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, 1998


                                    or


[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                     SECURITIES EXCHANGE ACT OF 1934

     Commission    Registrant, State of Incorporation,     IRS Employer
    File Number       Address, and Telephone Number     Identification No.

      1-10568               LG&E Energy Corp.               61-1174555
                         (A Kentucky Corporation)
                           220 West Main Street
                              P.O. Box 32030
                          Louisville, Ky. 40232
                              (502) 627-2000

      2-26720      Louisville Gas and Electric Company      61-0264150
                         (A Kentucky Corporation)
                           220 West Main Street
                              P.O. Box 32010
                          Louisville, Ky. 40232
                              (502) 627-2000

       1-3464           Kentucky Utilities Company          61-0247570
                  (A Kentucky and Virginia Corporation)
                            One Quality Street
                      Lexington, Kentucky 40507-1428
                              (606) 255-2100

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

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

                            LG&E Energy Corp.
      129,677,030 shares, without par value, as of October 30, 1998.

                   Louisville Gas and Electric Company
      21,294,223 shares, without par value, as of October 30, 1998,
                      all held by LG&E Energy Corp.

                        Kentucky Utilities Company
      37,817,878 shares, without par value, as of October 30, 1998,
                      all held by LG&E Energy Corp.

This combined Form 10-Q is separately filed by LG&E Energy Corp.,
Louisville Gas and Electric Company and Kentucky Utilities Company.
Information contained herein related to any individual registrant is filed
by such registrant on its own behalf.  Each registrant makes no
representation as to information relating to the other registrants.  In
particular, information contained herein related to LG&E Energy Corp. or
any of its direct or indirect subsidiaries other than Louisville Gas and
Electric Company or Kentucky Utilities Company is provided solely by LG&E
Energy Corp., not Louisville Gas and Electric Company or Kentucky Utilities
Company, and shall be deemed not included in the Form 10-Q of Louisville
Gas and Electric Company or the Form 10-Q of Kentucky Utilities Company.

<PAGE>
                                
                        TABLE OF CONTENTS

                             PART I

Item 1 Financial Statements

          LG&E Energy Corp. and Subsidiaries
            Consolidated Statements of Income                   1
            Consolidated Balance Sheets                         3
            Consolidated Statements of Cash Flows               5
            Consolidated Statements of Retained Earnings        7
            Consolidated Statements of Comprehensive Income     8

          Louisville Gas and Electric Company
            Statements of Income                                9
            Balance Sheets                                     10
            Statements of Cash Flows                           12
            Statements of Retained Earnings                    13
            Statements of Comprehensive Income                 14

          Kentucky Utilities Company
            Statements of Income                               15
            Balance Sheets                                     16
            Statements of Cash Flows                           18
            Statements of Retained Earnings                    19

          Notes to Financial Statements                        20

Item 2 Management's Discussion and Analysis of Results of
          Operations and Financial Condition                   28

                             PART II

Item 1 Legal Proceedings                                       42

Item 5 Other Information                                       45

Item 6 Exhibits and Reports on Form 8-K                        45

       Signatures                                              46

<PAGE>

      Part I.  Financial Information - Item 1.  Financial Statements

                    LG&E Energy Corp. and Subsidiaries
                    Consolidated Statements of Income
            (Unaudited - Thousands of $ Except Per Share Data)

                                    Three Months           Nine Months
                                       Ended                  Ended
                                      Sep. 30,               Sep. 30,
                                  1998       1997       1998        1997

REVENUES:
Electric utility               $ 447,796   $381,733 $1,130,062 $  998,553
Gas utility                       16,978     18,953    136,277    149,882
Western Kentucky Energy           66,246          -     66,246          -
Argentine gas distribution
 and other                        72,835     60,826    163,131    124,688
  Total revenues                 603,855    461,512  1,495,716  1,273,123

COST OF REVENUES:
Fuel and power purchased         154,959    117,046    393,495    314,000
Gas supply expenses                8,950     11,541     89,308    100,510
Western Kentucky Energy           29,302          -     29,302          -
Argentine gas distribution
 and other                        45,824     27,335     97,499     64,929
  Total cost of revenues         239,035    155,922    609,604    479,439

Gross profit                     364,820    305,590    886,112    793,684

OPERATING EXPENSES:
Operation and maintenance:
 Utility                         106,997    104,479    320,061    315,474
 Western Kentucky Energy          25,800          -     25,800          -
 Argentine gas distribution
  and other                       27,055     15,890     59,257     38,793
Depreciation and amortization     49,129     48,597    148,200    140,488
 Total operating expenses        208,981    168,966    553,318    494,755

Equity in earnings
 of joint ventures
 (Note 9)                          2,744      6,500     59,607     16,230

OPERATING INCOME                 158,583    143,124    392,401    315,159

Merger costs to
 achieve (Note 2)                      -          -     65,318          -
Other income and (deductions)      2,350      3,122         82     11,008
Interest charges and
 preferred dividends              26,664     27,073     78,609     78,292
Minority interest                  4,459      3,834      9,104      7,523

Income before income taxes     $ 129,810   $115,339 $  239,452 $  240,352



                                   - 1 -
<PAGE>

                    LG&E Energy Corp. and Subsidiaries
                Consolidated Statements of Income (cont.)
            (Unaudited - Thousands of $ Except Per Share Data)

                                    Three Months           Nine Months
                                       Ended                  Ended
                                      Sep. 30,               Sep. 30,
                                  1998       1997       1998        1997

Income before income taxes     $ 129,810   $115,339 $  239,452 $  240,352

Income taxes                      50,298     44,470     99,972     89,169

Income from continuing
 operations                       79,512     70,869    139,480    151,183

Loss from discontinued
 operations, net of income
 tax benefit of $9,721,
 $18,907, and $9,183
 (Note 3)                              -    (15,123)   (23,599)   (15,668)

Loss on disposal of discon-
 tinued operations, net of
 income tax benefit
 of $125,000 (Note 3)                  -          -   (225,000)         -

NET INCOME (LOSS)              $  79,512   $ 55,746 $ (109,119) $  135,515

Average common shares
 outstanding                     129,683    129,646    129,683    129,608

Basic earnings (loss) per share:
 Continuing operations         $     .61   $    .55  $    1.08  $    1.17
 Discontinued operations             .00       (.12)      (.18)      (.12)
 Loss on disposal of dis-
  continued operations               .00        .00      (1.74)       .00
   Total                       $     .61   $    .43  $    (.84) $    1.05

Diluted earnings (loss) per share:
 Continuing operations         $     .61   $    .55  $    1.07  $    1.17
 Discontinued operations             .00       (.12)      (.17)      (.13)
 Loss on disposal of dis-
  continued operations               .00        .00      (1.74)       .00
   Total                       $     .61   $    .43  $    (.84) $    1.04

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


                                   - 2 -
<PAGE>

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

                                  ASSETS

                                                    (Unaudited)
                                                      Sep. 30,    Dec. 31,
                                                        1998        1997

CURRENT ASSETS:
Cash and temporary cash investments                 $  122,060 $  111,003
Marketable securities                                   24,532     22,300
Accounts receivable - less reserve                     331,341    242,942
Materials and supplies - primarily at average cost:
 Fuel (predominantly coal)                              69,744     45,450
 Gas stored underground                                 36,694     42,104
 Other                                                  67,232     55,514
Net assets of discontinued opera-
 tions (Note 3)                                        118,774    222,784
Prepayments and other                                   49,138      9,304
 Total current assets                                  819,515    751,401

UTILITY PLANT:
At original cost                                     5,500,302  5,390,868
Less:  reserve for depreciation                      2,321,732  2,201,124
 Net utility plant                                   3,178,570  3,189,744

OTHER PROPERTY AND INVESTMENTS - LESS RESERVES:
Investment in affiliates
 (Note 9)                                              180,385    177,006
Non-utility property and plant, net                    262,347    248,119
Other                                                   56,429     53,534
 Total other property and investments                  499,161    478,659

DEFERRED DEBITS AND OTHER ASSETS                       189,651    143,140

Total assets                                        $4,686,897 $4,562,944

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


                                   - 3 -
<PAGE>

                    LG&E Energy Corp. and Subsidiaries
                   Consolidated Balance Sheets (cont.)
                             (Thousands of $)

                         CAPITAL AND LIABILITIES

                                                    (Unaudited)
                                                      Sep. 30,    Dec. 31,
                                                        1998        1997

CURRENT LIABILITIES:
Long-term debt due within one year                  $       21 $   20,021
Notes payable                                          404,275    393,784
Accounts payable                                       185,763    147,962
Other                                                  260,876    122,780
 Total current liabilities                             850,935    684,547

Long-term debt                                       1,360,764  1,210,690

DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
 taxes                                                 548,486    548,477
Investment tax credit, in
 process of amortization                                95,875    101,931
Regulatory liability                                   116,732    117,079
Other                                                  202,016    156,688
 Total deferred credits and other liabilities          963,109    924,175

Minority interests                                     106,935    105,985

Cumulative preferred stock                             136,530    138,353

COMMON EQUITY:
Common stock, without par value -
 129,677,030 shares outstanding                        778,273    778,273
Other                                                   (2,175)    (1,663)
Retained earnings                                      492,526    722,584
 Total common equity                                 1,268,624  1,499,194

Total liabilities and capital                       $4,686,897 $4,562,944

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


                                   - 4 -
<PAGE>

                    LG&E Energy Corp. and Subsidiaries
                  Consolidated Statements of Cash Flows
                       (Unaudited - Thousands of $)

                                                           Nine Months
                                                              Ended
                                                             Sep. 30,
                                                        1998        1997

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                  $  (109,119)$  135,515
Items not requiring cash currently:
 Depreciation and amortization                         148,200    140,488
 Deferred income taxes - net                               643      5,147
 Loss from discontinued operations
  (Note 3)                                              23,599     15,668
 Loss on disposal of discontinued
  operations (Note 3)                                  225,000          -
 Other                                                  (9,276)     2,666
Change in net current assets                          (124,012)     2,293
Other                                                  (44,538)   (25,036)
 Net cash flows from operating activities              110,497    276,741

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities                                (18,783)    (9,270)
Proceeds from sales of securities                       16,777      3,619
Construction expenditures                             (149,744)  (144,029)
Investment in affiliates                                (1,010)    (5,790)
Proceeds from sale of investment
 in affiliate                                           16,000          -
Acquisition of interests in
 Argentine natural gas distribution
 companies, net of cash and temporary
 cash investments acquired                                   -   (125,852)
  Net cash flows from investing activities            (136,760)  (281,322)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of medium-term notes                          150,000          -
Retirement of long-term debt                           (20,021)       (21)
Short-term borrowings                                4,753,762  2,323,661
Repayment of short-term borrowings                  (4,743,743)(2,216,800)
Redemption of preferred stock                           (1,823)         -
Issuance of common stock                                     -      3,745
Payment of common dividends                           (100,855)  (107,217)
 Net cash flows from financing activities          $    37,320 $    3,368


                                   - 5 -
<PAGE>

                    LG&E Energy Corp. and Subsidiaries
              Consolidated Statements of Cash Flows (cont.)
                       (Unaudited - Thousands of $)

                                                           Nine Months
                                                              Ended
                                                             Sep. 30,
                                                        1998        1997

CHANGE IN CASH AND TEMPORARY
 CASH INVESTMENTS                                  $    11,057 $   (1,213)

CASH AND TEMPORARY CASH INVESTMENTS AT
 BEGINNING OF PERIOD                                   111,003    106,463

CASH AND TEMPORARY CASH INVESTMENTS AT
 END OF PERIOD                                     $   122,060 $  105,250

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:
 Cash paid during the period for:
  Income taxes                                     $    38,137 $   60,342
  Interest on borrowed money                            70,414     66,213

For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.

