10-K

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, 2002
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	61-0264150
	(A Kentucky Corporation)
	220 West Main Street P. O. Box 32010 Louisville, Kentucky 40232 (502) 627-2000
1-3464	Kentucky Utilities Company	61-0247570
	(A Kentucky and Virginia Corporation)
	One Quality Street Lexington, Kentucky 40507-1428 (859) 255-2100

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, 6.53% cumulative, stated value $100 per share
Preferred Stock, 4.75% 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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  o  No  ý

As of June 28, 2002, the aggregate market value of the common stock of each of Louisville Gas and Electric Company and Kentucky Utilities Company held by non-affiliates was $0.  As of February 28, 2003, 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

Not applicable.

TABLE OF CONTENTS

PART I
Item 1.	Business
	Louisville Gas and Electric Company
	General
	Electric Operations
	Gas Operations
	Rates and Regulation
	Construction Program and Financing
	Coal Supply
	Gas Supply
	Environmental Matters
	Competition
	Kentucky Utilities Company
	General
	Electric Operations
	Rates and Regulation
	Construction Program and Financing
	Coal Supply
	Environmental Matters
	Competition
	Employees and Labor Relations
	Executive Officers of the Companies
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
PART II
Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation:
	Louisville Gas and Electric Company
	Kentucky Utilities Company
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data:
	Louisville Gas and Electric Company
	Kentucky Utilities Company
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10.	Directors and Executive Officers of the Registrant (a)
Item 11.	Executive Compensation (a)
Item 12.	Security Ownership of Certain Beneficial Owners and Management (a)
Item 13.	Certain Relationships and Related Transactions (a)
PART IV
Item 14.	Controls and Procedures
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Signatures

(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
E.ON	E.ON AG
EPA	U.S. Environmental Protection Agency
ESM	Earnings Sharing Mechanism
F	Fahrenheit
FAC	Fuel Adjustment Clause
FERC	Federal Energy Regulatory Commission
FPA	Federal Power Act
FT and FT-A	Firm Transportation
GSC	Gas Supply Clause
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
kV	Kilovolts
Kva	Kilovolt-ampere
KW	Kilowatts
Kwh	Kilowatt hours
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
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
NOPR	Notice of Proposed Rulemaking
NOx	Nitrogen Oxide
OATT	Open Access Transmission Tariff
OMU	Owensboro Municipal Utilities
OVEC	Ohio Valley Electric Corporation
PBR	Performance-Based Ratemaking
PJM	Pennsylvania, New Jersey, Maryland Interconnection
Powergen	Powergen Limited (formerly Powergen plc)
PUHCA	Public Utility Holding Company Act of 1935
ROE	Return on Equity
RTO	Regional Transmission Organization
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
SMD	Standard Market Design
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 State Corporation Commission Staff

PART I.

Item 1.  Business.

LG&E and KU are each subsidiaries of LG&E Energy.  On December 11, 2000, LG&E Energy was acquired by Powergen plc, now known as Powergen Limited, 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, Virginia and Tennessee 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 acquisition, 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 PUHCA, LG&E Services was formed as a subsidiary of LG&E Energy effective on January 1, 2001.  LG&E Services provides certain services to affiliated entities, including LG&E and KU, at cost as required under PUHCA.  On January 1, 2001, approximately 1,000 employees, mainly from LG&E Energy, LG&E and KU, were moved to LG&E Services.

On July 1, 2002, E.ON, a German company, completed its acquisition of Powergen following receipt of all necessary regulatory approvals.  E.ON had announced its pre-conditional cash offer of £5.1 billion ($7.3 billion) for Powergen on April 9, 2001.

LOUISVILLE GAS AND ELECTRIC COMPANY

General

Incorporated in 1913 in Kentucky, LG&E is a regulated public utility that supplies natural gas to approximately 310,000 customers and electricity to approximately 382,000 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, 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.  LG&E is considering unwinding its accounts receivable securitization arrangements involving LG&E R during 2003.

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For the year ended December 31, 2002, 74% of total operating revenues were derived from electric operations and 26% from gas operations.  Electric and gas operating revenues and the percentages by class of service on a combined basis for this period were as follows:

	(Thousands of $)
	Electric			Gas		Combined		% Combined
Residential	$		232,285	$	160,733	$	393,018	47	%
Commercial	185,112			61,036		246,148		30	%
Industrial	111,871			10,232		122,103		15	%
Public authorities	57,703			11,197		68,900		8	%
Total retail	586,971			243,198		830,169		100	%
Wholesale sales	143,002			16,384		159,386
Gas transported – net	—			6,232		6,232
Provision for rate collections	12,267			—		12,267
Miscellaneous	16,251			1,879		18,130
Total	$	758,491		$	267,693	$	1,026,184

See Note 13 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, 2002.

Electric Operations

The sources of LG&E’s electric operating revenues and the volumes of sales for the three years ended December 31, 2002, were as follows:

	2002		2001			2000
ELECTRIC OPERATING REVENUES
(Thousands of $)
Residential	$	232,285	$	205,926		$	205,105
Commercial	185,112		171,540			171,414
Industrial	111,871		104,438			104,738
Public authorities	57,703		53,725			54,270
Total retail	586,971		535,629			535,527
Wholesale sales	143,002		159,406			165,080
Provision for rate collections (refunds)	12,267		(720		)	(2,500		)
Miscellaneous	16,251		11,610			12,851
Total	$	758,491	$	705,925		$	710,958
ELECTRIC SALES (Thousands of Mwh):
Residential	4,036		3,782			3,722
Commercial	3,493		3,395			3,350
Industrial	3,028		2,976			3,043
Public authorities	1,253		1,224			1,214
Total retail	11,810		11,377			11,329
Wholesale sales	7,262		6,957			6,834
Total	19,072		18,334			18,163

LG&E uses efficient coal-fired boilers, fully equipped with sulfur dioxide removal systems, to generate most of its

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electricity.  LG&E’s weighted-average system-wide emission rate for sulfur dioxide in 2002 was approximately 0.55 lbs./Mmbtu of heat input, with every generating unit below its emission limit established by the Kentucky Division for Air Quality.

LG&E set a record local peak load of 2,623 Mw on Monday, August 5, 2002, when the peak daily temperature was 100 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 a 13 – 15% reserve margin range.  At December 31, 2002, LG&E owned steam and combustion turbine generating facilities with a net summer capability of 2,882 Mw and an 80 Mw nameplate rated hydroelectric facility on the Ohio River with a summer capability rate of 48 Mw.  At December 31, 2002, LG&E’s system net summer capability, including purchases from others and excluding the hydroelectric facility, was 3,037 Mw.  See Item 2, Properties.

LG&E and 11 other electric utilities are participating owners of OVEC located in Piketon, Ohio.  OVEC owns and operates two power plants that burn coal to generate electricity, Kyger Creek Station in Ohio and Clifty Creek Station in Indiana. LG&E’s share is 7%, representing approximately 155 Mw’s of generation capacity. LG&E also has agreements with a number of entities throughout the United States for the purchase and/or sale of capacity and energy and for the utilization of their bulk transmission system.

On February 1, 2002, LG&E (along with KU) turned over operational control of its high voltage transmission facilities (100kV and above) to MISO.  LG&E (along with KU) is a founding member of MISO.  Such membership was obtained in 1998 in response to and consistent with federal policy initiatives.  MISO operates a single OATT over the facilities under its control.  Currently MISO controls over 100,000 miles of transmission over 1.1 million square miles located in the northern Midwest between Manitoba, Canada and Kentucky.  On September 18, 2002, FERC granted a 12.88% ROE on transmission facilities for LG&E, KU and the rest of the MISO owners.  This ROE includes a 50 basis point increase because of operational independence.

MISO plans to implement a Congestion Management System in December 2003, in compliance with FERC Order 2000.  This system will be similar to the Locational Marginal Pricing (LMP) system currently used by the PJM RTO and contemplated in FERC’s SMD NOPR, currently being discussed.  MISO filed with FERC a mechanism for recovery of costs for the Congestion Management System, designated Schedule 16 and Schedule 17.  The MISO transmission owners, including LG&E and KU, and others have objected to the allocation of costs between market participants and retail native load.  This case is currently in a hearing at FERC.

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.   Later that year, MISO’s transmission owners, including LG&E, appealed the FERC’s decision to the United States Court of Appeals for the District of Columbia Circuit.  In response, by petition filed November 25, 2002, the FERC requested that the Court issue a partial remand of its challenged orders to allow the FERC to revisit certain issues raised therein, and further requested that the case be held in abeyance pending the agency’s resolution of such issues.  The Court granted the FERC’s petition by order dated December 6, 2002.   On February 24, 2003, FERC issued an order

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reaffirming its position concerning the calculation of the “cost-adder”.

As a separate matter, MISO, its transmission owners and other interested industry segments reached a settlement in mid-2002 regarding the levelof cost responsibility properly borne by bundled and grandfathered load under these FERC rulings (such settlement expressly not prejudicing the transmission owners’ and LG&E’s right to challenge the FERC’s ruling imposing cost responsibility on bundled loads in the first instance).  On February 24, 2003, FERC accepted a partial settlement between MISO and the transmission owners.  FERC did not accept the only contested section of the settlement, which would have allowed the transmission owners to immediately treat unrecoverable Schedule 10 charges as regulatory assets.  FERC will consider allowing regulatory asset treatment of unrecoverable Schedule 10 charges on a case-by-case basis.

Gas Operations

The sources of LG&E’s gas operating revenues and the volumes of sales for the three years ended December 31, 2002, were as follows:

	2002		2001		2000
GAS OPERATING REVENUES
(Thousands of $)
Residential	$	160,733	$	177,387	$	159,670
Commercial	61,036		70,296		61,888
Industrial	10,232		15,750		15,898
Public authorities	11,197		13,223		9,193
Total retail	243,198		276,656		246,649
Wholesale sales	16,384		5,702		17,344
Gas transported – net	6,232		6,042		6,922
Miscellaneous	1,879		2,375		1,574
Total	$	267,693	$	290,775	$	272,489
GAS SALES (Millions of cu. ft.):
Residential	22,124		20,429		24,274
Commercial	9,074		8,587		10,132
Industrial	1,783		2,160		3,089
Public authorities	1,747		1,681		1,576
Total retail	34,728		32,857		39,071
Wholesale sales	5,345		1,882		5,115
Gas transported	13,939		13,108		14,729
Total	54,012		47,847		58,915

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 storage capacity, LG&E would be forced to buy additional gas and pipeline transportation services when customer demand increases, likely to be when the price for those items are typically at their highest.  Currently, LG&E buys competitively

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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 lower than state and national averages.  At December 31, 2002, LG&E had an inventory balance of gas stored underground of 12.6 million Mcf valued at $50.3 million.

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 2002, maximum day gas sendout was approximately 418,000 Mcf, occurring on February 27, 2002, when the average temperature for the day was 21 degrees F.  Supply on that day consisted of approximately 130,000 Mcf from purchases, approximately 221,000 Mcf delivered from underground storage, and approximately 67,000 Mcf transported for industrial customers.  For a further discussion, see Gas Supply under Item 1.

Rates and Regulation

Following the purchase of Powergen by E.ON, E.ON became a registered holding company under PUHCA.  As a result, E.ON, 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.  LG&E believes that it has adequate authority (including financing authority) under existing SEC orders and regulations to conduct its business.  LG&E will seek additional authorization when necessary.

No costs associated with the E.ON purchase of Powergen or the Powergen purchase of LG&E Energy nor any effects of purchase accounting have been reflected in the financial statements of LG&E.

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.

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 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 retail 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 retail electric rates are subject to an ESM.  The ESM, initially 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

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falls within the range of 10.5% to 12.5%, no action is necessary.  If earnings are above the upper limit, the excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, the earnings deficiency is recovered 40% from ratepayers and 60% from shareholders.  By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year subject to a balancing adjustment in successive periods.  LG&E made its second ESM filing on March 1, 2002, for the calendar year 2001 reporting period.  LG&E is in the process of refunding $441,000 to customers for the 2001 reporting period.  LG&E estimated that the rate of return will fall below the lower limit, subject to Kentucky Commission approval, for the year ended December 31, 2002.  The 2002 financial statements include an accrual to reflect the earnings deficiency of $12.5 million to be recovered from customers commencing in April 2003.

On November 27, 2002, LG&E filed a revised ESM tariff which proposed continuance of the existing ESM through 2005.  The Kentucky Commission issued an Order suspending the ESM tariff one day making the effective date January 2, 2003.  In addition, the Kentucky Commission is conducting a management audit to review the ESM plan and reassess its reasonableness in 2003.  LG&E and interested parties will have the opportunity to provide recommendations for modification and continuance of the ESM or other forms of alternative or incentive regulation.

LG&E’s retail 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.

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 most recent integrated resource plan on October 1, 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, 2002, gross property additions amounted to approximately $950 million. Internally generated funds and external financings for the five-year period were utilized to provide for these gross additions.  The gross additions during this period amounted to approximately 26% of total utility plant at

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December 31, 2002, and consisted of $798 million for electric properties and $152 million for gas properties.  Gross retirements during the same period were $106 million, consisting of $74 million for electric properties and $32 million for gas properties.

Coal Supply

Coal-fired generating units provided over 97% of LG&E’s net kilowatt-hour generation for 2002.  The remaining net generation was provided by a natural gas and oil fueled combustion turbine peaking units and a hydroelectric plant.  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 2003 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 1.5 million tons, or a74-day supply, on hand at December 31, 2002.

LG&E expects to continue purchasing most of its coal, with 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 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.

The historical average delivered costs of coal purchased and the percentage of spot coal purchases were as follows:

	2002			2001			2000
Per ton	$	25.30		$	21.27		$	20.96
Per Mmbtu	$	1.11		$	.93		$	.92
Spot purchases as % of all sources	2		%	3		%	1		%

The delivered cost of coal is expected to remain relatively flat during 2003.  Slight increases in the cost of coal in multi-year contracts signed for 2002 are expected to be offset by lower prices negotiated in contracts signed for 2003.

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 and Tennessee Gas.

On April 28, 2000, Texas Gas filed with FERC in Docket RP00-260 for an increase in its base rates effective June 1, 2000.  This filing is part of a rate case Texas Gas was required to file pursuant to the settlement in its last rate case.  On May 31, 2000, FERC issued an Order suspending the effectiveness of Texas Gas’s proposed rates, subject to refund, until November 1, 2000, and establishing a hearing and settlement procedures.  As the result of reaching various FERC-approved settlements, Texas Gas’s higher motion rates were not billed after July 31, 2002, and its lower prospective rates went into effect on August 1, 2002.  Refunds covering the period from November 1, 2000, through July 31, 2002, were received on September 17, 2002, and are currently being

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refunded to customers through the GSC.  LG&E participates in rate and other proceedings affecting its regulated interstate pipeline services, 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 service and 18,000 Mmbtu/day (increasing to 36,000 Mmbtu/day effective November 1, 2003) in FT service.  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 system under Tennessee’s FT-A rate schedule.  LG&E’s contract levels with Tennessee are 51,000 Mmbtu/day throughout the year.  The FT-A agreement with Tennessee, which was subject to termination by LG&E during 2002, has been successfully renegotiated for a minimum additional term of five years at a lower price.

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 Operations under Item 1.

The estimated maximum deliverability from storage during the early part of the heating season is typically about 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 $4.19 in 2002, $5.27 in 2001 and $5.08 in 2000.  Although natural gas prices in the unregulated wholesale market increased significantly throughout 2000 and early 2001, these prices decreased dramatically in early 2002 and then began to increase again.  These increases in natural gas prices, caused in part by decreased natural gas production, decreased liquidity in the marketplace, increases in the price of oil, and increased reliance on natural gas as a fuel for electric generation were mitigated in part by higher national storage inventory levels, and decreased demand associated with a less robust economy.

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 2002, expenditures for pollution control facilities represented $253.8 million or 27% of total construction expenditures.  LG&E estimates that construction expenditures for the installation of NOx control equipment from 2003 through 2004 will be approximately $32 million.  For a discussion of environmental matters, see Rates and Regulation for LG&E under Item 7 and Note 11 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

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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.

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 477,000 customers in over 600 communities and adjacent suburban and rural areas in 77 counties in central, southeastern and western Kentucky, to approximately 30,000 customers in 5counties in southwestern Virginia and to less than 10 customers in Tennessee.  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.  KU is considering unwinding its accounts receivable securitization arrangements involving KU R during 2003.

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Electric Operations

The sources of KU’s electric operating revenues and the volumes of sales for the three years ended December 31, 2002, were as follows:

	2002		2001			2000
ELECTRIC OPERATING REVENUES
(Thousands of $):
Residential	$	275,869	$	244,004		$	241,783
Commercial	179,157		165,389			161,291
Industrial	163,206		146,968			153,017
Mine power	29,453		28,196			27,089
Public authorities	62,649		58,770			57,979
Total retail	710,334		643,327			641,159
Wholesale sales	143,807		203,181			198,073
Provision for rate collections (refunds)	13,027		(954		)	—
Miscellaneous	21,051		13,918			12,709
Total	$	888,219	$	859,472		$	851,941
ELECTRIC SALES (Thousands of Mwh):
Residential	6,198		5,678			5,714
Commercial	4,161		3,990			3,954
Industrial	4,975		4,716			5,044
Mine power	766		771			767
Public authorities	1,533		1,481			1,495
Total retail	17,633		16,636			16,974
Wholesale sales	5,780		7,713			7,573
Total	23,413		24,349			24,547

KU’s weighted-average system-wide emission rate for sulfur dioxide in 2002 was approximately1.24lbs./Mmbtuof heat input, with every generating unit below its emission limit established by the Kentucky Division for Air Quality.

KU set a record local peak load of 3,899Mw on Monday, August 5, 2002, when the peak daily temperature was 100 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 KU’s Results of Operations under Item 7.

KU currently maintains a 13-15% reserve margin range.  At December 31, 2002, KU owned steam and combustion turbine generating facilities with a net summer capability of 4,111 Mw and a hydroelectric facility with a summer capability of 24 Mw.  See Item 2, Properties.  KU obtains power from other utilities under bulk power purchase and interchange contracts. At December 31, 2002, KU’s system net summer capability, including purchases from others and excluding the hydroelectric facility, was 4,630 Mw.

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 equated to approximately 8% of KU’s net

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generation system output during 2002.  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 equated to approximately 9% of KU’s net generation system output in 2002.  See Note 11 of KU’s Notes to Financial Statements under Item 8.

KU and 11 other electric utilities are participating owners of OVEC located in Piketon, Ohio. OVEC owns and operates two power plants that burn coal to generate electricity, Kyger Creek Station in Ohio and Clifty Creek Station in Indiana. KU’s share is 2.5%, approximately 55 Mws of generation capacity.  KU also has agreements with a 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 systems.

On February 1, 2002, KU (along with LG&E) turned over operational control of its high voltage transmission facilities (100kV and above) to MISO.  KU (along with LG&E) is a founding member of MISO.  Such membership was obtained in 1998 in response to and consistent with federal policy initiatives.  MISO operates a single OATT over the facilities under its control.  Currently MISO controls over 100,000 miles of transmission over 1.1 million square miles located in the northern Midwest between Manitoba, Canada and Kentucky.  On September 18, 2002, FERC granted a 12.88% ROE on transmission facilities for LG&E, KU and the rest of the MISO owners.  This ROE includes a 50 basis point increase because of operational independence.

MISO plans to implement a Congestion Management System in December 2003, in compliance with FERC Order 2000.  This system will be similar to the Locational Marginal Pricing (LMP) system currently used by the PJM RTO and contemplated in FERC’s SMD NOPR currently being discussed.  MISO filed with FERC a mechanism for recovery of costs for the Congestion Management System, designated Schedule 16 and Schedule 17.  MISO transmission owners, including LG&E and KU, and others have objected to the allocation of costs between market participants and retail native load.  This case is currently in a hearing at FERC.

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.  Later that year, MISO’s transmission owners, including KU, appealed the FERC’s decision to the United States Court of Appeals for the District of Columbia Circuit.  In response, by petition filed November 25, 2002, FERC requested that the Court issue a partial remand of its challenged orders to allow the FERC to revisit certain issues raised therein, and further requested that the case be held in abeyance pending the agency’s resolution of such issues.  The Court granted the FERC’s petition by order dated December 6, 2002.  On February 24, 2003, FERC issued an order reaffirming its position concerning the calculation of the “cost-adder”.

As a separate matter, MISO, its transmission owners and other interested industry segments reached a settlement in mid-2002 regarding the levelof cost responsibility properly borne by bundled and grandfathered load under these FERC rulings (such settlement expressly not prejudicing the transmission owners’ and KU’s right to challenge the FERC’s ruling imposing cost responsibility on bundled loads in the first instance).  On February 24, 2003, FERC accepted a partial settlement between MISO and the transmission owners.  FERC did not accept the only contested section of the settlement, which would have allowed the transmission owners to immediately treat unrecoverable Schedule 10 charges as regulatory assets.  FERC will consider allowing

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regulatory asset treatment of unrecoverable Schedule 10 charges on a case-by-case basis.

Rates and Regulation

Following the purchase of Powergen by E.ON, E.ON became a registered holding company under PUHCA.  As a result, E.ON, 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.  KU believes that it has adequate authority (including financing authority) under existing SEC orders and regulations to conduct its business.  KU will seek additional authorization when necessary.

No costs associated with the E.ON purchase of Powergen or the Powergen purchase of LG&E Energy nor any effects of purchase accounting have been reflected in the financial statements of KU.

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 served five customers at December 31, 2002, 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.

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 retail 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, initially 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, the excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, the earnings deficiency is recovered 40% from ratepayers and 60% from shareholders.  By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year subject to a balancing adjustment in successive periods.  KU made its second ESM filing on March 1, 2002 for the calendar year 2001 reporting period.  KU is in the process of refunding $1 million to customers for the 2001 reporting period.  KU estimated that the rate of return will fall below the lower limit for the year ended December 31, 2002.  The 2002 financial statements include an accrual to reflect the earnings, subject to Kentucky Commission approval, deficiency of $13.5 million to be recovered from customers commencing in April 2003.

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On November 27, 2002, KU filed a revised ESM tariff which proposed continuance of the existing ESM through 2005.  The Kentucky Commission issued an Order suspending the ESM tariff one day making the effective date January 2, 2003.  In addition, the Kentucky Commission is conducting a management audit to review the ESM plan and reassess its reasonableness in 2003.  KU and interested parties will have the opportunity to provide recommendations for modification and continuance of the ESM or other forms of alternative or incentive regulation.

KU’s Kentucky retail 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 most recent integrated resource plan on October 1, 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 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 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.  KU was granted a waiver from the Virginia Commission on October 29, 2002, exempting KU from retail choice through December 31, 2004.  KU is also seeking a permanent legislative exemption from the Virginia Electric Utility Restructuring Act.  The outcome of this legislative initiative is not expected be known until mid-2003.

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, 2002, gross property additions amounted to approximately $754 million.  Internally generated funds and external financings for the five-year period were utilized to provide for these gross additions.  The gross additions during this period amounted to approximately 23% of total utility plant at December 31, 2002.  Gross retirements during the same period were $82 million.

Coal Supply

Coal-fired generating units provided over 97% of KU’s net kilowatt-hour generation for 2002.  The remaining

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net generation for 2002 was provided by natural gas and oil fueled combustion turbine peaking units and hydroelectric plants.  Coal will be the predominant fuel used by KU in the foreseeable future, with natural gas and oil being used for capacity and flame stabilization in coal-fired boilers or in emergencies.  KU has no nuclear generating units and has no plans to build any in the foreseeable future.

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.

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 1.4 milliontons, or a 67-day supply, on hand at December 31, 2002.

KU expects to continue purchasing most of its coal, which has a sulfur content in the 0.7% - 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 and Green River locations are by truck.  Delivery to E.W. Brown is by rail.

The historical average delivered cost of coal purchased and the percentage of spot coal purchases were as follows:

	2002			2001			2000
Per ton	$	31.44		$	27.84		$	25.63
Per Mmbtu	$	1.35		$	1.20		$	1.07
Spot purchases as % of all sources	18		%	44		%	51		%

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 2003.

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 2002, expenditures for pollution control facilities represented $63.5 million or 11% of total construction expenditures. KU estimates that construction expenditures for the installation of NOx control equipment from 2003 through 2004 will be approximately $178 million.  For a discussion of environmental matters, see Rates and Regulation for KU under Item 7 and Note 11 of KU’s Notes to Financial Statements under Item 8.

Competition

In the last several years, KU has taken many steps to prepare for the expected increase in competition in its

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industry, including a reduction in the number of employees; aggressive cost cutting; 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.  KU will continue to take additional steps to better position itself for competition in the future.

EMPLOYEES AND LABOR RELATIONS

LG&E had 891 full-time regular employees and KU had 946 full-time regular employees at December 31, 2002.  Of the LG&E total, 628 operating, maintenance, and construction employees were represented by IBEW Local 2100.  LG&E and employees represented by IBEW Local 2100 signed a four-year collective bargaining agreement in November 2001.  Of the KU total, 162 operating, maintenance, and construction employees were represented by 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 Local 9447-01 entered into a three-year collective bargaining agreement effective August 2002 and expiring August 2005.

As a result of the Powergen acquisition and in order to comply with PUHCA, LG&E Services was formed 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.

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Executive Officers of LG&E and KU at December 31, 2002:

Name	Age	Position	Effective Date of Election to Present Position
Victor A. Staffieri	47	Chairman of the Board, President and Chief Executive Officer	May 1, 2001
Richard Aitken-Davies	53	Chief Financial Officer	January 31, 2001
John R. McCall	59	Executive Vice President, General Counsel and Corporate Secretary	July 1, 1994
S. Bradford Rives	44	Senior Vice President - Finance and Controller	December 11, 2000
Paul W. Thompson	45	Senior Vice President - Energy Services	June 7, 2000
Chris Hermann	55	Senior Vice President - Distribution Operations	December 11, 2000
Wendy C. Welsh	48	Senior Vice President - Information Technology	December 11, 2000
Martyn Gallus	38	Senior Vice President - Energy Marketing	December 11, 2000
A. Roger Smith	49	Senior Vice President Project Engineering	December 11, 2000
David A. Vogel	36	Vice President – Retail Services	December 11, 2000
Daniel K. Arbough	41	Treasurer	December 11, 2000
Bruce D. Hamilton	47	Vice President Independent Power Operations	December 11, 2000
Robert E. Henriques	61	Vice President Regulated Generation	September 30, 2001
Michael S. Beer	44	Vice President-Rates and Regulatory	February 1, 2001
George R. Siemens	53	Vice President-External Affairs	January 11, 2001
Paula H. Pottinger	45	Vice President - Human Resources	June 1, 2002
D. Ralph Bowling	45	Vice President - Power Operations WKE	August 1, 2002
R. W. Chip Keeling	46	Vice President - Communications	March 18, 2002

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The present term of office of each of the above executive officers extends to the meeting of the Board of Directors following the 2003 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, 2002.  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, Distribution Services Division 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 1999, (including Chief Financial Officer of KU from May 1998 to February 1999); President and  Chief Operating Officer of LG&E Energy Corp. from March 1999 to April 2001 (including President of LG&E and KU from June 2000 to April 2001); Chairman, President and CEO of LG&E Energy Corp., LG&E and KU from May 2001 to present.

Before he was elected to his current positions, Mr. Aitken-Davies was Group Performance Director at Powergen from April 1998 to March 2000; Director - LG&E Transition Team at Powergen from March 2000 to January 2001.

Mr. McCall has been Executive Vice President, General Counsel and Corporate Secretary of LG&E Energy Corp. and LG&E since July 1994.  He became Executive Vice President, General Counsel and Corporate Secretary of KU in May 1998.

Before he was elected to his current positions, Mr. Rives was 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. from August 1999 to June 2000.

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; Vice President, Power Generation and Engineering Services, of LG&E from May 1998 to December 1999; and 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; 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.

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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.; and 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.

Before he was elected to his current positions, Mr. Vogel served in management positions within the Distribution organization of LG&E and KU prior to December 2000.  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 positions, Mr. Arbough was Manager, Corporate Finance of LG&E Energy Corp., and LG&E from August 1996 to May 1998; and he has held the position of Director, Corporate Finance of LG&E Energy Corp., LG&E and KU from May 1998 to present.

Before he was elected to his current positions, Mr. Hamilton was Venture Manager from May 1992 to December 1995; Senior Venture Manager from December 1995 to September 1997, and Vice President, Asset Management from September 1997 to December 2000.

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

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

Before he was elected to his current positions,  Mr. Siemens held the position of Director of External Affairs for LG&E from August 1982 to January 2001.

Before she was elected to her current positions as Vice President-Human Resources, Ms. Pottinger was Manager, Human Resources Development from May 1994 to May 1997; and Director, Human Resources from  June 1997 to June 2002.

Before he was elected to his current positions, Mr. Bowling was Plant General Manager at Western Kentucky Energy Corp. from July 1998 to December 2001; and General Manager Black Fossil Operations for Powergen in the United Kingdom from January 2002 to August 2002.

Before he was elected to his current positions, Mr. Keeling was General Manager, Marketing Communications for General Electric Company from January 1998 to January 1999.  He joined LG&E Energy Corp. and held the title  Manager, Media Relations from January 1999 to February 2000; and Director, Corporate Communications for LG&E Energy from February 2000 to March 2002.

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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:

	Summer Capability Rating (Kw)
Steam Stations:
Mill Creek - Kosmosdale, KY
Unit 1	308,000
Unit 2	306,000
Unit 3	391,000
Unit 4	480,000
Total Mill Creek	1,485,000
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	386,000
Combustion Turbine Generators (Peaking capability):
Zorn	14,000
Paddy’s Run(b)	119,000
Cane Run	14,000
Waterside	22,000
E.W. Brown – Burgin, KY(c)	189,000
Trimble County – Bedford, KY(d)	90,000
Total combustion turbine generators	448,000
Total capability rating	2,882,000

(a)	Amount shown represents LG&E’s 75% interest in Trimble County 1.  See Notes 11 and 12 of LG&E’s Notes to Financial Statements 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 11 and 12 of LG&E’s Notes to Financial Statement, under Item 8 for further discussion on ownership.
(c)	Amount shown represents LG&E’s 53% interest in Unit 5 and 38% interest in Units 6 and 7 at E.W. Brown.  See Notes 11 and 12 of LG&E’s Notes to Financial Statements, under Item 8 for further discussion on ownership.  KU operates the units on behalf of LG&E.
(d)	Amount shown represents LG&E’s 29% interest in Units 5 and 6 at Trimble County.  See Notes 11 and 12 of LG&E’s Notes to Financial Statements, under Item 8 for further discussion on ownership.

LG&E also owns an 80 Mw nameplate rated hydroelectric generating station located in Louisville, with a summer capability rating of 48 Mw, operated under a license issued by the FERC.

At December 31, 2002, LG&E’s electric transmission system included 21 substations with a total capacity of

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approximately 11,519,700Kva and approximately 656 structure miles of lines.  The electric distribution system included 84 substations with a total capacity of approximately 3,448,730 Kva, 3,761 structure miles of overhead lines and 379 miles of underground conduit.

LG&E’s gas transmission system includes 212 miles of transmission mains, and the gas distribution system includes 4,066 miles of distribution mains.

LG&E operates underground gas storage facilities with a current working gas capacity of approximately15.1million 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 was renegotiated in 2002 and is scheduled to expire July 31, 2015.

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.

