UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                         Washington, D. C.  20549

                                FORM 10-Q

(Mark One)
[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

            For the quarterly period ended September 30, 2006

                                    OR

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


       Commission  Registrant, State of Incorporation,  IRS Employer
      File Number     Address, and Telephone NumberIdentification Number

         1-2893    Louisville Gas and Electric Company   61-0264150
                         (A Kentucky Corporation)
                           220 West Main Street
                             P. O. Box 32010
                        Louisville, Kentucky 40232
                              (502) 627-2000

         1-3464         Kentucky Utilities Company       61-0247570
                  (A Kentucky and Virginia Corporation)
                            One Quality Street
                      Lexington, Kentucky 40507-1428
                              (859) 255-2100


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

Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer.  See definition of
"accelerated filer and large accelerated filer" in Rule 12-b2 of the
Exchange Act.  (Check one):

Large accelerated filer _____          Accelerated  filer_____

                   Non-accelerated filer __X___

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).  Yes    No X

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:

Louisville Gas and Electric Company - 21,294,223 shares, without par value,
as of October 31, 2006, all held by E.ON U.S. LLC

Kentucky Utilities Company - 37,817,878 shares, without par value, as of
October 31, 2006, all held by E.ON U.S. LLC

This combined Form 10-Q is separately filed by Louisville Gas and Electric
Company and Kentucky Utilities Company. Information contained herein
related to any individual registrant is filed by such registrant on its own
behalf.  Each registrant makes no representation as to information related
to the other registrants.


                          INDEX OF ABBREVIATIONS


AG                    Attorney General of Kentucky
ARO                   Asset Retirement Obligation
CAIR                  Clean Air Interstate Rule
CAMR                  Clean Air Mercury Rule
CCN                   Certificate of Public Convenience and Necessity
Company               LG&E or KU, as applicable
Companies             LG&E and KU
DOE                   Department of Energy
ECR                   Environmental Cost Recovery
EEI                   Electric Energy, Inc.
E.ON                  E.ON AG
E.ON U.S.             E.ON U.S. LLC (formerly LG&E Energy LLC and LG&E
                      Energy Corp.)
E.ON U.S. Services    E.ON U.S. Services Inc. (formerly LG&E Energy
                      Services Inc.)
EPA                   U.S. Environmental Protection Agency
EPAct 2005            Energy Policy Act of 2005
FAC                   Fuel Adjustment Clause
FASB                  Financial Accounting Standards Board
FERC                  Federal Energy Regulatory Commission
Fidelia               Fidelia Corporation (an E.ON affiliate)
FIN                   FASB Interpretation No.
FGD                   Flue Gas Desulfurization
IMEA                  Illinois Municipal Electric Agency
IMPA                  Indiana Municipal Power Agency
IRS                   Internal Revenue Service
Kentucky Commission   Kentucky Public Service Commission
KU                    Kentucky Utilities Company
LIBOR                 London Interbank Offer Rate
LG&E                  Louisville Gas and Electric Company
MISO                  Midwest Independent Transmission System
                      Operator, Inc.
Moody's               Moody's Investor Services, Inc.
Mw                    Megawatts
NOx                   Nitrogen Oxide
PUHCA 1935            Public Utility Holding Company Act of 1935
PUHCA 2005            Public Utility Holding Company Act of 2005
RSG MWP               Revenue Sufficiency Guarantee Make Whole Payment
S&P                   Standard & Poor's Rating Services
SEC                   Securities and Exchange Commission
SFAS                  Statement of Financial Accounting Standards
SO2                   Sulfur Dioxide
VDT                   Value Delivery Team Process
Virginia Commission   Virginia State Corporation Commission

                             TABLE OF CONTENTS
                                  PART I
 Item 1. Financial Statements (Unaudited)
      Louisville Gas and Electric Company
       Statements of Income                                             1
       Statements of Retained Earnings                                  1
       Balance Sheets                                                   2
       Statements of Cash Flows                                         4
       Statements of Comprehensive Income                               5
      Kentucky Utilities Company
       Statements of Income                                             6
       Statements of Retained Earnings                                  6
       Balance Sheets                                                   7
       Statements of Cash Flows                                         9
       Statements of Comprehensive Income                              10
       Notes to Financial Statements                                   11
 Item 2. Management's Discussion and Analysis of Financial
         Condition and Results of Operations                           26
 Item 3. Quantitative and Qualitative Disclosures About Market Risk    38
 Item 4. Controls and Procedures                                       40

                                  PART II

 Item 1. Legal Proceedings.                                            41
 Item 1A.Risk Factors.                                                 41
 Item 2. Unregistered Sales of Equity Securities and
	   Use of Proceeds.                  		     	       41
 Item 4. Submission of Matters to a Vote of Security Holders.          42
 Item 5. Other Information                                             43
 Item 6. Exhibits                                                      44
         Signatures                                                    45
         Exhibits                                                      46



Part I.  Financial Information - Item 1.  Financial Statements (Unaudited)


                   Louisville Gas and Electric Company
                     Statements of Income (Unaudited)
                              (Millions of $)

                                         Three Months       Nine Months
                                            Ended              Ended
                                        September 30,      September 30,
                                         2006     2005       2006    2005
OPERATING REVENUES:
Electric                                 $269     $284       $704    $741
Gas                                        34       35        288     260
     Total operating revenues             303      319        992   1,001

OPERATING EXPENSES:
Fuel for electric generation               86       80        221     208
Power purchased                            26       34         81     101
Gas supply expenses                        19       20        219     192
Other operation and maintenance expenses   70       88        212     227
Depreciation and amortization              31       31         92      93
     Total operating expenses             232      253        825     821

OPERATING INCOME                           71       66        167     180

Other (income) - net                       (2)       -         (1)      -
Interest expense (Note 3)                   8        6         22      17
Interest expense to affiliated
companies (Note 8)                          3        3          9       9

INCOME BEFORE INCOME TAXES                 62       57        137     154

Federal and state income taxes             22       15         47      50

NET INCOME                                $40      $42        $90    $104

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


                Statements of Retained Earnings (Unaudited)
                              (Millions of $)

                                          Three Months        Nine Months
                                              Ended              Ended
                                          September 30,       September 30,
                                          2006     2005       2006    2005

Balance at beginning of period           $609      $555       $621    $534
Net income                                 40        42         90     104
     Subtotal                             649       597        711     638
Cash dividends declared on stock:
Cumulative preferred                        -        -           2       2
Common                                     35        -          95      39
     Subtotal                              35        -          97      41
Balance at end of period                 $614      $597       $614    $597

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


                    Louisville Gas and Electric Company
                              Balance Sheets
                                (Unaudited)
                              (Millions of $)



ASSETS                                           September   December
                                                    30,         31,
                                                   2006        2005
Current Assets:
Cash and cash equivalents                            $5          $7
Accounts receivable - less reserves of $1
million as of September 30, 2006 and
December 31, 2005                                   111         231
Accounts receivable from affiliated
companies (Note 8)                                   26          36
Materials and supplies:
     Fuel (predominantly coal)                       43          39
     Gas stored underground                          87         125
     Other materials and supplies                    29          28
Prepayments and other current assets                  8           6
     Total current assets                           309         472

Utility plant:
At original cost                                  4,108       4,049
Less:  reserve for depreciation                   1,541       1,509
     Net utility plant                            2,567       2,540

Deferred debits and other assets:
Restricted cash                                       9          10
Unamortized debt expense                              8           8
Regulatory assets (Note 2)                           93          84
Intangible pension asset                             31          31
Other assets                                          -           1
     Total deferred debits and other assets         141         134

Total assets                                     $3,017      $3,146

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


                    Louisville Gas and Electric Company
                          Balance Sheets (cont.)
                                (Unaudited)
                              (Millions of $)

LIABILITIES AND EQUITY                           September   December
                                                    30,         31,
                                                   2006        2005
Current liabilities:
Current portion of long-term debt                  $248        $248
Notes payable to affiliated companies (Note
5 and Note 8)                                        52         141
Accounts payable                                     86         141
Accounts payable to affiliated companies
(Note 8)                                             43          52
Accrued income taxes                                  8           6
Customer deposits                                    18          17
Other current liabilities                            29          15
     Total current liabilities                      484         620

Long-term debt:
Long-term debt (Note 5)                             328         328
Long-term debt to affiliated company (Note
5 and Note 8)                                       225         225
Mandatorily redeemable preferred stock               19          20
     Total long-term debt                           572         573

Deferred credits and other liabilities:
Accumulated deferred income taxes - net             315         322
Investment tax credit, in process of
amortization                                         39          42
Accumulated provision for pensions and
related benefits                                    131         143
Customer advances for construction                   10          10
Asset retirement obligation                          28          27
Regulatory liabilities (Note 2):
     Accumulated cost of removal of utility
     plant                                          230         219
     Regulatory liability deferred income
     taxes                                           47          42
     Other regulatory liabilities                    41          20
Other liabilities                                    28          31
     Total deferred credits and other
     liabilities                                    869         856

Cumulative preferred stock
                                                     70          70
Common equity:
Common stock, without par value -
     Authorized 75,000,000 shares,
     outstanding 21,294,223 shares                  424         424
Additional paid-in capital                           40          40
Accumulated comprehensive loss                      (56)        (58)
Retained earnings                                   614         621
     Total common equity                          1,022       1,027

Total liabilities and equity                     $3,017      $3,146

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


                    Louisville Gas and Electric Company
                         Statements of Cash Flows
                                (Unaudited)
                              (Millions of $)
                                                   Nine Months Ended
                                                     September 30,
                                                   2006          2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                         $ 90          $104
Items not requiring cash currently:
     Depreciation and amortization                   92            93
     Deferred income taxes                           (3)           (8)
     VDT amortization                                 7            23
     Other                                           (3)           (4)
Changes in current assets and liabilities:
     Accounts receivable                            120            68
     Accounts receivable from affiliated
     companies                                       10           (32)
     Fuel                                            (4)           (7)
     Gas stored underground                          38           (29)
     Other changes in current assets                 (3)          (13)
     Accounts payable                               (55)            1
     Accounts payable to affiliated companies        (9)           26
     Accrued income taxes                             2            (6)
     Other changes in current liabilities            15           (16)
Pension funding (Note 4)                            (18)            -
Gas supply clause receivable, net                    32            (3)
MISO exit                                           (13)            -
Other                                               (10)           (8)
     Net cash provided by operating
     activities                                     288           189

CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures                          (104)          (95)
Change in restricted cash                             1            (1)
     Net cash used for investing activities        (103)          (96)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt                            -            39
Retirement of long-term debt                         (1)          (40)
Repayment of long-term borrowings from
affiliated company (Note 8)                           -           (50)
Repayment of short-term borrowings from
affiliated company (Note 5)                         (89)           (2)
Payment of dividends                                (97)          (41)
     Net cash used for financing activities        (187)          (94)

CHANGE IN CASH AND CASH EQUIVALENTS                  (2)           (1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD                                                7             7
CASH AND CASH EQUIVALENTS AT END OF PERIOD           $5            $6

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


                    Louisville Gas and Electric Company
                    Statements of Comprehensive Income
                                (Unaudited)
                              (Millions of $)


                                             Three               Nine
                                         Months Ended        Months Ended
                                         September 30,       September 30,
                                         2006     2005       2006    2005


Net income                                $40      $42        $90    $104
Income Taxes - Minimum Pension
Liability                                   -        -          -      (1)
Gain (loss) on derivative instruments
and hedging activities - net of tax
benefit (expense) of $4 million,
$(3) million, $(1) million and $1
million, respectively (Note 4)             (6)       5          2      (1)
Comprehensive income (loss), net of
tax                                        (6)       5          2      (2)

Comprehensive income                      $34      $47        $92    $102

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


                        Kentucky Utilities Company
                           Statements of Income
                                (Unaudited)
                              (Millions of $)

                                         Three Months        Nine Months
                                            Ended               Ended
                                         September 30,      September 30,
                                         2006     2005       2006    2005

OPERATING REVENUES                       $342     $347       $911    $899

OPERATING EXPENSES:
Fuel for electric generation              130      119        325     290
Power purchased                            49       65        140     161
Other operation and maintenance
expenses                                   63       80        195     207
Depreciation and amortization              29       28         86      86
     Total operating expenses             271      292        746     744

OPERATING INCOME                           71       55        165     155

Other (income) - net                      (13)      (2)       (26)     (5)
Interest expense (Note 3)                   4        3         11      10
Interest expense to affiliated
companies (Note 5 and Note 8)               6        4         17      12

INCOME BEFORE INCOME TAXES                 74       50        163     138

Federal and state income taxes             25       18         54      51

NET INCOME                                $49      $32       $109     $87

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


                      Statements of Retained Earnings
                                (Unaudited)
                              (Millions of $)

                                          Three Months        Nine Months
                                             Ended              Ended
                                         September 30,      September 30,
                                         2006     2005       2006    2005

