10-K405

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

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2001

OR

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

Commission File Number	Registrant, State of Incorporation, Address, and Telephone Number	IRS Employer Identification Number
2-26720	Louisville Gas and Electric Company (A Kentucky Corporation) 220 West Main Street P. O. Box 32010 Louisville, Kentucky 40232 (502) 627-2000	61-0264150
1-3464	Kentucky Utilities Company (A Kentucky and Virginia Corporation) One Quality Street Lexington, Kentucky 40507-1428 (859) 255-2100	61-0247570

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

Kentucky Utilities Company

Title of each class	Name of each exchange on which registered
Preferred Stock, 4.75% cumulative, stated value $100 per share	Philadelphia Stock Exchange

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

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

Kentucky Utilities Company
Preferred Stock, cumulative, stated value $100 per share
(Title of class)

        Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes ý    No o

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

        As of February 28, 2002, 860,287 shares of voting preferred stock of Louisville Gas and Electric Company, with an aggregate market value of $16,027,000, were outstanding and held by non-affiliates. Additionally, Louisville Gas and Electric Company had 21,294,223 shares of common stock outstanding, all held by LG&E Energy Corp. Kentucky Utilities Company had 37,817,878 shares of common stock outstanding, all held by LG&E Energy Corp.

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

DOCUMENTS INCORPORATED BY REFERENCE

        Proxy statements for Louisville Gas and Electric Company and Kentucky Utilities Company, currently anticipated to be prepared and filed with the Commission during April 2002, are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

PART I

Item 1.	Business	7
	Louisville Gas and Electric Company
	General	7
	Electric Operations	8
	Gas Operations	10
	Rates and Regulation	11
	Construction Program and Financing	12
	Coal Supply	12
	Gas Supply	13
	Environmental Matters	14
	Competition	14
	Kentucky Utilities Company
	General	15
	Electric Operations	15
	Rates and Regulation	17
	Construction Program and Financing	18
	Coal Supply	18
	Environmental Matters	19
	Competition	19
	Employees and Labor Relations	20
	Executive Officers of the Companies	20
Item 2.	Properties	22
Item 3.	Legal Proceedings	24
Item 4.	Submission of Matters to a Vote of Security Holders	26

PART II

Item 5.	Market for the Registrant's Common Equity and Related Stockholder Matters	28
Item 6.	Selected Financial Data	29
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operation:
	Louisville Gas and Electric Company	31
	Kentucky Utilities Company	46
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 8.	Financial Statements and Supplementary Data:
	Louisville Gas and Electric Company	60
	Kentucky Utilities Company	93
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	119

PART III

Item 10.	Directors and Executive Officers of the Registrant (a)	119
Item 11.	Executive Compensation (a)	119
Item 12.	Security Ownership of Certain Beneficial Owners and Management (a)	119
Item 13.	Certain Relationships and Related Transactions (a)	119

PART IV

Item 14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	119
Signatures		139

(a)

Incorporated by reference.

INDEX OF ABBREVIATIONS

Capital Corp.	LG&E Capital Corp.
Clean Air Act	The Clean Air Act, as amended in 1990
CCN	Certificate of Public Convenience and Necessity
CT	Combustion Turbines
DSM	Demand Side Management
ECR	Environmental Cost Recovery
EEI	Electric Energy, Inc.
EITF	Emerging Issues Task Force Issue
EPA	U.S. Environmental Protection Agency
ESM	Earnings Sharing Mechanism
FAC	Fuel Adjustment Clause
FERC	Federal Energy Regulatory Commission
FPA	Federal Power Act
FT and FT-A	Firm Transportation
GSC	Gas Supply Clause
Holding Company Act	Public Utility Holding Company Act of 1935
IBEW	International Brotherhood of Electrical Workers
IMEA	Illinois Municipal Electric Agency
IMPA	Indiana Municipal Power Agency
Kentucky Commission	Kentucky Public Service Commission
KIUC	Kentucky Industrial Utility Consumers, Inc.
KU	Kentucky Utilities Company
KU Energy	KU Energy Corporation
KU R	KU Receivables LLC
Kva	Kilovolt-ampere
LEM	LG&E Energy Marketing Inc.
LG&E	Louisville Gas and Electric Company
LG&E Energy	LG&E Energy Corp.
LG&E R	LG&E Receivables LLC
LG&E Services	LG&E Energy Services Inc.
Mcf	Thousand Cubic Feet
Merger Agreement	Agreement and Plan of Merger dated May 20, 1997
MGP	Manufactured Gas Plant
MISO	Midwest Independent System Operator
Mmbtu	Million British thermal units
Moody's	Moody's Investor Services, Inc.
Mw	Megawatts
Mwh	Megawatt hours
NNS	No-Notice Service
NOx	Nitrogen Oxide
OMU	Owensboro Municipal Utilities
OVEC	Ohio Valley Electric Corporation

PBR	Performance-Based Ratemaking
Powergen	Powergen plc
PUHCA	Public Utility Holding Company Act of 1935
S&P	Standard & Poor's Rating Services
SCR	Selective Catalytic Reduction
SEC	Securities And Exchange Commission
SERP	Supplemental Employee Retirement Plan
SFAS	Statement of Financial Accounting Standards
SIP	State Implementation Plan
SO2	Sulfur Dioxide
Tennessee Gas	Tennessee Gas Pipeline Company
Texas Gas	Texas Gas Transmission Corporation
TRA	Tennessee Regulatory Authority
Trimble County	LG&E's Trimble County Unit 1
USWA	United Steelworkers of America
Utility Operations	Operations of LG&E and KU
VDT	Value Delivery Team Process
Virginia Commission	Virginia State Corporation Commission
Virginia Staff	Virginia Commission Staff

PART I.

Item 1. Business.

        On December 11, 2000, LG&E Energy Corp. was acquired by Powergen plc. for cash of approximately $3.2 billion or $24.85 per share and the assumption of all of LG&E Energy's debt. As a result of the acquisition, among other things, LG&E Energy became a wholly owned subsidiary of Powergen and, as a result, LG&E and KU became indirect subsidiaries of Powergen. The utility operations (LG&E and KU) of LG&E Energy have continued their separate identities and continue to serve customers in Kentucky and Virginia under their existing names. The preferred stock and debt securities of the utility operations were not affected by this transaction resulting in the utility operations' obligations to continue to file SEC reports. Following the acquistion, Powergen became a registered holding company under PUHCA, and LG&E and KU, as subsidiaries of a registered holding company, became subject to additional regulation under PUHCA.

        As a result of the Powergen acquisition and in order to comply with the Public Utility Holding Company Act of 1935, LG&E Services was formed as a subsidiary of LG&E Energy and became effective on January 1, 2001. LG&E Services provides certain services to affiliated entities, including LG&E and KU, at cost as required under the Holding Company Act. On January 1, 2001, approximately 1,000 employees, mainly from LG&E Energy, LG&E and KU, were moved to LG&E Services.

        On April 9, 2001, a German power company, E.ON AG, announced a preconditional cash offer of £5.1 billion ($7.3 billion) for Powergen. The offer is subject to a number of conditions, including the receipt of certain European and United States regulatory approvals. The Kentucky Public Service Commission, the Federal Energy Regulatory Commission, the Virginia State Corporation Commission, and the Tennessee Regulatory Authority have all approved the acquisition of Powergen and LG&E Energy by E.ON. The parties expect to obtain the remaining regulatory approvals and to complete the transaction in the first half of 2002. See Powergen's schedule 14D-9, and associated schedules to such filings, filed with the SEC on April 9, 2001.

LOUISVILLE GAS AND ELECTRIC COMPANY

General

        Incorporated on July 2, 1913, LG&E is a regulated public utility that supplies natural gas to approximately 305,000 customers and electricity to approximately 378,000 customers in Louisville and adjacent areas in Kentucky. LG&E's service area covers approximately 700 square miles in 17 counties and has an estimated population of one million. Included in this area is the Fort Knox Military Reservation, to which LG&E transports gas and provides electric service, but which maintains its own distribution systems. LG&E also provides gas service in limited additional areas. LG&E's coal-fired electric generating plants, which are all equipped with systems to reduce sulfur dioxide emissions, produce most of LG&E's electricity. The remainder is generated by a hydroelectric power plant and combustion turbines. Underground natural gas storage fields help LG&E provide economical and reliable gas service to customers. See Item 2, Properties.

        LG&E has one wholly owned consolidated subsidiary, LG&E R. LG&E R is a special purpose entity formed in September 2000 to enter into accounts receivable securitization transactions with LG&E. LG&E R started operations in 2001.

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        For the year ended December 31, 2001, 71% of total operating revenues were derived from electric operations and 29% from gas operations. Electric and gas operating revenues and the percentages by classes of service on a combined basis for this period were as follows:

		Electric			Gas		Combined			% Combined
		(Thousands of $)
Residential		$	205,926		$	177,387	$	383,313		47	%
Commercial			171,540			70,296		241,836		30
Industrial			104,438			15,750		120,188		15
Public authorities			53,725			13,223		66,948		8
	Total retail		535,629			276,656		812,285		100	%
Wholesale sales			159,406			5,702		165,108
Gas transported—net			—			6,042		6,042
Provision for rate refunds			(720	)		—		(720	)
Miscellaneous			11,610			2,375		13,985
	Total	$	705,925		$	290,775	$	996,700

        See Note of LG&E's Notes to Financial Statements under Item 8 for financial information concerning segments of business for the three years ended December 31, 2001.

Electric Operations

        The sources of LG&E's electric operating revenues and the volumes of sales for the three years ended December 31, 2001, were as follows:

		2001			2000			1999
ELECTRIC OPERATING REVENUES
(Thousands of $):
Residential		$	205,926		$	205,105		$	214,733
Commercial			171,540			171,414			176,457
Industrial			104,438			104,738			111,889
Public authorities			53,725			54,270			55,968
	Total retail		535,629			535,527			559,047
Wholesale sales			159,406			165,080			221,336
Provision for rate refunds			(720	)		(2,500	)		(1,735	)
Miscellaneous			11,610			12,851			12,022
	Total	$	705,925		$	710,958		$	790,670
ELECTRIC SALES (Thousands of Mwh):
Residential			3,782			3,722			3,680
Commercial			3,395			3,350			3,290
Industrial			2,976			3,043			3,047
Public authorities			1,224			1,214			1,187
	Total retail		11,377			11,329			11,204
Wholesale sales			6,957			6,834			8,428
	Total		18,334			18,163			19,632

        LG&E uses efficient coal-fired boilers, fully equipped with sulfur dioxide removal systems, to generate most of its electricity. LG&E's weighted-average system-wide emission rate for sulfur dioxide

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in 2001 was approximately 0.54 lbs./Mmbtu of heat input, with every unit below its emission limit established by the Kentucky Division for Air Quality.

        The 2001 maximum local peak load of 2,522 Mw occurred on Wednesday, August 8, 2001. The record local peak load of 2,612 Mw occurred on Friday, July 30, 1999, when the temperature was 106 degrees F.

        The electric utility business is affected by seasonal weather patterns. As a result, operating revenues (and associated operating expenses) are not generated evenly throughout the year. See LG&E's Results of Operations under Item 7.

        LG&E currently maintains an 11-14% reserve margin range. At December 31, 2001, LG&E owned steam and combustion turbine generating facilities with a capacity of 2,791 Mw and an 80 Mw hydroelectric facility on the Ohio River. At December 31, 2001, LG&E's system capability, including purchases from others and excluding the hydroelectric facility, was 2,883 Mw. See Item 2, Properties.

        LG&E is a participating owner with 14 other electric utilities of Ohio Valley Electric Corporation located in Piketon, Ohio. LG&E has direct interconnections with 11 utility companies in the area and has agreements with each interconnected utility for the purchase and sale of capacity and energy. LG&E also has agreements with an increasing number of entities throughout the United States for the purchase and/or sale of capacity and energy and for the utilization of their bulk transmission system.

        LG&E (along with KU) is a founding member of the MISO, such membership obtained in 1998 in response to and consistent with federal policy initiatives. As a MISO member, LG&E filed for and received authorization from the FERC to transfer control of its transmission facilities (100 kV and above) to the MISO, the first step in allowing the latter to assume responsibility for all tariff-related transmission functions (e.g., scheduling through and on LG&E's transmission system) as well as non-tariff related regional transmission activities (e.g., operations planning, maintenance coordination, long-term regional planning and market monitoring). The FERC approved the MISO as the nation's first Regional Transmission Organization on December 19, 2001, after which LG&E submitted a filing at FERC to cancel all services under its Open Access Transmission Tariff except those that will not be provided by the MISO (certain ancillary services). The MISO became operational on February 1, 2002.

        In October 2001, the FERC issued an order requiring that the bundled retail load and grandfathered wholesale load of each member transmission owner (including LG&E) be included in the current calculation of MISO's "cost-adder," a charge designed to recover MISO's costs of operation, including start-up capital (debt) costs. LG&E, along with several other transmission owners, opposed the FERC's ruling in this regard, which opposition the FERC rejected in an order on rehearing issued in 2002. As of the end of 2001, negotiations were continuing between MISO, its transmission owners and other interested industry segments regarding the level of cost responsibility properly borne by bundled and grandfathered load under these FERC rulings. Absent settlement, this issue is expected to go to hearing in 2002.

        At the end of 2001, in response to an earlier FERC ruling, MISO and its transmission owning members (including LG&E) filed to increase MISO's rate of return on equity from 10.5% (a stipulated percentage agreed to in 1998) to 13.0%, to compensate MISO's transmission owners for the inherent risks and uncertainties associated with transferring control of their facilities to the MISO. This issue is expected to go to hearing in 2002.

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Gas Operations

        The sources of LG&E's gas operating revenues and the volumes of sales for the three years ended December 31, 2001, were as follows:

		2001		2000		1999
GAS OPERATING REVENUES
(Thousands of $):
Residential		$	177,387	$	159,670	$	103,655
Commercial			70,296		61,888		38,627
Industrial			15,750		15,898		10,401
Public authorities			13,223		9,193		9,013
	Total retail		276,656		246,649		161,696
Wholesale sales			5,702		17,344		8,118
Gas transported—net			6,042		6,922		6,350
Miscellaneous			2,375		1,574		1,415
	Total	$	290,775	$	272,489	$	177,579
GAS SALES (Millions of cu. ft.):
Residential			20,429		24,274		21,565
Commercial			8,587		10,132		9,033
Industrial			2,160		3,089		2,781
Public authorities			1,681		1,576		2,228
	Total retail		32,857		39,071		35,607
Wholesale sales			1,882		5,115		3,881
Gas transported			13,108		14,729		14,014
	Total		47,847		58,915		53,502

        The gas utility business is affected by seasonal weather patterns. As a result, operating revenues (and associated operating expenses) are not generated evenly throughout the year. See LG&E's Results of Operations under Item 7.

        LG&E has five underground natural gas storage fields that help provide economical and reliable gas service to ultimate consumers. By using gas storage facilities, LG&E avoids the costs associated with typically more expensive pipeline transportation capacity to serve peak winter space-heating loads. LG&E stores gas in the summer season for withdrawal in the subsequent winter heating season. Without its on-system storage capacity, LG&E would be forced to buy additional gas and pipeline transportation services when customer demand increases, which may be when the price for those items are at their highest. Currently, LG&E buys competitively priced gas from several large suppliers under contracts of varying duration. LG&E's underground storage facilities, in combination with its purchasing practices, enable it to offer gas sales service at rates which are among the lowest in the nation.

        A number of industrial customers purchase their natural gas requirements directly from alternate suppliers for delivery through LG&E's distribution system. These large industrial customers account for about one-fourth of LG&E's annual throughput.

        The all-time maximum day gas sendout of 545,000 Mcf occurred on Sunday, January 20, 1985, when the average temperature for the day was -11 degrees F. During 2001, maximum day gas sendout was 423,000 Mcf, occurring on January 2, when the average temperature for the day was 17 degrees F. Supply on that day consisted of 287,000 Mcf from purchases, 66,000 Mcf delivered from underground

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storage, and 70,000 Mcf transported for industrial customers. For a further discussion, see Gas Supply under Item 1.

Rates and Regulation

        Following the purchase of LG&E Energy by Powergen, Powergen became a registered holding company under PUHCA. As a result, Powergen, its utility subsidiaries, including LG&E, and certain of its non-utility subsidiaries are subject to extensive regulation by the SEC under PUHCA with respect to issuances and sales of securities, acquisitions and sales of certain utility properties, and intra-system sales of certain goods and services. In addition, PUHCA generally limits the ability of registered holding companies to acquire additional public utility systems and to acquire and retain businesses unrelated to the utility operations of the holding company. Powergen believes that it has adequate authority (including financing authority) under existing SEC orders and regulations for it and its subsidiaries to conduct their businesses and will seek additional authorization when necessary.

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

        For a discussion of current regulatory matters, see Rates and Regulation for LG&E under Item 7 and Note 3 of LG&E's Notes to Financial Statements under Item 8.

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

        LG&E's electric rates are subject to an ESM. The ESM, in place for three years beginning in 2000, sets an upper and lower point for rate of return on equity, whereby if LG&E's rate of return for the calendar year falls within the range of 10.5% to 12.5%, no action is necessary. If earnings are above the upper limit, then excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, then earnings deficiency is recovered 40% from ratepayers and 60% from shareholders. The first ESM filing was made on March 1, 2001, for year ended December 31, 2000. By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year. At December 31, 2001, LG&E estimated the rate of return to fall within the 10.5% to 12.5% range, subject to Kentucky Commission approval; therefore no adjustment to the financial statements was made.

        LG&E's rates contain an ECR surcharge which recovers certain costs incurred by LG&E that are required to comply with the Clean Air Act and other environmental regulations. See Note 3 of LG&E's Notes to Financial Statements under Item 8.

        LG&E's gas rates contain a GSC, whereby increases or decreases in the cost of gas supply are reflected in LG&E's rates, subject to approval by the Kentucky Commission. The GSC procedure prescribed by order of the Kentucky Commission provides for quarterly rate adjustments to reflect the expected cost of gas supply in that quarter. In addition, the GSC contains a mechanism whereby any over- or under-recoveries of gas supply cost from prior quarters will be refunded to or recovered from customers through the adjustment factor determined for subsequent quarters. In February 2001, the

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Kentucky Commission in response to unusually high gas prices ordered LG&E to make monthly GSC filings. In July 2001, the Kentucky Commission ordered LG&E to return to making quarterly GSC filings.

        Integrated resource planning regulations in Kentucky require LG&E and the other major utilities to make triennial filings with the Kentucky Commission of various historical and forecasted information relating to load, capacity margins and demand-side management techniques. LG&E filed its last integrated resource plan in 1999, and anticipates filing a new plan in October 2002.

        Pursuant to Kentucky law, the Kentucky Commission has established the boundaries of the service territory or area of each retail electric supplier in Kentucky (including LG&E), other than municipal corporations. Within this service territory each such supplier has the exclusive right to render retail electric service.

Construction Program and Financing

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

        During the five years ended December 31, 2001, gross property additions amounted to $841 million. Internally generated funds and external financings for the five-year period were sufficient to provide for all of these gross additions. The gross additions during this period amounted to approximately 25% of total utility plant at December 31, 2001, and consisted of $683 million for electric properties and $158 million for gas properties. Gross retirements during the same period were $103 million, consisting of $73 million for electric properties and $30 million for gas properties.

Coal Supply

        Coal-fired generating units provided approximately 98% of LG&E's net kilowatt-hour generation for 2001. The remainder of 2001 net generation was made up of a hydroelectric plant and natural gas and oil fueled combustion turbine peaking units. Coal will be the predominant fuel used by LG&E in the foreseeable future, with natural gas and oil being used for peaking capacity and flame stabilization in coal-fired boilers or in emergencies. LG&E has no nuclear generating units and has no plans to build any in the foreseeable future. LG&E has entered into coal supply agreements with various suppliers for coal deliveries for 2002 and beyond. LG&E normally augments its coal supply agreements with spot market purchases. LG&E has a coal inventory policy which it believes provides adequate protection under most contingencies. LG&E had a coal inventory of approximately 1,042,864 tons, or a 53-day supply, on hand at December 31, 2001.

        LG&E expects to continue purchasing most of its coal, which has a sulfur content in the 2%-4.5% range, from western Kentucky, southwest Indiana, and West Virginia for the foreseeable future. This supply is relatively low priced coal, and in combination with its sulfur dioxide removal systems is expected to enable LG&E to continue to provide adequate electric service in compliance with existing environmental laws and regulations.

        Coal is delivered to LG&E's Mill Creek plant by rail and barge; Trimble County plant by barge and Cane Run plant by rail.

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        The historical average delivered costs of coal purchased by LG&E were as follows:

	2001			2000			1999
Per ton	$	21.27		$	20.96		$	21.49
Per Mmbtu	$	.93		$	.92		$	.95
Spot purchases as % of all sources		3	%		1	%		5	%

        The delivered cost of coal is expected to increase during 2002 due to the replacement of contracts that expired in 2001 at higher current market prices.

Gas Supply

        LG&E purchases natural gas supplies from multiple sources under contracts for varying periods of time, while transportation services are purchased from Texas Gas Transmission Corporation and Tennessee Gas Pipeline Company.

        During 2000, Texas Gas filed with FERC for a change in its rates as required under the settlement in its last rate case. After a series of settlement conferences during 2001, the intervening parties reached a settlement that is supported or not opposed by essentially all of Texas Gas' local distribution company customers and the state commissions that regulate them. Texas Gas filed a Stipulation and Agreement with FERC on August 14, 2001. The settlement will resolve all issues set for hearing in these proceedings. It provides significant benefits to consumers in the form of lower rates, refunds with interest, and a three-year rate increase moratorium that will provide a measure of rate certainty to the Texas Gas system. As a result, FERC should be in a position to approve the settlement in 2002. LG&E will receive a refund from Texas Gas if FERC approves the Stipulation and Agreement in Docket No. RP00-260. LG&E participates in that and other proceedings, as appropriate.

        LG&E transports on the Texas Gas system under NNS and FT rate schedules. During the winter months, LG&E has 184,900 Mmbtu/day in NNS and 18,000 Mmbtu/day in FT. LG&E's summer NNS levels are 60,000 Mmbtu/day and its summer FT levels are 54,000 Mmbtu/day. Each of these NNS and FT agreements with Texas Gas are subject to termination by LG&E in equal portions during 2005, 2006, and 2008. LG&E also transports on the Tennessee Gas system under Tennessee's Gas FT-A rate schedule. LG&E's contract levels with Tennessee Gas are 51,000 Mmbtu/ day throughout the year. The FT-A agreement with Tennessee Gas is subject to termination by LG&E during 2002.

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

        LG&E owns and operates five underground gas storage fields with a current working gas capacity of about 15.1 million Mcf. Gas is purchased and injected into storage during the summer season and is then withdrawn to supplement pipeline supplies to meet the gas-system load requirements during the winter heating season. See Gas Supply under Item 1.

        The estimated maximum deliverability from storage during the early part of the 2000-2001 heating season was approximately 373,000 Mcf/day. Deliverability decreases during the latter portion of the heating season as the storage inventory is reduced by seasonal withdrawals.

        The average cost per Mcf of natural gas purchased by LG&E was $5.27 in 2001, $5.08 in 2000 and $2.99 in 1999. Although natural gas prices in the unregulated wholesale market increased significantly throughout 2000 and early 2001, these prices have decreased dramatically since then. Decreasing natural gas prices have been brought about by increased natural gas exploration activity, excess gas in national storage inventories, decreased demand associated with a less robust economy, and warmer than normal winter weather.

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Environmental Matters

        Protection of the environment is a major priority for LG&E. Federal, state, and local regulatory agencies have issued LG&E permits for various activities subject to air quality, water quality, and waste management laws and regulations. For the five-year period ending with 2001, expenditures for pollution control facilities represented $186 million or 22% of total construction expenditures. LG&E estimates that construction expenditures for the installation of NOx control equipment from 2002 through 2004 will be approximately $84 million. For a discussion of environmental matters, see Rates and Regulation for LG&E under Item 7 and Note 12 of LG&E's Notes to Financial Statements under Item 8.

Competition

        In the last several years, LG&E has taken many steps to prepare for the expected increase in competition in its industry, including a reduction in the number of employees; aggressive cost cutting; write-offs of previously deferred expenses; an increase in focus on commercial, industrial and residential customers; an increase in employee involvement and training; a major realignment and formation of new business units, and continuous modifications of its organizational structure. LG&E will continue to take additional steps to better position itself for competition in the future. See Note 16 of LG&E's Notes to Financial Statements under Item 8.

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KENTUCKY UTILITIES COMPANY

General

        KU, incorporated in Kentucky in 1912 and incorporated in Virginia in 1991, is a regulated public utility engaged in producing, transmitting and selling electric energy. KU provides electric service to approximately 469,000 customers in over 600 communities and adjacent suburban and rural areas in 77 counties in central, southeastern and western Kentucky, and to approximately 30,000 customers in 5 counties in southwestern Virginia. In Virginia, KU operates under the name Old Dominion Power Company. KU operates under appropriate franchises in substantially all of the 160 Kentucky incorporated municipalities served. No franchises are required in unincorporated Kentucky or Virginia communities. The lack of franchises is not expected to have a material adverse effect on KU's operations. KU also sells wholesale electric energy to 12 municipalities.

        KU has one wholly owned consolidated subsidiary, KU R. KU R is a special purpose entity formed in September 2000 to enter into accounts receivable securitization transactions with KU. KU R began operations in 2001.

Electric Operations

        The sources of KU's electric operating revenues and the volumes of sales for the three years ended December 31, 2001, were as follows:

		2001			2000		1999
ELECTRIC OPERATING REVENUES (Thousands of $):
Residential		$	244,004		$	241,783	$	242,304
Commercial			165,389			161,291		160,895
Industrial			146,968			153,017		154,460
Mine Power			28,196			27,089		28,792
Public authorities			58,770			57,979		58,500
	Total retail		643,327			641,159		644,951
Wholesale sales			203,181			198,073		286,595
Provision for rate refunds			(954	)		—		(5,900	)
Miscellaneous			13,918			12,709		11,664
	Total	$	859,472		$	851,941	$	937,310
ELECTRIC SALES (Thousands of Mwh):
Residential			5,678			5,714		5,447
Commercial			3,990			3,954		3,760
Industrial			4,716			5,044		4,911
Mine Power			771			767		752
Public authorities			1,481			1,495		1,437
	Total retail		16,636			16,974		16,307
Wholesale sales			7,713			7,573		10,188
	Total		24,349			24,547		26,495

        The electric utility business is affected by seasonal weather patterns. As a result, operating revenues (and associated operating expenses) are not generated evenly throughout the year. See KU's Results of Operations under Item 7.

        KU's weighted-average system-wide emission rate for sulfur dioxide in 2001 was approximately 1.3 lbs./Mmbtu of heat input, with every unit below its emission limit established by the Kentucky Division for Air Quality.

        KU currently maintains an 11-14% reserve margin range. At December 31, 2001, KU owned steam and combustion turbine generating facilities with a capacity of 3,968 Mw and a 24 Mw hydroelectric

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facility. See Item 2, Properties. KU obtains power from other utilities under bulk power purchase and interchange contracts. At December 31, 2001, KU's system capability, including purchases from others and excluding the hydroelectric facility, was 4,458 Mw. The 2001 maximum local peak load of 3,699 Mw occurred on Wednesday, August 8, 2001. The record local peak load of 3,775 Mw occurred on August 9, 2000.

        Under a contract expiring in 2020 with OMU, KU has agreed to purchase from OMU the surplus output of the 150-Mw and 250-Mw generating units at OMU's Elmer Smith station. Purchases under the contract are made under a contractual formula which has resulted in costs which were and are expected to be comparable to the cost of other power purchased or generated by KU. Such power constituted about 7% of KU's net system output during 2001. See Note 11 of KU's Notes to Financial Statements under Item 8.

        KU owns 20% of the common stock of EEI, which owns and operates a 1,000-Mw generating station in southern Illinois. KU is entitled to take 20% of the available capacity of the station. Purchases from EEI are made under a contractual formula which has resulted in costs which were and are expected to be comparable to the cost of other power purchased or generated by KU. Such power constituted about 6% of KU's net system output in 2001. See Note 11 of KU's Notes to Financial Statements under Item 8.

        KU is a participating owner with 14 other electric utilities of Ohio Valley Electric Corporation located in Piketon, Ohio.

        KU (along with LG&E) is a founding member of MISO, such membership obtained in 1998 in response to and consistent with federal policy initiatives. As a MISO member, KU filed for and received authorization from FERC to transfer control of its transmission facilities (100 kV and above) to the MISO, the first step in allowing the latter to assume responsibility for all tariff-related transmission functions (e.g., scheduling through and on KU's transmission system) as well as non-tariff related regional transmission activities (e.g., operations planning, maintenance coordination, long-term regional planning and market monitoring). The FERC approved the MISO as the nation's first Regional Transmission Organization on December 19, 2001, after which KU submitted a filing at FERC to cancel all services under its Open Access Transmission Tariff except those that will not be provided by the MISO (certain ancillary services). The MISO became operational on February 1, 2002.

        In October 2001, the FERC issued an order requiring that the bundled retail load and grandfathered wholesale load of each member transmission owner (including KU) be included in the current calculation of MISO's "cost-adder," a charge designed to recover MISO's costs of operation, including start-up capital (debt) costs. KU, along with several other transmission owners, opposed the FERC's ruling in this regard, which opposition the FERC rejected in an order on rehearing issued in 2002. As of the end of 2001, negotiations were continuing between MISO, its transmission owners and other interested industry segments regarding the level of cost responsibility properly borne by bundled and grandfathered load under these FERC rulings. Absent settlement, this issue is expected to go to hearing in 2002.

        At the end of 2001, in response to an earlier FERC ruling, MISO and its transmission owning members (including KU) filed to increase MISO's rate of return on equity from 10.5% (a stipulated percentage agreed to in 1998) to 13.0%, to compensate MISO's transmission owners for the inherent risks and uncertainties associated with transferring control of their facilities to the MISO. This issue is expected to go to hearing in 2002.

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Rates and Regulation

        Following the purchase of LG&E Energy by Powergen, Powergen became a registered holding company under PUHCA. As a result, Powergen, its utility subsidiaries, including KU, and certain of its non-utility subsidiaries are subject to extensive regulation by the SEC under PUHCA with respect to issuances and sales of securities, acquisitions and sales of certain utility properties, and intra-system sales of certain goods and services. In addition, PUHCA generally limits the ability of registered holding companies to acquire additional public utility systems and to acquire and retain businesses unrelated to the utility operations of the holding company. Powergen believes that it has adequate authority (including financing authority) under existing SEC orders and regulations for it and its subsidiaries to conduct their businesses and will seek additional authorization when necessary.

        The Kentucky Commission and the Virginia Commission have regulatory jurisdiction over KU's retail rates and service, and over the issuance of certain of its securities. By reason of owning and operating a small amount of electric utility property in one county in Tennessee (having a gross book value of approximately $225,000) from which KU serves five customers, KU is subject to the jurisdiction of the TRA. FERC has classified KU as a "public utility" as defined in the FPA. FERC has jurisdiction under the FPA over certain of the electric utility facilities and operations, wholesale sale of power and related transactions and accounting practices of KU, and in certain other respects as provided in the FPA. In addition, the FERC has sole jurisdiction over the issuance by KU of short-term securities.

        For a discussion of current regulatory matters, see Rates and Regulation for KU under Item 7 and Note 3 of KU's Notes to the Financial Statements under Item 8.

        KU's Kentucky retail electric rates contain a FAC, whereby increases and decreases in the cost of fuel for electric generation are reflected in the rates charged to all electric customers. The Kentucky Commission requires public hearings at six-month intervals to examine past fuel adjustments, and at two-year intervals to review past operations of the fuel clause and transfer of the then current fuel adjustment charge or credit to the base charges. The Kentucky Commission also requires that electric utilities, including KU, file certain documents relating to fuel procurement and the purchase of power and energy from other utilities. The FAC mechanism for Virginia customers uses an average fuel cost factor based primarily on projected fuel costs. The fuel cost factor may be adjusted annually for over-or under collections of fuel costs from the previous year.

        KU's Kentucky retail electric rates are subject to an ESM. The ESM, in place for three years beginning in 2000, sets an upper and lower point for rate of return on equity, whereby if KU's rate of return for the calendar year falls within the range of 10.5% to 12.5%, no action is necessary. If earnings are above the upper limit, then excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, then earnings deficiency is recovered 40% from ratepayers and 60% from shareholders. The first ESM filing was made on March 1, 2001, for year ended December 31, 2000. By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year. At December 31, 2001, KU estimated the rate of return to fall within the range, subject to Kentucky Commission approval; therefore no adjustment was made to the financial statements.

        KU's Kentucky rates contain an ECR surcharge which recovers certain costs incurred by KU that are required to comply with the Clean Air Act and other environmental regulations. See Note 3 of KU's Notes to Financial Statements under Item 8.

        Integrated resource planning regulations in Kentucky require KU and the other major utilities to make triennial filings with the Kentucky Commission of various historical and forecasted information relating to load, capacity margins and demand-side management techniques. KU filed its last integrated resource plan in 1999, and anticipates filing a new plan in October 2002.

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        Pursuant to Kentucky law, the Kentucky Commission has established the boundaries of the service territory or area of each retail electric supplier in Kentucky (including KU), other than municipal corporations. Within this service territory each such supplier has the exclusive right to render retail electric service.

        The state of Virginia passed the Virginia Electric Utility Restructuring Act in 1999. This act gives Virginia customers a choice for energy services. The change will be phased in gradually between January 2002 and January 2004. KU customers will have retail choice beginning January 1, 2004. KU filed unbundled rates that became effective January 1, 2002. Rates are capped at current levels through June 2007. The Virginia Commission will continue to require each Virginia utility to make annual filings of either a base rate change or an Annual Informational Filing consisting of a set of standard financial schedules. The Virginia Staff will issue a Staff Report regarding the individual utility's financial performance during the historic 12-month period. The Staff Report can lead to an adjustment in rates, but through June 2007 will be limited to decreases. Because KU has a small number of customers in Virginia, all of which are served at competitive rates, KU shall seek an exemption from the Virginia Commission Rules Governing Retail Access to Competitive Energy Services by applying for a waiver to exempt KU from modifying the current billing infrastructure.

Construction Program and Financing

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

        During the five years ended December 31, 2001, gross property additions amounted to $610 million. Internally generated funds and external financings for the five-year period were sufficient to provide for all of these gross additions. The gross additions during this period amounted to approximately 20% of total utility plant at December 31, 2001. Gross retirements during the same period were $90 million.

Coal Supply

        Coal-fired generating units provided approximately 99% of KU's net kilowatt-hour generation for 2001. The remainder of KU's net generation for 2001 was provided by oil and natural gas burning units and hydroelectric plants. The historical average delivered cost of coal purchased and the percentage of spot coal purchases were as follows:

	2001			2000			1999
Per ton	$	27.84		$	25.63		$	26.65
Per Mmbtu	$	1.20		$	1.07		$	1.11
Spot purchases as % of all sources		44	%		51	%		53	%

        KU's historical average cost of coal purchased is higher than LG&E's due to the lower sulfur content of the coal KU purchases for use at its Ghent plant and higher cost to transport coal to the E.W. Brown plant. The delivered cost of coal is expected to increase during 2002.

        KU maintains its fuel inventory at levels estimated to be necessary to avoid operational disruptions at its coal-fired generating units. Reliability of coal deliveries can be affected from time to time by a number of factors, including fluctuations in demand, coal mine labor issues and other supplier or transporter operating difficulties.

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        KU believes there are adequate reserves available to supply its existing base-load generating units with the quantity and quality of coal required for those units throughout their useful lives. KU intends to meet a portion of its coal requirements with three-year or shorter contracts. As part of this strategy, KU will continue to negotiate replacement contracts as contracts expire. KU does not anticipate any problems negotiating new contracts for future coal needs. The balance of coal requirements will be met through spot purchases. KU had a coal inventory of approximately 1,361,781 tons, or a 60-day supply, on hand at December 31, 2001.

        KU expects to continue purchasing most of its coal, which has a sulfur content in the .7%—3.5% range, from western and eastern Kentucky, West Virginia, southwest Indiana, Wyoming and Pennsylvania for the foreseeable future.

        Coal for Ghent is delivered by barge. Deliveries to the Tyrone, Green River and Pineville locations are by truck. Delivery to E.W. Brown is by rail.

Environmental Matters

        Protection of the environment is a major priority for KU. Federal, state, and local regulatory agencies have issued KU permits for various activities subject to air quality, water quality, and waste management laws and regulations. For the five-year period ending with 2001, expenditures for pollution control facilities represented $24 million or 4% of total construction expenditures. KU estimates that construction expenditures for the installation of nitrogen oxide control equipment from 2002 through 2004 will be approximately $181 million. See Note 11 of KU's Notes to Financial Statements under Item 8.

Competition

        KU has taken many steps to prepare for the expected increase in competition in its industry, including a reduction in the number of employees; aggressive cost cutting; an increase in focus on not only commercial and industrial customers, but residential customers as well; an increase in employee involvement and training; and continuous modifications of its organizational structure. KU will continue to take additional steps to better position itself for competition in the future. See Note 14 of KU's Notes to Financial Statements under Item 8.

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EMPLOYEES AND LABOR RELATIONS

        LG&E had 907 full-time employees and KU had 1,008 full-time employees at December 31, 2001. Of the LG&E total, 647 operating, maintenance, and construction employees were members of IBEW Local 2100. LG&E and IBEW Local 2100 signed a four-year contract in November 2001. Of the KU total, 171 operating, maintenance and construction employees were members of IBEW Local 2100 and USWA Local 9447-01. In August 2001, KU and employees represented by IBEW Local 2100 entered into a two-year collective bargaining agreement. KU and employees represented by USWA entered into a two-year collective bargaining agreement effective August 2000 and expiring July 31, 2002. In July 2001, KU and employees represented by USWA entered into a wage reopener whereby higher wages were negotiated.

        As a result of the Powergen acquisition and in order to comply with the Public Utility Holding Company Act of 1935, LG&E Services was formed and became effective on January 1, 2001. LG&E Services provides certain services to affiliated entities, including LG&E and KU, at cost as required under the Holding Company Act. On January 1, 2001, approximately 1,000 employees, mainly from LG&E Energy, LG&E and KU, were moved to LG&E Services.

        See Note 3 of LG&E's Notes to Financial Statements and Note 3 of KU's Notes to Financial Statements under Item 8 for workforce separation program in effect for 2001.

        Executive Officers of LG&E and KU at December 31, 2001:

Name	Age	Position	Effective Date of Election to Present Position
Victor A. Staffieri	46	Chairman of the Board, President and Chief Executive Officer	May 1, 2001
Richard Aitken-Davies	52	Chief Financial Officer	January 31, 2001
John R. McCall	58	Executive Vice President, General Counsel and Corporate Secretary	July 1, 1994
Frederick J. Newton III	46	Senior Vice President and Chief Administrative Officer	January 2, 1999
S. Bradford Rives	43	Senior Vice President—Finance and Controller	December 11, 2000
Paul W. Thompson	45	Senior Vice President—Energy Services	June 7, 2000
Chris Hermann	54	Senior Vice President—Distribution Operations	December 11, 2000
Wendy C. Welsh	48	Senior Vice President—Information Technology	December 11, 2000
Martyn Gallus	37	Senior Vice President—Energy Marketing	December 11, 2000
Roger A. Smith	49	Senior Vice President Project Engineering	December 11, 2000
David A. Vogel	36	Vice President—Retail Services	December 11, 2000
Daniel K. Arbough	40	Treasurer	December 11, 2000
Bruce Hamilton	46	Vice President Power Operations	December 11, 2000
Robert E. Henriques	60	Vice President Plant Operations	December 11, 2000
Michael S. Beer	43	Vice President—Rates and Regulatory	February 1, 2001
George R. Siemens	52	Vice President—External Affairs	January 11, 2001

        The present term of office of each of the above executive officers extends to the meeting of the Board of Directors following the 2002 Annual Meeting of Shareholders.

        There are no family relationships between or among executive officers of LG&E and KU. The above tables indicate officers serving as executive officers of both LG&E and KU at December 31, 2001. Each of the above officers serves in the same capacity for LG&E and KU.

        Before he was elected to his current positions, Mr. Staffieri was President of LG&E from January 1994 to May 1997; President-Distribution Services of LG&E Energy Corp. from December 1995 to May 1997; Chief Financial Officer of LG&E Energy Corp. and LG&E from May 1997 to February

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2000; Chief Financial Officer of KU from May 1998 to February 2000; and President and Chief Operating Officer of LG&E Energy Corp., LG&E and KU from June 2000 to May 2001.

        Before he was elected to his current position, Mr. Aitken-Davies was Director—LG&E Transition Team at Powergen from March 2000 to December 2000; Group Performance Director at Powergen from April 1998 to March 2000.

        Before he was elected to his current positions, Mr. McCall was Executive Vice President, General Counsel and Corporate Secretary of LG&E Energy Corp. and LG&E from July 1994 to the present. He became Executive Vice President, General Counsel and Corporate Secretary of KU on May 4, 1998.

        Before he was elected to his current positions, Mr. Newton was Director of Human Resources, Manufacturing and Engineering at Unilever from October 1993 to July 1995; Senior Director, Human Resources, Supply Chain, at Unilever from August 1995 to July 1996; Vice President, Human Resources, at Venator Group from August 1996 to July 1997; Senior Vice President, Human Resources, at Venator Group's Champs Sports Division from August 1997 to April 1998; and Senior Vice President—Human Resources and Administration of LG&E Energy Corp., LG&E and KU from May 1998 to January 1999.

        Before he was elected to his current positions, Mr. Rives was Vice President and Treasurer of LG&E Power Inc. from June 1994 to March 1995; Vice President, Controller and Treasurer of LG&E Power Inc. from March 1995 to December 1995; Vice President—Finance, Non-Utility Businesses of LG&E Energy Corp. from January 1996 to March 1996; Vice President—Finance and Controller of LG&E Energy Corp. from March 1996 to February 1999; and Senior Vice President—Finance and Business Development from February 1999 to December 2000.

        Before he was elected to his current positions, Mr. Thompson was Vice President—Business Development for LG&E Energy Corp. from July 1994 to September 1996; Vice President, Retail Electric Business for LG&E from September 1996 to June 1998; Group Vice President for LG&E Energy Marketing, Inc. from June 1998 to August 1999; Vice President, Retail Electric Business for LG&E from December 1998 to August 1999; and Senior Vice President—Energy Services for LG&E Energy Corp. since August 1999.

        Before he was elected to his current positions, Mr. Hermann was Vice President and General Manager, Wholesale Electric Business of LG&E from January 1993 to June 1997; Vice President, Business Integration of LG&E from June 1997 to May 1998; and Vice President, Power Generation and Engineering Services, of LG&E from May 1998 to December 1999; Vice President Supply Chain and Operating Services from December 1999 to December 2000.

        Before she was elected to her current positions, Ms. Welsh was Vice President—Information Services of LG&E from January 1994 to May 1997; and Vice President, Administration of LG&E Energy Corp. from May 1997 to February 1998; and Vice President-Information Technology from February 1998 to December 2000.

        Before he was elected to his current positions, Mr. Gallus was Director, Trading and Risk Management from January 1996 to September 1996; Director, Product Development from September 1996 to April 1997; Vice President, Structured Products from April 1997 to May 1998; Senior Vice President, Trading, from May 1998 to August 1998 for LG&E Energy Marketing Inc., respectively; Vice President, Energy Marketing from August 1998 to December 2000 for LG&E Energy Corp.

        Before he was elected to his current positions, Mr. Smith was Head of Construction Projects—Powergen from January 1996 to May 1999; Director of Projects—Powergen from May 1999 to December 1999; and Director of Engineering Projects for Powergen International from January 2000 to December 2000.

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        Before he was elected to his current positions, Mr. Vogel served in management positions within the Distribution Department of LG&E and KU during the five prior years to this report. In his position prior to his current role he was responsible for statewide outage management and restoration of distribution network.

        Before he was elected to his current position, Mr. Arbough was Manager, Corporate Finance of LG&E Energy Corp., and LG&E from August 1996 to May 1998; Director, Corporate Finance of LG&E Energy Corp., LG&E and KU from May 1998 to present.

        Before he was elected to his current position, Mr. Hamilton was Venture Manager from May 1992 to 1994; Senior Venture Manager from 1994 to 1996, Vice President, Asset Management from 1996 to 2000 and Vice President, Independent Power Operations, January 2001 to present.

        Before he was elected to his current position, Mr. Henriques was Vice President-Plant Operations from September 1995 to September 2001; and Senior Venture Manager for LG&E Power Inc from May 1993 to September 1995.

        Before he was elected to his current position in February of 2001, Mr. Beer was Senior Counsel Specialist, Regulatory from February 2000 to February 2001; and Senior Corporate Attorney from February 1998 to February 2000. Prior to joining LG&E Energy Corp., Mr. Beer was Director, Federal Regulatory Affairs, for Illinois Power Company in Decatur, Illinois, from February of 1997 to January of 1998.

        Before he was elected to his current position as Vice President of External Affairs for LG&E Energy, which he has held since January 2001, Mr. Siemens held the position of Director of External Affairs for LG&E from August 1982 to December 2000.

ITEM 2.    Properties.

         LG&E's power generating system consists of the coal-fired units operated at its three steam generating stations. Combustion turbines supplement the system during peak or emergency periods. LG&E owns and operates the following electric generating stations:

			Capability Rating (Kw)
Steam Stations:
Mill Creek—Kosmosdale, KY
	Unit 1		303,000
	Unit 2		301,000
	Unit 3		386,000
	Unit 4		480,000
		Total Mill Creek	1,470,000
Cane Run—near Louisville, KY
	Unit 4		155,000
	Unit 5		168,000
	Unit 6		240,000
		Total Cane Run	563,000
Trimble County—Bedford, KY (a)
	Unit 1		371,000
Combustion Turbine Generators (Peaking capability):
Zorn			16,000
Paddy's Run (b)			127,000
Cane Run			16,000
Waterside			33,000
E.W. Brown (c)			195,000
	Total combustion turbine generators		387,000
	Total capability rating		2,791,000

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(a)

Amount shown represents LG&E's 75% interest in Trimble County. See Notes 12 and 13 of LG&E's Notes to Financial Statements, Jointly Owned Electric Utility Plant, under Item 8 for further discussion on ownership.

(b)

Amount shown represents LG&E's 53% interest in Paddy's Run Unit 13 and 100% ownership of two other Paddy's Run CTs. See Notes 12 and 13 of LG&E's Notes to Financial Statement, under item 8 for further discussion on ownership.

(c)

Amount shown represents LG&E's 38% interest in Units 6 and 7 and LG&E's 53% interest in Unit 5 at E.W. Brown. See Notes 12 and 13 of LG&E's Notes to Financial Statements, under Item 8 for further discussion on ownership.

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

        At December 31, 2001, LG&E's electric transmission system included 21 substations with a total capacity of approximately 11,519,700 Kva and approximately 656 structure miles of lines. The electric distribution system included 84 substations with a total capacity of approximately 3,448,730 Kva, 3,718 structure miles of overhead lines, 379 miles of underground conduit, and 5,827 miles of underground conductors.

        LG&E's gas transmission system includes 212 miles of transmission mains, and the gas distribution system includes 3,914 miles of distribution mains.

        LG&E operates underground gas storage facilities with a current working gas capacity of approximately 15.1 million Mcf. See Gas Supply under Item 1.

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

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

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

        KU's power generating system consists of the coal-fired units operated at its five steam generating stations. Combustion turbines supplement the system during peak or emergency periods. KU owns and operates the following electric generating stations:

			Capability Rating (Kw)
Steam Stations:
Tyrone—Tyrone, KY
	Unit 1		27,000
	Unit 2		31,000
	Unit 3		71,000
		Total Tyrone	129,000
Green River—South Carrollton, KY
	Unit 1		26,000
	Unit 2		27,000
	Unit 3		71,000
	Unit 4		103,000
		Total Green River	227,000

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E.W. Brown—Burgin, KY
	Unit 1		104,000
	Unit 2		168,000
	Unit 3		439,000
		Total E.W. Brown	711,000
Pineville—Four Mile, KY. (a)
	Unit 3		34,000
Ghent—Ghent, KY.
	Unit 1		483,000
	Unit 2		492,000
	Unit 3		493,000
	Unit 4		494,000
		Total Ghent	1,962,000
Combustion Turbine Generators (Peaking capability):
E.W. Brown—Burgin, KY. (Units 6-11) (b)			786,000
Haefling—Lexington, KY.			45,000
Paddys Run—Louisville, KY (c)			74,000
		Total combustion turbine generators	905,000
Total capability rating			3,968,000

(a)

Pineville Unit 3 has been taken out of active service as of January 31, 2002 and will be retired in 2002.

(b)

Amount shown represents KU's 62% interest in Units 6 and 7 at E.W. Brown, KU's 47% interest in Unit 5 at E.W. Brown and 100% of four other units. See Notes 11 and 12 of KU's Notes to Financial Statements, under Item 8 for further discussion on ownership.

(c)

Amount shown represents KU's 47% interest in Unit 13 at Paddy's Run. See Notes 11 and 12 of KU's Notes to Financial Statements, under item 8 for further discussion on ownership.

        Substantially all properties are subject to the lien of KU's Mortgage Indenture.

        KU also owns a 24 Mw hydroelectric generating station located in Burgin, Kentucky (Dix Dam), operated under a license issued by the FERC.

        At December 31, 2001, KU's electric transmission system included 112 substations with a total capacity of approximately 14,855,396 Kva and approximately 4,409 structure miles of lines. The electric distribution system included 438 substations with a total capacity of approximately 5,046,307 Kva and 14,924 structure miles of lines.

ITEM 3.    Legal Proceedings.

Rates and Regulatory Matters

        For a discussion of current regulatory matters, including, among others, a discussion of settlement agreements with the Kentucky Commission regarding rate matters related to LG&E's and KU's environmental cost recovery surcharge refunds, fuel adjustment clause proceedings and regulatory assets, depreciation and amortization matters, see Rates and Regulation under Item 7 and Note 3 of LG&E's Notes to Financial Statements and Note 3 of KU's Notes to Financial Statements under Item 8.

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Alternative Ratemaking

        In October 1998, LG&E and KU filed applications with the Kentucky Commission for approval of the PBR proposal for determining electric rates. In January 2000, the Kentucky Commission issued orders requiring LG&E and KU to reduce annual base rates, effective March 1, 2000. The orders also eliminated the temporary effectiveness of the PBR proposal, reinstated the FAC mechanism and offered the utilities a three year ESM program whereby incremental annual earnings above or below a range of 10.5% to 12.5% would be shared 60% with shareholders and 40% with ratepayers. In February 2000, LG&E and KU filed tariffs incorporating the ESM. In June 2000, the Kentucky Commission issued orders reducing the original January 2000 base rate reductions to now require reductions in base rates of approximately $26.3 million at LG&E and $30.4 million at KU, effective June 1, 2000. The orders implemented LG&E's and KU's ESM tariffs, with certain modifications, for a three year term. No parties filed appeals from the Kentucky Commission's orders within the time allowed by statute. See Rates and Regulations under Item 7 and Note 3 to LG&E's Notes to Financial Statements and Note 3 to KU's Notes to Financial Statements under Item 8.

Fuel Adjustment Clause Proceedings

        Pursuant to Kentucky statute, LG&E and KU operate under six-month and two-year reviews by the Kentucky Commission of the fuel cost incurred to serve their customers. Both LG&E and KU have participated in proceedings in front of the Kentucky Commission concerning the recovery of fuel costs associated with wholesale sales and recovery of purchased power energy costs. As a result of these proceedings, the Kentucky Commission issued an order in July 1999 requiring KU to refund a total of $10.1 million to ratepayers. The amount was reduced to $6.7 million in August 1999, which amount was refunded over the 12-month period beginning October 1999; the period covered by the order was November 1994 through October 1998. The Kentucky Commission issued an order in February 1999 requiring LG&E to refund $3.9 million to ratepayers, of which $1.9 million was refunded in April 1999. As a result of a rehearing, the Kentucky Commission ordered a refund totaling $800,000 for the period November 1996 through April 1998. This refund was paid in January 2000. The PSC orders from February 1999 (LG&E) and August 1999 (KU) were each appealed by KU and LG&E and the intervenor group in 2000. Pending a decision on these appeals, a comprehensive settlement was reached by all parties, which settlement was filed with the Kentucky Commission on December 21, 2001. Under that settlement, LG&E and KU agreed to credit their respective fuel clauses in the amount of $720,000 and $954,000, respectively (such credit provided over the course of two monthly billing periods), and the parties agreed on a prospective interpretation of Kentucky's fuel adjustment clause regulation to ensure consistent and mutually acceptable application on a going-forward basis. All pending FAC proceedings before the court were resolved by the parties to the agreement and all parties requested the Court of Appeals remand the case to the Kentucky Commission for final approval. The Kentucky Commission is expected to approve the settlement in 2002. See also Note 3 to LG&E's Notes to Financial Statements and Note 3 to KU's Notes to Financial Statements under Item 8.

Environmental

        For a discussion of environmental matters concerning (a) currently proposed reductions in NOx emission limits, (b) issues at LG&E's Mill Creek generating plant and LG&E's and KU's manufactured gas plant sites, and (c) other environmental items affecting LG&E and KU, see Environmental Matters under Item 7 and Note 12 of LG&E's Notes to Financial Statements and Note 11 of KU's Notes to Financial Statements under Item 8, respectively.

E.ON—Powergen Transaction

        In April 2001, E.ON AG announced a conditional offer to purchase all the common shares of Powergen plc, the indirect corporate parent of LG&E and KU. The transaction is subject to a number

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of conditions precedent, including the receipt of regulatory approvals from European and United States governmental bodies, in form satisfactory to the parties. Regulatory orders approving the E.ON transaction were received from the Kentucky Commission in August 2001 and from the Virginia State Corporation Commission, the Federal Energy Regulatory Commission and the TRA, respectively, in October 2001. The parties anticipate that remaining approvals may be received in the near future to permit completion of the transaction during the first half of 2002. However, there can be no assurance that such approvals will be obtained in form or timing sufficient for such dates. For further discussion also see Business under Item 1.

Preferred Stock

        In October 2001, the Boards of Directors of LG&E and KU authorized the delisting of LG&E's 5% Preferred Stock, par value $25 per share, from the NASDAQ Small Capitalization Market and KU's 4.75% Preferred Stock, stated value $100 per share, from the Philadelphia Stock Exchange, respectively. The delistings could occur following applications to the relevant exchanges and applicable regulatory agencies, if any. Delisting does not constitute a change in the terms and conditions of the respective preferred stock series nor the rights and privileges of their shareholders. The delistings are proposed in order to enable LG&E and KU to realize certain administrative and corporate governance efficiencies.

Other

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

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

a)

LG&E's and KU's Annual Meetings of Shareholders were held on December 19, 2001.



b)

Not Applicable



c)

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



1.

LG&E



i)

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

        Sydney Gillibrand CBE—21,294,223 common shares and 125,955 preferred shares cast in favor of election and 4,118 preferred shares withheld.

        Nicholas P. Baldwin—21,294,223 common shares and 127,114 preferred shares cast in favor of election and 2,959 preferred shares withheld.

        Victor A. Staffieri—21,294,223 common shares and 126,596 preferred shares cast in favor of election and 3,477 preferred shares withheld.

        Edmund A. Wallis—21,294,223 common shares and 125,850 preferred shares cast in favor of election and 4,223 preferred shares withheld.

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        Dr. David K-P Li—21,294,223 common shares and 125,813 preferred shares cast in favor of election and 4,260 preferred shares withheld.

        Sir Frederick Crawford—21,294,223 common shares and 125,285 preferred shares cast in favor of election and 4,788 preferred shares withheld.

        David J. Jackson—21,294,223 common shares and 126,935 preferred shares cast in favor of election and 3,138 preferred shares withheld.

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

ii)

The shareholders voted 21,294,223 common shares and 126,532 preferred shares in favor of and 896 preferred shares against the approval of PricewaterhouseCoopers LLP as independent accountants for 2001. Holders of 2,645 preferred shares abstained from voting on this matter.

2.    KU

i)

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

        37,817,878 common shares cast in favor of election and no shares withheld for each of Sydney Gillibrand CBE, Nicholas P. Baldwin, Victor A. Staffieri, Edmund A. Wallis, Dr. David K-P Li, Sir Frederick Crawford and David J. Jackson, respectively.

ii)

The sole shareholder voted 37,817,878 common shares in favor of and no shares withheld for approval of PricewaterhouseCoopers LLP as independent accountants for 2001.

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

d)

Not applicable.

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PART II.

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

LG&E:

        All LG&E common stock, 21,294,223 shares, is held by LG&E Energy. Therefore, there is no public market for LG&E's common stock.

        The following table sets forth LG&E's cash distributions on common stock paid to LG&E Energy (in thousands of $):

	2001		2000
First quarter	$	0	$	23,000
Second quarter		0		16,500
Third quarter		0		16,500
Fourth quarter		23,000		17,000

KU:

        All KU common stock, 37,817,878 shares, is held by LG&E Energy. Therefore, there is no public market for KU's common stock.

        The following table sets forth KU's cash distributions on common stock paid to LG&E Energy (in thousands of $):

	2001		2000
First quarter	$	0	$	19,000
Second quarter		0		25,000
Third quarter		0		25,000
Fourth quarter		30,500		25,500

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ITEM 6. Selected Financial Data.

		Years Ended December 31 (Thousands of $)
		2001			2000			1999			1998			1997
LG&E:
Operating revenues:
Revenues		$	997,420		$	985,947		$	969,984		$	854,556		$	845,543
Provision for rate refunds			(720	)		(2,500	)		(1,735	)		(4,500	)		—
	Total operating revenues		996,700			983,447			968,249			850,056			845,543
Net operating income			141,773			148,870			140,091			135,523			148,186
Net income:
Before unusual items			106,781			110,573			106,270			101,697			113,273
Merger costs			—			—			—			(23,577	)		—
Net income			106,781			110,573			106,270			78,120			113,273
Net income available for common stock			102,042			105,363			101,769			73,552			108,688
Total assets			2,448,354			2,226,084			2,171,452			2,104,637			2,055,641
Long-term obligations (including amounts due within one year)		$	616,904		$	606,800		$	626,800		$	626,800		$	646,800

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

			Years Ended December 31 (Thousands of $)
			2001			2000		1999			1998			1997
KU:
Operating revenues:
Revenues			$	860,426		$	851,941	$	943,210		$	831,614		$	716,437
Provision for rate refunds				(954	)		—		(5,900	)		(21,500	)		—
	Total operating revenues			859,472			851,941		937,310			810,114			716,437
Net operating income:
Before unusual items				125,465			128,136		136,016			125,388			118,408
Non-recurring charge				(4,095	)		—		—			—			—
	Net operating income			121,370			128,136		136,016			125,388			118,408
Net income:
Before unusual items				100,509			95,524		106,558			94,428			85,713
Non-recurring charge				(4,095	)		—		—			—			—
Merger costs				—			—		—			(21,664	)		—
		Net income		96,414			95,524		106,558			72,764			85,713
Net income available for common stock				94,158			93,268		104,302			70,508			83,457
Total assets				1,826,902			1,739,518		1,785,090			1,761,201			1,679,880
Long-term obligations (including amounts due within one year)			$	488,506		$	484,830	$	546,330		$	546,330		$	546,351

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

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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.

LG&E:

GENERAL

        The following discussion and analysis by management focuses on those factors that had a material effect on LG&E's financial results of operations and financial condition during 2001, 2000, and 1999 and should be read in connection with the financial statements and notes thereto.

        Some of the following discussion may contain forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "expect," "estimate," "objective," "possible," "potential" and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include; general economic conditions; business and competitive conditions in the energy industry; changes in federal or state legislation; unusual weather; actions by state or federal regulatory agencies; and other factors described from time to time in LG&E's reports to the Securities and Exchange Commission, including Exhibit No. 99.01 to this report on Form 10-K.

MERGERS and ACQUISITIONS

        On April 9, 2001, a German power company, E.ON AG, announced a preconditional cash offer of £5.1 billion ($7.3 billion) for Powergen. The offer is subject to a number of conditions, including the receipt of certain European and United States regulatory approvals. The Kentucky Public Service Commission, the Federal Energy Regulatory Commission, the Virginia State Corporation Commission, and the Tennessee Regulatory Authority have all approved the acquisition of Powergen and LG&E Energy by E.ON. The parties expect to obtain the remaining regulatory approvals and to complete the transaction in the first half of 2002. See Powergen's schedule 14D-9, and associated schedules to such filings, filed with the SEC on April 9, 2001.

        On December 11, 2000, LG&E Energy Corp. was acquired by Powergen plc. for cash of approximately $3.2 billion or $24.85 per share and the assumption of all of LG&E Energy's debt. As a result of the acquisition, LG&E Energy became a wholly owned subsidiary of Powergen and, as a result, LG&E became an indirect subsidiary of Powergen. LG&E has continued its separate identity and serves customers in Kentucky under its existing name. The preferred stock and debt securities of LG&E were not affected by this transaction and LG&E continues to file SEC reports. Following the acquisition, Powergen became a registered holding company under PUHCA, and LG&E, as a subsidiary of a registered holding company, became subject to additional regulation under PUHCA. See "Rates and Regulation" under Item 1.

RESULTS OF OPERATIONS

Net Income

        LG&E's net income decreased $3.8 million for 2001, as compared to 2000. This decrease is mainly due to higher pension related expenses and amortization of regulatory assets, partially offset by increased electric and gas net revenues (operating revenues less fuel for electric generation, power purchased and gas supply expenses) and decreased interest expenses.

        LG&E's net income increased $4.3 million for 2000, as compared to 1999. This increase is mainly due to higher gas sales resulting from the colder winter weather experienced in 2000, lower administrative costs and operating expenses at the electric generating stations, partially offset by decreased electric revenues due to a rate reduction ordered by the Kentucky Commission, higher maintenance and interest expenses.

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Revenues

        A comparison of operating revenues for the years 2001 and 2000, excluding the provisions recorded for refunds in 2001 and in 2000, with the immediately preceding year reflects both increases and decreases, which have been segregated by the following principal causes (in thousands of $):

			Increase (Decrease) From Prior Period
			Electric Revenues						Gas Revenues
Cause
			2001			2000			2001			2000
Retail sales:
	Fuel and gas supply adjustments, etc.		$	(394	)	$	(9,027	)	$	79,627		$	57,156
	LG&E/KU Merger surcredit			(2,456	)		(2,331	)		—			—
	ESM/Performance based rate			1,962			4,114			—			—
	Environmental cost recovery surcharge			1,246			(1,308	)		—			—
	Electric rate reduction			(3,671	)		(20,727	)		—			—
	VDT surcredit			(1,014	)		—			(68	)		—
	Gas rate increase			—			—			15,265			4,221
	Variation in sales volumes, etc.			4,429			5,759			(64,817	)		23,576
		Total retail sales		102			(23,520	)		30,007			84,953
	Wholesale sales			(5,674	)		(56,256	)		(11,642	)		9,226
	Gas transportation—net			—			—			(880	)		572
	Other			(1,241	)		829			801			159
		Total	$	(6,813	)	$	(78,947	)	$	18,286		$	94,910

        Electric revenues decreased in 2001 primarily due to a decrease in brokered activity in the wholesale electric sales market, an electric rate reduction ordered by the Kentucky Commission and the effects of the LG&E/KU merger surcredit (See Note 2 of LG&E's Notes to Financial Statements under Item 8) partially offset by an increase in electric retail sales. In January 2000, the Kentucky Commission ordered an electric rate reduction and the termination of LG&E's proposed electric PBR mechanism. Gas revenues in 2001 increased primarily as a result of higher gas supply costs billed to customers through the gas supply clause and the effects of a gas rate increase ordered by the Kentucky Commission in September 2000. The gas revenue increase was partially offset by a decrease in retail and wholesale gas sales in 2001 due to warmer weather; heating degree days decreased 10.2% as compared to 2000.

        Electric revenues decreased in 2000 primarily due to a decrease in brokered activity in the wholesale electric sales market and the electric rate reduction ordered by the Kentucky Commission. In January 2000, the Kentucky Commission ordered an electric rate reduction and the termination of LG&E's proposed electric PBR mechanism. Gas revenues increased in 2000 primarily as a result of higher gas supply costs billed to customers through the gas supply clause, coupled with increased gas sales in 2000 due to colder weather, as heating degree days increased 15% over 1999. Increased wholesale gas sales, and the effects of a gas rate increase ordered by the Kentucky Commission in September 2000 also contributed to increased gas revenues.

Expenses

        Fuel for electric generation and gas supply expenses comprises a large component of LG&E's total operating costs. LG&E's electric rates contain a FAC and gas rates contain a GSC, whereby increases or decreases in the cost of fuel and gas supply are reflected in the FAC and GSC factors, subject to approval by the Kentucky Commission. In July 1999, the Kentucky Commission implemented rates proposed in LG&E's PBR filing resulting in the discontinuance of the FAC. In January 2000, the Kentucky Commission rescinded the PBR rates and ordered the reinstatement of the FAC. See Note 3

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of LG&E's Notes to Financial Statements under Item 8 for a further discussion of the PBR and the FAC.

        Fuel for electric generation decreased $.2 million (.1%) in 2001 primarily due to decreased generation as a result of decreased electric sales ($2.2 million) partially offset by a higher cost of coal burned ($2.0 million). Fuel for electric generation increased $.3 million (.2%) in 2000 because of an increase in generation to support increased electric sales ($7.6 million), offset partially by a lower cost of coal burned ($7.3 million). The average delivered cost per ton of coal purchased was $21.27 in 2001, $20.96 in 2000, and $21.49 in 1999.

        Power purchased decreased $15.4 million (15.9%) in 2001 primarily due to decreased brokered sales activity in the wholesale electric market and a lower unit cost of the purchases partially offset by an increase in purchases to meet requirements for native load and off-system sales. Power purchased decreased $72.7 million (42.9%) in 2000 primarily due to decreased brokered sales activity in the wholesale electric market.

        Gas supply expenses increased $9.3 million (4.7%) in 2001 primarily due to an increase in cost of net gas supply ($36.2 million), partially offset by a decrease in the volume of gas delivered to the distribution system ($26.9 million). Gas supply expenses increased $82.2 million (71.6%) in 2000 primarily due to an increase in cost of net gas supply ($70.4 million), and due to an increase in the volume of gas delivered to the distribution system ($11.8 million). The average unit cost per Mcf of purchased gas was $5.26 in 2001, $5.08 in 2000, and $2.99 in 1999.

        Other operation expenses increased $31.9 million (23.4%) in 2001 primarily due to amortization of a regulatory asset resulting from workforce reduction costs associated with LG&E's Value Delivery initiative ($13 million), an increase in pension expense ($10.3 million) and an increase in outside services ($8.5 million). Outside services increased in part due to the reclassification of expenses as a result of the formation of LG&E Services, as required by the SEC to comply with PUHCA. Operation expenses decreased $18.7 million (12.1%) in 2000 primarily due to lower administrative costs, $13.8 million, (due to decreases in pension expense, $5.4 million, year 2000 Information Technology expenses, $4.0 million, and decreased salaries due to fewer employees in 2000, $2.0 million) and a decrease in steam production costs primarily at the Mill Creek generating station ($5.0 million).

        Maintenance expenses for 2001 decreased $5.0 million (7.9%) primarily due to decreases in scheduled outages ($2.8 million), and a decrease in software and communication equipment maintenance ($2.8 million). Maintenance expenses for 2000 increased $5.6 million (9.6%) primarily due to an increase in software maintenance agreements ($3.9 million), and maintenance of communications equipment ($1.5 million).

        Depreciation and amortization increased $2.1 million (2.1%) in 2001 and increased $1.1 million (1.1%) in 2000 because of additional utility plant in service in both years. The 2001 increase was offset by a decrease in depreciation rates resulting from a settlement order in December 2001 from the Kentucky Commission. Depreciation expenses decreased by $5.6 million as a result of the settlement order.

        Property and other taxes decreased $1.2 million (6.5%) in 2001 primarily due to a reduction in payroll taxes related to fewer employees as a result of workforce reductions and transfers to LG&E Services. Property and other taxes increased $2.1 million (12.1%) in 2000 primarily due to increased payroll and property taxes.

        Other income—net decreased $2.0 million (40.5%) in 2001 primarily due to lower interest and dividend income. Other income—net increased $.8 million (18.9%) in 2000 primarily due to increased tax benefits recorded associated with increased non-debt related interest expenses.

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        Interest charges for 2001 decreased $5.3 million (12.2%) primarily due to lower interest rates on variable rate debt ($2.2 million) and the retirement of short-term borrowings ($8.1 million) partially offset by an increase in debt to associated companies ($2.5 million) and an increase in interest associated with LG&E's accounts receivable securitization program ($2.5 million). Interest charges for 2000 increased $5.3 million (13.9%) due to having short-term borrowings for entire 2000 as compared to two months in 1999 ($7.1 million), partially offset by a decrease in interest on debt to associated companies ($1.0 million) and lower interest rates on variable rate debt ($1.0 million). See Note 10 of LG&E's Notes to Financial Statements under Item 8.

        LG&E's weighted average cost of long-term debt was 4.17% at December 31, 2001. See Note 10 of LG&E's Notes to Financial Statements under Item 8.

        Variations in income tax expenses are largely attributable to changes in pre-tax income. The increase in LG&E's 2001 effective income tax rate to 36.5% from the 35.8% rate in 2000 was largely the result of lost tax benefits attributable to LG&E's Employee Stock Ownership Plan. These benefits ceased as a result of the December 2000 acquisition of LG&E Energy Corp. by Powergen.

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

CRITICAL ACCOUNTING POLICIES

        Preparation of financial statements and related disclosures in compliance with generally accepted accounting principles (GAAP) requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events, including the likelihood of success of particular projects, legal and regulatory challenges and anticipated recovery of costs. These judgments, in and of themselves, could materially impact the financial statements and disclosures based on varying assumptions, which may be appropriate to use. In addition, the financial and operating environment also may have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies applied has not changed. The following list represents accounting policies that are most significant to LG&E's financial condition and results, and that require management judgments. Each of these has a higher likelihood of resulting in materially different

34

reported amounts under different conditions or using different assumptions. See also Note 1 of LG&E's Notes to Financial Statements under Item 8.

Accounting Policy	Judgment/Uncertainties	See Also Under Item 8
Unbilled Revenue	Projecting customer electric     and gas usage Estimating impact of weather	Note 1
Benefit Plan Accounting	Future rate of returns on pension plan assets Interest rates used in valuing benefit obligation Health care cost trend rates Other actuarial assumptions	Note 7
Derivative Financial Instruments	Market conditions in energy industry Price volatility	Note 4
Income Tax	Application of tax statutes and regulations to     transactions Future decisions of tax authorities	Note 8
Regulatory Mechanisms	Future regulatory decisions Impact of deregulation and competition on     ratemaking process External regulator decisions	Note 3

NEW ACCOUNTING PRONOUNCEMENTS

        During 2001 and 2000, the following accounting pronouncements were issued that affect LG&E:

        SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or a liability measured at its fair value. SFAS No. 133 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 that LG&E must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 could increase the volatility in earnings and other comprehensive income. SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of SFAS No. 133, deferred the effective date of SFAS No. 133 until January 1, 2001. LG&E adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. The effect of adopting these statements resulted in a $3.6 million decrease in other comprehensive income from a cumulative effect of change in accounting principle (net of tax of $2.4 million).

        The Financial Accounting Standards Board created the Derivatives Implementation Group (DIG) to provide guidance for implementation of SFAS No. 133. DIG Issue C15, Normal Purchases and Normal Sales Exception for Option Type Contracts and Forward Contracts in Electricity was adopted in 2001 and had no impact on results of operations and financial positions. DIG Issue C16, Applying the Normal Purchases and Normal Sales Exception to Contracts that Combine a Forward Contract and a Purchased Option Contract, was cleared in 2001 and stated that option contracts do not meet the

35

normal purchases and normal sales exception and should follow SFAS No. 133. DIG C16 will be effective in the second quarter of 2002. LG&E has not determined the impact this issue will have on its results of operations and financial position.

        SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 140 was adopted in the first quarter of 2001, when LG&E entered into an accounts receivable securitization transaction.

        SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets were issued in 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. SFAS No. 142 requires goodwill to be recorded, but not amortized. Further, goodwill will now be subject to a periodic assessment for impairment. The provisions of these new pronouncements were effective July 1, 2001, for LG&E. The adoption of these standards did not have a material impact on the results of operations or financial position of LG&E.

        SFAS No. 143, Accounting for Asset Retirement Obligations and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, were issued 2001. SFAS No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144, among other provisions, eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived assets to be tested for impairment. The effective implementation date for SFAS No. 144 is 2002 and SFAS No. 143 is 2003. Based on current regulatory accounting practices, management does not expect SFAS No. 143 or SFAS No. 144 to have a material impact on results of operations or financial position of LG&E.

LIQUIDITY AND CAPITAL RESOURCES

        LG&E uses net cash generated from its operations and external financing to fund construction of plant and equipment and the payment of dividends. LG&E believes that such sources of funds will be sufficient to meet the needs of its business in the foreseeable future.

Operating Activities

        Cash provided by operations was $287 million, $156 million and $180 million in 2001, 2000, and 1999, respectively. The 2001 increase resulted primarily from the change in accounts receivable including the sale of accounts receivable through the accounts receivable securitization program. See Note 1 of LG&E's Notes to Financial Statements under Item 8. The 2000 decrease resulted primarily from an increase in accounts receivable, and a decrease in accrued taxes. 1999 showed a lower level of non-cash income statement items and a net decrease in net current assets, primarily resulting from decreases in accounts payable and accrued taxes.

Investing Activities

        LG&E's primary use of funds for investing activities continues to be for capital expenditures. Capital expenditures were $253 million, $144 million and $195 million in 2001, 2000, and 1999, respectively. LG&E expects its capital expenditures for 2002 and 2003 to total approximately $334 million, which consists primarily of construction estimates associated with installation of NOx equipment as described in the section titled "Environmental Matters," purchase of two jointly owned CTs with KU and on-going construction for the distribution systems.

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        Net cash used for investment activities increased $108 million in 2001 as compared to 2000, and decreased by $43 million in 2000 as compared to 1999, primarily due to the level of construction expenditures. NOx expenditures in 2001 were approximately $75 million.

Financing Activities

        Net cash outflows for financing activities were $39 million and $68 million in 2001 and 2000, respectively. Net cash inflow from financing activities in 1999 was $26.7 million. During 2001, LG&E issued $10.1 million of pollution control bonds resulting in net proceeds of $9.7 million after issuance costs. Dividend payments also decreased in 2001. In 2000, total debt was reduced by $20 million to $606.8 million. LG&E also refinanced $108.3 million ($106.5 million net of issuance costs) of its pollution control bonds in 2000. LG&E received $40 million in contributed capital from its parent company in December 2000.

        LG&E participates in an intercompany money pool agreement whereby LG&E Energy can make funds available to LG&E at market based rates up to $200 million. At December 31, 2001, the balance of the money pool loan from LG&E Energy was $64.2 million at an average rate of 2.37%, and LG&E had outstanding commercial paper of $30 million at an average rate of 2.54%. The resulting remaining money pool availability at December 31, 2001, was $105.8 million. LG&E Energy maintains a facility of $200 million with an affiliate to ensure funding availability for the money pool. There was no outstanding balance under this facility as of December 31, 2001, and availability of $170 million remains after considering the $30 million of commercial paper outstanding at LG&E.

        At December 31, 2000, the money pool loan balance was $114.6 million at an average rate of 6.84% and LG&E had no commercial paper outstanding.

        Under the provisions for LG&E's variable-rate pollution control bonds totaling $242.6 million, the bonds are subject to tender for purchase at the option of the holder and to mandatory tender for purchase upon the occurrence of certain events, causing the bonds to be classified as current portion of long-term debt.

        On March 6, 2002, LG&E refinanced its $22.5 million and $27.5 million unsecured pollution control bonds, both due September 1, 2026. The replacement bonds, due September 1, 2026, are variable rate bonds and are secured by first mortgage bonds.

        On March 22, 2002, LG&E refinanced its two $35 million unsecured pollution control bonds due November 1, 2027. The replacement variable rate bonds are secured by first mortgage bonds and will mature November 1, 2027.

Future Capital Requirements

        Future capital requirements may be affected in varying degrees by factors such as load growth, changes in construction expenditure levels, rate actions by regulatory agencies, new legislation, market entry of competing electric power generators, changes in environmental regulations and other regulatory requirements. LG&E anticipates funding future capital requirements through operating cash flow, debt, and/or infusions of capital from its parent.

        LG&E's debt ratings as of January 31, 2002, were:

	Moody's	S&P	Fitch
First mortgage bonds	A1	A-	A+
Unsecured debt	A2	BBB	A
Preferred stock	a2	BBB-	A-
Commercial paper	P-1	A-2	F-1

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        The S&P ratings are on Credit Watch with positive implications. The Fitch ratings are on Credit Watch—Evolving status. These ratings reflect the views of Moody's, S & P and Fitch. 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.

Contractual Obligations

        The following is provided to summarize LG&E's contractual cash obligations for periods after December 31, 2001 (in thousands of $):

	Payments Due by Period
Contractual cash Obligations	2002		2003- 2004		2005- 2006		After 2006		Total
Long-term debt(a)	$	246,200	$	42,600	$	—	$	328,104	$	616,904
Operating leases		3,594		7,014		1,754		—		12,362
Unconditional purchase obligations(b)		12,805		25,997		26,518		201,164		266,484
Other long-term obligations(c)		112,900		10,000		—		—		122,900
Total contractual cash obligations	$	375,499	$	85,611	$	28,272	$	529,268	$	1,018,650

(a)

Long-term debt of $246.2 million is classified as current liabilities because these bonds are subject to tender for purchase at the option of the holder and to mandatory tender for purchase upon the occurrence of certain events. Maturity dates for these bonds range from 2017 to 2027.

(b)

Represents future minimum payments under purchased power agreements through 2020.

(c)

Represents construction commitments.

Market Risks

        LG&E is exposed to market risks from changes in interest rates and commodity prices. To mitigate changes in cash flows attributable to these exposures, LG&E uses various financial instruments including derivatives. Derivative positions are monitored using techniques that include market value and sensitivity analysis. See Note 1 and 4 of LG&E's Notes to Financial Statements under Item 8.

Interest Rate Sensitivity

        LG&E has short-term and long-term variable rate debt obligations outstanding. At December 31, 2001, the potential change in interest expense associated with a 1% change in base interest rates of LG&E's unhedged debt was estimated at $2.8 million.

        Interest rate swaps are used to hedge LG&E's underlying variable-rate debt obligations. These swaps hedge specific debt issuance and, consistent with management's designation, are accorded hedge accounting treatment.

        As of December 31, 2001, LG&E had swaps with a combined notional value of $117.3 million. The swaps exchange floating-rate interest payments for fixed interest payments to reduce the impact of interest rate changes on LG&E's Pollution Control Bonds. As of December 31, 2001, 30% of the outstanding variable interest rate borrowings were converted to fixed interest rates through swaps. The potential loss in fair value resulting from a hypothetical 1% adverse movement in base interest rates is estimated at $9.1 million as of December 31, 2001. This estimate is derived from third party valuations. Changes in the market value of these swaps if held to maturity, as LG&E intends to do, are not expected to have any effect on LG&E's net income or cash flow. See Note 4 of LG&E's Notes to Financial Statements under Item 8.

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Energy Trading & Risk Management Activities

        LG&E conducts energy trading and risk management activities to maximize the value of power sales from physical assets it owns, in addition to the wholesale sale of excess asset capacity. Certain energy trading activities are accounted for on a mark-to-market basis in accordance with EITF 98-10 Accounting for Contracts Involved in Energy Trading and Risk Management Activities, SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activities. Wholesale sales of excess asset capacity and wholesale purchases are treated as normal sales and purchases under SFAS No. 133 and SFAS No. 138 and are not marked to market.

        The table below summarizes LG&E's energy trading and risk management activities in 2001 (in thousands of $).

Fair value of contracts at 12/31/00, net liability		$	(17	)
	Fair value of contracts when entered into during 2001		3,441
	Contracts realized or otherwise settled during 2001		(2,894	)
	Changes in fair values due to changes in assumptions		(716	)
Fair value of contracts at 12/31/01, net liability		$	(186	)

        No changes to valuation techniques for energy trading and risk management activities occurred during 2001. All contracts outstanding at December 31, 2001 have a maturity of less than one year and are valued using prices actively quoted for proposed or executed transactions or quoted by brokers.

        LG&E maintains policies intended to minimize credit risk and revalues credit exposures daily to monitor compliance with those policies. As December 31, 2001, 100% of the trading and risk management commitments were with counterparties rated BBB equivalent or better.

Commodity Price Sensitivity

        LG&E has limited exposure to market price volatility in prices of fuel and electricity, since its retail tariffs include the FAC and GSC commodity price pass-through mechanisms. LG&E is exposed to market price volatility of fuel and electricity in its wholesale activities.

Accounts Receivable Securitization

        On February 6, 2001, LG&E implemented an accounts receivable securitization program. The purpose of this program is to enable LG&E to accelerate the receipt of cash from the collection of retail accounts receivable, thereby reducing dependence upon more costly sources of working capital. The securitization program allows for a percentage of eligible receivables to be sold. Eligible receivables are generally all receivables associated with retail sales that have standard terms and are not past due. LG&E is able to terminate these programs at any time without penalty. If there is a significant deterioration in the payment record of the receivables by the retail customers or if LG&E fails to meet certain covenants regarding the program, the program may terminate at the election of the financial institutions. In this case, payments from retail customers would first be used to repay the financial institutions participating in the program, and would then be available for use by LG&E.

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        As part of the program, LG&E sold retail accounts receivables to a wholly owned subsidiary, LG&E R. Simultaneously, LG&E R entered into two separate three-year accounts receivable securitization facilities with two financial institutions and their affiliates whereby LG&E R can sell, on a revolving basis, an undivided interest in certain of their receivables and receive up to $75 million from an unrelated third party purchaser. The effective cost of the receivables programs is comparable to LG&E's lowest cost source of capital, and is based on prime rated commercial paper. LG&E retains servicing rights of the sold receivables through two separate servicing agreements with the third party purchaser. LG&E has obtained an opinion from independent legal counsel indicating these transactions qualify as true sale of receivables. As of December 31, 2001, the outstanding program balance was $42 million.

        Management expects to renew these facilities when they expire.

        The allowance for doubtful accounts associated with the eligible securitized receivables was $1.3 million at December 31, 2001. This allowance is based on historical experience of LG&E. Each securitization facility contains a fully funded reserve for uncollectible receivables.

Rates and Regulation

        Following the purchase of LG&E Energy by Powergen, Powergen became a registered holding company under PUHCA. As a result, Powergen, its utility subsidiaries, including LG&E, and certain of its non-utility subsidiaries are subject to extensive regulation by the SEC under PUHCA with respect to issuances and sales of securities, acquisitions and sales of certain utility properties, and intra-system sales of certain goods and services. In addition, PUHCA generally limits the ability of registered holding companies to acquire additional public utility systems and to acquire and retain businesses unrelated to the utility operations of the holding company. Powergen believes that it has adequate authority (including financing authority) under existing SEC orders and regulations for it and its subsidiaries to conduct their businesses and will seek additional authorization when necessary.

        LG&E is subject to the jurisdiction of the Kentucky Commission in virtually all matters related to electric and gas utility regulation, and as such, their accounting is subject to SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. Given LG&E's competitive position in the marketplace and the status of regulation in the state of Kentucky, LG&E has no plans or intentions to discontinue its application of SFAS No. 71. See Note 3 of LG&E's Notes to Financial Statements under Item 8.

Kentucky Commission Settlement Order—Value Delivery Costs, ESM and Depreciation

        During the first quarter 2001, LG&E recorded a $144 million charge for a workforce reduction program. Primary components of the charge were separation benefits, enhanced early retirement benefits, and health care benefits. The result of this workforce reduction was the elimination of over 700 positions, accomplished primarily through a voluntary enhanced severance program.

        On June 1, 2001, LG&E filed an application (VDT case) with the Kentucky Commission to create a regulatory asset relating to these first quarter 2001 charges. The application requested permission to amortize these costs over a four-year period. The Kentucky Commission also opened a case to review the new depreciation study and resulting depreciation rates implemented in 2001.

        LG&E reached a settlement in the VDT case as well as the other cases involving depreciation rates and ESM with all intervening parties. The settlement agreement was approved by the Kentucky Commission on December 3, 2001.

        The Kentucky Commission December 3, 2001, order allowed LG&E to set up a regulatory asset of $141 million for the workforce reduction costs and begin amortizing these costs over a five year period starting in April 2001. The first quarter charge of $144 million represented all employees who had accepted a voluntary enhanced severance program. Some employees rescinded their participation in the

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voluntary enhanced severance program, thereby decreasing the original charge from $144 million to $141 million. The settlement will also reduce revenues approximately $26 million through a surcredit on future bills to customers over the same five year period. The surcredit represents stipulated net savings LG&E is expected to realize from implementation of best practices through the value delivery process. The agreement also established LG&E's new depreciation rates in effect December 2001, retroactive to January 1, 2001. The new depreciation rates decreased depreciation expense by $5.6 million in 2001.

Environmental Cost Recovery

        In August 1999, a final order of the Kentucky Commission approved LG&E's settlement agreement concerning the refund of the recovery of costs associated with pre-1993 environmental projects. LG&E began applying the refund to customers' bills in October 1999, and completed the refund process in November 2000. All aspects of the original litigation of this issue have now been resolved.

        In June 2000, the Kentucky Commission approved LG&E's application for a CCN to construct up to three SCR NOx reduction facilities. The construction and subsequent operation of the SCRs is intended to reduce NOx emission levels to meet the EPA's mandated NOx emission level of 0.15 lbs./ Mmbtu by May 2004. In its order, the Kentucky Commission ruled that LG&E's proposed plan for construction was "reasonable, cost-effective and will not result in the wasteful duplication of facilities." In October 2000, LG&E filed an application with the Kentucky Commission to amend its Environmental Compliance Plan to reflect the addition of the proposed NOx reduction technology projects and to amend its Environmental Cost Recovery Tariff to include an overall rate of return on capital investments. Following the completion of hearings in March 2001, a ruling was issued in April 2001 granting LG&E's application. Such approval has allowed LG&E to begin to recover the costs associated with these new projects, subject to Kentucky Commission oversight during normal six-month and two-year reviews.

ESM

        LG&E's electric rates are subject to an ESM. The ESM, in place for three years beginning in 2000, sets an upper and lower point for rate of return on equity, whereby if LG&E's rate of return for the calendar year falls within the range of 10.5% to 12.5%, no action is necessary. If earnings are above the upper limit, then excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, then earnings deficiency is recovered 40% from ratepayers and 60% from shareholders. The first ESM filing was made on March 1, 2001, for year ended December 31, 2000, which resulted in a refund to customers of $618,000. By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year. LG&E estimated that the rate of return will fall within the deadband range, subject to Kentucky Commission approval, for the year ended December 31, 2001; therefore, no adjustment to the financial statements was made.

DSM

        LG&E's rates contain a DSM provision. The provision includes a rate mechanism that provides concurrent recovery of DSM costs and provides an incentive for implementing DSM programs. This program had allowed LG&E to recover revenues from lost sales associated with the DSM program. In May 2001, the Kentucky Commission approved LG&E's plan to continue DSM programs. This filing called for the expansion of the DSM programs into the service territory served by KU and proposes a mechanism to recover revenues from lost sales associated with DSM programs based on program planning engineering estimates and post-implementation evaluation.

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Gas PBR

        Since November 1, 1997, LG&E has operated under an experimental performance-based ratemaking mechanism related to its gas procurement activities. For each of the last four years, LG&E's rates have been adjusted to recover its portion of the savings (or expenses) incurred during each of the four 12-month periods beginning November 1 and ending October 31. Since its implementation on November 1, 1997, through October 31, 2001, LG&E has achieved $32.1 million in savings. Of the total savings, LG&E has retained $15.0 million, and the remaining portion of $17.1 million has been distributed to customers. In December 2000, LG&E filed an Application reporting on the operation of the experimental PBR and requested the Kentucky Commission to extend the PBR as a result of the benefits provided to both LG&E and its customers during the experimental period. Following the discovery and hearing process, the Kentucky Commission issued an order effective November 1, 2001, extending the experimental PBR program for an additional four years, and making other modifications, including changes to the sharing levels applicable to savings or expenses incurred under the PBR. Specifically, the Kentucky Commission modified the sharing mechanism to a 25%/75% Company/Customer sharing for all savings (and expenses) up to 4.5% of the benchmarked gas costs. Savings (and expenses) in excess of 4.5% of the benchmarked gas costs are shared at the 50%/50% level.

FAC

        Prior to implementation of the PBR in July 1999, and following its termination in March 2000, LG&E employed an FAC mechanism, which under Kentucky law allowed LG&E to recover from customers the actual fuel costs associated with retail electric sales. In February 1999, LG&E received orders from the Kentucky Commission requiring a refund to retail electric customers of approximately $3.9 million resulting from reviews of the FAC from November 1994, through April 1998, of which $1.9 million was refunded in April 1999, for the period beginning November 1994, and ending October 1996. The orders changed LG&E's method of computing fuel costs associated with electric line losses on wholesale sales appropriate for recovery through the FAC. Following rehearing in December 1999, the Kentucky Commission agreed with LG&E's position on the appropriate loss factor to use in the FAC computation and issued an order reducing the refund level for the 18-month period under review to approximately $800,000. LG&E enacted the refund with billings in the month of January 2000. LG&E and KIUC each filed separate appeals from the Kentucky Commission's February 1999 orders with the Franklin County, Kentucky Circuit Court and in May 2000, the Court affirmed the Kentucky Commission's orders regarding the amounts disallowed and ordered the case remanded as to the Kentucky Commission's denial of interest, directing the Kentucky Commission to determine whether interest should be awarded to LG&E's ratepayers. In June 2000, LG&E appealed the Circuit Court's decision to the Kentucky Court of Appeals. Pending a decision on this appeal, a comprehensive settlement was reached by all parties, which settlement was filed with the Kentucky Commission on December 21, 2001. Thereunder, LG&E agreed to credit its fuel clause in the amount of $720,000 (such credit provided over the course of two monthly billing periods), and the parties agreed on a prospective interpretation of the state's fuel adjustment clause regulation to ensure consistent and mutually acceptable application on a going-forward basis. All pending FAC proceedings before the court were resolved by the parties to the agreement and all parties requested the Court of Appeals remand the case to the Kentucky Commission. The Kentucky Commission is expected to approve the settlement in 2002.

Gas Rate Case

        In March 2000, LG&E filed an application with the Kentucky Commission requesting an adjustment in LG&E's gas rates. In September 2000, the Kentucky Commission granted LG&E an annual increase in its base gas revenues of $20.2 million effective September 28, 2000. The Kentucky

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Commission authorized a return on equity of 11.25%. The Kentucky Commission approved LG&E's proposal for a weather normalization billing adjustment mechanism that will normalize the effect of weather on revenues from gas sales.

Wholesale Natural Gas Prices

        On September 12, 2000, the Kentucky Commission issued an order establishing Administrative Case No. 384—"An Investigation of Increasing Wholesale Natural Gas Prices and the Impacts of such Increase on the Retail Customers Served by Kentucky's Jurisdictional Natural Gas Distribution Companies". The impetus for this administrative proceeding was the escalation of wholesale natural gas prices during the summer of 2000.

        The Kentucky Commission directed Kentucky's natural gas distribution companies, including LG&E, to file selected information regarding the individual companies' natural gas purchasing practices, expectations for the then-approaching winter heating season of 2000-2001, and potential actions which these companies might take to mitigate price volatility. On July 17, 2001, the Kentucky Commission issued an order encouraging the natural gas distribution companies in Kentucky to take various actions, among them to propose a natural gas hedge plan, consider performance-based ratemaking mechanisms, and to increase the use of storage.

        On August 12, 2001, LG&E submitted a natural gas hedge plan in Case No. 2001-253. However, due to significantly decreased wholesale natural gas prices during the Summer of 2001, the Kentucky Commission ultimately rejected LG&E's proposed gas hedging plan as "untimely" in its Order dated October 5, 2001. The Kentucky Commission encouraged LG&E to file another hedge plan for its consideration in 2002.

        Another result from that Administrative Case was the Kentucky Commission's decision to engage a consultant to conduct a forward-looking audit of the gas procurement and supply procedures in order to assist both the Kentucky Commission and each of Kentucky's largest natural gas distribution companies. This audit is underway.

Kentucky Commission Administrative Case for Affiliate Transactions

        In December 1997, the Kentucky Commission opened Administrative Case No. 369 to consider Kentucky Commission policy regarding cost allocations, affiliate transactions and codes of conduct governing the relationship between utilities and their non-utility operations and affiliates. The Kentucky Commission intended to address two major areas in the proceedings: the tools and conditions needed to prevent cost shifting and cross-subsidization between regulated and non-utility operations; and whether a code of conduct should be established to assure that non-utility segments of the holding company are not engaged in practices that could result in unfair competition caused by cost shifting from the non-utility affiliate to the utility. During the period September 1998 to February 2000, the Kentucky Commission issued draft codes of conduct and cost allocation guidelines. In early 2000, the Kentucky General Assembly enacted legislation, House Bill 897, which authorized the Kentucky Commission to require utilities who provide nonregulated activities to keep separate accounts and allocate costs in accordance with procedures established by the Kentucky Commission. In the same Bill, the General Assembly set forth provisions to govern a utilities activities related to the sharing of information, databases, and resources between its employees or an affiliate involved in the marketing or the provision of nonregulated activities and its employees or an affiliate involved in the provision of regulated services. The legislation became law in July 2000 and LG&E has been operating pursuant thereto since that time. On February 14, 2001, the Kentucky Commission published notice of their intent to promulgate new administrative regulations under the auspices of the new law. This effort is still on going.

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Kentucky Commission Administrative Case for System Adequacy

        On June 19, 2001, Kentucky Governor Paul E. Patton issued Executive Order 2001-771, which directed the Kentucky Commission to review and study issues relating to the need for and development of new electric generating capacity in Kentucky. The issues to be considered included the impact of new power plants on the electric supply grid, facility siting issues, and economic development matters, with the goal of ensuring a continued, reliable source of supply of electricity for the citizens of Kentucky and the continued environmental and economic vitality of the Commonwealth and its communities. In response to that Executive Order, in July 2001 the Kentucky Commission opened Administrative Case No. 387 to review the adequacy of Kentucky's generation capacity and transmission system. Specifically, the items reviewed were the appropriate level of reliance on purchased power, the appropriate reserve margins to meet existing and future electric demand, the impact of spikes in natural gas prices on electric utility planning strategies, and the adequacy of Kentucky's electric transmission facilities. LG&E, as a party to this proceeding, filed written testimony and responded to two requests for information. Public hearings were held in August, September, and October 2001. In October 2001, LG&E filed a final brief in the case. In December 2001 the Kentucky Commission issued an order in which they noted that LG&E is responsibly addressing the long-term supply needs of native load customers and that current reserve margins are appropriate. However, due to the rapid pace of change in the industry, the order also requires LG&E to provide an annual assessment of supply resources, future demand, reserve margin, and the need for new resources.

        Regarding the transmission system, the Kentucky Commission concluded that the transmission system within the Commonwealth can reliably serve native load and a significant portion of the proposed new unregulated power plants. However, it will not be able to handle the volume of transactions envisioned by FERC without future upgrades, the costs of which should be borne by those for whom the upgrades are required.

        The Kentucky Commission pledged to continue to monitor all relevant issues and advocate Kentucky's interests at all opportunities.

Environmental Matters

        The Clean Air Act imposed stringent new SO₂ and NOx emission limits on electric generating units. LG&E previously had installed scrubbers on all of its generating units. LG&E's strategy for Phase II SO₂ reductions, which commenced January 1, 2000, is to increase scrubber removal efficiency to delay additional capital expenditures and may also include fuel switching or upgrading scrubbers. LG&E met the NOx emission requirements of the Act through installation of low-NOx burner systems. LG&E's compliance plans are subject to many factors including developments in the emission allowance and fuel markets, future regulatory and legislative initiatives, and advances in clean air control technology. LG&E will continue to monitor these developments to ensure that its environmental obligations are met in the most efficient and cost-effective manner.

        In September 1998, the EPA announced its final "NOx SIP Call" rule requiring states to impose significant additional reductions in NOx emissions by May 2003, in order to mitigate alleged ozone transport impacts on the Northeast region. The Commonwealth of Kentucky is currently in the process of revising its State Implementation Plan or "SIP" to require reductions in NOx emissions from coal-fired generating units to the 0.15 lb./Mmbtu level on a system-wide basis. In related proceedings in response to petitions filed by various Northeast states, in December 1999, EPA issued a final rule pursuant to Section 126 of the Clean Air Act directing similar NOx reductions from a number of specifically targeted generating units including all LG&E units. As a result of appeals to both rules, the compliance date was extended to May 2004. All LG&E generating units are subject to the May 2004 compliance date under these NOx emissions reduction rules.

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        LG&E is currently implementing a plan for adding significant additional NOx controls to its generating units. Installation of additional NOx controls will proceed on a phased basis, with installation of controls commencing in late 2000 and continuing through the final compliance date. LG&E estimates that it will incur total capital costs of approximately $160 million to reduce its NOx emissions to the 0.15 lb./Mmbtu level on a company-wide basis. In addition, LG&E will incur additional operating and maintenance costs in operating new NOx controls. LG&E believes its costs in this regard to be comparable to those of similarly situated utilities with like generation assets. LG&E had anticipated that such capital and operating costs are the type of costs that are eligible for recovery from customers under its environmental surcharge mechanism and believed that a significant portion of such costs could be recovered. In April 2001, the Kentucky Commission granted recovery of these costs for LG&E.

        LG&E is also monitoring several other air quality issues which may potentially impact coal-fired power plants, including the appeal of the D.C. Circuit's remand of the EPA's revised air quality standards for ozone and particulate matter, measures to implement EPA's regional haze rule, and EPA's December 2000 determination to regulate mercury emissions from power plants. In addition, LG&E is currently working with local regulatory authorities to review the effectiveness of remedial measures aimed at controlling particulate matter emissions from its Mill Creek Station. LG&E previously settled a number of property damage claims from adjacent residents and completed significant remedial measures as part of its ongoing capital construction program. LG&E is in the process of converting the Mill Creek Station to wet stack operation in an effort to resolve all outstanding issues related to particulate matter emissions.

        LG&E owns or formerly owned three properties which are the location of past MGP operations. Various contaminants are typically found at such former MGP sites and environmental remediation measures are frequently required. With respect to the sites, LG&E has completed cleanups, obtained regulatory approval of site management plans, or reached agreements for other parties to assume responsibility for cleanup. Based on currently available information, management estimates that it will incur additional costs of $400,000. Accordingly, an accrual of $400,000 has been recorded in the accompanying financial statements at December 31, 2001 and 2000.

        See Note 12 of LG&E's Notes to Financial Statements under Item 8 for an additional discussion of environmental issues.

Deferred Income Taxes

        LG&E expects to have adequate levels of taxable income to realize its recorded deferred tax assets. At December 31, 2001, deferred tax assets totaled $114.4 million and were principally related to expenses attributable to LG&E's pension plans and post retirement benefit obligations.

Future Outlook

Competition and Customer Choice

        LG&E has moved aggressively over the past decade to be positioned for, and to help promote, the energy industry's shift to customer choice and a competitive market for energy services. Specifically, LG&E has taken many steps to prepare for the expected increase in competition in its business, including support for performance-based ratemaking structures; aggressive cost reduction activities; strategic acquisitions, dispositions and growth initiatives; write-offs of previously deferred expenses; an increase in focus on commercial and industrial customers; an increase in employee training; and necessary corporate and business unit realignments. LG&E continues to be active in the national debate surrounding the restructuring of the energy industry and the move toward a competitive, market-based environment.

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        In December 1997, the Kentucky Commission issued a set of principles which was intended to serve as its guide in consideration of issues relating to industry restructuring. Among the issues addressed by these principles are: consumer protection and benefit, system reliability, universal service, environmental responsibility, cost allocation, stranded costs and codes of conduct. During 1998, the Kentucky Commission and a task force of the Kentucky General Assembly had each initiated proceedings, including meetings with representatives of utilities, consumers, state agencies and other groups in Kentucky, to discuss the possible structure and effects of energy industry restructuring in Kentucky.

        In November 1999, the task force issued a report to the Governor of Kentucky and a legislative agency recommending no general electric industry restructuring actions during the 2000 legislative session. No general restructuring actions were taken during the 2001 legislative session.

        Thus, at the time of this report, neither the Kentucky General Assembly nor the Kentucky Commission has adopted or approved a plan or timetable for retail electric industry competition in Kentucky. The nature or timing of the ultimate legislative or regulatory actions regarding industry restructuring and their impact on LG&E, which may be significant, cannot currently be predicted.

        While many states have moved forward in providing retail choice, many others have not. Some are reconsidering their initiatives and have even delayed implementation. Recent activities in California that have resulted in extremely high wholesale (and in some cases, consumer) electric prices are becoming significant factors in the deliberations by other states.

KU

General

        The following discussion and analysis by management focuses on those factors that had a material effect on KU's financial results of operations and financial condition during 2001, 2000, and 1999 and should be read in connection with the financial statements and notes thereto.

        Some of the following discussion may contain forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "expect," "estimate," "objective," "possible," "potential" and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include; general economic conditions; business and competitive conditions in the energy industry; changes in federal or state legislation; unusual weather; actions by state or federal regulatory agencies; and other factors described from time to time in KU's reports to the Securities and Exchange Commission, including Exhibit No. 99.01 to this report on Form 10-K.

Mergers and Acquisitions

        On April 9, 2001, a German power company, E.ON AG, announced a preconditional cash offer of £5.1 billion ($7.3 billion) for Powergen. The offer is subject to a number of conditions, including the receipt of certain European and United States regulatory approvals. The Kentucky Public Service Commission, the Federal Energy Regulatory Commission, the Virginia State Corporation Commission, and the Tennessee Regulatory Authority have all approved the acquisition of Powergen and LG&E Energy by E.ON. The parties expect to obtain the remaining regulatory approvals and to complete the transaction in the first half of 2002. See Powergen's schedule 14D-9, and associated schedules to such filings, filed with the SEC on April 9, 2001.

        On December 11, 2000, LG&E Energy Corp. was acquired by Powergen plc for cash of approximately $3.2 billion or $24.85 per share and the assumption of all of LG&E Energy's debt. As a result of the acquisition, LG&E Energy became a wholly owned subsidiary of Powergen and, as a

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result, KU became an indirect subsidiary of Powergen. KU has continued its separate identity and serves customers in Kentucky and Virginia under its existing name. The preferred stock and debt securities of KU were not affected by this transaction and KU continued to file SEC reports. Following the acquisition, Powergen became a registered holding company under PUHCA and KU, as a subsidiary of a registered holding company, became subject to additional regulation under PUHCA. See "Rates and Regulation" under Item 1.

Results of Operations

Net Income

        KU's net income in 2001 was relatively flat as compared to 2000 with an increase of $.9 million. The increase resulted primarily from decreased depreciation, interest expenses and property and other taxes, partially offset by higher pension related expenses and amortization of regulatory assets.

        KU's net income decreased $11 million for 2000, as compared to 1999, primarily due to retail rate reductions ordered by the Kentucky Commission. The rate reduction resulted in reduced retail revenues of $28.3 million. Excluding the impact of the rate reduction, net income would have increased approximately $6.0 million. The increase was due to higher retail electric sales and lower purchased power and operation expenses, offset by lower off-system sales and increased depreciation and amortization.

Revenues

        A comparison of operating revenues for the years 2001 and 2000, excluding the provision for rate refund, $1.0 million in 2001, with the immediately preceding year reflects both increases and decreases which have been segregated by the following principal causes (in thousands of $):

			Increase (Decrease) From Prior Period
Cause
			2001			2000
Retail sales:
	Fuel clause adjustments, etc.		$	10,220		$	6,893
	KU/LG&E Merger surcredit			(3,856	)		(2,327	)
	Environmental cost recovery surcharge			1,458			(4,994	)
	Performance based rate			1,747			3,439
	Electric rate reduction			(5,395	)		(28,343	)
	VDT surcredit			(372	)		—
	Variation in sales volumes, etc.			(1,627	)		20,187
		Total retail sales		2,175			(5,145	)
Wholesale sales				5,108			(88,522	)
Other				1,202			2,398
	Total		$	8,485		$	(91,269	)

        Electric revenues increased in 2001 primarily due to an increase in the recovery of fuel costs passed through the FAC and an increase in wholesale activity partially offset by a rate reduction ordered by Kentucky Commission in 2000 and lower sales volumes.

        Electric revenues decreased in 2000 primarily due to a decrease in brokered activity in the wholesale electric sales market and the electric rate reduction ordered by the Kentucky Commission. In January 2000, the Kentucky Commission ordered the termination of KU's proposed electric PBR mechanism and an electric rate reduction.

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Expenses

        Fuel for electric generation comprises a large component of KU's total operating expenses. KU's Kentucky jurisdictional electric rates were subject to a FAC whereby increases or decreases would be reflected in the FAC factor, subject to the approval of the Kentucky Commission. Effective July 2, 1999, the FAC was discontinued and replaced with an amended electric PBR. In January 2000, the Kentucky Commission rescinded KU's PBR rates and ordered the reinstatement of the FAC. See Note 3 of KU's Notes to Financial Statements under Item 8 for a further discussion of the PBR and the FAC. KU's wholesale and Virginia jurisdictional electric rates contain a fuel adjustment clause whereby increases or decreases in the cost of fuel are reflected in rates, subject to the approval of the Virginia Commission and the FERC.

        Fuel for electric generation increased $17.1 million (7.8%) in 2001 because of an increase in the cost of coal burned ($21.8 million), partially offset by a decrease in generation ($4.7 million). Fuel for electric generation was approximately the same in 2000 as compared to 1999. An increase in volume burned ($5.1 million) was offset by decreases in the cost of fuel ($5.1 million). KU's average delivered cost per ton of coal purchased was $27.84 in 2001, $25.63 in 2000, and $26.65 in 1999.

        Power purchased expense decreased $9.8 million (5.9%) in 2001 primarily due to decreased brokered sales activity in the wholesale electric market and a lower unit cost of the purchases partially offset by an increase in purchases to meet requirements for native load and off-system sales. Power purchased expense decreased $75.4 million in 2000 primarily due to the decrease in wholesale sales.

        Other operation expenses increased $10.3 million (9.5%) in 2001. The primary cause for the increase was the amortization of a regulatory assets as a result of the workforce reduction associated with KU's Value Delivery initiative of $5.0 million and an increase in pension expense of $5.5 million. Operation expenses decreased $8.4 million (7.3%) in 2000 primarily because of decreased administrative and general expenses of $10 million offset by increased transmission expenses ($2.1 million). The administrative and general expenses decrease was primarily due to decreased medical expense ($3.4 million) and pension expense ($3.9 million).

        Maintenance expenses decreased $4.6 million (7.5%) primarily due to decreases in steam maintenance ($6.5 million). Maintenance expense increased $4.3 million (7.5%) in 2000 due to increases in maintenance at the steam generating plants, primarily due to a scheduled turbine outage at Ghent Unit 1.

        Depreciation and amortization decreased $8 million (8.1%) in 2001 primarily due to a reduction in depreciation rates as a result of a settlement order in December 2001 from the Kentucky Commission. Depreciation expenses decreased by $6.0 million as a result of the settlement order. Depreciation and amortization increased $8.3 million (9.3%) in 2000 because of additional utility plant in service.

        Property and other taxes decreased $3.1 million (18.2%) in 2001 due to decreases in payroll taxes related to fewer employees as a result of workforce reductions and transfers to LG&E Energy Services Company. Property and other taxes increased $2.1 million in 2000 over 1999 (13.8%) due to increases in payroll taxes ($1.4 million), property tax ($.4 million) and Kentucky Commission fees ($.3 million).

        Other income-net increased $2.1 million (30.5%) in 2001 due to an increase in gain on sale of assets. Other income-net decreased $2.6 million (27.5%) in 2000 as a result of a decrease in interest and dividend income.

        Interest charges decreased $5.4 million (13.7%) in 2001 as compared to the 2000 due to lower interest rates on variable rate debt ($4.6 million), the retirement of short-term borrowings ($1.6 million), lower interest on debt to parent company ($1.2 million), partially offset by an increase in interest associated with KU's accounts receivable securitization program ($1.8 million).

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        KU's weighted average cost of long-term debt was 4.91% at December 31, 2001. See Note 9 of KU's Notes to Financial Statements under Item 8.

        Variations in income tax expense are largely attributable to changes in pre-tax income. The increase in KU's 2001 effective income tax rate to 35.9% from the 33.7% rate in 2000 was largely the result of lost tax benefits attributable to KU's Employee Stock Ownership Plan. These benefits ceased as a result of the December 2000 acquisition of LG&E Energy Corp. by Powergen.

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

CRITICAL ACCOUNTING POLICIES

        Preparation of financial statements and related disclosures in compliance with generally accepted accounting principles (GAAP) requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events, including the likelihood of success of particular projects, legal and regulatory challenges and anticipated recovery of costs. These judgments, in and of themselves, could materially impact the financial statements and disclosures based on varying assumptions, which may be appropriate to use. In addition, the financial and operating environment also may have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies applied has not changed. The following list represents accounting policies that are most significant to KU's financial condition and results, and that require management judgments. Each of these has a higher likelihood of resulting in materially different reported amounts under different conditions or using different assumptions. See also Note 1 of KU's Notes to Financial Statements under Item 8.

Accounting Policy	Judgment/Uncertainties	See Also Under Item 8
Unbilled Revenue	Projecting customer electric and gas usage Estimating impact of weather	Note 1
Benefit Plan Accounting	Future rate of returns on pension plan assets Interest rates used in valuing benefit obligation Health care cost trend rates Other actuarial assumptions	Note 6
Derivative Financial Instruments	Market conditions in energy industry Price volatility	Note 4
Income Tax	Application of tax statutes and regulations to transactions Future decisions of tax authorities	Note 7
Regulatory Mechanisms	Future regulatory decisions Impact of deregulation and competition on ratemaking process External regulator decisions	Note 3

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NEW ACCOUNTING PRONOUNCEMENTS

        During 2001 and 2000, the following accounting pronouncements were issued that affect KU:

        SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or a liability measured at its fair value. SFAS No. 133 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 that LG&E must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 could increase the volatility in earnings and other comprehensive income. SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of SFAS No. 133, deferred the effective date of SFAS No. 133 until January 1, 2001. KU adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. The effect of adopting these statements resulted in a $1.6 million increase in other comprehensive income from a cumulative effect of change in accounting principle (net of tax of $1.1 million).

        The Financial Accounting Standards Board created the Derivatives Implementation Group (DIG) to provide guidance for implementation of SFAS No. 133. DIG Issue C15, Normal Purchases and Normal Sales Exception for Option Type Contracts and Forward Contracts in Electricity, was adopted in 2001 and had no impact on results of operations and financial position. DIG Issue C16, Applying the Normal Purchases and Normal Sales Exception to Contracts that Combine a Forward Contract and a Purchased Option Contract, was cleared in 2001 and stated that option contracts do not meet the normal purchases and normal sales exception and should follow SFAS No. 133. DIG C16 will be effective in the second quarter of 2002. KU has not determined the impact this issue will have on its results of operations and financial position.

        SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 140 was adopted in the first quarter of 2001, when KU entered into an accounts receivable securitization transaction.

        SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets were issued in 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. SFAS No. 142 requires goodwill to be recorded, but not amortized. Further, goodwill will now be subject to a periodic assessment for impairment. The provisions of these new pronouncements were effective July 1, 2001, for KU. The adoption of these standards did not have a material impact on the results of operations or financial position of KU.

        SFAS No. 143, Accounting for Asset Retirement Obligations and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, were issued 2001. SFAS No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144, among other provisions, eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived assets to be tested for impairment. The effective implementation date for SFAS No. 143 is 2003 and SFAS No. 144 is 2002. Based on current regulatory accounting practices, management does not expect SFAS No. 143 or SFAS No. 144 to have a material impact on results of operations or financial position of KU.

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LIQUIDITY AND CAPITAL RESOURCES

        KU uses net cash generated from its operations and external financing to fund construction of plant and equipment and the payment of dividends. KU believes that such sources of funds will be sufficient to meet the needs of its business in the foreseeable future.

Operating Activities

        Cash provided by operations was $188 million, $176 million and $204 million in 2001, 2000 and 1999, respectively. The 2001 increase resulted from sale of accounts receivable through a securitization program. See Note 1 of KU's Notes to Financial Statements under Item 8. The 2000 decrease resulted from a decrease in net income caused by the aforementioned electric rate reduction ordered by the Kentucky Commission. The decrease was further caused by a net increase in net current assets, including increases in accounts receivable and decreases in accounts payable, and provision for rate refunds, partially offset by decreases in inventory. The 1999 decrease resulted from an increase in net income and a net decrease in net current assets.

Investing Activities

        KU's primary use of funds for investing activities continues to be for capital expenditures. Capital expenditures were $142 million, $101 million and $181 million in 2001, 2000 and 1999, respectively. The higher amount in 1999 capital expenditures was primarily due to the purchase of a 62% interest in two combustion turbines. KU expects its capital expenditures for 2002 and 2003 will total approximately $459 million which consists primarily of construction costs associated with installation of nitrogen oxide control equipment as described in the section titled "Environmental Matters," purchase of two jointly owned CTs with LG&E and on going construction for the distribution system.

        Net cash used for investment activities increased by $39 million in 2001 compared to 2000, and decreased by $81 million in 2000 compared to 1999, primarily due to the level of construction expenditures.

Financing Activities

        Net cash outflows from financing activities were $46 million, $82 million and $75 million in 2001, 2000 and 1999, respectively. In 2000, KU retired a $61.5 million first mortgage bond and refinanced $12.9 million of its pollution control bonds. The long-term debt balance as of December 31, 2001, was $434.5 million. Short-term debt declined $13.4 million in 2001. KU received $15 million in contributed capital from its parent company in December 2000.

        KU participates in an intercompany money pool agreement wherein LG&E Energy can make funds available to KU at market based rates up to $200 million. At December 31, 2001, the balance of the money pool loan from LG&E Energy was $47.8 million at an average rate of 2.37% and the remaining money pool availability was $152.2 million. In addition, KU maintains an uncommitted borrowing facility totaling $60 million that was undrawn at December 31, 2001. LG&E Energy maintains a facility of $200 million with an affiliate to ensure funding availability for the money pool. There was no outstanding balance under this facility as of December 31, 2001, and availability of $170 million remains after considering the $30 million of commercial paper outstanding at LG&E.

        At December 31, 2000, KU had $61.2 million outstanding under the money pool at an average rate of 6.84%.

        Under the provisions for KU's variable-rate pollution control bonds Series PCS 10, the bonds are subject to tender for purchase at the option of the holder and to mandatory tender for purchase upon the occurrence of certain events, causing the bonds to be classified as current portion of long-term debt.

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Future Capital Requirements

        Future capital requirements may be affected in varying degrees by factors such as load growth, changes in construction expenditure levels, rate actions by regulatory agencies, new legislation, market entry of competing electric power generators, changes in environmental regulations and other regulatory requirements. KU anticipates funding future capital requirements through operating cash flow, debt, and/or infusion of capital from parent.

        KU's debt ratings as of January 31, 2002, were:

	Moody's	S&P	Fitch
First mortgage bonds	A1	A-	A+
Preferred stock	a2	BBB-	A-
Commercial paper	P-1	A-2	F-1

        The S&P ratings are on Credit Watch with positive implications. The Fitch ratings are on Credit Watch—Evolving status. These ratings reflect the views of Moody's, S&P and Fitch. 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.

Contractual Obligations

        The following is provided to summarize KU's contractual cash obligations for periods after December 31, 2001 (in thousands of $):

	Payments Due by Period
Contractual cash Obligations	2002		2003- 2004		2005- 2006		After 2006		Total
Long-term debt (a)	$	54,000	$	62,000	$	36,000	$	332,830	$	484,830
Unconditional purchase obligations (b)		37,788		76,401		83,584		603,286		801,059
Other long-term obligations (c)		144,000		125,000		—		—		269,000
Total contractual cash obligations	$	235,788	$	263,401	$	119,584	$	936,116	$	1,554,889

(a)

Long-term debt of $54 million is classified as current liabilities because the bond is subject to tender for purchase at the option of the holder and to mandatory tender for purchase upon the occurrence of certain events. Maturity date for this bond is 2024.

(b)

Represents future minimum payments under purchased power agreements through 2020.

(c)

Represents construction commitments.

Market Risks

        KU is exposed to market risks from changes in interest rates and commodity prices. To mitigate changes in cash flows attributable to these exposures, KU uses various financial instruments including derivatives. Derivative positions are monitored using techniques that include market value and sensitivity analysis. See Notes 1 and 4 of KU's Notes to Financial Statements under Item 8.

Interest Rate Sensitivity

        KU has short-term and long-term variable rate debt obligations outstanding. At December 31, 2001, the potential change in interest expense associated with a 1% change in base interest rates of KU's variable rate debt is estimated at $2.2 million.

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        Interest rate swaps are used to hedge KU's underlying debt obligations. These swaps hedge specific debt issuances and, consistent with management's designation, are accorded hedge accounting treatment.

        As of December 31, 2001, KU has swaps with a notional value of $153 million. The swaps exchange fixed-rate interest payments for floating interest payments on KU's Series P, R, and PCS-9 Bonds. The potential loss in fair value from these positions resulting from a hypothetical 1% adverse movement in base interest rates is estimated at $8.2 million as of December 31, 2001. This estimate is derived from third party valuations. Changes in the market value of these swaps if held to maturity, as KU intends to do, will have no effect on KU's net income or cash flow. See Note 4 of KU's Notes to Financial Statements under Item 8.

Energy Trading & Risk Management Activities

        KU conducts energy trading and risk management activities to maximize the value of power sales from physical assets it owns, in addition to the wholesale sale of excess asset capacity. Certain energy trading activities are accounted for on a mark-to-market basis in accordance with EITF 98-10 Accounting for Contracts Involved in Energy Trading and Risk Management Activities, SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activities. Wholesale sales of excess asset capacity and wholesale purchases are treated as normal sales and purchases under SFAS No. 133 and SFAS No. 138 and are not marked to market.

        The table below summarizes KU's energy trading and risk management activities in 2001 (in thousands of $).

Fair value of contracts at 12/31/00, net liability		$	(17	)
	Fair value of contracts when entered into during 2001		3,441
	Contracts realized or otherwise settled during 2001		(2,894	)
	Changes in fair values due to changes in assumptions		(716	)
Fair value of contracts at 12/31/01, net liability		$	(186	)

        No changes to valuation techniques for energy trading and risk management activities occurred during 2001. All contracts outstanding at December 31, 2001 have a maturity of less than one year and are valued using prices actively quoted for proposed or executed transactions or quoted by brokers.

        KU maintains policies intended to minimize credit risk and revalues credit exposures daily to monitor compliance with those policies. As December 31, 2001, 100% of the trading and risk management commitments were with counterparties rated BBB equivalent or better.

Commodity Price Sensitivity

        KU has limited exposure to market price volatility in prices of fuel and electricity, since its retail tariffs include the FAC and GSC commodity price pass-through mechanisms. KU is exposed to market price volatility of fuel and electricity in its wholesale activities.

Accounts Receivable Securitization

        On February 6, 2001, KU implemented an accounts receivable securitization program. The purpose of this program is to enable KU to accelerate the receipt of cash from the collection of retail accounts receivable, thereby reducing dependence upon more costly sources of working capital. The securitization program allows for a percentage of eligible receivables to be sold. Eligible receivables are generally all receivables associated with retail sales that have standard terms and are not past due. KU is able to terminate this program at any time without penalty. If there is a significant deterioration in

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the payment record of the receivables by the retail customers or if KU fails to meet certain covenants regarding the program, the program may terminate at the election of the financial institutions. In this case, payments from retail customers would first be used to repay the financial institutions participating in the program, and would then be available for use by KU.

        As part of the program, KU sold retail accounts receivables to a wholly owned subsidiary KU R. Simultaneously, KU R entered into two separate three-year accounts receivable securitization facilities with two financial institutions and their affiliates whereby KU R can sell, on a revolving basis, an undivided interest in certain of their receivables and receive up to $50 million from an unrelated third party purchaser. The effective cost of the receivables programs is comparable to KU's lowest cost source of capital, and is based on prime rated commercial paper. KU retains servicing rights of the sold receivables through two separate servicing agreements with the third party purchaser. KU has obtained an opinion from independent legal counsel indicating these transactions qualify as a true sale of receivables. As of December 31, 2001, the outstanding program balance was $45.1 million.

        Management expects to renew these facilities when they expire.

        The allowance for doubtful accounts associated with the eligible securitized receivables was $520,000 at December 31, 2001. This allowance is based on historical experience of KU. Each securitization facility contains a fully funded reserve for uncollectible receivables.

RATES AND REGULATION

        Following the purchase of LG&E Energy by Powergen, Powergen became a registered holding company under PUHCA. As a result, Powergen, its utility subsidiaries, including KU, and certain of its non-utility subsidiaries are subject to extensive regulation by the SEC under PUHCA with respect to issuances and sales of securities, acquisitions and sales of certain utility properties, and intra-system sales of certain goods and services. In addition, PUHCA generally limits the ability of registered holding companies to acquire additional public utility systems and to acquire and retain businesses unrelated to the utility operations of the holding company. Powergen believes that it has adequate authority (including financing authority) under existing SEC orders and regulations for it and its subsidiaries to conduct their businesses and will seek additional authorization when necessary.

        KU is subject to the jurisdiction of the Kentucky Commission, the Virginia Commission and FERC in virtually all matters related to electric utility regulation, and as such, its accounting is subject to SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. Given KU's competitive position in the market and the status of regulation in the states of Kentucky and Virginia, KU has no plans or intentions to discontinue its application of SFAS No. 71. See Note 3 of KU's Notes to Financial Statements under Item 8.

Kentucky Commission Settlement Order—Value Delivery Costs, ESM and Depreciation

        During the first quarter 2001, KU recorded a $64 million charge for a workforce reduction program. Primary components of the charge were separation benefits, enhanced early retirement benefits, and health care benefits. The result of this workforce reduction was the elimination of over 300 positions, accomplished primarily through a voluntary enhanced severance program.

        On June 1, 2001, KU filed an application (VDT case) with the Kentucky Commission to create a regulatory asset relating to these first quarter 2001 charges. The application requested permission to amortize these costs over a four-year period. The Kentucky Commission also opened a case to review the new depreciation study and resulting depreciation rates implemented in 2001.

        KU reached a settlement in the VDT case as well as the other cases involving depreciation rates and ESM with all intervening parties. The settlement agreement was approved by the Kentucky Commission on December 3, 2001.

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        The Kentucky Commission December 3, 2001, order allowed KU to set up a regulatory asset of $54 million for the workforce reduction costs and begin amortizing these costs over a five year period starting in April 2001. The first quarter charge of $64 million represented all employees who had accepted a voluntary enhanced severance program. Some employees rescinded their participation in the voluntary enhanced severance program and, along with the non-recurring charge of $6.9 million for FERC and Virginia jurisdictions, thereby decreasing the original charge from $64 million to $54 million. The settlement will also reduce revenues approximately $11 million through a surcredit on future bills to customers over the same five year period. The surcredit represents stipulated net savings KU is expected to realize from implementation of best practices through the value delivery process. The agreement also established KU's new depreciation rates in effect December 2001, retroactive to January 1, 2001. The new depreciation rates decreased depreciation expense by $6.0 million in 2001.

Environmental Cost Recovery

        In August 1999, a final order of the Kentucky Commission approved KU's settlement agreement concerning the refund of the recovery of costs associated with pre-1993 environmental projects. KU began applying the refund to customers' bills in October 1999, and completed the refund process in November 2000. All aspects of the original litigation of this issue have now been resolved.

        In June 2000, the Kentucky Commission approved KU's application for a CCN to construct up to four SCR NOx reduction facilities. The construction and subsequent operation of the SCRs is intended to reduce NOx emission levels to meet the EPA's mandated NOx emission level of 0.15 lbs./ Mmbtu by May 2004. In its order, the Kentucky Commission ruled that KU's proposed plan for construction was "reasonable, cost-effective and will not result in the wasteful duplication of facilities". In October 2000, KU filed an application with the Kentucky Commission to amend its Environmental Compliance Plan to reflect the addition of the proposed NOx reduction technology projects and to amend its Environmental Cost Recovery Tariff to include an overall rate of return on capital investments. Following the completion of hearings in March 2001, a ruling was issued in April 2001, approving KU's application. Such approval has allowed KU to begin to recover the costs associated with these new projects, subject to Kentucky Commission oversight during normal six-month and two-year reviews.

ESM

        KU's electric rates are subject to an Earnings Sharing Mechanism. The ESM, in place for three years beginning in 2000, sets an upper and lower point for rate of return on equity, whereby if KU's rate of return for the calendar year falls within the range of 10.5% to 12.5%, no action is necessary. If earnings are above the upper limit, then excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, then earnings deficiency is recovered 40% from ratepayers and 60% from shareholders. The first ESM filing was made on March 1, 2001, for year ended December 31, 2000. By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year. KU estimated that the rate of return will fall within the deadband range, subject to Kentucky Commission approval, for the year ended December 31, 2001; therefore, no adjustment to the financial statements was made.

DSM

        In May 2001, the Kentucky Commission approved a plan that would expand LG&E's current DSM programs into the service territory served by KU. The filing includes a rate mechanism that provides for concurrent recovery of DSM costs, provides an incentive for implementing DSM programs, and recovers revenues from lost sales associated with the DSM program.

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FAC

        Prior to implementation of the PBR in July 1999, and following its termination in March 2000, KU employed an FAC mechanism, which under Kentucky law allowed the utilities to recover from customers the actual fuel costs associated with retail electric sales.

        In July 1999, the Kentucky Commission issued a series of orders requiring KU to refund approximately $10.1 million resulting from reviews of the FAC from November 1994 to October 1998. The orders changed KU's method of computing fuel costs associated with electric line losses on off-system sales appropriate for recovery through the FAC, and KU's method for computing system line losses for the purpose of calculating the system sales component of the FAC charge. At KU's request, in July 1999, the Kentucky Commission stayed the refund requirement pending the Kentucky Commission's final determination of any rehearing request that KU may file. In August 1999, KU filed its request for rehearing of the July orders.

        In August 1999, the Kentucky Commission issued a final order in the KU proceedings, agreeing, in part, with KU's arguments outlined in its petition for rehearing. While the Kentucky Commission confirmed that KU should change its method of computing the fuel costs associated with electric line losses, it agreed with KU that the line loss percentage should be based on KU's actual line losses incurred in making wholesale sales rather than the percentage used in its Open Access Transmission Tariff. The Kentucky Commission also upheld its previous ruling concerning the computation of system line losses in the calculation of the FAC. The net effect of the Kentucky Commission's final order was to reduce the refund obligation to $6.7 million ($5.8 million on Kentucky jurisdictional basis) from the original order amount of $10.1 million. In August 1999, KU recorded its estimated share of anticipated FAC refunds. KU began implementing the refund in October and completed the refund in September 2000. Both KU and the KIUC appealed the order to the Franklin Circuit Court. In October 2000, the Court affirmed the Kentucky Commission's orders concerning all issues except interest, with respect to which it held that KU will be required to pay interest on the amount disallowed "if the Commission within its discretion so determines", and ordered the case be remanded to the Kentucky Commission on that issue. In November 2000, KU appealed the Circuit Court's decision to the Kentucky Court of Appeals. Pending a decision on this appeal, a comprehensive settlement was reached by all parties, which settlement was filed with the Kentucky Commission on December 21, 2001. Thereunder, KU agreed to credit its fuel clause in the amount of $954,000 (such credit provided over the course of two monthly billing periods), and the parties agreed on a prospective interpretation of the state's fuel adjustment clause regulation to ensure consistent and mutually acceptable application on a going- forward basis. All pending FAC proceedings before the court were resolved by the parties to the agreement and all parties requested the Court of Appeals remand the case to the Kentucky Commission. The Kentucky Commission is expected to approve the settlement in 2002.

Kentucky Commission Administrative Case for Affiliate Transactions

        In December 1997, the Kentucky Commission opened Administrative Case No. 369 to consider Kentucky Commission policy regarding cost allocations, affiliate transactions and codes of conduct governing the relationship between utilities and their non-utility operations and affiliates. The Kentucky Commission intended to address two major areas in the proceedings: the tools and conditions needed to prevent cost shifting and cross-subsidization between regulated and non-utility operations; and whether a code of conduct should be established to assure that non-utility segments of the holding company are not engaged in practices that could result in unfair competition caused by cost shifting from the non-utility affiliate to the utility. During the period September 1998 to February 2000, the Kentucky Commission issued draft codes of conduct and cost allocation guidelines. In early 2000, the Kentucky General Assembly enacted legislation, House Bill 897, which authorized the Kentucky Commission to require utilities that provide nonregulated activities to keep separate accounts and allocate costs in accordance with procedures established by the Kentucky Commission. In the same Bill,

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the General Assembly set forth provisions to govern a utilities activities related to the sharing of information, databases, and resources between its employees or an affiliate involved in the marketing or the provision of nonregulated activities and its employees or an affiliate involved in the provision of regulated services. The legislation became law in July 2000 and KU has been operating pursuant thereto since that time. On February 14, 2001, the Kentucky Commission published notice of their intent to promulgate new administrative regulation under the auspices of the new law. This effort is still on going.

Kentucky Commission Administrative Case for System Adequacy

        On June 19, 2001, Kentucky Governor Paul E. Patton issued Executive Order 2001-771, which directed the Kentucky Commission to review and study issues relating to the need for and development of new electric generating capacity in Kentucky. The issues to be considered included the impact of new power plants on the electric supply grid, facility siting issues, and economic development matters, with the goal of ensuring a continued, reliable source of supply of electricity for the citizens of Kentucky and the continued environmental and economic vitality of the Commonwealth and its communities. In response to that Executive Order, in July 2001 the Kentucky Commission opened Administrative Case No. 387 to review the adequacy of Kentucky's generation capacity and transmission system. Specifically, the items reviewed were the appropriate level of reliance on purchased power, the appropriate reserve margins to meet existing and future electric demand, the impact of spikes in natural gas prices on electric utility planning strategies, and the adequacy of Kentucky's electric transmission facilities. KU, as a party to this proceeding, filed written testimony and responded to two requests for information. Public hearings were held in August, September, and October 2001. In October 2001, KU filed a final brief in the case. In December 2001 the Kentucky Commission issued an order in which they noted that KU is responsibly addressing the long-term supply needs of native load customers and that current reserve margins are appropriate. However, due to the rapid pace of change in the industry, the order also requires KU to provide an annual assessment of supply resources, future demand, reserve margin, and the need for new resources.

        Regarding the transmission system, the Kentucky Commission concluded that the transmission system within the Commonwealth can reliably serve native load and a significant portion of the proposed new unregulated power plants. However, it will not be able to handle the volume of transactions envisioned by FERC without future upgrades, the costs of which should be borne by those for whom the upgrades are required.

        The Kentucky Commission pledged to continue to monitor all relevant issues and advocate Kentucky's interests at all opportunities.

Environmental Matters

        The Clean Air Act imposed stringent new SO₂ and NOx emission limits on electric generating units. KU met its Phase I SO₂ requirements primarily through installation of a scrubber on Ghent Unit 1. KU's strategy for Phase II SO₂ reductions, which commenced January 1, 2000, is to use accumulated emissions allowances to delay additional capital expenditures and may also include fuel switching or the installation of additional scrubbers. KU met the NOx emission requirements of the Act through installation of low-NOx burner systems. KU's compliance plans are subject to many factors including developments in the emission allowance and fuel markets, future regulatory and legislative initiatives, and advances in clean air control technology. KU will continue to monitor these developments to ensure that its environmental obligations are met in the most efficient and cost-effective manner.

        In September 1998, the EPA announced its final "NOx SIP Call" rule requiring states to impose significant additional reductions in NOx emissions by May 2003, in order to mitigate alleged ozone transport impacts on the Northeast region. The Commonwealth of Kentucky is currently in the process

57

of revising its State Implementation Plan or "SIP" to require reductions in NOx emissions from coal-fired generating units to the 0.15 lb./Mmbtu level on a system-wide basis. In related proceedings in response to petitions filed by various Northeast states, in December 1999, EPA issued a final rule pursuant to Section 126 of the Clean Air Act directing similar NOx reductions from a number of specifically targeted generating units including all KU units in the eastern half of Kentucky. Additional petitions currently pending before EPA may potentially result in rules encompassing KU's remaining generating units. As a result of appeals to both rules, the compliance date was extended to May 2004. All KU generating units are subject to the May 2004 compliance date under these NOx emissions reduction rules.

        KU is currently implementing a plan for adding significant additional NOx controls to its generating units. Installation of additional NOx controls will proceed on a phased basis, with installation of controls commencing in late 2000 and continuing through the final compliance date. KU estimates that it will incur total capital costs of approximately $196 million to reduce its NOx emissions to the 0.15 lb./Mmbtu level on a company-wide basis. In addition, KU will incur additional operating and maintenance costs in operating new NOx controls. KU believes its costs in this regard to be comparable to those of similarly situated utilities with like generation assets. KU had anticipated that such capital and operating costs are the type of costs that are eligible for recovery from customers under its environmental surcharge mechanism and believed that a significant portion of such costs could be recovered. In April 2001, the Kentucky Commission granted recovery of these costs for KU.

        KU is also monitoring several other air quality issues which may potentially impact coal-fired power plants, including the appeal of the D.C. Circuit's remand of the EPA's revised air quality standards for ozone and particulate matter, measures to implement EPA's regional haze rule, and EPA's December 2000 determination to regulate mercury emissions from power plants.

        KU owns or formerly owned several properties that contained past MGP operations. Various contaminants are typically found at such former MGP sites and environmental remediation measures are frequently required. KU has completed the cleanup of a site owned by KU. With respect to other former MGP sites no longer owned by KU, KU is unaware of what, if any, additional exposure or liability it may have.