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

	Summer 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	22,000
Unit 2	22,000
Unit 3	68,000
Unit 4	100,000
Total Green River	212,000
E.W. Brown – Burgin, KY
Unit 1	104,000
Unit 2	168,000
Unit 3	429,000
Total E.W. Brown	701,000
Ghent – Ghent, KY
Unit 1	509,000
Unit 2	494,000
Unit 3	496,000
Unit 4	467,000
Total Ghent	1,966,000
Combustion Turbine Generators (Peaking capability):
E.W. Brown – Burgin, KY (Units 5-11)(a)	773,000
Haefling – Lexington, KY	36,000
Paddy’s Run – Louisville, KY(b)	74,000
Trimble County-Bedford, KY(c)	220,000
Total combustion turbine generators	1,103,000
Total capability rating	4,111,000

(a)	Amount shown represents KU’s 47% interest in Unit 5, 62% interest in Units 6 and 7 and 100% of four other units at E.W. Brown. See Notes 11 and 12 of KU’s Notes to Financial Statements, under Item 8 for further discussion on ownership.
(b)	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.  LG&E operates this unit on behalf of KU.
(c)	Amount shown represents KU’s 71% interest in Units 5 and 6 at Trimble County.  See Notes 11 and 12 of KU’s Notes to Financial Statements, under Item 8 for further discussion on ownership.  LG&E operates these units on behalf of KU.

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, 2002, KU’s electric transmission system included 112 substations with a total capacity of approximately 14,855,396Kva and approximately 4,229 structure miles of lines.  The electric distribution system included 464 substations with a total capacity of approximately 5,046,335 Kva and 15,036 structure

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miles of lines.

Other properties owned by KU include office buildings, service centers, warehouses, garages, and other structures and equipment.

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

ITEM 3.  Legal Proceedings.

Rates and Regulatory Matters

For a discussion of current rate and regulatory matters, including (a) environmental surcharge and cost recovery proceedings, (b) fuel adjustment and gas supply clause proceedings,  (c) earnings sharing mechanism extension proceedings, (d) merger surcredit proceedings and (e) other rate or regulatory matters affecting LG&E and KU, 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.

Environmental

For a discussion of environmental matters including (a) currently proposed reductions in NOx emission limits, (b) items regarding LG&E’s Mill Creek generating plant, KU’s E.W. Brown plant, KU-related Tindall property 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 11 of LG&E’s Notes to Financial Statements and Note 11 of KU’s Notes to Financial Statements under Item 8, respectively.

LG&E Employment Discrimination Case

In October 2001 approximately 30 employees or former employees filed a complaint against LG&E claiming past and current instances of employment discrimination against LG&E.  LG&E has removed the case to the U.S. District Court for the Western District of Kentucky and filed an answer denying all plaintiff’s claims.  Discovery has commenced in the matter.  The court has ordered mediation and certain plaintiffs have settled for non-material amounts as a result of that process.  In addition, certain plaintiffs have sought administrative review before the U.S. Equal Employment Opportunity Commission which has, to date, declined to proceed to litigation on any claims reviewed.  Amended pleadings have also reduced the size of the plaintiff and defendant groups and eliminated certain prior demands.  The amended complaints included a reduced claimed damage amount of $100 million as well as requests for injunctive relief.  LG&E intends to defend itself vigorously in the action and management does not anticipate that the outcome will have a material impact on LG&E’s operations or financial condition.

Combustion Turbine Litigation

In September 2002, LG&E and KU, or their affiliates, filed further amended complaints in litigation in the U.S. District Court for the Eastern District of Kentucky against Alstom Power, Inc. (formerly ABB Power Generation, Inc.) (“Alstom”) regarding two combustion turbines supplied by Alstom in 1999.  These units are installed at KU’s E.W. Brown generating plant and are jointly owned by LG&E and KU.  The original purchase price for the turbines was approximately $91.8 million.  The suit presents warranty, negligence, misrepresentation, fraud and other claims relating to numerous operational defects or deficiencies in connection therewith.  LG&E and KU have requested rescission of the contract and recovery of all expenditures relating to the

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turbines.  As an alternative to rescission, LG&E and KU have requested relief for amounts incurred or expended to date in connection with operational repairs, cover damages or liquidated damages and other costs, with possible further damages and interest to be proven at trial. The matter is currently in discovery with a trial presently scheduled for the third quarter of 2003.

Preferred Stock Delisting

On April 16, 2002, the LG&E 5% Cumulative Preferred class of stock was delisted from the NASDAQ Small Capitalization Market.  On June 3, 2002, the KU 4.75% Cumulative Preferred class of stock was delisted from the Philadelphia Stock Exchange.  Delisting will enable the Companies 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.

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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, 2002.

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:
	Michael Söhlke - 21,294,223 common shares and 114,107 preferred shares cast in favor of election and 1,979 preferred shares withheld.
	Victor A. Staffieri - 21,294,223 common shares and 113,207 preferred shares cast in favor of election and 2,879 preferred shares withheld.
	Edmund A. Wallis - 21,294,223 common shares and 114,246 preferred shares cast in favor of election and 1,840 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 113,801 preferred shares in favor of and 331 preferred shares against the approval of PricewaterhouseCoopers LLP as independent accountants for 2002.  Holders of 1,954 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 Michael Söhlke, Victor A. Staffieri and  Edmund A. Wallis,  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 2002.
	No holders of common shares abstained from voting on these matters.

d)Not applicable.

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

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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 $):

	2002		2001
First quarter	$	0	$	0
Second quarter	23,000		0
Third quarter	23,000		0
Fourth quarter	23,000		23,000

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 $):

	2002		2001
First quarter	$	0	$	0
Second quarter	0		0
Third quarter	0		0
Fourth quarter	0		30,500

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ITEM 6.  Selected Financial Data.

The Consolidated Financial Statements for 1998 through 2000 for LG&E and KU were audited by Arthur Andersen LLP (Andersen) who has ceased operations.  A copy of the report previously issued by Andersen on our financial statements for the year ended December 31, 2000, is included elsewhere in this report.  Such report has not been reissued by Andersen.

	Years Ended December 31 (Thousands of $)
	2002		2001			2000			1999			1998
LG&E:
Operating revenues:
Revenues	$	1,013,917	$	997,420		$	985,947		$	969,984		$	854,556
Provision for rate collections (refunds)	12,267		(720		)	(2,500		)	(1,735		)	(4,500		)
Total operating revenues	1,026,184		996,700			983,447			968,249			850,056
Net operating income	117,914		141,773			148,870			140,091			135,523
Net income	88,929		106,781			110,573			106,270			78,120
Net income available for common stock	84,683		102,042			105,363			101,769			73,552
Total assets	2,561,078		2,448,354			2,226,084			2,171,452			2,104,637
Long-term obligations (including amounts due within one year)	$	616,904	$	616,904		$	606,800		$	626,800		$	626,800

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.

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	Years Ended December 31 (Thousands of $)
	2002		2001			2000		1999			1998
KU:
Operating revenues:
Revenues	$	875,192	$	860,426		$	851,941	$	943,210		$	831,614
Provision for rate collections (refunds)	13,027		(954		)	—		(5,900		)	(21,500		)
Total operating revenues	888,219		859,472			851,941		937,310			810,114
Net operating income	108,643		121,370			128,136		136,016			125,388
Net income	93,384		96,414			95,524		106,558			72,764
Net income available for common stock	91,128		94,158			93,268		104,302			70,508
Total assets	1,998,383		1,826,902			1,739,518		1,785,090			1,761,201
Long-term obligations (including amounts due within one year)	$	500,492	$	488,506		$	484,830	$	546,330		$	546,330

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.

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 2002, 2001, and 2000 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 materially vary.  Factors that could cause actual results to materially differ 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; actions by credit rating agencies; and other factors described from time to time in LG&E’s reports to the SEC, including Exhibit No. 99.01 to this report on Form 10-K.

MERGERS and ACQUISITIONS

On December 11, 2000, LG&E Energy was acquired by Powergen 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

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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.

On July 1, 2002, E.ON, a German company, completed its acquisition of Powergen plc (now Powergen Limited).  As a result, LG&E and KU became indirect subsidiaries of E.ON.  E.ON had announced its pre-conditional cash offer of £5.1 billion ($7.3 billion) for Powergen on April 9, 2001.  Following the acquisition, E.ON became a registered holding company under PUHCA.

As contemplated in their regulatory filings in connection with the E.ON acquisition, E.ON, Powergen and LG&E Energy completed an administrative reorganization to move the LG&E Energy group from an indirect Powergen subsidiary to an indirect E.ON subsidiary.   This reorganization was effective in March 2003.

RESULTS OF OPERATIONS

Net Income

LG&E’s net income in 2002 decreased $17.9 million as compared to 2001.  The decrease resulted primarily from higher transmission operating expenses, an increase in amortization of VDT regulatory asset, and increased property insurance and pension expense, partially offset by an increase in electric sales to retail customers and lower interest expenses.

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 VDT regulatory asset, 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.

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Revenues

A comparison of operating revenues for the years 2002 and 2001, excluding the provisions recorded for rate collections (refunds), 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	2002			2001			2002			2001
Retail sales:
Fuel and gas supply adjustments	$	19,449		$	(394	)	$	(58,003	)	$	79,627
LG&E/KU Merger surcredit	(2,825		)	(2,456		)	—			—
Performance based rate	—			1,962			—			—
Environmental cost recovery surcharge	9,694			1,246			—			—
Demand side management	1,381			—			938			—
Electric rate reduction	—			(3,671		)	—			—
VDT surcredit	(1,177		)	(1,014		)	(285		)	(68		)
Gas rate increase	—			—			—			15,265
Weather normalization	—			—			2,234			—
Variation in sales volumes and other	24,819			4,429			21,658			(64,817		)
Total retail sales	51,341			102			(33,458		)	30,007
Wholesale sales	(16,404		)	(5,674		)	10,683			(11,642		)
Gas transportation-net	—			—			189			(880		)
Other	4,642			(1,241		)	(496		)	801
Total	$	39,579		$	(6,813	)	$	(23,082	)	$	18,286

Electric revenues increased in 2002 primarily due to an increase in retail sales due to warmer summer weather, an increase in the recovery of fuel costs passed through the FAC, partially offset by a decrease in wholesale sales due to lower market prices as compared to 2001. Cooling degree days increased 20% compared to 2001.  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 2002 decreased due to a lower gas supply cost billed to customers through the gas supply clause offset partially by increased gas retail sales due to cooler winter weather and an increase in wholesale sales volume.  Heating degree days increased 17% as compared to 2001.  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% compared to 2000.

Expenses

Fuel for electric generation and gas supply expenses comprise a large component of LG&E’s total operating costs. The retail electric rates contain a FAC and gas rates contain a GSC, whereby increases or decreases in the

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cost of fuel and gas supply are reflected in the FAC and GSC factors, subject to approval by the Kentucky Commission, and passed through to LG&E’s retail customers.

Fuel for electric generation increased $35.7 million (22.4%) in 2002 due to increased generation ($5.4 million) and  higher cost of coal burned ($30.3 million). Fuel for electric generation decreased $0.2 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). The average delivered cost per ton of coal purchased was $25.30 in 2002, $21.27 in 2001 and $20.96 in 2000.

Power purchased increased $2.9 million (3.5%) in 2002 due to an increase in purchases to meet requirements for native load and off-system sales partially offset by decreased brokered sales activity in the wholesale electric market. 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.

Gas supply expenses decreased $24.1 million (11.7%) in 2002 due to a decrease in cost of net gas supply ($36.6 million), partially offset by an increase in the volume of gas delivered to the distribution system ($12.5 million). 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). The average unit cost per Mcf of purchased gas was $4.19 in 2002, $5.27 in 2001 and $5.08 in 2000.

Other operation expenses increased $40.5 million (24.1%) in 2002 primarily due to a full year amortization in 2002 of a regulatory asset created as a result of the workforce reduction costs associated with LG&E’s VDT ($17.0 million), higher costs for electric transmission primarily resulting from increased MISO costs ($13.9 million), an increase in property and other insurance costs ($3.9 million), an increase in pension costs due to change in pension assumptions to reflect current market conditions and change in market value of the plan assets at the measurement date ($3.7 million), and an increase in steam production costs ($3.4 million).  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 VDT ($13.0 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.

Maintenance expenses for 2002 increased $1.5 million (2.6%) primarily due to gas distribution expenses for main remediation work ($2.2 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).

Depreciation and amortization increased $5.5 million (5.5%) in 2002 and $2.1 million (2.1%) in 2001 because of additional utility plant in service. 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 $5.6 million as a result of the settlement order.

Variations in income tax expenses are largely attributable to changes in pre-tax income. LG&E’s 2002 effective income tax rate increased to 37.2% from the 36.5% rate in 2001. See Note 7 of LG&E’s Notes to Financial Statements under Item 8.

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Property and other taxes decreased $0.3 million (1.6%) in 2002. 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.

Other income – net decreased $2.1 million (72.0%) in 2002 primarily due to increased  costs for non-utility areas, $1.3 million and decreases in the gain on sale of property $0.8 million. Other income – net decreased $2.0 million (40.5%) in 2001 primarily due to lower interest and dividend income.

Interest charges for 2002 decreased $8.1 million (21.4%) primarily due to lower interest rates on variable rate debt ($5.6 million) a decrease in debt to associated companies ($0.8 million) and an decrease in interest associated with LG&E’s accounts receivable securitization program ($1.5 million).  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). See Note 9 of LG&E’s Notes to Financial Statements under Item 8.

LG&E’s weighted average cost of long-term debt, including amortization of debt expense and interest rate swaps, was 3.87% at December 31, 2002 compared to 4.17% at December 31, 2001.  See Note 9 of LG&E’s Notes to Financial Statements under Item 8.

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

CRITICAL ACCOUNTING POLICIES/ESTIMATES

Preparation of financial statements and related disclosures in compliance with generally accepted accounting principles 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 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.  Specific risks for these critical accounting policies are described in the following paragraphs.  Each of these has a higher likelihood of resulting in materially different reported amounts under different conditions or using different assumptions.  Events rarely develop exactly as forecast and the best estimates routinely require adjustment.  See also Note 1 of LG&E’s Notes to Financial Statements under Item 8.

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Unbilled Revenue – At each month end LG&E prepares a financial estimate that projects electric and gas usage that has been used by customers, but not billed.  The estimated usage is based on known weather and days not billed.  At December 31, 2002, a 10% change in these estimated quantities would cause revenue and accounts receivable to change by approximately $5.0 million, including $2.3 million for electric usage and $2.7 million for gas usage.  See also Note 1 of LG&E’s Notes to Financial Statements under Item 8.

Benefit Plan Accounting - Judgments and uncertainties in benefit plan accounting include future rate of returns on pension plan assets, interest rates used in valuing benefit obligation, healthcare cost trend rates, and other actuarial assumptions.

LG&E’s costs of providing defined-benefit pension retirement plans is dependent upon a number of factors, such as the rates of return on plan assets, discount rate, and contributions made to the plan.  The market value of LG&E plan assets has been affected by declines in the equity market since the beginning of the fiscal year.  As a result, at December 31, 2002, LG&E was required to recognize an additional minimum liability as prescribed by SFAS No. 87 Employers’ Accounting for Pensions.  The liability was recorded as a reduction to other comprehensive income, and did not affect net income for 2002.  The amount of the liability depended upon the asset returns experienced in 2002 and contributions made by LG&E to the plan during 2002.  Also, pension cost and cash contributions to the plan could increase in future years without a substantial recovery in the equity market.  If the fair value of the plan assets exceeds the accumulated benefit obligation, the recorded liability will be reduced and other comprehensive income will be restored in the consolidated balance sheet.

The combination of poor market performance and a decrease in short-term corporate bond interest rates has created a divergence in the potential value of the pension liability and the actual value of the pension assets.  These conditions could result in an increase in LG&E’s funded accumulated benefit obligation and future pension expense.  The primary assumptions that drive the value of the unfunded accumulated benefit obligation are the discount rate and expected return on plan assets.

LG&E made a contribution to the pension plan of $83.1 million in January 2003.

A 1% increase or decrease in the assumed discount rate could have an approximate $37.0 million positive or negative impact to the accumulated benefit obligation of LG&E.

See also Note 6 of LG&E’s Notes to Financial Statements under Item 8.

Regulatory Mechanisms – Judgments and uncertainties include future regulatory decisions, impact of deregulation and competition on ratemaking process, and external regulator decisions.

Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery in customer rates based upon Kentucky Commission orders.  Regulatory liabilities generally represent obligations to make refunds to customers for previous collections based upon orders by the Kentucky Commission.  Management believes, based on orders, the existing regulatory assets and liabilities are probable of recovery.   This determination reflects the current regulatory climate in the state.  If future recovery of costs ceases to be probable the assets would be required to be recognized in current period earnings.

LG&E has accrued in the financial statements an estimate of $12.5 million for 2002 ESM, with collection from

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customer commencing in April 2003.  The ESM is subject to Kentucky Commission approval.

See also Note 3 of LG&E’s Notes to Financial Statements under Item 8.

NEW ACCOUNTING PRONOUNCEMENTS

The following accounting pronouncements were issued that affected LG&E in 2002:

SFAS No. 143, Accounting for Asset Retirement Obligations 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.

The effective implementation date for SFAS No. 143 is January 1, 2003.  Management has calculated the impact of SFAS No. 143 and the recently released FERC NOPR No. RM02-7, Accounting, Financial Reporting, and Rate Filing Requirements for Asset Retirement Obligations.  As of January 1, 2003, LG&E recorded asset retirement obligation (ARO) assets in the amount of $4.6 million and  liabilities in the amount of $9.3 million. LG&E also recorded a cumulative effect adjustment in the amount of $5.3 million to reflect the accumulated depreciation and accretion of ARO assets at the transition date less amounts previously accrued under regulatory depreciation.  LG&E recorded offsetting regulatory assets of $5.3 million, pursuant to regulatory treatment prescribed under SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. Also pursuant to SFAS No. 71, LG&E recorded regulatory liabilities in the amount of $60,000 offsetting removal costs previously accrued under regulatory accounting in excess of amounts allowed under SFAS No. 143.

LG&E also expects to record ARO accretion expense of approximately $617,000, ARO depreciation expense of approximately $117,000 and an offsetting regulatory credit in the income statement of approximately $734,000 in 2003, pursuant to regulatory treatment prescribed under SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.  The accretion, depreciation and regulatory credit will be annual adjustments.  SFAS No. 143 will have no impact on the results of the operation of LG&E.

LG&E’s asset retirement obligations are primarily related to the final retirement of generating units.  LG&E transmission and distribution lines largely operate under perpetual property easement agreements which do not generally require restoration upon removal of the property.  Therefore, under SFAS No. 143, no material asset retirement obligations will be recorded for transmission and distribution assets.

LG&E adopted EITF No. 98-10, Accounting for Energy Trading and Risk Management Activities, effective January 1, 1999.  This pronouncement required that energy trading contracts be marked to market on the balance sheet, with the gains and losses shown net in the income statement.  In October 2002, the Emerging Issues Task Force reached a consensus to rescind EITF 98-10.  The effective date for the full rescission is for fiscal periods beginning after December 15, 2002.  With the rescission of EITF No. 98-10, energy trading contracts that do not also meet the definition of a derivative under SFAS No. 133 must be accounted for as executory contracts.  Contracts previously recorded at fair value under EITF No. 98-10 that are not also derivatives under SFAS No. 133 must be restated to historical cost through a cumulative effect adjustment.  LG&E does not expect the rescission of this standard to have a material impact on financial position or results of operations.

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In January 2003, the Financial Accounting Standards Board issued Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46).  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003.  LG&E does not expect the adoption of this standard to have any impact on the financial position or results of operations.

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 $212.4 million, $287.1 million and $156.2 million in 2002, 2001, and 2000, respectively.  The 2002 decrease compared to 2001 of $74.7 million resulted primarily from the change in accounts receivable balances, including the sale of accounts receivable through the accounts receivable securitization program and a decrease in accounts payable and accrued taxes.  The 2001 increase of $130.9 million resulted primarily from an increase in accounts receivable, and a decrease in accrued taxes.  See Note 1 of LG&E’s Notes to Financial Statements under Item 8 for a discussion of accounts receivable securitization.

Investing Activities

LG&E’s primary use of funds for investing activities continues to be for capital expenditures.  Capital expenditures were $220.4 million, $253.0 million and $144.2 million in 2002, 2001, and 2000, respectively.  LG&E expects its capital expenditures for 2003 and 2004 to total approximately $340.0 million, which consists primarily of construction estimates associated with installation of NOx equipment as described in the section titled “Environmental Matters,” purchase of jointly owned CTs with KU and on-going construction for the distribution systems.

Net cash used for investment activities decreased $28.7 million in 2002 compared to 2001 primarily due to the level of construction expenditures.  CT expenditures were approximately $35.9 million in 2002 and $57.8 million in 2001.  The $107.9 million increase in net cash used in 2001 as compared to 2000 was due to NOx expenditures and the purchase of CTs.

Financing Activities

Net cash inflows for financing activities were $22.5 million in 2002 and outflows of $38.7 million and $67.7 million in 2001 and 2000, respectively.  In 2002, short-term borrowings increased $98.9 million which were used in part for dividend payments of $73.3 million.  During 2001, short-term borrowings decreased $20.4 million from 2000 and LG&E paid $28.0 million in dividends.

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During 2001, LG&E issued $10.1 million of pollution control bonds resulting in net proceeds of $9.7 million after issuance costs.

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.

In October 2002, LG&E issued $41.7 million variable rate pollution bonds due October 1, 2032, and exercised its call option on $41.7 million, 6.55% pollution control bonds due November 1, 2020.

Under the provisions for LG&E’s variable-rate pollution control bonds totaling $246.2million, 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.

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 December 31, 2002, were:

	Moody’s	S&P	Fitch
First mortgage bonds	A1	A	A+
Preferred stock	Baa1	BBB	A-
Commercial paper	P-1	A-2	F-1

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, 2002 (in thousands of $):

	Payments Due by Period
Contractual cash Obligations	2003		2004- 2005		2006- 2007		After 2007		Total
Short-term debt(a)	$	193,053	$	—	$	—	$	—	$	193,053
Long-term debt(b)	288,800		—		—		328,104		616,904
Operating lease(c)	3,371		6,866		7,143		29,794		47,174
Unconditional purchase obligations(d)	10,773		20,268		21,632		184,544		237,217
Other long-term obligations(e)	28,401		95,151		—		—		123,552
Total contractual cash obligations(f)	$	524,398	$	122,285	$	28,775	$	542,442	$	1,217,900

(a)Represents borrowings from parent company due within one year.

(b)Includes long-term debt of $246.2 million 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.

(c)Operating lease represents the lease of LG&E’s administrative office building.

(d)Represents future minimum payments under purchased power agreements through 2020.

(e)Represents construction commitments.

(f)LG&E does not expect to pay the $246.2 million of long-term debt classified as a current liability in the consolidated balance sheets in 2003 as explained in (b) above.  LG&E anticipates cash from operations and external financing will be sufficient to fund future obligations.  LG&E anticipates refinancing a portion of its short-term debt with long-term debt in 2003.

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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, 2002, the potential change in interest expense associated with a 1% change in base interest rates of LG&E’s unhedged debt is estimated at $5.5 million after impact of interest rate swaps.

Interest rate swaps are used to hedge LG&E’s underlying variable-rate debt obligations.  These swaps hedge specific debt issuances and, consistent with management’s designation, are accorded hedge accounting treatment.  See Note 4 of LG&E’s Notes to Financial Statements under Item 8.

As of December 31, 2002, LG&E had swaps with a combined notional value of $117.3 million.  The swaps exchange floating-rate interest payments for fixed rate interest payments to reduce the impact of interest rate changes on LG&E’s Pollution Control Bonds.  The potential loss in fair value resulting from a hypothetical 1% adverse movement in base interest rates is estimated at $10.8 million as of December 31, 2002.  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, will have no 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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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.

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 rescission of EITF 98-10, effective for fiscal periods ending after December 15, 2002, will have no impact on LG&E’s energy trading and risk management reporting as all contracts marked to market under EITF 98-10 are also within the scope of SFAS No. 133.

The table below summarizes LG&E’s energy trading and risk management activities for 2002 and 2001 (in thousands of $).

	2002			2001
Fair value of contracts at beginning of period, net liability	$	(186	)	$	(17	)
Fair value of contracts when entered into during the period	(65		)	3,441
Contracts realized or otherwise settled during the period	448			(2,894		)
Changes in fair values due to changes in assumptions	(353		)	(716		)
Fair value of contracts at end of period, net liability	$	(156	)	$	(186	)

No changes to valuation techniques for energy trading and risk management activities occurred during 2002.  Changes in market pricing, interest rate and volatility assumptions were made during both years.  All contracts outstanding at December 31, 2002, 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.  At December 31, 2002, 86% of the trading and risk management commitments were with counterparties rated BBB- equivalent or better.

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 the program at any time without penalty.  If there is a significant deterioration in the payment record of the receivables by the retail

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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 its 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 a true sale of receivables.  As of December 31, 2002, the outstanding program balance was $63.2 million.  LG&E is considering unwinding its accounts receivable securitization arrangements involving LG&E R during 2003.

The allowance for doubtful accounts associated with the eligible securitized receivables was $2.1 million at December 31, 2002.  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 Powergen by E.ON, E.ON became a registered holding company under PUHCA.  As a result, E.ON, 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.  LG&E believes that it has adequate authority (including financing authority) under existing SEC orders and regulations to conduct its business.  LG&E 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, its 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 - VDT 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 approximately 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 a new depreciation study and

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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 Kentucky Commission Order on December 3, 2001.  The 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 2001 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 stipulated net savings LG&E is expected to realize from implementation of best practices through the VDT.  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 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 in April 2001 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.

In May 2002, the Kentucky Commission initiated a periodic two year review of LG&E’s environmental surcharge.  The review included the operation of the surcharge mechanism, determination of the appropriateness of costs included in the surcharge mechanism, recalculation of the cost of debt to reflect actual costs for the period under review, final determination of the amount of environmental revenues over-collected from customers, and a final determination of the amount of environmental costs and revenues to be “rolled-in” to base rates.  A final order was issued on October 22, 2002, in which LG&E was ordered to refund $325,000 to customers over the four month period beginning November 2002 and ending February 2003.  Additionally, LG&E was ordered to roll $4.1 million into base rates and make corresponding adjustments to the monthly environmental surcharge filings to reflect that portion of environmental rate base now included in base rates on a going-forward basis.

In August 2002, LG&E filed an application with the Kentucky Commission to amend its compliance plan to allow recovery of the cost of new and additional environmental compliance facilities.  The estimated capital cost of the additional facilities is $71.1 million.  The Kentucky Commission conducted a public hearing on the case on December 20, 2002, final briefs were filed on January 15, 2003, and a final order was issued February 11, 2003.  The final order approved recovery of four new environmental compliance facilities totaling $43.1 million.  A fifth project, expansion of the land fill facility at the Mill Creek Station, was denied without prejudice with an invitation to reapply for recovery when required construction permits are approved.  Cost

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recovery through the environmental surcharge of the four approved projects will begin with the bills rendered in April 2003.

ESM

LG&E’s electric rates are subject to an ESM.  The ESM, initially 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, the excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, the earnings deficiency is recovered 40% from ratepayers and 60% from shareholders.  By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year subject to a balancing adjustment in successive periods.  LG&E made its second ESM filing on March 1, 2002, for the calendar year 2001 reporting period.  LG&E is in the process of refunding $441,000 to customers for the 2001 reporting period.  LG&E estimated that the rate of return will fall below the lower limit, subject to Kentucky Commission approval, for the year ended December 31, 2002.  The 2002 financial statements include an accrual to reflect the earnings deficiency of $12.5 million to be recovered from customers commencing in April 2003.

On November 27, 2002, LG&E filed a revised ESM tariff which proposed continuance of the existing ESM through December 2005.  The Kentucky Commission issued an Order suspending the ESM tariff one day making the effective date January 2, 2003.  In addition, the Kentucky Commission is conducting a management audit to review the ESM plan and reassess its reasonableness in 2003.  LG&E and interested parties will have the opportunity to provide recommendations for modification and continuance of the ESM or other forms of alternative or incentive regulation.

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 proposed 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 PBR mechanism related to its gas procurement activities.   For each of the last five years, LG&E’s rates have been adjusted to recover its portion of the savings (or expenses) incurred during each of the five 12-month periods beginning November 1 and ending October 31. Since its implementation on November 1, 1997, through October 31, 2002, LG&E has achieved $38.1 million in savings. Of the total savings, LG&E has retained $16.5 million, and the remaining portion of $21.6 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,

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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 a 50%/50% level.

FAC

Prior to implementation of the electric 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.  While legal challenges to the Kentucky Commission order were pending a comprehensive settlement was reached by all parties and approved by the  Kentucky Commission on May 17, 2002.   Thereunder, LG&E agreed to credit its fuel clause in the amount of $720,000 (such credit provided over the course of June and July 2002), 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.

In December 2002, the Kentucky Commission initiated a two year review of the operation of LG&E’s FAC for the period November 2000 through October 2002.  Testimony in the review case was filed on January 20, 2003 and a public hearing was held February 18, 2003.  Issues addressed at that time included the establishment of the current base fuel factor to be included in LG&E’s base rates, verification of proper treatment of purchased power costs during unit outages, and compliance with fuel procurement policies and practices.

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 base gas 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.

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In April 2002, in Case No. 2002-00136, LG&E proposed a hedging plan for the 2002/2003 winter heating season with three alternatives, the first two using a combination of storage and financial hedge instruments and the third relying upon storage alone.  LG&E and the Attorney General, who represents Kentucky consumers, entered into a settlement which selected the third option.  In August 2002, the Kentucky Commission approved the plan contemplated in the settlement.  The Kentucky Commission validated the effectiveness of storage to mitigate potentially high winter gas prices by approving this natural gas hedging plan.

The Kentucky Commission also decided in Administrative Case No. 384 to engage a consultant to conduct a forward-looking audit of the gas procurement and supply procedures of Kentucky’s largest natural gas distribution companies.  The Kentucky Commission completed its audit in late 2002.  The audit recognized LG&E as ”efficient and effective [in the] procurement and management of significant quantities of natural gas supplies.”  The auditors also recognized that “the Company’s residential gas prices have long been below averages for the U. S. and for the Commonwealth of Kentucky” which “demonstrates [LG&E’s] effectiveness in [the] procurement and management of natural gas supplies.”  The audit also stated that the ”Company’s very impressive record in keeping its rates down provides sound evidence on the excellent job done in the area of gas supply procurement and management.”

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 utility’s 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.

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 citing 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 Kentucky and its communities.  In response to that Executive Order, in July 2001 the

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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 and in October 2001, LG&E filed a final brief in the case.  In December 2001, the Kentucky Commission issued an order in which it 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 Kentucky 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.

FERC SMD NOPR

On July 31, 2002, FERC issued a NOPR in Docket No. RM01-12-000 which would substantially alter the regulations governing the nation’s wholesale electricity markets by establishing a common set of rules — SMD. The SMD NOPR would require each public utility that owns, operates, or controls interstate transmission facilities to become an Independent Transmission Provider (ITP), belong to an RTO that is an ITP, or contract with an ITP for operation of its transmission assets. It would also establish a standardized congestion management system, real-time and day-ahead energy markets, and a single transmission service for network and point-to-point transmission customers. Review of the proposed rulemaking is underway and a final rule is expected during 2003.  While it is expected that the SMD final rule will affect LG&E revenues and expenses, the specific impact of the rulemaking is not known at this time.

MISO

LG&E is a member of the MISO, which began commercial operations on February 1, 2002.  MISO now has operational control over LG&E’s high-voltage transmission facilities (100 kV and greater), while LG&E continues to control and operate the lower voltage transmission subject to the terms and conditions of the MISO OATT.  As a transmission-owning member of MISO, LG&E also incurs administrative costs of MISO pursuant to Schedule 10 of the MISO OATT.