Balance at beginning of period           $778     $674       $718    $660
Net income                                 49       32        109      87
     Subtotal                             827      706        827     747
Cash dividends declared on stock:
Cumulative preferred                        -        1          -       2
Common                                      -       10          -      50
     Subtotal                               -       11          -      52
Balance at end of period                 $827     $695       $827    $695

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


                        Kentucky Utilities Company
                              Balance Sheets
                                (Unaudited)
                              (Millions of $)

                                                 September   December
ASSETS                                              30,         31,
                                                   2006        2005

Current assets:
Cash and cash equivalents                            $5          $7
Restricted cash                                      15          22
Accounts receivable - less reserves of $2
million as of September 30, 2006
and December 31, 2005                               118         135
Accounts receivable from affiliated
companies (Note 8)                                   14          32
Materials and supplies:
     Fuel (predominantly coal)                       59          55
     Other materials and supplies                    35          32
Prepayments and other current assets                  8           5
     Total current assets                           254         288

Other property and investments -
less reserves of less than $1 million as
of September 30, 2006 and December 31, 2005          24          23

Utility plant:
At original cost                                  4,057       3,847
Less: reserve for depreciation                    1,552       1,508
     Net utility plant                            2,505       2,339

Deferred debits and other assets:
Unamortized debt expense                              6           5
Regulatory assets (Note 2)                          101          58
Cash surrender value of key man life
insurance                                            34          32
Intangible pension asset                              8           8
Other assets                                          -           3
     Total deferred debits and other assets         149         106
Total assets                                     $2,932      $2,756

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


			Kentucky Utilities Company
                          Balance Sheets (cont.)
                                (Unaudited)
                              (Millions of $)

                                                 September   December
LIABILITIES AND EQUITY                              30,         31,
                                                   2006        2005

Current liabilities:
Current portion of long-term debt                  $140        $123
Notes payable to affiliated companies (Note
5 and Note 8)                                        59          70
Accounts payable                                     91          89
Accounts payable to affiliated companies
(Note 8)                                             76          53
Accrued income taxes                                  -          13
Customer deposits                                    18          17
Other current liabilities                            30          18
     Total current liabilities                      414         383

Long-term debt:
Long-term debt (Note 5)                             203         240
Long-term debt to affiliated company (Note
5 and Note 8)                                       433         383
     Total long-term debt                           636         623

Deferred credits and other liabilities:
Accumulated deferred income taxes - net             279         274
Accumulated provision for pensions and
related benefits                                    101          92
Asset retirement obligation                          28          27
Regulatory liabilities (Note 2):
     Accumulated cost of removal of
     utility plant                                  294         281
     Regulatory liability deferred income
     taxes                                           19          23
     Other regulatory liabilities                    11          11
Other liabilities                                    19          20
     Total deferred credits and other
     liabilities                                    751         728

Common equity:
Common stock, without par value -
 Authorized 80,000,000 shares, outstanding
 37,817,878 shares                                  308         308
Additional paid-in capital                           15          15
Accumulated comprehensive loss                      (19)        (19)
Retained earnings                                   812         704
Undistributed subsidiary earnings                    15          14
Total retained earnings                             827         718
     Total common equity                          1,131       1,022

Total liabilities and equity                     $2,932      $2,756

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


			Kentucky Utilities Company
                         Statements of Cash Flows
                                (Unaudited)
                              (Millions of $)

                                                    Nine Months Ended
                                                      September 30,
                                                    2006         2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                          $109          $87
Items not requiring cash currently:
     Depreciation and amortization                    86           86
     Deferred income taxes                             1            6
     VDT amortization                                  3            9
     Other                                            10           (3)
Changes in current assets and liabilities:
     Accounts receivable                              17           22
     Accounts receivable from affiliated
     companies                                        18          (29)
     Fuel                                             (4)           2
     Other changes in current assets                  (6)          (4)
     Accounts payable                                  2          (10)
     Accounts payable to affiliated companies         23           25
     Accrued income taxes                            (13)          (6)
     Other changes in current liabilities             13          (13)
Fuel adjustment clause receivable, net               (24)         (18)
MISO exit                                            (20)           -
Other                                                 (7)           4
     Net cash provided by operating activities       208          158

CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures                           (236)         (77)
Change in restricted cash                              7          (13)
     Net cash used for investing activities         (229)         (90)

CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of first mortgage bonds (Note 5)          (36)         (50)
Issuance of pollution control bonds                   16           14
Long-term borrowings from affiliated company
(Note 5)                                              50           50
Repayment of short-term borrowings from
affiliated company (Note 5)                          (11)          (3)
Repayment of other borrowings                          -          (27)
Payment of dividends                                   -          (52)
     Net cash used for financing activities           19          (68)

CHANGE IN CASH AND CASH EQUIVALENTS                   (2)           -
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD                                                 7            4
CASH AND CASH EQUIVALENTS AT END OF PERIOD            $5           $4

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


                        Kentucky Utilities Company
                    Statements of Comprehensive Income
                                (Unaudited)
                              (Millions of $)


                                          Three Months        Nine Months
                                             Ended              Ended
                                         September 30,       September 30,
                                         2006     2005       2006    2005

Net income                                $49      $32       $109     $87
Comprehensive income, net of tax            -        -          -       -

Comprehensive income                      $49      $32       $109     $87

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


                   Louisville Gas and Electric Company
                       Kentucky Utilities Company
                      Notes to Financial Statements
                               (Unaudited)

1. General

   The unaudited financial statements include the accounts of the
   Companies. The common stock of each Company is wholly-owned by E.ON
   U.S. In the opinion of management, the unaudited interim financial
   statements include all adjustments, consisting only of normal recurring
   adjustments, necessary for a fair statement of financial position,
   results of operations, retained earnings, comprehensive income and cash
   flows for the periods indicated. Certain information and footnote
   disclosures normally included in financial statements prepared in
   accordance with generally accepted accounting principles have been
   condensed or omitted pursuant to SEC rules and regulations, although
   the Companies believe that the disclosures are adequate to make the
   information presented not misleading.

   See the Companies' Annual Reports on Form 10-K for the year ended
   December 31, 2005, for information relevant to the accompanying
   financial statements, including information as to the significant
   accounting policies of the Companies.

   KU INVESTMENT IN EEI

   Other property and investments on the KU balance sheet consists largely
   of KU's investment in EEI, which was $17 million at September 30, 2006
   and $16 million at December 31, 2005. KU owns 20% of the common stock
   of EEI, which owns and operates a 1,000-Mw generating station in
   southern Illinois. Prior to 2006, KU was entitled to take 20% of the
   available capacity of the station under a pricing formula comparable to
   the cost of other power generated by KU. This contract governing the
   purchases from EEI terminated on December 31, 2005. Subsequent to
   December 31, 2005, EEI has sold power under general market-based
   pricing and terms, generating increases in EEI earnings in 2006.

   KU's investment in EEI is accounted for under the equity method of
   accounting and, accordingly, as EEI earnings have increased
   significantly in 2006, KU's equity in EEI earnings has also increased
   and is recorded in other income on the income statement. For the three
   and nine months ended September 30, 2006, KU's equity in EEI earnings
   was $9 million and $22 million, respectively, as compared with less
   than $1 million and $2 million, respectively, for the comparable
   periods in 2005.

   NEW ACCOUNTING PRONOUNCEMENTS

   In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in
   Income Taxes, an interpretation of FASB Statement No. 109, Accounting
   for Income Taxes. FIN 48 is effective for fiscal years beginning after
   December 15, 2006. FIN 48 clarifies accounting for income taxes to
   provide improved consistency of criteria used to recognize, derecognize
   and measure benefits related to income taxes. The Companies are now
   analyzing the future impacts of FIN 48 on results of operations and
   financial condition.

   In September 2006, the FASB issued SFAS No. 157, Fair Value
   Measurements. SFAS No. 157 is effective for fiscal years ending after
   November 15, 2007. This statement defines fair value, establishes a
   framework for measuring fair value in generally accepted accounting
   principles, and expands disclosures about fair value measurements. The
   Companies are now analyzing the future impacts of SFAS No. 157 on
   results of operations and financial condition.

   In September 2006, the FASB issued SFAS No. 158, Employers' Accounting
   for Defined Benefit Pension and Other Postretirement Plans. SFAS No.
   158 is effective for fiscal years ending after December 15, 2006 for
   employers with publicly traded equity securities, and for employers
   controlled by entities with publicly traded equity securities, which is
   applicable for LG&E and KU. This statement requires employers to
   recognize the over-funded or under-funded status of a defined benefit
   postretirement plan as an asset or a liability in the balance sheet and
   to recognize changes in that funded status in the year in which the
   changes occur through comprehensive income. This statement also
   requires employers to measure the funded status of a plan as of the
   date of its year-end balance sheet. This statement amends SFAS No. 87,
   Employers' Accounting for Pensions, SFAS No. 88, Employers' Accounting
   for Settlements and Curtailments of Defined Benefit Pension Plans and
   for Termination Benefits, SFAS No. 106, Employers' Accounting for
   Postretirement Benefits Other than Pensions and SFAS No. 132,
   Employers' Disclosures about Pensions and Other Postretirement
   Benefits. The Companies are now analyzing the future impacts of SFAS
   No. 158 on results of operations and financial condition.

2. Rates and Regulatory Matters

   For a description of each line item of regulatory assets and
   liabilities for the Companies, reference is made to Part I, Item 8,
   Financial Statements and Supplementary Data, Note 3 of the Companies'
   Annual Reports on Form 10-K for the year ended December 31, 2005.

   The following regulatory assets and liabilities were included in LG&E's
   Balance Sheets as of September 30, 2006 and December 31, 2005:

                    Louisville Gas and Electric Company
                                (Unaudited)
                                                 September   December
    (in millions)                                   30,         31,
                                                   2006        2005

    ARO                                             $23         $20
    Unamortized loss on bonds                        20          21
    Gas supply adjustments                           18          29
    MISO exit                                        13           -
    FAC                                              10           -
    ECR                                               5           2
    VDT                                               -           7
    Other                                             4           5
    Total regulatory assets                         $93         $84

    Accumulated cost of removal of utility
    plant                                          $230        $219
    Deferred income taxes - net                      47          42
    Gas supply adjustments                           38          17
    Other                                             3           3
    Total regulatory liabilities                   $318        $281

   In addition to generally earning applicable returns on approved assets,
   LG&E currently earns a return on all regulatory assets, excluding the
   ARO regulatory assets, gas supply adjustments, MISO exit and the FAC.
   The ARO regulatory assets earn no current return and will be offset
   against the associated regulatory liability (included in other
   regulatory liabilities), ARO asset and ARO liability at the time the
   underlying asset is retired. The gas supply adjustments and the FAC
   have separate recovery mechanisms with recovery within twelve months.
   The MISO exit amount represents the fee accrued at September 30, 2006
   to record the applicable costs relating to the withdrawal from MISO
   membership. LG&E expects to seek recovery of this asset in future
   proceedings with the Kentucky Commission. See Note 9, Subsequent
   Events.

   The increase in the gas supply adjustments net liability for the nine
   months ended September 30, 2006 reflects over-recovery of gas supply
   costs, which are in the process of being refunded to customers. The
   increase in FAC for the nine months ended September 30, 2006 is due to
   the higher cost of fuel being passed on to customers. The decrease in
   VDT for the nine months ended September 30, 2006 is due to the
   completion of the amortization of the VDT in the first quarter of 2006.

   The following regulatory assets and liabilities were included in KU's
   Balance Sheets as of September 30, 2006 and December 31, 2005:

                        Kentucky Utilities Company
                                (Unaudited)

                                                 September   December
    (in millions)                                   30,         31,
                                                   2006        2005

    ARO                                             $22         $20
    Unamortized loss on bonds                        11          11
    MISO exit                                        20           -
    FAC                                              36          12
    ECR                                               6           4
    VDT                                               -           3
    Other                                             6           8
    Total regulatory assets                        $101         $58

    Accumulated cost of removal of utility
    plant                                          $294        $281
    Deferred income taxes - net                      19          23
    Other                                            11          11
    Total regulatory liabilities                   $324        $315

   In addition to generally earning applicable returns on approved assets,
   KU currently earns a return on all regulatory assets, excluding the ARO
   regulatory assets, MISO exit and the FAC. The ARO regulatory assets
   earn no current return and will be offset against the associated
   regulatory liability (included in other regulatory liabilities), ARO
   asset and ARO liability at the time the underlying asset is retired.
   The FAC has a separate recovery mechanism with recovery within twelve
   months. The MISO exit amount represents the fee accrued at September
   30, 2006 to record the applicable costs relating to the withdrawal from
   MISO membership. KU expects to seek recovery of this asset in future
   proceedings with the Kentucky Commission. See Note 9, Subsequent
   Events.

   The increase in FAC for the nine months ended September 30, 2006 is due
   to the higher cost of fuel being passed on to customers. The decrease
   in VDT for the nine months ended September 30, 2006 is due to the
   completion of the amortization of the VDT in the first quarter of 2006.