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


                                   - 6 -
<PAGE>

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

                                    Three Months           Nine Months
                                       Ended                  Ended
                                      Sep. 30,               Sep. 30,
                                  1998       1997       1998        1997

Balance at beginning
 of period                     $ 452,891   $692,218  $ 722,584   $683,962
Net income (loss)                 79,512     55,746   (109,119)   135,515
Cash dividends declared on
 common stock ($.30750, $.28094,
 $.93259 and $.83256 per share)   39,877     36,430    120,939    107,935
Other                                  -          -          -          8

Balance at end of period       $ 492,526   $711,534  $ 492,526   $711,534

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


                                   - 7 -
<PAGE>

                    LG&E Energy Corp. and Subsidiaries
             Consolidated Statements of Comprehensive Income
                       (Unaudited - Thousands of $)
                                 (Note 5)

                                    Three Months           Nine Months
                                       Ended                  Ended
                                      Sep. 30,               Sep. 30,
                                  1998       1997       1998        1997

Net income (loss)              $  79,512    $55,746  $(109,119)   $135,515

Unrealized holding (gains) losses
 on available-for-sale securities
 arising during the period           (50)       184        (42)        112

Reclassification adjustment for
 realized (gains) and losses on
 available-for-sale securities
 included in net income               90        209        124        (232)

Other comprehensive income
 (loss), before tax                   40        393         82        (120)

Income tax expense (benefit) related
 to items of other comprehensive
 income                               29        164         44         (94)

Comprehensive income (loss)    $  79,523    $55,975  $(109,081)   $135,489

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


                                   - 8 -
<PAGE>

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

                                    Three Months           Nine Months
                                       Ended                  Ended
                                      Sep. 30,               Sep. 30,
                                  1998       1997       1998        1997

OPERATING REVENUES:
Electric                        $212,907   $189,482   $528,341   $464,228
Gas                               16,978     18,953    136,277    149,882
 Total operating revenues        229,885    208,435    664,618    614,110

OPERATING EXPENSES:
Fuel for electric generation      41,205     40,731    118,488    107,181
Power purchased                   18,057      6,076     42,883     13,052
Gas supply expenses                8,950     11,541     89,308    100,510
Other operation expenses          41,976     40,875    122,850    114,837
Maintenance                       10,666     11,425     33,985     37,768
Depreciation and amortization     23,294     24,892     69,883     70,795
Federal and state
 income taxes                     27,403     22,890     53,485     47,553
Property and other taxes           4,914      3,443     14,361     12,535
 Total operating expenses        176,465    161,873    545,243    504,231

NET OPERATING INCOME              53,420     46,562    119,375    109,879

Merger costs to
 achieve (Note 2)                      -          -     34,134          -
Other income and (deductions)        359        520     10,668      2,364
Interest charges                   8,918      9,859     27,629     29,566

NET INCOME                        44,861     37,223     68,280     82,677

Preferred stock dividends          1,135      1,146      3,400      3,433

NET INCOME AVAILABLE
 FOR COMMON STOCK               $ 43,726   $ 36,077   $ 64,880   $ 79,244

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


                                   - 9 -
<PAGE>

                   Louisville Gas and Electric Company
                              Balance Sheets
                             (Thousands of $)

                                  ASSETS

                                                    (Unaudited)
                                                      Sep. 30,    Dec. 31,
                                                        1998        1997

UTILITY PLANT:
At original cost                                    $2,840,947 $2,779,234
Less:  reserve for depreciation                      1,131,803  1,072,842
 Net utility plant                                   1,709,144  1,706,392

OTHER PROPERTY AND INVESTMENTS -
 less reserve                                            1,092      1,365

CURRENT ASSETS:
Cash and temporary cash investments                     31,015     50,472
Marketable securities                                   21,511     19,311
Accounts receivable - less reserve                     167,626    124,872
Materials and supplies - at average cost:
 Fuel (predominantly coal)                              26,757     17,651
 Gas stored underground                                 36,032     41,487
 Other                                                  32,934     31,866
Prepayments                                              1,532      2,627
 Total current assets                                  317,407    288,286

DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense                                 5,997      6,074
Regulatory assets                                       38,818     24,899
Other                                                   23,836     28,625
 Total deferred debits and other assets                 68,651     59,598

Total assets                                        $2,096,294 $2,055,641

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


                                  - 10 -
<PAGE>

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

                      CAPITALIZATION AND LIABILITIES

                                                    (Unaudited)
                                                      Sep. 30,    Dec. 31,
                                                        1998        1997

CAPITALIZATION:
Common stock, without par value -
 Outstanding 21,294,223 shares                      $  425,170 $  425,170
Retained earnings                                      260,790    258,910
Other                                                     (730)      (754)
 Total common equity                                   685,230    683,326
Cumulative preferred stock                              95,328     95,328
Long-term debt                                         626,800    626,800
 Total capitalization                                1,407,358  1,405,454

CURRENT LIABILITIES:
Long-term debt due within one year                           -     20,000
Accounts payable                                       122,569    112,142
Dividends declared                                      23,135     21,152
Accrued taxes                                           32,104     18,723
Accrued interest                                         7,712      8,016
Other                                                   15,203     14,608
 Total current liabilities                             200,723    194,641

DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income
 taxes                                                 246,139    249,851
Investment tax credit, in
 process of amortization                                72,620     75,800
Accumulated provision for pensions
 and related benefits                                   62,694     40,608
Regulatory liability                                    69,604     65,502
Other                                                   37,156     23,785
 Total deferred credits and other liabilities          488,213    455,546

Total capitalization and liabilities                $2,096,294 $2,055,641

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


                                  - 11 -
<PAGE>

                   Louisville Gas and Electric Company
                         Statements of Cash Flows
                       (Unaudited - Thousands of $)

                                                           Nine Months
                                                              Ended
                                                             Sep. 30,
                                                        1998        1997

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                           $  68,280  $  82,677
Items not requiring cash currently:
 Depreciation and amortization                          69,883     70,795
 Deferred income taxes - net                               373     (4,170)
 Investment tax credit - net                            (3,180)    (3,257)
 Other                                                   2,862      3,639
Changes in current assets and liabilities:
 Accounts receivable                                   (42,754)   (17,145)
 Materials and supplies                                 (4,719)    (5,727)
 Accounts payable                                       10,427    (26,199)
 Accrued taxes                                          13,381     13,361
 Accrued interest                                         (304)    (1,271)
 Prepayments and other                                   1,690      2,922
Other - net                                             24,132     11,550
 Net cash flows from operating activities              140,071    127,175

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities                        15,623      1,247
Purchases of securities                                (17,784)    (6,457)
Construction expenditures                              (72,950)   (69,850)
 Net cash flows from investing activities              (75,111)   (75,060)

CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of first mortgage bonds                     (20,000)         -
Payment of dividends                                   (64,417)   (41,419)
 Net cash flows from financing activities              (84,417)   (41,419)

CHANGE IN CASH AND TEMPORARY
 CASH INVESTMENTS                                      (19,457)    10,696

CASH AND TEMPORARY CASH INVESTMENTS AT
 BEGINNING OF PERIOD                                    50,472     56,792

CASH AND TEMPORARY CASH INVESTMENTS AT
 END OF PERIOD                                       $  31,015  $  67,488

SUPPLEMENTAL DISCLOSURES:
 Cash paid during the period for:
  Income taxes                                       $  37,396  $  33,120
  Interest on borrowed money                            26,195     29,707

For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.

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


                                  - 12 -
<PAGE>

                   Louisville Gas and Electric Company
                     Statements of Retained Earnings
                               (Unaudited)
                             (Thousands of $)

                                    Three Months           Nine Months
                                       Ended                  Ended
                                      Sep. 30,               Sep. 30,
                                  1998       1997       1998        1997

Balance at beginning
 of period                      $239,064   $233,388   $258,910   $209,222
Net income                        44,861     37,223     68,280     82,677
 Subtotal                        283,925    270,611    327,190    291,899

Cash dividends declared on stock:
 5% cumulative preferred             269        269        807        807
 Auction rate cumulative pref.       499        509      1,492      1,525
 $5.875 cumulative preferred         367        367      1,101      1,101
 Common                           22,000     20,000     63,000     39,000
  Subtotal                        23,135     21,145     66,400     42,433

Balance at end of period        $260,790   $249,466   $260,790   $249,466

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


                                  - 13 -
<PAGE>

                   Louisville Gas and Electric Company
                   Statements of Comprehensive Income
                       (Unaudited - Thousands of $)
                                 (Note 5)

                                    Three Months           Nine Months
                                       Ended                  Ended
                                      Sep. 30,               Sep. 30,
                                  1998       1997       1998        1997

Net income available
 for common stock                $43,726    $36,077    $64,880    $79,244

Unrealized holding gains (losses)
 on available-for-sale securities
 arising during the period            32        (24)        39        (22)

Reclassification adjustment for
 realized gains (losses) on avail-
 able-for-sale securities includ-
 ed in net income                      -        138          -       (264)

Other comprehensive income
 (loss), before tax                   32        114         39       (286)

Income tax expense (benefit) related
 to items of other comprehensive
 income                               14        (46)        16       (157)

Comprehensive income             $43,744    $36,237    $64,903    $79,115

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


                                  - 14 -
<PAGE>

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

                                    Three Months           Nine Months
                                       Ended                  Ended
                                      Sep. 30,               Sep. 30,
                                  1998       1997       1998        1997

OPERATING REVENUES              $246,117   $192,102   $622,415   $533,884

OPERATING EXPENSES:
Fuel for electric generation      65,586     51,962    168,623    138,288
Power purchased                   40,134     18,277     82,725     55,479
Other operation expenses          31,100     29,851     92,531     91,122
Maintenance                       15,630     15,165     45,578     47,666
Depreciation                      21,749     21,084     64,852     62,830
Federal and state
 income taxes                     23,325     16,703     50,024     38,445
Property and other taxes           3,916      3,717     12,225     11,545
 Total operating expenses        201,440    156,759    516,558    445,375

NET OPERATING INCOME              44,677     35,343    105,857     88,509

Merger costs to
 achieve (Note 2)                      -          -     21,830          -
Other income and (deductions)      1,899      1,628      5,806      5,284
Interest charges                   9,596     10,047     28,923     29,820

NET INCOME                        36,980     26,924     60,910     63,973

Preferred stock dividends            564        564      1,692      1,692

NET INCOME AVAILABLE
 FOR COMMON STOCK               $ 36,416   $ 26,360   $ 59,218   $ 62,281

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


                                  - 15 -
<PAGE>

                        Kentucky Utilities Company
                              Balance Sheets
                             (Thousands of $)

                                  ASSETS

                                                    (Unaudited)
                                                      Sep. 30,    Dec. 31,
                                                        1998        1997

UTILITY PLANT:
At original cost                                    $2,659,355 $2,611,634
Less:  reserve for depreciation                      1,189,929  1,128,282
 Net utility plant                                   1,469,426  1,483,352

OTHER PROPERTY AND INVESTMENTS -
 less reserve                                           12,697     12,808

CURRENT ASSETS:
Cash and temporary cash investments                     51,703      5,453
Accounts receivable - less reserve                     130,202     74,524
Material and supplies - at average cost:
 Fuel (predominantly coal)                              16,477     27,799
 Other                                                  24,164     23,648
Prepayments                                              6,673      5,769
 Total current assets                                  229,219    137,193

DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt expense                                 5,328      5,628
Regulatory assets                                       29,485     14,773
Other                                                   19,989     26,126
 Total other assets                                     54,802     46,527

Total assets                                        $1,766,144 $1,679,880

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


                                  - 16 -
<PAGE>

                        Kentucky Utilities Company
                          Balance Sheets (cont.)
                             (Thousands of $)

                      CAPITALIZATION AND LIABILITIES

                                                    (Unaudited)
                                                      Sep. 30,    Dec. 31,
                                                        1998        1997

CAPITALIZATION:
Common stock, without par value -
 Outstanding 37,817,878 shares                      $  308,140 $  308,140
Retained earnings                                      305,877    304,750
Other                                                     (595)      (595)
 Total common equity                                   613,422    612,295
Cumulative preferred stock                              40,000     40,000
Long-term debt                                         546,330    546,351
 Total capitalization                                1,199,752  1,198,646

CURRENT LIABILITIES:
Long-term debt due within one year                          21         21
Notes payable                                                -     33,600
Accounts payable                                       108,393     33,386
Dividends declared                                      18,188        188
Accrued taxes                                           17,342      7,473
Accrued interest                                        10,824      8,283
Other                                                   34,327     26,216
 Total current liabilities                             189,095    109,167

OTHER LIABILITIES:
Accumulated deferred income
 taxes                                                 248,272    245,150
Investment tax credit, in
 process of amortization                                23,255     26,131
Regulatory liability                                    47,128     50,904
Other                                                   58,642     49,882
 Total other liabilities                               377,297    372,067

Total capitalization and liabilities                $1,766,144 $1,679,880

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


                                  - 17 -
<PAGE>

                        Kentucky Utilities Company
                         Statements of Cash Flows
                       (Unaudited - Thousands of $)

                                                           Nine Months
                                                              Ended
                                                             Sep. 30,
                                                        1998        1997

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                           $  60,910  $  63,973
Items not requiring cash currently:
 Depreciation and amortization                          64,852     62,830
 Deferred income taxes - net                              (331)     3,244
 Investment tax credit - net                            (2,875)    (3,040)
Changes in current assets and liabilities:
 Accounts receivable                                   (55,678)     8,915
 Materials and supplies                                 10,806       (245)
 Accounts payable                                       75,007     (5,152)
 Accrued taxes                                           9,869      4,045
 Accrued interest                                        2,541      2,586
 Prepayments and other                                   6,881      4,923
Other                                                    3,095     (2,381)
 Net cash flows from operating activities              175,077    139,698

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from insurance reimbursement                       75      4,265
Construction expenditures                              (53,498)   (68,423)
 Net cash flows from investing activities              (53,423)   (64,158)

CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings                                  381,500  1,894,500
Repayments of short-term borrowings                   (415,100)(1,918,800)
Repayments of debt                                         (21)       (21)
Payment of dividends                                   (41,783)   (51,611)
 Net cash flows from financing activities              (75,404)   (75,932)

CHANGE IN CASH AND TEMPORARY
 CASH INVESTMENTS                                       46,250       (392)

CASH AND TEMPORARY CASH INVESTMENTS AT
 BEGINNING OF PERIOD                                     5,453      5,719

CASH AND TEMPORARY CASH INVESTMENTS AT
 END OF PERIOD                                       $  51,703  $   5,327

SUPPLEMENTAL DISCLOSURES:
 Cash paid during the period for:
  Income taxes                                       $  43,556  $  25,316
  Interest on borrowed money                            24,244     32,810

For the purposes of these statements, all temporary cash investments
purchased with a maturity of three months or less are considered cash
equivalents.