MISO also proposed to implement a congestion management system.  FERC directed the MISO to coordinate its efforts with FERC’s Rulemaking on SMD. On September 24, 2002, the MISO filed new rate schedules designated as Schedules 16 and 17, which provide for the collection of costs incurred by the MISO to establish day-ahead and real-time energy markets. The MISO proposed to recover these costs under Schedules 16 and 17 once service commences. If approved by FERC, these schedules will cause LG&E to incur additional costs.  LG&E opposes the establishment of Schedules 16 and 17.  This effort is still on-going and the ultimate impact of the two schedules, if approved, is not known at this time.

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Merger Surcredit

As part of the LG&E Energy merger with KU Energy in 1998, 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 was deferred and 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 approving the merger, the Kentucky Commission adopted LG&E’s proposal to reduce its retail customers’ bills based on one-half of the estimated merger-related savings, net of deferred and amortized amounts, over a five-year period.  The surcredit mechanism provides that 50% of the net non-fuel cost savings estimated to be achieved from the merger be provided to ratepayers through a monthly bill credit, and 50% be retained by the Companies, over a five-year period.  The surcredit was allocated 53% to KU and 47% to LG&E.  In that same order, the Commission required LG&E and KU, after the end of the five-year period, to present a plan for sharing with customers the then-projected non-fuel savings associated with the merger.  The Companies submitted this filing on January 13, 2003, proposing to continue to share with customers, on a 50%/50% basis, the estimated fifth-year gross level of non-fuel savings associated with the merger.  The filing is currently under review.

Any fuel cost savings are passed to Kentucky customers through the fuel adjustment clause.  See FAC above.

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 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

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in late 2000 and continuing through the final compliance date.  LG&E estimates that it will incur total capital costs of approximately $178 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, 2002 and 2001.

See Note 11 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, 2002, deferred tax assets totaled $98.2 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 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 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.

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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 have been taken to date by the legislature.

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.

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 2002, 2001, and 2000 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 materially vary.  Factors that could cause actual results to materially differ 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; actions by credit rating agencies; and other factors described from time to time in KU’s reports to the SEC, including Exhibit No. 99.01 to this report on Form 10-K.

MERGERS and ACQUISITIONS

On December 11, 2000, LG&E Energy was acquired by Powergen 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, Virginia and Tennessee  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

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regulation under PUHCA.  See “Rates and Regulation” under Item 1.

On July 1, 2002, E.ON, a German company, completed its acquisition of Powergen plc (now Powergen Limited).  As a result, LG&E and KU became indirect subsidiaries of E.ON.  E.ON had announced its pre-conditional cash offer of £5.1 billion ($7.3 billion) for Powergen on April 9, 2001.  Following the acquisition, E.ON became a registered holding company under PUHCA.

As contemplated in their regulatory filings in connection with the E.ON acquisition, E.ON, Powergen and LG&E Energy completed an administrative reorganization to move the LG&E Energy group from an indirect Powergen subsidiary to an indirect E.ON subsidiary.   This reorganization was effective in March 2003.

RESULTS OF OPERATIONS

Net Income

KU’s net income in 2002 decreased $3.0 million compared to 2001.  The decrease resulted primarily from higher transmission operating expenses, an increase in amortization of regulatory assets, and increased property insurance, partially offset by an increase in sales to retail customers and lower interest expenses.

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.

Revenues

A comparison of operating revenues for the years 2002 and 2001, excluding the provision for rate collections (refunds), 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	2002			2001
Retail sales:
Fuel clause adjustments	$	18,223		$	10,220
KU/LG&E Merger surcredit	(2,641		)	(3,856		)
Environmental cost recovery surcharge	3,781			1,458
Demand side management	1,570			—
Performance based rate	—			1,747
Electric rate reduction	—			(5,395		)
VDT surcredit	(527		)	(372		)
Variation in sales volumes, and other	46,601			(1,627		)
Total retail sales	67,007			2,175
Wholesale sales	(59,373		)	5,108
Other	7,132			1,202
Total	$	14,766		$	8,485

Electric revenues increased in 2002 primarily due to an increase in retail sales due to warmer weather and an increase in the recovery of fuel costs passed through the FAC. Cooling degree days for 2002 increased 26% over 2001. The increase in retail sales was partially offset by a decrease in wholesale sales volumes. The

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decrease in wholesale sales was due in large part to fewer megawatts available due to increased retail sales.  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.

Expenses

Fuel for electric generation comprises a large component of KU’s total operating expenses.  KU’s Kentucky jurisdictional electric rates are subject to a FAC whereby increases or decreases are reflected in the FAC factor, subject to the approval of the Kentucky Commission.   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 FERC and the Virginia Commission, respectively.

Fuel for electric generation increased $13.1 million (5.5%) in 2002 because of an increase in the cost of coal burned ($29.7 million), partially offset by a decrease in generation ($16.5 million). 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).  The average delivered cost per ton of coal purchased was $31.44 in 2002, $27.84 in 2001 and  $25.63 in 2000.

Power purchased expense in 2002 increased slightly over 2001, $.8 million (.5%) primarily due to an increase in purchases to meet requirements for native load and off-system sales partially offset by a decrease in purchase price.  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.

Other operation expenses increased $25.8 million (21.8%) in 2002. The primary cause for the increase was the full year amortization in 2002 of a regulatory asset created as a result of the workforce reduction associated with KU’s VDT of $6.5 million, higher costs for electric transmission primarily resulting from increased MISO costs of $7.4 million, an increase in property insurance costs of $2.8 million, an increase in employee benefit costs due to changes in pension assumptions to reflect current market conditions and changes in market value of plan assets at the measurement date of $1.7 million, and an increase in outside services of $4.9 million.   Other operation expenses increased $10.3 million (9.5%) in 2001. The primary cause for the increase was the amortization of a regulatory asset as a result of the workforce reduction associated with KU’s VDT of $5.0 million and an increase in pension expense of $5.5 million.

Maintenance expenses increased $5.9 million (10.3%) in 2002 primarily due to increases in steam maintenance of $6.1 million related to annual outages at the Ghent, Green River, and Tyrone steam facilities.  Maintenance expenses for 2001 decreased $4.6 million (7.5%) primarily due to decreased repairs to steam facilities ($6.5 million).

Depreciation and amortization increased $5.2 million (5.7%) in 2002 primarily due to an increase in plant in service.  Depreciation and amortization decreased $8.0 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.

Variations in income tax expense are largely attributable to changes in pre-tax income.  The 2002 effective income tax rate decreased to 34.9% from the 35.9% rate in 2001. See Note 7 of KU’s Notes to Financial Statements under Item 8.

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Property and other taxes increased $1.1 million (7.6%) in 2002 due to higher property taxes and payroll taxes. 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.

Other income-net increased $1.5 million (16.8%) in 2002 primarily due to a non-recurring increase in earnings from KU’s equity earnings in a minority interest of  $5.2 million, partially offset by a gain on disposition of property in 2001,  $1.8 million, lower interest and dividend income from investments, $0.7 million, and higher benefit and other costs, $1.4 million.  The increased equity earnings in 2002 are due to the gain on the sale of emissions allowances. Other income-net increased $2.1 million (30.5%) in 2001 due to an increase in the gain on sale of assets.

Interest charges decreased $8.3 million (24.5%) in 2002 as compared to 2001 due to lower interest rates on variable rate debt and refinancing of long term debt with lower interest rates, $8.0 million. Interest charges decreased $5.4 million (13.7%) in 2001 from 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.

KU’s weighted average cost of long-term debt, including amortization of debt expense and interest rate swaps, was 3.30% at December 31, 2002 compared to 4.91% at December 31, 2001.  See Note 9 of KU’s Notes to Financial Statements under Item 8.

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/ESTIMATES

Preparation of financial statements and related disclosures in compliance with generally accepted accounting principles 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 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.  Specific risks for these critical accounting policies are described in the following paragraphs.  Each of these has a higher likelihood of resulting in materially different reported amounts under different conditions or using different assumptions.  Events rarely develop exactly as forecast and the best estimates routinely require adjustment.  See also Note 1 of KU’s Notes to Financial Statements under Item 8.

Unbilled Revenue – At each month end KU prepares a financial estimate that projects electric usage that has been used by customers, but not billed.  The estimated usage is based on known weather and days not billed.  At December 31, 2002, a 10% change in these estimated quantities would cause revenue and accounts receivable to change by approximately $4.2 million.  See also Note 1 of KU’s Notes to Financial Statements under Item 8.

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Benefit Plan Accounting - Judgments and uncertainties in benefit plan accounting include future rate of returns on pension plan assets, interest rates used in valuing benefit obligation, healthcare cost trend rates and other actuarial assumptions.

KU’s costs of providing defined-benefit pension retirement plans is dependent upon a number of factors, such as the rates of return on plan assets, discount rate, and contributions made to the plan.  The market value of KU plan assets has been affected by declines in the equity market since the beginning of the fiscal year.  As a result, at December 31, 2002, KU was required to recognize an additional minimum liability as prescribed by SFAS No. 87 Employers’ Accounting for Pensions.  The liability was recorded as a reduction to other comprehensive income, and did not affect net income for 2002.  The amount of the liability depended upon the asset returns experienced in 2002 and contributions made by KU to the plan during 2002.  Also, pension cost and cash contributions to the plan could increase in future years without a substantial recovery in the equity market.  If the fair value of the plan assets exceeds the accumulated benefit obligation, the recorded liability will be reduced and other comprehensive income will be restored in the consolidated balance sheet.

The combination of poor market performance and a decrease in short-term corporate bond interest rates has created a divergence in the potential value of the pension liability and the actual value of the pension assets.  These conditions could result in an increase in KU’s funded accumulated benefit obligation and future pension expense.  The primary assumptions that drive the value of the unfunded accumulated benefit obligation are the discount rate and expected return on plan assets.

KU made a contribution to the pension plan of $3.5 million in January 2003.

A 1% increase or decrease in the assumed discount rate could have an approximate $26.0 million positive or negative impact to the accumulated benefit obligation of KU.

See also Note 6 of KU’s Notes to Financial Statements under Item 8.

Regulatory Mechanisms – Judgments and uncertainties include future regulatory decisions, the impact of deregulation and competition on the ratemaking process and external regulator decisions.

Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery in customer rates based upon Kentucky Commission orders.  Regulatory liabilities generally represent obligations to make refunds to customers for previous collections based upon orders by the Kentucky Commission.  Management believes, based on orders, the existing regulatory assets and liabilities are probable of recovery.   This determination reflects the current regulatory climate in the state.  If future recovery of costs ceases to be probable the assets would be required to be recognized in current period earnings.

KU has accrued in the financial statements, an estimate of $13.5 million for 2002 ESM, with collection from customers commencing in April 2003.  The ESM is subject to Kentucky Commission approval.

See also Note 3 of KU’s Notes to Financial Statements under Item 8.

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NEW ACCOUNTING PRONOUNCEMENTS

The following accounting pronouncements were issued that affected KU in 2002:

SFAS No. 143, Accounting for Asset Retirement Obligations 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.

The effective implementation date for SFAS No. 143 is January 1, 2003.  Management has calculated the impact of SFAS No. 143 and the recently released FERC NOPR No. RM02-7, Accounting, Financial Reporting, and Rate Filing Requirements for Asset Retirement Obligations.  As of January 1, 2003, KU recorded asset retirement obligation (ARO) assets in the amount of $8.6 million and liabilities in the amount of $18.5 million. KU also recorded a cumulative effect adjustment in the amount of $9.9 million to reflect the accumulated depreciation and accretion of ARO assets at the transition date less amounts previously accrued under regulatory depreciation.  KU recorded offsetting regulatory assets of $9.9 million, pursuant to regulatory treatment prescribed under SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.  Also pursuant to SFAS No. 71, KU recorded regulatory liabilities in the amount of $888,000 offsetting removal costs previously accrued under regulatory accounting in excess of amounts allowed under SFAS No. 143.

KU also expects to record ARO accretion expense of approximately $1.2 million, ARO depreciation expense of approximately $176,000 and an offsetting regulatory credit in the income statement of approximately $1.4 million in 2003, pursuant to regulatory treatment prescribed under SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.  The accretion, depreciation and regulatory credit will be annual adjustments.  SFAS No. 143 will have no impact on the results of the operation of KU.

KU’s asset retirement obligations are primarily related to the final retirement of generating units.  KU transmission and distribution lines largely operate under perpetual property easement agreements which do not generally require restoration upon removal of the property.  Therefore, under SFAS No. 143, no material asset retirement obligations will be recorded for transmission and distribution assets.

KU adopted EITF No. 98-10, Accounting for Energy Trading and Risk Management Activities, effective January 1, 1999.  This pronouncement required that energy trading contracts be marked to market on the balance sheet, with the gains and losses shown net in the income statement.  In October 2002, the Emerging Issues Task Force reached a consensus to rescind EITF 98-10.  The effective date for the full rescission is for fiscal periods beginning after December 15, 2002.  With the rescission of EITF No. 98-10, energy trading contracts that do not also meet the definition of a derivative under SFAS No. 133 must be accounted for as executory contracts.  Contracts previously recorded at fair value under EITF No. 98-10 that are not also derivatives under SFAS No. 133 must be restated to historical cost through a cumulative effect adjustment.  KU does not expect the rescission of this standard to have a material impact on financial position or results of operations.

In January 2003, the Financial Accounting Standards Board issued Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46).  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003.  KU

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does not expect the adoption of this standard to have any impact on the financial position or results of operations.

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 $175.8 million, $188.1 million and $176.3 million in 2002, 2001 and 2000, respectively.  The 2002 decrease from 2001 of $12.3 million was primarily the result of a decrease in accrued taxes and changes in accounts receivable. 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 for a discussion of accounts receivable securitization.

Investing Activities

KU’s primary use of funds for investing activities continues to be for capital expenditures.  Capital expenditures were $237.9 million, $142.4 million and $100.3 million in 2002, 2001 and 2000, respectively.  KU expects its capital expenditures for 2003 and 2004 will total approximately $550.0 million, which consists primarily of construction costs associated with installation of NOx equipment as described in the section titled “Environmental Matters,” purchase of jointly owned CTs with LG&E and on going construction for the distribution system.

Net cash used for investment activities increased $99.0 million in 2002 compared to 2001 and $38.6 million in 2001 compared to 2000 primarily due to the level of construction expenditures.  NOx expenditures increased $50.6 million and CT expenditures increased $27.0 million in 2002.

Financing Activities

Net cash inflows from financing activities were $64.2 million in 2002 and outflows of $46.2 million and $82.4 million in 2001 and 2000, respectively.  In 2002, short-term debt increased $72.0 million from 2001.  In 2001, short-term debt decreased $13.4 million from 2000 and KU paid $32.8 million in dividends.

In May 2002, KU issued $37.93 million variable rate pollution control Series 12, 13, 14 and 15 due February 1, 2032, and exercised its call option on $37.93 million, 6.25% pollution control Series 1B, 2B, 3B, and 4B due February 1, 2018.

In September 2002, KU issued $96 million variable rate pollution control Series 16 due October 1, 2032, and exercised its call option on $96 million, 7.45% pollution control Series 8 due September 15, 2016.

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

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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 its parent.

KU’s debt ratings as of December 31, 2002, were:

	Moody’s	S&P	Fitch
First mortgage bonds	A1	A	A+
Preferred stock	Baa1	BBB	A-
Commercial paper	P-1	A-2	F-1

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, 2002 (in thousands of $):

	Payments Due by Period
Contractual cash Obligations	2003		2004- 2005		2006- 2007		After 2007		Total
Short-term debt(a)	$	119,490	$	—	$	—	$	—	$	119,490
Long-term debt(b)	153,930		—		89,000		257,562		500,492
Unconditional purchase obligations(c)	34,317		79,306		79,878		643,946		837,447
Other long-term obligations(d)	128,199		201,249		—		—		329,448
Total contractual cash obligations(e)	$	435,936	$	280,555	$	168,878	$	901,508	$	1,786,877

(a)Represents borrowings from parent company due within one year.

(b)Includes long-term debt of $91.9 million is classified as a current liability because 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.  Maturity dates for the bonds range from 2024 to 2032.

(c)Represents future minimum payments under purchased power agreements through 2020.

(d)Represents construction commitments.

(e)KU does not expect to pay the $91.9 million of long-term debt classified as a current liability in the consolidated balance sheets in 2003 as explained in (b) above.  KU anticipates cash from operations and external financing will be sufficient to fund future obligations.  KU anticipates refinancing a portion of its short-term debt with long-term debt in 2003.

Market Risks

KU is exposed to market risks from changes in interest rates and commodity prices.  To mitigate changes in

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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, 2002, the potential change in interest expense associated with a 1% change in base interest rates of KU’s variable rate debt is estimated at $5.2 million after impact of interest rate swaps.

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, 2002, KU has swaps with a combined notional value of $153 million.  The swaps exchange fixed-rate interest payments for floating rate interest payments on KU’s Series P, R, and PCS-9 Bonds.  The potential loss in fair value resulting from a hypothetical 1% adverse movement in base interest rates is estimated at $6.9 million as of December 31, 2002.  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.

Commodity Price Sensitivity

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

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 rescission of EITF 98-10, effective for fiscal years ending after December 15, 2002, will have no impact on KU’s energy trading and risk management reporting as all contracts marked to market under EITF 98-10 are also within the scope of SFAS No. 133.

The table below summarizes KU’s energy trading and risk management activities for 2002 and 2001(in thousands of $).

	2002			2001
Fair value of contracts at beginning of period, net liability	$	(186	)	$	(17	)
Fair value of contracts when entered into during the period	(65		)	3,441
Contracts realized or otherwise settled during the period	448			(2,894		)
Changes in fair values due to changes in assumptions	(353		)	(716		)
Fair value of contracts at end of period, net liability	$	(156	)	$	(186	)

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No changes to valuation techniques for energy trading and risk management activities occurred during 2002.  Changes in market pricing, interest rate and volatility assumptions were made during both years. All contracts outstanding at December 31, 2002 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.  At December 31, 2002, 86% of the trading and risk management commitments were with counterparties rated BBB- equivalent or better.

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 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, 2002, the outstanding program balance was $49.3 million.  KU is considering unwinding the accounts receivable securitization arrangements involving KU R during 2003.

The allowance for doubtful accounts associated with the eligible securitized receivables was $520,000 at December 31, 2002.  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 Powergen by E.ON, E.ON became a registered holding company under PUHCA.  As a result, E.ON, 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.  KU believes that it has

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adequate authority (including financing authority) under existing SEC orders and regulations to conduct its business.  KU 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 - VDT 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 approximately 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 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 2001 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 of the regulatory asset 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 VDT. 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 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. Approval of KU’s application in April 2001, 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.

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In August 2002, KU filed an application with the Kentucky Commission to amend its compliance plan to allow recovery of the cost of a new and additional environmental compliance facility.  The estimated capital cost of the additional facilities is $17.3 million.  The Kentucky Commission conducted a public hearing on the case on December 20, 2002, final briefs were filed on January 15, 2003, and a final order was issued February 11, 2003.  The final order approved recovery of the new environmental compliance facility totaling $17.3 million.  Cost recovery through the environmental surcharge of the approved project will begin with bills rendered in April 2003.

ESM

KU’s electric rates are subject to an ESM.  The ESM, initially 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, the excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, the earnings deficiency is recovered 40% from ratepayers and 60% from shareholders.  By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year subject to a balancing adjustment in successive periods.  KU made its second ESM filing on March 1, 2002 for the calendar year 2001 reporting period.  KU is in the process of refunding $1 million to customers for the 2001 reporting period.  KU estimated that the rate of return will fall below the lower limit, subject to Kentucky Commission approval, for the year ended December 31, 2002. The 2002 financial statements include an accrual to reflect the earnings deficiency of $13.5 million to be recovered from customers commencing in April 2003.

On November 27, 2002, KU filed a revised ESM tariff which proposed continuance of the existing ESM through December 2005.  The Kentucky Commission issued an Order suspending the ESM tariff one day making the effective date January 2, 2003.  In addition, the Kentucky Commission is conducting a management audit to review the ESM plan and reassess its reasonableness in 2003.  KU and interested parties will have the opportunity to provide recommendations for modification and continuance of the ESM or other forms of alternative or incentive regulation.

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 included a rate mechanism that provided for concurrent recovery of DSM costs, provided an incentive for implementing DSM programs, and recovered revenues from lost sales associated with the DSM program based on program planning engineering estimates and post-implementation evaluations.

FAC

KU employs an FAC mechanism, which allows KU 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.  In August 1999, after a rehearing request by KU, the Kentucky Commission issued a final order that reduced the refund obligation to $ 6.7 million ($5.8 million on Kentucky jurisdictional basis) from the original order amount of $10.1 million.  KU implemented the refund from October 1999 through September 2000.  Both KU and the KIUC appealed the order.   Pending a decision on this appeal, a comprehensive settlement was reached by all parties and approved by the Kentucky Commission on May 17, 2002.  Thereunder, KU agreed to credit

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its fuel clause in the amount of $954,000 (refund made in June and July 2002), 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.

In December 2002, the Kentucky Commission initiated a two year review of the operation of KU’s fuel adjustment clause for the period November 2000 through October 2002.  Testimony in the review case was filed on January 20, 2003 and a public hearing was held February 18, 2003.  Issues addressed at that time included the establishment of the current base fuel factor to be included in KU’s base rates, verification of proper treatment of purchased power costs during unit outages, and compliance with fuel procurement policies and practices.

In January 2003, the Kentucky Commission reviewed the FAC of KU for the six month period ended October 31, 2001. The Kentucky Commission ordered KU to reduce its fuel costs for purposes of calculating its FAC by $673,000. At issue was the purchase of approximately 102,000 tons of coal from Western Kentucky Energy Corporation, a non-regulated affiliate, for use at KU’s Ghent Facility. The Kentucky Commission further ordered that an independent audit be conducted to examine operational and management aspects of KU’s fuel procurement functions.

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 utility’s 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 Kentucky 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

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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 and in October 2001, KU filed a final brief in the case.  In December 2001, the Kentucky Commission issued an order in which it 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 Kentucky 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.

FERC SMD NOPR

On July 31, 2002, the FERC issued a NOPR in Docket No. RM01-12-000 which would substantially alter the regulations governing the nation’s wholesale electricity markets by establishing a common set of rules — SMD. The SMD NOPR would require each public utility that owns, operates, or controls interstate transmission facilities to become an Independent Transmission Provider (ITP), belong to an RTO that is an ITP, or contract with an ITP for operation of its transmission assets. It would also establish a standardized congestion management system, real-time and day-ahead energy markets, and a single transmission service for network and point-to-point transmission customers. Review of the proposed rulemaking is underway and a final rule is expected during 2003.  While it is expected that the SMD final rule will affect KU revenues and expenses, the specific impact of the rulemaking is not known at this time.

MISO

KU is a member of the MISO, which began commercial operations on February 1, 2002.  MISO now has operational control over KU’s high-voltage transmission facilities (100 kV and greater), while KU continues to control and operate the lower voltage transmission subject to the terms and conditions of the MISO OATT.  As a transmission-owning member of MISO, KU also incurs administrative costs of MISO pursuant to Schedule 10 of the MISO OATT.

MISO also proposed to implement a congestion management system.  FERC directed the MISO to coordinate its efforts with FERC’s Rulemaking on SMD. On September 24, 2002, the MISO filed new rate schedules designated as Schedules 16 and 17, which provide for the collection of costs incurred by the MISO to establish day-ahead and real-time energy markets. The MISO proposed to recover these costs under Schedules 16 and 17 once service commences. If approved by FERC, these schedules will cause KU to incur additional costs.  KU opposes the establishment of Schedules 16 and 17.  This effort is still on-going and the ultimate impact of the two schedules, if approved, is not known at this time.

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Merger Surcredit

As part of the LG&E Energy merger with KU Energy in 1998, 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 was deferred and 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) in the second quarter of 1998.

In approving the merger, the Kentucky Commission adopted KU’s proposal to reduce its retail customers’ bills based on one-half of the estimated merger-related savings, net of deferred and amortized amounts, over a five-year period.  The surcredit mechanism provides that 50% of the net non-fuel cost savings estimated to be achieved from the merger be provided to ratepayers through a monthly bill credit, and 50% be retained by the Companies, over a five-year period.  The surcredit was allocated 53% to KU and 47% to LG&E.  In that same order, the Commission required LG&E and KU, after the end of the five-year period, to present a plan for sharing with customers the then-projected non-fuel savings associated with the merger.  The Companies submitted this filing on January 13, 2003, proposing to continue to share with customers, on a 50%/50% basis, the estimated fifth-year gross level of non-fuel savings associated with the merger.  The filing is currently under review.

Any fuel cost savings are passed to Kentucky customers through the fuel adjustment clause.  See FAC above.

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 of revising its 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

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of approximately $232 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.  In December 2002, the Department of Justice (DOJ) sent correspondence to KU regarding a potential per-day fine for failure to timely submit a spill control plan and a per-gallon fine for the amount of oil discharged.  KU and the DOJ have commenced settlement discussions using existing DOJ settlement guidelines on this matter.

In April 2002, the EPA sent correspondence to KU regarding potential exposure in connection with $1.5 million in completed remediation costs associated with a transformer scrap-yard.  KU believes it is one of the more remote among a number of potentially responsible parties and has entered into settlement discussions with the EPA on this matter.

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, 2002, deferred tax assets totaled $61 million  and were principally related to expenses attributable to KU’s pension plans and post retirement benefit obligations.

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FUTURE OUTLOOK

Competition and Customer Choice

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

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 have been taken to date by the legislature.

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.

Virginia has enacted a phase-in of customer choice through 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 was granted a waiver from the Virginia Commission on October 29, 2002, exempting KU from retail choice through December 31, 2004.  KU is also seeking a permanent legislative exemption to the Virginia Electric Restructuring Act.  The outcome of such legislative initiatives will not be known until mid-2003.

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.

ITEM 8. Financial Statements and Supplementary Data.

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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
E.ON	E.ON AG
EPA	U.S. Environmental Protection Agency
ESM	Earnings Sharing Mechanism
F	Fahrenheit
FAC	Fuel Adjustment Clause
FERC	Federal Energy Regulatory Commission
FPA	Federal Power Act
FT and FT-A	Firm Transportation
GSC	Gas Supply Clause
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
kV	Kilovolts
Kva	Kilovolt-ampere
KW	Kilowatts
Kwh	Kilowatt hours
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
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
NOPR	Notice of Proposed Rulemaking
NOx	Nitrogen Oxide
OATT	Open Access Transmission Tariff
OMU	Owensboro Municipal Utilities
OVEC	Ohio Valley Electric Corporation
PBR	Performance-Based Ratemaking
PJM	Pennsylvania, New Jersey, Maryland Interconnection
Powergen	Powergen Limited (formerly Powergen plc)
PUHCA	Public Utility Holding Company Act of 1935
ROE	Return on Equity
RTO	Regional Transmission Organization
S&P	Standard & Poor’s Rating Services
SCR	Selective Catalytic Reduction

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SEC	Securities and Exchange Commission
SERP	Supplemental Employee Retirement Plan
SFAS	Statement of Financial Accounting Standards
SIP	State Implementation Plan
SMD	Standard Market Design
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 State Corporation Commission Staff

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

	Years Ended December 31
	2002		2001			2000
OPERATING REVENUES:
Electric	$	746,224	$	706,645		$	713,458
Gas	267,693		290,775			272,489
Provision for rate collections (refunds) (Note 3)	12,267		(720		)	(2,500		)
Total operating revenues (Note 1)	1,026,184		996,700			983,447
OPERATING EXPENSES:
Fuel for electric generation	194,900		159,231			159,418
Power purchased	84,330		81,475			96,894
Gas supply expenses	182,108		206,165			196,912
Other operation expenses	208,322		167,818			135,943
Maintenance	60,210		58,687			63,709
Depreciation and amortization (Note 1)	105,906		100,356			98,291
Federal and state income taxes (Note 7)	55,035		63,452			64,425
Property and other taxes	17,459		17,743			18,985
Total operating expenses	908,270		854,927			834,577
Net operating income	117,914		141,773			148,870
Other income - net (Note 8)	820		2,930			4,921
Interest charges	29,805		37,922			43,218
Net income	88,929		106,781			110,573
Preferred stock dividends	4,246		4,739			5,210
Net income available for common stock	$	84,683	$	102,042		$	105,363

Consolidated Statements of Retained Earnings

(Thousands of $)

	Years Ended December 31
	2002		2001		2000
Balance January 1	$	393,636	$	314,594	$	259,231
Add net income	88,929		106,781		110,573
	482,565		421,375		369,804
Deduct:  Cash dividends declared on stock:
5% cumulative preferred	1,075		1,075		1,075
Auction rate cumulative preferred	1,702		2,195		2,666
$5.875 cumulative preferred	1,469		1,469		1,469
Common	69,000		23,000		50,000
	73,246		27,739		55,210
Balance December 31	$	409,319	$	393,636	$	314,594

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
	2002			2001			2000
Net income	$	88,929		$	106,781		$	110,573
Cumulative effect of change in accounting principle – Accounting for derivative instruments and hedging activities	—			(5,998		)	—
Losses on derivative instruments and hedging activities (Note 1)	(8,511		)	(2,606		)	—
Additional minimum pension liability adjustment (Note 6)	(25,999		)	(24,712		)	—
Income tax benefit related to items of other comprehensive income	13,898			13,416			—
Other comprehensive loss, net of tax	(20,612		)	(19,900		)	—
Comprehensive income	$	68,317		$	86,881		$	110,573

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
	2002		2001
ASSETS:
Utility plant, at original cost (Note 1):
Electric	$	2,717,187	$	2,598,152
Gas	435,235		409,994
Common	169,577		159,817
	3,321,999		3,167,963
Less:  reserve for depreciation	1,463,674		1,381,874
	1,858,325		1,786,089
Construction work in progress	300,986		255,074
	2,159,311		2,041,163
Other property and investments – less reserve of $63 in 2002 and 2001	764		1,176
Current assets:
Cash	17,015		2,112
Accounts receivable - less reserve of $2,125 in 2002 and $1,575 in 2001	68,440		85,667
Materials and supplies - at average cost:
Fuel (predominantly coal) (Note 1)	36,600		22,024
Gas stored underground (Note 1)	50,266		46,395
Other	25,651		29,050
Prepayments and other	5,298		4,688
	203,270		189,936
Deferred debits and other assets:
Unamortized debt expense (Note 1)	6,532		5,921
Regulatory assets (Note 3)	153,446		197,142
Other	37,755		13,016
	197,733		216,079
	$	2,561,078	$	2,448,354
CAPITAL AND LIABILITIES:
Capitalization (see statements of capitalization):
Common equity	$	833,141	$	838,070
Cumulative preferred stock	95,140		95,140
Long-term debt (Note 9)	328,104		370,704
	1,256,385		1,303,914
Current liabilities:
Current portion of long-term debt (Note 9)	288,800		246,200
Notes payable (Note 10)	193,053		94,197
Accounts payable	122,771		149,070
Accrued taxes	1,450		20,257
Other	19,536		18,658
	625,610		528,382
Deferred credits and other liabilities:
Accumulated deferred income taxes (Notes 1 and 7)	313,225		298,143
Investment tax credit, in process of amortization	54,536		58,689
Accumulated provision for pensions and related benefits (Note 6)	224,703		167,526
Regulatory liabilities (Note 3)	52,424		65,349
Other	34,195		26,351
	679,083		616,058
Commitments and contingencies (Note 11)
.	$	2,561,078	$	2,448,354

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
	2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	88,929		$	106,781		$	110,573
Items not requiring cash currently:
Depreciation and amortization	105,906			100,356			98,291
Deferred income taxes - net	11,915			3,021			31,020
Investment tax credit - net	(4,153		)	(4,290		)	(4,274		)
Other	37,260			(528		)	8,481
Change in certain net current assets:
Accounts receivable	(3,973		)	43,185			(56,993		)
Materials and supplies	(15,048		)	(2,018		)	(4,311		)
Accounts payable	(26,299		)	14,678			21,384
Accrued taxes	(18,807		)	12,184			(15,686		)
Prepayments and other	321			(10,500		)	(7,816		)
Sale of accounts receivable (Note 1)	21,200			42,000			—
Other	15,130			(17,806		)	(24,431		)
Net cash flows from operating activities	212,381			287,063			156,238
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities	—			—			(708		)
Proceeds from sales of securities	412			4,237			4,089
Construction expenditures	(220,416		)	(252,958		)	(144,216		)
Net cash flows from investing activities	(220,004		)	(248,721		)	(140,835		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings and repayments	98,856			(20,392		)	(5,508		)
Issuance of pollution control bonds	158,635			9,662			106,545
Retirement of first mortgage bonds and pollution control bonds	(161,665		)	—			(130,627		)
Additional paid-in capital	—			—			40,000
Payment of dividends	(73,300		)	(27,995		)	(78,079		)
Net cash flows from financing activities	22,526			(38,725		)	(67,669		)
Change in cash and temporary cash investments	14,903			(383		)	(52,266		)
Cash and temporary cash investments at beginning of year	2,112			2,495			54,761
Cash and temporary cash investments at end of year	$	17,015		$	2,112		$	2,495
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes	$	51,540		$	35,546		$	46,562
Interest on borrowed money	25,673			30,989			42,958

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
	2002			2001
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	(40,512		)	(19,900		)
Retained earnings	409,319			393,636
	833,141			838,070

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	101.18		25,000			25,000
Preferred stock expense				(1,367		)	(1,367		)
				95,140			95,140
LONG-TERM DEBT (Note 9):
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
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, 5.625%				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			10,104
BB due September 1, 2026, variable%				22,500			—
CC due September 1, 2026, variable%				27,500			—
DD due November 1, 2027, variable%				35,000			—
EE due November 1, 2027, variable%				35,000			—
FF due October 1, 2032, variable%				41,665			—
Total first mortgage bonds				616,904			496,904
Pollution control bonds (unsecured) - Series due September 1, 2026, variable%				—			22,500
Series due September 1, 2026, variable%				—			27,500
Series due November 1, 2027, variable%				—			35,000
Series due November 1, 2027, variable%				—			35,000
Total unsecured pollution control bonds				—			120,000
Total bonds outstanding				616,904			616,904
Less current portion of long-term debt				288,800			246,200
Long-term debt				328,104			370,704
Total capitalization				$	1,256,385		$	1,303,914

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 and E.ON, 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 R.