   ELECTRIC AND GAS RATE CASES

   On June 30, 2004, the Kentucky Commission issued an order approving an
   increase in the base electric rates of the Companies and the natural
   gas rates of LG&E. The rate increases took effect on July 1, 2004.

   During 2004 and 2005, the AG conducted an investigation of the
   Companies, as well as of the Kentucky Commission and its staff,
   requesting information regarding allegedly improper communications
   between the Companies and the Kentucky Commission, particularly during
   the period covered by the rate cases. Concurrently, the AG had filed
   pleadings with the Kentucky Commission requesting rehearing of the rate
   cases on computational components of the increased rates, including
   income taxes, cost of removal and depreciation amounts. In August 2004,
   the Kentucky Commission denied the AG's rehearing request on the cost
   of removal and depreciation issues and granted rehearing on the income
   tax component. The Kentucky Commission agreed to hold in abeyance
   further proceedings in the rate case, until the AG filed its
   investigative report regarding the allegations of improper
   communication.

   In January 2005 and February 2005, the AG filed a motion summarizing
   its investigative report as containing evidence of improper
   communications and record-keeping errors by the Companies in their
   conduct of activities before the Kentucky Commission or other state
   governmental entities and forwarded such report to the Kentucky
   Commission under continued confidential treatment to allow it to
   consider the report, including its impact, if any, on completing its
   investigation and any remaining steps in the rate case. To date, the
   Companies have neither seen nor requested copies of the report or its
   contents.

   In December 2005, the Kentucky Commission issued an order noting
   completion of its inquiry, including review of the AG's investigative
   report. The order concluded that no improper communications occurred
   during the rate proceeding. The order further established a procedural
   schedule through the first quarter of 2006 for considering the sole
   issue for which rehearing was granted: state income tax rates used in
   calculating the granted rate increase. On March 31, 2006, the Kentucky
   Commission issued an order resolving this issue in the Companies' favor
   consistent with the original rate increase order.

   The Companies believe no improprieties have occurred in their
   communications with the Kentucky Commission and have cooperated in the
   proceedings before the AG and the Kentucky Commission. The Companies
   are currently unable to predict whether there will be any additional
   actions or consequences as a result of the AG's report and
   investigation.

   MISO EXIT

   Following receipt of applicable FERC, Kentucky Commission and other
   regulatory orders, LG&E and KU withdrew from the MISO effective
   September 1, 2006.  Specific proceedings regarding the costs and
   benefits of the MISO and exit matters had been underway since July
   2003.  Since their exit from the MISO, the Companies have been
   operating under a FERC-approved open access-transmission tariff
   providing for a return on equity of 10.88%.  The Companies have further
   contracted with the Tennessee Valley Authority to act as their
   Reliability Coordinator and Southwest Power Pool, Inc. to function as
   the Companies' Independent Transmission Operator, pursuant to FERC
   requirements, with respect to transmission matters.

   The Companies and the MISO have agreed upon overall calculation methods
   for the contractual exit fee to be paid by the Companies following
   their withdrawal. In September 2006, the MISO submitted an initial
   invoice for approximately $33 million for the exit fee, which the
   Companies have allocated approximately $13 million to LG&E and $20
   million to KU. The Companies and the MISO continue to discuss the
   specifics of the exit fee calculation. The outcome of these discussions
   and the eventual settlement of any disputed amount cannot be estimated
   at this time. Orders of the Kentucky Commission approving the
   Companies' exit from the MISO have authorized the establishment of a
   regulatory asset for the exit fee, subject to adjustment for possible
   future MISO credits, and a regulatory liability for certain revenues
   associated with former MISO Schedule 10 charges, which may continue to
   be collected via base rates. The treatment of the regulatory asset and
   liability will be determined in the Companies' next rate cases,
   however, the Companies historically have received approval to recover
   regulatory assets and liabilities.

   See also Note 9, Subsequent Events.

   FAC

   On February 15, 2006, KU filed an application with the Virginia
   Commission seeking approval of an increase of approximately $6 million
   in its fuel cost factor to reflect higher fuel costs incurred during
   2005, and anticipated to be incurred in 2006. The Virginia Commission
   approved KU's request on April 5, 2006.

   In July 2006, the Kentucky Commission initiated routine periodic
   reviews of the FAC for the Companies. The Kentucky Commission issued
   Orders for both Companies on November 8, 2006, approving the charges
   and credits billed through the FAC during the review period.

   ECR

   In June 2006, the Companies filed applications to amend their ECR plans
   with the Kentucky Commission seeking approval to recover investments in
   environmental upgrades at the Companies' generating facilities. The
   estimated capital cost of the upgrades for the years 2006 through 2008
   is approximately $324 million ($48 million for LG&E and $276 million
   for KU), of which $226 million is for the Air Quality Control System at
   Trimble County Unit 2 ($43 million for LG&E and $183 million for KU)
   and $95 million is for KU's Ghent Unit 2 Selective Catalytic Reduction.
   The estimated total capital cost of the upgrades is $364 million. A
   final order is expected to be issued by the end of 2006.

   In April 2006, the Kentucky Commission initiated routine periodic
   reviews of the ECR mechanisms for the Companies. Hearings have been
   completed and the Kentucky Commission's Order is expected before year-
   end.

   In December 2004, the Companies filed applications with the Kentucky
   Commission for approval of a CCN to construct new SO2 control
   technology (FGDs) at KU's Ghent and Brown stations, and to amend LG&E's
   compliance plan to allow recovery of new and additional environmental
   compliance facilities.  The estimated capital cost of the additional
   facilities for 2006 through 2008 is approximately $840 million ($40
   million for LG&E and $800 million for KU), of which $680 million is for
   the KU FGDs at Brown and Ghent. Hearings in these cases occurred during
   May 2005 and final orders were issued in June 2005, granting approval
   of the CCN and amendments to the Companies' compliance plans. In
   October 2006, the Kentucky Commission commenced an inquiry into
   elements of KU's planned construction of one of its three new FGDs at
   the Ghent generating station. See also Note 9, Subsequent Events.

   VDT

   In December 2001, the Companies received an order from the Kentucky
   Commission permitting them to set up regulatory assets for workforce
   reduction costs (VDT costs) and begin amortizing them over a five-year
   period beginning in April 2001. The order also reduced revenues through
   a surcredit on bills to ratepayers over the same five-year period,
   reflecting a sharing (40% to the ratepayers and 60% to the Companies)
   of the stipulated savings, net of amortization costs, of the workforce
   reduction. The five-year VDT amortization period ended March 31, 2006.

   On February 27, 2006, the AG, Kentucky Industrial Utility Consumers,
   Inc. and the Companies reached a settlement agreement on the future
   ratemaking treatment of the VDT surcredits and costs and subsequently
   submitted a joint motion to the Kentucky Commission to approve the
   unanimous settlement agreement. Under the terms of the settlement
   agreement, the VDT surcredit will continue at the current level until
   such time as LG&E or KU file for a change in electric or natural gas
   base rates. The Kentucky Commission issued an order on March 24, 2006,
   approving the settlement agreement.

   MARKET-BASED RATE AUTHORITY

   Beginning in April 2004, the FERC initiated proceedings to modify its
   methods used to assess generation market power and has established more
   stringent interim market screen tests. During 2005, in connection with
   the Companies' tri-annual market-based rate tariff renewals, the FERC
   continued to contend that the Companies failed such market screens in
   certain regions. The Companies disputed this contention and, in January
   2006, in an attempt to resolve the matter, the Companies submitted
   proposed tariff schedules to the FERC containing a mitigation mechanism
   with respect to applicable power sales into the control area of Big
   Rivers Electric Corporation ("BREC") in western Kentucky, where Western
   Kentucky Energy Corp., an affiliate of the Companies, maintains a long-
   term contractual relationship with BREC. Under the proposed tariff
   schedule, prices for such sales would be capped at a relevant MISO
   power pool index price. Upon the Companies' exit from the MISO, the
   FERC contended that they would have market power in their own joint
   control area, potentially requiring a similar mitigation mechanism for
   power sales into such region. In July 2006, the FERC issued an order in
   the Companies' market-based rate proceeding accepting the Companies'
   further proposal to address certain market power issues the FERC had
   claimed would arise upon an exit from the MISO. In particular, the
   Companies received permission to sell power at market-based rates at
   the interface of control areas in which they may be deemed to have
   market power, subject to a restriction that such power not be
   collusively re-sold back into such control areas. Certain general FERC
   proceedings continue with respect to market-based rate matters, and the
   Companies' market-based rate authority is subject to such future
   developments.

   Additionally, recent FERC decisions in certain other market-based rate
   proceedings have proposed or required cost-based, rather than market
   index, price caps. The Companies cannot predict the ultimate impact of
   the current or potential mitigation mechanisms on their future
   wholesale power sales.

   EPAct 2005

   The EPAct 2005 was enacted on August 8, 2005. Among other matters, this
   comprehensive legislation contains provisions mandating improved
   electric reliability standards and performance; providing economic and
   other incentives relating to transmission, pollution control and
   renewable generation assets; increasing funding for clean coal
   generation incentives (see Note 6); repealing PUHCA 1935; enacting
   PUHCA 2005 and expanding FERC jurisdiction over public utility holding
   companies and related matters via the Federal Power Act and PUHCA 2005.

   The FERC was directed by the EPAct 2005 to adopt rules to address many
   areas previously regulated by the other agencies under other statutes,
   including PUHCA 1935. The FERC remains in various stages of rulemaking
   on these issues and the Companies are monitoring these rulemaking
   activities and actively participating in these and other rulemaking
   proceedings. The Companies continue to evaluate the potential impacts
   of the EPAct 2005 and the associated rulemakings and cannot predict
   what impact the EPAct 2005, and any uncompleted rulemakings, will have
   on their operations or financial position.


3. Financial Instruments

   INTEREST RATE SWAPS (hedging derivatives)

   The Companies use over-the-counter interest rate swaps to hedge
   exposure to market fluctuations in certain of their debt instruments.
   Pursuant to the Companies' policies, use of these financial instruments
   is intended to mitigate risk, earnings and cash flow volatility and is
   not speculative in nature. Management has designated all of the
   interest rate swaps as hedge instruments. Financial instruments
   designated as cash flow hedges have resulting gains and losses recorded
   within comprehensive income and stockholders' equity. Financial
   instruments designated as fair value hedges and the underlying hedged
   items are periodically marked to market with the resulting net gains
   and losses recorded directly into net income. Upon termination of any
   fair value hedge, the resulting gain or loss is recorded into net
   income.

   As of September 30, 2006, LG&E was party to various interest rate swap
   agreements with aggregate notional amounts of $211 million. Under these
   swap agreements, LG&E paid fixed rates averaging 4.38% and received
   variable rates based on LIBOR or the Bond Market Association's
   municipal swap index averaging 3.67% at September 30, 2006. The swap
   agreements in effect at September 30, 2006, have been designated as
   cash flow hedges and mature on dates ranging from 2020 to 2033. The
   hedges have been deemed to be fully effective resulting in a pretax
   gain of $3 million for the nine months ended September 30, 2006,
   recorded in comprehensive income. Upon expiration of these hedges, the
   amount recorded in comprehensive income will be reclassified into
   earnings. The amounts expected to be reclassified from comprehensive
   income to earnings in the next twelve months are immaterial. A deposit
   in the amount of $9 million, used as collateral for the $83 million
   interest rate swap, is classified as restricted cash on LG&E's Balance
   Sheet. The amount of the deposit required is tied to the market value
   of the swap.

   As of September 30, 2006, KU was party to an interest rate swap
   agreement with a notional amount of $53 million. Under this swap
   agreement, KU paid variable rates based on LIBOR averaging 7.48%, and
   received fixed rates averaging 7.92% at September 30, 2006. The swap
   agreement in effect at September 30, 2006 has been designated as a fair
   value hedge and matures in 2007. At September 30, 2006, the effect of
   marking this financial instrument and the underlying debt to market
   resulted in pretax gains recorded in interest expense of less than $1
   million.

   Interest rate swaps hedge interest rate risk on the underlying debt.
   Under SFAS No. 133, Accounting for Derivative Instruments and Hedging
   Activities, as amended, in addition to swaps being marked to market,
   the item being hedged using a fair value hedge must also be marked to
   market. Consequently at September 30, 2006, KU's debt reflects a mark-
   to-market adjustment of less than $1 million.

   At September 30, 2006, the Companies' percentage of debt having a
   variable rate, including the impact of interest rate swaps, was 48%
   ($415 million) for LG&E and 48% ($401 million) for KU.

   ENERGY TRADING AND RISK MANAGEMENT CONTRACTS (non-hedging derivatives)

   The Companies conduct energy trading and risk management activities to
   maximize the value of power sales from physical assets they own.
   Certain energy trading activities are accounted for on a mark-to-market
   basis in accordance with SFAS No. 133, as amended. The mark-to-market
   adjustment as of September 30, 2006 generated an increase in other
   income for each Company of approximately $2 million during the third
   quarter of 2006.