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


                                  - 18 -
<PAGE>

                        Kentucky Utilities Company
                     Statements of Retained Earnings
                               (Unaudited)
                             (Thousands of $)

                                    Three Months           Nine Months
                                       Ended                  Ended
                                      Sep. 30,               Sep. 30,
                                  1998       1997       1998        1997

Balance at beginning
 of period                      $287,461   $290,493   $304,750   $287,851
Net income                        36,980     26,924     60,910     63,973
 Subtotal                        324,441    317,417    365,660    351,824

Cash dividends declared on stock:
 4.75% preferred                     237        237        713        713
 6.53% preferred                     327        327        979        979
 Common                           18,000     16,640     58,091     49,919
  Subtotal                        18,564     17,204     59,783     51,611

Balance at end of period        $305,877   $300,213   $305,877   $300,213

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


                                  - 19 -
<PAGE>

                    LG&E Energy Corp. and Subsidiaries
                   Louisville Gas and Electric Company
                        Kentucky Utilities Company

                      Notes to Financial Statements
                               (Unaudited)

1. Effective May 4, 1998, following the receipt of all required state and
   federal regulatory approvals, LG&E Energy Corp. (LG&E Energy or the
   Company) and KU Energy Corporation (KU Energy) merged, with LG&E Energy
   as the surviving corporation (the Merger).  The accompanying unaudited
   consolidated financial statements reflect the accounting for the merger
   as a pooling of interests and are presented as if the companies were
   combined as of the earliest period presented.  However, the financial
   information is not necessarily indicative of the results of operations,
   financial position or cash flows that would have occurred had the
   merger been consummated for the periods for which it is given effect,
   nor is it necessarily indicative of future results of operations,
   financial position, or cash flows.  The financial statements reflect
   the conversion of each outstanding share of KU Energy common stock into
   1.67 shares of LG&E Energy common stock.  The outstanding preferred
   stock of Louisville Gas and Electric Company (LG&E), a subsidiary of
   LG&E Energy, and Kentucky Utilities Company (KU), a subsidiary of KU
   Energy, were not affected by the Merger.

   KU Capital Corporation, a subsidiary of KU Energy, was merged into LG&E
   Capital Corp. (Capital Corp.) on July 24, 1998, with the latter as the
   surviving corporation.  The consolidated financial statements include
   the accounts of LG&E Energy Corp., LG&E, LG&E Capital Corp., and KU and
   their respective wholly-owned subsidiaries, collectively referred to
   herein as the "Company."  All significant intercompany items and
   transactions have been eliminated from the unaudited consolidated
   financial statements.

   In the opinion of management, all adjustments, including those of a
   normal recurring nature, have been made to present fairly the
   consolidated financial position, results of operations and cash flows
   for the periods indicated.  Certain information and footnote
   disclosures normally included in financial statements prepared in
   accordance with generally accepted accounting principles have been
   condensed or omitted pursuant to SEC rules and regulations, although
   the Company believes that the disclosures are adequate to make the
   information presented not misleading.

   See the Company's 'Financial Statements for the year ended December 31,
   1997, contained in its Report on Form 8-K dated October 21, 1998, for
   information relevant to the accompanying financial statements,
   including information as to the significant accounting policies of the
   Company.  See also LG&E's and KU's Annual Reports on Form 10-K for
   1997.

2. Through September 30, 1998, the Company's costs associated with the KU
   Energy merger amounted to $103.9 million.  This amount included $52.3
   million for LG&E and $42.3 million for KU, and consisted of separation
   costs, transaction costs and other merger-related expenditures.  In
   accordance with regulatory filings approved by the Kentucky Public
   Service Commission (the Commission) and the Virginia State Corporation
   Commission, the Company deferred $38.6 million of the costs associated
   with the merger and will amortize this amount over five years.  LG&E
   and KU will refund merger-related savings to their customers through
   surcredits over the next five years, and the amortization will reduce
   the amount of the surcredits.  The amortization and the surcredits
   began in July 1998.  The Company, LG&E and KU expensed the remaining
   costs associated with the merger in the second quarter of 1998, and
   included the amounts in merger costs to achieve in the accompanying
   statements of income.


                                  - 20 -
<PAGE>

   For more information, see Note 2 of the Company's Financial Statements
   for the year ended December 31, 1997, contained in its Report on Form 8-
   K dated October 21, 1998, the Company's Current Report on Form 8-K
   dated May 4, 1998, and LG&E's and KU's Annual Reports on Form 10-K for
   1997.

3. Effective June 30, 1998, the Company discontinued its merchant trading
   and sales business, primarily due to its current portfolio of energy
   marketing contracts, and the impact that recent volatility, instability
   and rising prices on the power market have had on these contracts.
   Exiting the merchant trading and sales business is intended to enable
   the Company to focus on adding and optimizing physical assets, and to
   eliminate the earnings impact to continuing operations of extreme
   market volatility on its current portfolio of energy marketing
   contracts.  The Company is in the process of settling the long-term
   contracts that obligate it to buy and sell natural gas and electric
   power.  It also plans to sell its natural gas gathering and processing
   business.  The Company, however, intends to maintain sufficient market
   knowledge, risk management skills, technical systems and experienced
   personnel to maximize the value of power sales from assets it owns or
   controls, including LG&E, KU and WKEC.

   As a result of the Company's decision to discontinue its merchant
   trading and sales activity, and the decision to sell the associated gas
   gathering and processing business, the Company recorded an after-tax
   loss on disposal of discontinued operations of $225.0 million in the
   second quarter of 1998.  The loss on disposal of discontinued
   operations results primarily from several fixed-price energy marketing
   contracts entered in 1996 and early 1997, including the Company's long-
   term contract with Oglethorpe Power Corporation (OPC).  Other
   components of the write-off include costs relating to certain peaking
   options, goodwill associated with the Company's 1995 purchase of these
   operations and exit costs.  Management believes that its estimates of
   the net realizable value for discontinued operations recorded in the
   second quarter have not changed materially.  Although the Company used
   what it believes to be appropriate estimates for future energy prices
   among other factors to calculate the fair market value of discontinued
   operations, there is no guarantee that higher than anticipated future
   prices or lower than anticipated proceeds from the asset sales could
   not result in additional losses.  As of October 15, 1998, the Company
   estimated that a $1 change in electricity prices across all geographic
   areas and time periods could change the value of the Company's
   remaining energy portfolio by approximately $10 million.  In addition
   to price risk, the value of the Company's remaining energy portfolio is
   subject to operational and event risks including, among others,
   increases in load demand, regulatory changes, and forced outages at
   units providing supply for the Company.  As of October 15, 1998, the
   Company estimated that a 1% change in the forecasted load demand could
   change the value of the Company's remaining energy portfolio by $11
   million.



                                  - 21 -
<PAGE>

   Operating results for discontinued operations follow.

                                    Three Months           Nine Months
                                       Ended                  Ended
                                      Sep. 30,               Sep. 30,
                                  1998       1997       1998        1997

   Revenues                   $1,895,622   $844,104 $3,552,305 $2,425,071
   Income (loss) before taxes    (77,268)   (24,844)  (115,774)   (24,851)
   Income (loss) from dis-
     continued operations,
     net of income taxes         (39,569)   (15,123)   (63,168)   (15,668)

   Net assets of discontinued operations at September 30, 1998, follow.

   Cash and temporary cash
     investments                          $   8,629
   Accounts receivable                      427,061
   Price risk management assets              94,667
   Non-utility property and
     plant, net                             167,288
   Accounts payable                        (410,811)
   Price risk management
     liabilities                            (55,520)
   Goodwill and other assets
     and liabilities, net                    32,459

   Net assets before accrued
     loss on disposal of dis-
     continued operations                   263,773

   Accrued loss on disposal
     of discontinued operations,
     net of income tax benefit
     of $80,362                             144,999

   Net assets of discon-
     tinued operations                    $ 118,774

4. On April 3, 1998, LG&E entered into a forward-starting interest-rate
   swap with a notional amount of $83.3 million.  The swap will hedge
   anticipated variable-rate borrowing commitments.  It will start in
   August 2000 and mature in November 2020.  LG&E will pay a fixed rate of
   5.21% and receive a variable rate based on the Bond Market Association
   Municipal Swap Index.  Under certain conditions, the counterparty to
   the agreement may terminate the swap at no cost after August 2010.

   In September 1998, LG&E entered into two interest-rate swaps with
   notional amounts totaling $100 million.  The swaps hedge tax-exempt
   variable-rate borrowing commitments.  They started in September 1998
   and they will mature in September 2001.  LG&E pays fixed rates of 3.66%
   and 3.56% and receives a variable rate based on the Bond Market
   Association Municipal Swap Index.  The receive rate currently amounts
   to 3.56%.

   In September 1998, Capital Corp. entered into two forward-starting
   interest-rate swaps with notional amounts totaling $150 million.  The
   swaps were hedges of anticipated medium-term note issuance.  They were
   to start on October 30, 1998, and mature in October 2001.  Capital
   Corp. would have paid a fixed rate of 5.158% on the swaps

                                  - 22 -
<PAGE>

   and would have received a variable rate based on the six-month London
   Interbank offered rate.  The swaps were terminated on October 29, 1998,
   when the medium-term notes were priced (see also Note 13).

   In September 1998, Capital Corp. entered into an interest-rate swap
   with a notional amount of $50 million.  The swap hedges outstanding
   commercial paper.  The swap started on October 1, 1998, and it will
   mature in January 2000.  Capital Corp. pays a fixed rate of 4.78% on
   the swap and receives a variable rate based on a one-month commercial
   paper index.  The index rate currently amounts to 5.12%.

   The fair values of the Company's interest-rate swaps totaled $21.7
   million (liability) as of September 30, 1998.

5. In the first quarter of 1998, the Company, LG&E, and KU adopted
   Statement of Accounting Standards No. 130, Reporting Comprehensive
   Income.  The Company and LG&E have presented the information required
   by the Statement in their respective Statements of Comprehensive
   Income.  KU had no items of other comprehensive income for the three-
   and nine-month periods ended September 30, 1998, and September 30,
   1997, and it had no accumulated other comprehensive income at September
   30, 1998, or December 31, 1997.  Accumulated other comprehensive income
   included in the Company's equity totaled $255,000 and $217,000 at
   September 30, 1998, and December 31, 1997, respectively.  Accumulated
   other comprehensive income included in LG&E's equity totaled $105,000
   and $82,000 at September 30, 1998, and December 31, 1997, respectively.
   The Company's and LG&E's accumulated other comprehensive income at
   September 30, 1998, and December 31, 1997, consisted of unrealized
   holding gains and losses on available-for-sale marketable securities.

   On March 4, 1998, the American Institute of Certified Public
   Accountants issued Statement of Position No. 98-1, Accounting for the
   Costs of Computer Software Developed or Obtained for Internal Use (SOP
   98-1), which is effective for fiscal years beginning after December 15,
   1998.  The statement clarifies the criteria for capital or expense
   treatment of costs incurred by an enterprise to develop or obtain
   computer software to be used in its internal operations.  The statement
   does not change treatment of costs incurred in connection with
   correcting computer programs to properly process the millennium change
   to the Year 2000, which must be expensed as incurred.  The Company
   plans to adopt SOP 98-1 on January 1, 1999.  Management does not expect
   adoption of this statement to have a material adverse effect on its
   financial position or results of operations.