On December 11, 2000, LG&E Energy was acquired by Powergen.   On July 1, 2002, E.ON, a German company, completed its acquisition of Powergen plc (now Powergen Limited).  E.ON had announced its pre-conditional cash offer of £5.1 billion ($7.3 billion) for Powergen on April 9, 2001.  E.ON and Powergen are registered public utility holding companies under PUHCA.  No costs associated with these acquisitions 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 previous year’s financial statements to conform to the 2002 presentation with no impact on the balance sheet totals or previously reported income.

Utility Plant.  LG&E’s utility plant is stated at original cost, which includes payroll-related costs such as taxes, fringe benefits, and administrative and general costs.  Construction work in progress has been 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 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, LG&E implemented new depreciation rates effective January 1, 2001.  The amounts provided were approximately 3.1% in 2002 (2.9% electric, 2.8% gas and 6.6% common); 3.0% for 2001 (2.9% electric, 2.9% gas and 5.7% common); and 3.6% for 2000 (3.3% electric, 3.8% gas and 7.3% common), of average depreciable plant.  Of the amount provided for depreciation, at December 31, 2002, 2001 and 2000, respectively, approximately 0.4 % electric, 0.9 % gas and 0.04% common were related to the retirement, removal and disposal costs of long lived assets.

Fuel Inventory.  Fuel inventories of $36.6 million and $22.0 million at December 31, 2002, and 2001, respectively, are included in Fuel in the balance sheet.  The inventory is accounted for using the average-cost method.

Gas Stored Underground.  Gas inventories of $50.3 million and $46.4 million at December 31, 2002, and 2001, 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.

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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.

Unamortized 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 are recognized at currently enacted tax rates for all material  temporary differences between the financial reporting and income tax basis of assets and liabilities.

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 were approximately $40.7 million and $37.3 million, at December 31, 2002 and 2001, respectively.  See Note 3, Rates and Regulatory Matters.  LG&E recorded electric revenues that resulted from sales to a related party, KU, of $46.5 million, $28.5 million and $20.9 million for years ended December 31, 2002, 2001 and 2000, 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 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 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 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 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. 

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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 its 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, 2002, the outstanding program balance was $63.2 million.  LG&E is considering unwinding its accounts receivable securitization arrangements involving LG&E R during 2003.

The allowance for doubtful accounts associated with the eligible securitized receivables was $2.125 million at December 31, 2002.  This allowance is based on historical experience of LG&E. Each securitization facility contains a fully funded reserve for uncollectible receivables.

New Accounting Pronouncements.The following accounting pronouncements were issued that affected LG&E in 2002:

SFAS No. 143, Accounting for Asset Retirement Obligations 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.

The effective implementation date for SFAS No. 143 is January 1, 2003.  Management has calculated the impact of SFAS No. 143 and the recently released FERC NOPR No. RM02-7, Accounting, Financial Reporting, and Rate Filing Requirements for Asset Retirement Obligations.  As of January 1, 2003, LG&E recorded asset retirement obligation (ARO) assets in the amount of $4.6 million and liabilities in the amount of $9.3 million.  LG&E also recorded a cumulative effect adjustment in the amount of $5.3 million to reflect the accumulated depreciation and accretion of ARO assets at the transition date less amounts previously accrued under regulatory depreciation.  LG&E recorded offsetting regulatory assets of $5.3 million, pursuant to regulatory treatment prescribed under SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.  Also pursuant to SFAS No. 71, LG&E recorded regulatory liabilities in the amount of $60,000 offsetting removal costs previously accrued under regulatory accounting in excess of amounts allowed  under SFAS No. 143.

LG&E also expects to record ARO accretion expense of approximately $617,000, ARO depreciation expense of approximately $117,000 and an offsetting regulatory credit in the income statement of approximately $734,000 in 2003, pursuant to regulatory treatment prescribed under SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.  The accretion, depreciation and regulatory credit will be annual adjustments.  SFAS No. 143 will have no impact on the results of the operation of LG&E.

LG&E asset retirement obligations are primarily related to the final retirement of generating units.  LG&E transmission and distribution lines largely operate under perpetual property easement agreements which do not generally require restoration upon removal of the property.  Therefore, under SFAS No. 143, no material asset retirement obligations will be recorded for transmission and distribution assets.

LG&E adopted EITF No. 98-10, Accounting for Energy Trading and Risk Management Activities, effective January 1, 1999.  This pronouncement required that energy trading contracts be marked to market on the balance sheet, with the gains and losses shown net in the income statement.  In October 2002, the Emerging Issues Task Force reached a consensus to rescind EITF 98-10.  The effective date for the full rescission is for fiscal periods beginning after December 15, 2002.  With the recession of EITF No. 98-10, energy trading contracts that do not also meet the definition of a derivative under SFAS No. 133 must be accounted for as executory contracts.  Contracts previously recorded at fair value under EITF No. 98-10 that are not also

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derivatives under SFAS No. 133 must be restated to historical cost through a cumulative effect adjustment.  LG&E does not expect the rescission of this standard to have a material impact on financial position or results of operations.

In January 2003, the Financial Accounting Standards Board issued Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46).  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003.  LG&E does not expect the adoption of this standard to have any impact on the financial position or results of operations.

Note 2 – Mergers and Acquisitions

On July 1, 2002, E.ON completed its acquisition of Powergen, including LG&E Energy, for approximately £5.1 billion ($7.3 billion).  As a result of the acquisition, LG&E Energy became a wholly owned subsidiary (through Powergen) of E.ON and, as a result, LG&E also became an indirect subsidiary of E.ON.  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 the utilities continue to file SEC reports.  Following the acquisition, E.ON became, and Powergen remained, a registered holding company under PUHCA. LG&E, as a subsidiary of a registered holding company, is subject to additional regulations under PUHCA.  As contemplated in their regulatory filings in connection with the E.ON acquisition, E.ON, Powergen and LG&E Energy completed an administrative reorganization to move the LG&E Energy group from an indirect Powergen subsidiary to an indirect E.ON subsidiary.   This reorganization was effective in March 2003.

LG&E Energy and KU Energy merged on May 4, 1998, with LG&E Energy as the surviving corporation.  Management accounted for the merger as a pooling of interests and as a tax-free reorganization under the Internal Revenue Code.  Following the acquisition, LG&E has continued to maintain its separate corporate identity and serve customers in Kentucky under its present name.

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 following regulatory assets and liabilities were included in LG&E’s balance sheets

as of December 31 (in thousands of $):

	2002			2001
VDT Costs	$	98,044		$	127,529
Gas supply adjustments due from customers	13,714			30,135
Unamortized loss on bonds	18,843			17,902
ESM provision	12,500			—
LGE/KU merger costs	1,815			5,444
Manufactured gas sites	1,757			2,062
One utility costs	954			3,643
Other	5,819			10,427
Total regulatory assets	153,446			197,142
Deferred income taxes - net	(45,536		)	(48,703		)
Gas supply adjustments due to customers	(3,154		)	(15,702		)
Other	(3,734		)	(944		)
Total regulatory liabilities	(52,424		)	(65,349		)
Regulatory assets – net	$	101,022		$	131,793

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Kentucky Commission Settlement - VDT 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 approximately 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 a 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 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 2001 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.  LG&E Energy was purchased by Powergen on December 11, 2000.  Effective July 1, 2002, Powergen was acquired by E.ON, which became a registered holding company under PUHCA.  As a result, E.ON, 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.  LG&E believes that it has adequate authority (including financing authority) under existing SEC orders and regulations to conduct its business.  LG&E 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,

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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 ECR Tariff to include an overall rate of return on capital investments. Approval of LG&E’s application in April 2001 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.

In August 2002, LG&E filed an application with the Kentucky Commission to amend its compliance plan to allow recovery of the cost of new and additional environmental compliance facilities.  The estimated capital cost of the additional facilities is $71.1 million.  The Kentucky Commission conducted a public hearing on the case on December 20, 2002, final briefs were filed on January 15, 2003, and a final order was issued February 11, 2003.  The final order approved recovery of four new environmental compliance facilities totaling $43.1 million.  A fifth project, expansion of the land fill facility at the Mill Creek Station, was denied without prejudice with an invitation to reapply for recovery when required construction permits are approved.  Cost recovery through the environmental surcharge of the four approved projects will begin with the bills rendered in April 2003.

ESM. LG&E’s electric rates are subject to an ESM.  The ESM, initially 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, the excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, the earnings deficiency is recovered 40% from ratepayers and 60% from shareholders.  By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year subject to a balancing adjustment in successive periods.  LG&E made its second ESM filing on March 1, 2002 for the calendar year 2001 reporting period.  LG&E is in the process of refunding $441,000 to customers for the 2001 reporting period.  LG&E estimated that the rate of return will fall below the lower limit, subject to Kentucky Commission approval, for the year ended December 31, 2002.  The 2002 financial statements include an accrual to reflect the earnings deficiency of $12.5 million to be recovered from customers commencing in April 2003.

On November 27, 2002, LG&E filed a revised ESM tariff which proposed continuance of the existing ESM through December 2005.  The Kentucky Commission issued an Order suspending the ESM tariff one day making the effective date January 2, 2003.  In addition, the Kentucky Commission is conducting a management audit to review the ESM plan and reassess its reasonableness in 2003.  LG&E and interested parties will have the opportunity to provide recommendations for modification and continuance of the ESM or other forms of alternative or incentive regulation.

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 proposed 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 PBR mechanism related to its gas procurement activities.   For each of the last five years, LG&E’s rates have been adjusted to recover its portion of the savings (or expenses) incurred during each of the five 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 $38.1 million in savings. Of the total savings, LG&E has retained $16.5 million, and the remaining portion of $21.6 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

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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 savings 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 a 50%/50% level.

FAC.  Prior to implementation of the electric 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.  While legal challenges to the Kentucky Commission order were pending, a comprehensive settlement was reached by all parties and approved by the  Kentucky Commission on May 17, 2002.  Thereunder, LG&E agreed to credit its fuel clause in the amount of $720,000 (such credit provided over the course of June and July 2002), and the parties agreed on a prospective interpretation of the state’s FAC regulation to ensure consistent and mutually acceptable application on a going-forward basis.

In December 2002, the Kentucky Commission initiated a two year review of the operation of LG&E’s FAC for the period November 2000 through October 2002.  Testimony in the review case was filed on January 20, 2003 and a public hearing was held February 18, 2003.  Issues addressed at that time included the establishment of the current base fuel factor to be included in LG&E’s base rates, verification of proper treatment of purchased power costs during unit outages, and compliance with fuel procurement policies and practices.

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 base gas 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.

In April 2002, in Case No. 2002-00136, LG&E proposed a hedging plan for the 2002/2003 winter heating season with three alternatives, the first two using a combination of storage and financial hedge instruments and the third relying upon storage alone.  LG&E and the Attorney General, who represents Kentucky consumers, entered into a settlement which selected the third option.  In August 2002, the Kentucky Commission approved the plan contemplated in the settlement.  The Kentucky Commission validated the effectiveness of storage to

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mitigate potentially high winter gas prices by approving this natural gas hedging plan.

The Kentucky Commission also decided in Administrative Case No. 384 to engage a consultant to conduct a forward-looking audit of the gas procurement and supply procedures of Kentucky’s largest natural gas distribution companies.  The Kentucky Commission completed its audit in late 2002.  The audit recognized LG&E as “efficient and effective [in the] procurement and management of significant quantities of natural gas supplies.”  The auditors also recognized that “the Company’s residential gas prices have long been below averages for the U. S. and for the Commonwealth of Kentucky” which “demonstrates [LG&E’s] effectiveness in [the] procurement and management of natural gas supplies.”  The audit also stated that the “Company’s very impressive record in keeping its rates down provides sound evidence on the excellent job done in the area of gas supply procurement and management.”

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 utility’s 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 its intent to promulgate new administrative regulations under the auspices of this 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 citing 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 Kentucky 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 and in October 2001, LG&E filed a final brief in the case.  In December 2001, the Kentucky Commission issued an order in which it 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

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Kentucky 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.

FERC SMD NOPR.  On July 31, 2002, FERC issued a NOPR in Docket No. RM01-12-000 which would substantially alter the regulations governing the nation’s wholesale electricity markets by establishing a common set of rules — SMD. The SMD NOPR would require each public utility that owns, operates, or controls interstate transmission facilities to become an Independent Transmission Provider (ITP), belong to an RTO that is an ITP, or contract with an ITP for operation of its transmission assets. It would also establish a standardized congestion management system, real-time and day-ahead energy markets, and a single transmission service for network and point-to-point transmission customers. Review of the proposed rulemaking is underway and a final rule is expected during 2003.  While it is expected that the SMD final rule will affect LG&E revenues and expenses, the specific impact of the rulemaking is not known at this time.

MISO.  LG&E is a member of the MISO, which began commercial operations on February 1, 2002.  MISO now has operational control over LG&E’s high-voltage transmission facilities (100 kV and greater), while LG&E continues to control and operate the lower voltage transmission subject to the terms and conditions of the MISO OATT.  As a transmission-owning member of MISO, LG&E also incurs administrative costs of MISO pursuant to Schedule 10 of the MISO OATT.

MISO also proposed to implement a congestion management system.  FERC directed the MISO to coordinate its efforts with FERC’s Rulemaking on SMD. On September 24, 2002, the MISO filed new rate schedules designated as Schedules 16 and 17, which provide for the collection of costs incurred by the MISO to establish day-ahead and real-time energy markets. The MISO proposed to recover these costs under Schedules 16 and 17 once service commences. If approved by FERC, these schedules will cause LG&E to incur additional costs.  LG&E opposes the establishment of Schedules 16 and 17.  This effort is still on-going and the ultimate impact of the two schedules, if approved, is not known at this time.

ARO.  In 2003, LG&E expects to record approximately $6.0 million in regulatory assets and approximately $60,000 in regulatory liabilities related to SFAS No. 143, Accounting for Asset Retirement Obligations.

Merger Surcredit.  As part of the LG&E Energy merger with KU Energy in 1998, 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 was deferred and 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 approving the merger, the Kentucky Commission adopted LG&E’s proposal to reduce its retail customers’ bills based on one-half of the estimated merger-related savings, net of deferred and amortized amounts, over a five-year period.  The surcredit mechanism provides that 50% of the net non-fuel cost savings estimated to be achieved from the merger be provided to ratepayers through a monthly bill credit, and 50% be retained by the Companies, over a five-year period.  The surcredit was allocated 53% to KU and 47% to LG&E.  In that same order, the Commission required LG&E and KU, after the end of the five-year period, to present a plan for sharing with customers the then-projected non-fuel savings associated with the merger.  The Companies submitted this filing on January 13, 2003, proposing to continue to share with customers, on a 50%/50% basis, the estimated fifth-year gross level of non-fuel savings associated with the merger.  The filing is currently under

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review.

Any fuel cost savings are passed to Kentucky customers through the fuel adjustment clause.  See FAC above.

Note 4 - Financial Instruments

The cost and estimated fair values of LG&E’s non-trading financial instruments as of December 31, 2002, and 2001 follow (in thousands of $):

	2002					2001
	Cost		Fair Value			Cost		Fair Value
Preferred stock subject to mandatory redemption	$	25,000	$	25,188		$	25,000	$	25,125
Long-term debt (including current portion)	616,904		623,325			616,904		620,504
Interest-rate swaps	—		(17,115		)	—		(8,604		)

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.  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, 2002 and 2001, LG&E was party to various interest rate swap agreements with aggregate notional amounts of $117.3 million.  Under these swap agreements, LG&E paid fixed rates averaging 5.13% and received variable rates based on the Bond Market Association’s municipal swap index averaging 1.52% and 1.61% at December 31, 2002 and 2001, respectively. The swap agreements in effect at December 31, 2002 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 $8.5 million for 2002, recorded in other comprehensive income.  Upon expiration of these hedges, the amount recorded in other comprehensive income will be reclassified into earnings.  The amounts expected to be reclassified from other comprehensive income to earnings in the next twelve months is immaterial.

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.

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The rescission of EITF 98-10, effective for fiscal years after December 15, 2002, will have no impact on LG&E’s energy trading and risk management reporting as all contracts marked to market under EITF 98-10 are also within the scope of SFAS No. 133.

The table below summarizes LG&E’s energy trading and risk management activities for 2002 and 2001 (in thousands of $).

	2002			2001
Fair value of contracts at beginning of period, net liability	$	(186	)	$	(17	)
Fair value of contracts when entered into during the period	(65		)	3,441
Contracts realized or otherwise settled during the period	448			(2,894		)
Changes in fair values due to changes in assumptions	(353		)	(716		)
Fair value of contracts at end of period, net liability	$	(156	)	$	(186	)

No changes to valuation techniques for energy trading and risk management activities occurred during 2002.  Changes in market pricing, interest rate and volatility assumptions were made during both years.  All contracts outstanding at December 31, 2002, 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.  At December 31, 2002, 86% of the trading and risk management commitments were with counterparties rated BBB- equivalent or better.

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 310,000 customers and electricity to approximately 382,000 customers in Louisville and adjacent areas in Kentucky.  For the year ended December 31, 2002, 74% of total revenue was derived from electric operations and 26% 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.

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Note 6 - Pension Plans and Retirement Benefits

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 December 31, 2002, and a statement of the funded status as of December 31 for each of the last three years (in thousands of $):

	2002			2001			2000
Pension Plans:
Change in benefit obligation
Benefit obligation at beginning of year	$	356,293		$	310,822		$	283,267
Service cost	1,484			1,311			3,408
Interest cost	24,512			25,361			22,698
Plan amendments	576			1,550			17,042
Curtailment loss	—			24,563			—
Special termination benefits	—			53,610			—
Benefits paid	(34,823		)	(53,292		)	(16,656		)
Actuarial (gain) or loss and other	16,752			(7,632		)	1,063
Benefit obligation at end of year	$	364,794		$	356,293		$	310,822
Change in plan assets
Fair value of plan assets at beginning of year	$	233,944		$	333,378		$	360,095
Actual return on plan assets	(15,648		)	(27,589		)	(6,150		)
Employer contributions and plan transfers	14,150			(17,134		)	(1,804		)
Benefits paid	(34,824		)	(53,292		)	(16,656		)
Administrative expenses	(1,308		)	(1,419		)	(2,107		)
Fair value of plan assets at end of year	$	196,314		$	233,944		$	333,378
Reconciliation of funded status
Funded status	$	(168,480	)	$	(122,349	)	$	22,556
Unrecognized actuarial (gain) or loss	60,313			18,800			(74,086		)
Unrecognized transition (asset) or obligation	(3,199		)	(4,215		)	(5,853		)
Unrecognized prior service cost	32,265			35,435			47,984
Net amount recognized at end of year	$	(79,101	)	$	(72,329	)	$	(9,399	)
Other Benefits:
Change in benefit obligation
Benefit obligation at beginning of year	$	89,946		$	56,981		$	44,997
Service cost	444			358			822
Interest cost	5,956			5,865			4,225
Plan amendments	—			1,487			5,826
Curtailment loss	—			8,645			—
Special termination benefits	—			18,089			—
Benefits paid	(4,988		)	(4,877		)	(4,889		)
Actuarial (gain) or loss	1,875			3,398			6,000
Benefit obligation at end of year	$	93,233		$	89,946		$	56,981
Change in plan assets
Fair value of plan assets at beginning of year	$	2,802		$	7,166		$	10,526
Actual return on plan assets	(533		)	(765		)	(92		)
Employer contributions and plan transfers	4,213			1,282			1,621
Benefits paid	(5,004		)	(4,881		)	(4,889		)
Fair value of plan assets at end of year	$	1,478		$	2,802		$	7,166
Reconciliation of funded status
Funded status	$	(91,755	)	$	(87,144	)	$	(49,815	)
Unrecognized actuarial (gain) or loss	16,971			15,947			5,623
Unrecognized transition (asset) or obligation	6,697			7,346			13,374
Unrecognized prior service cost	5,995			5,302			8,960
Net amount recognized at end of year	$	(62,092	)	$	(58,549	)	$	(21,858	)

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

LG&E made a contribution to the pension plan of $83.1 million in January 2003.

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, 2002, 2001 and 2000 (in thousands of $):

	2002			2001			2000
Pension Plans:
Amounts recognized in the balance sheet consisted of:
Prepaid benefits cost	$	—		$	—		$	18,880
Accrued benefit liability	(162,611		)	(108,977		)	(28,279		)
Intangible asset	32,799			11,936			—
Accumulated other comprehensive income	50,711			24,712			—
Net amount recognized at year-end	$	(79,101	)	$	(72,329	)	$	(9,399	)
Additional year-end information for plans with accumulated benefit obligations in excess of plan assets (1):
Projected benefit obligation	$	364,794		$	356,293		$	4,088
Accumulated benefit obligation	358,956			352,477			3,501
Fair value of plan assets	196,314			233,944			—

(1)  2002 and 2001 includes all plans. 2000 includes SERPs only.

Other Benefits:
Amounts recognized in the balance sheet consisted of:
Accrued benefit liability	$	(62,092	)	$	(58,549	)	$	(21,858	)
Additional year-end information for plans with benefit obligations in excess of plan assets:
Projected benefit obligation	$	93,233		$	89,946		$	56,981
Fair value of plan assets	1,478			2,802			7,166

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The following table provides the components of net periodic benefit cost for the plans for 2002, 2001 and 2000 (in thousands of $):

	2002			2001			2000
Pension Plans:
Components of net periodic benefit cost
Service cost	$	1,484		$	1,311		$	3,408
Interest cost	24,512			25,361			22,698
Expected return on plan assets	(21,639		)	(26,360		)	(33,025		)
Amortization of prior service cost	3,777			3,861			4,646
Amortization of transition (asset) or obligation	(1,016		)	(1,000		)	(1,112		)
Recognized actuarial (gain) or loss	21			(777		)	(6,856		)
Net periodic benefit cost	$	7,139		$	2,396		$	(10,241	)
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	$	444		$	358		$	822
Interest cost	5,956			5,865			4,225
Expected return on plan assets	(204		)	(420		)	(683		)
Amortization of prior service cost	920			951			1,158
Amortization of transition (asset) or obligation	650			719			1,114
Recognized actuarial (gain) or loss	116			(32		)	(485		)
Net periodic benefit cost	$	7,882		$	7,441		$	6,151
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:

	2002		2001		2000
Weighted-average assumptions as of December 31:
Discount rate	6.75	%	7.25	%	7.75	%
Expected long-term rate of return on plan assets	9.00	%	9.50	%	9.50	%
Rate of compensation increase	3.75	%	4.25	%	4.75	%

For measurement purposes, a 12.00% annual increase in the per capita cost of covered health care benefits was assumed for 2003.  The rate was assumed to decrease gradually to 5.00% for 2014 and remain at that level thereafter.

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 $):

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	1% Decrease		1% Increase
Effect on total of service and interest cost components for 2002	(201	)	227
Effect on year-end 2002 postretirement benefit obligations	(3,001	)	3,347

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 of this matching were approximately $1.7 million for 2002, $1.2 million for 2001 and $2.7 million for 2000.

Note 7 - Income Taxes

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

	2002			2001			2000
Included in operating expenses:
Current        - federal	$	26,231		$	42,997		$	32,612
- state	8,083			8,668			5,018
Deferred      - federal – net	20,464			12,310			24,272
- state – net	4,410			3,767			6,797
Amortization of investment tax credit	(4,153		)	(4,290		)	(4,274		)
Total	55,035			63,452			64,425
Included in other income - net:
Current        - federal	(1,667		)	(1,870		)	(2,187		)
- state	(430		)	(483		)	(568		)
Deferred      - federal – net	(206		)	285			(39		)
- state – net	(53		)	73			(10		)
Total	(2,356		)	(1,995		)	(2,804		)
Total income tax expense	$	52,679		$	61,457		$	61,621

Components of net deferred tax liabilities included in the balance sheet are shown below (in thousands of $):

	2002		2001
Deferred tax liabilities:
Depreciation and other plant-related items	$	346,737	$	334,914
Other liabilities	64,734		77,611
	411,471		412,525
Deferred tax assets:
Investment tax credit	22,012		23,713
Income taxes due to customers	18,431		19,709
Pensions	21,056		6,621
Accrued liabilities not currently deductible and other	36,747		64,339
	98,246		114,382
Net deferred income tax liability	$	313,225	$	298,143

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

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tax rate follows:

	2002		2001		2000
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	5.6		4.7		4.3
Amortization of investment tax credit	(2.9	)	(2.6	)	(2.6	)
Other differences – net	(0.5	)	(0.6	)	(0.9	)
Effective income tax rate	37.2	%	36.5	%	35.8	%

Note 8 - Other Income - net

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

	2002			2001		2000
Interest and dividend income	$	457		$	748	$	3,103
Gains on fixed asset disposals	421			1,217		1,014
Income taxes and other	(58		)	965		804
Other income – net	$	820		$	2,930	$	4,921

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, 2002.

	Stated Interest Rates		Weighted Average Interest Rate		Maturities	Principal Amounts
Noncurrent portion	Variable - 5.90	%	3.53	%	2019-2032	$	328,104
Current portion	Variable - 6.00	%	2.08	%	2003-2027	288,800

Under the provisions for some of 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 in the consolidated balance sheets.  The average annualized interest rate for these bonds during 2002 was 1.61%.

LG&E’s First Mortgage Bond, 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 31,2002.

In October 2002, LG&E issued $41.7 million variable rate pollution bonds due October 1, 2032, and exercised its call option on $41.7 million, 6.55% pollution control bonds due November 1, 2020.

In March 2002, LG&E refinanced four unsecured pollution control bonds with an aggregate principal balance of $120 million and replaced them with secured pollution control bonds.  The new bonds and the previous bonds were all variable rate bonds, and the maturity dates remained unchanged.

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

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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, 7.625%, 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 restricted by this provision as of December 31, 2002.

Note 10 - 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 $400 million.  The balance of the money pool loan from LG&E Energy was $193.1 million at a rate of 1.61% and $64.2 million at an average rate of 2.37%, at December 31, 2002 and 2001, respectively.  LG&E also had outstanding commercial paper of $30 million at an average rate of 2.54% at December 31, 2001.  The remaining money pool availability at December 31, 2002, was $206.9 million.  LG&E Energy maintains facilities of $450 million with affiliates to ensure funding availability for the money pool.  The outstanding balance under these facilities as of December 31, 2002 was $230 million, and availability of $220 million remained.

Note 11 - - Commitments and Contingencies

Construction Program.  LG&E had approximately $15.1 million of commitments in connection with its construction program at December 31, 2002.  Construction expenditures for the years 2003 and 2004 are estimated to total approximately $340.0 million, although all of this amount is not currently committed, including the purchase of four jointly owned CTs, $89.0 million, and construction of NOx equipment, $34.0 million.

Operating Lease.  LG&E leases office space and accounts for its office space lease as an operating lease.  Total lease expense for 2002, 2001, and 2000, less amounts contributed by the parent company, was $1.6 million, $1.1 million, and $0.9 million, respectively.  The future minimum annual lease payments under this lease agreement for years subsequent to December 31, 2002, are as follows (in thousands of $):

2003	$	3,371
2004	3,399
2005	3,467
2006	3,536
2007	3,607
Thereafter	29,794
Total	$	47,174

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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 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 operation 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

92

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, 2002 and 2001.

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

2003	$	10,773
2004	10,116
2005	10,152
2006	10,816
2007	10,816
Thereafter	184,544
Total	$	237,217

Note 12 - - 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.

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	386.2			66.4		62.4		515.0
LG&E’s 75% ownership (in thousands of $):
Cost	$	595,747
Accumulated depreciation	182,711
Net book value	$	413,036
Construction work in progress (included above)	$	12,867

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

		LG&E			KU			Total
Paddy’s Run 13	Ownership %	53		%	47		%	100		%
	Mw capacity	84			74			158
	Cost	$	33,919		$	29,973		$	63,892
	Depreciation	1,711			1,499			3,210
	Net book value	$	32,208		$	28,474		$	60,682
E.W. Brown 5	Ownership %	53		%	47		%	100		%
	Mw capacity	71			63			134
	Cost	$	23,973		$	21,106		$	45,079
	Depreciation	1,206			1,052			2,258
	Net book value	$	22,767		$	20,054		$	42,821
E.W. Brown 6	Ownership %	38		%	62		%	100		%
	Mw capacity	59			95			154
	Cost	$	23,696		$	36,957		$	60,653
	Depreciation	1,770			4,201			5,971
	Net book value	$	21,926		$	32,756		$	54,682
E.W. Brown 7	Ownership %	38		%	62		%	100		%
	Mw capacity	59			95			154
	Cost	$	23,607		$	44,792		$	68,399
	Depreciation	4,054			4,502			8,556
	Net book value	$	19,553		$	40,290		$	59,843
Trimble 5	Ownership %	29		%	71		%	100		%
	Mw capacity	45			110			155
	Cost	$	15,970		$	39,045		$	55,015
	Depreciation	251			614			865
	Net book value	$	15,719		$	38,431		$	54,150
Trimble 6	Ownership %	29		%	71		%	100		%
	Mw capacity	45			110			155
	Cost	$	15,961		$	39,025		$	54,986
	Depreciation	251			614			865
	Net book value	$	15,710		$	38,411		$	54,121
Trimble CT Pipeline	Ownership %	29		%	71		%	100		%
	Cost	$	1,835		$	4,475		$	6,310
	Depreciation	39			96			135
	Net book value	$	1,796		$	4,379		$	6,175

See also Note 11, Construction Program, for LG&E’s planned purchase of four jointly owned CTs in 2004.