        In October 1999, approximately 38,000 gallons of diesel fuel leaked from a cracked valve in an underground pipeline at KU's E.W. Brown Station. Under the oversight of EPA and state officials, KU commenced immediate spill containment and recovery measures which prevented the spill from reaching the Kentucky River. KU ultimately recovered approximately 34,000 gallons of diesel fuel. In November 1999, the Kentucky Division of Water issued a notice of violation for the incident. KU is currently negotiating with the state in an effort to reach a complete resolution of this matter. KU incurred costs of approximately $1.8 million and received insurance reimbursement of $1.2 million.

        See Note 11 of KU's Notes to Financial Statements under Item 8 for an additional discussion of environmental issues.

Deferred Income Taxes

        KU expects to have adequate levels of taxable income to realize its recorded deferred tax assets. At December 31, 2001, deferred tax assets totaled $63.9 million and were principally related to expenses attributable to KU's pension plans and post retirement benefit obligations.

FUTURE OUTLOOK

Competition and Customer Choice

        KU has moved aggressively over the past decade to be positioned for, and to help promote the energy industry's shift to customer choice and a competitive market for energy services. Specifically,

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KU has taken many steps to prepare for the expected increase in competition in its business, including support for PBR structures, aggressive cost reduction activities; strategic acquisitions, dispositions and growth initiatives; write-offs of previously deferred expenses; an increase in focus on commercial and industrial customers; an increase in employee training; and necessary corporate and business unit realignments. KU continues to be active in the national debate surrounding the restructuring of the energy industry and the move toward a competitive, market-based environment.

        In December 1997, the Kentucky Commission issued a set of principles which was intended to serve as its guide in consideration of issues relating to industry restructuring. Among the issues addressed by these principles are: consumer protection and benefit, system reliability, universal service, environmental responsibility, cost allocation, stranded costs and codes of conduct. During 1998, the Kentucky Commission and a task force of the Kentucky General Assembly each initiated proceedings, including meetings with representatives of utilities, consumers, state agencies and other groups in Kentucky, to discuss the possible structure and effects of energy industry restructuring in Kentucky.

        In November 1999, the task force issued a report to the Governor of Kentucky and a legislative agency recommending no general electric industry restructuring actions during the 2000 legislative session. No general industry restructuring actions were taken during the 2001 legislative session.

        Thus, at the time of this report, neither the Kentucky General Assembly nor the Kentucky Commission has adopted or approved a plan or timetable for retail electric industry competition in Kentucky. The nature or timing of the ultimate legislative or regulatory actions regarding industry restructuring and their impact on KU, which may be significant, cannot currently be predicted.

        While many states have moved forward in providing retail choice, many others have not. Some are reconsidering their initiatives and have even delayed implementation. Recent activities in California that have resulted in extremely high wholesale (and in some cases, consumer) electric prices are becoming significant factors in the deliberations by other states.

        KU's customers in Virginia will have retail choice beginning January 2002, pursuant to the Virginia Electric Restructuring Act. The Virginia Commission is promulgating regulations to govern the various activities required by the Act. KU filed unbundled rates that became effective January 1, 2002. KU anticipates seeking an exemption from the Virginia Electric Restructuring Act.

ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk.

        See LG&E's and KU's Management's Discussion and Analysis of Results of Operations and Financial Condition, Market Risks, under Item 7.

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ITEM 8. Financial Statements and Supplementary Data.

	INDEX OF ABBREVIATIONS
Capital Corp.	LG&E Capital Corp.
Clean Air Act	The Clean Air Act, as amended in 1990
CCN	Certificate of Public Convenience and Necessity
CT	Combustion Turbines
DSM	Demand Side Management
ECR	Environmental Cost Recovery
EEI	Electric Energy, Inc.
EITF	Emerging Issues Task Force Issue
EPA	U.S. Environmental Protection Agency
ESM	Earnings Sharing Mechanism
FAC	Fuel Adjustment Clause
FERC	Federal Energy Regulatory Commission
FPA	Federal Power Act
FT and FT-A	Firm Transportation
GSC	Gas Supply Clause
Holding Company Act	Public Utility Holding Company Act of 1935
IBEW	International Brotherhood of Electrical Workers
IMEA	Illinois Municipal Electric Agency
IMPA	Indiana Municipal Power Agency
Kentucky Commission	Kentucky Public Service Commission
KIUC	Kentucky Industrial Utility Consumers, Inc.
KU	Kentucky Utilities Company
KU Energy	KU Energy Corporation
KU R	KU Receivables LLC
Kva	Kilovolt-ampere
LEM	LG&E Energy Marketing Inc.
LG&E	Louisville Gas and Electric Company
LG&E Energy	LG&E Energy Corp.
LG&E R	LG&E Receivables LLC
LG&E Services	LG&E Energy Services Inc.
Mcf	Thousand Cubic Feet
Merger Agreement	Agreement and Plan of Merger dated May 20, 1997
MGP	Manufactured Gas Plant
MISO	Midwest Independent System Operator
Mmbtu	Million British thermal units
Moody's	Moody's Investor Services, Inc.
Mw	Megawatts
Mwh	Megawatt hours
NNS	No-Notice Service
NOx	Nitrogen Oxide
OMU	Owensboro Municipal Utilities
OVEC	Ohio Valley Electric Corporation
PBR	Performance-Based Ratemaking
Powergen	Powergen plc
PUHCA	Public Utility Holding Company Act of 1935
S&P	Standard & Poor's Rating Services
SCR	Selective Catalytic Reduction
SEC	Securities And Exchange Commission
SERP	Supplemental Employee Retirement Plan
SFAS	Statement of Financial Accounting Standards
SIP	State Implementation Plan
SO2	Sulfur Dioxide
Tennessee Gas	Tennessee Gas Pipeline Company
Texas Gas	Texas Gas Transmission Corporation
TRA	Tennessee Regulatory Authority
Trimble County	LG&E's Trimble County Unit 1
USWA	United Steelworkers of America
Utility Operations	Operations of LG&E and KU
VDT	Value Delivery Team Process
Virginia Commission	Virginia State Corporation Commission
Virginia Staff	Virginia Commission Staff

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

			Years Ended December 31
			2001			2000			1999
OPERATING REVENUES:
	Electric		$	706,645		$	713,458		$	792,405
	Gas			290,775			272,489			177,579
	Provision for rate refunds (Note 3)			(720	)		(2,500	)		(1,735	)
		Total operating revenues (Note 1)		996,700			983,447			968,249
OPERATING EXPENSES:
	Fuel for electric generation			159,231			159,418			159,129
	Power purchased			81,475			96,894			169,573
	Gas supply expenses			206,165			196,912			114,745
	Other operation expenses			167,818			135,943			154,667
	Maintenance			58,687			63,709			58,119
	Depreciation and amortization (Note 1)			100,356			98,291			97,221
	Federal and state income taxes (Note 8)			63,452			64,425			57,774
	Property and other taxes			17,743			18,985			16,930
		Total operating expenses		854,927			834,577			828,158
Net operating income				141,773			148,870			140,091
Other income—net (Note 9)				2,930			4,921			4,141
Interest charges				37,922			43,218			37,962
Net income				106,781			110,573			106,270
Preferred stock dividends				4,739			5,210			4,501
Net income available for common stock			$	102,042		$	105,363		$	101,769

Consolidated Statements of Retained Earnings
(Thousands of $)

		Years Ended December 31
		2001		2000		1999
Balance January 1		$	314,594	$	259,231	$	247,462
Add net income			106,781		110,573		106,270
			421,375		369,804		353,732
Deduct:	Cash dividends declared on stock:
	5% cumulative preferred		1,075		1,075		1,075
	Auction rate cumulative preferred		2,195		2,666		1,957
	$5.875 cumulative preferred		1,469		1,469		1,469
	Common		23,000		50,000		90,000
			27,739		55,210		94,501
Balance December 31		$	393,636	$	314,594	$	259,231

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

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Louisville Gas and Electric Company and Subsidiary
Consolidated Statements of Comprehensive Income
(Thousands of $)

	Years Ended December 31
	2001			2000		1999
Net income	$	106,781		$	110,573	$	106,270
Cumulative effect of change in accounting principle—Accounting for derivative instruments and hedging activities (Note 1)		(5,998	)		—		—
Losses on derivative instruments and hedging activities (Note 1)		(2,606	)
Additional minimum pension liability adjustment (Note 7)		(24,712	)		—		—
Unrealized holding losses on available-for-sale securities arising during the period		—			—		(402	)
Income tax benefit related to items of other comprehensive income		13,416			—		163
Comprehensive income	$	86,881		$	110,573	$	106,031

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

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

			December 31
			2001		2000
ASSETS:
Utility plant, at original cost (Note 1):
	Electric		$	2,598,152	$	2,459,206
	Gas			409,994		389,371
	Common			159,817		148,530
				3,167,963		2,997,107
	Less: reserve for depreciation			1,381,874		1,296,865
				1,786,089		1,700,242
	Construction work in progress			255,074		189,218
				2,041,163		1,889,460
Other property and investments—less reserve				1,176		1,357
Current assets:
	Cash and temporary cash investments			2,112		2,495
	Marketable securities (Note 6)			—		4,056
	Accounts receivable—less reserve of $1,575 in 2001 and $1,286 in 2000			85,667		170,852
	Materials and supplies—at average cost:
		Fuel (predominantly coal)		22,024		9,325
		Gas stored underground (Note 1)		46,395		54,441
		Other		29,050		31,685
	Prepayments and other			4,688		1,317
				189,936		274,171
Deferred debits and other assets:
	Unamortized debt expense (Note 1)			5,921		5,784
	Regulatory assets (Note 3)			197,142		54,439
	Other			13,016		873
				216,079		61,096
			$	2,448,354	$	2,226,084
CAPITAL AND LIABILITIES:
Capitalization (see statements of capitalization):
	Common equity		$	838,070	$	778,928
	Cumulative preferred stock			95,140		95,140
	Long-term debt (Note 10)			370,704		360,600
				1,303,914		1,234,668
Current liabilities:
	Current portion of long-term debt (Note 10)			246,200		246,200
	Notes payable (Note 11)			94,197		114,589
	Accounts payable			149,070		134,392
	Accrued taxes			20,257		8,073
	Accrued interest			5,818		6,350
	Other			12,840		19,693

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			528,382		529,297
Deferred credits and other liabilities:
	Accumulated deferred income taxes (Notes 1 and 8)		298,143		289,232
	Investment tax credit, in process of amortization		58,689		62,979
	Accumulated provision for pensions and related benefits (Note 7)		167,526		31,257
	Customers' advances for construction		9,745		9,578
	Regulatory liabilities (Note 3)		65,349		61,013
	Other		16,606		8,060
			616,058		462,119
Commitments and contingencies (Note 12)		$	2,448,354	$	2,226,084

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

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Louisville Gas and Electric Company and Subsidiary
Consolidated Statements of Cash Flows
(Thousands of $)

			Years Ended December 31
			2001			2000			1999
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income		$	106,781		$	110,573		$	106,270
	Items not requiring cash currently:
		Depreciation and amortization		100,356			98,291			97,221
		Deferred income taxes—net		3,021			31,020			(5,279	)
		Investment tax credit—net		(4,290	)		(4,274	)		(4,289	)
		Other		(528	)		8,481			6,924
	Change in certain net current assets:
		Accounts receivable		43,185			(56,993	)		28,721
		Materials and supplies		(2,018	)		(4,311	)		(559	)
		Accounts payable		14,678			21,384			(20,665	)
		Accrued taxes		12,184			(15,686	)		(8,170	)
		Accrued interest		(532	)		(2,915	)		1,227
		Prepayments and other		(9,968	)		(4,901	)		(4,306	)
	Sale of accounts receivable (Note 1)			42,000			—			—
	Other			(17,806	)		(24,431	)		(16,602	)
		Net cash flows from operating activities		287,063			156,238			180,493
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of securities			—			(708	)		(1,144	)
	Proceeds from sales of securities			4,237			4,089			11,662
	Construction expenditures			(252,958	)		(144,216	)		(194,644	)
		Net cash flows used for investing activities		(248,721	)		(140,835	)		(184,126	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Short-term borrowings and repayments			(20,392	)		(5,508	)		120,097
	Issuance of pollution control bonds			9,662			106,545			—
	Retirement of first mortgage bonds and pollution control bonds			—			(130,627	)		—
	Additional paid-in capital			—			40,000			—
	Payment of dividends			(27,995	)		(78,079	)		(93,433	)
		Net cash flows from financing activities		(38,725	)		(67,669	)		26,664
Change in cash and temporary cash investments				(383	)		(52,266	)		23,031
Cash and temporary cash investments at beginning of year				2,495			54,761			31,730
Cash and temporary cash investments at end of year			$	2,112		$	2,495		$	54,761
Supplemental disclosures of cash flow information:
	Cash paid during the year for:
		Income taxes	$	35,546		$	46,562		$	76,761
		Interest on borrowed money		30,989			42,958			33,507

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

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Louisville Gas and Electric Company and Subsidiary
Consolidated Statements of Capitalization
(Thousands of $)

		December 31
		2001			2000
COMMON EQUITY:
	Common stock, without par value—     Authorized 75,000,000 shares, outstanding 21,294,223 shares	$	425,170		$	425,170
	Common stock expense		(836	)		(836	)
	Additional paid-in capital		40,000			40,000
	Accumulated other comprehensive income		(19,900	)		—
	Retained earnings		393,636			314,594
			838,070			778,928

CUMULATIVE PREFERRED STOCK:
    Redeemable on 30 days notice by LG&E

					Shares Outstanding	Current Redemption Price
	$25 par value, 1,720,000 shares authorized—     5% series				860,287	$	28.00		21,507			21,507
	Without par value, 6,750,000 shares     authorized—Auction rate				500,000		100.00		50,000			50,000
	$5.875 series				250,000		102.35		25,000			25,000
	Preferred stock expense								(1,367	)		(1,367	)
									95,140			95,140
LONG-TERM DEBT (Note 10):
	First mortgage bonds—     Series due August 15, 2003, 6%								42,600			42,600
		Pollution control series:
			R due November 1, 2020, 6.55%						41,665			41,665
			S due September 1, 2017, variable						31,000			31,000
			T due September 1, 2017, variable						60,000			60,000
			U due August 15, 2013, variable						35,200			35,200
			V due August 15, 2019, 5 5/8%						102,000			102,000
			W due October 15, 2020, 5.45%						26,000			26,000
			X due April 15, 2023, 5.90%						40,000			40,000
			Y due May 1, 2027, variable						25,000			25,000
			Z due August 1, 2030, variable						83,335			83,335
			AA due September 1, 2027, variable						10,104			—
				Total first mortgage bonds					496,904			486,800
	Pollution control bonds (unsecured)—
		Series due September 1, 2026, variable							22,500			22,500
		Series due September 1, 2026, variable							27,500			27,500
		Series due November 1, 2027, variable							35,000			35,000
		Series due November 1, 2027, variable							35,000			35,000
			Total unsecured pollution control bonds						120,000			120,000
		Total bonds outstanding							616,904			606,800
		Less current portion of long-term debt							246,200			246,200
		Long-term debt							370,704			360,600
		Total capitalization						$	1,303,914		$	1,234,668

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

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Louisville Gas and Electric Company and Subsidiary
Notes to Consolidated Financial Statements

Note 1—Summary of Significant Accounting Policies

        LG&E, a subsidiary of LG&E Energy and an indirect subsidiary of Powergen, is a regulated public utility engaged in the generation, transmission, distribution, and sale of electric energy and the storage, distribution, and sale of natural gas in Louisville and adjacent areas in Kentucky. LG&E Energy is an exempt public utility holding company with wholly owned subsidiaries including LG&E, KU, Capital Corp., LEM, and LG&E Services. All of the LG&E's Common Stock is held by LG&E Energy. LG&E has one wholly owned consolidated subsidiary, LG&E Receivable.

        On December 11, 2000, LG&E Energy Corp.was acquired by Powergen. Powergen is a registered public utility holding company under PUHCA. No costs associated with the Powergen acquisition nor any of the effects of purchase accounting have been reflected in the financial statements of LG&E.

        Certain reclassification entries have been made to the 2000 financial statements to conform to the 2001 presentation with no impact on the balance sheet totals or previously reported income.

        Utility Plant.    LG&E's plant is stated at original cost, which includes payroll-related costs such as taxes, fringe benefits, and administrative and general costs. Construction work in progress has been included in the rate base for determining retail customer rates. LG&E has not recorded any allowance for funds used during construction.

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

        Depreciation.    Depreciation is provided on the straight-line method over the estimated service lives of depreciable plant. Pursuant to a final order of the Kentucky Commission dated December 3, 2001, LG&E implemented new depreciation rates effective as of January 1, 2001. The amounts provided for 2001 were 3.0% (2.9% electric, 2.9% gas and 5.7% common); for 2000 were 3.6% (3.3% electric, 3.8% gas and 7.3% common); and for 1999 were 3.4% (3.2% electric, 3.2% gas, and 7.1% common) of average depreciable plant.

        Cash and Temporary Cash Investments.    LG&E considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Temporary cash investments are carried at cost, which approximates fair value.

        Gas Stored Underground.    Gas inventories of $46.4 million and $54.4 million at December 31, 2001, and 2000, respectively, are included in gas stored underground in the balance sheet. The inventory is accounted for using the average-cost method.

        Financial Instruments.    LG&E uses over-the-counter interest-rate swap agreements to hedge its exposure to fluctuations in the interest rates it pays on variable-rate debt. Gains and losses on interest-rate swaps used to hedge interest rate risk are reflected in other comprehensive income. In 2000, LG&E used exchange traded U.S. Treasury note and bond futures to hedge its exposure to fluctuations in the value of its investments in the preferred stocks of other companies. Gains and losses on U.S. Treasury note and bond futures were charged or credited to other income-net. See Note 4—Financial Instruments.

        Debt Expense.    Debt expense is capitalized in deferred debits and amortized over the lives of the related bond issues, consistent with regulatory practices.

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        Deferred Income Taxes.    Deferred income taxes have been provided for all material book-tax temporary differences.

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

        Revenue Recognition.    Revenues are recorded based on service rendered to customers through month-end. LG&E accrues an estimate for unbilled revenues from each meter reading date to the end of the accounting period. The unbilled revenue estimates included in accounts receivable for LG&E at December 31, 2001 and 2000, were approximately $37.3 million and $62.8 million, respectively. See Note 3, Rates and Regulatory Matters. LG&E recorded electric revenues that resulted from sales to a related party, KU, of $28.5 million, $20.9 million and $20.2 million for years ended December 31, 2001, 2000 and 1999, respectively.

        Fuel and Gas Costs.    The cost of fuel for electric generation is charged to expense as used, and the cost of gas supply is charged to expense as delivered to the distribution system. LG&E implemented a Kentucky Commission-approved performance-based ratemaking mechanism related to gas procurement and off-system gas sales activity. See Note 3, Rates and Regulatory Matters.

        Management's Use of Estimates.    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported assets and liabilities and disclosure of contingent items at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. See Note 12, Commitments and Contingencies, for a further discussion.

        Accounts Receivable Securitization.    SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 140 was adopted in the first quarter of 2001, when LG&E entered into an accounts receivable securitization transaction.

        On February 6, 2001, LG&E implemented an accounts receivable securitization program. The purpose of this program is to enable LG&E to accelerate the receipt of cash from the collection of retail accounts receivable, thereby reducing dependence upon more costly sources of working capital. The securitization program allows for a percentage of eligible receivables to be sold. Eligible receivables are generally all receivables associated with retail sales that have standard terms and are not past due. LG&E is able to terminate these programs at any time without penalty. If there is a significant deterioration in the payment record of the receivables by the retail customers or if LG&E fails to meet certain covenants regarding the program, the program may terminate at the election of the financial institutions. In this case, payments from retail customers would first be used to repay the financial institutions participating in the program, and would then be available for use by LG&E.

        As part of the program, LG&E sold retail accounts receivables to a wholly owned subsidiary, LG&E R. Simultaneously, LG&E R entered into two separate three-year accounts receivable securitization facilities with two financial institutions and their affiliates whereby LG&E R can sell, on a revolving basis, an undivided interest in certain of their receivables and receive up to $75 million from an unrelated third party purchaser. The effective cost of the receivables programs is comparable to LG&E's lowest cost source of capital, and is based on prime rated commercial paper. LG&E retains servicing rights of the sold receivables through two separate servicing agreements with the third party purchaser. LG&E has obtained an opinion from independent legal counsel indicating these transactions qualify as true sale of receivables. As of December 31, 2001, the outstanding program balance was $42 million.

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        Management expects to renew these facilities when they expire.

        The allowance for doubtful accounts associated with the eligible securitized receivables was $1.3 million at December 31, 2001. This allowance is based on historical experience of LG&E. Each securitization facility contains a fully funded reserve for uncollectible receivables.

        New Accounting Pronouncements.    During 2001 and 2000, the following accounting pronouncements were issued that affect LG&E:

        SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or a liability measured at its fair value. SFAS No. 133 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 that LG&E must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 could increase the volatility in earnings and other comprehensive income. SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of SFAS No. 133, deferred the effective date of SFAS No. 133 until January 1, 2001. LG&E adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. The effect of adopting these statements resulted in a $3.6 million decrease in other comprehensive income from a cumulative effect of change in accounting principle (net of tax of $2.4 million).

        The Financial Accounting Standards Board created the Derivatives Implementation Group (DIG) to provide guidance for implementation of SFAS No. 133. DIG Issue C15, Normal Purchases and Normal Sales Exception for Option Type Contracts and Forward Contracts in Electricity was adopted in 2001 and had no impact on results of operations and financial position. DIG Issue C16, Applying the Normal Purchases and Normal Sales Exception to Contracts that Combine a Forward Contract and a Purchased Option Contract, was cleared in 2001 and stated that option contracts do not meet the normal purchases and normal sales exception and should follow SFAS No. 133. DIG C16 will be effective in the second quarter of 2002. Management has not determined the impact this issue will have on its results of operations and financial position.

        SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets were issued in 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. SFAS No. 142 requires goodwill to be recorded, but not amortized. Further, goodwill will now be subject to a periodic assessment for impairment. The provisions of these new pronouncements were effective July 1, 2001, for LG&E. The adoption of these standards did not have a material impact on the results of operations or financial position of LG&E.

        SFAS No. 143, Accounting for Asset Retirement Obligations and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, were issued 2001. SFAS No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144, among other provisions, eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived assets to be tested for impairment. The effective implementation date for SFAS No. 144 is 2002 and SFAS No. 143 is 2003. Based on current regulatory accounting practices, management does not expect SFAS No. 143 or SFAS No. 144 to have a material impact on results of operations or financial position of LG&E.

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Note 2—Mergers and Acquisitions

        On December 11, 2000, LG&E Energy Corp. was acquired by Powergen plc. for cash of approximately $3.2 billion or $24.85 per share and the assumption of all of LG&E Energy's debt. As a result of the acquisition, LG&E Energy became a wholly owned subsidiary of Powergen and, as a result, LG&E became an indirect subsidiary of Powergen. LG&E has continued its separate identity and serves customers in Kentucky under its existing name. The preferred stock and debt securities of LG&E were not affected by this transaction resulting in the utility operations' obligation to continue to file SEC reports. Following the acquisition, Powergen became a registered holding company under PUHCA, and LG&E, as a subsidiary of a registered holding company, became subject to additional regulations under PUHCA.

        LG&E Energy and KU Energy merged on May 4, 1998, with LG&E Energy as the surviving corporation. As a result of the merger, LG&E Energy, which is the parent of LG&E, became the parent company of KU. The operating utility subsidiaries (LG&E and KU) have continued to maintain their separate corporate identities and serve customers in Kentucky and Virginia under their present names. LG&E Energy estimated non-fuel savings over a ten year period following the merger. Costs to achieve these savings for LG&E of $50.2 million were recorded in the second quarter of 1998, $18.1 million of which were initially deferred and are being amortized over a five-year period pursuant to regulatory orders. Primary components of the merger costs were separation benefits, relocation costs, and transaction fees, the majority of which were paid by December 31, 1998. LG&E expensed the remaining costs associated with the merger ($32.1 million) in the second quarter of 1998. In regulatory filings associated with approval of the merger, LG&E committed not to seek increases in existing base rates and proposed reductions in their retail customers' bills in amounts based on one-half of the savings, net of the deferred and amortized amount, over a five-year period. The preferred stock and debt securities of LG&E were not affected by the merger.

        Management has accounted for the KU/LG&E merger as a pooling of interests and as a tax-free reorganization under the Internal Revenue Code.

        As part of its merger order, the Kentucky Commission approved a surcredit whereby 50% of the net non-fuel cost savings estimated to be achieved from the merger, less $18.1 million or 50% of the originally estimated costs to achieve such savings, be applied to reduce customer rates through a surcredit on customers' bills and the remaining 50% be retained by the companies. The surcredit is allocated 53% to KU and 47% to LG&E pursuant to Kentucky Commission order. The surcredit will be about 2% of customer bills through mid 2003 and will amount to approximately $55 million in net non-fuel savings to LG&E. Any fuel cost savings are passed to Kentucky customers through the companies' fuel adjustment clauses. See Note 3 for more information about LG&E's rates and regulatory matters.

Note 3—Rates and Regulatory Matters

        Accounting for the regulated utility business conforms with generally accepted accounting principles as applied to regulated public utilities and as prescribed by FERC and the Kentucky Commission. LG&E is subject to SFAS No. 71, Accounting for the Effects of Certain Types of Regulation, under which certain costs that would otherwise be charged to expense are deferred as regulatory assets based on expected recovery from customers in future rates. Likewise, certain credits that would otherwise be reflected as income are deferred as regulatory liabilities based on expected return to customers in future rates. LG&E's current or expected recovery of deferred costs and expected return of deferred credits is generally based on specific ratemaking decisions or precedent for each item. The

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following regulatory assets and liabilities were included in LG&E's balance sheets as of December 31 (in thousands of $):

	2001			2000
VDT Costs	$	127,529		$	—
Gas supply adjustments due from customers		30,135			12,324
Unamortized loss on bonds		17,902			19,036
LGE/KU merger costs		5,444			9,073
Manufactured gas sites		2,062			2,368
One utility costs		3,643			6,331
Other		10,427			5,307
Total regulatory assets		197,142			54,439
Deferred income taxes—net		(48,703	)		(54,593	)
Gas supply adjustments due to customers		(15,702	)		(2,209	)
Other		(944	)		(4,391	)
Total regulatory liabilities		(65,349	)		(61,013	)
Regulatory assets (liabilities)—net	$	131,793		$	(6,574	)

        Kentucky Commission Settlement—Value Delivery Costs.    During the first quarter 2001, LG&E recorded a $144 million charge for a workforce reduction program. Primary components of the charge were separation benefits, enhanced early retirement benefits, and health care benefits. The result of this workforce reduction was the elimination of over 700 positions, accomplished primarily through a voluntary enhanced severance program.

        On June 1, 2001, LG&E filed an application (VDT case) with the Kentucky Commission to create a regulatory asset relating to these first quarter 2001 charges. The application requested permission to amortize these costs over a four-year period. The Kentucky Commission also opened a case to review the new depreciation study and resulting depreciation rates implemented in 2001.

        LG&E reached a settlement in the VDT case as well as the other cases involving depreciation rates and ESM with all intervening parties. The settlement agreement was approved by the Kentucky Commission on December 3, 2001.

        The Kentucky Commission December 3, 2001, order allowed LG&E to set up a regulatory asset of $141 million for the workforce reduction costs and begin amortizing these costs over a five year period starting in April 2001. The first quarter charge of $144 million represented all employees who had accepted a voluntary enhanced severance program. Some employees rescinded their participation in the voluntary enhanced severance program, thereby decreasing the original charge from $144 million to $141 million. The settlement will also reduce revenues approximately $26 million through a surcredit on future bills to customers over the same five year period. The surcredit represents net savings stipulated by LG&E. The agreement also established LG&E's new depreciation rates in effect December 2001, retroactive to January 1, 2001. The new depreciation rates decreased depreciation expense by $5.6 million in 2001.

        PUHCA.    Following the purchase of LG&E Energy by Powergen, Powergen became a registered holding company under PUHCA. As a result, Powergen, its utility subsidiaries, including LG&E, and certain of its non-utility subsidiaries are subject to extensive regulation by the SEC under PUHCA with respect to issuances and sales of securities, acquisitions and sales of certain utility properties, and intra-system sales of certain goods and services. In addition, PUHCA generally limits the ability of registered holding companies to acquire additional public utility systems and to acquire and retain businesses unrelated to the utility operations of the holding company. Powergen believes that it has adequate

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authority (including financing authority) under existing SEC orders and regulations for it and its subsidiaries to conduct their businesses and will seek additional authorization when necessary.

        Environmental Cost Recovery.    In June 2000, the Kentucky Commission approved LG&E's application for a CCN to construct up to three SCR NOx reduction facilities. The construction and subsequent operation of the SCRs is intended to reduce NOx emission levels to meet the EPA's mandated NOx emission level of 0.15 lbs./ Mmbtu by May 2004. In its order, the Kentucky Commission ruled that LG&E's proposed plan for construction was "reasonable, cost-effective and will not result in the wasteful duplication of facilities." In October 2000, LG&E filed an application with the Kentucky Commission to amend its Environmental Compliance Plan to reflect the addition of the proposed NOx reduction technology projects and to amend its Environmental Cost Recovery Tariff to include an overall rate of return on capital investments. Approval of LG&E's application will allow LG&E to begin to recover the costs associated with these new projects, subject to Kentucky Commission oversight during normal six-month and two-year reviews. Following the completion of hearings in March 2001, a ruling was issued in April 2001 approving LG&E's application.

        ESM.    LG&E's electric rates are subject to an ESM. The ESM, in place for three years beginning in 2000, sets an upper and lower point for rate of return on equity, whereby if LG&E's rate of return for the calendar year falls within the range of 10.5% to 12.5%, no action is necessary. If earnings are above the upper limit, then excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, then earnings deficiency is recovered 40% from ratepayers and 60% from shareholders. The first ESM filing was made on March 1, 2001, for year ended December 31, 2000 that resulted in a refund to customers of $618,000. By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year. LG&E estimated that the rate of return will fall within the deadband range, subject to Kentucky Commission approval, for the year ended December 31, 2001; therefore, no adjustment to the financial statements was made.

        DSM.    LG&E's rates contain a DSM provision. The provision includes a rate mechanism that provides concurrent recovery of DSM costs and provides an incentive for implementing DSM programs. This program had allowed LG&E to recover revenues from lost sales associated with the DSM program. In May 2001, the Kentucky Commission approved LG&E's plan to continue DSM programs. This filing called for the expansion of the DSM programs into the service territory served by KU and proposes a mechanism to recover revenues from lost sales associated with DSM programs based on program planning engineering estimates and post-implementation evaluation.

        Gas PBR.    Since November 1, 1997, LG&E has operated under an experimental performance-based ratemaking mechanism related to its gas procurement activities. For each of the last four years, LG&E's rates have been adjusted to recover its portion of the savings (or expenses) incurred during each of the four 12-month periods beginning November 1 and ending October 31. Since its implementation on November 1, 1997, through October 31, 2001, LG&E has achieved $32.1 million in savings. Of the total savings, LG&E has retained $15.0 million, and the remaining portion of $17.1 million has been distributed to customers. In December 2000, LG&E filed an Application reporting on the operation of the experimental PBR and requested the Kentucky Commission to extend the PBR as a result of the benefits provided to both LG&E and its customers during the experimental period. Following the discovery and hearing process, the Kentucky Commission issued an order effective November 1, 2001, extending the experimental PBR program for an additional four years, and making other modifications, including changes to the sharing levels applicable to savings or expenses incurred under the PBR. Specifically, the Kentucky Commission substituted a 25%/75% Company/Customer sharing for all savings (and expenses) up to 4.5% of the benchmarked gas costs. Savings (and expenses) in excess of 4.5% of the benchmarked gas costs are shared at a 50%/50% level.

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        FAC.    Prior to implementation of the PBR in July 1999, and following its termination in March 2000, LG&E employed an FAC mechanism, which under Kentucky law allowed LG&E to recover from customers the actual fuel costs associated with retail electric sales.

        In February 1999, LG&E received orders from the Kentucky Commission requiring a refund to retail electric customers of approximately $3.9 million resulting from reviews of the FAC from November 1994, through April 1998, of which $1.9 million was refunded in April 1999, for the period beginning November 1994, and ending October 1996. The orders changed LG&E's method of computing fuel costs associated with electric line losses on wholesale sales appropriate for recovery through the FAC. Following rehearing in December 1999, the Kentucky Commission agreed with LG&E "s position on the appropriate loss factor to use in the FAC computation and issued an order reducing the refund level for the 18-month period under review to approximately $800,000 for the period November 1996 through April 1998. LG&E enacted the refund with billings in the month of January 2000. LG&E and KIUC each filed separate appeals from the Kentucky Commission's February 1999 orders with the Franklin County, Kentucky Circuit Court and in May 2000, the Court affirmed the Kentucky Commission's orders regarding the amounts disallowed and ordered the case remanded as to the Kentucky Commission's denial of interest, directing the Kentucky Commission to determine whether interest should be awarded to LG&E's ratepayers. In June 2000, LG&E appealed the Circuit Court's decision to the Kentucky Court of Appeals. Pending a decision on this appeal, a comprehensive settlement was reached by all parties, which settlement was filed with the Kentucky Commission on December 21, 2001. Thereunder, LG&E agreed to credit its fuel clause in the amount of $720,000 (such credit provided over the course of two monthly billing periods), and the parties agreed on a prospective interpretation of the state's fuel adjustment clause regulation to ensure consistent and mutually acceptable application on a going-forward basis. All pending FAC proceedings before the court were resolved by the parties to the agreement and all parties requested the Court of Appeals remand the case to the Kentucky Commission. The Kentucky Commission is expected to approve the settlement in 2002.

        Gas Rate Case.    In March 2000, LG&E filed an application with the Kentucky Commission requesting an adjustment in LG&E's gas rates. In September 2000, the Kentucky Commission granted LG&E an annual increase in its base gas revenues of $20.2 million effective September 28, 2000. The Kentucky Commission authorized a return on equity of 11.25%. The Kentucky Commission approved LG&E's proposal for a weather normalization billing adjustment mechanism that will normalize the effect of weather on revenues from gas sales.

        Wholesale Natural Gas Prices.    On September 12, 2000, the Kentucky Commission issued an order establishing Administrative Case No. 384—"An Investigation of Increasing Wholesale Natural Gas Prices and the Impacts of such Increase on the Retail Customers Served by Kentucky's Jurisdictional Natural Gas Distribution Companies". The impetus for this administrative proceeding was the escalation of wholesale natural gas prices during the summer of 2000.

        The Kentucky Commission directed Kentucky's natural gas distribution companies, including LG&E, to file selected information regarding the individual companies' natural gas purchasing practices, expectations for the then-approaching winter heating season of 2000-2001, and potential actions which these companies might take to mitigate price volatility. On July 17, 2001, the Kentucky Commission issued an Order encouraging the natural gas distribution companies in Kentucky to take various actions, among them to propose a natural gas hedge plan, consider performance-based ratemaking mechanisms, and to increase the use of storage.

        On August 12, 2001, LG&E submitted a natural gas hedge plan in Case No. 2001-253. However, due to significantly decreased wholesale natural gas prices during the Summer of 2001, the Kentucky Commission ultimately rejected LG&E's proposed gas hedging plan as "untimely" in its order dated October 5, 2001.

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        Another result from that Administrative Case was the Kentucky Commission's decision to engage a consultant to conduct a forward-looking audit of the gas procurement and supply procedures in order to assist both the Kentucky Commission and each of Kentucky's largest natural gas distribution companies. This audit is underway.

        Kentucky Commission Administrative Case for Affiliate Transactions.    In December 1997, the Kentucky Commission opened Administrative Case No. 369 to consider Kentucky Commission policy regarding cost allocations, affiliate transactions and codes of conduct governing the relationship between utilities and their non-utility operations and affiliates. The Kentucky Commission intended to address two major areas in the proceedings: the tools and conditions needed to prevent cost shifting and cross-subsidization between regulated and non-utility operations; and whether a code of conduct should be established to assure that non-utility segments of the holding company are not engaged in practices that could result in unfair competition caused by cost shifting from the non-utility affiliate to the utility. During the period September 1998 to February 2000, the Kentucky Commission issued draft codes of conduct and cost allocation guidelines. In early 2000, the Kentucky General Assembly enacted legislation, House Bill 897, which authorized the Kentucky Commission to require utilities that provide nonregulated activities to keep separate accounts and allocate costs in accordance with procedures established by the Kentucky Commission. In the same Bill, the General Assembly set forth provisions to govern a utilities activities related to the sharing of information, databases, and resources between its employees or an affiliate involved in the marketing or the provision of nonregulated activities and its employees or an affiliate involved in the provision of regulated services. The legislation became law in July 2000 and LG&E has been operating pursuant thereto since that time. On February 14, 2001, the Kentucky Commission published notice of their intent to promulgate new administrative regulations under the auspices of this new law. This effort is still on going.

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Note 4—Financial Instruments

        The cost and estimated fair values of LG&E's non-trading financial instruments as of December 31, 2001, and 2000 follow (in thousands of $):

		2001					2000
		Cost		Fair Value			Cost		Fair Value
Marketable securities		$	—	$	—		$	4,403	$	4,056
Long-term investments—
	Not practicable to estimate fair value		490		490			564		564
Preferred stock subject to mandatory redemption			25,000		25,125			25,000		25,275
Long-term debt (including current portion)			616,904		620,504			606,800		606,236
Interest-rate swaps			—		(8,604	)		—		(5,998	)

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

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

        As of December 31, 2001 and 2000, LG&E was party to various interest rate swap agreements with aggregate notional amounts of $117.3 million and $234.3 million, respectively. Under these swap agreements, LG&E paid fixed rates averaging 5.13% and 4.40%, and received variable rates based on the Bond Market Association's municipal swap index averaging 1.61% and 4.84% at December 31, 2001 and 2000, respectively. The swap agreements in effect at December 31, 2001 have been designated as cash flow hedges and mature on dates ranging from 2003 to 2020. The hedges have been deemed to be fully effective resulting in a pretax loss of $2.6 million for 2001, recorded in other comprehension income. Upon expiration of these hedges, the amount recorded in other comprehension income will be reclassified into earnings. The amounts expected to be reclassified from other comprehension income to earnings in the next twelve months is immaterial.

        Energy Trading.    LG&E conducts energy trading and risk management activities to maximize the value of power sales from physical assets it owns, in addition to the wholesale sale of excess asset capacity. Certain energy trading activities are accounted for on a mark-to-market basis in accordance with EITF 98-10 Accounting for Contracts Involved in Energy Trading and Risk Management Activities, SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activities. Wholesale sales of excess asset capacity and wholesale purchases are treated as normal sales and purchases under SFAS No. 133 and SFAS No. 138 and are not marked to market.

        LG&E has recorded a net liability of $186,000 and $17,000 at December 31, 2001 and 2000, respectively.

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        No changes to valuation techniques for energy trading and risk management activities occurred during 2001. All contracts outstanding at December 31, 2001 have a maturity of less than one year and are valued using prices actively quoted for proposed or executed transactions or quoted by brokers.

Note 5—Concentrations of Credit and Other Risk

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

        LG&E's customer receivables and gas and electric revenues arise from deliveries of natural gas to approximately 305,000 customers and electricity to approximately 378,000 customers in Louisville and adjacent areas in Kentucky. For the year ended December 31, 2001, 71% of total revenue was derived from electric operations and 29% from gas operations.

        In November 2001, LG&E and IBEW Local 2100 employees, which represent approximately 70% of LG&E's workforce, entered into a four-year collective bargaining agreement.

Note 6—Marketable Securities

        In 2000, LG&E classified marketable securities as "trading securities" under the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. Prior to that, LG&E's marketable securities had been determined to be "available-for-sale." All unrealized holding gains and losses were immediately recognized in earnings on the date of transfer. Proceeds from sales of trading securities in 2000 were approximately $4.1 million. Proceeds from sales of available-for-sale securities in 1999 were approximately $11.7 million. Sales of securities resulted in immaterial net realized gains and losses, calculated using the specific identification method.

        LG&E has no trading securities at December 31, 2001. Approximate cost, fair value, and other required information pertaining to LG&E's securities by major security type, as of December 31, 2000, follow (in thousands of $):

2000:		Equity
Cost		$	4,403
Realized losses			(347	)
Fair values		$	4,056
Fair values:
	No maturity	$	4,056
	Total fair values	$	4,056

Note 7—Pension Plans and Retirement Benefits

        Pension Plans.    LG&E sponsors several qualified and non-qualified pension plans and other postretirement benefit plans for its employees. The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the three-year period ending

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December 31, 2001, and a statement of the funded status as of December 31 for each of the last three years (in thousands of $):

		2001			2000			1999
Pension Plans:
Change in benefit obligation
	Benefit obligation at beginning of year	$	310,822		$	283,267		$	311,935
	Service cost		1,311			3,408			5,005
	Interest cost		25,361			22,698			21,014
	Plan amendments		1,550			17,042			(2,397	)
	Curtailment loss		24,563			—			—
	Special termination benefits		53,610			—			—
	Benefits paid		(53,292	)		(16,656	)		(15,471	)
	Actuarial (gain) or loss and other		(7,632	)		1,063			(36,819	)
	Benefit obligation at end of year	$	356,293		$	310,822		$	283,267
Change in plan assets
	Fair value of plan assets at beginning of year	$	333,378		$	360,095		$	308,660
	Actual return on plan assets		(27,589	)		(6,150	)		51,995
	Employer contributions and plan transfers		(17,134	)		(1,804	)		16,142
	Benefits paid		(53,292	)		(16,656	)		(15,471	)
	Administrative expenses		(1,419	)		(2,107	)		(1,231	)
	Fair value of plan assets at end of year	$	233,944		$	333,378		$	360,095
Reconciliation of funded status
	Funded status	$	(122,349	)	$	22,556		$	76,828
	Unrecognized actuarial (gain) or loss		18,800			(74,086	)		(126,554	)
	Unrecognized transition (asset) or obligation		(4,215	)		(5,853	)		(6,965	)
	Unrecognized prior service cost		35,435			47,984			35,588
	Net amount recognized at end of year	$	(72,329	)	$	(9,399	)	$	(21,103	)
Other Benefits:
Change in benefit obligation
	Benefit obligation at beginning of year	$	56,981		$	44,997		$	44,964
	Service cost		358			822			1,205
	Interest cost		5,865			4,225			3,270
	Plan amendments		1,487			5,826			2,377
	Curtailment loss		8,645			—			—
	Special termination benefits		18,089			—			—
	Benefits paid		(4,877	)		(4,889	)		(3,050	)
	Actuarial (gain) or loss		3,398			6,000			(3,769	)
	Benefit obligation at end of year	$	89,946		$	56,981		$	44,997
Change in plan assets
	Fair value of plan assets at beginning of year	$	7,166		$	10,526		$	6,062
	Actual return on plan assets		(765	)		(92	)		1,776
	Employer contributions and plan transfers		1,282			1,621			4,681
	Benefits paid		(4,881	)		(4,889	)		(1,993	)
	Fair value of plan assets at end of year	$	2,802		$	7,166		$	10,526

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Reconciliation of funded status
	Funded status	$	(87,144	)	$	(49,815	)	$	(34,471	)
	Unrecognized actuarial (gain) or loss		15,947			5,623			(1,638	)
	Unrecognized transition (asset) or obligation		7,346			13,374			14,489
	Unrecognized prior service cost		5,302			8,960			4,292
	Net amount recognized at end of year	$	(58,549	)	$	(21,858	)	$	(17,328	)

        There are no plan assets in the nonqualified plan due to the nature of the plan.

        The following tables provide the amounts recognized in the balance sheet and information for plans with benefit obligations in excess of plan assets as of December 31, 2001, 2000 and 1999 (in thousands of $):

		2001			2000			1999
Pension Plans:
Amounts recognized in the balance sheet consisted of:
	Prepaid benefits cost	$	—		$	18,880		$	6,466
	Accrued benefit liability		(108,977	)		(28,279	)		(27,569	)
	Intangible asset		11,936			—			—
	Accumulated other comprehensive income		24,712			—			—
	Net amount recognized at year-end	$	(72,329	)	$	(9,399	)	$	(21,103	)
Additional year-end information for plans with accumulated benefit obligations in excess of plan assets(1):
	Projected benefit obligation	$	356,293		$	4,088		$	4,845
	Accumulated benefit obligation		352,477			3,501			4,327
	Fair value of plan assets		233,944			—			—

(1)

2001 includes all plans. 2000 and 1999 include SERPs only.

Other Benefits:
Amounts recognized in the balance sheet consisted of:
	Accrued benefit liability	$	(58,549	)	$	(21,858	)	$	(17,328	)
Additional year-end information for plans with benefit obligations in excess of plan assets:
	Projected benefit obligation	$	89,946		$	56,981		$	44,997
	Fair value of plan assets		2,802			7,166			10,526

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        The following table provides the components of net periodic benefit cost for the plans for 2001, 2000 and 1999 (in thousands of $):

		2001			2000			1999
Pension Plans:
Components of net periodic benefit cost
	Service cost	$	1,311		$	3,408		$	5,005
	Interest cost		25,361			22,698			21,014
	Expected return on plan assets		(26,360	)		(33,025	)		(28,946	)
	Amortization of prior service cost		3,861			4,646			3,462
	Amortization of transition (asset) or obligation		(1,000	)		(1,112	)		(1,112	)
	Recognized actuarial (gain) or loss		(777	)		(6,856	)		(2,621	)
	Net periodic benefit cost	$	2,396		$	(10,241	)	$	(3,198	)
Special charges
	Prior service cost recognized	$	10,237		$	—		$	—
	Special termination benefits		53,610			—			—
	Settlement loss		(2,244	)		—			—
	Total charges	$	61,603		$	—		$	—
Other Benefits:
Components of net periodic benefit cost
	Service cost	$	358		$	822		$	1,205
	Interest cost		5,865			4,225			3,270
	Expected return on plan assets		(420	)		(683	)		(401	)
	Amortization of prior service cost		951			1,158			473
	Amortization of transition (asset) or obligation		719			1,114			1,114
	Recognized actuarial gain		(32	)		(485	)		(183	)
	Net periodic benefit cost	$	7,441		$	6,151		$	5,478
Special charges
	Curtailment loss	$	6,671		$	—		$	—
	Prior service cost recognized		2,391			—			—
	Transition obligation recognized		4,743			—			—
	Special termination benefits		18,089			—			—
	Total charges	$	31,894		$	—		$	—

        The assumptions used in the measurement of LG&E's pension benefit obligation are shown in the following table:

	2001		2000		1999
Weighted-average assumptions as of December 31:
Discount rate	7.25	%	7.75	%	8.00	%
Expected long-term rate of return on plan assets	9.50	%	9.50	%	9.50	%
Rate of compensation increase	4.25	%	4.75	%	5.00	%

        For measurement purposes, a 10.00% annual increase in the per capita cost of covered health care benefits was assumed for 2002. The rate was assumed to decrease gradually to 5.00% for 2011 and remain at that level thereafter.

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        Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates would have the following effects (in thousands of $):

	1% Decrease			1% Increase
Effect on total of service and interest cost components for 2001	$	(189	)	$	212
Effect on year-end 2001 postretirement benefit obligations		(3,025	)		3,073

        Thrift Savings Plans.    LG&E has a thrift savings plan under section 401(k) of the Internal Revenue Code. Under the plan, eligible employees may defer and contribute to the plan a portion of current compensation in order to provide future retirement benefits. LG&E makes contributions to the plan by matching a portion of the employee contributions. The costs were approximately $1.2 million for 2001, and $2.7 million for 2000 and 1999, respectively.

Note 8—Income Taxes

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

				2001			2000			1999
Included in operating expenses:
	Current	—	federal	$	42,997		$	32,612		$	53,981
		—	state		8,668			5,018			13,680
	Deferred	—	federal—net		12,310			24,272			(4,818	)
		—	state—net		3,767			6,797			(780	)
Amortization of investment tax credit					(4,290	)		(4,274	)		(4,289	)
	Total				63,452			64,425			57,774
Included in other income—net:
	Current	—	federal		(1,870	)		(2,187	)		217
		—	state		(483	)		(568	)		(30	)
	Deferred	—	federal—net		285			(39	)		254
		—	state—net		73			(10	)		65
	Total				(1,995	)		(2,804	)		506
Total income tax expense				$	61,457		$	61,621		$	58,280

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

		2001		2000
Deferred tax liabilities:
Depreciation and other plant-related items		$	334,914	$	329,836
Other liabilities			77,611		22,621
			412,525		352,457
Deferred tax assets:
	Investment tax credit		23,713		25,444
	Income taxes due to customers		19,709		22,086
	Pension overfunding		6,621		5,595
	Accrued liabilities not currently deductible and other		64,339		10,100
			114,382		63,225
Net deferred income tax liability		$	298,143	$	289,232

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

	2001		2000		1999
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	4.7		4.3		5.1
Amortization of investment tax credit	(2.6	)	(2.6	)	(2.8	)
Other differences—net	(0.6	)	(0.9	)	(1.9	)
Effective income tax rate	36.5	%	35.8	%	35.4	%

Note 9—Other Income—net

        Other income—net consisted of the following at December 31 (in thousands of $):

	2001		2000		1999
Interest and dividend income	$	748	$	3,103	$	4,086
Gains on fixed asset disposals		1,217		1,014		2,394
Income taxes and other		965		804		(2,339	)
Other income—net	$	2,930	$	4,921	$	4,141

Note 10—First Mortgage Bonds and Pollution Control Bonds

        Long-term debt and the current portion of long-term debt, summarized below (in thousands of $), consists primarily of first mortgage bonds and pollution control bonds. Interest rates and maturities in the table below are for the amounts outstanding at December 31, 2001.

	Stated Interest Rates	Weighted Average Interest Rate		Maturities	Principal Amounts
Noncurrent portion	Variable—6.55%	5.40	%	2003-2030	$	370,704
Current portion (pollution control bonds)	Variable	2.33	%	2013-2027		246,200

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        Under the provisions for LG&E's variable-rate pollution control bonds, the bonds are subject to tender for purchase at the option of the holder and to mandatory tender for purchase upon the occurrence of certain events, causing the bonds to be classified as current portion of long-term debt. The average annualized interest rate for these bonds during 2001 was 4.00%.

        LG&E's First Mortgage Bonds, 6% Series of $42.6 million is scheduled to mature in 2003. There are no other scheduled maturities of Pollution Control Bonds for the five years subsequent to December 31, 2001.

        In September 2001, LG&E issued $10.1 million variable rate tax-exempt environmental facility revenue bonds due September 1, 2027.

        In January 2000, LG&E exercised its call option on its $20 million 7.50% First Mortgage Bonds due July 1, 2002. The bonds were redeemed utilizing proceeds from issuance of commercial paper.

        In May 2000, LG&E issued $25 million variable rate pollution control bonds due May 1, 2027 and exercised its call option on $25 million, 7.45%, pollution control bonds due June 15, 2015. In August 2000, LG&E issued $83 million in variable rate pollution control bonds due August 1, 2030 and exercised its call option on its $83 million, 7 5/8%, pollution control bonds due November 1, 2020.

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

        Substantially all of LG&E's utility plants are pledged as security for its first mortgage bonds. LG&E's indenture, as supplemented, provides that portions of retained earnings will not be available for the payment of dividends on common stock, under certain specified conditions. No portion of retained earnings is presently restricted by this provision as of December 31, 2001.

Note 11—Notes Payable

        LG&E participates in an intercompany money pool agreement wherein LG&E Energy can make funds available to LG&E at market based rates up to $200 million. At December 31, 2001, the balance of the money pool loan from LG&E Energy was $64.2 million at an average rate of 2.37%, and LG&E had outstanding commercial paper of $30 million at an average rate of 2.54%. The resulting remaining money pool availability at December 31, 2001, was $105.8 million. LG&E Energy maintains a facility of $200 million with an affiliate to ensure funding availability for the money pool. There was no outstanding balance under this facility as of December 31, 2001, and availability of $170 million remains after considering the $30 million of commercial paper outstanding at LG&E.

        At December 31, 2000, the money pool loan balance was $114.6 million at an average rate of 6.84% and LG&E had no commercial paper outstanding.

82

Note 12—Commitments and Contingencies

        Construction Program.    LG&E had commitments in connection with its construction program aggregating approximately $22.3 million at December 31, 2001. Construction expenditures for the years 2002 and 2003 are estimated to total approximately $334 million, although all of this amount is not currently committed. Included in 2002 is $38 million for the purchase of 29% of two CTs currently under construction by LG&E Capital Corp. at LG&E's Trimble County location. KU will own 71% of the two CTs. LG&E is waiting for approval from the Kentucky Commission for the purchase of the CTs.

        Operating Lease.    LG&E leases office space and accounts for all of its office space leases as operating leases. Total lease expense for 2001, 2000, and 1999, less amounts contributed by the parent company, was $1.1 million, $.9 million, and $1.5 million, respectively. The future minimum annual lease payments under this lease agreement for years subsequent to December 31, 2001, are as follows (in thousands of $):

2002	$	3,594
2003		3,507
2004		3,507
2005		1,754
Total	$	12,362

        In December 1999, LG&E and KU entered into an 18-year cross-border lease of its two jointly owned combustion turbines recently installed at KU's Brown facility (Units 6 and 7). LG&E's obligation was defeased upon consummation of the cross-border lease. The transaction produced a pre-tax gain of approximately $1.2 million which was recorded in other income on the income statement in 2000, pursuant to a Kentucky Commission order.

        Environmental.    The Clean Air Act imposed stringent new SO₂ and NOx emission limits on electric generating units. LG&E previously had installed scrubbers on all of its generating units. LG&E's strategy for Phase II SO₂ reductions, which commenced January 1, 2000, is to increase scrubber removal efficiency to delay additional capital expenditures and may also include fuel switching or upgrading scrubbers. LG&E met the NOx emission requirements of the Act through installation of low-NOx burner systems. LG&E's compliance plans are subject to many factors including developments in the emission allowance and fuel markets, future regulatory and legislative initiatives, and advances in clean air control technology. LG&E will continue to monitor these developments to ensure that its environmental obligations are met in the most efficient and cost-effective manner.

        In September 1998, the EPA announced its final "NOx SIP Call" rule requiring states to impose significant additional reductions in NOx emissions by May 2003, in order to mitigate alleged ozone transport impacts on the Northeast region. The Commonwealth of Kentucky is currently in the process of revising its State Implementation Plan or "SIP" to require reductions in NOx emissions from coal-fired generating units to the 0.15 lb./Mmbtu level on a system-wide basis. In related proceedings in response to petitions filed by various Northeast states, in December 1999, EPA issued a final rule pursuant to Section 126 of the Clean Air Act directing similar NOx reductions from a number of specifically targeted generating units including all LG&E units. As a result of appeals to both rules, the compliance date was extended to May 2004. All LG&E generating units are subject to the May 2004 compliance date under these NOx emissions reduction rules.

        LG&E is currently implementing a plan for adding significant additional NOx controls to its generating units. Installation of additional NOx controls will proceed on a phased basis, with installation of controls commencing in late 2000 and continuing through the final compliance date. In addition, LG&E will incur additional operating and maintenance costs in operating new NOx controls.

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LG&E believes its costs in this regard to be comparable to those of similarly situated utilities with like generation assets. LG&E anticipated that such capital and operating costs are the type of costs that are eligible for recovery from customers under its environmental surcharge mechanism and believed that a significant portion of such costs could be recovered. In April 2001, the Kentucky Commission granted recovery of these costs.

        LG&E is also monitoring several other air quality issues which may potentially impact coal-fired power plants, including the appeal of the D.C. Circuit's remand of the EPA's revised air quality standards for ozone and particulate matter, measures to implement EPA's regional haze rule, and EPA's December 2000 determination to regulate mercury emissions from power plants. In addition, LG&E is currently working with local regulatory authorities to review the effectiveness of remedial measures aimed at controlling particulate matter emissions from its Mill Creek Station. LG&E previously settled a number of property damage claims from adjacent residents and completed significant remedial measures as part of its ongoing capital construction program. LG&E is in the process of converting the Mill Creek Station to wet stack operation in an effort to resolve all outstanding issues related to particulate matter emissions.

        LG&E owns or formerly owned three properties which are the location of past MGP operations. Various contaminants are typically found at such former MGP sites and environmental remediation measures are frequently required. With respect to the sites, LG&E has completed cleanups, obtained regulatory approval of site management plans, or reached agreements for other parties to assume responsibility for cleanup. Based on currently available information, management estimates that it will incur additional costs of $400,000. Accordingly, an accrual of $400,000 has been recorded in the accompanying financial statements at December 31, 2001 and 2000.

        Purchased Power.    LG&E has a contract for purchased power during 2002-2006 with OVEC for various MW capacities. The estimated future minimum annual payments under purchased power agreements for the five years ended December 31, 2006, are as follows (in thousands of $):

2002	$	12,805
2003		12,934
2004		13,063
2005		13,193
2006		13,325
Total	$	65,320

Note 13—Jointly Owned Electric Utility Plant

        LG&E owns a 75% undivided interest in Trimble County Unit 1 which the Kentucky Commission has allowed to be reflected in customer rates.

        Of the remaining 25% of the Unit, IMEA owns a 12.12% undivided interest, and IMPA owns a 12.88% undivided interest. Each company is responsible for its proportionate ownership share of fuel cost, operation and maintenance expenses, and incremental assets.

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        The following data represent shares of the jointly owned property:

	Trimble County
	LG&E			IMPA		IMEA		Total
Ownership interest		75	%	12.88	%	12.12	%	100	%
Mw capacity		371.25		63.75		60.00		495.00
LG&E's 75% ownership (in thousands of $):
Cost	$	560,381
Accumulated depreciation		170,875
Net book value	$	389,506
Construction work in progress (included above)	$	12,842

        LG&E and KU jointly own the following combustion turbines ($ in thousands):

		LG&E			KU			TOTAL
Paddy's Run 13	Ownership %		53	%		47	%		100	%
	Mw capacity		84			74			158
	Cost	$	33,844		$	29,908		$	63,752
	Depreciation		563			491			1,054
	Net book Value	$	33,281		$	29,417		$	62,698
E.W. Brown 5	Ownership %		53	%		47	%		100	%
	Mw capacity		70			63			133
	Cost	$	23,941		$	21,078		$	45,019
	Depreciation		394			342			736
	Net book Value	$	23,547		$	20,736		$	44,283
E.W. Brown 6	Ownership %		38	%		62	%		100	%
	Mw capacity		62			102			164
	Cost	$	23,696		$	36,253		$	59,949
	Depreciation		953			2,955			3,908
	Net book Value	$	22,743		$	33,298		$	56,041
E.W. Brown 7	Ownership %		38	%		62	%		100	%
	Mw capacity		62			102			164
	Cost	$	23,607		$	44,785		$	68,392
	Depreciation		3,268			3,033			6,301
	Net book Value	$	20,339		$	41,752		$	62,091

        See also Note 12, Construction Program, for LG&E's planned purchase of two jointly owned CTs in 2002.

Note 14—Segments of Business and Related Information

        Effective December 31, 1998, LG&E adopted SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information. LG&E is a regulated public utility engaged in the generation,

85

transmission, distribution, and sale of electricity and the storage, distribution, and sale of natural gas. Financial data for business segments, follow (in thousands of $):

	Electric			Gas		Total
2001
Operating revenues	$	705,925	(a)	$	290,775	$	996,700
Depreciation and amortization		85,572			14,784		100,356
Interest income		616			132		748
Interest expense		31,295			6,627		37,922
Operating income taxes		55,527			7,925		63,452
Net income		94,996			11,768		106,764
Total assets		1,985,252			463,102		2,448,354
Construction expenditures		227,107			25,851		252,958
2000
Operating revenues	$	710,958	(b)	$	272,489	$	983,447
Depreciation and amortization		84,761			13,530		98,291
Interest income		2,551			552		3,103
Interest expense		35,604			7,614		43,218
Operating income taxes		57,869			6,556		64,425
Net income		100,395			10,178		110,573
Total assets		1,760,305			465,779		2,226,084
Construction expenditures		109,798			34,418		144,216
1999
Operating revenues	$	790,670	(c)	$	177,579	$	968,249
Depreciation and amortization		83,619			13,602		97,221
Interest income		3,435			651		4,086
Interest expense		31,558			6,404		37,962
Operating income taxes		56,883			891		57,774
Net income		104,853			1,417		106,270
Total assets		1,775,498			395,954		2,171,452
Construction expenditures		160,844			33,800		194,644

(a)

Net of provision for rate refunds of $.7 million.


(b)

Net of provision for rate refunds of $2.5 million.


(c)

Net of provision for rate refunds of $1.7 million.

Note 15—Selected Quarterly Data (Unaudited)

        Selected financial data for the four quarters of 2001 and 2000 are shown below. Because of seasonal fluctuations in temperature and other factors, results for quarters may fluctuate throughout the year.

	Quarters Ended
	March			June		September		December
	(Thousands of $)
2001
Operating revenues	$	313,271		$	228,841	$	231,885	$	222,703
Net operating income (loss)		(43,732	)		37,624		49,092		98,789
Net income (loss)		(54,115	)		28,467		40,270		92,159
Net income (loss) available for common stock		(55,413	)		27,247		39,160		91,048
2000
Operating revenues	$	249,642		$	209,731	$	229,640	$	294,434
Net operating income		26,592			37,285		48,161		36,832
Net income		17,421			28,009		38,117		27,026
Net income available for common stock		16,256			26,692		36,756		25,659

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Note 16—Subsequent Events

        On April 9, 2001, a German power company, E.ON AG, announced a preconditional cash offer of £5.1 billion ($7.3 billion) for Powergen. The offer is subject to a number of conditions, including the receipt of certain European and United States regulatory approvals. The Kentucky Public Service Commission, the Federal Energy Regulatory Commission, the Virginia State Corporation Commission, and the Tennessee Regulatory Authority have all approved the acquisition of Powergen and LG&E Energy by E.ON. The parties expect to obtain the remaining regulatory approvals and to complete the transaction in the first half of 2002. See Powergen's schedule 14D-9, and associated schedules to such filings, filed with the SEC on April 9, 2001.

        LG&E (along with KU) is a founding member of the MISO, such membership obtained in 1998 in response to and consistent with federal policy initiatives. As a MISO member, LG&E filed for and received authorization from FERC to transfer control of its transmission facilities (100 kV and above) to the MISO, the first step in allowing the latter to assume responsibility for all tariff-related transmission functions (e.g., scheduling through and on LG&E's transmission system) as well as non-tariff related regional transmission activities (e.g., operations planning, maintenance coordination, long-term regional planning and market monitoring). The FERC approved the MISO as the nation's first Regional Transmission Organization on December 19, 2001, after which LG&E submitted a filing at FERC to cancel all services under its Open Access Transmission Tariff except those that will not be provided by the MISO (certain ancillary services). The MISO became operational on February 1, 2002.

        In October 2001, the FERC issued an order requiring that the bundled retail load and grandfathered wholesale load of each member transmission owner (including LG&E) be included in the current calculation of MISO's "cost-adder," a charge designed to recover MISO's costs of operation, including start-up capital (debt) costs. LG&E, along with several other transmission owners, opposed the FERC's ruling in this regard, which opposition the FERC rejected in an order on rehearing issued in 2002. As of the end of 2001, negotiations were continuing between MISO, its transmission owners and other interested industry segments regarding the level of cost responsibility properly borne by bundled and grandfathered load under these FERC rulings. Absent settlement, this issue is expected to go to hearing in 2002.

        At the end of 2001, in response to an earlier FERC ruling, MISO and its transmission owning members (including LG&E) filed to increase MISO's rate of return on equity from 10.5% (a stipulated percentage agreed to in 1998) to 13.0%, to compensate MISO's transmission owners for the inherent risks and uncertainties associated with transferring control of their facilities to the MISO. This issue is expected to go to hearing in 2002.

87

Louisville Gas and Electric Company
Report of Management

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

        LG&E's current year financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants, and prior years financial statements were audited by Arthur Andersen LLP. Management made available to PricewaterhouseCoopers LLP and Arthur Andersen LLP (in prior years) all LG&E's financial records and related data as well as the minutes of shareholders' and directors' meetings.

        Management has established and maintains a system of internal controls that provides reasonable assurance that transactions are completed in accordance with management's authorization, that assets are safeguarded and that financial statements are prepared in conformity with generally accepted accounting principles. Management believes that an adequate system of internal controls is maintained through the selection and training of personnel, appropriate division of responsibility, establishment and communication of policies and procedures and by regular reviews of internal accounting controls by LG&E's internal auditors. Management reviews and modifies its system of internal controls in light of changes in conditions and operations, as well as in response to recommendations from the internal auditors. These recommendations for the year ended December 31, 2001, did not identify any material weaknesses in the design and operation of LG&E's internal control structure.

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

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

S. Bradford Rives
Senior Vice President-Finance and Controller

Louisville Gas and Electric Company
Louisville, Kentucky

88

Louisville Gas and Electric Company and Subsidiary
Report of Independent Accountants

To the Shareholders of Louisville Gas and Electric Company and Subsidiary:

        In our opinion, the accompanying consolidated balance sheet as of December 31, 2001 and the related consolidated statements of capitalization, income, retained earnings, cash flows and comprehensive income present fairly, in all material respects, the financial position of Louisville Gas and Electric Company and Subsidiary (the "Company"), a wholly-owned subsidiary of LG&E Energy Corp., at December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
January 25, 2002
Louisville, Kentucky

89

Louisville Gas and Electric Company
Report of Independent Public Accountants

To the Shareholders of Louisville Gas and Electric Company:

        We have audited the accompanying balance sheet and statement of capitalization of Louisville Gas and Electric Company (a Kentucky corporation and a wholly-owned subsidiary of LG&E Energy Corp.) as of December 31, 2000, and the related statements of income, retained earnings, cash flows and comprehensive income for each of the two years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Louisville Gas and Electric Company as of December 31, 2000, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.

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

Louisville, Kentucky	Arthur Andersen LLP
January 26, 2001

90

INDEX OF ABBREVIATIONS

Capital Corp.	LG&E Capital Corp.
Clean Air Act	The Clean Air Act, as amended in 1990
CCN	Certificate of Public Convenience and Necessity
CT	Combustion Turbines
DSM	Demand Side Management
ECR	Environmental Cost Recovery
EEI	Electric Energy, Inc.
EITF	Emerging Issues Task Force Issue
EPA	U.S. Environmental Protection Agency
ESM	Earnings Sharing Mechanism
FAC	Fuel Adjustment Clause
FERC	Federal Energy Regulatory Commission
FPA	Federal Power Act
FT and FT-A	Firm Transportation
GSC	Gas Supply Clause
Holding Company Act	Public Utility Holding Company Act of 1935
IBEW	International Brotherhood of Electrical Workers
IMEA	Illinois Municipal Electric Agency
IMPA	Indiana Municipal Power Agency
Kentucky Commission	Kentucky Public Service Commission
KIUC	Kentucky Industrial Utility Consumers, Inc.
KU	Kentucky Utilities Company
KU Energy	KU Energy Corporation
KU R	KU Receivables LLC
Kva	Kilovolt-ampere
LEM	LG&E Energy Marketing Inc.
LG&E	Louisville Gas and Electric Company
LG&E Energy	LG&E Energy Corp.
LG&E R	LG&E Receivables LLC
LG&E Services	LG&E Energy Services Inc.
Mcf	Thousand Cubic Feet
Merger Agreement	Agreement and Plan of Merger dated May 20, 1997
MGP	Manufactured Gas Plant
MISO	Midwest Independent System Operator
Mmbtu	Million British thermal units
Moody's	Moody's Investor Services, Inc.
Mw	Megawatts
Mwh	Megawatt hours
NNS	No-Notice Service
NOx	Nitrogen Oxide
OMU	Owensboro Municipal Utilities
OVEC	Ohio Valley Electric Corporation
PBR	Performance-Based Ratemaking
Powergen	Powergen plc
PUHCA	Public Utility Holding Company Act of 1935

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S&P	Standard & Poor's Rating Services
SCR	Selective Catalytic Reduction
SEC	Securities And Exchange Commission
SERP	Supplemental Employee Retirement Plan
SFAS	Statement of Financial Accounting Standards
SIP	State Implementation Plan
SO2	Sulfur Dioxide
Tennessee Gas	Tennessee Gas Pipeline Company
Texas Gas	Texas Gas Transmission Corporation
TRA	Tennessee Regulatory Authority
Trimble County	LG&E's Trimble County Unit 1
USWA	United Steelworkers of America
Utility Operations	Operations of LG&E and KU
VDT	Value Delivery Team Process
Virginia Commission	Virginia State Corporation Commission
Virginia Staff	Virginia Commission Staff

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Kentucky Utilities Company and Subsidiary
Consolidated Statements of Income
(Thousands of $)

			Years Ended December 31
			2001			2000		1999
OPERATING REVENUES:
	Electric (Note 1)		$	860,426		$	851,941	$	943,210
	Provision for rate refunds (Note 3)			(954	)		—		(5,900	)
		Total operating revenues		859,472			851,941		937,310
OPERATING EXPENSES:
	Fuel for electric generation			236,985			219,923		219,883
	Power purchased			157,161			166,918		242,315
	Other operation expenses			118,359			108,072		116,521
	Non-recurring charge (Note 3)			6,867			—		—
	Maintenance			57,021			61,643		57,318
	Depreciation and amortization (Note 1)			90,299			98,256		89,922
	Federal and state income taxes (Note 7)			57,482			51,963		60,380
	Property and other taxes			13,928			17,030		14,955
		Total operating expenses		738,102			723,805		801,294
Net operating income				121,370			128,136		136,016
Other income — net (Note 8)				8,932			6,843		9,437
Interest charges				34,024			39,455		38,895
Net income before cumulative effect of a change in accounting principle				96,278			95,524		106,558
Cumulative effect of a change in accounting principle-accounting for Derivative instruments and hedging activities, net of tax (Note 1)				136			—		—
Net income				96,414			95,524		106,558
Preferred stock dividends				2,256			2,256		2,256
Net income available for common stockholders			$	94,158		$	93,268	$	104,302

Consolidated Statements of Retained Earnings
(Thousands of $)

	Years Ended December 31
	2001		2000		1999
Balance January 1	$	347,238	$	329,470	$	299,167
Add net income		96,414		95,524		106,558
		443,652		424,994		405,725

Deduct:	Cash dividends declared on stock:
	4.75% cumulative preferred		950		950		950
	6.53% cumulative preferred		1,306		1,306		1,306
	Common		30,500		75,500		73,999
			32,756		77,756		76,255
Balance December 31		$	410,896	$	347,238	$	329,470

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

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Kentucky Utilities Company and Subsidiary
Consolidated Statements of Comprehensive Income
(Thousands of $)

	Years Ended December 31
	2001			2000		1999
Net income	$	96,414		$	95,524	$	106,558
Cumulative effect of change in accounting principle — Accounting for derivative instruments and hedging activities (Note 1)		2,647			—		—
Income tax expense related to items of other comprehensive income		(1,059	)		—		—
Comprehensive income	$	98,002		$	95,524	$	106,558

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

			December 31
			2001		2000
ASSETS:
Utility plant, at original cost (Note 1)			$	2,960,818	$	2,826,383
Less: reserve for depreciation				1,457,754		1,378,283
				1,503,064		1,448,100
Construction work in progress				103,402		106,380
				1,606,466		1,554,480
Other property and investments—less reserve				9,629		14,538
Current assets:
	Cash and temporary cash investments			3,295		314
	Accounts receivable-less reserve of $800 in 2001 and 2000			45,291		90,419
	Materials and supplies—at average cost:
		Fuel (predominantly coal)		43,382		12,495
		Other		26,188		25,812
	Prepayments and other			4,942		1,899
				123,098		130,939
Deferred debits and other assets:
	Unamortized debt expense (Note 1)			4,316		4,651
	Regulatory assets (Note 3)			66,467		26,441
	Other			16,926		8,469
				87,709		39,561
			$	1,826,902	$	1,739,518
CAPITAL AND LIABILITIES:
Capitalization (see statements of capitalization):
	Common equity		$	735,029	$	669,783
	Cumulative preferred stock			40,000		40,000
	Long-term debt (Note 9)			434,506		430,830
				1,209,535		1,140,613
Current liabilities:
	Current portion of long-term debt (Note 9)			54,000		54,000
	Notes payable to parent (Note 10)			47,790		61,239
	Accounts payable			85,149		76,339
	Accrued taxes			20,520		19,622
	Accrued interest			5,668		6,373
	Other			16,482		18,767
				229,609		236,340
Deferred credits and other liabilities:
	Accumulated deferred income taxes (Notes 1 and 7)			239,204		246,680
	Investment tax credit, in process of amortization			11,455		14,901
	Accumulated provision for pensions and related benefits (Note 6)			91,235		47,495
	Customers' advances for construction			1,526		1,540
	Regulatory liabilities (Note 3)			33,889		38,392
	Other			10,449		13,557
				387,758		362,565
Commitments and contingencies (Note 11)
			$	1,826,902	$	1,739,518

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

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Kentucky Utilities Company and Subsidiary
Consolidated Statements of Cash Flows
(Thousands of $)

			Years Ended December 31
			2001			2000			1999
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income		$	96,414		$	95,524		$	106,558
	Items not requiring cash currently:
		Depreciation and amortization		90,299			98,256			89,922
		Deferred income taxes—net		(12,088	)		(2,449	)		(3,763	)
		Investment tax credit—net		(3,446	)		(3,674	)		(3,727	)
		Other		11,776			(8,136	)		(8,010	)
	Change in certain net current assets and liabilities:
		Accounts receivable		28			(1,870	)		17,576
		Materials and supplies		(31,263	)		18,131			(8,263	)
		Accounts payable		8,810			(40,207	)		6,514
		Provision for rate refunds		—			(20,567	)		(933	)
		Accrued taxes		898			9,120			(6,231	)
		Accrued interest		(705	)		(956	)		(781	)
		Prepayments and other		(5,328	)		1,806			(3,042	)
	Sale of accounts receivable (Note 1)			45,100			—			—
	Other			(12,364	)		31,272			18,356
		Net cash flows from operating activities		188,131			176,250			204,176
CASH FLOWS FROM INVESTING ACTIVITIES:
	Proceeds from sales of securities			3,480			—			—
	Construction expenditures			(142,425	)		(100,328	)		(181,135	)
		Net cash flows used for investing activities		(138,945	)		(100,328	)		(181,135	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Short-term borrowings and repayments			(13,449	)		61,239			—
	Retirement of long-term debt			—			(74,784	)		—
	Issuance of long-term debt			—			12,900			—
	Additional paid-in capital			—			15,000			—
	Payment of dividends			(32,756	)		(96,756	)		(75,197	)
		Net cash flows used for financing activities		(46,205	)		(82,401	)		(75,197	)
Change in cash and temporary cash investments				2,981			(6,479	)		(52,156	)
Cash and temporary cash investments at beginning of year				314			6,793			58,949
Cash and temporary cash investments at end of year			$	3,295		$	314		$	6,793
Supplemental disclosures of cash flow information:
	Cash paid during the year for:
		Income taxes	$	72,432		$	49,871		$	71,258
		Interest on borrowed money		39,829			35,196			35,508

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

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Kentucky Utilities Company and Subsidiary
Consolidated Statements of Capitalization
(Thousands of $)

			December 31
			2001			2000
COMMON EQUITY:
	Common stock, without par value—
		outstanding 37,817,878 shares	$	308,140		$	308,140
	Additional paid-in-capital			15,000			15,000
	Retained earnings			410,896			347,238
	Accumulated other comprehensive income			1,588			—
	Other			(595	)		(595	)
				735,029			669,783

CUMULATIVE PREFERRED STOCK:

				Shares Outstanding	Current Redemption Price
	Without par value, 5,300,000 shares     authorized—
		4.75% series, $100 stated     value
			Redeemable on 30 days notice by KU	200,000	$101.00		20,000		20,000
		6.53% series, $100 stated value		200,000	Not redeemable		20,000		20,000
							40,000		40,000
LONG-TERM DEBT—first mortgage     bonds (Note 9):
	Q due June 15, 2003, 6.32%						62,000		62,000
	S due January 15, 2006, 5.99%						36,000		36,000
	P due May 15, 2007, 7.92%						53,000		53,000
	R due June 1, 2025, 7.55%						50,000		50,000
	P due May 15, 2027, 8.55%						33,000		33,000
	Pollution control series:
		1B due February 1, 2018, 6.25%					20,930		20,930
		2B due February 1, 2018, 6.25%					2,400		2,400
		3B due February 1, 2018, 6.25%					7,200		7,200
		4B due February 1, 2018, 6.25%					7,400		7,400
		8, due September 15, 2016, 7.45%					96,000		96,000
		9, due December 1, 2023, 5.75%					50,000		50,000
		10, due November 1, 2024, variable					54,000		54,000
		A, due May 1, 2023, variable					12,900		12,900
	Long-term debt marked to market     (Note 4)						3,676		—
		Total bonds outstanding					488,506		484,830
		Less current portion of long-term     debt					54,000		54,000
		Long-term debt					434,506		430,830
		Total capitalization				$	1,209,535	$	1,140,613

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

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Kentucky Utilities Company and Subsidiary
Notes to Consolidated Financial Statements

Note 1—Summary of Significant Accounting Policies

        KU, a subsidiary of LG&E Energy and an indirect subsidiary of Powergen, is a regulated public utility engaged in the generation, transmission, distribution, and sale of electric energy. LG&E Energy is an exempt public utility holding company with wholly owned subsidiaries including LG&E, KU, Capital Corp., LEM, and LG&E Services. All of the KU's Common Stock is held by LG&E Energy. KU has one wholly owned consolidated subsidiary, KU Receivables.

        On December 11, 2000, LG&E Energy Corp. was acquired by Powergen plc. Powergen is a registered public utility holding company under PUHCA. No costs associated with the Powergen acquisition nor any of the effects of purchase accounting have been reflected in the financial statements of KU.

        Certain reclassification entries have been made to the previous year financial statements to conform to the 2001 presentation with no impact on the balance sheet totals or previously reported income.

        Cash and Temporary Cash Investments.    KU considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Temporary cash investments are carried at cost, which approximates fair value.

        Utility Plant.    KU's utility plant is stated at original cost, which includes payroll-related costs such as taxes, fringe benefits, and administrative and general costs. Construction work in progress has been included in the rate base for determining retail customer rates. KU has not recorded any significant allowance for funds used during construction.

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

        Depreciation and amortization.    Depreciation is provided on the straight-line method over the estimated service lives of depreciable plant. Pursuant to a final order of the Kentucky Commission dated December 3, 2001, KU implemented new deprecation rates effective January 1, 2001. The amounts provided for KU approximated 3.1% in 2001, 3.5% in 2000 and 1999.

        Financial Instruments.    KU uses over-the-counter interest-rate swap agreements to hedge its exposure to interest rates. Gains and losses on interest-rate swaps used to hedge interest rate risk are reflected in interest charges monthly. See Note 4—Financial Instruments.

        Debt Expense.    Debt expense is capitalized in deferred debits and amortized over the lives of the related bond issues, consistent with regulatory practices.

        Deferred Income Taxes.    Deferred income taxes have been provided for all material book-tax temporary differences.

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

        Revenue Recognition.    Revenues are recorded based on service rendered to customers through month-end. KU accrues an estimate for unbilled revenues from each meter reading date to the end of

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the accounting period. The unbilled revenue estimates included in accounts receivable for KU equaled approximately $33.4 million and $34.8 million at December 31, 2001, and 2000, respectively.

        KU recorded electric revenues that resulted from sales to a related party, LG&E, of $31.1 million, $22.1 million and 22.4 million for years ended December 31, 2001, 2000 and 1999, respectively.

        Fuel Costs.    The cost of fuel for electric generation is charged to expense as used.

        Management's Use of Estimates.    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported assets and liabilities and disclosure of contingent items at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. See Note 11, Commitments and Contingencies, for a further discussion.

        Accounts Receivable Securitization.    SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 140 was adopted in the first quarter of 2001, when KU entered into an accounts receivable securitization transaction.

        On February 6, 2001, KU implemented an accounts receivable securitization program. The purpose of this program is to enable KU to accelerate the receipt of cash from the collection of retail accounts receivable, thereby reducing dependence upon more costly sources of working capital. The securitization program allows for a percentage of eligible receivables to be sold. Eligible receivables are generally all receivables associated with retail sales that have standard terms and are not past due. KU is able to terminate this program at any time without penalty. If there is a significant deterioration in the payment record of the receivables by the retail customers or if KU fails to meet certain covenants regarding the program, the program may terminate at the election of the financial institutions. In this case, payments from retail customers would first be used to repay the financial institutions participating in the program, and would then be available for use by KU.

        As part of the program, KU sold retail accounts receivables to a wholly owned subsidiary KU R. Simultaneously, KU R entered into two separate three-year accounts receivable securitization facilities with two financial institutions and their affiliates whereby KU R can sell, on a revolving basis, an undivided interest in certain of their receivables and receive up to $50 million from an unrelated third party purchaser. The effective cost of the receivables programs is comparable to KU's lowest cost source of capital, and is based on prime rated commercial paper. KU retains servicing rights of the sold receivables through two separate servicing agreements with the third party purchaser. KU has obtained an opinion from independent legal counsel indicating these transactions qualify as a true sale of receivables. As of December 31, 2001, the outstanding program balance was $45.1 million.

        Management expects to renew these facilities when they expire.

        The allowance for doubtful accounts associated with the eligible securitized receivables was $520,000 at December 31, 2001. This allowance is based on historical experience of KU. Each securitization facility contains a fully funded reserve for uncollectible receivables.

        New Accounting Pronouncements.    During 2001 and 2000, the following accounting pronouncements were issued that affect KU:

        SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments

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embedded in other contracts) be recorded on the balance sheet as either an asset or a liability measured at its fair value. SFAS No. 133 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 that KU must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 could increase the volatility in earnings and other comprehensive income. SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of SFAS No. 133, deferred the effective date of SFAS No. 133 until January 1, 2001. KU adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. The effect of adopting these statements resulted in a $1.6 million increase in other comprehensive income from a cumulative effect of change in accounting principle (net of tax of $1.1 million).

        The Financial Accounting Standards Board created the Derivatives Implementation Group (DIG) to provide guidance for implementation of SFAS No. 133. DIG Issue C15, Normal Purchases and Normal Sales Exception for Option Type Contracts and Forward Contracts in Electricity was adopted in 2001 and had no impact on results of operations and financial position. DIG Issue C16, Applying the Normal Purchases and Normal Sales Exception to Contracts that Combine a Forward Contract and a Purchased Option Contract, was cleared in 2001 and stated that option contracts do not meet the normal purchases and normal sales exception and should follow SFAS No. 133. DIG C16 will be effective in the second quarter of 2002. Management has not determined the impact this issue will have on its results of operations and financial position.

        SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets were issued in 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. SFAS No. 142 requires goodwill to be recorded, but not amortized. Further, goodwill will now be subject to a periodic assessment for impairment. The provisions of these new pronouncements were effective July 1, 2001, for KU. The adoption of these standards did not have a material impact on the results of operations or financial position of KU.

        SFAS No. 143, Accounting for Asset Retirement Obligations and. SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued in 2001. SFAS No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144, among other provisions, eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived assets to be tested for impairment. The effective implementation date for SFAS No. 144 is 2002 and SFAS No. 143 is 2003. Based on current regulatory practices, management does not expect SFAS No. 143 or SFAS No. 144 to have a material impact on KU's financial position or results of operations.

Note 2—Mergers and Acquisitions

        On December 11, 2000, LG&E Energy Corp. was acquired by Powergen plc. for cash of approximately $3.2 billion or $24.85 per share and the assumption of all of LG&E Energy's debt. As a result of the acquisition, LG&E Energy became a wholly owned subsidiary of Powergen and, as a result, KU became an indirect subsidiary of Powergen. KU has continued its separate identity and serves customers in Kentucky and Virginia under its existing name. The preferred stock and debt securities of KU were not affected by this transaction resulting in the utility operations' obligation to continue to file SEC reports. Following the acquisition, Powergen became a registered holding company under PUHCA and KU, as a subsidiary of a registered holding company, became subject to additional regulations under PUHCA.

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        LG&E Energy and KU Energy merged on May 4, 1998, with LG&E Energy as the surviving corporation. As a result of the merger, LG&E Energy, which is the parent of LG&E, became the parent company of KU. The operating utility subsidiaries (LG&E and KU) have continued to maintain their separate corporate identities and serve customers in Kentucky and Virginia under their present names. LG&E Energy estimated non-fuel savings over a ten-year period following the merger. Costs to achieve these savings for KU of $42.3 million were recorded in the second quarter of 1998, $20.5 million of which were initially deferred and are being amortized over a five-year period pursuant to regulatory orders. Primary components of the merger costs were separation benefits, relocation costs, and transaction fees, the majority of which were paid by December 31, 1998. KU expensed the remaining costs associated with the merger ($21.8 million) at the time of the merger in the second quarter of 1998. In regulatory filings associated with approval of the merger, KU committed not to seek increases in existing base rates and proposed reductions in their retail customers' bills in amounts based on one-half of the savings, net of the deferred and amortized amount, over a five-year period. The preferred stock and debt securities of KU were not affected by the merger.

        Management has accounted for the KU/LG&E merger as a pooling of interests and as a tax-free reorganization under the Internal Revenue Code.

        As part of its merger order, the Kentucky Commission approved a surcredit whereby 50% of the net non-fuel cost savings estimated to be achieved from the merger, less $38.6 million or 50% of the originally estimated costs to achieve such savings, be applied to reduce customer rates through a surcredit on customers' bills and the remaining 50% be retained by the companies. The surcredit is allocated 53% to KU and 47% to LG&E pursuant to Kentucky Commission order. The surcredit will be about 2% of customer bills through mid 2003 and will amount to approximately $63 million in net non-fuel savings to KU. Any fuel cost savings are passed to Kentucky customers through the companies' fuel adjustment clauses. See Note 3 for more information about KU's rates and regulatory matters.

Note 3—Utility Rates and Regulatory Matters

        Accounting for the regulated utility business conforms with generally accepted accounting principles as applied to regulated public utilities and as prescribed by FERC, the Kentucky Commission and the Virginia Commission. KU is subject to SFAS No. 71, Accounting for the Effects of Certain Types of Regulation, under which certain costs that would otherwise be charged to expense are deferred as regulatory assets based on expected recovery from customers in future rates. Likewise, certain credits that would otherwise be reflected as income are deferred as regulatory liabilities based on expected return to customers in future rates. KU's current or expected recovery of deferred costs and expected return of deferred credits is generally based on specific ratemaking decisions or precedent for each

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item. The following regulatory assets and liabilities were included in KU's balance sheets as of December 31 (in thousands of $):

	2001			2000
VDT costs	$	48,811		$	—
Unamortized loss on bonds		6,142			7,011
LG&E/KU merger costs		6,139			10,232
One utility costs		4,365			8,273
Other		1,010			925
Total regulatory assets		66,467			26,441
Deferred income taxes—net		(32,872	)		(37,484	)
Other		(1,017	)		(908	)
Total regulatory liabilities		(33,889	)		(38,392	)
Regulatory assets/(liabilities)—net	$	32,578		$	(11,951	)

        Kentucky Commission Settlement Order—Value Delivery Costs.    During the first quarter 2001, KU recorded a $64 million charge for a workforce reduction program. Primary components of the charge were separation benefits, enhanced early retirement benefits, and health care benefits. The result of this workforce reduction was the elimination of over 300 positions, accomplished primarily through a voluntary enhanced severance program.

        On June 1, 2001, KU filed an application (VDT case) with the Kentucky Commission to create a regulatory asset relating to these first quarter 2001 charges. The application requested permission to amortize these costs over a four-year period. The Kentucky Commission also opened a case to review the new depreciation study and resulting depreciation rates implemented in 2001.

        KU reached a settlement in the VDT case as well as the other cases involving depreciation rates and ESM with all intervening parties. The settlement agreement was approved by the Kentucky Commission on December 3, 2001.

        The Kentucky Commission December 3, 2001, order allowed KU to set up a regulatory asset of $54 million for the workforce reduction costs and begin amortizing these costs over a five year period starting in April 2001. The first quarter charge of $64 million represented all employees who had accepted a voluntary enhanced severance program. Some employees rescinded their participation in the voluntary enhanced severance program and, along with the non-recurring charge of $6.9 million for FERC and Virginia jurisdictions, thereby decreasing the original charge from $64 million to $54 million. The settlement will also reduce revenues approximately $11 million through a surcredit on future bills to customers over the same five year period. The surcredit represents net savings stipulated by KU. The agreement also established KU's new depreciation rates in effect December 2001, retroactive to January 1, 2001. The new depreciation rates decreased depreciation expense by $6.0 million in 2001.

        PUHCA.    Following the purchase of LG&E Energy by Powergen, Powergen became a registered holding company under PUHCA. As a result, Powergen, its utility subsidiaries, including KU, and certain of its non-utility subsidiaries are subject to extensive regulation by the SEC under PUHCA with respect to issuances and sales of securities, acquisitions and sales of certain utility properties, and intra-system sales of certain goods and services. In addition, PUHCA generally limits the ability of registered holding companies to acquire additional public utility systems and to acquire and retain businesses unrelated to the utility operations of the holding company. Powergen believes that it has adequate authority (including financing authority) under existing SEC orders and regulations for it and its subsidiaries to conduct their businesses and will seek additional authorization when necessary.

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        Environmental Cost Recovery.    In June 2000, the Kentucky Commission approved KU's application for a CCN to construct up to four SCR NOx reduction facilities. The construction and subsequent operation of the SCRs is intended to reduce NOx emission levels to meet the EPA's mandated NOx emission level of 0.15 lbs./ Mmbtu by May 2004. In its order, the Kentucky Commission ruled that KU's proposed plan for construction was "reasonable, cost-effective and will not result in the wasteful duplication of facilities." In October 2000, KU filed an application with the Kentucky Commission to amend its Environmental Compliance Plan to reflect the addition of the proposed NOx reduction technology projects and to amend its Environmental Cost Recovery Tariff to include an overall rate of return on capital investments. Following the completion of hearings in March 2001, a ruling was issued in April 2001 granting KU's application. Such approval has allowed KU to begin to recover the costs associated with these new projects, subject to Kentucky Commission oversight during normal six-month and two-year reviews.

        ESM.    KU's electric rates are subject to an ESM. The ESM, in place for three years beginning in 2000, sets an upper and lower point for rate of return on equity, whereby if KU's rate of return for the calendar year falls within the range of 10.5% to 12.5%, no action is necessary. If earnings are above the upper limit, then excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, then earnings deficiency is recovered 40% from ratepayers and 60% from shareholders. The first ESM filing was made on March 1, 2001, for year ended December 31, 2000. By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year. KU estimated that the rate of return will fall within the deadband range, subject to Kentucky Commission approval, for the year ended December 31, 2001; therefore, no adjustment to the financial statements was made.

        DSM.    In May 2001, the Kentucky Commission approved a plan that would expand LG&E's current DSM programs into the service territory served by KU. The filing includes a rate mechanism that provides for concurrent recovery of DSM costs, provides an incentive for implementing DSM programs, and recovers revenues from lost sales associated with the DSM program.

        FAC.    Prior to implementation of the PBR in July 1999, and following its termination in March 2000, KU employed an FAC mechanism, which under Kentucky law allowed the utilities to recover from customers the actual fuel costs associated with retail electric sales.

        In July 1999, the Kentucky Commission issued a series of orders requiring KU to refund approximately $10.1 million resulting from reviews of the FAC from November 1994 to October 1998. The orders changed KU's method of computing fuel costs associated with electric line losses on off-system sales appropriate for recovery through the FAC, and KU's method for computing system line losses for the purpose of calculating the system sales component of the FAC charge. At KU's request, in July 1999, the Kentucky Commission stayed the refund requirement pending the Kentucky Commission's final determination of any rehearing request that KU may file. In August 1999, KU filed its request for rehearing of the July orders.

        In August 1999, the Kentucky Commission issued a final order in the KU proceedings, agreeing, in part, with KU's arguments outlined in its petition for rehearing. While the Kentucky Commission confirmed that KU should change its method of computing the fuel costs associated with electric line losses, it agreed with KU that the line loss percentage should be based on KU's actual line losses incurred in making wholesale sales rather than the percentage used in its Open Access Transmission Tariff. The Kentucky Commission also upheld its previous ruling concerning the computation of system line losses in the calculation of the FAC. The net effect of the Kentucky Commission's final order was to reduce the refund obligation to $6.7 million ($5.8 million on Kentucky jurisdictional basis) from the original order amount of $10.1 million. In August 1999, KU recorded its estimated share of anticipated FAC refunds. KU began implementing the refund in October and completed the refund in September 2000. Both KU and the KIUC appealed the order to the Franklin Circuit Court. In October 2000, the

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Court affirmed the Kentucky Commission's orders concerning all issues except interest, with respect to which it held that KU will be required to pay interest on the amount disallowed "if the Commission within its discretion so determines", and ordered the case be remanded to the Kentucky Commission on that issue. In November 2000, KU appealed the Circuit Court's decision to the Kentucky Court of Appeals. Pending a decision on this appeal, a comprehensive settlement was reached by all parties, which settlement was filed with the Kentucky Commission on December 21, 2001. Thereunder, KU agreed to credit its fuel clause in the amount of $954,000 (such credit provided over the course of two monthly billing periods), and the parties agreed on a prospective interpretation of the state's fuel adjustment clause regulation to ensure consistent and mutually acceptable application on a going-forward basis. All pending FAC proceedings before the court were resolved by the parties to the agreement and all parties requested the Court of Appeals remand the case to the Kentucky Commission. The Kentucky Commission is expected to approve the settlement in 2002.

        Kentucky Commission Administrative Case for Affiliate Transactions.    In December 1997, the Kentucky Commission opened Administrative Case No. 369 to consider Kentucky Commission policy regarding cost allocations, affiliate transactions and codes of conduct governing the relationship between utilities and their non-utility operations and affiliates. The Kentucky Commission intended to address two major areas in the proceedings: the tools and conditions needed to prevent cost shifting and cross-subsidization between regulated and non-utility operations; and whether a code of conduct should be established to assure that non-utility segments of the holding company are not engaged in practices that could result in unfair competition caused by cost shifting from the non-utility affiliate to the utility. During the period September 1998 to February 2000, the Kentucky Commission issued draft codes of conduct and cost allocation guidelines. In early 2000, the Kentucky General Assembly enacted legislation, House Bill 897, which authorized the Kentucky Commission to require utilities that provide nonregulated activities to keep separate accounts and allocate costs in accordance with procedures established by the Kentucky Commission. In the same Bill, the General Assembly set forth provisions to govern a utilities activities related to the sharing of information, databases, and resources between its employees or an affiliate involved in the marketing or the provision of nonregulated activities and its employees or an affiliate involved in the provision of regulated services. The legislation became law in July 2000 and KU has been operating pursuant thereto since that time. On February 14, 2001, the Kentucky Commission published notice of their intent to promulgate new administrative regulations under the auspices of this new law. This effort is still on-going.

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Note 4—Financial Instruments

        The cost and estimated fair values of the KU's non-trading financial instruments as of December 31, 2001, and 2000 follow (in thousands of $):

	2001				2000
	Cost		Fair Value		Cost		Fair Value
Long-term debt (including current portion)	$	484,830	$	499,618	$	484,830	$	491,277
Interest-rate swaps		—		6,906		—		3,559

        All of the above valuations reflect prices quoted by exchanges except for the swaps. The fair values of the swaps reflect price quotes from dealers or amounts calculated using accepted pricing models.

        Interest Rate Swaps.    KU uses interest rate swaps to hedge exposure to market fluctuations in certain of its debt instruments. Pursuant to policy, use of these financial instruments is intended to mitigate risk and earnings volatility and is not speculative in nature. Management has designated all of the interest rate swaps as hedge instruments. Financial instruments designated as fair value hedges are periodically marked to market with the resulting gains and losses recorded directly into net income to correspond with income or expense recognized from changes in market value of the items being hedged.

        As of December 31, 2001 and 2000, KU was party to various interest rate swap agreements with aggregate notional amounts of $153 million in each year. Under these swap agreements, KU paid variable rates based on either LIBOR or the Bond Market Association's municipal swap index averaging 2.54% and 6.69%, and received fixed rates averaging 7.13% and 7.13% at December 31, 2001 and 2000, respectively. The swap agreements in effect at December 31, 2001 have been designated as fair value hedges and mature on dates ranging from 2007 to 2025. For 2001, the effective of marking these financial instruments and the underlying debt to market resulted in immaterial pretax gains recorded in interest expense.

        Interest rate swaps hedge interest rate risk on the underlying debt under SFAS 133, in addition to swaps being marked to market, the item being hedged must also be marked to market, consequently at December 31, 2001, KU's debt reflects a $3.6 million mark to market adjustment.

        Energy Trading.    KU conducts energy trading and risk management activities to maximize the value of power sales from physical assets it owns, in addition to the wholesale sale of excess asset capacity. Certain energy trading activities are accounted for on a mark-to-market basis in accordance with EITF 98-10 Accounting for Contracts Involved in Energy Trading and Risk Management Activities, SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activities. Wholesale sales of excess asset capacity and wholesale purchases are treated as normal sales and purchases under SFAS No. 133 and SFAS No. 138 and are not marked to market.

        KU has recorded a net liability of $186,000 and $17,000 at December 31, 2001 and 2000, respectively.

        No changes to valuation techniques for energy trading and risk management activities occurred during 2001. All contracts outstanding at December 31, 2001 have a maturity of less than one year and are valued using prices actively quoted for proposed or executed transactions or quoted by brokers.

Note 5—Concentrations of Credit and Other Risk

        Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed to perform as contracted. Concentrations of credit risk (whether on- or off-

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balance sheet) relate to groups of customers or counterparties that have similar economic or industry characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.

        KU's customer receivables and revenues arise from deliveries of electricity to about 469,000 customers in over 600 communities and adjacent suburban and rural areas in 77 counties in central, southeastern and western Kentucky and to about 30,000 customers in five counties in southwestern Virginia. For the year ended December 31, 2001, 100% of total utility revenue was derived from electric operations.

        In August 2001, KU and their employees represented by IBEW Local 2100 entered into a two-year collective bargaining agreement. KU and their employees represented by USWA Local 9447-01 entered into a two year collective bargaining agreement effective August 2000 and expiring July 31, 2002. In July 2001, KU and employees represented by USWA entered into a wage reopener whereby higher wages were negotiated. The employees represented by these two bargaining units comprise approximately 17% of KU's workforce.

Note 6—Pension Plans and Retirement Benefits

        Pension Plans.    KU sponsors qualified and non-qualified pension plans and other postretirement benefit plans for its employees. The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the three-year period ending December 31, 2001, and a statement of the funded status as of December 31 for each of the last three years (in thousands of $):

		2001			2000			1999
Pension Plans:
Change in benefit obligation
	Benefit obligation at beginning of year	$	233,034		$	219,628		$	233,288
	Service cost		2,761			4,312			6,210
	Interest cost		17,534			17,205			15,564
	Plan amendment		4			11,757			—
	Change due to transfers		(16,827	)		—			—
	Curtailment loss		1,400			—			—
	Special termination benefits		24,274			—			—
	Benefits paid		(29,166	)		(16,512	)		(12,822	)
	Actuarial (gain) or loss and other		11,458			(3,356	)		(22,612	)
	Benefit obligation at end of year	$	244,472		$	233,034		$	219,628
Change in plan assets
	Fair value of plan assets at beginning of year	$	244,677		$	274,109		$	238,124
	Actual return on plan assets		18,155			(10,943	)		49,883
	Employer contributions and plan transfers		(15,300	)		(994	)		—
	Benefits paid		(29,166	)		(16,512	)		(12,822	)
	Administrative expenses		(1,419	)		(983	)		(1,076	)
	Fair value of plan assets at end of year	$	216,947		$	244,677		$	274,109
Reconciliation of funded status
	Funded status	$	(27,525	)	$	11,643		$	54,481
	Unrecognized actuarial (gain) or loss		(20,581	)		(36,435	)		(74,579	)
	Unrecognized transition (asset) or obligation		(664	)		(847	)		(988	)
	Unrecognized prior service cost		11,027			14,176			3,564
	Net amount recognized at end of year	$	(37,743	)	$	(11,463	)	$	(17,522	)

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Other Benefits:
Change in benefit obligation
	Benefit obligation at beginning of year	$	64,213		$	54,201		$	79,650
	Service cost		495			757			1,596
	Interest cost		5,433			4,781			3,837
	Plan amendments		—			7,127			(24,488	)
	Curtailment loss		6,381			—			—
	Special termination benefits		3,824			—			—
	Benefits paid net of retiree contributions		(5,446	)		(4,318	)		(4,646	)
	Actuarial (gain) or loss		8,323			1,665			(1,748	)
	Benefit obligation at end of year	$	83,223		$	64,213		$	54,201
Change in plan assets
	Fair value of plan assets at beginning of year	$	23,762		$	28,720		$	24,337
	Actual return on plan assets		(4,404	)		(1,162	)		5,322
	Employer contributions and plan transfers		473			522			3,520
	Benefits paid net of retiree contributions		(5,501	)		(4,318	)		(4,459	)
	Fair value of plan assets at end of year	$	14,330		$	23,762		$	28,720
Reconciliation of funded status
	Funded status	$	(68,893	)	$	(40,451	)	$	(25,481	)
	Unrecognized actuarial (gain) or loss		(437	)		(23,561	)		(28,976	)
	Unrecognized transition (asset) or obligation		12,290			21,871			23,694
	Unrecognized prior service cost		3,548			6,109			—
	Net amount recognized at end of year	$	(53,492	)	$	(36,032	)	$	(30,763	)

        There are no plan assets in the non-qualified plan due to the nature of the plan.

        The following tables provide the amounts recognized in the balance sheet and information for plans with benefit obligations in excess of plan assets as of December 31, 2001, 2000 and 1999 (in thousands of $):

		2001			2000			1999
Pension Plans:
Amounts recognized in the balance sheet consisted of:
	Accrued benefit liability	$	(37,743	)	$	(11,463	)	$	(17,522	)
Additional year-end information for plans with accumulated benefit obligations in excess of plan assets (1):
	Projected benefit obligation	$	244,472		$	1,505		$	1,132
	Accumulated benefit obligation		224,261			336			40
	Fair value of plan assets		216,947			—			—
	(1) 2001 includes all plans. 2000 and 1999 include SERPs only.
Other Benefits:
Amounts recognized in the balance sheet consisted of:
	Accrued benefit liability	$	(53,492	)	$	(36,032	)	$	(30,763	)
Additional year-end information for plans with benefit obligations in excess of plan assets:
	Projected benefit obligation	$	83,223		$	64,213		$	54,201
	Fair value of plan assets		14,330			23,762			28,720

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        The following table provides the components of net periodic benefit cost for the plans for 2001, 2000 and 1999 (in thousands of $):

		2001			2000			1999
Pension Plans:
Components of net periodic benefit cost
	Service cost	$	2,761		$	4,312		$	6,211
	Interest cost		17,534			17,205			15,564
	Expected return on plan assets		(19,829	)		(25,170	)		(21,957	)
	Amortization of transition (asset) or obligation		(136	)		(141	)		(141	)
	Amortization of prior service cost		962			1,145			410
	Recognized actuarial (gain) or loss		(120	)		(3,410	)		(319	)
	Net periodic benefit cost	$	1,172		$	(6,059	)	$	(232	)
Special charges
	Prior service cost recognized	$	1,238		$	—		$	—
	Special termination benefits		24,274			—			—
	Total charges	$	25,512		$	—		$	—
Other Benefits:
Components of net periodic benefit cost
	Service cost	$	495		$	757		$	1,596
	Interest cost		5,433			4,781			3,837
	Expected return on plan assets		(1,313	)		(1,768	)		(1,897	)
	Amortization of prior service cost		740			1,018			—
	Amortization of transition (asset) or obligation		1,193			1,823			1,823
	Recognized actuarial (gain) or loss		(40	)		(820	)		(445	)
	Net periodic benefit cost	$	6,508		$	5,791		$	4,914
Special charges
	Transition obligation recognized	$	7,638		$	—		$	—
	Prior service cost		1,613			—			—
	Special termination benefits		3,824			—			—
	Total charges	$	13,075		$	—		$	—

        KU provides nonpension postretirement benefits for eligible retired employees.

        The assumptions used in the measurement of KU's pension benefit obligation are shown in the following table:

		2001		2000		1999
Weighted-average assumptions as of December 31:
	Discount rate	7.25	%	7.75	%	8.00	%
	Expected long-term rate of return on plan assets	9.50	%	9.50	%	9.50	%
	Rate of compensation increase	4.25	%	4.75	%	5.00	%

        For measurement purposes, a 10.00% annual increase in the per capita cost of covered health care benefits was assumed for 2002. The rate was assumed to decrease gradually to 5.00% for 2011 and remain at that level thereafter.

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        Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates would have the following effects (in thousands of $):

	1% Decrease			1% Increase
Effect on total of service and interest cost components for 2001	$	(340	)	$	385
Effect on year-end 2001 postretirement benefit obligations		(5,297	)		6,010

        Thrift Savings Plans.    KU has a thrift savings plan under section 401(k) of the Internal Revenue Code. Under the plan, eligible employees may defer and contribute to the plan a portion of current compensation in order to provide future retirement benefits. KU makes contributions to the plan by matching a portion of the employee contributions. The costs of this matching were approximately $1.4 million for 2001, $2.5 million for 2000 and $2.3 million for 1999.

Note 7—Income Taxes

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

					2001			2000			1999
Included in operating expenses:
	Current		—	federal	$	58,337		$	44,927		$	50,969
			—	state		13,465			9,333			13,459
	Deferred		—	federal—net		(12,980	)		(3,254	)		(4,833	)
			—	state—net		(1,340	)		957			785
		Total				57,482			51,963			60,380
Included in other income—net:
	Current		—	federal		(948	)		349			1,028
			—	state		(268	)		67			54
	Deferred		—	federal—net		863			(122	)		182
			—	state—net		222			(30	)		102
	Amortization of investment tax credit					(3,446	)		(3,674	)		(3,727	)
		Total				(3,577	)		(3,410	)		(2,361	)
Total income tax expense					$	53,905		$	48,553		$	58,019

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

		2001		2000
Deferred tax liabilities:
	Depreciation and other plant-related items	$	269,752	$	279,047
Other liabilities			33,376		13,718
			303,128		292,765
Deferred tax assets:
	Investment tax credit		4,623		6,014
	Income taxes due to customers		13,263		15,124
	Pension overfunding		4,595		3,974
	Accrued liabilities not currently deductible and other		41,443		20,973
			63,924		46,085
Net deferred income tax liability		$	239,204	$	246,680

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

	2001		2000		1999
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	5.4		4.9		5.7
Amortization of investment tax credit	(2.3	)	(2.6	)	(2.9	)
Other differences—net	(2.2	)	(3.6	)	(2.5	)
Effective income tax rate	35.9	%	33.7	%	35.3	%

Note 8—Other Income—net

        Other income—net consisted of the following at December 31 (in thousands of $):

	2001		2000		1999
Equity in earnings—subsidiary company	$	1,803	$	2,242	$	2,334
Interest and dividend income		1,368		1,206		4,293
Gains on fixed asset disposals		1,844		5		759
Income taxes and other		3,917		3,390		2,051
Other income—net	$	8,932	$	6,843	$	9,437

Note 9—First Mortgage Bonds and Pollution Control Bonds

        Long-term debt and the current portion of long-term debt, summarized below (in thousands of $), consists primarily of first mortgage bonds and pollution control bonds. Interest rates and maturities in the table below are for the amounts outstanding at December 31, 2001.

Stated interest rates	Variable, 5.75%-8.55%
Weighted-average interest rate	4.91%
Maturities	2003-2027
Noncurrent portion	$434,506
Current portion	$54,000

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        Under the provisions for KU's variable-rate pollution control bonds Series PCS 10, the bonds are subject to tender for purchase at the option of the holder and to mandatory tender for purchase upon the occurrence of certain events, causing the bonds to be classified as current portion of long-term debt. The average annualized interest rate for these bonds during 2001 was 2.99%.

        In May 2000, KU issued the Mercer County Solid Waste Disposal Facility Revenue Bonds, 2000 Series A variable rate debt, for $12.9 million. These proceeds were used to redeem $4 million PCB Series 7, 7.38% bonds and $8.9 million of PCB Series 7, 7.6% bonds. In June 2000, $61.5 million Series Q, 5.95% First Mortgage Bonds matured and was paid in full.

        KU's First Mortgage Bond, 6.32% Series Q of $62 million is scheduled to mature in 2003 and KU's First Mortgage Bond, 5.99% Series S of $36 million matures in 2006. There are no scheduled maturities of Pollution Control Bonds for the five years subsequent to December 31, 2001.

        Substantially all of KU's utility plant is pledged as security for its First Mortgage Bonds.

Note 10—Notes Payable

        KU participates in an intercompany money pool agreement wherein LG&E Energy can make funds available to KU at market based rates up to $200 million. At December 31, 2001, the balance of the money pool loan from LG&E Energy was $47.8 million at an average rate of 2.37% and the remaining money pool availability was $152.2 million. In addition, KU maintains an uncommitted borrowing facility totaling $60 million that was undrawn at December 31, 2001. LG&E Energy maintains a facility of $200 million with an affiliate to ensure funding availability for the money pool. There was no outstanding balance under this facility as of December 31, 2001, and availability of $170 million remains after considering the $30 million of commercial paper outstanding at LG&E.

        At December 31, 2000, KU had $61.2 million outstanding under the money pool at an average rate of 6.84%.

Note 11—Commitments and Contingencies

        Construction Program.    KU had $8 million of commitments in connection with its construction program at December 31, 2001. Construction expenditures for the years 2002 and 2003 are estimated to total approximately $459 million; although all of this is not currently committed. Included in 2002 is $89 million for the purchase of 71% of two CTs currently under construction by Capital Corp. at LG&E's Trimble County location. LG&E will own 29% of the two CTs. KU is waiting for approval from the Kentucky and Virginia Commissions.

        Operating Leases.    KU leases office space, office equipment, and vehicles. KU accounts for these leases as operating leases. Total lease expense for 2001, 2000, and 1999, was $2.8 million, $2.3 million, and $1.7 million, respectively.

        In December 1999, LG&E and KU entered into an 18-year cross-border lease of its two jointly owned combustion turbines recently installed at KU's Brown facility (units 6 and 7). KU's obligation was defeased upon consummation of the cross-border lease. The transaction produced a pre-tax gain of approximately $1.9 million which was recorded in other income on the income statement in 2000, pursuant to a Kentucky Commission order.

        Environmental.    The Clean Air Act imposed stringent new SO₂ and NOx emission limits on electric generating units. KU met its Phase I SO₂requirements primarily through installation of a scrubber on Ghent Unit 1. KU's strategy for Phase II SO₂ reductions, which commenced January 1, 2000, is to use accumulated emissions allowances to delay additional capital expenditures and may also

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include fuel switching or the installation of additional scrubbers. KU met the NOx emission requirements of the Act through installation of low-NOx burner systems. KU's compliance plans are subject to many factors including developments in the emission allowance and fuel markets, future regulatory and legislative initiatives, and advances in clean air control technology. KU will continue to monitor these developments to ensure that its environmental obligations are met in the most efficient and cost-effective manner.

        In September 1998, the EPA announced its final "NOx SIP Call" rule requiring states to impose significant additional reductions in NOx emissions by May 2003, in order to mitigate alleged ozone transport impacts on the Northeast region. The Commonwealth of Kentucky is currently in the process of revising its State Implementation Plan or "SIP" to require reductions in NOx emissions from coal-fired generating units to the 0.15 lb./Mmbtu level on a system-wide basis. In related proceedings in response to petitions filed by various Northeast states, in December 1999, EPA issued a final rule pursuant to Section 126 of the Clean Air Act directing similar NOx reductions from a number of specifically targeted generating units including all KU units in the eastern half of Kentucky. Additional petitions currently pending before EPA may potentially result in rules encompassing KU's remaining generating units. As a result of appeals to both rules, the compliance date was extended to May 2004. All KU generating units are subject to the May 2004 compliance date under these NOx emissions reduction rules.

        KU is currently implementing a plan for adding significant additional NOx controls to its generating units. Installation of additional NOx controls will proceed on a phased basis, with installation of controls commencing in late 2000 and continuing through the final compliance date. In addition, KU will incur additional operation and maintenance costs in operating new NOx controls. KU believes its costs in this regard to be comparable to those of similarly situated utilities with like generation assets. KU anticipated that such capital and operating costs are the type of costs that are eligible for recovery from customers under its environmental surcharge mechanism and believed that a significant portion of such costs could be recovered. In April 2001, the Kentucky Commission granted recovery of these costs for KU.

        KU is also monitoring several other air quality issues which may potentially impact coal-fired power plants, including the appeal of the D.C. Circuit's remand of the EPA's revised air quality standards for ozone and particulate matter, measures to implement EPA's regional haze rule, and EPA's December 2000 determination to regulate mercury emissions from power plants.

        KU owns or formerly owned several properties that contained past MGP operations. Various contaminants are typically found at such former MGP sites and environmental remediation measures are frequently required. KU has completed the cleanup of a site owned by KU. With respect to other former MGP sites no longer owned by KU, KU is unaware of what, if any, additional exposure or liability it may have.

        In October 1999, approximately 38,000 gallons of diesel fuel leaked from a cracked valve in an underground pipeline at KU's E.W. Brown Station. Under the oversight of EPA and state officials, KU commenced immediate spill containment and recovery measures which prevented the spill from reaching the Kentucky River. KU ultimately recovered approximately 34,000 gallons of diesel fuel. In November 1999, the Kentucky Division of Water issued a notice of violation for the incident. KU is currently negotiating with the state in an effort to reach a complete resolution of this matter. KU incurred costs of approximately $1.8 million and received insurance reimbursement of $1.2 million.

        Purchased Power.    KU has purchase power arrangements with OMU, EEI and other parties. Under the OMU agreement, which expires on January 1, 2020, KU purchases all of the output of a

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400-Mw generating station not required by OMU. The amount of purchased power available to KU during 2002-2006, which is expected to be approximately 9% of KU's total kWh requirements, is dependent upon a number of factors including the units' availability, maintenance schedules, fuel costs and OMU requirements. Payments are based on the total costs of the station allocated per terms of the OMU agreement, which generally follows delivered kWh. Included in the total costs is KU's proportionate share of debt service requirements on $153 million of OMU bonds outstanding at December 31, 2001. The debt service is allocated to KU based on its annual allocated share of capacity, which averaged approximately 48% in 2001.

        KU has a 20% equity ownership in EEI, which is accounted for on the equity method of accounting. KU's entitlement is 20% of the available capacity of a 1,000 Mw station. Payments are based on the total costs of the station allocated per terms of an agreement among the owners, which generally follows delivered kWh.

        KU has several other contracts for purchased power during 2002—2006 of various Mw capacities and for varying periods with a maximum entitlement at any time of 62 Mw.

        The estimated future minimum annual payments under purchased power agreements for the five years ended December 31, 2006, are as follows (in thousands of $):

2002	$	37,788
2003		34,665
2004		41,736
2005		41,777
2006		41,807
Total	$	197,773

113

Note 12—Jointly Owned Electric Utility Plant

        LG&E and KU jointly own the following combustion turbines ($ in thousands):

		LG&E			KU			TOTAL
Paddy's Run 13	Ownership %		53	%		47	%		100	%
	Mw capacity		84			74			158
	Cost	$	33,844		$	29,908		$	63,752
	Depreciation		563			491			1,054
	Net book Value	$	33,281		$	29,417		$	62,698
E.W. Brown 5	Ownership %		53	%		47	%		100	%
	Mw capacity		70			63			133
	Cost	$	23,941		$	21,078		$	45,019
	Depreciation		394			342			736
	Net book Value	$	23,547		$	20,736		$	44,283
E.W. Brown 6	Ownership %		38	%		62	%		100	%
	Mw capacity		62			102			164
	Cost	$	23,696		$	36,253		$	59,949
	Depreciation		953			2,955			3,908
	Net book Value	$	22,743		$	33,298		$	56,041
E.W. Brown 7	Ownership %		38	%		62	%		100	%
	Mw capacity		62			102			164
	Cost	$	23,607		$	44,785		$	68,392
	Depreciation		3,268			3,033			6,301
	Net book Value	$	20,339		$	41,752		$	62,091

        See also Note 11, Construction Program, for KU's planned purchase of two jointly owned CTs in 2002.

Note 13—Selected Quarterly Data (Unaudited)

        Selected financial data for the four quarters of 2001 and 2000 are shown below. Because of seasonal fluctuations in temperature and other factors, results for quarters may fluctuate throughout the year.

	Quarters Ended
	March			June		September		December
	(Thousands of $)
2001
Revenues	$	211,793		$	219,360	$	216,370	$	211,949
Operating income (loss)		(344	)		28,422		30,253		63,039
Net income (loss)		(7,995	)		22,080		26,340		55,989
Net income (loss) available for common stock		(8,559	)		21,516		25,776		55,425
2000
Revenues	$	217,778		$	205,324	$	215,984	$	212,855
Operating income		28,753			28,912		37,161		33,310
Net income		20,174			21,532		28,483		25,335
Net income available for common stock		19,610			20,968		27,919		24,771

114

Note 14—Subsequent Events

        On April 9, 2001, a German power company, E.ON AG, announced a preconditional cash offer of £5.1 billion ($7.3 billion) for Powergen. The offer is subject to a number of conditions, including the receipt of certain European and United States regulatory approvals. The Kentucky Public Service Commission, the Federal Energy Regulatory Commission, the Virginia State Corporation Commission, and the Tennessee Regulatory Authority have all approved the acquisition of Powergen and LG&E Energy by E.ON. The parties expect to obtain the remaining regulatory approvals and to complete the transaction in the first half of 2002. See Powergen's schedule 14D-9, and associated schedules to such filings, filed with the SEC on April 9, 2001.

        KU (along with LG&E) is a founding member of the MISO, such membership obtained in 1998 in response to and consistent with federal policy initiatives. As a MISO member, KU filed for and received authorization from FERC to transfer control of its transmission facilities (100 kV and above) to the MISO, the first step in allowing the latter to assume responsibility for all tariff-related transmission functions (e.g., scheduling through and on KU's transmission system) as well as non-tariff related regional transmission activities (e.g., operations planning, maintenance coordination, long-term regional planning and market monitoring). The FERC approved the MISO as the nation's first Regional Transmission Organization on December 19, 2001, after which KU submitted a filing at FERC to cancel all services under its Open Access Transmission Tariff except those that will not be provided by the MISO (certain ancillary services). The MISO became operational on February 1, 2002.

        In October 2001, the FERC issued an order requiring that the bundled retail load and grandfathered wholesale load of each member transmission owner (including KU) be included in the current calculation of MISO's "cost-adder," a charge designed to recover MISO's costs of operation, including start-up capital (debt) costs. KU, along with several other transmission owners, opposed the FERC's ruling in this regard, which opposition the FERC rejected in an order on rehearing issued in 2002. As of the end of 2001, negotiations were continuing between MISO, its transmission owners and other interested industry segments regarding the level of cost responsibility properly borne by bundled and grandfathered load under these FERC rulings. Absent settlement, this issue is expected to go to hearing in 2002.

        At the end of 2001, in response to an earlier FERC ruling, MISO and its transmission owning members (including KU) filed to increase MISO's rate of return on equity from 10.5% (a stipulated percentage agreed to in 1998) to 13.0%, to compensate MISO's transmission owners for the inherent risks and uncertainties associated with transferring control of their facilities to the MISO. This issue is expected to go to hearing in 2002.

115

Kentucky Utilities Company
Report of Management

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

        KU's current year financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants and prior years financial statements were audited by Arthur Andersen LLP. Management made available to PricewaterhouseCoopers LLP and to Arthur Andersen LLP (in prior years) all KU's financial records and related data as well as the minutes of shareholders' and directors' meetings.

        Management has established and maintains a system of internal controls that provide reasonable assurance that transactions are completed in accordance with management's authorization, that assets are safeguarded and that financial statements are prepared in conformity with generally accepted accounting principles. Management believes that an adequate system of internal controls is maintained through the selection and training of personnel, appropriate division of responsibility, establishment and communication of policies and procedures and by regular reviews of internal accounting controls by KU's internal auditors. Management reviews and modifies its system of internal controls in light of changes in conditions and operations, as well as in response to recommendations from the internal auditors. These recommendations for the year ended December 31, 2001, did not identify any material weaknesses in the design and operation of KU's internal control structure.

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

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

S. Bradford Rives
Senior Vice President-Finance and Controller

Kentucky Utilities Company
Louisville, Kentucky

116

Kentucky Utilities Company and Subsidiary
Report of Independent Accountants

To the Shareholders of Kentucky Utilities Company and Subsidiary:

        In our opinion, the accompanying consolidated balance sheet as of December 31, 2001 and the related consolidated statements of capitalization, income, retained earnings, cash flows and comprehensive income present fairly, in all material respects, the financial position of Kentucky Utilities Company and Subsidiary (the "Company"), a wholly-owned subsidiary of LG&E Energy Corp., at December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
January 25, 2002
Louisville, Kentucky

117

Kentucky Utilities Company
Report of Independent Public Accountants

To the Shareholders of Kentucky Utilities Company:

        We have audited the accompanying balance sheet and statement of capitalization of Kentucky Utilities Company (a Kentucky and Virginia corporation and a wholly-owned subsidiary of LG&E Energy Corp.) as of December 31, 2000, and the related statements of income, retained earnings and cash flows for each of the two years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kentucky Utilities Company as of December 31, 2000, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.

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

Arthur Andersen LLP

Louisville, Kentucky
January 26, 2001

118

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

        Effective April 30, 2001, PricewaterhouseCoopers LLP was appointed as certifying accountants for the year ended December 31, 2001, for LG&E and KU. PricewaterhouseCoopers LLP was the independent accountant of Powergen prior to the acquisition of LG&E Energy and has continued in such engagement. Arthur Andersen LLP was the certifying account for LG&E Energy and its subsidiaries. Arthur Andersen LLP was notified of their dismissal in April 2001. For further information see LG&E and KU's 8-K dated May 7, 2001.

PART III

        ITEMS 10, 11, 12 and 13 are omitted pursuant to General Instruction G of Form 10-K. The information required by ITEMS 10, 11, 12 and 13 for LG&E and KU are incorporated herein by reference to their definitive proxy statements anticipated to be filed during April 2002 with the Commission pursuant to Regulation 14A of the Securities and Exchange Act of 1934. Additionally, in accordance with General Instruction G, the information required by ITEM 10 relating to executive officers of LG&E and KU has been included in Part I of this Form 10-K.

PART IV

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

(a)	1.	Financial Statements (included in Item 8):
		LG&E:
		Consolidated statements of income for the three years ended December 31, 2001 (page 61).
		Consolidated statements of retained earnings for the three years ended December 31, 2001 (page 61).
		Consolidated statements of comprehensive income for the three years ended December 31, 2001 (page 62).
		Consolidated balance sheets-December 31, 2001, and 2000 (pages 63-64).
		Consolidated statements of cash flows for the three years ended December 31, 2001 (page 65).
		Consolidated statements of capitalization-December 31, 2001, and 2000 (page 66).
		Notes to consolidated financial statements (pages 67-87).
		Report of management (page 88).
		Report of independent accountants (pages 89-90).
		KU:
		Consolidated statements of income for the three years ended December 31, 2001 (page 93).
		Consolidated statements of retained earnings for the three years ended December 31, 2001 (page 93).
		Consolidated statements of comprehensive income for the three years ended December 31, 2001 (page 95).
		Consolidated balance sheets-December 31, 2001, and 2000 (page 95).
		Consolidated statements of cash flows for the three years ended December 31, 2001 (page 96).
		Consolidated statements of capitalization-December 31, 2001, and 2000 (page 97).
		Notes to consolidated financial statements (pages 98-115).
		Report of management (page 116).
		Report of independent accountants (pages 117-118).

119

2.	Financial Statement Schedules (included in Part IV):
	Schedule II	Valuation and Qualifying Accounts for the three years ended December 31, 2001, for LG&E (page 138), and KU (page 140).
	All other schedules have been omitted as not applicable or not required or because the information required to be shown is included in the Financial Statements or the accompanying Notes to Financial Statements.
3.	Exhibits:

	Applicable to Form 10-K of
			Description
Exhibit No.	LG&E	KU
2.01	x	x	Copy of Agreement and Plan of Merger, dated as of February 27, 2000, by and among Powergen plc, LG&E Energy Corp., US Subholdco2 and Merger Sub, including certain exhibits thereto. [Filed as Exhibit 1 to LG&E's and KU's Current Report on Form 8-K filed February 29, 2000 and incorporated by reference herein]
2.02	x	x	Amendment No. 1 to Agreement and Plan of merger, dated as of December 8, 2000, among LG&E Energy Corp., Powergen plc, Powergen US Investments Corp. and Powergen Acquisition Corp. [Filed as Exhibit 2.01 to LG&E's and KU's Current Report on Form 8-K filed December 11, 2000 and incorporated by reference herein]
2.03	x	x	Copy of Agreement and Plan of Merger, dated as of May 20, 1997, by and between LG&E Energy and KU Energy, including certain exhibits thereto. [Filed as Exhibit 2 to LG&E's and KU's Current Report on Form 8-K filed May 30, 1997 and incorporated by reference herein]
3.01	x		Copy of Restated Articles of Incorporation of LG&E, dated November 6, 1996. [Filed as Exhibit 3.06 to LG&E Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated by reference herein]
3.02	x		Copy of By-Laws of LG&E, as amended through June 2, 1999 [Filed as Exhibit 3.02 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated by reference herein]
3.03		x	Copy of Amended and Restated Articles of Incorporation of KU [Filed as Exhibits 4.03 and 4.04 to Form 8-K Current Report of KU, dated December 10, 1993, and incorporated by reference herein]
3.04		x	Copy of By-laws of KU, as amended through June 2, 1999. [Filed as Exhibit 3.04 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated by reference herein]
4.01	x		Copy of Trust Indenture dated November 1, 1949, from LG&E to Harris Trust and Savings Bank, Trustee. [Filed as Exhibit 7.01 to LG&E's Registration Statement 2-8283 and incorporated by reference herein]
4.02	x		Copy of Supplemental Indenture dated February 1, 1952, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.05 to LG&E's Registration Statement 2-9371 and incorporated by reference herein]

120

4.03	x	Copy of Supplemental Indenture dated February 1, 1954, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.03 to LG&E's Registration Statement 2-11923 and incorporated by reference herein]
4.04	x	Copy of Supplemental Indenture dated September 1, 1957, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.04 to LG&E's Registration Statement 2-17047 and incorporated by reference herein]
4.05	x	Copy of Supplemental Indenture dated October 1, 1960, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.05 to LG&E's Registration Statement 2-24920 and incorporated by reference herein]
4.06	x	Copy of Supplemental Indenture dated June 1, 1966, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.06 to LG&E's Registration Statement 2-28865 and incorporated by reference herein]
4.07	x	Copy of Supplemental Indenture dated June 1, 1968, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.07 to LG&E's Registration Statement 2-37368 and incorporated by reference herein]
4.08	x	Copy of Supplemental Indenture dated June 1, 1970, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.08 to LG&E's Registration Statement 2-37368 and incorporated by reference herein]
4.09	x	Copy of Supplemental Indenture dated August 1, 1971, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.09 to LG&E's Registration Statement 2-44295 and incorporated by reference herein]
4.10	x	Copy of Supplemental Indenture dated June 1, 1972, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.10 to LG&E's Registration Statement 2-52643 and incorporated by reference herein]
4.11	x	Copy of Supplemental Indenture dated February 1, 1975, which is a supplemental instrument to exhibit 4.01 hereto. [Filed as Exhibit 2.11 to LG&E's Registration Statement 2-57252 and incorporated by reference herein]
4.12	x	Copy of Supplemental Indenture dated September 1, 1975, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.12 to LG&E's Registration Statement 2-57252 and incorporated by reference herein]
4.13	x	Copy of Supplemental Indenture dated September 1, 1976, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.13 to LG&E's Registration Statement 2-57252 and incorporated by reference herein]

121

4.14	x	Copy of Supplemental Indenture dated October 1, 1976, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.14 to LG&E's Registration Statement 2-65271 and incorporated by reference herein]
4.15	x	Copy of Supplemental Indenture dated June 1, 1978, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.15 to LG&E's Registration Statement 2-65271 and incorporated by reference herein]
4.16	x	Copy of Supplemental Indenture dated February 15, 1979, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 2.16 to LG&E's Registration Statement 2-65271 and incorporated by reference herein]
4.17	x	Copy of Supplemental Indenture dated September 1, 1979, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.17 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1980, and incorporated by reference herein]
4.18	x	Copy of Supplemental Indenture dated September 15, 1979, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.18 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1980, and incorporated by reference herein]
4.19	x	Copy of Supplemental Indenture dated September 15, 1981, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.19 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]
4.20	x	Copy of Supplemental Indenture dated March 1, 1982, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.20 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.21	x	Copy of Supplemental Indenture dated March 15, 1982, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.21 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.22	x	Copy of Supplemental Indenture dated September 15, 1982, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.22 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1982, and incorporated by reference herein]
4.23	x	Copy of Supplemental Indenture dated February 15, 1984, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.23 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1984, and incorporated by reference herein]
4.24	x	Copy of Supplemental Indenture dated July 1, 1985, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.24 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1985, and incorporated by reference herein]

122

4.25	x	Copy of Supplemental Indenture dated November 15, 1986, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.25 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1986, and incorporated by reference herein]
4.26	x	Copy of Supplemental Indenture dated November 16, 1986, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.26 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1986, and incorporated by reference herein]
4.27	x	Copy of Supplemental Indenture dated August 1, 1987, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.27 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1987, and incorporated by reference herein]
4.28	x	Copy of Supplemental Indenture dated February 1, 1989, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.28 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated by reference herein]
4.29	x	Copy of Supplemental Indenture dated February 2, 1989, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.29 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated by reference herein]
4.30	x	Copy of Supplemental Indenture dated June 15, 1990, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.30 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated by reference herein]
4.31	x	Copy of Supplemental Indenture dated November 1, 1990, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.31 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated by reference herein]
4.32	x	Copy of Supplemental Indenture dated September 1, 1992, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.32 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
4.33	x	Copy of Supplemental Indenture dated September 2, 1992, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.33 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
4.34	x	Copy of Supplemental Indenture dated August 15, 1993, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.34 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
4.35	x	Copy of Supplemental Indenture dated August 16, 1993, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.35 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]

123

4.36	x		Copy of Supplemental Indenture dated October 15, 1993, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.36 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
4.37	x		Copy of Supplemental Indenture dated May 1, 2000, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.37 to LG&E's Annual Report on Form 10-K/A for the year ended December 31, 2000, and incorporated by reference herein]
4.38	x		Copy of Supplemental Indenture dated August 1, 2000, which is a supplemental instrument to Exhibit 4.01 hereto. [Filed as Exhibit 4.38 to LG&E's Annual Report on Form 10-K/A for the year ended December 31, 2000, and incorporated by reference herein]
4.39		x	Indenture of Mortgage or Deed of Trust dated May 1, 1947, between KU and First Trust National Association (successor Trustee) and a successor individual co-trustee, as Trustees (the Trustees) (Amended Exhibit 7(a) in File No. 2-7061), and Supplemental Indentures thereto dated, respectively, January 1, 1949 (Second Amended Exhibit 7.02 in File No. 2-7802), July 1, 1950 (Amended Exhibit 7.02 in File No. 2-8499), June 15, 1951 (Exhibit 7.02(a) in File No. 2-8499), June 1, 1952 (Amended Exhibit 4.02 in File No. 2-9658), April 1, 1953 (Amended Exhibit 4.02 in File No. 2-10120), April 1, 1955 (Amended Exhibit 4.02 in File No. 2-11476), April 1, 1956 (Amended Exhibit 2.02 in File No. 2-12322), May 1, 1969 (Amended Exhibit 2.02 in File No. 2-32602), April 1, 1970 (Amended Exhibit 2.02 in File No. 2-36410), September 1, 1971 (Amended Exhibit 2.02 in File No. 2-41467), December 1, 1972 (Amended Exhibit 2.02 in File No. 2-46161), April 1, 1974 (Amended Exhibit 2.02 in File No. 2-50344), September 1, 1974 (Exhibit 2.04 in File No. 2-59328), July 1, 1975 (Exhibit 2.05 in File No. 2-59328), May 15, 1976 (Amended Exhibit 2.02 in File No. 2-56126), April 15, 1977 (Exhibit 2.06 in File No. 2-59328), August 1, 1979 (Exhibit 2.04 in File No. 2-64969), May 1, 1980 (Exhibit 2 to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1980), September 15, 1982 (Exhibit 4.04 in File No. 2-79891), August 1, 1984 (Exhibit 4B to Form 10-K Annual Report of KU for the year ended December 31, 1984), June 1, 1985 (Exhibit 4 to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1985), May 1, 1990 (Exhibit 4 to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1990), May 1, 1991 (Exhibit 4 to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1991), May 15, 1992 (Exhibit 4.02 to Form 8-K of KU dated May 14, 1992), August 1, 1992 (Exhibit 4 to Form 10-Q Quarterly Report of KU for the quarter ended September 30, 1992), June 15, 1993 (Exhibit 4.02 to Form 8-K of KU dated June 15, 1993) and December 1, 1993 (Exhibit 4.01 to Form 8-K of KU dated December 10, 1993), November 1, 1994 (Exhibit 4.C to Form 10-K Annual Report of KU for the year ended December 31, 1994), June 1, 1995 (Exhibit 4 to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1995) and January 15, 1996 (Exhibit 4.E to Form 10-K Annual Report of KU for the year ended December 31, 1995). Incorporated by reference.