   On April 3, 1998, the American Institute of Certified Public
   Accountants issued Statement of Position No. 98-5, Reporting on the
   Costs of Start-Up Activities, which is effective for fiscal years
   beginning after December 31, 1998.  The statement requires companies to
   expense the costs of start-up activities as incurred.  The statement
   also requires certain previously capitalized costs to be charged to
   expense at the time of adoption and reported as the cumulative effect
   of a change in accounting principle.  The Company is currently
   analyzing the provisions of the statement and anticipates that a range
   of $10 to $20 million of start-up costs could be affected.

   On June 15, 1998, the Financial Accounting Standards Board issued
   Statement of Financial Accounting Standards No. 133, Accounting for
   Derivative Instruments and Hedging Activities.  The statement is
   effective for fiscal years beginning after June 15, 1999, and
   establishes accounting and reporting standards that every derivative
   instrument be recorded on the balance sheet as either an asset or
   liability measured at its fair value.  The statement requires that
   changes in the derivative's fair value be recognized currently in
   earnings unless specific hedge accounting criteria are met.  Special
   accounting for qualifying hedges allows a derivative's gains and losses
   to offset related results on the hedged item in the income statement,
   and requires

                                  - 23 -
<PAGE>

   that a company must formally document, designate, and assess the
   effectiveness of transactions that receive hedge accounting.  The
   Company is currently analyzing the provisions of the statement and
   cannot predict the impact this statement will have on its consolidated
   operations and financial position.  However, the statement could
   increase volatility in earnings and other comprehensive income.

6. Since August 1994, KU has been collecting an environmental surcharge
   from its Kentucky retail customers under a Kentucky statute which
   authorizes electric utilities (including KU) to implement, beginning
   January 1, 1993, an environmental surcharge.  The surcharge is designed
   to recover certain operating and capital costs of compliance with
   federal, state or local environmental requirements associated with the
   production of energy from coal, including the Federal Clean Air Act as
   amended.  KU's environmental surcharge was approved by the Kentucky
   Public Service Commission (PSC) in July 1994 and was implemented in
   August 1994.  The total surcharge collections from August 1, 1994,
   through September 30, 1998, were approximately $75 million.

   The PSC's order approving the surcharge and the constitutionality of
   the surcharge statute were challenged in the Franklin County (Kentucky)
   Circuit Court (Circuit Court) in an action brought against KU and the
   PSC by the Attorney General of Kentucky and joined by representatives
   of consumer groups.  In July 1995, the Circuit Court entered a judgment
   upholding the constitutionality of the surcharge statute, but vacating
   that part of the PSC's July 1994 order which the Circuit Court's
   judgment described as retroactively applying the surcharge statute.
   The Circuit Court further ordered the case remanded to the PSC for a
   determination in accordance with the judgment.  KU and the PSC argued
   that the PSC's July 1994 order did not retroactively apply the statute.

   The Kentucky Attorney General and other consumer representatives
   appealed to the Kentucky Court of Appeals (Court of Appeals) the
   portion of the Circuit Court's judgment upholding the constitutionality
   of the surcharge statute.  The PSC and KU appealed the portion of the
   judgment concerning the retroactive application of the surcharge
   statute.  The PSC previously ordered KU to collect all surcharge
   revenues beginning February 1, 1995 subject to refund pending final
   determination of all appeals.  KU expects the PSC to continue to do so
   until the appeals are concluded.  The total surcharge collections from
   February 1, 1995 through September 30, 1998 were approximately $70
   million.

   In December 1997, the Court of Appeals rendered an opinion upholding
   the portion of the Circuit Court's judgment regarding the
   constitutionality of the surcharge statute but reversing that portion
   of the Circuit Court's judgment concerning the claim of retroactive
   application of the statute.

   The Kentucky Attorney General and other consumer representatives filed
   motions for discretionary review with the Kentucky Supreme Court
   (Supreme Court).  The Supreme Court granted said motion and the issues
   are presently being briefed by the parties at the Supreme Court. Oral
   arguments are scheduled for November 13, 1998.

   KU continues to believe that the constitutionality of the surcharge
   statute will be upheld.  Although KU cannot predict the outcome of the
   claim of retroactive application of the statute, it is the position of
   KU and the PSC that the July 1994 PSC order did not retroactively apply
   the statute.  If the Court of Appeals' opinion reversing the Circuit
   Court's judgment on the claim of retroactivity is overturned and the
   Circuit Court's judgment, as entered, is upheld, KU estimates that the
   amount it could be required to refund for surcharge collections through
   September 30, 1998, from the implementation of the surcharge would be
   approximately $18 million and from February 1, 1995, would be
   approximately $16 million.  At this time, KU has not recorded any
   reserve for refund.


                                  - 24 -
<PAGE>

   Although not a party to the KU proceeding, LG&E is involved in separate
   proceedings regarding its surcharge and may also face exposure on these
   matters in the event of an ultimate adverse ruling on these issues.
   See Note 4 of LG&E's Notes to Financial Statements in LG&E's Annual
   Report on Form 10-K for the year ended December 31, 1997, for a further
   discussion.

7. Note 18 of the Company's Financial Statements for the year ended
   December 31, 1997, contained in its 'Report on Form 8-K dated October
   21, 1998, discusses the status of certain proceedings before the FERC
   regarding the status of the Southampton cogeneration facility
   ("Southampton") as a qualifying facility ("QF") under the Public
   Utility Regulatory Policies Act for the year 1992, including a
   settlement agreement as to any FERC-ordered rate refunds payable from
   Southampton to Virginia Electric and Power Company ("VEPCO") for the
   1992 period.  See Part II, Item 1, Legal Proceedings, for recent
   developments in this matter.

8. Effective July 15, 1998, the Company closed its transaction to lease
   the generating assets of Big Rivers Electric Corporation ("Big
   Rivers").  Future minimum payments under the lease agreement follow
   (amounts in thousands of dollars).

   1998                                               $      -
   1999                                                      -
   2000                                                 14,192
   2001                                                 30,965
   2002                                                 30,965
   Thereafter                                          650,265

   Total                                              $726,387

   The Company paid the first two years' rent to Big Rivers at closing.
   The above table does not include this payment, which totaled $55.9
   million.

   See "Recent Developments - Lease of Big Rivers Facilities" in Item 2,
   Management's Discussion and Analysis of Operations and Financial
   Condition for information concerning this transaction.  See also Part
   II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the
   quarter ended March 31, 1998 and Part I, Item 1, Business, of the
   Company's 1997 Form 10-K.

9. On June 30, 1998, the partnership that owns the Rensselaer cogeneration
   facility, along with 14 other independent power producers, participated
   in the consummation of a Master Restructuring Agreement (MRA) with
   Niagara Mohawk Power Corporation (NIMO), the purchasing utility.  As
   part of the MRA, the partnership restructured its power purchase
   agreement with NIMO and entered into a multi-year agreement with the
   utility.  Substantial amounts of the gross proceeds received by the
   partnership from NIMO were used to repay outstanding project debt and
   financial obligations as well as termination payments to the project's
   steam host, fuel suppliers, fuel transporters and other service
   providers.

   As a result of a settlement among the parties, the Company will retain
   a 50% interest in the partnership that owns the Rensselaer facility.
   The Company received one-half of the partnership's net receipts related
   to the MRA, less amounts retained by the partnership for operating
   needs.  The Company recognized an after-tax gain on the MRA transaction
   of $21 million.  See also Part II, Item 1, Legal Proceedings of the
   Company's Form 10-Q's for the quarters ended March 31, 1998, and June
   30, 1998.

10.In January 1994,LG&E implemented a Commission approved demand side
   management (DSM) program that LG&E, the Jefferson County Attorney, and
   representatives of several customers interest groups had filed with the
   Commission.  One rate mechanism contained

                                  - 25 -
<PAGE>

   in the program allowed LG&E to recover revenues from lost sales associated
   with the DSM program ("decoupling").  In June 1998, LG&E and customer
   interest groups requested an end to the decoupling rate mechanism.  On
   September 23, 1998, the Commission accepted the proposal effective as
   of June 1, 1998.  On June 1, 1998, LG&E discontinued recording revenues
   from lost sales due to DSM.  Decoupling revenues recorded prior to June
   1, 1998, will continue to be recovered through the DSM recovery
   mechanism.

11.In October 1998, LG&E and KU filed separate, but parallel applications
   with the Commission for approval of a new method of determining
   electric rates that provide financial incentives for LG&E and KU to
   further reduce customers' bills.  The filing was required by the
   September 1997 Commission merger order.

   The new rate making method, known as performance based ratemaking
   (PBR), would include financial incentives for LG&E and KU to reduce
   fuel costs and increase generating efficiency, and to share any
   resulting savings with customers.  Additionally, the PBR provides
   financial penalties and rewards to assure continued high quality
   service and reliability.

   The performance-based ratemaking plan chosen by LG&E and KU consists of
   five components:

   The utilities' fuel adjustment clause mechanism will be withdrawn and
   replaced with a cap that limits recovery of actual changes in fuel cost
   to changes in a fuel price index for a five state region.  If the
   utility outperforms the index, benefits will be shared equally between
   shareholders and customers.  If the utility's fuel costs exceed the
   index, the difference will be absorbed by the company's shareholders;

   Customers will continue to receive the benefits from the post-merger
   joint dispatch of power from LG&E's and KU's generating plants;

   Power plant performance will be measured against the best performance
   achieved between 1991 and 1997.  If the performance exceeds this level,
   customers will share the benefits of this performance up to $10 million
   annually at each of LG&E and KU;

   The utility will be encouraged to maintain and improve service quality,
   reliability, customer satisfaction and safety, which will be measured
   against six objective benchmarks.  The plan provides for annual rewards
   or penalties to the company of up to $5 million per year at each of
   LG&E and KU;

   The plan provides the utility with greater flexibility to customize
   rates and services to meet customer needs.  Services will continue to
   be priced above marginal cost and customers will continue to have the
   option to elect standard tariff service.  These proposals remain
   subject to approval by the Commission.

12.Note 18 of the Company's Financial Statements for the year ended
   December 31, 1997, contained in its Report on Form 8-K dated October
   21, 1998, discuss certain pending settlements for an aggregate of
   $150,000 relating to LG&E's status as a potentially responsible party
   under the Comprehensive Environmental Response Compensation and
   Liability Act for certain disposal facilities.  Note 12 of LG&E's
   Financial Statements for the year ended December 31, 1997, contained in
   its'' Annual Report on Form 10-K for 1997, also discusses the
   settlements'.  These settlements are now final and have been entered by
   the court.

13.On November 3, 1998, Capital Corp. issued $150 million of Reset Put
   Securities due 2011.  The interest rate is set at 5.75% through
   November 1, 2001.  The securities will be subject to automatic purchase
   by a remarketing agent, at which time the in

                                  - 26 -
<PAGE>

   terest rate will be reset, or to automatic repurchase by Capital Corp., on
   November 1, 2001.  After taking into account the net effect of the
   derivative instruments entered into in September 1998 to hedge the
   interest rate on the notes and other issuance costs, the effective rate
   through October 31, 2001, is approximately 5.37%.  The proceeds were
   used to repay a portion of Capital Corp.'s outstanding commercial
   paper.

14.Reference is made to Part II, Legal Proceedings, below and in the
   Company's, KU Energy's, LG&E's and KU's 10-Qs for the quarter ended
   March 31, 1998, and June 30, 1998, respectively, Part I, Item 3, Legal
   Proceedings, of the Company's, KU Energy's, LG&E's and KU's (and Note
   16 of the Company's Notes to Financial Statements) respective Annual
   Reports on Form 10-K for the year ended December 31, 1997.


                                  - 27 -
<PAGE>

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

Recent Developments

On May 4, 1998, LG&E Energy and KU Energy merged.  KU Energy was the parent
company of Kentucky Utilities Company (KU).  Further information concerning
the merger is included in Notes 1 and 2.

On June 8, 1998, LG&E Power Inc. (LPI) announced that it has entered into a
partnership with Columbia Electric Corporation in the development of a
natural gas-fired cogeneration project in Gregory, Texas, providing
electricity and steam equivalent to 550 Mw.  The project's construction is
subject, among other things, to final negotiation of project documents and
completion of financing arrangements.  The project will sell steam and a
portion of its electric output to Reynolds Metals Company.  It is
anticipated that the remaining electric output will be sold initially under
a medium-term contract.  The project is expected to begin commercial
operation in the summer of 2000.  Total project cost is anticipated to be
approximately $240 million.  Non-recourse financing is expected to fund a
majority of the costs.  The Company's equity contribution is expected to be
approximately $30-35 million in connection with its 50% interest in the
project.