Note 13 - - 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, transmission, distribution, and sale of electricity and the storage, distribution, and sale of natural gas.  Financial data for business segments, follow (in thousands of $):

94

	Electric			Gas		Total
2002
Operating revenues	$	758,491	(a)	$	267,693	$	1,026,184
Depreciation and amortization	90,248			15,658		105,906
Interest income	381			76		457
Interest expense	24,837			4,968		29,805
Operating income taxes	49,010			6,025		55,035
Net income	79,246			9,683		88,929
Total assets	2,105,956			455,122		2,561,078
Construction expenditures	195,662			24,754		220,416
2001
Operating revenues	$	705,925	(b)	$	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	95,103			11,768		106,781
Total assets	1,985,252			463,102		2,448,354
Construction expenditures	227,107			25,851		252,958
2000
Operating revenues	$	710,958	(c)	$	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

(a)Net of provision for rate collections of $12.3 million.

(b)Net of provision for rate refunds of $.7 million.

(c)Net of provision for rate refunds of $2.5 million.

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Note 14 - - Selected Quarterly Data (Unaudited)

Selected financial data for the four quarters of 2002 and 2001 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 $)
2002
Operating revenues	$	283,365		$	222,751	$	245,817	$	274,251
Net operating income	28,748			22,410		41,652		25,104
Net income	20,943			15,256		34,204		18,526
Net income available for common stock	19,878			14,207		33,129		17,469
2001
Operating revenues	$	313,271		$	228,841	$	231,885	$	222,703
Net operating income (loss)(a)	(43,732		)	37,624		49,092		98,789
Net income (loss)(a)	(54,115		)	28,467		40,270		92,159
Net income (loss) available for common stock(a)	(55,413		)	27,247		39,160		91,048

(a)  Loss resulted from the VDT pre-tax charge of $144.0 million in March 2001, which was reversed in December 2001.  See Note 3.

Note 15 - - Subsequent Events

LG&E made a contribution to the pension plan of $83.1 million in January 2003.

On March 18, 2003, the Kentucky Commission approved LG&E and KU's joint application for the acquisition of four CTs from an unregulated affiliate, LG&E Capital Corp.  The total projected construction cost for the turbines, expected to be available for June 2004 in-service, is $227.4 million.  The requested ownership share of the turbines is 63% for KU and 37% for LG&E.

96

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 2002 and 2001 financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants, and the 2000 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 and external auditors.  These recommendations for the year ended December 31, 2002, did not identify any material weaknesses in the design and operation of LG&E’s internal control structure.

In carrying out its oversight role for the financial reporting and internal controls of LG&E, the Board of Directors meets regularly with LG&E’s independent public accountants, internal auditors and management.  The Board of Directors 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 Board of Directors 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 Board of Directors 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

97

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 sheets 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, 2002 and 2001, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2002, 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 audits.  We conducted our audits 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 audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

January 21, 2003
Louisville, Kentucky

98

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
January 26, 2001 Arthur Andersen LLP

THIS IS A COPY OF A PREVIOUSLY ISSUED REPORT OF ARTHUR ANDERSEN LLP (“ANDERSEN”) RELATING TO A PRIOR PERIOD FOR WHICH ANDERSEN WAS ENGAGED AS INDEPENDENT PUBLIC ACCOUNTANTS. THE REPORT HAS NOT BEEN REISSUED BY ANDERSEN.

99

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
E.ON	E.ON AG
EPA	U.S. Environmental Protection Agency
ESM	Earnings Sharing Mechanism
F	Fahrenheit
FAC	Fuel Adjustment Clause
FERC	Federal Energy Regulatory Commission
FPA	Federal Power Act
FT and FT-A	Firm Transportation
GSC	Gas Supply Clause
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
kV	Kilovolts
Kva	Kilovolt-ampere
KW	Kilowatts
Kwh	Kilowatt hours
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
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
NOPR	Notice of Proposed Rulemaking
NOx	Nitrogen Oxide
OATT	Open Access Transmission Tariff
OMU	Owensboro Municipal Utilities
OVEC	Ohio Valley Electric Corporation
PBR	Performance-Based Ratemaking
PJM	Pennsylvania, New Jersey, Maryland Interconnection
Powergen	Powergen Limited (formerly Powergen plc)
PUHCA	Public Utility Holding Company Act of 1935
ROE	Return on Equity
RTO	Regional Transmission Organization
S&P	Standard & Poor’s Rating Services
SCR	Selective Catalytic Reduction
SEC	Securities and Exchange Commission

100

SERP	Supplemental Employee Retirement Plan
SFAS	Statement of Financial Accounting Standards
SIP	State Implementation Plan
SMD	Standard Market Design
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 State Corporation Commission Staff

101

Kentucky Utilities Company and Subsidiary

Consolidated Statements of Income

(Thousands of $)

	Years Ended December 31
	2002		2001			2000
OPERATING REVENUES:
Electric (Note 1)	$	875,192	$	860,426		$	851,941
Provision for rate collections (refunds) (Note 3)	13,027		(954		)	—
Total operating revenues	888,219		859,472			851,941
OPERATING EXPENSES:
Fuel for electric generation	250,117		236,985			219,923
Power purchased	157,955		157,161			166,918
Other operation expenses	144,118		118,359			108,072
Non-recurring charge (Note 3)	—		6,867			—
Maintenance	62,909		57,021			61,643
Depreciation and amortization (Note 1)	95,462		90,299			98,256
Federal and state income taxes (Note 7)	54,032		57,482			51,963
Property and other taxes	14,983		13,928			17,030
Total operating expenses	779,576		738,102			723,805
Net operating income	108,643		121,370			128,136
Other income – net (Note 8)	10,429		8,932			6,843
Interest charges	25,688		34,024			39,455
Net income before cumulative effect of a change in accounting principle	93,384		96,278			95,524
Cumulative effect of a change in accounting principle-accounting for Derivative instruments and hedging activities, net of tax	—		136			—
Net income	93,384		96,414			95,524
Preferred stock dividends	2,256		2,256			2,256
Net income available for common stock	$	91,128	$	94,158		$	93,268

Consolidated Statements of Retained Earnings

(Thousands of $)

	Years Ended December 31
	2002		2001		2000
Balance January 1	$	410,896	$	347,238	$	329,470
Add net income	93,384		96,414		95,524
	504,280		443,652		424,994
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
	2,256		32,756		77,756
Balance December 31	$	502,024	$	410,896	$	347,238

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

102

Kentucky Utilities Company and Subsidiary

Consolidated Statements of Comprehensive Income

(Thousands of $)

	Years Ended December 31
	2002			2001			2000
Net income	$	93,384		$	96,414		$	95,524
Cumulative effect of change in accounting principle – Accounting for derivative instruments and hedging activities	—			2,647			—
Losses on derivative instruments and hedging activities	(2,647		)	—			—
Additional minimum pension liability adjustment (Note 6)	(17,543		)	—			—
Income tax benefit (expense) related to items of other comprehensive income	8,140			(1,059		)	—
Other comprehensive (loss) income, net of tax	(12,050		)	1,588			—
Comprehensive income	$	81,334		$	98,002		$	95,524

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

103

Kentucky Utilities Company and Subsidiary

Consolidated Balance Sheets

(Thousands of $)

	December 31
	2002		2001
ASSETS:
Utility plant, at original cost (Note 1)	$	3,089,529	$	2,960,818
Less:  reserve for depreciation	1,536,658		1,457,754
	1,552,871		1,503,064
Construction work in progress	191,233		103,402
	1,744,104		1,606,466
Other property and investments - less reserve of $130 in 2002 and 2001	14,358		9,629
Current assets:
Cash and temporary cash investments (Note 1)	5,391		3,295
Accounts receivable-less reserve of $800 in 2002 and 2001	49,588		45,291
Materials and supplies - at average cost:
Fuel (predominantly coal) (Note 1)	46,090		43,382
Other	26,408		26,188
Prepayments and other	6,584		4,942
	134,061		123,098
Deferred debits and other assets:
Unamortized debt expense (Note 1)	4,991		4,316
Regulatory assets (Note 3)	65,404		66,467
Other	35,465		16,926
	105,860		87,709
	$	1,998,383	$	1,826,902
CAPITAL AND LIABILITIES:
Capitalization (see statements of capitalization):
Common equity	$	814,107	$	735,029
Cumulative preferred stock	40,000		40,000
Long-term debt (Note 9)	346,562		434,506
	1,200,669		1,209,535
Current liabilities:
Current portion of long-term debt (Note 9)	153,930		54,000
Notes payable to parent (Note 10)	119,490		47,790
Accounts payable	95,374		85,149
Accrued taxes	4,955		20,520
Other	21,442		22,150
	395,191		229,609
Deferred credits and other liabilities:
Accumulated deferred income taxes (Notes 1 and 7)	241,184		239,204
Investment tax credit, in process of amortization	8,500		11,455
Accumulated provision for pensions and related benefits (Note 6)	110,927		91,235
Regulatory liabilities (Note 3)	29,876		33,889
Other	12,036		11,975
	402,523		387,758
Commitments and contingencies (Note 11)
	$	1,998,383	$	1,826,902

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

104

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

	Years Ended December 31
	2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	93,384		$	96,414		$	95,524
Items not requiring cash currently:
Depreciation and amortization	95,462			90,299			98,256
Deferred income taxes - net	(2,038		)	(12,088		)	(2,449		)
Investment tax credit - net	(2,955		)	(3,446		)	(3,674		)
Other	(1,267		)	11,776			(8,136		)
Change in certain net current assets:
Accounts receivable	(8,497		)	28			(1,870		)
Materials and supplies	(2,928		)	(31,263		)	18,131
Accounts payable	10,225			8,810			(60,774		)
Accrued taxes	(15,565		)	898			9,120
Prepayments and other	(2,350		)	(6,033		)	850
Sale of accounts receivable (Note 1)	4,200			45,100			—
Other	8,086			(12,364		)	31,272
Net cash flows from operating activities	175,757			188,131			176,250
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities	—			3,480			—
Construction expenditures	(237,909		)	(142,425		)	(100,328		)
Net cash flows from investing activities	(237,909		)	(138,945		)	(100,328		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings and repayments	71,700			(13,449		)	61,239
Retirement of long-term debt	(133,930		)	—			(74,784		)
Issuance of long-term debt	128,734			—			12,900
Additional paid-in capital	—			—			15,000
Payment of dividends	(2,256		)	(32,756		)	(96,756		)
Net cash flows used for financing activities	64,248			(46,205		)	(82,401		)
Change in cash and temporary cash investments	2,096			2,981			(6,479		)
Cash and temporary cash investments at beginning of year	3,295			314			6,793
Cash and temporary cash investments at end of year	$	5,391		$	3,295		$	314
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes	$	59,580		$	72,432		$	49,871
Interest on borrowed money	37,866			39,829			35,196

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

105

Kentucky Utilities Company and Subsidiary

Consolidated Statements of Capitalization

(Thousands of $)

	December 31
	2002			2001
COMMON EQUITY:
Common stock, without par value - authorized 80,000,000 shares, outstanding 37,817,878 shares	$	308,140		$	308,140
Additional paid-in-capital	15,000			15,000
Accumulated other comprehensive income	(10,462		)	1,588
Other	(595		)	(595		)
Retained earnings	502,024			410,896
	814,107			735,029

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 (Note 9);
First mortgage bonds - 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
2B due February 1, 2018, 6.25%				—		2,400
3B due February 1, 2018, 6.25%				—		7,200
4B due February 1, 2018, 6.25%				—		7,400
8, due September 15, 2016, 7.45%				—		96,000
9, due December 1, 2023, 5.75%				50,000		50,000
10, due November 1, 2024, variable%				54,000		54,000
11, due May 1, 2023, variable%				12,900		12,900
12, due February 1, 2032, variable%				20,930		—
13, due February 1, 2032, variable%				2,400		—
14, due February 1, 2032, variable%				7,400		—
15, due February 1, 2032, variable%				7,200		—
16, due October 1, 2032, variable%				96,000		—
Long-term debt marked to market (Note 4)				15,662		3,676
Total bonds outstanding				500,492		488,506
Less current portion of long-term debt				153,930		54,000
Long-term debt				346,562		434,506
Total capitalization				$	1,200,669	$	1,209,535

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 and E.ON, 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 R.

On December 11, 2000, LG&E Energy was acquired by Powergen.  On July 1, 2002, E.ON, a German company, completed its acquisition of Powergen plc (now Powergen Limited).  E.ON had announced its pre-conditional cash offer of £5.1 billion ($7.3 billion) for Powergen on April 9, 2001.  Powergen and E.ON are registered public utility holding companies under PUHCA.  No costs associated with these acquisitions 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’s financial statements to conform to the 2002 presentation with no impact on the balance sheet totals or previously reported income.

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 were approximately 3.1% in 2002, 3.1% in 2001 and 3.5% in 2000, of average depreciable plant. Of the amount provided for depreciation at December 31, 2002, 2001 and 2000, respectively, approximately 0.7% was related to the retirement, removal and disposal costs of long lived assets.

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.

Fuel Inventories.  Fuel inventories of $46.1 million and $43.4 million at December 31, 2002 and 2001, respectively, are included in Fuel in the balance sheet.  The inventory is accounted for using the average-cost method.

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.

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Unamortized 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 are recognized at currently enacted tax rates for all material temporary differences between the financial reporting and income tax basis of assets and liabilities.

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 the accounting period.  The unbilled revenue estimates included in accounts receivable were approximately $36.4 million and $33.4 million at December 31, 2002, and 2001, respectively.  KU recorded electric revenues that resulted from sales to a related party, LG&E, of $34.6 million, $31.1 million and $22.1 million for years ended December 31, 2002, 2001 and 2000, respectively.  See Note 3, Rates and Regulatory Matters.

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 its 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

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indicating these transactions qualify as a true sale of receivables.  As of December 31, 2002, the outstanding program balance was $49.3 million.  KU is considering unwinding its accounts receivable securitization arrangements involving KU R during 2003.

The allowance for doubtful accounts associated with the eligible securitized receivables was $520,000 at December 31, 2002.  This allowance is based on historical experience of KU. Each securitization facility contains a fully funded reserve for uncollectible receivables.

New Accounting Pronouncements.The following accounting pronouncements were issued that affected KU in 2002:

SFAS No. 143, Accounting for Asset Retirement Obligations 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.

The effective implementation date for SFAS No. 143 is January 1, 2003.  Management has calculated the impact of SFAS No. 143 and the recently released FERC NOPR No. RM02-7, Accounting, Financial Reporting, and Rate Filing Requirements for Asset Retirement Obligations.  As of January 1, 2003, KU recorded asset retirement obligation (ARO) assets in the amount of $8.6 million and liabilities in the amount of $18.5 million.  KU also recorded a cumulative effect adjustment in the amount of $9.9 million to reflect the accumulated depreciation and accretion of ARO assets at the transition date less the amounts previously accrued under reglatory depreciation. KU recorded offsetting regulatory assets of $9.9 million, pursuant to regulatory treatment prescribed under SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.  Also pursuant to SFAS No. 71, KU recorded regulatory liabilities in the amount of $888,000 offsetting removal costs previously accrued under regulatory accounting in excess of amounts allowed under SFAS No. 143.

KU also expects to record ARO accretion expense of approximately $1.2 million, ARO depreciation expense of approximately $176,000 and an offsetting regulatory credit in the income statement of approximately $1.4 million in 2003, pursuant to regulatory treatment prescribed under SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.  The accretion, depreciation and regulatory credit will be annual adjustments.  SFAS No. 143 will have no impact on the results of the operation of KU.

KU’s asset retirement obligations are primarily related to the final retirement of generating units.  KU transmission and distribution lines largely operate under perpetual property easement agreements which do not generally require restoration upon removal of the property.  Therefore, under SFAS No. 143, no material asset retirement obligations will be recorded for transmission and distribution assets.

KU adopted EITF No. 98-10, Accounting for Energy Trading and Risk Management Activities, effective January 1, 1999.  This pronouncement required that energy trading contracts be marked to market on the balance sheet, with the gains and losses shown net in the income statement.  In October 2002, the Emerging Issues Task Force reached a consensus to rescind EITF 98-10.  The effective date for the full rescission will be for fiscal periods beginning after December 15, 2002.  With the recession of EITF No. 98-10, energy trading contracts that do not also meet the definition of a derivative under SFAS No. 133 must be accounted for as executory contracts.  Contracts previously recorded at fair value under EITF No. 98-10 that are not also derivatives under SFAS No. 133 must be restated to historical cost through a cumulative effect adjustment.  KU does not expect the rescission of this standard to have a material impact on financial position or results of operations.

In January 2003, the Financial Accounting Standards Board issued Financial Accounting Standards Board

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Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46).  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003.  KU does not expect the adoption of this standard to have any impact on the financial position or results of operations.

Note 2 – Mergers and Acquisitions

On July 1, 2002, E.ON completed its acquisition of Powergen, including LG&E Energy, for approximately £5.1 billion ($7.3 billion).  As a result of the acquisition, LG&E Energy became a wholly owned subsidiary (through Powergen) of E.ON and, as a result, KU also became an indirect subsidiary of E.ON.  KU has continued its separate identity and serves customers in Kentucky, Virginia and Tennessee under its existing names.  The preferred stock and debt securities of KU were not affected by this transaction and the utilities continue to file SEC reports.  Following the acquisition, E.ON became, and Powergen remained, a registered holding company under PUHCA.  KU, as a subsidiary of a registered holding company, is subject to additional regulations under PUHCA.  As contemplated in their regulatory filings in connection with the E.ON acquisition, E.ON, Powergen and LG&E Energy completed an administrative reorganization to move the LG&E Energy group from an indirect Powergen subsidiary to an indirect E.ON subsidiary.   This reorganization was effective in March 2003.

LG&E Energy and KU Energy merged on May 4, 1998, with LG&E Energy as the surviving corporation. Management accounted for the merger as a pooling of interests and as a tax-free reorganization under the Internal Revenue Code.  Following these acquisitions, KU has continued to maintain its separate identity and serve customers under its present name.

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

	2002			2001
VDT costs	$	38,375		$	48,811
Unamortized loss on bonds	9,456			6,142
LG&E/KU merger costs	2,046			6,139
One utility costs	873			4,365
ESM provision	13,500			—
Other	1,154			1,010
Total regulatory assets	65,404			66,467
Deferred income taxes - net	(28,854		)	(32,872		)
Other	(1,022		)	(1,017		)
Total regulatory liabilities	(29,876		)	(33,889		)
Regulatory assets - net	$	35,528		$	32,578

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Kentucky Commission Settlement Order - VDT 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 approximately 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 a 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 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 2001 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 of the regulatory asset 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.  LG&E Energy was purchased by Powergen on December 11, 2000.  Effective July 1, 2002, Powergen was acquired by E.ON, which became a registered holding company under PUHCA.  As a result, E.ON, 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.  KU believes that it has adequate authority (including financing authority) under existing SEC orders and regulations to conduct its business.   KU will seek additional authorization when necessary.

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 ECR Tariff to include an overall rate of return on capital investments.  Approval of KU’s application in April 2001 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.

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In August 2002, KU filed an application with the Kentucky Commission to amend its compliance plan to allow recovery of the cost of a new and additional environmental compliance facility.  The estimated capital cost of the additional facilities is $17.3 million.  The Kentucky Commission conducted a public hearing on the case on December 20, 2002, final briefs were filed on January 15, 2003, and a final order was issued February 11, 2003. The final order approved recovery of the new environmental compliance facility totaling $17.3 million.  Cost recovery through the environmental surcharge of the approved project will begin with bills rendered in April 2003.

ESM. KU’s electric rates are subject to an ESM.  The ESM, initially 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, the excess earnings are shared 40% with ratepayers and 60% with shareholders; if earnings are below the lower limit, the earnings deficiency is recovered 40% from ratepayers and 60% from shareholders.  By order of the Kentucky Commission, rate changes prompted by the ESM filing go into effect in April of each year subject to a balancing adjustment in successive periods.  KU made its second ESM filing on March 1, 2002 for the calendar year 2001 reporting period.  KU is in the process of refunding $1 million to customers for the 2001 reporting period.  KU estimated that the rate of return will fall below the lower limit, subject to Kentucky Commission approval, for the year ended December 31, 2002.   The 2002 financial statements include an accrual to reflect the earnings deficiency of $13.5 million to be recovered from customers commencing in April 2003.

On November 27, 2002, KU filed a revised ESM tariff which proposed continuance of the existing ESM through December 2005.  The Kentucky Commission issued an order suspending the ESM tariff one day making the effective date January 2, 2003.  In addition, the Kentucky Commission is conducting a management audit to review the ESM plan and reassess its reasonableness in 2003.  KU and interested parties will have the opportunity to provide recommendations for modification and continuance of the ESM or other forms of alternative or incentive regulation.

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 included a rate mechanism that provided for concurrent recovery of DSM costs, provided an incentive for implementing DSM programs, and recovered revenues from lost sales associated with the DSM program based on program planning engineering estimates and post-implementation evaluation.

FAC.   KU employs a FAC mechanism which allows KU to recover from customers’ 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.  In August 1999, after a rehearing request by KU, the Kentucky Commission issued a final order that reduced the refund obligation to $6.7 million ($5.8 million on a Kentucky jurisdictional basis) from the original order amount of $10.1 million.  KU implemented the refund from October 1999 through September 2000.  Both KU and the KIUC appealed the order.   Pending a decision on this appeal, a comprehensive settlement was reached by all parties and approved by the Kentucky Commission on May 17, 2002.  Thereunder, KU agreed to credit its fuel clause in the amount of $954,000 (refund made in June and July 2002), and the parties agreed on a prospective interpretation of the state’s FAC regulation to ensure consistent and mutually acceptable application on a going-forward basis.

In December 2002, the Kentucky Commission initiated a two year review of the operation of KU’s FAC for the period November 2000 through October 2002.  Testimony in the review case was filed on January 20, 2003 and a public hearing was held February 18, 2003.  Issues addressed at that time included the establishment of the

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current base fuel factor to be included in KU’s base rates, verification of proper treatment of purchased power costs during unit outages, and compliance with fuel procurement policies and practices.

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 utility’s 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.

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 citing 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 Kentucky 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 October 2001 and KU filed a final brief in the case.  In December 2001, the Kentucky Commission issued an order in which it 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 Kentucky 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.

FERC SMD NOPR.  On July 31, 2002, the FERC issued a NOPR in Docket No. RM01-12-000 which would

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substantially alter the regulations governing the nation’s wholesale electricity markets by establishing a common set of rules — SMD. The SMD NOPR would require each public utility that owns, operates, or controls interstate transmission facilities to become an Independent Transmission Provider (ITP), belong to an RTO that is an ITP, or contract with an ITP for operation of its transmission assets. It would also establish a standardized congestion management system, real-time and day-ahead energy markets, and a single transmission service for network and point-to-point transmission customers. Review of the proposed rulemaking is underway and a final rule is expected during 2003.  While it is expected that the SMD final rule will affect KU revenues and expenses, the specific impact of the rulemaking is not known at this time.

MISO.  KU is a member of the MISO, which began commercial operations on February 1, 2002.  MISO now has operational control over KU’s high-voltage transmission facilities (100 kV and greater), while KU continues to control and operate the lower voltage transmission subject to the terms and conditions of the MISO OATT.  As a transmission-owning member of MISO, KU also incurs administrative costs of MISO pursuant to Schedule 10 of the MISO OATT.

MISO also proposed to implement a congestion management system.  FERC directed the MISO to coordinate its efforts with FERC’s Rulemaking on SMD. On September 24, 2002, the MISO filed new rate schedules designated as Schedules 16 and 17, which provide for the collection of costs incurred by the MISO to establish day-ahead and real-time energy markets. The MISO proposed to recover these costs under Schedules 16 and 17 once service commences. If approved by FERC, these schedules will cause KU to incur additional costs.  KU opposes the establishment of Schedules 16 and 17.  This effort is still on-going and the ultimate impact of the two schedules, if approved, is not known at this time.

ARO.  In 2003, KU expects to record approximately $11.3 million in regulatory assets and approximately $888,000 in regulatory liabilities related to SFAS No. 143, Accounting for Asset Retirement Obligations.

Merger Surcredit.  As part of the LG&E Energy merger with KU Energy, KU 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 was deferred and 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) in the second quarter of 1998.

In approving the merger, the Kentucky Commission adopted KU’s proposal to reduce its retail customers’ bills based on one-half of the estimated merger-related savings, net of deferred and amortized amounts, over a five year period.  The surcredit mechanism provides that 50% of the net non-fuel cost savings estimated to be achieved from the merger would be provided to ratepayers through a monthly bill credit, and 50% retained by the Companies, over a five-year period.  The surcredit was allocated 53% to KU and 47% to LG&E.  In that same order, the Commission required LG&E and KU, after the end of the five-year period, to present a plan for sharing with customers the then-projected non-fuel savings associated with the merger.  The Companies submitted this filing on January 13, 2003, proposing to continue to share with customers, on a 50%/50% basis, the estimated fifth-year gross level of non-fuel savings associated with the merger.  The filing is currently under review.

Any fuel cost savings are passed to Kentucky customers through the fuel adjustment clauses.  See FAC above.

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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, 2002, and 2001 follow (in thousands of $):

	2002				2001
	Cost		Fair Value		Cost		Fair Value
Long-term debt (including current portion)	$	484,830	$	503,194	$	484,830	$	499,618
Interest-rate swaps	—		16,928		—		6,906

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, 2002 and 2001, KU was party to various interest rate swap agreements with aggregate notional amounts of $153 million in 2002 and 2001.  Under these swap agreements, KU paid variable rates based on either LIBOR or the Bond Market Association’s municipal swap index averaging 2.36% and 2.54%, and received fixed rates averaging 7.13% and 7.13% at December 31, 2002 and 2001, respectively. The swap agreements in effect at December 31, 2002 have been designated as fair value hedges and mature on dates ranging from 2007 to 2025.  For 2002, the effect 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, 2002, KU’s debt reflects a $15.7 million mark to market adjustment.

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 rescission of EITF 98-10, effective for fiscal years after December 15, 2002, will have no impact on KU’s energy trading and risk management reporting as all contracts marked to market under EITF 98-10 are also within the scope of SFAS No. 133.

The table below summarizes KU’s energy trading and risk management activities for 2002 and 2001 (in thousands of $).

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	2002			2001
Fair value of contracts at beginning of period, net liability	$	(186	)	$	(17	)
Fair value of contracts when entered into during the period	(65		)	3,441
Contracts realized or otherwise settled during the period	448			(2,894		)
Changes in fair values due to changes in assumptions	(353		)	(716		)
Fair value of contracts at end of period, net liability	$	(156	)	$	(186	)

No changes to valuation techniques for energy trading and risk management activities occurred during 2002.  Changes in market pricing, interest rate and volatility assumptions were made during both years.  All contracts outstanding at December 31, 2002, 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.  At December 31, 2002, 86% of the trading and risk management commitments were with counterparties rated BBB- equivalent or better.

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.

KU’s customer receivables and revenues arise from deliveries of electricity to approximately 477,000 customers in over 600 communities and adjacent suburban and rural areas in 77 counties in central, southeastern and western Kentucky, to approximately 30,000 customers in five counties in southwestern Virginia and less than ten customers in Tennessee.  For the year ended December 31, 2002, 100% of total utility revenue was derived from electric operations.

In August 2001, KU and its employees represented by IBEW Local 2100 entered into a two-year collective bargaining agreement. KU and its employees represented by USWA Local 9447-01 entered into a three-year collective bargaining agreement effective August 2002 and expiring August 2005.  The employees represented by these two bargaining units comprise approximately 17% of KU’s workforce.

Note 6 - Pension Plans and Retirement Benefits

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, 2002, and a statement of the funded status as of December 31 for each of the last three years (in thousands of $):

	2002			2001			2000
Pension Plans:
Change in benefit obligation
Benefit obligation at beginning of year	$	244,472		$	233,034		$	219,628
Service cost	2,637			2,761			4,312
Interest cost	16,598			17,534			17,205
Plan amendment	28			4			11,757
Change due to transfers	—			(16,827		)	—
Curtailment loss	—			1,400			—
Special termination benefits	—			24,274			—
Benefits paid	(23,291		)	(29,166		)	(16,512		)
Actuarial (gain) or loss and other	7,283			11,458			(3,356		)
Benefit obligation at end of year	$	247,727		$	244,472		$	233,034
Change in plan assets
Fair value of plans assets at beginning of year	$	216,947		$	244,677		$	274,109
Actual return on plan assets	(13,767		)	18,155			(10,943		)
Employer contributions and plan transfers	(99		)	(15,300		)	(994		)
Benefits paid	(23,291		)	(29,166		)	(16,512		)
Administrative expenses	(1,256		)	(1,419		)	(983		)
Fair value of plan assets at end of year	$	178,534		$	216,947		$	244,677
Reconciliation of funded status
Funded status	$	(69,193	)	$	(27,525	)	$	11,643
Unrecognized actuarial (gain) or loss	36,233			(20,581		)	(36,435		)
Unrecognized transition (asset) or obligation	(532		)	(664		)	(847		)
Unrecognized prior service cost	10,106			11,027			14,176
Net amount recognized at end of year	$	(23,386	)	$	(37,743	)	$	(11,463	)
Other Benefits:
Change in benefit obligation
Benefit obligation at beginning of year	$	83,223		$	64,213		$	54,201
Service cost	610			495			757
Interest cost	6,379			5,433			4,781
Plan amendments	—			—			7,127
Curtailment loss	—			6,381			—
Special termination benefits	—			3,824			—
Benefits paid net of retiree contributions	(4,640		)	(5,446		)	(4,318		)
Actuarial (gain) or loss	19,030			8,323			1,665
Benefit obligation at end of year	$	104,602		$	83,223		$	64,213
Change in plan assets
Fair value of plan assets at beginning of year	$	14,330		$	23,762		$	28,720
Actual return on plan assets	(2,698		)	(4,404		)	(1,162		)
Employer contributions and plan transfers	1,648			473			522
Benefits paid net of retiree contributions	(5,337		)	(5,501		)	(4,318		)
Fair value of plan assets at end of year	$	7,943		$	14,330		$	23,762
Reconciliation of funded status
Funded status	$	(96,659	)	$	(68,893	)	$	(40,451	)
Unrecognized actuarial (gain) or loss	22,667			(437		)	(23,561		)
Unrecognized transition (asset) or obligation	11,209			12,290			21,871
Unrecognized prior service cost	2,891			3,548			6,109
Net amount recognized at end of year	$	(59,892	)	$	(53,492	)	$	(36,032	)

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

KU made a contribution to the pension plan of $3.5 million in January 2003.