124

4.40		x	Supplemental Indenture dated March 1, 1992 between KU and the Trustees, providing for the conveyance of properties formerly held by Old Dominion Power Company [Filed as Exhibit 4B to Form 10-K Annual Report of KU for the year ended December 31, 1992, and incorporated by reference herein]
4.41		x	Copy of Supplemental Indenture dated May 1, 2000, which is a supplemental instrument to Exhibit 4.39 hereto. [Filed as Exhibit 4.41 to KU's Annual Report on Form 10-K/A for the year ended December 31, 2000, and incorporated by reference herein]
4.42	x		Copy of Supplemental Indenture dated September 1, 2001, which is a supplemental instrument to Exhibit 4.01 hereto.
4.43		x	Receivables Purchase Agreement dated as of February 6, 2001 among KU Receivables LLC, Kentucky Utilities Company as Servicer, the Various Purchaser Groups From Time to Time Party Hereto and PNC Bank, National Association, as Administrator
4.44		x	Purchase and Sale Agreement dated as of February 6, 2001 between KU Receivables LLC and Kentucky Utilities Company
4.45	x		Receivables Purchase Agreement dated as of February 6, 2001 among LG&E Receivables LLC, Louisville Gas and Electric Company as Servicer, the Various Purchaser Groups From Time to Time Party Hereto and PNC Bank, National Association, as Administrator
4.46	x		Purchase and Sale Agreement dated as of February 6, 2001 between LG&E Receivables LLC and Louisville Gas and Electric Company
10.01	x		Copies of Agreement between Sponsoring Companies re: Project D of Atomic Energy Commission, dated May 12, 1952, Memorandums of Understanding between Sponsoring Companies re: Project D of Atomic Energy Commission, dated September 19, 1952 and October 28, 1952, and Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission, dated October 15, 1952. [Filed as Exhibit 13(y) to LG&E's Registration Statement 2-9975 and incorporated by reference herein]
10.02	x		Copy of Modification No. 1 dated July 23, 1953, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 4.03(b) to LG&E's Registration Statement 2-24920 and incorporated by reference herein]
10.03	x		Copy of Modification No. 2 dated March 15, 1964, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02c to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.04	x		Copy of Modification No. 3 and No. 4 dated May 12, 1966 and January 7, 1967, respectively, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibits 4(a)(13) and 4(a)(14) to LG&E's Registration Statement 2-26063 and incorporated by reference herein]

125

10.05	x		Copy of Modification No. 5 dated August 15, 1967, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 13(c) to LG&E's Registration Statement 2-27316 and incorporated by reference herein]
10.06	x	x	Copies of (i) Inter-Company Power Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies (which Agreement includes as Exhibit A the Power Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Indiana-Kentucky Electric Corporation); (ii) First Supplementary Transmission Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies; (iii) Inter-Company Bond Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies; (iv) Inter-Company Bank Credit Agreement, dated July 10, 1953, between Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 5.02f to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.07	x	x	Copy of Modification No. 1 and No. 2 dated June 3, 1966 and January 7, 1967, respectively, to Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibits 4(a)(8) and 4(a)(10) to LG&E's Registration Statement 2-26063 and incorporated by reference herein]
10.08	x		Copies of Amendments to Agreements (iii) and (iv) referred to under 10.06 above as follows: (i) Amendment to Inter-Company Bond Agreement and (ii) Amendment to Inter-Company Bank Credit Agreement. [Filed as Exhibit 5.02h to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.09	x		Copy of Modification No. 1, dated August 20, 1958, to First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 5.02i to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.10	x		Copy of Modification No. 2, dated April 1, 1965, to the First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 5.02j to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.11	x		Copy of Modification No. 3, dated January 20, 1967, to First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 4(a)(7) to LG&E's Registration Statement 2-26063 and incorporated by reference herein]
10.12	x		Copy of Modification No. 6 dated November 15, 1967, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 4(g) to LG&E's Registration Statement 2-28524 and incorporated by reference herein]

126

10.13	x	x	Copy of Modification No. 3 dated November 15, 1967, to the Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibit 4.02m to LG&E's Registration Statement 2-37368 and incorporated by reference herein]
10.14	x		Copy of Modification No. 7 dated November 5, 1975, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02n to LG&E's Registration Statement 2-56357 and incorporated by reference herein]
10.15	x	x	Copy of Modification No. 4 dated November 5, 1975, to the Inter-Company Power Agreement dated July 10, 1953. [Filed as Exhibit 5.02o to LG&E's Registration Statement 2-56357 and incorporated by reference herein]
10.16	x		Copy of Modification No. 4 dated April 30, 1976, to First Supplementary Transmission Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 5.02p to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.17	x		Copy of Modification No. 8 dated June 23, 1977, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02q to LG&E's Registration Statement 2-61607 and incorporated by reference herein]
10.18	x		Copy of Modification No. 9 dated July 1, 1978, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 5.02r to LG&E's Registration Statement 2-63149 and incorporated by reference herein]
10.19	x		Copy of Modification No. 10 dated August 1, 1979, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 2 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1979, and incorporated by reference herein]
10.20	x		Copy of Modification No. 11 dated September 1, 1979, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 3 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1979, and incorporated by reference herein]
10.21	x	x	Copy of Modification No. 5 dated September 1, 1979, to Inter-Company Power Agreement dated July 5, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 4 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1979, and incorporated by reference herein]
10.22	x		Copy of Modification No. 12 dated August 1, 1981, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.25 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]

127

10.23	x	x	Copy of Modification No. 6 dated August 1, 1981, to Inter-Company Power Agreement dated July 5, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 10.26 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]
10.24	x	*	Copy of Nonqualified Savings Plan covering officers of the Company, effective January 1, 1992. [Filed as Exhibit 10.43 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated by reference herein]
10.25	x		Copy of Modification No. 13 dated September 1, 1989, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.42 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.26	x		Copy of Modification No. 14 dated January 15, 1992, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.43 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.27	x	x	Copy of Modification No. 7 dated January 15, 1992, to Inter-Company Power Agreement dated July 10, 1953, among Ohio Valley Electric Corporation and Sponsoring Companies. [Filed as Exhibit 10.44 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.28	x		Copy of Modification No. 15 dated February 15, 1993, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission. [Filed as Exhibit 10.45 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.29	x		Copies of Firm No Notice Transportation Agreements, each effective November 1, 1993, between Texas Gas Transmission Corporation and LG&E (expiring October 31, 2000, 2001 and 2003) covering the transmission of natural gas.
			[All filed as Exhibit 10.47 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
10.30	x	x	Copy of Modification No. 8 dated January 19, 1994, to Intercompany Power Agreement, dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 10.43 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]
10.31	x		Copy of Amendment dated March 1, 1995, to Firm No-Notice Transportation Agreements dated November 1, 1993 (2-Year, 5-Year and 8-Year), between Texas Gas Transmission Corporation and LG&E covering the transmission of natural gas. [Filed as Exhibit 10.44 of LG&E's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]

128

10.32	x	x	Copy of Modification No. 9, dated August 17, 1995, to the Inter-Company Power Agreement dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies. [Filed as Exhibit 10.39 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated by reference herein]
10.33	x		Copy of Agreement and Plan of Merger, dated February 10, 1995, between LG&E Natural Inc., formerly known as Hadson Corporation, Carousel Acquisition Corporation and the Company. [Filed as Exhibit 2 of Schedule 13D by the Company on February 21, 1995, and incorporated by reference herein]
10.34	x		Copies of Firm Transportation Agreements, each dated March 1, 1995, between Texas Gas Transmission Corporation and LG&E (expiring October 31, 2001 and 2003) covering the transportation of natural gas. [Both filed as Exhibit 10.45 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]
10.35	x		Copy of Firm Transportation Agreement, dated March 1, 1995, between Texas Gas Transmission Corporation and LG&E (expires October 31, 2000) covering the transportation of natural gas. [Filed as Exhibit 10.41 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated by reference herein]
10.36	x		* Copy of Amendment to the Non-Qualified Savings Plan, effective January 1, 1992. [Filed as Exhibit 10.55 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]
10.37	x		* Copy of Amendment to the Non-Qualified Savings Plan, effective January 1, 1995. [Filed as Exhibit 10.56 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]
10.38	x		* Copy of Amendment to the Non-Qualified Savings Plan, effective January 1, 1995. [Filed as Exhibit 10.57 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]
10.39	x		Copy of Form of Master Gas Purchase Agreement, dated December 14, 1993, among Santa Fe, SFEOP and AGPC. [Filed as Exhibit 10.23 to LG&E Natural Inc.'s, formerly known as Hadson Corporation, Registration Statement on Form S-4, File No. 33-68224, and incorporated by reference herein]
10.40	x		Copy of Credit Agreement, dated as of December 18, 1995, among LG&E, as Borrower, the Banks named therein, PNC Bank, Kentucky, Inc. as Agent and Bank of Montreal as Co-Agent. [Filed as Exhibit 10.01 to the LG&E's Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1996, and incorporated by reference herein]

129

10.41	x		Copy of Firm Transportation Agreement, dated November 1, 1996, between LG&E and Tennessee Gas Pipeline Company for 30,000 Mmbtu per day in Firm Transportation Service under Tennessee's Rate FT-A (expires October 31, 2001). [Filed as Exhibit 10.42 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated by reference herein]
10.42	x		Copy of Amendment No. 1, dated as of November 5, 1996, to Credit Agreement dated as of December 18, 1995, by and among Louisville Gas and Electric Company, the Banks party thereto, and PNC Bank, Kentucky, Inc. as Agent and Bank of Montreal as Co-Agent. [Filed as Exhibit 10.59 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated by reference herein]
10.43	x		* Copy of LG&E Energy Corp. and Louisville Gas and Electric Company Non-Officer Senior Management Pension Restoration Plan, effective May 1, 1996. [Filed as Exhibit 10.69 to LG&E Energy's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated by reference herein]
10.44	x	x	* Copy of Supplemental Executive Retirement Plan as amended through January 1, 1998, covering officers of LG&E Energy. [Filed as Exhibit 10.74 to LG&E Energy's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated by reference herein]
10.45	x		Copy of Coal Supply Agreement between LG&E and Kindill Mining, Inc., dated July 1, 1997. [Filed as Exhibit 10.76 to LG&E Energy's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated by reference herein]
10.46	x		Copy of Coal Supply Agreement between LG&E and Warrior Coal Corp. dated January 1, 1997, and Amendments #1 and #2 dated May 1, 1997, and December 1, 1997, thereto. [Filed as Exhibit 10.79 to LG&E Energy's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated by reference herein]
10.47	x		Copies of Amendments dated September 23, 1997, to Firm No-Notice Transportation Agreements dated November 1, 1993, between Texas Gas Transmission Corporation and LG&E, as amended. [Filed as Exhibit 10.81 to LG&E Energy's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated by reference herein]
10.48	x		Copies of Amendments dated September 23, 1997, to Firm Transportation Agreements dated March 1, 1995, between Texas Gas Transmission Corporation and LG&E, as amended. [Filed as Exhibit 10.82 to LG&E Energy's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated by reference herein]

130

10.49	x		Copy of Gas Transportation Agreement dated November 1, 1996, between Tennessee Gas Pipeline Company and LG&E and amendments dated February 4, 1997, thereto. [Filed as Exhibit 10.83 to LG&E Energy's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated by reference herein] [Certain portions of this exhibit have been omitted pursuant to a confidential treatment request filed with the Securities and Exchange Commission]
10.50	x		Copy of Coal Supply Agreement dated January 1, 1999 between LG&E and Peabody COALSALES Company. [Filed as Exhibit 10.77 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated by reference herein]
10.51	x	x	Copy of Coal Supply Agreement between LG&E and KU and Black Beauty Coal Company, dated as of January 1, 2002, covering the purchase of coal.
10.52	x	x	Copy of Coal Supply Agreement between LG&E and KU and McElroy Coal Company, Consolidation Coal Company, Consol Pennsylvania Coal Company, Greenon Coal Company, Nineveh Coal Company, Eighty Four Mining Company and Island Creek Coal Company, dated as of January 1, 2000, and Amendment No. 1 dated as of January 1, 2002, for the purchase of coal.
10.53		x	Copy of Coal Supply Agreement between KU and Arch Coal Sales Company, Inc., as agent for the independent operating subsidiaries of Arch Coal, Inc. dated as of July 22, 2001, for the purchase of coal.
10.54	x		Copy of Coal Supply Agreement between LG&E and Hopkins County Coal, LLC and Alliance Coal Sales, a division of Alliance Coal, LLC, dated as of January 1, 2002, for the purchase of coal.
10.55		x	Copy of Coal Supply Agreement between KU and Arch Coal Sales Company, Inc., as agent for the independent operating subsidiaries of Arch Coal, Inc., dated as of August 12, 2001, for the purchase of coal.
10.56		x	Copy of Purchase Order dated December 26, 2000, by and between Kentucky Utilities Company and AEI Coal Sales Company, Inc., for the purchase of coal, commencing January 1, 2001
10.57	x		Copy of Amendment dated November 6, 2000 to Firm No-Notice Transportation Agreement between LG&E and Texas Gas Transmission Corporation covering the transmission of natural gas (expires October 31, 2006)
10.58	x		Copy of Amendment dated November 6, 2000 to Firm No-Notice Transportation Agreement between LG&E and Texas Gas Transmission Corporation covering the transmission of natural gas (expires October 31, 2008)
10.59	x		Copy of Amendment dated November 6, 2000 to Firm No-Notice Transportation Agreement between LG&E and Texas Gas Transmission Corporation covering the transmission of natural gas (expires October 31, 2006)

131

10.60	x		Copy of Amendment dated September 15, 1999 to Firm No-Notice Transportation Agreement between LG&E and Texas Gas Transmission Corporation covering the transmission of natural gas (expires October 31, 2006)
10.61	x	x	* Copy of Amendment to LG&E Energy's Supplemental Executive Retirement Plan, effective September 2, 1998. [Filed as Exhibit 10.90 to LG&E Energy's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated by reference herein]
10.62	x	x	* Copy of Employment Agreement, dated as of February 25, 2000, by and among LG&E Energy, Powergen plc and Roger W. Hale. [Filed as Exhibit 1 to Appendix A of LG&E Energy's Preliminary Proxy Statement on Schedule 14A on March 13, 2000 and incorporated by reference herein]
10.63	x	x	* Copy of form of Employment and Severance Agreement, dated as of February 25, 2000, by and among LG&E Energy, Powergen plc and certain executive officers of the Company.[Filed as Exhibit 10.94 to LG&E's and KU's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated by reference herein]
10.64	x	x	* Copy of Amendment, effective October 1, 1999, to LG&E Energy's Non-Qualified Savings Plan.[Filed as Exhibit 10.96 to LG&E's and KU's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference]
10.65	x	x	* Copy of Amendment, effective December 1, 1999, to LG&E Energy's Non-Qualified Savings Plan.[Filed as Exhibit 10.97 to LG&E's and KU's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference]
10.66	x	x	Copy of Modification No. 10, dated January 1, 1998, to the Inter-Company Power Agreement dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies.[Filed as Exhibit 10.102 to LG&E's and KU's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference]
10.67	x	x	Copy of Modification No. 11, dated April 1, 1999, to the Inter-Company Power Agreement dated July 10, 1953, among Ohio Valley Electric Corporation and the Sponsoring Companies.[Filed as Exhibit 10.103 to LG&E's and KU's Annual report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference]
10.68	x		Copy of Amendment No. 1, dated January 1, 2000, to Amended and Restated Coal Supply Agreement, dated April 1, 1998, among LG&E, Hopkins County Coal, LLC and Webster County Coal, LLC.[Filed as Exhibit 10.104 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference]
10.69	x		Copy of Amendment No. 1, dated January 1, 2000, to Coal Supply Contract, dated January 1, 1999, between LG&E and Peabody CoalSales Company. [Field as Exhibit 10.105 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference]

132

10.70	x		Copy of Letter Amendment, dated September 15, 1999, to Transportation Agreement, dated November 1, 1993, between LG&E and Texas Gas Transmission Corporation. [Filed as Exhibit 10.106 to LG&E's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference.]
10.71	x	x	*Copy of Powergen Long-Term Incentive Plan, effective December 11, 2000, applicable to certain employees of LG&E Energy Corp. and its subsidiaries [Filed as Exhibit 10.107 to LG&E's Annual Report on Form 10-K for the year ended December 31, 2000, and incorporated herein by reference]
10.72	x	x	*Copy of Powergen Short-Term Incentive Plan, effective January 1, 2001, applicable to certain employees of LG&E Energy Corp. and its subsidiaries [Filed as Exhibit 10.109 to LG&E's Annual Report on Form 10-K for the year ended December 31, 2000, and incorporated herein by reference]
10.73	x	x	*Copy of two forms of Change-In-Control Agreement applicable to certain employees of LG&E Energy Corp. and its subsidiaries. [Filed as Exhibit 10.110 to LG&E's Annual Report on Form 10-K for the year ended December 31, 2000, and incorporated herein by reference]
10.74	x	x	*Copy of employment and Severance Agreement, dated as of February 25, 2000, and amendments thereto dated December 8, 2000 and April 30, 2001, by and among LG&E Energy, Powergen plc and Victor A. Staffieri. [To be filed by amendment]
10.75	x	x	*Copy of form of Amendments, dated as of December 8, 2000, to Employment and Severance Agreements dated as of February 25, 2000, by and among LG&E Energy, Powergen plc and certain executive officers of the Company. [To be filed by amendment]
10.76	x	x	*Copy of form of offer letter, dated as of November 29, 2000, by and among LG&E Energy and certain executive officers of the Company. [To be filed by amendment]
12	x	x	Computation of Ratio of Earnings to Fixed Charges for LG&E and KU.
21	x	x	Subsidiaries of the Registrants.
23.01	x		Consents of Independent Accountants for LG&E.
23.02		x	Consents of Independent Accountants for KU.
24	x	x	Powers of Attorney.
99.01	x	x	Cautionary Statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995.
99.02	x	x	LG&E and KU Director and Officer Information [To be filed by amendment if necessary. See Part III above.]

(b)

Executive Compensation Plans and Arrangements:

Exhibits preceded by an asterisk ("*") above are management contracts, compensation plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

133

(c)

Reports on Form 8-K:

On May 7, 2001, a report on Form 8-K was filed announcing a change in certifying accountants.

On February 21, 2002, a report on Form 8-K was filed announcing LG&E and KU's financial results for year ended December 31, 2001.

There were no Form 8-K filings during the fourth quarter of 2001.

(d)

The following instruments defining the rights of holders of certain long- term debt of KU have not been filed with the Securities and Exchange Commission but will be furnished to the Commission upon request.

1.

Loan Agreement dated as of May 1, 1990 between KU and the County of Mercer, Kentucky, in connection with $12,900,000 County of Mercer, Kentucky, Collateralized Solid Waste Disposal Facility Revenue Bonds (KU Project) 1990 Series A, due May 1, 2010 and May 1, 2020.

2.

Loan Agreement dated as of May 1, 1991 between KU and the County of Carroll, Kentucky, in connection with $96,000,000 County of Carroll, Kentucky, Collateralized Pollution Control Revenue Bonds (KU Project) 1992 Series A, due September 15, 2016.

3.

Loan Agreement dated as of August 1, 1992 between KU and the County of Carroll, Kentucky, in connection with $2,400,000 County of Carroll, Kentucky, Collateralized Pollution Control Revenue Bonds (KU Project) 1992 Series C, due February 1, 2018.

4.

Loan Agreement dated as of August 1, 1992 between KU and the County of Muhlenberg, Kentucky, in connection with $7,200,000 County of Muhlenberg, Kentucky, Collateralized Pollution Control Revenue Bonds (KU Project) 1992 Series A, due February 1, 2018.

5.

Loan Agreement dated as of August 1, 1992 between KU and the County of Mercer, Kentucky, in connection with $7,400,000 County of Mercer, Kentucky, Collateralized Pollution Control Revenue Bonds (KU Project) 1992 Series A, due February 1, 2018.

6.

Loan Agreement dated as of August 1, 1992 between KU and the County of Carroll, Kentucky, in connection with $20,930,000 County of Carroll, Kentucky, Collateralized Pollution Control Revenue Bonds (KU Project) 1992 Series B, due February 1, 2018.

7.

Loan Agreement dated as of December 1, 1993, between KU and the County of Carroll, Kentucky, in connection with $50,000,000 County of Carroll, Kentucky, Collateralized Solid Waste Disposal Facilities Revenue Bonds (KU Project) 1993 Series A, due December 1, 2023.

8.

Loan Agreement dated as of November 1, 1994, between KU and the County of Carroll, Kentucky, in connection with $54,000,000 County of Carroll, Kentucky, Collateralized Solid Waste Disposal Facilities Revenue Bonds (KU Project) 1994 Series A, due November 1, 2024.

134

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

To the Shareholders of Louisville Gas and Electric Company and Subsidiary:

        Our audit of the consolidated financial statements of Louisville Gas and Electric Company and Subsidiary as of December 31, 2001 and for the year then ended referred to in our report dated January 25, 2002 also included an audit of the financial statement schedule listed in Item 14(a)2 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein as of December 31, 2001 and for the year then ended when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
January 25, 2002
Louisville, Kentucky

135

Schedule II

Louisville Gas and Electric Company
Schedule II—Valuation and Qualifying Accounts
For the Three Years Ended December 31, 2001
(Thousands of $)

		Other Property and Investments		Accounts Receivable (Uncollectible Accounts)
Balance December 31, 1998		$	63	$	1,399
Additions:
	Charged to costs and expenses		—		1,925
Deductions:
	Net charges of nature for which reserves were created		—		2,091
Balance December 31, 1999			63		1,233
Additions:
	Charged to costs and expenses		—		2,803
Deductions:
	Net charges of nature for which reserves were created		—		2,750
Balance December 31, 2000			63		1,286
Additions:
	Charged to costs and expenses		—		4,953
Deductions:
	Net charges of nature for which reserves were created		—		4,664
Balance December 31, 2001		$	63	$	1,575

136

Report of Independent Accountants
on Financial Statement Schedules

To the Shareholders of Kentucky Utilities Company and Subsidiary:

        Our audit of the consolidated financial statements of Kentucky Utilities Company and Subsidiary as of December 31, 2001 and for the year then ended referred to in our report dated January 25, 2002 also included an audit of the financial statement schedule listed in Item 14(a)2 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein as of December 31, 2001 and for the year then ended when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
January 25, 2002
Louisville, Kentucky

137

Schedule II

Kentucky Utilities Company
Schedule II—Valuation and Qualifying Accounts
For the Three Years Ended December 31, 2001
(Thousands of $)

		Other Property and Investments		Accounts Receivable (Uncollectible Accounts)
Balance December 31, 1998		$	576	$	520
Additions:
	Charged to costs and expenses		111		1,707
Deductions:
	Net charges of nature for which reserves were created		—		1,427
Balance December 31, 1999			687		800
Additions:
	Charged to costs and expenses		64		1,430
Deductions:
	Net charges of nature for which reserves were created		—		1,430
Balance December 31, 2000			751		800
Additions:
	Charged to costs and expenses		9		1,528
Deductions:
	Net charges of nature for which reserves were created		630		1,528
Balance December 31, 2001		$	130	$	800

138

SIGNATURES—LOUISVILLE GAS AND ELECTRIC COMPANY

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

	LOUISVILLE GAS AND ELECTRIC COMPANY Registrant
(Date) March 28, 2002	/s/  S. BRADFORD RIVES
	S. Bradford Rives

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

Signature	Title	Date
* Victor A. Staffieri	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer);
* Richard Aitken-Davies	Chief Financial Officer (Principal Financial Officer);
* S. Bradford Rives	Senior Vice President—Finance and Controller (Principal Accounting Officer);
* David J. Jackson	Director;
* Nicholas Baldwin	Director;
* Edmund Wallis	Director.

By:	/s/  S. BRADFORD RIVES*
	(Attorney-In-Fact)	March 28, 2002

139

SIGNATURES—KENTUCKY UTILITIES COMPANY

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

	KENTUCKY UTILITIES COMPANY Registrant
(Date) March 28, 2002	/s/  S. BRADFORD RIVES
	S. Bradford Rives

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

Signature	Title	Date
* Victor A. Staffieri	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer);
* Richard Aitken-Davies	Chief Financial Officer (Principal Financial Officer);
* S. Bradford Rives	Senior Vice President—Finance and Controller (Principal Accounting Officer);
* David J. Jackson	Director;
* Nicholas Baldwin	Director;
* Edmund Wallis	Director.

By:	/s/  S. BRADFORD RIVES*
	(Attorney-In-Fact)	March 28, 2002

140

QuickLinks

TABLE OF CONTENTS
PART I
PART II
PART III
PART IV
PART I.
KENTUCKY UTILITIES COMPANY
EMPLOYEES AND LABOR RELATIONS
Louisville Gas and Electric Company and Subsidiary Consolidated Statements of Comprehensive Income (Thousands of $)
Louisville Gas and Electric Company and Subsidiary Consolidated Statements of Capitalization (Thousands of $)
Louisville Gas and Electric Company and Subsidiary Notes to Consolidated Financial Statements
Louisville Gas and Electric Company Report of Management
Louisville Gas and Electric Company and Subsidiary Report of Independent Accountants
Louisville Gas and Electric Company Report of Independent Public Accountants
INDEX OF ABBREVIATIONS
Kentucky Utilities Company and Subsidiary Consolidated Statements of Income (Thousands of $)
Consolidated Statements of Retained Earnings (Thousands of $)
Kentucky Utilities Company and Subsidiary Consolidated Statements of Comprehensive Income (Thousands of $)
Kentucky Utilities Company and Subsidiary Consolidated Statements of Cash Flows (Thousands of $)
Kentucky Utilities Company and Subsidiary Notes to Consolidated Financial Statements
Kentucky Utilities Company Report of Management
Kentucky Utilities Company and Subsidiary Report of Independent Accountants
Kentucky Utilities Company Report of Independent Public Accountants
PART III
PART IV
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
Louisville Gas and Electric Company Schedule II—Valuation and Qualifying Accounts For the Three Years Ended December 31, 2001 (Thousands of $)
Report of Independent Accountants on Financial Statement Schedules
Kentucky Utilities Company Schedule II—Valuation and Qualifying Accounts For the Three Years Ended December 31, 2001 (Thousands of $)
SIGNATURES—LOUISVILLE GAS AND ELECTRIC COMPANY
SIGNATURES—KENTUCKY UTILITIES COMPANY

EX-4.42

                                                                    EXHIBIT 4.42

                             SUPPLEMENTAL INDENTURE

                                      FROM

                       LOUISVILLE GAS AND ELECTRIC COMPANY

                                       TO

                          HARRIS TRUST AND SAVINGS BANK
                                     TRUSTEE

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

                             DATED SEPTEMBER 1, 2001

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

                         SUPPLEMENTAL TO TRUST INDENTURE

                             DATED NOVEMBER 1, 1949



                               TABLE OF CONTENTS

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


                                                                                                                PAGE

                                                                                                              
Parties............................................................................................................1
Recitals...........................................................................................................1
Form of Bonds of Pollution Control Series AA.......................................................................6
Further Recitals..................................................................................................11

                                   ARTICLE I.
     SPECIFIC SUBJECTION OF PROPERTY TO THE LIEN OF THE ORIGINAL INDENTURE.

Section 1.01-   Grant of certain property, including all personal property to comply with Uniform
                Commercial Code of the State of Kentucky, subject to permissible encumbrances
                and other exceptions contained in Original Indenture..............................................11

                                   ARTICLE II.
               PROVISIONS OF BONDS OF POLLUTION CONTROL SERIES AA.

Section 2.01-   Terms of Bonds of Pollution Control Series AA.....................................................12
Section 2.02-   Payment of principal and interest-Bonds of Pollution Control Series AA............................13
Section 2.03-   Bonds of Pollution Control Series AA deemed fully paid upon payment of corresponding
                Environmental Facilities Revenue Bonds............................................................14
Section 2.04-   Interchangeability of bonds.......................................................................15
Section 2.05-   Charges upon exchange or transfer of bonds........................................................15

                                  ARTICLE III.
                                 MISCELLANEOUS.

Section 3.01-   Recitals of fact, except as stated, are statements of the Company.................................15
Section 3.02-   Supplemental Indenture to be construed as a part of the Original Indenture........................15
Section 3.03-   (a)  Trust Indenture Act to control...............................................................15
                (b)  Severability of provisions contained in Supplemental Indenture and bonds.....................15
Section 3.04-   Word "Indenture" as used herein includes in its meaning the Original Indenture and all indentures
                supplemental thereto..............................................................................16
Section 3.05-   References to either party in Supplemental Indenture include successors or assigns................16
Section 3.06-   (a)  Provision for execution in counterparts......................................................16
                (b) Table of contents and descriptive headings of Articles not to affect meaning..................16

Schedule A        ...............................................................................................A-1


                                        i


     SUPPLEMENTAL INDENTURE, made as of the 1st day of September, 2001, by and
between LOUISVILLE GAS AND ELECTRIC COMPANY, a corporation duly organized and
existing under and by virtue of the laws of the Commonwealth of Kentucky, having
its principal office in the City of Louisville, County of Jefferson, in said
Commonwealth of Kentucky (the "Company"), the party of the first part, and
HARRIS TRUST AND SAVINGS BANK, a corporation duly organized and existing under
and by virtue of the laws of the State of Illinois, having its principal office
at Two North LaSalle Street, City of Chicago, County of Cook, State of Illinois
60602, as Trustee (the "Trustee"), party of the second part;

                                   WITNESSETH:

     WHEREAS, the Company has heretofore executed and delivered its Trust
Indenture (the "Original Indenture"), made as of November 1, 1949, whereby the
Company granted, bargained, sold, warranted, released, conveyed, assigned,
transferred, mortgaged, pledged, set over and confirmed unto the Trustee under
said Indenture and to its respective successors in trust, all property, real,
personal and mixed then owned or thereafter acquired or to be acquired by the
Company (except as therein excepted from the lien thereof) and subject to the
rights reserved by the Company in and by the provisions of the Original
Indenture, to be held by said Trustee in trust in accordance with the provisions
of the Original Indenture for the equal pro rata benefit and security of all and
each of the bonds issued and to be issued thereunder in accordance with the
provisions thereof, and

     WHEREAS, Section 2.01 of the Original Indenture provides that bonds may be
issued thereunder in one or more series, each series to have such distinctive
designation as the Board of Directors of the Company may select for such series;
and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture, bonds of a series designated "First
Mortgage Bonds, Series due November 1, 1979," bearing interest at the rate of 2
3/4% per annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated February 1, 1952, bonds of a series designated "First Mortgage
Bonds, Series due February 1, 1982," bearing interest at the rate of 3 1/8% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated February 1, 1954, bonds of a series designated "First Mortgage
Bonds, Series due February 1, 1984," bearing interest at the rate of 3 1/8% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated September 1, 1957, bonds of a series designated "First Mortgage
Bonds, Series due September 1, 1987," bearing interest at the rate of 4 7/8% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated October 1, 1960, bonds



of a series designated "First Mortgage Bonds, Series due October 1, 1990,"
bearing interest at the rate of 4 7/8% per annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated June 1, 1966, bonds of a series designated "First Mortgage
Bonds, Series due June 1, 1996," bearing interest at the rate of 5 5/8% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated June 1, 1968, bonds of a series designated "First Mortgage
Bonds, Series due June 1, 1998," bearing interest at the rate of 6 3/4% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated June 1, 1970, bonds of a series designated "First Mortgage
Bonds, Series due July 1, 2000," bearing interest at the rate of 9 1/4% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated August 1, 1971, bonds of a series designated "First Mortgage
Bonds, Series due August 1, 2001," bearing interest at the rate of 8 1/4% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated June 1, 1972, bonds of a series designated "First Mortgage
Bonds, Series due July 1, 2002," bearing interest at the rate of 7 1/2% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated February 1, 1975, bonds of a series designated "First Mortgage
Bonds, Series due March 1, 2005," bearing interest at the rate of 8 7/8% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated September 1, 1975, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series A," bearing interest as provided therein and
maturing September 1, 2000; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated September 1, 1976, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series B," bearing interest as provided therein and
maturing September 1, 2006; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated October 1, 1976, bonds

                                        2


of a series designated "First Mortgage Bonds, Series due November 1, 2006,"
bearing interest at the rate of 8 1/2% per annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated June 1, 1978, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series C," bearing interest as provided therein and
maturing June 1, 1998/2008; and

     WHEREAS, the Company has heretofore executed and delivered to the Trustee a
Supplemental Indenture dated February 15, 1979, setting forth duly adopted
modifications and alterations to the Original Indenture and all Supplemental
Indentures thereto; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated September 1, 1979, bonds of a series designated "First Mortgage
Bonds, Series due October 1, 2009," bearing interest at the rate of 10 1/8% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated September 15, 1979, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series D," bearing interest as provided therein and
maturing October 1, 2004/2009; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated September 15, 1981, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series E," bearing interest as provided therein and
maturing September 15, 1984; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated March 1, 1982, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series F," bearing interest as provided therein and
maturing March 1, 2012; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated March 15, 1982, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series G," bearing interest as provided therein and
maturing March 1, 2012; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated September 15, 1982, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series H," bearing interest as provided therein and
maturing September 15, 1992; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated February 15, 1984, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series I," bearing interest

                                        3


as provided therein and maturing February 15, 2011; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated July 1, 1985, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series J," bearing interest as provided therein and
maturing July 1, 1995/2015; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated November 15, 1986, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series K," bearing interest as provided therein and
maturing December 1, 2016; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated November 16, 1986, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series L," bearing interest as provided therein and
maturing December 1, 2016; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated August 1, 1987, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series M," bearing interest as provided therein and
maturing August 1, 1997; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated February 1, 1989, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series N," bearing interest as provided therein and
maturing February 1, 2019; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated February 2 1989, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series O," bearing interest as provided therein and
maturing February 1, 2019; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated June 15, 1990, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series P," bearing interest as provided therein and
maturing June 15, 2015; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated November 1, 1990, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series Q" and bonds of a series designated "First
Mortgage Bonds, Pollution Control Series R," each series bearing interest as
provided therein and maturing November 1, 2020; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated September 1, 1992,

                                        4


bonds of a series designated "First Mortgage Bonds, Pollution Control
Series S," bearing interest as provided therein and maturing September 1, 2017;
and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated September 2, 1992, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series T," bearing interest as provided therein and
maturing September 1, 2017; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated August 15, 1993, bonds of a series designated "First Mortgage
Bonds, Series due August 15, 2003," bearing interest at the rate of 6% per
annum; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated August 16, 1993, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series U," bearing interest as provided therein and
maturing August 15, 2013 and bonds of a series designated "First Mortgage Bonds,
Pollution Control Series V," bearing interest as provided therein and maturing
August 15, 2019; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated October 15, 1993, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series W," bearing interest as provided therein and
maturing October 15, 2020, and bonds of a series designated "First Mortgage
Bonds, Pollution Control Series X," bearing interest as provided therein and
maturing April 15, 2023; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated May 1, 2000, bonds of a series designated "First Mortgage Bonds,
Pollution Control Series Y," bearing interest as provided therein and maturing
May 1, 2027; and

     WHEREAS, the Company has heretofore issued in accordance with the
provisions of the Original Indenture as supplemented by the Supplemental
Indenture dated August 1, 2000, bonds of a series designated "First Mortgage
Bonds, Pollution Control Series Z," bearing interest as provided therein and
maturing August 1, 2030; and

     WHEREAS, the County of Jefferson in the Commonwealth of Kentucky (the
"County") has agreed to issue $10,104,000 principal amount of its Environmental
Facilities Revenue Bonds, 2001 Series A (Louisville Gas and Electric Company
Project) (the "Environmental Facilities Revenue Bonds") pursuant to the
provisions of the Indenture of Trust, dated as of July 1, 2001 (the
"Environmental Facilities Indenture"), between and among the County and BNY
Trust Company of Missouri, as Trustee, Paying Agent and Bond Registrar (said
Trustee or any successor trustee under the Environmental Facilities Indenture
being hereinafter referred to as the

                                        5


"Environmental Facilities Trustee"); and

     WHEREAS, the proceeds of the Environmental Facilities Revenue Bonds (other
than any accrued interest, if any, thereon) will be loaned by the County to the
Company pursuant to the provisions of a Loan Agreement, dated as of July 1,
2001, between the County and the Company (the "Agreement"), to reimburse the
Company for a portion of the costs of the acquisition, construction,
installation and equipping of certain solid waste disposal facilities at the
Mill Creek Generating Station of the Company, which facilities are hereinafter
sometimes referred to as the "Project," which Project is located in the County
and which Project is more fully described in Exhibit A to the Agreement; and

     WHEREAS, payments by the Company under and pursuant to the Agreement have
been assigned by the County to the Environmental Facilities Trustee in order to
secure the payment of the Environmental Facilities Revenue Bonds; and

     WHEREAS, in order to further secure the payment of the Environmental
Facilities Revenue Bonds, the Company desires to provide for the issuance under
the Original Indenture to the Environmental Facilities Trustee of a new series
of bonds designated "First Mortgage Bonds, Pollution Control Series AA"
(sometimes called "Bonds of Pollution Control Series AA"), in a principal amount
equal to the principal amount of the Environmental Facilities Revenue Bonds, and
with corresponding terms and maturity, the Bonds of Pollution Control Series AA
to be issued as registered bonds without coupons in denominations of a multiple
of $1,000; and the Bonds of Pollution Control Series AA are to be substantially
in the form and tenor following, to-wit:

                 (Form of Bonds of Pollution Control Series AA)

     This Bond has not been registered under the Securities Act of 1933, as
amended, and may not be offered or sold in contravention of said Act and is not
transferable except to a successor Trustee under the Indenture of Trust dated as
of July 1, 2001, from the County of Jefferson, Kentucky, to BNY Trust Company of
Missouri, as Trustee, Paying Agent and Bond Registrar.

                       LOUISVILLE GAS AND ELECTRIC COMPANY
          (Incorporated under the laws of the Commonwealth of Kentucky)
                               First Mortgage Bond
                           Pollution Control Series AA

No...................                                         $...............

     Louisville Gas and Electric Company, a corporation organized and existing
under and by virtue of the laws of the Commonwealth of Kentucky (herein called
the "Company"), for value received, hereby promises to pay to BNY Trust Company
of Missouri, St. Louis, Missouri, as Trustee under the Indenture of Trust (the
"Environmental Facilities Indenture") dated as of July 1, 2001, from the County
of Jefferson, Kentucky, to BNY Trust Company of Missouri, or any successor
trustee under the Environmental Facilities Indenture (the "Environmental
Facilities

                                        6


Trustee") and at the office of Harris Trust and Savings Bank, Chicago, Illinois
(the "Trustee") the sum of .................. Dollars in lawful money of the
United States of America on the Demand Redemption Date, as HEREinafter defined,
and to pay on the Demand Redemption Date to the Environmental Facilities
Trustee, interest hereon from the Initial Interest Accrual Date, as hereinafter
defined, to the Demand Redemption Date at the same rate or rates per annum then
and thereafter from time to time borne by the Environmental Facilities Revenue
Bonds, in like money, said interest being payable at the office of the Trustee
in Chicago, Illinois, subject to the provisions hereinafter set forth in the
event of a rescission of a Redemption Demand, as hereinafter defined.

     This bond is one of a duly authorized issue of bonds of the Company, known
as its First Mortgage Bonds, unlimited in aggregate principal amount, which
issue of bonds consists, or may consist of several series of varying
denominations, dates and tenors, all issued and to be issued under and equally
secured (except in so far as a sinking fund, or similar fund, established in
accordance with the provisions of the Indenture may afford additional security
for the bonds of any specific series) by a Trust Indenture dated November 1,
1949 (the "Original Indenture"), and Supplemental Indentures thereto dated
February 1, 1952, February 1, 1954, September 1, 1957, October 1, 1960, June 1,
1966, June 1, 1968, June 1,1970, August 1, 1971, June 1, 1972, February 1, 1975,
September 1, 1975, September 1, 1976, October 1, 1976, June 1, 1978, February
15, 1979, September 1, 1979, September 15, 1979, September 15, 1981, March 1,
1982, March 15, 1982, September 15, 1982, February 15, 1984, July 1, 1985,
November 15, 1986, November 16, 1986, August 1, 1987, February 1, 1989, February
2, 1989, June 15, 1990, November 1, 1990, September 1, 1992, September 2, 1992,
August 15, 1993, August 16, 1993, October 15, 1993, May 1, 2000, August 1, 2000
and September 1, 2001 (all of which instruments are herein collectively called
the "Indenture"), executed by the Company to the Trustee, to which Indenture
reference is hereby made for a description of the property mortgaged and
pledged, the nature and extent of the security, the rights of the holders of the
bonds as to such security, and the terms and conditions upon which the bonds may
be issued under the Indenture and are secured. The principal hereof may be
declared or may become due on the conditions, in the manner and at the time set
forth in the Indenture, upon the happening of a completed default as in the
Indenture provided. The Indenture provides that such declaration may in certain
events be waived by the holders of a majority in principal amount of the bonds
outstanding.

     This bond is one of a series of bonds of the Company issued under the
Indenture and designated as First Mortgage Bonds, Pollution Control Series AA.
The bonds of this Series have been issued to the Environmental Facilities
Trustee under the Environmental Facilities Indenture to secure payment of the
Environmental Facilities Revenue Bonds, 2001 Series A (Louisville Gas and
Electric Company Project) (the "Environmental Facilities Revenue Bonds") issued
by the County of Jefferson, Kentucky (the "County") under the Environmental
Facilities Indenture, the proceeds of which have been or are to be loaned to the
Company pursuant to the provisions of the Loan Agreement dated as of July 1,
2001 (the "Agreement") between the Company and the County. The maturity of the
obligation represented by the bonds of this Series is September 1, 2027. The
date of maturity of the obligation represented by the bonds of this Series is
hereinafter referred to as the Final Maturity Date. The bonds of this Series
shall bear interest

                                        7


from the Initial Interest Accrual Date, as hereinafter defined, at the same rate
or rates per annum then and thereafter from time to time borne by the
Environmental Facilities Revenue Bonds.

     With the consent of the Company and to the extent permitted by and as
provided in the Indenture, the rights and obligations of the Company and/or of
the holders of the bonds, and/or the terms and provisions of the Indenture
and/or of any instruments supplemental thereto may be modified or altered by
affirmative vote of the holders of at least seventy percent in principal amount
of the bonds then outstanding under the Indenture and any instruments
supplemental thereto (excluding bonds disqualified from voting by reason of the
interest of the Company or of certain related persons therein as provided in the
Indenture), and by the affirmative vote of at least seventy percent in principal
amount of the bonds of any series entitled to vote then outstanding under the
Indenture and any instruments supplemental thereto (excluding bonds disqualified
from voting as aforesaid) and affected by such modification or alteration, in
case one or more but less than all of the series of bonds then outstanding are
so affected; provided that no such modification or alteration shall permit the
extension of the maturity of the principal of this bond or the reduction in the
rate of interest, if any, hereon or any other modification in the terms of
payment of such principal or interest, if any, or the taking of certain other
action as more fully set forth in the Indenture, without the consent of the
holder hereof.

     Except as provided in the next succeeding paragraph, in the event of a
default under Section 9.1 of the Agreement or in the event of a default in the
payment of the principal of, premium, if any, or interest (and such default in
the payment of interest continues for the full grace period, if any, permitted
by the Environmental Facilities Indenture and the Environmental Facilities
Revenue Bonds) on the Environmental Facilities Revenue Bonds, whether at
maturity, by tender for purchase, by acceleration, by sinking fund, redemption
or otherwise, as and when the same becomes due, the bonds of this Series shall
be redeemable in whole upon receipt by the Trustee of a written demand
(hereinafter called a "Redemption Demand") from the Environmental Facilities
Trustee stating that there has been such a default, stating that it is acting
pursuant to the authorization granted by Section 9.02(c) of the Environmental
Facilities Indenture, specifying the last date to which interest on the
Environmental Facilities Revenue Bonds has been paid (such date being
hereinafter referred to as the "Initial Interest Accrual Date") and demanding
redemption of the bonds of this Series. The Trustee shall, within 10 days after
receiving such Redemption Demand, mail a copy thereof to the Company marked to
indicate the date of its receipt by the Trustee. Promptly upon receipt by the
Company of such copy of a Redemption Demand, the Company shall fix a date on
which it will redeem the bonds of this Series so demanded to be redeemed
(hereinafter called the "Demand Redemption Date"). Notice of the date fixed as
and for the Demand Redemption Date shall be mailed by the Company to the Trustee
at least 30 days prior to such Demand Redemption Date. The date to be fixed by
the Company as and for the Demand Redemption Date may be any date up to and
including the earlier of (i) the 120th day after receipt by the Trustee of the
Redemption Demand or (ii) the Final Maturity Date, provided that if the Trustee
shall not have received such notice fixing the Demand Redemption Date within 90
days after receipt by it of the Redemption Demand, the Demand Redemption Date
shall be deemed to be the earlier of (i) the 120th day after receipt by the
Trustee of the Redemption Demand or (ii) the Final Maturity Date. The

                                        8


Trustee shall mail notice of the Demand Redemption Date (such notice being
hereinafter called the "Demand Redemption Notice") to the Environmental
Facilities Trustee not more than 10 nor less than five days prior to the Demand
Redemption Date. Notwithstanding the foregoing, if a default to which this
paragraph is applicable is existing on the Final Maturity Date, such date shall
be deemed to be the Demand Redemption Date without further action (including
actions specified in this paragraph) by the Environmental Facilities Trustee,
the Trustee or the Company. The bonds of this Series shall be redeemed by the
Company on the Demand Redemption Date, upon surrender thereof by the
Environmental Facilities Trustee to the Trustee, at a redemption price equal to
the principal amount thereof, plus accrued interest thereon at the rate per
annum set forth in the third paragraph of this Bond, from the Initial Interest
Accrual Date to the Demand Redemption Date. If a Redemption Demand is rescinded
by the Environmental Facilities Trustee by written notice to the Trustee prior
to the Demand Redemption Date, no Demand Redemption Notice shall be given, or,
if already given, shall be automatically annulled, and interest on the bonds of
this Series shall cease to accrue, all interest accrued thereon shall be
automatically rescinded and cancelled and the Company shall not be obligated to
make any payments of principal of or interest on the bonds of this Series; but
no such rescission shall extend to or affect any subsequent default or impair
any right consequent thereon.

     In the event that all of the bonds outstanding under the Indenture shall
have become immediately due and payable, whether by declaration or otherwise,
and such acceleration shall not have been annulled, the bonds of this Series
shall bear interest at the rate per annum set forth in the third paragraph of
this bond, from the Initial Interest Accrual Date, as specified in a written
notice to the Trustee from the Environmental Facilities Trustee, and the
principal of and interest on the bonds of this Series from the Initial Interest
Accrual Date shall be payable in accordance with the provisions of the
Indenture.

     Upon payment of the principal of and premium, if any, and interest on the
Environmental Facilities Revenue Bonds, whether at maturity or prior to maturity
by redemption or otherwise, and the surrender thereof to and cancellation
thereof by the Environmental Facilities Trustee (other than any Environmental
Facilities Revenue Bond that was cancelled by the Environmental Facilities
Trustee and for which one or more other Environmental Facilities Revenue Bonds
were delivered and authenticated pursuant to the Environmental Facilities
Indenture in lieu of or in exchange or substitution for such cancelled
Environmental Facilities Revenue Bond), or upon provision for the payment
thereof having been made in accordance with the Environmental Facilities
Indenture, bonds of this Series in a principal amount equal to the principal
amount of the Environmental Facilities Revenue Bonds so surrendered and
cancelled or for the provision for which payment has been made shall be deemed
fully paid and the obligations of the Company thereunder shall be terminated,
and such bonds of this Series shall be surrendered by the Environmental
Facilities Trustee to the Trustee and shall be cancelled by the Trustee. From
and after the Release Date (as defined below), the bonds of this Series shall be
deemed fully paid, satisfied and discharged and the obligations of the Company
hereunder and thereunder shall be terminated. The Release Date shall be the date
that the Bond Insurer (as such term is defined in the Environmental Facilities
Indenture), at the request of the Company, consents to the release of the bonds
of this Series as security for the Environmental Facilities Revenue Bonds,
provided

                                        9


that in no event shall that date be later than the date as of which all bonds
issued under the Indenture prior to the date of initial issuance of this bond
(and excluding bonds of this Series and First Mortgage Bonds, Pollution Control
Series Y and Z) have been retired through payment, redemption or otherwise
(including those bonds "deemed to be redeemed" within the meaning of that term
as used in Article X of the Original Indenture) at, before or after the maturity
thereof. On the Release Date, the bonds of this Series shall be surrendered by
the Environmental Facilities Trustee to the Trustee whereupon the bonds of said
Series so surrendered shall be cancelled by the Trustee.

     No recourse shall be had for the payment of principal of, or interest, if
any, on this bond, or any part thereof, or of any claim based hereon or in
respect hereof or of the Indenture, against any incorporator, or any past,
present or future stockholder, officer or director of the Company or of any
predecessor or successor corporation, either directly or through the Company, or
through any such predecessor or successor corporation, or through any receiver
or trustee in bankruptcy, whether by virtue of any constitution, statute or rule
of law or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released, as more fully provided in the
Indenture.

     This bond shall not be valid or become obligatory for any purpose unless
and until the certificate of authentication hereon shall have been signed by or
on behalf of Harris Trust and Savings Bank, as Trustee under the Indenture, or
its successor thereunder.

     IN WITNESS WHEREOF, LOUISVILLE GAS AND ELECTRIC COMPANY has caused this
instrument to be signed in its name by its President or a Vice President or with
the facsimile signature of its President, and its corporate seal, or a facsimile
thereof, to be hereto affixed and attested by its Secretary or Assistant
Secretary or with the facsimile signature of its Secretary.

     Dated                            LOUISVILLE GAS AND ELECTRIC COMPANY

Attest:                               By
                                         --------------------------------
                                                Vice President

- -------------------------
        Secretary

                                       10


and

     WHEREAS, the Company is desirous of specifically assigning, conveying,
mortgaging, pledging, transferring and setting over additional property unto the
Trustee and to its respective successors in trust; and

     WHEREAS, Sections 4.01 and 21.03 of the Original Indenture provide in
substance that the Company and the Trustee may enter into indentures
supplemental thereto for the purposes, among others, of creating and setting
forth the particulars of any new series of bonds and of providing the terms and
conditions of the issue of the bonds of any series not expressly provided for in
the Original Indenture and of assigning, conveying, mortgaging, pledging and
transferring unto the Trustee additional property of the Company, and for any
other purpose not inconsistent with the terms of the Original Indenture; and

     WHEREAS, the execution and delivery of this Supplemental Indenture have
been duly authorized by a resolution adopted by the Board of Directors of the
Company;

     NOW, THEREFORE, THIS INDENTURE WITNESSETH:

     Louisville Gas and Electric Company, in consideration of the premises and
of one dollar to it duly paid by the Trustee at or before the ensealing and
delivery of these presents, the receipt whereof is hereby acknowledged, and
other good and valuable considerations, does hereby covenant and agree to and
with Harris Trust and Savings Bank, as Trustee, and its successors in the trust
under the Indenture for the benefit of those who hold or shall hold the bonds
issued or to be issued thereunder, as follows:

                                   ARTICLE I.

      SPECIFIC SUBJECTION OF PROPERTY TO THE LIEN OF THE ORIGINAL INDENTURE

     Section 1.01. The Company in order better to secure the payment, both of
principal and interest, of all bonds of the Company at any time outstanding
under the Indenture, according to their tenor and effect, and the performance of
and compliance with the covenants and conditions in the Indenture contained, has
granted, bargained, sold, warranted, released, conveyed, assigned, transferred,
mortgaged, pledged, set over and confirmed and by these presents does grant,
bargain, sell, warrant, release, convey, assign, transfer, mortgage, pledge, set
over and confirm unto Harris Trust and Savings Bank, as Trustee and to its
respective successors in said trust forever, subject to the rights reserved by
the Company in and by the provisions of the Indenture, all the property
described and mentioned or enumerated in a schedule hereto annexed and marked
Schedule A, reference to said schedule being hereby made with the same force and
effect as if the same were incorporated herein at length; together with all and
singular the tenements, hereditaments and appurtenances belonging or in any wise
appertaining to the aforesaid property or any part thereof with the reversion
and reversions, remainder and remainders, tolls, rents and revenues, issues,
income, product and profits thereof;

                                       11


     Also, in order to subject all of the personal property and chattels of the
Company to the lien of the Indenture in conformity with the provisions of the
Uniform Commercial Code of the Commonwealth of Kentucky, all steam, hydro and
other electric generating plants, including buildings and other structures,
turbines, generators, boilers, condensing equipment, and all other equipment;
substations; electric transmission and distribution systems, including
structures, poles, towers, fixtures, conduits, insulators, wires, cables,
transformers, services and meters; steam and heating mains and equipment; gas
generating and coke plants, including buildings, holders and other structures,
boilers and other boiler plant equipment, benches, retorts, coke ovens, water
gas sets, condensing and purification equipment, piping and other accessory
works equipment; facilities for gas storage whether above or below surface; gas
transmission and distribution systems, including structures, mains, compressor
stations, purifier stations, pressure holders, governors, services and meters;
office, shop, garage and other general buildings and structures, furniture and
fixtures; and all municipal and other franchises and all leaseholds, licenses,
permits, easements, and privileges; all as now owned or hereafter acquired by
the Company pursuant to the provisions of the Original Indenture; and

     All the estate, right, title and interest and claim whatsoever, at law as
well as in equity, which the Company now has or may hereafter acquire in and to
the aforesaid property and franchises and every part and parcel thereof;

     Excluding, however, (1) all shares of stock, bonds, notes, evidences of
indebtedness and other securities other than such as may be or are required to
be deposited from time to time with the Trustee in accordance with the
provisions of the Indenture; (2) cash on hand and in banks other than such as
may be or is required to be deposited from time to time with the Trustee in
accordance with the provisions of the Indenture; (3) contracts, claims, bills
and accounts receivable and chooses in action other than such as may be or are
required to be from time to time assigned to the Trustee in accordance with the
provisions of the Indenture; (4) motor vehicles; (5) any stock of goods, wares
and merchandise, equipment, materials and supplies acquired for the purpose of
sale or lease in the usual course of business or for the purpose of consumption
in the operation, construction or repair of any of the properties of the
Company; and (6) the properties described in Schedule B annexed to the Original
Indenture.

     To have and to hold all said property, real, personal and mixed, mortgaged,
pledged or conveyed by the Company as aforesaid, or intended so to be, unto the
Trustee and its successors and assigns forever, subject, however, to permissible
encumbrances as defined in Section 1.09 of the Original Indenture and to the
further reservations, covenants, conditions, uses and trusts set forth in the
Indenture, in trust nevertheless for the same purposes and upon the same
conditions as are set forth in the Indenture.

                                   ARTICLE II.

               PROVISIONS OF BONDS OF POLLUTION CONTROL SERIES AA

     Section 2.01. There is hereby created, for issuance under the Original
Indenture, a series of bonds designated Pollution Control Series AA, each of
which shall bear the descriptive title

                                       12


"First Mortgage Bonds, Pollution Control Series AA" and the form thereof shall
contain suitable provisions with respect to the matters specified in this
section. The Bonds of Pollution Control Series AA shall be printed, lithographed
or typewritten and shall be substantially of the tenor and purport previously
recited. The Bonds of Pollution Control Series AA shall be issued as registered
bonds without coupons in denominations of a multiple of $1,000 and shall be
registered in the name of the Environmental Facilities Trustee. The Bonds of
Pollution Control Series AA shall be dated as of the date of their
authentication.

     The Bonds of Pollution Control Series AA shall be payable, both as to
principal and interest, at the office of the Trustee in Chicago, Illinois, in
lawful money of the United States of America. The maturity of the obligation
represented by the Bonds of Pollution Control Series AA is September 1, 2027.
The date of maturity of the obligation represented by the Bonds of Pollution
Control Series AA is hereinafter referred to as the Final Maturity Date. The
Bonds of Pollution Control Series AA shall bear interest from the Initial
Interest Accrual Date, as hereinafter defined, at the same rate or rates then
and thereafter from time to time borne by the Environmental Facilities Revenue
Bonds.

     Section 2.02. Except as provided in the next succeeding paragraph of this
Section 2.02, in the event of a default under Section 9.1 of the Agreement or in
the event of a default in the payment of the principal of, premium, if any, or
interest (and such default in the payment of interest continues for the full
grace period, if any, permitted by the Environmental Facilities Indenture and
the Environmental Facilities Revenue Bonds) on the Environmental Facilities
Revenue Bonds, whether at maturity, by tender for purchase, by acceleration, by
sinking fund, redemption or otherwise, as and when the same becomes due, the
Bonds of Pollution Control Series AA shall be redeemable in whole upon receipt
by the Trustee of a written demand (hereinafter called a "Redemption Demand")
from the Environmental Facilities Trustee stating that there has been such a
default, stating that it is acting pursuant to the authorization granted by
Section 9.02(c) of the Environmental Facilities Indenture, specifying the last
date to which interest on the Environmental Facilities Revenue Bonds has been
paid (such date being hereinafter referred to as the "Initial Interest Accrual
Date") and demanding redemption of the Bonds of Pollution Control Series AA. The
Trustee shall, within 10 days after receiving such Redemption Demand, mail a
copy thereof to the Company marked to indicate the date of its receipt by the
Trustee. Promptly upon receipt by the Company of such copy of a Redemption
Demand, the Company shall fix a date on which it will redeem the Bonds of
Pollution Control Series AA so demanded to be redeemed (hereinafter called the
"Demand Redemption Date"). Notice of the date fixed as the Demand Redemption
Date shall be mailed by the Company to the Trustee at least 30 days prior to
such Demand Redemption Date. The date to be fixed by the Company as and for the
Demand Redemption Date may be any date up to and including the earlier of (i)
the 120th day after receipt by the Trustee of the Redemption Demand or (ii) the
Final Maturity Date, provided that if the Trustee shall not have received such
notice fixing the Demand Redemption Date within 90 days after receipt by it of
the Redemption Demand, the Demand Redemption Date shall be deemed to be the
earlier of (i) the 120th day after receipt by the Trustee of the Redemption
Demand or (ii) the Final Maturity Date. The Trustee shall mail notice of the
Demand Redemption Date (such notice being hereinafter called the "Demand

                                       13


Redemption Notice") to the Environmental Facilities Trustee not more than 10
nor less than five days prior to the Demand Redemption Date. Notwithstanding the
foregoing, if a default to which this paragraph is applicable is existing on the
Final Maturity Date, such date shall be deemed to be the Demand Redemption Date
without further action (including actions specified in this paragraph) by the
Environmental Facilities Trustee, the Trustee or the Company. The Bonds of
Pollution Control Series AA shall be redeemed by the Company on the Demand
Redemption Date, upon surrender thereof by the Environmental Facilities Trustee
to the Trustee, at a redemption price equal to the principal amount thereof,
plus accrued interest thereon at the rate per annum set forth in Section 2.01
hereof, from the Initial Interest Accrual Date to the Demand Redemption Date. If
a Redemption Demand is rescinded by the Environmental Facilities Trustee by
written notice to the Trustee prior to the Demand Redemption Date, no Demand
Redemption Notice shall be given, or, if already given, shall be automatically
annulled, and interest on the Bonds of Pollution Control Series AA shall cease
to accrue, all interest accrued thereon shall be automatically rescinded and
cancelled and the Company shall not be obligated to make any payments of
principal of or interest on the Bonds of Pollution Control Series AA; but no
such rescission shall extend to or affect any subsequent default or impair any
right consequent thereon.

     In the event that all of the bonds outstanding under the Indenture shall
have become immediately due and payable, whether by declaration or otherwise,
and such acceleration shall not have been annulled, the Bonds of Pollution
Control Series AA shall bear interest at the rate per annum set forth in Section
2.01 hereof, from the Interest Accrual Date, as specified in a written notice to
the Trustee from the Environmental Facilities Trustee, and the principal of and
interest on the Bonds of Pollution Control Series AA from the Initial Interest
Accrual Date shall be payable in accordance with the provisions of the
Indenture.

     Anything herein contained to the contrary notwithstanding, the Trustee is
not authorized to take any action pursuant to a Redemption Demand or a
rescission thereof or a written notice required by this Section 2.02, and such
Redemption Demand, rescission or notice shall be of no force or effect, unless
it is executed in the name of the Environmental Facilities Trustee by one of its
Vice Presidents.

     Section 2.03. Upon payment of the principal of and premium, if any, and
interest on the Environmental Facilities Revenue Bonds, whether at maturity or
prior to maturity by redemption or otherwise, and the surrender thereof to and
cancellation thereof by the Environmental Facilities Trustee (other than any
Environmental Facilities Revenue Bond that was cancelled by the Environmental
Facilities Trustee and for which one or more other Environmental Facilities
Revenue Bonds were delivered and authenticated pursuant to the Environmental
Facilities Indenture in lieu of or in exchange or substitution for such
cancelled Environmental Facilities Revenue Bond), or upon provision for the
payment thereof having been made in accordance with the Environmental Facilities
Indenture, Bonds of Pollution Control Series AA in a principal amount equal to
the principal amount of the Environmental Facilities Revenue Bonds so
surrendered and cancelled or for the provision for which payment has been made
shall be deemed fully paid and the obligations of the Company thereunder shall
be terminated, and such

                                       14


Bonds of Pollution Control Series AA shall be surrendered by the Environmental
Facilities Trustee to the Trustee and shall be cancelled and destroyed by the
Trustee, and a certificate of such cancellation and destruction shall be
delivered to the Company. From and after the Release Date (as defined below),
the bonds of this Series shall be deemed fully paid, satisfied and discharged
and the obligations of the Company hereunder and thereunder shall be terminated.
The Release Date shall be the date that the Bond Insurer (as such term is
defined in the Environmental Facilities Indenture), at the request of the
Company, consents to the release of the bonds of this Series as security for the
Environmental Facilities Revenue Bonds, provided that in no event shall that
date be later than the date as of which all bonds issued under the Indenture
prior to the date of initial issuance of this bond (and excluding bonds of this
Series and First Mortgage Bonds, Pollution Control Series Y and Z) have been
retired through payment, redemption or otherwise (including those bonds "deemed
to be redeemed" within the meaning of that term as used in Article X of the
Original Indenture) at, before or after the maturity thereof. On the Release
Date, the bonds of this Series shall be surrendered by the Environmental
Facilities Trustee to the Trustee whereupon the Bonds of said Series so
surrendered shall be cancelled by the Trustee.

     Section 2.04. Prior to the Release Date, the Environmental Facilities
Trustee as the registered holder of the Bonds of Pollution Control Series AA at
its option may surrender the same at the office of the Trustee, in Chicago,
Illinois, or elsewhere, if authorized by the Company, for cancellation, in
exchange for other bonds of the same series of the same aggregate principal
amount. Thereupon, and upon receipt of any payment required under the provisions
of Section 2.05 hereof, the Company shall execute and deliver to the Trustee and
the Trustee shall authenticate and deliver such other registered bonds to such
registered holder at its office or at any other place specified as aforesaid.

     Section 2.05. No charge shall be made by the Company for any exchange or
transfer of Bonds of Pollution Control Series AA other than for taxes or other
governmental charges, if any, that may be imposed in relation thereto.

                                  ARTICLE III.

                                  MISCELLANEOUS

     Section 3.01. The recitals of fact herein and in the bonds (except the
Trustee's Certificate) shall be taken as statements of the Company and shall not
be construed as made or warranted by the Trustee. The Trustee makes no
representations as to the value of any of the property subject to the lien of
the Indenture, or any part thereof, or as to the title of the Company thereto,
or as to the security afforded thereby and hereby, or as to the validity of this
Supplemental Indenture and the Trustee shall incur no responsibility in respect
of such matters.

     Section 3.02. This Supplemental Indenture shall be construed in connection
with and as a part of the Original Indenture.

     Section 3.03. (a) If any provision of this Supplemental Indenture limits,
qualifies or

                                       15


conflicts with another provision of the Original Indenture or this Supplemental
Indenture required to be included in indentures qualified under the Trust
Indenture Act of 1939, as amended (as enacted prior to the date of this
Supplemental Indenture) by any of the provisions of Sections 310 to 317,
inclusive, of the said Act, such required provision shall control.

     (b) In case any one or more of the provisions contained in this
Supplemental Indenture or in the bonds issued hereunder shall be invalid,
illegal, or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected, impaired, prejudiced or disturbed thereby.

     Section 3.04. Wherever in this Supplemental Indenture the word "Indenture"
is used without either prefix, "Original" or "Supplemental," such word was used
intentionally to include in its meaning both the Original Indenture and all
indentures supplemental thereto.

     Section 3.05. Wherever in this Supplemental Indenture either of the parties
hereto is named or referred to, this shall be deemed to include the successors
or assigns of such party, and all the covenants and agreements in this
Supplemental Indenture contained by or on behalf of the Company or by or on
behalf of the Trustee shall bind and inure to the benefit of the respective
successors and assigns of such parties, whether so expressed or not.

     Section 3.06. (a) This Supplemental Indenture may be simultaneously
executed in several counterparts, and all said counterparts executed and
delivered, each as an original, shall constitute but one and the same
instrument.

     (b) The Table of Contents and the descriptive headings of the several
Articles of this Supplemental Indenture were formulated, used and inserted in
this Supplemental Indenture for convenience only and shall not be deemed to
affect the meaning or construction of any of the provisions hereof.

                                       16


     IN WITNESS WHEREOF, the party of the first part has caused its corporate
name and seal to be hereunto affixed and this Supplemental Indenture to be
signed by its Treasurer and attested by its Executive Vice President, General
Counsel and Corporate Secretary for and in its behalf, and the party of the
second part to evidence its acceptance of the trust hereby created, has caused
its corporate name and seal to be hereunto affixed, and this Supplemental
Indenture to be signed by one of its Vice Presidents, and attested by its
Secretary or an Assistant Secretary, for and in its behalf, all done as of the
1st day of September, 2001.

                                        LOUISVILLE GAS AND ELECTRIC COMPANY

                                        By:
                                           -------------------------
                                                 Daniel K. Arbough
                                                     TREASURER

(CORPORATE SEAL)

ATTEST:
       --------------------
           John R. McCall
      EXECUTIVE VICE PRESIDENT,
        GENERAL COUNSEL AND
        CORPORATE SECRETARY

                                        HARRIS TRUST AND SAVINGS BANK

                                        By:
                                           --------------------------
                                                  J. Bartolini
                                                 VICE PRESIDENT

(CORPORATE SEAL)

ATTEST:
       --------------------
            C. Potter
       ASSISTANT SECRETARY

                                       17


COMMONWEALTH OF            )
KENTUCKY                   )       SS:
                           )
COUNTY OF JEFFERSON        )

     BE IT REMEMBERED that on this _____ day of September, 2001, before me, a
Notary Public duly commissioned in and for the County and Commonwealth
aforesaid, personally appeared DANIEL K. ARBOUGH and JOHN R. MCCALL,
respectively, Treasurer and Executive Vice President, General Counsel and
Corporate Secretary of Louisville Gas and Electric Company, a corporation
organized and existing under and by virtue of the laws of the Commonwealth of
Kentucky, who are personally known to me to be such officers, respectively, and
who are personally known to me to be the same persons who executed as officers
the foregoing instrument of writing, and such persons duly acknowledged before
me the execution of the foregoing instrument of writing to be their act and deed
and the act and deed of said corporation.

     WITNESS my hand and notarial seal this _____ day of September, 2001.

                                                  NOTARY PUBLIC
                                        KENTUCKY, COMMONWEALTH AT LARGE

                                                                (Notarial Seal)

                                   My Commission Expires:
                                                         --------------------

                                       18


STATE OF ILLINOIS          )        SS:
                           )
COUNTY OF COOK             )

     BE IT REMEMBERED that on this ______ day of September, 2001, before me, a
Notary Public duly commissioned in and for the County and State aforesaid,
personally appeared J. BARTOLINI and C. POTTER respectively, Vice President and
Assistant Secretary of Harris Trust and Savings Bank, a corporation organized
and existing under and by virtue of the laws of the State of Illinois, who are
personally known to me to be such officers, respectively, and who are personally
known to me to be the same persons who executed as officers the foregoing
instrument of writing, and such persons duly acknowledged before me the
execution of the foregoing instrument of writing to be their act and deed and
the act and deed of said corporation.

     WITNESS my hand and notarial seal this ______ day of September, 2001.

                                        NOTARY PUBLIC IN AND FOR THE COUNTY OF
                                              COOK AND STATE OF ILLINOIS

                                                                (Notarial Seal)

                                   My Commission Expires:
                                                         --------------------
This Instrument Prepared by:

James Dimas
LG&E Energy Corp.
220 W. Main Street
Louisville, Kentucky  40202


By
  -------------------------------
       James Dimas
       (502) 627-3712

                                       19


                                   SCHEDULE A

     The following property situated, lying and being in the County of
Jefferson, State of Kentucky, to wit:

ELECTRIC TRANSMISSION LINES

     A 138KV steel pole transmission line #3823 in Jefferson County, Kentucky.
This line is built from International Substation to existing Cane Run Switching
for a distance of 1.3 miles.

EX-4.43

                                                                    Exhibit 4.43

================================================================================

                         RECEIVABLES PURCHASE AGREEMENT

                          dated as of February 6, 2001

                                      among

                               KU RECEIVABLES LLC,

                           KENTUCKY UTILITIES COMPANY
                                   as Servicer

           THE VARIOUS PURCHASER GROUPS FROM TIME TO TIME PARTY HERETO

                                       and

                         PNC BANK, NATIONAL ASSOCIATION,
                                as Administrator

================================================================================



                                TABLE OF CONTENTS

                                                                             
ARTICLE I.    AMOUNTS AND TERMS OF THE PURCHASES                                    1
Section       1.1.   Purchase Facility                                              1
Section       1.2.   Making Purchases                                               2
Section       1.3.   Purchased Interest Computation                                 4
Section       1.4.   Settlement Procedures                                          4
Section       1.5.   Fees                                                           9
Section       1.6.   Payments and Computations, Etc                                 9
Section       1.7.   Increased Costs                                               10
Section       1.8.   Requirements of Law                                           11
Section       1.9.   Inability to Determine Euro-Rate                              12
Section       1.10.  Extension of Termination Date                                 13

ARTICLE II.   REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS        14
Section       2.1.   Representations and Warranties; Covenants                     14
Section       2.2.   Termination Events                                            14

ARTICLE III.  INDEMNIFICATION                                                      14
Section       3.1.   Indemnities by the Seller                                     14
Section       3.2.   Indemnities by the Servicer                                   15

ARTICLE IV.   ADMINISTRATION AND COLLECTIONS                                       17
Section       4.1.   Appointment of the Servicer                                   17
Section       4.2.   Duties of the Servicer                                        18
Section       4.3.   Lock-Box Account Arrangements                                 19
Section       4.4.   Enforcement Rights                                            19
Section       4.5.   Responsibilities of the Seller                                20
Section       4.6.   Servicing Fee                                                 20

ARTICLE V.    THE AGENTS                                                           20
Section       5.1.   Appointment and Authorization                                 20
Section       5.2.   Delegation of Duties                                          22
Section       5.3.   Exculpatory Provisions                                        22
Section       5.4.   Reliance by Agents                                            22
Section       5.5.   Notice of Termination Events                                  23
Section       5.6.   Non-Reliance on Administrator, Purchaser Agents and Other
                     Purchasers                                                    24
Section       5.7.   Administrators and Affiliates                                 24
Section       5.8.   Indemnification                                               24
Section       5.9.   Successor Administrator                                       25



                                        i


                                                                             
ARTICLE VI.   MISCELLANEOUS                                                        25
Section       6.1.   Amendments, Etc                                               25
Section       6.2.   Notices, Etc                                                  26
Section       6.3.   Successors and Assigns; Participations; Assignments           26
Section       6.4.   Costs, Expenses and Taxes                                     28
Section       6.5.   No Proceedings; Limitation on Payments                        29
Section       6.6.   Confidentiality                                               29
Section       6.7.   GOVERNING LAW AND JURISDICTION                                29
Section       6.8.   Execution in Counterparts                                     30
Section       6.9.   Survival of Termination                                       30
Section       6.10.  WAIVER OF JURY TRIAL                                          30
Section       6.11.  Sharing of Recoveries                                         30
Section       6.12.  Right of Setoff                                               30
Section       6.13.  Entire Agreement                                              30
Section       6.14.  Headings                                                      31
Section       6.15.  Purchaser Groups'  Liabilities                                31



                                       ii


           
EXHIBIT I     Definitions
EXHIBIT II    Conditions of Purchases
EXHIBIT III   Representations and Warranties
EXHIBIT IV    Covenants
EXHIBIT V     Termination Events

SCHEDULE I    Credit and Collection Policy
SCHEDULE II   Lock-Box Banks and Lock-Box Accounts
SCHEDULE III  Trade Names

ANNEX A       Form of Information Package
ANNEX B       Form of Purchase Notice
ANNEX C       List of Excluded Obligors
ANNEX D       Form of Assumption Agreement
ANNEX E       Form of Transfer Supplement



                                       iii


     This RECEIVABLES PURCHASE AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement") is entered into as of February 6,
2001, among KU RECEIVABLES LLC, a Delaware limited liability company, as seller
(the "Seller"), KENTUCKY UTILITIES COMPANY, a Kentucky and Virginia corporation
("KU"), as initial servicer (in such capacity, together with its successors and
permitted assigns in such capacity, the "Servicer"), PNC BANK, NATIONAL
ASSOCIATION, a national banking association ("PNC"), as purchaser agent for
Market Street Funding Corporation, and as Administrator for each Purchaser Group
(in such capacity, the "Administrator"), MARKET STREET FUNDING CORPORATION
("Market Street"), a Delaware corporation, as a Conduit Purchaser and as Related
Committed Purchaser, MELLON BANK, N.A., as purchaser agent for Three Rivers
Funding Corporation, THREE RIVERS FUNDING CORPORATION ("TRFCO"), a Delaware
corporation, as a Conduit Purchaser and as a Related Committed Purchaser, and
each of the other members of each Purchaser Group that become parties hereto by
executing an Assumption Agreement or a Transfer Supplement.

     PRELIMINARY STATEMENTS. Certain terms that are capitalized and used
throughout this Agreement are defined in EXHIBIT I. References in the Exhibits
hereto to the "Agreement" refer to this Agreement, as amended, supplemented or
otherwise modified from time to time.

     The Seller desires to sell, transfer and assign an undivided variable
percentage interest in a pool of receivables, and the Purchasers desire to
acquire such undivided variable percentage interest, as such percentage interest
shall be adjusted from time to time based upon, in part, reinvestment payments
that are made by such Purchasers.

     In consideration of the mutual agreements, provisions and covenants
contained herein, the parties hereto agree as follows:

                                   ARTICLE I.
                       AMOUNTS AND TERMS OF THE PURCHASES

     Section 1.1. PURCHASE FACILITY.

          (a) On the terms and subject to the conditions hereof, the Seller may,
     from time to time before the Facility Termination Date, request that the
     Conduit Purchasers, or, only if a Conduit Purchaser denies such request or
     is unable to fund (and provides notice of such denial or inability to the
     Seller, the Administrator and its Purchaser Agent), request that the
     Related Committed Purchasers, ratably make purchases of and reinvestments
     in undivided percentage ownership interests with regard to the Purchased
     Interest from the Seller from time to time from the date hereof to the
     Facility Termination Date. Subject to SECTION 1.4(b), concerning
     reinvestments, at no time will a Conduit Purchaser have any obligation to
     make a purchase. Each Related Committed Purchaser severally hereby agrees,
     on the terms and subject to the conditions hereof, to make purchases of
     undivided percentage ownership interests with respect to the Purchased
     Interest from the Seller before the



     Purchaser Group Facility Termination Date for such Related Committed
     Purchaser's Purchaser Group, based on the applicable Purchaser Group's
     Ratable Share of each purchase requested pursuant to SECTION 1.2(a) (each a
     "Purchase") (and, in the case of each Related Committed Purchaser, its
     Commitment Percentage of its Purchaser Group's Ratable Share of such
     Purchase) to the extent its Investment would not thereby exceed its
     Commitment and the Aggregate Investment would not (after giving effect to
     all Purchases on such date) exceed the Purchase Limit.

          (b) The Seller may, upon 60 days' written notice to the Administrator
     and each Purchaser Agent, reduce the unfunded portion of the Purchase Limit
     in whole or in part (but not below the amount which would cause the Group
     Investment of any Purchaser Group to exceed its Group Commitment (after
     giving effect to such reduction)); provided that each partial reduction
     shall be in the amount of at least $5,000,000, or an integral multiple of
     $1,000,000 in excess thereof and unless terminated in whole, the Purchase
     Limit shall in no event be reduced below $20,000,000. Such reduction shall
     at the option of the Seller be applied either (i) to reduce ratably the
     Group Commitment of each Purchaser Group or (ii) to terminate the Group
     Commitment of any one Purchaser Group.

     Section 1.2. MAKING PURCHASES.

          (a) Each purchase (but not reinvestment) of undivided percentage
     ownership interests with regard to the Purchased Interest hereunder shall
     be made upon the Seller's irrevocable written notice in the form of ANNEX B
     delivered to the Administrator and each Purchaser Agent in accordance with
     SECTION 6.2 (which notice must be received by the Administrator and each
     Purchaser Agent before 11:00 a.m., New York City time) at least three
     Business Days before the requested Purchase Date, which notice shall
     specify: (A) the amount requested to be paid to the Seller (such amount,
     which shall not be less than $1,000,000, with respect to each Purchaser
     Group, being the aggregate of the Investments of each Purchaser within such
     Purchaser Group, relating to the undivided percentage ownership interest
     then being purchased), (B) the date of such purchase (which shall be a
     Business Day), and (C) a pro forma calculation of the Purchased Interest
     after giving effect to the increase in the Aggregate Investment. Each
     Purchaser Agent shall promptly notify each Purchaser in its Purchaser Group
     of the requested Purchase. At its sole discretion, each Conduit Purchaser
     may reject such Purchase by giving notice to the Purchaser Agent and the
     Administrator, it being understood that if such Conduit Purchaser rejects
     such Purchase, the Purchaser Agent for such Conduit Purchaser's Purchaser
     Group shall thereafter promptly notify each Related Committed Purchaser in
     its Purchaser Group of such rejection and of their obligations as a result
     thereof to make a Purchase under this SECTION 1.2. If the Purchase is
     requested from a Conduit Purchaser and such Conduit Purchaser determines,
     in its sole discretion, to make the requested Purchase, such Conduit
     Purchaser shall transfer to the Disbursement Account, an amount equal to
     such Conduit Purchaser's Purchaser Group Ratable Share of such Purchase on
     the requested Purchase Date by 3:00 p.m. (New York

                                        2


     time). If the Purchase is requested from the Related Committed
     Purchasers for a Purchaser Group (in the case where the related Conduit
     Purchaser determined not to or was unable to make such Purchase), subject
     to the terms and conditions hereof, such Related Committed Purchasers for a
     Purchaser Group shall transfer the applicable Purchaser Group's Ratable
     Share of each Purchase (and, in the case of each Related Committed
     Purchaser, its Commitment Percentage of its Purchaser Group's Ratable Share
     of such Purchase) into the Disbursement Account by no later than 3:00 p.m.
     (New York time) on the Purchase Date.

          (b) On or before 3:00 p.m. (New York time) the date of each Purchase,
     each Purchaser (or the related Purchaser Agent on its behalf), shall make
     available to the Seller in same day funds, at PNC Bank, National
     Association (Pittsburgh), account number #1011467831, ABA #043-0000-96 (the
     "Disbursement Account"), an amount equal to the proceeds of such Purchase.

          (c) Effective on the date of each Purchase pursuant to this SECTION
     1.2 and each reinvestment pursuant to SECTION 1.4, the Seller hereby sells
     and assigns to the Administrator for the benefit of the Purchasers
     (ratably, according to each such Purchaser's Investment) an undivided
     percentage ownership interest in: (i) each Pool Receivable then existing,
     (ii) all Related Security with respect to such Pool Receivables, and (iii)
     all Collections with respect to, and other proceeds of, such Pool
     Receivables and Related Security.

          (d) To secure all of the Seller's obligations (monetary or otherwise)
     under this Agreement and the other Transaction Documents to which it is a
     party, whether now or hereafter existing or arising, due or to become due,
     direct or indirect, absolute or contingent, the Seller hereby grants to the
     Administrator, for the benefit of the Purchasers, a security interest in
     all of the Seller's right, title and interest (including any undivided
     interest of the Seller) in, to and under all of the following, whether now
     or hereafter owned, existing or arising: (i) all Pool Receivables, (ii) all
     Related Security with respect to such Pool Receivables, (iii) all
     Collections with respect to such Pool Receivables, (iv) the Lock-Box
     Accounts and all amounts on deposit therein, and all certificates and
     instruments, if any, from time to time evidencing such Lock-Box Accounts
     and amounts on deposit therein, (v) all rights (but none of the
     obligations) of the Seller under the Sale Agreement and (vi) all proceeds
     of, and all amounts received or receivable under any or all of, the
     foregoing (collectively, the "Pool Assets"). The Administrator, for the
     benefit of the Purchasers, shall have, with respect to the Pool Assets, and
     in addition to all the other rights and remedies available to the
     Administrator and the Purchasers, all the rights and remedies of a secured
     party under any applicable UCC.

          (e) The Seller may, with the written consent of the Administrator and
     each Purchaser Agent (which consent shall not be unreasonably withheld,
     conditioned or delayed), add additional Persons as Purchasers (either to an
     existing Purchaser Group or by creating new Purchaser Groups) or cause an
     existing

                                        3


     Purchaser to increase its Commitment, in each case automatically
     increasing the Purchase Limit by the amount of the new or increased
     Commitment; PROVIDED, HOWEVER, that the Commitment of any Purchaser may
     only be increased with the consent of such Purchaser and at its sole
     discretion. Each new Purchaser (or Purchaser Group) pursuant to this
     SECTION 1.2(e) and each Purchaser increasing its Commitment pursuant to
     this SECTION 1.2(e) shall become a party hereto or increase its Commitment,
     as the case may be, by executing and delivering to the Administrator and
     the Seller an Assumption Agreement in the form of ANNEX D hereto (which
     Assumption Agreement shall, in the case of any new Purchaser or Purchasers,
     be executed by each Person in such new Purchaser's Purchaser Group).

          (f) Each Related Committed Purchaser's obligation hereunder shall be
     several, such that the failure of any Related Committed Purchaser to make a
     payment in connection with any purchase hereunder shall not relieve any
     other Related Committed Purchaser of its obligation hereunder to make
     payment for any Purchase. Further, in the event any Related Committed
     Purchaser fails to satisfy its obligation to make a purchase as required
     hereunder, upon receipt of notice of such failure from the Administrator
     (or any relevant Purchaser Agent), subject to the limitations set forth
     herein, the non-defaulting Related Committed Purchasers in such defaulting
     Related Committed Purchaser's Purchaser Group shall purchase the defaulting
     Related Committed Purchaser's Commitment Percentage of the related Purchase
     PRO RATA in proportion to their relative Commitment Percentages (determined
     without regard to the Commitment Percentage of the defaulting Related
     Committed Purchaser; it being understood that a defaulting Related
     Committed Purchaser's Commitment Percentage of any Purchase shall be first
     put to the Related Committed Purchasers in such defaulting Related
     Committed Purchaser's Purchaser Group and thereafter if there are no other
     Related Committed Purchasers in such Purchaser Group or if such other
     Related Committed Purchasers are also defaulting Related Committed
     Purchasers, then such defaulting Related Committed Purchaser's Commitment
     Percentage of such Purchase shall be put to each other Purchaser Group
     ratably and applied in accordance with this paragraph (f)). Notwithstanding
     anything in this paragraph (f) to the contrary, no Related Committed
     Purchaser shall be required to make a Purchase pursuant to this paragraph
     for an amount which would cause the aggregate Investment of such Related
     Committed Purchaser (after giving effect to such Purchase) to exceed its
     Commitment.

     Section 1.3. PURCHASED INTEREST COMPUTATION. The Purchased Interest shall
be initially computed on the date of the initial Purchase hereunder. Thereafter,
until the Facility Termination Date, such Purchased Interest shall be
automatically recomputed (or deemed to be recomputed) on each Business Day other
than a Termination Day. From and after the occurrence of any Termination Day,
the Purchased Interest shall (until the event(s) giving rise to such Termination
Day are satisfied or are waived by the Administrator and the Majority
Purchasers) be deemed to be 100%. The Purchased Interest shall become zero when
the Aggregate Investment thereof and Aggregate Discount thereon shall have been
paid in full, all the amounts owed by the Seller and the Servicer hereunder to
each Purchaser, the

                                        4


Administrator and any other Indemnified Party or Affected Person are paid
in full, and the Servicer shall have received the accrued Servicing Fee thereon.

     Section 1.4. SETTLEMENT PROCEDURES.

          (a) The collection of the Pool Receivables shall be administered by
     the Servicer in accordance with this Agreement. The Seller shall provide to
     the Servicer on a timely basis all information needed for such
     administration, including notice of the occurrence of any Termination Day
     and current computations of the Purchased Interest.

          (b) The Servicer shall, on each day on which Collections of Pool
     Receivables are received (or deemed received) by the Seller or the
     Servicer:

          (i) hold in trust (and shall, at the request of the Administrator
     (with the consent or at the direction of the Majority Purchasers),
     segregate in a separate account approved by the Administrator if, at the
     time of such request, there exists an Unmatured Termination Event or a
     Termination Event or if the failure to so segregate reasonably could be
     expected to cause an effect of the type described in clauses (b) through
     (e) of the definition of Material Adverse Effect) for the benefit of each
     Purchaser Group, out of such Collections, first, an amount equal to the
     Aggregate Discount accrued through such day for each Portion of Investment
     and not previously set aside, second, an amount equal to the Fees accrued
     and unpaid through such day, third, an amount equal to the Increased Costs
     accrued and unpaid through such day and fourth, to the extent funds are
     available therefor, an amount equal to the aggregate of each Purchaser
     Group's Ratable Share of the Servicing Fee accrued through such day and not
     previously set aside.

          (ii) subject to SECTION 1.4(f), if such day is not a Termination Day,
     remit to the Seller, ratably, on behalf of each Purchaser Group, the
     remainder of such Collections. Such remainder shall, to the extent
     representing a return on the Aggregate Investment, ratably, according to
     each Purchaser's Investment, be automatically reinvested in Pool
     Receivables, and in the Related Security, Collections and other proceeds
     with respect thereto; PROVIDED, HOWEVEr, that if the Purchased Interest
     would exceed 100%, then the Servicer shall not reinvest, but shall set
     aside and hold in trust for the benefit of the Purchasers (and shall, at
     the request of the Administrator (with the consent or at the direction of
     the Majority Purchasers), segregate in a separate account approved by the
     Administrator if, at the time of such request, there exists an Unmatured
     Termination Event or a Termination Event or if the failure to so segregate
     reasonably could be expected to cause an effect of the type described in
     clauses (b) through (e) of the definition of Material Adverse Effect) a
     portion of such Collections that, together with the other Collections set
     aside pursuant to this paragraph, shall equal the amount necessary to
     reduce the Purchased Interest to 100%; PROVIDED, FURTHER, that (x) in the
     case of any Purchaser that is a Conduit Purchaser (and is not also a
     Related Committed Purchaser), if such

                                        5


     Purchaser has provided notice (a "DECLINING NOTICE") to its Purchaser
     Agent, the Administrator, the Seller and the Servicer that such Purchaser
     (a "DECLINING CONDUIT PURCHASER") no longer wishes Collections with respect
     to any Portion of Investment funded or maintained by such Purchaser to be
     reinvested pursuant to this CLAUSE (II), and (y) in the case of any
     Purchaser that has either (A) provided notice (an "EXITING NOTICE") to its
     Purchaser Agent of its refusal, pursuant to SECTION 1.10, to extend its
     Commitment hereunder or (B) for whom the Purchaser Group Facility
     Termination Date for its Purchaser Group has occurred (in either case, an
     "EXITING PURCHASER"), then in either case (x) or (y), above, such
     Collections shall not be reinvested and shall instead be held in trust for
     the benefit of such Purchaser and applied in accordance with CLAUSE (iii),
     below,

          (iii) if such day is a Termination Day (or any day following the
     provision of a Declining Notice or an Exiting Notice or the occurrence of a
     Purchaser Group Facility Termination Date), set aside and hold in trust
     (and shall, at the request of the Administrator (with the consent or at the
     direction of the Majority Purchasers), segregate in a separate account
     approved by the Administrator) for the benefit of each Purchaser Group the
     entire remainder of the Collections (or in the case of a Declining Conduit
     Purchaser or an Exiting Purchaser an amount equal to such Purchaser's
     ratable share of such Collections based on its Investment; provided, that
     solely for the purpose of determining such Purchaser's ratable share of
     such Collections, such Purchaser's Investment shall be deemed to remain
     constant from the date of the provision of a Declining Notice or an Exiting
     Notice, as the case may be, until the date such Purchaser's Investment has
     been paid in full; IT BEING UNDERSTOOD that if such day is also a
     Termination Day, such Declining Conduit Purchaser's or Exiting Purchaser's
     Investment shall be recalculated taking into account amounts received by
     such Purchaser in respect of this parenthetical and thereafter Collections
     shall be set aside for such Purchaser ratably in respect of its Investment
     (as recalculated)); PROVIDED, that if amounts are set aside and held in
     trust on any Termination Day of the type described in clause (a) of the
     definition of "Termination Day" (or any day following the provision of a
     Declining Notice or an Exiting Notice or the occurrence of a Purchaser
     Group Facility Termination Date) and, thereafter, the conditions set forth
     in SECTION 2 of EXHIBIT II are satisfied or waived by the Administrator and
     the Majority Purchasers (or in the case of a Declining Notice or an Exiting
     Notice, such Declining Notice or Exiting Notice, as the case may be, has
     been revoked by the related Declining Conduit Purchaser or Exiting
     Purchaser, respectively and written notice thereof has been provided to the
     Administrator, the Seller, the related Purchaser Agent and the Servicer),
     such previously set-aside amounts shall, to the extent representing a
     return on Aggregate Investment (or the Investment of the Declining Conduit
     Purchaser or Exiting Purchaser, as the case may be) and ratably in
     accordance with each Purchaser's Investment (or, in the case of a
     revocation of a Declining Notice or an Exiting Notice, in accordance with
     the Investment of such Declining Conduit Purchaser or Exiting Purchaser),
     be reinvested in accordance with CLAUSE (ii) on the day of such subsequent

                                        6


     satisfaction or waiver of conditions or revocation of Declining Notice
     or Exiting Notice, as the case may be, and

          (iv) release to the Seller (subject to SECTION 1.4(f)) for its own
     account any Collections in excess of: (x) amounts required to be reinvested
     in accordance with CLAUSE (ii) or the proviso to CLAUSE (iii) plus (y) the
     amounts that are required to be set aside pursuant to CLAUSE (i), the first
     or second proviso to CLAUSE (ii) and CLAUSE (iii) plus (z) the Seller's
     Share of the Servicing Fee accrued and unpaid through such day.

          (c) The Servicer shall, in accordance with the priorities set forth in
     SECTION 1.4(d), below, deposit into each applicable Purchaser's account (or
     such other account designated by such applicable Purchaser or its Purchaser
     Agent), on each Settlement Date, Collections held for each Purchaser with
     respect to such Purchaser's Portion(s) of Investment pursuant to CLAUSE
     (b)(i) or (f) plus the amount of Collections then held for such Purchaser
     pursuant to CLAUSES (b)(ii) and (iii) of SECTION 1.4; provided, that if KU
     or an Affiliate thereof is the Servicer, such day is not a Termination Day
     and the Administrator has not notified KU (or such Affiliate) that such
     right is revoked, KU (or such Affiliate) may retain the portion of the
     Collections set aside pursuant to CLAUSE (b)(i) that represents the
     aggregate of each Purchaser Group's Ratable Share of the Servicing Fee. On
     the last day of each Yield Period with respect to any Portion of
     Investment, the applicable Purchaser Agent will notify the Servicer by
     facsimile of the amount of the Discount accrued with respect to each such
     Portion of Investment during the related Yield Period then ending.

          (d) The Servicer shall distribute the amounts described (and at the
     times set forth) in SECTION 1.4(c), as follows:

          (i) if such distribution occurs on a day that is not a Termination Day
     and the Purchased Interest does not exceed 100%, FIRST to each Purchaser
     Agent ratably according to the Discount accrued during such Yield Period
     (for the benefit of the relevant Purchasers within such Purchaser Agent's
     Purchaser Group) in payment in full of all accrued Discount and Fees (other
     than Servicing Fees) payable hereunder with respect to each Portion of
     Investment maintained by the Purchasers within such Purchaser Agent's
     Purchaser Group; IT BEING UNDERSTOOD that each Purchaser Agent shall
     distribute such amounts to the Purchasers within its Purchaser Group
     ratably according to the Discount, SECOND to the Administrator (for the
     benefit of the relevant Affected Party(s)) in payment of any Increased
     Costs claimed during such Yield Period and THIRD, if the Servicer has set
     aside amounts in respect of the Servicing Fee pursuant to CLAUSE (b)(i) and
     has not retained such amounts pursuant to CLAUSE (c), to the Servicer's own
     account (payable in arrears on each Settlement Date) in payment in full of
     the aggregate of each Purchaser Group's Ratable Share of accrued Servicing
     Fees so set aside, and

          (ii) if such distribution occurs on a Termination Day or on a day when
     the Purchased Interest exceeds 100%, FIRST if KU or an Affiliate thereof is
     not the

                                        7


     Servicer, to the Servicer's own account in payment in full of all
     accrued Servicing Fees, SECOND to each Purchaser Agent ratably according to
     the Discount (for the benefit of the relevant Purchasers within such
     Purchaser Agent's Purchaser Group) in payment in full of all accrued
     Discount with respect to each Portion of Investment funded or maintained by
     the Purchasers within such Purchaser Agent's Purchaser Group, THIRD to each
     Purchaser Agent ratably according to the aggregate of the Investment of
     each Purchaser in each such Purchaser Agent's Purchaser Group (for the
     benefit of the relevant Purchasers within such Purchaser Agent's Purchaser
     Group) in payment in full of each Purchaser's Investment (or, if such day
     is not a Termination Day, the amount necessary to reduce the Purchased
     Interest to 100%); IT BEING UNDERSTOOD that each Purchaser Agent shall
     distribute the amounts described in the FIRST and SECOND clauses of this
     SECTION 1.4(d)(ii) to the Purchasers within its Purchaser Group ratably
     according to Discount and Investment, respectively, FOURTH, if the
     Aggregate Investment and accrued Aggregate Discount with respect to each
     Portion of Investment for all Purchaser Groups have been reduced to zero
     (or, if such day is not a Termination Day, the amount necessary to reduce
     the Purchased Interest to 100%), and all accrued Servicing Fees payable to
     the Servicer (if other than KU or an Affiliate thereof) have been paid in
     full, to each Purchaser Group ratably (for the benefit of the Purchasers
     within such Purchaser Group) in accordance with its Ratable Share, the
     Administrator and any other Indemnified Party or Affected Person in payment
     in full of any other amounts (including Increased Costs) owed thereto by
     the Seller or Servicer hereunder and, FIFTH, to the Servicer's own account
     (if the Servicer is KU or an Affiliate thereof) in payment in full of the
     Aggregate of each Purchaser Group's Ratable Share of all accrued Servicing
     Fees.

After the Aggregate Investment, Aggregate Discount, fees payable pursuant to
each Purchaser Group Fee Letter and Servicing Fees with respect to the Purchased
Interest, and any other amounts payable by the Seller and the Servicer to each
Purchaser Group, the Administrator or any other Indemnified Party or Affected
Person hereunder, have been paid in full, all additional Collections with
respect to the Purchased Interest shall be paid to the Seller for its own
account.

          (e) For the purposes of this SECTION 1.4:

          (i) if on any day the Outstanding Balance of any Pool Receivable is
     reduced or adjusted downward as a result of any defective, rejected,
     returned, repossessed or foreclosed goods or services, or any revision,
     cancellation, allowance, discount or other adjustment (except a setoff in
     the ordinary course in connection with a Security Deposit or Obligor
     Payment Plan or pursuant to the terms of an Energy Wholesale Contract) made
     by the Seller or any Affiliate of the Seller, or the Servicer or any
     Affiliate of the Servicer, or any setoff or dispute between the Seller or
     any Affiliate of the Seller, or the Servicer or any Affiliate of the
     Servicer and an Obligor, the Seller shall be deemed to have received on
     such day a Collection of such Pool Receivable in the amount of such
     reduction or downward adjustment; PROVIDED, HOWEVER that if the Servicer is
     not the Originator or an Affiliate of Seller or the

                                        8


     Originator, Seller shall not be deemed to have received collections
     under this SECTION (e)(i) for any reduction or downward adjustment of a
     Pool Receivable resulting solely from such Servicer's failure to comply
     with applicable Legal Requirements;

          (ii) if on any day any of the representations or warranties in SECTION
     1(g) or (n) of EXHIBIT III is not true with respect to any Pool Receivable,
     the Seller shall be deemed to have received on such day a Collection of
     such Pool Receivable in full;

          (iii) except as provided in CLAUSE (i) or (ii), or as otherwise
     required by applicable Legal Requirements or the relevant Contract, all
     Collections received from an Obligor of any Receivable shall be applied to
     the Receivables of such Obligor in the order of the age of such
     Receivables, starting with the oldest such Receivable, unless such Obligor
     designates in writing its payment for application to specific Receivables;
     and

          (iv) if and to the extent the Administrator, any Purchaser Agent or
     any Purchaser shall be required for any reason to pay over to an Obligor
     (or any trustee, receiver, custodian or similar official in any Insolvency
     Proceeding) any amount received by it hereunder, such amount shall be
     deemed not to have been so received by such Person but rather to have been
     retained by the Seller and, accordingly, such Person shall have a claim
     against the Seller for such amount, payable when and to the extent that any
     distribution from or on behalf of such Obligor is made in respect thereof.

          (f) If at any time the Seller shall wish to cause the reduction of
     Aggregate Investment (but not to commence the liquidation, or reduction to
     zero, of the entire Aggregate Investment), the Seller may do so as follows:

          (i) the Seller shall give the Administrator, each Purchaser Agent and
     the Servicer (A) at least two Business Days' prior written notice thereof
     for any reduction of Aggregate Investment less than or equal to $10,000,000
     and (B) at least ten Business Days' prior written notice thereof for any
     reduction of Aggregate Investment greater than $10,000,000 (in each case
     such notice shall include the amount of such proposed reduction and the
     proposed date on which such reduction will commence);

          (ii) on the proposed date of commencement of such reduction and on
     each day thereafter, the Servicer shall cause Collections not to be
     reinvested until the amount thereof not so reinvested shall equal the
     desired amount of reduction; and

          (iii) the Servicer shall hold such Collections in trust for the
     benefit of each Purchaser ratably according to its Investment, for payment
     to each such Purchaser (or its related Purchaser Agent for the benefit of
     such Purchaser) on the next Settlement Date with respect to any Portions of
     Investment maintained by such Purchaser immediately following the related
     current Yield Period, and the Aggregate

                                        9


     Investment (together with the Investment of any related Purchaser)
     shall be deemed reduced in the amount to be paid to such Purchaser (or its
     related Purchaser Agent for the benefit of such Purchaser) only when in
     fact finally so paid;

PROVIDED THAT the amount of any such reduction shall be not less than $1,000,000
for each Purchaser Group and shall be an integral multiple of $500,000, and the
entire Aggregate Investment after giving effect to such reduction shall be not
less than $20,000,000 and shall be in an integral multiple of $1,000,000 (unless
the Aggregate Investment shall have been reduced to zero).

     Section 1.5. FEES. The Seller shall pay to each Purchaser Agent for the
benefit of the related Purchasers certain fees in the amounts and on the dates
set forth in letters, dated the date hereof (each such letter, as amended,
supplemented, or otherwise modified from time to time, "a Purchaser Group Fee
Letter") in each case among the Seller, the Servicer, the Administrator and the
related Purchaser Agent.

     Section 1.6. PAYMENTS AND COMPUTATIONS, ETC.

          (a) All amounts to be paid to, or deposited with, any Affected Person
     by the Seller, its Affiliates or the Servicer hereunder shall be made
     without reduction for offset or counterclaim and shall be paid or deposited
     no later than 1:00 p.m. (New York City time) on the day when due in same
     day funds to the applicable Purchaser's account (as such account is
     identified in the related Purchaser Group Fee Letter). All amounts received
     after 1:00 p.m. (New York City time) will be deemed to have been received
     on the next Business Day.

          (b) The Seller or the Servicer, as the case may be, shall, to the
     extent permitted by law, pay interest on any amount not paid to, or
     deposited with, any Affected Person by the Seller, its Affiliates or the
     Servicer, as the case may be, when due hereunder, at an interest rate equal
     to 2.0% per annum above the Base Rate, payable on demand.

          (c) All computations of interest under CLAUSE (b) and all computations
     of Discount, fees and other amounts hereunder shall be made on the basis of
     a year of 360 (or 365 or 366, as applicable, with respect to Discount or
     other amounts calculated by reference to the Base Rate) days for the actual
     number of days elapsed. Whenever any payment or deposit to be made
     hereunder to any Affected Person shall be due on a day other than a
     Business Day, such payment or deposit shall be made on the next Business
     Day and such extension of time shall be included in the computation of such
     payment or deposit.

     Section 1.7. INCREASED COSTS.

          (a) If any Purchaser Agent, Purchaser, Liquidity Provider, the
     Administrator or any other Program Support Provider or any of their
     respective

                                       10


     Affiliates (each an "Affected Person") reasonably determines that the
     existence of or compliance with: (i) any law or regulation or any change
     therein or in the interpretation or application thereof, in each case
     adopted, issued or occurring after the date hereof, or (ii) any request,
     guideline or directive from any central bank or other Governmental
     Authority (whether or not having the force of law) issued or occurring
     after the date of this Agreement, affects or would affect the amount of
     capital required or expected to be maintained by such Affected Person, and
     such Affected Person determines that the amount of such capital is
     increased by or based upon the existence of any commitment to make
     purchases of (or otherwise to maintain the investment in) Pool Receivables
     related to this Agreement or any related liquidity facility, credit
     enhancement facility or other commitments of the same type, then, upon
     demand by such Affected Person (with a copy to the Administrator), the
     Seller shall, pursuant to SECTION 1.4(d), pay to the Administrator, for the
     account of such Affected Person, from time to time as specified by such
     Affected Person, additional amounts sufficient to compensate such Affected
     Person in the light of such circumstances as Increased Costs, to the extent
     that such Affected Person reasonably determines such increase in capital to
     be allocable to the existence of any of such commitments. A certificate as
     to such amounts submitted to the Seller and the Administrator by such
     Affected Person shall be conclusive and binding for all purposes, absent
     manifest error.

          (b) If, due to either: (i) the introduction of or any change in or in
     the interpretation of any law or regulation, in each case adopted, issued
     or occurring after the date of this Agreement or (ii) compliance with any
     guideline or request from any central bank or other Governmental Authority
     issued or occurring after the date of this Agreement (whether or not having
     the force of law), there shall be any increase in the cost to any Affected
     Person of agreeing to purchase or purchasing, or maintaining the ownership
     of, the Purchased Interest or any portion thereof in respect of which
     Discount is computed by reference to the Euro-Rate, then upon demand by
     such Affected Person, the Seller shall, pursuant to SECTION 1.4(d) pay to
     the Administrator (for the account of such Affected Person), from time to
     time as specified by such Affected Person, additional amounts sufficient to
     compensate such Affected Person for such increased costs as Increased
     Costs. Such Affected Person shall provide notice to the Seller of its claim
     to such amounts setting forth in reasonable detail the basis for such
     determination.

          (c) If such increased costs affect the related Affected Person's
     portfolio of financing transactions, such Affected Person shall use
     reasonable averaging and attribution methods to allocate such increased
     costs to the transactions contemplated by this Agreement

                                       11


     Section 1.8. REQUIREMENTS OF LAW.

     (a) If any Affected Person reasonably determines that the existence of or
compliance with: (i) any law or regulation or any change therein or in the
interpretation or application thereof, in each case adopted, issued or occurring
after the date hereof, or (ii) any request, guideline or directive from any
central bank or other Governmental Authority (whether or not having the force of
law) issued or occurring after the date of this Agreement:

          (A) does or shall subject such Affected Person to any tax of any kind
     whatsoever with respect to this Agreement, any increase in the Purchased
     Interest or any portion thereof or in the amount of such Person's
     Investment relating thereto, or does or shall change the basis of taxation
     of payments to such Affected Person on account of Collections, Discount or
     any other amounts payable hereunder (excluding taxes imposed on the overall
     pre-tax net income of such Affected Person, and franchise taxes imposed on
     such Affected Person, by the jurisdiction under the laws of which such
     Affected Person is organized or otherwise is considered doing business
     (unless the Affected Person would not be considered doing business in such
     jurisdiction, but for having entered into, or engaged in the transactions
     in connection with, this Agreement or any other Transaction Document) or a
     political subdivision thereof),

          (B) does or shall impose, modify or hold applicable any reserve,
     special deposit, compulsory loan or similar requirement against assets held
     by, or deposits or other liabilities in or for the account of, purchases,
     advances or loans by, or other credit extended by, or any other acquisition
     of funds by, any office of such Affected Person that are not otherwise
     included in the determination of the Euro-Rate or the Base Rate hereunder,
     or

          (C) does or shall impose on such Affected Person any other condition,

and the result of any of the foregoing is: (A) to increase the cost to such
Affected Person of acting as Administrator or as a Purchaser Agent, or of
agreeing to purchase or purchasing or maintaining the ownership of undivided
percentage ownership interests with regard to the Purchased Interest (or
interests therein) or any Portion of Investment, or (B) to reduce any amount
receivable hereunder (whether directly or indirectly), then, in any such case,
upon demand by such Affected Person, the Seller shall, pursuant to SECTION
1.4(d), pay to such Affected Person additional amounts necessary to compensate
such Affected Person for such additional cost or reduced amount receivable as
Increased Costs. All such amounts shall be payable as incurred. A certificate
from such Affected Person to the Seller and the Administrator certifying, in
reasonably specific detail, the basis for, calculation of, and amount of such
additional costs or reduced amount receivable shall be conclusive and binding
for all purposes, absent manifest error; PROVIDED, HOWEVER, that no Affected
Person shall be required to disclose any confidential or tax planning
information in any such certificate.

                                       12


     (b) Notwithstanding any other provision of SECTION 1.7 or this SECTION 1.8,
the amounts paid by the Seller as Increased Costs under such Sections on any
Settlement Date shall be settled by deduction from the Total Reserves in effect
on such Settlement Date (as set forth on the related Information Package) and
shall in no case exceed the amount of such reserve (after giving effect to all
other deductions applicable) on such Settlement Date. The Seller shall have no
obligation to compensate for any shortfall in payments due to the operation of
this Section 1.8(b) on such Settlement Date on any future Settlement Date, and
any deduction under this Section 1.8(b) applicable to such Settlement Date shall
not apply to future Settlement Dates.

     Section 1.9. INABILITY TO DETERMINE EURO-RATE. (a) If the Administrator (or
any Purchaser Agent) determines before the first day of any Yield Period (which
determination shall be final and conclusive) that, by reason of circumstances
affecting the interbank eurodollar market generally, deposits in dollars (in the
relevant amounts for such Yield Period) are not being offered to banks in the
interbank eurodollar market for such Yield Period, or adequate means do not
exist for ascertaining the Euro-Rate for such Yield Period, then the
Administrator shall give notice thereof to the Seller. Thereafter, until the
Administrator or such Purchaser Agent notifies the Seller that the circumstances
giving rise to such suspension no longer exist, (a) no Portion of Investment
shall be funded at the Yield Rate determined by reference to the Euro-Rate and
(b) the Discount for any outstanding Portions of Investment then funded at the
Yield Rate determined by reference to the Euro-Rate shall, on the last day of
the then current Yield Period, be converted to the Yield Rate determined by
reference to the Base Rate.

     (b) If, on or before the first day of any Yield Period, the Administrator
shall have been notified by any Purchaser, Purchaser Agent or Liquidity Provider
that, such Person has determined (which determination shall be final and
conclusive) that, any enactment, promulgation or adoption of or any change in
any applicable law, rule or regulation, or any change in the interpretation or
administration thereof by a governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Person with any guideline, request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for such Person to fund or maintain any Portion
of Investment at the Yield Rate determined by reference to the Euro-Rate, the
Administrator shall notify the Seller thereof. Upon receipt of such notice,
until the Administrator notifies the Seller that the circumstances giving rise
to such determination no longer apply, (a) no Portion of Investment shall be
funded at the Yield Rate determined by reference to the Euro-Rate and (b) the
Discount for any outstanding Portions of Investment then funded at the Yield
Rate determined by reference to the Euro-Rate shall be converted to the Yield
Rate determined by reference to the Base Rate either (i) on the last day of the
then current Yield Period if such Person may lawfully continue to maintain such
Portion of Investment at the Yield Rate determined by reference to the Euro-Rate
to such day, or (ii) immediately, if such Person may not lawfully continue to
maintain such Portion of Investment at the Yield Rate determined by reference to
the Euro-Rate to such day.

                                       13


     Section 1.10. EXTENSION OF TERMINATION DATE. The Seller may advise the
Administrator and each Purchaser Agent in writing of its desire to extend the
Facility Termination Date for an additional 364 days, provided such request is
made not more than 90 days prior to, and not less than 60 days prior to, the
then current Facility Termination Date. In the event that the Purchasers are all
agreeable to such extension, the Administrator shall so notify the Seller in
writing (it being understood that the Purchasers may accept or decline such a
request in their sole discretion and on such terms as they may elect) not less
than 30 days prior to the then current Facility Termination Date and the Seller,
the Administrator, the Purchaser Agents and the Purchasers shall enter into such
documents as the Purchasers may deem necessary or appropriate to reflect such
extension, and all reasonable costs and expenses incurred by the Purchasers, the
Administrator and the Purchaser Agents in connection therewith (including
reasonable Attorneys' Costs) shall be paid by the Seller. In the event a
Purchaser declines the request for such extension, the Administrator shall so
notify each Purchaser Agent and the Seller of such determination; PROVIDED,
HOWEVER, that the failure of the Administrator to notify the Seller of the
determination to decline such extension shall not affect the understanding and
agreement that the Purchaser[s] shall be deemed to have refused to grant the
requested extension in the event the Administrator fails to affirmatively notify
the Seller, in writing, of their agreement to accept the requested extension.
Each other Purchaser who shall have previously assented to the renewal may,
within two Business Days of the receipt of such notice, opt to revoke its
renewal under this paragraph by written notice to the Administrator, each other
Purchaser and the Seller (it being understood that upon the expiration of such
two Business Days, each Purchaser who shall have delivered notice of its refusal
to renew or shall have so revoked a previously declared renewal shall be an
Exiting Purchaser for all purposes of this Agreement, including SECTION 1.4(b)).
Thereafter, each such Purchaser's Commitment shall terminate, the Purchase Limit
shall be reduced by the aggregate of the Commitments of the Exiting Purchasers
under this paragraph (unless there shall be a corresponding increase in
Commitments pursuant to SECTION 1.2(e)), and each such Purchaser (and in the
case of a termination pursuant to this paragraph of the Commitments of an entire
Purchaser Group, the related Purchaser Agent) shall have no further rights or
obligations hereunder (except for (i) its rights to continue to receive payments
hereunder with respect to Investment, Discount and Fees in connection with its
Investment in the Purchased Interest, (ii) its rights to receive any other
amounts owing to such Purchaser as an Indemnified Party or Affected Person,
(iii) any voting rights that such Purchaser may have with respect to any
Lock-Box Account and the related Lock-Box Agreement and (iv) any other rights
that expressly survive termination, in each case until all payments owed to such
Purchaser hereunder have been paid in full).

                                   ARTICLE II.
                   REPRESENTATIONS AND WARRANTIES; COVENANTS;
                               TERMINATION EVENTS

     Section 2.1. REPRESENTATIONS AND WARRANTIES; COVENANTS. Each of the Seller,
KU and the Servicer hereby makes the representations and warranties, and hereby
agrees to perform and observe the covenants, applicable to it set forth in
EXHIBITS III and IV, respectively.

                                       14


     Section 2.2. TERMINATION EVENTS. If any of the Termination Events set forth
in EXHIBIT V shall occur, the Administrator may (with the consent of the
Majority Purchasers) or shall (at the direction of the Majority Purchasers), by
notice to the Seller, declare the Facility Termination Date to have occurred (in
which case the Facility Termination Date shall be deemed to have occurred);
PROVIDED, that automatically upon the occurrence of any event (without any
requirement for the passage of time or the giving of notice) described in
PARAGRAPH (f) of EXHIBIT V, the Facility Termination Date shall occur. Upon any
such declaration, occurrence or deemed occurrence of the Facility Termination
Date, the Administrator, each Purchaser Agent and each Purchaser shall have, in
addition to the rights and remedies that they may have under this Agreement, all
other rights and remedies provided after default under the New York UCC and
under other applicable law, which rights and remedies shall be cumulative.

                                  ARTICLE III.
                                 INDEMNIFICATION

     Section 3.1. INDEMNITIES BY THE SELLER. Without limiting any other rights
that the any Purchaser Agent, Purchaser, Liquidity Provider, the Administrator
or any Program Support Provider or any of their respective Affiliates,
employees, officers, directors, agents, counsel, successors, transferees or
assigns (each, an "Indemnified Party") may have hereunder or under applicable
law, the Seller hereby agrees to indemnify each Indemnified Party from and
against any and all claims, damages, expenses, costs, losses and liabilities
(including Attorney Costs) (all of the foregoing being collectively referred to
as "Indemnified Amounts") arising out of or resulting from this Agreement
(whether directly or indirectly), the use of proceeds of purchases or
reinvestments, the ownership of the Purchased Interest, or any interest therein,
or in respect of any Receivable, Related Security or Contract, excluding,
however: (a) Indemnified Amounts to the extent resulting from gross negligence
or willful misconduct on the part of such Indemnified Party or its officers,
directors, agents or counsel, (b) recourse with respect to any Receivable to the
extent that such Receivable is uncollectible in whole or part on account of the
insolvency, bankruptcy or lack of credit worthiness of the related Obligor or
any Insolvency Proceeding in respect to an Obligor, or (c) any overall net
income taxes or franchise taxes imposed on such Indemnified Party by the
jurisdiction under the laws of which such Indemnified Party is organized or
otherwise is considered doing business (unless the Indemnified Party would not
be considered doing business in such jurisdiction, but for having entered into,
or engaged in the transactions in connection with, this Agreement or any other
Transaction Document) or any political subdivision thereof. Without limiting or
being limited by the foregoing, and subject to the exclusions set forth in the
preceding sentence, the Seller shall pay on demand (which demand shall be
accompanied by documentation of the Indemnified Amounts, in reasonable detail)
to each Indemnified Party any and all amounts necessary to indemnify such
Indemnified Party from and against any and all Indemnified Amounts relating to
or resulting from any of the following:

                                       15


               (i)    the failure of any Receivable included in the calculation
          of the Net Receivables Pool Balance as an Eligible Receivable to be an
          Eligible Receivable, the failure of any information contained in an
          Information Package to be true and correct, or the failure of any
          other information provided to such Indemnified Party by the Seller,
          Originator or any Affiliate thereof with respect to Receivables or
          this Agreement to be true and correct,

               (ii)   the failure of any representation, warranty or statement
          made or deemed made by the Seller (or any of its officers) under or in
          connection with this Agreement to have been true and correct as of the
          date made or deemed made in all respects,

               (iii)  the failure by the Seller to comply with any applicable
          Legal Requirement with respect to any Pool Receivable or the related
          Contract or applicable Legal Requirement under which any Pool
          Receivable arises or the failure of any Pool Receivable or the related
          Contract to conform to any such applicable Legal Requirement,

               (iv)   the failure to vest in the Administrator (for the benefit
          of the Purchasers) a valid and enforceable: (A) perfected undivided
          percentage ownership interest, to the extent of the Purchased
          Interest, in the Receivables in, or purporting to be in, the
          Receivables Pool and the other Pool Assets, or (B) first priority
          perfected security interest in the Pool Assets, in each case, free and
          clear of any Adverse Claim,

               (v)    the failure, to the extent resulting from an action or
          inaction of Seller, Originator or any Affiliate thereof, to have
          filed, or any delay in filing, financing statements or other similar
          instruments or documents under the UCC of any applicable jurisdiction
          or other applicable laws with respect to any Receivables in, or
          purporting to be in, the Receivables Pool and the other Pool Assets,
          whether at the time of any purchase or reinvestment or at any
          subsequent time,

               (vi)   any dispute, claim, offset or defense (other than any
          reduction, revision or discharge in any Insolvency Proceeding relating
          to the Obligor) of the Obligor to the payment of any Receivable in, or
          purporting to be in, the Receivables Pool (including a defense not
          related to an Insolvency Event based on such Receivable or the related
          Contract or applicable Legal Requirement not being a legal, valid and
          binding obligation of such Obligor enforceable against it in
          accordance with its terms), or any other claim resulting from the sale
          of the goods or services related to such Receivable or the furnishing
          or failure to furnish such goods or services or relating to collection
          activities by the Seller or any of its Affiliates with respect to such
          Receivable,

               (vii)  any failure of the Seller, Originator or any Affiliate
          thereof to perform its duties or obligations in accordance with the
          provisions hereof or under the Contracts or the applicable Legal
          Requirements,

                                       16


               (viii) any products liability or other claim, investigation,
          litigation or proceeding arising out of or in connection with
          merchandise, insurance or services that give rise to any Receivable,

               (ix)   the commingling of Collections by Seller, Originator or
          any Affiliate thereof at any time with other funds,

               (x)    the use of proceeds of purchases or reinvestments,

               (xi)   any reduction in the Aggregate Investment as a result of
          the distribution of Collections pursuant to SECTION 1.4(D), if all or
          a portion of such distributions shall thereafter be rescinded or
          otherwise must be returned for any reason, or

               (xii)  any obligation or liability of any Indemnified Party to
          any Obligor or any other third Person with respect to any Receivables,
          Contracts or applicable Legal Requirements related thereto, other than
          any obligation or liability resulting from the Servicer (if the
          Servicer is not the Originator or an Affiliate of the Originator)
          failing to comply with Applicable Legal Requirements, or any
          obligation of any Indemnified Party to perform any of the obligations
          of the Seller or the Originator with respect to any Receivables,
          Contracts or applicable Legal Requirements related thereto.

     Section 3.2. INDEMNITIES BY THE SERVICER. Without limiting any other rights
that any Indemnified Party may have hereunder or under applicable law, the
Servicer hereby agrees to indemnify each Indemnified Party from and against any
and all Indemnified Amounts arising out of or resulting from (whether directly
or indirectly): (a) the failure of any information contained in an Information
Package to be true and correct, or the failure of any other information provided
to such Indemnified Party by, or on behalf of, the Servicer to be true and
correct, (b) the failure of any representation, warranty or statement made or
deemed made by the Servicer (or any of its officers) under or in connection with
this Agreement or any other Transaction Document to which it is a party to have
been true and correct as of the date made or deemed made in all respects when
made, (c) the failure by the Servicer to comply with any applicable Legal
Requirements with respect to any Pool Receivable or the related Contract, (d)
any dispute, claim, offset or defense of the Obligor to the payment of any
Receivable in, or purporting to be in, the Receivables Pool resulting from or
related to the collection activities by the Servicer or its Affiliates with
respect to such Receivable, or (e) any failure of the Servicer to perform its
duties or obligations in accordance with the provisions hereof or any other
Transaction Document to which it is a party; PROVIDED THAT in each case such
Indemnified Amounts arise out of, result from or relate to acts or omissions of
such Servicer prior to the appointment of a successor to such Servicer pursuant
to SECTION 4.1(C).

                                       17


                                   ARTICLE IV.
                         ADMINISTRATION AND COLLECTIONS

     Section 4.1. APPOINTMENT OF THE SERVICER.

          (a) The servicing, administering and collection of the Pool
     Receivables shall be conducted by the Person so designated from time to
     time as the Servicer in accordance with this Section. Until the
     Administrator gives notice to KU (in accordance with this SECTION 4.1) of
     the designation of a new Servicer, KU is hereby designated as, and hereby
     agrees to perform the duties and obligations of, the Servicer pursuant to
     the terms hereof. Upon the occurrence of a Termination Event, the
     Administrator may (with the consent of the Majority Purchasers) or shall
     (at the direction of the Majority Purchasers) designate as Servicer any
     Person (including itself) to succeed KU or any successor Servicer, on the
     condition in each case that any such Person so designated shall agree to
     perform the duties and obligations of the Servicer pursuant to the terms
     hereof.

          (b) Upon the designation of a successor Servicer as set forth in
     CLAUSE (a), KU agrees that it will terminate its activities as Servicer
     hereunder in any reasonable manner that the Administrator determines will
     facilitate the transition of the performance of such activities to the new
     Servicer, and KU shall cooperate with, and assist in the transfer of such
     servicing duties to, such new Servicer. Such cooperation shall include
     access to and transfer of related records (including all Contracts) and,
     subject to restrictions in applicable contracts and agreements, use by the
     new Servicer of all licenses, hardware or software necessary or desirable
     to collect the Pool Receivables and the Related Security.

          (c) KU acknowledges that, in making their decision to execute and
     deliver this Agreement, the Administrator and each Purchaser Group have
     relied on KU's agreement to act as Servicer hereunder. Accordingly, KU
     agrees that it will not voluntarily resign as Servicer.

          (d) The Servicer may delegate its duties and obligations hereunder to
     the Sub-Servicer; PROVIDED, that, in such delegation: (i) the Sub-Servicer
     shall agree in writing to perform the duties and obligations of the
     Servicer pursuant to the terms hereof, (ii) the Servicer shall remain
     primarily liable for the performance of the duties and obligations so
     delegated, (iii) the Seller, the Administrator and each Purchaser Group
     shall have the right to look solely to the Servicer for performance, and
     (iv) the terms of any agreement with the Sub-Servicer shall provide that
     the Administrator may terminate such agreement upon the termination of the
     Servicer hereunder by giving notice of its desire to terminate such
     agreement to the Servicer (and the Servicer shall provide appropriate
     notice to the Sub-Servicer); PROVIDED, HOWEVER, that if any such delegation
     is to any Person other than the Originator or an Affiliate

                                       18


     thereof, the Administrator and the Majority Purchasers shall have consented
     in writing in advance to such delegation.

     Section 4.2. DUTIES OF THE SERVICER.

          (a) The Servicer shall take or cause to be taken all such action as
     may be necessary or advisable to administer and collect each Pool
     Receivable from time to time, all in accordance with this Agreement and all
     applicable Legal Requirements, with reasonable care and diligence, and in
     accordance with the Credit and Collection Policies. The Servicer shall set
     aside, for the account of each Purchaser Group, the amount of the
     Collections to which each such Purchaser Group is entitled in accordance
     with ARTICLE I. The Servicer may, in accordance with the applicable Credit
     and Collection Policy and applicable Legal Requirements, extend the
     maturity of any Pool Receivable (but not beyond 30 days) and extend the
     maturity or adjust the Outstanding Balance of any Defaulted Receivable as
     the Servicer may determine to be appropriate to maximize Collections
     thereof; PROVIDED, HOWEVER, that: (i) such extension or adjustment shall
     not alter the status of such Pool Receivable as a Delinquent Receivable or
     a Defaulted Receivable or limit the rights of the Administrator or any
     Purchaser Group under this Agreement and (ii) if a Termination Event has
     occurred and KU or an Affiliate thereof is serving as the Servicer, KU or
     such Affiliate may only make such extensions or adjustments if (A) required
     to do so by applicable Legal Requirements or (B) the Outstanding Principal
     Balance of the Receivable adjusted or extended shall be less than $250 and
     the aggregate Outstanding Principal Balance of all Receivables so adjusted
     or extended up to such time does not exceed $10,000 or (C) upon the prior
     approval of the Administrator. The Seller shall deliver to the Servicer and
     the Servicer shall hold for the benefit of the Seller and the Administrator
     (individually and for the benefit of each Purchaser Group), in accordance
     with their respective interests, all records and documents (including
     computer tapes or disks) with respect to each Pool Receivable.
     Notwithstanding anything to the contrary contained herein, the
     Administrator may direct the Servicer (whether the Servicer is KU or any
     other Person) to commence or settle any legal action to enforce collection
     of any Pool Receivable or to foreclose upon or repossess any Related
     Security to the extent in compliance with applicable Legal Requirements;
     PROVIDED, HOWEVER, that no such direction may be given unless either: (A) a
     Termination Event has occurred or (B) the Administrator believes in good
     faith that failure to commence, settle or effect such legal action,
     foreclosure or repossession could adversely affect Receivables constituting
     a material portion of the Pool Receivables.

          (b) The Servicer shall, as soon as practicable following actual
     receipt of collected funds, turn over to the Seller the collections of any
     indebtedness that is not a Pool Receivable, less, if KU or an Affiliate
     thereof is not the Servicer, all reasonable and appropriate out-of-pocket
     costs and expenses of such Servicer of servicing, collecting and
     administering such collections. The Servicer, if other than KU or an
     Affiliate thereof, shall, as soon as practicable upon demand, deliver to
     the

                                       19


          Seller all records in its possession that evidence or relate to any
          indebtedness that is not a Pool Receivable, and copies of records in
          its possession that evidence or relate to any indebtedness that is a
          Pool Receivable.

          (c) The Servicer's obligations hereunder shall terminate on the later
     of: (i) the Facility Termination Date and (ii) the date on which all
     amounts required to be paid to the Purchaser Agents, each Purchaser, the
     Administrator and any other Indemnified Party or Affected Person hereunder
     shall have been paid in full.

     After such termination, if KU or an Affiliate thereof was not the Servicer
on the date of such termination, the Servicer shall promptly deliver to the
Seller all books, records and related materials that the Seller previously
provided to the Servicer, or that have been obtained by the Servicer, in
connection with this Agreement.

     Section 4.3. LOCK-BOX ACCOUNT ARRANGEMENTS. Upon the occurrence of a
Termination Event, the Administrator may (with the consent of the Majority
Purchasers) or shall (upon the direction of the Majority Purchasers) at any time
thereafter give notice to each Lock-Box Bank that the Administrator is
exercising its rights under the Lock-Box Agreements to do any or all of the
following: (a) to have the exclusive ownership and control of the Lock-Box
Accounts or the KU Post-Office Box (as appropriate) transferred to the
Administrator (for the benefit of the Purchasers) and to exercise exclusive
dominion and control over the funds deposited therein, (b) to have the proceeds
that are sent to the respective Lock-Box Accounts, to the KU Post-Office Box or
to Travelers redirected pursuant to the Administrator's instructions rather than
deposited in the applicable Lock-Box Account, and (c) to take any or all other
actions permitted under the applicable Lock-Box Agreement. The Seller hereby
agrees that if the Administrator at any time takes any action set forth in the
preceding sentence, the Administrator shall have exclusive control (for the
benefit of the Purchasers) of the proceeds (including Collections) of all Pool
Receivables and the Seller hereby further agrees to take any other action that
the Administrator or any Purchaser Agent may reasonably request to transfer such
control. Any proceeds of Pool Receivables received by the Seller or the Servicer
thereafter shall be sent immediately to the Administrator. The parties hereto
hereby acknowledge that at any time the Administrator takes control of any
Lock-Box Account, the Administrator shall not have any rights to the funds
therein in excess of the unpaid amounts due to the Administrator, the Purchaser
Groups, any Indemnified Party or any other Person hereunder, and the
Administrator shall distribute or cause to be distributed such funds in
accordance with SECTION 4.2(b) and ARTICLE I (in each case as if such funds were
held by the Servicer thereunder).

     Section 4.4. ENFORCEMENT RIGHTS.

          (a) At any time following the occurrence of a Termination Event:

          (i) the Administrator may (with the consent or at the direction of the
     Majority Purchasers) direct the Obligors that payment of all amounts
     payable under any Pool Receivable is to be made directly to the
     Administrator or its designee,

                                       20


          (ii) the Administrator may (with the consent or at the direction of
     the Majority Purchasers) instruct the Seller or the Servicer to give notice
     of the Purchaser Groups' interest in Pool Receivables to each Obligor,
     which notice shall direct that payments be made directly to the
     Administrator or its designee (on behalf of such Purchaser Groups), and the
     Seller or the Servicer, as the case may be, shall give such notice at the
     expense of the Seller or the Servicer, as the case may be; PROVIDED, that
     if the Seller or the Servicer, as the case may be, fails to so notify each
     Obligor, the Administrator (at the Seller's or the Servicer's, as the case
     may be, expense) may so notify the Obligors, and

          (iii) the Administrator may (with the consent or at the direction of
     the Majority Purchasers) request the Servicer to, and upon such request the
     Servicer shall: (A) assemble all of the records necessary or desirable to
     collect the Pool Receivables and the Related Security, and transfer or
     license to a successor Servicer, to the extent allowed by the Servicer's
     agreement(s) with the vendor(s) of such software, the use of all software
     necessary or desirable to collect the Pool Receivables and the Related
     Security, and make the same available to the Administrator or its designee
     (for the benefit of the Purchasers) at a place selected by the
     Administrator, and (B) segregate all cash, checks and other instruments
     received by it from time to time constituting Collections in a manner
     acceptable to the Administrator and, promptly upon receipt, remit all such
     cash, checks and instruments, duly endorsed or with duly executed
     instruments of transfer, to the Administrator or its designee.

          (b) The Seller hereby authorizes the Administrator (on behalf of each
     Purchaser Group), and irrevocably appoints the Administrator as its
     attorney-in-fact with full power of substitution and with full authority in
     the place and stead of the Seller, which appointment is coupled with an
     interest, to take any and all steps in the name of the Seller and on behalf
     of the Seller necessary or desirable, in the determination of the
     Administrator, after the occurrence of a Termination Event, to collect any
     and all amounts or portions thereof due under any and all Pool Assets,
     including endorsing the name of the Seller on checks and other instruments
     representing Collections and enforcing such Pool Assets. Notwithstanding
     anything to the contrary contained in this subsection, none of the powers
     conferred upon such attorney-in-fact pursuant to the preceding sentence
     shall subject such attorney-in-fact to any liability if any action taken by
     it shall prove to be inadequate or invalid, nor shall they confer any
     obligations upon such attorney-in-fact in any manner whatsoever.

                                       21


     Section 4.5. RESPONSIBILITIES OF THE SELLER.

          (a) Anything herein to the contrary notwithstanding, the Seller shall:
     (i) perform all of its obligations, if any, under the Contracts or
     applicable Legal Requirements related to the Pool Receivables to the same
     extent as if interests in such Pool Receivables had not been transferred
     hereunder, and the exercise by the Administrator, the Purchaser Agents or
     the Purchasers of their respective rights hereunder shall not relieve the
     Seller from such obligations, and (ii) pay when due any taxes, including
     any sales taxes payable in connection with the Pool Receivables and their
     creation and satisfaction. The Administrator, the Purchaser Agents or any
     of the Purchasers shall not have any obligation or liability with respect
     to any Pool Asset, nor shall any of them be obligated to perform any of the
     obligations of the Seller, Servicer or the Originator thereunder.

          (b) KU hereby irrevocably agrees that if at any time it shall cease to
     be the Servicer hereunder, it shall act (if the then-current Servicer so
     requests and at such Servicer's sole expense) as the data-processing agent
     of the Servicer and, in such capacity, KU shall conduct the data-processing
     functions of the administration of the Receivables and the Collections
     thereon in substantially the same way that KU conducted such
     data-processing functions while it acted as the Servicer.

     Section 4.6. SERVICING FEE. (a) Subject to CLAUSE (b), the Servicer shall
be paid a fee (the "Servicing Fee") equal to 0.50% (the "Servicing Fee Rate")
PER ANNUM of the daily average aggregate Outstanding Balance of the Pool
Receivables. The aggregate of each Purchaser Group's Ratable Share of such fee
shall be paid through the distributions contemplated by SECTION 1.4(d), and the
Seller's Share of such fee shall be paid by the Seller.

     (b) If the Servicer ceases to be KU or an Affiliate thereof, the servicing
fee shall be the greater of: (i) the amount calculated pursuant to CLAUSE (a)
and (ii) an alternative amount specified by the successor Servicer not to exceed
110% of the aggregate reasonable costs and expenses incurred by such successor
Servicer in connection with the performance of its obligations as Servicer.

                                   ARTICLE V.
                                   THE AGENTS

     Section 5.1. APPOINTMENT AND AUTHORIZATION. (a) Each Purchaser and
Purchaser Agent hereby irrevocably designates and appoints PNC Bank, National
Association as the "Administrator" hereunder and authorizes the Administrator to
take such actions and to exercise such powers as are delegated to the
Administrator hereby and to exercise such other powers as are reasonably
incidental thereto. The Administrator shall hold, in its name, for the benefit
of each Purchaser, ratably, the Purchased Interest. The Administrator shall not
have any duties other than those expressly set forth herein or any fiduciary
relationship with any Purchaser or Purchaser Agent, and no implied obligations
or liabilities shall be read into this Agreement, or otherwise exist, against
the Administrator. The Administrator does not

                                       22


assume, nor shall it be deemed to have assumed, any obligation to, or
relationship of trust or agency with, the Seller or Servicer. Notwithstanding
any provision of this Agreement or any other Transaction Document to the
contrary, in no event shall the Administrator ever be required to take any
action which exposes the Administrator to personal liability or which is
contrary to the provision of any Transaction Document or applicable law.

     (b) Each Purchaser hereby irrevocably designates and appoints the
respective institution identified as the Purchaser Agent for such Purchaser's
Purchaser Group on the signature pages hereto or in the Assumption Agreement or
Transfer Supplement pursuant to which such Purchaser becomes a party hereto, and
each authorizes such Purchaser Agent to take such action on its behalf under the
provisions of this Agreement and to exercise such powers and perform such duties
as are expressly delegated to such Purchaser Agent by the terms of this
Agreement, if any, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, no Purchaser Agent shall have any duties or responsibilities, except
those expressly set forth herein, or any fiduciary relationship with any
Purchaser or other Purchaser Agent or the Administrator, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities on
the part of such Purchaser Agent shall be read into this Agreement or otherwise
exist against such Purchaser Agent.

     (c) Except as otherwise specifically provided in this Agreement, the
provisions of this Article V are solely for the benefit of the Purchaser Agents,
the Administrator and the Purchasers, and none of the Seller or Servicer shall
have any rights as a third-party beneficiary or otherwise under any of the
provisions of this Article V, except that this Article V shall not affect any
obligations which any Purchaser Agent, the Administrator or any Purchaser may
have to the Seller or the Servicer under the other provisions of this Agreement.
Furthermore, no Purchaser shall have any rights as a third-party beneficiary or
otherwise under any of the provisions hereof in respect of a Purchaser Agent
which is not the Purchaser Agent for such Purchaser.