In early October 1998, LG&E Capital Corp. entered into a cancelable letter
of intent to purchase two natural gas turbines.  The Company anticipates
that the turbines, if purchased, or their electrical output, if purchased
and operated, would be marketed or resold to an affiliated or an
unaffiliated third party.  However, there can be no assurance as to when,
if at all, such resale would occur or as to the price of any such resale.
The aggregate purchase price, including costs of installation, for the
turbines is approximately $115 million, which is expected to be largely
funded through additional borrowing by Capital Corp.

On November 10, 1998, LG&E's collective bargaining agreement with employees
represented by the International Brotherhood of Electrical Workers Local
2100 (IBEW) expired.  On November 11, 1998, IBEW employees voted to reject
a tentative agreement for a proposed four-year contract which had been
reached by negotiation teams representing LG&E and the IBEW.  Both sides
plan to meet with their committees to discuss how to proceed.  LG&E's
operations and maintenance employees are members of the IBEW, which
represents approximately 60% of LG&E's workforce.

Discontinuance of Merchant Energy Trading and Sales Business

Effective June 30, 1998, the Company discontinued its merchant trading and
sales business, primarily due to its current portfolio of energy marketing
contracts, and the impact that recent volatility, instability and rising
prices on the power market have had on these contracts.  Exiting the
merchant trading and sales business is intended to enable the Company to
focus on adding and optimizing physical assets, and to eliminate the
earnings impact to continuing operations of extreme market volatility on
its current portfolio of energy marketing contracts.  The Company is in the
process of settling the long-term contracts that obligate it to buy and
sell natural gas and electric power.  It also included its natural gas
gathering and processing business in discontinued operations.  The Company,
however, intends to maintain sufficient market knowledge, risk management
skills, technical systems and experienced personnel to maximize the value
of power sales from assets it owns or controls, including LG&E, KU and
Western Kentucky Energy Corp. (WKEC).

As a result of the Company's decision to discontinue its merchant trading
and sales activity, and the decision to sell the associated gas gathering
and processing business, the Company recorded an after-tax loss on disposal
of discontinued operations of $225.0 million in the second quarter of 1998.
The loss on disposal of discontinued operations re

                                  - 28 -
<PAGE>

sults primarily from several fixed-price energy marketing contracts entered
in 1996 and early 1997, including the Company's long-term contract with
Oglethorpe Power Corporation (OPC).  Other components of the write-off
include costs relating to certain peaking options, goodwill associated with
the Company's 1995 purchase of these operations and exit costs.  Management
believes that its estimates of the net realizable value for discontinued
operations recorded in the second quarter have not changed materially.
Although the Company used what it believes to be appropriate estimates for
future energy prices among other factors to calculate the fair market value
of discontinued operations, there is no guarantee that higher than
anticipated future prices or lower than anticipated proceeds from the asset
sales could not result in additional losses.  As of October 15, 1998, the
Company estimates that a $1 change in electricity prices across all
geographic areas and time periods could change the value of the Company's
remaining energy portfolio by approximately $10 million.  In addition to
price risk, the value of the Company's remaining energy portfolio is
subject to operational and event risks including, among others, increases
in load demand, regulatory changes, and forced outages at units providing
supply for the Company.  As of October 15, 1998, the Company estimates that
a 1% change in the forecasted load demand could change the value of the
Company's remaining energy portfolio by $11 million.  See Part II, Item I
for a discussion of recent developments regarding the OPC contract.

The Company restated its financial statements for prior periods to present
the operating results, financial position and cash flows of these
businesses as discontinued operations.  See Note 3 of the Company's
Financial Statements for the year ended December 31, 1997, contained in its
Report on Form 8-K dated October 21, 1998 and Note 3 of Notes to Financial
Statements under Item 1 for more information.

Master Restructuring Agreement

On June 30, 1998, the partnership that owns the Rensselaer cogeneration
facility, along with 14 other independent power producers, participated in
the consummation of a Master Restructuring Agreement (MRA) with Niagara
Mohawk Power Corporation (NIMO), the purchasing utility.  The Company
recognized an after-tax gain on the MRA transaction and the settlement of
$21 million.  See Note 9 of Notes to Financial Statements.

Lease of Big Rivers Facilities

Effective July 15, 1998, the Company closed its transaction to lease the
generating assets of Big Rivers following receipt of necessary regulatory
approvals.  This 25-year transaction involves a lease by subsidiaries of
the Company of Big Rivers' approximately 1,700 megawatts of generating
capacity.  Under the transaction, Western Kentucky Energy Corp. (WKE), a
subsidiary of the Company, leases and operates Big Rivers' three coal-fired
facilities as an exempt wholesale generator.  In addition, an affiliate of
WKE operates and maintains the Station Two generating facility of the City
of Henderson, Kentucky, and another affiliate, LG&E Energy Marketing, Inc.
(LEM), purchases from the City the capacity and energy of Station Two in
excess of the City's needs.  In related transactions, LEM supplies power to
Big Rivers at fixed prices to meet the needs of its four member
distribution cooperatives and their retail customers in Western Kentucky,
and separately provides power directly to two of those cooperatives to meet
the needs of the aluminum smelting facilities of Alcan Aluminum Corporation
and Southwire Company in Kentucky.  Excess generating capacity, currently
estimated to be up to 350 Mw in the aggregate for this transaction, will
remain available for LEM to market throughout the region.  In connection
with these transactions, the Company, through its affiliates, has
undertaken to bear certain of the future capital requirements of those
generating assets, certain defined environmental compliance costs
(including costs to comply with recent NOx limitations), and other
obligations.  Big Rivers' personnel at the plants became employees of WKE
upon the commencement of the transactions.  Final Kentucky Public Service
Commission approvals in connection with this transaction were received on
July 14, 1998, and final Federal Energy

                                  - 29 -
<PAGE>

Regulatory Commission approvals were received on July 8, 1998.  See Part
II, Item 1, Legal Proceedings, of the Company's Form 10-Qs for the quarters
ended March 31, 1998, and June 30, 1998, and Part I, Item 1, Business, of
the Company's 1997 Form 10-K.

General

Two of the Company's principal subsidiaries are LG&E, an electric and gas
utility, and KU, an electric utility.  LG&E's and KU's results of
operations and liquidity and capital resources are important factors
affecting the Company's consolidated results of operations and capital
resources and liquidity.

Some of the matters discussed in the Notes to Consolidated Financial
Statements and Management's Discussion and Analysis may contain forward-
looking statements that are subject to certain risks, uncertainties and
assumptions.  Actual results may vary materially.  Factors that could cause
actual results to differ materially include, but are not limited to:
general economic conditions; business and competitive conditions in the
energy industry; future prices of power and natural gas; unusual weather;
regulatory decisions, including decisions resulting from the combination of
LG&E Energy and KU Energy; the Company's ability to resolve Year 2000
issues in a timely manner and other factors described from time to time in
the Company's reports to the Securities and Exchange Commission, including
Exhibit 99.01 to the Form 10-K for the year ended December 31, 1997.

                          Results of Operations

LG&E's, KU's and the Argentine gas distribution companies' results of
operations are significantly 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, 1998, Compared to
                  Three Months Ended September 30, 1997

The Company's diluted earnings per share from continuing operations
increased to $.61 in 1998 from $.55 in 1997.  The increase resulted from
increased earnings at LG&E and KU and from marketing the power generated by
the Big Rivers facility (the Company began leasing the facility in July
1998).  Decreases resulting from receiving fees in 1997 related to an
undeveloped independent power project and increased corporate expenses
partially offset these increases.

LG&E Results:

LG&E's net income increased $7.6 million for the quarter ended September
30, 1998, as compared to the quarter ended September 30, 1997, primarily
because of an increase in electric sales due to warmer weather.



                                  - 30 -
<PAGE>

A comparison of LG&E's revenues for the quarter ended September 30, 1998,
with the quarter ended September 30, 1997, reflects increases and decreases
which have been segregated by the following principal causes:

                                                           Increase or
                                                            (Decrease)
                                                          (Thousands of $)
                                                      Electric      Gas
Cause                                                 Revenues    Revenues

Sales to ultimate consumers:
 Fuel and gas supply adjustments                       $ 1,138    $  (711)
 Demand side management/decoupling
  revenue                                                 (315)      (353)
 Merger surcredit                                       (2,127)         -
 Variation in sales volume, etc.                        13,196       (855)

 Total                                                  11,892     (1,919)

Sales for resale                                        11,501        194
Gas transportation - net                                     -       (104)
Other                                                       32       (146)

Total                                                  $23,425    $(1,975)

Retail electric sales increased due to the warmer weather experienced in
the quarter compared to the third quarter of 1997; cooling degree days this
quarter were 27% higher than last year.  Electric sales for resale
increased due to larger amounts of power available for off-system sales, an
increase in the unit price of sales and sales to Kentucky Utilities of $3.5
million as a result of economic dispatch of generating units between LG&E
and KU following the merger of LG&E Energy Corp. and KU Energy.  As a
consequence of such economic dispatch, LG&E and KU are buying power from
each other when it is economically advisable for them to do so.  See Note
10 of Notes to Financial Statements for a discussion regarding the
termination of the demand side management revenue decoupling mechanism
effective June 1, 1998.

Fuel for electric generation and gas supply expenses comprise a large
segment of LG&E's total operating expenses.  LG&E's electric and gas rates
contain a fuel adjustment clause and a gas supply clause, respectively,
whereby increases or decreases in the cost of fuel and gas supply may be
reflected in retail rates, subject to the approval of the Public Service
Commission of Kentucky.  See Note 11 of Notes to Financial Statements
relating to performance-based ratemaking.  Fuel for electric generation
increased $.5 million for the quarter because of a higher cost of coal
burned.  Gas supply expenses decreased $2.6 million (22%) due to a decrease
in the volume of gas delivered to the distribution system ($1 million) and
a decrease in net gas supply cost ($1.6 million).

Power purchased increased $12 million because of an increase in the unit
price of purchases, increased Kwh purchases to support increased electric
sales and increased purchases from Kentucky Utilities of $6.0 million as a
result of economic dispatch following the merger of the two companies in
May 1998.

Maintenance expenses decreased $.8 million (7%) mainly because of a
decrease in repairs to the electric generating plants of $1.1 million.

Depreciation and amortization decreased $1.6 million (6%) primarily as a
result of accelerated write offs of losses on early retirement of
facilities, in the third quarter of 1997, which were deferred as regulatory
assets and were in the process of being amortized.


                                  - 31 -
<PAGE>

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

Interest charges decreased partly because $20 million of the Company's
First Mortgage Bonds, 6.75% Series were retired at maturity on June 1, 1998
and lower interest rates on bonds refinanced in November 1997.

KU Results:

KU's net income for the three months ended September 30, 1998 increased
$10.1 million compared to the same period of 1997.  The increase was
primarily due to increases in residential sales, commercial sales and sales
for resale caused by the warmer weather and increased marketing efforts.
The increase was also attributed to increased load growth in KU's
industrial customer base.

A comparison of KU's revenues for the three months ended September 30,
1998, with the three months ended September 30, 1997, reflects increases
and decreases which have been segregated by the following principal causes:

Sales to ultimate consumers:
 Fuel clause adjustments                               $ 1,094
 Environmental cost recovery                              (848)
 Merger surcredit                                       (1,945)
 Variation in sales volume, etc.                        15,950

 Total                                                  14,251

Sales for resale                                        39,465
Other                                                      299

Total                                                  $54,015

Operating revenues increased $54 million (28%).  The increase reflects a
33% increase in kilowatt-hour sales, which is primarily attributable to
increases in residential sales, commercial sales, and sales for resale.
The increase in residential and commercial sales were primarily due to
warmer weather during the third quarter of 1998 in comparison to 1997.  The
increase in sales for resale (2,135,544 megawatt-hours versus 893,622
megawatt-hours) was primarily due to increased marketing efforts and sales
to Louisville Gas and Electric of $6.0 million as a result of economic
dispatch following the merger of LG&E Energy Corp. and KU Energy.

Fuel for electric generation expenses increased by $13.6 million (26%) due
to a 26% increase in million British thermal units (MMBTU) used.  The
increased consumption was primarily caused by the previously mentioned
increase in kilowatt-hour sales.

Power purchased increased $21.9 million.  The increase was primarily due to
a 70.8% increase in megawatt-hour purchases which was primarily
attributable to increased marketing efforts and purchases from Louisville
Gas and Electric of $3.5 million as a result of economic dispatch following
the merger of the two companies in May 1998.