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, 2002, 2001 and 2000 (in thousands of $):

	2002			2001			2000
Pension Plans:
Amounts recognized in the balance sheet consisted of:
Accrued benefit liability	$	(51,035	)	$	(37,743	)	$	(11,463	)
Intangible asset	10,106			—			—
Accumulated other comprehensive income	17,543			—			—
Net amount recognized at year-end	$	(23,386	)	$	(37,743	)	$	(11,463	)
Additional year-end information for plans with accumulated benefit obligations in excess of plan assets (1):
Projected benefit obligation	$	247,727		$	244,472		$	1,505
Accumulated benefit obligation	229,569			224,261			336
Fair value of plan assets	178,534			216,947			—

(1) 2002 and 2001 includes all plans. 2000 includes SERPs only.
Other Benefits:
Amounts recognized in the balance sheet consisted of:
Accrued benefit liability	$	(59,892	)	$	(53,492	)	$	(36,032	)
Additional year-end information for plans with benefit obligations in excess of plan assets:
Projected benefit obligation	$	104,602		$	83,223		$	64,213
Fair value of plan assets	7,943			14,330			23,762

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The following table provides the components of net periodic benefit cost for the plans for 2002, 2001 and 2000 (in thousands of $):

	2002			2001			2000
Pension Plans:
Components of net periodic benefit cost
Service cost	$	2,637		$	2,761		$	4,312
Interest cost	16,598			17,534			17,205
Expected return on plan assets	(18,406		)	(19,829		)	(25,170		)
Amortization of transition (asset) or obligation	(133		)	(136		)	(141		)
Amortization of prior service cost	956			962			1,145
Recognized actuarial (gain) or loss	1			(120		)	(3,410		)
Net periodic benefit cost	$	1,653		$	1,172		$	(6,059	)
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	$	610		$	495		$	757
Interest cost	6,379			5,433			4,781
Expected return on plan assets	(1,022		)	(1,313		)	(1,768		)
Amortization of prior service cost	691			740			1,018
Amortization of transition (asset) or obligation	1,081			1,193			1,823
Recognized actuarial (gain) or loss	343			(40		)	(820		)
Net periodic benefit cost	$	8,082		$	6,508		$	5,791
Special charges
Transition obligation recognized	$	—		$	7,638		$	—
Prior service cost recognized	—			1,613			—
Special termination benefits	—			3,824			—
Total charges	$	—		$	13,075		$	—

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

	2002		2001		2000
Weighted-average assumptions as of December 31:
Discount rate	6.75	%	7.25	%	7.75	%
Expected long-term rate of return on plan assets	9.00	%	9.50	%	9.50	%
Rate of compensation increase	3.75	%	4.25	%	4.75	%

For measurement purposes, a 12.00% annual increase in the per capita cost of covered health care benefits was assumed for 2003.  The rate was assumed to decrease gradually to 5.00% for 2014 and remain at that level thereafter.

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 $):

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	1% Decrease		1% Increase
Effect on total of service and interest cost components for 2002	(422	)	479
Effect on year-end 2002 postretirement benefit obligations	(7,010	)	7,972

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 $1.5 million for 2002, $1.4 million for 2001 and $2.5 million for 2000.

Note 7 - Income Taxes

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

	2002			2001			2000
Included in operating expenses:
Current            - federal	$	38,524		$	58,337		$	44,927
- state	10,494			13,465			9,333
Deferred          - federal – net	3,467			(12,980		)	(3,254		)
- state – net	1,547			(1,340		)	957
Total	54,032			57,482			51,963
Included in other income - net:
Current            - federal	(685		)	(948		)	349
- state	15			(268		)	67
Deferred          - federal – net	(195		)	863			(122		)
- state – net	(88		)	222			(30		)
Amortization of investment tax credit	(2,955		)	(3,446		)	(3,674		)
Total	(3,908		)	(3,577		)	(3,410		)
Total income tax expense	$	50,124		$	53,905		$	48,553

Components of net deferred tax liabilities included in the balance sheet are shown below (in thousands of $):

	2002		2001
Deferred tax liabilities:
Depreciation and other plant-related items	$	271,792	$	269,752
Other liabilities	30,378		33,376
	302,170		303,128
Deferred tax assets:
Investment tax credit	3,431		4,623
Income taxes due to customers	11,609		13,263
Pensions	15,861		4,595
Accrued liabilities not currently deductible and other	30,085		41,443
	60,986		63,924
Net deferred income tax liability	$	241,184	$	239,204

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

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rate follows:

	2002		2001		2000
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	5.5		5.4		4.9
Amortization of investment tax credit	(2.4	)	(2.3	)	(2.6	)
Other differences – net	(3.2	)	(2.2	)	(3.6	)
Effective income tax rate	34.9	%	35.9	%	33.7	%

The change in other differences is due to increased non-taxable earnings from an unconsolidated KU investment.

Note 8 - Other Income - net

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

	2002		2001		2000
Equity in earnings - subsidiary company	$	6,697	$	1,803	$	2,242
Interest and dividend income	641		1,368		1,206
Gains on fixed asset disposals	157		1,844		5
Income taxes and other	2,934		3,917		3,390
Other income – net	$	10,429	$	8,932	$	6,843

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, 2002.

	Stated Interest Rates	Weighted Average Interest Rate		Maturities	Principal Amounts
Noncurrent portion	Variable - 8.55%	5.21	%	2006-2032	$	346,562
Current portion	Variable - 6.32%	3.58	%	2003-2032	$	153,930

Under the provisions for KU’s variable-rate pollution control bonds Series PCS 10, 12, 13, 14, and 15, the bonds are subject to tender for purchase at the option of the holder and to mandatory tender for purchase upon the occurrence of certain events, causing the bonds to be classified as current portion of long-term debt in the consolidated balance sheets.  The average annualized interest rate for these bonds during 2002 was 1.58%.

In September 2002, KU issued $96 million variable rate pollution control Series 16 due October 1, 2032, and exercised its call option on $96 million, 7.45% pollution control Series 8 due September 15, 2016.

In May 2002, KU issued $37.9 million variable rate pollution control Series 12, 13, 14 and 15 due February 1, 2032, and exercised its call option on $37.9 million, 6.25% pollution control Series 1B, 2B, 3B, and 4B due

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February 1, 2018.

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 Bond matured and was paid in full.

KU’s First Mortgage Bond, 6.32% Series Q of $62 million is scheduled to mature in June 2003,  KU’s First Mortgage Bond, 5.99% Series S of $36 million matures in 2006, and KU’s First Mortgage Bond, 7.92% Series P of $53 million matures in 2007.  There are no scheduled maturities of Pollution Control Bonds for the five years subsequent to December 31, 2002.

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

Note 10 - - Notes Payable to Parent

KU participates in an intercompany money pool agreement wherein LG&E Energy can make funds available to KU at market based rates up to $400 million.  The balance of the money pool loan from LG&E Energy was $119.5 million at a  rate of 1.61% and $47.8 million at an average rate of 2.37% at December 31, 2002 and 2001, respectively.  The remaining money pool availability at December 31, 2002, was $280.5 million. LG&E Energy maintains facilities of $450 million with affiliates to ensure funding availability for the money pool.  The outstanding balance under these facilities as of December 31, 2002 was $230 million, and availability of $220 million remained.

Note 11 - Commitments and Contingencies

Construction Program.  KU had approximately $6.2 million of commitments in connection with its construction program at  December 31, 2002.  Construction expenditures for the years 2003 and 2004 are estimated to total approximately $550.0 million; although all of this is not currently committed, including the purchase of four jointly owned CTs, $152.0 million, and construction of NOx equipment, $177.0 million.

Operating Leases.  KU leases office space, office equipment, and vehicles.  KU accounts for these leases as operating leases.  Total lease expense for 2002, 2001, and 2000, was $2.6 million, $2.8 million and $2.3 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 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

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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 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 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.  In December 2002, the Department of Justice (DOJ) sent correspondence to KU regarding a potential per-day fine for failure to timely submit a spill control plan and a per-gallon fine for the amount of oil discharged.  KU and the DOJ have commenced settlement discussions using existing DOJ settlement guidelines on this matter.

In April 2002, the EPA sent correspondence to KU regarding potential exposure in connection with $1.5 million in completed remediation costs associated with a transformer scrap-yard.  KU believes it is one of the more remote among a number of potentially responsible parties and has entered into settlement discussions with the EPA on this matter.

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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 400-Mw generating station not required by OMU.  The amount of purchased power available to KU during 2003-2007, which is expected to be approximately 8% of KU’s total kWh native load energy 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 follow delivered kWh.  Included in the total costs is KU’s proportionate share of debt service requirements on $149.6 million of OMU bonds outstanding at December 31, 2002.  The debt service is allocated to KU based on its annual allocated share of capacity, which averaged approximately 50% in 2002.

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 follow delivered kWh.

KU has several other contracts for purchased power of various Mw capacities.

The estimated future minimum annual payments under purchased power agreements for the years subsequent to December 31, 2002, are as follows (in thousands of $):

2003	$	34,317
2004	39,653
2005	39,653
2006	39,884
2007	39,994
Thereafter	643,946
Total	$	837,447

Note 12 – Jointly Owned Electric Utility Plant

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

		LG&E			KU			Total
Paddy’s Run 13	Ownership%	53		%	47		%	100		%
	Mw capacity	84			74			158
	Cost	$	33,919		$	29,973		$	63,892
	Depreciation	1,711			1,499			3,210
	Net book value	$	32,208		$	28,474		$	60,682
E.W. Brown 5	Ownership%	53		%	47		%	100		%
	Mw capacity	71			63			134
	Cost	$	23,973		$	21,106		$	45,079
	Depreciation	1,206			1,052			2,258
	Net book value	$	22,767		$	20,054		$	42,821
E.W. Brown 6	Ownership%	38		%	62		%	100		%
	Mw capacity	59			95			154
	Cost	$	23,696		$	36,957		$	60,653
	Depreciation	1,770			4,201			5,971
	Net book value	$	21,926		$	32,756		$	54,682
E.W. Brown 7	Ownership%	38		%	62		%	100		%
	Mw capacity	59			95			154
	Cost	$	23,607		$	44,792		$	68,399
	Depreciation	4,054			4,502			8,556
	Net book value	$	19,553		$	40,290		$	59,843
Trimble 5	Ownership%	29		%	71		%	100		%
	Mw capacity	45			110			155
	Cost	$	15,970		$	39,045		$	55,015
	Depreciation	251			614			865
	Net book value	$	15,719		$	38,431		$	54,150
Trimble 6	Ownership%	29		%	71		%	100		%
	Mw capacity	45			110			155
	Cost	$	15,961		$	39,025		$	54,986
	Depreciation	251			614			865
	Net book value	$	15,710		$	38,411		$	54,121
Trimble CT Pipeline	Ownership%	29		%	71		%	100		%
	Cost	$	1,835		$	4,475		$	6,310
	Depreciation	39			96			135
	Net book value	$	1,796		$	4,379		$	6,175

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See also Note 11, Construction Program, for KU’s planned purchase of four jointly owned CTs in 2004.

Note 13 - - Selected Quarterly Data (Unaudited)

Selected financial data for the four quarters of 2002 and 2001 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 $)
2002
Revenues	$	215,168		$	203,555	$	239,020	$	230,476
Net operating income	28,200			20,047		31,028		29,368
Net income	24,357			12,752		31,085		25,190
Net income available for common stock	23,793			12,188		30,521		24,626
2001
Revenues	$	211,793		$	219,360	$	216,370	$	211,949
Net operating income (loss)(a)	(344		)	28,422		30,253		63,039
Net income (loss)(a)	(7,995		)	22,080		26,340		55,989
Net income (loss) available for common stock(a)	(8,559		)	21,516		25,776		55,425

(a)Loss resulted from the VDT pre-tax charge of $64.0 million in March 2001, which $57.1 million was reversed in

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December 2001.  See Note 3.

Note 14 – Subsequent Events

In January 2003, the Kentucky Commission reviewed the FAC of KU for the six month period ended October 31, 2001. The Kentucky Commission ordered KU to reduce its fuel costs for purposes of calculating its FAC by $673,000. At issue was the purchase of approximately 102,000 tons of coal from Western Kentucky Energy Corporation, a non-regulated affiliate, for use at KU’s Ghent Facility. The Kentucky Commission further ordered that an independent audit be conducted to examine operational and management aspects of KU’s fuel procurement functions.

 On February 15, 2003, KU experienced a severe ice storm in Lexington, Kentucky, and surrounding service area causing over 140,000 customers to lose power.  KU is still in the process of accumulating the costs of the storm.  Costs relate to repair of transmission and distribution system, property damage, and significant labor costs, including contractor costs.  A portion of the costs may be offset by insurance proceeds.

On March 18, 2003, the Kentucky Commission approved LG&E and KU's joint application for the acquisition of four CTs from an unregulated affiliate, LG&E Capital Corp.  The total projected construction cost for the turbines, expected to be available for June 2004 in-service, is $227.4 million.  The requested ownership share of the turbines is 63% for KU and 37% for LG&E.

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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 2002 and 2001 financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants and the 2000 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 and external auditors.  These recommendations for the year ended December 31, 2002, did not identify any material weaknesses in the design and operation of KU’s internal control structure.

In carrying out its oversight role for the financial reporting and internal controls of KU, the Board of Directors meets regularly with KU’s independent public accountants, internal auditors and management.  The Board of Directors 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 Board of Directors 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 Board of Directors 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

126

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 sheets 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, 2002 and 2001, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2002, 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 audits.  We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

January 21, 2003

Louisville, Kentucky

127

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

THIS IS A COPY OF A PREVIOUSLY ISSUED REPORT OF ARTHUR ANDERSEN LLP (“ANDERSEN”) RELATING TO A PRIOR PERIOD FOR WHICH ANDERSEN WAS ENGAGED AS INDEPENDENT PUBLIC ACCOUNTANTS. THE REPORT HAS NOT BEEN REISSUED BY ANDERSEN.

128

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

Not applicable.

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 set forth in Exhibit 99.2 filed herewith and incorporated herein by reference.  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.  Controls and Procedures

LG&E and KU maintain a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the companies in reports they file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission rules and forms. During the 90 day period preceding the filing of this report, LG&E and KU conducted an evaluation of such controls and procedures under the supervision and the participation of the companies’ Management, including the Chairman, President and Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”). Based upon that evaluation, the CEO and CFO are of the conclusion that the companies’ disclosure controls and procedures are effective. With respect to LG&E’s and KU’s internal controls, there have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

ITEM 15.  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, 2002 (page 70).
		Consolidated statements of retained earnings for the three years ended December 31, 2002 (page 70).
		Consolidated statements of comprehensive income for the three years ended December 31, 2002 (page 71).
		Consolidated balance sheets-December 31, 2002, and 2001 (page 72).
		Consolidated statements of cash flows for the three years ended December 31, 2002 (page 73).
		Consolidated statements of capitalization-December 31, 2002, and 2001 (page 74).
		Notes to consolidated financial statements (pages 75-96).
		Report of management (page 97).
		Reports of independent accountants (pages 98-99).
		KU:
		Consolidated statements of income for the three years ended December 31, 2002 (page 102).
		Consolidated statements of retained earnings for the three years ended December 31, 2002 (page 102).
		Consolidated statements of comprehensive income for the three years ended December 31, 2002 (page 103).

129

	Consolidated balance sheets-December 31, 2002, and 2001 (page 104).
	Consolidated statements of cash flows for the three years ended December 31, 2002 (page 105).
	Consolidated statements of capitalization-December 31, 2002, and 2001 (page 106).
	Notes to consolidated financial statements (pages 107-125).
	Report of management (page 126).
	Reports of independent accountants (pages 127-128).
2.	Financial Statement Schedules (included in Part IV):
	Schedule II	Valuation and Qualifying Accounts for the three years ended December 31, 2002, for LG&E (page 150), and KU (page 152).
	All other schedules have been omitted as not applicable or not required or because the information required to be shown is included in the Financial Statements or the accompanying Notes to Financial Statements.

3.  Exhibits:

Exhibit No.	Applicable to Form 10-K of		Description
	LG&E	KU
2.01	ý	ý	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	ý	ý	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	ý	ý	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	ý		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	ý		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

130

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
			December 31, 1999, and incorporated by reference herein]
3.03		ý	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		ý	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	ý		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	ý		Copy of Supplemental Indenture dated February 1, 1952, which is a supplemental instrument to Exhibit 4.01 hereto.  [Filed as Exhibit 4.05 to LG&E’s Registration Statement 2-9371 and incorporated by reference herein]
4.03	ý		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	ý		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	ý		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	ý		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	ý		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]

131

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
4.08	ý		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	ý		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	ý		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	ý		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	ý		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	ý		Copy of Supplemental Indenture dated September 1, 1976, which is a supplemental instrument to Exhibit 4.01 hereto.  [Filed as Exhibit 2.13 to LG&E’s Registration Statement 2-57252 and incorporated by reference herein]
4.14	ý		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	ý		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	ý		Copy of Supplemental Indenture dated February 15, 1979, which is a supplemental instrument to Exhibit 4.01 hereto.  [Filed as Exhibit 2.16 to

132

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
			LG&E’s Registration Statement 2-65271 and incorporated by reference herein]
4.17	ý		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	ý		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	ý		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	ý		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	ý		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	ý		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	ý		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	ý		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]

133

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
4.25	ý		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	ý		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	ý		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	ý		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	ý		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	ý		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	ý		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	ý		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	ý		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,

134

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
			1992, and incorporated by reference herein]
4.34	ý		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	ý		Copy of Supplemental Indenture dated August 16, 1993, which is a supplemental instrument to Exhibit 4.01 hereto.  [Filed as Exhibit 4.35 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated by reference herein]
4.36	ý		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	ý		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	ý		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	ý		Copy of Supplemental Indenture dated March 1, 2002, which is a supplemental instrument to Exhibit 4.01 hereto.
4.40	ý		Copy of Supplemental Indenture dated March 15, 2002, which is a supplemental instrument to Exhibit 4.01 hereto.
4.41	ý		Copy of Supplemental Indenture dated October 1, 2002, which is a supplemental instrument to Exhibit 4.01 hereto.
4.42		ý	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

135

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
			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 [Filed as Exhibit 4.E to Form 10-K Annual Report of KU for the year ended December 31, 1995, and incorporated by reference herein]
4.43		ý	Copy of 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]
4.44		ý	Copy of Supplemental Indenture dated May 1, 2000, which is a supplemental instrument to Exhibit 4.42 hereto.  [Filed as Exhibit 4.41 to KU’s Annual Report on Form 10-K for the year ended December 31, 2000, and incorporated by reference herein]
4.45	ý		Copy of Supplemental Indenture dated September 1, 2001, which is a supplemental instrument to Exhibit 4.42 hereto. [Filed as Exhibit 4.42 to

136

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
			KU’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
4.46		ý	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. [Filed as Exhibit 4.43 to KU’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
4.47		ý	Purchase and Sale Agreement dated as of February 6, 2001 between KU Receivables LLC and Kentucky Utilities Company. [Filed as Exhibit 4.44 to KU’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
4.48	ý		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. [Filed as Exhibit 4.45 to KU’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
4.49	ý		Purchase and Sale Agreement dated as of February 6, 2001 between LG&E Receivables LLC and Louisville Gas and Electric Company. [Filed as Exhibit 4.46 to KU’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
4.50		ý	Copy of Supplemental Indenture dated May 1, 2002, which is a supplemental instrument to Exhibit 4.42 hereto.
4.51		ý	Copy of Supplemental Indenture dated September 1, 2002, which is a supplemental instrument to Exhibit 4.42 hereto.
10.01	ý		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	ý		Copy of Modification No. 1 dated July 23, 1953, to the Power Agreement

137

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
			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	ý		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	ý		Copy of Modification No. 3 and No. 4 dated May 12, 1966 and January 7, 1967, respectively, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission.  [Filed as Exhibits 4(a)(13) and 4(a)(14) to LG&E’s Registration Statement 2-26063 and incorporated by reference herein]
10.05	ý		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	ý	ý	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	ý	ý	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	ý		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]

138

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
10.09	ý		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	ý		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	ý		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	ý		Copy of Modification No. 6 dated November 15, 1967, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission.  [Filed as Exhibit 4(g) to LG&E’s Registration Statement 2-28524 and incorporated by reference herein]
10.13	ý	ý	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	ý		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	ý	ý	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	ý		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

139

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
			reference herein]
10.17	ý		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	ý		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	ý		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	ý		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	ý	ý	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	ý		Copy of Modification No. 12 dated August 1, 1981, to the Power Agreement between Ohio Valley Electric Corporation and Atomic Energy Commission.  [Filed as Exhibit 10.25 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 1981, and incorporated by reference herein]
10.23	ý	ý	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	ý		*  Copy of Non-Qualified Savings Plan covering officers of the Company,

140

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
			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	ý		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	ý		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	ý	ý	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	ý		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	ý		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	ý	ý	Copy of Modification No. 8 dated January 19, 1994, to Inter-Company 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	ý		Copy of Amendment dated March 1, 1995, to Firm No-Notice Transportation Agreements dated November 1, 1993 (2-Year, 5-Year and 8-Year),

141

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
			between Texas Gas Transmission Corporation and LG&E covering the transmission of natural gas.  [Filed as Exhibit 10.44 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]
10.32	ý	ý	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]
10.34	ý		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	ý		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	ý		*  Copy of Amendment to the Non-Qualified Savings Plan, effective January 1, 1992.  [Filed as Exhibit 10.55 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]
10.37	ý		*  Copy of Amendment to the Non-Qualified Savings Plan, effective January 1, 1995.  [Filed as Exhibit 10.56 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]
10.38	ý		*  Copy of Amendment to the Non-Qualified Savings Plan, effective January 1, 1995.  [Filed as Exhibit 10.57 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein]
10.39	ý	ý	*  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]

142

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
10.40	ý		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]
10.41	ý		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]
10.42	ý		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]
10.43	ý	ý	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.  [Filed as Exhibit 10.51 to LG&E’s and KU’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
10.44	ý	ý	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. [Filed as Exhibit 10.52 to LG&E’s and KU’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
10.45		ý	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. [Filed as Exhibit 10.53 to KU’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
10.46	ý		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. [Filed as Exhibit 10.54 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]

143

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
10.47		ý	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. [Filed as Exhibit 10.55 to KU’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
10.48		ý	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. [Filed as Exhibit 10.56 to KU’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
10.49	ý		Copy of Amendment dated November 6, 2000, to Firm Transportation Agreement between LG&E and Texas Gas Transmission Corporation covering the transmission of natural gas (expires October 31, 2006). [Filed as Exhibit 10.57 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
10.50	ý		Copy of Amendment dated November 6, 2000, to Firm Transportation Agreement between LG&E and Texas Gas Transmission Corporation covering the transmission of natural gas (expires October 31, 2008). [Filed as Exhibit 10.58 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
10.51	ý		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). [Filed as Exhibit 10.59 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
10.52	ý		Copy of Amendment dated September 15, 1999, to Firm Transportation Agreement between LG&E and Texas Gas Transmission Corporation covering the transmission of natural gas (expires October 31, 2006). [Filed as Exhibit 10.60 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated by reference herein]
10.53	ý	ý	*  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]

144

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
10.54	ý	ý	* Copy of Employment and Severance Agreement, dated as of February 25, 2000, by and among LG&E Energy, Powergen plc and an executive officer of the Company.
10.55	ý	ý	* 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 by reference herein]
10.56	ý	ý	* 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 by reference herein]
10.57	ý	ý	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 by reference herein]
10.58	ý	ý	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 by reference herein]
10.59	ý		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 by reference herein]
10.60	ý	ý	* 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]
10.61	ý	ý	* Copy of two forms of Change-In-Control Agreement applicable to certain employees of LG&E Energy Corp. and its subsidiaries. [Filed as

145

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
			Exhibit 10.110 to LG&E’s Annual Report on Form 10-K for the year ended December 31, 2000, and incorporated by reference herein]
10.62	ý	ý	* 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. [Filed as Exhibit 10.74 to LG&E’s and KU’s Annual Report on Form 10-K/A for the year ended December 31, 2001, and incorporated by reference herein]
10.63	ý	ý	* Copy of Amendment, dated as of December 8, 2000, to Employment and Severance Agreement dated as of February 25, 2000, by and among LG&E Energy, Powergen plc and an executive officer of the Company.
10.64	ý		Copy of Amendment dated June 5, 2002, to Firm No-Notice Transportation Agreement dated November 1, 1993, between LG&E and Texas Gas Transmission Corporation covering the transmission of natural gas (expires October 31, 2008).
10.65	ý		Copy of Firm Transportation Service Agreement dated November 1, 2002, between LG&E and Tennessee Gas Pipeline Company covering the transmission of natural gas (expires October 31, 2012).
10.66	ý		Copy of Amendment No. 1 dated January 1, 2001, to Coal Supply Agreement dated July 1, 1997, between LG&E and Kindill Mining, Inc.
10.67	ý		Copy of Amendment No. 2 dated January 1, 2002, to Coal Supply Agreement dated July 1, 1997, between LG&E and Kindill Mining, Inc.
10.68	ý	ý	Copy of Amendment No. 2 dated January 1, 2003, to Coal Supply Agreement dated January 1, 2000, 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.
10.69	ý		Copy of Coal Supply Agreement dated January 1, 2003, between LG&E and Peabody Coalsales Company.
10.70	ý		Copy of Coal Supply Agreement dated January 1, 2002, between LG&E and Peabody Coalsales Company.

146

	Applicable to Form 10-K of
Exhibit No.	LG&E	KU	Description
10.71	ý		Copy of  Amendment No. 1 dated June 1, 2002, to Coal Supply Agreement dated January 1, 2002, between LG&E and Peabody Coalsales Company.
10.72	ý		Copy of  Amendment No. 2 dated January 1, 2003, to Coal Supply Agreement dated January 1, 2002, between LG&E and Peabody Coalsales Company.
10.73		ý	Copy of Coal Supply Agreement dated January 1, 2002, between KU and Massey Coal Sales Company, Inc.
10.74	ý	ý	*Copy of Third Amendment, dated July 1, 2002, to Employment and Severance Agreement dated as of February 25, 2000 by and among E.ON AG, LG&E Energy, Powergen and Victor A. Staffieri.
10.75	ý	ý	*Copy of form of Retention and Severance Agreement dated April/May, 2002 by and among LG&E Energy, E.ON AG and certain executive officers of the Companies.
10.76	ý	ý	*Copy of Second Amendment, dated May 20, 2002, to Employment and Severance Agreement, dated February 25, 2000, by and among E.ON AG, LG&E Energy Corp., Powergen plc and an executive of the Companies.
10.77	ý	ý	*Copies of Contract of Employment, dated June 22, 1999, Terms of Condition of Assignment, dated December 19, 2000, and Amendment to the Terms and Conditions of Assignment, dated June 27, 2002, by and among, as applicable, Powergen UK plc, Powergen plc, LG&E Energy Corp. and an executive officer of the Companies.
10.78	ý	ý	*Copy of Powergen UK Long Term Incentive Plan, November 2002, applicable to certain executive officers of the Companies.
10.79	ý	ý	*Copy of Terms and Conditions for Stock Options Issued as part of E.ON Group's Stock Option Programs, applicable to certain executive officers of the Companies.
12	ý	ý	Computation of Ratio of Earnings to Fixed Charges for LG&E and KU.
21	ý	ý	Subsidiaries of the Registrants.
23.01	ý		Consents of Independent Accountants for LG&E.
23.02		ý	Consents of Independent Accountants for KU.
24	ý	ý	Powers of Attorney.
99.01	ý	ý	Cautionary Statement for purposes of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995.
99.02	ý	ý	LG&E and KU Director and Officer Information.

(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.

(c)Reports on Form 8-K:

147

On November 14, 2002, LG&E and KU filed a current report on Form 8-K, submitting certifications of the Chairman, President, and Chief Executive Officer and the Chief Financial Officer of each company, respectively, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 regarding the companies’ Quarterly Reports on Form 10-Q for the period ended September 30, 2002.

(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.