     (d) In performing its functions and duties hereunder, the Administrator
shall act solely as the agent of the Purchasers and the Purchaser Agents and
does not assume nor shall be deemed to have assumed any obligation or
relationship of trust or agency with or for the Seller or Servicer or any of
their successors and assigns. In performing its functions and duties hereunder,
each Purchaser Agent shall act solely as the agent of its respective Purchaser
Group and does not assume nor shall be deemed to have assumed any obligation or
relationship of trust or agency with or for the Seller, the Servicer, any other
Purchaser, any other Purchaser Agent or the Administrator, or any of their
respective successors and assigns.

     Section 5.2. DELEGATION OF DUTIES. The Administrator may execute any of its
duties through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrator
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.

                                       23


     Section 5.3. EXCULPATORY PROVISIONS. None of the Purchaser Agents, the
Administrator or any of their directors, officers, agents or employees shall be
liable for any action taken or omitted (i) with the consent or at the direction
of the Majority Purchasers (or in the case of any Purchaser Agent, the
Purchasers within its Purchaser Group that have a majority of the aggregate
Commitment of such Purchaser Group) or (ii) in the absence of such Person's
gross negligence or willful misconduct. The Administrator shall not be
responsible to any Purchaser, Purchaser Agent or other Person for (i) any
recitals, representations, warranties or other statements made by the Seller,
Servicer, or any of their Affiliates, (ii) the value, validity, effectiveness,
genuineness, enforceability or sufficiency of any Transaction Document, (iii)
any failure of the Seller, the Originator or any of their Affiliates to perform
any obligation or (iv) the satisfaction of any condition specified in EXHIBIT
II. The Administrator shall not have any obligation to any Purchaser or
Purchaser Agent to ascertain or inquire about the observance or performance of
any agreement contained in any Transaction Document or to inspect the
properties, books or records of the Seller, Servicer, Originator or any of their
Affiliates.

     Section 5.4. RELIANCE BY AGENTS. Each Purchaser Agent and the Administrator
shall in all cases be entitled to rely, and shall be fully protected in relying,
upon any document or other writing or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person and upon
advice and statements of legal counsel (including counsel to the Seller),
independent accountants and other experts selected by the Administrator. Each
Purchaser Agent and the Administrator shall in all cases be fully justified in
failing or refusing to take any action under any Transaction Document unless it
shall first receive such advice or concurrence of the Majority Purchasers (or in
the case of any Purchaser Agent, the Purchasers within its Purchaser Group that
have a majority of the aggregate Commitment of such Purchaser Group), and
assurance of its indemnification, as it deems appropriate.

     (b) The Administrator shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement in accordance with a request of
the Majority Purchasers or the Purchaser Agents, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all Purchasers,
the Administrator and Purchaser Agents.

     (c) The Purchasers within each Purchaser Group with a majority of the
Commitment of such Purchaser Group shall be entitled to request or direct the
related Purchaser Agent to take action, or refrain from taking action, under
this Agreement on behalf of such Purchasers. Such Purchaser Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement in accordance with a request of such majority Purchasers, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all of such Purchaser Agent's Purchasers.

     (d) Unless otherwise advised in writing by a Purchaser Agent or by any
Purchaser on whose behalf such Purchaser Agent is purportedly acting, each party
to this Agreement may assume that (i) such Purchaser Agent is acting for the
benefit of each of the Purchasers

                                       24


in respect of which such Purchaser Agent is identified as being the
"Purchaser Agent" in the definition of "Purchaser Agent" hereto, as well as for
the benefit of each assignee or other transferee from any such Person, and (ii)
each action taken by such Purchaser Agent has been duly authorized and approved
by all necessary action on the part of the Purchasers on whose behalf it is
purportedly acting. Each Purchaser Agent and its Purchaser(s) shall agree
amongst themselves as to the circumstances and procedures for removal,
resignation and replacement of such Purchaser Agent.

     Section 5.5. NOTICE OF TERMINATION EVENTS. Neither any Purchaser Agent nor
the Administrator shall be deemed to have knowledge or notice of the occurrence
of any Termination Event or Unmatured Termination Event unless such
Administrator has received notice from any Purchaser, Purchaser Agent, the
Servicer or the Seller stating that a Termination Event or Unmatured Termination
Event has occurred hereunder and describing such Termination Event or Unmatured
Termination Event. In the event that the Administrator receives such a notice,
it shall promptly give notice thereof to each Purchaser Agent whereupon each
such Purchaser Agent shall promptly give notice thereof to its Purchasers. In
the event that a Purchaser Agent receives such a notice (other than from the
Administrator), it shall promptly give notice thereof to the Administrator. The
Administrator shall take such action concerning a Termination Event or Unmatured
Termination Event as may be directed by the Majority Purchasers unless such
action otherwise requires the consent of all Purchasers), but until the
Administrator receives such directions, the Administrator may (but shall not be
obligated to) take such action, or refrain from taking such action, as the
Administrator deems advisable and in the best interests of the Purchasers and
Purchaser Agents.

     Section 5.6. NON-RELIANCE ON ADMINISTRATOR, PURCHASER AGENTS AND OTHER
PURCHASERS. Each Purchaser expressly acknowledges that none of the
Administrator, the Purchaser Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Administrator, or any
Purchaser Agent hereafter taken, including any review of the affairs of the
Seller, Servicer or the Originator, shall be deemed to constitute any
representation or warranty by the Administrator or such Purchaser Agent, as
applicable. Each Purchaser represents and warrants to the Administrator and the
Purchaser Agents that, independently and without reliance upon the
Administrator, Purchaser Agents or any other Purchaser and based on such
documents and information as it has deemed appropriate, it has made and will
continue to make its own appraisal of and investigation into the business,
operations, property, prospects, financial and other conditions and
creditworthiness of the Seller, Servicer or the Originator, and the Receivables
and its own decision to enter into this Agreement and to take, or omit, action
under any Transaction Document. Except for items specifically required to be
delivered hereunder, the Administrator shall not have any duty or responsibility
to provide any Purchaser Agent with any information concerning the Seller,
Servicer or the Originator or any of their Affiliates that comes into the
possession of the Administrator or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.

                                       25


     Section 5.7. ADMINISTRATORS AND AFFILIATES. Each of the Purchasers and the
Administrator and their Affiliates may extend credit to, accept deposits from
and generally engage in any kind of banking, trust, debt, equity or other
business with the Seller, Servicer or the Originator or any of their Affiliates
and PNC Bank, National Association may exercise or refrain from exercising its
rights and powers as if it were not the Administrator. With respect to the
acquisition of the Receivables pursuant to this Agreement, each of the Purchaser
Agents and the Administrator shall have the same rights and powers under this
Agreement as any Purchaser and may exercise the same as though it were not such
an agent, and the terms "Purchaser" and "Purchasers" shall include each of the
Purchaser Agents and the Administrator in their individual capacities.

     Section 5.8. INDEMNIFICATION. Each Purchaser Group (it being understood
that, in the case of the Purchaser Group including TRFCO, the provisions of this
SECTION 5.8 shall only apply to each Purchaser therein) shall indemnify and hold
harmless the Administrator (but solely in its capacity as Administrator) and its
officers, directors, employees, representatives and agents (to the extent not
reimbursed by the Seller, KU or Servicer and without limiting the obligation of
the Seller, KU or Servicer to do so), ratably in accordance with its Ratable
Share from and against any and all liabilities, obligations, losses, damages,
penalties, judgments, settlements, costs, expenses and disbursements of any kind
whatsoever (including in connection with any investigative or threatened
proceeding, whether or not the Administrator or such Person shall be designated
a party thereto) that may at any time be imposed on, incurred by or asserted
against the Administrator or such Person as a result of, or related to, any of
the transactions contemplated by the Transaction Documents or the execution,
delivery or performance of the Transaction Documents or any other document
furnished in connection therewith (but excluding any such liabilities,
obligations, losses, damages, penalties, judgments, settlements, costs, expenses
or disbursements resulting solely from the gross negligence or willful
misconduct of the Administrator or such Person as finally determined by a court
of competent jurisdiction); PROVIDED, that in the case of each Purchaser that is
a commercial paper conduit, such indemnity shall be provided solely to the
extent of amounts received by such Purchaser under this Agreement which exceed
the amounts required to repay such Purchaser's outstanding Notes.
Notwithstanding anything in this SECTION 5.8 to the contrary, each of the
Administrator, each Purchaser Agent and each Purchaser hereby covenants and
agrees that it shall not institute against, or join any other Person in
instituting against, any Conduit Purchaser any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other proceedings under any
federal or state bankruptcy or similar law, for one year and a day after the
latest maturing Note issued by such Conduit Purchaser is paid in full.

     Section 5.9. SUCCESSOR ADMINISTRATOR. The Administrator may, upon at least
five (5) days notice to the Seller and each Purchaser and Purchaser Agent,
resign as Administrator. Such resignation shall not become effective until a
successor agent is appointed by the Majority Purchasers and has accepted such
appointment. Upon such acceptance of its appointment as Administrator hereunder
by a successor Administrator, such successor Administrator shall succeed to and
become vested with all the rights and duties of the retiring Administrator, and
the retiring Administrator shall be discharged from its duties

                                       26


and obligations under the Transaction Documents. After any retiring
Administrator's resignation hereunder, the provisions of SECTIONS 3.1 and 3.2
and this Article V shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was the Administrator.

                                   ARTICLE VI.
                                  MISCELLANEOUS

     Section 6.1. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement or any other Transaction Document, or consent to any departure by
the Seller or the Servicer therefrom, shall be effective unless in a writing
signed by the Administrator, each Purchaser Agent, each Conduit Purchaser and
the Majority Purchasers, and, in the case of any amendment, by the other parties
thereto; and then such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given; PROVIDED,
HOWEVER that no such amendment or waiver shall, without the consent of each
affected Purchaser, (A) extend the date of any payment or deposit of Collections
by the Seller or the Servicer, (B) reduce the rate or extend the time of payment
of Yield, (C) reduce any fees payable to the Administrator, any Purchaser Agent
or any Purchaser pursuant to the applicable Purchaser Group Fee Letter, (D)
change the amount of Aggregate Investment of any Purchaser, or, except as
contemplated by SECTION 1.4 or in connection with an Assumption Agreement in
accordance with the terms hereof, any Purchaser's pro rata share of the
Purchased Interest or any Related Committed Purchaser's Commitment, (E) amend,
modify or waive any provision of the definition of "Majority Purchaser" or this
SECTION 6.1, (F) consent to or permit the assignment or transfer by the Seller
of any of its rights and obligations under this Agreement, (G) change the
definition of "Eligible Receivable," "Loss Reserve," "Loss Reserve Percentage,"
"Dilution Reserve," "Dilution Reserve Percentage" or CLAUSE (G) of the
definition of "Termination Event" or (H) amend or modify any defined term (or
any defined term used directly or indirectly in such defined term) used in
clauses (A) through (G) above in a manner that would circumvent the intention of
the restrictions set forth in such clauses. No failure on the part of the
Purchasers or the Administrator to exercise, and no delay in exercising any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right.

     Section 6.2. NOTICES, ETC. All notices and other communications hereunder
shall, unless otherwise stated herein, be in writing (which shall include
facsimile communication) and be sent or delivered to each party hereto at its
address set forth under its name on the signature pages hereof (or in any
Assumption Agreement or Transfer Supplement pursuant to which it became a party
hereto) or at such other address as shall be designated by such party in a
written notice to the other parties hereto. Notices and communications by
facsimile shall be effective when sent (and shall be followed by hard copy sent
by first class mail), and notices and communications sent by other means shall
be effective when received.

                                       27


     Section 6.3. SUCCESSORS AND ASSIGNS; PARTICIPATIONS; ASSIGNMENTS.

     (a) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. Except as otherwise provided herein, the Seller may not assign or
transfer any of its rights or delegate any of its duties hereunder or under any
Transaction Document without the prior consent of the Administrator, the
Purchaser Agents and the Purchasers.

     (b) PARTICIPATIONS. Any Purchaser may sell to one or more Persons (each a
"Participant") participating interests in the interests of such Purchaser
hereunder; PROVIDED, HOWEVER, that no Purchaser shall grant any participation
under which the Participant shall have rights to approve any amendment to or
waiver of this Agreement or any other Transaction Document. Such Purchaser shall
remain solely responsible for performing its obligations hereunder, and the
Seller, each Purchaser Agent and the Administrator shall continue to deal solely
and directly with such Purchaser in connection with such Purchaser's rights and
obligations hereunder. A Purchaser shall not agree with a Participant to
restrict such Purchaser's right to agree to any amendment hereto, except
amendments that require the consent of all Purchasers.

     (c) ASSIGNMENTS BY CERTAIN RELATED COMMITTED PURCHASERS. Any Related
Committed Purchaser may assign to one or more Persons (each a "Purchasing
Related Committed Purchaser"), reasonably acceptable to the related Purchaser
Agent in its sole discretion, any portion of its Commitment pursuant to a
supplement hereto, substantially in the form of ANNEX E with any changes as have
been approved by the parties thereto (a "Transfer Supplement"), executed by each
such Purchasing Related Committed Purchaser and such selling Related Committed
Purchaser and consented to by such related Purchaser Agent and Seller (which
consent shall not be unreasonably withheld or delayed). Any such assignment by
Related Committed Purchaser cannot be for an amount less than $10,000,000. Upon
(i) the execution of the Transfer Supplement, (ii) delivery of an executed copy
thereof to the Seller, such related Purchaser Agent and the Administrator and
(iii) payment by the Purchasing Related Committed Purchaser to the selling
Related Committed Purchaser of the agreed purchase price, such selling Related
Committed Purchaser shall be released from its obligations hereunder to the
extent of such assignment and such Purchasing Related Committed Purchaser shall
for all purposes be a Related Committed Purchaser party hereto and shall have
all the rights and obligations of a Related Committed Purchaser hereunder to the
same extent as if it were an original party hereto. The amount of the Commitment
of the selling Related Committed Purchaser allocable to such Purchasing Related
Committed Purchaser shall be equal to the amount of the Commitment of the
selling Related Committed Purchaser transferred regardless of the purchase price
paid therefor. The Transfer Supplement shall be an amendment hereof only to the
extent necessary to reflect the addition of such Purchasing Related Committed
Purchaser as a "Related Committed Purchaser" and any resulting adjustment of the
selling Related Committed Purchaser's Commitment.

     (d) REPLACEABLE PURCHASERS AND PURCHASER GROUPS. If any Purchaser (a
"Replaceable Purchaser" and, together with the other members of such entity's
Purchaser

                                       28


Group, a "Replaceable Purchaser Group") shall (i) make demand upon the Seller
for any amounts under SECTION 1.7 or 1.8, (ii) give notice under SECTION 1.9(b)
of its inability to fund or maintain any portion of Investment at the Yield Rate
determined by references to the Euro-Rate or (iii) cease to have a short-term
debt rating of "A-1" by Standard & Poor's and "P-1" by Moody's (if such a rating
is required by the related Purchaser's securitization program), then either (A)
the related Purchaser Agent may designate a replacement financial institution (a
"Replacement Purchaser") that shall either be an Affiliate of the related
Purchaser Agent or reasonably acceptable to the Seller, (B) if such Replaceable
Purchaser is a Related Committed Purchaser and is not either a Conduit Purchaser
or an Affiliate of its Purchaser Agent, the Seller may designate a Replacement
Purchaser acceptable to the Administrator and the applicable Purchaser Agent or
(C) if such Replaceable Purchaser is either a Conduit Purchaser or an Affiliate
of its Purchaser Agent, the Seller may designate a replacement Purchaser Group
(a "Replacement Purchaser Group") acceptable to the Administrator and each
Purchaser Agent (other than the Purchaser Agent for the Replaceable Purchaser
Group). After such designation, the Replaceable Purchaser (in the case of a
designation under CLAUSE (a) or (b) above) or the Replaceable Purchaser Group
(in the case of a designation under CLAUSE (c) above) shall, subject to its
receipt of an amount equal to the aggregate outstanding principal balance of its
Investment and accrued and unpaid Discount thereon (and, if applicable, its
receipt (unless a later date for the remittance thereof shall be agreed upon by
the Seller and such Replaceable Purchaser or Replaceable Purchaser Group) of all
amounts claimed under SECTION 1.7 and/or 1.8) promptly assign all of its rights,
obligations and Commitment hereunder, together with all of its right, title and
interest in, to and under the Purchased Interest allocable to it, to the
Replacement Purchaser or to the Replacement Purchaser Group (as appropriate).
Once such assignment becomes effective, the Replacement Purchaser, or each
member of the Replacement Purchaser Group, shall be deemed to be a "Purchaser"
or "Purchaser Agent" (as appropriate) for all purposes hereof and such
Replaceable Purchaser or each member of such Replaceable Purchaser Group (as
appropriate) shall cease to be a " Purchaser"or "Purchaser Agent" (as
appropriate) for all purposes hereof and shall have no further rights or
obligations hereunder.

     (e) ASSIGNMENT BY CONDUIT PURCHASERS. Each party hereto agrees and consents
(i) to any Conduit Purchaser's assignment, participation, grant of security
interests in or other transfers of any portion of, or any of its beneficial
interest in, the Purchased Interest (or portion thereof), including without
limitation to any collateral agent in connection with its commercial paper
program; and (ii) to the complete assignment by any Conduit Purchaser of all of
its rights and obligations hereunder to any other Person, and upon any such
complete assignment such Conduit Purchaser shall be released from all
obligations and duties, if any, hereunder; PROVIDED, HOWEVER, that such Conduit
Purchaser may not, without the prior consent of its Related Committed Purchasers
(or, if such Conduit Purchaser is also a Related Committed Purchaser, its
Purchaser Agent), make any such transfer of its rights hereunder unless the
assignee (A) is principally engaged in the purchase of assets similar to the
assets being purchased hereunder, (B) has as its Purchaser Agent the Purchaser
Agent of the assigning Conduit Purchaser and (C) issues commercial paper or
other Notes with credit ratings substantially comparable to the ratings of the
assigning Conduit Purchaser. Any assigning Conduit Purchaser shall deliver to
any assignee a supplement hereto, substantially

                                       29


in the form of ANNEX E with any changes as have been approved by the
parties thereto (also, a "Transfer Supplement"), duly executed by such Conduit
Purchaser, assigning any portion of its interest in the Purchased Interest to
its assignee. Such Conduit Purchaser shall promptly (x) notify each of the other
parties hereto of such assignment and (y) take all further action that the
assignee reasonably requests in order to evidence the assignee's right, title
and interest in such interest in the Purchased Interest and to enable the
assignee to exercise or enforce any rights of such Conduit Purchaser hereunder.
Upon the assignment of any portion of its interest in the Purchased Interest,
the assignee shall have all of the rights hereunder with respect to such
interest (except that the Discount therefor shall thereafter accrue at the
applicable rate, determined with respect to the assigning Conduit Purchaser
unless the Seller, the related Purchaser Agent and the assignee shall have
agreed upon a different Discount).

     (f) OPINIONS OF COUNSEL. If required by the Administrator or the applicable
Purchaser Agent or to maintain the ratings of any Conduit Purchaser, each
Transfer Supplement must be accompanied by an opinion of counsel of the assignee
as to such matters as the Administrator or such Purchaser Agent may reasonably
request.

     Section 6.4. COSTS, EXPENSES AND TAXES. In addition to the rights of
indemnification granted under SECTION 3.1, the Seller agrees to pay on demand
(which demand shall be accompanied by documentation thereof in reasonable
detail) all reasonable costs and expenses in connection with the preparation,
execution, delivery and administration (including periodic internal audits by
the Administrator of Pool Receivables) of this Agreement, the other Transaction
Documents and the other documents and agreements to be delivered hereunder (and
all reasonable costs and expenses in connection with any amendment, waiver or
modification of any thereof), including: (i) Attorney Costs for the
Administrator, each Purchaser Agent and each Purchaser who is an Affiliate of a
Purchaser Agent with respect thereto and with respect to advising the
Administrator and each Purchaser Group as to their rights and remedies under
this Agreement and the other Transaction Documents, and (ii) all reasonable
costs and expenses (including Attorney Costs), if any, of the Administrator,
each Purchaser Group and their respective Affiliates in connection with the
enforcement of this Agreement and the other Transaction Documents. In addition,
the Seller shall pay on demand any and all stamp and other taxes and fees
payable in connection with the execution, delivery, filing and recording of this
Agreement or the other documents or agreements to be delivered hereunder, and
agrees to save each Indemnified Party harmless from and against any liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes and fees.

     Section 6.5. NO PROCEEDINGS; LIMITATION ON PAYMENTS. Each of the Seller,
KU, the Servicer, the Administrator, the Purchaser Agents, the Purchasers, each
assignee of the Purchased Interest or any interest therein, and each Person that
enters into a commitment to purchase the Purchased Interest or interests
therein, hereby covenants and agrees that it will not institute against, or join
any other Person in instituting against, any Conduit Purchaser any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or other
proceeding under any federal or state bankruptcy or similar law, for one year
and one day

                                       30


after the latest maturing Note issued by such Conduit Purchaser is paid in full.
The provision of this SECTION 6.5 shall survive any termination of this
Agreement.

     Section 6.6.CONFIDENTIALITY. Each of the Seller and the Servicer agrees to
maintain the confidentiality of this Agreement and the other Transaction
Documents (and all drafts thereof) in communications with third parties and
otherwise; PROVIDED, that this Agreement may be disclosed to: (a) third parties
to the extent such disclosure is made pursuant to a written agreement of
confidentiality in form and substance reasonably satisfactory to the
Administrator, and (b) the Seller's legal counsel and auditors if they agree to
hold it confidential. Unless otherwise required by applicable law, each of the
Administrator and each Purchaser Agent and each Purchaser agree to maintain the
confidentiality of non-public financial information regarding the Originator and
its Subsidiaries and Affiliates; PROVIDED, that such information may be
disclosed to: (i) prospective Purchasers, to the extent such prospective
Purchasers agree to maintain the confidentiality of such information in
accordance with this SECTION 6.6, (ii) legal counsel and auditors of any member
of any Purchaser Group or the Administrator if they agree to hold it
confidential, (iii) the rating agencies rating the Notes, (iv) any Program
Support Provider or potential Program Support Provider (if they agree to hold it
confidential), (v) any placement agent placing the Notes and (vi) any regulatory
authorities having jurisdiction over PNC, any member of any Purchaser Group, or
any Program Support Provider. In no instance shall this section prevent the
disclosure of information at the request or demand of, and to, a Governmental
Authority having jurisdiction over the disclosing party, or disclosure pursuant
to any order of a court or Governmental Authority, or as otherwise required by
law.

     Section 6.7. GOVERNING LAW AND JURISDICTION.

          THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH
PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE
OF NEW YORK) EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF A SECURITY
INTEREST OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

     Section 6.8. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which, when so executed, shall be deemed to
be an original, and all of which, when taken together, shall constitute one and
the same agreement.

     Section 6.9. SURVIVAL OF TERMINATION. The provisions of SECTIONS 1.7, 1.8,
3.1, 3.2, 6.4, 6.5, 6.7, 6.10 and 6.15 shall survive any termination of this
Agreement.

     Section 6.10. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS

                                       31


AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. EACH OF THE PARTIES HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT
TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING THAT SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT.

     Section 6.11. SHARING OF RECOVERIES. Each Purchaser agrees that if it
receives any recovery, through set-off, judicial action or otherwise, on any
amount payable or recoverable hereunder in a proportion greater than that which
its share of the aggregate Commitments would entitle it to or otherwise
inconsistent with the provisions hereof, then the recipient of such recovery
shall purchase for cash an interest in amounts owing to the other Purchasers (as
return of Investment or otherwise), without representation or warranty except
for the representation and warranty that such interest is being sold by each
such other Purchaser free and clear of any Adverse Claim created or granted by
such other Purchaser, in the amount necessary to create proportional
participation by the Purchaser in such recovery. If all or any portion of such
amount is thereafter recovered from the recipient, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.

     Section 6.12. RIGHT OF SETOFF. During a Termination Event, each Purchaser
is hereby authorized (in addition to any other rights it may have) to setoff,
appropriate and apply (without presentment, demand, protest or other notice
which are hereby expressly waived) any deposits and any other indebtedness held
or owing by such Purchaser (including by any branches or agencies of such
Purchaser) to, or for the account of, the Seller against amounts owing by the
Seller hereunder (even if contingent or unmatured).

     Section 6.13. ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents embody the entire agreement and understanding between the parties
hereto, and supersede all prior or contemporaneous agreements and understandings
of such Persons, verbal or written, relating to the subject matter hereof and
thereof.

     Section 6.14. HEADINGS. The captions and headings of this Agreement and any
Exhibit, Schedule or Annex hereto are for convenience of reference only and
shall not affect the interpretation hereof or thereof.

     Section 6.15. PURCHASER GROUPS' LIABILITIES. The obligations of each
Purchaser Agent and each Purchaser under the Transaction Documents are solely
the corporate obligations of such Person. Except with respect to any claim
arising out of the willful

                                       32


misconduct or gross negligence of the Administrator, any Purchaser Agent or
any Purchaser, no claim may be made by the Seller or the Servicer or any other
Person against the Administrator, any Purchaser Agent or any Purchaser or their
respective Affiliates, directors, officers, employees, attorneys or agents for
any special, indirect, consequential or punitive damages in respect of any claim
for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by the Agreement or any other
Transaction Document, or any act, omission or event occurring in connection
therewith; and each of Seller and Servicer hereby waives, releases, and agrees
not to sue upon any claim for any such damages, whether or not accrued and
whether or not known or suspected to exist in its favor.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       33


     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.

                                        KU RECEIVABLES LLC

                                        By:
                                           Name:
                                           Title:

                                        Address:

                                             KU Receivables LLC
                                             220 West Main St.
                                             Louisville, Kentucky 40202

                                             Attention: Treasurer
                                             Telephone No.: (502) 627-4956
                                             Facsimile No.: (502) 627-4742

                                        KENTUCKY UTILITIES COMPANY
                                        as Servicer

                                        By:
                                           Name:
                                           Title:

                                        Address:

                                             Kentucky Utilities Company
                                             220 West Main St.
                                             Louisville, Kentucky 40202

                                             Attention: Treasurer
                                             Telephone No.: (502) 627-4956
                                             Facsimile No.: (502) 627-4742

                                        1


                                 MARKET STREET FUNDING CORPORATION
                                 As Conduit Purchaser and as a Related
                                 Committed Purchaser

                                 By:
                                   Name:
                                   Title:

                                 Address:

                                        Market Street Funding Corporation
                                        c/o AMACAR Group, L.L.C.
                                        6525 Morrison Blvd., Suite 318
                                        Charlotte, North Carolina  28211

                                        Attention: Douglas K. Johnson
                                        Telephone No.: (704) 365-0569
                                        Facsimile No.: (704) 365-1362

                                 With a copy to:

                                        PNC Bank, National Association
                                        One PNC Plaza
                                        249 Fifth Avenue
                                        Pittsburgh, Pennsylvania  15222-2707

                                        Attention: John Smathers
                                        Telephone No.: (412) 762-6440
                                        Facsimile No.: (412) 762-9184

                                        Commitment: $ 25,000,000

                                        2


                                 PNC BANK, NATIONAL ASSOCIATION,
                                 as Administrator and as Purchaser Agent for
                                 Market Street Funding Corporation

                                 By:
                                   Name:
                                   Title:

                                 Address:
                                        PNC Bank, National Association
                                        One PNC Plaza
                                        249 Fifth Avenue
                                        Pittsburgh, Pennsylvania  15222-2707

                                        Attention: John Smathers
                                        Telephone No.: (412) 762-6440
                                        Facsimile No.: (412) 762-9184

                                        3


                                 THREE RIVERS FUNDING CORPORATION
                                 As Conduit Purchaser and as a Related Committed
                                 Purchaser

                                 By:
                                   Name:
                                   Title:

                                 Address:

                                      c/o Global Securitization Services, LLC
                                      25 West 43rd Street, Suite 704
                                      New York, New York 10036

                                      Attention: Bernard J. Angelo
                                      Telephone No.: (212) 302-5151
                                      Facsimile No.: (212) 302-8767

                                      with a copy to:
                                      Mellon Bank, N.A.
                                      One Mellon Bank Center, Room 0410
                                      Pittsburgh, Pennsylvania 15258-0001

                                      Attention: Jonathan F. Widich
                                      Telephone: (412) 234-0711
                                      Facsimile: (412) 234-5434

                                      Commitment: $ 25,000,000

                                        4


                                 MELLON BANK, N.A.,
                                 as Purchaser Agent for Three Rivers Funding
                                         Corporation

                                 By:
                                     Name:
                                     Title:

                                 Address:

                                        Mellon Bank, N.A.
                                        One Mellon Bank Center, Room 0410
                                        Pittsburgh, Pennsylvania 15258-0001

                                        Attention: Jonathan F. Widich
                                        Telephone: (412) 234-0711
                                        Facsimile: (412) 234-5434

                                        5


                                    EXHIBIT I
                                   DEFINITIONS

     As used in the Agreement (including its Exhibits, Schedules and Annexes),
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined).
Unless otherwise indicated, all Section, Annex, Exhibit and Schedule references
in this Exhibit are to Sections of and Annexes, Exhibits and Schedules to the
Agreement.

     "Administrator's Account" means the account (account number 1002422076) of
the Administrator maintained at the office of PNC at One PNC Plaza, 249 Fifth
Avenue, Pittsburgh, Pennsylvania 15222-2707, or such other account as may be so
designated in writing by the Administrator to the Servicer.

     "Administrator" has the meaning set forth in the preamble to the Agreement.

     "Adverse Claim" means a lien, security interest or other charge or
encumbrance, or any other type of preferential arrangement; it being understood
that any thereof in favor of the Administrator (for the benefit of the
Purchasers ) shall not constitute an Adverse Claim.

     "Affected Person" has the meaning set forth in SECTION 1.7 of the
Agreement.

     "Affiliate" shall have the following meanings:

     (1) for all purposes of the Agreement other than for the purposes of the
     definitions of "Eligible Receivables" and "Receivables", PARAGRAPHS 1(d)
     AND 2(k) of EXHIBIT III and PARAGRAPH 3 OF EXHIBIT IV, as to KU (in both of
     its capacities as Originator and as Servicer), the Seller and the
     Sub-Servicer, "Affiliate" means KU, the Seller, the Sub-Servicer and any
     other Person that, directly or indirectly, is controlled by KU, and

     (2) for the purposes of the definitions of "Eligible Receivables" and
     "Receivables", PARAGRAPHS 1(d) AND 2(k) of EXHIBIT III and PARAGRAPH 3 of
     EXHIBIT IV, as to KU (in both of its capacities as Originator and as
     Servicer), the Seller and the Sub-Servicer and for all purposes of this
     Agreement as to any other Person, "Affiliate" means: (a) any Person that,
     directly or indirectly, is in control of, is controlled by or is under
     common control with such Person, or (b) who is a director or officer: (i)
     of such Person or (ii) of any Person described in CLAUSE (A), except that,
     in the case of each Conduit Purchaser, Affiliate shall mean the holder of
     its capital stock. For purposes of this definition, control of a Person
     shall mean the power, direct or indirect: (x) to vote 25% or more of the
     securities having ordinary voting power for the election of directors of
     such Person, or (y) to direct or cause the direction of the management

                                       I-1


     and policies of such Person, in either case whether by ownership of
     securities, contract, proxy or otherwise.

     "Aggregate Discount" at any time, means the sum of the aggregate for each
Purchaser of the accrued and unpaid Discount with respect to each such
Purchaser's Investment at such time.

     "Aggregate Investment" means the sum of the amounts paid to the Seller in
respect of the Purchased Interest or portion thereof by each Purchaser pursuant
to the Agreement, as reduced from time to time by Collections distributed and
applied on account of the Purchasers' respective shares of such Aggregate
Investment pursuant to SECTION 1.4(d) of the Agreement; PROVIDED, that if such
Aggregate Investment shall have been reduced by any distribution, and thereafter
all or a portion of such distribution is rescinded or must otherwise be returned
for any reason, such Aggregate Investment shall be increased by the amount of
such rescinded or returned distribution as though it had not been made.

     "Agreement" has the meaning set forth in the preamble to the Agreement.

     "Assumption Agreement" means an agreement substantially in the form set
forth in ANNEX D to the Agreement.

     "Attorney Costs" means and includes all reasonable fees and disbursements
of any law firm or other external counsel, the reasonable allocated cost of
internal legal services and all reasonable disbursements of internal counsel.

     "Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978 (11
U.S.C.Section. 101, et seq.), as amended from time to time.

     "Base Rate" means, for any day, (i) in the case of the Purchaser Group
including Market Street, the Market Street Base Rate, and (ii) in the case of
each other Purchaser Group, the rate set forth as the Base Rate for such
Purchaser Group in the related Purchaser Group Fee Letter.

     "BBA" means the British Bankers' Association.

     "Benefit Plan" means any employee benefit pension plan as defined in
Section 3(2) of ERISA in respect of which the Seller, the Originator or any
ERISA Affiliate is, or at any time during the immediately preceding six years
was, an "employer" as defined in Section 3(5) of ERISA.

     "Business Day" means any day (other than a Saturday or Sunday) on which:
(a) banks are not authorized or required to close in New York City, New York or
Pittsburgh, Pennsylvania, and (b) if this definition of "Business Day" is
utilized in connection with the Euro-Rate, dealings are carried out in the
London interbank market.

     "Change in Control" means that the Originator ceases to own, directly or
indirectly 100% of the capital stock of the Seller free and clear of all Adverse
Claims.
          "Closing Date" means February 6, 2001.

                                       I-2


     "Collections" means, with respect to any Pool Receivable: (a) all funds
that are received by the Originator, the Seller or the Servicer in payment of
any amounts owed in respect of such Receivable (including purchase price,
finance charges, interest and all other charges), or applied to amounts owed in
respect of such Receivable (including insurance payments and net proceeds of the
sale or other disposition of repossessed goods or other collateral or property
of the related Obligor or any other Person directly or indirectly liable for the
payment of such Pool Receivable and available to be applied thereon), (b) all
amounts deemed to have been received pursuant to SECTION 1.4(e) of the Agreement
and (c) all other proceeds of such Pool Receivable.

     "Commitment" means, with respect to each Related Committed Purchaser, the
maximum amount which such Purchaser is obligated to pay hereunder on account of
any Purchase, as set forth below its signature to this Agreement or in the
Assumption Agreement or Transfer Supplement pursuant to which it became a
Purchaser, as such amount may be modified in connection with any subsequent
assignment pursuant to SECTION 6.3(c), increased pursuant to SECTION 1.2(e) or
modified in connection with a change in the Purchase Limit pursuant to SECTION
1.1(b).

     "Commitment Percentage" means, for each Related Committed Purchaser in a
Purchaser Group, such Related Committed Purchaser's Commitment divided by the
total of all Commitments of all Related Committed Purchasers in such Purchaser
Group.

     "Company Note" has the meaning set forth in SECTION 3.1 of the Sale
Agreement.

     "Concentration Percentage" means: (a) for any Group A Obligor or Group B
Obligor, 10%, (b) for any Group C Obligor, 5% and (c) for any Group D Obligor
2.5%.

     "Community Banks" shall mean, (i) prior to the occurrence of a Community
Lock-Box Event, the Lock-Box Banks identified as such on Schedule II hereto and
(ii) after the occurrence of a Community Lock-Box Event, such Lock-Box Banks as
the Administrator shall designate in its sole discretion.

     "Community Bank Lock-Box Event" means that the Originator shall cease to
have a rating of at leaset "BBB-" by Standard & Poor's or "Baa3" by Moody's on
its long-term senior secured debt securities (without third-party
credit-enhancement).

     "Conduit Purchasers" means each commercial paper conduit that is a party to
the Agreement, as a purchaser, or that becomes a party to the Agreement, as a
purchaser pursuant to an Assumption Agreement or a Transfer Supplement.

     "Contract" means, with respect to any Receivable, any and all contracts,
instruments, agreements, leases, invoices, notes or other writings pursuant to
which such Receivable arises or that evidence such Receivable or under which an
Obligor becomes or is obligated to make payment in respect of such Receivable.

                                       I-3


     "CP Rate" for any Yield Period for any Portion of Investment (i) in the
case of the Purchaser Group including Market Street, means the Market Street CP
Rate and (ii) in the case of each of other Purchaser Group shall mean the rate
set forth as the CP Rate for such Purchaser Group in the related Purchaser Group
Fee Letter.

     "Credit and Collection Policy" means, as the context may require, those
receivables credit and collection policies and practices of the Originator in
effect on the date of the Agreement and described in SCHEDULE I to the
Agreement, as modified in compliance with the Agreement.

     "Cut-off Date" has the meaning set forth in the Sale Agreement.

     "Days' Sales Outstanding" means, for any calendar month, an amount computed
as of the last day of such calendar month equal to: (a) the average of the
Outstanding Balance of all Pool Receivables as of the last day of each of the
three most recent calendar months ended on the last day of such calendar month
divided by (b)(i) the aggregate credit sales made by the Originator during the
three calendar months ended on the last day of such calendar month divided by
(ii) 90.

     "Debt" means: (a) indebtedness for borrowed money, (b) obligations
evidenced by bonds, debentures, notes or other similar instruments, (c)
obligations to pay the deferred purchase price of property or services, (d)
obligations as lessee under leases that shall have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases, and (e) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in CLAUSES (a) through (d).

     "Default Ratio" means the ratio (expressed as a percentage and rounded to
the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward) computed as of the
last day of each calendar month by dividing: (a) the aggregate Outstanding
Balance of all Pool Receivables that became Defaulted Receivables during such
month, by (b) the aggregate credit sales made by the Originator during the month
that is two calendar months before such month.

     "Defaulted Receivable" means a Receivable:

          (a) as to which any payment, or part thereof, remains unpaid for more
     than 46 days, in each case from the original invoice date for such payment,
     or

          (b) without duplication (i) as to which an Insolvency Proceeding shall
     have occurred with respect to the Obligor thereof or any other Person
     obligated thereon or owning any Related Security with respect thereto, (ii)
     that has been written off the Seller's books as uncollectible or (iii) that
     should have been written off the Seller's books as uncollectible pursuant
     to the Credit and Collection Policy.

                                       I-4


     "Delinquency Ratio" means the ratio (expressed as a percentage and rounded
to the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward) computed as of
the last day of each calendar month by dividing: (a) the aggregate Outstanding
Balance of all Pool Receivables that were Delinquent Receivables on such day by
(b) the aggregate Outstanding Balance of all Pool Receivables on such day.

     "Delinquent Receivable" means a Receivable (a) as to which any payment, or
part thereof, remains unpaid for more than 46 days from the original invoice
date for such payment or (b) without duplication, which has been (or consistent
with the Credit and Collection Policy, would be) classified as a Delinquent
Receivable by the Originator.

     "Dilution Reserve" means, on any day, an amount equal to: (a) the Aggregate
Investment at the close of business of the Servicer on such date MULTIPLIED BY
(b) (i) the Dilution Reserve Percentage on such date, DIVIDED BY (ii) 100% minus
the Dilution Reserve Percentage on such date.

     "Dilution Reserve Percentage" means 1%, or such other higher percentage as
the Administrator may designate by written notice to the Seller and the Servicer
from time to time.

     "Disbursement Account" has the meaning set forth in SECTION 1.2(b).

     "Discount" means with respect to any Purchaser:

          (a) for any Portion of Investment for any Yield Period with respect to
     any Purchaser to the extent such Portion of Investment will be funded by
     such Purchaser during such Yield Period through the issuance of Notes:

                                CPR x I x ED/360

          (b) for any Portion of Investment for any Yield Period with respect to
     any Purchaser to the extent such Portion of Investment will not be funded
     by such Purchaser during such Yield Period through the issuance of Notes:

                              YR x I x ED/Year + TF

     where:

           YR   = the Yield Rate, as applicable, for such Portion of
                  Investment for such Yield Period with respect to such
                  Purchaser,

           I    = the Investment with respect to such Portion of
                  Investment during such Yield Period with respect to
                  such Purchaser,

                                       I-5


           CPR  = the CP Rate for the Portion of Investment for such
                  Yield Period with respect to such Purchaser,

           ED   = the actual number of days during such Yield Period,

           Year = if such Portion of Investment is funded based upon:
                  (i) the Euro-Rate, 360 days, and (ii) the Base Rate,
                  365 or 366 days, as applicable, and

           TF   = the Termination Fee, if any, for the Portion of
                  Investment for such Yield Period with respect to such
                  Purchaser;

PROVIDED, that no provision of the Agreement shall require the payment or permit
the collection of Discount in excess of the maximum permitted by applicable law;
and PROVIDED FURTHER, that Discount for any Portion of Investment shall not be
considered paid by any distribution to the extent that at any time all or a
portion of such distribution is rescinded or must otherwise be returned for any
reason.

     "Eligible Receivable" means, at any time, a Pool Receivable:

          (a) the Obligor of which is (i) a United States resident, (ii) not a
     government or a governmental subdivision, affiliate or agency (other than a
     state or local government, agencies or instrumentalities as to which the
     Seller shall have provided evidence (including opinions or memorandum of
     counsel) satisfactory to the Administrator that the Receivables of such
     state or local government, agencies or instrumentalities Obligor are not
     subject to any limitations on assignment or offset rights similar in any
     respect to the Federal Assignment of Claims Act), (iii) not subject to any
     action of the type described in PARAGRAPH (F) of EXHIBIT V to the Agreement
     and (iv) not an Affiliate of the Originator or any Affiliate of the
     Originator,

          (b) that is denominated and payable only in U.S. dollars in the United
     States,

          (c) that does not have a stated maturity or due date which is more
     than 30 days after the original invoice date of such Receivable,

          (d) that arises under a duly authorized Contract or applicable Legal
     Requirement in respect of the sale and delivery of goods and services in
     the ordinary course of the Originator's business,

          (e) that arises under a duly authorized Contract or applicable Legal
     Requirement that is in full force and effect and that is a legal, valid and
     binding obligation of the related Obligor, enforceable against such Obligor
     in accordance with its terms,

                                       I-6


          (f) that conforms in all material respects with all applicable Legal
     Requirements in effect,

          (g) that is not the subject of any asserted dispute, hold back
     defense, Adverse Claim, other claim or offset (other than an offset for
     amounts payable by the Originator in the ordinary course of the
     Originator's business to the related Obligor arising from a Security
     Deposit or an Obligor Payment Plan or pursuant to the terms of an Energy
     Wholesale Contract),

          (h) that satisfies all applicable requirements of the applicable
     Credit and Collection Policy,

          (i) that has not been modified, waived or restructured since its
     creation, except as permitted pursuant to SECTION 4.2 of the Agreement,

          (j) in which the Seller owns good and marketable title, free and clear
     of any Adverse Claims, and that is freely assignable by the Seller
     (including without any consent of the related Obligor),

          (k) for which the Administrator (for the benefit of each Purchaser)
     shall have a valid and enforceable undivided percentage ownership or
     security interest, to the extent of the Purchased Interest, and a valid and
     enforceable first priority perfected security interest therein and in the
     Related Security and Collections with respect thereto, in each case free
     and clear of any Adverse Claim,

          (l) that constitutes an account as defined in the UCC, and that is not
     evidenced by instruments or chattel paper,

          (m) that is not a Defaulted Receivable or a Delinquent Receivable;

          (n) for which none of the Originator, the Seller and the Servicer has
     established any offset arrangements with the related Obligor (except for
     any such arrangement in connection with a Security Deposit or Obligor
     Payment Plan or contained in an Energy Wholesale Contract),

          (o) for which Defaulted Receivables of the related Obligor do not
     exceed 25% of the Outstanding Balance of all such Obligor's Receivables,

          (p) that represents amounts earned and payable by the Obligor that are
     not subject to the performance of additional services by the Originator;
     PROVIDED, HOWEVER that no receivable shall be deemed ineligible solely
     because the Originator is or may be entitled, subject to the performance of
     additional services by the Originator, to unearned payments from the
     related Obligor representing a Security Deposit or under an Obligor Payment
     Plan connected to such Receivable,

                                       I-7


          (q) for which the related Obligor is not an Excluded Obligor,

          (r) that, prior to the Energy Wholesale Addition Date, does not arise
     under or subject to an Energy Wholesale Contract.

     "EMPP Accumulator Balance" means, at any time, the dollar amount of the
aggregate surplus of amounts paid by the Obligors over the amount paid by the
Originator shown in the Servicer's records tracking the payment status of the
Receivables subject to Obligor Payment Plans, or, if such records shall show a
deficit, 0.

     "Energy Wholesale Contract" means any contract between the Originator and
any power marketers, wholesale energy traders or public utilities who are an
Obligor of the Originator providing for the sale, purchase and/or exchange of
energy resources and related services and any netting agreements entered into in
connection therewith.

     "Energy Wholesale Addition Date" means a date selected by the Administrator
(with the consent of the Seller) in its sole discretion and conveyed to the
Seller and the Servicer by written notice.

     "Energy Wholesale Payables" means, at any time, the aggregate amount
payable by the Originator to all Obligors pursuant to the terms of the Energy
Wholesale Contracts.

     "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections.

     "ERISA Affiliate" means: (a) any corporation that is a member of the same
controlled group of corporations (within the meaning of Section 414(b) of the
Internal Revenue Code) as the Seller or the Originator, (b) a trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the Internal Revenue Code) with the Seller or the Originator,
or (c) a member of the same affiliated service group (within the meaning of
Section 414(m) of the Internal Revenue Code) as the Seller, the Originator, any
corporation described in CLAUSE (a) or any trade or business described in CLAUSE
(b).

     "Euro-Rate" means with respect to any Yield Period, the interest rate per
annum determined by the Administrator by dividing (the resulting quotient
rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the
rate of interest determined by the applicable Purchaser Agent in accordance with
its usual procedures (which determination shall be conclusive absent manifest
error) to be the average of the London interbank market offered rates for U.S.
dollars quoted by the BBA as set forth on Dow Jones Markets Service (formerly
known as Telerate) (or appropriate successor or, if British Bankers' Association
or its successor ceases to provide display page 3750 (or such other display page
on the Dow Jones Markets Service system as may replace display page 3750)) at or
about 11:00 a.m. (London time) on the Business Day which is two (2) Business
Days prior to the first day of

                                       I-8


such Yield Period for an amount comparable to the Portion of Investment to be
funded at the Yield Rate and based upon the Euro-Rate during such Yield Period
by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The
Euro-Rate may also be expressed by the following formula:

               Average of London interbank offered rates quoted by BBA
               as shown on Dow Jones Markets Service display page 3750
               or appropriate successor
          Euro-Rate =

                    1.00 - Euro-Rate Reserve Percentage

where "Euro-Rate Reserve Percentage" means, the maximum effective percentage in
effect on such day as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the reserve requirements
(including without limitation, supplemental, marginal, and emergency reserve
requirements) with respect to eurocurrency funding (currently referred to as
"Eurocurrency Liabilities"). The Euro-Rate shall be adjusted with respect to any
Portion of Investment funded at the Yield Rate and based upon the Euro-Rate that
is outstanding on the effective date of any change in the Euro-Rate Reserve
Percentage as of such effective date. The applicable Purchaser Agent shall give
prompt notice to the Seller of the Euro-Rate as determined or adjusted in
accordance herewith (which determination shall be conclusive absent manifest
error).

     "Excess Concentration" means the sum of the amounts by which the
Outstanding Balance of Eligible Receivables of each Obligor then in the
Receivables Pool exceeds an amount equal to: (a) the applicable Concentration
Percentage for such Obligor multiplied by (b) the Outstanding Balance of all
Eligible Receivables then in the Receivables Pool that have been allocated to
specific Obligors.

     "Excluded Obligor" means an Obligor listed on ANNEX C, and any other
Obligor identified by the Administrator as an Excluded Obligor by written notice
to the Seller and the Servicer.

     "Exiting Purchaser" has the meaning set forth in SECTION 1.4(b)(ii).

     "Facility Termination Date" means the earliest to occur of: (a) with
respect to each Purchaser February 6, 2004, subject to any extension pursuant to
SECTION 1.10 of the Agreement (it being understood that if any such Purchaser
does not extend its Commitment hereunder then the Purchase Limit shall be
reduced ratably with respect to the Purchasers in each Purchaser Group by an
amount equal to the Commitment of such Exiting Purchaser and the Commitment
Percentages and Group Commitments of the Purchasers within each Purchaser Group
shall be appropriately adjusted), (b) the date determined pursuant to SECTION
2.2 of the Agreement, (c) the date the Purchase Limit reduces to zero pursuant
to SECTION 1.1(b) of the Agreement and (d) a Purchaser Group Facility
Termination Date, if at such time there is only one Purchaser Group .

                                       I-9


     "Federal Funds Rate" means, for any day, the per annum rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)." If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotations") for such day under the caption "Federal Funds Effective Rate." If
on any relevant day the appropriate rate is not yet published in either
H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such day will be
the arithmetic mean as determined by the Administrator of the rates for the last
transaction in overnight Federal funds arranged before 9:00 a.m. (New York time)
on that day by each of three leading brokers of Federal funds transactions in
New York City selected by the Administrator.

     "Federal Reserve Board" means the Board of Governors of the Federal Reserve
System, or any entity succeeding to any of its principal functions.

     "Fees" means the fees payable by the Seller to each Purchaser Group
pursuant to the applicable Purchaser Group Fee Letter.

     "GAAP" means the generally accepted accounting principles and practices in
the United States, consistently applied.

     "Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any body or entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including any court, and any Person owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.

     "Group A Obligor" means any Obligor with a short-term rating of at least:
(a) "A-1" by Standard & Poor's, or if such Obligor does not have a short-term
rating from Standard & Poor's, a rating of "A+" or better by Standard & Poor's
on its long-term senior unsecured and uncredit-enhanced debt securities, AND (b)
"P-1" by Moody's, or if such Obligor does not have a short-term rating from
Moody's, "A1" or better by Moody's on its long-term senior unsecured and
uncredit-enhanced debt securities.

     "Group B Obligor" means an Obligor, not a Group A Obligor, with a
short-term rating of at least: (a) "A-2" by Standard & Poor's, or if such
Obligor does not have a short-term rating from Standard & Poor's, a rating of
"BBB+" to "A" by Standard & Poor's on its long-term senior unsecured and
uncredit-enhanced debt securities, AND (b) "P-2" by Moody's, or if such Obligor
does not have a short-term rating from Moody's, "Baa1" to "A2" by Moody's on its
long-term senior unsecured and uncredit-enhanced debt securities.

                                      I-10


     "Group C Obligor" means an Obligor, not a Group A Obligor or a Group B
Obligor, with a short-term rating of at least: (a) "A-3" by Standard & Poor's,
or if such Obligor does not have a short-term rating from Standard & Poor's, a
rating of "BBB-" to "BBB" by Standard & Poor's on its long-term senior unsecured
and uncredit-enhanced debt securities, AND (b) "P-3" by Moody's, or if such
Obligor does not have a short-term rating from Moody's, "Baa3" to "Baa2" by
Moody's on its long-term senior unsecured and uncredit-enhanced debt securities.

     "Group D Obligor" means any Obligor that is not a Group A Obligor, Group B
Obligor or Group C Obligor.

     "Group Commitment" means with respect to any Purchaser Group the aggregate
of the Commitments of each Purchaser within such Purchaser Group.

     "Group Investment" means with respect to any Purchaser Group, an amount
equal to the aggregate of all Investments of the Purchasers within such
Purchaser Group.

     "Increased Costs" means the amounts payable by Seller to any Affected
Person pursuant to SECTIONS 1.7 and 1.8 of the Agreement.

     "Indemnified Amounts" has the meaning set forth in SECTION 3.1 of the
Agreement.

     "Indemnified Party" has the meaning set forth in SECTION 3.1 of the
Agreement.

     "Independent Director" has the meaning set forth in PARAGRAPH 3(c) of
EXHIBIT IV to the Agreement.

     "Information Package" means a report, in substantially the form of ANNEX A
to the Agreement, furnished to the Administrator pursuant to the Agreement.

     "Insolvency Proceeding" means: (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshaling of assets for creditors, or other similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, in each case undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code.

     "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to sections of the Internal Revenue Code also refer to any successor
sections.

     "Investment" means with respect to any Purchaser the amount paid to the
Seller by such Purchaser pursuant to the Agreement (as modified by any
assignment), in each case

                                      I-11


reduced from time to time by Collections distributed and applied on account of
such Investment pursuant to SECTION 1.4 of the Agreement; provided, that if such
Investment shall have been reduced by any distribution and thereafter all or a
portion of such distribution is rescinded or must otherwise be returned for any
reason, such Investment shall be increased by the amount of such rescinded or
returned distribution as though it had not been made.

     "KU" has the meaning set forth in the preamble.

     "KU Post Office Box" means, collectively, post office boxes # 14101 and #
14242, located in Lexington, KY 40512, and in the name of the Seller.

     "Legal Requirements" means any statute, rule, regulation or order of any
Governmental Authority.

     "Liquidity Agent" means each of the banks acting as agent for the various
Liquidity Banks under each Liquidity Agreement.

     "Liquidity Agreement" means any agreement entered into in connection with
this Agreement pursuant to which a Liquidity Provider agrees to make purchases
or advances to, or purchase assets from, any Conduit Purchaser in order to
provide liquidity for such Conduit Purchaser's Purchases.

     "Liquidity Provider" means each bank or other financial institution that
provides liquidity support to any Conduit Purchaser pursuant to the terms of a
Liquidity Agreement.

     "Lock-Box Account" means an account maintained at a bank or other financial
institution for the purpose of receiving Collections.

     "Lock-Box Agreement" means (i) an agreement, among the Administrator, the
Seller, the Servicer and a Lock-Box Bank or (ii) an acknowledgment by the United
State Post Office that each of Servicer and the Administrator are authorized to
collect mail delivered to the KU Post Office Box.

     "Lock-Box Bank" means (i) any of the banks or other financial institutions
holding one or more Lock-Box Accounts and (ii) Travelers.

     "Loss Reserve" means, on any date, an amount equal to: (a) the Aggregate
Investment at the close of business of the Servicer on such date multiplied by
(b)(i) the Loss Reserve Percentage on such date divided by (ii) 100% minus the
Loss Reserve Percentage on such date.

     "Loss Reserve Percentage" means, on any date, the greater of: (a) 10% or
(b) (i) the product of (A) 2 times the highest average of the Default Ratios for
any three consecutive calendar months during the twelve most recent calendar
months multiplied by (B) the

                                      I-12


aggregate credit sales made by the Originator during the 3 most recent calendar
months divided by (ii) the aggregate Outstanding Balance of Eligible Receivables
as of such date.

     "Majority Purchasers" means, at any time, Purchasers whose Commitments
aggregate 51% or more of the aggregate of the Commitments of all Purchasers.

     "Market Street" has the meaning set forth in the preamble to the Agreement.

     "Market Street Base Rate" means, in the case of Market Street or any
Purchaser in its Purchaser Group, for any day, a fluctuating interest rate per
annum as shall be in effect from time to time, which rate shall be at all times
equal to the higher of:

          (a) the rate of interest in effect for such day as publicly announced
     from time to time by PNC in Pittsburgh, Pennsylvania as its "prime rate."
     Such "prime rate" is set by PNC based upon various factors, including PNC's
     costs and desired return, general economic conditions and other factors,
     and is used as a reference point for pricing some loans, which may be
     priced at, above or below such announced rate, and

          (b) 0.50% per annum above the latest Federal Funds Rate.

     "Market Street CP Rate" means, with respect to Market Street for any Yield
Period with respect to any Portion of Investment, the per annum rate equivalent
to the "weighted average cost" (as defined below) related to the issuance of
Market Street's Notes that are allocated, in whole or in part, by Market Street
(or by its Purchaser Agent) to fund or maintain such Portion of Investment (and
which may also be allocated in part to the funding of other Portions of
Investment hereunder or of other assets of Market Street); PROVIDED, HOWEVER,
that if any component of such rate is a discount rate, in calculating the
"MARKET STREET CP RATE" for such Portion of Investment for such Yield Period,
Market Street shall for such component use the rate resulting from converting
such discount rate to an interest bearing equivalent rate per annum. As used in
this definition, Market Street's "WEIGHTED AVERAGE COST" shall consist of (x)
the actual interest rate (or discount) paid to purchasers of Market Street's
Notes, together with the commissions of placement agents and dealers in respect
of such Notes, to the extent such commissions are allocated, in whole or in
part, to such Notes by Market Street (or by its Purchaser Agent) and (y) any
incremental carrying costs incurred with respect to Market Street's Notes
maturing on dates other than those on which corresponding funds are received by
Market Street. Notwithstanding the foregoing, the "CP Rate" for any day while a
Termination Event or an Unmatured Termination Event exists shall be an interest
rate equal to 2% above the Base Rate in effect on such day.

     "Market Street Yield Rate" for any Yield Period for any Portion of
Investment of the Purchased Interest in the case of Market Street or any
Purchaser in its Purchaser Group, means an interest rate per annum equal to: (a)
the rate set forth as the "Applicable Margin" in the Purchaser Group Fee Letter
relating to Market Street plus the Euro-Rate for such Yield

                                      I-13


Period, or (b) if requested by the Seller, the Market Street Base Rate for such
Yield Period; PROVIDED, HOWEVER, that in the case of:

          (i) any Yield Period on or before the first day of which the
     Administrator shall have been notified by any Purchaser or other Program
     Support Provider that the introduction of or any change in or in the
     interpretation of any law or regulation makes it unlawful, or any central
     bank or other Governmental Authority asserts that it is unlawful, for such
     Person, to fund any Euro-Rate Portion of Investment (and such Person shall
     not have subsequently notified the Administrator that such circumstances no
     longer exist),

          (ii) any Yield Period of one to (and including) 29 days,

          (iii) any Yield Period as to which the Administrator does not receive
     notice before noon (New York City time) on the third Business Day preceding
     the first day of such Yield Period that the Seller desires that the related
     Portion of Investment be a Euro-Rate Portion of Investment, or

          (iv) any Yield Period relating to a Portion of Investment that is less
     than $5,000,000,

the "Yield Rate" for each such Yield Period shall be an interest rate per annum
equal to the Market Street Base Rate in effect on each day of such Yield Period.
The "Yield Rate" for any day while a Termination Event exists shall be an
interest rate equal to 2% per annum above the applicable Base Rate in effect on
such day.

     "Material Adverse Effect" means a material adverse effect on:

          (a) the assets, operations, business or financial condition of
     Servicer, Seller or the Originator,

          (b) the ability of Servicer, Seller or the Originator to perform its
     obligations under the Agreement or any other Transaction Document to which
     it is a party,

          (c) the validity or enforceability as to Servicer, Seller or the
     Originator of any other Transaction Document, or the validity,
     enforceability or collectibility of a material portion of the Pool
     Receivables, or

          (d) the status, perfection, enforceability or priority of any
     Purchaser's or the Seller's interest in the Pool Assets.

          (e) the terms and conditions applicable to a material portion of the
     Pool Receivables.

                                      I-14


          "Moody's" means Moody's Investors Service, Inc.

     "Net Receivables Pool Balance" means, at any time: (a) the Outstanding
Balance of Eligible Receivables then in the Receivables Pool minus the sum of
(b) (i) the Excess Concentration, (ii) the EMPP Accumulator Balance, (iii) the
aggregate of all Security Deposits and, (iv) after the Energy Wholesale Addition
Date, the Energy Wholesale Payables.

     "Notes" means short-term promissory notes issued, or to be issued, by each
Conduit Purchaser to fund its investments in accounts receivable or other
financial assets.

     "Obligor" means, with respect to any Receivable, the Person obligated to
make payments pursuant to the Contract or applicable Legal Requirements relating
to such Receivable.

     "Obligor Payment Plan" means, with respect to any Receivable, the agreement
(if any) between the Originator and the related Obligor providing for equal
monthly payments (subject to bi-annual adjustments related to the actual
consumption or cost of goods and services) in connection with such Receivable.

     "Originator" has the meaning set forth in the Sale Agreement.

     "Originator Assignment Certificate" means the assignment, in substantially
the form of EXHIBIT C to the Sale Agreement, evidencing Seller's ownership of
the Receivables generated by the Originator, as the same may be amended,
supplemented, amended and restated, or otherwise modified from time to time in
accordance with the Sale Agreement.

     "Outstanding Balance" of any Receivable at any time means the then
outstanding principal balance thereof.

     "Payment Date" has the meaning set forth in SECTION 2.1 of the Sale
Agreement.

     "Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company or other entity, or a government or any
political subdivision or agency thereof.

     "Performance Reserve" means the sum of (a) the Loss Reserve and (b) the
Dilution Reserve.

     "PNC" has the meaning set forth in the preamble to the Agreement.

     "Pool Assets" has the meaning set forth in SECTION 1.2(d) of the Agreement.

     "Pool Receivable" means a Receivable in the Receivables Pool.

                                      I-15


     "Portion of Investment" means, with respect to any Purchaser and its
related Investment, the portion of such Investment being funded or maintained by
such Purchaser by reference to a particular interest rate basis.

     "Program Support Agreement" means and includes any Liquidity Agreement and
any other agreement entered into by any Program Support Provider providing for:
(a) the issuance of one or more letters of credit for the account of any Conduit
Purchaser, (b) the issuance of one or more surety bonds for which the such
Conduit Purchaser is obligated to reimburse the applicable Program Support
Provider for any drawings thereunder, (c) the sale by such Conduit Purchaser to
any Program Support Provider of the Purchased Interest (or portions thereof)
maintained by such Conduit Purchaser and/or (d) the making of loans and/or other
extensions of credit to any Conduit Purchaser in connection with such Conduit
Purchaser's securitization program contemplated in the Agreement, together with
any letter of credit, surety bond or other instrument issued thereunder (but
excluding any discretionary advance facility provided by the Administrator).

     "Program Support Provider" means and includes with respect to each Conduit
Purchaser any Liquidity Provider and any other Person (other than any customer
of such Conduit Purchaser) now or hereafter extending credit or having a
commitment to extend credit to or for the account of, or to make purchases from,
such Conduit Purchaser pursuant to any Program Support Agreement.

     "Purchase" is defined in SECTION 1.1(a).

     "Purchase and Sale Indemnified Amounts" has the meaning set forth in
SECTION 9.1 of the Sale Agreement.

     "Purchase and Sale Indemnified Party" has the meaning set forth in SECTION
9.1 of the Sale Agreement.

     "Purchase and Sale Termination Date" has the meaning set forth in SECTION
1.4 of the Sale Agreement.

     "Purchase and Sale Termination Event" has the meaning set forth in SECTION
8.1 of the Sale Agreement.

     "Purchase Date" means the date of which a Purchase or a reinvestment is
made pursuant to the Agreement.

     "Purchase Facility" has the meaning set forth in SECTION 1.1 of the Sale
Agreement.

     "Purchase Limit" means (i) $50,000,000, as such amount may be reduced
pursuant to SECTION 1.1(b) of the Agreement, decreased pursuant to SECTION 1.10
or increased pursuant to SECTION 1.2(e). References to the unused portion of the
Purchase Limit shall mean, at any time, the Purchase Limit minus the then
outstanding Aggregate Investment.

                                      I-16


     "Purchase Price" has the meaning set forth in SECTION 2.1 of the Sale
Agreement.

     "Purchase Report" has the meaning set forth in SECTION 2.1 of the Sale
Agreement.

     "Purchased Interest" means, at any time, the undivided percentage ownership
interest in: (a) each and every Pool Receivable now existing or hereafter
arising, (b) all Related Security with respect to such Pool Receivables and (c)
all Collections with respect to, and other proceeds of, such Pool Receivables
and Related Security. Such undivided percentage interest shall be computed as:

                      Aggregate Investment + Total Reserves
                      -------------------------------------
                          Net Receivables Pool Balance

The Purchased Interest shall be determined from time to time pursuant to SECTION
1.3 of the Agreement.

     "Purchaser" means each Conduit Purchaser and/or each Related Committed
Purchaser, as applicable.

     "Purchaser Agent" means each Person acting as agent on behalf of a
Purchaser Group and designated as a Purchaser Agent for such Purchaser Group on
the signature pages to the Agreement or any other Person who becomes a party to
this Agreement as a Purchaser Agent pursuant to an Assumption Agreement.

     "Purchaser Group" means, for each Conduit Purchaser, such Conduit
Purchaser, its Related Committed Purchasers (if any) and its related Purchaser
Agent.

     "Purchaser Group Fee Letter" has the meaning set forth in SECTION 1.5 of
the Agreement.

     "Purchaser Group Facility Termination Date" means, with respect to each
Purchaser Group: (a) the date that the commitments of all of the related
Liquidity Providers terminate under any related Liquidity Agreement, (b) the
date that the commitment of all of the Related Committed Purchasers of such
Purchaser Group terminate pursuant to SECTION 1.10 and (c) such Purchaser Group
shall fail to cause the amendment or modification of any Transaction Document or
related opinion as required by Moody's or Standard and Poor's, and such failure
shall continue for 30 days after such amendment is initially requested.

     "Ratable Share" means, for each Purchaser Group, such Purchaser Group's
aggregate Commitments divided by the aggregate Commitments of all Purchaser
Groups.

     "Receivable" means any indebtedness and other obligations owed to the
Seller or the Originator by, or any right of the Seller or the Originator to
payment from or on behalf of, an Obligor (not including an Obligor who is an
Affiliate of the Originator), whether constituting

                                      I-17


an account, chattel paper, instrument or general intangible, arising in
connection with the sale of goods or the rendering of services in the ordinary
course of business by the Originator, and includes the obligation to pay any
finance charges, fees and other charges with respect thereto; PROVIDED, HOWEVER
that until the Energy Wholesale Addition Date no obligation that would otherwise
constitute a Receivable arising under an Energy Wholesale Contract shall
constitute a Receivable. Indebtedness and other obligations arising from any one
transaction, including indebtedness and other obligations represented by an
individual invoice or agreement, shall constitute a Receivable separate from a
Receivable consisting of the indebtedness and other obligations arising from any
other transaction.

     "Receivables Pool" means, at any time, all of the then outstanding
Receivables purchased by the Seller pursuant to the Sale Agreement prior to the
Facility Termination Date.

     "Related Committed Purchaser" means each Person listed as such (and its
respective Commitment) for each Conduit Purchaser as set forth on the signature
pages of the Agreement or in any Assumption Agreement or Transfer Supplement.

     "Related Rights" has the meaning set forth in SECTION 1.1 of the Sale
Agreement.

     "Related Security" means, with respect to any Receivable:

          (a) all of the Seller's and the Originator's interest in any goods
     (including returned goods), and documentation of title evidencing the
     shipment or storage of any goods (including returned goods), relating to
     any sale giving rise to such Receivable,

          (b) all instruments and chattel paper that may evidence such
     Receivable,

          (c) all other security interests or liens and property subject thereto
     from time to time purporting to secure payment of such Receivable, whether
     pursuant to the Contract or applicable Legal Requirements related to such
     Receivable or otherwise, together with all UCC financing statements or
     similar filings relating thereto, and

          (d) all of the Seller's and the Originator's rights, interests and
     claims under the Contracts or applicable Legal Requirements and all
     guaranties, indemnities, insurance and other agreements (including the
     related Contract) or arrangements of whatever character from time to time
     supporting or securing payment of such Receivable or otherwise relating to
     such Receivable, whether pursuant to the Contract or applicable Legal
     Requirements related to such Receivable or otherwise.

     "Sale Agreement" means the Purchase and Sale Agreement, dated as of
February 6, 2001, among the Seller, the Originator and the Servicer as amended
through the date of the Agreement and as such agreement may be amended, amended
and restated, supplemented or otherwise modified from time to time.

                                      I-18


     "SEC Reports" means the reports filed by the Originator with the Securities
and Exchange Commission on Form 10-K, Form 10-Q and/or Form 8-K (or any
successor Form(s) to any thereof).

     "Security Deposit" means, for any Receivable, any payment paid or payable
by the related Obligor to the Originator representing security for future
payments by such Obligor on such Receivable.

     "Seller" has the meaning set forth in the preamble to the Agreement.

     "Seller's Share" of any amount means the greater of: (a) $0 and (b) such
amount minus the product of (i) such amount multiplied by (ii) the Purchased
Interest.

     "Servicer" has the meaning set forth in the preamble to the Agreement.

     "Servicing Fee" shall mean the fee referred to in SECTION 4.6 of the
Agreement.

     "Servicing Fee Rate" shall mean the rate referred to in SECTION 4.6 of the
Agreement.

     "Settlement Date" means the 16th day of each calendar month or if such day
is not a Business Day, the next succeeding Business Day.

     "Significant Subsidiary" shall have the meaning given to such term in
Regulation S-X of the Securities and Exchange Commission.

     "Solvent" means, with respect to any Person at any time, a condition under
which:

          (i) the fair value and present fair saleable value of such Person's
     total assets is, on the date of determination, greater than such Person's
     total liabilities (including contingent and unliquidated liabilities) at
     such time;

          (ii) the fair value and present fair saleable value of such Person's
     assets is greater than the amount that will be required to pay such
     Person's probable liability on its existing debts as they become absolute
     and matured ("DEBTS," for this purpose, includes all legal liabilities,
     whether matured or unmatured, liquidated or unliquidated, absolute, fixed,
     or contingent);

          (iii) such Person is and shall continue to be able to pay all of its
     liabilities as such liabilities mature; and

          (iv) such Person does not have unreasonably small capital with which
     to engage in its current and in its anticipated business.

     For purposes of this definition:

                                      I-19


          (A) the amount of a Person's contingent or unliquidated liabilities at
     any time shall be that amount which, in light of all the facts and
     circumstances then existing, represents the amount which can reasonably be
     expected to become an actual or matured liability;

          (B) the "fair value" of an asset shall be the amount which may be
     realized within a reasonable time either through collection or sale of such
     asset at its regular market value;

          (C) the "regular market value" of an asset shall be the amount which a
     capable and diligent business person could obtain for such asset from an
     interested buyer who is willing to Purchase such asset under ordinary
     selling conditions; and

          (D) the "present fair saleable value" of an asset means the amount
     which can be obtained if such asset is sold with reasonable promptness in
     an arm's-length transaction in an existing and not theoretical market.

     "Standard & Poor's" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc.

     "Subservicer" means LG&E Energy Services Inc.

     "Subsidiary" means, as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock of each class or
other interests having ordinary voting power (other than stock or other
interests having such power only by reason of the happening of a contingency) to
elect a majority of the Board of Directors or other managers of such entity are
at the time owned, or management of which is otherwise controlled: (a) by such
Person, (b) by one or more Subsidiaries of such Person or (c) by such Person and
one or more Subsidiaries of such Person.

     "Tangible Net Worth" means, with respect to any Person, the tangible net
worth of such Person as determined in accordance with GAAP.

     "Termination Day" means: (a) each day on which the conditions set forth in
SECTION 2 of EXHIBIT II to the Agreement are not satisfied or (b) each day that
occurs on or after the Facility Termination Date.

     "Termination Event" has the meaning specified in EXHIBIT V to the
Agreement.

     "Termination Fee" means, for any Yield Period, with respect to any
Purchaser, the amount, if any, by which: (a) the additional Discount related to
such Purchaser's Investment (calculated without taking into account any
Termination Fee or any shortened duration of such Yield Period) that would have
accrued during such Yield Period on the reductions of Investment relating to
such Yield Period had such reductions not been made, exceeds (b) the income, if
any, received by such Purchaser from investing the proceeds of such reductions
of

                                      I-20


Investment, as determined by the such Purchaser's Purchaser Agent, which
determination shall be binding and conclusive for all purposes, absent manifest
error.

     "Total Reserves" means, at any time the sum of : the Yield Reserve, plus
the Performance Reserve.

     "Transaction Documents" means the Agreement, the Lock-Box Agreements, each
Purchaser Group Fee Letter, the Sale Agreement and all other certificates,
instruments, UCC financing statements, reports, notices, agreements and
documents executed or delivered under or in connection with the Agreement, in
each case as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the Agreement.

     "Transfer Supplement" has the respective meanings set forth in SECTIONS
6.3(c) and 6.3(e).

     "Travelers" means Traveler's Express Company, Inc.

     "UCC" means the Uniform Commercial Code as from time to time in effect in
the applicable jurisdiction.

     "Unmatured Purchase and Sale Termination Event" means any event which, with
the giving of notice or lapse of time, or both, would become a Purchase and Sale
Termination Event.

     "Unmatured Termination Event" means an event that, with the giving of
notice or lapse of time, or both, would constitute a Termination Event.

     "Yield Period" means, with respect to each Portion of Investment: (a)
before the Facility Termination Date: (i) initially the period commencing on the
date of the initial Purchase pursuant to SECTION 1.2 of the Agreement (or in the
case of any fees payable hereunder, commencing on the Closing Date) and ending
on (but not including) the next Settlement Date, and (ii) thereafter, each
period commencing on such Settlement Date and ending on (but not including) the
next Settlement Date, and (b) on and after the Facility Termination Date: such
period (including a period of one day) as shall be selected from time to time by
the Administrator or, in the absence of any such selection, each period of 30
days from the last day of the preceding Yield Period.

     "Yield Rate" for any Yield Period for any Portion of Investment of the
Purchased Interest (i) in the case of the Purchaser Group including Market
Street, means the Market Street Yield Rate and (ii) in the case of each of other
Purchaser Group shall mean the rate set forth as the Yield Rate for such
Purchaser Group in the related Purchaser Group Fee Letter.

     "Yield Reserve" means, on any date, an amount equal to: (a) the Aggregate
Investment at the close of business of the Servicer on such date multiplied by
(b)(i) the Yield

                                      I-21


Reserve Percentage on such date divided by (ii) 100% minus the Yield Reserve
Percentage on such date.

     "Yield Reserve Percentage" means at any time:

                           (BR + SFR) x 1.5 x DSO
                           ---------
                              360

     where:

               BR  =  the Market Street Base Rate for the most recent Yield
                      Period,

               DSO =  the Days Sales Outstanding, and

               SFR =  the Servicing Fee Rate

     OTHER TERMS. All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles. All terms
used in Article 9 of the UCC in the State of New York, and not specifically
defined herein, are used herein as defined in such Article 9. Unless the context
otherwise requires, "or" means "and/or," and "including" (and with correlative
meaning "include" and "includes") means including without limiting the
generality of any description preceding such term.

                                      I-22


                                      II-3

                                   EXHIBIT II

                             CONDITIONS OF PURCHASES

     1.   CONDITIONS PRECEDENT TO INITIAL PURCHASE. The initial Purchase under
          this Agreement is subject to the following conditions precedent that
          the Administrator and each Purchaser Agent shall have received on or
          before the date of such Purchase, each in form and substance
          (including the date thereof) satisfactory to the Administrator and
          each Purchaser Agent:

     (a) A counterpart of the Agreement and the other Transaction Documents
executed by the parties thereto.

     (b) Certified copies of: (i) the resolutions of the Board of Directors or
the Board of Managers (as appropriate) of each of the Seller and the Originator
authorizing the execution, delivery and performance by the Seller and the
Originator, as the case may be, of the Agreement and the other Transaction
Documents to which it is a party; (ii) all documents evidencing other necessary
organizational or corporate action and governmental approvals, if any, with
respect to the Agreement and the other Transaction Documents and (iii) the
certificate of incorporation and by-laws or the limited liability company
agreement, as appropriate of the Seller and the Originator.

     (c) A certificate of the Secretary or Assistant Secretary of the Seller and
the Originator certifying the names and true signatures of its officers who are
authorized to sign the Agreement and the other Transaction Documents. Until the
Administrator and each Purchaser Agent receives a subsequent incumbency
certificate from the Seller and the Originator, as the case may be, the
Administrator and each Purchaser Agent shall be entitled to rely on the last
such certificate delivered to it by the Seller and the Originator, as the case
may be.

     (d) Proper financing statements, executed and suitable for filing under the
UCC of all jurisdictions that the Administrator may deem necessary or desirable
in order to perfect the interests of the Seller, the Originator and the
Administrator (on behalf of each Purchaser Group) contemplated by the Agreement
and the Sale Agreement.

     (e) Executed copies of proper financing statements, if any, suitable for
filing under the UCC of all jurisdictions that the Administrator may deem
necessary or desirable in order to release all security interests and other
rights of any Person in the Receivables, Contracts or Related Security
previously granted by the Originator or the Seller.

     (f) Completed UCC search reports, dated on or shortly before the date of
the initial purchase hereunder, listing the financing statements filed in all
applicable jurisdictions referred to in SUBSECTION (e) above that name the
Originator or the Seller as debtor, together with copies of such other financing
statements, and similar search reports with respect to judgment liens, federal
tax liens and liens of the Pension Benefit Guaranty Corporation in

                                      II-1


such jurisdictions, as the Administrator or any Purchaser Agent may request,
showing no Adverse Claims on any Pool Assets.

     (g) (i) By the 30th day following the Closing Date, copies of executed
Lock-Box Agreements with each Lock-Box Bank that is not a Community Bank and
(ii) a certificate from an authorized officer of the Originator to the effect
that the name of the renter of the KU Post Office Box has been changed to the
name of the Seller.

     (h) Favorable opinions, in form and substance reasonably satisfactory to
the Administrator and each Purchaser Agent, of Gardner, Carton & Douglas, Ogden,
Newell & Welch and John R. McCall, counsel for the Seller, the Originator, and
the Servicer.

     (i) Satisfactory results of a review and audit (performed by
representatives of the Administrator) of the Servicer's collection, operating
and reporting systems, the Credit and Collection Policy of the Originator,
historical receivables data and accounts, including satisfactory results of a
review of the Servicer's operating location(s) and satisfactory review and
approval of the Eligible Receivables in existence on the date of the initial
purchase under the Agreement.

     (j) A pro forma Information Package representing the performance of the
Receivables Pool for the calendar month ending December 31, 2000.

     (k) Evidence of payment by the Seller of all accrued and unpaid fees
(including those contemplated by each Purchaser Group Fee Letter), costs and
expenses to the extent then due and payable on the date thereof, including any
such costs, fees and expenses arising under or referenced in SECTION 6.4 of the
Agreement and the Fee Letter.

     (l) Each Purchaser Group Fee Letter (received only by the related Purchaser
Group Agent) duly executed by the Seller.

     (m) Good standing certificates with respect to each of the Seller, the
Originator and the Servicer issued by the Secretary of State (or similar
official) of the state of each such Person's organization and principal place of
business.

     (n) To the extent required by each Conduit Purchaser's commercial paper
program, letters from each of the rating agencies then rating the Notes
confirming the rating of such Notes after giving effect to the transaction
contemplated by the Agreement.

     (o) Each Liquidity Agreement (received only by the related Purchaser Group
Agent) and all other Transaction Documents duly executed by the parties thereto.

     (p) A computer file containing all information with respect to the
Receivables as the Administrator or any Purchaser Agent may reasonably request.

                                      II-2


     (q) Such other approvals, opinions or documents as the Administrator or any
Purchaser Agent may reasonably request.

2.   CONDITIONS PRECEDENT TO ALL PURCHASES AND REINVESTMENTS. Each Purchase
     (including the initial Purchase) and each reinvestment shall be subject to
     the further conditions precedent that:

     (a) in the case of each purchase, the Servicer shall have delivered to the
Administrator and each Purchaser Agent on or before such purchase, in form and
substance satisfactory to the Administrator and such Purchaser Agent, a
completed pro forma Information Package to reflect the level of Investment and a
completed purchase notice in the form of ANNEX B (a "Purchase Notice") with
respect to each Purchaser Group and related reserves after such subsequent
purchase; and

     (b) on the date of such purchase or reinvestment the following statements
shall be true (and acceptance of the proceeds of such purchase or reinvestment
shall be deemed a representation and warranty by the Seller that such statements
are then true):

          (i) the representations and warranties contained in EXHIBIT III to the
     Agreement are true and correct in all material respects on and as of the
     date of such purchase or reinvestment as though made on and as of such date
     except to the extent it specifically related to a prior date; and

          (ii) no event has occurred and is continuing, or would result from
     such purchase or reinvestment, that constitutes a Termination Event or an
     Unmatured Termination Event.

                                      II-3


                                   EXHIBIT III
                         REPRESENTATIONS AND WARRANTIES

     1. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and
warrants as follows:

     (a) The Seller is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly qualified to do business and is in good standing as a foreign limited
liability company in every jurisdiction where the nature of its business
requires it to be so qualified, except where the failure to be so qualified
would not have a Material Adverse Effect.

     (b) The execution, delivery and performance by the Seller of the Agreement
and the other Transaction Documents to which it is a party, including its use of
the proceeds of purchases and reinvestments: (i) are within its organizational
powers; (ii) have been duly authorized by all necessary organizational action;
(iii) do not contravene or result in a default under or conflict with: (A) its
certificate of formation, limited liability company agreement or any other
organizational documents of the Seller, (B) any Legal Requirement applicable to
it, (C) any indenture, loan agreement, mortgage, deed of trust or other material
agreement or instrument to which it is a party or by which it is bound, or (D)
any order, writ, judgment, award, injunction or decree binding on or affecting
it or any of its property; and (iv) do not result in or require the creation of
any Adverse Claim upon or with respect to any of its properties. The Agreement
and the other Transaction Documents to which it is a party have been duly
executed and delivered by the Seller.

     (c) Except for the filing of the UCC Financing Statements referred to in
SECTION 1(d) of EXHIBIT II to the Agreement, no authorization, approval or other
action by, and no notice to or filing with, any Governmental Authority or other
Person is required for the due execution, delivery and performance by Seller of
this Agreement or any other Transaction Document to which it is a party that has
not been made, filed or obtained.

     (d) Each of the Agreement and the other Transaction Documents to which the
Seller is a party constitutes its legal, valid and binding obligation of the
Seller enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar laws from time to time in effect affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.

     (e) There is no pending or, to Seller's best knowledge, threatened action
or proceeding before any Governmental Authority or arbitrator affecting Seller
or any of its properties (except for proceedings approving the transactions
contemplated by the Transaction Documents).

                                      III-1


     (f) No proceeds of any purchase or reinvestment will be used to acquire any
equity security of a class that is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.

     (g) The Seller is the legal and beneficial owner of the Pool Receivables
and Related Security, free and clear of any Adverse Claim. Upon each purchase or
reinvestment, Administrator (for the benefit of each Purchaser) shall acquire a
valid and enforceable perfected undivided percentage ownership or security
interest, to the extent of the Purchased Interest, in each Pool Receivable then
existing or thereafter arising and in the Related Security, Collections and
other proceeds with respect thereto, free and clear of any Adverse Claim. The
Agreement creates a security interest in favor of the Administrator (for the
benefit of each Purchaser) in the Pool Assets, and the Administrator (for the
benefit of each Purchaser) has a first priority perfected security interest in
the Pool Assets, free and clear of any Adverse Claims. No effective financing
statement or other instrument similar in effect covering any Pool Asset is on
file in any recording office, except those filed in favor of the Seller pursuant
to the Sale Agreement and the Administrator (for the benefit of each Purchaser)
relating to the Agreement, or in respect of which the Administrator has received
executed copies of proper financing statements releasing or terminating, as
applicable, all security interests and other rights of any Person in such Pool
Asset.

     (h) Each Information Package (if prepared by the Seller or one of its
Affiliates, or to the extent that information contained therein is supplied by
the Seller or an Affiliate), information, exhibit, financial statement,
document, book, record or report furnished or to be furnished at any time by or
on behalf of the Seller to the Administrator or any Purchaser Agent in
connection with the Agreement or any other Transaction Document to which it is a
party is or will be complete and accurate in all material respects as of its
date or as of the date so furnished, and does not and will not contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.

     (i) The Seller's principal place of business and chief executive office (as
such terms are used in the UCC) and the office where it keeps its records
concerning the Receivables are located at the address referred to in SECTIONS
1(b) of EXHIBIT IV to the Agreement.

     (j) The names and addresses of all the Lock-Box Banks, together with the
account numbers of the Lock-Box Accounts (if any) at such Lock-Box Banks and the
number and location of the KU Post-Office Box, are specified in SCHEDULE II to
the Agreement (or have been identified in a notice to the Administrator in
accordance with the Agreement) and, from and after the 30th day following the
Closing Date, all Lock-Box Accounts (other than Lock-Box Accounts maintained at
Community Banks) are or will be subject to (and Travelers is or will be a party
to) Lock-Box Agreements (except as otherwise agreed to in writing by the
Administrator). Twenty-one days after the Administrator's written request and at
all times thereafter, the KU Post-Office Box shall be subject to a Lock-Box
Agreement. Seller has not granted to any Person, other than the Administrator or
Servicer as

                                      III-2


contemplated by the Agreement, dominion and control of any Lock-Box Account or
the KU Post-Office Box, or to any person other than the Administrator the right
to take dominion and control of any such account or post office box or
Collections deposited with Travelers at a future time or upon the occurrence of
a future event.

     (k) The Seller is not in violation of any order of any court or arbitrator
or, in any material respect, in violation of any order of any Governmental
Authority.

     (l) Neither the Seller nor any of its Affiliates has any direct or indirect
ownership or other financial interest in any Purchaser.

     (m) No proceeds of any purchase or reinvestment will be used for any
purpose that violates any applicable Legal Requirement, including Regulations T,
U or X of the Federal Reserve Board.

     (n) Each Pool Receivable included as an Eligible Receivable in the
calculation of the Net Receivables Pool Balance is an Eligible Receivable.

     (o) No event has occurred and is continuing that constitutes a Termination
Event or an Unmatured Termination Event and no event would result from a
purchase in respect of, or reinvestment in respect of, the Purchased Interest or
from the application of the proceeds therefrom that constitutes a Termination
Event or an Unmatured Termination Event.

     (p) [Reserved]

     (q) The Seller and its Affiliates have complied in all material respects
with the Credit and Collection Policy and applicable Legal Requirements with
regard to each Receivable.

     (r) The Seller has complied in all material respects with all of the terms,
covenants and agreements contained in the Agreement and the other Transaction
Documents that are applicable to it and all Legal Requirements that are
applicable to it.

     (s) The Seller's complete organizational name is set forth in the preamble
to the Agreement, and it does not use and has not during the last six years used
any other organizational name, trade name, doing-business name or fictitious
name, except as set forth on SCHEDULE III to the Agreement and except for names
first used after the date of the Agreement and set forth in a notice delivered
to the Administrator pursuant to SECTION 1(k)(iv) of EXHIBIT IV to the
Agreement.

     (t) The Seller is not an "investment company," or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

                                      III-3


     (u) With respect to each Receivable transferred to the Seller under the
Sale Agreement, Seller has given reasonably equivalent value to the Originator
in consideration therefor and such transfer was not made for or on account of an
antecedent debt. No transfer by the Originator of any Receivable under the Sale
Agreement is or may be voidable under any section of the Bankruptcy Code.

     (v) Pursuant to each Contract with respect to each Receivable or applicable
Legal Requirements, such Receivable is a legal, valid and binding obligation of
the related Obligor to pay the Outstanding Balance of the Receivable created
thereunder and any accrued interest thereon, enforceable against the Obligor in
accordance with its terms, except as such enforcement may be limited by
applicable Legal Requirements or applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law).

     (w) Since its most recent financial report delivered hereunder, there has
been no change in the business, operations, financial condition, properties or
assets of the Seller which would have an effect of the type described in clauses
(b) through (e) of the definition of Material Adverse Effect or otherwise have a
material adverse effect on its ability to perform its obligations under the
Agreement or any other Transaction Document to which it is a party or materially
and adversely affect the transactions contemplated under the Agreement or such
other Transaction Documents.

     (x) The Seller has complied in all material respects with the requirements,
rules and regulations of the Public Utility Holding Company Act of 1935, as
amended.

     (y) The balance sheets of the Originator and its consolidated Subsidiaries
as at December 31, 1999, and the related statements of income and retained
earnings for the fiscal year then ended, copies of which have been furnished to
the Administrator and each Purchaser Agent, fairly present the financial
condition of the Originator and its consolidated Subsidiaries as at such date
and the results of the operations of the Originator and its Subsidiaries for the
period ended on such date, all in accordance with generally accepted accounting
principles consistently applied, and, since December 31, 1999 there has been no
event or circumstances which have an effect of the type described in clauses (b)
through (e) of the definition of Material Adverse Effect (other than those
disclosed in the SEC report prior to the Closing Date).

     2. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer represents
and warrants as follows:

     (a) The Servicer is a corporation duly incorporated, validly existing and
in good standing under the laws of its state of organization, and is duly
qualified to do business and is in good standing as a foreign corporation in
every jurisdiction where the nature of its business requires it to be so
qualified, except where the failure to be so qualified would not have a Material
Adverse Effect.

                                      III-4


     (b) The execution, delivery and performance by the Servicer of the
Agreement and the other Transaction Documents to which it is a party: (i) are
within its corporate powers; (ii) have been duly authorized by all necessary
corporate action; (iii) do not contravene or result in a default under or
conflict with: (A) its charter or by-laws or (B) any indenture, loan agreement,
mortgage, deed of trust or other material agreement or instrument to which it is
a party or by which it is bound; (iv) do not in any material respect contravene
or conflict with: (A) any Legal Requirement applicable to it, or (B) any order,
writ, judgment, award, injunction or decree binding on or affecting it or any of
its property; and (v) do not result in or require the creation of any material
Adverse Claim upon or with respect to any of its properties. The Agreement and
the other Transaction Documents to which the Servicer is a party have been duly
executed and delivered by the Servicer.

     (c) Except for the filing of the UCC Financing Statements referred to in
SECTION 1(d) of EXHIBIT II(d), no authorization, approval or other action by,
and no notice to or filing with, any Governmental Authority or other Person is
required for the due execution, delivery and performance by Servicer of this
Agreement or any other Transaction Document to which it is a party that has not
been made, filed or obtained.

     (d) Each of the Agreement and the other Transaction Documents (if any) to
which Servicer is a party constitutes the legal, valid and binding obligation of
Servicer enforceable against Servicer in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar laws from time to time in effect affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.

     (e) [Reserved]

     (f) Except as disclosed in the SEC Reports (if any) or as otherwise
disclosed to the Administrator and each Purchaser Agent, there is no pending or,
to its best knowledge, threatened action or proceeding affecting Servicer before
any Governmental Authority or arbitrator that could have an effect of the type
described in clauses (b) through (e) of the definition of Material Adverse
Effect.

     (g) No proceeds of any purchase or reinvestment will be used to acquire any
equity security of a class that is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.

     (h) Each Information Package (if prepared by Servicer or one of its
Affiliates, or to the extent that information contained therein is supplied by
Servicer or an Affiliate of Servicer), information, exhibit, financial
statement, document, book, record or report furnished or to be furnished at any
time by or on behalf of the Servicer to the Administrator, any Purchaser or any
Purchaser Agent in connection with the Agreement is or will be complete and
accurate in all material respects as of its date or as of the date so furnished
and

                                      III-5


does not and will not contain any material misstatement of fact or omit to
state a material fact or any fact necessary to make the statements contained
therein not misleading.

     (i) The Servicer is not in violation of any order of any court, arbitrator
or Governmental Authority, which could have a Material Adverse Effect.

     (j) The Servicer has complied in all material respects with the Credit and
Collection Policy and applicable Legal Requirements with regard to each
Receivable.

     (k) Neither the Servicer nor any of its Affiliates has any direct or
indirect ownership or other financial interests in any Purchaser.

     (l) The Servicer has complied in all material respects with all of the
terms, covenants and agreements contained in the Agreement and the other
Transaction Documents that are applicable to it.

     (m) The Servicer is not an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

     (n) Except as disclosed in the SEC Reports or otherwise disclosed to the
Administrator and each Purchaser Agent, there has been no change in the
business, operations, financial condition, properties or assets of the Servicer
which would have an effect of the type described in clauses (b) through (e) of
the definition of Material Adverse Effect or materially and adversely affect the
transactions contemplated under the Agreement or the other Transaction
Documents.

     (o) Servicer has, to the extent applicable, complied in all material
respects with the requirements, rules and regulations of the Public Utility
Holding Company Act of 1935, as amended.

                                      III-6


                                   EXHIBIT IV
                                    COVENANTS

     1. COVENANTS OF THE SELLER. Until the latest of the Facility Termination
Date, the date on which no Investment of or Discount in respect of the Purchased
Interest shall be outstanding or the date all other amounts owed by the Seller
under the Agreement to any Purchaser, Purchaser Agent, the Administrator and any
other Indemnified Party or Affected Person shall be paid in full:

     (a) COMPLIANCE WITH LAWS, ETC. The Seller shall comply with all applicable
Legal Requirements, and preserve and maintain its organizational existence,
rights, franchises, qualifications and privileges, except to the extent that the
failure so to comply with such Legal Requirements or the failure so to preserve
and maintain such rights, franchises, qualifications and privileges would not
have a Material Adverse Effect.

     (b) OFFICES, RECORDS AND BOOKS OF ACCOUNT, ETC. The Seller: (i) shall keep
its principal place of business and chief executive office (as such terms or
similar terms are used in the UCC) and the office where it keeps its records
concerning the Receivables at the address of the Seller set forth under its name
on the signature page to the Agreement or, pursuant to CLAUSE (k)(iv) below, at
any other locations in jurisdictions where all actions reasonably requested by
the Administrator to protect and perfect the interest of the Administrator (for
the benefit of the Purchasers) in the Receivables and related items (including
the Pool Assets) have been taken and completed and (ii) shall provide the
Administrator with at least 30 days' written notice before making any change in
the Seller's name or making any other change in the Seller's identity or
organizational structure (including a Change in Control) that could render any
UCC financing statement filed in connection with this Agreement "seriously
misleading" as such term (or similar term) is used in the UCC; each notice to
the Administrator pursuant to this sentence shall set forth the applicable
change and the effective date thereof. The Seller also will maintain and
implement administrative and operating procedures (including an ability to
recreate records evidencing Receivables and related Contracts in the event of
the destruction of the originals thereof), and keep and maintain all documents,
books, records, computer tapes and disks and other information reasonably
necessary or advisable for the collection of all Receivables (including records
adequate to permit the daily identification of each Receivable and all
Collections of and adjustments to each existing Receivable). The Seller will
(and will cause the Originator to) on or prior to the date of the Agreement,
mark its master data processing records and other books and records relating to
the Purchased Interest (and at all times thereafter (until the latest of the
Facility Termination Date or the date all other amounts owed by the Seller under
the Agreement shall be paid in full) continue to maintain such records) with a
legend, acceptable to the Administrator, describing the Purchased Interest.

     (c) PERFORMANCE AND COMPLIANCE WITH CONTRACTS AND CREDIT AND COLLECTION
POLICY. The Seller shall, at its expense, timely and fully perform and comply
with all material provisions, covenants and other promises required to be
observed by it under the Contracts or

                                      IV-1


     applicable Legal Requirements related to the Receivables, and timely and
fully comply in all material respects with the applicable Credit and Collection
Policies with regard to each Receivable and the related Contract or applicable
Legal Requirements.

     (d) OWNERSHIP INTEREST, ETC. The Seller shall (and shall cause the Servicer
to), at its expense, take all action necessary or desirable to establish and
maintain a valid and enforceable undivided percentage ownership or security
interest, to the extent of the Purchased Interest, in the Pool Receivables, the
Related Security and Collections with respect thereto, and a first priority
perfected security interest in the Pool Assets, in each case free and clear of
any Adverse Claim, in favor of the Administrator (for the benefit of the
Purchasers), including taking such action to perfect, protect or more fully
evidence the interest of the Administrator (for the benefit of the Purchasers)
as the Administrator, may reasonably request.

     (e) SALES, LIENS, ETC. The Seller shall not sell, assign (by operation of
law or otherwise) or otherwise dispose of, or create or suffer to exist any
Adverse Claim upon or with respect to, any or all of its right, title or
interest in, to or under any Pool Assets (including the Seller's undivided
interest in any Receivable, Related Security or Collections, or upon or with
respect to any account to which any Collections of any Receivables are sent), or
assign any right to receive income in respect of any items contemplated by this
paragraph.

     (f) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as otherwise required by
applicable Legal Requirements or otherwise permitted under the Agreement, the
Seller shall not, and shall not permit the Originator or any of its Affiliates
to, extend the maturity or adjust the Outstanding Balance or otherwise modify
the terms of any Pool Receivable, or amend, modify or waive any term or
condition of any related Contract or waive any right granted to the Seller by an
applicable Legal Requirement.

     (g) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Except as required
by applicable Legal Requirements, the Seller shall not make (or permit the
Originator to make) any change in the character of its business or in any Credit
and Collection Policy, or any change in any Credit and Collection Policy that
would have a material adverse effect with respect to the Receivables. The Seller
shall not make (or permit the Originator to make) any other material change in
the Credit and Collection Policy without giving prior written notice thereof to
the Administrator and each Purchaser Agent.

     (h) AUDITS. The Seller shall (and shall cause the Originator to), from time
to time during regular business hours, but no more frequently than annually
unless (x) a Termination Event or Unmatured Termination Event has occurred and
is continuing or (y) in the opinion of the Administrator (with the consent or at
the direction of the Majority Purchasers) reasonable grounds for insecurity
exist with respect to the collectibility of a material portion of the Pool
Receivables or with respect to the Seller's performance or ability to perform in
any material respect its obligations under the Agreement, as reasonably
requested in advance (unless a Termination Event or Unmatured Termination Event
exists) by the Administrator, permit the Administrator, or its agents or
representatives: (i) to examine and make copies of

                                      IV-2


and abstracts from all books, records and documents (including computer
tapes and disks) in the possession or under the control of the Seller (or the
Originator) relating to Receivables and the Related Security, including the
related Contracts, and (ii) to visit the offices and properties of the Seller
and the Originator for the purpose of examining such materials described in
CLAUSE (I) above, and to discuss matters relating to Receivables and the Related
Security or the Seller's or the Originator's performance under the Transaction
Documents or under the Contracts or applicable Legal Requirements with any of
the officers, employees, agents or contractors of the Seller or the Originator
having knowledge of such matters and (iii) without limiting the CLAUSES (i) and
(ii) above, to engage certified public accountants or other auditors acceptable
to the Seller and the Administrator to conduct at the Seller's expense, a review
of the Seller's books and records with respect to the Receivables.

     (i) CHANGE IN LOCK-BOX BANKS, LOCK-BOX ACCOUNTS AND PAYMENT INSTRUCTIONS TO
OBLIGORS. The Seller shall not, and shall not permit the Originator to, add or
terminate any bank or other entity as a Lock-Box Bank or any account as a
Lock-Box Account from those listed in SCHEDULE II to the Agreement, make any
change to the KU Post Office Box, make any change in its instructions to
Obligors regarding payments to be made to the Seller, the Servicer, Travelers or
any Lock-Box Account (or related post office box or the KU Post Office Box),
make any change in its instructions to Travelers regarding the handling of
Collections or make any changes in its procedures for processing Collections
received in the KU Post Office Box, unless the Administrator and the Majority
Purchasers shall have consented thereto (which consent shall not be unreasonably
withheld, conditioned or delayed) in writing and the Administrator shall have
received copies of all agreements and documents (including Lock-Box Agreements)
that it may reasonably request in connection therewith.

     (j) DEPOSITS TO LOCK-BOX ACCOUNTS. The Seller shall (or shall cause the
Originator or (for so long as KU is the Servicer) Servicer to): (i) instruct all
Obligors to make payments of all Receivables to one of the following: (A) one or
more Lock-Box Accounts or to post office boxes to which only Lock-Box Banks have
access (and shall instruct the Lock-Box Banks to cause all items and amounts
relating to such Receivables received in such post office boxes to be removed
and deposited into a Lock-Box Account on a daily basis), (B) the KU Post Office
Box and (C) Travelers payment centers (and shall instruct the Travelers to cause
all items and amounts relating to such Receivables received in such payment
centers to be removed and deposited into a Lock-Box Account within three days of
Traveler's receipt of such items and amounts); and (ii) deposit, or cause to be
deposited, any Collections received by it, the Servicer (for so long as KU is
the Servicer) or the Originator into Lock-Box Accounts not later than one
Business Day after receipt thereof and agrees that all such Collections shall be
deemed to be received in trust for the Purchasers and shall be set aside and
segregated until such transfer. Except as otherwise agreed to in writing by the
Administrator and the Majority Purchasers, 30 days after the Closing Date each
Lock-Box Account (other than Lock-Box Accounts maintained at Community Banks)
and (within twenty-one (21) days of the Administrator's written request to
Seller) the KU Post Office Box shall at all times be subject to, and Travelers
shall at all times be a party to, a Lock-Box Agreement. The Seller will not (and
will not permit the Servicer (for so long as KU is the

                                      IV-3


Servicer) or the Originator to) deposit or otherwise credit, or cause or
permit to be so deposited or credited, to any Lock-Box Account or the KU Post
Office Box cash or cash proceeds other than Collections.

     (k) REPORTING REQUIREMENTS. The Seller will provide to the Administrator
(in multiple copies, if requested by the Administrator) and each Purchaser Agent
the following:

          (i) (A) as soon as available and in any event within 120 days after
     the end of each fiscal year of the Seller, a copy of Seller's unaudited
     financial statements for such year certified as to accuracy by the chief
     financial officer or treasurer or any vice president of the Seller; (B) as
     soon as available and in any event within 60 days after the end of the
     first three quarters of each fiscal year of the Originator, balance sheets
     of the Originator and its consolidated Subsidiaries as of the end of such
     quarter and statements of income, retained earnings and cash flow of the
     Originator and its consolidated Subsidiaries for the period commencing at
     the end of the previous fiscal year and ending with the end of such
     quarter, certified by the chief financial officer of such Person (which
     information may be contained in the SEC Reports) and (C) as soon as
     available and in any event within 120 days after the end of each fiscal
     year of the Originator, a copy of the annual report for such year for the
     Originator and its consolidated Subsidiaries, containing financial
     statements for such year audited by independent certified public
     accountants of nationally recognized standing (which information may be
     contained in the SEC Reports);

          (ii) as soon as possible and in any event within five days after the
     occurrence of each Termination Event or Unmatured Termination Event, a
     statement of the chief financial officer, treasurer or any vice president
     of the Seller setting forth details of such Termination Event or Unmatured
     Termination Event and the action that the Seller has taken and proposes to
     take with respect thereto;

          (iii) promptly after the filing or receiving thereof, copies of all
     reports and notices that the Seller or any ERISA Affiliate files under
     ERISA with the Internal Revenue Service, the Pension Benefit Guaranty
     Corporation or the U.S. Department of Labor or that the Seller or any ERISA
     Affiliate receives from any of the foregoing or from any multiemployer plan
     (within the meaning of Section 4001(a)(3) of ERISA) to which the Seller or
     any of its ERISA Affiliates is or was, within the preceding five years, a
     contributing employer, in each case in respect of the assessment of
     withdrawal liability or an event or condition that could, in the aggregate,
     result in the imposition of material liability on the Seller and/or any
     such ERISA Affiliate;

          (iv) at least thirty days before any change in the Seller's or the
     Originator's name or any other change requiring the amendment of UCC
     financing statements, a notice setting forth such changes and the effective
     date thereof;

                                      IV-4


          (v) promptly after the Seller obtains knowledge thereof, notice of
     any: (A) litigation, investigation or proceeding that may exist at any time
     between the Seller, the Originator or any Affiliate thereof and any
     Governmental Authority that, if not cured or if adversely determined, as
     the case may be, would have a Material Adverse Effect, (B) material
     litigation, investigation or proceeding that may exist at any time between
     the Seller and any Person, (C) litigation or proceeding adversely affecting
     the Originator or any of its Affiliates in which the amount involved is
     $500,000 or more and not covered by insurance or in which injunctive or
     similar relief is sought, (D) material litigation or proceeding relating to
     any Transaction Document or (E) material adverse developments that have
     occurred with respect to any previously disclosed litigation, proceedings
     and investigations;

          (vi) promptly after the occurrence thereof, notice of a material
     adverse change in the business, operations, property or financial or other
     condition of the Seller, the Originator, any Affiliate thereof and (to the
     extent it has such information regarding the Servicer) the Servicer;

          (vii) promptly after the sending or filing thereof, copies of all
     reports that the Originator sends to any of its public security holders,
     and copies of all reports and registration statements that the Originator
     or any Subsidiary files with the Securities and Exchange Commission or any
     national securities exchange; PROVIDED, that any filings with the
     Securities and Exchange Commission that have been granted "confidential"
     treatment shall be provided promptly after such filings have become
     publicly available;

          (viii) promptly after the occurrence thereof, notice of any downgrade
     of the Originator;

          (ix) promptly after the occurrence thereof, notice of any material
     acquisition or investment by the Originator of or in any Person, business
     or operation;

          (x) promptly after the Seller obtains knowledge thereof, notice that
     the percentage of Collections paid by Obligors in any calendar month
     directly to the Originator (as opposed to payment to a Lock Box Account,
     the KU Post Office Box or to a Travelers payment center) exceeded 5% of the
     aggregate Collections in such calendar month;

          (xi) promptly after the occurrence thereof, notice of any material
     change to any Legal Requirement under which a Receivable arises; and

          (xii) such other information respecting the Receivables or the
     condition or operations, financial or otherwise, of the Seller or any of
     its Affiliates as the Administrator or any Purchaser Agent may from time to
     time reasonably request.

                                      IV-5


     (l) CERTAIN AGREEMENTS. Without the prior written consent of the
Administrator and the Majority Purchasers, the Seller will not (and will not
permit the Originator to) amend, modify, waive, revoke or terminate any
Transaction Document to which it is a party or any provision of Seller's
certificate of formation or limited liability company agreement.

     (m) RESTRICTED PAYMENTS. (i) Except pursuant to CLAUSE (ii) below, the
Seller will not: (A) purchase or redeem any shares of its capital stock, (B)
declare or pay any dividend or set aside any funds for any such purpose, (C)
prepay, purchase or redeem any Debt, (D) lend or advance any funds or (E) repay
any loans or advances to, for or from any of its Affiliates (the amounts
described in CLAUSES (a) through (e) being referred to as "Restricted
Payments").

          (ii) Subject to the limitations set forth in CLAUSE (iii) below, the
     Seller may make Restricted Payments so long as such Restricted Payments are
     made only in one or more of the following ways: (A) the Seller may make
     cash payments (including prepayments) on the Company Note in accordance
     with its terms, and (B) if no amounts are then outstanding under the
     Company Note, the Seller may declare and pay dividends.

          (iii) The Seller may make Restricted Payments only out of the funds it
     receives pursuant to SECTIONS 1.4(b)(ii) and (iv) of the Agreement.
     Furthermore, the Seller shall not pay, make or declare: (A) any dividend
     if, after giving effect thereto, the Seller's tangible net worth would be
     less than $5,000,000 or (B) any Restricted Payment (including any dividend)
     if, after giving effect thereto, any Termination Event or Unmatured
     Termination Event shall have occurred and be continuing.

     (n) OTHER BUSINESS. The Seller will not: (i) engage in any business other
than the transactions contemplated by the Transaction Documents; (ii) create,
incur or permit to exist any Debt of any kind (or cause or permit to be issued
for its account any letters of credit or bankers' acceptances) other than
pursuant to this Agreement or the Company Note; or (iii) form any Subsidiary or
make any investments in any other Person; provided, however, that the Seller
shall be permitted to incur minimal obligations to the extent necessary for the
day-to-day operations of the Seller (such as expenses for stationery, audits,
maintenance of legal status, etc.).

     (o) USE OF SELLER'S SHARE OF COLLECTIONS. The Seller shall apply the
Seller's Share of Collections to make payments in the following order of
priority: (i) the payment of its expenses (including all obligations payable to
the Purchaser Groups and the Administrator under the Agreement and under each
Purchaser Group Fee Letter); (ii) the payment of accrued and unpaid interest on
the Company Note; and (iii) other legal and valid corporate purposes.

     (p) TANGIBLE NET WORTH. The Seller will not permit its tangible net worth,
at any time, to be less than $3,000,000.

                                      IV-6


     (q) CALCULATION OF THE PURCHASED INTEREST. If requested, the Seller shall
calculate the Purchased Interest on a daily basis and, if requested, provide the
results of such calculation to the Administrator, any Purchaser Agent, Moody's
or Standard & Poor's, as applicable.

     2. COVENANTS OF THE SERVICER. Until the latest of the Facility Termination
Date, the date on which no Investment of or Discount in respect of the Purchased
Interest shall be outstanding or the date all other amounts owed by the Seller
under the Agreement to the Purchaser Agents, the Purchasers, the Administrator
and any other Indemnified Party or Affected Person shall be paid in full:

     (a) COMPLIANCE WITH LAWS, ETC. The Servicer shall comply in all material
respects with all applicable Legal Requirements, and preserve and maintain its
corporate existence, rights, franchises, qualifications and privileges, except
to the extent that the failure so to comply with such Legal Requirements or the
failure so to preserve and maintain such existence, rights, franchises,
qualifications and privileges would not have a Material Adverse Effect.

     (b) OFFICES, RECORDS AND BOOKS OF ACCOUNT, ETC. The Servicer will maintain
and implement administrative and operating procedures (including an ability to
recreate records evidencing Receivables and related Contracts in the event of
the destruction of the originals thereof), and keep and maintain all documents,
books, records, computer tapes and disks and other information reasonably
necessary or advisable for the collection of all Receivables (including records
adequate to permit the daily identification of each Receivable and all
Collections of and adjustments to each existing Receivable).

     (c) PERFORMANCE AND COMPLIANCE WITH CONTRACTS AND CREDIT AND COLLECTION
POLICY. The Servicer shall, at its expense, timely and fully perform and comply
with all material provisions, covenants and other promises required to be
observed by it under the Contracts or applicable Legal Requirements related to
the Receivables, and timely and fully comply in all material respects with the
Credit and Collection Policy with regard to each Receivable and the related
Contract or applicable Legal Requirements.

     (d) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as otherwise required by
applicable Legal Requirements or otherwise permitted under the Agreement, the
Servicer shall not extend the maturity or adjust the Outstanding Balance or
otherwise modify the terms of any Pool Receivable, or amend, modify or waive any
term or condition of any related Contract or waive any right granted to the
Servicer by any applicable Legal Requirements.

     (e) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Except as required
by applicable Legal Requirements, the Servicer shall not make any change in the
character of its business or in the Credit and Collection Policy that would have
a material adverse effect on the terms and conditions or the collectibility of a
material portion of the Receivables. The

                                      IV-7


Servicer shall not make any other material change in the Credit and
Collection Policy without giving prior written notice thereof to the
Administrator and each Purchaser Agent.

     (f) AUDITS. The Servicer shall, from time to time during regular business
hours, but no more frequently than annually unless (x) a Termination Event or
Unmatured Termination Event has occurred and is continuing or (y) in the opinion
of the Administrator (with the consent or at the direction of the Majority
Purchasers) reasonable grounds for insecurity exist with respect to the
collectibility of a material portion of the Pool Receivables or with respect to
the Servicer's performance or ability to perform in any material respect its
obligations under the Agreement, as reasonably requested in advance (unless a
Termination Event or Unmatured Termination Event exists) by the Administrator,
permit the Administrator, or its agents or representatives: (i) to examine and
make copies of and abstracts from all books, records and documents (including
computer tapes and disks) in its possession or under its control relating to
Receivables and the Related Security, including the related Contracts; and (ii)
to visit its offices and properties for the purpose of examining such materials
described in CLAUSE (i) above, and to discuss matters relating to Receivables
and the Related Security or its performance hereunder or under the Contracts
with any of its officers, employees, agents or contractors having knowledge of
such matters and (iii) without limiting the CLAUSES (i) and (ii) above, to
engage certified public accountants or other auditors acceptable to the Servicer
and the Administrator to conduct at the Servicer's expense, a review of the
Servicer's books and records with respect to the Receivables.

     (g) CHANGE IN LOCK-BOX BANKS, LOCK-BOX ACCOUNTS AND PAYMENT INSTRUCTIONS TO
OBLIGORS. The Servicer shall not add or terminate any bank or other entity as a
Lock-Box Bank or any account as a Lock-Box Account from those listed in SCHEDULE
II to the Agreement, make any change to the KU Post Office Box, make any change
in its instructions to Obligors regarding payments to be made to the Seller, the
Servicer, Travelers or any Lock-Box Account (or related post office box or the
KU Post Office Box), make any change in its instructions to Travelers regarding
the handling of Collections or make any changes in its procedures for processing
Collections received in the KU Post Office Box, unless the Administrator and the
Majority Purchasers shall have consented thereto (which consent shall not be
unreasonably withheld, conditioned or delayed) in writing and the Administrator
shall have received copies of all agreements and documents (including Lock-Box
Agreements) that it may request in connection therewith.

     (h) DEPOSITS TO LOCK-BOX ACCOUNTS. The Servicer shall: (i) instruct all
Obligors to make payments of all Receivables to one of the following: (A) one or
more Lock-Box Accounts or to post office boxes to which only Lock-Box Banks have
access (and shall instruct the Lock-Box Banks to cause all items and amounts
relating to such Receivables received in such post office boxes to be removed
and deposited into a Lock-Box Account within three Business Days of Traveler's
receipt of such items and amounts), (B) the KU Post Office Box and (C) Travelers
payment centers (and shall instruct Travelers to cause all items and amounts
relating to such Receivables received in such payment centers to be removed and
deposited into a Lock-Box Account on a daily basis); and (ii) deposit, or cause
to be deposited, any Collections received by it, the Seller or the Originator
into Lock-Box

                                      IV-8


Accounts not later than one Business Day after receipt thereof and agrees that
all such Collections shall be deemed to be received in trust for the Purchasers
and shall be set aside and segregated until such transfer. Except as otherwise
agreed to in writing by the Administrator and the Majority Purchasers, 30 days
after the Closing Date, each Lock-Box Account (other than Lock-Box Accounts
maintained at Community Banks) and (within twenty-one (21) days of the
Administrator's written request to the Seller) the KU Post Office Box shall at
all times be subject to, and Travelers shall at all times be a party to, a
Lock-Box Agreement. The Servicer will not deposit or otherwise credit, or cause
or permit to be so deposited or credited, to any Lock-Box Account or the KU Post
Office Box cash or cash proceeds other than Collections.

     (i) REPORTING REQUIREMENTS. The Servicer shall provide to the Administrator
(in multiple copies, if requested by the Administrator) and each Purchaser Agent
the following:

          (i) as soon as available and in any event not later than two Business
     Days prior to the Settlement Date, an Information Package as of the last
     day of such month or, within 10 Business Days of a request by the
     Administrator or any Purchaser Agent, an Information Package for such
     periods as is specified by the Administrator or such Purchaser Agent
     (including on a semi-monthly or weekly basis);

          (ii) as soon as possible and in any event within five days after
     becoming aware of the occurrence of each Termination Event or Unmatured
     Termination Event, a statement of the chief financial officer of Servicer
     setting forth details of such Termination Event or Unmatured Termination
     Event and the action that such Person has taken and proposes to take with
     respect thereto;

          (iii) promptly after the Servicer obtains knowledge thereof, notice of
     any: (A) litigation, investigation or proceeding that may exist at any time
     between the Servicer or any of its Subsidiaries and any Governmental
     Authority that, if not cured or if adversely determined, as the case may
     be, would have a Material Adverse Effect; (B) litigation or proceeding
     adversely affecting such Person or any of its Subsidiaries in which the
     amount involved is $500,000 or more and not covered by insurance or in
     which injunctive or similar relief is sought; or (C) litigation or
     proceeding relating to any Transaction Document;

          (iv) promptly after the occurrence thereof, notice of a material
     adverse change in the business, operations, property or financial or other
     condition of Servicer or any of its Subsidiaries;

          (v) such other information respecting the Receivables or the condition
     or operations, financial or otherwise, of the Servicer as the Administrator
     or any Purchaser Agent may from time to time reasonably request;

          (vi) promptly after the occurrence thereof, notice of any material
     change to any Legal Requirement under which a Receivable arises.

                                      IV-9


     3. SEPARATE EXISTENCE. Each of the Seller and Servicer hereby acknowledges
that the Purchasers, the Purchaser Agents, the Administrator and the Liquidity
Providers are entering into the transactions contemplated by this Agreement and
the other Transaction Documents in reliance upon the Seller's identity as a
legal entity separate from Originator and its Affiliates. Therefore, from and
after the date hereof, each of the Seller and Servicer shall take all steps
specifically required by the Agreement or reasonably required by the
Administrator to continue the Seller's identity as a separate legal entity and
to make it apparent to third Persons that the Seller is an entity with assets
and liabilities distinct from those of Originator and any other Person, and is
not a division of Originator, its Affiliates or any other Person. Without
limiting the generality of the foregoing and in addition to and consistent with
the other covenants set forth herein, each of the Seller and Servicer shall take
such actions as shall be required in order that:

          (a) The Seller will be a limited purpose entity whose primary
     activities are restricted in its limited liability company agreement to:
     (i) purchasing or otherwise acquiring from the Originator, owning, holding,
     granting security interests or selling interests in Pool Assets, (ii)
     entering into agreements for the selling and servicing of the Receivables
     Pool, and (iii) conducting such other activities as it deems necessary or
     appropriate to carry out its primary activities;

          (b) The Seller shall not engage in any business or activity, or incur
     any indebtedness or liability, other than as expressly permitted by the
     Transaction Documents;

          (c) Not less than one member of the Seller's Board of Directors (the
     "Independent Director") shall be an individual who is not a direct,
     indirect or beneficial stockholder, officer, director, employee or
     associate of the Originator or any of its Affiliates or any relative of the
     foregoing (other than the Seller and any other bankruptcy remote special
     purpose entity formed for the sole purpose of securitizing or facilitating
     the securitization of financial assets of any member or members of the
     Seller's Parent Group (as defined in the Limited Liability Company
     Agreement of the Seller). The limited liability company agreement of the
     Seller shall provide that: (i) the Seller's Board of Directors shall not
     approve, or take any other action to cause the filing of, a voluntary
     bankruptcy petition with respect to the Seller unless the Independent
     Director shall approve the taking of such action in writing before the
     taking of such action, and (ii) such provision cannot be amended without
     the prior written consent of the Independent Director;

          (d) The Independent Director shall not at any time serve as a trustee
     in bankruptcy for the Seller, the Originator or any Affiliate thereof;

          (e) Any employee, consultant or agent of the Seller will be
     compensated from the Seller's funds for services provided to the Seller.
     The Seller will not engage any agents other than its attorneys, auditors
     and other professionals, and a servicer

                                      IV-10


     and any other agent contemplated by the Transaction Documents for the
     Receivables Pool, which servicer will be fully compensated for its services
     by payment of the Servicing Fee;

          (f) The Seller will contract with the Servicer to perform for the
     Seller all operations required on a daily basis to service the Receivables
     Pool. The Seller will pay the Servicer the Servicing Fee pursuant to the
     Agreement. Except as contemplated by the next succeeding sentence, the
     Seller will not incur any material indirect or overhead expenses for items
     shared with the Originator (or any other Affiliate thereof) that are not
     reflected in the Servicing Fee. To the extent, if any, that the Seller and
     the Originator (or any Affiliate thereof) share items of expenses not
     reflected in the Servicing Fee, such as legal, auditing and other
     professional services, such expenses will be allocated to the extent
     practical on the basis of actual use or the value of services rendered, and
     otherwise on a basis reasonably related to the actual use or the value of
     services rendered; it being understood that Originator shall pay all
     expenses relating to the preparation, negotiation, execution and delivery
     of the Transaction Documents, including legal, agency and other fees;

          (g) The Seller's operating expenses will not be paid by Originator or
     any other Affiliate thereof;

          (h) All of the Seller's business correspondence and other
     communications shall be conducted in the Seller's own name and on its own
     separate stationery;

          (i) The Seller's books and records will be maintained separately from
     those of the Originator and any other Affiliate thereof;

          (j) All financial statements of the Originator or any Affiliate
     thereof that are consolidated to include Seller will contain detailed notes
     clearly stating that: (i) a special purpose corporation exists as a
     Subsidiary of the Originator, and (ii) the Originator has sold receivables
     and other related assets to such special purpose Subsidiary that, in turn,
     has sold undivided interests therein to certain financial institutions and
     other entities;

          (k) The Seller's assets will be maintained in a manner that
     facilitates their identification and segregation from those of the
     Originator or any Affiliate thereof;

          (l) The Seller will strictly observe organizational formalities in its
     dealings with the Originator or any Affiliate thereof, and funds or other
     assets of the Seller will not be commingled with those of the Originator or
     any Affiliate thereof except as permitted by the Agreement in connection
     with servicing the Pool Receivables. The Seller shall not maintain joint
     bank accounts or other depository accounts to which the Originator or any
     Affiliate thereof (other than in the capacity of Servicer or Sub-Servicer)
     has independent access. The Seller is not named, and has not entered into
     any agreement to be named, directly or indirectly, as a direct or

                                      IV-11


     contingent beneficiary or loss payee on any insurance policy with
     respect to any loss relating to the property of the Originator or any
     Subsidiary or other Affiliate of the Originator. The Seller will pay to the
     appropriate Affiliate the marginal increase or, in the absence of such
     increase, the market amount of its portion of the premium payable with
     respect to any insurance policy that covers the Seller and such Affiliate;
     and

          (m) The Seller will maintain arm's-length relationships with the
     Originator (and any Affiliate thereof). Any Person that renders or
     otherwise furnishes services to the Seller will be compensated by the
     Seller at market rates for such services it renders or otherwise furnishes
     to the Seller. Neither the Seller nor the Originator will be or will hold
     itself out to be responsible for the debts of the other or the decisions or
     actions respecting the daily business and affairs of the other. The Seller
     and the Originator will immediately correct any known misrepresentation
     with respect to the foregoing, and they will not operate or purport to
     operate as an integrated single economic unit with respect to each other or
     in their dealing with any other entity.

                                      IV-12


                                    EXHIBIT V
                               TERMINATION EVENTS

     Each of the following shall be a "Termination Event":

     (a) (i) the Seller, the Originator or the Servicer shall fail to perform or
observe any term, covenant or agreement under the Agreement or any other
Transaction Document and, except as otherwise provided herein, such failure
shall continue for seven (7) Business Days after knowledge or notice thereof,
(ii) the Seller or the Servicer shall fail to make when due any payment or
deposit to be made by it under the Agreement and such failure shall continue
unremedied for two (2) Business Days or (iii) KU shall resign as Servicer, and
no successor Servicer reasonably satisfactory to the Administrator and the
Majority Purchasers shall have been appointed;

     (b) KU (or any Affiliate thereof) shall fail to transfer to any successor
Servicer when required any rights pursuant to the Agreement that KU (or such
Affiliate) then has as Servicer;

     (c) any representation or warranty made or deemed made by the Seller or the
Originator (or any of their respective officers) under or in connection with the
Agreement or any other Transaction Document, or any information or report
delivered by the Seller, the Originator or the Servicer pursuant to the
Agreement or any other Transaction Document, shall prove to have been incorrect
or untrue in any material respect when made or deemed made or delivered, and
shall remain incorrect or untrue for Seven (7) Business Days after notice to the
Seller or the Servicer of such inaccuracy;

     (d) the Seller or the Servicer shall fail to deliver the Information
Package pursuant to the Agreement, and such failure shall remain unremedied for
two Business Days;

     (e) the Agreement or any purchase or reinvestment pursuant to the Agreement
shall for any reason: (i) cease to create, or the Purchased Interest shall for
any reason cease to be, a valid and enforceable perfected undivided percentage
ownership or security interest to the extent of the Purchased Interest in each
Pool Receivable, the Related Security and Collections with respect thereto, free
and clear of any Adverse Claim, or (ii) cease to create with respect to the Pool
Assets, or the interest of the Administrator (for the benefit of the Purchasers)
with respect to such Pool Assets shall cease to be, a valid and enforceable
first priority perfected security interest, free and clear of any Adverse Claim;

     (f) the Seller or the Originator shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Seller or the Originator
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency
or

                                       V-1


reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property and, in the case of
any such proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of 60 days, or
any of the actions sought in such proceeding (including the entry of an order
for relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or for any substantial part of its property)
shall occur; or the Seller or the Originator shall take any organizational or
corporate, as applicable, action to authorize any of the actions set forth above
in this paragraph;

     (g) (i) the (A) Default Ratio shall exceed 3%, (B) Delinquency Ratio shall
exceed 5%, (C) Day Sales Outstanding shall exceed 30, or (ii) the average for
three consecutive calendar months of: the (A) Default Ratio shall exceed 2%, or
(B) the Delinquency Ratio shall exceed 3%;

     (h) a Change in Control shall occur;

     (i) at any time (i) the sum of (A) the Aggregate Investment plus (B) the
Total Reserves, exceeds (ii) the sum of (A) the Net Receivables Pool Balance at
such time plus (B) the Purchasers' share of the amount of Collections then on
deposit in the Lock-Box Accounts (other than amounts set aside therein
representing Discount and Fees), and such circumstance shall not have been cured
within two Business Days;

     (j) (i) the Originator or any of its Significant Subsidiaries shall fail to
pay any principal of or premium or interest on any of its Debt that is
outstanding in a principal amount of at least $25,000,000 in the aggregate when
the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement, mortgage,
indenture or instrument relating to such Debt (and shall have not been waived);
or (ii) any other event shall occur or condition shall exist under any
agreement, mortgage, indenture or instrument relating to any such Debt and shall
continue after the applicable grace period, if any, specified in such agreement,
mortgage, indenture or instrument (and shall have not been waived), if, in
either case: (a) the effect of such non-payment, event or condition is to give
the applicable debtholders the right (whether acted upon or not) to accelerate
the maturity of such Debt, or (b) any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to repay, redeem,
purchase or defease such Debt shall be required to be made, in each case before
the stated maturity thereof;

     (k) either: (i) a contribution failure shall occur with respect to any
Benefit Plan sufficient to give rise to a lien under Section 302(f) of ERISA,
(ii) the Internal Revenue Service shall file a notice of lien asserting a claim
or claims of $250,000 or more in the aggregate pursuant to the Internal Revenue
Code with regard to any of the assets of Seller, the Originator, or any ERISA
Affiliate and such lien shall have been filed and not released

                                       V-2


within 10 days, or (iii) the Pension Benefit Guaranty Corporation shall, or
shall indicate its intention in writing to the Seller, the Originator, or any
ERISA Affiliate to, either file a notice of lien asserting a claim pursuant to
ERISA with regard to any assets of the Seller, the Originator or any ERISA
Affiliate or terminate any Benefit Plan that has unfunded benefit liabilities,
or any steps shall have been taken to terminate any Benefit Plan subject to
Title IV of ERISA so as to result in any liability in excess of $1,000,000 and
such lien shall have been filed and not released within 10 days;

     (l) one or more final judgments for the payment of money shall be entered
against the Seller or (ii) one or more final judgments for the payment of money
in an amount in excess of $25,000,000, individually or in the aggregate, shall
be entered against the Originator on claims not covered by insurance or as to
which the insurance carrier has denied its responsibility, and such judgment
shall continue unsatisfied and in effect for sixty (60) consecutive days without
a stay of execution; or

     (m) the "Purchase and Sale Termination Date" under and as defined in the
Sale Agreement shall occur under the Sale Agreement or the Originator shall for
any reason cease to transfer, or cease to have the legal capacity to transfer,
or otherwise be incapable of transferring Receivables to the Seller under the
Sale Agreement.

     (n) There shall have occurred any event that would, with the giving of
notice or the passing of time, or both, have an effect of the type described in
clauses (b) through (e) of the definition of Material Adverse Effect.

     (o) Any Lock-Box Account (other than a Lock-Box Account maintained at a
Community Bank) shall not be subject to, or Travelers shall not be a party to, a
Lock-Box Agreement after the 30th day after the Closing Date.

     (p) The Seller shall fail to pay any Increased Costs (or amounts that would
have been due but for the operation of SECTION 1.8(b)) when due (or when such
amounts would have been due but for the operation of SECTION 1.8(b)).

                                       V-3


                                   SCHEDULE I
                          CREDIT AND COLLECTION POLICY

                        [ON FILE WITH THE ADMINISTRATOR]

                                  SCHEDULE I-1


                                   SCHEDULE II
                      LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS

Note that all Lock-Box Banks listed on this Schedule II that are not marked with
an asterix immediately following their name are "Community Banks."

Travelers Express Company, Inc.*
1550 Utica Avenue South
Minneapolis, MN 55416

First Commonwealth Bank*
1026 Park Avenue N.W.
Norton, VA 24273
Account Number:   30000400

Community Trust Bank*
155 E. Main Street
Lexington, KY 40507
Account Number:   4000251481

PNC Bank, Madison County*
P.O. Box 8
Richmond, KY 40475
Account Number:   3190836143

PNC Bank*
P.O. Box 648
Elizabethtown, KY 42701
Account Number:   3009341163

Bank One, NA*
P.O. Box 32500
Louisville, KY 40232
Account Number:   5089824
                  260220037

Citizens State Bank*
P.O. Box 37
Wickliffe, KY 42087
Account Number: 1002007

                                  SCHEDULE II-1


COMMUNITY BANKS:

Fifth Third Bank
P.O. Drawer K

Madisonville, KY 42431
Account Number:   5370011465

Area Bank
P.O. Box 505
Eddyville, KY 42038
Account Number:   0028301978

Old National Bank
131 E. Main Cross Street
Greenville, KY 42345
Account Number:   11001720

Fifth Third Bank
101 E. Main Street, Box 349
Morganfield, KY 42437
Account Number:   5105010297

National City Bank
121 S. Fourth Street
Danville, KY 40422

Account Number:   736600578

Citizens Bank & Trust Company
P.O. Box 250
Campbellsville, KY 42718
Account Number:  0150037

First National Bank
P.O. Box 220
Russell Springs, KY 42642
Account Number:   013846

Citizens Union Bank
P.O. Box 189
Shelbyville, KY 40065
Account Number:   0071528

Farmers Bank & Trust Company
200 E. Main Street
Georgetown, KY 40324
Account Number:   0008605

                                  SCHEDULE II-2


United Bank & Trust Company
100 United Drive, Box 89
Versailles, KY 40383
Account Number:   0246748

Mt. Sterling National Bank
P.O. Box 286
Mt. Sterling, KY 40353
Account Number:   015245

Citizens Bank
114 West Main Street
Morehead, KY 40351
Account Number:   0012500

Kentucky Bank
P.O. Box 157
Paris, KY 40361
Account Number:   032611

Security Bank
3 West Second Street
Maysville, KY 41056
Account Number:   0209791

First National Bank
604 Highland Avenue
Carrollton, KY 41008
Account Number:   388084

Peoples Commercial Bank
P.O. Box 600
Winchester, KY 40391
Account Number:   20004404

Cumberland Valley National
Main Street, Box 709

London, KY 40741
Account Number:   2130599

First Street Bank
19th Street and Cumberland Avenue
Middlesboro, KY 40965
Account Number:   0000001589

                                  SCHEDULE II-3


Bank of Harlan
P.O. Box 919
Harlan, KY 40831
Account Number:   100616200

Citizens National Bank
P.O. Box 760
107 East Mt. Vernon Street
Somerset, KY 42501
Account Number:   75003708

Lee Bank and Trust Company
P.O. Box 100
Pennington Gap, VA 24277
Account Number:   0054410

                                  SCHEDULE II-4


                                  SCHEDULE III
                                   TRADE NAMES

1) Old Dominion Power Company

                                 SCHEDULE III-1


                                                                         ANNEX A
                                               TO RECEIVABLES PURCHASE AGREEMENT

                           FORM OF INFORMATION PACKAGE

                        [ON FILE WITH THE ADMINISTRATOR]

                                    ANNEX A-1


                                                                         ANNEX B
                                               TO RECEIVABLES PURCHASE AGREEMENT

                             FORM OF PURCHASE NOTICE

PNC Bank, National Association
One PNC Plaza, 3rd Floor
249 Fifth Avenue
Pittsburgh, PA 15222-2707

Ladies and Gentlemen:

     Reference is hereby made to the Receivables Purchase Agreement, dated as of
February 6, 2001 (as heretofore amended or supplemented, the "RECEIVABLES
PURCHASE AGREEMENT"), among KU Receivables LLC ("SELLER"), Kentucky Utilities
Company, as Servicer, Market Street Funding Corporation, as a Conduit Purchaser
and as Related Committed Purchaser, Three Rivers Funding Corporation, as a
Conduit Purchaser and as a Related Committed Purchaser, Mellon Bank, N.A. as a
Purchaser Agent, the various other Purchaser Groups from time to time a party
thereto and PNC Bank National Association, as a Purchaser Agent and as
administrator (in the latter capacity, the "ADMINISTRATOR"). Capitalized terms
used in this Purchase Notice and not otherwise defined herein shall have the
meanings assigned thereto in the Receivables Purchase Agreement.

     This letter constitutes a Purchase Notice pursuant to SECTION 1.2(a) of the
Receivables Purchase Agreement. Seller desires to sell an undivided variable
interest in a pool of receivables on [___,__] 2001, for a purchase price of
$____________. Subsequent to this Purchase, the Aggregate Investment will be
$___________.

     Seller hereby represents and warrants as of the date hereof, and as of the
date of Purchase, as follows:

     (i) the representations and warranties contained in EXHIBIT III of the
Receivables Purchase Agreement are correct on and as of such dates as though
made on and as of such dates and shall be deemed to have been made on such dates
except to the extent it specifically relates to a prior date;

     (ii) no Termination Event or Unmatured Termination Event has occurred and
is continuing, or would result from such purchase;

     (iii) after giving effect to the purchase proposed hereby, the Aggregate
Investment of the Purchased Interest will not exceed 100% and the Aggregate
Investment will not exceed the Purchase Limit; and

                                    ANNEX B-1


     (iv) the Facility Termination Date shall not have occurred with respect to
all Purchasers.

     IN WITNESS WHEREOF, the undersigned has caused this Purchase Notice to be
executed by its duly authorized officer as of the date first above written.

                                            KU RECEIVABLES LLC


                                            By:
                                               --------------------------------
                                            Name Printed:
                                                         ----------------------
                                            Title:
                                                  -----------------------------

                                    ANNEX B-2


                                                                         ANNEX C
                                               TO RECEIVABLES PURCHASE AGREEMENT

                            LIST OF EXCLUDED OBLIGORS

                                     [NONE]

                                    ANNEX C-1


                                                                         ANNEX D
                                               TO RECEIVABLES PURCHASE AGREEMENT

                          FORM OF ASSUMPTION AGREEMENT

     THIS ASSUMPTION AGREEMENT (this "AGREEMENT"), dated as of [ ] ____, 20[ ],
is among KU RECEIVABLES LLC (the "Seller"), [________], as purchaser (the "
[_____] Conduit Purchaser"), [________], as the related committed purchaser (the
"[______] Related Committed Purchaser" and together with the Conduit Purchaser,
the "[_____] Purchasers"), and [________], as agent for the Purchasers (the
"[______] Purchaser Agent" and together with the Purchasers, the "[_______]
Purchaser Group").