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

LG&E Capital Corp. and Other Results:

LG&E Capital Corp. (Capital Corp.), a wholly-owned subsidiary of the
Company, serves as the holding company for the Company's non-utility
operations.  Capital Corp., through its subsidiaries, is engaged in various
independent power projects and leveraged leases in the United States, in
operating non-regulated electric generation facilities, and in the gas

                                  - 32 -
<PAGE>

distribution business in Argentina.  Capital Corp.'s continuing operations
are included in the accompanying income statements under the headings
"Western Kentucky Energy," "Argentina Gas Distribution and Other," and
"Equity in Earnings of Joint Ventures."

On July 24, 1998, KU Capital Corporation, the former holding company for KU
Energy's non-utility operations, was merged into Capital Corp., with the
latter as the surviving corporation.

Capital Corp. contributed 7 cents per share to consolidated earnings from
continuing operations for the third quarter of 1998, compared with 8 cents
in the same period of 1997.  The earnings this year are primarily due to
strong operating performance and off-system sales of power from Western
Kentucky Energy.  Last year's earnings included a $.05 gain from resolution
of issues related to an independent power project.

Capital Corp.'s revenues increased $78.3 million due to marketing the power
generated by the Big Rivers facility ($66.2 million) and to Retail Access
Services' starting operations in the second quarter of 1998 ($17.2
million).  The Company began leasing the Big Rivers facility in July 1998.
Fees received in 1997 related to an undeveloped independent power plant
partially offset these increases.  Cost of revenues increased $47.8 million
also due to marketing the power generated by the Big Rivers facilities
($29.3 million) and to Retail Access Services' starting operations ($16.8
million).  Retail Access Services provides consulting, technical, software
and operational support and services to independent retail energy service
providers in certain markets.

Capital Corp. and other non-utility operation and maintenance expense
increased $37.0 million due to increases related to leasing the Big Rivers
facility and to higher corporate expenses.

Equity in earnings of joint ventures decreased $3.8 million in 1998 due to
writing off the investment in Windpower Partners 1994.  See Notes 8 and 18
of Company's Financial Statements for the year ended December 31, 1997,
contained in its Report on Form 8-K dated October 21, 1998'.

Loss from discontinued operations decreased from $15.1 million in 1997 to
zero in 1998 due to the Company's discontinuing its merchant trading and
sales business effective June 30, 1998.  See Note 3 for information
regarding the operations and financial results of the discontinued
businesses.

            Nine Months Ended September 30, 1998, Compared to
                   Nine Months Ended September 30, 1997

The Company's diluted earnings per share from continuing operations
decreased to $1.07 in 1998 from $1.17 in 1997.  Results for 1998 included
$.42 of charges for merger-related costs ($.19 for LG&E, $.17 for KU, and
$.06 for Corporate).  Excluding these charges, income from continuing
operations would have totaled $1.49 in 1998, an increase of $.32 over
earnings for 1997.  Approximately $.16 of this increase resulted from
closing the NIMO MRA in June 1998 (see Note 9 of Notes to Financial
Statements).  The rest of the increase resulted from increased earnings at
LG&E and KU and from marketing the power generated by the Big Rivers
facilities (the Company began leasing the facilities in July 1998).  Fees
received in 1997 related to an undeveloped independent power project and
increased corporate expenses partially offset these increases.

Loss from discontinued operations increased $7.9 million due to increased
volatility, instability and rising prices in the wholesale power market
during the first six months of 1998.  See Note 3 of Notes to Financial
Statements for more information.



                                  - 33 -
<PAGE>

LG&E Results:

LG&E's net income decreased $14.4 million for the first nine months of
1998, as compared to the first nine months of 1997, primarily due to the
charge for merger-related expenses as discussed in Note 2 of Notes to
Financial Statements.  Excluding the costs to achieve the merger, net
income increased $10.6 million.  This increase is mainly due to increased
electric retail and wholesale sales, partially offset by lower gas sales
and higher operating expenses at the electric generating stations.

A comparison of LG&E's revenues for the nine months ended September 30,
1998, with the nine months ended September 30, 1997, reflects increases and
decreases which have been segregated by the following principal causes:

                                                           Increase or
                                                            (Decrease)
                                                          (Thousands of $)
                                                      Electric      Gas
Cause                                                 Revenues    Revenues

Sales to ultimate consumers:
 Fuel and gas supply adjustments                      $  1,789   $  1,115
 Merger surcredit                                       (2,127)         -
 Demand side management/decoupling
  revenue                                               (3,598)       571
 Environmental cost recovery surcharge                    (234)         -
 Variation in sales volume, etc.                        28,395    (20,183)

 Total                                                  24,225    (18,497)

Sales for resale                                        40,475      5,593
Gas transportation - net                                     -       (118)
Other                                                     (587)      (583)

Total                                                 $ 64,113   $(13,605)

Electric retail sales increased primarily due to the warmer weather
experienced in the second and third quarters of 1998 as compared to 1997.
Sales for resale increased due to larger amounts of power available for off-
system sales, an increase in the unit price of the sales and sales to
Kentucky Utilities of $7.8 million due to economic dispatch following the
merger in May 1998 of LG&E Energy Corp. and KU Energy.  See Note 10 for a
discussion on discontinuance of the revenue decoupling rate mechanism.

Gas retail sales decreased from 1997 due to the warmer weather in the first
nine months of 1998.  Gas wholesale sales increased to $5.6 million in 1998
from zero in 1997 due to the implementation of LG&E's performance-based
ratemaking mechanism.

Fuel for electric generation increased $11.3 million (11%) for the nine
months because of an increase in generation ($7.4 million) and a higher
cost of coal burned ($3.9 million).  See Note 11 of Notes to Financial
Statements relating to performance-based ratemaking.

Gas supply expenses decreased $11.2 million (11%) due to a decrease in the
volume of gas delivered to the distribution system.

Power purchased increased $29.8 million because of the availability of
economically priced power during the first quarter of 1998, increases in
the unit price of purchases in the second and third quarters of 1998 and
increased purchases from Kentucky Utilities of $11.2

                                  - 34 -
<PAGE>

million as a result of economic dispatch following the merger of the two
companies in May 1998.

Other operation expenses increased $8 million (7%) over 1997 because of
increased costs to operate the electric generating plants ($6.3 million)
and increased administrative costs ($2.2 million).

Maintenance expenses decreased $3.8 million (10%) primarily because of a
decrease in scheduled outages and general repairs at the electric
generating plants ($5.5 million) offset by increased storm damage
expenses($1.4 million).

LG&E incurred a pre-tax charge in the second quarter for costs associated
with the merger of LG&E Energy Corp. and KU Energy of $34.1 million.  The
corresponding tax benefit of $9.1 million is recorded in other income and
(deductions).  The amount charged is in excess of the amount permitted to
be deferred as a regulatory asset by the Kentucky Public Service
Commission.  See Note 2 for a further explanation of merger costs.

Variations in income tax expense are largely attributable to changes in pre-
tax income as well as non-deductible merger expenses.

KU Results:

KU's net income for the nine months ended September 30, 1998 decreased $3.1
million compared to the same period of 1997.  Net income for the nine
months ended September 30, 1998, includes a one time charge in the second
quarter of 1998, of $21.7 million (after tax) of merger related expenses as
discussed in Note 2 of Notes to Financial Statements.  Excluding this
charge, net income increased $18.6 million.  The increase was primarily due
to increases in residential sales, commercial sales and sales for resale
caused by the warmer weather.

A comparison of KU's revenues for the nine months ended September 30, 1998,
with the nine months ended September 30, 1997, reflects increases and
decreases which have been segregated by the following principal causes:

Sales to ultimate consumers:
 Fuel clause adjustments                               $ 1,515
 Environmental cost recovery                               330
 Merger surcredit                                       (2,351)
 Variation in sales volume, etc.                        28,576

 Total                                                  28,070

Sales for resale                                        59,226
Other                                                    1,235

Total                                                  $88,531

Operating revenues increased $88.5 million.  The increase reflects a 21%
increase in kilowatt-hour sales.  The increase in kilowatt-hours sales is
primarily attributable to increases in residential sales, commercial sales,
and sales for resale.  The increases in residential and commercial sales
are primarily attributable to warmer weather in 1998.  The increase in
sales for resale (4,657,699 megawatt-hours versus 2,442,727 megawatt-hours)
was primarily due to increased marketing efforts and sales to Louisville
Gas and Electric of $11.2 million as a result of economic dispatch
following the merger of LG&E Energy Corp. and KU Energy.



                                  - 35 -
<PAGE>

Fuel for electric generation expenses increased by $30.3 million (22%)
primarily due to a   18% increase in MBTU used.  The increased consumption
was primarily caused by the previously mentioned increase in kilowatt-hour
sales.

Power purchased increased $27.2 million (49%).  The increase was primarily
due to a 35% increase in megawatt-hour purchases which was primarily
attributable to increased  marketing efforts and purchases from Louisville
Gas and Electric of $7.8 million as a result of economic dispatch following
the merger of the two companies in May 1998.

Merger costs to achieve reflects the one-time charge during 1998 of $21.8
million (the corresponding tax benefit of $.1 million is recorded in other
income and (deductions)) for merger related expenses as discussed in Note 2
of Notes to Financial Statements.

Variations in income tax expense are largely attributable to changes in pre-
tax income as well as non-deductible merger expenses.

LG&E Capital Corp. and Other Results:

Capital Corp. contributed 28 cents per share to consolidated earnings from
continuing operations in 1998, compared with 11 cents in 1997.  The
increase resulted from closing the NIMO MRA in June 1998 and from strong
operating performance and off-system sales of power from Western Kentucky
Energy.  Also, last year's earnings included a $.05 gain from resolution of
issues related to an independent power project.

Capital Corp.'s revenues increased $104.7 million due to marketing the
power generated by the Big Rivers facility ($66.2 million) and to Retail
Access Services' starting operations in the second quarter of 1998 ($22.7
million).  The Company began leasing the Big Rivers facility in July 1998.
An increase resulting from acquiring a controlling interest in
Distribuidora de Gas del Centro (Centro) in February 1997 also contributed
to the overall increase.  A decrease resulting from receiving fees in 1997
related to an undeveloped independent power plant partially offset these
increases.

Capital Corp.'s cost of revenues increased $61.9 million also due to
marketing the power generated by the Big Rivers facility ($29.3 million)
and to Retail Access Services' starting operations in the second quarter of
1998 ($21.9 million).  An increase resulting from acquiring the controlling
interest in Centro also contributed to the increase.

Capital Corp. and other non-utility operation and maintenance expense
increased $46.3 million due to increases related to marketing the power
generated by the Big Rivers facility, higher expenses from a full year of
operation at the Argentine gas distribution companies, and to higher
corporate expenses.

Non-utility depreciation and amortization increased $6.6 million due to
writing off certain capitalized interest and development costs related to
the San Miguel facility and to write-offs related to the Rensselaer
project's Master Restructuring Agreement (MRA) with Niagara Mohawk Power
Corporation (NIMO).  An increase resulting from acquiring the controlling
interest in Centro also contributed to the increase.  For more information
about the San Miguel sale, see Note 8 of the Company's Financial Statements
for the year ended December 31, 1997, contained in its Report on Form 8-K
dated October 21, 1998'.  See Note 9 of Notes to Financial Statements in
Item 1 for more information about the MRA with NIMO.

Equity in earnings of joint ventures increased $43.4 million in 1998 due to
the Rensselaer project's recording a gain related to the MRA with NIMO,
partially offset by writing off the investment in Windpower Partners 1994.



                                  - 36 -
<PAGE>

Non-utility other income decreased $10.2 million due mainly to the
reacquisition of the Company's interest in the partnership that owns the
Rensselaer project, and to recording related expenses.  See Note 9 of Notes
to Financial Statements in Item 1.

Non-utility interest charges increased $3.2 million due to an increase in
average debt outstanding.

The consolidated effective tax rate increased to 41.8% in 1998 from 37.1%
in 1997 mainly due to non-deductible merger-related expenses.

                     Liquidity and Capital Resources

The Company's need for capital funds is primarily related to the
construction of plant and equipment necessary to meet LG&E's and KU's
electric and gas customers' needs and protection of the environment.
Capital funds are also needed for the Company's capital obligations under
the Big Rivers lease arrangements, the discontinuance of the merchant sales
and trading business, partnership equity contributions in connection with
independent power production projects, information system enhancements, and
other business development opportunities.  Construction expenditures for
the nine months ended September 30, 1998, of $149.7 million were financed
with internally generated funds.  It is currently anticipated that the
Company will meet its known capital needs with internally generated funds
and short-term and medium-term borrowings.

The Company's combined cash and marketable securities balance increased
$13.3 million during the nine months ended September 30, 1998.  The
increase reflects cash flows from operations, a net increase in debt, and
proceeds received from the sale of the Company's interest in the San Miguel
project, partially offset by construction expenditures and dividends paid.