   The fair values of the Companies' energy trading and risk management
   contracts as of September 30, 2006 were each approximately $4 million,
   recorded in other assets on the balance sheets of each Company. The
   fair values at September 30, 2005, were less than $1 million each. No
   changes to valuation techniques for energy trading and risk management
   activities occurred during 2006 or 2005. All contracts outstanding at
   September 30, 2006, have a maturity of less than one year and are
   valued using prices actively quoted for proposed or executed
   transactions or quoted by brokers.

4. Pension and Other Post-retirement Benefit Plans

   The following table provides the components of net periodic benefit
   cost for pension and other benefit plans for the three and nine months
   ended September 30, 2006 and 2005:

                              Three Months Ended     Nine Months Ended
                                September 30,          September 30,
                               2006       2005        2006       2005
   (in millions)            LG&E   KU  LG&E   KU   LG&E  KU   LG&E  KU
   Pension and Other
   Benefit Plans
   Components of net
   period benefit cost
     Service cost            $2    $2   $1    $2    $5   $6    $4   $6
     Interest cost            6     5    5     6    17   13    17   14
     Expected return on
     plan assets             (6)   (4)  (5)   (5)  (16) (12)  (16) (13)
     Amortization of prior
     service cost             1     1    1     -     3    2     4    1
     Recognized actuarial
     loss                     1     1    1     1     3    3     2    2
   Total net period benefit
   cost                      $4    $5   $3    $4   $12  $12   $11  $10

   LG&E made a discretionary contribution to the pension plan of $18
   million in January 2006. LG&E made no contributions during 2005. KU
   made no contributions to the pension plan in 2006 or 2005.

5. Short-Term and Long-Term Debt

   Under the provisions for LG&E's variable-rate pollution control bonds,
   Series S, T, U, BB, CC, DD and EE, and KU's variable-rate pollution
   control bonds Series 10, 12, 13, 14 and 15, the bonds are subject to
   tender for purchase at the option of the holder and to mandatory tender
   for purchase upon the occurrence of certain events, causing the bonds
   to be classified as current portion of long-term debt in the balance
   sheets. The average annualized interest rate for these bonds during the
   nine months ending September 30, 2006 was 3.47% for LG&E and 3.50% for
   KU.

   During June 2006, LG&E renewed five revolving lines of credit with
   banks totaling $185 million. There was no outstanding balance under any
   of these facilities at September 30, 2006. LG&E expects to renew these
   facilities prior to their expiration in June 2007.

   LG&E, KU and E.ON U.S. participate in an intercompany money pool
   agreement. Details of the balances at September 30, 2006 and December
   31, 2005 were as follows:


                        Total Money                           Average
                           Pool        Amount     Balance     Interest
                         Available  Outstanding  Available     Rate
    ($ in millions)
    September 30, 2006:
    LG&E                   $400         $  52       $348       5.27%
    KU                     $400         $  59       $341       5.27%

    December 31, 2005:
    LG&E                   $400         $ 141       $259       4.21%
    KU                     $400         $  70       $330       4.21%

   E.ON U.S. maintains a revolving credit facility totaling $200 million
   with an affiliated company, E.ON North America, Inc., to ensure funding
   availability for the money pool. The balance outstanding on this
   facility at September 30, 2006, was $52 million.

   Redemptions and maturities of long-term debt year-to-date through
   September 30, 2006, are summarized below:

    				   Principal
                                    Amount              Secured/
   Year    Company Description   (in millions) Rate     Unsecured  Maturity

   2006    LG&E     Mand. Red. Pref.
                    Stock             $1      5.875%    Unsecured  Jul 2006
   2006    KU       First mortgage
                    bonds            $36      5.99%     Secured    Jan 2006

   Issuances of long-term debt year-to-date through September 30, 2006,
   are summarized below:

                                   Principal
                                    Amount              Secured/
   Year    Company Description   (in millions) Rate     Unsecured  Maturity

   2006    KU      Fidelia note      $50       6.33%    Unsecured  Jun 2036
   2006    KU      Pollution
                   control bonds     $17       Variable Secured    Jun 2036

6. Commitments and Contingencies

   Except as may be discussed in this Quarterly Report on Form 10-Q
   (including Note 2), material changes have not occurred in the current
   status of various commitments or contingent liabilities from that
   discussed in the Companies' Annual Report on Form 10-K for the year
   ended December 31, 2005 (including in Notes 3 and 10 to the financial
   statements of the Companies contained therein) and Quarterly Reports on
   Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006
   (including in Notes 2 and 6 to the financial statements contained
   therein). See the above-referenced notes in the Companies' Annual
   Report on Form 10-K and Quarterly Reports on Form 10-Q for information
   regarding such commitments or contingencies.

   TRIMBLE COUNTY UNIT 2

   In June 2006, the Companies, as 75% owners, entered into and delivered
   notice to proceed under an engineering, procurement and construction
   agreement with Bechtel Power Corporation ("Bechtel"), regarding
   construction of Trimble County Unit 2, valued at approximately $1.1
   billion. IMEA and IMPA, as 25% owners, are also parties to the
   contract. The contract is generally in the form of a lump-sum, turnkey
   agreement for the design, engineering, procurement, construction,
   commissioning, testing and delivery of the project, according to
   designated specifications, terms and conditions. The contract price and
   its components are subject to a number of potential adjustments which
   may serve to increase or decrease the ultimate construction price paid
   or payable to the contractor. The contract also contains standard
   representations, covenants, indemnities, termination and other
   provisions for arrangements of this type, including termination for
   convenience or for cause rights. In general, termination by the owners
   for convenience or by the contractor due to owners' default will limit
   payment obligations to payment for work or incentives performed or
   earned to date and termination by owners due to contractor's default
   will similarly limit payment obligations, subject however to owners'
   rights with respect to cover damages and to certain collateral
   provided. In connection with this matter, the Companies dismissed their
   litigation against Bechtel regarding the contract previously commenced
   in April 2006 in United States District Court for the Western District
   of Kentucky.

   In June 2006, the Companies filed an application with the DOE
   requesting certification to be eligible for investment tax credits
   applicable to the construction of Trimble County Unit 2. The EPAct 2005
   added a new 48A to the Internal Revenue Code, which provides for an
   investment tax credit to promote the commercialization of advanced coal
   technologies that will generate electricity in an environmentally
   responsible manner. The application requested up to the maximum amount
   of "advanced coal project" credit allowed per taxpayer, or $125
   million, based on an estimate of 15% of projected qualifying Trimble
   County Unit 2 expenditures. In September and October 2006, the
   Companies submitted a follow-on application and additionally
   requested information to the IRS.  IRS action on such applications
   would also be expected to occur during the fourth quarter of 2006. To
   the extent the Companies' application is ultimately accepted by the
   IRS, federal income tax credits may be claimed on eligible
   expenditures, as incurred.

   LOUISVILLE DOWNTOWN ARENA

   In August 2006, LG&E and the Louisville Arena Authority, Inc., a non-
   profit corporation (the "Authority") entered into a non-binding
   Memorandum of Understanding ("MOU") to transfer certain property and
   relocate certain LG&E facilities so that an LG&E-owned site, in part,
   could be used for the development and construction of a new multi-
   purpose arena in Louisville, Kentucky. The MOU contemplates the parties
   working in good faith toward completing definitive documents regarding
   the arena transaction. The MOU notes that the cost of relocating the
   LG&E facilities will be approximately $63 million and commits that the
   Authority arrange for the provision of state funds necessary for the
   relocation, as well as up to $10 million in state funds for the
   purchase of the property at fair market value. Assuming completion of
   definitive documents, the transfer of the property to the Authority is
   anticipated to occur before the end of 2008. In September 2006, the
   Kentucky Commission approved LG&E's application for authority to
   transfer applicable property as part of the arena transaction. In
   November 2006, the parties completed definitive documents relating to
   the arena transactions. See also Note 9, Subsequent Events.

   OMU LITIGATION

   In May 2004, the City of Owensboro, Kentucky and Owensboro Municipal
   Utilities (collectively "OMU") commenced a suit now removed to the U.S.
   District Court for the Western District of Kentucky, against KU
   concerning a long-term power supply contract (the "OMU Agreement") with
   KU. The dispute involves interpretational differences regarding issues
   under the OMU Agreement, including various payments or charges between
   KU and OMU and rights concerning excess power, termination and
   emissions allowances. The complaint seeks approximately $6 million in
   damages for periods prior to 2004 and OMU is expected to claim further
   amounts for later-occurring periods. OMU has additionally requested
   injunctive and other relief, including a declaration that KU is in
   material breach of the contract. KU has filed an answer in that court
   denying the OMU claims and presenting counterclaims. During 2005, the
   FERC declined KU's application to exercise exclusive jurisdiction over
   the matter. In July 2005, the district court resolved a summary
   judgment motion made by KU in OMU's favor, ruling that a contractual
   provision grants OMU the ability to terminate the contract without
   cause upon four years' prior notice, for which ruling KU retains
   certain rights to appeal. At this time the district court case is in
   the discovery stage and currently a trial date of January 2008 has been
   scheduled. In May 2006, OMU issued a notification of its intent to
   terminate the contract in May 2010, without cause, absent any earlier
   relief which may be permitted by the proceeding.

   ENVIRONMENTAL MATTERS

   In April 2006, the EPA issued a notice of violation for alleged
   violations of the Clean Air Act involving work performed on Unit 3 of
   KU's E.W. Brown Station in 1997. The EPA alleges modification of a
   source without a permit, failure to comply with requirements under the
   Prevention of Significant Deterioration ("PSD") program, operation of a
   source in violation of the New Source Performance Standards ("NSPS"),
   and failure to identify the applicability of PSD and NSPS requirements
   in compliance certifications. Violations, if ultimately found, could
   result in additional expenditures on pollution controls or civil
   penalties. KU has responded to certain data requests of the EPA and
   held initial discussions with the EPA regarding this matter. Due to the
   early stage of this matter, KU is unable to determine its ultimate
   potential impact.

   The Companies are subject to SO2 and NOx emission limits on their
   electric generating units pursuant to the Clean Air Act. The Companies
   placed into operation significant NOx controls for their generating
   units prior to the 2004 summer ozone season. As of September 30, 2006,
   LG&E and KU have incurred total capital costs of approximately $187
   million and $215 million, respectively, to reduce their NOx emissions
   to required levels. In addition, the Companies incur additional
   operating and maintenance costs in operating the new NOx controls. On
   March 10, 2005, the EPA issued the final CAIR which requires
   substantial additional reductions in SO2 and NOx emissions from
   electric generating units. The CAIR provides for a two-phased reduction
   program with Phase I reductions in NOx and SO2 emissions in 2009 and
   2010, respectively, and Phase II reductions in 2015. On March 15, 2005,
   the EPA issued a related regulation, the final CAMR, which requires
   substantial mercury reductions from electric generating units. The CAMR
   also provides for a two-phased reduction, with the Phase I target in
   2010 achieved as a "co-benefit" of the controls installed to meet the
   CAIR. Additional control measures will be required to meet the Phase II
   target in 2018. Both the CAIR and the CAMR establish a cap and trade
   framework, in which a limit is set on total emissions and allowances
   can be bought or sold on the open market to be used for compliance,
   unless the state chooses another approach. LG&E currently has FGDs on
   all its coal-fired units, but will continue to evaluate improvements to
   further reduce SO2 emissions.

   In order to meet these new regulatory requirements, KU has implemented
   a plan for adding significant additional SO2 controls to its generating
   units. Installation of additional SO2 controls will proceed on a phased
   basis, with construction of controls (i.e., FGDs) having commenced in
   September 2005 and continuing through the final installation and
   operation in 2009. KU estimates that it will incur $809 million in
   capital costs related to the construction of the FGDs to achieve
   compliance with current emission limits on a company-wide basis. Of
   this amount, $126 million has been incurred through September 30, 2006.
   In addition, KU will incur additional operating and maintenance costs
   in operating the new SO2 controls.

   The Companies are also monitoring several other air quality issues
   which may potentially impact coal-fired power plants, including the
   EPA's revised air quality standards for ozone and particulate matter
   and measures to implement the EPA's Clean Air Visibility Rule.

   During 2006, the EPA and state environmental authorities agreed to a
   tentative general settlement with KU and other parties regarding
   recovery of remediation and other costs relating to the former Tindall
   transformer scrap yard. KU's share of such overall settlement is less
   than $1 million. The tentative settlement remains subject to certain
   actions at the EPA and state levels, including completion of certain
   public notice and comment procedures, following which actions final
   regulatory approvals can commence.

   In the normal course of business, lawsuits, claims, environmental
   actions and various non-ratemaking governmental proceedings arise
   against the Companies. To the extent that damages are assessed in any
   lawsuits relating to the above, the Companies believe that their
   insurance coverage or other appropriate reserves are adequate.
   Management, after consultation with legal counsel, and based upon the
   present status of these items, does not anticipate that liabilities
   arising out of other currently pending or threatened lawsuits and
   claims of the type referenced above will have a material adverse effect
   on the Companies' financial position or results of operations.