                                   BACKGROUND

     The Seller and various others are parties to a certain Receivables Purchase
Agreement dated as of February 6, 2001 (as amended through the date hereof, the
"Receivables Purchase Agreement"). Capitalized terms used and not otherwise
defined herein have the respective meaning assigned to such terms in the
Receivables Purchase Agreement.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

     SECTION 1. This letter constitutes an Assumption Agreement pursuant to
SECTION 1.2(e) of the Receivables Purchase Agreement. The Seller desires [the
[_____] Purchasers and the [______] Purchaser Agent] [the [ ] Related Committed
Purchaser] to [become a party to] [increase its existing Commitment under] the
Receivables Purchase Agreement and upon the terms and subject to the conditions
set forth in the Receivables Purchase Agreement, [the [________] Purchasers
agree to become Purchasers thereunder, and the [ ] Purchaser Agent agrees to
become a Purchaser Agent thereunder and] the [_____] Related Committed Purchaser
agrees to [a new] [increase its] Commitment in an amount equal to the amount set
forth as the "Commitment" under its signature hereto.

     Seller hereby represents and warrants to the [________] Purchasers as of
the date hereof, as follows:

     (i) the representations and warranties contained in EXHIBIT III of the
Receivables Purchase Agreement are correct on and as of such dates as though
made on and as of such dates and shall be deemed to have been made on such
dates, except to the extent it specifically relates to a prior date;

                                    ANNEX D-1


     (ii) no Termination Event or Unmatured Termination Event has occurred and
is continuing, or would result from such purchase; and

     (iii) the Facility Termination Date shall not have occurred.

     SECTION 2. Upon execution and delivery of this Assumption Agreement by the
Seller and each member of the [______] Purchaser Group, satisfaction of the
other conditions to assignment specified in SECTION 1.2(e) of the Receivables
Purchase Agreement (including the consent of the Administrator and each of the
other Purchasers party thereto) and receipt by the Administrator of counterparts
of this Agreement (whether by facsimile or otherwise) executed by each of the
parties hereto, [the [_____] Purchasers and the [______] Purchaser Agent shall
become a party to, and have the rights and obligations of Purchasers or a
Purchaser Agent (as appropriate) under, the Receivables Purchase Agreement and]
the [______] Related Committed Purchaser shall [have a] [increase its]
Commitment in the amount set forth as the "Commitment" under the signature of
the [______] Related Committed Purchaser, hereto.

     SECTION 3. Each party hereto hereby covenants and agrees that it will not
institute against, or join any other Person in instituting against, any Conduit
Purchaser, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding, or other proceeding under any federal or state
bankruptcy or similar law, for one year and one day after the latest maturing
Notes issued by such Conduit Purchaser is paid in full. The covenant contained
in this paragraph shall survive any termination of the Receivables Purchase
Agreement.

     SECTION 4. THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK. This Agreement may not be amended, supplemented or waived
except pursuant to a writing signed by the party to be charged. This Agreement
may be executed in counterparts, and by the different parties on different
counterparts, each of which shall constitute an original, but all together shall
constitute one and the same agreement.

                         (continued on following pages)

                                    ANNEX D-2


     IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date first above written.

                                 [___________], as a Conduit Purchaser

                                 By:
                                    -----------------------------------------
                                 Name Printed:
                                              -------------------------------
                                 Title:
                                       --------------------------------------

                                 [Address]

                                 [___________], as a Related Committed Purchaser

                                 By:
                                    --------------------------------------------
                                 Name Printed:
                                              ----------------------------------
                                 Title:
                                       -----------------------------------------

                                 [Address]
                                 [Commitment]

                                 [___________], as Purchaser Agent for [_______]

                                 By:
                                    -------------------------------------------
                                 Name Printed:
                                              ---------------------------------
                                 Title:
                                       ----------------------------------------

                                 [Address]

                                    ANNEX D-3


               KU RECEIVABLES LLC, as Seller

By:
  -------------------------------------------
Name Printed:
            ---------------------------------
Title:
     ----------------------------------------

Consented and Agreed:

PNC BANK, NATIONAL ASSOCIATION,
as Administrator

By:
  -------------------------------------------
Name Printed:
            ---------------------------------
Title:
     ----------------------------------------

Consented and Agreed:

[THE PURCHASERS]

                                    ANNEX D-4


                                                                         ANNEX E
                                               TO RECEIVABLES PURCHASE AGREEMENT

                           FORM OF TRANSFER SUPPLEMENT
                                 WITH RESPECT TO
                               KU RECEIVABLES, LLC
                         RECEIVABLES PURCHASE AGREEMENT

                               [     ] ____, 20[ ]

SECTION 1.

   [Commitment assigned:                                        $_________

   Assignor's remaining Commitment:                             $_________

   Investment allocable to Commitment assigned:](1/)-           $_________
                                             Investment assigned:

   Discount (if any) allocable to Investment
   assigned:                                                             $
   Discount (if any) allocable to Assignor's
   remaining Investment:                                        $_________

   SECTION 2.

     Effective Date of this Transfer Supplement: [   ] _____, 20[ ]

     Upon execution and delivery of this Transfer Supplement by transferee and
transferor and the satisfaction of the other conditions to assignment specified
in [SECTION 6.3(c)] [SECTION 6.3(e)]of the Receivables Purchase Agreement, from
and after the effective date specified above, the transferee shall become a
party to, and have the rights and obligations of a [Conduit Purchaser] [Related
Committed Purchaser] under, the Receivables Purchase Agreement dated as of
February 6, 2001 (as amended through the date hereof, the Receivables Purchase
Agreement), among KU RECEIVABLES LLC, KENTUCKY UTILITIES COMPANY and various
other parties.

- ----------
(1/)  Bracketed language is only applicable to assignments by Related
      Committed Purchasers pursuant to SECTION 6.3(C).

                                    ANNEX E-1


ASSIGNOR:                        [____________], as a [Related
                                        Committed Purchaser for
                                 [___________]] [Conduit Purchaser]

                                 By:
                                    --------------------------------------------
                                 Name Printed:
                                              ----------------------------------
                                 Title:
                                       -----------------------------------------

ASSIGNEE:                        [______________], as a [Related
                                        Committed Purchaser for
                                 [______________]] [Conduit  Purchaser]

                                 By:
                                    --------------------------------------------
                                 Name Printed:
                                              ----------------------------------
                                 Title:
                                       -----------------------------------------

                                 [Address]
                                 [Commitment Assigned]1/

Accepted as of date first above
written:

[______________],
  as Purchaser Agent for the
[________] Purchaser Group

By:
  -------------------------------------------
Name Printed:
            ---------------------------------
Title:
     ----------------------------------------

- --------
(2/) Bracketed language is only applicable to assignments by Related Committed
     Purchasers pursuant to SECTION 6.3(c).

                                    ANNEX E-2

EX-4.44

                                                                    Exhibit 4.44

                           PURCHASE AND SALE AGREEMENT

                          DATED AS OF FEBRUARY 6, 2001

                                     BETWEEN

                               KU RECEIVABLES LLC

                                       AND

                           KENTUCKY UTILITIES COMPANY



                                TABLE OF CONTENTS



                                                                                                              PAGE
                                                                                                        
ARTICLE I       AGREEMENT TO PURCHASE AND SELL.................................................................2
     1.1   Agreement To Purchase and Sell......................................................................2
     1.2   Timing of Purchases.................................................................................3
     1.3   Consideration for Purchases.........................................................................3
     1.4   Purchase and Sale Termination Date..................................................................3
     1.5   Intention of the Parties............................................................................3

ARTICLE II      CALCULATION OF PURCHASE PRICE..................................................................3
     2.1   Calculation of Purchase Price.......................................................................3

ARTICLE III     PAYMENT OF PURCHASE PRICE......................................................................4
     3.1   Contribution of Receivables and Initial Purchase Price Payment......................................4
     3.2   Subsequent Purchase Price Payments..................................................................5
     3.3   Settlement as to Specific Receivables and Dilution..................................................5
     3.4   Reconveyance of Receivables.........................................................................7

ARTICLE IV      CONDITIONS OF PURCHASES........................................................................7
     4.1   Conditions Precedent to Initial Purchase............................................................7
     4.2   Certification as to Representations and Warranties..................................................9

ARTICLE V       REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR...............................................9
     5.1   Organization and Good Standing......................................................................9
     5.2   Due Qualification...................................................................................9
     5.3   Power and Authority; Due Authorization..............................................................9
     5.4   Valid Sale; Binding Obligations.....................................................................9
     5.5   No Violation.......................................................................................10
     5.6   Proceedings........................................................................................10
     5.7   Bulk Sales Acts....................................................................................10
     5.8   Government Approvals...............................................................................10
     5.9   Financial Condition................................................................................10
     5.10  Licenses, Contingent Liabilities, and Labor Controversies..........................................11
     5.11  Margin Regulations.................................................................................11
     5.12  Quality of Title...................................................................................11
     5.13  No Proceeds for Registered Securities..............................................................11
     5.14  Accuracy of Information............................................................................12
     5.15  Offices12..........................................................................................12
     5.16  Trade Names........................................................................................12
     5.17  Taxes..............................................................................................12
     5.18  Compliance with Applicable Laws....................................................................12
     5.19  Reliance on Separate Legal Identity................................................................12




                                                                                                        
     5.20  Utility Holding Company............................................................................12
     5.21  Payments to Originator.............................................................................13
     5.22  Investment Company.................................................................................13
     5.23  Financial Interests................................................................................13
     5.24  Obligation of Obligor..............................................................................13
     5.25  Lock-Boxes.........................................................................................13
     5.26  Credit and Collection Policy.......................................................................13
     5.27  Transaction Documents..............................................................................14

ARTICLE VI      COVENANTS OF THE ORIGINATOR ..................................................................14
     6.1   Affirmative Covenants..............................................................................14
     6.2   Reporting Requirements.............................................................................15
     6.3   Negative Covenants.................................................................................16
     6.4   Lock-Box Banks.....................................................................................17
     6.5   Accounting for Purchases...........................................................................17
     6.6   Transaction Documents..............................................................................17
     6.7   Substantive Consolidation..........................................................................18

ARTICLE VII     ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES...............................19
     7.1   Rights of the Company..............................................................................19
     7.2   Responsibilities of the Originator.................................................................19
     7.3   Further Action Evidencing Purchases................................................................20
     7.4   Application of Collections.........................................................................21

ARTICLE VIII    PURCHASE AND SALE TERMINATION EVENTS..........................................................21
     8.1   Purchase and Sale Termination Events...............................................................21
     8.2   Remedies...........................................................................................22

ARTICLE IX      INDEMNIFICATION...............................................................................22
     9.1   Indemnities by the Originator......................................................................22

ARTICLE X       MISCELLANEOUS.................................................................................25
     10.1  Amendments, etc....................................................................................25
     10.2  Notices, etc.......................................................................................25
     10.3  No Waiver; Cumulative Remedies.....................................................................25
     10.4  Binding Effect; Assignability......................................................................26
     10.5  Governing Law......................................................................................26
     10.6  Costs, Expenses and Taxes..........................................................................26
     10.7  Waiver of Jury Trial...............................................................................26
     10.8  Captions and Cross References; Incorporation by Reference..........................................26
     10.9  Execution in Counterparts..........................................................................27
     10.10 Acknowledgment and Agreement.......................................................................27
     10.11 No Proceedings.....................................................................................27





EXHIBIT A - Form of Purchase Report

EXHIBIT B - Form of Company Note

EXHIBIT C - Form of Originator Assignment Certificate

EXHIBIT D - Office Locations

EXHIBIT E - Trade Names



                           PURCHASE AND SALE AGREEMENT

     THIS PURCHASE AND SALE AGREEMENT (this "AGREEMENT"), dated as of February
6, 2001, is between KENTUCKY UTILITIES COMPANY, a Kentucky and Virginia
corporation ("KU"), as the initial Servicer (in such capacity, the "Servicer")
and as the originator (in such capacity, the "Originator"), and KU RECEIVABLES
LLC, a Delaware limited liability company (the "Company").

                                   DEFINITIONS

     Unless otherwise indicated, certain terms that are capitalized and used
throughout this Agreement are defined in Exhibit I to the Receivables Purchase
Agreement of even date herewith (as the same may be amended, supplemented or
otherwise modified from time to time, the "Receivables Purchase Agreement")
among KU, the Company, Market Street Funding Corporation, PNC Bank, National
Association, Mellon Bank, N.A and Three Rivers Funding Corporation. All
references herein to months are to calendar months unless otherwise expressly
indicated.

                                   BACKGROUND

     1. The Company is a special purpose entity, all of the issued and
outstanding equity of which is owned by KU.

     2. The Originator generates Receivables in the ordinary course of its
business.

     3. The Originator, in order to finance its business, wishes to sell
Receivables to the Company, and the Company is willing, on the terms and subject
to the conditions set forth herein, to purchase Receivables from the Originator.

     4. The Originator and the Company intend this transaction to be a true sale
of Receivables by the Originator to the Company providing the Company with the
full benefits of ownership of the Receivables and the Originator and the Company
do not intend the transactions hereunder to be, or for any purpose to be,
characterized as a loan from the Company to the Originator.

     5. The Company intends to sell the Purchased Interest in the Receivables
pursuant to the Receivables Purchase Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:

                                       1


                                    ARTICLE I

                         AGREEMENT TO PURCHASE AND SELL

     1.1 AGREEMENT TO PURCHASE AND SELL. On the terms and subject to the
conditions set forth in this Agreement (including ARTICLE IV), the Originator
agrees to sell to the Company, and the Company agrees to purchase from the
Originator, from time to time on or after the Closing Date, but before the
Purchase and Sale Termination Date, all of the Originator's right, title and
interest in and to:

          (a) each Receivable of the Originator that existed and was owing to
     the Originator as at the closing of the Originator's business on December
     31, 2000 (the "CUT-OFF DATE") other than Receivables contributed pursuant
     to SECTION 3.1 (the "Contributed Receivables");

          (b) each Receivable created by the Originator from and including the
     Cut-off Date to and including the Purchase and Sale Termination Date;

          (c) all rights to, but not the obligations under, all Related
     Security;

          (d) all monies due or to become due with respect to any of the
     foregoing;

          (e) all books and records related to any of the foregoing; and

          (f) all collections and other proceeds of any of the foregoing (as
     defined in the New York UCC) that are or were received by the Originator on
     or after Cut-off Date, including, without limitation, all funds which
     either are received by the Originator, the Company or the Servicer from or
     on behalf of the Obligors in payment of any amounts owed (including,
     without limitation, invoice price, finance charges, interest and all other
     charges) in respect of Receivables, or are applied to such amounts owed by
     the Obligors (including, without limitation, insurance payments that the
     Originator or Servicer applies in the ordinary course of its business to
     amounts owed in respect of any Receivable and net proceeds of sale or other
     disposition of repossessed goods or other collateral or property of the
     Obligors or any other parties directly or indirectly liable for payment of
     such Receivables).

All purchases and contributions hereunder shall be made without recourse, but
shall be made pursuant to, and in reliance upon, the representations, warranties
and covenants of the Originator set forth in this Agreement and each other
Transaction Document. No obligation or liability to any Obligor on any
Receivable is intended to be assumed by the Company hereunder, and any such
assumption is expressly disclaimed. The Company's foregoing commitment to
purchase Receivables and the proceeds and rights described in

                                       2


CLAUSES (c) through (f)(collectively, the "RELATED RIGHTS") is herein called
the "PURCHASE FACILITY."

     1.2 TIMING OF PURCHASES.

          (a) CLOSING DATE PURCHASES. The Originator's entire right, title and
     interest in (i) each Receivable that existed and was owing to the
     Originator as at the Cut-off Date (other than Contributed Receivables, as
     defined in SECTION 1.1), (ii) all Receivables created by the Originator
     from and including the Cut-off Date, to and including the Closing Date, and
     (iii) all Related Rights in respect of the foregoing automatically shall be
     sold to the Company on the Closing Date.

          (b) REGULAR PURCHASES. After the Closing Date, until the Purchase and
     Sale Termination Date, each Receivable (and the Related Rights in respect
     thereof) created by the Originator shall be sold to the Company, and each
     such sale shall be deemed to have occurred (without further action) upon
     the creation of such Receivable.

     1.3 CONSIDERATION FOR PURCHASES. On the terms and subject to the conditions
set forth in this Agreement, the Company agrees to make Purchase Price payments
to the Originator and to reflect all contributions in accordance with
ARTICLE III.

     1.4 PURCHASE AND SALE TERMINATION DATE. The "PURCHASE AND SALE TERMINATION
DATE" shall be the earliest to occur of (a) the date of the termination of this
Agreement pursuant to SECTION 8.2 and (b) the Payment Date immediately following
the day on which the Originator shall have given notice to the Company at or
prior to 10:00 a.m. (New York City time) that the Originator desires to
terminate this Agreement.

     1.5 INTENTION OF THE PARTIES. It is the express intent of the parties
hereto that the transfers of the Receivables and Related Rights by the
Originator to the Company, as contemplated by this Agreement be, and be treated
as, sales or contributions, as applicable and not as secured loans secured by
the Receivables and Related Rights. If, however, notwithstanding the intent of
the parties, such transactions are deemed to be loans, the Originator hereby
grants to the Company a first priority security interest in all of the
Originator's right, title and interest in and to the Receivables and the Related
Rights now existing and hereafter created by the Originator, all monies due or
to become due and all amounts received with respect thereto, and all proceeds
thereof, to secure all of the Originator's obligations hereunder.

                                       3


                                   ARTICLE II

                          CALCULATION OF PURCHASE PRICE

     2.1 CALCULATION OF PURCHASE PRICE. On the Closing Date and two Business
Days prior to each Settlement Date, the Servicer shall deliver to the Company
and the Originator a report in substantially the form of EXHIBIT A (each such
report being herein called a "PURCHASE REPORT") with respect to the matters set
forth therein and the Company's purchases of Receivables from the Originator:

     (a) that are to be made on the Closing Date, reflecting Receivables
existing as of the Cut-off Date (in the case of the Purchase Report to be
delivered on the Closing Date), or

     (b) that were made during the immediately preceding calendar month (in the
case of each subsequent Purchase Report).

The "PURCHASE PRICE" (to be paid to the Originator in accordance with the terms
of ARTICLE III) for the Receivables and the Related Rights that are purchased
hereunder from the Originator shall be determined in accordance with the
following formula:

     PP  = OB X FMVD

     WHERE:

     PP  = Purchase Price for each Receivable as calculated on the relevant
           Payment Date.

     OB  = the Outstanding Balance of such Receivable.

     FMVD= Fair Market Value Discount, as measured on such Payment Date,
                 which is equal to the quotient (expressed as percentage) of (a)
                 one DIVIDED by (b) the sum of (i) one, plus (ii) the product of
                 (A) the Prime Rate on such Payment Date plus .25% and (B) a
                 fraction, the numerator of which is the Day's Sales Outstanding
                 (calculated as of the last day of the calendar month next
                 preceding such Payment Date) and the denominator of which is
                 365.

     "PAYMENT DATE" means (i) the Closing Date and (ii) each Business Day
thereafter that the Originator is open for business.

     "PRIME RATE" means the rate described in part (a) of the definition of
Market Street Base Rate.

                                       4


                                   ARTICLE III

                            PAYMENT OF PURCHASE PRICE

     3.1 CONTRIBUTION OF RECEIVABLES AND INITIAL PURCHASE PRICE PAYMENT. (a) On
the Closing Date the Originator shall, and hereby does, contribute to the
capital of the Company Receivables and Related Rights with respect thereto
consisting of each Receivable of the Originator that existed and was owing to
the Originator on the Closing Date beginning with the oldest of such Receivables
and continuing chronologically thereafter such that the aggregate Outstanding
Balance of all such Contributed Receivables shall be equal to $3,000,000.

     (b) On the terms and subject to the conditions set forth in this Agreement,
the Company agrees to pay to the Originator the Purchase Price for the purchase
to be made from the Originator on the Closing Date partially in cash (in an
amount to be agreed between the Company and the Originator and set forth in the
initial Purchase Report) and partially by issuing a promissory note in the form
of EXHIBIT B to the Originator with an initial principal balance equal to the
remaining Purchase Price (such promissory note, as it may be amended,
supplemented, indorsed or otherwise modified from time to time, together with
any promissory notes issued from time to time in substitution therefor or
renewal thereof in accordance with the Transaction Documents, being herein
called the "COMPANY NOTE").

     3.2 SUBSEQUENT PURCHASE PRICE PAYMENTS. On each Payment Date falling after
the Closing Date, on the terms and subject to the conditions set forth in this
Agreement, the Company shall pay to the Originator the Purchase Price for the
Receivables generated by the Originator during the immediately preceding month
as follows:

          (a) FIRST, the Purchase Price shall be paid in cash to the extent the
     Company has cash available therefor; and

          (b) SECOND, to the extent any portion of the Purchase Price remains
     unpaid, the principal amount outstanding under the Company Note issued to
     the Originator shall be increased by an amount equal to such remaining
     Purchase Price.

     Servicer shall make all appropriate record keeping entries with respect to
the Company Note or otherwise to reflect the foregoing payments and Servicer's
books and records shall constitute rebuttable presumptive evidence of the
principal amount of and accrued interest on the Company Note at any time.
Furthermore, Servicer shall hold the Company Note for the benefit of the
Originator. The Originator hereby irrevocably authorizes Servicer to mark the
Company Note "CANCELLED" and to return the Company Note to the Company upon the
final payment thereof after the occurrence of the Purchase and Sale Termination
Date.

                                       5


     3.3 SETTLEMENT AS TO SPECIFIC RECEIVABLES AND DILUTION.

     (a) If on the day of purchase or contribution of any Receivable from the
Originator hereunder, any of the representations or warranties set forth in
SECTIONS 5.4 AND 5.12 of the Originator is not true with respect to such
Receivable, or as a result of any action or inaction of the Originator, on any
day any of the representations or warranties set forth in Sections 5.4 and 5.12
is no longer true with respect to such a Receivable, then the Purchase Price
with respect to such Receivables (or in the case of a Contributed Receivable,
the Outstanding Balance of such Receivable (the "Contributed Value")) shall be
reduced by an amount equal to the Outstanding Balance of such Receivable and
shall be accounted to the Originator as provided in SUBSECTION (c) below;
PROVIDED, that if the Company thereafter receives payment on account of
Collections due with respect to such Receivable, the Company promptly shall
deliver such funds to the Originator.

     (b) If, on any day, the Outstanding Balance of any Receivable (including
any Contributed Receivable) purchased or contributed hereunder is reduced or
adjusted downward as a result of any defective, rejected or returned goods or
services, or any revision, cancellation, allowance, discount or other adjustment
(except a setoff in the ordinary course in connection with a Security Deposit or
Obligor Payment Plan or pursuant to the terms of an Energy Wholesale Contract or
any revision, cancellation, allowance, discount or other adjustment to any
Receivable to the extent such Receivable is uncollectible in whole or part on
account of the lack of creditworthiness of, or any Insolvency Event related to,
the related Obligor) made by the Originator, the Company, the Servicer or any
Affiliate thereof or any setoff or dispute between the Originator, the Company,
the Servicer or any Affiliate thereof and an Obligor as indicated on the books
of the Company (or, for periods prior to the Closing Date, the books of the
Originator), then the Purchase Price or Contributed Value, as the case may be,
with respect to such Receivable shall be reduced by the amount of such net
reduction and shall be accounted to the Originator as provided in SUBSECTION (c)
below; PROVIDED, HOWEVER that if the Servicer is not the Originator or an
Affiliate of the Company or the Originator, no such reduction and accounting
will be required for any reduction or downward adjustment of a Receivable
resulting from such Servicer's failure to comply with applicable Legal
Requirements.

     (c) Any reduction in the Purchase Price (or Contributed Value) of any
Receivable pursuant to SUBSECTION (a) or (b) above shall be applied as a credit
for the account of the Company against the Purchase Price of Receivables
subsequently purchased by the Company from the Originator hereunder; PROVIDED,
HOWEVER if there have been no purchases of Receivables from the Originator (or
insufficiently large purchases of Receivables) to create a Purchase Price
sufficient to so apply such credit against, the amount of such credit

         (i) shall be paid in cash to the Company by the Originator in the
     manner and for application as described in the following proviso, or

                                       6


         (ii) shall be deemed to be a payment under, and shall be deducted from
     the principal amount outstanding under, the Company Note;

PROVIDED, FURTHER, that at any time (y) when a Termination Event or Unmatured
Termination Event exists under the Receivables Purchase Agreement or (z) on or
after the Purchase and Sale Termination Date, the amount of any such credit
shall be paid by the Originator to the Company by deposit in immediately
available funds into the relevant Lock-Box Account for application by Servicer
to the same extent as if Collections of the applicable Receivable in such amount
had actually been received on such date.

     (d) Each Purchase Report (other than the Purchase Report delivered on the
Closing Date) shall include, in respect of the Receivables previously generated
by the Originator (including Contributed Receivables), a calculation of the
aggregate reductions described in SUBSECTION (a) or (b) relating to such
Receivables since the last Purchase Report delivered hereunder, as indicated on
the books of the Company (or, for such period prior to the Closing Date, the
books of the Originator).

     (e) Except as provided in CLAUSE (b), or as otherwise required by
applicable Legal Requirements or the relevant Contract, all Collections received
from an Obligor of any Receivable shall be applied to the Receivables of such
Obligor in the order of the age of such Receivables, starting with the oldest
such Receivable, unless such Obligor designates in writing its payment for
application to specific Receivables.

     3.4 RECONVEYANCE OF RECEIVABLES. In the event that the Originator has paid
to the Company the full Outstanding Balance of any Receivable pursuant to
SECTION 3.3, the Company shall reconvey such Receivable to the Originator,
without representation or warranty, but free and clear of all liens created by
the Company.

                                   ARTICLE IV

                             CONDITIONS OF PURCHASES

     4.1 CONDITIONS PRECEDENT TO INITIAL PURCHASE. The initial purchase
hereunder is subject to the condition precedent that Servicer (on the Company's
behalf) shall have received, on or before the Closing Date, the following, each
(unless otherwise indicated) dated the Closing Date, and each in form and
substance satisfactory to Servicer (acting on the Company's behalf):

          (a) An Originator Assignment Certificate in the form of EXHIBIT C from
     the Originator, duly completed, executed and delivered by the Originator;

          (b) A copy of the resolutions of the Board of Directors of the
     Originator approving the Transaction Documents to be delivered by it and
     the transactions

                                       7


     contemplated hereby and thereby, certified by the respective Secretary or
     Assistant Secretary of the Originator;

          (c) Good standing certificates for the Originator issued as of a
     recent date acceptable to Servicer by the Secretary of State of the
     jurisdiction of the Originator's incorporation and the jurisdiction where
     such Originator's chief executive office is located;

          (d) A certificate of the Secretary or Assistant Secretary of the
     Originator certifying the names and true signatures of the officers
     authorized on such Person's behalf to sign the Transaction Documents to be
     delivered by it (on which certificate Servicer and the Company may
     conclusively rely until such time as Servicer shall receive from such
     Person a revised certificate meeting the requirements of this SUBSECTION
     (d));

          (e) The certificate or articles of incorporation or other
     organizational document of the Originator, duly certified by the Secretary
     of State of the jurisdiction of such Originator's incorporation as of a
     recent date acceptable to Servicer, together with a copy of the by-laws of
     the Originator, each duly certified by the Secretary or an Assistant
     Secretary of the Originator;

          (f) Originals of the proper financing statements (Form UCC-1) that
     have been duly executed and name the Originator as the debtor/seller and
     the Company as the secured party/purchaser (and the Administrator, as
     assignee of the Company) of the Receivables generated by the Originator as
     may be necessary or, in Servicer's or the Administrator's opinion,
     desirable under the UCC of all appropriate jurisdictions to perfect the
     Company's ownership interest in all Receivables and such other rights,
     accounts, instruments and moneys (including, without limitation, Related
     Security) in which an ownership or security interest may be assigned to it
     hereunder;

          (g) A written search report from a Person satisfactory to Servicer
     listing all effective financing statements that name the Originator as
     debtor or seller and that are filed in the jurisdictions in which filings
     were made pursuant to the foregoing SUBSECTION (f), together with copies of
     such financing statements (none of which, except for those described in the
     foregoing SUBSECTION (f), shall cover any Receivable or any Related Rights
     which are to be sold to the Company hereunder), and tax and judgment lien
     search reports from a Person satisfactory to Servicer showing no evidence
     of such liens filed against the Originator;

          (h) A favorable opinion of Gardner, Carton & Douglas and John R.
     McCall, counsel to the Originator, in form and substance satisfactory to
     Servicer and the Administrator;

                                       8


          (i) The Company Note in favor of the Originator, duly executed by the
     Company; and

          (j) A certificate from an officer of the Originator to the effect that
     the Servicer and the Originator have placed on the most recent, and have
     taken all steps reasonably necessary to ensure that there shall be placed
     on each subsequent, data processing report or other books and records that
     it generates which are of the type that a proposed purchaser or lender
     would use to evaluate the Receivables, the following legend (or the
     substantive equivalent thereof): "THE RECEIVABLES DESCRIBED HEREIN HAVE
     BEEN SOLD BY THE ORIGINATOR TO KU RECEIVABLES LLC PURSUANT TO A PURCHASE
     AND SALE AGREEMENT, DATED AS OF FEBRUARY 6, 2001, AS AMENDED, BETWEEN
     KENTUCKY UTILITIES COMPANY, AND KU RECEIVABLES LLC; AND AN UNDIVIDED,
     FRACTIONAL OWNERSHIP INTEREST IN THE RECEIVABLES DESCRIBED HEREIN HAS BEEN
     SOLD TO MARKET STREET FUNDING CORPORATION, THREE RIVERS FUNDING CORPORATION
     AND THE OTHER PURCHASERS PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT,
     DATED AS OF FEBRUARY 6, 2001, AS AMENDED, AMONG KENTUCKY UTILITIES COMPANY,
     AS THE SERVICER, KU RECEIVABLES LLC, MARKET STREET FUNDING CORPORATION,
     THREE RIVERS FUNDING CORPORATION AND THE OTHER PURCHASERS THEREUNDER AND
     PNC BANK, NATIONAL ASSOCIATION AS ADMINISTRATOR."

     4.2 CERTIFICATION AS TO REPRESENTATIONS AND WARRANTIES. The Originator, by
accepting the Purchase Price related to each purchase of Receivables generated
by the Originator, shall be deemed to have certified that the representations
and warranties contained in ARTICLE V are true and correct on and as of such
day, with the same effect as though made on and as of such day.

                                    ARTICLE V

                REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR

     In order to induce the Company to enter into this Agreement and to make
purchases and accept contributions hereunder, the Originator hereby makes with
respect to itself, the representations and warranties set forth in this
ARTICLE V.

     5.1 ORGANIZATION AND GOOD STANDING. The Originator has been duly organized
and is validly existing as a corporation in good standing under the laws of the
Commonwealth of Kentucky and the Commonwealth of Virginia, with power and
authority to own its properties and to conduct its business as such properties
are presently owned and such business is presently conducted.

                                       9


     5.2 DUE QUALIFICATION. The Originator is duly licensed or qualified to do
business as a foreign corporation in good standing in the jurisdiction where its
chief executive office is located and in all other jurisdictions in which (a)
the ownership or lease of its property or the conduct of its business requires
such licensing or qualification and (b) the failure to be so licensed or
qualified would have a Material Adverse Effect.

     5.3 POWER AND AUTHORITY; DUE AUTHORIZATION. The Originator has (a) all
necessary power, authority and legal right (i) to execute and deliver, and
perform its obligations under, each Transaction Document to which it is a party
and (ii) to generate, own, sell, contribute and assign Receivables on the terms
and subject to the conditions herein and therein provided; and (b) duly
authorized such execution and delivery and such sale, contribution and
assignment and the performance of such obligations by all necessary corporate
action.

     5.4 VALID SALE; BINDING OBLIGATIONS. Each sale or contribution, as the case
may be, made by the Originator pursuant to this Agreement shall constitute a
valid sale or contribution, as the case may be, transfer, and assignment of
Receivables to the Company, enforceable against creditors of, and purchasers
from, the Originator; and this Agreement constitutes, and each other Transaction
Document to be signed by the Originator, when duly executed and delivered, will
constitute, a legal, valid, and binding obligation of the Originator,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.

     5.5 NO VIOLATION. The consummation of the transactions contemplated by this
Agreement and the other Transaction Documents and the fulfillment of the terms
hereof or thereof, (a) will not contravene or result in a default under or
conflict with: (i) the Originator's charter or by-laws or (ii) any indenture,
loan agreement, mortgage, deed of trust or other material agreement or
instrument to which it is a party or by which it is bound; (b) will not in any
material respect contravene or conflict with: (i) any Legal Requirement
applicable to it, or (ii) any order, writ, judgment, award, injunction or decree
binding on or affecting it or any of its property; and (c) will not result in or
require the creation of any material Adverse Claim (other than those
specifically contemplated thereby) upon or with respect to any of its
properties.

     5.6 PROCEEDINGS. Except as disclosed in the SEC Reports or as otherwise
disclosed to the Administrator and each Purchaser Agent, there is no action,
suit, proceeding or investigation pending before any Governmental Authority or
arbitrator (a) asserting the invalidity of any Transaction Document, (b) seeking
to prevent the issuance of the Originator's Originator Assignment Certificate or
the consummation of any of the transactions contemplated by any Transaction
Document, or (c) that is reasonably likely to have an effect of the type
described in clauses (b) through (c) of the definition of Material Adverse
Effect.

                                       10


     5.7 BULK SALES ACTS. No transaction contemplated hereby requires compliance
with, or will be subject to avoidance under, any bulk sales act or similar law.

     5.8 GOVERNMENT APPROVALS. Except for the filing of the UCC Financing
Statements referred to in ARTICLE IV, no authorization, approval or other action
by, and no notice to or filing with, any Governmental Authority or other Person
is required for the due execution, delivery and performance by the Originator of
this Agreement or any other Transaction Document to which it is a party that has
not been made or obtained.

     5.9 FINANCIAL CONDITION.

          (a) MATERIAL ADVERSE CHANGE. The balance sheets of the Originator and
its consolidated Subsidiaries as at December 31, 1999, and the related
statements of income and retained earnings for the fiscal year then ended,
copies of which have been furnished to the Administrator and each Purchaser
Agent, fairly present the financial condition of the Originator and its
consolidated Subsidiaries as at such date and the results of the operations of
the Originator and its Subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles consistently applied,
and, since December 31, 1999 there has been no event or circumstances which have
had an effect of the type described in clauses (b) through (e) of the definition
of Material Adverse Effect (except for those disclosed in the SEC Reports prior
to the Closing Date).

          (b) SOLVENT. On the date hereof, and on the date of each purchase
     hereunder (both before and after giving effect to such purchase), the
     Originator shall be Solvent.

     5.10 LICENSES, CONTINGENT LIABILITIES, AND LABOR CONTROVERSIES.

          (a) The Originator has not failed to obtain any licenses, permits,
     franchises or other governmental authorizations necessary to the ownership
     of its properties or to the conduct of its business, which violation or
     failure to obtain would be reasonably likely to have a Material Adverse
     Effect.

          (b) There are no labor controversies pending against the Originator
     that have had (or are reasonably likely to have) an effect of the type
     described in clauses (b) through (e) of the definition of Material Adverse
     Effect.

     5.11 MARGIN REGULATIONS. No use of any funds acquired by the Originator
under this Agreement will conflict with or contravene any of Regulations T, U
and X promulgated by the Federal Reserve Board from time to time.

                                       11


     5.12 QUALITY OF TITLE.

          (a) Each Receivable of the Originator (together with the Related
     Rights with respect to such Receivable) which is to be sold to the Company
     hereunder is or shall be owned by the Originator, free and clear of any
     Adverse Claim, except as provided herein and in the Receivables Purchase
     Agreement. Whenever the Company makes a purchase or accepts a contribution
     hereunder, it shall have acquired and shall continue to have maintained a
     valid and perfected ownership interest (free and clear of any Adverse
     Claim) in all Receivables generated by the Originator and all Collections
     related thereto, and in the Originator's entire right, title and interest
     in and to the Related Rights with respect thereto.

          (b) No effective financing statement or other instrument similar in
     effect covering any Receivable generated by the Originator or any Related
     Rights is on file in any recording office except such as may be filed in
     favor of the Company or the Originator, as the case may be, in accordance
     with this Agreement or in favor of the Administrator (for the benefit of
     the Purchasers) in accordance with the Receivables Purchase Agreement.

          (c) Unless otherwise identified to the Company on the date of the
     purchase or contribution hereunder, each Receivable purchased hereunder is
     on the date of purchase or contribution, an Eligible Receivable.

     5.13 NO PROCEEDS FOR REGISTERED SECURITIES. No proceeds of any purchase or
reinvestment will be used to acquire any equity security of a class that is
registered pursuant to Section 12 of the Securities Exchange Act of 1934.

     5.14 ACCURACY OF INFORMATION. All factual written information heretofore or
contemporaneously furnished (and prepared) by the Originator to the Company, the
Servicer or the Administrator for purposes of or in connection with any
Transaction Document, Information Package or any transaction contemplated hereby
or thereby is, and all other such factual written information hereafter
furnished (and prepared) by the Originator to the Company or the Administrator
pursuant to or in connection with any Transaction Document will be, true and
accurate in every material respect on the date as of which such information is
dated or certified, and does not and will not contain any material misstatement
of fact or omit to state a material fact or any fact necessary to make the
statements contained therein not misleading.

     5.15 OFFICES. The Originator's principal place of business and chief
executive office is located at the address set forth on EXHIBIT D for such place
of business and office, and the offices where the Originator keeps all its
books, records and documents evidencing its Receivables, the related Contracts
and all other agreements related to the Receivables are located at the addresses
specified in EXHIBIT D (or at such other locations, notified to Servicer and the
Administrator in accordance with SECTION 6.1(f), in jurisdictions where all
action required by SECTION 7.3 has been taken and completed).

                                       12


     5.16 TRADE NAMES. The Originator does not use any trade name other than its
actual corporate name and the trade names set forth in EXHIBIT E. From and after
the date that fell five (5) years before the date hereof, except as set forth in
Exhibit F, the Originator has not been known by any legal name other than its
corporate name as of the date hereof, nor has the Originator been the subject of
any merger or other corporate reorganization.

     5.17 TAXES. The Originator has filed all tax returns and reports required
by law to have been filed by it and has paid all material taxes and governmental
charges thereby shown to be owing, except any such taxes or charges which are
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on its
books.

     5.18 COMPLIANCE WITH APPLICABLE LAWS. The Originator is in compliance with
the requirements of all applicable Legal Requirements, and orders of all
governmental authorities, a breach of any of which, individually or in the
aggregate, would be reasonably likely to have a Material Adverse Effect and the
Originator is not in violation of any order of any court, arbitrator or
Governmental Authority, which could have a Material Adverse Effect.

     5.19 RELIANCE ON SEPARATE LEGAL IDENTITY. The Originator acknowledges that
the Purchasers and the Administrator are entering into the Receivables Purchase
Agreement in reliance upon the Company's identity as a legal entity separate
from the Originator.

     5.20 UTILITY HOLDING COMPANY. KU has complied in all material respects with
the requirements, rules and regulations of the Public Utility Holding Company
Act of 1935, as amended.

     5.21 PAYMENTS TO ORIGINATOR. With respect to each Receivable transferred to
the Company hereunder, the Purchase Price received by the Originator constitutes
reasonably equivalent value in consideration therefor and such transfer was not
made for or on account of an antecedent debt. No transfer by the Originator of
any Receivable hereunder is or may be voidable under any section of the
Bankruptcy Reform Act of 1978 (11 U.S.C. Sections 101 et seq.), as amended.

     5.22 INVESTMENT COMPANY. The Originator is not an "investment company," or
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.

     5.23 FINANCIAL INTERESTS. Neither the Originator nor any of its Affiliates
has any direct or indirect ownership or financial interest in any Purchaser.

     5.24 OBLIGATION OF OBLIGOR. Pursuant to each Contract with respect to each
Receivable or applicable Legal Requirements, such Receivable is effective to
create, and

                                       13


has created, a legal, valid and binding obligation of the related Obligor to pay
the Outstanding Balance of such Receivable and any accrued interest thereon,
enforceable against the Obligor in accordance with its terms, except as such
enforcement may be limited by applicable Legal Requirements or applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or
limiting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).

     5.25 LOCK-BOXES. The names and addresses of all the Lock-Box Banks,
together with the account numbers of the Lock-Box Accounts (if any) at such
Lock-Box Banks and the number and location of the KU Post-Office Box, are
specified in SCHEDULE II to the Receivables Purchase Agreement (or as have been
identified in a notice to the Administrator in accordance with the Agreement)
and, from and after the 30th day after the Closing Date, all Lock-Box Accounts
are or will be subject to (and Travelers will be a party to) Lock-Box Agreements
(except as otherwise agreed to in writing by the Administrator). Twenty-one days
after the Administrator's written request and at all times thereafter, the KU
Post-Office Box shall be subject to a Lock-Box Agreement. Originator has not
granted to any Person, other than the Administrator and Servicer as contemplated
by the Receivables Purchase Agreement, dominion and control of any Lock-Box
Account or the KU Post-Office Box, and no party other than the Administrator has
the right to take dominion and control of any such account or post office box or
Collections deposited with Travelers at a future time or upon the occurrence of
a future event.

     5.26 CREDIT AND COLLECTION POLICY. The Originator and its Affiliates (other
than the Company, as to which the Originator makes no representation) have
complied in all material respects with the Credit and Collection Policy and
applicable Legal Requirements with regard to each Receivable.

     5.27 TRANSACTION DOCUMENTS. The Originator has complied in all material
respects with all of the terms, covenants and agreements contained in this
Agreement and the other Transaction Documents to which it is a party.

                                   ARTICLE VI

                           COVENANTS OF THE ORIGINATOR

     6.1 AFFIRMATIVE COVENANTS. From the date hereof until the first day
following the Purchase and Sale Termination Date, the Originator will, unless
the Administrator and the Company shall otherwise consent in writing:

          (a) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with
     all applicable Legal Requirements except where the failure to so comply
     would not have a Material Adverse Effect.

                                       14


          (b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain its
     corporate existence, rights, franchises, qualifications and privileges,
     except to the extent that the failure to pursue and maintain such
     existence, rights, franchises, qualifications and privileges would not have
     a Material Adverse Effect.

          (c) AUDIT. From time to time during regular business hours, but no
     more frequently than annually unless (x) a Purchase and Sale Termination
     Event has occurred and is continuing or (y) in the opinion of the Company
     or the Administrator (with the consent or at the direction of the Majority
     Purchasers) reasonable grounds for insecurity exist with respect to the
     collectibility of a material portion of the Receivables or with respect to
     the Originator's performance or ability to perform in any material respect
     its obligations under the Agreement, as reasonably requested in advance
     (unless a Termination Event or Unmatured Termination Event exists) by the
     Company or Administrator, permit the Company or Administrator, or its
     agents or representatives: (i) to examine and make copies of and abstracts
     from all books, records and documents (including computer tapes and disks)
     in the possession or under the control of the Originator relating to
     Receivables and the Related Security, including the related Contracts, and
     (ii) to visit the offices and properties of the Originator for the purpose
     of examining such materials described in CLAUSE (i) above, and to discuss
     matters relating to Receivables and the Related Security or the
     Originator's performance under the Transaction Documents or under the
     Contracts or applicable Legal Requirements with any of the officers,
     employees, agents or contractors of the Originator having knowledge of such
     matters and (iii) without limiting the CLAUSES (i) and (ii) above, to
     engage certified public accountants or other auditors acceptable to the
     Company and the Administrator to conduct at the Originator's expense, a
     review of the Originator's books and records with respect to the
     Receivables.

          (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Maintain and implement
     administrative and operating procedures (including, without limitation, an
     ability to recreate records evidencing Receivables and the related
     Contracts it generates in the event of the destruction of the originals
     thereof), and keep and maintain all documents, books, records, computer
     tapes and disks and other information reasonably necessary or advisable for
     the collection of such Receivables (including, without limitation, records
     adequate to permit the daily identification of each new Receivable and all
     Collections of and adjustments to each existing Receivable).

          (e) PERFORMANCE AND COMPLIANCE WITH RECEIVABLES, APPLICABLE LEGAL
     REQUIREMENTS AND CONTRACTS. Timely and fully perform and comply, at its
     expense, with all material provisions, covenants and other promises
     required to be observed by it under the Contracts or applicable Legal
     Requirements and all other agreements related to the Receivables that it
     generates.

                                       15


          (f) LOCATION OF RECORDS. Keep its principal place of business and
     chief executive office (as such terms or similar terms are used in this
     applicable UCC), and the offices where it keeps its records concerning or
     related to Receivables, at the address(es) specified on EXHIBIT D for both
     catagories or, upon 30 days' prior written notice to the Company and the
     Administrator, at such other locations in jurisdictions where all action
     required by SECTION 7.3 shall have been taken and completed.

          (g) CREDIT AND COLLECTION POLICIES. Comply in all material respects
     with its Credit and Collection Policy in connection with the Receivables
     that it generates and all Contracts or applicable Legal Requirements.

          (h) POST OFFICE BOXES. On or prior to the date hereof, deliver to
     Servicer (on behalf of the Company) a certificate from an authorized
     officer of the Originator to the effect that the name of the renter of all
     post office boxes into which Collections may from time to time be mailed
     has been changed to the name of the Company (unless such post office boxes
     are in the name of the relevant Lock-Box Banks).

     6.2 REPORTING REQUIREMENTS. From the date hereof until the first day
following the Purchase and Sale Termination Date, the Originator will, unless
Servicer (on behalf of the Company) and the Administrator shall otherwise
consent in writing, furnish to the Company and the Administrator:

          (a) PURCHASE AND SALE TERMINATION EVENTS. As soon as possible after
     knowledge of the occurrence of, and in any event within three Business Days
     after knowledge of the occurrence of each Purchase and Sale Termination
     Event or each Unmatured Purchase and Sale Termination Event in respect of
     the Originator, the statement of the chief financial officer, chief
     accounting officer, treasurer, secretary or any Vice President of the
     Originator describing such Purchase and Sale Termination Event or Unmatured
     Purchase and Sale Termination Event and the action that the Originator
     proposes to take with respect thereto, in each case in reasonable detail;

          (b) UCC FILING INFORMATION. At least thirty days before any change in
     the Originator's name or any other change requiring the amendment of UCC
     financing statements, a notice setting forth such changes and the effective
     date thereof;

          (c) PROCEEDINGS. Promptly after the Originator obtains knowledge
     thereof, notice of any: (A) litigation, investigation or proceeding that
     may exist at any time between the Originator or any of its Affiliates and
     any Governmental Authority that, if not cured or if adversely determined,
     as the case may be, would have a Material Adverse Effect, (B) litigation or
     proceeding adversely affecting the Originator or any of its Affiliates in
     which the amount involved is $500,000 or

                                       16


     more and not covered by insurance or in which injunctive or similar relief
     is sought, (C) material litigation or proceeding relating to any
     Transaction Document or (D) material adverse developments that have
     occurred with respect to any previously disclosed litigation, proceedings
     and investigations;

          (d) OTHER. Promptly, from time to time, such other information,
     documents, records or reports respecting the Receivables or the conditions
     or operations, financial or otherwise, of the Originator as the Company,
     any Purchaser, any Purchaser Agent or the Administrator may from time to
     time reasonably request in order to protect the interests of the Company,
     any Purchaser Agent, any Purchaser or the Administrator under or as
     contemplated by the Transaction Documents.

     6.3 NEGATIVE COVENANTS. From the date hereof until the date following the
Purchase and Sale Termination Date, the Originator agrees that, unless Servicer
(on behalf of the Company) and the Administrator shall otherwise consent in
writing, it shall not:

          (a) SALES, LIENS, ETC. Except as otherwise provided herein or in any
     other Transaction Document, sell, assign (by operation of law or otherwise)
     or otherwise dispose of, or create or suffer to exist any Adverse Claim
     upon or with respect to, any Receivable or related Contract or Related
     Security, or any interest therein, or any Collections thereon, or assign
     any right to receive income in respect thereof.

          (b) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as otherwise
     required by applicable Legal Requirements or permitted by SECTION 4.2(a) of
     the Receivables Purchase Agreement, extend, amend or otherwise modify the
     terms of any Receivable in any material respect generated by it, or amend,
     modify or waive, in any material respect, any term or condition of any
     Contract related thereto or waive any right granted by the applicable Legal
     Requirements related thereto, or permit the Servicer (so long as the
     Servicer is an Affiliate of the Originator) to take any of the foregoing
     actions.

          (c) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Except as
     required by applicable Legal Requirements, make any change in the character
     of its business or materially alter its Credit and Collection Policy, which
     change would have a material adverse effect on the terms and conditions or
     the collectibility of a material portion of the Receivables, or make any
     other material change in the Credit and Collection Policy without prior
     written notice to the Administrator and each Purchaser Agent.

          (d) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES OR CHATTEL
     PAPER. Take any action to cause or permit any Receivable generated by it to

                                       17


     become evidenced by any "instrument" or "chattel paper" (as defined in the
     New York UCC).

          (e) MERGERS, ACQUISITIONS, SALES, ETC. (i) Be a party to any merger or
     consolidation or (ii) directly or indirectly sell, transfer, assign, convey
     or lease (A) whether in one or a series of transactions, all or
     substantially all of its assets, or (B) any Receivables or any interest
     therein (other than pursuant to this Agreement).

     6.4 LOCK-BOX BANKS. Add or terminate any bank or other entity as a Lock-Box
Bank or any account as a Lock-Box Account from those listed in EXHIBIT G to the
Receivables Purchase Agreement, make any change to the KU Post Office Box, make
any change in its instructions to Obligors regarding payments to be made to the
Company, the Servicer, Travelers or any Lock-Box Account (or related post office
box or the KU Post Office Box), make any change in its instructions to Travelers
regarding the handling of Collections or make any changes in its procedures for
processing Collections received in the KU Post Office Box, unless the
Administrator and the Majority Purchasers shall have consented thereto (which
consent shall not be unreasonably withheld, conditioned or delayed) in writing
and the Administrator shall have received copies of all agreements and documents
(including Lock-Box Agreements) that it may reasonably request in connection
therewith.

     6.5 ACCOUNTING FOR PURCHASES. Account for or treat (whether in financial
statements or otherwise) the transactions contemplated hereby in any manner
other than as a contribution and as sales of the Receivables and Related Rights
by the Originator to the Company.

     6.6 TRANSACTION DOCUMENTS. Without the prior written consent of the
Administrator and the Majority Purchasers, amend, modify, supplement, waive,
revoke or terminate any Transaction Document to which it is a party or enter
into, execute, deliver or otherwise become bound by any agreement, instrument,
document or other arrangement that restricts the right of the Originator to: (i)
amend, supplement, amend and restate or otherwise modify the provisions of
ARTICLE II of the Receivables Purchase Agreement, EXHIBIT V to the Receivables
Purchase Agreement or ARTICLES V, VI and VIII of this Agreement or any ratio,
percentage, equation or time frame contained in any definition (other than the
definitions of Purchase Limit and Facility Termination Date) contained in
EXHIBIT I to the Receivables Purchase Agreement or (ii) extend or renew, or to
waive any right under, this Agreement or any other Transaction Documents,
PROVIDED THAT the Originator may enter into, execute, deliver or otherwise
become bound by any agreement, instrument, document or other arrangement that
requires termination of this Agreement based upon the level of Total Reserves.

         6.7 SUBSTANTIVE CONSOLIDATION. The Originator hereby acknowledges that
this Agreement and the other Transaction Documents are being entered into in
reliance upon the Company's identity as a legal entity separate from the
Originator and its Affiliates.

                                       18


Therefore, from and after the date hereof, the Originator shall take all
reasonable steps necessary to make it apparent to third Persons that the Company
is an entity with assets and liabilities distinct from those of the Originator
and any other Person, and is not a division of the Originator, its Affiliates or
any other Person. Without limiting the generality of the foregoing and in
addition to and consistent with the other covenants set forth herein, the
Originator shall take such actions as shall be required in order that:

          (a) the Originator shall not be involved in the day to day management
     of the Company;

          (b) the Originator shall maintain separate corporate records and books
     of account from the Company and otherwise will observe corporate
     formalities and have a separate area from the Company for its business;

          (c) the financial statements and books and records of the Originator
     shall be prepared after the date of creation of the Company to reflect and
     shall reflect the separate existence of the Company; PROVIDED, that the
     Company's assets and liabilities may be included in a consolidated
     financial statement issued by an affiliate of the Company; PROVIDED,
     HOWEVER, that any such consolidated financial statement shall make clear
     that the Company's assets are not available to satisfy the obligations of
     such affiliate;

          (d) except as permitted by the Receivables Purchase Agreement, (i) the
     Originator shall maintain its assets separately from the assets of the
     Company, (ii) and the Originator's assets, and records relating thereto,
     have not been, are not, and shall not be, commingled with those of the
     Company;

          (e) all of the Company's business correspondence and other
     communications shall be conducted in the Company's own name and on its own
     stationery;

          (f) the Originator shall not act as an agent for the Company, other
     than KU in its capacity as the Servicer, and in connection therewith, shall
     present itself to the public as an agent for the Company and a legal entity
     separate from the Company;

          (g) the Originator shall not conduct any of the business of the
     Company in its own name;

          (h) the Originator shall not pay any liabilities of the Company out of
     its own funds or assets;

          (i) the Originator shall maintain an arm's-length relationship with
     the Company;

                                       19


          (j) the Originator shall not assume or guarantee or become obligated
     for the debts of the Company or hold out its credit as being available to
     satisfy the obligations of the Company;

          (k) the Originator shall not acquire obligations of the Company, other
     than the Company Note;

          (l) the Originator shall allocate fairly and reasonably overhead or
     other expenses that are properly shared with the Company, including,
     without limitation, shared office space;

          (m) the Originator shall identify and hold itself out as a separate
     and distinct entity from the Company;

          (n) the Originator shall correct any known misunderstanding regarding
     its separate identity from the Company;

          (o) the Originator shall not enter into, or be a party to, any
     transaction with the Company, except in the ordinary course of its business
     and on terms which are intrinsically fair and not less favorable to it than
     would be obtained in a comparable arm's-length transaction with an
     unrelated third party; and

          (p) the Originator shall not pay the salaries of the Company's
     employees, if any.

                                   ARTICLE VII

                      ADDITIONAL RIGHTS AND OBLIGATIONS IN
                           RESPECT OF THE RECEIVABLES

     7.1 RIGHTS OF THE COMPANY. The Originator hereby authorizes the Company,
Servicer, the Administrator or their respective designees to take any and all
steps permitted by applicable Legal Requirements in the Originator's name
necessary or desirable, in their respective determination, to collect all
amounts due under any and all Receivables, including, without limitation,
indorsing the name of the Originator on checks and other instruments
representing Collections and enforcing such Receivables and the provisions of
the related Contracts (or exercising any rights under the applicable Legal
Requirements) that concern payment and/or enforcement of rights to payment.

     7.2 RESPONSIBILITIES OF THE ORIGINATOR. Anything herein to the contrary
notwithstanding:

          (a) COLLECTION PROCEDURES. The Originator agrees: (i) to instruct all
     Obligors to make payments of all Receivables to one of the following: (A)
     one or

                                       20


     more Lock-Box Accounts or to post office boxes to which only Lock-Box Banks
     have access (and shall instruct the Lock-Box Banks to cause all items and
     amounts relating to such Receivables received in such post office boxes to
     be removed and deposited into a Lock-Box Account on a daily basis), (B) the
     KU Post Office Box and (C) Travelers payment centers (and shall instruct
     the Travelers to cause all items and amounts relating to such Receivables
     received in such payment centers to be removed and deposited into a
     Lock-Box Account within three days of Traveler's receipt of such items and
     amounts); and (ii) deposit, or cause to be deposited, any Collections
     received by it, the Servicer or the Company into Lock-Box Accounts not
     later than one Business Day after receipt thereof and agrees that all such
     Collections shall be deemed to be received in trust for the Company and
     shall be set aside and segregated until such transfer. Except as otherwise
     agreed to in writing by the Administrator and the Majority Purchasers,
     thirty (30) days after the Closing Date each Lock-Box Account (other than
     Lock-Box Accounts maintained at Community Banks) shall at all times be
     subject to, and Travelers shall at all times be a party to, a Lock-Box
     Agreement. Twenty-one (21) days after the Administrator's written request
     and at all times thereafter, the KU Post Office Box shall be subject to a
     Lock-Box Agreement. The Originator will not (and will not permit the
     Servicer or the Company to) deposit or otherwise credit, or cause or permit
     to be so deposited or credited, to any Lock-Box Account or the KU Post
     Office Box cash or cash proceeds other than Collections.

          (b) The Originator shall perform its obligations hereunder, and the
     exercise by the Company or its designee of its rights hereunder shall not
     relieve the Originator from such obligations.

          (c) Except for compliance with Legal Requirements in respect thereto,
     none of the Company, Servicer or the Administrator shall have any
     obligation or liability to any Obligor or any other third Person with
     respect to any Receivables, Contracts or applicable Legal Requirements
     related thereto or any other related agreements, nor shall the Company,
     Servicer, any Purchaser or the Administrator be obligated to perform any of
     the obligations of the Originator thereunder.

          (d) The Originator hereby grants to the Administrator an irrevocable
     power of attorney, with full power of substitution, coupled with an
     interest, to take in the name of the Originator all steps necessary or
     advisable to indorse, negotiate or otherwise realize on any writing or
     other right of any kind held or transmitted by the Originator or
     transmitted or received by the Company (whether or not from the Originator)
     in connection with any Receivable.

     7.3 FURTHER ACTION EVIDENCING PURCHASES. The Originator agrees that from
time to time, at its expense, it will promptly execute and deliver all further
instruments and documents, and take all further action that Servicer, the
Company or the Administrator may reasonably request in order to perfect, protect
or more fully evidence the Receivables

                                       21


and Related Rights purchased by or contributed to the Company hereunder, or to
enable the Company to exercise or enforce any of its rights hereunder or under
any other Transaction Document. Without limiting the generality of the
foregoing, upon the request of Servicer, the Originator will:

          (a) execute and file such financing or continuation statements, or
     amendments thereto or assignments thereof, and such other instruments or
     notices, as may be necessary or appropriate; and

          (b) mark the master data processing records and other books and
     records that evidence or list (i) such Receivables and (ii) related
     Contracts with the legend set forth in SECTION 4.1(j).

The Originator hereby authorizes the Company or its designee to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relative to all or any of the Receivables and Related Rights now
existing or hereafter generated by the Originator. If the Originator fails to
perform any of its agreements or obligations under this Agreement, the Company
or its designee may (but shall not be required to) itself perform, or cause
performance of, such agreement or obligation, and the expenses of the Company or
its designee incurred in connection therewith shall be payable by Originator as
provided in SECTION 9.1.

     7.4 APPLICATION OF COLLECTIONS. Any payment by an Obligor in respect of any
indebtedness owed by it to the Originator shall, except as otherwise specified
by such Obligor or otherwise required by contract or law and unless otherwise
instructed by the Company or the Administrator, be applied as a Collection of
any Receivable or Receivables of such Obligor to the extent of any amounts then
due and payable thereunder before being applied to any other indebtedness of
such Obligor.

                                  ARTICLE VIII

                      PURCHASE AND SALE TERMINATION EVENTS

     8.1 PURCHASE AND SALE TERMINATION EVENTS. Each of the following events or
occurrences described in this SECTION 8.1 shall constitute a "PURCHASE AND SALE
TERMINATION EVENT":

          (a) A Termination Event (as defined in the Receivables Purchase
     Agreement) shall have occurred and, in the case of a Termination Event
     (other than one described in paragraph (f) of Exhibit V of the Receivables
     Purchase Agreement), the Administrator shall have declared the Facility
     Termination Date to have occurred; or

                                       22


          (b) The Originator shall fail to make any payment or deposit to be
     made by it hereunder when due and such failure shall remain unremedied for
     two (2) Business Days; or

          (c) Any representation or warranty made or deemed to be made by the
     Originator (or any of its officers) under or in connection with this
     Agreement, any other Transaction Documents or any other information or
     report delivered pursuant hereto or thereto shall prove to have been false
     or incorrect in any material respect when made or deemed made and shall
     remain incorrect or untrue for seven (7) Business Days after notice to the
     Originator of such inaccuracy; or

          (d) The Originator shall fail to perform or observe any other term,
     covenant or agreement contained in this Agreement on its part to be
     performed or observed and such failure shall remain unremedied for seven
     (7) Business Days after written notice thereof shall have been given by
     Servicer to the Originator.

     8.2 REMEDIES.

          (a) OPTIONAL TERMINATION. Upon the occurrence of a Purchase and Sale
     Termination Event, the Company (and not Servicer) shall have the option by
     notice to the Originator (with a copy to the Administrator) to declare the
     Purchase and Sale Termination Date to have occurred.

          (b) REMEDIES CUMULATIVE. Upon any termination of the Purchase Facility
     pursuant to this SECTION 8.2 (a), the Company shall have, in addition to
     all other rights and remedies under this Agreement or otherwise, all other
     rights and remedies provided under the UCC of each applicable jurisdiction
     and other applicable laws, which rights shall be cumulative. Without
     limiting the foregoing, the occurrence of the Purchase and Sale Termination
     Date shall not deny the Company any remedy in addition to termination of
     the Purchase Facility to which the Company may be otherwise appropriately
     entitled, whether at law or equity.

                                   ARTICLE IX

                                 INDEMNIFICATION

     9.1 INDEMNITIES BY THE ORIGINATOR. Without limiting any other rights which
the Company may have hereunder or under applicable law, the Originator hereby
agrees to indemnify the Company and each of its officers, directors, employees
and agents (each of the foregoing Persons being individually called a "PURCHASE
AND SALE INDEMNIFIED PARTY"), forthwith on demand, from and against any and all
damages, losses, claims, judgments, liabilities and related costs and expenses,
including reasonable attorneys' fees and disbursements (all of the foregoing
being collectively called "PURCHASE AND SALE INDEMNIFIED AMOUNTS") awarded
against or incurred by any of them arising out of or as a

                                       23


result of the failure of the Originator to perform its obligations under this
Agreement, any other Transaction Document or arising out of the claims asserted
against a Purchase and Sale Indemnified Party relating to the transactions
contemplated herein or therein or the use of proceeds thereof or therefrom,
EXCLUDING, HOWEVER, (i) Purchase and Sale Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct on the part of such
Purchase and Sale Indemnified Party, (ii) any indemnification which has the
effect of recourse with respect to any Receivable to the extent that such
Receivable is uncollectible in whole or part on account of the lack of credit
worthiness or any Insolvency Proceeding of the related Obligor and (iii) any tax
based upon or measured by net income or gross receipts (except a tax imposed by
the jurisdiction under the laws of which such Purchase and Sale Indemnified
Party is organized or otherwise is considered doing business (unless such
Purchase and Sale Indemnified Party would not be considered doing business in
such jurisdiction, but for having entered into, or engaged in the transactions
in connection with, this Agreement or any other Transaction Document) or any
political subdivision thereof). Without limiting the foregoing, the Originator
indemnifies each Purchase and Sale Indemnified Party for Purchase and Sale
Indemnified Amounts relating to or resulting from:

          (a) the transfer by the Originator of an interest in any Receivable to
     any Person other than the Company;

          (b) the breach of any representation or warranty made by the
     Originator (or any of its officers) under or in connection with this
     Agreement or any other Transaction Document, or any information or report
     delivered by the Originator pursuant hereto or thereto which shall have
     been false or incorrect when made or deemed made;

          (c) the failure by the Originator to comply with any applicable Legal
     Requirement with respect to any Receivable generated by the Originator or
     the related Contract or applicable Legal Requirement under which any
     Receivable arises, or the nonconformity of any Receivable or the related
     Contract with any such applicable Legal Requirement;

          (d) the failure to vest and maintain vested in the Company an
     ownership interest in the Receivables generated by the Originator free and
     clear of any Adverse Claim, other than an Adverse Claim arising solely as a
     result of an act of the Company, whether existing at the time of the
     purchase or contribution of such Receivables or at any time thereafter;

          (e) the failure, to the extent resulting from an action or inaction of
     Originator or any Affiliate thereof, to file, or any delay in filing,
     financing statements or other similar instruments or documents under the
     UCC of any applicable jurisdiction or other applicable laws with respect to
     any Receivables or purported Receivables generated by the Originator,
     whether at the time of any purchase or contribution or at any subsequent
     time;

                                       24


          (f) any dispute, claim, offset or defense (other than any reduction,
     revision or discharge in any Insolvency Proceeding relating to the Obligor)
     of the Obligor to the payment of any Receivable or purported Receivable
     generated by the Originator (including, without limitation, a defense not
     connected to an Insolvency Event based on such Receivable's, the related
     Contract's or applicable Legal Requirements not being a legal, valid and
     binding obligation of such Obligor enforceable against it in accordance
     with its terms), or any other claim resulting from the sale of goods or
     services related to any such Receivable or the furnishing of or failure to
     furnish such goods or services or relating to any collection activity with
     respect to such Receivable by the Originator or any Affiliate thereof;

          (g) any products liability or other claim, investigation, litigation
     or proceeding arising out of or in connection with merchandise, insurance
     or services that give rise to a Receivable;

          (h) any tax or governmental fee or charge (other than any tax excluded
     pursuant to CLAUSE (iii) in the exclusion in the preceding sentence), all
     interest and penalties thereon or with respect thereto, and all
     out-of-pocket costs and expenses, including the reasonable fees and
     expenses of counsel in defending against the same, which may arise by
     reason of the purchase or ownership of the Receivables or any Related
     Security connected with any such Receivables;

          (i) any failure of the Originator or any Affiliate of the Originator
     to perform its duties or obligations in accordance with the provisions
     hereof or under the Contracts or applicable Legal Requirements; and

          (j) any obligation or liability of any Purchase and Sale Indemnified
     Party to any Obligor or any other third Person with respect to any
     Receivables, Contracts or applicable Legal Requirements related thereto,
     other than any obligation or liability resulting from the Servicer (if the
     Servicer is not the Originator or an Affiliate of the Originator) failing
     to comply with applicable Legal Requirements, or any obligation of any
     Purchase and Sale Indemnified Party to perform any of the obligations of
     the Originator with respect to any Receivables, Contracts or applicable
     Legal Requirements related thereto.

     If for any reason the indemnification provided above in this SECTION 9.1 is
unavailable to a Purchase and Sale Indemnified Party or is insufficient to hold
such Purchase and Sale Indemnified Party harmless to the extent contemplated
hereby, then the Originator shall contribute to the amount paid or payable by
such Purchase and Sale Indemnified Party to the maximum extent permitted under
applicable law.

                                       25


                                    ARTICLE X

                                  MISCELLANEOUS

     10.1 AMENDMENTS, ETC.

          (a) The provisions of this Agreement may from time to time be amended,
     modified or waived, if such amendment, modification or waiver is in writing
     and consented to by the Company, Servicer, the Administrator, the Majority
     Purchasers and the Originator (with respect to an amendment) or by the
     Company, the Administrator and the Majority Purchasers (with respect to a
     waiver or consent by them).

          (b) No failure or delay on the part of the Company, Servicer, the
     Originator or any third party beneficiary in exercising any power or right
     hereunder shall operate as a waiver thereof, nor shall any single or
     partial exercise of any such power or right preclude any other or further
     exercise thereof or the exercise of any other power or right. No notice to
     or demand on the Company, Servicer or the Originator in any case shall
     entitle it to any notice or demand in similar or other circumstances. No
     waiver or approval by the Company or Servicer under this Agreement shall,
     except as may otherwise be stated in such waiver or approval, be applicable
     to subsequent transactions. No waiver or approval under this Agreement
     shall require any similar or dissimilar waiver or approval thereafter to be
     granted hereunder.

          (c) The Transaction Documents contain a final and complete integration
     of all prior expressions by the parties hereto with respect to the subject
     matter thereof and shall constitute the entire agreement among the parties
     hereto with respect to the subject matter thereof, superseding all prior
     oral or written understandings.

     10.2 NOTICES, ETC. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing (including
facsimile communication) and shall be personally delivered or sent by certified
mail, postage-prepaid, or by facsimile, to the intended party at the address or
facsimile number of such party set forth under its name on the signature pages
hereof or at such other address or facsimile number as shall be designated by
such party in a written notice to the other parties hereto. All such notices and
communications shall be effective, (i) if personally delivered, when received,
(ii) if sent by certified mail three (3) Business Days after having been
deposited in the mail, postage prepaid, and (iii) if transmitted by facsimile,
when sent, receipt confirmed by telephone or electronic means.

     10.3 NO WAIVER; CUMULATIVE REMEDIES. Without limiting the foregoing, the
Originator hereby authorizes the Company, at any time and from time to time, to
the fullest extent permitted by law, to set off against any obligations of the
Originator to the

                                       26


Company arising in connection with the Transaction Documents (including, without
limitation, amounts payable pursuant to SECTION 9.1) that are then due and
payable or that are not then due and payable but are accruing in respect of the
then current Yield Period, any and all indebtedness at any time owing by the
Company to or for the credit or the account of the Originator.

     10.4 BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding upon
and inure to the benefit of the Company, Servicer and the Originator and their
respective successors and permitted assigns. The Originator may not assign any
of its rights hereunder or any interest herein without the prior written consent
of the Company and the Administrator, except as otherwise herein specifically
provided. This Agreement shall create and constitute the continuing obligations
of the parties hereto in accordance with its terms, and shall remain in full
force and effect until such time as the parties hereto shall agree. The rights
and remedies with respect to any breach of any representation and warranty made
by the Originator pursuant to ARTICLE V and the indemnification and payment
provisions of ARTICLE IX and SECTION 10.6 shall be continuing and shall survive
any termination of this Agreement.

     10.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     10.6 COSTS, EXPENSES AND TAXES. In addition to the obligations of the
Originator under ARTICLE IX, the Originator agrees to pay on demand:

          (a) all reasonable costs and expenses in connection with the
     enforcement against the Originator or any Affiliate of the Originator of
     this Agreement, the Originator Assignment Certificate and the other
     Transaction Documents; and

          (b) all stamp and other taxes and fees payable or determined to be
     payable in connection with the execution, delivery, filing and recording of
     this Agreement or the other Transaction Documents to be delivered
     hereunder, and agrees to indemnify each Purchase and Sale Indemnified Party
     against any liabilities with respect to or resulting from any delay in
     paying or omission to pay such taxes and fees.

     10.7 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR
RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND

                                       27


AGREES THAT (A) ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT
AND NOT BEFORE A JURY AND (B) ANY PARTY HERETO (OR ANY ASSIGNEE OR THIRD PARTY
BENEFICIARY OF THIS AGREEMENT) MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER
PARTY OR PARTIES HERETO TO WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY.

     10.8 CAPTIONS AND CROSS REFERENCES; INCORPORATION BY REFERENCE. The various
captions (including, without limitation, the table of contents) in this
Agreement are included for convenience only and shall not affect the meaning or
interpretation of any provision of this Agreement. Unless otherwise indicated,
references in this Agreement to any Section or Exhibit are to such Section or
Exhibit of this Agreement, as the case may be. APPENDIX A and the Exhibits
hereto are hereby incorporated by reference into and made a part of this
Agreement.

     10.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same Agreement.

     10.10 ACKNOWLEDGMENT AND AGREEMENT. By execution below, the Originator
expressly acknowledges and agrees that all of the Company's rights, title, and
interests in, to, and under this Agreement (but not its obligations), shall be
assigned by the Company pursuant to the Receivables Purchase Agreement, and the
Originator consents to such assignment. Each of the parties hereto acknowledges
and agrees that the Administrator, each Purchaser Agent and each Purchaser are
third party beneficiaries of the rights of the Company arising hereunder and
under the other Transaction Documents to which the Originator is a party.

     10.11 NO PROCEEDINGS. Each of the Company, the Servicer and the Originator,
hereby covenants and agrees that it will not institute against, or join any
other Person in instituting against, any Conduit Purchaser any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or other
proceeding under any federal or state bankruptcy or similar law, for one year
and one day after the latest maturing Note issued by such Conduit Purchaser is
paid in full. The provision of this SECTION 10.12 shall survive any termination
of this Agreement.

                              [SIGNATURES FOLLOW]

                                       28


     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.

                               KU RECEIVABLES LLC

                               By:
                                  ------------------------------
                               Name:
                               Title:

                               Address:
                               KU Receivables LLC
                               220 West Main St.
                               Louisville, Kentucky 40202

                               Attention: Treasurer
                               Telephone No.: (502) 627-4956
                               Facsimile No.: (502) 627-4742

                               KENTUCKY UTILITIES COMPANY,
                               as Initial Servicer and as the Originator

                               By:
                                  ------------------------------
                               Name:
                               Title:

                               Address:
                               Kentucky Utilities Company
                               220 West Main St.
                               Louisville, Kentucky 40202

                               Attention: Treasurer
                               Telephone No.: (502) 627-4956
                               Facsimile No.: (502) 627-4742

                                       29


                                    EXHIBIT A

                             FORM OF PURCHASE REPORT

ORIGINATOR:       Kentucky Utilities Company

PURCHASER:        KU Receivables LLC

DATE:             ________________

XI.   OUTSTANDING BALANCE OF RECEIVABLES PURCHASED:
_______________

XII.  FAIR MARKET VALUE DISCOUNT:

1/(1 + ((Prime Rate + .25%) X Days' Sales Outstanding ))
                              -----------------------
                                        365

Prime Rate =                      __________________

Days' Sales Outstanding =         __________________

XIII. PURCHASE PRICE  (I X II) =       $_______________

                                    Exhibit A


                                    EXHIBIT B
                              FORM OF COMPANY NOTE

                                                              New York, New York
                                                              [          ], 2001

     FOR VALUE RECEIVED, the undersigned, KU Receivables LLC (the "Company"), a
Delaware limited liability company, promises to pay to Kentucky Utilities
Company, a Kentucky and Virginia corporation ("KU"), on the terms and subject to
the conditions set forth herein and in the Purchase and Sale Agreement referred
to below, the aggregate unpaid Purchase Price of all Receivables purchased by
the Company from KU pursuant to such Purchase and Sale Agreement, as such unpaid
Purchase Price is shown in the records of Servicer.

     1. PURCHASE AND SALE AGREEMENT. This Company Note is the Company Note
described in, and is subject to the terms and conditions set forth in, that
certain Purchase and Sale Agreement of even date herewith (as the same may be
amended, supplemented, amended and restated or otherwise modified in accordance
with its terms, the "PURCHASE AND SALE AGREEMENT"), between the Company and KU.
Reference is hereby made to the Purchase and Sale Agreement for a statement of
certain other rights and obligations of the Company and KU.

     2. DEFINITIONS. Capitalized terms used (but not defined) herein have the
meanings assigned thereto in Exhibit I to the Receivables Purchase Agreement (as
defined in the Purchase and Sale Agreement). In addition, as used herein, the
following terms have the following meanings:

        "BANKRUPTCY PROCEEDINGS" has the meaning set forth in CLAUSE (b) of
     PARAGRAPH 9 hereof.

        "FINAL MATURITY DATE" means the Payment Date immediately following the
     date that falls one hundred twenty one (121) days after the Purchase and
     Sale Termination Date.

        "INTEREST PERIOD" means the period from and including a Settlement Date
     (or, in the case of the first Interest Period, the date hereof) to but
     excluding the next Settlement Date.

        "SENIOR INTERESTS" means, collectively, (i) all accrued Discount, (ii)
     all fees payable by the Company



     to the Senior Interest Holders pursuant to the Receivables Purchase
     Agreement, (iii) all amounts payable pursuant to SECTION 1.7 and 1.8 of the
     Receivables Purchase Agreement, (iv) the Aggregate Investment and (v) all
     other obligations owed by the Company to the Senior Interest Holders under
     the Receivables Purchase Agreement and other Transaction Documents that are
     due and payable, together with any and all interest and Discount accruing
     on any such amount after the commencement of any Bankruptcy Proceedings,
     notwithstanding any provision or rule of law that might restrict the rights
     of any Senior Interest Holder, as against the Company or anyone else, to
     collect such interest.

        "SENIOR INTEREST HOLDERS" means, collectively, the Purchaser, the
     Administrator and the Indemnified Parties.

        "SUBORDINATION PROVISIONS" means, collectively, CLAUSES (a) through (l)
     of PARAGRAPH 9 hereof.

        "TELERATE SCREEN RATE" means, for any Interest Period, the rate for
     thirty day commercial paper denominated in dollars which appears on Page
     1250 of the Dow Jones Telerate Service (or such other page as may replace
     that page on that service for the purpose of displaying dollar commercial
     paper rates) at approximately 9:00 a.m., New York City time, on the first
     day of such Interest Period.

     3. INTEREST. Subject to the Subordination Provisions set forth below, the
Company promises to pay interest on this Company Note as follows:

        (a) Prior to the Final Maturity Date, the aggregate unpaid Purchase
     Price from time to time outstanding during any Interest Period shall bear
     interest at a rate PER ANNUM equal to the Telerate Screen Rate for such
     Interest Period, as determined by Servicer; and

        (b) From (and including) the Final Maturity Date to (but excluding) the
     date on which the entire aggregate unpaid Purchase Price payable to KU is
     fully paid, such aggregate unpaid Purchase Price from time to time
     outstanding shall bear interest at a rate PER ANNUM equal to the "Prime
     Rate" as published in the "Money Rates" section of the Wall Street Journal
     or



     such other publication as determined by the Administrator in its sole
     discretion.

     4. INTEREST PAYMENT DATES. Subject to the Subordination Provisions set
forth below, the Company shall pay accrued interest on this Company Note on each
Settlement Date, and shall pay accrued interest on the amount of each principal
payment made in cash on a date other than a Settlement Date at the time of such
principal payment.

     5. BASIS OF COMPUTATION. Interest accrued hereunder that is computed by
reference to the Telerate Screen Rate shall be computed for the actual number of
days elapsed on the basis of a 360-day year, and interest accrued hereunder that
is computed by reference to the rate described in PARAGRAPH 3(b) of this Company
Note shall be computed for the actual number of days elapsed on the basis of a
365- or 366-day year.

     6. PRINCIPAL PAYMENT DATES. Subject to the Subordination Provisions set
forth below, payments of the principal amount of this Company Note shall be made
as follows:

        (a) The principal amount of this Company Note shall be reduced by an
     amount equal to each payment deemed made pursuant to SECTION 3.3 of the
     Purchase and Sale Agreement; and

        (b) The entire remaining unpaid Purchase Price of all Receivables
     purchased by the Company from KU pursuant to the Purchase and Sale
     Agreement shall be due and payable on the Final Maturity Date.

Subject to the Subordination Provisions set forth below, the principal amount of
and accrued interest on this Company Note may be prepaid on any Business Day
without premium or penalty.

     7. PAYMENT MECHANICS. All payments of principal and interest hereunder are
to be made in lawful money of the United States of America.

     8. ENFORCEMENT EXPENSES. In addition to and not in limitation of the
foregoing, but subject to the Subordination Provisions set forth below and to
any limitation imposed by applicable law, the Company agrees to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
KU in seeking to collect any amounts payable hereunder which are not paid when
due.



     9. SUBORDINATION PROVISIONS. Company covenants and agrees, and KU and any
other holder of this Company Note (collectively, KU and any such other holder
are called the "HOLDER"), by its acceptance of this Company Note, likewise
covenants and agrees on behalf of itself and any holder of this Company Note,
that the payment of the principal amount of and interest on this Company Note is
hereby expressly subordinated in right of payment to the payment and performance
of the Senior Interests to the extent and in the manner set forth in the
following clauses of this PARAGRAPH 9:

        (a) No payment or other distribution of the Company's assets of any kind
     or character, whether in cash, securities, or other rights or property,
     shall be made on account of this Company Note except to the extent such
     payment or other distribution is (i) permitted under PARAGRAPH 1(m) of
     EXHIBIT IV of the Receivables Purchase Agreement or (ii) made pursuant to
     CLAUSE (a) or (b) of PARAGRAPH 6 of this Company Note;

        (b) In the event of any dissolution, winding up, liquidation,
     readjustment, reorganization or other similar event relating to the
     Company, whether voluntary or involuntary, partial or complete, and whether
     in bankruptcy, insolvency or receivership proceedings, or upon an
     assignment for the benefit of creditors, or any other marshalling of the
     assets and liabilities of the Company or any sale of all or substantially
     all of the assets of the Company other than as permitted by the Purchase
     and Sale Agreement (such proceedings being herein collectively called
     "BANKRUPTCY PROCEEDINGS"), the Senior Interests shall first be paid and
     performed in full and in cash before KU shall be entitled to receive and to
     retain any payment or distribution in respect of this Company Note. In
     order to implement the foregoing: (i) all payments and distributions of any
     kind or character in respect of this Company Note to which Holder would be
     entitled except for this CLAUSE (b) shall be made directly to the
     Administrator (for the benefit of the Senior Interest Holders); (ii) Holder
     shall promptly file a claim or claims, in the form required in any
     Bankruptcy Proceedings, for the full outstanding amount of this Company
     Note, and shall use commercially reasonable efforts to cause said claim or
     claims to be approved and all payments and other distributions in respect
     thereof to be made directly to the Administrator (for the benefit of the
     Senior Interest Holders) until the Senior Interests shall have been



     paid and performed in full and in cash; and (iii) Holder hereby irrevocably
     agrees that the Purchaser (or the Administrator acting on the Purchaser's
     behalf), may in the name of Holder or otherwise, demand, sue for, collect,
     receive and receipt for any and all such payments or distributions, and
     file, prove and vote or consent in any such Bankruptcy Proceedings with
     respect to any and all claims of Holder relating to this Company Note, in
     each case until the Senior Interests shall have been paid and performed in
     full and in cash;

        (c) In the event that Holder receives any payment or other distribution
     of any kind or character from the Company or from any other source
     whatsoever, in respect of this Company Note, other than as expressly
     permitted by the terms of this Company Note, such payment or other
     distribution shall be received in trust for the Senior Interest Holders and
     shall be turned over by Holder to the Administrator (for the benefit of the
     Senior Interest Holders) forthwith. Holder will mark its books and records
     so as clearly to indicate that this Company Note is subordinated in
     accordance with the terms hereof. All payments and distributions received
     by the Administrator in respect of this Company Note, to the extent
     received in or converted into cash, may be applied by the Administrator
     (for the benefit of the Senior Interest Holders) first to the payment of
     any and all expenses (including reasonable attorneys' fees and legal
     expenses) paid or incurred by the Senior Interest Holders in enforcing
     these Subordination Provisions, or in endeavoring to collect or realize
     upon this Company Note, and any balance thereof shall, solely as between KU
     and the Senior Interest Holders, be applied by the Administrator (in the
     order of application set forth in SECTION 1.4(d)(ii) of the Receivables
     Purchase Agreement) toward the payment of the Senior Interests; but as
     between the Company and its creditors, no such payments or distributions of
     any kind or character shall be deemed to be payments or distributions in
     respect of the Senior Interests;

        (d) Notwithstanding any payments or distributions received by the Senior
     Interest Holders in respect of this Company Note, while any Bankruptcy
     Proceedings are pending Holder shall not be subrogated to the then existing
     rights of the Senior Interest Holders in respect of the Senior Interests
     until the Senior Interests have been paid and performed in full and in
     cash. If no Bankruptcy Proceedings are pending, Holder shall only be
     entitled to exercise any subrogation



     rights that it may acquire (by reason of a payment or distribution to the
     Senior Interest Holders in respect of this Company Note) to the extent that
     any payment arising out of the exercise of such rights would be permitted
     under PARAGRAPH 1(m) of EXHIBIT IV of the Receivables Purchase Agreement;

        (e) These Subordination Provisions are intended solely for the purpose
     of defining the relative rights of Holder, on the one hand, and the Senior
     Interest Holders on the other hand. Nothing contained in these
     Subordination Provisions or elsewhere in this Company Note is intended to
     or shall impair, as between the Company, its creditors (other than the
     Senior Interest Holders) and Holder, the Company's obligation, which is
     unconditional and absolute, to pay Holder the principal of and interest on
     this Company Note as and when the same shall become due and payable in
     accordance with the terms hereof or to affect the relative rights of Holder
     and creditors of the Company (other than the Senior Interest Holders);

        (f) Holder shall not, until the Senior Interests have been paid and
     performed in full and in cash, (i) cancel, waive, forgive, transfer or
     assign, or commence legal proceedings to enforce or collect, or subordinate
     to any obligation of the Company, howsoever created, arising or evidenced,
     whether direct or indirect, absolute or contingent, or now or hereafter
     existing, or due or to become due, other than the Senior Interests, this
     Company Note or any rights in respect hereof or (ii) convert this Company
     Note into an equity interest in the Company, unless Holder shall have
     received the prior written consent of the Administrator and the Purchaser
     in each case;

        (g) Holder shall not, without the advance written consent of the
     Administrator and the Purchaser, commence, or join with any other Person in
     commencing, any Bankruptcy Proceedings with respect to the Company until at
     least one year and one day shall have passed since the Senior Interests
     shall have been paid and performed in full and in cash;

        (h) If, at any time, any payment (in whole or in part) of any Senior
     Interest is rescinded or must be restored or returned by a Senior Interest
     Holder (whether in connection with Bankruptcy Proceedings or otherwise),
     these Subordination Provisions shall continue to be effective or shall be
     reinstated, as the case may be, as though such payment had not been made;



        (i) Each of the Senior Interest Holders may, from time to time, at its
     sole discretion, without notice to Holder, and without waiving any of its
     rights under these Subordination Provisions, take any or all of the
     following actions: (i) retain or obtain an interest in any property to
     secure any of the Senior Interests; (ii) retain or obtain the primary or
     secondary obligations of any other obligor or obligors with respect to any
     of the Senior Interests; (iii) extend or renew for one or more periods
     (whether or not longer than the original period), alter or exchange any of
     the Senior Interests, or release or compromise any obligation of any nature
     with respect to any of the Senior Interests; (iv) amend, supplement, amend
     and restate, or otherwise modify any Transaction Document; and (v) release
     its security interest in, or surrender, release or permit any substitution
     or exchange for all or any part of any rights or property securing any of
     the Senior Interests, or extend or renew for one or more periods (whether
     or not longer than the original period), or release, compromise, alter or
     exchange any obligations of any nature of any obligor with respect to any
     such rights or property;

        (j) Holder hereby waives: (i) notice of acceptance of these
     Subordination Provisions by any of the Senior Interest Holders; (ii) notice
     of the existence, creation, non-payment or non-performance of all or any of
     the Senior Interests; and (iii) all diligence in enforcement, collection or
     protection of, or realization upon, the Senior Interests, or any thereof,
     or any security therefor;

        (k) Each of the Senior Interest Holders may, from time to time, on the
     terms and subject to the conditions set forth in the Transaction Documents
     to which such Persons are party, but without notice to Holder, assign or
     transfer any or all of the Senior Interests, or any interest therein; and,
     notwithstanding any such assignment or transfer or any subsequent
     assignment or transfer thereof, such Senior Interests shall be and remain
     Senior Interests for the purposes of these Subordination Provisions, and
     every immediate and successive assignee or transferee of any of the Senior
     Interests or of any interest of such assignee or transferee in the Senior
     Interests shall be entitled to the benefits of these Subordination
     Provisions to the same extent as if such assignee or transferee were the
     assignor or transferor; and



        (l) These Subordination Provisions constitute a continuing offer from
     the holder of this Company Note to all Persons who become the holders of,
     or who continue to hold, Senior Interests; and these Subordination
     Provisions are made for the benefit of the Senior Interest Holders, and the
     Administrator may proceed to enforce such provisions on behalf of each of
     such Persons.

     10. GENERAL. No failure or delay on the part of KU in exercising any power
or right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Company Note shall in any event be effective unless (i) the same shall be in
writing and signed and delivered by the Company and Holder and (ii) all consents
required for such actions under the Transaction Documents shall have been
received by the appropriate Persons.

     11. MAXIMUM INTEREST. Notwithstanding anything in this Company Note to the
contrary, the Company shall never be required to pay unearned interest on any
amount outstanding hereunder and shall never be required to pay interest on the
principal amount outstanding hereunder at a rate in excess of the maximum
nonusurious interest rate that may be contracted for, charged or received under
applicable federal or state law (such maximum rate being herein called the
"HIGHEST LAWFUL RATE"). If the effective rate of interest which would otherwise
by payable under this Company Note would exceed the Highest Lawful Rate, or if
the holder of this Company Note shall receive any unearned interest or shall
receive monies that are deemed to constitute interest which would increase the
effective rate of interest payable by the Company under this Company Note to a
rate in excess of the Highest Lawful Rate, then (i) the amount of interest which
would otherwise by payable by the Company under this Company Note shall be
reduced to the amount allowed by applicable law, and (ii) any unearned interest
paid by the Company or any interest paid by the Company in excess of the Highest
Lawful Rate shall be refunded to the Company. Without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received by KU under this Company Note that are made for the purpose of
determining whether such rate exceeds the Highest Lawful Rate applicable to KU
(such Highest Lawful Rate being herein called the "KU'S MAXIMUM PERMISSIBLE
RATE") shall be made, to the extent permitted by usury laws applicable to KU
(now



or hereafter enacted), by amortizing, prorating and spreading in equal parts
during the actual period during which any amount has been outstanding hereunder
all interest at any time contracted for, charged or received by KU in connection
herewith. If at any time and from time to time (i) the amount of interest
payable to KU on any date shall be computed at KU's Maximum Permissible Rate
pursuant to the provisions of the foregoing sentence and (ii) in respect of any
subsequent interest computation period the amount of interest otherwise payable
to KU would be less than the amount of interest payable to KU computed at KU's
Maximum Permissible Rate, then the amount of interest payable to KU in respect
of such subsequent interest computation period shall continue to be computed at
KU's Maximum Permissible Rate until the total amount of interest payable to KU
shall equal the total amount of interest which would have been payable to KU if
the total amount of interest had been computed without giving effect to the
provisions of the foregoing sentence.

     12. NO NEGOTIATION. This Company Note is not negotiable.

     13. GOVERNING LAW. THIS COMPANY NOTE HAS BEEN DELIVERED IN NEW YORK, NEW
YORK, AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK.

     14. CAPTIONS. Paragraph captions used in this Company Note are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Company Note.

KU RECEIVABLES LLC

By:
   ----------------------------

                                    Exhibit B


                                    EXHIBIT C

                    FORM OF ORIGINATOR ASSIGNMENT CERTIFICATE

     Reference is made to the Purchase and Sale Agreement of even date herewith
(as the same may be amended, supplemented, amended and restated or otherwise
modified from time to time, the "PURCHASE AND SALE AGREEMENT") between the
undersigned, Kentucky Utilities Company ("KU"), and KU Receivables LLC (the
"COMPANY"). Unless otherwise defined herein, capitalized terms used herein have
the meanings provided in the Purchase and Sale Agreement or in EXHIBIT I to the
Receivables Purchase Agreement (as defined in the Purchase and Sale Agreement),
as applicable.

     The undersigned hereby sells, assigns and transfers unto the Company and
its successors and assigns all right, title and interest of the undersigned in
and to:

          (n)  each Receivable of the undersigned that existed and was owing to
               the undersigned as of the Cut-off Date other than Receivables
               contributed pursuant to SECTION 3.1 of the Purchase and Sale
               Agreement;

          (b)  each Receivable created by the undersigned from and including the
               Cut-off Date to and including the Purchase and Sale Termination
               Date;

          (c)  all rights to, but not the obligations under, all Related
               Security;

          (d)  all monies due or to become due with respect to any of the
               foregoing;

          (e)  all books and records related to any of the foregoing; and

          (f)  all collections and other proceeds of any of the foregoing (as
     defined in the applicable UCC) that are or were received by the undersigned
     on or after the Cut-off Date, including, without limitation, all funds
     which either are received by the undersigned, the Company or the Servicer
     from or on behalf of the Obligors in payment of any amounts owed
     (including, without limitation, invoice price, finance charges, interest
     and all other charges) in respect of Receivables, or are applied to such
     amounts owed by the Obligors (including, without limitation, insurance
     payments that the undersigned or the Servicer applies in the ordinary
     course of its business to amounts owed in respect of any Receivable and net
     proceeds of sale or other disposition of repossessed goods or other
     collateral or property of the Obligors or any other parties directly or
     indirectly liable for payment of such Receivables).



     This Originator Assignment Certificate is made without recourse but on the
terms and subject to the conditions set forth in the Transaction Documents to
which the undersigned is a party. The undersigned acknowledges and agrees that
the Company and its successors and assigns are accepting this Originator
Assignment Certificate in reliance on the representations, warranties and
covenants of the undersigned contained in the Transaction Documents to which the
undersigned is a party.

     THIS ORIGINATOR ASSIGNMENT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE PURCHASE AND SALE AGREEMENT AND THE INTERNAL LAWS OF THE
STATE OF NEW YORK.

     IN WITNESS WHEREOF, the undersigned has caused this Originator Assignment
Certificate to be duly executed and delivered by its duly authorized officer
this ___ day of    , 2001.

KENTUCKY UTILITIES COMPANY

By:
   --------------------------------
Name:
     --------------------------------
Title:
      -------------------------------

                                    Exhibit C


                                    EXHIBIT D

                                OFFICE LOCATIONS

CHIEF EXECUTIVE OFFICE AND PRINCIPAL PLACE OF BUSINESS,
OFFICE WHERE RECORDS ARE KEPT:

220 West Main Street
Louisville, KY 40202

OTHER OFFICE(S) WHERE RECORDS ARE KEPT:

One Quality Street
Lexington, KY 40507

                                    Exhibit D


                                    EXHIBIT E

                                   TRADE NAMES

Old Dominion Power Company

                                    Exhibit E

EX-4.45

                                                                    Exhibit 4.45
================================================================================

                         RECEIVABLES PURCHASE AGREEMENT

                          dated as of February 6, 2001

                                      among

                              LG&E RECEIVABLES LLC,


                       LOUISVILLE GAS AND ELECTRIC COMPANY
                                   as Servicer

           THE VARIOUS PURCHASER GROUPS FROM TIME TO TIME PARTY HERETO

                                       and

                         PNC BANK, NATIONAL ASSOCIATION,
                                as Administrator

================================================================================



                                TABLE OF CONTENTS

                                                                                                                 
ARTICLE I.     AMOUNTS AND TERMS OF THE PURCHASES.......................................................................1
Section        1.1.   Purchase Facility.................................................................................1
Section        1.2.   Making Purchases..................................................................................2
Section        1.3.   Purchased Interest Computation....................................................................4
Section        1.4.   Settlement Procedures.............................................................................4
Section        1.5.   Fees .............................................................................................9
Section        1.6.   Payments and Computations, Etc....................................................................9
Section        1.7.   Increased Costs..................................................................................10
Section        1.8.   Requirements of Law..............................................................................11
Section        1.9.   Inability to Determine Euro-Rate.................................................................12
Section        1.10.  Extension of Termination Date....................................................................12

ARTICLE II.    REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS...........................................13
Section        2.1.   Representations and Warranties; Covenants........................................................13
Section        2.2.   Termination Events...............................................................................13

ARTICLE III.   INDEMNIFICATION.........................................................................................14
Section        3.1.   Indemnities by the Seller........................................................................14
Section        3.2.   Indemnities by the Servicer......................................................................15

ARTICLE IV.    ADMINISTRATION AND COLLECTIONS..........................................................................16
Section        4.1.   Appointment of the Servicer......................................................................16
Section        4.2.   Duties of the Servicer...........................................................................17
Section        4.3.   Lock-Box Account Arrangements....................................................................18
Section        4.4.   Enforcement Rights...............................................................................19
Section        4.5.   Responsibilities of the Seller...................................................................20
Section        4.6.   Servicing Fee....................................................................................20

ARTICLE V.     THE AGENTS..............................................................................................20
Section        5.1.   Appointment and Authorization....................................................................20
Section        5.2.   Delegation of Duties.............................................................................21
Section        5.3.   Exculpatory Provisions...........................................................................21
Section        5.4.   Reliance by Agents...............................................................................22
Section        5.5.   Notice of Termination Events.....................................................................23
Section        5.6.   Non-Reliance on Administrator, Purchaser Agents and OtherPurchasers..............................23
Section        5.7.   Administrators and Affiliates....................................................................23
Section        5.8.   Indemnification..................................................................................24
Section        5.9.   Successor Administrator..........................................................................24

ARTICLE VI.    MISCELLANEOUS...........................................................................................24



                                        i


                                                                                                                 
Section        6.1.   Amendments, Etc..................................................................................24
Section        6.2.   Notices, Etc.....................................................................................25
Section        6.3.   Successors and Assigns; Participations; Assignments..............................................25
Section        6.4.   Costs, Expenses and Taxes........................................................................28
Section        6.5.   No Proceedings; Limitation on Payments...........................................................28
Section        6.6.   Confidentiality..................................................................................28
Section        6.7.   GOVERNING LAW AND JURISDICTION...................................................................29
Section        6.8.   Execution in Counterparts........................................................................29
Section        6.9.   Survival of Termination..........................................................................29
Section        6.10.  WAIVER OF JURY TRIAL.............................................................................29
Section        6.11.  Sharing of Recoveries............................................................................29
Section        6.12.  Right of Setoff..................................................................................30
Section        6.13.  Entire Agreement.................................................................................30
Section        6.14.  Headings.........................................................................................30
Section        6.15.  Purchaser Groups'  Liabilities...................................................................30



EXHIBIT I         Definitions
EXHIBIT II        Conditions of Purchases
EXHIBIT III       Representations and Warranties
EXHIBIT IV        Covenants
EXHIBIT V         Termination Events

SCHEDULE I     Credit and Collection Policy
SCHEDULE II    Lock-Box Banks and Lock-Box Accounts
SCHEDULE III   Trade Names

ANNEX A           Form of Information Package
ANNEX B           Form of Purchase Notice
ANNEX C           List of Excluded Obligors
ANNEX D           Form of Assumption Agreement
ANNEX E           Form of Transfer Supplement

                                       ii


     This RECEIVABLES PURCHASE AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement") is entered into as of February 6,
2001, among LG&E RECEIVABLES LLC, a Delaware limited liability company, as
seller (the "Seller"), LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky
corporation ("LGEC"), as initial servicer (in such capacity, together with its
successors and permitted assigns in such capacity, the "Servicer"), PNC BANK,
NATIONAL ASSOCIATION, a national banking association ("PNC"), as purchaser agent
for Market Street Funding Corporation, and as Administrator for each Purchaser
Group (in such capacity, the "Administrator"), MARKET STREET FUNDING CORPORATION
("Market Street"), a Delaware corporation, as a Conduit Purchaser and as Related
Committed Purchaser, MELLON BANK, N.A., as purchaser agent for Three Rivers
Funding Corporation, THREE RIVERS FUNDING CORPORATION ("TRFCO"), a Delaware
corporation, as a Conduit Purchaser and as a Related Committed Purchaser, and
each of the other members of each Purchaser Group that become parties hereto by
executing an Assumption Agreement or a Transfer Supplement.

     PRELIMINARY STATEMENTS. Certain terms that are capitalized and used
throughout this Agreement are defined in EXHIBIT I. References in the Exhibits
hereto to the "Agreement" refer to this Agreement, as amended, supplemented or
otherwise modified from time to time.

     The Seller desires to sell, transfer and assign an undivided variable
percentage interest in a pool of receivables, and the Purchasers desire to
acquire such undivided variable percentage interest, as such percentage interest
shall be adjusted from time to time based upon, in part, reinvestment payments
that are made by such Purchasers.

     In consideration of the mutual agreements, provisions and covenants
contained herein, the parties hereto agree as follows:

                                   ARTICLE I.
                       AMOUNTS AND TERMS OF THE PURCHASES

     Section 1.1. PURCHASE FACILITY.

          (a) On the terms and subject to the conditions hereof, the Seller may,
     from time to time before the Facility Termination Date, request that the
     Conduit Purchasers, or, only if a Conduit Purchaser denies such request or
     is unable to fund (and provides notice of such denial or inability to the
     Seller, the Administrator and its Purchaser Agent), request that the
     Related Committed Purchasers, ratably make purchases of and reinvestments
     in undivided percentage ownership interests with regard to the Purchased
     Interest from the Seller from time to time from the date hereof to the
     Facility Termination Date. Subject to SECTION 1.4(b), concerning
     reinvestments, at no time will a Conduit Purchaser have any obligation to
     make a purchase. Each Related Committed Purchaser severally hereby agrees,
     on the terms and subject to the conditions hereof, to make purchases of
     undivided percentage



     ownership interests with respect to the Purchased Interest from the Seller
     before the Purchaser Group Facility Termination Date for such Related
     Committed Purchaser's Purchaser Group, based on the applicable Purchaser
     Group's Ratable Share of each purchase requested pursuant to SECTION 1.2(a)
     (each a "Purchase")(and, in the case of each Related Committed Purchaser,
     its Commitment Percentage of its Purchaser Group's Ratable Share of such
     Purchase) to the extent its Investment would not thereby exceed its
     Commitment and the Aggregate Investment would not (after giving effect to
     all Purchases on such date) exceed the Purchase Limit.

          (b) The Seller may, upon 60 days' written notice to the Administrator
     and each Purchaser Agent, reduce the unfunded portion of the Purchase Limit
     in whole or in part (but not below the amount which would cause the Group
     Investment of any Purchaser Group to exceed its Group Commitment (after
     giving effect to such reduction)); provided that each partial reduction
     shall be in the amount of at least $5,000,000, or an integral multiple of
     $1,000,000 in excess thereof and unless terminated in whole, the Purchase
     Limit shall in no event be reduced below $20,000,000. Such reduction shall
     at the option of the Seller be applied either (i) to reduce ratably the
     Group Commitment of each Purchaser Group or (ii) to terminate the Group
     Commitment of any one Purchaser Group.

     Section 1.2. MAKING PURCHASES.

          (a) Each purchase (but not reinvestment) of undivided percentage
     ownership interests with regard to the Purchased Interest hereunder shall
     be made upon the Seller's irrevocable written notice in the form of ANNEX B
     delivered to the Administrator and each Purchaser Agent in accordance with
     SECTION 6.2 (which notice must be received by the Administrator and each
     Purchaser Agent before 11:00 a.m., New York City time) at least three
     Business Days before the requested Purchase Date, which notice shall
     specify: (A) the amount requested to be paid to the Seller (such amount,
     which shall not be less than $1,000,000, with respect to each Purchaser
     Group, being the aggregate of the Investments of each Purchaser within such
     Purchaser Group, relating to the undivided percentage ownership interest
     then being purchased), (B) the date of such purchase (which shall be a
     Business Day), and (C) a pro forma calculation of the Purchased Interest
     after giving effect to the increase in the Aggregate Investment. Each
     Purchaser Agent shall promptly notify each Purchaser in its Purchaser Group
     of the requested Purchase. At its sole discretion, each Conduit Purchaser
     may reject such Purchase by giving notice to the Purchaser Agent and the
     Administrator, it being understood that if such Conduit Purchaser rejects
     such Purchase, the Purchaser Agent for such Conduit Purchaser's Purchaser
     Group shall thereafter promptly notify each Related Committed Purchaser in
     its Purchaser Group of such rejection and of their obligations as a result
     thereof to make a Purchase under this SECTION 1.2. If the Purchase is
     requested from a Conduit Purchaser and such Conduit Purchaser determines,
     in its sole discretion, to make the requested Purchase, such Conduit
     Purchaser shall transfer to the Disbursement Account, an amount equal to
     such Conduit Purchaser's Purchaser Group Ratable

                                       2


     Share of such Purchase on the requested Purchase Date by 3:00 p.m. (New
     York time). If the Purchase is requested from the Related Committed
     Purchasers for a Purchaser Group (in the case where the related Conduit
     Purchaser determined not to or was unable to make such Purchase), subject
     to the terms and conditions hereof, such Related Committed Purchasers for a
     Purchaser Group shall transfer the applicable Purchaser Group's Ratable
     Share of each Purchase (and, in the case of each Related Committed
     Purchaser, its Commitment Percentage of its Purchaser Group's Ratable Share
     of such Purchase) into the Disbursement Account by no later than 3:00 p.m.
     (New York time) on the Purchase Date.

          (b) On or before 3:00 p.m. (New York time) the date of each Purchase,
     each Purchaser (or the related Purchaser Agent on its behalf), shall make
     available to the Seller in same day funds, at PNC Bank, National
     Association (Pittsburgh), account number #1011467823, ABA #043-0000-96 (the
     "Disbursement Account"), an amount equal to the proceeds of such Purchase.

          (c) Effective on the date of each Purchase pursuant to this SECTION
     1.2 and each reinvestment pursuant to SECTION 1.4, the Seller hereby sells
     and assigns to the Administrator for the benefit of the Purchasers
     (ratably, according to each such Purchaser's Investment) an undivided
     percentage ownership interest in: (i) each Pool Receivable then existing,
     (ii) all Related Security with respect to such Pool Receivables, and (iii)
     all Collections with respect to, and other proceeds of, such Pool
     Receivables and Related Security.

          (d) To secure all of the Seller's obligations (monetary or otherwise)
     under this Agreement and the other Transaction Documents to which it is a
     party, whether now or hereafter existing or arising, due or to become due,
     direct or indirect, absolute or contingent, the Seller hereby grants to the
     Administrator, for the benefit of the Purchasers, a security interest in
     all of the Seller's right, title and interest (including any undivided
     interest of the Seller) in, to and under all of the following, whether now
     or hereafter owned, existing or arising: (i) all Pool Receivables, (ii) all
     Related Security with respect to such Pool Receivables, (iii) all
     Collections with respect to such Pool Receivables, (iv) the Lock-Box
     Accounts and all amounts on deposit therein, and all certificates and
     instruments, if any, from time to time evidencing such Lock-Box Accounts
     and amounts on deposit therein, (v) all rights (but none of the
     obligations) of the Seller under the Sale Agreement and (vi) all proceeds
     of, and all amounts received or receivable under any or all of, the
     foregoing (collectively, the "Pool Assets"). The Administrator, for the
     benefit of the Purchasers, shall have, with respect to the Pool Assets, and
     in addition to all the other rights and remedies available to the
     Administrator and the Purchasers, all the rights and remedies of a secured
     party under any applicable UCC.

          (e) The Seller may, with the written consent of the Administrator and
     each Purchaser Agent (which consent shall not be unreasonably withheld,
     conditioned or delayed), add additional Persons as Purchasers (either to an
     existing

                                       3


     Purchaser Group or by creating new Purchaser Groups) or cause an existing
     Purchaser to increase its Commitment, in each case automatically increasing
     the Purchase Limit by the amount of the new or increased Commitment;
     PROVIDED, HOWEVER, that the Commitment of any Purchaser may only be
     increased with the consent of such Purchaser and at its sole discretion.
     Each new Purchaser (or Purchaser Group) pursuant to this SECTION 1.2(e) and
     each Purchaser increasing its Commitment pursuant to this SECTION 1.2(e)
     shall become a party hereto or increase its Commitment, as the case may be,
     by executing and delivering to the Administrator and the Seller an
     Assumption Agreement in the form of ANNEX D hereto (which Assumption
     Agreement shall, in the case of any new Purchaser or Purchasers, be
     executed by each Person in such new Purchaser's Purchaser Group).

          (f) Each Related Committed Purchaser's obligation hereunder shall be
     several, such that the failure of any Related Committed Purchaser to make a
     payment in connection with any purchase hereunder shall not relieve any
     other Related Committed Purchaser of its obligation hereunder to make
     payment for any Purchase. Further, in the event any Related Committed
     Purchaser fails to satisfy its obligation to make a purchase as required
     hereunder, upon receipt of notice of such failure from the Administrator
     (or any relevant Purchaser Agent), subject to the limitations set forth
     herein, the non-defaulting Related Committed Purchasers in such defaulting
     Related Committed Purchaser's Purchaser Group shall purchase the defaulting
     Related Committed Purchaser's Commitment Percentage of the related Purchase
     PRO RATA in proportion to their relative Commitment Percentages (determined
     without regard to the Commitment Percentage of the defaulting Related
     Committed Purchaser; it being understood that a defaulting Related
     Committed Purchaser's Commitment Percentage of any Purchase shall be first
     put to the Related Committed Purchasers in such defaulting Related
     Committed Purchaser's Purchaser Group and thereafter if there are no other
     Related Committed Purchasers in such Purchaser Group or if such other
     Related Committed Purchasers are also defaulting Related Committed
     Purchasers, then such defaulting Related Committed Purchaser's Commitment
     Percentage of such Purchase shall be put to each other Purchaser Group
     ratably and applied in accordance with this paragraph (f)). Notwithstanding
     anything in this paragraph (f) to the contrary, no Related Committed
     Purchaser shall be required to make a Purchase pursuant to this paragraph
     for an amount which would cause the aggregate Investment of such Related
     Committed Purchaser (after giving effect to such Purchase) to exceed its
     Commitment.

     Section 1.3. PURCHASED INTEREST COMPUTATION. The Purchased Interest shall
be initially computed on the date of the initial Purchase hereunder. Thereafter,
until the Facility Termination Date, such Purchased Interest shall be
automatically recomputed (or deemed to be recomputed) on each Business Day other
than a Termination Day. From and after the occurrence of any Termination Day,
the Purchased Interest shall (until the event(s) giving rise to such Termination
Day are satisfied or are waived by the Administrator and the Majority
Purchasers) be deemed to be 100%. The Purchased Interest shall become zero when
the Aggregate Investment thereof and Aggregate Discount thereon shall have been
paid in
                                       4

EX-4.46

                                                                    Exhibit 4.46


                           PURCHASE AND SALE AGREEMENT


                          DATED AS OF FEBRUARY 6, 2001



                                     BETWEEN



                              LG&E RECEIVABLES LLC


                                       AND


                       LOUISVILLE GAS AND ELECTRIC COMPANY







                                TABLE OF CONTENTS
                                                                                                               PAGE
                                                                                                            
ARTICLE I             AGREEMENT TO PURCHASE AND SELL..............................................................2
         1.1  Agreement To Purchase and Sell......................................................................2
         1.2  Timing of Purchases.................................................................................3
         1.3  Consideration for Purchases.........................................................................3
         1.4  Purchase and Sale Termination Date..................................................................3
         1.5  Intention of the Parties............................................................................3

ARTICLE II            CALCULATION OF PURCHASE PRICE...............................................................3
         2.1  Calculation of Purchase Price.......................................................................3

ARTICLE III           PAYMENT OF PURCHASE PRICE...................................................................4
         3.1 Contribution of Receivables and Initial Purchase Price Payment.......................................4
         3.2  Subsequent Purchase Price Payments..................................................................5
         3.3  Settlement as to Specific Receivables and Dilution..................................................5
         3.4  Reconveyance of Receivables.........................................................................7

ARTICLE IV            CONDITIONS OF PURCHASES.....................................................................7
         4.1  Conditions Precedent to Initial Purchase............................................................7
         4.2  Certification as to Representations and Warranties..................................................9

ARTICLE V             REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR............................................9
         5.1  Organization and Good Standing......................................................................9
         5.2  Due Qualification...................................................................................9
         5.3  Power and Authority; Due Authorization..............................................................9
         5.4  Valid Sale; Binding Obligations.....................................................................9
         5.5  No Violation.......................................................................................10
         5.6  Proceedings........................................................................................10
         5.7  Bulk Sales Acts....................................................................................10
         5.8  Government Approvals...............................................................................10
         5.9  Financial Condition................................................................................10
         5.10  Licenses, Contingent Liabilities, and Labor Controversies.........................................11
         5.11  Margin Regulations................................................................................11
         5.12  Quality of Title..................................................................................11
         5.13 No Proceeds for Registered Securities..............................................................11
         5.14  Accuracy of Information...........................................................................12
         5.15  Offices12
         5.16  Trade Names.......................................................................................12
         5.17  Taxes  12
         5.18  Compliance with Applicable Laws...................................................................12
         5.19  Reliance on Separate Legal Identity...............................................................12





         5.20  Utility Holding Company...........................................................................12
         5.21  Payments to Originator............................................................................13
         5.22  Investment Company................................................................................13
         5.23  Financial Interests...............................................................................13
         5.24  Obligation of Obligor. ...........................................................................13
         5.25 Lock-Boxes.........................................................................................13
         5.26 Credit and Collection Policy.......................................................................13
         5.27 Transaction Documents..............................................................................14

ARTICLE VI            COVENANTS OF THE ORIGINATOR ...............................................................14
         6.1  Affirmative Covenants..............................................................................14
         6.2  Reporting Requirements.............................................................................15
         6.3  Negative Covenants.................................................................................16
         6.4  Lock-Box Banks.....................................................................................17
         6.5  Accounting for Purchases.  ........................................................................17
         6.6  Transaction Documents.  ...........................................................................17
         6.7  Substantive Consolidation..........................................................................18

ARTICLE VII           ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES............................19
         7.1  Rights of the Company..............................................................................19
         7.2  Responsibilities of the Originator.................................................................19
         7.3  Further Action Evidencing Purchases................................................................20
         7.4  Application of Collections.........................................................................21

ARTICLE VIII          PURCHASE AND SALE TERMINATION EVENTS.......................................................21
         8.1  Purchase and Sale Termination Events...............................................................21
         8.2  Remedies...........................................................................................22

ARTICLE IX            INDEMNIFICATION............................................................................22
         9.1  Indemnities by the Originator......................................................................22

ARTICLE X             MISCELLANEOUS..............................................................................25
         10.1  Amendments, etc...................................................................................25
         10.2  Notices, etc......................................................................................25
         10.3  No Waiver; Cumulative Remedies....................................................................25
         10.4  Binding Effect; Assignability.....................................................................26
         10.5  Governing Law.....................................................................................26
         10.6  Costs, Expenses and Taxes.........................................................................26
         10.7  Waiver of Jury Trial..............................................................................26
         10.8  Captions and Cross References; Incorporation by Reference.........................................27
         10.9  Execution in Counterparts.........................................................................27
         10.10  Acknowledgment and Agreement.....................................................................27
         10.11  No Proceedings...................................................................................27






EXHIBIT A - Form of Purchase Report

EXHIBIT B - Form of Company Note

EXHIBIT C - Form of Originator Assignment Certificate

EXHIBIT D - Office Locations

EXHIBIT E - Trade Names





                           PURCHASE AND SALE AGREEMENT


         THIS PURCHASE AND SALE AGREEMENT (this "AGREEMENT"), dated as of
February 6, 2001, is between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky
corporation ("LGEC"), as the initial Servicer (in such capacity, the "Servicer")
and as the originator (in such capacity, the "Originator"), and LG&E RECEIVABLES
LLC, a Delaware limited liability company (the "Company").

                                   DEFINITIONS

         Unless otherwise indicated, certain terms that are capitalized and used
throughout this Agreement are defined in Exhibit I to the Receivables Purchase
Agreement of even date herewith (as the same may be amended, supplemented or
otherwise modified from time to time, the "Receivables Purchase Agreement")
among LGEC, the Company, Market Street Funding Corporation, PNC Bank, National
Association, Mellon Bank, N.A and Three Rivers Funding Corporation. All
references herein to months are to calendar months unless otherwise expressly
indicated.

                                   BACKGROUND


         1. The Company is a special purpose entity, all of the issued and
outstanding equity of which is owned by LGEC.

         2. The Originator generates Receivables in the ordinary course of its
business.

         3. The Originator, in order to finance its business, wishes to sell
Receivables to the Company, and the Company is willing, on the terms and subject
to the conditions set forth herein, to purchase Receivables from the Originator.

         4. The Originator and the Company intend this transaction to be a true
sale of Receivables by the Originator to the Company providing the Company with
the full benefits of ownership of the Receivables and the Originator and the
Company do not intend the transactions hereunder to be, or for any purpose to
be, characterized as a loan from the Company to the Originator.

         5. The Company intends to sell the Purchased Interest in the
Receivables pursuant to the Receivables Purchase Agreement.

         NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:


                                       1



                                    ARTICLE I

                         AGREEMENT TO PURCHASE AND SELL

         1.1 AGREEMENT TO PURCHASE AND SELL. On the terms and subject to the
conditions set forth in this Agreement (including ARTICLE IV), the Originator
agrees to sell to the Company, and the Company agrees to purchase from the
Originator, from time to time on or after the Closing Date, but before the
Purchase and Sale Termination Date, all of the Originator's right, title and
interest in and to:

                  (a) each Receivable of the Originator that existed and was
         owing to the Originator as at the closing of the Originator's business
         on December 31, 2000 (the "CUT-OFF DATE") other than Receivables
         contributed pursuant to SECTION 3.1 (the "Contributed Receivables");

                  (b) each Receivable created by the Originator from and
         including the Cut-off Date to and including the Purchase and Sale
         Termination Date;

                  (c) all rights to, but not the obligations under, all Related
          Security;

                  (d) all monies due or to become due with respect to any of
          the foregoing;

                  (e) all books and records related to any of the foregoing;
          and

                  (f) all collections and other proceeds of any of the foregoing
         (as defined in the New York UCC) that are or were received by the
         Originator on or after Cut-off Date, including, without limitation, all
         funds which either are received by the Originator, the Company or the
         Servicer from or on behalf of the Obligors in payment of any amounts
         owed (including, without limitation, invoice price, finance charges,
         interest and all other charges) in respect of Receivables, or are
         applied to such amounts owed by the Obligors (including, without
         limitation, insurance payments that the Originator or Servicer applies
         in the ordinary course of its business to amounts owed in respect of
         any Receivable and net proceeds of sale or other disposition of
         repossessed goods or other collateral or property of the Obligors or
         any other parties directly or indirectly liable for payment of such
         Receivables).

All purchases and contributions hereunder shall be made without recourse, but
shall be made pursuant to, and in reliance upon, the representations, warranties
and covenants of the Originator set forth in this Agreement and each other
Transaction Document. No obligation or liability to any Obligor on any
Receivable is intended to be assumed by the Company hereunder, and any such
assumption is expressly disclaimed. The Company's foregoing commitment to
purchase Receivables and the proceeds and rights described in


                                       2



CLAUSES (c) through (f) (collectively, the "RELATED RIGHTS") is herein called
the "PURCHASE FACILITY."

         1.2  TIMING OF PURCHASES.

                  (a) CLOSING DATE PURCHASES. The Originator's entire right,
         title and interest in (i) each Receivable that existed and was owing to
         the Originator as at the Cut-off Date (other than Contributed
         Receivables, as defined in SECTION 1.1), (ii) all Receivables created
         by the Originator from and including the Cut-off Date, to and including
         the Closing Date, and (iii) all Related Rights in respect of the
         foregoing automatically shall be sold to the Company on the Closing
         Date.

                  (b) REGULAR PURCHASES. After the Closing Date, until the
         Purchase and Sale Termination Date, each Receivable (and the Related
         Rights in respect thereof) created by the Originator shall be sold to
         the Company, and each such sale shall be deemed to have occurred
         (without further action) upon the creation of such Receivable.

         1.3 CONSIDERATION FOR PURCHASES. On the terms and subject to the
conditions set forth in this Agreement, the Company agrees to make Purchase
Price payments to the Originator and to reflect all contributions in accordance
with ARTICLE III.

         1.4 PURCHASE AND SALE TERMINATION DATE. The "PURCHASE AND SALE
TERMINATION DATE" shall be the earliest to occur of (a) the date of the
termination of this Agreement pursuant to SECTION 8.2 and (b) the Payment Date
immediately following the day on which the Originator shall have given notice to
the Company at or prior to 10:00 a.m. (New York City time) that the Originator
desires to terminate this Agreement.

         1.5 INTENTION OF THE PARTIES. It is the express intent of the parties
hereto that the transfers of the Receivables and Related Rights by the
Originator to the Company, as contemplated by this Agreement be, and be treated
as, sales or contributions, as applicable and not as secured loans secured by
the Receivables and Related Rights. If, however, notwithstanding the intent of
the parties, such transactions are deemed to be loans, the Originator hereby
grants to the Company a first priority security interest in all of the
Originator's right, title and interest in and to the Receivables and the Related
Rights now existing and hereafter created by the Originator, all monies due or
to become due and all amounts received with respect thereto, and all proceeds
thereof, to secure all of the Originator's obligations hereunder.


                                       3



                                   ARTICLE II

                          CALCULATION OF PURCHASE PRICE

         2.1 CALCULATION OF PURCHASE PRICE. On the Closing Date and two Business
Days prior to each Settlement Date, the Servicer shall deliver to the Company
and the Originator a report in substantially the form of EXHIBIT A (each such
report being herein called a "PURCHASE REPORT") with respect to the matters set
forth therein and the Company's purchases of Receivables from the Originator:

         (a) that are to be made on the Closing Date, reflecting Receivables
existing as of the Cut-off Date (in the case of the Purchase Report to be
delivered on the Closing Date), or

         (b) that were made during the immediately preceding calendar month (in
the case of each subsequent Purchase Report).

The "PURCHASE PRICE" (to be paid to the Originator in accordance with the terms
of ARTICLE III) for the Receivables and the Related Rights that are purchased
hereunder from the Originator shall be determined in accordance with the
following formula:

         PP       =        OB X FMVD

         WHERE:

         PP = Purchase Price for each Receivable as calculated on the relevant
              Payment Date.

         OB       =        the Outstanding Balance of such Receivable.

         FMVD     =        Fair Market Value Discount, as measured on
                             such Payment Date, which is equal to the
                             quotient (expressed as percentage) of (a)
                             one DIVIDED by (b) the sum of (i) one, plus
                             (ii) the product of (A) the Prime Rate on
                             such Payment Date plus .25% and (B) a
                             fraction, the numerator of which is the
                             Day's Sales Outstanding (calculated as of
                             the last day of the calendar month next
                             preceding such Payment Date) and the
                             denominator of which is 365.

         "PAYMENT DATE" means (i) the Closing Date and (ii) each Business Day
thereafter that the Originator is open for business.

         "PRIME RATE" means the rate described in part (a) of the definition of
Market Street Base Rate.


                                       4



                                   ARTICLE III

                            PAYMENT OF PURCHASE PRICE

         3.1 CONTRIBUTION OF RECEIVABLES AND INITIAL PURCHASE PRICE PAYMENT. (a)
On the Closing Date the Originator shall, and hereby does, contribute to the
capital of the Company Receivables and Related Rights with respect thereto
consisting of each Receivable of the Originator that existed and was owing to
the Originator on the Closing Date beginning with the oldest of such Receivables
and continuing chronologically thereafter such that the aggregate Outstanding
Balance of all such Contributed Receivables shall be equal to $5,000,000.

         (b) On the terms and subject to the conditions set forth in this
Agreement, the Company agrees to pay to the Originator the Purchase Price for
the purchase to be made from the Originator on the Closing Date partially in
cash (in an amount to be agreed between the Company and the Originator and set
forth in the initial Purchase Report) and partially by issuing a promissory note
in the form of EXHIBIT B to the Originator with an initial principal balance
equal to the remaining Purchase Price (such promissory note, as it may be
amended, supplemented, indorsed or otherwise modified from time to time,
together with any promissory notes issued from time to time in substitution
therefor or renewal thereof in accordance with the Transaction Documents, being
herein called the "COMPANY NOTE").

         3.2 SUBSEQUENT PURCHASE PRICE PAYMENTS. On each Payment Date falling
after the Closing Date, on the terms and subject to the conditions set forth in
this Agreement, the Company shall pay to the Originator the Purchase Price for
the Receivables generated by the Originator during the immediately preceding
month as follows:

                  (a) FIRST, the Purchase Price shall be paid in cash to
         the extent the Company has cash available therefor; and

                  (b) SECOND, to the extent any portion of the Purchase Price
         remains unpaid, the principal amount outstanding under the Company Note
         issued to the Originator shall be increased by an amount equal to such
         remaining Purchase Price.

         Servicer shall make all appropriate record keeping entries with respect
to the Company Note or otherwise to reflect the foregoing payments and
Servicer's books and records shall constitute rebuttable presumptive evidence of
the principal amount of and accrued interest on the Company Note at any time.
Furthermore, Servicer shall hold the Company Note for the benefit of the
Originator. The Originator hereby irrevocably authorizes Servicer to mark the
Company Note "CANCELLED" and to return the Company Note to the Company upon the
final payment thereof after the occurrence of the Purchase and Sale Termination
Date.


                                       5



         3.3  SETTLEMENT AS TO SPECIFIC RECEIVABLES AND DILUTION.

         (a) If on the day of purchase or contribution of any Receivable from
the Originator hereunder, any of the representations or warranties set forth in
SECTIONS 5.4 AND 5.12 of the Originator is not true with respect to such
Receivable, or as a result of any action or inaction of the Originator, on any
day any of the representations or warranties set forth in Sections 5.4 and 5.12
is no longer true with respect to such a Receivable, then the Purchase Price
with respect to such Receivables (or in the case of a Contributed Receivable,
the Outstanding Balance of such Receivable (the "Contributed Value")) shall be
reduced by an amount equal to the Outstanding Balance of such Receivable and
shall be accounted to the Originator as provided in SUBSECTION (c) below;
PROVIDED, that if the Company thereafter receives payment on account of
Collections due with respect to such Receivable, the Company promptly shall
deliver such funds to the Originator.

         (b) If, on any day, the Outstanding Balance of any Receivable
(including any Contributed Receivable) purchased or contributed hereunder is
reduced or adjusted downward as a result of any defective, rejected or returned
goods or services, or any revision, cancellation, allowance, discount or other
adjustment (except a setoff in the ordinary course in connection with a Security
Deposit or Obligor Payment Plan or pursuant to the terms of an Energy Wholesale
Contract or any revision, cancellation, allowance, discount or other adjustment
to any Receivable to the extent such Receivable is uncollectible in whole or
part on account of the lack of creditworthiness of, or any Insolvency Event
related to, the related Obligor) made by the Originator, the Company, the
Servicer or any Affiliate thereof or any setoff or dispute between the
Originator, the Company, the Servicer or any Affiliate thereof and an Obligor as
indicated on the books of the Company (or, for periods prior to the Closing
Date, the books of the Originator), then the Purchase Price or Contributed
Value, as the case may be, with respect to such Receivable shall be reduced by
the amount of such net reduction and shall be accounted to the Originator as
provided in SUBSECTION (c) below; PROVIDED, HOWEVER that if the Servicer is not
the Originator or an Affiliate of the Company or the Originator, no such
reduction and accounting will be required for any reduction or downward
adjustment of a Receivable resulting from such Servicer's failure to comply with
applicable Legal Requirements.

         (c) Any reduction in the Purchase Price (or Contributed Value) of any
Receivable pursuant to SUBSECTION (a) or (b) above shall be applied as a credit
for the account of the Company against the Purchase Price of Receivables
subsequently purchased by the Company from the Originator hereunder; PROVIDED,
HOWEVER if there have been no purchases of Receivables from the Originator (or
insufficiently large purchases of Receivables) to create a Purchase Price
sufficient to so apply such credit against, the amount of such credit

                  (i)      shall be paid in cash to the Company by the
         Originator in the manner and for application as described in the
         following proviso, or


                                       6



                  (ii) shall be deemed to be a payment under, and shall be
         deducted from the principal amount outstanding under, the Company Note;

PROVIDED, FURTHER, that at any time (y) when a Termination Event or Unmatured
Termination Event exists under the Receivables Purchase Agreement or (z) on or
after the Purchase and Sale Termination Date, the amount of any such credit
shall be paid by the Originator to the Company by deposit in immediately
available funds into the relevant Lock-Box Account for application by Servicer
to the same extent as if Collections of the applicable Receivable in such amount
had actually been received on such date.

         (d) Each Purchase Report (other than the Purchase Report delivered on
the Closing Date) shall include, in respect of the Receivables previously
generated by the Originator (including Contributed Receivables), a calculation
of the aggregate reductions described in SUBSECTION (a) or (b) relating to such
Receivables since the last Purchase Report delivered hereunder, as indicated on
the books of the Company (or, for such period prior to the Closing Date, the
books of the Originator).

         (e) Except as provided in CLAUSE (b, or as otherwise required by
applicable Legal Requirements or the relevant Contract, all Collections received
from an Obligor of any Receivable shall be applied to the Receivables of such
Obligor in the order of the age of such Receivables, starting with the oldest
such Receivable, unless such Obligor designates in writing its payment for
application to specific Receivables.

         3.4 RECONVEYANCE OF RECEIVABLES. In the event that the Originator has
paid to the Company the full Outstanding Balance of any Receivable pursuant to
SECTION 3.3, the Company shall reconvey such Receivable to the Originator,
without representation or warranty, but free and clear of all liens created by
the Company.


                                   ARTICLE IV

                             CONDITIONS OF PURCHASES

         4.1 CONDITIONS PRECEDENT TO INITIAL PURCHASE. The initial purchase
hereunder is subject to the condition precedent that Servicer (on the Company's
behalf) shall have received, on or before the Closing Date, the following, each
(unless otherwise indicated) dated the Closing Date, and each in form and
substance satisfactory to Servicer (acting on the Company's behalf):

                  (a) An Originator Assignment Certificate in the form of
         EXHIBIT C from the Originator, duly completed, executed and delivered
         by the Originator;

                  (b) A copy of the resolutions of the Board of Directors of the
         Originator approving the Transaction Documents to be delivered by it
         and the transactions


                                       7



         contemplated hereby and thereby, certified by the respective Secretary
         or Assistant Secretary of the Originator;

                  (c) Good standing certificates for the Originator issued as of
         a recent date acceptable to Servicer by the Secretary of State of the
         jurisdiction of the Originator's incorporation and the jurisdiction
         where such Originator's chief executive office is located;

                  (d) A certificate of the Secretary or Assistant Secretary of
         the Originator certifying the names and true signatures of the officers
         authorized on such Person's behalf to sign the Transaction Documents to
         be delivered by it (on which certificate Servicer and the Company may
         conclusively rely until such time as Servicer shall receive from such
         Person a revised certificate meeting the requirements of this
         SUBSECTION (d));

                  (e) The certificate or articles of incorporation or other
         organizational document of the Originator, duly certified by the
         Secretary of State of the jurisdiction of such Originator's
         incorporation as of a recent date acceptable to Servicer, together
         with a copy of the by-laws of the Originator, each duly certified by
         the Secretary or an Assistant Secretary of the Originator;

                  (f) Originals of the proper financing statements (Form UCC-1)
         that have been duly executed and name the Originator as the
         debtor/seller and the Company as the secured party/purchaser (and the
         Administrator, as assignee of the Company) of the Receivables generated
         by the Originator as may be necessary or, in Servicer's or the
         Administrator's opinion, desirable under the UCC of all appropriate
         jurisdictions to perfect the Company's ownership interest in all
         Receivables and such other rights, accounts, instruments and moneys
         (including, without limitation, Related Security) in which an ownership
         or security interest may be assigned to it hereunder;

                  (g) A written search report from a Person satisfactory to
         Servicer listing all effective financing statements that name the
         Originator as debtor or seller and that are filed in the jurisdictions
         in which filings were made pursuant to the foregoing SUBSECTION (f),
         together with copies of such financing statements (none of which,
         except for those described in the foregoing SUBSECTION (f), shall cover
         any Receivable or any Related Rights which are to be sold to the
         Company hereunder), and tax and judgment lien search reports from a
         Person satisfactory to Servicer showing no evidence of such liens filed
         against the Originator;

                  (h) A favorable opinion of Gardner, Carton & Douglas
         and John R. McCall, counsel to the Originator, in form and substance
         satisfactory to Servicer and the Administrator;


                                       8



                  (i) The Company Note in favor of the Originator, duly
          executed by the Company; and

                  (j) A certificate from an officer of the Originator to the
         effect that the Servicer and the Originator have placed on the most
         recent, and have taken all steps reasonably necessary to ensure that
         there shall be placed on each subsequent, data processing report or
         other books and records that it generates which are of the type that a
         proposed purchaser or lender would use to evaluate the Receivables, the
         following legend (or the substantive equivalent thereof): "THE
         RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD BY THE ORIGINATOR TO LG&E
         RECEIVABLES LLC PURSUANT TO A PURCHASE AND SALE AGREEMENT, DATED AS OF
         FEBRUARY 6, 2001, AS AMENDED, BETWEEN LOUISVILLE GAS AND ELECTRIC
         COMPANY, AND LG&E RECEIVABLES LLC; AND AN UNDIVIDED, FRACTIONAL
         OWNERSHIP INTEREST IN THE RECEIVABLES DESCRIBED HEREIN HAS BEEN SOLD TO
         MARKET STREET FUNDING CORPORATION, THREE RIVERS FUNDING CORPORATION AND
         THE OTHER PURCHASERS PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT,
         DATED AS OF FEBRUARY 6, 2001, AS AMENDED, AMONG LOUISVILLE GAS AND
         ELECTRIC COMPANY, AS THE SERVICER, LG&E RECEIVABLES LLC, MARKET STREET
         FUNDING CORPORATION, THREE RIVERS FUNDING CORPORATION AND THE OTHER
         PURCHASERS THEREUNDER AND PNC BANK, NATIONAL ASSOCIATION AS
         ADMINISTRATOR."

         4.2 CERTIFICATION AS TO REPRESENTATIONS AND WARRANTIES. The Originator,
by accepting the Purchase Price related to each purchase of Receivables
generated by the Originator, shall be deemed to have certified that the
representations and warranties contained in ARTICLE V are true and correct on
and as of such day, with the same effect as though made on and as of such day.


                                    ARTICLE V

                REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR

         In order to induce the Company to enter into this Agreement and to make
purchases and accept contributions hereunder, the Originator hereby makes with
respect to itself, the representations and warranties set forth in this ARTICLE
V.

         5.1 ORGANIZATION AND GOOD STANDING. The Originator has been duly
organized and is validly existing as a corporation in good standing under the
laws of the Commonwealth of Kentucky, with power and authority to own its
properties and to conduct its business as such properties are presently owned
and such business is presently conducted.


                                       9



         5.2 DUE QUALIFICATION. The Originator is duly licensed or qualified to
do business as a foreign corporation in good standing in the jurisdiction where
its chief executive office is located and in all other jurisdictions in which
(a) the ownership or lease of its property or the conduct of its business
requires such licensing or qualification and (b) the failure to be so licensed
or qualified would have a Material Adverse Effect.

         5.3 POWER AND AUTHORITY; DUE AUTHORIZATION. The Originator has (a) all
necessary power, authority and legal right (i) to execute and deliver, and
perform its obligations under, each Transaction Document to which it is a party
and (ii) to generate, own, sell, contribute and assign Receivables on the terms
and subject to the conditions herein and therein provided; and (b) duly
authorized such execution and delivery and such sale, contribution and
assignment and the performance of such obligations by all necessary corporate
action.