Variations in accounts receivable, accounts payable and materials and
supplies are generally not significant indicators of the Company's
liquidity.  Such variations are primarily attributable to fluctuations in
weather, which have a direct effect on sales of electricity and natural
gas.  The significant increases in accounts receivable and accounts payable
resulted from seasonal fluctuations in LG&E's, KU's and Centro's
businesses, from marketing the power generated by the Big Rivers facility
and from Retail Access Services' starting operations in the second quarter
of 1998.  The Company began leasing the Big Rivers facility in July 1998.
The increases in materials and supplies and in prepayments and other
current assets resulted mainly from the Big Rivers activity.

The decrease in net assets of discontinued operations resulted mainly from
accruing the estimated loss on disposal of the Company's merchant energy
trading and sales business effective June 30, 1998.  See Note 3 of Notes to
Financial Statements in Item 1 of Part I.  The increase in other current
liabilities resulted from the Big Rivers activity and differences in the
timing of dividend and income tax payments.

The increase in long-term debt reflects Capital Corp.'s issuing $150
million of medium-term notes in February 1998.  The Company also issues
commercial paper which has maturity dates ranging between one and 270 days.
Because of the rollover of these maturity dates, total short-term
borrowings during the first nine months of 1998 were $4.8 billion and total
repayments of short-term borrowings during the same period were $4.7
billion.  See Note 16 of the Company's Financial Statements for the year
ended December 31, 1997, contained in its Report on Form 8-K dated October
21, 1998'.

At September 30, 1998, unused capacity under the Company's lines of credit
totaled $482.4 million after considering commercial paper support and
approximately $72.8 million in letters of credit securing on- and off-
balance sheet commitments.  At December 31, 1997, un

                                  - 37 -
<PAGE>

used capacity under the lines of credit totaled $541.7 million.  The
decrease in unused capacity resulted from borrowing funds to meet working
capital needs.

On July 15, 1998, the Company closed its transaction to lease the
generating assets of Big Rivers Electric Corporation.  On July 14, 1998,
LG&E Capital Corp. issued $95.1 million of commercial paper to meet various
working capital requirements related to the closing.

In July 1998 following the Company's decision to discontinue its merchant
energy trading and sales business, Standard & Poor's (S&P) downgraded the
credit ratings of the Company and its subsidiaries.  The Company's
corporate credit rating was changed from "A+" to "A".  Similar action was
taken with respect to the credit ratings of LG&E and KU.  LG&E's corporate
credit rating and first mortgage bonds are now rated "A+", its unsecured
debt and preferred stock are now rated "A" and its commercial paper is now
rated "A-1".  KU's corporate credit rating and preferred stock are now
rated "A+", its first mortgage bonds are now rated "AA-" and its commercial
paper is now rated "A-1".  LG&E Capital's ratings for its corporate credit
and unsecured debt are now "A" and its commercial paper rating remained at
"A-1".  These ratings reflect the views of S&P, and an explanation of the
significance of these ratings may be obtained from 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 retired $20 million of first mortgage bonds on June 1, 1998, with
funds generated internally.

At September 30, 1998, KU had no short-term borrowings compared to $33.6
million at December 31, 1997.  The short-term borrowings have been used
primarily to finance ongoing construction expenditures and general
corporate requirements.  The decrease between September 30, 1998 and
December 31, 1997 is due primarily to cash provided by operations exceeding
cash required for investing and financing activities (exclusive of short-
term borrowings) for the nine months ended September 30, 1998.

In early October 1998, LG&E Capital Corp. entered into a cancelable letter
of intent to purchase two natural gas turbines.  The Company anticipates
that the turbines, if purchased, or their electrical output, if purchased
and operated, would be marketed or resold to an affiliated or an
unaffiliated third party.  However, there can be no assurance as to when,
if at all, such resale would occur or as to the price of any such resale.
The aggregate purchase price, including costs of installation, for the
turbines is approximately $115 million, which is expected to be largely
funded through additional borrowing by Capital Corp.

The Company's capitalization ratios at September 30, 1998, and December 31,
1997, follow:

                                              Sep. 30,  Dec. 31,
                                                1998      1997

Long-term debt (including current portion)      42.9%     37.7%
Notes payable                                   12.8      12.1
Preferred stock                                  4.3       4.2
Common equity                                   40.0      46.0
Total                                          100.0%    100.0%




                                  - 38 -
<PAGE>

LG&E's capitalization ratios at September 30, 1998, and December 31, 1997,
follow:

                                              Sep. 30,  Dec. 31,
                                                1998      1997

Long-term debt (including current portion)      44.5%     45.4%
Preferred stock                                  6.8       6.7
Common equity                                   48.7      47.9
Total                                          100.0%    100.0%

KU's capitalization ratios at September 30, 1998, and December 31, 1997,
follow:

                                              Sep. 30,  Dec. 31,
                                                1998      1997

Long-term debt (including current portion)      45.6%     44.4%
Notes payable                                    0.0       2.7
Preferred stock                                  3.3       3.2
Common equity                                   51.1      49.7
Total                                          100.0%    100.0%

For a description of significant contingencies that may affect the Company,
LG&E and KU, reference is made to Part II herein - Item 1, Legal
Proceedings.

Year 2000 Computer Issues

The Company and its subsidiaries, including LG&E and KU, use various
software, systems and technology that are affected by the "Year 2000
Issue."  This issue concerns the ability of electronic processing equipment
(including microprocessors embedded in other equipment) to properly process
the millennium change to 2000 and related issues.  A failure to timely
correct any such processing problems could result in material operational
and financial risks if significant systems either cease to function or
produce erroneous data.  Such risks are described in more detail below, but
could include an inability to operate LG&E's or KU's generating plants,
disruptions in the operation of transmission and distribution systems and
an inability to access interconnections with the systems of neighboring
utilities.

The Company began its project regarding the Year 2000 issue in 1996.  The
Board of Directors has approved the general Year 2000 plan and receives,
along with management, regular updates.  In addition, monthly reporting
procedures have been established at senior management levels.  Since 1996,
a single-purpose Year 2000 team has been established in the Information
Technology (IT) Department.  This team, which is headed by a senior
executive officer, is responsible for planning, implementing, and
documenting the Company's Year 2000 process.  The team also provides direct
and detailed assistance to the Company's operational divisions and smaller
units, where identified personnel are responsible for Year 2000 work and
remediation in their specific areas.  In many cases, the Company also uses
the services of third parties, including technical consultants, vendor
representatives and auditors.



                                  - 39 -
<PAGE>

The Company's Year 2000 effort generally follows a three phase process:

  Phase I - inventory and identify potential Year 2000 issues, determine
  solutions for Company issues

  Phase II - survey vendors regarding their Year 2000 readiness, determine
  solutions to deal with possible vendor non-compliance, develop work
  plans regarding Company and vendors non-compliance issues

  Phase III - implementation, testing, certification, contingency planning

The Company has long recognized the complexity of the Year 2000 issue.
Work has progressed concurrently on (a) replacing or modifying IT systems,
including mainframes, PC's and software applications, (b) replacing or
modifying non-IT systems, including embedded systems such as mechanical
control units and (c) evaluating the readiness of key third parties,
including customers, suppliers, business partners and neighboring
utilities.

State of Readiness

At present, the Company, including LG&E and KU, have substantially
completed the internal inventory, vendor survey and compliance assessment
portions (Phases I and II) of their Year 2000 plan for mission critical
mainframe and PC hardware and software.  Remediation efforts (Phase III) in
these areas are approximately 50% complete.  With respect to embedded
systems, LG&E has also substantially completed its Phase I and Phase II
efforts, while KU and the Company have completed approximately 30%-50%.
For each entity, Phase III remediation efforts are also in progress for
embedded systems.  Testing will commence as remediation efforts are
implemented and is generally expected to run from the fourth quarter of
1998 through the end of 1999.

As a general matter, corrective action for major IT systems, including
customer information, financial and trading systems, are in process or have
been completed.  For smaller or more isolated systems, including embedded
and plant operational systems, the Company has completed much of the
evaluative process and is commencing corrective plans.  The Company has
communicated with its key suppliers, customers and business partners
regarding their Year 2000 progress, particularly in the IT software and
embedded component areas, to determine the areas in which the Company's
operations are vulnerable to those parties failure to complete their
remediation efforts.  The Company is currently evaluating and, in certain
cases, initiating follow-up actions regarding the responses from these
parties.  The Company regularly attends and participates in trade group
efforts focusing on Year 2000 issues in the energy industry context.

Costs of Year 2000 Issues

The Company's system modification costs related to the Year 2000 issue are
being expensed as incurred.  Through September 1998, the Company has
incurred approximately $19.0 million in capital and operating costs in
connection with the Year 2000 issue.  Based upon studies and projections to
date, the Company expects to spend an additional $16.7 million to complete
its Year 2000 efforts.

It should be noted that these figures include total hardware, software,
embedded systems and consulting costs.  In many cases, these costs include
system replacements which were already contemplated or which provided
additional benefits or efficiencies beyond the Year 2000 aspect.
Additionally many costs are not incremental costs, but constitute
redeployment of existing resources, particularly IT.  These costs represent
estimates, however there can be no assurance that actual costs associated
with the Company's Year 2000 issues will not be higher.



                                  - 40 -
<PAGE>

Risks of Year 2000 Issues

As described above, the Company has made significant progress in the
implementation of its Year 2000 plan.  Based upon the information currently
known regarding its internal operations and assuming successful and timely
completion of its remediation plan, the Company does not anticipate
material business disruptions from its internal systems due to the Year
2000 issue. However, the Company may possibly experience limited
interruptions to some aspects of its activities, whether IT, operational,
administrative or otherwise, and the Company is considering such potential
occurrences in planning for its most reasonably likely worst case
scenarios.

Additionally, risk exists regarding the non-compliance of third parties
with key business or operational importance to the Company.  Year 2000
problems affecting key customers, interconnected utilities, fuel suppliers
and transporters, telecommunications providers or financial institutions
could result in lost power or gas sales, reduced power production or
transmission capabilities or internal operational or administrative
difficulties on the part of the Company.  The Company is not presently
aware of any such situations, however severe occurrences of this type could
have material adverse impacts upon the business, operating results or
financial condition of the Company.  There can be no assurance that the
Company will be able to identify and correct all aspects of the Year 2000
problem among these third parties that effect it in sufficient time, that
it will develop adequate contingency plans or that the costs of achieving
Year 2000 readiness will not be material.

The Company plans to develop contingency plans for material areas of Year
2000 risk and is in the process of preparing such plans.  Contingency
planning will address certain areas, including delays in completion in the
Company's remediation plans, failure or incomplete remediation results and
failure of key third parties to be Year 2000 compliant.

Forward Looking Statements

The foregoing discussion regarding the timing, effectiveness,
implementation, and cost of the Company's Year 2000 efforts, contains
forward-looking statements, which are based on management's best estimates
derived using assumptions.  These forward-looking statements involve
inherent risks and uncertainties, and actual results could differ
materially from those contemplated by such statements.  Factors that might
cause material differences include, but are not limited to, the
availability of key Year 2000 personnel, the Company's ability to locate
and correct all relevant computer codes, the readiness of third parties,
and the Company's ability to respond to unforeseen Year 2000 complications
and other factors described from time to time in the Company's reports to
the Securities and Exchange Commission, including Exhibit 99.01 to the Form
10-K for the year ended December 31, 1997.  Such material differences could
result in, among other things, business disruption, operational problems,
financial loss, legal liability and similar risks.


                                  - 41 -
<PAGE>

                       Part II.  Other Information

Item 1.  Legal Proceedings.

For a description of the significant legal proceedings involving the
Company, LG&E and KU, reference is made to the information under (i) the
following items and captions contained in the Company's Financial
statements for the year ended December 31, 1998 as filed with the Company's
Current Report on Form 8-K filed October 21, 1998:  "Rates and Regulation"
and "Environmental Matters" in Management's Discussion and Analysis of
Results of Operations and Financial Condition and Note 18 to Notes to
Financial Statements, (ii) the following items and captions of the
Company's, LG&E's, KU Energy's and KU's respective Annual Reports on Form
10-K for the year ended December 31, 1997:  Item 1, Business; Item 3, Legal
Proceedings; Notes 3 and 12 of LG&E's Notes to Financial Statements under
Item 8 and Note 9 of KU's Notes to Financial Statements under Item 8; and
(iii) the following items and captions of the Company's, LG&E's, KU
Energy's and KU's respective Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1998 and June 30, 1998:  Part III, Item 1, Legal
Proceedings; and Note 2 to KU's Notes to Financial Statements.  Except as
described herein, to date, the proceedings reported in the Company's and
LG&E's and KU Energy's and KU's respective Forms 8-K, 10-K and Forms 10-Q
as described above have not changed materially.'''''''''''''''''''''