148

Report of Independent Accountants
on Financial Statement Schedules

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

Our audits of the consolidated financial statements of Louisville Gas and Electric Company and Subsidiary as of December 31, 2002 and for each of the two years in the period ended December 31, 2002, referred to in our report dated January 21, 2003 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, 2002 and for the year then ended when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

January 21, 2003

Louisville, Kentucky

149

Schedule II

Louisville Gas and Electric Company
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended December 31, 2002
(Thousands of $)

	Other Property and Investments		Accounts Receivable (Uncollectible Accounts)
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
Additions:
Charged to costs and expenses	—		4,459
Deductions:
Net charges of nature for which reserves were created	—		3,909
Balance December 31, 2002	$	63	$	2,125

150

Report of Independent Accountants
on Financial Statement Schedules

To the Shareholders of Kentucky Utilities Company and Subsidiary:

Our audits of the consolidated financial statements of Kentucky Utilities Company and Subsidiary as of December 31, 2002 and for each of the two years in the period ended December 31, 2002, referred to in our report dated January 21, 2003 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, 2002 and for the year then ended when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

January 21, 2003

Louisville, Kentucky

151

Schedule II

Kentucky Utilities Company
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended December 31, 2002
(Thousands of $)

	Other Property and Investments		Accounts Receivable (Uncollectible Accounts)
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
Additions:
Charged to costs and expenses	—		1,314
Deductions:
Net charges of nature for which reserves were created	—		1,314
Balance December 31, 2002	$	130	$	800

152

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
March 25, 2003	/s/ S. Bradford Rives
(Date)

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);
Michael Söhlke		Director;
Edmund A. Wallis		Director.
By	/s/ S. Bradford Rives		March 25, 2003
	(Attorney-In-Fact)

153

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
March 25, 2003	/s/ S. Bradford Rives
(Date)

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);
Michael Söhlke		Director;
Edmund A. Wallis		Director.
By	/s/ S. Bradford Rives		March 25, 2003
	(Attorney-In-Fact)

154

CERTIFICATIONS

Louisville Gas and Electric Company

I, Victor A. Staffieri, Chairman of the Board, President and Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Louisville Gas and Electric Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  March 25, 2003

/s/  Victor A. Staffieri

Victor A. Staffieri

Chairman of the Board, President and Chief Executive Officer

155

Louisville Gas and Electric Company

I, Richard Aitken-Davies, Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Louisville Gas and Electric Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  March 25, 2003

/s/  Richard Aitken-Davies

Richard Aitken-Davies

Chief Financial Officer

156

Kentucky Utilities Company

I, Victor A. Staffieri, Chairman of the Board, President and Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Kentucky Utilities Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  March 25, 2003

/s/  Victor A. Staffieri

Victor A. Staffieri

Chairman of the Board, President and Chief Executive Officer

157

Kentucky Utilities Company

I, Richard Aitken-Davies, Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Kentucky Utilities Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  March 25, 2003

/s/  Richard Aitken-Davies

Richard Aitken-Davies

Chief Financial Officer

158

EX-4.39

EXHIBIT 4.39

SUPPLEMENTAL INDENTURE

FROM

LOUISVILLE GAS AND ELECTRIC COMPANY

TO

HARRIS TRUST AND SAVINGS BANK

TRUSTEE

DATED MARCH 1, 2002

SUPPLEMENTAL TO TRUST INDENTURE

DATED NOVEMBER 1, 1949

Table of Contents

Parties
Recitals
Form of Bonds of Pollution Control Series BB
Form of Bonds of Pollution Control Series CC
Further Recitals
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
ARTICLE II.
PROVISIONS OF BONDS OF POLLUTION CONTROL SERIES BB AND CC.
Section 2.01-	Terms of Bonds of Pollution Control Series BB
Section 2.02-	Payment of principal and interest-Bonds of Pollution Control Series BB
Section 2.03-	Bonds of Pollution Control Series BB deemed fully paid upon payment of corresponding Jefferson County Bonds
Section 2.04-	Terms of Bonds of Pollution Control Series CC
Section 2.05-	Payment of principal and interest-Bonds of Pollution Control Series CC
Section 2.06-	Bonds of Pollution Control Series CC deemed fully paid upon payment of corresponding Trimble County Bonds
Section 2.07-	Interchangeability of bonds
Section 2.08-	Charges upon exchange or transfer of bonds
ARTICLE III.
MISCELLANEOUS.
Section 3.01-	Recitals of fact, except as stated, are statements of the Company
Section 3.02 -	Supplemental Indenture to be construed as a part of the Original Indenture
Section 3.03-	(a)  Trust Indenture Act to control
	(b)  Severability of provisions contained in Supplemental Indenture and bonds
Section 3.04-	Word “Indenture” as used herein includes in its meaning the Original Indenture and all indentures supplemental thereto
Section 3.05-	References to either party in Supplemental Indenture include successors or assigns
Section 3.06-	(a)  Provision for execution in counterparts
	(b) Table of contents and descriptive headings of Articles not to affect meaning
Schedule A

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Supplemental Indenture, made as of the 1st day of March, 2002, 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 Company has heretofore issued in accordance with the provisions of the Original Indenture as supplemented by the Supplemental Indenture dated September 1, 2001, bonds of a series designated “First Mortgage Bonds, Pollution Control Series AA,” bearing interest as provided therein and maturing September 1, 2027; and

WHEREAS, the County of Jefferson in the Commonwealth of Kentucky (“Jefferson County”) has agreed to issue $22,500,000 principal amount of its Pollution Control Revenue Bonds, 2001 Series A (Louisville Gas and Electric Company Project) (the “Jefferson County

5

Bonds”) pursuant to the provisions of the Indenture of Trust, dated as of November 1, 2001 (the “Jefferson County Indenture”), between and among Jefferson County and Bankers Trust Company, as Trustee, Paying Agent and Bond Registrar (said Trustee or any successor trustee under the Jefferson County Indenture being hereinafter referred to as the “Jefferson County Trustee”); and

WHEREAS, the County of Trimble in the Commonwealth of Kentucky (“Trimble County”) has agreed to issue $27,500,000 principal amount of its Pollution Control Revenue Bonds, 2001 Series A (Louisville Gas and Electric Company Project) (the “Trimble County Bonds”) pursuant to the provisions of the Indenture of Trust, dated as of November 1, 2001 (the “Trimble County Indenture”), between and among Trimble County and Bankers Trust Company, as Trustee, Paying Agent and Bond Registrar (said Trustee or any successor trustee under the Trimble County Indenture being hereinafter referred to as the “Trimble County Trustee”); and

WHEREAS, the proceeds of the Jefferson County Bonds (other than any accrued interest, if any, thereon) will be loaned by Jefferson County to the Company pursuant to the provisions of a Loan Agreement, dated as of November 1, 2001, between Jefferson County and the Company (the “Jefferson County Agreement”), to pay and discharge $22,500,000 in outstanding principal amount of “County of Jefferson, Kentucky, Pollution Control Revenue Bonds, 1996 Series A (Louisville Gas and Electric Company Project),” dated October 2, 1996 (the “1996 Jefferson Bonds”) on the date of issuance of the Jefferson County Bonds.  The 1996 Jefferson Bonds were issued to refinance the cost of construction of certain air and water pollution control and solid waste disposal facilities at the Mill Creek and Cane Run Generating Stations of the Company, which facilities are hereinafter sometimes referred to as the “Jefferson County Project,” which Jefferson County Project is located in Jefferson County and which Jefferson County Project is more fully described in Exhibit A to the Jefferson County Agreement; and

WHEREAS, the proceeds of the Trimble County Bonds (other than any accrued interest, if any, thereon) will be loaned by Trimble County to the Company pursuant to the provisions of a Loan Agreement, dated as of November 1, 2001, between Trimble County and the Company (the “Trimble County Agreement”), to pay and discharge $27,500,000 in outstanding principal amount of “County of Trimble, Kentucky, Pollution Control Revenue Bonds, 1996 Series A (Louisville Gas and Electric Company Project),” dated October 2, 1996 (the “1996 Trimble Bonds”) on the date of issuance of the Trimble County Bonds.  The 1996 Trimble Bonds were issued to refinance the cost of construction of certain air and water pollution control and solid waste disposal facilities at the Trimble County Generating Station of the Company, which facilities are hereinafter sometimes referred to as the “Trimble County Project,” which Trimble County Project is located in Trimble County and which Trimble County Project is more fully described in Exhibit A to the Trimble County Agreement; and

WHEREAS, payments by the Company under and pursuant to the Jefferson County Agreement have been assigned by Jefferson County to the Jefferson County Trustee in order to secure the payment of the Jefferson County Bonds, and payments by the Company under and pursuant to the Trimble County Agreement have been assigned by Trimble County to the

6

Trimble County Trustee in order to secure the payment of the Trimble County Bonds; and

WHEREAS, in order to further secure the payment of the Jefferson County Bonds, the Company desires to provide for the issuance under the Original Indenture to the Jefferson County Trustee of a new series of bonds designated “First Mortgage Bonds, Pollution Control Series BB” (sometimes called “Bonds of Pollution Control Series BB”), in a principal amount equal to the principal amount of the Jefferson County Bonds, and with corresponding terms and maturity, the Bonds of Pollution Control Series BB to be issued as registered bonds without coupons in denominations of a multiple of $1,000; and the Bonds of Pollution Control Series BB are to be substantially in the form and tenor following, to-wit:

(Form of Bonds of Pollution Control Series BB)

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 November 1, 2001, from the County of Jefferson, Kentucky, to Bankers Trust Company, 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 BB

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 Bankers Trust Company, as Trustee under the Indenture of Trust (the “Jefferson County Indenture”) dated as of November 1, 2001, from the County of Jefferson, Kentucky, to Bankers Trust Company, or any successor trustee under the Jefferson County Indenture (the “Jefferson County 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 Series BB Demand Redemption Date, as hereinafter defined, and to pay on the Series BB Demand Redemption Date to the Jefferson County Trustee, interest hereon from the Series BB Initial Interest Accrual Date, as hereinafter defined, to the Series BB Demand Redemption Date at the same rate or rates per annum then and thereafter from time to time borne by the Jefferson County 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 Series BB 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

7

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, September 1, 2001 and March 1, 2002 (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 BB.  The bonds of this Series have been issued to the Jefferson County Trustee under the Jefferson County Indenture to secure payment of the Pollution Control Revenue Bonds, 2001 Series A (Louisville Gas and Electric Company Project) (the “Jefferson County Bonds”) issued by the County of Jefferson, Kentucky (“Jefferson County”) under the Jefferson County 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 November 1, 2001 (the “Jefferson County Agreement”) between the Company and Jefferson County.  The maturity of the obligation represented by the bonds of this Series is September 1, 2026.  The date of maturity of the obligation represented by the bonds of this Series is hereinafter referred to as the Series BB Final Maturity Date.  The bonds of this Series shall bear interest from the Series BB 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 Jefferson County 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

8

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 Jefferson County 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 Jefferson County Indenture and the Jefferson County Bonds) on the Jefferson County 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 “Series BB Redemption Demand”) from the Jefferson County 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 Jefferson County Indenture, specifying the last date to which interest on the Jefferson County Bonds has been paid (such date being hereinafter referred to as the “Series BB Initial Interest Accrual Date”) and demanding redemption of the bonds of this Series.  The Trustee shall, within 10 days after receiving such Series BB 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 Series BB 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 “Series BB Demand Redemption Date”).  Notice of the date fixed as and for the Series BB Demand Redemption Date shall be mailed by the Company to the Trustee at least 30 days prior to such Series BB Demand Redemption Date.  The date to be fixed by the Company as and for the Series BB 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 Series BB Redemption Demand or (ii) the Series BB Final Maturity Date, provided that if the Trustee shall not have received such notice fixing the Series BB Demand Redemption Date within 90 days after receipt by it of the Series BB Redemption Demand, the Series BB Demand Redemption Date shall be deemed to be the earlier of (i) the 120th day after receipt by the Trustee of the Series BB Redemption Demand or (ii) the Series BB Final Maturity Date.  The Trustee shall mail notice of the Series BB Demand Redemption Date (such notice being hereinafter called the “Series BB Demand Redemption Notice”) to the Jefferson County Trustee not more than 10 nor less than five days prior to the Series BB Demand Redemption Date.  Notwithstanding the foregoing, if a default to which this paragraph is applicable is existing on the Series BB Final Maturity Date, such date shall be deemed to be the Series BB Demand Redemption Date without further action (including actions specified in this paragraph) by the Jefferson County Trustee, the Trustee or the Company.  The bonds of this Series shall be redeemed by the Company on the Series BB Demand Redemption Date, upon surrender thereof by the Jefferson County 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 Series BB Initial Interest Accrual Date to the Series BB Demand Redemption Date.  If a Series BB Redemption Demand is rescinded by the Jefferson County Trustee by written notice to the Trustee prior to the Series BB Demand Redemption

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Date, no Series BB 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 Series BB Initial Interest Accrual Date, as specified in a written notice to the Trustee from the Jefferson County Trustee, and the principal of and interest on the bonds of this Series from the Series BB 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 Jefferson County Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the Jefferson County Trustee (other than any Jefferson County Bond that was cancelled by the Jefferson County Trustee and for which one or more other Jefferson County Bonds were delivered and authenticated pursuant to the Jefferson County Indenture in lieu of or in exchange or substitution for such cancelled Jefferson County Bond), or upon provision for the payment thereof having been made in accordance with the Jefferson County Indenture, bonds of this Series in a principal amount equal to the principal amount of the Jefferson County 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 Jefferson County 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 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, Z, AA and CC) 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 Jefferson County 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

10

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

and

WHEREAS, in order to further secure the payment of the Trimble County Bonds, the Company desires to provide for the issuance under the Original Indenture to the Trimble County Trustee of a new series of bonds designated “First Mortgage Bonds, Pollution Control Series CC” (sometimes called “Bonds of Pollution Control Series CC”), in a principal amount equal to the principal amount of the Trimble County Bonds, and with corresponding terms and maturity, the Bonds of Pollution Control Series CC to be issued as registered bonds without coupons in denominations of a multiple of $1,000; and the Bonds of Pollution Control Series CC are to be substantially in the form and tenor following, to-wit:

(Form of Bonds of Pollution Control Series CC)

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 November 1, 2001, from the County of Trimble,

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Kentucky, to Bankers Trust Company, 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 CC

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 Bankers Trust Company, as Trustee under the Indenture of Trust (the “Trimble County Indenture”) dated as of November 1, 2001, from the County of Jefferson, Kentucky, to Bankers Trust Company, or any successor trustee under the Trimble County Indenture (the “Trimble County 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 Series CC Demand Redemption Date, as hereinafter defined, and to pay on the Series CC Demand Redemption Date to the Trimble County Trustee, interest hereon from the Series CC Initial Interest Accrual Date, as hereinafter defined, to the Series CC Demand Redemption Date at the same rate or rates per annum then and thereafter from time to time borne by the Trimble County 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 Series CC 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, September 1, 2001 and March 1, 2002 (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

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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 CC.  The bonds of this Series have been issued to the Trimble County Trustee under the Trimble County Indenture to secure payment of the Pollution Control Revenue Bonds, 2001 Series A (Louisville Gas and Electric Company Project) (the “Trimble County Bonds”) issued by the County of Trimble, Kentucky (“Trimble County”) under the Trimble County 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 November 1, 2001 (the “Trimble County Agreement”) between the Company and Trimble County.  The maturity of the obligation represented by the bonds of this Series is September 1, 2026.  The date of maturity of the obligation represented by the bonds of this Series is hereinafter referred to as the Series CC Final Maturity Date.  The bonds of this Series shall bear interest from the Series CC 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 Trimble County 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 Trimble County 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 Trimble County Indenture and the Trimble County Bonds) on the Trimble County 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 “Series CC Redemption Demand”) from the Trimble County 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 Trimble County Indenture, specifying the last

13

date to which interest on the Trimble County Bonds has been paid (such date being hereinafter referred to as the “Series CC Initial Interest Accrual Date”) and demanding redemption of the bonds of this Series.  The Trustee shall, within 10 days after receiving such Series CC 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 Series CC 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 “Series CC Demand Redemption Date”).  Notice of the date fixed as and for the Series CC Demand Redemption Date shall be mailed by the Company to the Trustee at least 30 days prior to such Series CC Demand Redemption Date.  The date to be fixed by the Company as and for the Series CC 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 Series CC Redemption Demand or (ii) the Series CC Final Maturity Date, provided that if the Trustee shall not have received such notice fixing the Series CC Demand Redemption Date within 90 days after receipt by it of the Series CC Redemption Demand, the Series CC Demand Redemption Date shall be deemed to be the earlier of (i) the 120th day after receipt by the Trustee of the Series CC Redemption Demand or (ii) the Series CC Final Maturity Date.  The Trustee shall mail notice of the Series CC Demand Redemption Date (such notice being hereinafter called the “Series CC Demand Redemption Notice”) to the Trimble County Trustee not more than 10 nor less than five days prior to the Series CC Demand Redemption Date.  Notwithstanding the foregoing, if a default to which this paragraph is applicable is existing on the Series CC Final Maturity Date, such date shall be deemed to be the Series CC Demand Redemption Date without further action (including actions specified in this paragraph) by the Trimble County Trustee, the Trustee or the Company.  The bonds of this Series shall be redeemed by the Company on the Series CC Demand Redemption Date, upon surrender thereof by the Trimble County 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 Series CC Initial Interest Accrual Date to the Series CC Demand Redemption Date.  If a Series CC Redemption Demand is rescinded by the Trimble County Trustee by written notice to the Trustee prior to the Series CC Demand Redemption Date, no Series CC 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 Series CC Initial Interest Accrual Date, as specified in a written notice to the Trustee from the Trimble County Trustee, and the principal of and interest on the bonds of this Series from the Series CC Initial Interest Accrual Date shall be payable in accordance with the provisions of the Indenture.

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Upon payment of the principal of and premium, if any, and interest on the Trimble County Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the Trimble County Trustee (other than any Trimble County Bond that was cancelled by the Trimble County Trustee and for which one or more other Trimble County Bonds were delivered and authenticated pursuant to the Trimble County Indenture in lieu of or in exchange or substitution for such cancelled Trimble County Bond), or upon provision for the payment thereof having been made in accordance with the Trimble County Indenture, bonds of this Series in a principal amount equal to the principal amount of the Trimble County 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 Trimble County 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 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, Z, AA and BB) 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 Trimble County 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.

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Dated	LOUISVILLE GAS AND ELECTRIC COMPANY
Attest:	By
	Vice President
Secretary

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

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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;

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;

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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 BB AND CC

Section 2.01.          There is hereby created, for issuance under the Original Indenture, a series of bonds designated Pollution Control Series BB, each of which shall bear the descriptive title “First Mortgage Bonds, Pollution Control Series BB” and the form thereof shall contain suitable provisions with respect to the matters specified in this section.  The Bonds of Pollution Control Series BB shall be printed, lithographed or typewritten and shall be substantially of the tenor and purport previously recited.  The Bonds of Pollution Control Series BB 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 Jefferson County Trustee.  The Bonds of Pollution Control Series BB shall be dated as of the date of their authentication.

The Bonds of Pollution Control Series BB 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 BB is September 1, 2026.  The date of maturity of the obligation represented by the Bonds of Pollution Control Series BB is hereinafter referred to as the Series BB Final Maturity Date.  The Bonds of Pollution Control Series BB shall bear interest from the Series BB Initial Interest Accrual Date, as hereinafter defined, at the same rate or rates then and thereafter from time to time borne by the Jefferson County 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 Jefferson County 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 Jefferson County Indenture and the Jefferson County Bonds) on the Jefferson County 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 BB shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter called a “Series BB Redemption Demand”) from the Jefferson County 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 Jefferson County Indenture, specifying the last date to which interest on the Jefferson County Bonds has been paid (such date being hereinafter referred to as the “Series BB Initial Interest Accrual Date”) and demanding redemption of the Bonds of Pollution Control Series BB.  The Trustee shall, within

18

10 days after receiving such Series BB 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 Series BB Redemption Demand, the Company shall fix a date on which it will redeem the Bonds of Pollution Control Series BB so demanded to be redeemed (hereinafter called the “Series BB Demand Redemption Date”).  Notice of the date fixed as the Series BB Demand Redemption Date shall be mailed by the Company to the Trustee at least 30 days prior to such Series BB Demand Redemption Date.  The date to be fixed by the Company as and for the Series BB 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 Series BB Redemption Demand or (ii) the Series BB Final Maturity Date, provided that if the Trustee shall not have received such notice fixing the Series BB Demand Redemption Date within 90 days after receipt by it of the Series BB Redemption Demand, the Series BB Demand Redemption Date shall be deemed to be the earlier of (i) the 120th day after receipt by the Trustee of the Series BB Redemption Demand or (ii) the Series BB Final Maturity Date.  The Trustee shall mail notice of the Series BB Demand Redemption Date (such notice being hereinafter called the “Series BB Demand Redemption Notice”) to the Jefferson County Trustee not more than 10 nor less than five days prior to the Series BB Demand Redemption Date.  Notwithstanding the foregoing, if a default to which this paragraph is applicable is existing on the Series BB Final Maturity Date, such date shall be deemed to be the Series BB Demand Redemption Date without further action (including actions specified in this paragraph) by the Jefferson County Trustee, the Trustee or the Company.  The Bonds of Pollution Control Series BB shall be redeemed by the Company on the Series BB Demand Redemption Date, upon surrender thereof by the Jefferson County 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 Series BB Initial Interest Accrual Date to the Series BB Demand Redemption Date.  If a Series BB Redemption Demand is rescinded by the Jefferson County Trustee by written notice to the Trustee prior to the Series BB Demand Redemption Date, no Series BB Demand Redemption Notice shall be given, or, if already given, shall be automatically annulled, and interest on the Bonds of Pollution Control Series BB 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 BB; 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 BB shall bear interest at the rate per annum set forth in Section 2.01 hereof, from the Series BB Interest Accrual Date, as specified in a written notice to the Trustee from the Jefferson County Trustee, and the principal of and interest on the Bonds of Pollution Control Series BB from the Series BB 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 Series BB Redemption Demand or a rescission thereof or a written notice required by this Section 2.02, and such Series BB Redemption Demand, rescission

19

or notice shall be of no force or effect, unless it is executed in the name of the Jefferson County Trustee by one of its Vice Presidents.

Section 2.03.          Upon payment of the principal of and premium, if any, and interest on the Jefferson County Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the Jefferson County Trustee (other than any Jefferson County Bond that was cancelled by the Jefferson County Trustee and for which one or more other Jefferson County Bonds were delivered and authenticated pursuant to the Jefferson County Indenture in lieu of or in exchange or substitution for such cancelled Jefferson County Bond), or upon provision for the payment thereof having been made in accordance with the Jefferson County Indenture, Bonds of Pollution Control Series BB in a principal amount equal to the principal amount of the Jefferson County 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 Pollution Control Series BB shall be surrendered by the Jefferson County 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 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, Z, AA and CC) 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 Jefferson County Trustee to the Trustee whereupon the Bonds of said Series so surrendered shall be cancelled by the Trustee.

Section 2.04.          There is hereby created, for issuance under the Original Indenture, a series of bonds designated Pollution Control Series CC, each of which shall bear the descriptive title “First Mortgage Bonds, Pollution Control Series CC” and the form thereof shall contain suitable provisions with respect to the matters specified in this section.  The Bonds of Pollution Control Series CC shall be printed, lithographed or typewritten and shall be substantially of the tenor and purport previously recited.  The Bonds of Pollution Control Series CC 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 Trimble County Trustee.  The Bonds of Pollution Control Series CC shall be dated as of the date of their authentication.

The Bonds of Pollution Control Series CC 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 CC is September 1, 2026.  The date of maturity of the obligation represented by the Bonds of Pollution Control Series CC is hereinafter referred to as the Series CC Final Maturity Date.  The Bonds of Pollution Control Series CC shall bear interest from the Series CC Initial Interest Accrual Date, as hereinafter defined, at the same rate or rates then and thereafter from time to

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time borne by the Trimble County Bonds.

Section 2.05.          Except as provided in the next succeeding paragraph of this Section 2.05, in the event of a default under Section 9.1 of the Trimble County 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 Trimble County Indenture and the Trimble County Bonds) on the Trimble County 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 CC shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter called a “Series CC Redemption Demand”) from the Trimble County 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 Trimble County Indenture, specifying the last date to which interest on the Trimble County Bonds has been paid (such date being hereinafter referred to as the “Series CC Initial Interest Accrual Date”) and demanding redemption of the Bonds of Pollution Control Series CC.  The Trustee shall, within 10 days after receiving such Series CC 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 Series CC Redemption Demand, the Company shall fix a date on which it will redeem the Bonds of Pollution Control Series CC so demanded to be redeemed (hereinafter called the “Series CC Demand Redemption Date”).  Notice of the date fixed as the Series CC Demand Redemption Date shall be mailed by the Company to the Trustee at least 30 days prior to such Series CC Demand Redemption Date.  The date to be fixed by the Company as and for the Series CC 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 Series CC Redemption Demand or (ii) the Series CC Final Maturity Date, provided that if the Trustee shall not have received such notice fixing the Series CC Demand Redemption Date within 90 days after receipt by it of the Series CC Redemption Demand, the Series CC Demand Redemption Date shall be deemed to be the earlier of (i) the 120th day after receipt by the Trustee of the Series CC Redemption Demand or (ii) the Series CC Final Maturity Date.  The Trustee shall mail notice of the Series CC Demand Redemption Date (such notice being hereinafter called the “Series CC Demand Redemption Notice”) to the Trimble County Trustee not more than 10 nor less than five days prior to the Series CC Demand Redemption Date.  Notwithstanding the foregoing, if a default to which this paragraph is applicable is existing on the Series CC Final Maturity Date, such date shall be deemed to be the Series CC Demand Redemption Date without further action (including actions specified in this paragraph) by the Trimble County Trustee, the Trustee or the Company.  The Bonds of Pollution Control Series CC shall be redeemed by the Company on the Series CC Demand Redemption Date, upon surrender thereof by the Trimble County 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 2.04 hereof, from the Series CC Initial Interest Accrual Date to the Series CC Demand Redemption Date.  If a Series CC Redemption Demand is rescinded by the Trimble County Trustee by written notice to the Trustee prior to the Series CC Demand Redemption Date, no Series CC Demand Redemption Notice shall be given, or, if already given, shall be automatically annulled, and interest on the Bonds of Pollution Control Series CC shall cease to accrue, all interest accrued thereon shall be automatically rescinded and cancelled and

21

the Company shall not be obligated to make any payments of principal of or interest on the Bonds of Pollution Control Series CC; 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 CC shall bear interest at the rate per annum set forth in Section 2.04 hereof, from the Series CC Interest Accrual Date, as specified in a written notice to the Trustee from the Trimble County Trustee, and the principal of and interest on the Bonds of Pollution Control Series CC from the Series CC 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 Series CC Redemption Demand or a rescission thereof or a written notice required by this Section 2.05, and such Series CC Redemption Demand, rescission or notice shall be of no force or effect, unless it is executed in the name of the Trimble County Trustee by one of its Vice Presidents.

Section 2.06.          Upon payment of the principal of and premium, if any, and interest on the Trimble County Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the Trimble County Trustee (other than any Trimble County Bond that was cancelled by the Trimble County Trustee and for which one or more other Trimble County Bonds were delivered and authenticated pursuant to the Trimble County Indenture in lieu of or in exchange or substitution for such cancelled Trimble County Bond), or upon provision for the payment thereof having been made in accordance with the Trimble County Indenture, Bonds of Pollution Control Series CC in a principal amount equal to the principal amount of the Trimble County 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 Pollution Control Series BB shall be surrendered by the Trimble County 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 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, Z, AA and BB) 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 Trimble County Trustee to the Trustee whereupon the Bonds of said Series so surrendered shall be cancelled by the Trustee.

Section 2.07.          Prior to the Release Date, the Jefferson County Trustee as the registered holder of the Bonds of Pollution Control Series BB and the Trimble County Trustee as the

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registered holder of the Bonds of Pollution Control Series CC 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 2.08 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 2.08.          No charge shall be made by the Company for any exchange or transfer of Bonds of Pollution Control Series BB or Bonds of Pollution Control Series CC 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 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

23

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.

24

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 March, 2002.

		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

25

COMMONWEALTH OF	)
KENTUCKY	)	SS:
	)
COUNTY OF JEFFERSON	)

BE IT REMEMBERED that on this            day of March, 2002, 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 March, 2002.

	Notary Public
	Kentucky, Commonwealth at Large
		(Notarial Seal)
My Commission Expires:

26

State of Illinois	)	SS:
	)
County of Cook	)

BE IT REMEMBERED that on this             day of March, 2002, 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 March, 2002.

	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

27

SCHEDULE A

The following property situated, lying and being in the County of Jefferson, State of Kentucky, to wit:

REAL PROPERTY

Parcel 1

Beginning at the southeast corner of Ormsby Avenue and Ninth Street, if extended, running thence southwardly (measures South 04º 06’ 32” West), with the east line of Ninth Street, if extended, 200 feet to an alley 13 feet wide, running thence with said alley (measures South 87º11’19” East) which is parallel with said Ormsby Avenue, 338½ feet (measures 339.93 feet) to the westwardly side of the right of way of the Louisville & Nashville Railroad Company; thence northwardly (measures North 9º 19’ 19” West 204.52 feet) with said right of way to the south side of Ormsby Avenue; thence westwardly (measure North 87º 11’ 19” West) with Ormsby Avenue 291¼ feet (measures 292.40 feet) to the beginning; excepting, however, from said premises that portion thereof included within the right of way of the Central Storage Company’s railway, and described in Deed Book 293, page 124, in the office of the Clerk of the County Court of Jefferson County, Kentucky; being the same property conveyed to the Kentucky Heating Company by A. Dumesnil, unmarried, by deed dated January 15, 1902, and recorded in Deed Book 569, page 220, in the office aforesaid, and acquired by and vested in Louisville Gas and Electric Company by virtue of the Consolidation (into Louisville Gas and Electric Company) by said Kentucky Heating Company with Louisville Lighting Company) and Louisville Gas Company, effected by Articles of Agreement and consolidation dated July 2, 1913, recorded in Incorporation Book 22, page 188, in the office aforesaid.

Parcel 2

Beginning at a point on the east side of Ninth Street, if extended 213-1/10 feet south of Ormsby Avenue; thence with the south side of an alley 13-1/10 feet wide, south 87 degrees 31 minutes east 342 feet and 10 inches (measures South 87º 11’ 19” East) to a stake on the west line of the right of way of the Louisville & Nashville Railroad Company; thence with the west line of the said right of way, southeastwardly 268 feet and 5 inches (measure South 09º 19’ 19” East) to a stake; thence north 87 degrees 26 minutes West 405½ feet (measures North 87º16’56” West) to a stake in the east line of Ninth Street, if said street were extended; thence, along the east side of Ninth Street, if extended, north 3 degrees 52 minutes east 263 feet and 2 inches (measures North .04º06’32” East) to the beginning; being the same property conveyed to the Kentucky Heating Company by the Fidelity Trust and Safety Vault Company, Trustee, et al., by deed dated March 10, 1899, and recorded in Deed Book 512, page 529, in the office of the Clerk of the County Court of Jefferson County, Kentucky, and being subject to the reservations, covenants and agreements contained in said deed as to the construction of a railroad switch from the Louisville & Nashville Railroad along the northern line of said property; being the same parcel of land heretofore owned by Kentucky Heating Company and acquired by and vested in Louisville Gas and Electric Company by virtue of the consolidation (into Louisville Gas and Electric Company) of Louisville Gas Company with Louisville Lighting Company and said Kentucky Heating

A-1

Company, effected by Articles of Agreement and Consolidation dated July 2, 1913, recorded in Incorporation Book 22, page 188 in the office aforesaid.

IN ADDITION to the foregoing, the portion of Ninth Street which reverted to Louisville Gas and Electric Company by Jefferson Circuit Court Action No. 336.730 on October, 1951 Ordinance 40, is hereby conveyed to Grantee.

THERE IS EXCEPTED from this conveyance, that portion of Parcel 1 which is described as follows:

BEGINNING at a point, said point being the intersection of the western boundary of the Louisville & Nashville Railroad right of way and the South line of Ormsby Avenue; thence North 87º 11’ 19” West 124.66 feet to a point in the East right of way line of the Central Storage Company’s railway; thence in a southeasterly direction in an arc of 211.18 feet to a point in the western right of way line of the Louisville & Nashville Railroad right of way; thence north 09º 19’ 19” West 144.05 feet to the point of beginning;

BEING a part of the same property conveyed to the Kentucky Heating Company by A Dumesnil, unmarried, by deed dated January 15, 1902, and recorded in Deed Book 569, page 220, in the office of the Clerk of the County Court of Jefferson County, Kentucky, and acquired by and vested in Louisville Gas and Electric Company by virtue of consolidation (into Louisville Gas and Electric Company) by said Kentucky Heating Company with Louisville Lighting Company and Louisville Gas Company, effected by Articles of Agreement and Consolidation dated July 2, 1913, recorded in Incorporation Book 22, page 188, in the office aforesaid.

THERE IS ALSO EXCEPTED from this conveyance the parcel conveyed to Grantor by deed dated April 12, 1967, of record in Deed Book 4113, page 332, in the office aforesaid.

PARCEL 1 AND PARCEL 2 being the said property conveyed to Grantor by Deed dated August 24, 1979 of record in Deed Book 5117, Page 961 in the Office of the Clerk of Jefferson County, Kentucky.