   EMPLOYEES AND LABOR RELATIONS

   Effective August 1, 2006, KU and its employees represented by IBEW
   Local 2100 entered into a new three-year collective bargaining
   agreement. The new agreement provides for negotiated increases or
   changes to wages, benefits or other provisions and for annual wage re-
   openers.

   PENSION LEGISLATION

   The Pension Protection Act of 2006 was enacted in August 2006. Among
   other matters, this comprehensive legislation contains provisions
   applicable to defined benefit plans which generally (i) mandate 100%
   funding of current liabilities within seven years; (ii) increase tax-
   deduction levels regarding contributions; (iii) revise certain
   actuarial assumptions, such as mortality tables and discount rates; and
   (iv) raise federal insurance premiums and other fees for funded and
   distressed plans. The legislation also contains similar provisions
   relating to defined-contribution plans and qualified and non-qualified
   executive pension plans and other matters. The Companies are currently
   examining the potential impacts of the Pension Protection Act of 2006.

7. Segments of Business

   LG&E's revenues, net income and total assets by business segment for
   the three and nine months ended September 30, 2006 and 2005, follow:

                                          Three Months        Nine Months
                                             Ended              Ended
                                         September 30,      September 30,
   (in millions)                         2006     2005       2006    2005
   LG&E Electric
        Revenues                         $269     $284       $704    $741
        Net income                         43       45         86      99
        Total assets                    2,454    2,416      2,454   2,416

   LG&E Gas
        Revenues                           34       35        288     260
        Net income                         (3)      (3)         4       5
        Total assets                      563      551        563     551

   Total
        Revenues                          303      319        992   1,001
        Net income                         40       42         90     104
        Total assets                    3,017    2,967      3,017   2,967

   KU is an electric utility company. It does not provide natural gas
   service and, therefore, is presented as a single business segment.

8. Related Party Transactions

   LG&E, KU, subsidiaries of E.ON U.S., and other subsidiaries of E.ON
   engage in related-party transactions. These transactions are generally
   performed at cost and in accordance with applicable FERC, Kentucky
   Commission and Virginia Commission regulations. The significant related-
   party transactions are disclosed below.

   ELECTRIC PURCHASES

   The Companies' intercompany electric revenues and purchased power
   expense from affiliated companies for the three and nine months ended
   September 30, 2006 and 2005 were as follows:

                                  Three Months           Nine Months
                                    Ended                  Ended
                                 September 30,         September 30,
   (in millions)                 2006      2005        2006       2005
                             LG&E   KU  LG&E   KU   LG&E   KU  LG&E   KU
   Electric operating
   revenues from KU          $23     -   $15	-   $67     -   $62    -
   Electric operating
   revenues from LG&E          -    17     -   16     -    52     -   65
   Purchased power from KU    17     -    16    -    52     -    65    -
   Purchased power from LG&E   -    23     -   15     -    67     -   62

  INTEREST CHARGES

  The Companies' intercompany interest income and expense for the three
  and nine months ended September 30, 2006 and 2005 were as follows:

                                  Three Months           Nine Months
                                     Ended                  Ended
                                 September 30,          September 30,
                                 2006       2005        2006       2005
   (in millions)              LG&E  KU   LG&E  KU    LG&E   KU   LG&E  KU
   Interest on money pool
   loans                       $-   $1    $-   $-     $1    $2    $1   $1
   Interest on Fidelia
   loans                        3    5     3    4      8    15     8   11

   OTHER INTERCOMPANY BILLINGS

   Other intercompany billings related to the Companies for the three and
   nine months ended September 30, 2006 and 2005 were as follows:

                                          Three Months        Nine Months
                                             Ended              Ended
                                         September 30,       September 30,
   (in millions)                         2006     2005       2006    2005
   E.ON U.S. Services billings to LG&E    $57      $53       $162    $161
   E.ON U.S. Services billings to KU       99       44        221     146
   LG&E billings to E.ON U.S. Services      1        1          4       6
   KU billings to E.ON U.S. Services        1        -          3       4
   LG&E billings to KU                     21       55         31      83
   KU billings to LG&E                     14        8         29      21

9. Subsequent Events

   In October 2006, the Companies paid approximately $33 million to the
   MISO pursuant to a revised MISO invoice regarding the exit fee and made
   related FERC compliance filings. The Companies' payment of this exit
   fee amount was with reservation of their rights to contest the amount,
   or components thereof, following a continuing review of its calculation
   and supporting documentation.

   In October 2006, E.ON U.S., LG&E and KU announced plans to provide up
   to $25 million over a period of up to twelve years to the FutureGen
   Industrial Alliance, Inc. ("FutureGen"), a non-profit consortium.
   FutureGen will conduct research, development and demonstration
   activities relating to advanced coal technologies, including proposed
   construction of the world's first coal-fired, "near zero emissions"
   power plant. Among the members of FutureGen are companies with
   interests in coal-fired electric power generation or coal production.
   FutureGen has signed an initial cooperative agreement with the DOE and
   expects to sign a full-scope cooperative agreement in 2007. Beyond
   their initial aggregate membership amount of $0.3 million, E.ON U.S.
   and the Companies have rights at sequential future times to terminate
   participation prior to incurring the obligation to contribute the
   relevant remaining contribution amounts. The next estimated
   contribution will be in the amount of $0.8 million during the remainder
   of 2006.

   In October 2006, KU entered into a $50 million long-term unsecured loan
   from Fidelia. The loan matures in October 2016, and has an interest
   rate of 5.675%.

   In October 2006, the Kentucky Commission commenced an inquiry into
   elements of KU's planned construction of one of its three new FGD's at
   the Ghent generating station.  The proceeding requests additional
   information from KU regarding configuration details, expenditures and
   the proposed construction sequence applicable to future construction
   phases of the Ghent FGD project.  The inquiry focuses on KU's proposal
   to complete the project in a manner which would result in connecting
   the final new FGD to the generating unit currently served by an
   existing FGD and reconnecting such existing FGD to the final remaining
   generating unit.  Pursuant to various Kentucky Commission approvals, KU
   has built and operated an FGD on one generating unit since the mid-
   1990's and is in varying stages of construction or pre-construction on
   FGD's for the remaining three generating units at its Ghent plant.  KU
   is currently unable to predict the outcome and ultimate impact, if any,
   of the Kentucky Commission's proceeding.

   In November 2006, the Kentucky Commission issued orders for both
   Companies regarding the routine periodic reviews approving the changes
   and credits billed through the FAC during the review period.

   In November 2006, LG&E completed certain agreements pursuant to its
   August 2006 MOU with the Authority regarding the proposed construction
   of an arena in downtown Louisville.  LG&E entered into a relocation
   agreement providing for the reimbursement by the Authority to LG&E of
   the costs to be incurred in moving certain LG&E facilities related to
   the arena transaction, which costs are currently estimated to be
   approximately $63 million.   The parties further entered into a
   property sale contract providing for LG&E's sale of a downtown site to
   the Authority for approximately $10 million, which represents the
   appraised value of the parcel, less certain agreed demolition costs.
   The amounts specified in the contracts are subject to certain
   adjustments.  Depending upon continuing progress in the proposed arena
   transaction generally, the transactions contemplated by the contracts
   are anticipated to occur between 2006 and 2010.



    Item 2.  Management's Discussion and Analysis of Financial Condition
                           and Results of Operations.


                                  General

The following discussion and analysis by management focuses on those
factors that had a material effect on the Companies' financial results of
operations and financial condition during the three and nine month periods
ended September 30, 2006, and should be read in connection with the
financial statements and notes thereto.

Some of the following discussion may contain forward-looking statements
that are subject to certain risks, uncertainties and assumptions. Such
forward-looking statements are intended to be identified in this document
by the words "anticipate," "expect," "estimate," "objective," "possible,"
"potential" and similar expressions. Actual results may vary materially.
Factors that could cause actual results to differ materially include:
general economic conditions; business and competitive conditions in the
energy industry; changes in federal or state legislation; unusual weather;
actions by state or federal regulatory agencies; and other factors
described from time to time in the Companies' reports to the SEC, including
the Annual Reports on Form 10-K for the year ended December 31, 2005.

                             Executive Summary

LG&E and KU, subsidiaries of E.ON U.S. (indirect subsidiaries of E.ON),
are regulated public  utilities. At  September  30,  2006, LG&E
supplied electricity to approximately 397,000 customers and natural
gas to approximately 322,000  customers in  Louisville  and  adjacent
areas in Kentucky. At September 30, 2006, KU provided electricity to
approximately 499,000 customers in  77 counties in central,
southeastern and western Kentucky, to approximately 30,000 customers
in southwestern Virginia and 5 customers in Tennessee. KU also sells
wholesale electricity to 12 municipalities.

The mission of the Companies is to build on our tradition and achieve
world-class status providing reliable, low-cost energy services and
superior customer satisfaction; and to promote safety, financial success
and quality of life for our employees, communities and other stakeholders.

The Companies' strategy focuses on the following:

  - Achieve scale as an integrated U.S. electric and gas business through
    organic growth;
  - Maintain excellent customer satisfaction;
  - Maintain best-in-class cost position versus U.S. utility companies;
  - Develop and transfer best practices throughout the company;
  - Invest in infrastructure to meet expanding load and comply with
    increasing environmental requirements;
  - Achieve appropriate regulated returns on all investment;
  - Attract, retain and develop the best people; and
  - Act with a commitment to corporate social responsibility that enhances
    the well being of our employees, demonstrates environmental
    stewardship, promotes quality of life in our communities and reflects
    the diversity of the society we serve.

In a June 2004 order, the Kentucky Commission accepted the settlement
agreements reached by the majority of the parties in the rate cases filed
by the Companies in December 2003. Under the ruling, the LG&E utility base
electric rates have increased $43 million (7.7%) and base natural gas rates
have increased $12 million (3.4%) annually. Base electric rates at KU have
increased $46 million (6.8%) annually. The rate increases took effect on
July 1, 2004. The 2004 increases were the first increases in electric base
rates for the Companies in 13 and 20 years, respectively; the previous
natural gas rate increase for the LG&E gas utility took effect in September
2000.
The Companies have begun construction of another base-load coal-fired unit
at the Trimble County site. The Companies believe this is the least cost
alternative to meet the future needs of customers. Trimble County Unit 2,
with a 750 Mw capacity rating, is expected to be jointly owned by the
Companies (75% owners of the unit) and the IMEA and IMPA (25% owners).
Trimble County Unit 2 is expected to cost $1.1 billion and be completed by
2010. The Companies' aggregate 75% share of the total Trimble County Unit 2
capital cost is approximately $879 million and is estimated to be
approximately $151 million for LG&E and $601 million for KU through 2008.
Through September 2006, expenditures for Trimble County Unit 2 have been
$18 million for LG&E and $66 million for KU. In June 2006, the Companies
entered into a construction contract regarding the Trimble County Unit 2
project. See Note 6 of the Notes to Financial Statements, in Part 1, Item
1, herein.

In November 2005, the Kentucky Commission approved the CCN construction
application of the Companies to expand the Trimble County generating plant.
Kentucky Commission approvals for the related transmission line CCNs were
granted in September 2005 and May 2006. In July 2006, certain property
owners filed a motion for judicial appeal of the latter transmission line
CCN ruling. A schedule for such proceeding has not been established. In
November 2005, the Kentucky Division for Air Quality issued the final air
permit, which was challenged via a request for remand in December 2005 by
three environmental advocacy groups, including the Sierra Club.
Administrative proceedings with respect to the challenge are expected to
continue during 2006. A ruling thereafter may be anticipated in the first
half of 2007.

In July 2006, the FERC issued a final report under a routine audit that its
Office of Enforcement (formerly its Office of Market Oversight and
Investigations) had conducted regarding the compliance of E.ON U.S. and
subsidiaries, including LG&E and KU, under the FERC's standards of conduct
and codes of conduct requirements, as well as other areas. The final report
contained certain findings calling for improvements in E.ON U.S. and
subsidiaries' structures, policies and procedures relating to transmission,
generation dispatch, energy marketing and other practices. E.ON U.S. and
affiliates have agreed to certain corrective actions and plan to submit
procedures related to such corrective actions to the FERC. The corrective
actions are in the nature of organization and operational improvements as
described above and are not expected to have a material adverse impact on
the Companies' results of operations or financial condition.

                          Results of Operations

The results of operations for the Companies are affected by seasonal
fluctuations in temperature and other weather-related factors.  Because of
these and other factors, the results of one interim period are not
necessarily indicative of results or trends to be expected for the full
year.

            Three Months Ended September 30, 2006, Compared to
                  Three Months Ended September 30, 2005

LG&E Results:

LG&E's net income decreased $2 million (5%) for the three months ended
September 30, 2006, as compared to the three months ended September 30,
2005, primarily due to lower retail sales volumes resulting from cooler
weather than last year and a higher effective income tax rate this year,
partially offset by lower MISO expenses and lower other operation expenses
primarily from the completion of the VDT amortization earlier this year.