         5.4 VALID SALE; BINDING OBLIGATIONS. Each sale or contribution, as the
case may be, made by the Originator pursuant to this Agreement shall constitute
a valid sale or contribution, as the case may be, transfer, and assignment of
Receivables to the Company, enforceable against creditors of, and purchasers
from, the Originator; and this Agreement constitutes, and each other Transaction
Document to be signed by the Originator, when duly executed and delivered, will
constitute, a legal, valid, and binding obligation of the Originator,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.

         5.5 NO VIOLATION. The consummation of the transactions contemplated by
this Agreement and the other Transaction Documents and the fulfillment of the
terms hereof or thereof, (a) will not contravene or result in a default under or
conflict with: (i) the Originator's charter or by-laws or (ii) any indenture,
loan agreement, mortgage, deed of trust or other material agreement or
instrument to which it is a party or by which it is bound; (b) will not in any
material respect contravene or conflict with: (i) any Legal Requirement
applicable to it, or (ii) any order, writ, judgment, award, injunction or decree
binding on or affecting it or any of its property; and (c) will not result in or
require the creation of any material Adverse Claim (other than those
specifically contemplated thereby) upon or with respect to any of its
properties.

         5.6 PROCEEDINGS. Except as disclosed in the SEC Reports or as otherwise
disclosed to the Administrator and each Purchaser Agent, there is no action,
suit, proceeding or investigation pending before any Governmental Authority or
arbitrator (a) asserting the invalidity of any Transaction Document, (b) seeking
to prevent the issuance of the Originator's Originator Assignment Certificate or
the consummation of any of the transactions contemplated by any Transaction
Document, or (c) that is reasonably likely


                                       10



to have an effect of the type described in clauses (b) through (e) of the
definition of Material Adverse Effect.

         5.7 BULK SALES ACTS. No transaction contemplated hereby requires
compliance with, or will be subject to avoidance under, any bulk sales act or
similar law.

         5.8 GOVERNMENT APPROVALS. Except for the filing of the UCC Financing
Statements referred to in ARTICLE IV, no authorization, approval or other action
by, and no notice to or filing with, any Governmental Authority or other Person
is required for the due execution, delivery and performance by the Originator of
this Agreement or any other Transaction Document to which it is a party that has
not been made or obtained.

         5.9  FINANCIAL CONDITION.

                  (a) MATERIAL ADVERSE CHANGE. The balance sheets of the
Originator and its consolidated Subsidiaries as at December 31, 1999, and the
related statements of income and retained earnings for the fiscal year then
ended, copies of which have been furnished to the Administrator and each
Purchaser Agent, fairly present the financial condition of the Originator and
its consolidated Subsidiaries as at such date and the results of the operations
of the Originator and its Subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles consistently applied,
and, since December 31, 1999 there has been no event or circumstances which have
had an effect of the type described in clauses (b) through (e) of the definition
of Material Adverse Effect (except for those disclosed in the SEC Reports prior
to the Closing Date).

                  (b) SOLVENT.  On the date hereof, and on the date of
         each purchase hereunder (both  before and after giving effect to
         such purchase), the Originator shall be Solvent.

         5.10  LICENSES, CONTINGENT LIABILITIES, AND LABOR CONTROVERSIES.

                  (a) The Originator has not failed to obtain any licenses,
         permits, franchises or other governmental authorizations necessary to
         the ownership of its properties or to the conduct of its business,
         which violation or failure to obtain would be reasonably likely to have
         a Material Adverse Effect.

                  (b) There are no labor controversies pending against the
         Originator that have had (or are reasonably likely to have) an effect
         of the type described in clauses (b) through (e) of the definition of
         Material Adverse Effect.

         5.11 MARGIN REGULATIONS. No use of any funds acquired by the Originator
under this Agreement will conflict with or contravene any of Regulations T, U
and X promulgated by the Federal Reserve Board from time to time.


                                       11



         5.12  QUALITY OF TITLE.

                  (a) Each Receivable of the Originator (together with the
         Related Rights with respect to such Receivable) which is to be sold to
         the Company hereunder is or shall be owned by the Originator, free and
         clear of any Adverse Claim, except as provided herein and in the
         Receivables Purchase Agreement. Whenever the Company makes a purchase
         or accepts a contribution hereunder, it shall have acquired and shall
         continue to have maintained a valid and perfected ownership interest
         (free and clear of any Adverse Claim) in all Receivables generated by
         the Originator and all Collections related thereto, and in the
         Originator's entire right, title and interest in and to the Related
         Rights with respect thereto.

                  (b) No effective financing statement or other instrument
         similar in effect covering any Receivable generated by the Originator
         or any Related Rights is on file in any recording office except such as
         may be filed in favor of the Company or the Originator, as the case may
         be, in accordance with this Agreement or in favor of the Administrator
         (for the benefit of the Purchasers) in accordance with the Receivables
         Purchase Agreement.

                  (c) Unless otherwise identified to the Company on the date of
         the purchase or contribution hereunder, each Receivable purchased
         hereunder is on the date of purchase or contribution, an Eligible
         Receivable.

         5.13 NO PROCEEDS FOR REGISTERED SECURITIES. No proceeds of any purchase
or reinvestment will be used to acquire any equity security of a class that is
registered pursuant to Section 12 of the Securities Exchange Act of 1934.

         5.14 ACCURACY OF INFORMATION. All factual written information
heretofore or contemporaneously furnished (and prepared) by the Originator to
the Company, the Servicer or the Administrator for purposes of or in connection
with any Transaction Document, Information Package or any transaction
contemplated hereby or thereby is, and all other such factual written
information hereafter furnished (and prepared) by the Originator to the Company
or the Administrator pursuant to or in connection with any Transaction Document
will be, true and accurate in every material respect on the date as of which
such information is dated or certified, and does not and will not contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.

         5.15 OFFICES. The Originator's principal place of business and chief
executive office is located at the address set forth under the Originator's
signature hereto, and the offices where the Originator keeps all its books,
records and documents evidencing its Receivables, the related Contracts and all
other agreements related to the Receivables are located at the addresses
specified in EXHIBIT D (or at such other locations, notified to Servicer and the
Administrator in accordance with SECTION 6.1(f), in jurisdictions where all
action required by SECTION 7.3 has been taken and completed).


                                       12



         5.16 TRADE NAMES. The Originator does not use any trade name other than
its actual corporate name and the trade names set forth in EXHIBIT E. From and
after the date that fell five (5) years before the date hereof, except as set
forth in Exhibit F, the Originator has not been known by any legal name other
than its corporate name as of the date hereof, nor has the Originator been the
subject of any merger or other corporate reorganization.

         5.17 TAXES. The Originator has filed all tax returns and reports
required by law to have been filed by it and has paid all material taxes and
governmental charges thereby shown to be owing, except any such taxes or charges
which are being diligently contested in good faith by appropriate proceedings
and for which adequate reserves in accordance with GAAP shall have been set
aside on its books.

         5.18 COMPLIANCE WITH APPLICABLE LAWS. The Originator is in compliance
with the requirements of all applicable Legal Requirements, and orders of all
governmental authorities, a breach of any of which, individually or in the
aggregate, would be reasonably likely to have a Material Adverse Effect and the
Originator is not in violation of any order of any court, arbitrator or
Governmental Authority, which could have a Material Adverse Effect.

         5.19 RELIANCE ON SEPARATE LEGAL IDENTITY. The Originator acknowledges
that the Purchasers and the Administrator are entering into the Receivables
Purchase Agreement in reliance upon the Company's identity as a legal entity
separate from the Originator.

         5.20 UTILITY HOLDING COMPANY. LGEC has complied in all material
respects with the requirements, rules and regulations of the Public Utility
Holding Company Act of 1935, as amended.

         5.21 PAYMENTS TO ORIGINATOR. With respect to each Receivable
transferred to the Company hereunder, the Purchase Price received by the
Originator constitutes reasonably equivalent value in consideration therefor and
such transfer was not made for or on account of an antecedent debt. No transfer
by the Originator of any Receivable hereunder is or may be voidable under any
section of the Bankruptcy Reform Act of 1978 (11 U.S.C. ss. ss. 101 et seq.), as
amended.

         5.22 INVESTMENT COMPANY. The Originator is not an "investment company,"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.

         5.23 FINANCIAL INTERESTS. Neither the Originator nor any of its
Affiliates has any direct or indirect ownership or financial interest in any
Purchaser.

         5.24 OBLIGATION OF OBLIGOR. Pursuant to each Contract with respect to
each Receivable or applicable Legal Requirements, such Receivable is effective
to create, and


                                       13



has created, a legal, valid and binding obligation of the related Obligor to pay
the Outstanding Balance of such Receivable and any accrued interest thereon,
enforceable against the Obligor in accordance with its terms, except as such
enforcement may be limited by applicable Legal Requirements or applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or
limiting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).

         5.25 LOCK-BOXES. The names and addresses of all the Lock-Box Banks,
together with the account numbers of the Lock-Box Accounts (if any) at such
Lock-Box Banks and the number and location of the LGEC Post-Office Box, are
specified in SCHEDULE II to the Receivables Purchase Agreement (or as have been
identified in a notice to the Administrator in accordance with the Agreement)
and, from and after the 30th day after the Closing Date, all Lock-Box Accounts
are or will be subject to (and Travelers will be a party to) Lock-Box Agreements
(except as otherwise agreed to in writing by the Administrator). Twenty-one days
after the Administrator's written request and at all times thereafter, the LGEC
Post-Office Box shall be subject to a Lock-Box Agreement. Originator has not
granted to any Person, other than the Administrator and Servicer as contemplated
by the Receivables Purchase Agreement, dominion and control of any Lock-Box
Account or the LGEC Post-Office Box, and no party other than the Administrator
has the right to take dominion and control of any such account or post office
box or Collections deposited with Travelers at a future time or upon the
occurrence of a future event.

         5.26 CREDIT AND COLLECTION POLICY. The Originator and its Affiliates
(other than the Company, as to which the Originator makes no representation)
have complied in all material respects with the Credit and Collection Policy and
applicable Legal Requirements with regard to each Receivable.

         5.27 TRANSACTION DOCUMENTS. The Originator has complied in all material
respects with all of the terms, covenants and agreements contained in this
Agreement and the other Transaction Documents to which it is a party.

                                   ARTICLE VI

                           COVENANTS OF THE ORIGINATOR

         6.1 AFFIRMATIVE COVENANTS. From the date hereof until the first day
following the Purchase and Sale Termination Date, the Originator will, unless
the Administrator and the Company shall otherwise consent in writing:

                  (a)      COMPLIANCE WITH LAWS, ETC.  Comply in all material
         respects with all applicable Legal Requirements except where the
         failure to so comply would not have a Material Adverse Effect.


                                       14



                  (b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain
         its corporate existence, rights, franchises, qualifications and
         privileges, except to the extent that the failure to pursue and
         maintain such existence, rights, franchises, qualifications and
         privileges would not have a Material Adverse Effect.

                  (c) AUDIT. From time to time during regular business hours,
         but no more frequently than annually unless (x) a Purchase and Sale
         Termination Event has occurred and is continuing or (y) in the opinion
         of the Company or the Administrator (with the consent or at the
         direction of the Majority Purchasers) reasonable grounds for insecurity
         exist with respect to the collectibility of a material portion of the
         Receivables or with respect to the Originator's performance or ability
         to perform in any material respect its obligations under the Agreement,
         as reasonably requested in advance (unless a Termination Event or
         Unmatured Termination Event exists) by the Company or Administrator,
         permit the Company or Administrator, or its agents or representatives:
         (i) to examine and make copies of and abstracts from all books, records
         and documents (including computer tapes and disks) in the possession or
         under the control of the Originator relating to Receivables and the
         Related Security, including the related Contracts, and (ii) to visit
         the offices and properties of the Originator for the purpose of
         examining such materials described in CLAUSE (i) above, and to discuss
         matters relating to Receivables and the Related Security or the
         Originator's performance under the Transaction Documents or under the
         Contracts or applicable Legal Requirements with any of the officers,
         employees, agents or contractors of the Originator having knowledge of
         such matters and (iii) without limiting the CLAUSES (i) and (ii) above,
         to engage certified public accountants or other auditors acceptable to
         the Company and the Administrator to conduct at the Originator's
         expense, a review of the Originator's books and records with respect to
         the Receivables.

                  (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Maintain and
         implement administrative and operating procedures (including, without
         limitation, an ability to recreate records evidencing Receivables and
         the related Contracts it generates in the event of the destruction of
         the originals thereof), and keep and maintain all documents, books,
         records, computer tapes and disks and other information reasonably
         necessary or advisable for the collection of such Receivables
         (including, without limitation, records adequate to permit the daily
         identification of each new Receivable and all Collections of and
         adjustments to each existing Receivable).

                  (e) PERFORMANCE AND COMPLIANCE WITH RECEIVABLES, APPLICABLE
         LEGAL REQUIREMENTS AND CONTRACTS. Timely and fully perform and comply,
         at its expense, with all material provisions, covenants and other
         promises required to be observed by it under the Contracts or
         applicable Legal Requirements and all other agreements related to the
         Receivables that it generates.


                                       15



                  (f) LOCATION OF RECORDS. Keep its principal place of business
         and chief executive office (as such terms or similar terms are used in
         this applicable UCC), and the offices where it keeps its records
         concerning or related to Receivables, at the address(es) referred to in
         EXHIBIT E or, upon 30 days' prior written notice to the Company and the
         Administrator, at such other locations in jurisdictions where all
         action required by SECTION 7.3 shall have been taken and completed.

                  (g)      CREDIT AND COLLECTION POLICIES. Comply in all
         material respects with its Credit and Collection Policy in connection
         with the Receivables that it generates and all Contracts or applicable
         Legal Requirements.

                  (h) POST OFFICE BOXES. On or prior to the date hereof, deliver
         to Servicer (on behalf of the Company) a certificate from an authorized
         officer of the Originator to the effect that the name of the renter of
         all post office boxes into which Collections may from time to time be
         mailed has been changed to the name of the Company (unless such post
         office boxes are in the name of the relevant Lock-Box Banks).

         6.2 REPORTING REQUIREMENTS. From the date hereof until the first day
following the Purchase and Sale Termination Date, the Originator will, unless
Servicer (on behalf of the Company) and the Administrator shall otherwise
consent in writing, furnish to the Company and the Administrator:

                  (a) PURCHASE AND SALE TERMINATION EVENTS. As soon as possible
         after knowledge of the occurrence of, and in any event within three
         Business Days after knowledge of the occurrence of each Purchase and
         Sale Termination Event or each Unmatured Purchase and Sale Termination
         Event in respect of the Originator, the statement of the chief
         financial officer, chief accounting officer, treasurer, secretary or
         any Vice President of the Originator describing such Purchase and Sale
         Termination Event or Unmatured Purchase and Sale Termination Event and
         the action that the Originator proposes to take with respect thereto,
         in each case in reasonable detail;

                  (b) UCC FILING INFORMATION. At least thirty days before any
         change in the Originator's name or any other change requiring the
         amendment of UCC financing statements, a notice setting forth such
         changes and the effective date thereof;

                  (c) PROCEEDINGS. Promptly after the Originator obtains
         knowledge thereof, notice of any: (A) litigation, investigation or
         proceeding that may exist at any time between the Originator or any of
         its Affiliates and any Governmental Authority that, if not cured or if
         adversely determined, as the case may be, would have a Material Adverse
         Effect, (B) litigation or proceeding adversely affecting the Originator
         or any of its Affiliates in which the amount involved is $500,000 or
         more and not covered by insurance or in which injunctive or similar
         relief is


                                       16



         sought, (C) material litigation or proceeding relating to any
         Transaction Document or (D) material adverse developments that have
         occurred with respect to any previously disclosed litigation,
         proceedings and investigations;

                  (d) OTHER. Promptly, from time to time, such other
         information, documents, records or reports respecting the Receivables
         or the conditions or operations, financial or otherwise, of the
         Originator as the Company, any Purchaser, any Purchaser Agent or the
         Administrator may from time to time reasonably request in order to
         protect the interests of the Company, any Purchaser Agent, any
         Purchaser or the Administrator under or as contemplated by the
         Transaction Documents.

         6.3 NEGATIVE COVENANTS. From the date hereof until the date following
the Purchase and Sale Termination Date, the Originator agrees that, unless
Servicer (on behalf of the Company) and the Administrator shall otherwise
consent in writing, it shall not:

                  (a) SALES, LIENS, ETC. Except as otherwise provided herein or
         in any other Transaction Document, sell, assign (by operation of law or
         otherwise) or otherwise dispose of, or create or suffer to exist any
         Adverse Claim upon or with respect to, any Receivable or related
         Contract or Related Security, or any interest therein, or any
         Collections thereon, or assign any right to receive income in respect
         thereof.

                  (b) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as otherwise
         required by applicable Legal Requirements or permitted by SECTION
         4.2(a) of the Receivables Purchase Agreement, extend, amend or
         otherwise modify the terms of any Receivable in any material respect
         generated by it, or amend, modify or waive, in any material respect,
         any term or condition of any Contract related thereto or waive any
         right granted by the applicable Legal Requirements related thereto, or
         permit the Servicer (so long as the Servicer is an Affiliate of the
         Originator) to take any of the foregoing actions.

                  (c) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Except
         as required by applicable Legal Requirements, make any change in the
         character of its business or materially alter its Credit and Collection
         Policy, which change would have a material adverse effect on the terms
         and conditions or the collectibility of a material portion of the
         Receivables, or make any other material change in the Credit and
         Collection Policy without prior written notice to the Administrator and
         each Purchaser Agent.

                  (d)      RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES
         OR CHATTEL PAPER.  Take any action  to cause or permit any Receivable
         generated by it to become evidenced by any "instrument" or "chattel
         paper" (as defined in the New York UCC).


                                       17



                  (e) MERGERS, ACQUISITIONS, SALES, ETC. (i) Be a party to any
         merger or consolidation or (ii) directly or indirectly sell, transfer,
         assign, convey or lease (A) whether in one or a series of transactions,
         all or substantially all of its assets, or (B) any Receivables or any
         interest therein (other than pursuant to this Agreement).

         6.4 LOCK-BOX BANKS. Add or terminate any bank or other entity as a
Lock-Box Bank or any account as a Lock-Box Account from those listed in EXHIBIT
G to the Receivables Purchase Agreement, make any change to the LGEC Post Office
Box, make any change in its instructions to Obligors regarding payments to be
made to the Company, the Servicer, Travelers or any Lock-Box Account (or related
post office box or the LGEC Post Office Box), make any change in its
instructions to Travelers regarding the handling of Collections or make any
changes in its procedures for processing Collections received in the LGEC Post
Office Box, unless the Administrator and the Majority Purchasers shall have
consented thereto (which consent shall not be unreasonably withheld, conditioned
or delayed) in writing and the Administrator shall have received copies of all
agreements and documents (including Lock-Box Agreements) that it may reasonably
request in connection therewith.

         6.5 ACCOUNTING FOR PURCHASES. Account for or treat (whether in
financial statements or otherwise) the transactions contemplated hereby in any
manner other than as a contribution and as sales of the Receivables and Related
Rights by the Originator to the Company.

         6.6 TRANSACTION DOCUMENTS. Without the prior written consent of the
Administrator and the Majority Purchasers, amend, modify, supplement, waive,
revoke or terminate any Transaction Document to which it is a party or enter
into, execute, deliver or otherwise become bound by any agreement, instrument,
document or other arrangement that restricts the right of the Originator to: (i)
amend, supplement, amend and restate or otherwise modify the provisions of
ARTICLE II of the Receivables Purchase Agreement, EXHIBIT V to the Receivables
Purchase Agreement or ARTICLES V, VI and VIII of this Agreement or any ratio,
percentage, equation or time frame contained in any definition (other than the
definitions of Purchase Limit and Facility Termination Date) contained in
EXHIBIT I to the Receivables Purchase Agreement or (ii) extend or renew, or to
waive any right under, this Agreement or any other Transaction Documents,
PROVIDED THAT the Originator may enter into, execute, deliver or otherwise
become bound by any agreement, instrument, document or other arrangement that
requires termination of this Agreement based upon the level of Total Reserves.

         6.7 SUBSTANTIVE CONSOLIDATION. The Originator hereby acknowledges that
this Agreement and the other Transaction Documents are being entered into in
reliance upon the Company's identity as a legal entity separate from the
Originator and its Affiliates. Therefore, from and after the date hereof, the
Originator shall take all reasonable steps necessary to make it apparent to
third Persons that the Company is an entity with assets


                                       18



and liabilities distinct from those of the Originator and any other Person, and
is not a division of the Originator, its Affiliates or any other Person. Without
limiting the generality of the foregoing and in addition to and consistent with
the other covenants set forth herein, the Originator shall take such actions as
shall be required in order that:

                  (a) the Originator shall not be involved in the day to day
         management of the Company;

                  (b) the Originator shall maintain separate corporate records
         and books of account from the Company and otherwise will observe
         corporate formalities and have a separate area from the Company for its
         business;

                  (c) the financial statements and books and records of the
         Originator shall be prepared after the date of creation of the Company
         to reflect and shall reflect the separate existence of the Company;
         PROVIDED, that the Company's assets and liabilities may be included in
         a consolidated financial statement issued by an affiliate of the
         Company; PROVIDED, HOWEVER, that any such consolidated financial
         statement shall make clear that the Company's assets are not available
         to satisfy the obligations of such affiliate;

                  (d) except as permitted by the Receivables Purchase Agreement,
         (i) the Originator shall maintain its assets separately from the assets
         of the Company, (ii) and the Originator's assets, and records relating
         thereto, have not been, are not, and shall not be, commingled with
         those of the Company;

                  (e) all of the Company's business correspondence and
         other communications shall be conducted in the Company's own name
         and on its own stationery;

                  (f) the Originator shall not act as an agent for the Company,
         other than LGEC in its capacity as the Servicer, and in connection
         therewith, shall present itself to the public as an agent for the
         Company and a legal entity separate from the Company;

                  (g) the Originator shall not conduct any of the business of
         the Company in its own name;

                  (h) the Originator shall not pay any liabilities of the
         Company out of its own funds or assets;


                  (i) the Originator shall maintain an arm's-length
         relationship with the Company;

                  (j) the Originator shall not assume or guarantee or become
         obligated for the debts of the Company or hold out its credit as being
         available to satisfy the obligations of the Company;


                                       19



                  (k) the Originator shall not acquire obligations of the
         Company, other than the Company Note;

                  (l) the Originator shall allocate fairly and reasonably
         overhead or other expenses that are properly shared with the Company,
         including, without limitation, shared office space;

                  (m) the Originator shall identify and hold itself out as a
         separate and distinct entity from the Company;

                  (n) the Originator shall correct any known misunderstanding
         regarding its separate identity from the Company;

                  (o) the Originator shall not enter into, or be a party to, any
         transaction with the Company, except in the ordinary course of its
         business and on terms which are intrinsically fair and not less
         favorable to it than would be obtained in a comparable arm's-length
         transaction with an unrelated third party; and

                  (p) the Originator shall not pay the salaries of the
         Company's employees, if any.


                                   ARTICLE VII

                      ADDITIONAL RIGHTS AND OBLIGATIONS IN
                           RESPECT OF THE RECEIVABLES

         7.1 RIGHTS OF THE COMPANY. The Originator hereby authorizes the
Company, Servicer, the Administrator or their respective designees to take any
and all steps permitted by applicable Legal Requirements in the Originator's
name necessary or desirable, in their respective determination, to collect all
amounts due under any and all Receivables, including, without limitation,
indorsing the name of the Originator on checks and other instruments
representing Collections and enforcing such Receivables and the provisions of
the related Contracts (or exercising any rights under the applicable Legal
Requirements) that concern payment and/or enforcement of rights to payment.

         7.2 RESPONSIBILITIES OF THE ORIGINATOR. Anything herein to the contrary
notwithstanding:

                  (a) COLLECTION PROCEDURES. The Originator agrees: (i) to
         instruct all Obligors to make payments of all Receivables to one of the
         following: (A) one or more Lock-Box Accounts or to post office boxes to
         which only Lock-Box Banks have access (and shall instruct the Lock-Box
         Banks to cause all items and amounts relating to such Receivables
         received in such post office boxes to be removed and deposited into a
         Lock-Box Account on a daily basis), (B) the LGEC


                                       20



         Post Office Box and (C) Travelers payment centers (and shall instruct
         the Travelers to cause all items and amounts relating to such
         Receivables received in such payment centers to be removed and
         deposited into a Lock-Box Account within three days of Traveler's
         receipt of such items and amounts); and (ii) deposit, or cause to be
         deposited, any Collections received by it, the Servicer or the Company
         into Lock-Box Accounts not later than one Business Day after receipt
         thereof and agrees that all such Collections shall be deemed to be
         received in trust for the Company and shall be set aside and segregated
         until such transfer. Except as otherwise agreed to in writing by the
         Administrator and the Majority Purchasers, thirty (30) days after the
         Closing Date each Lock-Box Account shall at all times be subject to,
         and Travelers shall at all times be a party to, a Lock-Box Agreement.
         Twenty-one (21) days after the Administrator's written request and at
         all times thereafter, the LGEC Post Office Box shall be subject to a
         Lock-Box Agreement. The Originator will not (and will not permit the
         Servicer or the Company to) deposit or otherwise credit, or cause or
         permit to be so deposited or credited, to any Lock-Box Account or the
         LGEC Post Office Box cash or cash proceeds other than Collections.

                  (b) The Originator shall perform its obligations hereunder,
         and the exercise by the Company or its designee of its rights hereunder
         shall not relieve the Originator from such obligations.

                  (c) Except for compliance with Legal Requirements in respect
         thereto, none of the Company, Servicer or the Administrator shall have
         any obligation or liability to any Obligor or any other third Person
         with respect to any Receivables, Contracts or applicable Legal
         Requirements related thereto or any other related agreements, nor shall
         the Company, Servicer, any Purchaser or the Administrator be obligated
         to perform any of the obligations of the Originator thereunder.

                  (d) The Originator hereby grants to the Administrator an
         irrevocable power of attorney, with full power of substitution, coupled
         with an interest, to take in the name of the Originator all steps
         necessary or advisable to indorse, negotiate or otherwise realize on
         any writing or other right of any kind held or transmitted by the
         Originator or transmitted or received by the Company (whether or not
         from the Originator) in connection with any Receivable.

         7.3 FURTHER ACTION EVIDENCING PURCHASES. The Originator agrees that
from time to time, at its expense, it will promptly execute and deliver all
further instruments and documents, and take all further action that Servicer,
the Company or the Administrator may reasonably request in order to perfect,
protect or more fully evidence the Receivables and Related Rights purchased by
or contributed to the Company hereunder, or to enable the Company to exercise or
enforce any of its rights hereunder or under any other Transaction Document.
Without limiting the generality of the foregoing, upon the request of Servicer,
the Originator will:


                                       21



                  (a) execute and file such financing or continuation
         statements, or amendments thereto or assignments thereof, and such
         other instruments or notices, as may be necessary or appropriate; and

                  (b) mark the master data processing records and other books
         and records that evidence or list (i) such Receivables and (ii) related
         Contracts with the legend set forth in SECTION 4.1(J).

The Originator hereby authorizes the Company or its designee to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relative to all or any of the Receivables and Related Rights now
existing or hereafter generated by the Originator. If the Originator fails to
perform any of its agreements or obligations under this Agreement, the Company
or its designee may (but shall not be required to) itself perform, or cause
performance of, such agreement or obligation, and the expenses of the Company or
its designee incurred in connection therewith shall be payable by Originator as
provided in SECTION 9.1.

         7.4 APPLICATION OF COLLECTIONS. Any payment by an Obligor in respect of
any indebtedness owed by it to the Originator shall, except as otherwise
specified by such Obligor or otherwise required by contract or law and unless
otherwise instructed by the Company or the Administrator, be applied as a
Collection of any Receivable or Receivables of such Obligor to the extent of any
amounts then due and payable thereunder before being applied to any other
indebtedness of such Obligor.


                                  ARTICLE VIII

                      PURCHASE AND SALE TERMINATION EVENTS

         8.1 PURCHASE AND SALE TERMINATION EVENTS. Each of the following events
or occurrences described in this SECTION 8.1 shall constitute a "PURCHASE AND
SALE TERMINATION EVENT":

                  (a) A Termination Event (as defined in the Receivables
         Purchase Agreement) shall have occurred and, in the case of a
         Termination Event (other than one described in paragraph (f) of Exhibit
         V of the Receivables Purchase Agreement), the Administrator shall have
         declared the Facility Termination Date to have occurred; or

                  (b) The Originator shall fail to make any payment or deposit
         to be made by it hereunder when due and such failure shall remain
         unremedied for two (2) Business Days; or

                  (c) Any representation or warranty made or deemed to be made
         by the Originator (or any of its officers) under or in connection with
         this Agreement, any


                                       22



         other Transaction Documents or any other information or report
         delivered pursuant hereto or thereto shall prove to have been false or
         incorrect in any material respect when made or deemed made and shall
         remain incorrect or untrue for seven (7) Business Days after notice to
         the Originator of such inaccuracy; or

                  (d) The Originator shall fail to perform or observe any other
         term, covenant or agreement contained in this Agreement on its part to
         be performed or observed and such failure shall remain unremedied for
         seven (7) Business Days after written notice thereof shall have been
         given by Servicer to the Originator.

         8.2  REMEDIES.

                  (a) OPTIONAL TERMINATION. Upon the occurrence of a Purchase
         and Sale Termination Event, the Company (and not Servicer) shall have
         the option by notice to the Originator (with a copy to the
         Administrator) to declare the Purchase and Sale Termination Date to
         have occurred.

                  (b) REMEDIES CUMULATIVE. Upon any termination of the Purchase
         Facility pursuant to this SECTION 8.2 (a), the Company shall have, in
         addition to all other rights and remedies under this Agreement or
         otherwise, all other rights and remedies provided under the UCC of each
         applicable jurisdiction and other applicable laws, which rights shall
         be cumulative. Without limiting the foregoing, the occurrence of the
         Purchase and Sale Termination Date shall not deny the Company any
         remedy in addition to termination of the Purchase Facility to which the
         Company may be otherwise appropriately entitled, whether at law or
         equity.

                                   ARTICLE IX

                                 INDEMNIFICATION

         9.1 INDEMNITIES BY THE ORIGINATOR. Without limiting any other rights
which the Company may have hereunder or under applicable law, the Originator
hereby agrees to indemnify the Company and each of its officers, directors,
employees and agents (each of the foregoing Persons being individually called a
"PURCHASE AND SALE INDEMNIFIED PARTY"), forthwith on demand, from and against
any and all damages, losses, claims, judgments, liabilities and related costs
and expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively called "PURCHASE AND SALE INDEMNIFIED AMOUNTS")
awarded against or incurred by any of them arising out of or as a result of the
failure of the Originator to perform its obligations under this Agreement, any
other Transaction Document or arising out of the claims asserted against a
Purchase and Sale Indemnified Party relating to the transactions contemplated
herein or therein or the use of proceeds thereof or therefrom, EXCLUDING,
HOWEVER, (i) Purchase and Sale Indemnified Amounts to the extent resulting from
gross negligence or willful misconduct on the part of such Purchase and Sale
Indemnified Party, (ii) any indemnification which


                                       23



has the effect of recourse with respect to any Receivable to the extent that
such Receivable is uncollectible in whole or part on account of the lack of
credit worthiness or any Insolvency Proceeding of the related Obligor and (iii)
any tax based upon or measured by net income or gross receipts (except a tax
imposed by the jurisdiction under the laws of which such Purchase and Sale
Indemnified Party is organized or otherwise is considered doing business (unless
such Purchase and Sale Indemnified Party would not be considered doing business
in such jurisdiction, but for having entered into, or engaged in the
transactions in connection with, this Agreement or any other Transaction
Document) or any political subdivision thereof). Without limiting the foregoing,
the Originator indemnifies each Purchase and Sale Indemnified Party for Purchase
and Sale Indemnified Amounts relating to or resulting from:

                  (a) the transfer by the Originator of an interest in any
         Receivable to any Person other than the Company;

                  (b) the breach of any representation or warranty made by the
         Originator (or any of its officers) under or in connection with this
         Agreement or any other Transaction Document, or any information or
         report delivered by the Originator pursuant hereto or thereto which
         shall have been false or incorrect when made or deemed made;

                  (c) the failure by the Originator to comply with any
         applicable Legal Requirement with respect to any Receivable generated
         by the Originator or the related Contract or applicable Legal
         Requirement under which any Receivable arises, or the nonconformity of
         any Receivable or the related Contract with any such applicable Legal
         Requirement;

                  (d) the failure to vest and maintain vested in the Company an
         ownership interest in the Receivables generated by the Originator free
         and clear of any Adverse Claim, other than an Adverse Claim arising
         solely as a result of an act of the Company, whether existing at the
         time of the purchase or contribution of such Receivables or at any time
         thereafter;

                  (e) the failure, to the extent resulting from an action or
         inaction of Originator or any Affiliate thereof, to file, or any delay
         in filing, financing statements or other similar instruments or
         documents under the UCC of any applicable jurisdiction or other
         applicable laws with respect to any Receivables or purported
         Receivables generated by the Originator, whether at the time of any
         purchase or contribution or at any subsequent time;

                  (f) any dispute, claim, offset or defense (other than any
         reduction, revision or discharge in any Insolvency Proceeding relating
         to the Obligor) of the Obligor to the payment of any Receivable or
         purported Receivable generated by the Originator (including, without
         limitation, a defense not connected to an Insolvency Event based on
         such Receivable's, the related Contract's or applicable


                                       24



         Legal Requirements not being a legal, valid and binding obligation of
         such Obligor enforceable against it in accordance with its terms), or
         any other claim resulting from the sale of goods or services related to
         any such Receivable or the furnishing of or failure to furnish such
         goods or services or relating to any collection activity with respect
         to such Receivable by the Originator or any Affiliate thereof;

                  (g) any products liability or other claim, investigation,
         litigation or proceeding arising out of or in connection with
         merchandise, insurance or services that give rise to a Receivable;

                  (h) any tax or governmental fee or charge (other than any tax
         excluded pursuant to CLAUSE (iii) in the exclusion in the preceding
         sentence), all interest and penalties thereon or with respect thereto,
         and all out-of-pocket costs and expenses, including the reasonable fees
         and expenses of counsel in defending against the same, which may arise
         by reason of the purchase or ownership of the Receivables or any
         Related Security connected with any such Receivables;

                  (i) any failure of the Originator or any Affiliate of the
         Originator to perform its duties or obligations in accordance with the
         provisions hereof or under the Contracts or applicable Legal
         Requirements; and

                  (j) any obligation or liability of any Purchase and Sale
         Indemnified Party to any Obligor or any other third Person with respect
         to any Receivables, Contracts or applicable Legal Requirements related
         thereto, other than any obligation or liability resulting from the
         Servicer (if the Servicer is not the Originator or an Affiliate of the
         Originator) failing to comply with applicable Legal Requirements, or
         any obligation of any Purchase and Sale Indemnified Party to perform
         any of the obligations of the Originator with respect to any
         Receivables, Contracts or applicable Legal Requirements related
         thereto.

         If for any reason the indemnification provided above in this SECTION
9.1 is unavailable to a Purchase and Sale Indemnified Party or is insufficient
to hold such Purchase and Sale Indemnified Party harmless to the extent
contemplated hereby, then the Originator shall contribute to the amount paid or
payable by such Purchase and Sale Indemnified Party to the maximum extent
permitted under applicable law.


                                       25



                                    ARTICLE X

                                  MISCELLANEOUS

         10.1  AMENDMENTS, ETC.

                  (a) The provisions of this Agreement may from time to time be
         amended, modified or waived, if such amendment, modification or waiver
         is in writing and consented to by the Company, Servicer, the
         Administrator, the Majority Purchasers and the Originator (with respect
         to an amendment) or by the Company, the Administrator and the Majority
         Purchasers (with respect to a waiver or consent by them).

                  (b) No failure or delay on the part of the Company, Servicer,
         the Originator or any third party beneficiary in exercising any power
         or right hereunder shall operate as a waiver thereof, nor shall any
         single or partial exercise of any such power or right preclude any
         other or further exercise thereof or the exercise of any other power or
         right. No notice to or demand on the Company, Servicer or the
         Originator in any case shall entitle it to any notice or demand in
         similar or other circumstances. No waiver or approval by the Company or
         Servicer under this Agreement shall, except as may otherwise be stated
         in such waiver or approval, be applicable to subsequent transactions.
         No waiver or approval under this Agreement shall require any similar or
         dissimilar waiver or approval thereafter to be granted hereunder.

                  (c) The Transaction Documents contain a final and complete
         integration of all prior expressions by the parties hereto with respect
         to the subject matter thereof and shall constitute the entire agreement
         among the parties hereto with respect to the subject matter thereof,
         superseding all prior oral or written understandings.

         10.2 NOTICES, ETC. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing (including
facsimile communication) and shall be personally delivered or sent by certified
mail, postage-prepaid, or by facsimile, to the intended party at the address or
facsimile number of such party set forth under its name on the signature pages
hereof or at such other address or facsimile number as shall be designated by
such party in a written notice to the other parties hereto. All such notices and
communications shall be effective, (i) if personally delivered, when received,
(ii) if sent by certified mail three (3) Business Days after having been
deposited in the mail, postage prepaid, and (iii) if transmitted by facsimile,
when sent, receipt confirmed by telephone or electronic means.

         10.3 NO WAIVER; CUMULATIVE REMEDIES. Without limiting the foregoing,
the Originator hereby authorizes the Company, at any time and from time to time,
to the fullest extent permitted by law, to set off against any obligations of
the Originator to the


                                       26



Company arising in connection with the Transaction Documents (including, without
limitation, amounts payable pursuant to SECTION 9.1) that are then due and
payable or that are not then due and payable but are accruing in respect of the
then current Yield Period, any and all indebtedness at any time owing by the
Company to or for the credit or the account of the Originator.

         10.4 BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding
upon and inure to the benefit of the Company, Servicer and the Originator and
their respective successors and permitted assigns. The Originator may not assign
any of its rights hereunder or any interest herein without the prior written
consent of the Company and the Administrator, except as otherwise herein
specifically provided. This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall remain
in full force and effect until such time as the parties hereto shall agree. The
rights and remedies with respect to any breach of any representation and
warranty made by the Originator pursuant to ARTICLE V and the indemnification
and payment provisions of ARTICLE IX and SECTION 10.6 shall be continuing and
shall survive any termination of this Agreement.

         10.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

         10.6 COSTS, EXPENSES AND TAXES. In addition to the obligations of the
Originator under ARTICLE IX, the Originator agrees to pay on demand:

                  (a) all reasonable costs and expenses in connection with the
         enforcement against the Originator or any Affiliate of the Originator
         of this Agreement, the Originator Assignment Certificate and the other
         Transaction Documents; and

                  (b) all stamp and other taxes and fees payable or determined
         to be payable in connection with the execution, delivery, filing and
         recording of this Agreement or the other Transaction Documents to be
         delivered hereunder, and agrees to indemnify each Purchase and Sale
         Indemnified Party against any liabilities with respect to or resulting
         from any delay in paying or omission to pay such taxes and fees.

         10.7 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER
OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND


                                       27



AGREES THAT (a) ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY AND (b) ANY PARTY HERETO (OR ANY ASSIGNEE OR THIRD PARTY
BENEFICIARY OF THIS AGREEMENT) MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER
PARTY OR PARTIES HERETO TO WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY.

         10.8 CAPTIONS AND CROSS REFERENCES; INCORPORATION BY REFERENCE. The
various captions (including, without limitation, the table of contents) in this
Agreement are included for convenience only and shall not affect the meaning or
interpretation of any provision of this Agreement. Unless otherwise indicated,
references in this Agreement to any Section or Exhibit are to such Section or
Exhibit of this Agreement, as the case may be. APPENDIX A and the Exhibits
hereto are hereby incorporated by reference into and made a part of this
Agreement.

         10.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same Agreement.

         10.10 ACKNOWLEDGMENT AND AGREEMENT. By execution below, the Originator
expressly acknowledges and agrees that all of the Company's rights, title, and
interests in, to, and under this Agreement (but not its obligations), shall be
assigned by the Company pursuant to the Receivables Purchase Agreement, and the
Originator consents to such assignment. Each of the parties hereto acknowledges
and agrees that the Administrator, each Purchaser Agent and each Purchaser are
third party beneficiaries of the rights of the Company arising hereunder and
under the other Transaction Documents to which the Originator is a party.

         10.11 NO PROCEEDINGS. Each of the Company, the Servicer and the
Originator, hereby covenants and agrees that it will not institute against, or
join any other Person in instituting against, any Conduit Purchaser any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding,
or other proceeding under any federal or state bankruptcy or similar law, for
one year and one day after the latest maturing Note issued by such Conduit
Purchaser is paid in full. The provision of this SECTION 10.12 shall survive any
termination of this Agreement.

                               [SIGNATURES FOLLOW]


                                       28



         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

                               LG&E RECEIVABLES LLC


                               By:________________________________
                               Name:
                               Title:

                               Address:
                               LG&E Receivables LLC
                               220 West Main St.
                               Louisville, Kentucky 40202

                               Attention: Treasurer
                               Telephone No.: (502) 627-4956
                               Facsimile No.: (502) 627-4742

                               LOUISVILLE GAS AND ELECTRIC COMPANY,
                               as Initial Servicer and as the Originator


                               By:_______________________________
                               Name:
                               Title:

                               Address:
                               Louisville Gas and Electric Company
                               220 West Main St.
                               Louisville, Kentucky 40202

                               Attention: Treasurer
                               Telephone No.: (502) 627-4956
                               Facsimile No.: (502) 627-4742





                                    EXHIBIT A

                             FORM OF PURCHASE REPORT



ORIGINATOR:       Louisville Gas and Electric Company

PURCHASER:        LG&E Receivables LLC

DATE:             ________________


XI.      OUTSTANDING BALANCE OF RECEIVABLES PURCHASED: __________________


XII.     FAIR MARKET VALUE DISCOUNT:


1/(1 + ((Prime Rate + .25%) X DAYS' SALES OUTSTANDING ))
                              -----------------------
                                       365

   Prime Rate =                             __________________

   Days' Sales Outstanding =                __________________




XIII.    PURCHASE PRICE  (I X II)  =        $_______________





                                    EXHIBIT B
                              FORM OF COMPANY NOTE

                                                              New York, New York
                                                                       [ ], 2001


         FOR VALUE RECEIVED, the undersigned, LG&E Receivables LLC (the
"Company"), a Delaware limited liability company, promises to pay to Louisville
Gas and Electric Company, a Kentucky corporation ("LGEC"), on the terms and
subject to the conditions set forth herein and in the Purchase and Sale
Agreement referred to below, the aggregate unpaid Purchase Price of all
Receivables purchased by the Company from LGEC pursuant to such Purchase and
Sale Agreement, as such unpaid Purchase Price is shown in the records of
Servicer.

         1. PURCHASE AND SALE AGREEMENT. This Company Note is the Company Note
described in, and is subject to the terms and conditions set forth in, that
certain Purchase and Sale Agreement of even date herewith (as the same may be
amended, supplemented, amended and restated or otherwise modified in accordance
with its terms, the "PURCHASE AND SALE AGREEMENT"), between the Company and
LGEC. Reference is hereby made to the Purchase and Sale Agreement for a
statement of certain other rights and obligations of the Company and LGEC.

         2. DEFINITIONS. Capitalized terms used (but not defined) herein have
the meanings assigned thereto in Exhibit I to the Receivables Purchase Agreement
(as defined in the Purchase and Sale Agreement). In addition, as used herein,
the following terms have the following meanings:

                  "BANKRUPTCY PROCEEDINGS" has the meaning set forth in CLAUSE
         (b) of PARAGRAPH 9 hereof.

                  "FINAL MATURITY DATE" means the Payment Date immediately
         following the date that falls one hundred twenty one (121) days after
         the Purchase and Sale Termination Date.

                  "INTEREST PERIOD" means the period from and including a
         Settlement Date (or, in the case of the first Interest Period, the date
         hereof) to but excluding the next Settlement Date.

                  "SENIOR INTERESTS" means, collectively, (i) all accrued
         Discount, (ii) all fees payable by the Company to the Senior Interest
         Holders pursuant to the Receivables Purchase Agreement, (iii) all
         amounts payable pursuant to SECTION 1.7 and 1.8 of the Receivables
         Purchase Agreement, (iv) the Aggregate Investment and (v) all other
         obligations owed by the Company to the Senior





         Interest Holders under the Receivables Purchase Agreement and other
         Transaction Documents that are due and payable, together with any and
         all interest and Discount accruing on any such amount after the
         commencement of any Bankruptcy Proceedings, notwithstanding any
         provision or rule of law that might restrict the rights of any Senior
         Interest Holder, as against the Company or anyone else, to collect such
         interest.

                  "SENIOR INTEREST HOLDERS" means, collectively, the Purchaser,
          the Administrator and the Indemnified Parties.

                  "SUBORDINATION PROVISIONS" means, collectively, CLAUSES (a)
through (l) of PARAGRAPH 9 hereof.

                  "TELERATE SCREEN RATE" means, for any Interest Period, the
         rate for thirty day commercial paper denominated in dollars which
         appears on Page 1250 of the Dow Jones Telerate Service (or such other
         page as may replace that page on that service for the purpose of
         displaying dollar commercial paper rates) at approximately 9:00 a.m.,
         New York City time, on the first day of such Interest Period.

     3. INTEREST. Subject to the Subordination Provisions set forth below,
the Company promises to pay interest on this Company Note as follows:

                  (a) Prior to the Final Maturity Date, the aggregate unpaid
         Purchase Price from time to time outstanding during any Interest Period
         shall bear interest at a rate PER ANNUM equal to the Telerate Screen
         Rate for such Interest Period, as determined by Servicer; and

                  (b) From (and including) the Final Maturity Date to (but
         excluding) the date on which the entire aggregate unpaid Purchase Price
         payable to LGEC is fully paid, such aggregate unpaid Purchase Price
         from time to time outstanding shall bear interest at a rate PER ANNUM
         equal to the "Prime Rate" as published in the "Money Rates" section of
         the Wall Street Journal or such other publication as determined by the
         Administrator in its sole discretion.

     4. INTEREST PAYMENT DATES. Subject to the Subordination Provisions set
forth below, the Company shall pay accrued interest on this Company Note on each
Settlement Date, and shall pay accrued interest on the amount of each principal
payment made in cash on a date other than a Settlement Date at the time of such
principal payment.

     5. BASIS OF COMPUTATION. Interest accrued hereunder that is computed by
reference to the Telerate Screen Rate shall be computed for the actual number of
days elapsed on the basis of a 360-day year, and interest accrued hereunder that
is computed by reference to the rate described in PARAGRAPH 3(B) of this Company
Note shall be computed for the actual number of days elapsed on the basis of a
365- or 366-day year.





     6. PRINCIPAL PAYMENT DATES. Subject to the Subordination Provisions set
forth below, payments of the principal amount of this Company Note shall be made
as follows:
                  (a) The principal amount of this Company Note shall be reduced
         by an amount equal to each payment deemed made pursuant to SECTION 3.3
         of the Purchase and Sale Agreement; and

                  (b) The entire remaining unpaid Purchase Price of all
         Receivables purchased by the Company from LGEC pursuant to the Purchase
         and Sale Agreement shall be due and payable on the Final Maturity Date.

Subject to the Subordination Provisions set forth below, the principal amount of
and accrued interest on this Company Note may be prepaid on any Business Day
without premium or penalty.

     7. PAYMENT MECHANICS. All payments of principal and interest hereunder
are to be made in lawful money of the United States of America.

     8. ENFORCEMENT EXPENSES. In addition to and not in limitation of the
foregoing, but subject to the Subordination Provisions set forth below and to
any limitation imposed by applicable law, the Company agrees to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
LGEC in seeking to collect any amounts payable hereunder which are not paid when
due.

     9. SUBORDINATION PROVISIONS. Company covenants and agrees, and LGEC and any
other holder of this Company Note (collectively, LGEC and any such other holder
are called the "HOLDER"), by its acceptance of this Company Note, likewise
covenants and agrees on behalf of itself and any holder of this Company Note,
that the payment of the principal amount of and interest on this Company Note is
hereby expressly subordinated in right of payment to the payment and performance
of the Senior Interests to the extent and in the manner set forth in the
following clauses of this PARAGRAPH 9:

                  (a) No payment or other distribution of the Company's assets
         of any kind or character, whether in cash, securities, or other rights
         or property, shall be made on account of this Company Note except to
         the extent such payment or other distribution is (i) permitted under
         PARAGRAPH 1(m) of EXHIBIT IV of the Receivables Purchase Agreement or
         (ii) made pursuant to CLAUSE (a) or (b) of PARAGRAPH 6 of this Company
         Note;

                  (b) In the event of any dissolution, winding up, liquidation,
         readjustment, reorganization or other similar event relating to the
         Company, whether voluntary or involuntary, partial or complete, and
         whether in bankruptcy, insolvency or receivership proceedings, or upon
         an assignment for the benefit of creditors, or any other marshalling of
         the assets and liabilities of the Company or any sale of all or
         substantially all of the assets of the Company other than as





         permitted by the Purchase and Sale Agreement (such proceedings being
         herein collectively called "BANKRUPTCY PROCEEDINGS"), the Senior
         Interests shall first be paid and performed in full and in cash before
         LGEC shall be entitled to receive and to retain any payment or
         distribution in respect of this Company Note. In order to implement the
         foregoing: (i) all payments and distributions of any kind or character
         in respect of this Company Note to which Holder would be entitled
         except for this CLAUSE (B) shall be made directly to the Administrator
         (for the benefit of the Senior Interest Holders); (ii) Holder shall
         promptly file a claim or claims, in the form required in any Bankruptcy
         Proceedings, for the full outstanding amount of this Company Note, and
         shall use commercially reasonable efforts to cause said claim or claims
         to be approved and all payments and other distributions in respect
         thereof to be made directly to the Administrator (for the benefit of
         the Senior Interest Holders) until the Senior Interests shall have been
         paid and performed in full and in cash; and (iii) Holder hereby
         irrevocably agrees that the Purchaser (or the Administrator acting on
         the Purchaser's behalf), may in the name of Holder or otherwise,
         demand, sue for, collect, receive and receipt for any and all such
         payments or distributions, and file, prove and vote or consent in any
         such Bankruptcy Proceedings with respect to any and all claims of
         Holder relating to this Company Note, in each case until the Senior
         Interests shall have been paid and performed in full and in cash;

                  (c) In the event that Holder receives any payment or other
         distribution of any kind or character from the Company or from any
         other source whatsoever, in respect of this Company Note, other than as
         expressly permitted by the terms of this Company Note, such payment or
         other distribution shall be received in trust for the Senior Interest
         Holders and shall be turned over by Holder to the Administrator (for
         the benefit of the Senior Interest Holders) forthwith. Holder will mark
         its books and records so as clearly to indicate that this Company Note
         is subordinated in accordance with the terms hereof. All payments and
         distributions received by the Administrator in respect of this Company
         Note, to the extent received in or converted into cash, may be applied
         by the Administrator (for the benefit of the Senior Interest Holders)
         first to the payment of any and all expenses (including reasonable
         attorneys' fees and legal expenses) paid or incurred by the Senior
         Interest Holders in enforcing these Subordination Provisions, or in
         endeavoring to collect or realize upon this Company Note, and any
         balance thereof shall, solely as between LGEC and the Senior Interest
         Holders, be applied by the Administrator (in the order of application
         set forth in SECTION 1.4(d)(ii) of the Receivables Purchase Agreement)
         toward the payment of the Senior Interests; but as between the Company
         and its creditors, no such payments or distributions of any kind or
         character shall be deemed to be payments or distributions in respect of
         the Senior Interests;

                  (d) Notwithstanding any payments or distributions received by
         the Senior Interest Holders in respect of this Company Note, while any
         Bankruptcy Proceedings are pending Holder shall not be subrogated to
         the then existing rights





         of the Senior Interest Holders in respect of the Senior Interests until
         the Senior Interests have been paid and performed in full and in cash.
         If no Bankruptcy Proceedings are pending, Holder shall only be entitled
         to exercise any subrogation rights that it may acquire (by reason of a
         payment or distribution to the Senior Interest Holders in respect of
         this Company Note) to the extent that any payment arising out of the
         exercise of such rights would be permitted under PARAGRAPH 1(M) of
         EXHIBIT IV of the Receivables Purchase Agreement;

                  (e) These Subordination Provisions are intended solely for the
         purpose of defining the relative rights of Holder, on the one hand, and
         the Senior Interest Holders on the other hand. Nothing contained in
         these Subordination Provisions or elsewhere in this Company Note is
         intended to or shall impair, as between the Company, its creditors
         (other than the Senior Interest Holders) and Holder, the Company's
         obligation, which is unconditional and absolute, to pay Holder the
         principal of and interest on this Company Note as and when the same
         shall become due and payable in accordance with the terms hereof or to
         affect the relative rights of Holder and creditors of the Company
         (other than the Senior Interest Holders);

                  (f) Holder shall not, until the Senior Interests have been
         paid and performed in full and in cash, (i) cancel, waive, forgive,
         transfer or assign, or commence legal proceedings to enforce or
         collect, or subordinate to any obligation of the Company, howsoever
         created, arising or evidenced, whether direct or indirect, absolute or
         contingent, or now or hereafter existing, or due or to become due,
         other than the Senior Interests, this Company Note or any rights in
         respect hereof or (ii) convert this Company Note into an equity
         interest in the Company, unless Holder shall have received the prior
         written consent of the Administrator and the Purchaser in each case;

                  (g) Holder shall not, without the advance written consent of
         the Administrator and the Purchaser, commence, or join with any other
         Person in commencing, any Bankruptcy Proceedings with respect to the
         Company until at least one year and one day shall have passed since the
         Senior Interests shall have been paid and performed in full and in
         cash;

                  (h) If, at any time, any payment (in whole or in part) of any
         Senior Interest is rescinded or must be restored or returned by a
         Senior Interest Holder (whether in connection with Bankruptcy
         Proceedings or otherwise), these Subordination Provisions shall
         continue to be effective or shall be reinstated, as the case may be, as
         though such payment had not been made;

                  (i) Each of the Senior Interest Holders may, from time to
         time, at its sole discretion, without notice to Holder, and without
         waiving any of its rights under these Subordination Provisions, take
         any or all of the following actions: (i) retain or obtain an interest
         in any property to secure any of the Senior Interests;





         (ii) retain or obtain the primary or secondary obligations of any other
         obligor or obligors with respect to any of the Senior Interests; (iii)
         extend or renew for one or more periods (whether or not longer than the
         original period), alter or exchange any of the Senior Interests, or
         release or compromise any obligation of any nature with respect to any
         of the Senior Interests; (iv) amend, supplement, amend and restate, or
         otherwise modify any Transaction Document; and (v) release its security
         interest in, or surrender, release or permit any substitution or
         exchange for all or any part of any rights or property securing any of
         the Senior Interests, or extend or renew for one or more periods
         (whether or not longer than the original period), or release,
         compromise, alter or exchange any obligations of any nature of any
         obligor with respect to any such rights or property;

                  (j) Holder hereby waives: (i) notice of acceptance of these
         Subordination Provisions by any of the Senior Interest Holders; (ii)
         notice of the existence, creation, non-payment or non-performance of
         all or any of the Senior Interests; and (iii) all diligence in
         enforcement, collection or protection of, or realization upon, the
         Senior Interests, or any thereof, or any security therefor;

                  (k) Each of the Senior Interest Holders may, from time to
         time, on the terms and subject to the conditions set forth in the
         Transaction Documents to which such Persons are party, but without
         notice to Holder, assign or transfer any or all of the Senior
         Interests, or any interest therein; and, notwithstanding any such
         assignment or transfer or any subsequent assignment or transfer
         thereof, such Senior Interests shall be and remain Senior Interests for
         the purposes of these Subordination Provisions, and every immediate and
         successive assignee or transferee of any of the Senior Interests or of
         any interest of such assignee or transferee in the Senior Interests
         shall be entitled to the benefits of these Subordination Provisions to
         the same extent as if such assignee or transferee were the assignor or
         transferor; and

                  (l) These Subordination Provisions constitute a continuing
         offer from the holder of this Company Note to all Persons who become
         the holders of, or who continue to hold, Senior Interests; and these
         Subordination Provisions are made for the benefit of the Senior
         Interest Holders, and the Administrator may proceed to enforce such
         provisions on behalf of each of such Persons.

     10. GENERAL. No failure or delay on the part of LGEC in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Company Note shall in any event be effective unless (i) the same shall be in
writing and signed and delivered by the Company and Holder and (ii) all consents
required for such actions under the Transaction Documents shall have been
received by the appropriate Persons.





     11. MAXIMUM INTEREST. Notwithstanding anything in this Company Note to the
contrary, the Company shall never be required to pay unearned interest on any
amount outstanding hereunder and shall never be required to pay interest on the
principal amount outstanding hereunder at a rate in excess of the maximum
nonusurious interest rate that may be contracted for, charged or received under
applicable federal or state law (such maximum rate being herein called the
"HIGHEST LAWFUL RATE"). If the effective rate of interest which would otherwise
by payable under this Company Note would exceed the Highest Lawful Rate, or if
the holder of this Company Note shall receive any unearned interest or shall
receive monies that are deemed to constitute interest which would increase the
effective rate of interest payable by the Company under this Company Note to a
rate in excess of the Highest Lawful Rate, then (i) the amount of interest which
would otherwise by payable by the Company under this Company Note shall be
reduced to the amount allowed by applicable law, and (ii) any unearned interest
paid by the Company or any interest paid by the Company in excess of the Highest
Lawful Rate shall be refunded to the Company. Without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received by LGEC under this Company Note that are made for the purpose of
determining whether such rate exceeds the Highest Lawful Rate applicable to LGEC
(such Highest Lawful Rate being herein called the "LGEC'S MAXIMUM PERMISSIBLE
RATE") shall be made, to the extent permitted by usury laws applicable to LGEC
(now or hereafter enacted), by amortizing, prorating and spreading in equal
parts during the actual period during which any amount has been outstanding
hereunder all interest at any time contracted for, charged or received by LGEC
in connection herewith. If at any time and from time to time (i) the amount of
interest payable to LGEC on any date shall be computed at LGEC's Maximum
Permissible Rate pursuant to the provisions of the foregoing sentence and (ii)
in respect of any subsequent interest computation period the amount of interest
otherwise payable to LGEC would be less than the amount of interest payable to
LGEC computed at LGEC's Maximum Permissible Rate, then the amount of interest
payable to LGEC in respect of such subsequent interest computation period shall
continue to be computed at LGEC's Maximum Permissible Rate until the total
amount of interest payable to LGEC shall equal the total amount of interest
which would have been payable to LGEC if the total amount of interest had been
computed without giving effect to the provisions of the foregoing sentence.

     12. NO NEGOTIATION. This Company Note is not negotiable.

     13. GOVERNING LAW. THIS COMPANY NOTE HAS BEEN DELIVERED IN NEW YORK,
NEW YORK, AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK.





     14. CAPTIONS. Paragraph captions used in this Company Note are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Company Note.


LG&E RECEIVABLES  LLC

By:___________________________





                                    EXHIBIT C

                    FORM OF ORIGINATOR ASSIGNMENT CERTIFICATE

     Reference is made to the Purchase and Sale Agreement of even date herewith
(as the same may be amended, supplemented, amended and restated or otherwise
modified from time to time, the "PURCHASE AND SALE AGREEMENT") between the
undersigned, Louisville Gas and Electric Company ("LGEC"), and LG&E Receivables
LLC (the "COMPANY"). Unless otherwise defined herein, capitalized terms used
herein have the meanings provided in the Purchase and Sale Agreement or in
EXHIBIT I to the Receivables Purchase Agreement (as defined in the Purchase and
Sale Agreement), as applicable.

     The undersigned hereby sells, assigns and transfers unto the Company and
its successors and assigns all right, title and interest of the undersigned in
and to:

                  (n)      each Receivable of the undersigned that existed and
                           was owing to the undersigned as of the Cut-off Date
                           other than Receivables contributed pursuant to
                           SECTION 3.1 of the Purchase and Sale Agreement;

                  (b)      each Receivable created by the undersigned from and
                           including the Cut-off Date to and including the
                           Purchase and Sale Termination Date;

                  (c)      all rights to, but not the obligations under, all
                           Related Security;

                  (d)      all monies due or to become due with respect to any
                           of the foregoing;

                  (e)      all books and records related to any of the
                           foregoing; and

                  (f) all collections and other proceeds of any of the foregoing
         (as defined in the applicable UCC) that are or were received by the
         undersigned on or after the Cut-off Date, including, without
         limitation, all funds which either are received by the undersigned, the
         Company or the Servicer from or on behalf of the Obligors in payment of
         any amounts owed (including, without limitation, invoice price, finance
         charges, interest and all other charges) in respect of Receivables, or
         are applied to such amounts owed by the Obligors (including, without
         limitation, insurance payments that the undersigned or the Servicer
         applies in the ordinary course of its business to amounts owed in
         respect of any Receivable and net proceeds of sale or other disposition
         of repossessed goods or other collateral or property of the Obligors or
         any other parties directly or indirectly liable for payment of such
         Receivables).

     This Originator Assignment Certificate is made without recourse but on the
terms and subject to the conditions set forth in the Transaction Documents to
which the undersigned is a party. The undersigned acknowledges and agrees that
the Company and its successors and





assigns are accepting this Originator Assignment Certificate in reliance on the
representations, warranties and covenants of the undersigned contained in the
Transaction Documents to which the undersigned is a party.

     THIS ORIGINATOR ASSIGNMENT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE PURCHASE AND SALE AGREEMENT AND THE INTERNAL LAWS OF THE
STATE OF NEW YORK.

     IN WITNESS WHEREOF, the undersigned has caused this Originator Assignment
Certificate to be duly executed and delivered by its duly authorized officer
this ___ day of , 2001.


LOUISVILLE GAS AND ELECTRIC COMPANY


By:__________________________________
Name:________________________________
Title:_______________________________





                                    EXHIBIT D

                                OFFICE LOCATIONS

220 West Main Street
Louisville, KY 40202





                                    EXHIBIT E

                                   TRADE NAMES

None

EX-10.51

                                                                   Exhibit 10.51

                              COAL SUPPLY AGREEMENT

     This is a coal supply agreement (the "Agreement") dated January 1, 2002
between LOUISVILLE GAS AND ELECTRIC COMPANY ("LG&E") and KENTUCKY UTILITIES
COMPANY ("KU"), each a Kentucky corporation, 220 West Main Street, Louisville,
Kentucky 40202 (together "Buyer"), and BLACK BEAUTY COAL COMPANY, an Indiana
corporation, 414 South Fares Avenue, Evansville, Indiana 47702, ("Seller").

     The parties hereto agree as follows:

                                   WITNESSETH:

     WHEREAS, LG&E and KU are electric utility companies which desire to
purchase steam coal; and

     WHEREAS, Buyer and Seller desire to enter into a coal supply agreement
pursuant to which the Seller will supply coal to Buyer under the terms as set
forth herein.

     NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable considerations, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

     SECTION 1. GENERAL.

     (a) The above recitals are true and correct and comprise a part of this
Agreement.



                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     (b) Seller will sell to Buyer and Buyer will buy from Seller steam coal
under all the terms and conditions of this Agreement. Hereinafter, the term
"Buyer" shall refer to LG&E with regard to the portion of the coal that is
purchased by LG&E, and shall refer to KU with regard to the portion of the coal
that is purchased by KU.

     (c) Each covenant, representation and warranty given by Seller herein is a
material inducement for Buyer to enter into this Agreement.

     SECTION 2. TERM. The term of this Agreement shall commence on January 1,
2002 and shall continue through December 31, 2005, subject to the price review
set forth in section 8.1.

     SECTION 3. QUANTITY.

     Section 3.1 BASE QUANTITY. Subject to the price review set forth in section
8.1, Seller shall sell and deliver, and Buyer shall purchase and accept delivery
of the following annual base quantity of coal ("Base Quantity"):



                  YEAR                      BASE QUANTITY (TONS)
                  ----                      --------------------
                                                  
                  2002                                 500,000
                  2003                               1,000,000
                  2004                               1,000,000
                  2005                               1,000,000


                                        2


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

The Base Quantity will be delivered in approximately equal monthly quantities as
adjusted during the year to reflect outages.

     SECTION 4. SOURCE.

     Section 4.1 SOURCE. The coal sold hereunder shall be supplied primarily
from geological seam Indiana #6 and #5, from Seller's Somerville North and
Central Mines, Gibson County, Indiana (the "Coal Property").

     Section 4.2 ASSURANCE OF OPERATION AND RESERVES. Seller represents and
warrants that the Coal Property contains economically recoverable coal of a
quality and in quantities which will be sufficient to satisfy all the
requirements of this Agreement. Seller agrees and warrants that it will have at
the Coal Property adequate machinery, equipment and other facilities to produce,
prepare and deliver coal in the quantity and of the quality required by this
Agreement. Seller further agrees to operate and maintain such machinery,
equipment and facilities in accordance with good mining practices so as to
efficiently and economically produce, prepare and deliver such coal.

     Section 4.3 NON-DIVERSION OF COAL. Seller agrees and warrants that it will
not, without Buyer's express prior written consent, use or sell coal from the
Coal Property in a way that will reduce the economically recoverable balance of
coal in the Coal Property to an amount less than that required to be supplied to
Buyer hereunder.

     Section 4.4 SELLER'S PREPARATION OF MINING PLAN. Seller shall have prepared
a complete mining plan for the Coal Property with adequate supporting data to
demonstrate Seller's capability to

                                       3

                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

have coal produced from the Coal Property which meets the quantity and quality
specifications of this Agreement. Seller shall, upon Buyer's request during Coal
Property Inspections, if any (made pursuant to section 19), provide information
to Buyer of such mining plan which shall contain maps and a narrative depicting
areas and seams of coal to be mined and shall include (but not be limited to)
the following information: (i) reserves from which the coal will be produced
during the term hereof and the mining sequence, by year (or such other time
intervals as mutually agreed) during the term of this Agreement, from which coal
will be mined; (ii) methods of mining such coal; (iii) methods of transporting
and, in the event a preparation plant is utilized by Seller, the methods of
washing coal to insure compliance with the quantity and quality requirements of
this Agreement including a description and flow sheet of the preparation plant;
(iv) quality data plotted on the maps depicting data points and isolines by ash,
sulfur, and Btu; (v) quality control plans including sampling and analysis
procedures to insure individual shipments meet quality specifications; and (vi)
Seller's aggregate commitments to others to sell coal from the Coal Property
during the term of this Agreement.

    Buyer's receipt of information or data furnished by Seller (the "Mining
Information") shall not in any manner or way relieve Seller of any of Seller's
obligations or responsibilities under this Agreement; nor shall such review be
construed as constituting an approval of Seller's proposed mining plan as
prudent mining practices, such review by Buyer being limited solely to a
determination, for Buyer's purposes only, of Seller's capability to supply coal
to fulfill Buyer's requirements of a dependable coal supply.

                                       4


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     Section 4.5 SUBSTITUTE COAL. Notwithstanding the above representations and
warranties, in the event that Seller is unable to produce or obtain coal from
the Coal Property in the quantity and of the quality required by this Agreement,
and such inability is not caused by a force majeure event as defined in section
10, then Buyer will have the option of requiring that Seller supply substitute
coal from other facilities and mines. Seller shall also have the right to supply
substitute coal from other facilities and mines or from third parties after
having received Buyer's prior written consent (which shall not be unreasonably
withheld). Such substitute coal shall be provided under all the terms and
conditions of this Agreement including, but not limited to, the quantity
provisions of section 3.1, the price provisions of section 8, the quality
specifications of section 6.1, and the provisions of section 5 concerning
reimbursement to Buyer for increased transportation costs. Seller's delivery of
coal not produced from the Coal Property without having received the express
written consent of Buyer shall constitute a material breach of this Agreement.

     SECTION 5. DELIVERY.

     Section 5.1 BARGE DELIVERY. The coal shall be delivered to Buyer F.O.B.
barge at the following points (the "Delivery Point"), the Evansville Terminal
Dock, at mile point 784.0 on the Ohio River or the Yankeetown Dock, at mile
point 772.5 on the Ohio River. Seller may deliver the coal at a location
different from the Delivery Point, provided, however, that Seller shall
reimburse Buyer for any resulting increases in the cost of transporting the coal
to Buyer's generating stations. Buyer shall retain any resulting savings in such
transportation costs.

                                       5


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     Title to and risk of loss of coal sold will pass to Buyer and the coal will
be considered to be delivered when barges containing the coal are disengaged by
Buyer's barging contractor from the loading dock. Buyer or its contractor shall
furnish suitable barges in accordance with a delivery schedule provided by Buyer
to Seller. Seller shall arrange and pay for all costs of transporting the coal
from the mines to the Delivery Point and loading and trimming the coal into
barges to the proper draft and the proper distribution within the barges. Buyer
shall arrange for transporting the coal by barge from the Delivery Point to its
generating station(s) and shall pay for the cost of such transportation. For
delays caused by Seller in meeting the scheduling of shipments with Buyer's
barging contractor, Seller shall be responsible for any demurrage or other
penalties assessed by said barging contractor (or assessed by Buyer) which
accrue at the Delivery Point, including the demurrage, penalties for loading
less than the minimum of 1,500 tons per barge, or other penalties assessed for
barges not loaded in conformity with applicable requirements. Buyer shall be
responsible to deliver barges in as clean and dry condition as practicable.
Seller shall require of the loading dock operator that the barges and towboats
provided by Buyer or Buyer's barging contractor be provided convenient and safe
berth free of wharfage, dockage and port charges; that while the barges are in
the care and custody of the loading dock, all U.S. Coast Guard regulations and
other applicable laws, ordinances, rulings, and regulations shall be complied
with, including adequate mooring and display of warning lights; that any water
in the cargo boxes of the barges be pumped out by the loading dock operator
prior to loading; that the loading operations be performed in a workmanlike
manner and

                                        6


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

in accordance with the reasonable loading requirements of Buyer and Buyer's
barging contractor; and that the loading dock operator carry landing owner's
insurance with basic coverage of not less than $300,000, and total of basic
coverage and excess liability coverage of not less than $1,000,000, and provide
evidence thereof to Buyer in the form of a certificate of insurance from the
insurance carrier or an acceptable certificate of self-insurance with
requirement for 30 days advance notification of Buyer in the event of
termination of or material reduction in coverage under the insurance.

     Section 5.2 RAIL DELIVERY. The coal shall be delivered to Buyer F.O.B.
railcar at the rail loading facility at Somerville North and/or Central rail
loadouts the ("Delivery Point"), near Oakland City, Indiana, on the Indiana
Southern railroad. Seller may deliver the coal at a location different from the
Delivery Point, provided, however, that Seller shall reimburse Buyer for any
resulting increases in the cost of transporting the coal to Buyer's generating
stations. Any resulting savings in such transportation costs shall be retained
by Buyer.

     Title to and risk of coal sold will pass to Buyer and the coal will be
considered to be delivered when it is loaded into railcars at the rail loading
facility. Buyer or its contractor shall furnish suitable railcars in accordance
with a delivery schedule provided by Buyer to Seller. Seller shall be
responsible for and pay the cost of repairs for any damages caused by Seller to
railcars owned or leased by Buyer while such railcars are in Seller's control or
custody. Seller shall comply with the applicable provisions of Buyer's rail
tariff.

                                        7


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     Section 5.2.1 FREEZE CONDITIONING. At Buyer's request, Seller shall treat
(or have treated) any shipment of coal hereunder with a freeze conditioning
agent approved by Buyer in order to maintain coal handling characteristics
during shipment. If requested by Buyer, Seller shall also treat (or have
treated) any railcars specified by Buyer with a side release agent approved by
Buyer. The price for such requested chemical treatment shall be an amount equal
to Seller's cost of materials applied on a per gallon basis for each application
of freeze conditioning agent or side release agent, as the case may be. Seller
shall invoice Buyer for all such treatment which occurred in a calendar month by
the fifteenth of the following month; and payment shall be mailed by the
twenty-fifth of such following month or within ten days after receipt of
Seller's invoice, whichever is later.

     SECTION 6. QUALITY.

     Section 6.1 SPECIFICATIONS.

     (a) The coal delivered hereunder shall conform to the following
specifications on an "as received" basis:



                                  GUARANTEED MONTHLY          REJECTION LIMITS
     SPECIFICATIONS               WEIGHTED AVERAGE(1)         (PER SHIPMENT)
     --------------               --------------------        ----------------
                                                        
     B.T.U./lb.                       min. 11,000             <   10,700
                                           -------                -------

     CHLORINE                         max.   0.03             >     0.04
                                           -------                -------
     FLUORINE                         max.   0.005            >     0.006
                                           -------                -------
     NITROGEN                         max.   1.40             >     1.50
                                           -------                -------


                                        8


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

                                                 
     ASH/SULFUR RATIO                 min. 2.70:1           <  2.40:1
                                           ------              -------
     SIZE (3" x 0"):
           Top size (inches)**        max. 3x0              >     3x0
                                           ------              -------
           Fines (% by wgt)
           Passing 1/4" screen        max.  40              >      50
                                           ------              -------

     % BY WEIGHT:
     VOLATILE                         min.  32              <      30
                                           ------              -------
     FIXED CARBON                     min.  40              <      38
                                           ------              -------
     GRINDABILITY (HGI)               min.  50              <      48
                                           ------              -------

     BASE ACID RATIO (B/A)                 .55              >      .60
                                           ------              -------

     SLAGGING FACTOR***               max. 2.40             >     2.60
                                           ------              -------
     FOULING FACTOR****               max.  .35             >      .40
                                           ------              -------

     ASH FUSION TEMPERATURE (DEGREE F) (ASTM D1857)

     REDUCING ATMOSPHERE
     Initial Deformation              min. 2000           min. 1925
                                           ----                -----
     Softening (H=W)                  min. 2025           min. 1990
                                           ----                -----
     Softening (H=1/2W)               min. 2050           min. 2025
                                           ----                -----
     Fluid                            min. 2125           min. 2100
                                           ----                -----

     OXIDIZING ATMOSPHERE
     Initial Deformation              min. ________       min. ________
     Softening (H=W)                  min. ________       min. ________
     Softening (H=1/2W)               min. ________       min. ________
     Fluid                            min. ________       min. ________

     

     (1)  An actual Monthly Weighted Average will be calculated for each
          specification for coal delivered to the Louisville Gas and Electric
          generating stations and a separate actual Monthly Weighted Average
          will be calculated for each specification for coal delivered to the
          Kentucky Utility generating stations.

                                        9


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     **   All the coal will be of such size that it will pass through a screen
          having circular perforations three (3) inches in diameter, but shall
          not contain more than fifty per cent (50%) by weight of coal that will
          pass through a screen having circular perforations one-quarter (1/4)
          of an inch in diameter.

     ***  Slagging Factor (R(s))=(B/A) X (Percent Sulfur by Weight(Dry))

     **** Fouling Factor (R(f))=(B/A) X (Percent Na2O by Weight(Dry))

     The Base Acid Ratio (B/A) is herein defined as:
     BASE ACID RATIO (B/A) =     (Fe(2)O(3) + CaO + MgO + Na(2)O + K(2)O)
                                                 DIVIDED BY
                                     (SiO(2)  +  A1(2)O(3)  +  TiO(2))

     Note: As used herein     >   means greater than:
                              <   means less than.

     (b) In addition to the specifications set forth in section 6.1(a), the coal
     delivered hereunder designated as Quality 1 shall conform on an "as
     received" basis to the following specifications:



                                    QUALITY 1 (1)
                                    -------------

                                  GUARANTEED MONTHLY          REJECTION LIMITS
     SPECIFICATIONS               WEIGHTED AVERAGE(2)         (PER SHIPMENT)
     --------------               --------------------        ----------------
                                                        
     lbs./MMB.T.U.

     Ash                          max. 10.50                  >   11.10
                                       -----                      -----
     Moisture                     max. 13.0                   >   14.10
                                       -----                      -----
     Sulfur                       max. 3.125                  >   3.250
                                       -----                      -----


     (1)  During any calendar year during the term of this Agreement, Buyer can
          specify no more than fifty percent (50%) of the base quantity tons for
          that calendar year as Quality 1.

                                       10


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

          Buyer will specify the qualities (Quality 1, Quality 2, and/or Quality
          3) and the required base quantity tons for each different quality,
          that is to be delivered during a calendar year, no later than sixty
          days prior to the start of that calendar year.

     (2)  An actual Monthly Weighted Average will be calculated for each
          specification for coal delivered to the Louisville Gas and Electric
          generating stations and a separate actual Monthly Weighted Average
          will be calculated for each specification for coal delivered to the
          Kentucky Utility generating stations.

     (c) In addition to the specifications set forth in section 6.1(a), the coal
     delivered hereunder designated as Quality 2 shall conform on an "as
     received" basis to the following specifications:



                                    QUALITY 2 (1)
                                    -------------

                                  GUARANTEED MONTHLY          REJECTION LIMITS
     SPECIFICATIONS               WEIGHTED AVERAGE(2)         (PER SHIPMENT)
     --------------               --------------------        ----------------
                                                        
     lbs./MMB.T.U.

     Ash                          max. 10.70                  >  11.50
                                       -----                      -----
     Moisture                     max. 12.50                  >  13.45
                                       -----                      -----
     Sulfur                       max.  3.30                  >   3.50
                                       -----                      -----


     (1)  Buyer will specify the qualities (Quality 1, Quality 2, and/or Quality
          3) and the required base quantity tons for each different quality,
          that is to be delivered during a calendar year, no later than sixty
          days prior to the start of that calendar year.

                                       11


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     (2)  An actual Monthly Weighted Average will be calculated for each
          specification for coal delivered to the Louisville Gas and Electric
          generating stations and a separate actual Monthly Weighted Average
          will be calculated for each specification for coal delivered to the
          Kentucky Utility generating stations.

     (d) In addition to the specifications set forth in SECTION 6.1(a), the coal
     delivered hereunder designated as Quality 3 shall conform on an "as
     received" basis to the following specifications:



                                    QUALITY 3 (1)
                                    -------------

                                  GUARANTEED MONTHLY          REJECTION LIMITS
     SPECIFICATIONS               WEIGHTED AVERAGE (2)        (PER SHIPMENT)
     --------------               --------------------        ----------------
                                                        
     LBS./MMB.T.U.

     Ash                          max. 11.50                  >  12.50
                                       -----                     -----
     Moisture                     max. 12.50                  >  13.45
                                       -----                     -----
     Sulfur                       max.  3.75                  >   3.90
                                       -----                     -----


     (1)  Buyer will specify the qualities (Quality 1, Quality 2, and/or Quality
          3) and the required base quantity tons for each different quality,
          that is to be delivered during a calendar year, no later than sixty
          days prior to the start of that calendar year.

     (2)  An actual Monthly Weighted Average will be calculated for each
          specification for coal delivered to the Louisville Gas and Electric
          generating stations and a separate actual Monthly Weighted Average
          will be calculated for each specification for coal delivered to the
          Kentucky Utility generating stations.

                                       12


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     Section 6.2 DEFINITION OF "SHIPMENT". As used herein, a "shipment" shall
mean one barge load, a barge lot load, or one unit trainload, in accordance with
Buyer's sampling and analyzing practices.

     Section 6.3 REJECTION. Buyer has the right, but not the obligation, to
reject any shipment which fail(s) to conform to any of the Rejection Limits set
forth in section 6.1 or contains extraneous materials. Buyer must reject such
coal within seventy-two (72) hours of receipt of the coal analysis provided for
in section 7.2 or such right to reject is waived. In the event Buyer rejects
such non-conforming coal, title to and risk of loss of the coal shall be
considered to have never passed to Buyer and Buyer shall return the coal to
Seller or, at Seller's request, divert such coal to Seller's designee, all at
Seller's cost and risk. Seller shall replace the rejected coal within five (5)
working days from notice of rejection with coal conforming to the Rejection
Limits set forth in section 6.1. If Seller fails to replace the rejected coal
within such five (5) working day period or the replacement coal is rightfully
rejected, Buyer may purchase coal from another source in order to replace the
rejected coal. Seller shall reimburse Buyer for (i) any amount by which the
actual price plus transportation costs to Buyer of such coal purchased from
another source exceed the price of such coal under this Agreement plus
transportation costs to Buyer from the Delivery Point; and (ii) any and all
transportation, storage, handling, or other expenses that have been incurred by
Buyer for rightfully rejected coal. This remedy is in addition to all of Buyer's
other remedies under this Agreement and under applicable law and in equity for
Seller's breach.

                                       13


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     If Buyer fails to reject a shipment of non-conforming coal which it had the
right to reject for failure to meet any or all of the Rejection Limits set forth
in section 6.1 or because such shipment contained extraneous materials, then
such non-conforming coal shall be deemed accepted by Buyer; however, the
quantity Seller is obligated to sell to Buyer under the Agreement may or may not
be reduced by the amount of each such non-conforming shipment at Buyer's sole
option and the shipment shall nevertheless be considered "rejectable" under
section 6.4. Further, for shipments containing extraneous materials, which
include, but are not limited to, slate, rock, wood, corn husks, mining
materials, metal, steel, etc., the estimated weight of such materials shall be
deducted from the weight of that shipment.

     Section 6.4 SUSPENSION AND TERMINATION.

     If the coal sold hereunder fails to meet one or more of the Guaranteed
Monthly Weighted Averages set forth in section 6.1 (as to either or both of LG&E
or KU) for any two (2) months in a six (6) month period, or if nine (9) barge
shipments in a 30 day period are rejectable by Buyer, or if Buyer receives at
generating station(s) two (2) rail shipments which are rejectable in any 30 day
period, then Buyer may upon notice confirmed in writing and sent to Seller by
certified mail, suspend future shipments except shipments already loaded into
barges. Seller shall, within 10 days, provide Buyer with reasonable assurances
that subsequent monthly deliveries of coal shall meet or exceed the Guaranteed
Monthly Weighted Averages set forth in section 6.1. If Seller fails to provide
such assurances within said 10 day period, Buyer may terminate this Agreement by
giving written notice of such termination at the end of the 10 day period. A
waiver of this right

                                       14


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

for any one period by Buyer shall not constitute a waiver for subsequent
periods. If Seller provides such assurances to Buyer's reasonable satisfaction,
shipments hereunder shall resume and any tonnage deficiencies resulting from
suspension may be made up at Buyer's sole option. Buyer shall not unreasonably
withhold its acceptance of Seller's assurances, or delay the resumption of
shipment. If Seller, after providing such assurances, fails to meet any of the
Guaranteed Monthly Weighted Averages (as to either LG&E or KU) for any one (1)
month within the next six (6) months or if three (3) barge shipments or one (1)
rail shipment are rejectable within any one (1) month during such six (6) month
period, then Buyer may terminate this Agreement and exercise all its other
rights and remedies under applicable law and in equity for Seller's breach.

     Section 6.5 IMPLIED WARRANTIES. Except as expressly set forth herein in
section 6, Seller makes no other warranties and expressly disclaims any other
warranty, of any kind, including those of merchantability and fitness, there
being no warranties which extend beyond those expressly set forth herein.

     SECTION 7. WEIGHTS, SAMPLING AND ANALYSIS.

     Section 7.1 WEIGHTS. The weight of the coal delivered hereunder shall be
determined on a per shipment basis by Buyer on the basis of scale weights at the
generating station(s) unless another method is mutually agreed upon by the
parties. Such scales shall be duly reviewed by an appropriate testing agency and
maintained in an accurate condition. Seller shall have the right, at

                                       15


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

Seller's expense and upon reasonable notice, to have the scales checked for
accuracy at any reasonable time or frequency. If the scales are found to be over
or under the tolerance range allowable for the scale based on industry accepted
standards, either party shall pay to the other any amounts owed due to such
inaccuracy for a period not to exceed thirty (30) days before the time any
inaccuracy of scales is determined.

     Section 7.2 SAMPLING AND ANALYSIS. The Seller has sole responsibility for
quality control of the coal and shall forward its as loaded quality to the Buyer
as soon as possible. The sampling and analysis of the coal delivered hereunder
shall be performed by Buyer and the results thereof shall be accepted and used
for the quality and characteristics of the coal delivered under this Agreement.
All analyses shall be made in Buyer's laboratory at Buyer's expense in
accordance with Buyer's approved methods. Samples for analyses shall be taken by
Buyer's approved procedures of sampling, may be composited and shall be taken
with a frequency and regularity sufficient to provide reasonably accurate
representative samples of the deliveries made hereunder. Seller represents that
it is familiar with Buyer's sampling and analysis practices, and finds them to
be acceptable. Buyer shall notify Seller in writing of any significant changes
in Buyer's sampling and analysis practices. Any such changes in Buyer's sampling
and analysis practices shall provide for no less accuracy than the sampling and
analysis practices existing at the time of the execution of this Agreement,
unless the parties otherwise mutually agree.

     Each sample taken by Buyer shall be divided into 4 parts and put into
airtight containers, properly labeled and sealed. One part shall be used for
analysis by Buyer; one part shall be used

                                       16


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

by Buyer as a check sample, if Buyer in its sole judgment determines it is
necessary; one part shall be retained by Buyer (LG&E) until the 25th of the
month following the month of unloading (the "Disposal Date") or Buyer (KU) until
thirty (30) days ("Disposal Date") after the sample is taken, and shall be
delivered to Seller for analysis if Seller so requests before the Disposal Date;
and one part ("Referee Sample") shall be retained by Buyer until the Disposal
Date. Seller shall be given copies of all analyses made by Buyer by the 12th
business day of the month following the month of unloading, in addition, Buyer
(KU) will send weekly analyses of coal unloadings to Seller. Seller, on
reasonable notice to Buyer shall have the right to have a representative present
to observe the sampling and analyses performed by Buyer. Unless Seller requests
a Referee Sample analysis before the Disposal Date, Buyer's analysis shall be
used to determine the quality of the coal delivered hereunder. The Monthly
Weighted Averages shall be determined by utilizing the individual shipment
analyses.

     If any dispute arises before the Disposal Date, the Referee Sample retained
by Buyer shall be submitted for analysis to an independent commercial testing
laboratory ("Independent Lab") mutually chosen by Buyer and Seller. All testing
of any such sample by the Independent Lab shall be at requestor's expense unless
the results differ by more than the applicable ASTM reproducibility standards,
in such case, Buyer will pay for testing. If the Independent Lab results differ
by more than the applicable ASTM reproducibility standards, the Independent Lab
results will govern. The cost of the analysis made by the Independent Lab shall
be borne by Seller to the

                                       17


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

extent that Buyer's analysis prevails and by Buyer to the extent that the
analysis of the Independent Lab prevails.

     SECTION 8. PRICE.

     Section 8.1 BASE PRICE. The base price ("Base Price") of the coal to be
sold hereunder will be firm and will be determined by the year in which the coal
is delivered as defined in section 5 in accordance with the following schedule:




                             BASE PRICE - QUALITY 1
                             ----------------------

          YEAR                    ($ PER MMBTU)              ($ PER TON)
          ----                    -------------               ----------
                                                        
          2002                    0.9591 F.O.B. Rail          $21.10
                                  1.141  F.O.B. Barge         $25.10
          2003                    0.9591 F.O.B. Rail          $21.10
                                  1.141  F.O.B. Barge         $25.10
          2004                           *                       *
          2005                           *                       *


                             BASE PRICE - QUALITY 2
                             ----------------------

          YEAR                    ($ PER MMBTU)              ($ PER TON)
          ----                    -------------               ----------
                                                        
          2002                    1.091 F.O.B. Barge          $24.00
          2003                    1.091 F.O.B. Barge          $24.00
          2004                           *                       *
          2005                           *                       *


                                       18


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857



                              BASE PRICE - QUALITY 3
                              ----------------------

          YEAR                    ($ PER MMBTU)              ($ PER TON)
          ----                     -------------              ----------
                                                        
          2002                    1.0682 F.O.B. Barge         $23.50
          2003                    1.0682 F.O.B. Barge         $23.50
          2004                           *                       *
          2005                           *                       *


     *    Buyer and Seller will begin price negotiations on or before July 1,
          2003 for prices to be effective during the years 2004 and 2005. The
          parties then shall attempt to negotiate on new prices and/or other
          terms and conditions between July 1, 2003 and October 1, 2003. If the
          parties do not reach an agreement by October 1, 2003, then this
          Agreement will terminate as of December 31, 2003 without liability due
          to such termination for either party, and the parties shall have no
          further obligations hereunder except those incurred prior to the date
          of termination. This clause shall not be interpreted as a Right of
          First Refusal or exclusive supply agreement.

     Section 8.2 QUALITY PRICE DISCOUNTS.

     (a) The Base Price is based on coal meeting or exceeding the Guaranteed
Monthly Weighted Average specifications for the Louisville Gas and Electric
generating stations and the Kentucky Utility generating stations, as set forth
in section 6.1. Quality price discounts shall be applied for each specification,
separately for the Louisville Gas and Electric generating stations and for the
Kentucky Utility generating stations, to reflect failures to meet the Guaranteed
Monthly Weighted Averages set forth in section 6.1, as determined pursuant to
section 7.2, subject to the provisions set forth below. The discount values used
are as follows:

                                       19


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

                             MONTHLY DISCOUNT VALUES
                             -----------------------

                             BTU/LB.   $ 0.2604/MMBTU

                             ASH       $ 0.0083/LB/MMBTU

                             MOISTURE  $ 0.0016/LB/MMBTU

                             SULFUR    $ 0.1232/LB/MMBTU

     (b) Notwithstanding the foregoing, for each specification, there shall be
no discount if the actual Monthly Weighted Average meets the applicable Discount
Point set forth below. Actual Monthly Weighted Averages will be separately
calculated for the Louisville Gas and Electric generating stations and for the
Kentucky Utility generating stations. However, if the actual Monthly Weighted
Average for the Louisville Gas and Electric generating stations and/or the
Kentucky Utility generating stations fail to meet such applicable Discount
Point, then the discount shall apply to and shall be calculated on the basis of
the difference between the actual Monthly Weighted Average and the Guaranteed
Monthly Weighted Average pursuant to the methodology shown in Exhibit A attached
hereto. The discount will be applied only to the particular company whose actual
Monthly Weighted Average failed to meet the Discount Points.



                                 QUALITY 1
                                 ---------

                    GUARANTEED MONTHLY WEIGHTED AVERAGE     DISCOUNT POINT
                    ------------------------------------    --------------
                                                      
     BTU                          Min. 11,000 BTU/LB        10,850 BTU/LB
     ASH                          Max. 10.50 LB/MMBTU       10.80 LB/MMBTU


                                       20


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

                                                   
     MOISTURE                     Max.     13.00 LB/MMBTU     13.50 LB/MMBTU
     SULFUR                       Max.      3.125 LB/MMBTU     3.18 LB/MMBTU


     
                                QUALITY 2
                                ---------

                    GUARANTEED MONTHLY WEIGHTED AVERAGE       DISCOUNT POINT
                    ----------------------------------        --------------
                                                       
     BTU                          Min.   11,000 BTU/LB        10,850 BTU/LB
     ASH                          Max.   10.70 LB/MMBTU       11.10 LB/MMBTU
     MOISTURE                     Max.   12.50 LB/MMBTU      12.95 LB/MMBTU
     SULFUR                       Max.   3.30 LB/MMBTU        3.40 LB/MMBTU


                                  QUALITY 3
                                  ---------

                    GUARANTEED MONTHLY WEIGHTED AVERAGE       DISCOUNT POINT
                     -----------------------------------      --------------
                                                       
     BTU                        Min.    11,000 BTU/LB         10,850 BTU/LB
     ASH                        Max.    11.50 LB/MMBTU        12.00 LB/MMBTU
     MOISTURE                   Max.    12.50 LB/MMBTU       12.95 LB/MMBTU
     SULFUR                     Max.    3.75 LB/MMBTU         3.82 LB/MMBTU


     For example, if the actual Monthly Weighted Average of ash for Quality 1 is
10.90 lb/MMBTU, then the applicable discount would be (10.90 lb. - 10.50 lb.) X
$.0083/lb/MMBTU = $.00330/MMBTU.

                                       21


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     Section 8.3 PAYMENT CALCULATION Exhibit A attached hereto shows the
methodology for calculating the coal payment and quality price discounts for the
month Seller's coal was unloaded by Buyer. If there are any such discounts,
Buyer shall apply credit to amounts owed Seller for the month the coal was
unloaded.

     SECTION 9. INVOICES, BILLING AND PAYMENT.

     Section 9.1 INVOICING: Two separate invoices will be sent to Buyer. The
invoice for Louisville Gas and Electric will be sent to the following address:

                 Louisville Gas and Electric Company
                 220 West Main Street
                 Louisville, KY  40202
                 Attention: Manager - LG&E/KU Fuels

The invoice for Kentucky Utilities will be sent to the following address:

                 Kentucky Utilities Company
                 220 West Main Street
                 Louisville, KY  40202
                 Attention: Manager - LG&E/KU Fuels

     Section 9.2 INVOICE PROCEDURES FOR COAL SHIPMENTS. Seller shall provide
Buyer two separate invoices, one for Louisville Gas and Electric and one for
Kentucky Utilities. Seller shall invoice Buyer at the Base Price, minus any
quality price discounts, for all coal unloaded in a calendar month by the
fifteenth (15th) of the following month.

     SECTION  9.3  PAYMENT PROCEDURES FOR COAL SHIPMENTS.

                                       22


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     For all coal delivered pursuant to SECTION 5 hereof, and unloaded at the
Buyer's generating station(s) between the first (1st) and fifteenth (15th) days
of any calendar month. Buyer shall make preliminary payment for seventy-five
percent (75%) of the amount owed for the coal (based on the assumption that the
coal will meet all guaranteed monthly quality parameters) by the twenty-fifth
(25th) day of such month of delivery and unloading, except that, if the 25th is
not a regular work day, payment shall be made on the next regular work day. For
all coal delivered, as defined in section 5 hereof, and unloaded at the Buyer's
generating station(s) between the sixteenth (16th) and the last day of any
calendar month. Buyer shall make preliminary payment for seventy-five percent
(75%) of the delivered and unloaded coal by the tenth (10th) day of the month
following the month of delivery, except that, if the 10th is not a regular work
day, payment shall be made on the next regular work day.

     Preliminary payment shall be in the amount of seventy-five percent (75%) of
the then current price on a dollar per ton basis as calculated by the guaranteed
monthly weighted average BTU/lb. and the then current Base Price in cents per
MMBTU.

     A reconciliation of amounts paid and amounts owed shall occur by the
twenty-fifth (25th) day of the month following the month of delivery and
unloading. (For example, Buyer will make one initial payment by September 25 for
seventy-five percent of coal delivered and unloaded September 1 through 15, and
another initial payment by October 10 for seventy-five percent of coal delivered
and unloaded September 16 through 30. A reconciliation will occur by October 25
for all deliveries and unloadings made in September.) The reconciliation shall
be made as

                                       23


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

follows: Seller shall invoice Buyer on or before the 15th day of the month
following the month of delivery and unloading. The amount due for all coal
(based on the Base Price minus any Quality Price Discounts) delivered and
unloaded and accepted by Buyer during any calendar month shall be calculated and
compared to the sum of the preliminary payments made for coal delivered and
unloaded and accepted during such month. The difference shall be paid by or paid
to Seller, as applicable, by the twenty-fifth (25th) day of the month following
the month of delivery and unloading, except, that, if the 25th is not a regular
work day, payment shall be made in the next regular work day. Buyer
electronically transfer funds to Seller's Account:

                 Black Beauty Coal Company
                 PNC Bank
                 Account No. 10075719
                 ABA No. 043000096

     Section 9.4 WITHHOLDING. Buyer shall have the right to withhold from
payment of any billing or billings (i) any sums which it is not able in good
faith to verify or which it otherwise in good faith disputes, (ii) any damages
resulting from or likely to result from any breach of this Agreement by Seller,
and (iii) any amounts owed to Buyer from Seller. Buyer shall notify Seller
promptly in writing of any such issue, stating the basis of its claim and the
amount it intends to withhold.

                                       24


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     Payment by Buyer, whether knowing or inadvertent, of any amount in dispute
shall not be deemed a waiver of any claims or rights by Buyer with respect to
any disputed amounts or payments made.

     SECTION 10. FORCE MAJEURE.

     Section 10.1 GENERAL FORCE MAJEURE. If either party hereto is delayed in or
prevented from performing any of its obligations or from utilizing the coal sold
under this Agreement due to acts of God, war, riots, civil insurrection, acts of
the public enemy, strikes, labor disputes, lockouts, fires, explosions, floods
or earthquakes, other severe weather conditions, damage to or breakdown of
facilities, plant or equipment or other causes (whether of a similar or
dissimilar nature), which are beyond the reasonable control and without the
fault or negligence of the party affected thereby, then the obligations of both
parties hereto shall be suspended to the extent made necessary by such event;
provided that the affected party gives written notice to the other party as
early as practicable of the nature and probable duration of the force majeure
event. The party declaring force majeure shall exercise due diligence to avoid
and shorten the force majeure event and will keep the other party advised as to
the continuance of the force majeure event.

     During any period in which Seller's ability to perform hereunder is
affected by a force majeure event, Seller shall not deliver any coal to any
other buyers to whom Seller's ability to supply is similarly affected by such
force majeure event unless contractually committed to do so at the beginning of
the force majeure event; and further shall deliver to Buyer under this

                                       25


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

Agreement at least a pro rata portion (on a per ton basis) of its total
contractual commitments to all its buyers to whom Seller's ability to supply is
similarly affected by such force majeure event in place at the beginning of the
force majeure event. An event which affects the Seller's ability to produce or
obtain coal from a mine other than the Coal Property will not be considered a
force majeure event hereunder.

     Tonnage deficiencies resulting from a force majeure event shall be made up
at Buyer's sole option on a mutually agreed upon schedule.

     Section 10.2 ENVIRONMENTAL LAW FORCE MAJEURE. The parties recognize that,
during the continuance of this Agreement, legislative or regulatory bodies or
the courts may adopt or reinterpret environmental laws, regulations, policies
and/or restrictions which will make it impossible or commercially impracticable
for Buyer to utilize this or like kind and quality coal which thereafter would
be delivered hereunder. If as a result of the adoption or reinterpretation of
such laws, regulations, policies, or restrictions, or change in the
interpretation or enforcement thereof, Buyer decides that it will be impossible
or commercially impracticable (uneconomical) for Buyer to utilize such coal,
Buyer shall so notify Seller, and thereupon Buyer and Seller shall promptly
consider whether corrective actions can be taken in the mining and preparation
of the coal at Seller's mine and/or in the handling and utilization of the coal
at Buyer's generating station; and if in Buyer's sole judgment such actions will
not, without unreasonable expense to Buyer, make it possible and commercially
practicable for Buyer to so utilize coal which thereafter would be delivered
hereunder without violating any applicable law, regulation, policy

                                       26


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

or order, Buyer shall have the right, upon the later of 60 days notice to Seller
or the effective date of such restriction, to terminate this Agreement without
further obligation hereunder on the part of either party.

     SECTION 11. CHANGES. Buyer may, by mutual agreement with Seller, at any
time by written notice pursuant to section 12 of this Agreement, make changes
within the general scope of this Agreement in any one or more of the following:
quality of coal or coal specifications, quantity of coal, method or time of
shipments, place of delivery (including transfer of title and risk of loss),
method(s) of weighing, sampling or analysis and such other provision as may
affect the suitability and amount of coal for Buyer's generating stations.

     If any such changes makes necessary or appropriate an increase or decrease
in the then current price per ton of coal, or in any other provision of this
Agreement, an equitable adjustment shall be made in: price, whether current or
future or both, and/or in such other provisions of this Agreement as are
affected directly or indirectly by such change, and the Agreement shall
thereupon be modified in writing accordingly.

     Any claim by the Seller for adjustment under this section 11 shall be
asserted within thirty (30) days after the date of Seller's receipt of the
written notice of change, it being understood, however that Seller shall not be
obligated to proceed under this Agreement as changed until an equitable
adjustment has been agreed upon. The parties agree to negotiate promptly and in
good faith to agree upon the nature and extent of any equitable adjustment.

                                       27


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     SECTION 12. NOTICES.

     Section 12.1 FORM AND PLACE OF NOTICE. Any official notice, request for
approval or other document required to be given under this Agreement shall be in
writing, unless otherwise provided herein, and shall be deemed to have been
sufficiently given when delivered in person, transmitted by facsimile or other
electronic media, delivered to an established mail service for same day or
overnight delivery, or dispatched in the United States mail, postage prepaid,
for mailing by first class, certified, or registered mail, return receipt
requested, and addressed as follows:

     If to Buyer:  Louisville Gas and Electric Company/Kentucky Utilities
                   Company
                   220 West Main Street
                   Louisville, Kentucky 40202
                   Attn.: Director Corporate Fuels and By Products

     If to Seller: Black Beauty Coal Company
                   414 South Fares
                   Evansville, Indiana 47702
                   Attn: Senior Vice President Marketing and Operational
                         Services

     Section 12.2 CHANGE OF PERSON OR ADDRESS. Either party may change the
person or address specified above upon giving written notice to the other party
of such change.

     Section 12.3 ELECTRONIC DATA TRANSMITTAL. Seller hereby agrees, at Seller's
cost, to electronically transmit shipping notices and/or other data to Buyer in
a format acceptable to and

                                       28


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

established by Buyer upon Buyer's request. Buyer shall provide Seller with the
appropriate format and will inform Seller as to the electronic data requirements
at the appropriate time.

     SECTION 13. RIGHT TO RESELL. Buyer shall have the unqualified right to
resell all or any of the coal purchased under this Agreement.

     SECTION 14. INDEMNITY AND INSURANCE.

     Section 14.1 INDEMNITY. Seller agrees to indemnify and save harmless Buyer,
its officers, directors, employees and representatives from any responsibility
and liability for any and all claims, demands, losses, legal actions for
personal injuries, property damage and pollution (including reasonable inside
and outside attorney's fees) (i) relating to the trucks, barges or railcars
provided by Buyer or Buyer's contractor while such trucks, barges or railcars
are in the care and custody of the loading dock or loading facility, (ii) due to
any failure of Seller to comply with laws, regulations or ordinances, or (iii)
due to the acts or omissions of Seller in the performance of this Agreement.

     Notwithstanding any provision in this Agreement to the contrary (except for
Seller's indemnifications hereunder with respect to third party claims), in no
event shall either party be liable to the other for any special, indirect, or
consequential losses or damages arising from a breach of the Agreement
including, without limitation, loss or profit, loss of operating income,

                                       29


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

loss of, use of, or reduction in the use of, their respective assets or
increased exposure of operation or maintenance or the suitability of said
assets.

     Section 14.2 INSURANCE. Seller agrees to carry insurance coverage with
minimum limits as follows:

                  (1) Commercial General Liability, including Completed
Operations and Contractual Liability, $5,000,000 single limit liability.

                  (2) Automobile General Liability, $1,000,000 single limit
liability.

                  (3) Workers' Compensation and Employer's Liability with
statutory limits.

     If any of the above policies are written on a claims made basis, then the
retroactive date of the policy or policies will be no later than the effective
date of this Agreement. Certificates of Insurance satisfactory in form to the
Buyer and signed by the Seller's insurer shall be supplied by the Seller to the
Buyer evidencing that the above insurance is in force and that not less than 30
calendar days written notice will be given to the Buyer prior to any
cancellation or material reduction in coverage under the policies. The Seller
shall cause its insurer to waive all subrogation rights against the Buyer
respecting all losses or claims arising from performance hereunder. Evidence of
such waiver satisfactory in form and substance to the Buyer shall be exhibited
in the Certificate of Insurance mentioned above. Seller's liability shall not be
limited to its insurance coverage.

                  (4) Seller may self-insure in accordance with Seller's overall
insurance policy in lieu of carrying insurance coverage required to be carried
pursuant to this section 14.

                                       30


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     SECTION 15. TERMINATION FOR DEFAULT.

     Subject to section 6.4, if either party hereto commits a material breach of
any of its obligations under this Agreement at any time, including, but not
limited to, a breach of a representation and warranty set forth herein, then the
other party has the right to give written notice describing such breach and
stating its intention to terminate this Agreement no sooner than 30 days after
the date of the notice (the "notice period"). If such material breach is curable
and the breaching party cures such material breach within the notice period,
then the Agreement shall not be terminated due to such material breach. If such
material breach is not curable or the breaching party fails to cure such
material breach within the notice period, then this Agreement shall terminate at
the end of the notice period in addition to all the other rights and remedies
available to the aggrieved party under this Agreement and at law and in equity.

     SECTION 16. TAXES, DUTIES AND FEES.

     Seller shall pay when due, and the price set forth in section 8 of this
Agreement shall be inclusive of, all taxes, duties, fees and other assessments
of whatever nature imposed by governmental authorities with respect to the
transactions contemplated under this Agreement.

     SECTION 17. DOCUMENTATION AND RIGHT OF AUDIT.

                                       31


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     Seller shall maintain all records and accounts pertaining to payments,
quantities, quality analyses, and source for all coal supplied under this
Agreement for a period lasting through the term of this Agreement and for two
years thereafter. Buyer shall have the right at no additional expense to Buyer
to audit, copy and inspect such records and accounts at any reasonable time upon
reasonable notice during the term of this Agreement and for 2 years thereafter,
and Seller shall cooperate at no additional cost to Buyer.

     SECTION 18. EQUAL EMPLOYMENT OPPORTUNITY. To the extent applicable, Seller
shall comply with all of the following provisions which are incorporated herein
by reference: Equal Opportunity regulations set forth in 41 CFR section
60-1.4(a) and (c) prohibiting discrimination against any employee or applicant
for employment because of race, color, religion, sex, or national origin;
Vietnam Era Veterans Readjustment Assistance Act regulations set forth in 41 CFR
section 50-250.4 relating to the employment and advancement of disabled veterans
and veterans of the Vietnam Era; Rehabilitation Act regulations set forth in 41
CFR section 60-741.4 relating to the employment and advancement of qualified
disabled employees and applicants for employment; the clause known as
"Utilization of Small Business Concerns and Small Business Concerns Owned and
Controlled by Socially and Economically Disadvantaged Individuals" set forth in
15 USC section 637(d)(3); and subcontracting plan requirements set forth in 15
USC section 637(d).

                                       32


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     SECTION 19. COAL PROPERTY INSPECTIONS. Buyer and its representatives, and
others as may be required by applicable laws, ordinances and regulations shall
have the right at all reasonable times and at their own expense to inspect the
Coal Property, including the loading facilities, scales, sampling system(s),
wash plant facilities, and mining equipment for conformance with this Agreement.
Seller shall cooperate with such inspection at no additional cost to Buyer.
Seller shall undertake reasonable care and precautions to prevent personal
injuries to any representatives, agents or employees of Buyer (collectively,
"Visitors") who inspect the Coal Property. Any such Visitors shall make every
reasonable effort to comply with Seller's regulations and rules regarding
conduct on the work site, made known to Visitors prior to entry, as well as
safety measures mandated by state or federal rules, regulations and laws. Buyer
understands that mines and related facilities are inherently high-risk
environments. Buyer's failure to inspect the Coal Property or to object to
defects therein at the time Buyer inspects the same shall not relieve Seller of
any of its responsibilities nor be deemed to be a waiver of any of Buyer's
rights hereunder.

     SECTION 20. MISCELLANEOUS.

     Section 20.1 APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Kentucky, and all questions of
performance of obligations hereunder shall be determined in accordance with such
laws.

                                       33


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     Section 20.2 HEADINGS. The paragraph headings appearing in this Agreement
are for convenience only and shall not affect the meaning or interpretation of
this Agreement.

     Section 20.3 WAIVER. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
rights hereunder, shall not be construed as a waiver of such provision or right.

     Section 20.4 REMEDIES CUMULATIVE. Remedies provided under this Agreement
shall be cumulative and in addition to other remedies provided under this
Agreement or by law or in equity.

     Section 20.5 SEVERABILITY. If any provision of this Agreement is found
contrary to law or unenforceable by any court of law, the remaining provisions
shall be severable and enforceable in accordance with their terms, unless such
unlawful or unenforceable provision is material to the transactions contemplated
hereby, in which case the parties shall negotiate in good faith a substitute
provision.

     Section 20.6 BINDING EFFECT. This Agreement shall bind and inure to the
benefit of the parties and their successors and assigns.

     Section 20.7 ASSIGNMENT.

     A. Seller shall not, without Buyer's prior written consent, which may be
withheld in Buyer's sole discretion, make any assignment or transfer of this
Agreement, by operation of law or otherwise, including without limitation any
assignment or transfer as security for any obligation, and shall not assign or
transfer the performance of or right or duty to perform any

                                       34


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

obligation of Seller hereunder; provided, however, that Seller may assign the
right to receive payments for coal directly from Buyer to a lender as part of
any accounts receivable financing or other revolving credit arrangement which
Seller may have now or at any time during the term of this Agreement.

     B. Buyer shall not, without Seller's prior written consent, which may not
be unreasonably withheld, assign this Agreement or any right for the performance
of or right or duty to perform any obligation of Buyer hereunder; except that,
without such consent, Buyer may assign this Agreement in connection with a
transfer by Buyer of all or a part interest in the generating station, or as
part of a merger or consolidation involving Buyer, or to an affiliate of Buyer..

     C. In the event of an assignment or transfer contrary to the provisions of
this section, the non-assigning party may terminate this Agreement immediately.

     Section 20.8 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties as to the subject matter hereof, and there are no
representations, understandings or agreements, oral or written, which are not
included herein. Without limiting the foregoing (a) this Agreement shall not be
construed as a requirements or similar agreement, and (b) this Agreement shall
not be construed as affecting Buyer's ability to negotiate with and/or acquire
other sources of coal from third parties throughout the term hereof.

                                       35


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

     Section 20.9 AMENDMENTS. Except as otherwise provided herein, this
Agreement may not be amended, supplemented or otherwise modified except by
written instrument signed by both parties hereto.

     Louisville Gas and Electric and Kentucky Utilities shall be jointly and
severally liable for all obligations of Buyer hereunder, it being intended that
Seller be entitled to enforce its rights hereunder against each or both parties.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

LOUISVILLE GAS AND ELECTRIC           BLACK BEAUTY COAL COMPANY
COMPANY

By:    /s/ Paul W. Thompson           By:    /s/ Eugene D. Aimone
      ----------------------------          ----------------------------
      Paul W. Thompson                      Sr. VP
      SVP -  Energy Services

Date: 10/26/01                        Date: 10/22/01

KENTUCKY UTILITIES COMPANY

By:   /s/ Paul W. Thompson
      ----------------------------
      Paul W. Thompson
      SVP - Energy Services

Date: 10/26/01

                                       36


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

                                                                       Exhibit A
                                                                     Page 1 of 2
                                    EXHIBIT A
              SAMPLE COAL PAYMENT CALCULATIONS - QUALITY 1 BY RAIL
              For contracts supplied from multiple "origins", each
                    "origin will be calculated individually.



                         SECTION I                                                   BASE DATA
     -----------------------------------------------------                      -----------------------
                                                                             
1)   Base F.O.B. price per ton:                                                 $        21.10          /ton
                                                                                -----------------------
1a)  Tons of coal delivered:                                                                            tons
                                                                                -----------------------
2)   Guaranteed average heat content:                                                   11,000          BTU/LB.
                                                                                -----------------------
2r)  As received monthly avg. heat content:                                                             BTU/LB.
                                                                                -----------------------
2a)  Energy delivered in MMBTU:                                                                         MMBTU
                                                                                -----------------------
[(Line 1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU
[(     ) *2,000 lb./ton*(     )]*MMBTU/1,000,000 BTU

2b)      Base F.O.B. price per MMBTU:                                           $       0.9591          MMBTU
                                                                                -----------------------
{[(Line 1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU
{[(     /ton)/(           BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU

3)   Guaranteed monthly avg. max. sulfur                                                 3.125          LBS./MMBTU
                                                                                -----------------------
3r)  As received quarterly avg. sulfur                                                                  LBS./MMBTU
                                                                                -----------------------

4)   Guaranteed monthly avg. ash                                                         10.50          LBS./MMBTU
                                                                                -----------------------
4r)  As received monthly avg. ash                                                                       LBS./MMBTU
                                                                                -----------------------

5)   Guaranteed monthly avg. max. moisture                                                13.0          LBS./MMBTU
                                                                                -----------------------
5r)  As received monthly avg. moisture                                                                  LBS./MMBTU
                                                                                -----------------------


                           SECTION II                                                   DISCOUNTS
     -----------------------------------------------------                      -----------------------
                                                                                  
     Assign a (-) to all discounts (round to (5) decimal places)
6d)  BTU/LB.:  If line 2r < 10,850 BTU/lb. then:
     {1 -{(line 2r) / (line 2)} * $0.2604/MMBTU
     {1 - (    ) / (    )} * $0.2604 =                                               $                  /MMBTU
                                                                                     ------------------
7d)  SULFUR:  If line 3r is greater than 3.18 lbs./MMBTU
     [ (line 3r) - (line 3) ] * 0.1232/lb. Sulfur
     [ (    ) - (    ) ] * 0.1232 =                                                  $                  /MMBTU
                                                                                     ------------------
8d)  ASH: If line 4r is greater than 10.8 lbs./MMBTU
     [ (line 4r) - (line 4) ] * 0.0083/MMBTU
     [ (    ) - (    ) ] * 0.0083 =                                                  $                  /MMBTU
                                                                                     ------------------
9d)  MOISTURE:  If line 5r is greater than 13.5 lbs./MMBTU
     [ (line 5r) - (line 5) ] * 0.0016/MMBTU
     [ (    ) - (    ) ] * 0.0016 =                                                  $                  /MMBTU
                                                                                     ------------------


                                       37


                                                       BLACK BEAUTY COAL COMPANY
                                                        LG&E CONTRACT #LGE 02012
                                                           KU CONTRACT #KUF02857

                                                                       Exhibit A
                                                                     Page 2 of 2



                                                                                TOTAL PRICE
                           SECTION III                                          ADJUSTMENTS
                           -----------                                          -----------
                                                                             
     Determine total Discounts as follows:

     Assign a (-) to all discounts (round to (5) decimal places)

     Line 6d:                                                                   $                       /MMBTU
                                                                                -----------------------

     Line 7d                                                                    $                       /MMBTU
                                                                                -----------------------

     Line 8d                                                                    $                       /MMBTU
                                                                                -----------------------
     Line 9d                                                                    $                       /MMBTU
                                                                                -----------------------

10)  Total Discounts (-):

     Algebraic sum of above:                                                    $                       /MMBTU
                                                                                -----------------------

11)  Total evaluated coal price = (line 2b) + (line 10)

12)  Total discount price adjustment for Energy delivered:
     (line 2a) * (line 10) (-)
     $         /MMBTU           +                                               $                       /MMBTU   =   $
      --------                                                                  -----------------------              ___________

13)  Total base cost of coal
     (line 2a) * (line 2b)
     $         /MMBTU           +                                               $                       /MMBTU   =   $
      --------                                                                  -----------------------              ____________

14)  Total coal payment for month
     (line 12) + (line 13)
     $         /MMBTU           +                                               $                                =   $
      --------                                                                  -----------------------              ___________


                                       38

EX-10.52

                                                                   Exhibit 10.52

                              COAL SUPPLY AGREEMENT

         This is a coal supply agreement (the "Agreement") dated January 1, 2000
between LOUISVILLE GAS AND ELECTRIC COMPANY AND KENTUCKY UTILITIES COMPANY,
Kentucky corporations, 220 West Main Street, Louisville, Kentucky 40202
("Buyer"), and McELROY COAL COMPANY, CONSOLIDATION COAL COMPANY, CONSOL
PENNSYLVANIA COAL COMPANY, GREENON COAL COMPANY, NINEVEH COAL COMPANY, EIGHTY
FOUR MINING COMPANY, AND ISLAND CREEK COAL COMPANY, Delaware corporations, 1800
Washington Road, Pittsburgh, Pennsylvania 15241, (collectively "Seller").

         The parties hereto agree as follows:

         SECTION 1.GENERAL.  Seller  will  sell to Buyer  and  Buyer  will
buy from  Seller  steam  coal  under all the terms and conditions of this
Agreement.

         SECTION 2.TERM. The term of this Agreement shall commence on January
1, 2000 and shall continue through December 31, 2002, subject to the price
review set forth in Section 8.1.



                                                             CONSOL ENERGY, INC.
                                                       LG&E CONTRACT #1,GE 00010
                                                           KU CONTRACT #KUF00731

         SECTION 3.QUANTITY.

         Section 3.1 BASE QUANTITY. Subject to the price review set forth in
SECTION 8.1, Seller shall sell and deliver, and Buyer shall purchase and accept
delivery of the following annual base quantity of coal ("Base Quantity"):



                  YEAR                      BASE QUANTITY (TONS)
                  ----                      --------------------
                                                
                  2000                             3,000,000
                  2001                             3,000,000
                  2002                             3,000,000


                  The Base Quantity will be delivered in approximately equal
monthly quantities and in accordance with a mutually agreed upon schedule.

         Section 3.2 OPTION TO INCREASE OR DECREASE QUANTITY. Buyer shall have
the right to increase or decrease the Base Quantity to be delivered hereunder by
up to 75,000 tons per calendar quarter (three months). For example, if Buyer
increases the quantity by 75,000 tons per quarter during a calendar year, the
net increase will be 300,000 tons. Buyer shall exercise such option by giving
Seller such notice stating Buyer's exercise of the option and specifying the
increase or decrease in tonnage, no later than thirty days prior to the first
day of the quarter in which the increased or decreased tonnage will be
delivered.

                                        2

                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

         SECTION 4. SOURCE.

         Section 4.1 SOURCE. The coal sold hereunder shall be supplied
primarily from geological seam Pittsburgh #8, from Seller's McElroy and
Shoemaker Mines, Marshall County, West Virginia (the "Coal Property"). As
necessary to comply with the quality requirements of this Agreement Seller may
blend with coal from such primary sources, coal from Seller's Dilworth, Mahoning
Valley, Mine 84, VP #8 and/or Buchanan, Baily and/or Enlow Fork Mines.

         Section 4.2 ASSURANCE OF OPERATION AND RESERVES. Seller represents and
warrants that the Coal Property contains economically recoverable coal of a
quality and in quantities which will be sufficient to satisfy all the
requirements of this Agreement. Seller agrees and warrants that it will have at
the Coal Property adequate machinery, equipment and other facilities to produce,
prepare and deliver coal in the quantity and of the quality required by this
Agreement. Seller further agrees to operate and maintain such machinery,
equipment and facilities in accordance with good mining practices so as to
efficiently and economically produce, prepare and deliver such coal.

         Section 4.3 NON-DIVERSION OF COAL. Seller agrees and warrants that it
will not, without Buyer's express prior written consent, use or sell coal from
the Coal Property in a way that will reduce the economically recoverable balance
of coal in the Coal Property to an amount less than that required to be supplied
to Buyer hereunder.

         Section  4.4 SELLER'S PREPARATION OF MINING PLAN. Seller shall have
prepared a complete mining plan for the Coal Property with adequate supporting
data to demonstrate Seller's capability to have coal produced from the Coal
Property which meets the quantity and quality specifications of

                                        3


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

this Agreement. Seller shall, upon Buyer's request during Coal Property
Inspections, if any (made pursuant to Section 19), provide information to Buyer
of such mining plan which shall contain maps and a narrative depicting areas and
seams of coal to be mined and shall include (but not be limited to) the
following information: (i) reserves from which the coal will be produced during
the term hereof and the mining sequence, by year (or such other time intervals
as mutually agreed) during the term of this Agreement, from which coal will be
mined; (ii) methods of mining such coal; (iii) methods of transporting and, in
the event a preparation plant is utilized by Seller, the methods of washing coal
to insure compliance with the quantity and quality requirements of this
Agreement including a description and flow sheet of the preparation plant; (iv)
quality data plotted on the maps depicting data points and isolines by ash,
sulfur, and Btu; (v) quality control plans including sampling and analysis
procedures to insure individual shipments meet quality specifications; and (vi)
Seller's aggregate commitments to others to sell coal from the Coal Property
during the term of this Agreement.

         Buyer's receipt of information or data furnished by Seller (the "Mining
Information") shall not in any manner or way relieve Seller of any of Seller's
obligations or responsibilities under this Agreement; nor shall such review be
construed as constituting an approval of Seller's proposed mining plan as
prudent mining practices, such review by Buyer being limited solely to a
determination, for Buyer's purposes only, of Seller's capability to supply coal
to fulfill Buyer's requirements of a dependable coal supply.

                                        4


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

         Section 4.5 SUBSTITUTE COAL. Notwithstanding the above representations
and warranties, in the event that Seller is unable to produce or obtain coal
from the Coal Property in the quantity and of the quality required by this
Agreement, and such inability is not caused by a force majeure event as defined
in Section 10, then Buyer will have the option of requiring that Seller supply
substitute coal from other facilities and mines. Seller shall also have the
right to supply substitute coal from other facilities and mines or from third
parties after having received Buyer's prior written consent (which shall not be
unreasonably withheld). Such substitute coal shall be provided under all the
terms and conditions of this Agreement including, but not limited to, the price
provisions of Section 8, the quality specifications of Section 6.1, and the
provisions of Section 5 concerning reimbursement to Buyer for increased
transportation costs. Seller's delivery of coal not produced from the Coal
Property without having received the express written consent of Buyer shall
constitute a material breach of this Agreement.

         SECTION 5.  DELIVERY.

         Section 5.1 BARGE DELIVERY. The coal shall be delivered to Buyer F.O.B.
barge at the following points (the "Delivery Point"), for McElroy Mine, the
Ireland Dock at mile point 110.5 on the Ohio River, and for Shoemaker Mine, the
Shoemaker Dock at mile point 93.7 on the Ohio River. Seller may deliver the coal
at a location different from the Delivery Point, provided, however, that Seller
shall reimburse Buyer for any resulting increases in the cost of transporting
the coal to Buyer's generating stations. Buyer shall retain any resulting
savings in such transportation costs.

                                        5


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

         Title to and risk of loss of coal sold will pass to Buyer and the coal
will be considered to be delivered when barges containing the coal are
disengaged by Buyer's barging contractor from the loading dock. Buyer or its
contractor shall furnish suitable barges in accordance with a delivery schedule
provided by Buyer to Seller. Seller shall arrange and pay for all costs of
transporting the coal from the mines to the Delivery Points and loading and
trimming the coal into barges to the proper draft and the proper distribution
within the barges. Buyer shall arrange for transporting the coal by barge from
the Delivery Points to its generating station(s) and shall pay for the cost of
such transportation. For delays caused by Seller in meeting the scheduling of
shipments with Buyer's barging contractor, Seller shall be responsible for any
demurrage or other penalties assessed by said barging contractor (or assessed by
Buyer) which accrue at the Delivery Point, including the demurrage, penalties
for loading less than the minimum of 1,500 tons per barge, or other penalties
assessed for barges not loaded in conformity with applicable requirements. Buyer
shall be responsible to deliver barges in as clean and dry condition as
practicable. Seller shall require of the loading dock operator that the barges
and towboats provided by Buyer or Buyer's barging contractor be provided
convenient and safe berth free of wharfage, dockage and port charges; that while
the barges are in the care and custody of the loading dock, all U.S. Coast Guard
regulations and other applicable laws, ordinances, rulings, and regulations
shall be complied with, including adequate mooring and display of warning
lights; that any water in the cargo boxes of the barges be pumped out by the
loading dock operator prior to loading; that the loading operations be performed
in a workmanlike manner and

                                        6


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

in accordance with the reasonable loading requirements of Buyer and Buyer's
barging contractor; and that the loading dock operator carry landing owner's
insurance with basic coverage of not less than $300,000, and total of basic
coverage and excess liability coverage of not less than $1,000,000, and provide
evidence thereof to Buyer in the form of a certificate of insurance from the
insurance carrier or an acceptable certificate of self-insurance with
requirement for 30 days advance notification of Buyer in the event of
termination of or material reduction in coverage under the insurance.

         SECTION 6. QUALITY.

         Section 6.1 SPECIFICATIONS. The coal delivered hereunder shall conform
to the following specifications on an "as received" basis:



                          Guaranteed Monthly       Rejection Limits
         Specifications  Weighted Average(1)        (per shipment)
- --------------------------------------------------------------------------------
                                                    
         BTU/LB.         min. 12,100                <        11,700
                              ------                        ----------

         LBS/MMBTU:
         MOISTURE        max.    5.60               >         7.00
                              ----------                   -----------
         ASH             max.   11.20               >        12.50
                              ---------                    -----------
         SULFUR          max.    3.25 *             >         3.50
                              ----------                   -----------
         SULFUR          min.    2.25               <         2.00
                              -----------                  -----------
         CHLORINE        max.    0.06               >         0.08
                              ----------                   -----------
         FLUORINE        max.    0.015              >         0.035
                              ---------                    -----------
         NITROGEN        max.    1.10               >         1.25
                              ----------                   -----------


         * Agreed to a calendar quarter limit of 3.25 lbs. Sulfur (6.5 lbs. SO2
per MMBtu).

                                        7


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731



                                                        
         ASH/SULFUR RATIO                     min. 3.00:1     <          2.30:1
                                              -----------               -------

         SIZE (3" X 0"):
                  Top size (inches)**         max.  3X0       >             4X0
                                              --------                  -------
                  Fines (% by wgt)
                  Passing 1/4" screen         max.  50        >             55
                                              --------                  -------

         % BY WEIGHT:
         -----------
         VOLATILE                             min.  36        <             32
                                              --------                   ------
         FIXED CARBON                         min.  44        <             42
                                              --------                   ------
         GRINDABILITY (HGI)                   min.  55        <             50
                                              ---------                  ------

         BASE ACID RATIO (B/A)                      .45       >            .55
                                                    ----                   ----

         SLAGGING FACTOR***                   max.   2.00     >            2.30
                                                   --------              ------
         FOULING FACTOR****                   max.     .25    >             .50
                                                   ---------              -----


         ASH FUSION TEMPERATURE (DEG.F) (ASTM D1857)
                                                        
         REDUCING ATMOSPHERE
         Initial Deformation                  min.   1950     min.     1900
                                                  ---------           ------
         Softening (H=W)                      min.   1990     min.     1950
                                                  ---------           ------
         Softening (H=1/2W)                   min.   2099     min.     2050
                                                   ---------          ------
         Fluid                                min.   2202     min.     2150
                                                   ---------          ------

         OXIDIZING ATMOSPHERE
         Initial Deformation                  min.  2391      min.     2300
                                                  ---------            -----
         Softening (H=W)                      min.  2461      min.     2400
                                                   --------            -----
         Softening (H=1/2W)                   min.  2506      min.     2450
                                                   ---------           -----
         Fluid                                min.  2535      min.     2500
                                                  ---------            -----


         (1)  An actual Monthly Weighted Average will be calculated for each
              specification for coal delivered to the Louisville Gas and
              Electric generating stations and a separate

                                        8


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

              actual Monthly Weighted Average will be calculated for each
              specification for coal delivered to the Kentucky Utility
              generating stations.

         **   All the coal will be of such size that it will pass through a
              screen having circular perforations three (3) inches in diameter,
              but shall not contain more than fifty per cent ( 50%) by weight of
              coal that will pass through a screen having circular perforations
              one-quarter (1/4) of an inch in diameter.

         ***  Slagging Factor (R(s))=(B/A) X (Percent Sulfur by Weight(Dry))

         **** Fouling Factor (R(f))=(B/A) X (Percent Na(2)O by Weight(Dry))

         The Base Acid Ratio (B/A) is herein defined as:
         BASE ACID RATIO (B/A) = (Fe(2)O(3) + CAO + MGO + NA(2)O + K(2)O)
                                                 DIVIDED BY
                                    (SiO(2)  +  A1(2)O(3)  +  TiO(2))

         Note:    As used herein            >      means greater than:
                                            <      means less than.

         Section 6.2 DEFINITION OF "SHIPMENT". As used herein, a "shipment"
shall mean one barge load, a barge lot load, in accordance with Buyer's sampling
and analyzing practices.

         Section 6.3 REJECTION

         Buyer has the right, but not the obligation, to reject any shipment
which fail(s) to conform to the Rejection Limits set forth in SECTION 6.1 or
contains extraneous materials. Buyer must reject such coal within seventy-two
(72) hours of receipt of the coal analysis provided for in Section 7.2 or such
right to reject is waived. In the event Buyer rejects such non-conforming coal,
title to and

                                        9


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

risk of loss of the coal shall be considered to have never passed to Buyer and
Buyer shall return the coal to Seller or, at Seller's request, divert such coal
to Seller's designee, all at Seller's cost and risk. Seller shall replace the
rejected coal within five (5) working days from notice of rejection with coal
conforming to the Rejection Limits set forth in Section 6.1. If Seller fails to
replace the rejected coal within such five (5) working day period or the
replacement coal is rightfully rejected, Buyer may purchase coal from another
source in order to replace the rejected coal. Seller shall reimburse Buyer for
(i) any amount by which the actual price plus transportation costs to Buyer of
such coal purchased from another source exceed the price of such coal under this
Agreement plus transportation costs to Buyer from the Delivery Point; and (ii)
any and all transportation, storage, handling, or other expenses that have been
incurred by Buyer for rightfully rejected coal. This remedy is in addition to
all of Buyer's other remedies under this Agreement and under applicable law and
in equity for Seller's breach.

         If Buyer fails to reject a shipment of non-conforming coal which it had
the right to reject for failure to meet any or all of the Rejection Limits set
forth in Section 6.1 or because such shipment contained extraneous materials,
then such non-conforming coal shall be deemed accepted by Buyer; however, the
quantity Seller is obligated to sell to Buyer under the Agreement may or may not
be reduced by the amount of each such non-conforming shipment at Buyer's sole
option and the shipment shall nevertheless be considered "rejectable" under
Section 6.4. Further, for shipments containing extraneous materials, which
include, but are not limited to, slate, rock,

                                       10


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

wood, corn husks, mining materials, metal, steel, etc., the estimated weight of
such materials shall be deducted from the weight of that shipment.

         Section 6.4 SUSPENSION AND TERMINATION.

         If the coal sold hereunder fails to meet one or more of the Guaranteed
Monthly Weighted Averages set forth in Section 6.1 (as to either or both of LG&E
or KU) for any three (3) months in a six (6) month period, or if nine (9) barge
shipments in a 30 day period are rejectable by Buyer, then Buyer may upon notice
confirmed in writing and sent to Seller by certified mail, suspend future
shipments except shipments already loaded into barges. Seller shall, within 15
days, provide Buyer with reasonable assurances that subsequent monthly
deliveries of coal shall meet or exceed the Guaranteed Monthly Weighted Averages
set forth in Section 6.1. If Seller fails to provide such assurances within said
15 day period, Buyer may terminate this Agreement by giving written notice of
such termination at the end of the 10 day period. A waiver of this right for any
one period by Buyer shall not constitute a waiver for subsequent periods. If
Seller provides such assurances to Buyer's reasonable satisfaction, shipments
hereunder shall resume and any tonnage deficiencies resulting from suspension
may be made up at Buyer's sole option. Buyer shall not unreasonably withhold its
acceptance of Seller's assurances, or delay the resumption of shipment. If
Seller, after such assurances, fails to meet any of the Guaranteed Monthly
Weighted Averages (as to either LG&E or KU) for any one (1) month within the
next six (6) months or if three (3) barge shipments are rejectable within any
one (1) month during such six (6) month period, then

                                       11


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

Buyer may terminate this Agreement and exercise all its other rights and
remedies under applicable law and in equity for Seller's breach.

         Section 6.5 IMPLIED WARRANTIES. Except as expressly set forth herein in
Section 6, Seller makes no other warranties and expressly disclaims any other
warranty, of any kind, including those of merchantability and fitness, there
being no warranties which extend beyond those expressly set forth herein.

         Section 7. WEIGHTS, SAMPLING AND ANALYSIS.

         Section 7.1 WEIGHTS. The weight of the coal delivered hereunder shall
be determined on a per shipment basis by Buyer on the basis of scale weights at
the generating station(s) unless another method is mutually agreed upon by the
parties. Such scales shall be duly reviewed by an appropriate testing agency and
maintained in an accurate condition. Seller shall have the right, at Seller's
expense and upon reasonable notice, to have the scales checked for accuracy at
any reasonable time or frequency. If the scales are found to be over or under
the tolerance range allowable for the scale based on industry accepted
standards, either party shall pay to the other any amounts owed due to such
inaccuracy for a period not to exceed thirty (30) days before the time any
inaccuracy of scales is determined.

         Section 7.2 SAMPLING AND ANALYSIS. The Seller has sole responsibility
for quality control of the coal and shall forward its as loaded quality to the
Buyer as soon as possible. The sampling and analysis of the coal delivered
hereunder shall be performed by Buyer and the results thereof shall

                                       12


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

be accepted and used for the quality and characteristics of the coal delivered
under this Agreement. All analyses shall be made in Buyer's laboratory at
Buyer's expense in accordance with Buyer's approved methods. Samples for
analyses shall be taken by Buyer's approved procedures of sampling, may be
composited and shall be taken with a frequency and regularity sufficient to
provide reasonably accurate representative samples of the deliveries made
hereunder. Seller represents that it is familiar with Buyer's sampling and
analysis practices, and finds them to be acceptable. Buyer shall notify Seller
in writing of any significant changes in Buyer's sampling and analysis
practices. Any such changes in Buyer's sampling and analysis practices shall
provide for no less accuracy than the sampling and analysis practices existing
at the time of the execution of this Agreement, unless the parties otherwise
mutually agree.

         Each sample taken by Buyer shall be divided into 4 parts and put into
airtight containers, properly labeled and sealed. One part shall be used for
analysis by Buyer; one part shall be used by Buyer as a check sample, if Buyer
in its sole judgment determines it is necessary; one part shall be retained by
Buyer (LG&E) until the 25th of the month following the month of unloading (the
"Disposal Date") or Buyer (KU) until thirty (30) days ("Disposal Date") after
the sample is taken, and shall be delivered to Seller for analysis if Seller so
requests before the Disposal Date; and one part ("Referee Sample") shall be
retained by Buyer until the Disposal Date. Seller shall be given copies of all
analyses made by Buyer by the 12th business day of the month following the month
of unloading, in addition, Buyer (KU) will send weekly analyses of coal
unloadings to Seller. Seller, on reasonable notice to Buyer shall have the right
to have a representative present

                                       13


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

to observe the sampling and analyses performed by Buyer. Unless Seller requests
a Referee Sample analysis before the Disposal Date, Buyer's analysis shall be
used to determine the quality of the coal delivered hereunder. The Monthly
Weighted Averages shall be determined by utilizing the individual shipment
analyses.

