual Report on Form 10-K for
              the year ended December 31, 1995, and incorporated by reference
              herein]

10.51         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 LG&E's
              Annual Report on Form 10-K for the year ended December 31, 1995,
              and incorporated by reference herein]

10.52         Copy of Amended and Restated Omnibus Long-Term Incentive Plan
              effective January 1, 1996, covering officers and key employees of
              the Company.

10.53         Copy of Short-Term Incentive Plan effective January 1, 1996,
              covering officers and key employees of the Company.

10.54         Copy of form of first amendment to change in control agreement
              for officers of the Company and key employees.

10.55         Copy of Amendment to the Non-Qualified Savings Plan, effective
              January 1, 1992.

10.56         Copy of Amendment to the Non-Qualified Savings Plan, effective
              January 1, 1995.

10.57         Copy of Amendment to the Non-Qualified Savings Plan, effective
              January 1, 1995.

10.58         Copy of Amendment to the Supplemental Executive Retirement Plan,
              effective January 1, 1992.

10.59         Copy of Amendment to the Supplemental Executive Retirement Plan,
              effective January 1, 1993.

10.60         Copy of Amendment to the Supplemental Executive Retirement Plan,
              effective January 1, 1995.

10.61         Copy of Amendment to the Supplemental Executive Retirement Plan,
              effective May 1, 1995.

10.62         Form of Master Gas Purchase Agreement, dated December 14, 1993,
              among Santa Fe, SFEOP and AGPC.  [Filed as Exhibit 10.23 to LG&E
              Natural Inc.'s Registration Statement on Form S-4, File No. 33-
              68224, and incorporated by reference herein]

10.63         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 of LG&E's Annual Report on Form
              10-K for the year ended December 31, 1995, and incorporated by
              reference herein]


                                          78

<PAGE>


10.64         Copy of Transaction Confirmation Letter, dated February 22, 1996,
              between Ohio Edison Company and LG&E Power Marketing Inc.
              regarding the sale of coal processing services by Ohio Edison to
              LG&E Power Marketing.

10.65         Copy of Energy and Operating Capacity Purchase Agreement between
              Baltimore Gas and Electric Company and LG&E Power Marketing Inc.
              covering the purchase of energy and operating capacity from LG&E
              Power Marketing.

21            Subsidiaries of the Registrant

23            Consent of Independent Public Accountants

24            Power of Attorney

27            Financial Data Schedule

(b)      Executive Compensation Plans and Arrangements:

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

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

         Form of change in control agreement for officers of LG&E Energy Corp.
         [Filed as Exhibit 10.40 to the Company's Annual Report on Form 10-K
         for the year ended December 31, 1992, and incorporated by reference
         herein]

         Supplemental Executive Retirement Plan for R. W. Hale, effective
         June 1, 1989.  [Filed as Exhibit 10.42 to the Company's Annual Report
         on Form 10-K for the year ended December 31, 1992, and incorporated by
         reference herein]

         Nonqualified Savings Plan covering officers of the Company effective
         January 1, 1992.  [Filed as Exhibit 10.43 to the Company's Annual
         Report on Form 10-K for the year ended December 31, 1992, and
         incorporated by reference herein]

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

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

         Amended and Restated Omnibus Long-Term Incentive Plan effective
         January 1, 1996, covering officers and key employees of the Company.


                                          79

<PAGE>


         Short-Term Incentive Plan effective January 1, 1996, covering officers
         and key employees of the Company.

         Form of first amendment to change in control agreement for officers of
         the Company and key employees.

         Amendment to the Non-Qualified Savings Plan, effective January 1,
         1992.

         Amendment to the Non-Qualified Savings Plan, effective January 1,
         1995.

         Amendment to the Non-Qualified Savings Plan, effective January 1,
         1995.

         Amendment to the Supplemental Executive Retirement Plan, effective
         January 1, 1992.

         Amendment to the Supplemental Executive Retirement Plan, effective
         January 1, 1993.

         Amendment to the Supplemental Executive Retirement Plan, effective
         January 1, 1995.

         Amendment to the Supplemental Executive Retirement Plan, effective
         January 1, 1996.

(c)      Reports on Form 8-K:

         On December 12, 1995, a report on Form 8-K was filed announcing the
         Public Service Commission of Kentucky's approval of LG&E's Trimble
         County power plant settlement agreement.

         On March 7, 1996, a report on Form 8-K was filed stating that the
         Company announced on March 6, 1996, that its Board of Directors
         approved a two-for-one split of its common stock, without par value,
         by declaring a 100% stock dividend payable April 15, 1996.

                                          80

<PAGE>

                                                                 Schedule II
                          LG&E Energy Corp. and Subsidiaries 
                   Schedule II - Valuation and Qualifying Accounts
                      For the Three Years Ended December 31, 1995
                                   (Thousands of $)

 
<TABLE>
<CAPTION>
                                                                                                (a)
                                                                                        Accumulated
                                                      Other            Accounts            Deferred
                                                   Property          Receivable        Income Taxes
                                                        and      (Uncollectible         (NOL Carry-
                                                Investments            Accounts)          forwards)
                                                -----------      ---------------       ------------
<S>                                             <C>              <C>                   <C>
Balance December 31, 1992                            $5,645              $1,372           $      --

Additions:
  Charged to costs and expenses -
    Trimble County - non-jurisdictional
-     depreciation                                      233                  --                  --
    Other additions charged to costs
      and expenses                                       --               2,542                  --
Deductions:
  Net charges of nature for which
    reserves were created                                --               2,145                  --
  Other deductions                                    5,815                  --                  --
                                                     ------             -------             -------

Balance December 31, 1993                                63               1,769                   -

Additions:
  Charged to costs and expenses                         968               3,166                   -
  Other additions                                     1,648                  --                   -
Deductions:
  Net charges of nature for which
    reserves were created                                --               3,396                  --
  Other deductions                                      134                  --                  --
                                                     ------             -------             -------

Balance December 31, 1994                             2,545               1,539                  --

Additions:
  Charged to costs and expenses                       6,523               4,039                  --
  Other additions                                        41               4,614              29,501
Deductions:
  Net charges of nature for which
    reserves were created                                --               3,923                  --
  Other deductions                                      502                  --                  --
                                                     ------             -------             -------

Balance December 31, 1995                            $8,607              $6,269             $29,501
                                                     ------              ------             -------
                                                     ------              ------             -------

</TABLE>


 (a) Partially offsets a deferred tax debit included in accumulated deferred
    income taxes.  The debit represents LG&E Natural's net operating loss
    carryforwards available when acquired by the Company.

                                          81

<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.

                             LG&E ENERGY CORP.
                             Registrant

March 27, 1996               /s/ Walter Z. Berger
                             --------------------
(Date)                       Walter Z. Berger
                             Executive Vice President and
                             Chief Financial Officer

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

Signature                         Title                                 Date
---------                         -----                                 ----
Roger W. Hale                Chairman of the Board,
                             President and Chief Executive
                             Officer
                             (Principal Executive Officer);

Walter Z. Berger             Executive Vice President and
                             Chief Financial Officer
                             (Principal Financial and Accounting Officer);

William C. Ballard, Jr.      Director;

Owsley Brown, II             Director;

S. Gordon Dabney             Director;

Gene P. Gardner              Director;

J. David Grissom             Director;

David B. Lewis               Director;

Anne H. McNamara             Director;

T. Ballard Morton, Jr.       Director; and

Dr. Donald C. Swain          Director.

By  /s/ Walter Z. Berger                                          March 27, 1996
    --------------------
    Walter Z. Berger
    (Attorney-In-Fact)

                                          82