A comparison of LG&E's revenues for the three months ended September 30,
2006, with the three months ended September 30, 2005, reflects increases
and (decreases) which have been segregated by the following principal
causes:

Cause                                       Electric          Gas
(in millions)                               Revenues        Revenues
Retail sales:
   Fuel and gas supply adjustments             $3              $1
   Environmental cost recovery
   surcharge	   	                       (1)              -
   Merger surcredit                             1               -
   Variation in sales volume and
   other                                      (12)             (2)
   Total retail sales                          (9)             (1)
Wholesale sales                                 4               -
MISO Day 2 RSG MWP                            (10)              -
   Total                                     $(15)            $(1)

Electric revenues decreased $15 million (5%) primarily due to:
   - Decreased sales volumes delivered ($12 million) resulting from a 16%
     decrease in cooling degree days in the third quarter of 2006 as
     compared to the same period in 2005
   - Decreased MISO related revenue ($10 million) due to the accounting
     reclassification of MISO Day 2 RSG MWP in the third quarter of 2005.
     This reclass of the RSG MWP was made from an expense account to a
     revenue account back to the inception of MISO Day 2 on April 1, 2005.
   - Increased fuel costs ($3 million) billed to customers through the fuel
     adjustment clause
   - Increased wholesale sales ($4 million) largely due to 20% higher
     volumes

Gas revenues for the quarter ending September 2006 as compared to the same
period last year were essentially flat with no significant variances.

Fuel for electric generation and gas supply expenses comprise a large
component of LG&E's total operating expenses. Increases or decreases in the
cost of fuel and natural gas supply are reflected in LG&E's electric and
natural gas retail rates, through the fuel adjustment clause and gas supply
clause, subject to the approval of the Kentucky Commission.

  Fuel for electric generation increased $6 million (8%) in 2006 primarily
  due to:
   - Increased unit cost of fuel burned ($3 million) due to higher fuel
     prices
   - Increased generation ($3 million) due to higher unit availability

  Power purchased decreased $8 million (24%) in 2006 primarily due to:
   - Decreased volumes purchased ($9 million) due to higher unit
     availability and lower retail sales volumes
   - Increased unit cost of purchases ($1 million) due to higher market
     prices

  Gas supply expenses decreased $1 million (5%) in 2006 primarily due to:
   - Decreased unit cost of natural gas purchased ($3 million)
   - Increased volumes delivered to the distribution system ($2 million)

Other operation and maintenance expenses decreased $18 million (20%) in
2006.
  Other operation expenses decreased $23 million (34%) primarily due to:
   - Decreased other power supply costs ($16 million) primarily due to
     lower MISO Day 2 expenses
   - Decreased administrative and general expenses ($7 million) primarily
     due to completion of the VDT amortization
 Maintenance expense increased $3 million (22%) primarily due to:
   - Increased electric distribution maintenance ($2 million) primarily due
     to tree trimming
   - Increased steam generation maintenance ($1 million) primarily related
     to Mill Creek Unit 4
  Property and other taxes increased $1 million (30%)

Other income increased $2 million in 2006 primarily due to non-hedging
derivative mark-to-market income.

Interest expense increased $2 million (33%) in 2006 primarily due to:
   - Increased interest rates on variable rate debt ($2 million)
   - Increased interest expense on tax deficiencies ($1 million)
   - Decreased interest expense on the swaps ($1 million)

The weighted average interest rate on variable-rate bonds for the three
months ended September 30, 2006, was 3.63%, compared to 2.54% for the
comparable period in 2005.

A comparison of the LG&E effective income tax rate for the three months
ended September 30, 2006 and 2005 follows:

                                          Three                Three
                                       Months Ended         Months Ended
                                    September 30, 2006  September 30, 2005

   Effective Rate
   Statutory federal income tax
   rate                                    35.0%               35.0%
   State income taxes net of federal
   benefit                                  4.0                 3.7
   Reduction of previous accruals          (0.6)               (9.0)
   Amortization of investment tax
   credits                                 (1.6)               (1.8)
   Other differences                       (1.3)               (1.6)
   Effective income tax
   rate                                    35.5%               26.3%

In September 2005, E.ON U.S. Investments Corp., the parent of E.ON U.S. and
indirect parent of LG&E, received notice from the Congressional Joint
Committee on Taxation approving the IRS audit of the consolidated group's
returns for the periods December 1999 through December 2003. As a result of
this approval, LG&E released income tax reserves of $5.1 million in the
third quarter of 2005. Further reductions of previous tax accruals were
made in the third quarter of 2006 primarily due to the expiration of the
statute of limitations for a prior year.

The change in amortization of investment tax credits and other differences
is largely attributable to the change in the levels of pre-tax income.

KU Results:

KU's net income increased $17 million (53%) for the three months ended
September 30, 2006, as compared to the three months ended September 30,
2005, primarily due to higher equity in earnings from EEI, lower MISO
expenses and lower other operation expenses primarily from the completion
of the VDT amortization earlier this year, partially offset by lower retail
and wholesale sales volumes and increased interest expense.

A comparison of KU's revenues for the three months ended September 30,
2006, with the three months ended September 30, 2005, reflects increases
and (decreases) which have been segregated by the following principal
causes:


Cause                                                Electric
(in millions)                                        Revenues
Retail sales:
     Fuel supply adjustments                            $27
     Environmental cost recovery
     surcharge                                            3
     Merger surcredit                                     2
     Variation in sales volumes and
     other                                              (13)
     Total retail sales                                  19
Wholesale sales                                         (10)
MISO Day 2 RSG MWP                                      (14)
Total                                                   $(5)

Electric revenues decreased $5 million (1%) in 2006 primarily due to:
   - Decreased MISO related revenue ($14 million) due to the accounting
     reclassification of MISO Day 2 RSG MWP in the third quarter of 2005.
     This reclass of the RSG MWP was made from an expense account to a
     revenue account back to the inception of MISO Day 2 on April 1, 2005.
   - Decreased sales volumes delivered ($13 million) resulting from a 21%
     decrease in cooling degree days in the third quarter of 2006, as
     compared to the same period in 2005
   - Decreased wholesale revenues ($10 million) largely due to 37% lower
     volumes
   - Increased fuel costs ($27 million) billed to customers through the
     fuel adjustment clause due to higher coal prices
   - Increased environmental cost recovery ($3 million) billed to customers
   - Increased merger surcredit revenues ($2 million)

Fuel for electric generation comprises a large component of KU's total
operating expenses. Increases or decreases in the cost of fuel are
reflected in KU's retail electric rates through the fuel adjustment clause,
subject to the approval of the Kentucky Commission, the Virginia State
Corporation Commission and the FERC.

  Fuel for electric generation increased $11 million (9%) in 2006
  primarily due to:
   - Increased unit cost of fuel burned ($17 million) due to higher fuel
     prices
   - Decreased generation ($6 million) due to lower sales volumes

  Power purchased decreased $16 million (25%) in 2006 primarily due to:
   - Decreased unit cost of purchases ($12 million) due to lower market
     prices
   - Decreased volumes purchased ($4 million) due to higher unit
     availability and lower sales volumes

Other operation and maintenance expenses decreased $17 million (21%) in
2006.
  Other operation expenses decreased $19 million (33%) primarily due to:
   - Decreased other power supply costs ($15 million) primarily due to lower
     MISO Day 2 expenses
   - Decreased administrative and general expenses ($3 million) primarily
     due to the completion of the VDT amortization
   - Decreased transmission expense ($2 million) primarily due to lower MISO
     Day 1 expenses
   - Increased steam generation operations expense ($1 million)
  Property and other taxes increased $1 million (29%)

Other income - net increased $11 million primarily due to:
   - Increased equity in earnings from EEI as a result of EEI selling
     electricity at market based rates, effective January 2006 ($9 million)
   - Increased non-hedging derivative mark-to-market income ($2 million)

Interest expense increased $1 million (33%) primarily due to higher
interest rates on variable rate debt. The weighted average interest rate on
variable-rate bonds for the three months ended September 30, 2006, was
3.63%, compared to 2.54% for the comparable period in 2005.

Interest expense to affiliated companies increased $2 million (50%) in 2006
primarily due to increased borrowing from Fidelia.

A comparison of the KU effective income tax rate for the three months ended
September 30, 2006 and 2005 follows:

                                         Three Months         Three Months
                                            Ended                Ended
                                          September            September
                                           30, 2006             30, 2005
   Effective Rate
   Statutory federal income tax
   rate                                      35.0%               35.0%
   State income taxes net of federal
   benefit                                    4.5                 4.6
   Reduction of previous accruals            (0.3)               (8.9)
   Amortization of investment tax
   credits                                   (0.4)               (0.9)
   EEI dividend                              (3.0)                  -
   EEI adjustment                               -                 6.3
   Other differences                         (2.0)               (0.1)
   Effective income tax rate                 33.8%               36.0%

The EEI dividend in the third quarter of 2006 reflects tax benefits
associated with the receipt of dividends from KU's investment in EEI.
During the third quarter in 2005, KU recognized additional deferred tax
expense ($3.1 million) related to the undistributed earnings in its EEI
unconsolidated investment. An EEI management decision regarding changes in
the distribution of EEI's previous earnings led to the decision to provide
deferred income taxes for all book and tax basis differences in this
investment.

The change in amortization of investment tax credits is largely
attributable to the change in the levels of pre-tax income.

In September 2005, E.ON U.S. Investments Corp., the parent of E.ON U.S. and
indirect parent of KU, received notice from the Congressional Joint
Committee on Taxation approving the IRS audit of the consolidated group's
returns for the periods December 1999 through December 2003. As a result of
this approval, KU released income tax reserves of $4.4 million in the third
quarter of 2005. Further reductions of previous tax accruals were made in
the third quarter of 2006 primarily due to the expiration of the statute of
limitations for a prior year.


                Nine Months Ended September 30, 2006, Compared to
                   Nine Months Ended September 30, 2005

LG&E Results:

LG&E's net income decreased $14 million (13%) for the nine months ended
September 30, 2006, as compared to the nine months ended September 30,
2005, primarily due to lower electric and gas retail and wholesale sales
volumes resulting from milder weather this year, higher interest expense
and a higher effective income tax rate, partially offset by lower other
operations expenses primarily from the completion of the VDT amortization
earlier this year and lower MISO expenses.

A comparison of LG&E's revenues for the nine months ended September 30,
2006, with the nine months ended September 30, 2005, reflects increases and
(decreases) which have been segregated by the following principal causes:

Cause                                        Electric          Gas
(in millions)                                Revenues        Revenues
Retail sales:
     Fuel and gas supply adjustments           $18             $74
     Merger surcredit                            2               -
     Environmental cost recovery                (1)              -
     Value delivery surcredit                    -               1
     Weather normalization                       -               2
     Variation in sales volume and
     other                                     (19)            (34)
     Total retail sales                          -              43
Wholesale sales                                (28)            (16)
MISO Day 2 RSG MWP                              (7)              -
Other                                           (2)              1
Total                                         $(37)            $28

Electric revenues decreased $37 million (5%) in 2006 primarily due to:
   - Decreased wholesale sales ($28 million) resulting from 16% lower
     volumes
   - Decreased retail sales volumes and other ($19 million) resulting from
     a 12% decrease in cooling degree days as compared to the same period
     in 2005
   - Decreased MISO related revenue ($7 million) largely due to the
     accounting reclassification of MISO Day 2 RSG MWP in the third quarter
     of 2005. This reclass of the RSG MWP was made from an expense account
     to a revenue account back to the inception of MISO Day 2 on April 1,
     2005.
   - Increased fuel costs ($18 million) billed to customers through the
     fuel adjustment clause due to higher costs of coal

Gas revenues increased $28 million (11%) in 2006 primarily due to:
   - Increased gas supply costs ($74 million) billed to customers through
     the gas supply adjustment clause due to higher costs of natural gas
   - Increased weather normalization revenues ($2 million) due to warmer
     weather
   - Increased value delivery surcredit revenues ($1 million)
   - Decreased sales volumes and other ($34 million) resulting from a 8%
     decrease in heating degree days as compared to the same period in 2005
   - Decreased wholesale sales ($16 million) due to limited opportunities
     to sell off-system

Fuel for electric generation and gas supply expenses comprise a large
component of LG&E's total operating expenses. Increases or decreases in the
cost of fuel and natural gas supply are reflected in LG&E's electric and
natural gas retail rates, through the fuel adjustment clause and gas supply
clause, subject to the approval of the Kentucky Commission.