Big Rivers Transaction.

Effective July 15, 1998, the Company closed its pending transaction to
lease the generating assets of Big Rivers Electric Corporation ("Big
Rivers").  See "Recent Developments - Lease of Big Rivers Facilities" in
Item 2, Management's Discussion and Analysis of Operations and Financial
Condition for information concerning this transaction.  See also Part II,
Item 1, Legal Proceedings, of the Company's Form 10-Q's for the quarters
ended March 31, 1998, and June 30, 1998, and Part I, Item 1, Business, of
the Company's 1997 Form 10-K.

Southampton

Note 18 of the Company's Financial Statements for the year ended December
31, 1997, contained filed in the Company's Current Report on Form 8-K filed
October 21, 1998, and Part II, Item 1, Legal Proceedings, of the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, and
June 30, 1998, discuss the status of certain proceedings before the FERC
regarding the status of the Southampton cogeneration facility
("Southampton") as a qualifying facility ("QF") under the Public Utility
Regulatory Policies Act for the year 1992, including a request for
clarification as to any FERC-ordered rate refunds payable from Southampton
to Virginia Electric and Power Company ("VEPCO") for the 1992 period.  On
May 18, 1998, the FERC issued an order addressing certain issues in this
matter and directing the parties to enter into further FERC-supervised
settlement negotiations.  On October 1, 1998, Southampton and VEPCO entered
into a settlement agreement which provided for, among other items, payments
by Southampton to VEPCO of $1 million annually for the years 1999-2001,
followed by a reduction in capacity payments from VEPCO to Southampton by
$500,000 for the years 2002-2008.  Following 2008, VEPCO may elect to
terminate its power purchases from Southampton or continue to receive the
annual reduction in capacity payments for the remainder of the power
purchase agreement.  The settlement remains subject to FERC approval and
the parties have filed for such approval.  The Company has also been
notified that its partners in the Southampton partnership are disputing
their responsibilities for their share of any refunds or related amounts
and are asserting that the Company should bear full responsibility for such
amounts.  The Company and its partners are currently negotiating these
matters.



                                  - 42 -
<PAGE>

Oglethorpe Power Contract

In November 1996, the Company, through its LG&E Energy Marketing Inc.
subsidiary (LEM), entered into a 15 year agreement with Oglethorpe Power
Corporation (OPC) to supply approximately one-half of OPC's systemwide
power needs during the term of the agreement and with rights to market
OPC's surplus power.  The Company has been in settlement negotiations with
OPC over load projections provided by OPC as an inducement for LEM to enter
into the 1996 agreement.  On October 5, 1998, LEM initiated an arbitration
proceeding against OPC related to those load projections.

Springfield Municipal Contract

On July 29, 1998, LEM filed suit in the United States District Court for
the Western District of Kentucky in Louisville, against the City of
Springfield, Illinois, City Water, Light and Power Company ("Springfield
CWLP").  The action seeks damages for Springfield CWLP's failure, including
in late June 1998, to sell electric energy to LEM pursuant to a February
1997 Interchange Agreement and transaction confirmations thereunder, as
well as for other related claims.  LEM has estimated that its damages in
this matter may be approximately $21.0 million.

Proposed NOx Reductions

Note 18 to the Company's and Note 12 to LG&E's respective Notes to
Financial Statements for the year ended December 31, 1997, contained in the
Company's Current Report on Form 8-K filed October 21, 1998, and LG&E's
Annual Report on Form 8-K for the year ended December 31, 1997, and
Management's Discussion and Analysis to KU's Form 10-K for the year ending
December 31, 1997 (Part I, Item 1, Business) and KU's Form 10-Q for the
quarter ending March 31, 1998 (Part I, Item 2), discuss the pending United
States Environmental Protection Agency's ("USEPA") new nitrogen oxide and
particulate matter standards adopted in July 1997 and related proposed
regulations issued in October 1997.  On September 24, 1998 the USEPA issued
final regulations in this matter affecting long-range ozone transport from
Midwest emissions sources that allegedly contribute to ozone problems in
the Northeast.  The regulations provide for a reduction, by 2003, in
utility nitrogen oxide emissions of approximately 85% from 1990 levels.  If
these regulations are implemented as promulgated, LG&E, KU, WKEC and the
independent power projects in which the Company has an interest will be
required to incur significant capital expenditures and significantly
increased operation and maintenance costs for remedial measures.  Final
implementation methods will be set by the USEPA and state regulatory
authorities.  The Company continues to monitor ongoing state implementation
plans and recent legal challenges to the final regulations and a detailed
determination of the impact of the regulations depends on the outcome of
such proceedings.  The Company estimates that these capital costs could
potentially range between $300 million and $500 million in the aggregate
for LG&E, KU and WKEC.  These costs would generally be incurred following
the year 2000.  The Company believes its costs in this regard to be
comparable to that of similarly-situated utilities with like generation
assets.  The Company anticipates that such capital and operating costs are
the type of costs that are eligible for recovery from customers under
LG&E's and KU's environmental surcharge mechanisms and believes that, in
the cases of LG&E and KU, a significant portion of such costs could be so
recovered.  However, Kentucky Commission approval is necessary and there
can be no guarantee of such recovery.

KU Environmental Surcharge

On June 10, 1998, the Kentucky Supreme Court granted motions for
discretionary review filed by the Kentucky Attorney General and consumer
representatives in court proceedings regarding the constitutionality of the
state environmental surcharge statute and related matters.  Briefs have
been filed and oral argument has been scheduled for November 13,

                                  - 43 -
<PAGE>

1998.  See Note 6 to Notes to Financial Statements (Unaudited) under Item 1
of this Form 10-Q for further details, including a discussion of any
potential refund amounts.

Recent Ratemaking Filing

On October 12, 1998, LG&E and KU submitted parallel filings to the Kentucky
Public Service Commission (Kentucky Commission) proposing performance-based
ratemaking systems.  In its order approving the merger of LG&E Energy and
KU Energy, the Kentucky Commission had directed LG&E and KU to address
their future rate regulation and, in particular, to indicate whether they
intended to remain under traditional rate of return regulation or commence
non-traditional regulation.  The performance-based ratemaking proposals
include financial incentives, including penalties, for LG&E and KU to
develop cost-saving means to provide electricity to customers, who will
also share in such savings.  Incentives are also included in the areas of
quality of service and reliability.  The PBR proposals have five elements:
replacement of the existing fuel adjustment clause with a cap tied to a
regional index; continued flow-through of certain LG&E and KU joint-
dispatch savings to customers; incentives tied to power plant unit
availability compared to past performance; incentives tied to quality,
reliability, satisfaction and safety performance compared to objective
benchmarks; and flexibility to customize rates and services according to
customer needs, subject to an obligation to offer standard tariff service
and subject to the condition that rates must exceed marginal cost.  The
proposals remain subject to approval by the Kentucky Commission.  See also
Note 11 of Notes to Financial Statements.

Tenaska, Inc.

Note 18 to Notes to Financial Statements for the year ended December 31,
1997, contained in the Company's Current Report on Form 8-K filed October
21, 1998, discusses the Company's agreements with Tenaska, Inc. and
affiliates regarding certain independent power projects in North America.
The Company also has a limited partnership interest in a gas-fired
generation project which is the subject of a breach of contract claim filed
by Tenaska against the Bonneville Power Administration (BPA).  Construction
of the project was suspended in 1995 after BPA notified Tenaska of its
intent to cancel a power purchase agreement under which BPA committed to
buy electricity to be produced by the project.  Tenaska has a $650 million
claim for damages against BPA in the United States Court of Federal Claims
(Court of Claims).  Arbitration ordered by the Court of Claims began in
February 1997.  On July 29, 1998, an arbitration panel awarded the
partnership $158.2 million in lieu of compensation under the power purchase
agreement.  The award was entered by the Court of Claims on October 27,
1998, and certified final by the U.S. Department of Justice on October 29,
1998.  Upon payment of the award by the U.S Department of the Treasury,
ownership of the facility would be transferred to the BPA.  If the award is
approved, it is anticipated the Company would receive a payment of
approximately $8.5 million.

Windpower Partners 1994

Windpower Partners 1994 (WPP 94), in which the Company has a 25% interest
through indirect subsidiaries, did not make semiannual payments, due
September 2, 1997, March 2, 1998 and September 1, 1998, respectively, to
John Hancock Mutual Life Insurance Company (Hancock) under certain Notes
issued by WPP 94 to Hancock.  The Company has offered WPP 94 financial
support with respect to the appropriate proportion of its debt obligations,
but certain of the three other investor groups are unable to offer funds to
WPP 94 in support of the partnership.  The Company wrote off its aggregate
indirect investment in WPP 94 of $3.8 million in the third quarter of 1998.
WPP 94 and Hancock are presently engaged in discussions concerning a
possible restructuring of WPP 94's debt obligations and Hancock has
informed WPP 94 that it may declare WPP 94 in default of the trust
indenture relating to the Notes.  WPP 94 operates wind power generation
facilities in Texas.  Because of the continuing nature of the negotiations,
the Company is not able to predict the outcome of this

                                  - 44 -
<PAGE>

event.  The Company does not expect the ultimate resolution of this matter
to have a material effect on its results of operations or financial
condition.

Item 5.  Other Information.

1998 Annual Meeting

Any shareholder proposal intended for inclusion in the proxy material for
the 1999 Annual Meeting for the Company, LG&E or KU must be received by
November 20, 1998, in the case of the Company and LG&E, and November 18,
1998, in the case of KU.  In addition, under each companies' By-laws,
shareholders intending to submit a proposal in person at the Annual
Meeting, must provide advance written notice along with other prescribed
information.  In general, such notice must be received by the Secretary of
the applicable company (a) not less than 90 days (60 days in the case of
KU) prior to the meeting date or (b) if the meeting date is not publicly
announced more than 100 days (70 days in the case of KU) prior to the
meeting, by the tenth day following such announcement.  Proposals not
properly submitted will be considered untimely and the persons named in the
proxies solicited by the Company, LG&E or KU may exercise discretionary
voting power with respect to any such proposal.  Proposals are subject to
applicable federal and state eligibility requirements governing proxies,
voting and proposals, and applicable provisions of the Articles of
Incorporation and By-laws of each company.

Item 6(a).  Exhibits.

Exhibit
Number              Description

27                  Financial Data Schedules for LG&E Energy Corp.,
                    Louisville Gas and Electric Company, and Kentucky
                    Utilities Company.

Item 6(b).  Reports on Form 8-K.

On July 29, 1998, the Company filed a report on Form 8-K announcing that it
would discontinue its merchant energy trading and sales business and that
it would sell the associated gas gathering and processing business.  The
Company also announced in the same report on Form 8-K that its energy
marketing subsidiary, LG&E Energy Marketing Inc. ("LEM"), intends to file
an action against the City of Springfield, Illinois, City Water, Light and
Power Company ("Springfield CWLP").  The action will seek damages for
Springfield CWLP's failure, including in late June 1998, to sell electric
energy to LEM pursuant to a February 1997 Interchange Agreement and
transaction confirmations thereunder, as well as for other related claims.

On October 2, 1998, the Company filed a report on Form 8-K announcing that
Michael R. Whitley, Vice Chairman of the Board of Directors, President and
Chief Operating Officer of LG&E Energy Corp. announced his retirement,
effective November 1, 1998.  Mr. Whitley is also retiring from the
positions of Vice Chairman of the Board of Directors and Chief Operating
Officer of Louisville Gas and Electric Company and Kentucky Utilities
Company, two public utility subsidiaries of the Company.

On October 21, 1998, the Company filed a report on Form 8-K containing
management's discussion and analysis and consolidated financial statements
of the Company as of December 31, 1997.  The Company filed this report in
connection with the May 4, 1997, merger of KU Energy Corporation and LG&E
Energy Corp.
                                     
                                     
                                  - 45 -
<PAGE>
                                     
                                SIGNATURES


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


LG&E Energy Corp.
Registrant


Date:  November 13, 1998        /s/ S. Bradford Rives
                                S. Bradford Rives
                                Vice President - Finance and Controller
                                (On behalf of the registrant in his
                                capacity as Principal Accounting Officer)


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


Louisville Gas and Electric Company
Registrant


Date:  November 13, 1998        /s/ Michael D. Robinson
                                Michael D. Robinson
                                Vice President and Controller
                                (On behalf of the registrant in his
                                capacity as Principal Accounting Officer)

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


Kentucky Utilities Company
Registrant


Date:  November 13, 1998        /s/ Michael D. Robinson
                                Michael D. Robinson
                                Vice President and Controller
                                (On behalf of the registrant in his
                                capacity as Principal Accounting Officer)


                                  - 46 -