         If any dispute arises before the Disposal Date, the Referee Sample
retained by Buyer shall be submitted for analysis to an independent commercial
testing laboratory ("Independent Lab") mutually chosen by Buyer and Seller. All
testing of any such sample by the Independent Lab shall be at requestor's
expense unless the results differ by more than the applicable ASTM
reproducibility standards, in such case, Buyer will pay for testing. If the
Independent Lab results differ by more than the applicable ASTM reproducibility
standards, the Independent Lab results will govern. The cost of the analysis
made by the Independent Lab shall be borne by Seller to the extent that Buyer's
analysis prevails and by Buyer to the extent that the analysis of the
Independent Lab prevails.

         SECTION 8. PRICE.

         Section 8.1 BASE PRICE. The base price ("Base Price") of the coal to be
sold hereunder will be firm and will be determined by the year in which the coal
is delivered as defined in Section 5 in accordance with the following schedule:

                                       14


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

                                   BASE PRICE



                  YEAR           ($ PER MMBTU)               ($ PER TON)
                  ----           -------------               -----------
                                                       
                   2000          0.7438 F.O.B. barge         $18.00
                   2001          0.7521 F.O.B. barge         $18.20
                   2002                 *                        *


* Buyer and Seller will begin price negotiations on or before July 1, 2001, for
prices to be effective during the year 2002. The parties then shall attempt to
negotiate on new prices and/or other terms and conditions between July 1, 2001
and October 1, 2001. If the parties do not reach an agreement by October 1,
2001, then this Agreement will terminate as of December 31, 2001 without
liability due to such termination for either party, and the parties shall have
no further obligations hereunder except those incurred prior to the date of
termination. This clause shall not be interpreted as a Right of First Refusal or
exclusive supply agreement.

         Section 8.2 QUALITY PRICE DISCOUNTS.

         (a) The Base Price is based on coal meeting or exceeding the Guaranteed
Monthly and Quarterly Weighted Average specifications for the Louisville Gas and
Electric generating stations and the Kentucky Utility generating stations, as
set forth in Section 6.1. Quality price discounts shall be applied for each
specification, separately for the Louisville Gas and Electric generating
stations and for the Kentucky Utility generating stations, to reflect failures
to meet the

                                       15


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

Guaranteed Monthly or Quarterly Weighted Averages set forth in Section 6.1, as
determined pursuant to Section 7.2, subject to the provisions set forth below.
The discount values used are as follows:

                             MONTHLY DISCOUNT VALUES

                             BTU/LB. $ 0.2604/MMBTU
                             ASH $ 0.0083/LB/MMBTU
                             MOISTURE$ 0.0016/LB/MMBTU

                             QUARTERLY DISCOUNT VALUES

                             SULFUR $ 0.1232/LB/MMBTU

         (b) Notwithstanding the foregoing, for each specification, there shall
be no discount if the actual Monthly or Quarterly Weighted Average meets the
applicable Discount Point set forth below. Actual Monthly and Quarterly Weighted
Averages will be separately calculated for the Louisville Gas and Electric
generating stations and for the Kentucky Utility generating stations. However,
if the actual Monthly or Quarterly Weighted Average for the Louisville Gas and
Electric generating stations and/or the Kentucky Utility generating stations
fail to meet such applicable Discount Point, then the discount shall apply to
and shall be calculated on the basis of the difference between the actual
Monthly or Quarterly Weighted Average and the Guaranteed Monthly or Quarterly
Weighted Average pursuant to the methodology shown in Exhibit A

                                       16


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

attached hereto. The discount will be applied only to the particular company
whose actual Monthly or Quarterly Weighted Average failed to meet the Discount
Points.



                      GUARANTEED MONTHLY WEIGHTED AVERAGE         DISCOUNT POINT
                                                            
         BTU               Min.   12,100 BTU/LB                   11,900 BTU/LB
         ASH               Max.    11.20 LB/MMBTU                 11.20 LB/MMBTU
         MOISTURE          Max.     5.60 LB/MMBTU                  7.00 LB/MMBTU


                       GUARANTEED QUARTERLY WEIGHTED AVERAGE      DISCOUNT POINT
                                                            
         SULFUR            Max.     3.25 LB/MMBTU                 3.25 LB/MMBTU


         For example, if the actual Monthly Weighted Average of ash equals 12.00
lb/MMBTU, then the applicable discount would be (12.00 lb. - 11.20 lb.) X
$.0083/lb/MMBTU = $.00664/MMBTU.

         Section 8.3 PAYMENT CALCULATION Exhibit A attached hereto shows the
methodology for calculating the coal payment and quality price discounts for the
month Seller's coal was unloaded by Buyer. If there are any such discounts,
Buyer shall apply credit to amounts owed Seller for the month the coal was
unloaded.

                                       17


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

         SECTION 9. INVOICES, BILLING AND PAYMENT.

         Section 9.1 INVOICING: Two invoices will be sent to Buyer. The invoice
for Louisville Gas and Electric will be sent to the following address:

                       Louisville Gas and Electric Company
                       220 West Main Street
                       Louisville, KY 40202
                       Attention: Director, Fuels Management

                       With a copy to:

                       Louisville Gas and Electric Company
                       220 West Main Street
                       Louisville, KY 40202
                       Attention: Manager, Accounts Payable

The invoice for Kentucky Utilities will be sent to the following address:

                       Kentucky Utilities Company
                       220 West Main Street
                       Louisville, KY 40202
                       Attention: Director, Fuels Management

         Section 9.2 INVOICE PROCEDURES FOR COAL SHIPMENTS. Seller shall provide
Buyer two separate invoices, one for Louisville Gas and Electric and one for
Kentucky Utilities. Seller shall invoice Buyer at the Base Price, minus any
quality price discounts, for all coal unloaded in a calendar month by the
fifteenth (15th) of the following month.

         Section 9.3 PAYMENT PROCEDURES FOR COAL SHIPMENTS. Payment for coal
unloaded in a calendar month shall be wired by the 25th of the month following
the month of unloading, except that, if the 25th is a weekend or a holiday
observed by the Buyer, payment shall be made on the next

                                       18


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

business day or within ten days after receipt of Seller's invoice, whichever is
later. Buyer shall electronically transfer all payments to Seller's account at:

                           CONSOL Inc.
                           Account No. 107-3965
                           ABA No. 043000261
                           Mellon Bank, NA
                           Pittsburgh, PA 15251

         Section 9.4 WITHHOLDING. Buyer shall have the right to withhold from
payment of any billing or billings (i) any sums which it is not able in good
faith to verify or which it otherwise in good faith disputes, (ii) any damages
resulting from or likely to result from any breach of this Agreement by Seller,
and (iii) any amounts owed to Buyer from Seller. Buyer shall notify Seller
promptly in writing of any such issue, stating the basis of its claim and the
amount it intends to withhold.

         Payment by Buyer, whether knowing or inadvertent, of any amount in
dispute shall not be deemed a waiver of any claims or rights by Buyer with
respect to any disputed amounts or payments made.

         SECTION 10.       FORCE MAJEURE.

         Section 10.1 GENERAL FORCE MAJEURE. If either party hereto is delayed
in or prevented from performing any of its obligations or from utilizing the
coal sold under this Agreement due to acts

                                       19

                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

of God, war, riots, civil insurrection, acts of the public enemy, strikes, labor
disputes, lockouts, fires, explosions, floods or earthquakes, other severe
weather conditions, damage to or breakdown of facilities, plant or equipment or
other causes (whether of a similar or dissimilar nature), which are beyond the
reasonable control and without the fault or negligence of the party affected
thereby, then the obligations of both parties hereto shall be suspended to the
extent made necessary by such event; provided that the affected party gives
written notice to the other party as early as practicable of the nature and
probable duration of the force majeure event. The party declaring force majeure
shall exercise due diligence to avoid and shorten the force majeure event and
will keep the other party advised as to the continuance of the force majeure
event.

         During any period in which Seller's ability to perform hereunder is
affected by a force majeure event, Seller shall not deliver any coal to any
other buyers to whom Seller's ability to supply is similarly affected by such
force majeure event unless contractually committed to do so at the beginning of
the force majeure event; and further shall deliver to Buyer under this Agreement
at least a pro rata portion (on a per ton basis) of its total contractual
commitments to all its buyers to whom Seller's ability to supply is similarly
affected by such force majeure event in place at the beginning of the force
majeure event. An event which affects the Seller's ability to produce or obtain
coal from a mine other than the Coal Property will not be considered a force
majeure event hereunder.

         Tonnage deficiencies resulting from a force majeure event shall be made
up only upon mutual agreement of the parties.

                                       20


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

         Section 10.2 ENVIRONMENTAL LAW FORCE MAJEURE. The parties recognize
that, during the continuance of this Agreement, legislative or regulatory bodies
or the courts may adopt environmental laws, regulations, policies and/or
restrictions which will make it impossible or commercially impracticable for
Buyer to utilize this or like kind and quality coal which thereafter would be
delivered hereunder. If as a result of the adoption of such laws, regulations,
policies, or restrictions, or change in the interpretation or enforcement
thereof, Buyer decides that it will be impossible or commercially impracticable
(uneconomical) for Buyer to utilize such coal, Buyer shall so notify Seller, and
thereupon Buyer and Seller shall promptly consider whether corrective actions
can be taken in the mining and preparation of the coal at Seller's mine and/or
in the handling and utilization of the coal at Buyer's generating station; and
if in Buyer's sole judgment such actions will not, without unreasonable expense
to Buyer, make it possible and commercially practicable for Buyer to so utilize
coal which thereafter would be delivered hereunder without violating any
applicable law, regulation, policy or order, Buyer shall have the right, upon
the later of 60 days notice to Seller or the effective date of such restriction,
to terminate this Agreement without further obligation hereunder on the part of
either party.

         SECTION 11. CHANGES. Buyer may, by mutual agreement with Seller, at any
time by written notice pursuant to Section 12 of this Agreement, make changes
within the general scope of this Agreement in any one or more of the following:
quality of coal or coal specifications, quantity of coal, method or time of
shipments, place of delivery (including transfer of title and

                                       21


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

risk of loss), method(s) of weighing, sampling or analysis and such other
provision as may affect the suitability and amount of coal for Buyer's
generating stations.

         If any such changes makes necessary or appropriate an increase or
decrease in the then current price per ton of coal, or in any other provision of
this Agreement, an equitable adjustment shall be made in: price, whether current
or future or both, and/or in such other provisions of this Agreement as are
affected directly or indirectly by such change, and the Agreement shall
thereupon be modified in writing accordingly.

         Any claim by the Seller for adjustment under this Section 11 shall be
asserted within thirty (30) days after the date of Seller's receipt of the
written notice of change, it being understood, however that Seller shall not be
obligated to proceed under this Agreement as changed until an equitable
adjustment has been agreed upon. The parties agree to negotiate promptly and in
good faith to agree upon the nature and extent of any equitable adjustment.

         SECTION 12. NOTICES.

         Section 12.1 FORM AND PLACE OF NOTICE. Any official notice, request for
approval or other document required to be given under this Agreement shall be in
writing, unless otherwise provided herein, and shall be deemed to have been
sufficiently given when delivered in person, transmitted by facsimile or other
electronic media, delivered to an established mail service for same day or
overnight delivery, or dispatched in the United States mail, postage prepaid,
for

                                       22


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

mailing by first class, certified, or registered mail, return receipt
requested, and addressed as follows:

         If to Buyer:    Louisville Gas and Electric Company/Kentucky
                           Utilities  Company
                         220 West Main Street
                         Louisville, Kentucky 40202
                         Attn.: Director, Fuels Management

         If to Seller:   CONSOL Inc.
                         1800 Washington Road
                         Pittsburgh, Pennsylvania 15241
                         Attn: Executive Vice President, Marketing

         Section 12.2 CHANGE OF PERSON OR ADDRESS. Either party may change the
person or address specified above upon giving written notice to the other party
of such change.

         Section 12.3 ELECTRONIC DATA TRANSMITTAL. Seller hereby agrees, at
Seller's cost, to electronically transmit shipping notices and/or other data to
Buyer in a format acceptable to and established by Buyer upon Buyer's request.
Buyer shall provide Seller with the appropriate format and will inform Seller as
to the electronic data requirements at the appropriate time.

         Section 12.4  AGREEMENT  ADMINISTRATION. Consol Inc. ("CONSOL")
shall administer this Agreement exclusively on behalf of Seller, to include as
follows:
                       (a) the administration of this Agreement;
                       (b) all payments by Buyer to Seller hereunder shall be
                           made to CONSOL;
                       (c) all notices to be given or received by Seller shall
                           be given or received by CONSOL;

                                       23


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

                       and

                       (d) any amendment, supplement or modification to this
                           Agreement shall be negotiated by CONSOL, on behalf of
                           Seller. Buyer shall be entitled to rely upon the
                           actions and requests of CONSOL in connection with
                           CONSOL's performance of the foregoing as being
                           binding upon Seller.

         SECTION 13. RIGHT TO RESELL.  Buyer shall have the  unqualified  right
to sell all or any of the coal purchased under this Agreement.

         SECTION 14. INDEMNITY AND INSURANCE.

         Section 14.1 INDEMNITY. Seller agrees to indemnify and save harmless
Buyer, its officers, directors, employees and representatives from any
responsibility and liability for any and all claims, demands, losses, legal
actions for personal injuries, property damage and pollution (including
reasonable inside and outside attorney's fees) (i) relating to the trucks,
barges or railcars provided by Buyer or Buyer's contractor while such trucks,
barges or railcars are in the care and custody of the loading dock or loading
facility, (ii) due to any failure of Seller to comply with laws, regulations or
ordinances, or (iii) due to the acts or omissions of Seller in the performance
of this Agreement.

                                       24


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

         Notwithstanding any provision in this Agreement to the contrary (except
for Seller's indemnifications hereunder with respect to third party claims), in
no event shall either party be liable to the other for any special, indirect, or
consequential losses or damages arising from a breach of the Agreement
including, without limitation, loss or profit, loss of operating income, loss
of, use of, or reduction in the use of, their respective assets or increased
exposure of operation or maintenance or the suitability of said assets.

         Section 14.2 INSURANCE. Seller agrees to carry insurance coverage with
minimum limits as follows:

                       (1) Commercial General Liability, including Completed
Operations and Contractual Liability, $5,000,000 single limit liability.
                       (2) Automobile General Liability, $1,000,000 single limit
liability.
                       (3) Workers' Compensation and Employer's Liability with
statutory limits.

         If any of the above policies are written on a claims made basis, then
the retroactive date of the policy or policies will be no later than the
effective date of this Agreement. Certificates of Insurance satisfactory in form
to the Buyer and signed by the Seller's insurer shall be supplied by the Seller
to the Buyer evidencing that the above insurance is in force and that not less
than 30 calendar days written notice will be given to the Buyer prior to any
cancellation or material reduction in coverage under the policies. The Seller
shall cause its insurer to waive all subrogation rights against the Buyer
respecting all losses or claims arising from performance hereunder. Evidence of
such waiver satisfactory in form and substance to the Buyer shall be

                                       25


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

exhibited in the Certificate of Insurance mentioned above. Seller's liability
shall not be limited to its insurance coverage.

                       (4) Seller may self-insure in accordance with Seller's
overall insurance policy in lieu of carrying insurance coverage required to be
carried pursuant to this Section 14.

         SECTION 15.       TERMINATION FOR DEFAULT.

         Subject to Section 6.4, if either party hereto commits a material
breach of any of its obligations under this Agreement at any time, including,
but not limited to, a breach of a representation and warranty set forth herein,
then the other party has the right to give written notice describing such breach
and stating its intention to terminate this Agreement no sooner than 30 days
after the date of the notice (the "notice period"). If such material breach is
curable and the breaching party cures such material breach within the notice
period, then the Agreement shall not be terminated due to such material breach.
If such material breach is not curable or the breaching party fails to cure such
material breach within the notice period, then this Agreement shall terminate at
the end of the notice period in addition to all the other rights and remedies
available to the aggrieved party under this Agreement and at law and in equity.

         SECTION 16. TAXES, DUTIES AND FEES.

                                       26


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

         Seller shall pay when due, and the price set forth in Section 8 of this
Agreement shall be inclusive of, all taxes, duties, fees and other assessments
of whatever nature imposed by governmental authorities with respect to the
transactions contemplated under this Agreement.

         SECTION 17. DOCUMENTATION AND RIGHT OF AUDIT.

         Seller shall maintain all records and accounts pertaining to payments,
quantities, quality analyses, and source for all coal supplied under this
Agreement for a period lasting through the term of this Agreement and for two
years thereafter. Buyer shall have the right at no additional expense to Buyer
to audit, copy and inspect such records and accounts at any reasonable time upon
reasonable notice during the term of this Agreement and for 2 years thereafter,
and Seller shall cooperate at no additional cost to Buyer.

         SECTION 18. EQUAL EMPLOYMENT OPPORTUNITY. To the extent applicable,
Seller shall comply with all of the following provisions which are incorporated
herein by reference: Equal Opportunity regulations set forth in 41 CFR Section
60-1.4(a) and (c) prohibiting discrimination against any employee or applicant
for employment because of race, color, religion, sex, or national origin;
Vietnam Era Veterans Readjustment Assistance Act regulations set forth in 41 CFR
Section 50-250.4 relating to the employment and advancement of disabled veterans
and veterans of the Vietnam Era; Rehabilitation Act regulations set forth in 41
CFR Section 60-741.4 relating to the employment and advancement of qualified
disabled employees and applicants for

                                       27


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

employment; the clause known as "Utilization of Small Business Concerns and
Small Business Concerns Owned and Controlled by Socially and Economically
Disadvantaged Individuals" set forth in 15 USC Section 637(d)(3); and
subcontracting plan requirements set forth in 15 USC Section 637(d).

         SECTION 19. COAL PROPERTY INSPECTIONS. Buyer and its representatives,
and others as may be required by applicable laws, ordinances and regulations
shall have the right at all reasonable times and at their own expense to inspect
the Coal Property, including the loading facilities, scales, sampling system(s),
wash plant facilities, and mining equipment for conformance with this Agreement.
Seller shall cooperate with such inspection at no additional cost to Buyer.
Seller shall undertake reasonable care and precautions to prevent personal
injuries to any representatives, agents or employees of Buyer (collectively,
"Visitors") who inspect the Coal Property. Any such Visitors shall make every
reasonable effort to comply with Seller's regulations and rules regarding
conduct on the work site, made known to Visitors prior to entry, as well as
safety measures mandated by state or federal rules, regulations and laws. Buyer
understands that mines and related facilities are inherently high-risk
environments. Buyer's failure to inspect the Coal Property or to object to
defects therein at the time Buyer inspects the same shall not relieve Seller of
any of its responsibilities nor be deemed to be a waiver of any of Buyer's
rights hereunder.

                                       28


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

         SECTION 20.       MISCELLANEOUS.

         Section  20.1 APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the State of Kentucky, and all questions of
performance of obligations hereunder shall be determined in accordance with such
laws.

         Section 20.2 HEADINGS. The paragraph headings appearing in this
Agreement are for convenience only and shall not affect the meaning or
interpretation of this Agreement.

         Section 20.3 WAIVER. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
rights hereunder, shall not be construed as a waiver of such provision or right.

         Section 20.4 REMEDIES CUMULATIVE. Remedies provided under this
Agreement shall be cumulative and in addition to other remedies provided under
this Agreement or by law or in equity.

         Section 20.5 SEVERABILITY. If any provision of this Agreement is found
contrary to law or unenforceable by any court of law, the remaining provisions
shall be severable and enforceable in accordance with their terms, unless such
unlawful or unenforceable provision is material to the transactions contemplated
hereby, in which case the parties shall negotiate in good faith a substitute
provision.

         Section 20.6 BINDING EFFECT. This Agreement shall bind and inure to the
benefit of the parties and their successors and assigns.

                                       29


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

         Section 20.7 ASSIGNMENT.

         A. Seller shall not, without Buyer's prior written consent, make any
assignment or transfer of this Agreement, by operation of law or otherwise,
including without limitation any assignment or transfer as security for any
obligation, and shall not assign or transfer the performance of or right or duty
to perform any obligation of Seller hereunder; provided, however, that Seller
may assign the right to receive payments for coal directly from Buyer to a
lender as part of any accounts receivable financing or other revolving credit
arrangement which Seller may have now or at any time during the term of this
Agreement.

         B. Buyer shall not, without Seller's prior written consent, assign
this Agreement or any right for the performance of or right or duty to perform
any obligation of Buyer hereunder; except that, without such consent, Buyer may
assign this Agreement in connection with a transfer by Buyer of all or a part
interest in the generating station, or as part of a merger or consolidation
involving Buyer.

         C. In the event of an assignment or transfer contrary to the provisions
of this section, the non-assigning party may terminate this Agreement
immediately.

         Section 20.8 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties as to the subject matter hereof, and there are no
representations, understandings or agreements, oral or written, which are not
included herein. Without limiting the foregoing (a) this Agreement shall not be
construed as a requirements or similar agreement, and (b) this

                                       30


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

Agreement shall not be construed as affecting Buyer's ability to negotiate with
and/or acquire other sources of coal from third parties throughout the term
hereof.

         Section 20.9 AMENDMENTS. Except as otherwise provided herein, this
Agreement may not be amended, supplemented or otherwise modified except by
written instrument signed by both parties hereto.

         Section 20.10 JOINT AND SEVERAL LIABILITY. McElroy Coal Company,
Consolidation Coal Company, Consol Pennsylvania Coal Company, Greennon Coal
Company, Nineveh Coal Company, Eighty Four Mining Company, and Island Creek Coal
Company shall be jointly and severally liable for all obligations of Seller
hereunder, it being intended that Buyer be entitled to enforce its rights
hereunder against any one or all of such parties.

         Louisville Gas and Electric and Kentucky Utilities shall be jointly and
severally liable for all obligations of Buyer hereunder, it being intended that
Seller be entitled to enforce its rights hereunder against each or both parties.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

LOUISVILLE GAS AND ELECTRIC                  McELROY COAL COMPANY
COMPANY

By:   /s/ Wayne T. Lucas                     By:   /s/ Robert F. Pusatere
      ----------------------------                -----------------------------
      Wayne T. Lucas                               Vice President, Consol Inc.
      EVP -  Power Generation                      Attorney In Fact

Date: 5/12/00                                Date: 5/9/00

                                       31


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

KENTUCKY UTILITIES COMPANY                   CONSOLIDATION COAL COMPANY

By:   /s/ Wayne T. Lucas                     By:     /s/ Robert F. Pusatere
      ----------------------------                   -------------------------
       Wayne T. Lucas                                Vice President, CONSOL Inc.
       EVP - Power Generation                        Attorney in Fact

Date:  5/12/00                               Date:   5/9/00


                                             CONSOL PENNSYLVANIA COAL COMPANY

                                             By:     /s/ Robert F. Pusatere
                                                     ------------------------
                                                     Vice President, CONSOL Inc
                                                     Attorney in Fact

                                             Date:   5/9/00

                                             GREENON COAL COMPANY

                                             By:    /s/ Robert F. Pusatere
                                                    ------------------------
                                                    Vice President, CONSOL Inc.
                                                    Attorney in Fact

                                             Date:  5/9/00

                                             NINEVEH COAL COMPANY

                                             By:   /s/ Robert F. Pusatere
                                                   --------------------------
                                                   Vice President, CONSOL Inc.
                                                   Attorney in Fact

                                             Date: 5/9/00

                                       32


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

                                             EIGHTY FOUR MINING COMPANY

                                             By:    /s/ Robert F. Pusatere
                                                    ----------------------
                                                    Vice President, CONSOL Inc.
                                                    Attorney in Fact

                                             Date:  5/9/00


                                             ISLAND CREEK COAL COMPANY

                                             By:   /s/ Robert F. Pusatere
                                                   ------------------------
                                                   Vice President, CONSOL Inc.
                                                   Attorney in Fact

                                             Date: 5/9/00

                                       33


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

                                                                       Exhibit A
                                                                     Page 1 of 2
                                    EXHIBIT A
                        SAMPLE COAL PAYMENT CALCULATIONS
- --------------------------------------------------------------------------------
For contracts supplied from multiple "origins", each "origin will be calculated
individually.



                           SECTION I                                            BASE DATA
                                                                            

1)       Base F.O.B. price per ton:                                            $ 18.00  /ton
                                                                                -------

1a)      Tons of coal delivered:                                                         tons
                                                                                ------

2)       Guaranteed average heat content:                                       12,100   BTU/LB.
                                                                                ------

2r)      As received monthly avg. heat content:                                          BTU/LB.
                                                                                ------

2a)      Energy delivered in MMBTU:                                                      MMBTU
                                                                                ------

[(Line 1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU
[(     ) *2,000 lb./ton*(     )]*MMBTU/1,000,000 BTU

2b)      Base F.O.B. price per MMBTU:                                          $ 0.7438 MMBTU
                                                                                ------

{[(Line 1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU
{[(     /ton)/(           BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU

3)       Guaranteed quarterly avg. max. sulfur                                   3.25  LBS./MMBTU
                                                                                -----

3r)      As received quarterly avg. sulfur                                            LBS./MMBTU
                                                                                -----

4)       Guaranteed monthly avg. ash                                            11.20 LBS./MMBTU
                                                                                ------

4r)      As received monthly avg. ash                                                  LBS./MMBTU
                                                                                ------

5)       Guaranteed monthly avg. max. moisture                                   5.60  LBS./MMBTU
                                                                                ------

5r)      As received monthly avg. moisture                                            LBS./MMBTU
                                                                                ------

                           SECTION II                                               DISCOUNTS
         -----------------------------------------------------                  -----------------
         Assign a (-) to all discounts (round to (5) decimal places)
6d)      BTU/LB.:  If line 2r < 11,900 BTU/lb. then:
         {1 -{(line 2r) / (line 2)} * $0.2604/MMBTU
         {1 - (    ) / (    )} * $0.2604 =                                     $           /MMBTU
                                                                                -----------------
7d)      SULFUR:  If line 3r is greater than 3.25 lbs./MMBTU
         [ (line 3r) - (line 3) ] * 0.1232/lb. Sulfur
         [ (    ) - (    ) ] * 0.1232 =                                        $          /MMBTU
                                                                                ---------
8d)      ASH: If line 4r is greater than 11.20 lbs./MMBTU
         [ (line 4r) - (line 4) ] * 0.0083/MMBTU
         [ (    ) - (    ) ] * 0.0083 =                                        $          /MMBTU
                                                                                ---------
9d)      MOISTURE:  If line 5r is greater than 7.00 lbs./MMBTU
         [ (line 5r) - (line 5) ] * 0.0016/MMBTU


                                       34


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

                                                                    
         [ (    ) - (    ) ] * 0.0016 =                                         $          /MMBTU
                                                                                -----------

         

                                       35


                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731

                                                                       Exhibit A
                                                                     Page 2 of 2



                                                                                TOTAL PRICE
                           SECTION III                                          ADJUSTMENTS
                                                                            

         Determine total Discounts as follows:
         Assign a (-) to all discounts (round to (5) decimal places)
         Line 6d:                                                              $          /MMBTU
                                                                                --------
         Line 7d                                                               $          /MMBTU
                                                                                --------
         Line 8d                                                               $          /MMBTU
                                                                                --------
         Line 9d                                                               $          /MMBTU
                                                                                --------

10)      Total Discounts (-):

         Algebraic sum of above:                                               $          /MMBTU
                                                                                --------

11)      Total evaluated coal price = (line 2b) + (line 10)

12)      Total discount price adjustment for Energy delivered:
         (line 2a) * (line 10) (-)
         $         /MMBTU           +                                          $         /MMBTU   =   $
          --------                                                              ---------               --------

13)      Total base cost of coal
         (line 2a) * (line 2b)
         $         /MMBTU           +                                          $         /MMBTU   =   $
          --------                                                              ---------               --------

14)      Total coal payment for month
         (line 12) + (line 13)
         $         /MMBTU           +                                          $                   =   $
          --------                                                              ----------              --------


                                       36


                    AMENDMENT NO.1 TO COAL SUPPLY AGREEMENT

         THIS AMENDMENT NO. 1 TO COAL SUPPLY AGREEMENT ("Amendment No. 1") is
entered into effective as of January 1, 2002, by and between LOUISVILLE GAS AND
ELECTRIC COMPANY AND KENTUCKY UTILITIES COMPANY, Kentucky corporations, 220 West
Main Street, Louisville, Kentucky 40202 (collectively "Buyer"), and McELROY COAL
COMPANY, CONSOLIDATION COAL COMPANY, CONSOL PENNSYLVANIA COAL COMPANY, GREENON
COAL COMPANY, NINEVEH COAL COMPANY, AND ISLAND CREEK COAL COMPANY, Delaware
corporations, EIGHTY FOUR MINING COMPANY, a Pennsylvania corporation, and
WINDSOR COAL COMPANY, an Ohio corporation, all of 1800 Washington Road,
Pittsburgh, Pennsylvania 15241, (individually and collectively, "Seller"). In
consideration of the agreements herein contained, the parties hereto agree as
follows.

1.0      AMENDMENTS

         The Agreement heretofore entered into by the parties, dated effective
         January 1, 2000, and identified by the Contract Numbers set forth
         above, (hereinafter referred to as "Agreement") is hereby amended as
         follows:

2.0      TERM

         The term of this Agreement shall continue through December 31, 2003,
         subject to the provisions of Section 8.4.

3.0      QUANTITY

         3.1  Section 3.1 BASE QUANTITY, is hereby modified to include the
              following paragraph:

              The following schedule (a) incorporates a deficiency from year
              2000 in the amount of 394,800 tons, and (b) assumes there will be
              a deficiency from year 2001 in the amount of approximately 172,431
              tons which will be delivered during the first quarter of 2002, in
              addition to the Base Quantity.



                YEAR                BASE QUANTITY (TONS)
                                 
                2002                1,600,000 (includes carryover from 2000)*
                2003                2,500,000




                                                             CONSOL ENERGY INC.
                                                       LG&E CONTRACT #LGE 00010
                                                          KU CONTRACT #KUF00731
                                                                 AMENDMENT NO. 1

               * Deficiency tons from year 2001 in the amount of approximately
               172,431 tons will be the first tons to be shipped during the
               first quarter of 2002. Ratable deliveries of the Base Quantity
               will also be delivered during the first quarter in the amount of
               133,333 tons per month. Total monthly deliveries during the first
               quarter will be in the amount of 190,810 tons per month.
               Deficiency tonnage from 2000 in the amount of 394,800 tons is
               included in the 1,600,000 base quantity above. Pricing is set
               forth in Section 8.1.

               The Base Quantity will be delivered in approximately equal
               monthly quantities and in accordance with a mutually agreed upon
               schedule.

         3.2  Section 3.2 OPTION TO INCREASE OR DECREASE QUANTITY, is hereby
              deleted in its entirety.

4.0      SOURCE

         4.1  The second sentence of Section 4.1, Source, is hereby deleted in
              its entirety and replaced with the following sentence: "As
              necessary solely to comply with the quality requirements of this
              Agreement, Seller may blend with coal from the Coal Property, coal
              from Seller's Dilworth, Mahoning Valley, Mine 84, VP#8, Buchanan,
              Bailey/Enlow Fork, Blacksville, Robinson Run and/or Windsor Mines
              (the "Alternate Mines")".

         4.2  The first two sentences of Section 4.2, Assurance of Operation and
              Reserves, are hereby deleted in their entireties and replaced with
              the following sentences: "Seller represents and warrants that the
              Coal Property and Alternate Mines together contain economically
              recoverable coal of a quality and in quantities which will be
              sufficient to satisfy all the requirements of this Agreement.
              Seller agrees and warrants that it will have at the Coal Property
              and Alternate Mines adequate machinery, equipment and other
              facilities to produce, prepare and deliver coal in the quantity
              and of the quality required by this Agreement."

         4.3  The first sentence of Section 4.4, Seller's Preparation of Mining
              Plan, is hereby deleted in its entirety and replaced with the
              following sentence: "Seller shall have prepared a complete mining
              plan for the Coal Property with adequate supporting data to
              demonstrate Seller's capability to have coal produced from the
              Coal Property which together with blend coal from the Alternate
              Mines meets the quantity and quality specifications of this
              Agreement."

         4.4  The first sentence of Section 4.5, Substitute Coal, is hereby
              deleted in its entirety and replaced with the following sentence:
              "Notwithstanding the above representations and warranties, in the
              event that Seller is unable to produce or obtain coal from the



                                                             CONSOL ENERGY INC.
                                                       LG&E CONTRACT #LGE 00010
                                                          KU CONTRACT #KUF00731
                                                                 AMENDMENT NO. 1

              Coal Property and the Alternate Mines in the quantity and of the
              quality required by this Agreement, and such inability is not
              caused by a force majeure event as defined in Section 10, then
              Buyer will have the option of requiring that Seller supply
              substitute coal from other facilities and mines."

         4.5  The last sentence of Section 4.5, Substitute Coal, is hereby
              deleted in its entirety and replaced with the following sentence:
              "Seller's delivery of coal not produced from the Coal Property or
              the Alternate Mines without having received the express written
              consent of Buyer shall constitute a material breach of this
              Agreement."

5.0      QUALITY

         5.1  Section 6.1 SPECIFICATIONS is modified and reads as follows

              "The calendar quarter limit of 3.25 lbs. Sulfur (6.50 lbs. SO2 per
              MMBTU) is effective only for the first quarter of calendar year
              2002 (January 1, 2002 through March 31, 2002). Effective April 1,
              2002, the maximum Guaranteed MONTHLY Weighted Average for Sulfur
              is 3.125 lbs. Sulfur per MMBTU (6.25 lbs. SO2 per MMBTU).

         5.2  The fourth and fifth sentences of the first paragraph of Section
              6.3 REJECTION are hereby deleted and replaced with the following
              sentences:

              "Seller shall replace the rejected coal within ten (10) working
              days from notice of rejection with coal conforming to the
              Rejection Limits set forth in Section 6.1. If Seller fails to
              replace the rejected coal within such ten (10) working day period
              or the replacement coal is rightfully rejected, Buyer may purchase
              coal from another source in order to replace the rejected coal."

6.0      PRICE

         6.1  Section 8.1 BASE PRICE is deleted and replaced with the following:

              "The base price ("Base Price") of the coal to be sold hereunder
              will be firm and will be determined by the criteria set forth in
              Section 3.1 in accordance with the following schedule:



                  YEAR               BASE PRICE ($ PER MMBTU)
                                    
                  2002                 $0.7521 for 2001 deficiency*
                  2002                 $0.9638**




                  
                  2003                 $1.0331

                  

              * The first tons delivered in 2002 will be the 2001 deficiency in
              the amount of 172,431 tons.
              ** The price is a weighted price based upon 394,800 carryover tons
              from 2000 at a price of $.7521 per MMBtu and 1,205,200 additional
              tons at a price of $1.0331 per MMBtu.

         6.2  Section 8.2 QUALITY PRICE DISCOUNTS is modified as follows:

                             MONTHLY DISCOUNT VALUES

                             BTU/LB.    $ 0.2604/MMBTU
                             ASH        $ 0.0083/LB/MMBTU
                             MOISTURE   $ 0.0016/LB/MMBTU
                             SULFUR     $ 0.1232/LB/MMBTU
                                          (Effective April 1, 2002)

                             QUARTERLY DISCOUNT VALUE (EFFECTIVE JANUARY
                             1, 2002 THROUGH MARCH 31, 2002.

                             SULFUR     $0.1232/LB/MMBTU



                        GUARANTEED MONTHLY WEIGHTED AVERAGE   DISCOUNT POINT
                                                        
         BTU                    Min.   12,100 BTU/LB          11,900 BTU/LB
         ASH                    Max.   11.20 LB/MMBTU         11.20 LB/MMBTU
         MOISTURE               Max.    5.60 LB/MMBTU         7.00 LB/MMBTU
         SULFUR                 Max.    3.125 LB/MMBTU(1)     3.25 LB/MMBTU


                        GUARANTEED QUARTERLY WEIGHTED AVERAGE  DISCOUNT POINT

                                                         
         SULFUR                 Max.     3.25 LB/MMBTU (2)     3.25 LB/MMBTU


              (1)  Effective April 1, 2002
              (2)  Effective January 1, 2002 through March 31, 2002



                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731
                                                                 AMENDMENT NO. 1

         6.3  Section 8.4 PRICE REVIEW is added and reads as follows:

              "The Base Price and all other terms and conditions of this
              Agreement shall be subject to review for any reason at the request
              of either party for revisions to become effective on January 1,
              2003. The party requesting such a review shall give written notice
              of its request to the other party on or before July 1, 2002. The
              parties then shall negotiate new prices and/or other terms and
              conditions between July 1 and October 1. If the parties do not
              reach an agreement by December 1, 2002 then this Agreement will
              terminate as of December 31, 2002 without liability due to such
              termination for either party."

7.0      INVOICES, BILLING AND PAYMENT

         7.1  Section 9.1 INVOICING is revised as follows:

              The copy of the invoice to the attention of the Manager Accounts
              Payable is eliminated.

         7.2  Section 9.3 PAYMENT PROCEDURES FOR COAL SHIPMENTS is deleted and
              replaced with the following:

              "For all coal delivered pursuant to Section 5 hereof, and unloaded
              at the Buyer's generating stations between the first (1st) and
              fifteenth (15th) days of any calendar month, Buyer shall make
              preliminary payment for seventy-five percent (75%) of the amount
              owed for the coal (based on the assumption that the coal will meet
              all guaranteed monthly quality parameters) by the twenty-fifth
              (25th) day of such month of delivery and unloading. If the 25th is
              not a regular working day, payment shall be made on the next
              regular working day. For all coal delivered, as defined in Section
              5 hereof, and unloaded at the Buyer's generating stations between
              the sixteenth (16th) and the last day of any calendar month, Buyer
              shall make preliminary payment for seventy-five percent (75%) of
              the delivered and unloaded coal by the tenth (10th) day of the
              month following the month of delivery and unloading. If the 10th
              is not a regular workday, payment shall be made on the next
              regular working day.

              Preliminary payment shall be in the amount of seventy-five percent
              (75%) of the then current price on a dollar per ton basis as
              calculated by the guaranteed monthly weighted average BTU/lb and
              the then current Base Price in cents per MMBTU.

              A reconciliation of amounts paid and amounts owed shall occur by
              the twenty-fifth (25th) day of the month following the month of
              delivery and unloading. (For example, Buyer will make one initial
              payment by September 25 for seventy-five



                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731
                                                                 AMENDMENT NO. 1

              percent (75%) of coal delivered and unloaded September 1 through
              15, and another initial payment by October 10 for seventy-five
              percent (75%) of coal delivered and unloaded September 16 through
              30. Reconciliation will occur by October 25 for all deliveries and
              unloadings made in September.) The reconciliation shall be made as
              follows: Seller shall invoice Buyer on or before the 15th day of
              the month following the month of delivery and unloading. The
              amount due for all coal (based on the Base Price minus any Quality
              Price Discounts) delivered and unloaded and accepted by Buyer
              during any calendar month shall be calculated and compared to the
              sum of the preliminary payments made for coal delivered and
              unloaded and accepted during such month. The difference shall be
              paid by or paid to Seller, as applicable, by the twenty-fifth
              (25th) day of the month following the month of delivery and
              unloading, except, that, if the 25th is not a regular working day,
              payment shall be made in the next regular working day. Buyer shall
              electronically transfer all payments to Seller's account at:

                              CONSOL Energy Inc.
                              Account No. 107-3965
                              ABA No. 043000261
                              Mellon Bank, NA
                              Pittsburgh, PA 15251

         7.3  Section 9.5 CREDIT RATING is added and reads as follows:

              "If the credit rating of either Buyer (if Buyer has a public
              rating) or Buyer's affiliates that have public ratings falls below
              investment grade (BBB - as defined by Standard & Poor's or the
              equivalent as defined by other public ratings agencies), Buyer
              shall, within thirty (30) days after Seller's written request,
              provide Seller with a mutually agreed upon form of credit
              enhancement (e.g., letter of credit, guaranty from an investment
              grade entity, etc.). Until the mutually acceptable assurances of
              good credit are received, Seller has the right to require payments
              in cash at the time of delivery. Such mutually acceptable
              assurances of good credit shall not be more than the average
              monthly outstanding net balance."

8.0      NOTICES

         8.1  Section 12.1 FORM AND PLACE OF NOTICE is modified as follows:

              "Notice if to Seller:    CONSOL Energy Inc.
                                       1800 Washington Road
                                       Pittsburgh, Pennsylvania 15241
                                       Attn: Executive Vice President, Marketing



                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731
                                                                 AMENDMENT NO. 1

              Notices and correspondence of a routine nature shall be addressed
              to Seller at:

                                        CONSOL Energy Inc.
                                        3701 Algonquin Road, Suite 300
                                        Rolling Meadows, Illinois 60008
                                        Attn: General Sales Manager

         8.2  Section 12.4 AGREEMENT ADMINISTRATION is modified as follows:
              "Consol Inc. shall read CONSOL Energy Inc."

9.0      RIGHT TO RESELL

              Section 13, RIGHT TO RESELL is revised as follows:

              "Buyer shall have the right to sell all or any of the coal
              purchased under this Agreement with the written approval of the
              Seller."

         IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
1 on the day and year below written, but effective as of the day and year first
set forth above.

LOUISVILLE GAS AND ELECTRIC COMPANY   McELROY COAL COMPANY

BY:  /s/ Paul W. Thompson             BY:  /s/ Robert F. Pusatere
     -----------------------------         ------------------------------

TITLE: SR. VICE PRESIDENT,            TITLE: VICE PRESIDENT, CONSOLENERGY INC.
       ENERGY SERVICES

DATE: 1/17/02                         DATE: JANUARY 07, 2002

KENTUCKY UTILITIES COMPANY            CONSOLIDATION COAL COMPANY

BY:  /s/ Paul W. Thompson             BY:   /s/ Robert F. Pusatere
     --------------------------            ------------------------------
TITLE: SR. VICE PRESIDENT,            TITLE: VICE PRESIDENT, CONSOLENERGY INC.
       ENERGY SERVICES

DATE: 1/17/02                         DATE: JANUARY 07, 2002



                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731
                                                                 AMENDMENT NO. 1

                                      CONSOL PENNSYLVANIA COAL COMPANY

                                      BY:  /s/  Robert F. Pusatere
                                           --------------------------------
                                      TITLE:  VICE PRESIDENT, CONSOL ENERGY INC.

                                      DATE:
                                           --------------------------------

                                      GREENON COAL COMPANY

                                      BY:  /s/  Robert F. Pusatere
                                           -------------------------------
                                      TITLE:  VICE PRESIDENT, CONSOL ENERGY INC.

                                      DATE:
                                           --------------------------------

                                      NINEVEH COAL COMPANY

                                      BY:  /s/  Robert F.  Pusatere
                                           --------------------------------

                                      TITLE:  VICE PRESIDENT, CONSOL ENERGY INC.

                                      DATE:
                                           --------------------------------

                                      EIGHTY FOUR MINING COMPANY

                                      BY:  /s/  Robert F. Pusatere
                                           --------------------------------

                                      TITLE:  VICE PRESIDENT, CONSOL ENERGY INC.

                                      DATE:
                                           --------------------------------

                                      ISLAND CREEK COAL COMPANY

                                      BY:  /s/ Robert F. Pusatere
                                           --------------------------------

                                      TITLE:  VICE PRESIDENT, CONSOL ENERGY INC.

                                      DATE:
                                           --------------------------------



                                                              CONSOL ENERGY INC.
                                                        LG&E CONTRACT #LGE 00010
                                                           KU CONTRACT #KUF00731
                                                                 AMENDMENT NO. 1

                                      WINDSOR COAL COMPANY

                                      BY:  /s/ ROBERT F. PUSATERE
                                           --------------------------------

                                      TITLE:  VICE PRESIDENT, CONSOL ENERGY INC.

                                      DATE:
                                           --------------------------------

EX-10.53

                                                                   Exhibit 10.53

                              COAL SUPPLY AGREEMENT

         This is a coal supply agreement (the "Agreement") dated July 22, 2001
between KENTUCKY UTILITIES COMPANY, a Kentucky corporation, 220 West Main
Street, Louisville, Kentucky 40202 ("Buyer"), and ARCH COAL SALES COMPANY, INC.,
a Delaware corporation, agent for the independent operating subsidiaries of ARCH
COAL, INC., a Delaware corporation (collectively "Seller"), whose address is
CityPlace One, Suite 300, St. Louis, Missouri 63141.

         The parties hereto agree as follows:

         SECTION 1.GENERAL. Seller will sell to Buyer and Buyer will buy
from Seller steam coal under all the terms and  conditions of this Agreement.

         SECTION 2. TERM. The term of this Agreement shall commence on January
1, 2002 and shall continue through December 31, 2005, subject to early
termination pursuant to the terms of Sections 6.4, 8.1, 10.2, 15 and 20.7.

         SECTION 3. QUANTITY.

         Section 3.1 BASE QUANTITY. Subject to the price review set forth in
Section 8.1, Seller shall sell and deliver, and Buyer shall purchase and accept
delivery of the following annual base quantity of coal ("Base Quantity"):



                  YEAR                      BASE QUANTITY (TONS)
                  ----                      --------------------
                                             
                  2002                            600,000
                  2003                          1,000,000
                  2004                          1,000,000
                  2005                          1,000,000




                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

         The Base Quantity will be delivered in approximately equal monthly
quantities and in accordance with a mutually agreed-upon schedule, assuming
adjustments in scheduling for maintenance outages. In the event Buyer fails to
take delivery of the Base Quantity in any calendar year for reasons other than
an event of Force Majeure under Section 10, delivery of non-conforming coal,
failure by Seller to deliver coal in accordance with the terms of this
Agreement, or any other reasons excused hereunder, any deficiency in deliveries
shall be made up or carried over to subsequent year(s) only upon mutual written
agreement of both Buyer and Seller.

         Section 3.2 REDUCTION OF BASE QUANTITY. Seller acknowledges that Buyer
intends to enter into purchase orders with Black Hawk Synfuel, LLC ("Black
Hawk") and Ceredo Synfuel, LLC ("Ceredo"). The purchase order(s) with Black Hawk
will provide for the sale of synfuel to Buyer by Black Hawk and for delivery at
the Quincy Dock located at mile point 73.2 on the Kanawha River. The purchase
order(s) with Ceredo will provide for the sale of synfuel to Buyer by Ceredo and
for delivery at the KRT Terminal located at mile point 314.7 on the Ohio River.
If Buyer enters into such purchase orders with Black Hawk and/or Ceredo
("Buyer's Synfuel Purchase Orders"), Buyer will forward copies of Buyer's
Synfuel Purchase Orders to Seller.

         At such time as Seller receives copies of Buyer's Synfuel Purchase
Orders, Seller will enter into purchase orders ("Seller's Synfuel Purchase
Orders") to sell a corresponding amount of coal (the "Corresponding Tons") to
the respective seller of synfuel under the applicable Seller's Purchase Order
(either Black Hawk or Ceredo or both, as the case may be). Buyer and Seller will
coordinate efforts so that (a) the purchase orders are simultaneously executed
and reflect the same number of tons and other terms (except price), and (b) the
number of tons of synfuel delivered to Buyer corresponds with the number of tons
of coal delivered to Black Hawk and/or Ceredo by Seller. Provided, however, in
the event the Seller is unable, after reasonable efforts, to

                                       2


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

reach agreement with the seller of synfuel concerning a purchase order for
delivery of the Corresponding Tons in accordance with the terms of this
Agreement, then Seller shall have no further obligation under this Section 3.2
to enter into a purchase order with such synfuel seller. Buyer and Seller agree
that for each Corresponding Ton sold by Seller to Ceredo and/or Black Hawk
pursuant to this Section 3.2 and for which Seller receives full payment, the
annual Base Quantity required to be purchased by Buyer pursuant to Section 3.1
hereof shall be reduced by an equivalent amount. Seller shall provide to Buyer
within twenty days after each calendar quarter a written accounting of the
Corresponding Tons sold by Seller to Ceredo and/or Black Hawk during the prior
calendar quarter. Seller acknowledges and agrees that Buyer has no obligation to
enter into Buyer's Purchase Orders; however, if Buyer determines it wishes to
enter into Buyer's Purchase Orders, upon Buyer's request and subject to the
terms and conditions set forth in this Section, Seller will enter into Seller's
Purchase Orders.

            SECTION 4. SOURCE.

         Section 4.1 SOURCE. The coal sold hereunder shall be supplied by Seller
from coal mines owned or controlled by Arch Coal, Inc., its subsidiaries or
affiliates, in Mingo, Logan, Lincoln, Boone and Kanawha counties, West Virginia.
Seller shall determine, in its discretion, which mine or mines shall produce the
coal to be supplied to Buyer for each shipment, provided that Buyer receives
subject to Section 10 a continuous supply of the quantity and the quality of
coal to be provided hereunder. Arch Coal, Inc., benefits from this Agreement as
supplier of the coal to be sold hereunder and as the parent corporation of Arch
Coal Sales Co., Inc., and therefore is guarantor of Seller's obligations
hereunder pursuant to a Guaranty Agreement of even date.

         Section 4.2 ASSURANCE OF OPERATION AND RESERVES. Seller represents and
warrants that the Coal Property contains economically recoverable coal of a
quality and in quantities which will be

                                        3


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

sufficient to satisfy all the requirements of this Agreement subject to Seller
obtaining issuance of necessary permits. Seller agrees and warrants that it will
have at the Coal Property adequate machinery, equipment and other facilities to
produce, prepare and deliver coal in the quantity and of the quality required by
this Agreement. Seller further agrees to operate and maintain such machinery,
equipment and facilities in accordance with good mining practices so as to
efficiently and economically produce, prepare and deliver such coal. Seller
agrees that Buyer is not providing any capital for the purchase of such
machinery, equipment and/or facilities and that Seller shall operate and
maintain same at its sole expense, including all required permits and licenses.
Seller hereby allocates to this Agreement sufficient reserves of coal meeting
the quality specifications hereof and lying on or in the Coal Property so as to
fulfill the quantity requirements hereof.

         Section 4.3 NON-DIVERSION OF COAL. Seller agrees and warrants that it
will not, without Buyer's express prior written consent, use or sell coal from
the Coal Property in a way that will reduce the economically recoverable balance
of coal in the Coal Property to an amount less than that required to be supplied
to Buyer hereunder.

         Section 4.4 SELLER'S PREPARATION OF MINING PLAN. Seller shall have
prepared a complete mining plan for the Coal Property with adequate supporting
data to demonstrate Seller's capability to have coal produced from the Coal
Property which meets the quantity and quality specifications of this Agreement.
Seller shall, upon Buyer's request during Coal Property Inspections, if any
(made pursuant to Section 19), provide information to Buyer of such mining plan
which shall contain maps and a narrative depicting areas and seams of coal to be
mined and shall include (but not be limited to) the following information: (i)
reserves from which the coal will be produced during the term hereof and the
mining sequence, by year (or such other time intervals as mutually

                                        4


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

agreed) during the term of this Agreement, from which coal will be mined; (ii)
methods of mining such coal; (iii) methods of transporting and, in the event a
preparation plant is utilized by Seller, the methods of washing coal to insure
compliance with the quantity and quality requirements of this Agreement
including a description and flow sheet of the preparation plant; (iv) quality
data plotted on the maps depicting data points and isolines by ash, sulfur, and
Btu; (v) quality control plans including sampling and analysis procedures to
insure individual shipments meet quality specifications; and (vi) Seller's
aggregate commitments to others to sell coal from the Coal Property during the
term of this Agreement.

         Buyer's receipt of information or data furnished by Seller (the "Mining
Information") shall not in any manner relieve Seller of any of Seller's
obligations or responsibilities under this Agreement; nor shall such review be
construed as constituting an approval of Seller's proposed mining plan as
prudent mining practices, such review by Buyer being limited solely to a
determination, for Buyer's purposes only, of Seller's capability to supply coal
to fulfill Buyer's requirements of a dependable coal supply.

         Section 4.5 SUBSTITUTE COAL. Notwithstanding the above representations
and warranties, in the event that Seller is unable to produce or obtain coal
from the Coal Property in the quantity and of the quality required by this
Agreement, and such inability is not caused by a force majeure event as defined
in Section 10, then Buyer will have the option of requiring that Seller supply
coal from Seller's other facilities and mines or Seller shall also have the
right to supply coal from sources not owned or controlled by Seller after having
received Buyer's prior written consent (which shall not be unreasonably
withheld). Such substitute coal shall be provided under all the terms and
conditions of this Agreement including, but not limited to, the price provisions
of Section8, the quality specifications of Section 6.1, and the provisions of
Section 5 concerning reimbursement to Buyer for

                                        5


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

increased transportation costs. Seller's delivery of coal not produced from the
Coal Property without having received the express written consent of Buyer shall
constitute a material breach of this Agreement.

         SECTION 5. DELIVERY.

         Section 5.1 BARGE DELIVERY. The coal shall be delivered to Buyer F.O.B.
barge at the following points (the "Delivery Point"):

         (i)   for coal to be delivered by rail to barge from mines served by
CSXT: Huntington Coal Terminal (HCT), KRT-Ceredo, and Ohio River Terminal (ORT)
located at mile points 309.1, 314.5, and 306.0 respectively on the Ohio River;

         (ii)  for coal to be delivered by rail to barge from mines served by
NS: Wheelersburg Terminal, KRT-Ceredo and Transfer Terminal located at mile
points 344.6, 314.5 and 316.1 respectively on the Ohio River;

         (iii) for coal to be delivered by truck to barge: Port Amherst Dock
located at mile point 63.9 on the Kanawha River, Arch Coal Terminal (ACT)
located at mile point 318.0 on the Ohio River, and Paint Creek Terminal (PCT)
located at mile point 79.2 on the Kanawha River.

         Seller may deliver the coal at a location different from the Delivery
Points, provided, however, that Seller shall reimburse Buyer for any resulting
increases in the cost of transporting the coal to Buyer's generating stations.
Buyer shall retain any resulting savings in such transportation costs.

         Title to and risk of loss of coal sold will pass to Buyer and the coal
will be considered to be delivered when barges containing the coal are
disengaged by Buyer's barging contractor from the loading dock. Buyer or its
contractor shall furnish suitable barges in accordance with a delivery schedule
provided by Buyer to Seller. Seller shall arrange and pay for all costs of

                                        6


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

transporting the coal from the mines to the loading docks and loading and
trimming the coal into barges to the proper draft and the proper distribution
within the barges. Buyer shall arrange for transporting the coal by barge from
the loading dock to its generating station(s) and shall pay for the cost of such
transportation. For delays caused by Seller in handling the scheduling of
shipments with Buyer's barging contractor, Seller shall be responsible for any
demurrage or other penalties assessed by said barging contractor (or assessed by
Buyer) which accrue at the Delivery Point, including the demurrage, penalties
for loading less than the minimum of 1,500 tons per barge, or other penalties
assessed for barges not loaded in conformity with applicable requirements. Buyer
shall be responsible to deliver barges in as clean and dry condition as
practicable. Seller shall require of the loading dock operator that the barges
and towboats provided by Buyer or Buyer's barging contractor be provided
convenient and safe berth free of wharfage, dockage and port charges; that while
the barges are in the care and custody of the loading dock, all U.S. Coast Guard
regulations and other applicable laws, ordinances, rulings, and regulations
shall be complied with, including adequate mooring and display of warning
lights; that any water in the cargo boxes of the barges be pumped out by the
loading dock operator prior to loading; that the loading operations be performed
in a workmanlike manner and in accordance with the reasonable loading
requirements of Buyer and Buyer's barging contractor; and that the loading dock
operator carry landing owner's or wharfinger's insurance with basic coverage of
not less than $300,000, and total of basic coverage and excess liability
coverage of not less than $1,000,000, and provide evidence thereof to Buyer in
the form of a certificate of insurance from the insurance carrier or an
acceptable certificate of self-insurance with requirement for 30 days advance
notification of Buyer in the event of termination of or material reduction in
coverage under the insurance.

                                        7


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

         SECTION 6. QUALITY.

         Section 6.1  SPECIFICATIONS.  The coal delivered  hereunder shall
conform to the following  specifications on an "as received" basis:



                                            Guaranteed Monthly                  Rejection Limits
         Specifications                     Weighted Average (1)                (per shipment)
- ------------------------------------------------------------------------------------------------
                                                                          
         BTU/LB.                            min. 12,000                         <       11,800
                                                 ------                                 ------
         LBS/MMBTU:
         MOISTURE                           max.  6.67                          >        8.33
                                                 ------                                 ------
         ASH                                max. 10.83                          >        11.66
                                                 ------                                 ------
         SULFUR                             max.  0.60 *                        >        0.60
                                                 ------                                 ------
         SULFUR                             min.  NA                            <          NA
                                                 ------                                 ------
         CHLORINE                           max.  0.142                         >        0.21
                                                 ------                                 ------
         NITROGEN                           max.  1.190                         >        1.66
                                                 ------                                 ------

         SIZE (2" X 0"):
              Top size (inches)**           max.  2X0                           >          2X0
                                                 ------                                 ------
              Fines (% by wgt)
              Passing 1/4" screen           max.   40                           >           50
                                                 ------                                 ------

         % BY WEIGHT:
         VOLATILE                           min.   32                           <           30
                                                 ------                                 ------
         FIXED CARBON                       min.   52                           <           50
                                                 ------                                 ------
         GRINDABILITY (HGI)                 min.   42                           <           42
                                                 ------                                 ------

         ASH FUSION TEMPERATURE (DEG.F) (ASTM D1857)

         REDUCING ATMOSPHERE
         Initial Deformation                min. +2700                          min.     +2700
                                                 ------                                 ------
         Softening (H=W)                    min. +2700                          min.     +2700
                                                 ------                                 ------
         Softening (H=1/2W)                 min. +2700                          min.     +2700
                                                 ------                                 ------
         Fluid                              min. +2700                          min.     +2700
                                                 ------                                 ------

         OXIDIZING ATMOSPHERE
         Initial Deformation                min. +2700                          min.     +2700
                                                 ------                                 ------


         * Individual barge shipment limit of 1.20 lbs. SO2/MMBTU

                                        8


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

                                                                 
         Softening (H=W)                    min. +2700                          min.     +2700
                                                 ------                                 ------
         Softening (H=1/2W)                 min. +2700                          min.     +2700
                                                 ------                                 ------
         Fluid                              min. +2700                          min.     +2700
                                                 ------                                 ------

         

         (1) An actual  Monthly  Weighted  Average  will be  calculated  for
         each  specification  for coal  delivered  to the Kentucky Utilities
         Ghent generating station.
         Note:    As used herein            >        means greater than:
                                            <        means less than.

         Section 6.2 DEFINITION OF "SHIPMENT". As used herein, a "shipment"
shall mean one barge load or a barge lot load, in accordance with Buyer's
sampling and analyzing practices.

         Section 6.3 BUYER AGREES THAT SELLER MAKES NO EXPRESS WARRANTIES OTHER
THAN THOSE SET FORTH IN THIS AGREEMENT. SELLER MAKES NO WARRANTY CONCERNING THE
SUITABILITY OF COAL DELIVERED HEREUNDER FOR USE IN BUYER'S PLANT, OR OTHER
ELECTRIC GENERATION STATION. ALL WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR
A PARTICULAR PURPOSE OR ARISING FROM A COURSE OF DEALING OR USAGE OF TRADE ARE
SPECIFICALLY EXCLUDED.

         Section 6.4 Rejection.

         Buyer has the right, but not the obligation, to reject any shipment
which fail(s) to conform to the Rejection Limits set forth in Section 6.1 or
contains extraneous materials that in the reasonable judgement of Buyer could
interfere with the Buyer's operation. Buyer must reject such coal within
seventy-two (72) hours of receipt of the coal analysis provided for in Section
7.2 or such right to reject is waived. In the event Buyer rejects such
non-conforming coal, title to and risk of loss of the coal shall be considered
to have never passed to Buyer and Buyer shall return the coal to Seller or, at
Seller's request, divert such coal to Seller's designee, all at Seller's cost
and risk. Seller shall replace the rejected coal within ten (10) working days
from notice of rejection with coal conforming to the Rejection Limits set forth
in Section 6.1. If Seller fails to replace the rejected

                                        9


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

coal within such ten (10) working day period or the replacement coal is
rightfully rejected, Buyer may purchase coal from another source in order to
replace the rejected coal. Seller shall reimburse Buyer for (i) any amount by
which the actual price plus transportation costs to Buyer of such coal purchased
from another source exceed the price of such coal under this Agreement plus
transportation costs to Buyer from the Delivery Point; and (ii) any and all
transportation, storage, handling, or other expenses that have been incurred by
Buyer for rightfully rejected coal. This remedy is in addition to all of Buyer's
other remedies under this Agreement and under applicable law and in equity for
Seller's breach.

         If Buyer fails to reject a shipment of non-conforming coal which it had
the right to reject for failure to meet any or all of the Rejection Limits set
forth in Section 6.1 or because such shipment contained extraneous materials,
then such non-conforming coal shall be deemed accepted by Buyer; however, the
quantity Seller is obligated to sell to Buyer under the Agreement may or may not
be reduced by the amount of each such non-conforming shipment at Buyer's sole
option and the shipment shall nevertheless be considered "rejectable" under
Section 6.4. Further, for shipments containing extraneous materials, which
include, but are not limited to, slate, rock, wood, mining materials, metal,
steel, etc., the estimated weight of such materials shall be deducted from the
weight of that shipment.

         Section 6.5 SUSPENSION AND TERMINATION.

         If the coal sold hereunder fails to meet one or more of the Guaranteed
Monthly Weighted Averages set forth in Section6.1 for any two (2) months in a
six (6) month period, or if nine (9) barge shipments in a 30 day period are
rejectable by Buyer, then Buyer may upon notice confirmed in writing and sent to
Seller by certified mail, suspend future shipments except shipments already
loaded into barges. Seller shall, within 10 days of receipt of Buyer's notice,
provide Buyer with

                                       10


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

reasonable assurances that subsequent monthly deliveries of coal shall meet or
exceed the Guaranteed Monthly Weighted Averages set forth in Section 6.1 and
that the source will exceed the Rejection Limits set forth in Section 6.1. If
Seller fails to provide such assurances within said 10 day period, Buyer may
terminate this Agreement by giving written notice of such termination at the end
of the 10 day period. A waiver of this right for any one period by Buyer shall
not constitute a waiver for subsequent periods. If Seller provides such
assurances to Buyer's reasonable satisfaction, shipments hereunder shall resume
and any tonnage deficiencies resulting from suspension may be made up at Buyer's
sole option. Buyer shall not unreasonably withhold its acceptance of Seller's
assurances, or delay the resumption of shipment. If Seller, after such
assurances, fails to meet any of the Guaranteed Monthly Weighted Averages for
any one (1) month within the next six (6) months or if three (3) barge shipments
are rejectable within any one (1) month during such six (6) month period, then
Buyer may terminate this Agreement and exercise all its other rights and
remedies under applicable law and in equity for Seller's breach.

         SECTION 7. WEIGHTS, SAMPLING AND ANALYSIS.

         Section 7.1 WEIGHTS. The weight of the coal delivered hereunder shall
be determined on a per shipment basis by Buyer on the basis of scale weights at
the Ghent Generating Station unless another method is mutually agreed upon by
the parties. Such scales shall be maintained in an accurate condition according
to NIST Handbook 44. Seller shall have the right, at Seller's expense and upon
reasonable notice, to have the scales checked for accuracy at any reasonable
time or frequency. If the scales are found to be over or under the tolerance
range allowable for the scale based on industry accepted standards, either party
shall pay to the other any amounts owed due to such inaccuracy for a period not
to exceed thirty (30) days before the time any inaccuracy of scales is
determined.

                                       11


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

         Section 7.2 SAMPLING AND ANALYSIS. The Seller has sole responsibility
for quality control of the coal and shall forward its loading quality to the
Buyer as soon as possible. The sampling and analysis of the coal delivered
hereunder shall be performed by Buyer and the results thereof shall be accepted
and used for the quality and characteristics of the coal delivered under this
Agreement. All analyses shall be made in Buyer's laboratory at Buyer's expense
in accordance with Buyer's approved methods. Samples for analyses shall be taken
by Buyer in accordance with industry accepted procedures of sampling, may be
composited and shall be taken with a frequency and regularity sufficient to
provide reasonably accurate representative samples of the deliveries made
hereunder. Seller represents that it is familiar with Buyer's sampling and
analysis practices, and finds them to be acceptable. Buyer shall notify Seller
in writing of any significant changes in Buyer's sampling and analysis
practices. Any such changes in Buyer's sampling and analysis practices shall
provide for no less accuracy than the sampling and analysis practices existing
at the time of the execution of this Agreement, unless the Parties otherwise
mutually agree.

         Each sample taken by Buyer shall be divided into 4 parts and put into
airtight containers, properly labeled and sealed. One part shall be used for
analysis by Buyer; one part shall be used by Buyer as a check sample, if Buyer
in its sole judgment determines it is necessary; one part shall be retained by
Buyer until thirty (30) days ("Disposal Date") after the sample is taken, and
shall be delivered to Seller for analysis if Seller so requests before the
Disposal Date; and one part ("Referee Sample") shall be retained by Buyer until
the Disposal Date. Seller shall be given copies of all analyses made by Buyer by
the 12th business day of the month following the month of unloading, in
addition, Buyer will send weekly analyses of coal unloadings to Seller. Seller,
on reasonable notice to Buyer shall have the right to have a representative
present to observe the

                                       12


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

sampling and analyses performed by Buyer. Unless Seller requests a Referee
Sample analysis before the Disposal Date, Buyer's analysis shall be used to
determine the quality of the coal delivered hereunder. The Monthly Weighted
Averages shall be determined by utilizing the individual shipment analyses.

         If any dispute arises before the Disposal Date, the Referee Sample
retained by Buyer shall be submitted for analysis to an independent commercial
testing laboratory ("Independent Lab") mutually chosen by Buyer and Seller. All
testing of any such sample by the Independent Lab shall be at requestor's
expense unless the results differ by more than the applicable ASTM
reproducibility standards, in such case, Buyer will pay for testing. If the
Independent Lab results differ by more than the applicable ASTM reproducibility
standards, the Independent Lab results will govern. The cost of the analysis
made by the Independent Lab shall be borne by Seller if Buyer's analysis
prevails and by Buyer if the analysis of the Independent Lab prevails.

         SECTION 8. PRICE.

         Section 8.1 BASE PRICE. The base price ("Base Price") of the coal to be
sold hereunder will be firm during each time period of this Agreement in
accordance with the following schedule, subject to adjustment only for quality
variations pursuant to Section 8.2 and Governmental Impositions pursuant to
Section 8.4. See EXHIBIT B for a listing of these pricing components.



                                                                  BASE PRICE
     PERIOD                  LOADING POINT           ($ PER MMBTU)          ($ PER TON)
                                                                   
     1/1/02 - 12/31/03       Huntington, WV Docks    1.8333 F.O.B. barge    $44.00
     1/1/04 - 12/31/05                                      *


         * Buyer and Seller will begin negotiating price and other terms and
conditions on or before July 1 of the preceding year, with the intent to reach a
mutually agreed price which would

                                       13


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

begin on January 1, 2004 or January 1, 2005, as appropriate. If the parties do
not reach an agreement by October 1, of either 2003 or 2004, then this Agreement
will terminate as of December 31, 2003 or December 31, 2004, as appropriate,
without liability due to such termination for either party, and the parties
shall have no further obligations hereunder except those incurred prior to the
date of termination.

         Section 8.2 QUALITY PRICE DISCOUNTS.

         (a) The Base Price is based on coal meeting or exceeding the Guaranteed
Monthly Weighted Averages specifications as set forth in Section 6.1. Quality
price discounts shall be applied for each specification to reflect failures to
meet the Guaranteed Monthly Weighted Averages or Individual Barge Shipment SO2
specifications set forth in Section 6.1, as determined pursuant to Section 7.2,
subject to the provisions set forth below. The discount values used are as
follows:

                             MONTHLY DISCOUNT VALUES

                                            $/MMBTU
                                 BTU/LB.    0.2604

                                            $/LB./MMBTU
                                 ASH        0.0083
                                 MOISTURE0. 0016

                             INDIVIDUAL BARGE DISCOUNT VALUE

                                            $/TON
                                 SO2        3.00

         (b) Notwithstanding the foregoing, for each specification, there shall
be no discount if the actual Monthly Weighted Average meets the applicable
Discount Point set forth below. However, if the actual Monthly Weighted Average
fails to meet such applicable Discount Point,

                                       14


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

then the discount shall apply to and shall be calculated on the basis of the
difference between the actual Monthly Weighted Average and the Guaranteed
Monthly Weighted Average pursuant to the methodology shown in Exhibit A attached
hereto.



                                 Guaranteed Monthly
                                 Weighted Average            Discount Point
                                 ------------------          --------------
                                                           
BTU/LB                           Min.  12,000                    11,800

LB/MMBTU:
ASH                              Max. 10.83                      10.83
MOISTURE                         Max.   6.67                      8.33

                                 Guaranteed Barge
                                  LbsSO(2)/Mmbtu             Discount Point
                                 ----------------            --------------
LB/MMBTU:

SO(2)                            Max.    1.20                    1.20


         For example, if the actual Monthly Weighted Average of ash equals 11.00
lb/MMBTU, then the applicable discount would be (11.00 lb./mmbtu - 10.83
lb./mbtu) X $.0083 lb./mmbtu = $.001411/MMBTU.

         Section 8.3 PAYMENT CALCULATION Exhibit A attached hereto shows the
methodology for calculating the coal payment and quality price discounts for the
month Seller's coal was unloaded by Buyer. If there are any such discounts,
Buyer shall apply credit to amounts owed Seller for the month the coal was
unloaded.

         Section 8.4 GOVERNMENTAL IMPOSITION.

         (a) The term "Governmental Imposition" shall mean any taxes, fees,
assessments or other obligations which are imposed by any government or
governmental agency pursuant to any new law, regulation or ruling, or pursuant
to changes in the interpretation or application of existing

                                       15


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

laws, regulations or rulings, which cause an increase or decrease in Seller's
cost for the production, mining, or preparation of coal to be supplied to Buyer
hereunder. If any Governmental Imposition is adopted or becomes effective on or
after January 1, 2002, Seller shall notify Buyer and shall demonstrate to Buyer
that such Governmental Imposition has increased or decreased Seller's cost of
owning or operating the coal mines designated as sources hereunder as it relates
to the production, mining or preparation of coal from such mines for sale to
Buyer under this Agreement. The purchase price for coal to be paid by Buyer
hereunder shall then be adjusted by adding or subtracting the per ton cost of
the Governmental Imposition to determine an adjusted purchase price. If the
Governmental Imposition will continue for the life of this Agreement, then the
purchase price for subsequent Contract Years, if any, shall also be adjusted by
the per ton amount of the Governmental Imposition.

         (b) Seller shall submit to Buyer in writing, an analysis identifying
the Governmental Imposition causing the cost impact and the extent of such cost
impact on Seller's ownership or operation of the coal mines or on Seller's cost
for the production, mining or preparation of coal purchased hereunder and
showing the calculation of the amount of change in the purchase price. The
effective date of any price increase or decrease pursuant to this section shall
be the effective date of the Governmental Imposition causing the cost increase
or decrease, as the case may be.

         SECTION 9. INVOICES, BILLING AND PAYMENT.

Section 9.1 INVOICING:

Invoices for Buyer will be sent to the following address:

                  Kentucky Utilities Company
                  220 West Main Street
                  Louisville, KY  40202
                  Attention:  Fuels Management Department

         Section 9.2 INVOICE PROCEDURES FOR COAL SHIPMENTS. Seller shall invoice
Buyer at the Base Price, minus any quality price discounts, for all coal
unloaded in a calendar month by the fifteenth (15th) of the following month.

                                       16


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

         Section 9.3 PAYMENT PROCEDURES FOR COAL SHIPMENTS. Payment for coal
unloaded in a calendar month shall be mailed or wired by the 25th of the month
following the month of unloading, except that, if the 25th is a weekend or a
holiday observed by the Buyer, payment shall be made on the next business day or
within ten days after receipt of Seller's invoice, whichever is later. Buyer
shall electronically transfer all payments to Seller's account at:

                           Arch Coal, Inc.

                           PNC Bank - Pittsburgh, PA
                           ABA Number:  043000096
                           Account Number:  1002430324

         Section 9.4 WITHHOLDING. Buyer shall have the right to withhold from
payment of any billing or billings (i) any sums which it is not able in good
faith to verify or which it otherwise in good faith disputes, (ii) any damages
resulting from any breach of this Agreement by Seller, and (iii) any amounts
owed to Buyer from Seller. Buyer shall notify Seller promptly in writing of any
such issues, stating the basis of its claim and the amount it intends to
withhold.

         Payment by Buyer, whether knowing or inadvertent, of any amount in
dispute shall not be deemed a waiver of any claims or rights by Buyer with
respect to any disputed amounts or payments made.

         SECTION 10. FORCE MAJEURE.

         Section 10.1 GENERAL FORCE MAJEURE. If either party hereto is delayed
in or prevented from performing any of its obligations or from utilizing the
coal sold under this Agreement, in whole or in part, due to acts of God, war,
riots, civil insurrection, acts of the public enemy, inability to obtain permits
after applying for same with reasonable diligence, strikes, lockouts, fires,
floods or earthquakes, or other causes of a similar nature, which are beyond the
reasonable control and without the fault or negligence of the party affected
thereby, then the obligations of both parties

                                       17


hereto shall be suspended to the extent made necessary by such event; provided
that the affected party gives written notice to the other party as early as
practicable after the occurrence of the force majeure event. Such written notice
shall include the probable duration and the nature of the force majeure event.
The party declaring force majeure shall exercise due diligence to avoid and
shorten the force majeure event and will keep the other party advised as to the
continuance of the force majeure event. Notwithstanding anything herein to the
contrary, the parties acknowledge that for purposes of application of this
Section 10 FORCE MAJEURE, the basis for Seller's claim of Force Majeure shall be
the particular source or sources identified under Section 4 which are affected
by a Force Majeure event and from which Seller is supplying coal to Buyer at the
time of such event. Upon the occurrence of a Force Majeure event affecting such
particular source or sources from which Seller is supplying coal to Buyer,
Seller shall not be obligated to supply coal from any other source.

         During any period in which Seller's ability to perform hereunder is
affected by a force majeure event, Seller shall not deliver any coal to any
other buyers to whom Seller's ability to supply is similarly affected by such
force majeure event unless contractually committed to do so at the beginning of
the force majeure event; and further shall deliver to Buyer under this Agreement
at least a pro rata portion (on a per ton basis) of its total contractual
commitments to all its buyers to whom Seller's ability to supply is similarly
affected by such force majeure event in place at the beginning of the force
majeure event. An event which affects the Seller's ability to produce or obtain
coal from a mine other than the Coal Property will not be considered a force
majeure event hereunder.

         Tonnage deficiencies resulting from Seller's force majeure event shall
be made up at Buyer's sole option on a mutually agreeable schedule; tonnage
deficiencies resulting from

                                       18


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

Buyer's force majeure event shall be made up at Seller's sole option on a
mutually agreeable schedule.

         Section 10.2 ENVIRONMENTAL LAW FORCE MAJEURE. The parties recognize
that, during the continuance of this Agreement, legislative or regulatory bodies
or the courts may adopt or reinterpret environmental laws, regulations, policies
and/or restrictions which will make it impossible or commercially impracticable
for Buyer to utilize this or like kind and quality coal which thereafter would
be delivered hereunder. If as a result of the adoption or reinterpretation of
such laws, regulations, policies, or restrictions, or change in the
interpretation or enforcement thereof, Buyer decides that it will be impossible
or commercially impracticable (uneconomical) for Buyer to utilize such coal,
Buyer shall so notify Seller, and thereupon Buyer and Seller shall promptly
consider whether corrective actions can be taken in the mining and preparation
of the coal at Seller's mine and/or in the handling and utilization of the coal
at Buyer's generating station; and if in Buyer's sole judgment such actions will
not, without unreasonable expense to Buyer, make it possible and commercially
practicable for Buyer to so utilize coal which thereafter would be delivered
hereunder without violating any applicable law, regulation, policy or order,
Buyer shall have the right, upon the later of 60 days notice to Seller or the
effective date of such restriction, to terminate this Agreement without further
obligation hereunder on the part of either party.

         Section 11. CHANGES. Buyer may, by mutual agreement with Seller, at any
time by written notice pursuant to Section 12 of this Agreement, make changes
within the general scope of this Agreement in any one or more of the following
quality of coal or coal specifications, quantity of coal, method or time of
shipments, place of delivery (including transfer of title and risk of loss),

                                       19


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

method(s) of weighing, sampling or analysis and such other provision as may
affect the suitability and amount of coal for Buyer's generating stations.

         If any such changes makes necessary or appropriate an increase or
decrease in the then current price per ton of coal, or in any other provision of
this Agreement, an equitable adjustment shall be made in price, whether current
or future or both, and/or in such other provisions of this Agreement as are
affected directly or indirectly by such change, and the Agreement shall
thereupon be modified in writing accordingly.

         Any claim by the Seller for adjustment under this Section 11 shall be
asserted within thirty (30) days after the date of Seller's receipt of the
written notice of the requested change, it being understood, however that Seller
shall not be obligated to modify this Agreement until an equitable adjustment
has been agreed upon. The parties agree to negotiate promptly and in good faith
to agree upon the nature and extent of any equitable adjustment.

         SECTION 12. NOTICES.

         Section 12.1 FORM AND PLACE OF NOTICE. Any official notice, request for
approval or other document required to be given under this Agreement shall be in
writing, unless otherwise provided herein, and shall be deemed to have been
sufficiently given when delivered in person, transmitted by facsimile or other
electronic media, delivered to an established mail service for same day or
overnight delivery, or dispatched in the United States mail, postage prepaid,
for mailing by first class, certified, or registered mail, return receipt
requested, and addressed as follows:

         If to Buyer:           Kentucky Utilities Company
                                220 West Main Street
                                Louisville, Kentucky 40202
                                Attn.: Director, Corporate Fuels

                                       20


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

         If to Seller:          Arch Coal Sales Company, Inc.
                                CityPlace One, Suite 300
                                St. Louis, Missouri  63141
                                Attn: Regional Vice-President Sales

         Section 12.2 CHANGE OF PERSON OR ADDRESS. Either party may change the
person or address specified above upon giving written notice to the other party
of such change.

         SECTION 12.3 Electronic Data Transmittal. Seller hereby agrees, at
Seller's cost, to electronically transmit shipping notices and/or other data to
Buyer in a format acceptable to and established by Buyer upon Buyer's request.
Buyer shall provide Seller with the appropriate format and will inform Seller as
to the electronic data requirements at the appropriate time.

         SECTION 13. RIGHT TO RESELL. Buyer shall have the unqualified right to
sell all or any of the coal purchased under this Agreement. Seller makes no
representations or warranties concerning any coal that Buyer resells to other
parties, and Buyer shall indemnify and defend Seller against any claims arising
from the sale of coal by Buyer to any such parties or the use thereof by those
parties.

         SECTION 14. INDEMNITY AND INSURANCE.

         Section 14.1 INDEMNITY. Seller agrees to indemnify and save harmless
Buyer, its officers, directors, employees and representatives from any
responsibility and liability for any and all claims, demands, losses, legal
actions for personal injuries, property damage and pollution (including
reasonable inside and outside attorney's fees) (i) relating to the barges
provided by Buyer or Buyer's contractor while such barges are in the care and
custody of the loading dock or loading facility, (ii) due to any failure of
Seller to comply with laws, regulations or ordinances, or (iii) due to the acts
or omissions of Seller in the performance of this Agreement.

                                       21


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

         Section 14.2 INSURANCE. Seller agrees to carry insurance coverage with
minimum limits as follows:

         (1) Commercial General Liability, including Completed Operations and
Contractual Liability, $1,000,000 single limit liability.

         (2) Automobile General Liability, $1,000,000 single limit liability.

         (3) In addition, Seller shall carry excess liability insurance covering
the foregoing perils in the amount of $4,000,000 for any one occurrence.

         (4) Workers' Compensation and Employer's Liability with statutory
limits.

         If any of the above policies are written on a claims made basis, then
the retroactive date of the policy or policies will be no later than the
effective date of this Agreement. Certificates of Insurance satisfactory in form
to the Buyer and signed by the Seller's insurer shall be supplied by the Seller
to the Buyer evidencing that the above insurance is in force and that not less
than 30 calendar days written notice will be given to the Buyer prior to any
cancellation or material reduction in coverage under the policies. The Seller
shall cause its insurer to waive all subrogation rights against the Buyer
respecting all losses or claims arising from performance hereunder. Evidence of
such waiver satisfactory in form and substance to the Buyer shall be exhibited
in the Certificate of Insurance mentioned above. Seller's liability shall not be
limited to its insurance coverage.

         SECTION 15. TERMINATION FOR DEFAULT.

         Subject to Section 6.4, if either party hereto commits a material
breach of any of its obligations under this Agreement at any time, including,
but not limited to, a breach of a representation and warranty set forth herein,
then the other party has the right to give written notice describing such

                                       22


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

breach and stating its intention to terminate this Agreement no sooner than 30
days after the date of the notice (the "notice period"). If such material breach
is curable and the breaching party cures such material breach within the notice
period, then the Agreement shall not be terminated due to such material breach.
If such material breach is not curable or the breaching party fails to cure such
material breach within the notice period, then this Agreement may be terminated
by the non-breaching party at the end of the notice period in addition to all
the other rights and remedies available to the non-breaching party under this
Agreement and at law and in equity.

         SECTION 16. TAXES, DUTIES AND FEES.

         Seller shall pay when due, and the price set forth in SECTION 8 of this
Agreement shall be inclusive of, all taxes, duties, fees and other assessments
of whatever nature imposed by governmental authorities with respect to the
transactions contemplated under this Agreement, as such price may be adjusted
pursuant to Section 8.4.

         SECTION 17. DOCUMENTATION AND RIGHT OF AUDIT.

         Seller shall maintain all records and accounts pertaining to payments,
quantities, quality analyses, and source for all coal supplied under this
Agreement for a period lasting through the term of this Agreement and for two
years thereafter. Buyer shall have the right at no additional expense to Buyer
to audit, copy and inspect such records and accounts at any reasonable time upon
reasonable notice during the term of this Agreement and for 2 years thereafter.

         SECTION 18. EQUAL EMPLOYMENT OPPORTUNITY. To the extent applicable,
Seller shall comply with all of the following provisions which are incorporated
herein by reference: Equal Opportunity regulations set forth in 41 CFR Section
60-1.4(a) and (c) prohibiting discrimination against any employee or applicant
for employment because of race, color, religion, sex, or national origin;
Vietnam Era Veterans Readjustment Assistance Act regulations

                                       23


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

set forth in 41 CFR Section 50-250.4 relating to the employment and advancement
of disabled veterans and veterans of the Vietnam Era; Rehabilitation Act
regulations set forth in 41 CFR Section 60-741.4 relating to the employment and
advancement of qualified disabled employees and applicants for employment; the
clause known as "Utilization of Small Business Concerns and Small Business
Concerns Owned and Controlled by Socially and Economically Disadvantaged
Individuals" set forth in 15 USC Section 637(d)(3); and subcontracting plan
requirements set forth in 15 USC Section 637(d).

         SECTION 19. COAL PROPERTY INSPECTIONS. Buyer and its representatives,
and others as may be required by applicable laws, ordinances and regulations
shall have the right at all reasonable times and at their own expense to inspect
the Coal Property, including the loading facilities, scales, sampling system(s),
wash plant facilities, and mining equipment for conformance with this Agreement.
Seller shall undertake reasonable care and precautions to prevent personal
injuries to any representatives, agents or employees of Buyer (collectively,
"Visitors") who inspect the Coal Property. Any such Visitors shall make every
reasonable effort to comply with Seller's regulations and rules regarding
conduct on the work site, made known to Visitors prior to entry, as well as
safety measures mandated by state or federal rules, regulations and laws. Buyer
understands that mines and related facilities are inherently high-risk
environments. Buyer's failure to inspect the Coal Property or to object to
defects therein at the time Buyer inspects the same shall not relieve Seller of
any of its responsibilities nor be deemed to be a waiver of any of Buyer's
rights hereunder.

         SECTION 20. MISCELLANEOUS.

         Section 20.1 APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Kentucky, and all questions of
performance of obligations hereunder shall be determined in accordance with such
laws.

                                       24


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

         Section 20.2 HEADINGS. The paragraph headings appearing in this
Agreement are for convenience only and shall not affect the meaning or
interpretation of this Agreement.

         Section 20.3 WAIVER. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
rights hereunder, shall not be construed as a waiver of such provision or right.

         Section 20.4 REMEDIES CUMULATIVE. Remedies provided under this
Agreement shall be cumulative and in addition to other remedies provided under
this Agreement or by law or in equity.

         Section 20.5 SEVERABILITY. If any provision of this Agreement is found
contrary to law or unenforceable by any court of law, the remaining provisions
shall be severable and enforceable in accordance with their terms, unless such
unlawful or unenforceable provision is material to the transactions contemplated
hereby, in which case the parties shall negotiate in good faith a substitute
provision.

         Section 20.6 BINDING EFFECT. This Agreement shall bind and inure to the
benefit of the parties and their successors and assigns.

         Section 20.7 ASSIGNMENT.

         A. Seller shall not, without Buyer's prior written consent, which
consent shall not be unreasonably withheld, make any assignment or transfer of
this Agreement, by operation of law or otherwise, including without limitation
any assignment or transfer as security for any obligation, and shall not assign
or transfer the performance of or right or duty to perform any obligation of
Seller hereunder; provided, however, that Seller may assign the right to receive
payments for coal directly from Buyer to a lender as part of any accounts
receivable financing or

                                       25


other revolving credit arrangement which Seller may have now or at any time
during the term of this Agreement.

         B. Buyer shall not, without Seller's prior written consent, which
consent shall not be unreasonably withheld, assign this Agreement or any right
for the performance of or right or duty to perform any obligation of Buyer
hereunder; except that, without such consent, Buyer may assign this Agreement in
connection with a transfer by Buyer of all or a majority interest in the Buyer's
Ghent Generating Station, or as part of a merger or consolidation involving
Buyer.

         C. In the event of an assignment or transfer contrary to the provisions
of this section, the non-assigning party may terminate this Agreement
immediately.

         Section 20.8 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties as to the subject matter hereof, and there are no
representations, understandings or agreements, oral or written, which are not
included herein. Without limiting the foregoing (a) this Agreement shall not be
construed as a requirements or similar agreement, and (b) this Agreement shall
not be construed as affecting Buyer's ability to negotiate with and/or acquire
other sources of coal from third parties throughout the term hereof.

         Section 20.9 AMENDMENTS. Except as otherwise provided herein, this
Agreement may not be amended, supplemented or otherwise modified except by
written instrument signed by both parties hereto.

                                       26


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

         BUYER                                     SELLER
         -----                                     ------
KENTUCKY UTILITIES COMPANY                ARCH COAL SALES COMPANY, INC.


By:      /s/ Paul W. Thompson             By:      /s/ John Eaves
         ---------------------------               -----------------------------
         Paul W. Thompson                          John Eaves - President
         Senior VP - Energy Services

Date:    12/31/01                         Date:    12/19/01

                                       27


                                                      ARCH COAL SALES CO., INC.
                                                      KU Contract # KUF02849

                                                                       Exhibit A
                                                                     Page 1 of 2
                                    EXHIBIT A
                        SAMPLE COAL PAYMENT CALCULATIONS
              Total Evaluated Coal Costs for Contract No. KU F02849
- --------------------------------------------------------------------------------
For contracts supplied from multiple "origins", each "origin will be calculated
individually.



                           Section I                                                    Base Data
                           ---------                                                    ---------

                                                                                           
1)       Base F.O.B. price per ton:                                            $ 44.00           /ton
                                                                               ------------------

1a)      Tons of coal delivered:                                                                 tons
                                                                               ------------------

2)       Guaranteed average heat content:                                       12,000           BTU/LB.
                                                                               ------------------

2r)      As received monthly avg. heat content:                                                  BTU/LB.
                                                                               ------------------

2a)      Energy delivered in MMBTU:                                                              MMBTU
                                                                               ------------------

 (Line 1a) *2,000 lb./ton*(Line 2r) *MMBTU/1,000,000 BTU
 (     ) *2,000 lb./ton*(     )*MMBTU/1,000,000 BTU

2b)      Base F.O.B. price per MMBTU:                                          $1.8333           MMBTU
                                                                               ------------------

{(Line 1)/(Line 2) *(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU
{(     /ton)/(           BTU/LB)*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU

3)       Guaranteed shipment. max. SO(2)                                        1.20             LBS./MMBTU
                                                                               ------------------

3r)      Number of tons > 1.20 lbsSO(2)/Mmbtu                                                    TONS
                                                                               ------------------

4)       Guaranteed monthly avg. ash                                            10.83            LBS./MMBTU
                                                                               ------------------

4r)      As received monthly avg. ash                                                            LBS./MMBTU
                                                                               ------------------

5)       Guaranteed monthly avg. max. moisture                                  6.67             LBS./MMBTU
                                                                               ------------------

5r)      As received monthly avg. moisture                                                       LBS./MMBTU
                                                                                ------------------

                           Section II                                           Discounts
                           ----------                                           ---------
         Assign a (-) to all discounts (round to (5) decimal places)
                                                                         
6d)      BTU/LB.:  If line 2r < 11,800 BTU/lb. then:
         {1 - (line 2r) / (line 2)} * $0.2604/MMBTU
         {1 - (    ) / (    )} * $0.2604 =                                     $                 /MMBTU
                                                                               ------------------
7d)      SO(2): If any individual shipment is greater than 1.20 lbs./MMBTU
         (line 3r) * $3.00 per ton / line 2a
          (    ) * (3.00) / (    ) =                                           $                 /MMBTU
                                                                               ------------------
8d)      ASH: If line 4r is greater than 10.83 lbs./MMBTU
          (line 4r) - (line 4) * 0.0083/MMBTU
          (    ) - (    ) * 0.0083 =                                           $                 /MMBTU
                                                                               ------------------
9d)      MOISTURE: If line 5r is greater than 8.33 lbs./MMBTU
          (line 5r) - (line 5) * 0.0016/MMBTU
          (    ) - (    ) * 0.0016 =                                           $                 /MMBTU
                                                                               ------------------



                                                       ARCH COAL SALES CO., INC.
                                                       KU Contract # KUF02849

                                                                       Exhibit A
                                                                     Page 2 of 2



                                                                                Total Price
                           Section III                                          Adjustments
                           -----------                                          -----------
                                                                            

         Determine total Discounts as follows:

         Assign a (-) to all discounts (round to (5) decimal places)

         Line 6d:                                                              $                /MMBTU
                                                                               ------------------
         Line 7d                                                               $                 /MMBTU
                                                                               ------------------
         Line 8d                                                               $                 /MMBTU
                                                                               ------------------
         Line 9d                                                               $                 /MMBTU
                                                                               ------------------
10)      Total Discounts (-):

         Algebraic sum of above:                                               $                 /MMBTU
                                                                               ------------------
11)      Total evaluated coal price = (line 2b) + (line 10)

12)      Total discount price adjustment for Energy delivered:
         (line 2a) * (line 10) (-)
         $         /MMBTU           +                                          $                 /MMBTU  =  $
         ----------                                                            ------------------             -----------
13)      Total base cost of coal
         (line 2a) * (line 2b)
         $         /MMBTU           +                                          $                 /MMBTU  =  $
         ----------                                                            ------------------             -----------
14)      Total coal payment for month
         (line 12) + (line 13)
         $         /MMBTU           +                                          $                         =  $
         ----------                                                            ------------------             -----------




                                                       ARCH COAL SALES CO., INC.
                                                       KU Contract # KUF02849

                                    EXHIBIT B

Arch Coal Sales Company, Inc.
KU/LG&E Contract #KUF02849
January 1, 2002 Pricing Breakdown



Price Components                         $ Per MMBtu  $ Per Ton                           Computations
- ----------------                         -----------  ---------                           ------------
                                                        
- -  Fixed Portion                            1.6893      40.542
WV Severance Tax                            0.0917      . 2200   Whenever there is any change in the Base Price or a change in the
                                                                 WV Severance Tax Rate, the new WV Severance Tax subcomponent shall
                                                                 be calculated and the Base Price shall be adjusted to reflect such
                                                                 change in accordance with the following: T = (R/(1-R)

WV Special Reclamation Fee                  0.0058       0.140   0.14/t from 1/1/02 thru 3/31/05, then current law says the rate
                                                                 drops to 0.07/t
WV Mines & Minerals Operations Fund Tax     0.0008       0.020

Federal Black Lung Tax                      0.0374       0.897   0.55/t for surface mined coal, 1.10/t for deep mined coal: assume
                                                                 a 30/70 split.  Take 50% times the surface and deep mined rates
                                                                 per ton then reduce by the excess moisture percentage(4.1%). Excess
                                                                 moisture is the moisture content in excess of the inherent
                                                                 moisture in the coal. For purposes of the sales contract assume
                                                                 the excess moisture percentage remains constant (fixed) for the
                                                                 life of the agreement.

Federal Reclamation Fee                     0.0084       0.201   0.35/t for surface mined coal, 0.15/t for deep mined coal: assume
                                                                 a 30/70 split.  Take 50% times the surface and deep mined rates
                                                                 per ton then reduce by the excess moisture percentage(4.1%). Excess
                                                                 moisture is the moisture content in excess of the inherent
                                                                 moisture in the coal.  For purposes of the sales contract assume
                                                                 the excess moisture percentage remains constant (fixed) for the
                                                                 life of the agreement.

                                       ------------------------
Total Price                                 1.8334      44.000
                                       ========================
Price check                                 1.8333      44.000
                                       ========================


SECTION 4 STATES THE SOURCE OF THE COAL IN THIS AGREEMENT SHALL BE SUPPLIED FROM
MINGO, LOGAN, LINCOLN, BOONE AND KANAWHA COUNTIES. WEST VIRGINIA. THE ABOVE HAS
BEEN PRICE IN ACCORDANCE WITH THE LAWS OF WEST VIRGINIA.



                                                       ARCH COAL SALES CO., INC.
                                                       KU Contract # KUF02849

                               GUARANTY AGREEMENT

         THIS GUARANTY AGREEMENT ("Guaranty") is made and entered into this 1st
day of January 2002 by ARCH COAL, INC. ("Arch"), a Delaware corporation, with
offices at CityPlace One, Suite 300, St. Louis, Missouri 63141, to and for the
benefit of KENTUCKY UTILITIES COMPANY ("Buyer"), a Kentucky corporation, with
offices at 220 West Main Street, Louisville, Kentucky 40202.

         WHEREAS, Buyer and Arch Coal Sales Company, Inc. ("Seller"), a Delaware
corporation, with offices at CityPlace One, Suite 300, St. Louis, Missouri
63141, which Seller is agent for the independent operating subsidiaries of Arch,
propose to enter into a Coal Supply Contract dated on or about January 1, 2002
("Contract") for a coal supply from Arch's mines, located in Mingo, Lincoln,
Boone, Logan and Kanawha Counties, West Virginia (the "Coal Property"); and

         WHEREAS, Buyers performance under the Contract will benefit Arch
through the Seller, and to induce Buyer to enter into the Contract, Arch is
willing to guarantee to Buyer, its successors, representatives and assigns,
Seller's performance of Seller's obligations (collectively, the "Obligations")
set forth in the Contract and any extension or amendment thereof executed by
Buyer and Seller.

         NOW, THEREFORE, for and in consideration of the sum of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, Arch hereby agrees as follows:

         1) GUARANTY - Arch guarantees to Buyer Seller's performance of the
Obligations and agrees that this Guaranty shall inure to the benefit of and may
be enforced by Buyer, its successors, representatives and assigns.

         2) ACCEPTANCE AND AMENDMENTS - Arch waives notice of acceptance of this
Guaranty, and consents to any and all waivers and extension of the time of
performance and to any and all changes, modifications or amendments in the
terms, covenants and conditions in the Contract agreed to by Seller in
accordance with the terms of the Contract.

         3) BUYER'S REMEDIES - Arch agrees that this Guaranty may be enforced by
Buyer without first enforcing Buyer's rights under the Contract against Seller;
provided, however, that nothing herein contained shall prevent Buyer from
enforcing the Contract with or without making Arch a party to the suit.

         4) ARCH'S DEFENSES - Except as otherwise provided in Section 5 of this
Guaranty, Arch shall be entitled to the benefit of any defenses which Seller may
have to the enforcement by Buyer of any of the Obligations.

         5) SELLER'S BANKRUPTCY - Arch agrees that its obligations under this
Guaranty shall not be impaired, modified, changed, released or limited in any
manner whatsoever by any impairment, modification, change, release or limitation
of the liability of Seller (or Seller's estate in bankruptcy) resulting from the
operation of any present or future provision of the federal bankruptcy law or
other similar statute.

         6) EXPENSES - If any claim by Buyer is successfully prosecuted against
Arch under this Guaranty, Arch shall reimburse Buyer for all reasonable expenses
incurred by Buyer in connection therewith, including reasonable attorneys' fees.

         7) REPRESENTATIONS - Arch represents that:



                                                       ARCH COAL SALES CO., INC.
                                                       KU Contract # KUF02849

                  a.   Arch is a validly  organized  corporation  duly
                       existing and in good standing under the laws of the
                       State of Delaware.
                  b.   The giving of this Guaranty is within Arch's
                       corporate powers.
                  c.   The giving of this  Guaranty  has been  pursuant to
                       all  necessary  corporate  action,  if any, and does
                       not contravene any law or any contractual
                       restriction binding on Arch.
                  d.   This Guaranty is a legal,  valid and binding
                       obligation,  enforceable  against Arch in accordance
                       with its terms.

         8)  WAIVER BY BUYER - The failure of Buyer to enforce any of the
provisions of this Guaranty at any time or for any period of time shall not be
construed to be a waiver of any such provision or of the right thereafter to
enforce the same.

         9)  GOVERNING LAW - This Guaranty shall be interpreted and enforced in
accordance with the laws of the Commonwealth of Kentucky.

         10) NOTICES - Any notice, request, consent, demand, report or statement
which is given to or made upon either party hereto by the other party hereto
under any of the provisions of this Guaranty shall be in writing unless
otherwise provided herein and shall be treated as duly delivered when the same
is received by the party to be notified whether by personal delivery, or by the
United States mail, as evidenced by a receipt or by telecopier and confirmed by
United States mail, as evidenced by a receipt. Notices shall be properly
addressed as follows:

         As to Buyer:
                                   Kentucky Utilities Company
                                   220 West Main Street
                                   Louisville, Kentucky  40202
                                   Attn: Director, Corporate Fuels

         As to Seller:
                                   Arch Coal Sales Company, Inc.
                                   CityPlace One, Suite 300
                                   St. Louis, Missouri  63141
                                   Attn: Regional Vice-President Sales

         As to Arch:
                                   Arch Coal, Inc.
                                   CityPlace One Suite 300
                                   St. Louis, Missouri  63141
                                   Attn: General Counsel

Either party hereto may change its address or representative for the purposes of
notices or communications hereunder by furnishing notice thereof to the other
party in compliance with this provision
         11) Assignment - Arch's rights and obligations under this Guaranty may
be assigned to the ultimate parent company of an approved assignee of Seller's
rights and obligations under the Contract, provided the assignment provisions of
the Contract shall control and provided



                                                       ARCH COAL SALES CO., INC.
                                                       KU Contract # KUF02849

further, such that a wholly-owned subsidiary or wholly affiliate company of the
ultimate parent takes title to the Coal Property. If such assignee is not owned
either directly or indirectly by Arch and if Buyer has agreed to release Seller
from the Obligations, this Guaranty shall terminate and Arch shall be released
from any further obligations or liabilities hereunder. If another company with
substantial assets becomes the new ultimate parent company of Seller, Arch may,
with Buyer's written approval, assign its rights and obligations hereunder to
such other company and thereafter, as to Arch, this Guaranty shall terminate,
and Arch shall be released from any further obligations or liabilities
hereunder.

         IN WITNESS WHEREOF, Arch has executed this Guaranty as of the date
first written above.

                                                ARCH COAL, INC.

                                                By:


ATTEST:

EX-10.54

                                                                   Exhibit 10.54

                              COAL SUPPLY AGREEMENT

     This is a coal supply agreement (this "AGREEMENT") dated effective as of
January 1, 2002, by and between LOUISVILLE GAS AND ELECTRIC COMPANY (hereinafter
referred as "BUYER"), a Kentucky corporation, with an address at 220 West Main
Street, Louisville, Kentucky 40202, and HOPKINS COUNTY COAL, LLC (hereinafter
referred as "SELLER"), a Delaware limited liability company, having an address
of 1717 South Boulder Avenue, Tulsa, Oklahoma 74119-4886 ("Seller"), and
ALLIANCE COAL SALES, a division of Alliance Coal, LLC (hereinafter referred as
"Seller's Agent") having an address of 1717 South Boulder Avenue, Tulsa,
Oklahoma 7419-4886. (Buyer and Seller are sometimes referred to herein
individually as a "PARTY" and collectively as the "PARTIES".)

                                    RECITALS:

     A. Buyer is the owner of the Cane Run Generating Station and the Mill Creek
        Generating Station, both of which are located in Jefferson County,
        Kentucky.

     B. Seller is a coal mining company with mines located in Hopkins County
        Kentucky.

     C. Seller is an affiliate company and subsidiary of Alliance Coal, LLC.

     D. Seller has appointed Alliance Coal Sales, a division of Alliance Coal,
        LLC, as Seller's agent for administration of this Agreement ("SELLER'S
        AGENT").

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:



                                                              CONTRACT #LGE02014

     SECTION 1. GENERAL; CONDITIONS SUBSEQUENT TO IMPACTING THIS AGREEMENT.

     Section 1.1 Seller agrees to sell to Buyer and Buyer agrees to buy from
Seller steam coal subject to the terms and conditions set forth herein.

     Section 1.2 The parties hereto acknowledge the fact that Seller's Agent is
a party to this Agreement for the limited purpose of agreeing to administer
certain functions under this Agreement on Seller's behalf. If, during the Term
of this Agreement, Seller's Agent holds itself out to Buyer as having the
authority to act or make decisions on Seller's behalf, Buyer is entitled to rely
on such representations without need for further inquiry, and Seller indemnifies
and holds Buyer harmless with regard to such reliance. Hereinafter, all
references to "Seller" in this Agreement may refer to either Seller or Seller's
Agent as Seller's representative; provided, however, all obligations of the
Seller herein shall be Seller's full and sole obligation, regardless of whether
Seller's Agent is performing any duties with regard to such obligation.

     Section 1.3 Notwithstanding any other provisions contained herein to the
contrary, this Agreement, and the terms and conditions hereof, shall be
subordinate to those contained in that certain Coal Synfuel Supply Agreement if
and when such Coal Synfuel Supply Agreement is executed (contemplated to be
effective as of January 1, 2002) by and between Buyer and Synfuel Solutions
Operating, LLC ("Coal Synfuel Agreement"). Specifically, the parties hereto
accept and acknowledge that the obligations for Seller to sell and deliver and
Buyer to accept and pay for coal delivered herein shall apply only in the
following events (the "Coal Delivery Obligation"): (a) there is a positive
difference between the Base Quantity hereunder and the Contract Quantity of coal
synfuel to be delivered to Buyer under the Coal Synfuel Agreement, as it may be
adjusted and as determined on a monthly basis; and (b) if, for any reason, there
occurs a reduction in quantity, termination or suspension of deliveries of coal
synfuel under the Coal

                                        2


                                                              CONTRACT #LGE02014

Synfuel Agreement, then Seller shall deliver the differential in coal. If,
because of any of the aforementioned conditions, deliveries of the base quantity
of coal set forth in Section 3.1 shall be made, the base quantities of coal to
be delivered hereunder shall be reduced by the amount of coal synfuel deliveries
made during the applicable time period under the Coal Synfuel Agreement. In the
event the Coal Synfuel Agreement is terminated, deliveries of the quantities of
coal set forth under Section 3.1 shall continue through the remaining term
hereof. In the event the Coal Synfuel Agreement is not executed, references to
the Coal Synfuel Agreement herein shall be inapplicable, Seller shall deliver
the quantities of coal set forth under Section 3.1 throughout the term hereof
and the pricing set forth under Section 8 shall be increased by $.05/MMBtu. If
the Coal Synfuel Agreement is executed, the quantities of coal set forth under
Section 3.1 shall be reduced by the quantity of coal synfuel delivered under the
Coal Synfuel Agreement up through the termination date of the Coal Synfuel
Agreement.

     Notwithstanding the immediate preceding paragraph, if the Coal Synfuel
Agreement is executed, for each of the years 2002 and 2003, Buyer shall have the
right to substitute coal from Seller for coal synfuel under the Coal Synfuel
Agreement in amounts up to 300,000 tons of coal per year delivered as promptly
after notification as possible. The coal price for the first 100,000 tons shall
be the applicable Base Price set forth in Section 8.1 and the coal price for any
tons above 100,000 tons up to the 300,000 ton annual limit shall be the
applicable Base Price set forth in Section 8.1 plus $0.05 per MMBTU, provided
Seller promptly ships the coal.

     SECTION 2. TERM. The term of this Agreement shall commence effective as of
January 1, 2002, and shall continue through December 31, 2007, subject to the
provisions of Section 8.1, and further subject to the continuation of the Coal
Synfuel Agreement after year 2003, if such Coal Synfuel Agreement is executed.

                                        3


                                                              CONTRACT #LGE02014

     SECTION 3. QUANTITY.

     Section 3.1 BASE QUANTITY. Subject to the terms and conditions set forth in
this Agreement, including without limitation the continuation of the Coal
Synfuel Agreement after year 2003, if such Coal Synfuel Supply Agreement is
executed, and quantity requirements to be negotiated thereunder, which shall
constitute tonnage requirements hereunder during each year of the balance of the
contract term, Seller shall sell and deliver, or cause to be delivered, and
Buyer shall purchase and receive, or cause to be received, the following annual
base quantity of coal ("Base Quantity"), as adjusted pursuant to the Coal
Delivery Obligation defined in Section 1.3:



                  YEAR               BASE QUANTITY (TONS)
                  ----               --------------------
                                       
                  2002                    2,250,000
                  2003                    2,250,000
                  2004                    2,250,000
                  2005                    2,250,000
                  2006                    2,250,000
                  2007                    2,250,000


     SECTION 4. SOURCE.

     Section 4.1 SOURCE. The coal sold hereunder shall be supplied from
geological seam Western Kentucky #11, #12, and #9 (surface and underground) in
Hopkins County, Kentucky from any of Seller's mines and from the coal mining
operations of Warrior Coal, LLC (the "Coal Property"). Seller shall have the
right to add to the Coal Property mines developed or purchased by Seller,
provided Seller is responsible for any additional transportation costs and
provided further the coal meets the quality specifications set forth in Section
6.

                                        4


                                                              CONTRACT #LGE02014

     Upon providing prior written notice to Buyer, and after receiving Buyer's
written consent, which shall not be unreasonably withheld, Seller may, but shall
not be required to, supply coal from other sources which meets the quality
specifications set forth in Section 6 ("Substitute Coal"). No consent from Buyer
shall be required for Substitute Coal supplied by Seller from the coal mining
operations of Webster County Coal, LLC. The cost of such Substitute Coal shall
not exceed the delivered cost in cents per million Btu for coal to be supplied
from the Coal Property. Seller's right to furnish Substitute Coal shall not
affect its right to claim force majeure because of events occurring at the Coal
Property mines. In the event Seller is providing Substitute Coal and experiences
a force majeure event at the Substitute Coal source, Seller shall supply Buyer
with coal from the Coal Property sources.

     All Substitute Coal supplied hereunder shall be supplied pursuant to all
the terms and conditions of this Agreement, including, but not limited to, the
Quantity provisions of Section 3, the price provisions of Section 8 and the
quality specifications of Section 6.

     Section 4.2 ASSURANCE OF OPERATION AND SUPPLY. Seller represents and
warrants that Seller shall supply, from the Coal Property coal in quantities and
in quality which will be sufficient to satisfy all the requirements of this
Agreement. Seller agrees and warrants that it will have adequate machinery,
equipment and other facilities to produce, prepare and deliver coal in the
quantity and of the quality required by this Agreement. Seller further agrees to
operate and maintain such machinery, equipment and facilities in accordance with
good mining practices so as to efficiently and economically produce, prepare and
deliver such coal. Seller agrees that Buyer is not providing any capital for the
purchase of such machinery, equipment and/or facilities and that Seller shall
operate and maintain same at its sole expense, including all required permits
and licenses.

     Section 4.3 NON-DIVERSION OF COAL. Seller agrees and warrants that it will
not, without

                                        5


                                                              CONTRACT #LGE02014

Buyer's express prior written consent, use or sell coal from the Coal Property
in a way that will reduce the quantity of coal less than the quantity required
to be supplied hereunder to Buyer.

     SECTION 5. DELIVERY.

     Section 5.1 DELIVERY SCHEDULE. The coal shall be delivered under mutually
agreed to shipping schedules. Both coal synfuel delivered under the Coal Synfuel
Agreement and coal delivered under this Agreement shall, in combination, be
delivered in approximately ratable monthly quantities, to the extent
practicable, taking into account each party's loading and unloading logistics,
unexpected constraints in the day-to-day operations, and stockpile management
and storage capabilities. Accordingly, each party shall exert all reasonable
efforts to accommodate changes in delivery schedules requested by the other
party due to such events.

     Section 5.2 RAIL DELIVERY. The coal shall be delivered to Buyer F.O.B.
railcar at the Hopkins County rail loading facility near Madisonville, Kentucky
on the Paducah and Louisville Railroad (the "Delivery Point"). Seller may
deliver the coal at a location different from the Delivery Point, provided,
however, that Seller shall reimburse Buyer for any resulting increases in the
cost of transporting the coal to Buyer's generating stations. Buyer shall retain
any resulting savings in such transportation costs. Buyer may request to change
the Delivery Point to F.O.B. truck. Upon Buyer's notification to Seller of its
desire to change the Delivery Point, Buyer and Seller shall mutually agree in
writing upon the change(s) and the time frame wherein such changes will take
place. Buyer shall be responsible for payment of any transportation cost
increases as a result of Buyer's selection to change the Delivery Point.

     Section 5.3 RAIL OR TRUCK DELIVERY. If the coal is delivered F.O.B. railcar
or F.O.B. truck, then title to and risk of loss respecting the coal will pass to
Buyer and the coal will be considered to be delivered when it is loaded into the
railcars or trucks at the rail or truck loading facility.

                                        6


                                                              CONTRACT #LGE02014

Buyer or its contractor shall furnish suitable railcars or trucks in accordance
with a delivery schedule provided by Buyer to Seller. Seller shall be
responsible for and pay the cost of repairs for any damages caused by Seller to
railcars or trucks owned or leased by Buyer while such railcars or trucks are in
Seller's control or custody. Seller shall use reasonable efforts to comply with
the applicable provisions of Buyer's rail or truck contractor's tariff. At
Buyer's request, Seller shall treat (or have treated) any shipment of Coal
hereunder with a freeze conditioning agent approved by Buyer in order to
maintain Coal handling characteristics during shipment. If requested by Buyer,
Seller shall also treat (or have treated) any railcars specified by Buyer with a
side release agent approved by Buyer. The price for each requested chemical
treatment shall be an amount equal to Seller's cost of application on a per
gallon basis for each application of freeze conditioning agent or side release
agent, as the case may be. Seller shall invoice Buyer for all such treatment
which occurred in a calendar month by the fifteenth of the following month; and
payment shall be mailed by the 25th of such following month or within ten days
after receipt of Seller's invoice, whichever is later.

     SECTION 6. QUALITY.

     Section 6.1 SPECIFICATIONS.

     (a) The Coal delivered hereunder shall conform to the following
specifications on an "as received" basis:



                                Guaranteed Monthly           Rejection Limits
     Specifications             Weighted Average (1)         (Per Shipment)
- --------------------------------------------------------------------------------
                                                       
     CHLORINE                        max.   0.04             >         0.05
                                           -----                      -----
     FLUORINE                        max.   .006             >         .006
                                           -----                      -----
     NITROGEN                        max.   1.10             >         1.50
                                           -----                      -----

     ASH/SULFUR RATIO                min.  2.5:1             <        2.5:1
                                           -----                      -----
     SIZE (3" x 0"):


                                       7


                                                              CONTRACT #LGE02014

                                                  
          Top size (inches)*         max.  3 x 0             >       3 x 0
                                           -----                     ------
          Fines (% by wgt)
          Passing 1/4" screen        max.     50             >          55
                                           -----                     ------

     % BY WEIGHT:
     VOLATILE                        max.     40             >          41
                                           -----                     ------
     VOLATILE                        min.     35             <          33
                                           -----                     ------
     FIXED CARBON                    max.     48             >          49
                                           -----                     ------
     FIXED CARBON                    min.     44             <          40
                                           -----                     ------
     GRINDABILITY (HGI)              min.     55             <          52
                                           -----                     ------

     BASE ACID RATIO (B/A)                   .39             >         .43
                                           -----                     ------
     SLAGGING FACTOR**               max.    1.6             >         1.9
                                           -----                     ------
     FOULING FACTOR***               max.     .2             >          .3
                                           -----                     ------

     ASH FUSION TEMPERATURE (DEG. F) (ASTM D1857)

     REDUCING ATMOSPHERE
     Initial Deformation             min.   1940             min.     1900
                                           -----                     ------
     Softening (H=W)                 min.   2035             min.     1975
                                           -----                     ------
     Softening (H=1/2W)              min.   2085             min.     2000
                                           -----                     ------
     Fluid                           min.   2190             min.     2100
                                           -----                     ------

     OXIDIZING ATMOSPHERE
     Initial Deformation             min.   2300             min.     2200
                                           -----                     ------
     Softening (H=W)                 min.   2320             min.     2280
                                           -----                     ------
     Softening (H=1/2W)              min.   2425             min.     2300
                                           -----                     ------
     Fluid                           min.   2490             min.     2375
                                           -----                     ------

     

     (1) An actual Monthly Weighted Average will be calculated for each
         specification for Coal delivered to the LG&E generating stations.

     *   All the Coal will be of such size that it will pass through a screen
         having circular perforations three (3) inches in diameter, but shall,
         on a monthly weighted average basis, not contain more than fifty per
         cent (50%) by weight of Coal that will pass through a screen having
         circular perforations one-quarter (1/4) of an inch in diameter.

     **  Slagging Factor (R(s))=(B/A) x (Percent Sulfur by Weight(Dry))

     *** Fouling Factor (R(f))=(B/A) x (Percent Na(2)O by Weight(Dry))

                                        8


                                                              CONTRACT #LGE02014

     The Base Acid Ratio (B/A) is herein defined as:
     BASE ACID RATIO (B/A) = (Fe(2)O(3) + CaO + MgO + Na(2)O + K(2)O)
                             ----------------------------------------
                                  (SiO(2) + A1(2)O(3) + TiO(2))

     Note:  As used herein   >   means greater than:
                             <   means less than.

     (b) In addition to the specifications set forth in Section 6.1(a), the coal
delivered hereunder designated as Quality 1 shall conform on an "as received"
basis to the following specifications:

                                    QUALITY 1



                                     Guaranteed Monthly      Rejection Limits
     Specifications                  Weighted Average (1)    (Per Shipment)
     ---------------                 --------------------    ----------------
                                                       
     BTU/LB.                         min. 11,250             <       10,800
                                          ------                     ------

     LBS/MMBTU:
     MOISTURE                        max.  11.00             >        12.00
                                          ------                     ------
     ASH                             max.  12.00             >        14.00
                                          ------                     ------
     SULFUR                          max.   3.05             >         3.20
                                          ------                     ------


     (1) An actual Monthly Weighted Average will be calculated for each
         specification for Coal delivered to the LG&E generating stations.

     (c) In addition to the specifications set forth in Section 6.1(a), the coal
delivered hereunder designated as Quality 2 shall conform on an "as received"
basis to the following specifications:

                                                    QUALITY 2



                                     Guaranteed Monthly      Rejection Limits
     Specifications                  Weighted Average (1)    (Per Shipment)
     ---------------                 --------------------    ----------------
                                                       
     BTU/LB.                         min. 11,250             <       10,800
                                          ------                     ------

     LBS/MMBTU:

     MOISTURE                        max.  11.00             >        12.00
                                          ------                     ------
     ASH                             max.  13.50             >        14.00
                                          ------                     ------
     SULFUR                          max.   3.30             >         3.40
                                          ------                     ------


     (1) An actual Monthly Weighted Average will be calculated for each
         specification for Coal delivered to the LG&E generating stations.

                                        9


                                                              CONTRACT #LGE02014

     Section 6.2 NOMINATION OF QUALITY SPECIFICATION. Buyer shall nominate by
notice in writing to Seller by the fifteenth of the month preceding the month of
delivery, the proportion of such Contract Quality that shall be Quality #1 and
the proportion that shall be Quality #2 which proportions shall total 100% of
the Contract Quality for such Month. In no event, however, shall Buyer nominate
less than 35% or more than 50% of the Contract Quantity as Quality #1, unless
the parties otherwise mutually agree.

     Section 6.3 DEFINITION OF "SHIPMENT". As used herein, a "shipment" shall
mean one (1) unit trainload of only coal, or a day's loading of trucks of only
coal, in accordance with Buyer's sampling and analyzing practices.

     Section 6.4 REJECTION. Buyer has the right, but not the obligation, to
reject any shipment which fail(s) to conform to the Rejection Limits set forth
in Section 6.1 or contains extraneous materials. Buyer must reject such Coal
within seventy-two (72) hours of receipt of the coal analysis provided for in
Section 7.2 or such right to reject shall be waived. In the event Buyer rejects
such non-conforming coal, title to and risk of loss of the coal shall be
considered to have never passed to Buyer and Buyer shall return only coal to
Seller or, at Seller's request, divert such coal to Seller's designee, all at
Seller's cost and risk. Seller shall replace the rejected coal within five (5)
working days from notice of rejection with coal conforming to the Rejection
Limits set forth in Section 6.1. If Seller fails to replace the rejected coal
within such five (5) working day period or the replacement coal is rightfully
rejected, Buyer may purchase coal from another source in order to replace the
rejected coal. Seller shall reimburse Buyer for (i) any amount by which the
actual price plus transportation costs to Buyer of such coal purchased from
another source exceed the price of such coal under this Agreement plus
transportation costs to Buyer from the Delivery Point; and (ii) any and all
transportation, storage, handling, or other expenses that have been incurred by
Buyer for rightfully rejected coal. The remedies set forth in this Section 6.4
and Section 6.5

                                       10


                                                              CONTRACT #LGE02014

shall be Buyer's sole and exclusive remedies for rightfully rejected coal,
provided Seller makes good faith efforts to produce coal meeting the quality
specifications and other requirements set forth in Section 6.1.

     If Buyer fails to reject a shipment of non-conforming coal which it had the
right to reject for failure to meet any or all of the Rejection Limits set forth
in Section 6.1 or because such shipment contained extraneous materials, then
such non-conforming coal shall be deemed accepted by Buyer; however, the price
shall be adjusted in accordance with Section 8.2 and the quantity Seller is
obligated to sell to Buyer under the Agreement may or may not be reduced by the
amount of each such non-conforming shipment at Buyer's sole option. Further for
shipments containing extraneous materials, which include, but are not limited
to, slate, rock, wood, corn husks, mining materials, metal, steel, the estimated
weight of such materials shall be deducted from the weight of that shipment.

     Section 6.5 SUSPENSION AND TERMINATION. If the coal sold hereunder fails to
meet one or more of the Guaranteed Monthly Weighted Averages set forth in
Section 6.1 for any two (2) months in a six (6) month period, or if nine (9)
truck shipments or two (2) rail shipments are rejectable in any 30 day period,
Buyer may upon notice confirmed in writing and sent to Seller by certified mail,
suspend future shipments except shipments already loaded into trucks and/or
railcars. Seller shall, within 10 days, provide Buyer with reasonable assurances
that subsequent monthly deliveries of coal shall meet or exceed the Guaranteed
Monthly Weighted Averages and that the source will exceed the rejection limits.
If Seller fails to provide such assurances within said 10 day period, Buyer may
terminate this Agreement by giving written notice of such termination at the end
of the 10 day period. A waiver of this right for any one period by Buyer shall
not constitute a waiver for subsequent periods. If Seller provides such
assurances to Buyer's reasonable satisfaction, shipments hereunder shall resume
and any tonnage deficiencies resulting from suspension

                                       11


                                                              CONTRACT #LGE02014

may be made up at Buyer's sole option. Buyer shall not unreasonably withhold its
acceptance of Seller's assurances or delay the resumption of shipments. If
Seller, after such assurances, fails to meet any of the Guaranteed Monthly
Weighted Averages for any one (1) month within the next six (6) months or if two
(2) truck shipments or 1 rail shipment are rejectable within any one (1) month
during such six (6) month period, then Buyer may terminate this Agreement and
exercise all its other rights and remedies under applicable law and in equity
for Seller's breach.

     SECTION 7. WEIGHTS, SAMPLING AND ANALYSIS.

     Section 7.1 WEIGHTS. The weight of the coal delivered hereunder shall be
determined by Buyer on a per Shipment basis, on the basis of scale weights at
the generating station(s), unless another method is mutually agreed upon by the
parties. Such scales shall be duly reviewed by an appropriate testing agency and
maintained in an accurate condition. Seller shall have the right, at Seller's
expense and upon reasonable notice, to have the scales checked for accuracy at
any reasonable time or frequency. If the scales are found to be inaccurate over
or under the tolerance range allowable for the scale based on industry accepted
standards, either party shall pay to the other any amounts owed due to such
inaccuracy for a period not to exceed thirty (30) days before the time any
inaccuracy of scales is determined. Buyer shall send to Seller's Agent, by
telecopier or electronic data transmittal, a listing of the daily shipment
weights within two (2) business days after Buyer's determination of such
weights.

     Section 7.2 SAMPLING AND ANALYSIS. The Seller has sole responsibility for
quality control of only coal and shall forward its loading quality to Buyer
within two business days after loading. The sampling and analysis of the coal
delivered hereunder shall be performed by Buyer on a per Shipment basis, as
defined hereinabove, and the results thereof shall be accepted and used for the
quality and characteristics of the coal delivered under this Agreement. Buyer
shall send to

                                       12


                                                              CONTRACT #LGE02014

Seller by telecopier or electronic data transmittal a copy of the analysis
within five (5) business days after sampling the applicable shipment. All
analyses shall be made in Buyer's laboratory at Buyer's expense in accordance
with ASTM standards where applicable, or industry-accepted standards. Samples
for analyses shall be taken in accordance with such standards for sampling, may
be composited and shall be taken with a frequency and regularity sufficient to
provide reasonably accurate representative samples of the deliveries made
hereunder. Buyer shall notify Seller in writing of any significant changes in
Buyer's sampling and analysis practices within five (5) days after any such
change. Any such changes in Buyer's sampling and analysis practices shall,
except for ASTM or industry-accepted changes in practices, provide for no less
accuracy than the sampling and analysis practices existing at the time of the
execution of this Agreement, unless the Parties otherwise mutually agreed upon.

     Each sample taken by Buyer shall be divided into 4 parts and put into
airtight containers, properly labeled and sealed. One part shall be used for
analysis by Buyer; one part shall be used by Buyer as a check sample, if Buyer
in its sole judgment determines it is necessary; one part shall be retained by
Buyer until the 25th of the month following the month of unloading (the
"Disposal Date") and shall be delivered to Seller for analysis if Seller so
requests before the Disposal Date; and one part ("Referee Sample") shall be
retained by Buyer until the Disposal Date. Seller shall be given copies of all
analyses made by Buyer by the 12th business day of the month following the month
of unloading. Seller, on reasonable notice to Buyer, shall have the right to
have a representative present to observe the sampling and analyses performed by
Buyer. Unless Seller requests a Referee Sample analysis before the Disposal
Date, Buyer's analysis shall be used to determine the quality of the Coal
delivered hereunder. The Monthly Weighted Averages shall be determined by
utilizing the individual shipment analyses.

     If any dispute arises before the Disposal Date, the Referee Sample retained
by Buyer

                                       13


                                                              CONTRACT #LGE02014

shall be submitted for analysis to an independent commercial testing laboratory
("Independent Lab") mutually chosen by Buyer and Seller. For each coal quality
specification in question, a dispute shall be deemed not to exist and Buyer's
analysis shall prevail and the analysis of the Independent Lab shall be
disregarded if the analysis of the Independent Lab differs from the analysis of
Buyer by an amount equal to or less than:

     (i)   0.50% moisture
     (ii)  0.50% ash on a dry basis
     (iii) 100 Btu/lb. on a dry basis
     (iv)  0.10% sulfur on a dry basis

For each coal quality specification in question, if the analysis of the
Independent Lab differs from the analysis of Buyer by an amount more than the
amounts listed above, then the analysis of the Independent Lab shall prevail and
Buyer's analysis shall be disregarded.

     The cost of the analysis made by the Independent Lab shall be borne by
Seller to the extent that Buyer's analysis prevails and by Buyer to the extent
that the analysis of the Independent Lab prevails.

     SECTION 8. PRICE.

     Section 8.1 BASE PRICE. The base price ("Base Price") of the coal to be
sold hereunder will be firm and will be determined by the year in which the coal
is delivered as defined in Section 5 in accordance with the following schedule:



                  BASE PRICE - QUALITY 1               BASE PRICE - QUALITY 2
                      F.O.B. RAILCAR                       F.O.B. RAILCAR
YEAR                  ($ PER MMBTU)                         ($ PER MMBTU)
- ----                  -------------                         -------------
                                                         
2002                     $1.060                                $1.030


                                       14


                                                              CONTRACT #LGE02014

                                                         
2003                     $1.060                                $1.030
2004                       *                                     *
2005                       *                                     *
2006                       *                                     *
2007                       *                                     *



     *   The continuation of the term of this Agreement after year 2003 is
         subject to the continuation of the term of the Coal Synfuel Agreement.

The Base Price and all other terms and conditions shall be adjusted based on the
new base price established for coal synfuel under the Coal Synfuel Agreement to
become effective during the years 2004 and 2005. During year 2004 and
thereafter, the Base Price hereunder shall be the price of the coal synfuel plus
$.05/MMBtu. If the parties under the Coal Synfuel Agreement do not reach
agreement on or before the deadline set forth under the Coal Synfuel Agreement,
then this Agreement will terminate as of December 31, 2003 without liability due
to such termination for either party, and the parties shall have no further
obligations hereunder except those incurred prior to the date of termination. If
the Coal Synfuel Agreement is not executed, either party hereto may reopen
negotiations regarding price and any other terms and conditions by forwarding
notice to the other party on or before July 1, 2003, for prices to be effective
during the period January 1, 2004 - December 31, 2005. The parties then shall
attempt to negotiate an agreement on new prices and/or other terms and
conditions between July 1, 2003 and July 31, 2003. If the parties do not reach
an agreement by August 1, 2003, then this Agreement will terminate as of
December 31, 2003 without liability due to such termination for either party,
and the parties shall have no further obligations hereunder except those
incurred prior to the date of termination.

* Provided this Agreement has been extended through 2005 as provided for in the
preceding

                                       15


                                                              CONTRACT #LGE02014

paragraphs, the same process will apply to a new Base Price for years 2006 and
2007. The price and terms and conditions review provisions set forth above shall
not be interpreted as a Right of First Refusal or exclusive supply agreement.

     Section 8.2 QUALITY PRICE DISCOUNTS.

     (a) The Base Price is based on Coal meeting or exceeding the Guaranteed
Monthly Weighted Average specifications as set forth in Section 6.1. Quality
price discounts shall be applied for each specification each month to reflect
failures to meet the Guaranteed Monthly Weighted Averages set forth in Section
6.1, as determined pursuant to Section 7.2, subject to the provisions set forth
below. The discount values used are as follows:

                           MONTHLY DISCOUNT VALUES

                                      $/MMBTU
                           BTU/LB.    0.2604

                                      $/LB./MMBTU
                           SULFUR     0.1232
                           ASH        0.0083
                           MOISTURE   0.0016

     (b) Notwithstanding the foregoing, for each specification each month, there
shall be no discount if the actual Monthly Weighted Average meets the applicable
Discount Point set forth below. However, if the actual Monthly Weighted Average
fails to meet such applicable Discount Point, then the discount shall be
calculated on the basis of the difference between the actual Monthly Weighted
Average and the Guaranteed Monthly Weighted Average pursuant to the methodology
shown in Exhibit A attached hereto.

                                       16


                                                              CONTRACT #LGE02014

                                    QUALITY 1



                     Guaranteed
                     Monthly
                     Weighted Average     Discount Point
                     ----------------     --------------
                                        
BTU/LB               Min.  11,250             11,000

LB/MMBTU:
ASH                  Max.   12.00              12.50
MOISTURE             Max.   11.00              11.25
SULFUR               Max.    3.05               3.20


                                    QUALITY 2



                     Guaranteed
                     Monthly
                     Weighted Average     Discount Point
                     ----------------     --------------
                                        
BTU/LB                Min. 11,250             11,000

LB/MMBTU:
ASH                   Max.  13.50              13.50
MOISTURE              Max.  11.00              11.25
SULFUR                Max.   3.30               3.40


     For example, if the actual Monthly Weighted Average of ash for Quality 1
equals 12.75 lb/MMBTU, then the applicable discount would be (12.75 lb. -
12.00 lb.) x $.0083/lb/MMBTU = $.00623/MMBTU.

     Section 8.3 PRICE ADJUSTMENT FOR CHANGES IN GOVERNMENTAL IMPOSITIONS. (a)
When used herein the term "GOVERNMENTAL IMPOSITION" means all reasonable direct
costs of compliance with all applicable new or revised federal, state and local
laws and regulations as they are interpreted or enacted or revised and enforced
after November 15, 2001, and during the Term hereof with respect to coal
(excluding any non-compliance existing as of November 15, 2001, financing

                                       17


                                                              CONTRACT #LGE02014

costs, income tax or property tax related costs, penalties, interest, fines,
costs of arbitration, mediation, litigation, or any other type of dispute
resolution through all stages of appeal, payment of judgments against Seller or
Seller's affiliates) or on instruments or documents evidencing the same or on
the proceeds thereof (excluding financing documents), and any law, governmental
order, rule, ordinance, regulation, stipulation, decree, or other governmental
requirement of any kind, or interpretation thereof, which pertains to coal
mining practices, health and safety of miners (excluding wages, benefits and
retirement), and air and water quality standards, provided (a) such Governmental
Impositions are imposed against the coal mining industry either on a regional,
state or national basis; (b) Seller does not seek to allocate such costs to
Buyer until the cumulative effect is a minimum of ten cents per ton); and (c)
Seller notifies Buyer in writing of the obligation or potential obligation to
comply with such laws within fifteen (15) days of the time Seller becomes aware
of such laws, setting forth the specific law or regulation and the anticipated
or actual financial impact on Buyer's purchase of coal hereunder, and the
anticipated or actual effective date. Additionally, the applicable Base Price
hereunder shall be increased only if the price adjustment is allocated evenly to
all coal produced by Seller or to all coal that is produced from the Coal
Property, so that Buyer is allocated only its proportionate share of such
Governmental Imposition, and the Base Price shall be decreased for any savings
resulting from changes in such Governmental Imposition. If the Base Price is
increased due to Governmental Impositions more than $1.00 per ton on a
cumulative basis during the Term, Buyer may terminate this Agreement upon not
less than thirty (30) days' written notice to Seller. Alternatively, Seller may
agree, by forwarding written notice to Buyer within ten (10) days after
receiving Buyer's notice of termination, to limit the cumulative Base Price
increase to $1.00 per ton above the Base Price, and this Agreement shall remain
in full force and effect. If the Base Price is decreased due to Governmental
Impositions more than $1.00 per ton on a cumulative basis during the Term,

                                       18


                                                              CONTRACT #LGE02014

Seller may terminate this Agreement upon not less than thirty (30) days' written
notice to Buyer. Alternatively, Buyer may agree, by forwarding written notice to
Seller within ten (10) days after receiving Seller's notice of termination, to
limit the cumulative Base Price decrease to $1.00 per ton below the Base Price,
and this Agreement shall remain in full force and effect.

     Notwithstanding any other provisions of this Section, there shall be no
price adjustment under this Section as a result of any noncompliance as of
November 15, 2001 with any Governmental Imposition currently existing or
hereafter enacted, or for any penalties or interest imposed. Additionally, the
applicable Base Price hereunder shall be increased only if the price adjustment
is allocated evenly to all coal that is produced from the Sources, so that Buyer
is allocated only its proportionate share of such Governmental Imposition.

     (b) If, as and when any changes in a Governmental Imposition occurring
after November 1, 2001 affect the applicable Base Price or the costs of the coal
produced from the Hopkins County Mines or other source mines used to produce the
coal sold hereunder, the applicable Base Price shall be adjusted (increased or
decreased) in the same amount that the actual cost per ton of producing, mining,
removing, preparing, loading, and selling the coal and/or coal supplied to Buyer
pursuant to this Agreement is increased or decreased as a result of compliance
in a reasonably cost effective manner with the Governmental Imposition.

     (c) Seller shall promptly notify Buyer in writing of the amount and
effective date of any adjustment to the applicable Base Price pursuant to the
provisions of this Section and shall furnish Buyer in writing of the amount and
effective date of any adjustment to the applicable Base Price pursuant to the
provisions of this Section and shall furnish Buyer with accurate and detailed
computations and data reasonably necessary to substantiate such adjustment.
Buyer shall have the right to inspect all books and records of Seller pertaining
to the right to receive an applicable Base Price decrease or increase. If Buyer
disputes such adjustment, Buyer shall so

                                       19


                                                              CONTRACT #LGE02014

notify Seller within sixty (60) days after receipt of such adjustment. Buyer
shall so notify Seller within sixty (60) days after receipt of such notice and
computations, or such adjustment shall be deemed conclusively correct. It is
Seller's obligation to ensure that Base Price decreases are timely given to
Buyer.