  Fuel for electric generation increased $13 million (6%) in 2006
  primarily due to:
   - Increased unit cost of fuel burned ($17 million) due to higher fuel
     prices
   - Decreased generation ($4 million) due to lower sales volumes

  Power purchased decreased $20 million (20%) in 2006 primarily due to:
   - Decreased volumes purchased ($30 million) due to higher unit
     availability and lower sales volumes
   - Increased unit cost of purchases ($10 million) due to higher market
     prices

  Gas supply expenses increased $27 million (14%) in 2006 primarily due
  to:
   - Increased unit cost of natural gas purchased ($69 million)
   - Decreased volumes delivered to the distribution system ($41 million)

Other operation and maintenance expenses decreased $15 million (7%) in
2006.
  Other operation expenses decreased $25 million (15%) primarily due to:
   - Decreased administrative and general expenses ($14 million) primarily
     due to the completion of the VDT amortization
   - Decreased other power supply expenses ($6 million) primarily due to
     lower MISO Day 2 expenses
   - Decreased transmission expenses ($6 million) primarily due to lower
     MISO expenses
  Maintenance expenses increased $9 million (18%) primarily due to:
   - Increased steam maintenance ($4 million) primarily related Mill
     Creek Unit 4
   - Increased distribution maintenance ($4 million) primarily related to
     storm restoration
   - Increased administrative and general maintenance ($2 million)
  Property and other taxes increased $1 million (8%)

Interest expense increased $5 million (29%) in 2006 primarily due to:
   - Increased interest rates on variable rate debt ($4 million)
   - Increased interest on tax deficiencies ($3 million)
   - Decreased interest expense on the swaps ($2 million)

The weighted average interest rate on variable-rate bonds for the nine
months ended September 30, 2006, was 3.43%, compared to 2.36% for the
comparable period in 2005.

A comparison of the LG&E effective income tax rate for the nine months
ended September 30, 2006 and 2005 follows:

                                     Nine Months         Nine Months
                                       Ended                Ended
                                     September            September
                                      30, 2006            30, 2005
   Effective Rate
   Statutory federal income tax
   rate                                 35.0%               35.0%
   State income taxes net of federal
   benefit                               3.8                 4.3
   Reduction of previous accruals       (0.3)               (3.4)
   Amortization of investment tax
   credits                              (2.2)               (2.0)
   Other differences                    (2.0)               (1.4)
   Effective income tax rate            34.3%               32.5%

State income taxes in 2006 reflect Kentucky Coal Tax credits earned. The
change in amortization of investment tax credits is largely attributable to
the change in the levels of pre-tax income.

In September 2005, E.ON U.S. Investments Corp., the parent of E.ON U.S. and
indirect parent of LG&E, received notice from the Congressional Joint
Committee on Taxation approving the IRS audit of the consolidated group's
returns for the periods December 1999 through December 2003. As a result of
this approval, LG&E released income tax reserves of $5.1 million in the
third quarter of 2005. Further reductions of previous tax accruals were
made in 2006 primarily due to the expiration of the statute of limitations
for a prior year.

KU Results:

KU's net income increased $22 million (25%) for the nine months ended
September 30, 2006, as compared to the nine months ended September 30,
2005, primarily due to higher equity in earnings from EEI, lower MISO
expenses, lower other operation expenses primarily from the completion of
the VDT amortization earlier this year and a lower effective income tax
rate, partially offset by lower retail and wholesale sales volumes and
increased interest expense.

A comparison of KU's revenues for the nine months ended September 30, 2006,
with the nine months ended September 30, 2005, reflects increases and
(decreases) which have been segregated by the following principal causes:

Cause                                                    Electric
(in millions)                                            Revenues
Retail sales:
 Fuel supply adjustments                                  $ 52
 Environmental cost recovery surcharge                       6
 Merger surcredit                                            2
 Rate and rate structure                                     2
 Value delivery surcredit                                    1
 Variation in sales volume and other                        (8)
 Total retail sales                                         55
Wholesale sales                                            (28)
MISO Day 2 RSG MWP                                          (4)
Other                                                      (11)
Total                                                     $ 12

Electric revenues increased $12 million (1%) in 2006 primarily due to:
   - Increased fuel costs ($52 million) billed to customers through the fuel
     adjustment clause
   - Increased environmental cost recovery surcharge ($6 million)
   - Increased merger surcredit revenues ($2 million)
   - Increased revenues from changes in Virginia rates and rate structure
     ($2 million)
   - Decreased wholesale sales ($28 million) resulting from 51% lower
     volumes
   - Decreased transmission revenue ($10 million) due to lower volumes
   - Decreased retail sales volumes and other ($9 million) resulting from a
     10% decrease in cooling degree days as compared to the same period in 2005
   - Decreased MISO related revenues ($4 million) largely due to the
     accounting reclassification of MISO Day 2 RSG MWP in the third quarter of
     2005.This reclass of the RSG MWP was made from an expense account to a
     revenue account back to the inception of MISO Day 2 on April 1, 2005.

Fuel for electric generation comprises a large component of KU's total
operating expenses. Increases or decreases in the cost of fuel are
reflected in KU's retail electric rates through the fuel adjustment clause,
subject to the approval of the Kentucky Commission, the Virginia State
Corporation Commission and the FERC.

  Fuel for electric generation increased $35 million (12%) in 2006
   primarily due to:
   - Increased unit cost of fuel burned ($37 million) due to higher fuel
     prices
   - Decreased generation ($2 million) due to decreased sales volumes

  Power purchased decreased $21 million (13%) in 2006 primarily due to:
   - Decreased volumes purchased ($24 million) due to higher unit
     availability and lower sales volumes
   - Increased unit cost of purchases ($3 million) due to higher market
     prices

Other operation and maintenance expenses decreased $12 million (6%) in
2006.
  Other operation expenses decreased $9 million (6%) primarily due to:
   - Decreased other power supply expenses ($9 million) primarily due to
     lower MISO Day 2 expenses
   - Decreased administrative and general expenses ($3 million) primarily
     due to the completion of the VDT amortization
   - Increased transmission expenses ($2 million)
   - Increased steam generation operation expense ($1 million)
  Maintenance expenses decreased $3 million (6%) primarily due to:
   - Decreased steam generation maintenance ($7 million) due to outages in
     2005 at E.W. Brown, Ghent and Green River
   - Increased administrative and general maintenance ($2 million)
   - Increased combustion turbine maintenance ($1 million)
   - Increased electric distribution maintenance ($1 million)
  Property and other taxes increased $1 million (12%)

Other income - net increased $21 million primarily due to increased equity
in earnings from EEI as a result of EEI selling electricity at market based
rates, effective January 2006.

Interest expense increased $1 million (10%) in 2006 primarily due to:
   - Increased cost of the interest rate swap ($2 million)
   - Increased interest rates on variable rate debt ($2 million)
   - Decreased interest due to replacing external debt with debt to
     affiliated companies ($3 million)

The weighted average interest rate on variable-rate bonds for the nine
months ended September 30, 2006, was 3.32%, compared to 2.39% for the
comparable period in 2005.

Interest expense to affiliated companies increased $5 million (42%)
primarily due to:
   - Increased borrowing from Fidelia ($4 million)
   - Increased borrowing from the money pool ($1 million)

A comparison of the KU effective income tax rate for the nine months ended
September 30, 2006 and 2005 follows:

                                     Nine Months         Nine Months
                                        Ended               Ended
                                      September           September
                                       30, 2006            30, 2005
   Effective Rate
   Statutory federal income tax
   rate                                  35.0%               35.0%
   State income taxes net of federal
   benefit                                4.4                 4.7
   Reduction of previous accruals        (0.1)               (3.2)
   Amortization of investment tax
   credits                               (0.5)               (0.9)
   EEI dividend                          (4.1)                  -
   EEI adjustment                           -                 2.3
   Other differences                     (1.6)               (0.9)
   Effective income tax rate             33.1%               37.0%

The EEI dividend for the nine months ended September 30, 2006, reflects tax
benefits associated with the receipt of dividends from KU's investment in
EEI. During the third quarter in 2005, KU recognized additional deferred
tax expense ($3.1 million) related to the undistributed earnings in its EEI
unconsolidated investment. Subsequent to an EEI management decision
regarding changes in the distribution of EEI's previous earnings, KU has
elected to record deferred income taxes for all book and tax basis
differences in this investment.

In September 2005, E.ON U.S. Investments Corp., the parent of E.ON U.S. and
the indirect parent of KU, received notice from the Congressional Joint
Committee on Taxation approving the IRS audit of the consolidated group's
returns for the periods December 1999 through December 2003. As a result of
this approval, KU released income tax reserves of $4.4 million in the third
quarter of 2005. Further reductions of previous tax accruals were made in
2006 primarily due to the expiration of the statute of limitations for a
prior year.

Liquidity and Capital Resources

The Companies' needs for capital funds are largely related to the
construction of plant and equipment necessary to meet the needs of electric
and gas utility customers, in addition to debt service requirements and
dividend payments. Internal and external lines of credit are maintained to
fund short-term capital requirements. The Companies believe that such
sources of funds will be sufficient to meet the needs of the business in
the foreseeable future.

At September 30, 2006, the Companies were in a negative working capital
position in part because of the classification of certain variable-rate
pollution control bonds that are subject to tender for purchase at the
option of the holder as current portion of long-term debt. The Companies
expect to cover any working capital deficiencies with cash flow from
operations, money pool borrowings and borrowings from Fidelia.

Construction expenditures for the nine months ended September 30, 2006
amounted to $104 million for LG&E and $236 million for KU. At LG&E, capital
expenditures included Trimble County Unit 2, infrastructure for new
customers, gas main replacements and capital repairs to Mill Creek Unit 4.
At KU, capital expenditures included Trimble County Unit 2, FGD's and other
environmental equipment at the Brown and Ghent generating stations and
infrastructure for new customers.

LG&E's cash balance decreased $2 million during the nine months ended
September 30, 2006, largely resulting from the retirement of debt and the
payment of dividends. KU's cash balance decreased $2 million during the
nine months ended September 30, 2006, largely resulting from increasing
construction expenditures.

Variations in accounts receivable, inventories and accounts payable are
generally not significant indicators of the Companies' liquidity. Such
variations are primarily attributable to seasonal fluctuations in weather,
which have a direct effect on sales of electricity and natural gas. The
decreases in LG&E's accounts receivable and natural gas stored underground
relate primarily to seasonal uses of natural gas.

For information regarding the Companies' use of interest rate swaps to
hedge underlying variable-rate (LG&E) and fixed-rate (KU) debt obligations,
see Note 3 of the Notes to Financial Statements.

See Note 5 of the Notes to Financial Statements for information regarding
the Companies' long-term and short-term debt including: accounting
treatment of bonds permitting tender for purchase at the option of the
holder, re-negotiation of revolving credit lines, intercompany debt
transactions and the issuance and redemption of financial instruments
during the year.

Security ratings as of September 30, 2006, were:

                                 LG&E                 KU
                          Moody's    S&P        Moody's  S&P

     First mortgage bonds   A1       A-           A1      A
     Preferred stock        Baa1     BBB-         Baa1    BBB-
     Commercial paper       P-1      A-2          P-1     A-2

These ratings reflect the views of Moody's and S&P. A security rating is
not a recommendation to buy, sell or hold securities and is subject to
revision or withdrawal at any time by the rating agency.

LG&E made a discretionary contribution to the pension plan of $18 million
in January 2006. LG&E made no contributions during 2005. KU made no
contributions to the pension plan in 2006 or 2005.

Contingencies

For a description of significant contingencies that may affect the
Companies, reference is made to Part I, Item 3, Legal Proceedings in the
Companies' Annual Reports on Form 10-K for the year ended December 31,
2005; to Part I - Item 1 and Part II - Item 1, Legal Proceedings in the
Companies' Quarterly Reports on Form 10-Q for the periods ended March 31,
2006 and June 30, 2006;  and to Notes 2 and 6 of the Notes to Financial
Statements in Part I - Item 1, and Part II - Item 1, Legal Proceedings
herein.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

The Companies use interest rate swaps to hedge exposure to market
fluctuations in certain of their debt instruments. Pursuant to the
Companies' policies, use of these financial instruments is intended to
mitigate risk and earnings volatility and is not speculative in nature.
Management has designated all of the Companies' interest rate swaps as
hedge instruments. Financial instruments designated as cash flow hedges
have resulting gains and losses recorded within comprehensive income and
stockholders' equity. To the extent a financial instrument or the
underlying item being hedged is prematurely terminated or the hedge becomes
ineffective, the resulting gains or losses are reclassified from
comprehensive income to net income. Financial instruments designated as
fair value hedges are periodically marked to market with the resulting
gains and losses recorded directly into net income to correspond with
income or expense recognized from changes in market value of the items
being hedged.

The potential change in interest expense associated with a 1% change in
base interest rates of the Companies' non-hedged variable debt is estimated
at $4 million each at September 30, 2006. The Companies' exposure to
floating interest rates did not materially change during the first nine
months of 2006.

The potential loss in fair value of LG&E's interest rate swaps resulting
from a hypothetical 1% change in base interest rates is estimated at
approximately $18 million as of September 30, 2006. The potential loss in
fair value of KU's interest rate swaps resulting from a hypothetical 1%
change in base interest rates is estimated at less than $1 million as of
September 30, 2006. These estimates are derived from third-party
valuations. Changes in the market values of these swaps, if held to
maturity, will have no effect on LG&E's or KU's net income or cash flow.

Pension Risk

The Companies' costs of providing defined-benefit pension retirement plans
are dependent upon a number of factors, such as the rates of return on plan
assets, discount rate and contributions made to the plans. The Companies
have recognized an additional minimum liability as prescribed by SFAS No.
87, Employers' Accounting for Pensions because the accumulated benefit
obligation exceeds the fair value of their plans' assets. The liabilities
were recorded as a reduction to comprehensive income, and did not affect
net income. The amount of the liability depends upon the discount rate, the
asset returns and contributions made by the Companies to the plans. If the
fair value of the plans' assets exceeds the accumulated benefit obligation,
the recorded liabilities will be reduced and comprehensive income will be
restored in the balance sheet. See Note 1 of the Notes to Financial
Statements in Item 1, Part 1 for a discussion of the new accounting
pronouncement SFAS No. 158, Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans.

A 1% increase or decrease in the assumed discount rate could have an
approximate $49 million positive or negative impact to the accumulated
benefit obligation of LG&E. A 1% increase or decrease in the assumed
discount rate could have an approximate $33 million positive or negative
impact to the accumulated benefit obligation of KU.

LG&E made a discretionary contribution to the pension plan of $18 million
in January 2006. LG&E made no contributions during 2005. KU made no
contributions to the pension plan in 2006 or 2005.

Energy & Risk Management Activities

The Companies conduct energy trading and risk management activities to
maximize the value of power sales from physical assets they own. Certain
energy trading activities are accounted for on a mark-to-market basis in
accordance with SFAS No. 133, as amended. Wholesale sales of excess asset
capacity are treated as normal sales under SFAS No. 133, as amended, and
are not marked to market.

The fair values of the Companies' energy trading and risk management
contracts as of September 30, 2006 were each approximately $4 million. The
fair values at September 30, 2005, were less than $1 million each. No
changes to valuation techniques for energy trading and risk management
activities occurred during 2006 or 2005. Changes in market pricing,
interest rate and volatility assumptions were made during all periods. The
outstanding mark-to-market value is sensitive to changes in prices, price
volatilities and interest rates. The Companies estimate that a movement in
prices of $1 and a change in interest and volatilities of 1% would result
in a change in the mark-to-market value of less than $1 million. All
contracts outstanding at September 30, 2006, have a maturity of less than
one year and are valued using prices actively quoted for proposed or
executed transactions or quoted by brokers.

The Companies maintain policies intended to minimize credit risk and
revalue credit exposures daily to monitor compliance with those policies.
As of September 30, 2006, 100% of the trading and risk management
commitments were with counterparties rated BBB-/Baa3 equivalent or better.

MISO Exit

For further discussions of certain market risks relating to the Companies'
withdrawal from MISO, see also Part II, Item 1A, Risk Factors in this
quarterly report and in the Companies' Annual Report on Form 10-K for the
year ended December 31, 2005.
Item 4.  Controls and Procedures

The Companies maintain a system of disclosure controls and procedures
designed to ensure that information required to be disclosed by the
Companies in reports they file or submit under the Securities Exchange Act
of 1934 is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission rules and
forms. The Companies conducted an evaluation of such controls and
procedures under the supervision and with the participation of the
Companies' management, including the Chairman, President and Chief
Executive Officer ("CEO") and the Chief Financial Officer ("CFO"). Based
upon that evaluation, the CEO and CFO have concluded that the Companies'
disclosure controls and procedures are effective as of the end of the
period covered by this report.

The Companies are not accelerated filers under the Sarbanes-Oxley Act of
2002 and associated rules (the "Act") and consequently anticipate issuing
Management's Report on Internal Control over Financial Reporting pursuant
to Section 404 of the Act in their first periodic report covering the
fiscal year ended December 31, 2007 as permitted by SEC rulemaking.

In preparation for required reporting under Section 404 of the Act, the
Companies are conducting a thorough review of their internal controls over
financial reporting, including disclosure controls and procedures. Based on
this review, the Companies have made internal controls enhancements and
will continue to make future enhancements to their internal control over
financial reporting. There has been no change in the Companies' internal
control over financial reporting that occurred during the fiscal quarter
ended September 30, 2006, that has materially affected, or is reasonably
likely to materially affect, the Companies' internal control over financial
reporting.

                        Part II.  Other Information

Item 1.  Legal Proceedings.

For a description of the significant legal proceedings involving the
Companies, reference is made to the information under the following items
and captions of the Companies' respective combined Annual Report on Form 10-
K for the year ended December 31, 2005:  Item 1, Business; Item 3, Legal
Proceedings; Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations; and Item 8, Financial Statements and
Supplementary Data in Notes 3 and 10. Reference is also made to the matters
described in Notes 2 and 6 of Part 1, Item 1 of the Companies' Quarterly
Reports on Form 10-Q for the three months ended March 31, 2006 and June 30,
2006; and Notes 2 and 6 of the Notes to Financial Statements in Part I,
Item 1 of this 10-Q. Except as described herein, to date, the proceedings
reported in the Companies' respective combined Annual Report on Form 10-K
have not changed materially.

Other

In the normal course of business, other lawsuits, claims, environmental
actions, and other governmental proceedings arise against the Companies. To
the extent that damages are assessed in any of these lawsuits, the
Companies believe that their 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 LG&E's or KU's financial position or
results of operations, respectively.

Item 1A. Risk Factors.

MISO Exit
LG&E and KU withdrew from the MISO effective September 1, 2006. The
resulting changes to transmission and wholesale power market structures and
prices are not completely estimable and may result in unforeseen effects on
energy purchases and sales, transmission and related costs or revenues. As
required by the FERC, in connection with their exit, the Companies have
engaged two independent third parties to perform certain oversight and
functional control activities relating to transmission and related
activities. Such activities may have an effect on the Companies' abilities
to access the transmission system for wholesale or native load power
activities.  The Companies will save certain MISO membership costs and
charges, but will incur a MISO exit fee as well as fees related to the new
transmission service vendors. The Companies believe that, over time, the
benefits and savings from their exit of the MISO will outweigh the costs
and expenses. However, until post-MISO market conditions and operations
have matured, the effects on financial condition, liquidity or results of
operations will remain difficult to fully predict.

See Note 2 of LG&E's and KU's Notes to Financial Statements in Part I, Item
1 of this 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

2(c)

LG&E has an existing $5.875 series of mandatorily redeemable preferred
stock outstanding having a current redemption price of $100 per share. The
preferred stock has a sinking fund requirement sufficient to retire a
minimum of 12,500 shares on July 15 of each year commencing with July 15,
2003, and a minimum of 187,500 shares on July 15, 2008 at $100 per share.
LG&E redeemed 12,500 shares in accordance with these provisions on July 15,
2006, leaving 200,000 shares currently outstanding. Beginning with the
three months ended September 30, 2003, LG&E reclassified, at fair value,
its $5.875 series preferred stock as long-term debt with the minimum shares
mandatorily redeemable within one year classified as current portion of
long-term debt. Dividends accrued beginning July 1, 2003 are charged as
interest expense, pursuant to SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.

                      July 2006            August 2006      September 2006

Total number of         12,500                n/a                 n/a
shares (or units)       ($5.875 Pref.)
purchased

Average price           $100                  n/a                 n/a
paid per share
(or unit)

Total number of         12,500                n/a                 n/a
shares (or units)       ($5.875 Pref.)
purchased as part
of publicly
announced plans
or programs

Maximum number          200,000              n/a                  n/a
(or approximate         ($5.875 Pref.)
dollar value) of
shares (or units)
that may yet be
purchased under
the plans or
programs

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

a)LG&E's and KU's Annual Meetings of Shareholders were held on July 20,
2006.

b)Not applicable.

c)The matters voted upon and the results of the voting at the Annual
Meetings are set forth below:

  1. LG&E

     i)The shareholders voted to elect LG&E's nominees for election to the
       Board of Directors, as follows:

        Victor A. Staffieri - 21,294,223 common shares and 596,501
        preferred shares cast in favor of election and 7,687 preferred
        shares withheld.

        S. Bradford Rives - 21,294,223 common shares and 595,801 preferred
        shares cast in favor of election and 8,387 preferred shares
        withheld.

        John R. McCall - 21,294,223 common shares and 596,956 preferred
        shares cast in favor of election and 7,232 preferred shares
        withheld.

        Paul W. Thompson - 21,294,223 common shares and 596,656 preferred
        shares cast in favor of election and 7,532 preferred shares
        withheld.

        Chris Hermann - 21,294,223 common shares and 596,713 preferred
        shares cast in favor of election and 7,475 preferred shares
        withheld.

        No holders of common or preferred shares abstained from voting
        on this matter.

     ii)The shareholders voted 21,294,223 common shares and 599,991
        preferred shares in favor of and 2,564 preferred shares against the
        approval of PricewaterhouseCoopers LLP as the Independent
        Registered Public Accounting Firm for 2006.  Holders of 1,633
        preferred shares abstained from voting on this matter.

  2. KU

     i)The sole shareholder voted to elect KU's nominees for election to
       the Board of Directors, as follows:

       37,817,878 common shares cast in favor of election and no shares
       withheld for each of Victor A. Staffieri, S. Bradford Rives,
       John R. McCall, Paul W. Thompson, and Chris Hermann, respectively.

     ii)The sole shareholder voted 37,817,878 common shares in favor of and
       no shares withheld for approval of PricewaterhouseCoopers LLP as the
       Independent Registered Public Accounting Firm for 2006.

       No holders of common shares abstained from voting on these matters.

d)   Not applicable.

Item 5.  Other Information.

In October 2006, executive officers of LG&E and KU received initial grants
of performance units under a new long-term variable compensation plan, the
E.ON AG Share Performance Plan ("New Plan") established by E.ON during
2006. These grants, which have a maturity period of three years, commencing
on January 1 of this year, are payable in cash after the end of the
maturity period. The ultimate amount of compensation paid to the executives
is determined by the value E.ON AG share performance during the final 60
days of the period and the relative performance of E.ON AG stock's total
shareholder return ("TSR") against the TSR of a European utility stock
index over the maturity period. Minimum E.ON AG performance against the
index must be attained in order for a performance unit to have any value.
The maximum value of a performance unit granted under the New Plan is three
times the initial value of the performance unit, which initial value is set
at E.ON AG's average share price for the 60 trading days preceding the
commencement of the three year period. The performance units are subject to
accelerated payment prior to their maturity date, using performance
calculations to date, upon certain events of change-in-control.
Additionally, acceleration of payment may occur in the event of death,
disability or termination of employment of the executive officer by the
Company for other than for cause. This description is qualified in its
entirety by reference to the text of the New Plan and related documents,
copies of which are filed with this Form 10-Q as Exhibits 10.01 and 10.02,
respectively.

Item 6.  Exhibits.

Applicable to Form
                    10-Q of

Exhibit
No. LG&E  KU   Description

4.1       X    Supplemental Indenture dated July 1, 2006
               between KU and U.S. Bank National Association, Chicago
               Illinois, as Trustee.  [Filed as Exhibit 4.1 to KU's Current
               Report on Form 8-K dated July 20, 2006 and incorporated by
               reference herein.]

4.2       X    Loan Agreement dated as of June 1, 2006
               between KU and the County of Carroll, Kentucky. [Filed as
               Exhibit 4.2 to KU's Current Report on Form 8-K dated July
               20, 2006 and incorporated by reference herein.]

10.01 X   X    Copies of E.ON Share Performance Plan (i) Terms and
               Conditions for the 1. Tranche (2006-2008) and (ii) Technical
               Annex, each dated as of June 2006.

10.02 X   X    Copies of form representative specimen Certificate
               Award under E.ON Share Performance Plan

31.1  X        Certification of Chairman of the Board, President and Chief
               Executive Officer, pursuant to Section 302 of the
	       Sarbanes-Oxley Act of 2002

31.2  X        Certification of Chief Financial Officer, pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

31.3      X    Certification of Chairman of the Board, President and Chief
    	       Executive Officer, pursuant to Section 302 of the
	       Sarbanes-Oxley Act of 2002

31.4      X    Certification of Chief Financial Officer, pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

32    X   X    Certification pursuant to Section 906 of the Sarbanes-Oxley
               Act of 2002

Certain  instruments  defining the rights of holders of  certain  long-term
debt  of  LG&E or KU have not been filed with the SEC but will be furnished
to the SEC upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Louisville Gas and Electric Company
Registrant


Date:  November 9, 2006         /s/ S. Bradford Rives
                                S. Bradford Rives
                                Chief Financial Officer
                                (On behalf of the registrant in his
                                capacities as Principal Financial Officer
                                and Principal Accounting Officer)

Pursuant to the requirements 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.


Kentucky Utilities Company
Registrant


Date:  November 9, 2006         /s/ S. Bradford Rives
                                S. Bradford Rives
                                Chief Financial Officer
                                (On behalf of the registrant in his
                                capacities as Principal Financial Officer
                                and Principal Accounting Officer)