     Section 8.4 PRICE ADJUSTMENT DUE TO BUYER'S WRONGFUL TERMINATION OF COAL
SYNFUEL AGREEMENT. Effective at such time, if any, that Buyer wrongfully
terminates the Coal Synfuel Agreement, the then existing Base Price for Quality
1 and Quality 2, as they may be adjusted pursuant to Section 8.3, shall each be
increased by $0.05/MMBtu, with such increase to remain to remain in effect
through the remaining term of this Agreement.

     Section 8.5 Other PRICE ADJUSTMENT. If (a) the Feedstock Coal Supply
Agreement between Hopkins County Coal and the coal synfuel supplier under the
Coal Synfuel Agreement terminates for any reason, or if (b) Buyer terminates the
Coal Synfuel Agreement for failure to conform to quality specifications as set
forth in the Coal Synfuel Agreement, Seller will supply coal in place of such
Coal Synfuel through the balance of the term at the price that was applicable
for such Coal Synfuel under the Coal Synfuel Agreement.

     Section 8.5 PAYMENT CALCULATION Exhibit A attached hereto shows the
methodology for calculating the coal payment and quality price discounts for the
month Seller's coal was unloaded by Buyer. If there are any such discounts,
Buyer shall apply credit to amounts owed Seller for the month the coal was
unloaded.

     SECTION 9. INVOICES, BILLING AND PAYMENT.

     Section 9.1 INVOICING: Invoices for coal will be sent by Seller's Agent to
Buyer at the following address:

              Louisville Gas and Electric Company
              220 West Main Street

                                       20


                                                              CONTRACT #LGE02014

              Louisville, KY 40202
              Attention:  Manager - LG&E/KU Fuels

     Section 9.2 INVOICE PROCEDURES FOR COAL SHIPMENTS. Seller's Agent shall
invoice Buyer at the Base Price, minus any quality price discounts, for all coal
unloaded in a calendar month by the fifteenth (15th) of the following month.

     Section 9.3 PAYMENT PROCEDURES FOR COAL SHIPMENTS. For all coal delivered
pursuant to Section 5 hereof, and unloaded at Buyer's generating stations
between the first (1st) and fifteenth (15th) days of any calendar month, Buyer
shall make preliminary payment to Seller for seventy-five percent (75%) of the
amount owed for the coal (based on the assumption that the coal will meet the
guaranteed monthly quality parameters) by the twenty-fifth (25th) day of such
month of delivery and unloading, except that, if the 25th is not a regular
business day, payment shall be made on the next business day. For all coal
delivered, as defined in Section 5 hereof, and unloaded at Buyer's generating
stations between the sixteenth (16th) and the last day of any calendar month,
Buyer shall make a preliminary payment to Seller for seventy-five (75%) of the
delivered and unloaded coal by the tenth (10th) day of the month following the
month of delivery and unloading, except that, if the 10th is not a business day,
payment shall be made on the next business day.

     Preliminary payment to Seller shall be in the amount of seventy-five
percent (75%) of the then current price on a dollar per ton basis as calculated
by the guaranteed monthly weighted average BTU/lb. and the then current Base
Price in cents per MMBTU.

     A reconciliation of amounts paid and amounts owed shall occur on the
twenty-fifth (25th) day of the month following the month of delivery and
unloading. (For example, Buyer will make one initial payment on September 25 for
seventy-five percent of coal delivered and unloaded September 1 through 15, and
another initial payment on October 10 for seventy-five percent of

                                       21


                                                              CONTRACT #LGE02014

coal delivered and unloaded September 16 through 30. A reconciliation will occur
on October 25 for all deliveries and unloadings made in September.) The
reconciliation shall be made as follows: Seller's Agent shall invoice Buyer on
or before the 15th day of the month following the month of delivery and
unloading. The amount due for all coal (based on the Base Price, including
adjustment for BTU variations from the guaranteed monthly weighted average,
minus any Quality Price Discounts) delivered and unloaded and accepted by Buyer
during any calendar month shall be calculated and compared to the sum of the
preliminary payments made for coal delivered and unloaded and accepted during
such month. The difference shall be paid by or paid to Seller, as applicable, by
the twenty-fifth (25th) day of the month following the month of delivery and
unloading, except, that, if the 25th is not a business day, payment shall be
made on the next business day.

     In the event Seller notifies Buyer that a pattern has developed whereby
payments are not being paid when due, as set forth herein, Buyer shall review
its internal approval and payment procedures and remedy such payment practices,
if any develop.

     Section 9.4 WITHHOLDING. Buyer shall have the right to withhold from
payment of any billing or billings any sums which it is not able in good faith
to verify or which it otherwise in good faith disputes. Buyer shall notify
Seller promptly in writing of any such issue, stating the basis of its claim and
the amount it intends to withhold. Should any bona fide dispute involving the
amounts payable hereunder extend to only a portion of any amount claimed due
hereunder, the undisputed portion shall be paid as and when due. If any amount
disputed by Buyer is determined to be due to Seller (whether by agreement of the
Parties or final determination by a court of competent jurisdiction), it shall
be paid within five business days of such determination, along with interest
accrued at the Interest Rate from the original due date until the date paid. As

                                       22


                                                              CONTRACT #LGE02014

used herein, the term "INTEREST RATE" shall mean, for any date, the lesser of
(i) the Prime Rate plus 2%, and (ii) eighteen percent, but in any event, no more
than the highest rate permitted by applicable Law. The term "PRIME RATE" shall
mean the rate of interested quoted by Citibank, N.A., New York branch, from time
to time as its "prime" or "base" lending rate.

     Payment by Buyer, whether knowing or inadvertent, of any amount in dispute
shall not be deemed a waiver of any claims or rights by Buyer with respect to
any disputed amounts or payments made.

     SECTION 10. FORCE MAJEURE.

     Section 10.1 GENERAL FORCE MAJEURE. If either Buyer or Seller is delayed in
or prevented from performing any of its obligations or from utilizing the coal
sold under this Agreement due to (i) acts of God, (ii) war, (iii) riots, (iv)
civil insurrection, (v) acts of the public enemy, (vi) strikes, (vii) lockouts,
(viii) fires, (ix) floods, (x) earthquakes, (xi) explosions, (xii) mine
accidents that are solely responsible for delaying or preventing performance of
Seller, (xiii) breakdown of or damage to equipment, plant, transmission systems,
or transportation providers that is solely responsible for delaying or
preventing the performance of Seller, (xiv) unforeseen adverse geologic
conditions which were not detected despite prudent mine planning and mining
processes and which are solely responsible for delaying or preventing the
performance of Seller, or (xv) the inability to obtain necessary mining
permit(s) after applying for such with prudent and reasonable diligence, and
such event is beyond the reasonable control and without the fault or negligence
of the party affected thereby, then the obligations of both parties hereto shall
be suspended to the extent made necessary by such event; provided that the
affected party gives written notice to the other party as early as practicable
of the nature and probable duration of the force majeure event. The party
declaring force majeure shall exercise due diligence to avoid

                                       23


                                                              CONTRACT #LGE02014

and shorten the force majeure event and will keep the other party advised as to
the continuance of the force majeure event.

     During any period in which Seller's ability to perform hereunder is
affected by a force majeure event, Seller shall not deliver any coal to any
other buyers to whom Seller's ability to supply is similarly affected by such
force majeure event unless contractually committed to do so at the beginning of
the force majeure event; and further shall deliver to Buyer under this Agreement
at least a pro rata portion (on a per ton basis) of its total contractual
commitments to all its buyers to whom Seller's ability to supply is similarly
affected by such force majeure event in place at the beginning of the force
majeure event. If any of the events listed above affects Seller's ability to
produce or obtain coal from affiliate mine operations and/or substitute coal
sources which are supplying coal hereunder, such events shall be considered a
force majeure event hereunder.

     If tonnage deficiencies result from Seller's declared force majeure event,
such deficiencies shall be made up at Buyer's sole option on a mutually
agreed-upon schedule. Tonnage deficiencies resulting from Buyer's declared force
majeure event shall be made up at Seller's sole option on a mutually agreed-upon
schedule. If a force majeure event for Seller continues or is reasonably
anticipated to continue for sixty (60) days or longer, Buyer may, upon written
notice to Seller, terminate this Agreement.

     Section 10.2 ENVIRONMENTAL LAW FORCE MAJEURE. The parties recognize that,
during the continuance of this Agreement, legislative or regulatory bodies or
the courts may adopt or reinterpret environmental laws, regulations, policies
and/or restrictions which will make it impossible or commercially impracticable
for Buyer to utilize this or like kind and quality

                                       24


                                                              CONTRACT #LGE02014

coal which thereafter would be delivered hereunder. If as a result of the
adoption or reinterpretation of such laws, regulations, policies, or
restrictions, or change in the interpretation or enforcement thereof, Buyer
decides that it will be impossible or commercially impracticable (uneconomical)
for Buyer to utilize such coal, Buyer shall so notify Seller, and thereupon
Buyer and Seller shall promptly consider whether corrective actions can be taken
in the preparation of the coal and/or in the handling and utilization of the
coal at Buyer's generating station; and if in Buyer's sole judgment such actions
will not, without unreasonable expense to Buyer, make it possible and
commercially practicable for Buyer to so utilize coal which thereafter would be
delivered hereunder without violating any applicable law, regulation, policy or
order, Buyer shall have the right, upon the later of 60 days notice to Seller or
the effective date of such restriction, to terminate this Agreement without
further obligation hereunder on the part of either party.

     SECTION 11. NOTICES.

     Section 11.1 FORM AND PLACE OF NOTICE. Any official notice, request for
approval or other document required to be given under this Agreement shall be in
writing, unless otherwise provided herein, and shall be deemed to have been
sufficiently given when delivered in person, transmitted by facsimile or other
electronic media, delivered to an established mail service for same day or
overnight delivery, or dispatched in the United States mail, postage prepaid,
for mailing by first class, certified, or registered mail, return receipt
requested, and addressed as follows:

     If to Buyer:       Louisville Gas and Electric Company
                        220 West Main Street
                        Louisville, Kentucky 40202
                        Attn.: Director Corporate Fuels and By Products

     If to Seller:      Hopkins County Coal, LLC
                        1717 South Boulder Avenue

                                       25


                                                              CONTRACT #LGE02014

                        Tulsa, Oklahoma 74119
                        Attn: Brad F. Shellenberger
                        General Manager-Contract Administration

                        With Copy To:
                        Alliance Coal Sales
                        771 Corporate Drive, Suite 1000
                        Lexington, Kentucky 40503
                        Attn: James E. Plaisted
                        Sales Manager, Central Region

     Section 1.2 CHANGE OF PERSON OR ADDRESS. Either party may change the person
or address specified above upon giving written notice to the other party of such
change.

     SECTION 12. RIGHT TO RESELL. Buyer shall have the unqualified right to sell
all or any of the coal purchased under this Agreement.

     SECTION 13. INDEMNITY AND INSURANCE.

     Section 13.1 INDEMNITY. Seller agrees to indemnify and save harmless Buyer,
its officers, directors, employees and representatives from any responsibility
and liability for any and all claims, demands, losses, legal actions for
personal injuries, property damage and pollution (excluding inside and outside
attorney's fees) (i) relating to the trucks or railcars provided by Buyer or
Buyer's contractor while such trucks or railcars are in the care and custody of
the loading facility, (ii) due to any failure of Seller to comply with laws,
regulations or ordinances, or (iii) due to the acts or omissions of Seller in
the performance of this Agreement.

     Buyer agrees to indemnify and save harmless Seller, its officers,
directors, employees and representatives from any responsibility and liability
for any and all claims, demands, losses, legal actions for personal injuries,
property damage and pollution (excluding inside and outside

                                       26


                                                              CONTRACT #LGE02014

attorney's fees) (i) due to acts or omissions of Buyer or Buyer's contractors
relating to the trucks or railcars provided by Buyer or Buyer's contractors to
Seller at the loading facility, (ii) due to any failure of Buyer to comply with
laws, regulations or ordinances, or (iii) due to the acts or omissions of Buyer
in the performance of this Agreement.

     Section 13.2 INSURANCE. Seller agrees to carry, or caused to be carried,
insurance coverage, or provide acceptable proof of self-insurance with minimum
limits as follows:

          (1) Commercial General Liability, including Completed Operations and
Contractual Liability, $1,000,000 single limit liability.

          (2) Automobile General Liability, $1,000,000 single limit liability.

          (3) In addition, Seller shall carry excess liability insurance
covering the foregoing perils in the amount of $4,000,000 for any one
occurrence.

          (4) Workers' Compensation and Employer's Liability with statutory
limits.

     If any of the above policies are written on a claims made basis, then the
retroactive date of the policy or policies will be no later than the effective
date of this Agreement. Certificates of Insurance satisfactory in form to Buyer
and signed by Seller's insurer shall be supplied by Seller to Buyer evidencing
that the above insurance is in force and that not less than 30 calendar days
written notice will be given to Buyer prior to any cancellation or material
reduction in coverage under the policies. Seller shall cause its insurer to
waive all subrogation rights against Buyer respecting all losses or claims
arising from performance hereunder. Evidence of such waiver satisfactory in form
and substance to Buyer shall be exhibited in the Certificate of Insurance
mentioned above. Seller's liability shall not be limited to its insurance
coverage.

                                       27


                                                              CONTRACT #LGE02014

     SECTION 14. TERMINATION FOR DEFAULT.

     If either party hereto commits a material breach of any of its obligations
under this Agreement at any time (exception of defaults occurring under
Section 6.4 and/or Section 6.5), then the other party has the right to give
written notice describing such breach and stating its intention to terminate
this Agreement no sooner than 30 days after the date of the notice (the "notice
period"). If such material breach is curable and the breaching party cures such
material breach within the notice period, then this Agreement shall not be
terminated due to such material breach. If such material breach is not curable
or the breaching party fails to cure such material breach within the notice
period, then this Agreement shall terminate at the end of the notice period and
in addition the parties shall have all other rights and remedies available under
this Agreement and at law and in equity.

     SECTION 15. TAXES, DUTIES AND FEES.

     Seller shall pay when due, and the price set forth in Section 8 of this
Agreement shall be inclusive of, all taxes, duties, fees and other assessments
of whatever nature imposed by governmental authorities with respect to the
transactions contemplated under this Agreement.

     SECTION 16. DOCUMENTATION AND RIGHT OF AUDIT.

     Buyer and Seller shall maintain all records and accounts pertaining to
payments, quantities, quality analyses, and source for all coal supplied under
this Agreement for a period lasting through the term of this Agreement and for
two years thereafter. Either Buyer or Seller shall have the right at their
expense, and at no additional expense to the other party, to audit, copy and
inspect such records and accounts at any reasonable time upon reasonable notice
during the term of this Agreement and for 2 years thereafter.

                                       28


                                                              CONTRACT #LGE02014

     SECTION 17. EQUAL EMPLOYMENT OPPORTUNITY. To the extent applicable, Seller
shall comply with all of the following provisions which are incorporated herein
by reference: Equal Opportunity regulations set forth in 41 CFR Section
60-1.4(a) and (c) prohibiting discrimination against any employee or applicant
for employment because of race, color, religion, sex, or national origin;
Vietnam Era Veterans Readjustment Assistance Act regulations set forth in 41 CFR
Section 50-250.4 relating to the employment and advancement of disabled veterans
and veterans of the Vietnam Era; Rehabilitation Act regulations set forth in 41
CFR Section 60-741.4 relating to the employment and advancement of qualified
disabled employees and applicants for employment; the clause known as
"Utilization of Small Business Concerns and Small Business Concerns Owned and
Controlled by Socially and Economically Disadvantaged Individuals" set forth in
15 USC Section 637(d)(3); and subcontracting plan requirements set forth in 15
USC Section 637(d).

     SECTION 18. COAL PLANT INSPECTIONS. Buyer and its representatives, and
others as may be required by applicable laws, ordinances and regulations shall
have the right at all reasonable times and at their own expense to inspect the
Coal Property, including the loading facilities, scales sampling systems, wash
plant facilities and mining equipment for conformance with this Agreement.
Seller shall cooperate with Buyer's request to inspect the Coal Property at no
additional cost to Buyer and shall undertake reasonable care and precautions to
prevent personal injuries to any representatives, agents or employees of Buyer
(collectively, "Visitors") who inspect the Coal Property. Any such Visitors
shall comply with Seller's regulations and rules regarding conduct on the work
site, made known to Visitors prior to entry, as well as safety measures mandated
by state or federal rules, regulations and laws. Buyer understands that coal
related facilities are inherently high-risk environments. Buyer's failure to
inspect the Coal Property or to object to defects therein at the time Buyer
inspects the same

                                       29


                                                              CONTRACT #LGE02014

shall not relieve Seller of any of its responsibilities nor be deemed to be a
waiver of any of Buyer's rights hereunder. Buyer and/or its representatives
shall provide Seller with prior notice of any request to inspect the Coal
Property.

     SECTION 19. MISCELLANEOUS.

     Section 19.1 APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Kentucky, and all questions of
performance of obligations hereunder shall be determined in accordance with such
laws.

     Section 19.2 HEADINGS. The paragraph headings appearing in this Agreement
are for convenience only and shall not affect the meaning or interpretation of
this Agreement.

     Section 19.3 WAIVER. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
rights hereunder, shall not be construed as a waiver of such provision or right.

     Section 19.4 REMEDIES CUMULATIVE. Except as otherwise specifically provided
herein, the remedies provided under this Agreement shall be cumulative and in
addition to other remedies provided under this Agreement or by law or in equity.

     Section 19.5 SEVERABILITY. If any provision of this Agreement is found
contrary to law or unenforceable by any court of law, the remaining provisions
shall be severable and enforceable in accordance with their terms, unless such
unlawful or unenforceable provision is material to the transactions contemplated
hereby, in which case the parties shall negotiate in good faith a substitute
provision.

     Section 19.6 BINDING EFFECT. This Agreement shall bind and inure to the
benefit of the parties and their successors and assigns.

     Section 19.7 ASSIGNMENT.

                                       30


                                                              CONTRACT #LGE02014

     Except as provided hereinbelow, neither Buyer nor Seller may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Non-Assigning Party, which consent shall not be unreasonably
withheld, denied, or delayed. No assignment shall be permitted if (a) the
Assigning Party is in default of this Agreement; (b) an event has occurred that,
after any required notice and cure periods, may become a default of the
Assigning Party; or (c) the Assigning Party has declared a force majeure event
that is continuing. When considering approval of a proposed assignment, the
Non-Assigning Party agrees that it will not seek, as a condition precedent to
such approval, to alter the mutual terms of this Agreement.

     In regard to the foregoing, in any assignment of an Assigning Party's
rights and obligations hereunder to:

(a) an affiliated or non-affiliated company, the Non-Assigning Party may
    withhold its consent to the proposed assignment unless the proposed
    assignee (i) provides the Non-Assigning Party with evidence sufficient to
    the Non-Assigning Party that the proposed assignee has the financial
    capability to meet its obligations hereunder; (ii) in the case of Seller's
    proposed assignment, is a mining company with an established reputation in
    the industry for providing a reliable supply of coal in the quantity
    required by this Agreement or, alternatively in the case of Buyer's
    proposed assignment, is operating an established coal burning electric
    generating station with an established reputation in the utility industry
    for providing a reliable supply of electricity; and (iii) enters into an
    agreement with the Non-Assigning Party identical in all respects (except
    for the identification of Seller or Buyer and the term, which shall be
    revised to reflect the then remaining balance of the term hereof) to this
    Agreement; or

(b) an affiliated company, (i) the Non-Assigning Party shall give its consent to
    the proposed assignment in the event that the Assigning Party shall agree to
    continue as a joint

                                       31


                                                              CONTRACT #LGE02014

    obligor under the Agreement; and (ii) the proposed assignee enters into an
    agreement with the Non-Assigning Party identical in all respects (except
    for the identification of Seller or Buyer and the term, which shall be
    revised to reflect the then remaining balance of the term hereof) to this
    Agreement.

          For purposes of this Section, the term "Assigning Party" shall refer
to either Buyer or Seller, as the case may be, and the term "Non-Assigning
Party" shall refer to either (a) Buyer, if Seller is proposing assignment, or
(b) Seller, if Buyer is proposing assignment.

     No consent is required for a transfer by a party of all or a majority
interest in such party or as part of a merger or consolidation involving such
party.

     In the event of an assignment or transfer contrary to the provisions of
this section, the non-assigning party may terminate this Agreement immediately.

     Buyer acknowledges that Seller's right to engage its subcontractors in
performing certain obligations hereunder and Seller's appointment of Alliance
Coal Sales, as its agent, shall not be deemed to constitute an assignment of
this Agreement.

Section 19.8 LIMITATION OF REMEDIES. NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE,
EXEMPLARY, SPECIAL OR INDIRECT DAMAGES, LOST REVENUES, LOST PROFITS OR OTHER
BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY
INDEMNITY PROVISION OR OTHERWISE. ADDITIONALLY, BUYER SHALL NOT BE LIABLE FOR
DAMAGES HEREIN UNLESS THE SELLER UNDER THE COAL SYNFUEL AGREEMENT WAIVES ANY
RIGHT IT MAY HAVE TO CLAIM DAMAGES AGAINST BUYER FOR THE SAME TRIGGERING EVENT.
EXCEPT AS EXPRESSLY SET FORTH HEREIN, SELLER EXPRESSLY NEGATES ANY OTHER
REPRESENTATION OR WARRANTY,

                                       32


                                                              CONTRACT #LGE02014

WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING ANY REPRESENTATION OR WARRANTY
WITH RESPECT TO CONFORMITY TO MODELS OR SAMPLES, MERCHANTABILITY, OR FITNESS FOR
ANY PARTICULAR PURPOSE.

     Section 19.9 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which will be deemed an original, but all of which together will
constitute one and the same instrument. Delivery of the executed signature pages
by facsimile transaction will constitute effective and binding execution and
delivery of this Agreement.

     Section 19.10 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties as to the subject matter hereof, and there are no
representations, understandings or agreements, oral or written, which are not
included herein.

     Section 19.11 AMENDMENTS. Except as otherwise provided herein, this
Agreement may not be amended, supplemented or otherwise modified except by
written instrument signed by both parties hereto.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

BUYER:                               SELLER:
- ------                               -------
LOUISVILLE GAS AND ELECTRIC          HOPKINS COUNTY COAL, LLC
COMPANY

By:   /s/ Paul Thompson              By: /s/ Gary J. Rathburn
      ---------------------              ------------------------------------
      Paul Thompson                  Gary J. Rathburn
      SVP - Energy Services          Senior Vice President- Marketing

Date: 12/21/01                       Date:  11/28/01

                                     SELLER'S AGENT:
                                              ALLIANCE COAL SALES,

                                       33


                                                              CONTRACT #LGE02014

                                     a division of Alliance Coal, LLC

                                     By: /s/ Gary J. Rathburn
                                         --------------------
                                     Gary J. Rathburn
                                     Senior Vice President-Marketing

                                     Date: 11/28/01

                                       34


                                                              CONTRACT #LGE02014

                                                                       Exhibit A
                                                                     Page 1 of 2

                                    EXHIBIT A
                  SAMPLE COAL PAYMENT CALCULATIONS - QUALITY 1
                   TOTAL EVALUATED COAL COSTS FOR CONTRACT NO.
          For contracts supplied from multiple "origins", each "origin
                        will be calculated individually.



                            SECTION I                                                   BASE DATA
     ----------------------------------------------------------------           -------------------------
                                                                                   
1)   Base F.O.B. price per ton:                                                       $ 24.17            /ton
                                                                                -------------------------
1a)  Tons of Coal delivered:                                                                             tons
                                                                                -------------------------
2)   Guaranteed average heat content:                                                  11,250            BTU/LB.
                                                                                -------------------------
2r)  As received monthly avg. heat content:                                                              BTU/LB.
                                                                                -------------------------
2a)  Energy delivered in MMBTU:                                                                          MMBTU
                                                                                -------------------------
[(Line 1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU
[(     ) *2,000 lb./ton*(     )]*MMBTU/1,000,000 BTU

2b)  Base F.O.B. price per MMBTU:                                                      $ 1.06            MMBTU
                                                                                -------------------------

{[(Line 1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU
{[(     /ton)/(        BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU

3)   Guaranteed monthly avg. max. sulfur                                                 3.05            LBS./MMBTU
                                                                                -------------------------

3r)  As received monthly avg. sulfur                                                                     LBS./MMBTU
                                                                                -------------------------

4)   Guaranteed monthly avg. ash                                                        12.00            LBS./MMBTU
                                                                                -------------------------

4r)  As received monthly avg. ash                                                                        LBS./MMBTU
                                                                                -------------------------

5)   Guaranteed monthly avg. max. moisture                                               11.0            LBS./MMBTU
                                                                                -------------------------

5r)  As received monthly avg. moisture                                                                   LBS./MMBTU
                                                                                -------------------------


                           SECTION II                                                   DISCOUNTS
         -----------------------------------------------------                  -------------------------
                                                                                   
     Assign a (-) to all discounts (round to (5) decimal places)
6d)  BTU/LB.:  If line 2r < 11,000 BTU/lb. then:
     {1 - (line 2r) / (line 2)} * $0.2604/MMBTU
     {1 - (    ) / (    )} * $0.2604 =                                                $                  /MMBTU
                                                                                      -------------------
7d)  SULFUR:  If line 3r is greater than 3.20 lbs./MMBTU
     [ (line 3r) - (line 3) ] * 0.1232/lb. Sulfur
     [ (    ) - (    ) ] * 0.1232 =                                                   $                  /MMBTU
                                                                                      -------------------
8d)  ASH: If line 4r is greater than 12.50 lbs./MMBTU
     [ (line 4r) - (line 4) ] * 0.0083/MMBTU
     [ (    ) - (    ) ] * 0.0083 =                                                   $                  /MMBTU
                                                                                      -------------------
9d)  MOISTURE:  If line 5r is greater than 11.25lbs./MMBTU
     [ (line 5r) - (line 5) ] * 0.0016/MMBTU
     [ (    ) - (    ) ] * 0.0016 =                                                   $                  /MMBTU
                                                                                      -------------------


                                       35


                                                              CONTRACT #LGE02014

                                                                       Exhibit A
                                                                     Page 2 of 2



                                                                                        TOTAL PRICE
                     SECTION III                                                        ADJUSTMENTS
     ---------------------------------------------                                      -----------
                                                                                   
     Determine total Discounts as follows:

     Assign a (-) to all discounts (round to (5) decimal places)

     Line 6d:                                                                         $                  /MMBTU
                                                                                        -----------------

     Line 7d                                                                          $                  /MMBTU
                                                                                        -----------------

     Line 8d                                                                          $                  /MMBTU
                                                                                        -----------------

     Line 9d                                                                          $                  /MMBTU
                                                                                        -----------------

10)  Total Discounts (-):

     Algebraic sum of above:                                                          $                  /MMBTU
                                                                                        -----------------

11)  Total evaluated Coal price = (line 2b) + (line 10)

12)  Total discount price adjustment for Energy delivered:
     (line 2a) * (line 10) (-)
     $         /MMBTU           +                                                     $                  /MMBTU = $
      --------                                                                          -----------------          ------------

13)  Total base cost of Coal
     (line 2a) * (line 2b)
     $         /MMBTU           +                                                     $                  /MMBTU = $
      --------                                                                          -----------------           -----------

14)  Total Coal payment for month
     (line 12) + (line 13)
     $         /MMBTU           +                                                     $                         = $
      --------                                                                          -----------------           -----------


                                       36

EX-10.55

                                                                   Exhibit 10.55

                              COAL SUPPLY AGREEMENT

     This is a coal supply agreement (the "Agreement") dated August 12, 2001
between KENTUCKY UTILITIES COMPANY, a Kentucky corporation, 220 West Main
Street, Louisville, Kentucky 40202 ("Buyer"), and ARCH COAL SALES COMPANY, INC.,
a Delaware corporation, agent for the independent operating subsidiaries of ARCH
COAL, INC., a Delaware corporation (collectively "Seller"), whose address is
CityPlace One, Suite 300, St. Louis, Missouri 63141.

     The parties hereto agree as follows:

     SECTION 1. GENERAL. Seller will sell to Buyer and Buyer will buy from
Seller steam coal under all the terms and conditions of this Agreement.

     SECTION 2. TERM. The term of this Agreement shall commence on January 1,
2002 and shall continue through December 31, 2005, subject to early termination
pursuant to the terms of Sections 6.4, 8.1, 10.2, 15 and 20.7.

     SECTION 3. QUANTITY.

     Section 3.1 BASE QUANTITY. Subject to the price review set forth in
Section 8.1, Seller shall sell and deliver, and Buyer shall purchase and accept
delivery of the following annual base quantity of coal ("Base Quantity"):



                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB



          YEAR                      BASE QUANTITY (TONS)
          ----                      --------------------
                                      
          2002                           1,000,000
          2003                           1,000,000
          2004                           1,000,000
          2005                           1,000,000


          The Base Quantity will be delivered in approximately equal monthly
quantities and in accordance with a mutually agreed upon schedule, assuming
adjustments in scheduling for maintenance outages. In the event Buyer fails to
take delivery of the Base Quantity in any calendar year for reasons other than
an event of Force Majeure under Section 10, delivery of non-conforming coal,
failure by Seller to deliver coal in accordance with the terms of this
Agreement, or any other reasons excused hereunder, any deficiency in deliveries
shall be made up or carried over to subsequent year(s) only upon mutual written
agreement of both Buyer and Seller.

     SECTION 4. SOURCE.

     Section 4.1 SOURCE. The coal sold hereunder, shall be supplied primarily
from the Black Thunder Mine located in Campbell County, Wyoming (the "Coal
Property").

     Section 4.2 ASSURANCE OF OPERATION AND RESERVES. Seller represents and
warrants that the Coal Property contains economically recoverable coal of a
quality and in quantities which will be sufficient to satisfy all the
requirements of this Agreement, subject to Seller obtaining issuance of
necessary permits. Seller agrees and warrants that it will have at the Coal
Property adequate machinery, equipment and other facilities to produce, prepare
and deliver coal in the quantity and of the quality required by this Agreement.
Seller further agrees to operate and maintain such

                                        2


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

machinery, equipment and facilities in accordance with good mining practices so
as to efficiently and economically produce, prepare and deliver such coal.
Seller agrees that Buyer is not providing any capital for the purchase of such
machinery, equipment and/or facilities and that Seller shall operate and
maintain same at its sole expense, including all required permits and licenses.
Seller hereby allocates to this Agreement sufficient reserves of coal meeting
the quality specifications hereof and lying on or in the Coal Property so as to
fulfill the quantity requirements hereof.

     Section 4.3 NON-DIVERSION OF COAL. Seller agrees and warrants that it will
not, without Buyer's express prior written consent, use or sell coal from the
Coal Property in a way that will reduce the economically recoverable balance of
coal in the Coal Property to an amount less than that required to be supplied to
Buyer hereunder.

     Section 4.4 SELLER'S PREPARATION OF MINING PLAN. Seller shall have prepared
a complete mining plan for the Coal Property with adequate supporting data to
demonstrate Seller's capability to have coal produced from the Coal Property
which meets the quantity and quality specifications of this Agreement. Seller
shall, upon Buyer's request during Coal Property Inspections, if any (made
pursuant to Section 19), provide information to Buyer of such mining plan which
shall contain maps and a narrative depicting areas and seams of coal to be mined
and shall include (but not be limited to) the following information: (i)
reserves from which the coal will be produced during the term hereof and the
mining sequence, by year (or such other time intervals as mutually agreed)
during the term of this Agreement, from which coal will be mined; (ii) methods
of mining such coal; (iii) methods of transporting and, in the event a
preparation plant is utilized by

                                        3


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

Seller, the methods of washing coal to insure compliance with the quantity and
quality requirements of this Agreement including a description and flow sheet of
the preparation plant; (iv) quality data plotted on the maps depicting data
points and isolines by ash, sulfur, and Btu; (v) quality control plans including
sampling and analysis procedures to insure individual shipments meet quality
specifications; and (vi) Seller's aggregate commitments to others to sell coal
from the Coal Property during the term of this Agreement.

     Buyer's receipt of information or data furnished by Seller (the "Mining
Information") shall not in any manner relieve Seller of any of Seller's
obligations or responsibilities under this Agreement; nor shall such review be
construed as constituting an approval of Seller's proposed mining plan as
prudent mining practices, such review by Buyer being limited solely to a
determination, for Buyer's purposes only, of Seller's capability to supply coal
to fulfill Buyer's requirements of a dependable coal supply.

     Section 4.5 SUBSTITUTE COAL. Notwithstanding the above representations and
warranties, in the event that Seller is unable to produce or obtain coal from
the Coal Property in the quantity and of the quality required by this Agreement,
and such inability is not caused by a force majeure event as defined in Section
10, then Buyer will have the option of requiring that Seller supply coal from
Seller's other facilities and mines or Seller shall also have the right to
supply substitute coal from sources not owned or controlled by Seller after
having received Buyer's prior written consent (which shall not be unreasonably
withheld). Such substitute coal shall be provided under all the terms and
conditions of this Agreement including, but not limited to, the price provisions
of Section 8, the quality specifications of Section 6.1, and the provisions of
Section 5 concerning reimbursement to Buyer

                                        4


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

for increased transportation costs. Seller's delivery of coal not produced from
the Coal Property without having received the express written consent of Buyer
shall constitute a material breach of this Agreement.

     SECTION 5. DELIVERY.

     Section 5.1 RAIL DELIVERY. The coal shall be delivered to Buyer F.O.B.
railcar at the rail loading facility located at Black Thunder Mine near Wright,
Wyoming (the "Delivery Point"). Seller may deliver the coal at a location
different from the Delivery Point, provided, however, that Seller shall
reimburse Buyer for any resulting increases in the cost of transporting the coal
to Buyer's generating stations. Buyer shall retain any resulting savings in such
transportation costs.

     Title to and risk of loss of coal sold will pass to Buyer and the coal will
be considered to be delivered as the coal is progressively loaded into railcars
at the Delivery Point. Buyer or its contractor shall furnish suitable railcars
in accordance with a delivery schedule provided by Buyer to Seller. Seller shall
comply with the applicable provisions of Buyer's rail contractor's tariff
provided that such provisions shall first be provided by Buyer for review by
Seller. Buyer shall arrange and pay for all costs of transporting the coal from
the Delivery Point to Buyer's generating station. For delays caused by Seller in
handling the scheduling of shipments with Buyer's rail contractor, Seller shall
be responsible for any demurrage, penalties, damages or charges assessed by said
rail contractor (or assessed by Buyer) which accrue at the Delivery Point,
including the demurrage, penalties for loading less than the minimum of 15,000
tons per

                                        5


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

train shipment, or other penalties, damages or charges assessed for railcars not
loaded in conformity with applicable requirements.

     Section 5.2 SIDE RELEASE TREATMENT. At Buyer's request, Seller shall treat
(or have treated) any railcars specified by Buyer with a side release agent
approved by Buyer. The price for each such requested side chemical treatment
shall be an amount, equal to Seller's cost of material applied, for each
application. The cost of the side release treatment shall be established for
each spray season by Seller prior to October of that season. The spray season is
approximately October through March. Seller shall invoice Buyer for all such
treatments, which occurred in a calendar month by the fifteenth of the following
month; and payment shall be wired by the 25th of such following month.

     Section 5.3 SODIUM CONDITIONING. At Buyer's request, Seller shall treat (or
have treated) any shipment of coal hereunder with soda ash in order to maintain
approximately 2% sodium content. The price for soda ash applied shall be on a
$0.08 per pound (lb.) basis for each application of soda ash. Seller shall
invoice Buyer for all such treatments, which occurred in a calendar month by the
fifteenth of the following month; and payment shall be wired by the 25th of such
following month.

     SECTION 6. QUALITY.

     Section 6.1 SPECIFICATIONS. The coal delivered hereunder shall conform to
the following specifications on an "as received" basis:

                                        6


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB



                                            Guaranteed Monthly        Rejection Limits
         Specifications                     Weighted Average(1)       (per shipment)
- --------------------------------------------------------------------------------------------
                                                                
         BTU/LB.                            min. 8,800                <  8,500
                                                ------                   ------

         LBS/MMBTU:
         MOISTURE                           max. 30.68                >  35.29
                                                ------                   ------
         ASH                                max.  6.82                >  10.59
                                                ------                   ------
         SULFUR                             max.  0.40 *              >   0.60
                                                ------                   ------
         SULFUR                             min.   NA                 <     NA
                                                ------                   ------
         CHLORINE                           max.  0.01                >   0.02
                                                ------                   ------
         NITROGEN                           max.  0.95                >   1.00
                                                ------                   ------

         * Individual shipment limit of 1.20 lbs. SO(2)/MMBTU

         SIZE (3" X 0"):
                  Top size (inches)**       max.  3X0                    >      3X0
                                                ------                   ------
                  Fines (% by wgt)
                  Passing 1/4" screen       max.   35                    >      40
                                                ------                   ------

         % BY WEIGHT:
         VOLATILE                           min.   32                    <      30
                                                ------                       ------
         FIXED CARBON                       min.   36                    <      31
                                                ------                       ------
         GRINDABILITY (HGI)                 min.   52                    <      44
                                                ------                       ------

         ASH FUSION TEMPERATURE (DEG.F) (ASTM D1857)

         REDUCING ATMOSPHERE
         Initial Deformation                min. +2135                   min. +2050
                                                ------                       ------
         Softening (H=W)                    min. +2160                   min. +2060
                                                ------                       ------
         Softening (H=1/2W)                 min. +2175                   min. +2070
                                                ------                       ------
         Fluid                              min. +2240                   min. +2100
                                                ------                       ------

         OXIDIZING ATMOSPHERE
         Initial Deformation                min. +2220                   min. +2100
                                                ------                       ------
         Softening (H=W)                    min. +2230                   min. +2100
                                                ------                       ------
         Softening (H=1/2W)                 min. +2250                   min. +2120
                                                ------                       ------
         Fluid                              min. +2300                   min. +2140
                                                ------                       ------


                                        7


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     (1) An actual Monthly Weighted Average will be calculated for each
     specification for coal delivered for the Kentucky Utilities Ghent
     generating station at the Delivery Point.

     Note:    As used herein    >    means greater than:
                                <    means less than.

     Section 6.2 DEFINITION OF "SHIPMENT". As used herein, a "shipment" shall
mean one unit trainload that is loaded at the Delivery Point.

     Section 6.3 BUYER AGREES THAT SELLER MAKES NO EXPRESS WARRANTIES OTHER THAN
THOSE SET FORTH IN THIS AGREEMENT. SELLER MAKES NO WARRANTY CONCERNING THE
SUITABILITY OF COAL DELIVERED HEREUNDER FOR USE IN BUYER'S PLANT, OR OTHER
ELECTRIC GENERATION STATION. ALL WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR
A PARTICULAR PURPOSE OR ARISING FROM A COURSE OF DEALING OR USAGE OF TRADE ARE
SPECIFICALLY EXCLUDED.

     Section 6.4 REJECTION.

     Buyer has the right, but not the obligation, to reject any shipment which
fail(s) to conform to the Rejection Limits set forth in Section 6.1 or contains
extraneous materials that in the reasonable judgement of Buyer could interfere
with the Buyer's operation. Buyer must reject such coal within seventy-two (72)
hours of receipt of the coal analysis provided for in Section 7.2 or such right
to reject is waived. In the event Buyer rejects such non-conforming coal, title
to and risk of loss of the coal shall be considered to have never passed to
Buyer and Buyer shall return the coal to Seller or, at Seller's request, divert
such coal to Seller's designee, all at Seller's cost and risk. Seller shall
replace the rejected coal within ten (10) working days from notice of rejection
with coal conforming to the Rejection Limits set forth in Section 6.1. If Seller
fails to replace the rejected

                                        8


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

coal within such ten (10) working day period or the replacement coal is
rightfully rejected, Buyer may purchase coal from another source in order to
replace the rejected coal. Seller shall reimburse Buyer for (i) any amount by
which the actual price plus transportation costs to Buyer of such coal purchased
from another source exceed the price of such coal under this Agreement plus
transportation costs to Buyer from the Delivery Point; and (ii) any and all
transportation, storage, handling, or other expenses that have been incurred by
Buyer for rightfully rejected coal. This remedy is in addition to all of Buyer's
other remedies under this Agreement and under applicable law and in equity for
Seller's breach.

     If Buyer fails to reject a shipment of non-conforming coal which it had the
right to reject for failure to meet any or all of the Rejection Limits set forth
in Section 6.1 or because such shipment contained extraneous materials, then
such non-conforming coal shall be deemed accepted by Buyer; however, the
quantity Seller is obligated to sell to Buyer under the Agreement may or may not
be reduced by the amount of each such non-conforming shipment at Buyer's sole
option and the shipment shall nevertheless be considered "rejectable" under
Section 6.4. Further, for shipments containing extraneous materials, which
include, but are not limited to, slate, rock, wood, mining materials, metal,
steel, etc., the estimated weight of such materials shall be deducted from the
weight of that shipment.

     Section 6.5 SUSPENSION AND TERMINATION.

         If the coal sold hereunder fails to meet one or more of the Guaranteed
Monthly Weighted Averages set forth in Section 6.1 for any two (2) months in a
six (6) month period, then Buyer may upon notice confirmed in writing and sent
to Seller by certified mail, suspend future shipments except

                                        9


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

shipments already loaded into railcars. Seller shall, within 10 days of receipt
of Buyer's notice, provide Buyer with reasonable assurances that subsequent
monthly deliveries of coal shall meet or exceed the Guaranteed Monthly Weighted
Averages set forth in Section 6.1 and that the source will exceed the Rejection
Limits set forth in Section 6.1. If Seller fails to provide such assurances
within said 10 day period, Buyer may terminate this Agreement by giving written
notice of such termination at the end of the 10 day period. A waiver of this
right for any one period by Buyer shall not constitute a waiver for subsequent
periods. If Seller provides such assurances to Buyer's reasonable satisfaction,
shipments hereunder shall resume and any tonnage deficiencies resulting from
suspension may be made up at Buyer's sole option. Buyer shall not unreasonably
withhold its acceptance of Seller's assurances, or delay the resumption of
shipment. If Seller, after such assurances, fails to meet any of the Guaranteed
Monthly Weighted Averages for any one (1) month within the next six (6) months,
then Buyer may terminate this Agreement and exercise all its other rights and
remedies under applicable law and in equity for Seller's breach.

     Guaranteed Monthly Weighted Averages must be based on a minimum of three
(3) shipments. For any month in which there is less than three (3) shipments
made, the Guaranteed Monthly Weighted Average will be based on the last one or
two shipments from the previous calendar month so that three shipments are used
to determine the monthly weighted average for Suspension and Termination
purposes.

                                       10


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     SECTION 7. WEIGHTS, SAMPLING AND ANALYSIS.

     Section 7.1 WEIGHTS. The weight of the coal delivered hereunder shall be
determined on a per shipment basis by Seller on the basis of weights generated
at the Delivery Point unless another method is mutually agreed upon by the
parties. Such scales shall be duly reviewed by an appropriate testing agency
every six (6) months and maintained in an accurate condition. Buyer shall have
the right, at Buyer's expense and upon reasonable notice, to have the scales
checked for accuracy at any reasonable time or frequency. If the scales are
found to be over or under the tolerance range allowable for the scale based on
industry accepted standards, either party shall pay to the other any amounts
owed due to such inaccuracy for a period not to exceed thirty (30) days before
the time any inaccuracy of scales is determined.

         Section 7.2 SAMPLING AND ANALYSIS. The Seller has sole responsibility
for quality control of the coal and shall forward its loading quality to the
Buyer as soon as possible. The sampling and analysis of the coal loaded
hereunder shall be performed by Seller and the results thereof shall be accepted
and used for the quality and characteristics of the coal delivered under this
Agreement. All analyses shall be done at an independent laboratory located on
Seller's property and at Seller's expense. Samples for analyses shall be taken
by ASTM approved procedures of sampling, may be composited and shall be taken
with a frequency and regularity sufficient to provide reasonably accurate
representative samples of the shipments made hereunder. Seller shall notify
Buyer in writing of any significant changes in Seller's sampling and analysis
practices. Any such changes in Seller's sampling and analysis practices shall
provide for no less

                                       11


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

accuracy than the sampling and analysis practices existing at the time of the
execution of this Agreement, unless the Parties otherwise mutually agree.

     Each sample taken by Seller shall be divided into three (3) parts and put
into airtight containers, properly labeled and sealed. One part shall be used
for analysis by Seller; one part shall be retained for thirty (30) days
("Retention Period") after the sample is taken, and shall be delivered to Buyer
for analysis if Buyer so requests before the end of the Retention Period; and
one part ("Referee Sample") shall be retained by Seller until the for thirty
(30) days. Buyer, on reasonable notice to Seller shall have the right to have a
representative present to observe the sampling and analyses performed by Seller.
Unless Buyer requests a Referee Sample analysis, Seller's analysis shall be used
to determine the quality of the coal loaded hereunder. The Monthly Weighted
Averages shall be determined by utilizing the individual shipment analyses.

     If Buyer disputes the analysis, the Referee Sample retained by Seller shall
be submitted for analysis to an independent commercial testing laboratory
("Independent Lab") mutually chosen by Buyer and Seller. All testing of any such
sample by the Independent Lab shall be at requestor's expense unless the results
differ by more than the applicable ASTM reproducibility standards, in such case
Buyer will pay for testing. If the Independent Lab results differ by more than
the applicable ASTM reproducibility standards, the Independent Lab results will
govern. The cost of the analysis made by the Independent Lab shall be borne by
Buyer to the extent that Seller's analysis prevails and by Seller to the extent
that the analysis of the Independent Lab prevails.

                                       12


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     SECTION 8. PRICE.

     Section 8.1 BASE PRICE. The base price ("Base Price") of the coal to be
sold hereunder will be firm during each time period of this Agreement in
accordance with the following schedule, subject to adjustment only for quality
variations pursuant to Section 8.2 and Governmental Impositions pursuant to
Section 8.4. See Exhibit B for a listing of the price components.

                                       BASE PRICE



         PERIOD             LOADING POINT              ($ PER MMBTU)          ($ PER TON)
         ------             -------------              -------------          -----------
                                                                       
         1/1/02 - 12/31/03  Thunder Junction, Wyoming  0.5966 F.O.B. railcar    $10.50
         1/1/04 - 12/31/04                                   *
         1/1/05 - 12/31/05                                   *


     * Buyer and Seller will begin negotiating price and other terms and
conditions for each year, 2004 and 2005, on or before July 1 of the preceding
year, with the intent to reach a mutually agreed price which would begin on
January 1, 2004 or January 1, 2005, as appropriate. If the parties do not reach
an agreement by October 1, of either 2003 or 2004, then this Agreement will
terminate as of December 31, 2003 or December 31, 2004, as appropriate, without
liability due to such termination for either party, and the parties shall have
no further obligations hereunder except those incurred prior to the date of
termination.

     Section 8.2 QUALITY PRICE DISCOUNTS.

     (a) The Base Price is based on coal meeting or exceeding the Guaranteed
Monthly Averages specifications as set forth in Section 6.1. Quality price
discounts shall be applied for each

                                       13


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

specification to reflect failures to meet the Guaranteed Monthly Weighted
Averages or Individual Shipment SO2 specifications set forth in Section6.1, as
determined pursuant to Section7.2, subject to the provisions set forth below.
The discount values used are as follows:

                         MONTHLY DISCOUNT VALUES

                                    $/MMBTU
                         BTU/LB.    0.2604

                                    $/LB./MMBTU
                         ASH        0.00863
                         MOISTURE   0.0016

                         INDIVIDUAL SHIPMENT DISCOUNT VALUE

                                    $/TON
                         SO(2)       3.00

     (b) Notwithstanding the foregoing, for each specification, there shall be
no discount if the actual Monthly Weighted Average meets the applicable Discount
Point set forth below. However, if the actual Monthly Weighted Average fails to
meet such applicable Discount Point, then the discount shall apply to and shall
be calculated on the basis of the difference between the actual Monthly Weighted
Average and the Guaranteed Monthly Weighted Average pursuant to the methodology
shown in Exhibit A attached hereto.



                                 GUARANTEED MONTHLY
                                 WEIGHTED AVERAGE            DISCOUNT POINT

                                                           
BTU/LB                           Min.  8,800                     8,600


                                       14


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB



                                 GUARANTEED MONTHLY
                                 WEIGHTED AVERAGE            DISCOUNT POINT
                                 ------------------          --------------
                                                          
LB/MMBTU:
ASH                              Max.   6.82                     7.95
MOISTURE                         Max.  30.68                    31.81


                                 GUARANTEED
                                 SHIPMENT                    DISCOUNT POINT
                                 LBSSO(2)/MMBTU              --------------
                                 --------------
                                                           
LB/MMBTU:
- ---------
SO(2)                            Max.    1.20                    1.20


     For example, if the actual Monthly Weighted Average of ash equals 8.00
lb/MMBTU, then the applicable discount would be (8.00 lb./mmbtu - 6.82 lb./mbtu)
X $.00863 lb./mmbtu = $.010183/MMBTU.

     Section 8.3 PAYMENT CALCULATION Exhibit A attached hereto shows the
methodology for calculating the coal payment and quality price discounts for the
month Seller's coal was unloaded by Buyer at the Ghent Station. If there are any
such discounts, Buyer shall apply credit to amounts owed Seller for the month
the coal was unloaded.

     Section 8.4 GOVERNMENTAL IMPOSITIONS.

     (a) The term "Governmental Imposition" shall mean any taxes, fees,
assessments or other obligations which are imposed by any government or
governmental agency pursuant to any new law, regulation or ruling, or pursuant
to changes in the interpretation or application of existing laws, regulations or
rulings, which cause an increase or decrease in Seller's cost for the
production, mining, or preparation of coal to be supplied to Buyer hereunder. If
any Governmental Imposition is adopted or becomes effective on or after January
1, 2002, Seller shall notify Buyer and shall

                                       15


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

demonstrate to Buyer that such Governmental Imposition has increased or
decreased Seller's cost of owning or operating the coal mines designated as
sources hereunder as it relates to the production, mining or preparation of coal
from such mines for sale to Buyer under this Agreement. The purchase price for
coal to be paid by Buyer hereunder shall then be adjusted by adding or
subtracting the per ton cost of the Governmental Imposition to determine an
adjusted purchase price. If the Governmental Imposition will continue for the
life of this Agreement, then the purchase price for subsequent Contract Years,
if any, shall also be adjusted by the per ton amount of the Governmental
Imposition.

          (b) Seller shall submit to Buyer in writing, an analysis identifying
the Governmental Imposition causing the cost impact and the extent of such cost
impact on Seller's ownership or operation of the coal mines or on Seller's cost
for the production, mining or preparation of coal purchased hereunder and
showing the calculation of the amount of change in the purchase price. The
effective date of any price increase or decrease pursuant to this section shall
be the effective date of the Governmental Imposition causing the cost increase
or decrease, as the case may be.

     SECTION 9. INVOICES, BILLING AND PAYMENT.

Section 9.1  INVOICING:

Invoices for Buyer will be sent to the following address:

                                       16


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

                  Kentucky Utilities Company
                  220 West Main Street
                  Louisville, KY  40202
                  Attention:  Fuels Management Department

     Section 9.2 INVOICE PROCEDURES FOR COAL SHIPMENTS. Seller shall invoice
Buyer at the Base Price, minus any quality price discounts, for all coal
unloaded in a calendar month by the fifteenth (15th) of the following month.

     Section 9.3 PAYMENT PROCEDURES FOR COAL SHIPMENTS. Payment for coal
unloaded in a calendar month shall be mailed or wired by the 25th of the month
following the month of unloading, except that, if the 25th is a weekend or a
holiday observed by the Buyer, payment shall be made on the next business day or
within ten days after receipt of Seller's invoice, whichever is later. Buyer
shall electronically transfer all payments to Seller's account at:

                        Arch Coal, Inc.

                        PNC Bank - Pittsburgh, PA
                        ABA Number:  043000096
                        Account Number:  1002430324

     Section 9.4 WITHHOLDING. Buyer shall have the right to withhold from
payment of any billing or billings (i) any sums which it is not able in good
faith to verify or which it otherwise in good faith disputes, (ii) any damages
resulting from any breach of this Agreement by Seller, and (iii) any amounts
owed to Buyer from Seller. Buyer shall notify Seller promptly in writing of any
such issues, stating the basis of its claim and the amount it intends to
withhold.

     Payment by Buyer, whether knowing or inadvertent, of any amount in dispute
shall not be deemed a waiver of any claims or rights by Buyer with respect to
any disputed amounts or payments made.

                                       17


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     SECTION 10. FORCE MAJEURE.

     Section 10.1 GENERAL FORCE MAJEURE. If either party hereto is delayed in or
prevented from performing any of its obligations or from utilizing the coal sold
under this Agreement, in whole or in part, due to acts of God, war, riots, civil
insurrection, acts of the public enemy, inability to obtain permits after
applying for same with reasonable diligence, strikes, lockouts, fires, floods or
earthquakes, or other causes of a similar nature, which are beyond the
reasonable control and without the fault or negligence of the party affected
thereby, then the obligations of both parties hereto shall be suspended to the
extent made necessary by such event; provided that the affected party gives
written notice to the other party as early as practicable after the occurrence
of the force majeure event. Such written notice shall include the probable
duration and the nature of the force majeure event. The party declaring force
majeure shall exercise due diligence to avoid and shorten the force majeure
event and will keep the other party advised as to the continuance of the force
majeure event.

     During any period in which Seller's ability to perform hereunder is
affected by a force majeure event, Seller shall not deliver any coal to any
other buyers to whom Seller's ability to supply is similarly affected by such
force majeure event unless contractually committed to do so at the beginning of
the force majeure event; and further shall deliver to Buyer under this Agreement
at least a pro rata portion (on a per ton basis) of its total contractual
commitments to all its buyers to whom Seller's ability to supply is similarly
affected by such force majeure event in place at the beginning of the force
majeure event. An event which affects the Seller's ability

                                       18


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

to produce or obtain coal from a mine other than the Coal Property will not be
considered a force majeure event hereunder.

     Tonnage deficiencies resulting from Seller's force majeure event shall be
made up at Buyer's sole option on a mutually agreeable schedule; tonnage
deficiencies resulting from Buyer's force majeure event shall be made up at
Seller's sole option on a mutually agreeable schedule.

     Section 10.2 ENVIRONMENTAL LAW FORCE MAJEURE. The parties recognize that,
during the continuance of this Agreement, legislative or regulatory bodies or
the courts may adopt or reinterpret environmental laws, regulations, policies
and/or restrictions which will make it impossible or commercially impracticable
for Buyer to utilize this or like kind and quality coal which thereafter would
be delivered hereunder. If as a result of the adoption or reinterpretation of
such laws, regulations, policies, or restrictions, or change in the
interpretation or enforcement thereof, Buyer decides that it will be impossible
or commercially impracticable (uneconomical) for Buyer to utilize such coal,
Buyer shall so notify Seller, and thereupon Buyer and Seller shall promptly
consider whether corrective actions can be taken in the mining and preparation
of the coal at Seller's mine and/or in the handling and utilization of the coal
at Buyer's generating station; and if in Buyer's sole judgment such actions will
not, without unreasonable expense to Buyer, make it possible and commercially
practicable for Buyer to so utilize coal which thereafter would be delivered
hereunder without violating any applicable law, regulation, policy or order,
Buyer shall have the right, upon the later of 60 days notice to Seller or the
effective date

                                       19


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

of such restriction, to terminate this Agreement without further obligation
hereunder on the part of either party.

     SECTION 11. CHANGES. Buyer may, by mutual agreement with Seller, at any
time by written notice pursuant to Section 12 of this Agreement, make changes
within the general scope of this Agreement in any one or more of the following
quality of coal or coal specifications, quantity of coal, method or time of
shipments, place of delivery (including transfer of title and risk of loss),
method(s) of weighing, sampling or analysis and such other provision as may
affect the suitability and amount of coal for Buyer's generating stations.

     If any such changes makes necessary or appropriate an increase or decrease
in the then current price per ton of coal, or in any other provision of this
Agreement, an equitable adjustment shall be made in price, whether current or
future or both, and/or in such other provisions of this Agreement as are
affected directly or indirectly by such change, and the Agreement shall
thereupon be modified in writing accordingly.

     Any claim by the Seller for adjustment under this Section 11 shall be
asserted within thirty (30) days after the date of Seller's receipt of the
written notice of the requested change, it being understood, however that Seller
shall not be obligated to modify this Agreement until an equitable adjustment
has been agreed upon. The parties agree to negotiate promptly and in good faith
to agree upon the nature and extent of any equitable adjustment.

     SECTION 12. NOTICES.

                                       20


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     Section 12.1 FORM AND PLACE OF NOTICE. Any official notice, request for
approval or other document required to be given under this Agreement shall be in
writing, unless otherwise provided herein, and shall be deemed to have been
sufficiently given when delivered in person, transmitted by facsimile or other
electronic media, delivered to an established mail service for same day or
overnight delivery, or dispatched in the United States mail, postage prepaid,
for mailing by first class, certified, or registered mail, return receipt
requested, and addressed as follows:

         If to Buyer:         Kentucky Utilities Company
                              220 West Main Street
                              Louisville, Kentucky 40202
                              Attn.: Director, Corporate Fuels

         If to Seller:        Arch Coal Sales Company, Inc.
                              CityPlace One, Suite 300
                              St. Louis, Missouri  63141
                              Attn: Regional Vice-President Sales

     Section 12.2 CHANGE OF PERSON OR ADDRESS. Either party may change the
person or address specified above upon giving written notice to the other party
of such change.

     Section 12.3 ELECTRONIC DATA TRANSMITTAL. Seller hereby agrees, at Seller's
cost, to electronically transmit shipping notices and/or other data to Buyer in
a format acceptable to and established by Buyer upon Buyer's request. Buyer
shall provide Seller with the appropriate format and will inform Seller as to
the electronic data requirements at the appropriate time.

                                       21


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     SECTION 13. RIGHT TO RESELL. Buyer shall have the unqualified right to sell
all or any of the coal purchased under this Agreement. Seller makes no
representations or warranties concerning any coal that Buyer resells to other
parties, and Buyer shall indemnify and defend Seller against any claims arising
from the sale of coal by Buyer to any such parties or the use thereof by those
parties.

     SECTION 14. INDEMNITY AND INSURANCE.

     Section 14.1 INDEMNITY. Seller agrees to indemnify and save harmless Buyer,
its officers, directors, employees and representatives from any responsibility
and liability for any and all claims, demands, losses, legal actions for
personal injuries, property damage and pollution (including reasonable inside
and outside attorney's fees) (i) due to any failure of Seller to comply with
laws, regulations or ordinances, or (ii) due to the acts or omissions of Seller
in the performance of this Agreement.

     Section 14.2 INSURANCE. Seller agrees to carry insurance coverage with
minimum limits as follows:

                 (1) Commercial General Liability, including Completed
Operations and Contractual Liability, $1,000,000 single limit liability.

                 (2) Automobile General Liability, $1,000,000 single limit
liability.

                 (3) In addition, Seller shall carry excess liability insurance
covering the foregoing perils in the amount of $4,000,000 for any one
occurrence.

                 (4) Workers' Compensation and Employer's Liability with
statutory limits.

                                       22


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     If any of the above policies are written on a claim made basis, then the
retroactive date of the policy or policies will be no later than the effective
date of this Agreement. Certificates of Insurance satisfactory in form to the
Buyer and signed by the Seller's insurer shall be supplied by the Seller to the
Buyer evidencing that the above insurance is in force and that not less than 30
calendar days written notice will be given to the Buyer prior to any
cancellation or material reduction in coverage under the policies. The Seller
shall cause its insurer to waive all subrogation rights against the Buyer
respecting all losses or claims arising from performance hereunder. Evidence of
such waiver satisfactory in form and substance to the Buyer shall be exhibited
in the Certificate of Insurance mentioned above. Seller's liability shall not be
limited to its insurance coverage.

     SECTION 15. TERMINATION FOR DEFAULT.

     Subject to Section 6.4, if either party hereto commits a material breach of
any of its obligations under this Agreement at any time, including, but not
limited to, a breach of a representation and warranty set forth herein, then the
other party has the right to give written notice describing such breach and
stating its intention to terminate this Agreement no sooner than 30 days after
the date of the notice (the "notice period"). If such material breach is curable
and the breaching party cures such material breach within the notice period,
then the Agreement shall not be terminated due to such material breach. If such
material breach is not curable or the breaching party fails to cure such
material breach within the notice period, then this Agreement may be terminated
by the

                                       23


                                                     ARCH COAL SALES CO., INC.
                                                     KU Contract # KUF02848 PRB

non-breaching party at the end of the notice period in addition to all the other
rights and remedies available to the non-breaching party under this Agreement
and at law and in equity.

     SECTION 16. TAXES, DUTIES AND FEES.

     Seller shall pay when due, and the price set forth in Section 8 of this
Agreement shall be inclusive of, all taxes, duties, fees and other assessments
of whatever nature imposed by governmental authorities with respect to the
transactions contemplated under this Agreement, as such price may be adjusted
pursuant to Section 8.4.

     SECTION 17. DOCUMENTATION AND RIGHT OF AUDIT.

     Seller shall maintain all records and accounts pertaining to payments,
quantities, quality analyses, and source for all coal supplied under this
Agreement for a period lasting through the term of this Agreement and for two
years thereafter. Buyer shall have the right at no additional expense to Buyer
to audit, copy and inspect such records and accounts at any reasonable time upon
reasonable notice during the term of this Agreement and for 2 years thereafter.

         SECTION 18. EQUAL EMPLOYMENT OPPORTUNITY. To the extent applicable,
Seller shall comply with all of the following provisions which are incorporated
herein by reference: Equal Opportunity regulations set forth in 41 CFR Section
60-1.4(a) and (c) prohibiting discrimination against any employee or applicant
for employment because of race, color, religion, sex, or national origin;
Vietnam Era Veterans Readjustment Assistance Act regulations

                                       24


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

set forth in 41 CFR Section 50-250.4 relating to the employment and advancement
of disabled veterans and veterans of the Vietnam Era; Rehabilitation Act
regulations set forth in 41 CFR Section 60-741.4 relating to the employment and
advancement of qualified disabled employees and applicants for employment; the
clause known as "Utilization of Small Business Concerns and Small Business
Concerns Owned and Controlled by Socially and Economically Disadvantaged
Individuals" set forth in 15 USC Section 637(d)(3); and subcontracting plan
requirements set forth in 15 USC Section 637(d).

     SECTION 19. COAL PROPERTY INSPECTIONS. Buyer and its representatives, and
others as may be required by applicable laws, ordinances and regulations shall
have the right at all reasonable times and at their own expense to inspect the
Coal Property, including the loading facilities, scales, sampling system(s),
wash plant facilities, and mining equipment for conformance with this Agreement.
Seller shall undertake reasonable care and precautions to prevent personal
injuries to any representatives, agents or employees of Buyer (collectively,
"Visitors") who inspect the Coal Property. Any such Visitors shall make every
reasonable effort to comply with Seller's regulations and rules regarding
conduct on the work site, made known to Visitors prior to entry, as well as
safety measures mandated by state or federal rules, regulations and laws. Buyer
understands that mines and related facilities are inherently high-risk
environments. Buyer's failure to inspect the Coal Property or to object to
defects therein at the time Buyer inspects the same shall not relieve Seller of
any of its responsibilities nor be deemed to be a waiver of any of Buyer's
rights hereunder.

                                       25


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     SECTION 20. MISCELLANEOUS.

     Section 20.1 APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Kentucky, and all questions of
performance of obligations hereunder shall be determined in accordance with such
laws.

     Section 20.2 HEADINGS. The paragraph headings appearing in this Agreement
are for convenience only and shall not affect the meaning or interpretation of
this Agreement.

     Section 20.3 WAIVER. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
rights hereunder, shall not be construed as a waiver of such provision or right.

     Section 20.4 REMEDIES CUMULATIVE. Remedies provided under this Agreement
shall be cumulative and in addition to other remedies provided under this
Agreement or by law or in equity.

     Section 20.5 SEVERABILITY. If any provision of this Agreement is found
contrary to law or unenforceable by any court of law, the remaining provisions
shall be severable and enforceable in accordance with their terms, unless such
unlawful or unenforceable provision is material to the transactions contemplated
hereby, in which case the parties shall negotiate in good faith a substitute
provision.

     Section 20.6 BINDING EFFECT. This Agreement shall bind and inure to the
benefit of the parties and their successors and assigns.

     Section 20.7 ASSIGNMENT.

                                       26


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     A. Seller shall not, without Buyer's prior written consent, which consent
shall not be unreasonably withheld, make any assignment or transfer of this
Agreement, by operation of law or otherwise, including without limitation any
assignment or transfer as security for any obligation, and shall not assign or
transfer the performance of or right or duty to perform any obligation of Seller
hereunder; provided, however, that Seller may assign the right to receive
payments for coal directly from Buyer to a lender as part of any accounts
receivable financing or other revolving credit arrangement which Seller may have
now or at any time during the term of this Agreement.

     B. Buyer shall not, without Seller's prior written consent, which consent
shall not be unreasonably withheld, assign this Agreement or any right for the
performance of or right or duty to perform any obligation of Buyer hereunder;
except that, without such consent, Buyer may assign this Agreement in connection
with a transfer by Buyer of all or a majority interest in the Buyer's Ghent
Generating Station, or as part of a merger or consolidation involving Buyer.

     C. In the event of an assignment or transfer contrary to the provisions of
this section, the non-assigning party may terminate this Agreement immediately.

     Section 20.8 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties as to the subject matter hereof, and there are no
representations, understandings or agreements, oral or written, which are not
included herein. Without limiting the foregoing (a) this Agreement shall not be
construed as a requirements or similar agreement, and (b) this Agreement shall
not be construed as affecting Buyer's ability to negotiate with and/or acquire
other sources of coal from third parties throughout the term hereof.

                                       27


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     Section 20.9 AMENDMENTS. Except as otherwise provided herein, this
Agreement may not be amended, supplemented or otherwise modified except by
written instrument signed by both parties hereto.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

         BUYER                                        SELLER
KENTUCKY UTILITIES COMPANY                  ARCH COAL SALES COMPANY, INC.

By:   /s/ Paul W. Thompson                  By:   /s/ John Eaves
      -------------------------------             --------------
      Paul W. Thompson                            John Eaves - President
      Senior VP - Energy Services

Date: 12/31/01                              Date: 12/19/01

                                       28


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

                                                                       Exhibit A
                                                                     Page 1 of 2

                                    EXHIBIT A
                        SAMPLE COAL PAYMENT CALCULATIONS
              Total Evaluated Coal Costs for Contract No. KU F02848

For contracts supplied from multiple "origins", each "origin will be calculated
individually.



                           SECTION I                                            BASE DATA
         --------------------------------------------------------------    ----------------------------
                                                                             
1)       Base F.O.B. price per ton:                                             $  10.50      /ton
                                                                                ----------
1a)      Tons of coal delivered:
                                                                                ----------    tons

2)       Guaranteed average heat content:                                       8,800         BTU/LB.
                                                                                ----------
2r)      As received monthly avg. heat content:
                                                                                ----------    BTU/LB.

2a)      Energy delivered in MMBTU:
                                                                                ----------    MMBTU

(Line 1a) *2,000 lb./ton*(Line 2r) *MMBTU/1,000,000 BTU
(     ) *2,000 lb./ton*(     ) *MMBTU/1,000,000 BTU

2b)      Base F.O.B. price per MMBTU:                                           $   0.5966    MMBTU
                                                                                ----------

(Line 1)/(Line 2)*(1 ton/2,000 lb.)*1,000,000 BTU/MMBTU
(     /ton)/(           BTU/LB) *(1 ton/2,000 lb.)*1,000,000 BTU/MMBTU

3)       Guaranteed shipment. max. SO2                                              1.20      LBS./MMBTU
                                                                                ----------
3r)      Number of tons > 1.20 lbs SO2/Mmbtu
                                                                                ----------    TONS

4)       Guaranteed monthly avg. ash                                                6.82      LBS./MMBTU
                                                                                ----------
4r)      As received monthly avg. ash
                                                                                ----------    LBS./MMBTU

5)       Guaranteed monthly avg. max. moisture                                     30.68      LBS./MMBTU
                                                                                ----------
5r)      As received monthly avg. moisture
                                                                                ----------    LBS./MMBTU

                           SECTION II                                           DISCOUNTS
                           ----------                                           ---------
         Assign a (-) to all discounts (round to (5) decimal places)

6d)      BTU/LB.: If line 2r < 8,600 BTU/lb. then:
         {1 - (line 2r) / (line 2)} * $0.2604/MMBTU
         {1 - (    ) / (    )} * $0.2604 =                                      $             /MMBTU
                                                                                ----------
7d)      SO2:  If any individual shipment is greater than 1.20 lbs./MMBTU
          (line 3r) * $3.00 per ton / line 2a
         (    ) * (3.00) / (    ) =                                             $             /MMBTU
                                                                                ----------
8d)      ASH: If line 4r is greater than 7.95 lbs./MMBTU
         (line 4r) - (line 4) * 0.00863/MMBTU
         (    ) - (    )  * 0.00863 =                                           $             /MMBTU
                                                                                ----------
9d)      MOISTURE:  If line 5r is greater than 31.81 lbs./MMBTU
         (line 5r) - (line 5) * 0.0016/MMBTU
         (    ) - (    ) * 0.0016 =                                             $             /MMBTU
                                                                                ----------


                                       29


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

                                                                       Exhibit A
                                                                     Page 2 of 2



                                                                                     TOTAL PRICE
                           SECTION III                                               ADJUSTMENTS
         --------------------------------------------                           ----------------

                                                                             
         Determine total Discounts as follows:

         Assign a (-) to all discounts (round to (5) decimal places)

         Line 6d:                                                               $             /MMBTU
                                                                                 -------------

         Line 7d                                                                $             /MMBTU
                                                                                 -------------

         Line 8d                                                                $             /MMBTU
                                                                                 -------------

         Line 9d                                                                $             /MMBTU
                                                                                 -------------

10)      Total Discounts (-):

         Algebraic sum of above:                                                $             /MMBTU
                                                                                 -------------

11)      Total evaluated coal price = (line 2b) + (line 10)

12)      Total discount price adjustment for Energy delivered:
         (line 2a) * (line 10) (-)
         $         /MMBTU           +                                           $             /MMBTU  =  $
          --------                                                               -------------            -----------

13)      Total base cost of coal
         (line 2a) * (line 2b)
         $         /MMBTU           +                                           $             /MMBTU  =  $
          --------                                                               -------------            -----------

14)      Total coal payment for month
         (line 12) + (line 13)
         $         /MMBTU           +                                           $                     =  $
          --------                                                               -------------            -----------


                                       30


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

                                    EXHIBIT B

Arch Coal Sales Company, Inc.
KU/LG&E Contract #KUF02848
January 1, 2002 Pricing Breakdown



                                  $ Per MMBtu                 $ Per Ton
                                  2002 & 2003               2002 & 2003
                              -----------------------------------------
                                                           
FIXED                                              0.425          7.480

ROYALTY                                           0.0746          1.313
SEVERANCE                                         0.0282          0.496
AD VALOREM                                        0.0241          0.424
BLACK LUNG                                        0.0252          0.443
RECLAMATION FEE                                   0.0195          0.344
                                                 --------       -------
                                                  0.5966         10.500
                                                 ========       =======

                                                                                                2002 & 2003
                                                                                               -------------
                                                                                           
   Royalty Amount :                               Base Price X 12.50% =                          $1.313
   Wyoming Severance Tax:                          (7.00% X 67.5%) X Base Price =                $0.496
   Wyoming Ad Valorem Tax:                        (5.9880% X 67.5%) X Base Price =               $0.424
   Federal Black Lung Excise Tax:                 4.40% X (Base Price - Fed. Black Lung) =       $0.443
   Federal Coal Reclamation Fee :                 (1.00 - .0171 = .9829) X $.35 =                $0.344
                                                                                               -----------
                                                                                                 $3.020
                                                                                               -----------
                  2000         Ad Valorem Rate                 5.9880%
                  2000        Direct Cost Ratio                67.500%


   2nd Qtr 2001 Excess Moisture 1.71%
   The excess moisture is fixed at 1.71% for the duration of this Agreement. The
   Wyoming Ad Valorem and Wyoming Severance Tax shall be adjusted only for
   changes in the applicable statutory rates, excluding any changes in the
   direct mining ratio. The direct mining ratio is fixed at 67.5% for the
   duration of this Agreement.

Values for Govermental Impositions Cost Formulas

                                       31


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB



                                                           2002 & 2003
                                                          ------------
                                                           
Direct Mining Cost Ratio (Assumed)                            67.5000%
Severance Tax Rate                                             7.0000%
General Mill Levy Rate (1)                                     5.9880%
Federal & State Royalty Rate                                  12.0000%
Federal Black Lung Excise Tax Rate (2)                         4.4000%
Federal Coal Reclamation Fee ($/ton) (3)                         $0.35


(1) Source: Campbell County, Wyoming Tax Notice. The 5.9888% is the rate for
    Calendar Year 2000.
(2) Maximum of $.55 per ton.
(3) The Excess Moisture rate will be fixed at the estimated rate of 1.71%.

Values for Govermental Impositions Cost Formulas

BLM Royalty = (Base Price) X (Federal & State Royalty Rate)
Severance Tax = (Base Price) X (Severance Tax Rate) X (Direct Mining Cost Ratio)
Federal Black Lung Excise Tax = (Base Price) - (Federal Black Lung Excise Tax) X
4.4% (4) Federal Reclamation Fee =(Base Price) X ( 1 - Excess Moisture) Ad
Valorem Tax = (General Mill Levy Rate) X (Direct Mining Cost Ratio) X (Base
Price)

(4) Effective rate  (4.4%) / ( 1 + .044) = 4.2146%

SECTION 4 STATES THE SOURCE OF THE COAL IN THIS AGREEMENT SHALL BE SUPPLIED
PRIMARILY FROM BLACK THUNDER MINE LOCATED IN CAMPBELL COUNTY, WYOMING. THE ABOVE
HAS BEEN PRICE IN ACCORDANCE WITH THE LAWS OF WYOMING.

                                       32


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

                               GUARANTY AGREEMENT

     THIS GUARANTY AGREEMENT ("Guaranty") is made and entered into this 1st day
of January 2002 by ARCH COAL, INC. ("Arch"), a Delaware corporation, with
offices at CityPlace One, Suite 300, St. Louis, Missouri 63141, to and for the
benefit of KENTUCKY UTILITIES COMPANY ("Buyer"), a Kentucky corporation, with
offices at 220 West Main Street, Louisville, Kentucky 40202.

     WHEREAS, Buyer and Arch Coal Sales Company, Inc. ("Seller"), a Delaware
corporation, with offices at CityPlace One, Suite 300, St. Louis, Missouri
63141, which Seller is agent for the independent operating subsidiaries of Arch,
propose to enter into a Coal Supply Contract dated on or about January 1, 2002
("Contract") for a coal supply from the Black Thunder Mine in Campbell County,
Wyoming (the "Coal Property"); and

     WHEREAS, Buyer's performance under the Contract will benefit Arch through
the Seller, and to induce Buyer to enter into the Contract, Arch is willing to
guarantee to Buyer, its successors, representatives and assigns, Seller's
performance of Seller's obligations (collectively, the "Obligations") set forth
in the Contract and any extension or amendment thereof executed by Buyer and
Seller.

     NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00)
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Arch hereby agrees as follows:

     1) GUARANTY - Arch guarantees to Buyer Seller's performance of the
Obligations and agrees that this Guaranty shall inure to the benefit of and may
be enforced by Buyer, its successors, representatives and assigns.

     2) ACCEPTANCE AND AMENDMENTS - Arch waives notice of acceptance of this
Guaranty, and consents to any and all waivers and extension of the time of
performance and to any and all changes, modifications or amendments in the
terms, covenants and conditions in the Contract agreed to by Seller in
accordance with the terms of the Contract.

     3) BUYER'S REMEDIES - Arch agrees that this Guaranty may be enforced by
Buyer without first enforcing Buyer's rights under the Contract against Seller;
provided, however, that nothing herein contained shall prevent Buyer from
enforcing the Contract with or without making Arch a party to the suit.

     4) ARCH'S DEFENSES - Except as otherwise provided in Section 5 of this
Guaranty, Arch shall be entitled to the benefit of any defenses which Seller may
have to the enforcement by Buyer of any of the Obligations.

     5) SELLER'S BANKRUPTCY - Arch agrees that its obligations under this
Guaranty shall not be impaired, modified, changed, released or limited in any
manner whatsoever by any impairment, modification, change, release or limitation
of the liability of Seller (or Seller's estate in bankruptcy) resulting from the
operation of any present or future provision of the federal bankruptcy law or
other similar statute.

                                       33


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

     6) EXPENSES - If any claim by Buyer is successfully prosecuted against Arch
under this Guaranty, Arch shall reimburse Buyer for all reasonable expenses
incurred by Buyer in connection therewith, including reasonable attorneys' fees.

     7) REPRESENTATIONS - Arch represents that:
         a.  Arch is a validly organized corporation duly existing and in good
             standing under the laws of the State of Delaware.
         b.  The giving of this Guaranty is within Arch's corporate powers.
         c.  The giving of this Guaranty has been pursuant to all necessary
             corporate action, if any, and does not contravene any law or any
             contractual restriction binding on Arch.
         d.  This Guaranty is a legal, valid and binding obligation, enforceable
             against Arch in accordance with its terms.

     8) WAIVER BY BUYER - The failure of Buyer to enforce any of the provisions
of this Guaranty at any time or for any period of time shall not be construed to
be a waiver of any such provision or of the right thereafter to enforce the
same.

     9) GOVERNING LAW - This Guaranty shall be interpreted and enforced in
accordance with the laws of the Commonwealth of Kentucky.

     10) NOTICES - Any notice, request, consent, demand, report or statement
which is given to or made upon either party hereto by the other party hereto
under any of the provisions of this Guaranty shall be in writing unless
otherwise provided herein and shall be treated as duly delivered when the same
is received by the party to be notified whether by personal delivery, or by the
United States mail, as evidenced by a receipt or by telecopier and confirmed by
United States mail, as evidenced by a receipt. Notices shall be properly
addressed as follows:

         As to Buyer:
                                            Kentucky Utilities Company
                                            220 West Main Street
                                            Louisville, Kentucky 40202
                                            Attn: Director, Corporate Fuels

         As to Seller:
                                            Arch Coal Sales Company, Inc.
                                            CityPlace One, Suite 300
                                            St. Louis, Missouri 63141
                                            Attn: Regional Vice-President Sales

         As to Arch:
                                            Arch Coal, Inc.
                                            CityPlace One Suite 300
                                            St. Louis, Missouri 63141
                                            Attn: General Counsel

                                       34


                                                    ARCH COAL SALES CO., INC.
                                                    KU Contract # KUF02848 PRB

Either party hereto may change its address or representative for the purposes of
notices or communications hereunder by furnishing notice thereof to the other
party in compliance with this provision

11) ASSIGNMENT - Arch's rights and obligations under this Guaranty may be
    assigned to the ultimate parent company of an approved assignee of Seller's
    rights and obligations under the Contract, provided the assignment
    provisions of the Contract shall control and provided further, such that a
    wholly-owned subsidiary or wholly affiliate company of the ultimate parent
    takes title to the Coal Property. If such assignee is not owned either
    directly or indirectly by Arch and if Buyer has agreed to release Seller
    from the Obligations, this Guaranty shall terminate and Arch shall be
    released from any further obligations or liabilities hereunder. If another
    company with substantial assets becomes the new ultimate parent company of
    Seller, Arch may, with Buyer's written approval, assign its rights and
    obligations hereunder to such other company and thereafter, as to Arch, this
    Guaranty shall terminate, and Arch shall be released from any further
    obligations or liabilities hereunder.

     IN WITNESS WHEREOF, Arch has executed this Guaranty as of the date first
written above.

                                           ARCH COAL, INC.

                                           By:

ATTEST:

                                       35

EX-10.56

                    KENTUCKY UTILITIES COMPANY                    Exhibit 10.56

                                                                                
- -----------------------                                                               ---------------------------------------------
MAIL INVOICES TO                                   Mr. Gerhard Haimberger                           PURCHASE ORDER NUMBER
IN DUPLICATE                                    Director of Fuels Management
SHOW PURCHASE ORDER NO.                             220 West Main Street                                  KUF-01787
- -----------------------                                P.O. Box 32010                 ---------------------------------------------
                                                  Louisville, KY 40232-2010

                                                      Ph:  502-627-2367
                                                      Fax: 502-627-3243
                                                                                      DATE:     December 26, 2000
- -----------------------------                                                         ---------------------------------------------
AEI COAL SALES COMPANY, INC.                                                             NO KENTUCKY SALES TAX PER DIRECT PAY
ADDINGTON CORPORATE CENTER                                                                       #45084      ISSUED TO
2000 ASHLAND DRIVE                                                                            KENTUCKY UTILITIES COMPANY
ASHLAND, KENTUCKY  41101
- -----------------------------                                                         ---------------------------------------------


SHIP TO: E.W.BROWN GENERATING STATION                       MARK PACKAGE:               E.W. BROWN GENERATING STATION
         BROWN (MERCER COUNTY), KY
         VIA RAIL/CSX & NORFOLK SOUTHERN






- -----------------------------------------------------------------------------------------------------------------------------------
 ITEM NO.            QUANTITY        UNIT                                         DESCRIPTION
- -----------------------------------------------------------------------------------------------------------------------------------
                                      

                                               THIS PURCHASE ORDER IS FOR A SUPPLY OF COAL FOR THE E.W. BROWN GENERATING STATION AT
                                               BROWN, KENTUCKY, COMMENCING JANUARY 1, 2001 AND CONTINUING THROUGH DECEMBER 31, 2002
                    2,000,000        TONS      THIS ORDER IS MADE BETWEEN KENTUCKY UTILITIES COMPANY AND AEI COAL SALES COMPANY,
                                               INC. AND IS SUBJECT TO THE TERMS AND CONDITIONS ATTACHED HERETO AND INCORPORATED BY
                                               REFERENCE HEREIN.

                                               SEE ATTACHED SPECIFICATIONS

                                                        APPROVED BY:
                                                                BUYER
                                                                KENTUCKY UTILITIES COMPANY

                                                                By:      /s/ Paul W. Thompson.
                                                                         ---------------------------------------
                                                                Its: Senior Vice President - Energy Services

                                                                SELLER
                                                                AEI COAL SALES COMPANY, INC.

                                                                By:      /s/ Marc Merett
                                                                         ---------------------------------------

                                                                Its:     President

                                                                PRODUCER
                                                                LESLIE RESOURCES, INC.

                                                                By:      /s/ John Lynn
                                                                         ----------------------------------------

                                                                Its:
                                                                     -------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------




                           KENTUCKY UTILITIES COMPANY
                       FUEL PURCHASE ORDER SPECIFICATIONS


AEI COAL SALES COMPANY, INC.                                  DECEMBER 26, 2000

P.O. #KUF-01787                                               PAGE 2

PRODUCER: Leslie Resources, Inc.
   MINE LOCATION: Perry County, Kentucky
   DISTRICT: #8
   TYPE MINING: Surface
   SEAM DESCRIPTION: Hazard #5, #7, #8, #9

PRICE: Year 2001 and 2002 price of $24.50 per net ton  (103.814(cent)per MMBTU)
FOB railcar at Typo, KY. Price will remain firm for the duration of this order.

         Freeze-treatment to be applied at a rate of 1 pint per ton at a cost of
         $0.50 per ton. To be applied upon request by Kentucky Utilities

         QUANTITY: The total quantity of coal to be supplied for 2001 is
         1,000,000 tons, to be supplied as follows:
                  1st Qtr. 200,000
                  2nd Qtr. 300,000
                  3rd Qtr. 250,000
                  4th Qtr. 250,000
                  The total quantity of coal to be supplied for 2002 is
         1,000,000 tons to be supplied in approximate equal monthly quantities,
         83,333 tons per month, unless otherwise requested by KU

         During the contract period should Kentucky Utilities enter into an
agreement for the purchase of coal synfuel which would be produced from
feedstock supplied by AEI Coal Sales Company, Inc. or affiliated company, then
the base quantity of coal (2,000,000 tons) to be supplied hereunder would be
reduced by the same equivalent number of tons actually shipped under the coal
synfuel agreement.

WEIGHTS: Railroad freight bill weights will govern.

QUALITY SPECIFICATIONS: The quality of coal to be shipped on this order shall be
a product of uniform quality and shall conform to the following specifications:

Moisture  - 8.00 % / 6.80 lbs. per mmbtu Max.    Volatile      -  30.00% Min.
Ash       - 13.00% / 11.00 lbs. per mmbtu Max.   Ash Fusion    -  2300DEG.F Min.
BTU       - 11,800  Min.                         Fixed Carbon  -  42.00% Min
Sulfur    - 1.35 lbs. per mmbtu Max.             Grindability  -  39 Min.
SO(2)*    - 2.70 lbs. per mmbtu Max.             Sizing   -   2" x 0"
             20,000                              Fines    -   35 %
*SO(2) = ------------------- x Percent Sulfur
         BTU per pound



                           KENTUCKY UTILITIES COMPANY
                       FUEL PURCHASE ORDER SPECIFICATIONS


AEI COAL SALES COMPANY, INC.                                  DECEMBER 26, 2000

P.O. #KUF-01787                                                          PAGE 3


TRANSPORTATION/DELIVERY:
     RAIL CARRIER: CSX Transportation/Norfolk Southern
     SHIPPING POINT(S): Typo, Kentucky (#42621)
     SHIPMENT NOTICES TO: Mr. Jeff Fraley, Superintendent
                          Kentucky Utilities Company
                          E.W. Brown Generating Station
                          P.O. Box K
                          Burgin, KY 40310
                          Ph:  606-748-5607
                          Fax: 606-748-4406

                          Fuels Management Department
                          Kentucky Utilities Company
                          220 West Main Street
                          P.O. Box 32010
                          Louisville, KY.40232-2010
                          Ph:  502-627-2158
                          Fax: 502-627-3242

PRICE ADJUSTMENTS
     At KU's option, in lieu of any other remedy, KU may accept delivery of
     non-conforming coal and adjust the price of coal which differs from the
     specifications.

QUALITY PRICE DISCOUNT.
     The Base Price is based on coal meeting or exceeding the Guaranteed Monthly
     Averages specifications for the Kentucky Utilities E.W. Brown Generating
     Station. If KU elects to accept shipments of coal not conforming to quality
     specifications, quality price discounts shall be applied for each such
     specification to reflect failures to meet the Guaranteed Monthly Averages
     or Individual Train Shipment SO(2) specifications shown on page 2. The
     discount values used are as follows:

                          MONTHLY DISCOUNT VALUES

                                      $/MMBTU
                          BTU/LB.     0.2604

                                      $/LB./MMBTU
                          ASH         0.0083
                          MOISTURE    0.0016
                          SULFUR      0.0750

                       INDIVIDUAL SHIPMENT DISCOUNT VALUE
         (only applicable to a maximum sulfur dioxide of 5.15 lbs/mmbtu)

                                    $/TON
                                     2.00



                           KENTUCKY UTILITIES COMPANY
                       FUEL PURCHASE ORDER SPECIFICATIONS


AEI COAL SALES COMPANY, INC.                                  DECEMBER 26, 2000

P.O. #KUF-01787                                               PAGE 4

     Notwithstanding the foregoing, for each specification, there shall be no
     discount if the actual Monthly Weighted Average meets the applicable
     Discount Point set forth below. However, if the actual Monthly Weighted
     Average for the Kentucky Utilities E.W. Brown Generating Station fails to
     meet such applicable Discount Point, then the discount shall apply to and
     shall be calculated on the basis of the difference between the actual
     Monthly Weighted Average and the Guaranteed Monthly Weighted Average
     pursuant to the methodology shown in Exhibit A attached hereto.



                                 Guaranteed Monthly
                                 Weighted Average             Discount Point
                                 ----------------             --------------
                                                        
     BTU/LB                      Min. 11,800                  11,600

     LB/MMBTU:

     ASH                         Max. 11.00                   11.00

     MOISTURE                    Max. 6.80                    7.63

     SULFUR                      Max. 1.350                   1.350




                                 Guaranteed Shipment
                                 LbsSO(2)/Mmbtu                 Discount Point
                                 --------------                 --------------
                                                          
     LB/MMBTU:

     SO2                         Max.    5.15                   5.15



SAMPLING & ANALYSIS:
     1.  For payment purposes, KU will obtain from AEI Coal Sales Company, Inc.
         a prepared split of the train loading sample for each shipment. Upon
         reasonable notification, KU personnel or representatives of KU may be
         present at train loading to observe train loading, sample collection
         and sample preparation.
     2.  The KU System laboratory, or an independent laboratory, will analyze
         the coal samples.
     3.  KU shall fax all laboratory analysis to AEI Coal Sales Company, Inc.
         as soon as available.

ENVIRONMENTAL LIMITATIONS:
     All coal delivered to the E.W. Brown Generating Station on this order must
     meet the standards and specifications as outlined. The specifications as
     written will meet all the sulfur dioxide standards (both state and federal)
     that are now applicable to the E.W. Brown Generating Station. In the event
     of any change in any applicable laws or regulations, including but not
     limited to environmental laws and regulations, or in the interpretation
     hereof or enforcement practices with respect hereto, KU may cancel, in
     whole or in part, its order or orders for any coal ordered as a result of
     this Purchase Order.



                           KENTUCKY UTILITIES COMPANY
                       FUEL PURCHASE ORDER SPECIFICATIONS

AEI COAL SALES COMPANY, INC.                                  DECEMBER 26, 2000

P.O.#KUF.01787                                                PAGE 5

REMEDIES:
     1.  KU reserves the right to reject any coal and/or cancel this Purchase
         Order if the quality and/or quantity requirements are not met and to
         use any other legal or equitable remedies.
     2.  In the event KU waives any default under this purchase order, such
         waiver shall be limited to the particular default so waived and shall
         not be deemed to waive any other default hereunder or be deemed a
         waiver of the same default on another occasion. KU's delay or omission
         to exercise any right occurring upon any default or any right to
         otherwise insist on strict observance of any provision in this purchase
         order shall not impair any such right and shall not be construed to be
         a waiver thereof, but any such right may be exercised from time-to-time
         as often as may be deemed expedient.
     3.  KU's remedies contained in this purchase order are cumulative, and the
         exercise of any one of them shall not preclude the exercise by KU of
         any other remedy which may be allowed by law or equity.

INVOICING & PAYMENTS
     1.  Invoices for coal FOB railcar, will be based on railroad freight bills.
     2.  AEI Coal Sales Company., Inc., shall invoice KU at the Base Price less
         any quality discounts, for all coal unloaded in a calendar month by
         the fifteenth (15th) of the following month.
     3.  Payment for coal unloaded in a calendar month will be wired by the 25th
         of the month following the month of unloading. Payment will be wired
         to the following account:

         AEI Coal Sales Company, Inc.
         Provident Bank - Cincinnati, Ohio
         ABA: 042202426
         ACCOUNT:    0006008
     4.  This order is not subject to Kentucky Sales Tax.

COMPLIANCE WITH LAWS

     Seller warrants that, where applicable, labor or services, materials and
     articles on this order shall be produced and performed in compliance with:

     a)  applicable requirements of Sections 6, 7 and 12 of the Fair Labor
         Standards Act of 1938, as amended, and of the regulations and orders
         of the U. S. Department of Labor issued under Section 14 thereof.
     b)  federal and state Occupational Safety and Health laws;
     c)  regulations of the Public Service Commission of Kentucky and Virginia;
     d)  the Equal Opportunity Clause in Section 202, Paragraphs 1 through 7 or
         Executive Order 11246, as amended, and the implementing Rules and
         Regulations of the Office of Federal Contract Compliance by all of
         which are incorporated herein by reference;
     e)  federal and state affirmative action obligations for contractors or
         subcontractors for minorities and females, handicapped workers and
         disabled veterans and veterans of the Vietnam Era, and the regulations
         issued thereunder, as amended from time to time (applicable government
         affirmative action clauses are incorporated herein by reference); and,
     f)  all other federal, state and local laws, ordinances and regulations of
         public authority.

NONASSIGNABILITY
     This order shall not be assigned, in whole or in part, without KU's written
     consent, and shall be binding upon the successors and assigns of the
     parties hereto.

APPLICABLE LAWS
     The rights and duties of the parties hereto shall be determined by the laws
     of the Commonwealth of Kentucky and to that end this agreement shall be
     construed and considered as a contract made and to be performed in the
     Commonwealth of Kentucky.



                           KENTUCKY UTILITIES COMPANY
                       FUEL PURCHASE ORDER SPECIFICATIONS

AEI COAL SALES COMPANY, INC.                                  DECEMBER 26, 2000

P.O. #KUF-01787                                               PAGE 6


PRODUCER'S  SIGNATURE

The signature by the Producer on this agreement shall indicate Producer's
representation and warranty for the benefit of KU that Producer can supply the
required quantity and quality of coal under all the terms and conditions of this
agreement. If Producer notifies KU in writing of a force majeure event beyond
the reasonable control of Producer, KU shall be entitled to a pro rata share of
all coal produced by Producer for the duration of such event and the deficiency
may be required to be supplied at expiration of the event, at KU's option.



                                                                      Exhibit A
                                                                    Page 1 of 2
                                    EXHIBIT A
                        SAMPLE COAL PAYMENT CALCULATIONS
              TOTAL EVALUATED COAL COSTS FOR CONTRACT NO. KUF-01787
- -------------------------------------------------------------------------------
FOR CONTRACTS SUPPLIED FROM MULTIPLE "ORIGINS", EACH "ORIGIN WILL BE CALCULATED
INDIVIDUALLY.



                          SECTION I                                          BASE DATA
         --------------------------------------                          -----------------
                                                                   

1)       Base F.O.B. price per ton:                                          $ 24.50       /ton
                                                                         -----------------
1a)      Tons of coal delivered:                                                           tons
                                                                         -----------------
2)       Guaranteed average heat content:                                    11,800        BTU/LB.
                                                                         -----------------
2r)      As received monthly avg. heat content:                                            BTU/LB.
                                                                         -----------------
2a)      Energy delivered in MMBTU:                                                        MMBTU
                                                                         -----------------

[(Line 1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU
[(     ) *2,000 lb./ton*(     )]*MMBTU/1,000,000 BTU

2b)      Base F.O.B. price per MMBTU:                                    $   1.03814       MMBTU
                                                                         -----------------
{[(Line 1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU
{[(     /ton)/(           BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU

3)       Guaranteed shipment. max. SO(2)                                     5.15          LBS./MMBTU
                                                                         -----------------

3r)      Number of tons > 5.15 lbsSO(2)/Mmbtu                                              TONS
                                                                         -----------------

4)       Guaranteed monthly avg. ash                                         11.00         LBS./MMBTU
                                                                         -----------------

4r)      As received monthly avg. ash                                                      LBS./MMBTU
                                                                         -----------------

5)       Guaranteed monthly avg. max. moisture                               6.80          LBS./MMBTU
                                                                         -----------------

5r)      As received monthly avg. moisture                                                 LBS./MMBTU
                                                                         -----------------

6)       Guaranteed monthly avg. sulfur                                      1.350         LBS./MMBTU
                                                                         -----------------

6r)      As received monthly avg. sulfur                                                   LBS./MMBTU
                                                                         -----------------


                           SECTION II                                             DISCOUNTS
         -----------------------------------------------------               ---------------------
         Assign a (-) to all discounts (round to (5) decimal places)
                                                                       
7d)      BTU/LB.:  If line 2r < 11,600 BTU/lb. then:
         {1 - (line 2r) / (line 2)} * $0.2604/MMBTU
         {1 - (    ) / (    )} * $0.2604 =                                   $             /MMBTU
                                                                             -------------
8d)      SO(2):  If any individual shipment is greater than 5.15 lbs./MMBTU
         [(line 3r) * $2.00 per ton] / line 2a
         [ (    ) * (2.00) ] / (    ) =                                      $             /MMBTU
                                                                             -------------
9d)      ASH: If line 4r is greater than 11.00 lbs./MMBTU:
         [ (line 4r) - (line 4) ] * 0.0083/MMBTU
         [ (    ) - (    ) ] * 0.0083 =                                      $             /MMBTU
                                                                             -------------
10d)     MOISTURE:  If line 5r is greater than 7.63 lbs./MMBTU:
         [ (line 5r) - (line 5) ] * 0.0016/MMBTU
         [ (    ) - (    ) ] * 0.0016 =                                      $             /MMBTU
                                                                             -------------
11d)     SULFUR:  If line 6r is greater than 1.350 lbs./MMBTU:
         [ (line 6r) - (line 6) ] * 0.0750/MMBTU
         [ (    ) - (    ) ] * 0.0750 =                                      $             /MMBTU
                                                                             -------------




                                                                      Exhibit A
                                                                    Page 2 of 2



                                                                               TOTAL PRICE
                           SECTION III                                         ADJUSTMENTS
         --------------------------------------------------------        -----------------

         Determine total Discounts as follows:

         Assign a (-) to all discounts (round to (5) decimal places)
                                                                                               
         Line 7d:                                                        $                 /MMBTU
                                                                         -----------------

         Line 8d                                                         $                 /MMBTU
                                                                         -----------------

         Line 9d                                                         $                 /MMBTU
                                                                         -----------------

         Line 10d                                                        $                 /MMBTU
                                                                        ------------------

         Line 11d                                                        $                 /MMBTU
                                                                         -----------------

12)      Total Discounts (-):

         Algebraic sum of above:                                         $                 /MMBTU
                                                                         -----------------

13)      Total evaluated coal price = (line 2b) + (line 12)              $                 /MMBTU
                                                                         -----------------

14)      Total discount price adjustment for Energy delivered:
         (line 2a) * (line 12) (-)
         $         /MMBTU           +                                    $                 /MMBTU   =   $
          --------                                                       ------------------              -----------

15)      Total base cost of coal
         (line 2a) * (line 2b)
         $         /MMBTU           +                                    $                 /MMBTU   =   $
          --------                                                       ------------------              -----------

16)      Total coal payment for month
         (line 14) + (line 15)
         $         /MMBTU           +                                    $                 /MMBTU   =   $
          --------                                                       ------------------              -----------

EX-10.57

November 6, 2000                                                  Exhibit 10.57

Louisville Gas and Electric Company
820 West Broadway
Louisville, KY 40202

Attention:  Mr. J. Clay Murphy

Gentlemen:

     Reference is made to the Transportation Agreement (Agreement) dated March
1, 1995, as amended, between Texas Gas Transmission Corporation (Texas Gas) and
Louisville Gas and Electric Company (LG&E) providing for the transportation of
natural gas by Texas Gas for LG&E.

     Accordingly, Texas Gas and LG&E hereby desire to amend the Agreement
(originally referred to as the 8-year agreement) between them as follows:

     A.   Effective November 1, 2001, ARTICLE II, TRANSPORTATION SERVICE,
Section 2.1 shall be deleted in its entirety and replaced with the following:

          2.1  Subject to the terms and provisions of this Agreement, Customer
agrees to deliver or cause to be delivered to Texas Gas, at the Point(s) of
Receipt in Exhibit "A" hereunder, gas for transportation, and Texas Gas agrees
to receive, transport, and redeliver, at the Point(s) of Delivery in Exhibit "B"
hereunder, equivalent quantities of gas to Customer or for the account of
Customer, in accordance with Section 3 of Texas Gas's effective FT Rate Schedule
and the terms and conditions contained herein, up to 18,000 MMBtu per day, which
shall be Customer's Firm Transportation Contract Demand, and up to 6,570,000
MMBtu during the year, which shall be Customer's Annual Quantity Level.

     B.   ARTICLE V, TERM OF AGREEMENT, shall be deleted in its entirety and
replaced with the following:

          5.1  This Agreement shall become effective upon its execution and
remain in full force and effect with a primary term beginning April 1, 1995,
(with the rates and charges described in Article VIII becoming effective on that
date) and extending through October 31, 2006. At the end of such primary term,
or any subsequent roll-over term, this Agreement shall automatically be extended
for an additional roll-over term of five (5) years, unless Customer terminates
this Agreement at the end of such primary or roll-over term by giving Texas Gas
at least 365 days advance written notice prior to the expiration of the primary
term of any subsequent roll-over term.

          5.2  In the event that any applicable state law, order, or regulation
requires Customer, or permits Customer and Customer so elects, to unbundle its
services at the retail level prior to October 31, 2006, and such unbundling
results in Customer holding Daily Contract Demand and Seasonal Quantity
Entitlements that Customer determines would be in excess of the levels required
to enable Customer to provide service after unbundling, then Texas Gas and
Customer agree to renegotiate this Agreement in good faith to devise terms and
conditions that are mutually acceptable to both parties. Customer shall initiate
such renegotiation as soon as practicable after it becomes aware that retail
unbundling will have a definite effect on this Agreement. Customer shall also
attempt to minimize the extent to which capacity subject to this Agreement
becomes surplus to Customer's requirements by directly assigning any surplus
capacity at prevailing contractual rates to any replacement shipper.



               If Texas Gas and Customer are unable to successfully renegotiate
this Agreement, and Customer pursues the assignment of surplus capacity
described above, but nonetheless all or part of the capacity reflected in this
Agreement becomes unneeded, then Customer shall have the option to elect to
reduce its Daily Contract Demand and related Seasonal Quantity Entitlements by
an amount determined by Customer to be equal to the capacity which has or will
become unneeded pursuant to any such unbundling of services. If Customer
exercises such reduction option, Customer agrees to provide Texas Gas with
written notice of its election to reduce its Daily Contract Demand and Seasonal
Quantity Entitlements. Such notice shall include a waiver of any right of first
refusal, if any, applicable to the Daily Contract Demand which Customer elects
to reduce. Such reduction shall become effective one (1) year from the first day
of the first month following the receipt of Customer's written notice of its
election to reduce. Nothing herein shall prevent Customer from exercising such
reduction right more than once during the remaining term of this Agreement.

     C.   Effective November 1, 2001, EXHIBIT "C", SUPPLY LATERAL CAPACITY,
shall be deleted in its  entirety and  replaced  with the attached  EXHIBIT "C",
SUPPLY LATERAL CAPACITY.

     The operation of the provisions of this amendment shall be subject to all
applicable governmental statutes and all applicable and lawful orders, rules,
and regulations.

     Except as otherwise provided herein, this amendment shall become effective
on the first day of the month following the date that Customer is notified in
writing by Texas Gas that Customer has been awarded the incremental Winter
Season capacity which is the subject of Paragraph A of this Agreement. If
Customer is not awarded such incremental Winter Season capacity prior to
November 1, 2001, then this Amendment shall be void AB INITIO and of no force
and effect.

     Except as herein amended, the Agreement between the parties hereto shall
remain in full force and effect.

     If the foregoing is in accordance with your understanding of our Agreement,
please execute both copies and return to us. We will, in turn, execute them and
return one copy for your records.

                                            Very truly yours,


LOUISVILLE GAS AND ELECTRIC COMPANY         TEXAS GAS TRANSMISSION CORPORATION


By:   /s/ Rebecca L. Farrar                 By:  /s/ H. Dean Jones II
      ----------------------                     ------------------------------

Title Senior Vice President-Distribution    ATTEST:   /s/ Sherry L. Rice
      -----------------------------------             ------------------
        Operations                                         Asst. Sec.
        ----------

AGREED TO AND ACCEPTED this 20th of November, 2000



                      ------------------------------------
                              Contract No. T006487
                      ------------------------------------

                               Firm Transportation
                                    Agreement
                                    Exhibit C
                             Supply Lateral Capacity

                      Louisville Gas and Electric Company



                                                                      Preferential rights
                                                                            MMBtu/d

                                      Supply Lateral                 WINTER           SUMMER
                                                                     ------           ------
                                                                                   
ZONE 1 SUPPLY LATERAL(S)

North Louisiana Leg:                                                    9,164            12,237
                                                              ---------------------------------
                  Total Zone 1:                                         9,164            12,237

ZONE SL SUPPLY LATERAL(S)

East Leg:                                                                 145             4,047
Southeast Leg:                                                          6,092            21,885
South Leg:                                                              1,703             4,727
Southwest Leg:                                                          1,464            16,953
West Leg:                                                                 152               232
WC-294 (at ANR-Eunice)                                                      0             8,221
HIOS (at ANR-Eunice)                                                        0             4,933
                                                              ---------------------------------
                  Total Zone SL:                                        9,556            60,998
                                                              ---------------------------------
                  Grand Total:                                         18,720            73,235
                                                              =================================


This exhibit reflects the combined total contractual quantities for LG&E under
the 2, 5, and 8-year agreements for the subject contract. Amendments in contract
quantities in any of these three agreements will result in an amendment of this
exhibit.

Effective Date: November 1, 2001

EX-10.58

                                                                   Exhibit 10.58
November 6, 2000


Louisville Gas and Electric Company
820 West Broadway
Louisville, KY 40202

Attention:  Mr. J. Clay Murphy

Gentlemen:

     Reference is made to the Transportation Agreement (Agreement) dated
March 1, 1995, as amended, between Texas Gas Transmission Corporation (Texas
Gas) and Louisville Gas and Electric Company (LG&E) providing for the
transportation of natural gas by Texas Gas for LG&E.

     Accordingly, Texas Gas and LG&E hereby desire to amend the Agreement
(originally referred to as the 5-year agreement) between them as follows:

     A.   Effective  November 1, 2003,  ARTICLE II,  TRANSPORTATION  SERVICE,
Section 2.1 shall be deleted in its entirety and replaced with the following:

          2.1  Subject to the terms and provisions of this Agreement, Customer
agrees to deliver or cause to be delivered to Texas Gas, at the Point(s) of
Receipt in Exhibit "A" hereunder, gas for transportation, and Texas Gas agrees
to receive, transport, and redeliver, at the Point(s) of Delivery in Exhibit "B"
hereunder, equivalent quantities of gas to Customer or for the account of
Customer, in accordance with Section 3 of Texas Gas's effective FT Rate
Schedule and the terms and conditions contained herein, up to 18,000 MMBtu per
day, which shall be Customer's Firm Transportation Contract Demand, and up to
6,570,000 MMBtu during the year, which shall be Customer's Annual Quantity
Level.

     B.   ARTICLE V, TERM OF AGREEMENT, shall be deleted in its entirety and
replaced with the following:


          5.1  This Agreement shall become effective upon its execution and
remain in full force and effect with a primary term beginning April 1, 1995,
(with the rates and charges described in Article VIII becoming effective on that
date) and extending through October 31, 2008. At the end of such primary term,
or any subsequent roll-over term, this Agreement shall automatically be extended
for an additional roll-over term of five (5) years, unless Customer terminates
this Agreement at the end of such primary or roll-over term by giving Texas Gas
at least 365 days advance written notice prior to the expiration of the primary
term of any subsequent roll-over term.

          5.2  In the event that any applicable state law, order, or regulation
requires Customer, or permits Customer and Customer so elects, to unbundle its
services at the retail level prior to October 31, 2008, and such unbundling
results in Customer holding Daily Contract Demand and Seasonal Quantity
Entitlements that Customer determines would be in excess of the levels required
to enable Customer to provide service after unbundling, then Texas Gas and
Customer agree to renegotiate this Agreement in good faith to devise terms and
conditions that are mutually acceptable to both parties. Customer shall initiate
such renegotiation as soon as practicable after it becomes aware that retail
unbundling will have a definite effect on this Agreement.



Customer shall also attempt to minimize the extent to which capacity subject to
this Agreement becomes surplus to Customer's requirements by directly assigning
any surplus capacity at prevailing contractual rates to any replacement shipper.

               If Texas Gas and Customer are unable to successfully  renegotiate
this Agreement, and Customer pursues the assignment of surplus capacity
described above, but nonetheless all or part of the capacity reflected in this
Agreement becomes unneeded, then Customer shall have the option to elect to
reduce its Daily Contract Demand and related Seasonal Quantity Entitlements by
an amount determined by Customer to be equal to the capacity which has or will
become unneeded pursuant to any such unbundling of services. If Customer
exercises such reduction option, Customer agrees to provide Texas Gas with
written notice of its election to reduce its Daily Contract Demand and Seasonal
Quantity Entitlements. Such notice shall include a waiver of any right of first
refusal, if any, applicable to the Daily Contract Demand which Customer elects
to reduce. Such reduction shall become effective one (1) year from the first day
of the first month following the receipt of Customer's written notice of its
election to reduce. Nothing herein shall prevent Customer from exercising such
reduction right more than once during the remaining term of this Agreement.

     C.   Effective November 1, 2003, EXHIBIT "C", SUPPLY LATERAL CAPACITY,
shall be deleted in its entirety and replaced with the attached EXHIBIT "C",
SUPPLY LATERAL CAPACITY.

     The operation of the provisions of this amendment shall be subject to all
applicable governmental statutes and all applicable and lawful orders, rules,
and regulations.

     Except as otherwise provided herein, this amendment shall become effective
on the first day of the month following the date that Customer is notified in
writing by Texas Gas that Customer has been awarded the incremental Winter
Season capacity which is the subject of Paragraph A of this Agreement. If
Customer is not awarded such incremental Winter Season capacity prior to
November 1, 2003, then this Amendment shall be void AB INITIO and of no force
and effect.

     Except as herein amended, the Agreement between the parties hereto shall
remain in full force and effect.

     If the foregoing is in accordance with your understanding of our Agreement,
please execute both copies and return to us. We will, in turn, execute them and
return one copy for your records.

                                            Very truly yours,


LOUISVILLE GAS AND ELECTRIC COMPANY         TEXAS GAS TRANSMISSION CORPORATION


By:   /s/ Rebecca L. Farrar                 By:    /s/ H. Dean Jones II
      ----------------------------                 ----------------------------
Title Senior Vice President-Distribution    ATTEST:   /s/ Sherry L. Rice
      ----------------------------------              -------------------------
         Operations                                        Asst. Sec.
         ----------

AGREED TO AND ACCEPTED this 20th of November, 2000



                      ------------------------------------
                              Contract No. T006487
                      ------------------------------------

                               Firm Transportation
                                    Agreement
                                    Exhibit C
                             Supply Lateral Capacity

                       Louisville Gas and Electric Company



                                                                    Preferential rights
                                                                         MMBtu/d

                                      SUPPLY LATERAL               WINTER           SUMMER
                                      --------------               ------           ------
                                                                                 
ZONE 1 SUPPLY LATERAL(S)

North Louisiana Leg:                                                 18,328            12,237
                                                             --------------- ----------------
              Total Zone 1:                                          18,328            12,237

ZONE SL SUPPLY LATERAL(S)

East Leg:                                                               290             4,047
Southeast Leg:                                                       12,184            21,885
South Leg:                                                            3,406             4,727
Southwest Leg:                                                        2,928            16,953
West Leg:                                                               304               232
WC-294 (at ANR-Eunice)                                                    0             8,221
HIOS (at ANR-Eunice)                                                      0             4,933
                                                             --------------- ----------------
              Total Zone SL:                                         19,112            60,998
                                                             --------------- ----------------
              Grand Total:                                           37,440            73,235
                                                             =============== ================


This exhibit reflects the combined total contractual quantities for LG&E under
the 2, 5, and 8-year agreements for the subject contract. Amendments in contract
quantities in any of these three agreements will result in an amendment of this
exhibit.

Effective Date: November 1, 2003

EX-10.59

November 6, 2000                                                  Exhibit 10.59


Louisville Gas and Electric Company
820 West Broadway
Louisville, KY 40202

Attention:  Mr. J. Clay Murphy

Gentlemen:

     Reference is made to the Transportation Agreement (Agreement) dated
November 1, 1993, as amended, between Texas Gas Transmission Corporation (Texas
Gas) and Louisville Gas and Electric Company (LG&E) providing for the
transportation of natural gas by Texas Gas for LG&E.

     Accordingly, Texas Gas and LG&E hereby desire to amend the Agreement
(originally referred to as the 8-year agreement) between them as follows:

     A.   ARTICLE V, TERM OF AGREEMENT, shall be deleted in its entirety and
replaced with the following:

          5.1  This Agreement shall become effective upon its execution and
remain in full force and effect with a primary term beginning November 1, 1993,
(with the rates and charges described in Article VIII becoming effective on that
date) and extending through October 31, 2006. At the end of such primary term of
five (5) years, unless Customer terminates this Agreement at the end of such
primary or roll-over term by giving Texas Gas at least 365 days advance written
notice prior to the expiration of the primary term of any subsequent roll-over
term.

          5.2  In the event that any applicable state law, order, or regulation
requires Customer, or permits Customer and Customer so elects, to unbundle its
services at the retail level prior to October 31, 2006, and such unbundling
results in Customer holding Daily Contract Demand and Seasonal Quantity
Entitlements that Customer determines would be in excess of the levels required
to enable Customer to provide service after unbundling, then Texas Gas and
Customer agree to renegotiate this Agreement in good faith to devise terms and
conditions that are mutually acceptable to both parties. Customer shall initiate
such renegotiation as soon as practicable after it becomes aware that retail
unbundling will have a definite effect on this Agreement. Customer shall also
attempt to minimize the extent to which capacity subject to this Agreement
becomes surplus to Customer's requirements by directly assigning any surplus
capacity at prevailing contractual rates to any replacement shipper.

               If Texas Gas and Customer are unable to successfully renegotiate
this Agreement, and Customer pursues the assignment of surplus capacity
described above, but nonetheless all or part of the capacity reflected in this
Agreement becomes unneeded, then Customer shall have the option to elect to
reduce its Daily Contract Demand and related Seasonal Quantity Entitlements by
an amount determined by Customer to be equal to the capacity which has or will
become unneeded pursuant to any such unbundling of services. If Customer
exercises such reduction option, Customer agrees to provide Texas Gas with
written notice of its election to reduce its Daily Contract Demand and Seasonal
Quantity Entitlements. Such notice shall include a waiver of any right of first
refusal, if any, applicable to the Daily Contract Demand which Customer elects
to reduce. Such reduction shall become effective one (1) year from the first day
of the first month following the receipt of



Customer's written notice of its election to reduce. Nothing herein shall
prevent Customer from exercising such reduction right more than once during the
remaining term of this Agreement.

     This amendment shall become effective upon its execution and shall remain
in force for a term to coincide with the term of the Agreement.

     The operation of the provisions of this amendment shall be subject to all
applicable governmental statutes and all applicable and lawful orders, rules,
and regulations.

     Except as herein amended, the Agreement between the parties hereto shall
remain in full force and effect.

     If the foregoing is in accordance with your understanding of our Agreement,
please execute both copies and return to us. We will, in turn, execute them and
return one copy for your records.

                                            Very truly yours,


LOUISVILLE GAS AND ELECTRIC COMPANY         TEXAS GAS TRANSMISSION CORPORATION


LOUISVILLE GAS AND ELECTRIC COMPANY         TEXAS GAS TRANSMISSION CORPORATION


By:    /s/ Rebecca L. Farrar                   By:  /s/ H. Dean Jones II
       ---------------------------                  ---------------------------

Title  Senior Vice President-Distribution      ATTEST:  /s/ Sherry L. Rice
       -----------------------------------              -----------------
          Operations                                          Asst. Sec.

AGREED TO AND ACCEPTED this 20th of November, 2000

EX-10.60

September 15, 1999                                                 Exhibit 10.60


Louisville Gas and Electric Company
820 West Broadway
Louisville, KY 40202

Attention:  Mr. J. Clay Murphy

Gentlemen:

     Reference is made to the Transportation Agreement (Agreement) dated
March 1, 1995, as amended, between Texas Gas Transmission Corporation (Texas
Gas) and Louisville Gas and Electric Company (LG&E) providing for the
transportation of natural gas by Texas Gas for LG&E.

     Accordingly, Texas Gas and LG&E hereby desire to amend the Agreement
between them as follows:

     A.   ARTICLE V, TERM OF AGREEMENT, Section 5.2, for the two-year
Agreement with an original primary term through October 31, 1995, shall be
deleted in its entirety and replaced with the following Section 5.2:

          5.2  In the event that any applicable state law, order, or regulation
requires Customer, or permits Customer and Customer so elects, to unbundle its
services at the retail level prior to October 31, 2005, and such unbundling
results in Customer holding Daily Contract Demand and Seasonal Quantity
Entitlements that Customer determines would be in excess of the levels required
to enable Customer to provide service after unbundling, then Texas Gas and
Customer agree to renegotiate this Agreement in good faith to devise terms and
conditions that are mutually acceptable to both parties. Customer shall initiate
such renegotiation as soon as practicable after it becomes aware that retail
unbundling will have a definite effect on this Agreement. Customer shall also
attempt to minimize the extent to which capacity subject to this Agreement
becomes surplus to Customer's requirements by directly assigning any surplus
capacity at prevailing contractual rates to any replacement shipper.

               If Texas Gas and Customer are unable to successfully renegotiate
this Agreement, and Customer pursues the assignment of surplus capacity
described above, but nonetheless all or part of the capacity reflected in this
Agreement becomes unneeded, then Customer shall have the option to elect to
reduce its Daily Contract Demand and related Seasonal Quantity Entitlements by
an amount determined by Customer to be equal to the capacity which has or will
become unneeded pursuant to any such unbundling of services. If Customer
exercises such reduction option, Customer agrees to provide Texas Gas with
written notice of its election to reduce its Daily Contract Demand and Seasonal
Quantity Entitlements. Such notice shall include a waiver of any right of first
refusal, if any, applicable to the Daily Contract Demand which Customer elects
to reduce. Such reduction shall become effective one (1) year from the first day
of the first month following the receipt of Customer's written notice of its
election to reduce. Nothing herein shall prevent Customer from exercising such
reduction right more than once during the remaining term of this Agreement.

     This amendment shall become effective November 1, 2000, and shall remain in
force for a term to coincide with the term of the Agreement.

     The operation of the provisions of this amendment shall be subject to all
applicable governmental statutes and all applicable and lawful orders, rules,
and regulations.



     Except as herein amended, the Agreement between the parties hereto shall
remain in full force and effect.

     If the foregoing is in accordance with your understanding of our Agreement,
please execute both copies and return to us. We will, in turn, execute them and
return one copy for your records.

                                            Very truly yours,


LOUISVILLE GAS AND ELECTRIC COMPANY         TEXAS GAS TRANSMISSION CORPORATION


By:   /s/ Rebecca L. Farrar                 By:  /s/ Kim R Cocker
      --------------------------                 ---------------------

Title Vice President-Gas Service            ATTEST: /s/ Sherry L. Rice
      ---------------------------                   ------------------
         Business                                        Asst. Sec.
         --------

AGREED TO AND ACCEPTED this 21st day of September, 1999

EX-12

                                                                      EXHIBIT 12


               LOUISVILLE GAS AND ELECTRIC COMPANY AND SUBSIDIARY
                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                                (Thousands of $)



                                                  2001         2000         1999         1998       1997
                                               ---------    ---------    ---------    ---------  ---------
                                                                                  
Earnings:
   Net Income ..............................   $ 106,781    $ 110,573   $ 106,270    $  78,120   $ 113,273

Add:
   Federal income taxes - current ..........      41,127       30,425      54,198       39,618      59,074
   State income taxes - current ............       8,185        4,450      13,650       10,164      14,754
   Deferred Federal income taxes - net .....      12,595       24,233      (4,564)       2,167      (4,171)
   Deferred State income taxes - net .......       3,840        6,787        (715)         636         778
   Investment tax credit - net .............      (4,290)      (4,274)     (4,289)      (4,312)     (4,342)
   Fixed charges ...........................      38,234       44,707      39,323       37,571      40,928
                                               ---------    ---------    --------     --------   ---------
     Earnings ..............................     206,472      216,901     203,873      163,964     220,294
                                               ---------    ---------    --------     --------   ---------
Fixed Charges:
   Interest Charges per statements of income      37,922       43,218      37,962       36,322      39,190
   Add:
     One-third of rentals charged to
       operating expense (1) ...............         312        1,489       1,361        1,249       1,738
                                               ---------    ---------    --------     --------   ---------
          Fixed charges ....................   $  38,234    $  44,707   $  39,323    $  37,571   $  40,928
                                               ---------    ---------    --------     --------   ---------
Ratio of Earnings to Fixed Charges .........        5.40         4.85        5.18         4.36        5.38
                                               =========    =========    =========    =========  =========


NOTE:

(1) In the Company's opinion, one-third of rentals represents a reasonable
approximation of the interest factor.



                                                                      EXHIBIT 12


                    KENTUCKY UTILITIES COMPANY AND SUBSIDIARY
                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                                (Thousands of $)



                                                            2001         2000          1999         1998       1997
                                                            ----         ----          ----         ----       ----
                                                                                             
Earnings:
   Net Income before cumulative effect of a change in
    accounting principle per statements of income ...   $  96,278    $  95,524    $ 106,558    $  72,764    $  85,713

Add:
   Federal income taxes - current ...................      57,389       45,276       51,997       45,704       38,500
   State income taxes - current .....................      13,197        9,400       13,513       10,008        8,718
   Deferred Federal income taxes - net ..............     (12,117)      (3,376)      (4,651)      (2,492)       2,971
   Deferred State income taxes - net ................      (1,118)         927          887           54        1,635
   Deferred investment tax credit-net ...............          --           --           --           --           --
   Investment tax credit - net ......................      (3,446)      (3,674)      (3,727)      (3,829)      (4,036)
   Undistributed income of
      Electric Energy, Inc. .........................         258           70           33            1          (37)
   Fixed charges ....................................      34,202       40,254       39,486       39,318       40,324
                                                        ---------    ---------    ---------    ---------    ---------
     Earnings .......................................     184,643      184,401      204,096      161,528      173,788
                                                        ---------    ---------    ---------    ---------    ---------

Fixed Charges:
   Interest Charges .................................      34,043       39,484       38,904       38,660       39,729
   Add:
     One-third of rentals charged to
       operating expense (1) ........................         159          770          582          658          595
                                                        ---------    ---------    ---------    ---------    ---------
         Fixed charges ..............................   $  34,202    $  40,254    $  39,486    $  39,318    $  40,324
                                                        ---------    ---------    ---------    ---------    ---------

Ratio of Earnings to Fixed Charges ..................        5.40         4.58         5.17         4.11         4.31
                                                        =========    =========    =========    =========    =========


NOTE:

(1) In the Company's opinion, one-third of rentals represents a reasonable
approximation of the interest factor.

EX-21

                                                                      Exhibit 21

                         SUBSIDIARIES OF THE REGISTRANTS

Louisville Gas and Electric Company, a Kentucky corporation, has one
applicable significant subsidiary, LG&E Receivables LLC, a Delaware limited
liability company.

Kentucky Utilities Company, a Kentucky and Virginia corporation, has two
applicable significant subsidiaries, Lexington Utilities Company, a Kentucky
corporation, and KU Receivables LLC, a Delaware limited liability company.

EX-23.01

                                                                Exhibit 23.01



March 27, 2002


Louisville Gas and Electric Company and Subsidiary
220 West Main Street
P.O. Box 32010
Louisville, Kentucky 40232


Enclosed are our manually signed reports relating to the use in the Annual
Report on Form 10-K of our reports dated January 25, 2002 relating to the
consolidated financial statements and financial statement schedules of
Louisville Gas and Electric Company and Subsidiary (the "Company").

Our manually signed reports serve to authorize the use of our name on our
reports in the electronic filing of the Company's Annual Report on Form 10-K
with the SEC.

Please provide us with an exact copy of the Annual Report on Form 10-K as
electronically filed with the SEC.


Very truly yours,

/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PricewaterhouseCoopers LLP




                                                                   Exhibit 23.01

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the inclusion in
this Form 10-K of our report dated January 26, 2001. It should be noted that
we have not audited any financial statements of Lousiville Gas and Electric
Company subsequent to December 31, 2000 or performed any audit procedures
subsequent to the date of our report.

                                             /s/ Arthur Andersen LLP
                                            -------------------------------


Louisville, Kentucky
  March 27, 2002

EX-23.02

                                                                Exhibit 23.02



March 27, 2002



Kentucky Utilities Company and Subsidiary
220 West Main Street
P.O. Box 32010
Louisville, Kentucky 40232


Enclosed are our manually signed reports relating to the use in the Annual
Report on Form 10-K of our reports dated January 25, 2002 relating to the
consolidated financial statements and financial statement schedules of
Kentucky Utilities Company and Subsidiary (the "Company").

Our manually signed reports serve to authorize the use of our name on our
reports in the electronic filing of the Company's Annual Report on Form 10-K
with the SEC.

Please provide us with an exact copy of the Annual Report on Form 10-K as
electronically filed with the SEC.



Very truly yours,

/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP




                                                                   Exhibit 23.02

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the inclusion in this
Form 10-K of our report dated January 26, 2001. It should be noted that we
have not audited any financial statements of Kentucky Utilities Company
subsequent to December 31, 2000 or performed any audit procedures subsequent
to the date of our report.

                                             /s/ Arthur Andersen LLP
                                            -------------------------------


Louisville, Kentucky
  March 27, 2002

EX-24

                                                                      Exhibit 24

                                POWER OF ATTORNEY

WHEREAS, LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, is to file
with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 2001 (the 2001 Form 10-K); and

WHEREAS, each of the undersigned holds the office or offices in LOUISVILLE GAS
AND ELECTRIC COMPANY set opposite his name;

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints
DAVID J. JACKSON, RICHARD AITKEN-DAVIES and S. BRADFORD RIVES, and each of them,
individually, his attorney, with full power to act for him and in his name,
place, and stead, to sign his name in the capacity or capacities set forth below
to the 2001 Form 10-K and to any and all amendments to such 2001 Form 10-K and
hereby ratifies and confirms all that said attorney may or shall lawfully do or
cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals as
of this 27th day of MARCH, 2002.

  /s/ Victor A. Staffieri
- ------------------------------    -----------------------------------------
VICTOR A. STAFFIERI               SYDNEY GILLIBRAND
Chairman, President and Chief     Director
Executive Officer
(Principal Executive Officer)

                                  /s/ Edmund A. Wallis
- ------------------------------    -----------------------------------------
SIR FREDERICK CRAWFORD            EDMUND A. WALLIS
Director                          Director

  /s/ David J. Jackson            /s/ Nicholas P. Baldwin
- ------------------------------    -----------------------------------------
DAVID J. JACKSON                  NICHOLAS P. BALDWIN
Director                          Director

                                  /s/ Richard Aitken-Davies
- ------------------------------    -----------------------------------------
DR. DAVID K-P LI                  RICHARD AITKEN-DAVIES
Director                          Chief Financial Officer
                                  (Principal Financial Officer)

                                  /s/ S. Bradford Rives
                                  -----------------------------------------
                                  S. BRADFORD RIVES
                                  Senior Vice President - Finance and Controller
                                  (Principal Accounting Officer)



                                                                      Exhibit 24

                                POWER OF ATTORNEY

WHEREAS, KENTUCKY UTILITIES COMPANY, a Kentucky corporation, is to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the year
ended December 31, 2001 (the 2001 Form 10-K); and

WHEREAS, each of the undersigned holds the office or offices in KENTUCKY
UTILITIES COMPANY set opposite his or her name;

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints
DAVID J. JACKSON, RICHARD AITKEN-DAVIES and S. BRADFORD RIVES, and each of them,
individually, his attorney, with full power to act for him and in his name,
place, and stead, to sign his name in the capacity or capacities set forth below
to the 2001 Form 10-K and to any and all amendments to such 2001 Form 10-K and
hereby ratifies and confirms all that said attorney may or shall lawfully do or
cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals as
this 27th day of MARCH, 2002.

  /s/ Victor A. Staffieri
- ------------------------------    -----------------------------------------
VICTOR A. STAFFIERI               SYDNEY GILLIBRAND
Chairman, President and Chief     Director
Executive Officer
(Principal Executive Officer)

                                    /s/ Edmund A. Wallis
- ------------------------------    -----------------------------------------
SIR FREDERICK CRAWFORD            EDMUND A. WALLIS
Director                          Director

  /s/ David J. Jackson              /s/ Nicholas P. Baldwin
- ------------------------------    -----------------------------------------
DAVID J. JACKSON                  NICHOLAS P. BALDWIN
Director                          Director

                                    /s/ Richard Aitken-Davies
- ------------------------------    -----------------------------------------
DR. DAVID K-P LI                  RICHARD AITKEN-DAVIES
Director                          Chief Financial Officer
                                  (Principal Financial Officer)

                                    /s/ S. Bradford Rives
                                  -----------------------------------------
                                  S. BRADFORD RIVES
                                  Senior Vice President - Finance and Controller
                                  (Principal Accounting Officer)

EX-99.01

                                                                   Exhibit 99.01

Cautionary Factors for Louisville Gas and Electric Company and Kentucky
Utilities Company

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage such disclosures without the threat
of litigation providing those statements are identified as forward-looking and
are accompanied by meaningful, cautionary statements identifying important
factors that could cause the actual results to differ materially from those
projected in the statement. Forward-looking statements have been and will be
made in written documents and oral presentations of Powergen plc ("Powergen"),
LG&E Energy Corp. ("LG&E Energy"), Louisville Gas and Electric Company ("LG&E")
and Kentucky Utilities Company ("KU") (the latter entities, LG&E and KU,
collectively, the "Companies"). Such statements are based on management's
beliefs as well as assumptions made by and information currently available to
management. When used in the Companies' documents or oral presentations, the
words "anticipate," "estimate," "expect," "objective" and similar expressions
are intended to identify forward-looking statements. In addition to any
assumptions and other factors referred to specifically in connection with such
forward-looking statements, factors that could cause the Companies' actual
results to differ materially from those contemplated in any forward-looking
statements include, among others, the following:

o    Increased competition in the utility, natural gas and electric power
     marketing industries, including effects of: decreasing margins as a result
     of competitive pressures; industry restructuring initiatives; transmission
     system operation and/or administration initiatives; recovery of investments
     made under traditional regulation; nature of competitors entering the
     industry; retail wheeling; a new pricing structure; and former customers
     entering the generation market;

o    Changing market conditions and a variety of other factors associated with
     physical energy and financial trading activities including, but not limited
     to, price, basis, credit, liquidity, volatility, capacity, transmission,
     currency, interest rate and warranty risks;



o    Risks associated with price risk management strategies intended to mitigate
     exposure to adverse movement in the prices of electricity and natural gas
     on both a global and regional basis;

o    Legal, regulatory, public policy-related and other developments which may
     result in redetermination, adjustment or cancellation of revenue payment
     streams paid to, or increased capital expenditures or operating and
     maintenance costs incurred by, the Companies, in connection with rate,
     fuel, transmission, environmental and other proceedings applicable to the
     Companies;

o    Legal, regulatory, economic and other factors which may result in
     redetermination or cancellation of revenue payment streams under power
     sales agreements resulting in reduced operating income and potential asset
     impairment related to the Companies' investments in independent power
     production ventures, as applicable;

o    Economic conditions including inflation rates and monetary fluctuations;

o    Trade, monetary, fiscal, taxation, and environmental policies of
     governments, agencies and similar organizations in geographic areas where
     the Companies have a financial interest;

o    Customer business conditions including demand for their products or
     services and supply of labor and materials used in creating their products
     and services;

o    Financial or regulatory accounting principles or policies imposed by the
     Financial Accounting Standards Board, the Securities and Exchange
     Commission, the Federal Energy Regulatory Commission, state public utility
     commissions, state entities which regulate natural gas transmission,
     gathering and processing and similar entities with regulatory oversight;

o   Availability or cost of capital such as changes in: interest rates, market
     perceptions of the utility and energy-related industries, the Companies or
     any of their subsidiaries or security ratings;

o    Factors affecting utility and non-utility operations such as unusual
     weather conditions; catastrophic weather-related



     damage; unscheduled generation outages, unusual maintenance or repairs;
     unanticipated changes to fossil fuel, or gas supply costs or availability
     due to higher demand, shortages, transportation problems or other
     developments; environmental incidents; or electric transmission or gas
     pipeline system constraints;

o    Employee workforce factors including changes in key executives, collective
     bargaining agreements with union employees, or work stoppages;

o    Rate-setting policies or procedures of regulatory entities, including
     environmental externalities;

o    Social attitudes regarding the utility, natural gas and power industries;

o    Identification of suitable investment opportunities to enhance shareholder
     returns and achieve long-term financial objectives through business
     acquisitions;

o    Some future project investments made by the Companies, respectively, as
     applicable, could take the form of minority interests, which would limit
     the Companies' ability to control the development or operation of the
     project;

o    Legal and regulatory delays and other unforeseeable obstacles associated
     with mergers, acquisitions and investments in joint ventures;

o    Costs and other effects of legal and administrative proceedings,
     settlements, investigations, claims and matters, including but not limited
     to those described in Notes 3, 12 and 16 (for LG&E) and Notes 3, 11 and 14
     (for KU) of the respective Notes to Financial Statements of the Companies'
     Annual Reports on Form 10-K for the year ended December 31, 2001, and items
     under the caption Commitments and Contingencies;

o    Technological developments, changing markets and other factors that result
     in competitive disadvantages and create the potential for impairment of
     existing assets;

o    Factors associated with non-regulated investments, including but not
     limited to: continued viability of partners, foreign government actions,
     foreign economic and currency risks,



     political instability in foreign countries, partnership actions,
     competition, operating risks, dependence on certain customers, third-party
     operators, suppliers and domestic and foreign environmental and energy
     regulations;

o    Other business or investment considerations that may be disclosed from time
     to time in the Companies' Securities and Exchange Commission filings or in
     other publicly disseminated written documents;

o    Factors affecting the realization of anticipated cost savings associated
     with the merger between LG&E Energy and KU Energy Corporation including
     national and regional economic conditions, national and regional
     competitive conditions, inflation rates, weather conditions, financial
     market conditions, and synergies resulting from the business combination;

o    Factors associated with market conditions in the pipeline construction and
     repair industry, both national and international, including, general levels
     of industry activity, fuels and liquids price levels, competition, foreign
     economic, currency, regulatory and operating risks and dependence on
     certain customers, suppliers and operators;

o    Factors associated with, resulting from or affecting the merger transaction
     between LG&E Energy and Powergen, including the integration of the existing
     business and operations of LG&E and KU as part of the Powergen group of
     companies thereunder, as well as national and international economic,
     financial market, regulatory and industry conditions or environments
     applicable to Powergen and its subsidiaries, including LG&E and KU, in the
     future.

o    Factors associated with, resulting from or affecting the acquisition of
     Powergen and LG&E Energy by E.ON AG, including the integration of the
     existing business and operations of LG&E and KU as part of the E.ON group
     of companies thereunder, as well as national and international economic,
     financial market, regulatory and industry conditions or environments
     applicable to E.ON and its subsidiaries, including LG&E and KU, in the
     future.

The Companies undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.