A-2

EX-4.40

EXHIBIT 4.40

SUPPLEMENTAL INDENTURE

FROM

LOUISVILLE GAS AND ELECTRIC COMPANY

TO

HARRIS TRUST AND SAVINGS BANK

TRUSTEE

DATED MARCH 15, 2002

SUPPLEMENTAL TO TRUST INDENTURE

DATED NOVEMBER 1, 1949

Table of Contents

Parties
Recitals
Form of Bonds of Pollution Control Series DD
Form of Bonds of Pollution Control Series EE
Further Recitals
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
ARTICLE II.
PROVISIONS OF BONDS OF POLLUTION CONTROL SERIES DD AND EE.
Section 2.01-	Terms of Bonds of Pollution Control Series DD
Section 2.02-	Payment of principal and interest-Bonds of Pollution Control Series DD
Section 2.03-	Bonds of Pollution Control Series DD deemed fully paid upon payment of corresponding Jefferson County Bonds
Section 2.04-	Terms of Bonds of Pollution Control Series EE
Section 2.05-	Payment of principal and interest-Bonds of Pollution Control Series EE
Section 2.06-	Bonds of Pollution Control Series EE deemed fully paid upon payment of corresponding Trimble County Bonds
Section 2.07-	Interchangeability of bonds
Section 2.08-	Charges upon exchange or transfer of bonds
ARTICLE III.
MISCELLANEOUS.
Section 3.01-	Recitals of fact, except as stated, are statements of the Company
Section 3.02 -	Supplemental Indenture to be construed as a part of the Original Indenture
Section 3.03-	(a)  Trust Indenture Act to control
	(b)  Severability of provisions contained in Supplemental Indenture and bonds
Section 3.04-	Word “Indenture” as used herein includes in its meaning the Original Indenture and all indentures supplemental thereto
Section 3.05-	References to either party in Supplemental Indenture include successors or assigns
Section 3.06-	(a)  Provision for execution in counterparts
	(b) Table of contents and descriptive headings of Articles not to affect meaning
Schedule A

i

Supplemental Indenture, made as of the 15th day of March, 2002, 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 Company has heretofore issued in accordance with the provisions of the Original Indenture as supplemented by the Supplemental Indenture dated September 1, 2001, bonds of a series designated “First Mortgage Bonds, Pollution Control Series AA,” bearing interest as provided therein and maturing September 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 March 1, 2002, bonds of a series designated “First Mortgage Bonds, Pollution Control Series BB,” bearing interest as

5

provided therein and maturing September 1, 2026, and bonds of a series designated “First Mortgage Bonds, Pollution Control Series CC,” bearing interest as provided therein and maturing September 1, 2026; and

WHEREAS, the County of Jefferson in the Commonwealth of Kentucky (“Jefferson County”) has agreed to issue $35,000,000 principal amount of its Pollution Control Revenue Bonds, 2001 Series B (Louisville Gas and Electric Company Project) (the “Jefferson County Bonds”) pursuant to the provisions of the Indenture of Trust, dated as of November 1, 2001 (the “Jefferson County Indenture”), between and among Jefferson County and Bankers Trust Company, as Trustee, Paying Agent and Bond Registrar (said Trustee or any successor trustee under the Jefferson County Indenture being hereinafter referred to as the “Jefferson County Trustee”); and

WHEREAS, the County of Trimble in the Commonwealth of Kentucky (“Trimble County”) has agreed to issue $35,000,000 principal amount of its Pollution Control Revenue Bonds, 2001 Series B (Louisville Gas and Electric Company Project) (the “Trimble County Bonds”) pursuant to the provisions of the Indenture of Trust, dated as of November 1, 2001 (the “Trimble County Indenture”), between and among Trimble County and Bankers Trust Company, as Trustee, Paying Agent and Bond Registrar (said Trustee or any successor trustee under the Trimble County Indenture being hereinafter referred to as the “Trimble County Trustee”); and

WHEREAS, the proceeds of the Jefferson County Bonds (other than any accrued interest, if any, thereon) will be loaned by Jefferson County to the Company pursuant to the provisions of a Loan Agreement, dated as of November 1, 2001, between Jefferson County and the Company (the “Jefferson County Agreement”), to pay and discharge $35,000,000 in outstanding principal amount of “County of Jefferson, Kentucky, Pollution Control Revenue Bonds, 1997 Series A (Louisville Gas and Electric Company Project),” dated November 13, 1997 (the “1997 Jefferson Bonds”) on the date of issuance of the Jefferson County Bonds.  The 1997 Jefferson Bonds were issued to refinance the cost of construction of certain air pollution control facilities at the Mill Creek and Cane Run Generating Stations of the Company, which facilities are hereinafter sometimes referred to as the “Jefferson County Project,” which Jefferson County Project is located in Jefferson County and which Jefferson County Project is more fully described in Exhibit A to the Jefferson County Agreement; and

WHEREAS, the proceeds of the Trimble County Bonds (other than any accrued interest, if any, thereon) will be loaned by Trimble County to the Company pursuant to the provisions of a Loan Agreement, dated as of November 1, 2001, between Trimble County and the Company (the “Trimble County Agreement”), to pay and discharge $35,000,000 in outstanding principal amount of “County of Trimble, Kentucky, Pollution Control Revenue Bonds, 1997 Series A (Louisville Gas and Electric Company Project),” dated November 13, 1997 (the “1997 Trimble Bonds”) on the date of issuance of the Trimble County Bonds.  The 1997 Trimble Bonds were issued to refinance the cost of construction of certain air and water pollution control and solid waste disposal facilities at Unit 1 of the Trimble County Generating Station of the Company, which facilities are hereinafter sometimes referred to as the “Trimble County Project,” which

6

Trimble County Project is located in Trimble County and which Trimble County Project is more fully described in Exhibit A to the Trimble County Agreement; and

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

WHEREAS, in order to further secure the payment of the Jefferson County Bonds, the Company desires to provide for the issuance under the Original Indenture to the Jefferson County Trustee of a new series of bonds designated “First Mortgage Bonds, Pollution Control Series DD” (sometimes called “Bonds of Pollution Control Series DD”), in a principal amount equal to the principal amount of the Jefferson County Bonds, and with corresponding terms and maturity, the Bonds of Pollution Control Series DD to be issued as registered bonds without coupons in denominations of a multiple of $1,000; and the Bonds of Pollution Control Series DD are to be substantially in the form and tenor following, to-wit:

(Form of Bonds of Pollution Control Series DD)

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 November 1, 2001, from the County of Jefferson, Kentucky, to Bankers Trust Company, 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 DD

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 Bankers Trust Company, as Trustee under the Indenture of Trust (the “Jefferson County Indenture”) dated as of November 1, 2001, from the County of Jefferson, Kentucky, to Bankers Trust Company, or any successor trustee under the Jefferson County Indenture (the “Jefferson County 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 Series DD Demand Redemption Date, as hereinafter defined, and to pay on the Series DD Demand Redemption Date to the Jefferson County Trustee, interest hereon from the Series DD Initial Interest Accrual Date, as hereinafter defined, to the Series DD Demand Redemption Date at the same rate or rates per annum then and thereafter from time to time borne by the Jefferson County Bonds, in like money, said interest being payable at the office of the Trustee in Chicago, Illinois, subject to the provisions hereinafter set

7

forth in the event of a rescission of a Series DD 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, September 1, 2001, March 1, 2002 and March 15, 2002 (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 DD.  The bonds of this Series have been issued to the Jefferson County Trustee under the Jefferson County Indenture to secure payment of the Pollution Control Revenue Bonds, 2001 Series B (Louisville Gas and Electric Company Project) (the “Jefferson County Bonds”) issued by the County of Jefferson, Kentucky (“Jefferson County”) under the Jefferson County 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 November 1, 2001 (the “Jefferson County Agreement”) between the Company and Jefferson County.  The maturity of the obligation represented by the bonds of this Series is November 1, 2027.  The date of maturity of the obligation represented by the bonds of this Series is hereinafter referred to as the Series DD Final Maturity Date.  The bonds of this Series shall bear interest from the Series DD 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 Jefferson County 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

8

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 Jefferson County 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 Jefferson County Indenture and the Jefferson County Bonds) on the Jefferson County 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 “Series DD Redemption Demand”) from the Jefferson County 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 Jefferson County Indenture, specifying the last date to which interest on the Jefferson County Bonds has been paid (such date being hereinafter referred to as the “Series DD Initial Interest Accrual Date”) and demanding redemption of the bonds of this Series.  The Trustee shall, within 10 days after receiving such Series DD 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 Series DD 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 “Series DD Demand Redemption Date”).  Notice of the date fixed as and for the Series DD Demand Redemption Date shall be mailed by the Company to the Trustee at least 30 days prior to such Series DD Demand Redemption Date.  The date to be fixed by the Company as and for the Series DD 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 Series DD Redemption Demand or (ii) the Series DD Final Maturity Date, provided that if the Trustee shall not have received such notice fixing the Series DD Demand Redemption Date within 90 days after receipt by it of the Series DD Redemption Demand, the Series DD Demand Redemption Date shall be deemed to be the earlier of (i) the 120th day after receipt by the Trustee of the Series DD Redemption Demand or (ii) the Series DD Final Maturity Date.  The Trustee shall mail notice of the Series DD Demand Redemption Date (such notice being hereinafter called the “Series DD Demand Redemption Notice”) to the Jefferson County Trustee not more than 10 nor less than five days prior to the Series DD Demand Redemption Date.  Notwithstanding the foregoing, if a default to which this paragraph is applicable is existing on the Series DD Final Maturity Date, such date shall be deemed to be the Series DD Demand Redemption Date without further action (including actions specified in

9

this paragraph) by the Jefferson County Trustee, the Trustee or the Company.  The bonds of this Series shall be redeemed by the Company on the Series DD Demand Redemption Date, upon surrender thereof by the Jefferson County 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 Series DD Initial Interest Accrual Date to the Series DD Demand Redemption Date.  If a Series DD Redemption Demand is rescinded by the Jefferson County Trustee by written notice to the Trustee prior to the Series DD Demand Redemption Date, no Series DD 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 Series DD Initial Interest Accrual Date, as specified in a written notice to the Trustee from the Jefferson County Trustee, and the principal of and interest on the bonds of this Series from the Series DD 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 Jefferson County Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the Jefferson County Trustee (other than any Jefferson County Bond that was cancelled by the Jefferson County Trustee and for which one or more other Jefferson County Bonds were delivered and authenticated pursuant to the Jefferson County Indenture in lieu of or in exchange or substitution for such cancelled Jefferson County Bond), or upon provision for the payment thereof having been made in accordance with the Jefferson County Indenture, bonds of this Series in a principal amount equal to the principal amount of the Jefferson County 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 Jefferson County 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 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, Z, AA, BB, CC and EE) 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 Jefferson County Trustee to the Trustee whereupon the bonds of said Series so surrendered shall

10

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

and

WHEREAS, in order to further secure the payment of the Trimble County Bonds, the Company desires to provide for the issuance under the Original Indenture to the Trimble County Trustee of a new series of bonds designated “First Mortgage Bonds, Pollution Control Series EE” (sometimes called “Bonds of Pollution Control Series EE”), in a principal amount equal to the principal amount of the Trimble County Bonds, and with corresponding terms and maturity, the Bonds of Pollution Control Series EE to be issued as registered bonds without coupons in

11

denominations of a multiple of $1,000; and the Bonds of Pollution Control Series EE are to be substantially in the form and tenor following, to-wit:

(Form of Bonds of Pollution Control Series EE)

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 November 1, 2001, from the County of Trimble, Kentucky, to Bankers Trust Company, 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 EE

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 Bankers Trust Company, as Trustee under the Indenture of Trust (the “Trimble County Indenture”) dated as of November 1, 2001, from the County of Jefferson, Kentucky, to Bankers Trust Company, or any successor trustee under the Trimble County Indenture (the “Trimble County 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 Series EE Demand Redemption Date, as hereinafter defined, and to pay on the Series EE Demand Redemption Date to the Trimble County Trustee, interest hereon from the Series EE Initial Interest Accrual Date, as hereinafter defined, to the Series EE Demand Redemption Date at the same rate or rates per annum then and thereafter from time to time borne by the Trimble County 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 Series EE 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,

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October 15, 1993, May 1, 2000, August 1, 2000, September 1, 2001, March 1, 2002 and March 15, 2002 (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 EE.  The bonds of this Series have been issued to the Trimble County Trustee under the Trimble County Indenture to secure payment of the Pollution Control Revenue Bonds, 2001 Series B (Louisville Gas and Electric Company Project) (the “Trimble County Bonds”) issued by the County of Trimble, Kentucky (“Trimble County”) under the Trimble County 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 November 1, 2001 (the “Trimble County Agreement”) between the Company and Trimble County.  The maturity of the obligation represented by the bonds of this Series is November 1, 2027.  The date of maturity of the obligation represented by the bonds of this Series is hereinafter referred to as the Series EE Final Maturity Date.  The bonds of this Series shall bear interest from the Series EE 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 Trimble County 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 Trimble County 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

13

for the full grace period, if any, permitted by the Trimble County Indenture and the Trimble County Bonds) on the Trimble County 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 “Series EE Redemption Demand”) from the Trimble County 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 Trimble County Indenture, specifying the last date to which interest on the Trimble County Bonds has been paid (such date being hereinafter referred to as the “Series EE Initial Interest Accrual Date”) and demanding redemption of the bonds of this Series.  The Trustee shall, within 10 days after receiving such Series EE 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 Series EE 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 “Series EE Demand Redemption Date”).  Notice of the date fixed as and for the Series EE Demand Redemption Date shall be mailed by the Company to the Trustee at least 30 days prior to such Series EE Demand Redemption Date.  The date to be fixed by the Company as and for the Series EE 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 Series EE Redemption Demand or (ii) the Series EE Final Maturity Date, provided that if the Trustee shall not have received such notice fixing the Series EE Demand Redemption Date within 90 days after receipt by it of the Series EE Redemption Demand, the Series EE Demand Redemption Date shall be deemed to be the earlier of (i) the 120th day after receipt by the Trustee of the Series EE Redemption Demand or (ii) the Series EE Final Maturity Date.  The Trustee shall mail notice of the Series EE Demand Redemption Date (such notice being hereinafter called the “Series EE Demand Redemption Notice”) to the Trimble County Trustee not more than 10 nor less than five days prior to the Series EE Demand Redemption Date.  Notwithstanding the foregoing, if a default to which this paragraph is applicable is existing on the Series EE Final Maturity Date, such date shall be deemed to be the Series EE Demand Redemption Date without further action (including actions specified in this paragraph) by the Trimble County Trustee, the Trustee or the Company.  The bonds of this Series shall be redeemed by the Company on the Series EE Demand Redemption Date, upon surrender thereof by the Trimble County 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 Series EE Initial Interest Accrual Date to the Series EE Demand Redemption Date.  If a Series EE Redemption Demand is rescinded by the Trimble County Trustee by written notice to the Trustee prior to the Series EE Demand Redemption Date, no Series EE 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

14

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 Series EE Initial Interest Accrual Date, as specified in a written notice to the Trustee from the Trimble County Trustee, and the principal of and interest on the bonds of this Series from the Series EE 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 Trimble County Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the Trimble County Trustee (other than any Trimble County Bond that was cancelled by the Trimble County Trustee and for which one or more other Trimble County Bonds were delivered and authenticated pursuant to the Trimble County Indenture in lieu of or in exchange or substitution for such cancelled Trimble County Bond), or upon provision for the payment thereof having been made in accordance with the Trimble County Indenture, bonds of this Series in a principal amount equal to the principal amount of the Trimble County 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 Trimble County 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 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, Z, AA, BB, CC and DD) 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 Trimble County 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.

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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

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

16

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;

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

17

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 DD AND EE

Section 2.01.          There is hereby created, for issuance under the Original Indenture, a series of bonds designated Pollution Control Series DD, each of which shall bear the descriptive title “First Mortgage Bonds, Pollution Control Series DD” and the form thereof shall contain suitable provisions with respect to the matters specified in this section.  The Bonds of Pollution Control Series DD shall be printed, lithographed or typewritten and shall be substantially of the tenor and purport previously recited.  The Bonds of Pollution Control Series DD 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 Jefferson County Trustee.  The Bonds of Pollution Control Series DD shall be dated as of the date of their authentication.

The Bonds of Pollution Control Series DD 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 DD is November 1, 2027.  The date of maturity of the obligation represented by the Bonds of Pollution Control Series DD is hereinafter referred to as the Series DD Final Maturity Date.  The Bonds of Pollution Control Series DD shall bear interest from the Series DD Initial Interest Accrual Date, as hereinafter defined, at the same rate or rates then and thereafter from time to time borne by the Jefferson County 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 Jefferson County 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 Jefferson County Indenture and the Jefferson County Bonds) on the Jefferson County 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 DD shall be redeemable in whole

18

upon receipt by the Trustee of a written demand (hereinafter called a “Series DD Redemption Demand”) from the Jefferson County 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 Jefferson County Indenture, specifying the last date to which interest on the Jefferson County Bonds has been paid (such date being hereinafter referred to as the “Series DD Initial Interest Accrual Date”) and demanding redemption of the Bonds of Pollution Control Series DD.  The Trustee shall, within 10 days after receiving such Series DD 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 Series DD Redemption Demand, the Company shall fix a date on which it will redeem the Bonds of Pollution Control Series DD so demanded to be redeemed (hereinafter called the “Series DD Demand Redemption Date”).  Notice of the date fixed as the Series DD Demand Redemption Date shall be mailed by the Company to the Trustee at least 30 days prior to such Series DD Demand Redemption Date.  The date to be fixed by the Company as and for the Series DD 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 Series DD Redemption Demand or (ii) the Series DD Final Maturity Date, provided that if the Trustee shall not have received such notice fixing the Series DD Demand Redemption Date within 90 days after receipt by it of the Series DD Redemption Demand, the Series DD Demand Redemption Date shall be deemed to be the earlier of (i) the 120th day after receipt by the Trustee of the Series DD Redemption Demand or (ii) the Series DD Final Maturity Date.  The Trustee shall mail notice of the Series DD Demand Redemption Date (such notice being hereinafter called the “Series DD Demand Redemption Notice”) to the Jefferson County Trustee not more than 10 nor less than five days prior to the Series DD Demand Redemption Date.  Notwithstanding the foregoing, if a default to which this paragraph is applicable is existing on the Series DD Final Maturity Date, such date shall be deemed to be the Series DD Demand Redemption Date without further action (including actions specified in this paragraph) by the Jefferson County Trustee, the Trustee or the Company.  The Bonds of Pollution Control Series DD shall be redeemed by the Company on the Series DD Demand Redemption Date, upon surrender thereof by the Jefferson County 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 Series DD Initial Interest Accrual Date to the Series DD Demand Redemption Date.  If a Series DD Redemption Demand is rescinded by the Jefferson County Trustee by written notice to the Trustee prior to the Series DD Demand Redemption Date, no Series DD Demand Redemption Notice shall be given, or, if already given, shall be automatically annulled, and interest on the Bonds of Pollution Control Series DD 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 DD; 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 DD shall bear interest at the rate per annum set forth in Section 2.01 hereof, from the Series DD Interest Accrual Date, as specified in a written notice to the Trustee from the Jefferson County Trustee, and the principal

19

of and interest on the Bonds of Pollution Control Series DD from the Series DD 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 Series DD Redemption Demand or a rescission thereof or a written notice required by this Section 2.02, and such Series DD Redemption Demand, rescission or notice shall be of no force or effect, unless it is executed in the name of the Jefferson County Trustee by one of its Vice Presidents.

Section 2.03.          Upon payment of the principal of and premium, if any, and interest on the Jefferson County Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the Jefferson County Trustee (other than any Jefferson County Bond that was cancelled by the Jefferson County Trustee and for which one or more other Jefferson County Bonds were delivered and authenticated pursuant to the Jefferson County Indenture in lieu of or in exchange or substitution for such cancelled Jefferson County Bond), or upon provision for the payment thereof having been made in accordance with the Jefferson County Indenture, Bonds of Pollution Control Series DD in a principal amount equal to the principal amount of the Jefferson County 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 Pollution Control Series DD shall be surrendered by the Jefferson County 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 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, Z, AA, BB, CC and EE) 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 Jefferson County Trustee to the Trustee whereupon the Bonds of said Series so surrendered shall be cancelled by the Trustee.

Section 2.04.          There is hereby created, for issuance under the Original Indenture, a series of bonds designated Pollution Control Series EE, each of which shall bear the descriptive title “First Mortgage Bonds, Pollution Control Series EE” and the form thereof shall contain suitable provisions with respect to the matters specified in this section.  The Bonds of Pollution Control Series EE shall be printed, lithographed or typewritten and shall be substantially of the tenor and purport previously recited.  The Bonds of Pollution Control Series EE 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 Trimble County Trustee.  The Bonds of Pollution Control Series EE shall be dated as of the date of their authentication.

The Bonds of Pollution Control Series EE shall be payable, both as to principal and

20

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 EE is November 1, 2027.  The date of maturity of the obligation represented by the Bonds of Pollution Control Series EE is hereinafter referred to as the Series EE Final Maturity Date.  The Bonds of Pollution Control Series EE shall bear interest from the Series EE Initial Interest Accrual Date, as hereinafter defined, at the same rate or rates then and thereafter from time to time borne by the Trimble County Bonds.

Section 2.05.          Except as provided in the next succeeding paragraph of this Section 2.05, in the event of a default under Section 9.1 of the Trimble County 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 Trimble County Indenture and the Trimble County Bonds) on the Trimble County 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 EE shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter called a “Series EE Redemption Demand”) from the Trimble County 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 Trimble County Indenture, specifying the last date to which interest on the Trimble County Bonds has been paid (such date being hereinafter referred to as the “Series EE Initial Interest Accrual Date”) and demanding redemption of the Bonds of Pollution Control Series EE.  The Trustee shall, within 10 days after receiving such Series EE 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 Series EE Redemption Demand, the Company shall fix a date on which it will redeem the Bonds of Pollution Control Series EE so demanded to be redeemed (hereinafter called the “Series EE Demand Redemption Date”).  Notice of the date fixed as the Series EE Demand Redemption Date shall be mailed by the Company to the Trustee at least 30 days prior to such Series EE Demand Redemption Date.  The date to be fixed by the Company as and for the Series EE 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 Series EE Redemption Demand or (ii) the Series EE Final Maturity Date, provided that if the Trustee shall not have received such notice fixing the Series EE Demand Redemption Date within 90 days after receipt by it of the Series EE Redemption Demand, the Series EE Demand Redemption Date shall be deemed to be the earlier of (i) the 120th day after receipt by the Trustee of the Series EE Redemption Demand or (ii) the Series EE Final Maturity Date.  The Trustee shall mail notice of the Series EE Demand Redemption Date (such notice being hereinafter called the “Series EE Demand Redemption Notice”) to the Trimble County Trustee not more than 10 nor less than five days prior to the Series EE Demand Redemption Date.  Notwithstanding the foregoing, if a default to which this paragraph is applicable is existing on the Series EE Final Maturity Date, such date shall be deemed to be the Series EE Demand Redemption Date without further action (including actions specified in this paragraph) by the Trimble County Trustee, the Trustee or the Company.  The Bonds of Pollution Control Series EE shall be redeemed by the Company on the Series EE Demand Redemption Date, upon surrender thereof by the Trimble County Trustee to the Trustee, at a redemption price equal to the principal amount thereof, plus accrued interest thereon at the

21

rate per annum set forth in Section 2.04 hereof, from the Series EE Initial Interest Accrual Date to the Series EE Demand Redemption Date.  If a Series EE Redemption Demand is rescinded by the Trimble County Trustee by written notice to the Trustee prior to the Series EE Demand Redemption Date, no Series EE Demand Redemption Notice shall be given, or, if already given, shall be automatically annulled, and interest on the Bonds of Pollution Control Series EE 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 EE; 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 EE shall bear interest at the rate per annum set forth in Section 2.04 hereof, from the Series EE Interest Accrual Date, as specified in a written notice to the Trustee from the Trimble County Trustee, and the principal of and interest on the Bonds of Pollution Control Series EE from the Series EE 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 Series EE Redemption Demand or a rescission thereof or a written notice required by this Section 2.05, and such Series EE Redemption Demand, rescission or notice shall be of no force or effect, unless it is executed in the name of the Trimble County Trustee by one of its Vice Presidents.

Section 2.06.          Upon payment of the principal of and premium, if any, and interest on the Trimble County Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the Trimble County Trustee (other than any Trimble County Bond that was cancelled by the Trimble County Trustee and for which one or more other Trimble County Bonds were delivered and authenticated pursuant to the Trimble County Indenture in lieu of or in exchange or substitution for such cancelled Trimble County Bond), or upon provision for the payment thereof having been made in accordance with the Trimble County Indenture, Bonds of Pollution Control Series EE in a principal amount equal to the principal amount of the Trimble County 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 Pollution Control Series EE shall be surrendered by the Trimble County 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 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, Z, AA, BB, CC and DD) 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,

22

before or after the maturity thereof.  On the Release Date, the bonds of this Series shall be surrendered by the Trimble County Trustee to the Trustee whereupon the Bonds of said Series so surrendered shall be cancelled by the Trustee.

Section 2.07.          Prior to the Release Date, the Jefferson County Trustee as the registered holder of the Bonds of Pollution Control Series DD and the Trimble County Trustee as the registered holder of the Bonds of Pollution Control Series EE 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 2.08 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 2.08.          No charge shall be made by the Company for any exchange or transfer of Bonds of Pollution Control Series DD or Bonds of Pollution Control Series EE 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 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

23

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.

24

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 15th day of March, 2002.

			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

25

COMMONWEALTH OF	)
KENTUCKY	)	SS:
	)
COUNTY OF JEFFERSON	)

BE IT REMEMBERED that on this           day of March, 2002, 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 March, 2002.

	Notary Public
	Kentucky, Commonwealth at Large
		(Notarial Seal)
My Commission Expires:

26

STATE OF ILLINOIS	)	SS:
	)
COUNTY OF COOK	)

BE IT REMEMBERED that on this           day of March, 2002, 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 March, 2002.

	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

27

SCHEDULE A

The following property situated, lying and being in the County of Jefferson, State of Kentucky, to wit:

Beginning at the southeast corner of Ormsby Avenue and Ninth Street, if extended, running thence southwardly (measures South 04º 06’ 32” West), with the east line of Ninth Street, if extended, 200 feet to an alley 13 feet wide, running thence with said alley (measures South 87º11’19” East) which is parallel with said Ormsby Avenue, 338½ feet (measures 339.93 feet) to the westwardly side of the right of way of the Louisville & Nashville Railroad Company; thence northwardly (measures North 9º 19’ 19” West 204.52 feet) with said right of way to the south side of Ormsby Avenue; thence westwardly (measure North 87º 11’ 19” West) with Ormsby Avenue 291¼ feet (measures 292.40 feet) to the beginning; excepting, however, from said premises that portion thereof included within the right of way of the Central Storage Company’s railway, and described in Deed Book 293, page 124, in the office of the Clerk of the County Court of Jefferson County, Kentucky; being the same property conveyed to the Kentucky Heating Company by A. Dumesnil, unmarried, by deed dated January 15, 1902, and recorded in Deed Book 569, page 220, in the office aforesaid, and acquired by and vested in Louisville Gas and Electric Company by virtue of the Consolidation (into Louisville Gas and Electric Company) by said Kentucky Heating Company with Louisville Lighting Company) and Louisville Gas Company, effected by Articles of Agreement and consolidation dated July 2, 1913, recorded in Incorporation Book 22, page 188, in the office aforesaid.

THERE IS EXCEPTED from that portion of the above described property which is described as follows:

BEGINNING at a point, said point being the intersection of the western boundary of the Louisville & Nashville Railroad right of way and the South line of Ormsby Avenue; thence North 87º 11’ 19” West 124.66 feet to a point in the East right of way line of the Central Storage Company’s railway; thence in a southeasterly direction in an arc of 211.18 feet to a point in the western right of way line of the Louisville & Nashville Railroad right of way; thence north 09º 19’ 19” West 144.05 feet to the point of beginning;

BEING a part of the same property conveyed to the Kentucky Heating Company by A. Dumesnil, unmarried, by deed dated January 15, 1902, and recorded in Deed Book 569, page 220, in the office of the Clerk of the County Court of Jefferson County, Kentucky, and acquired by and vested in Louisville Gas and Electric Company by virtue of consolidation (into Louisville Gas and Electric Company) by said Kentucky Heating Company with Louisville Lighting Company and Louisville Gas Company, effected by Articles of Agreement and Consolidation dated July 2, 1913, recorded in Incorporation Book 22, page 188, in the office aforesaid.

THERE IS ALSO EXCEPTED from the above described property the parcel conveyed to Henry Vogt Machine Co. by Deed dated April 12, 1967, of record in Deed Book 4113, page 332, in the office aforesaid.

A-1

The above described property is part of the same property conveyed to Henry Vogt Machine Co. by Deed dated August 24, 1979 of record in Deed Book 5117, Page 961 in the Office of the Clerk of Jefferson County, Kentucky.

Being part of the same property conveyed to Louisville Gas and Electric Company by Deed dated December 28, 2000, of record in Deed Book 07569, Page 0731, in the office aforesaid.

A-2

EX-4.41

EXHIBIT 4.41

SUPPLEMENTAL INDENTURE

FROM

LOUISVILLE GAS AND ELECTRIC COMPANY

TO

BNY MIDWEST TRUST COMPANY
TRUSTEE

DATED OCTOBER 1, 2002

SUPPLEMENTAL TO TRUST INDENTURE

DATED NOVEMBER 1, 1949

Table of Contents

Parties
Recitals
Form of Bonds of Pollution Control Series FF
Further Recitals
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
ARTICLE II.
PROVISIONS OF BONDS OF POLLUTION CONTROL SERIES FF.
Section 2.01-	Terms of Bonds of Pollution Control Series FF
Section 2.02-	Payment of principal and interest-Bonds of Pollution Control Series FF
Section 2.03-	Bonds of Pollution Control Series FF deemed fully paid upon payment of corresponding Pollution Control Revenue Bonds
Section 2.04-	Interchangeability of bonds
Section 2.05-	Charges upon exchange or transfer of bonds
ARTICLE III.
MISCELLANEOUS.
Section 3.01-	Recitals of fact, except as stated, are statements of the Company
Section 3.02-	Supplemental Indenture to be construed as a part of the Original Indenture
Section 3.03-	(a)  Trust Indenture Act to control
	(b)  Severability of provisions contained in Supplemental Indenture and bonds
Section 3.04-	Word “Indenture” as used herein includes in its meaning the Original Indenture and all indentures supplemental thereto
Section 3.05-	References to either party in Supplemental Indenture include successors or assigns
Section 3.06-	(a)  Provision for execution in counterparts
	(b)  Table of contents and descriptive headings of Articles not to affect meaning

i

Supplemental Indenture, made as of the 1st day of October, 2002, 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 BNY Midwest Trust Company, 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, successor to Harris Trust and Savings Bank, 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 Company has heretofore issued in accordance with the provisions of the Original Indenture as supplemented by the Supplemental Indenture dated September 1, 2001, bonds of a series designated “First Mortgage Bonds, Pollution Control Series AA,” bearing interest as provided therein and maturing September 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 March 1, 2002, bonds of a series designated “First Mortgage Bonds, Pollution Control Series BB,” bearing interest as

5

provided therein and maturing September 1, 2026, and bonds of a series designated “First Mortgage Bonds, Pollution Control Series CC,” bearing interest as provided therein and maturing September 1, 2026; 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, 2002, bonds of a series designated “First Mortgage Bonds, Pollution Control Series DD,” bearing interest as provided therein and maturing November 1, 2027, and bonds of a series designated “First Mortgage Bonds, Pollution Control Series EE,” bearing interest as provided therein and maturing November 1, 2027; and

WHEREAS, the County of Trimble in the Commonwealth of Kentucky (the “County”) has agreed to issue $41,665,000 principal amount of its Pollution Control Revenue Bonds, 2002 Series A (Louisville Gas and Electric Company Project) (the “Pollution Control Revenue Bonds”) pursuant to the provisions of the Indenture of Trust, dated as of July 1, 2002 (the “Pollution Control Indenture”), between and among Trimble County and Deutsche Bank Trust Company Americas, as Trustee, Paying Agent and Bond Registrar (said Trustee or any successor trustee under the Pollution Control Indenture being hereinafter referred to as the “Pollution Control Trustee”); and

WHEREAS, the proceeds of the Pollution Control 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, 2002, between the County and the Company (the “Agreement”), to pay and discharge $41,665,000 in outstanding principal amount of “County of Trimble, Kentucky, Pollution Control Revenue Bonds (Louisville Gas and Electric Company Project) 1990 Series B,” dated November 20, 1990 (the “1990 Bonds”) on the date of issuance of the Pollution Control Revenue Bonds.  The 1990 Bonds were issued to finance the cost of construction of certain air and water pollution control facilities at the Trimble County Generating Station of the Company, which facilities are hereinafter sometimes referred to as the “1990 Project,” which 1990 Project is located in the County and which 1990 Project is more fully described in Exhibit A-1 to the Agreement; and

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

WHEREAS, in order to further secure the payment of the Pollution Control Revenue Bonds, the Company desires to provide for the issuance under the Original Indenture to the Pollution Control Trustee of a new series of bonds designated “First Mortgage Bonds, Pollution Control Series FF” (sometimes called “Bonds of Pollution Control Series FF”), in a principal amount equal to the principal amount of the Pollution Control Revenue Bonds, and with corresponding terms and maturity, the Bonds of Pollution Control Series FF to be issued as registered bonds without coupons in denominations of a multiple of $1,000; and the Bonds of Pollution Control Series FF are to be substantially in the form and tenor following, to-wit:

6

(Form of Bonds of Pollution Control Series FF)

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, 2002, from the County of Trimble, Kentucky, to Deutsche Bank Trust Company Americas, 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 FF

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 Deutsche Bank Trust Company Americas, as Trustee under the Indenture of Trust (the “Pollution Control Indenture”) dated as of July 1, 2002, from the County of Trimble, Kentucky, to Deutsche Bank Trust Company Americas, or any successor trustee under the Pollution Control Indenture (the “Pollution Control Trustee”) and at the office of BNY Midwest Trust Company, Chicago, Illinois, successor to Harris Trust and Savings Bank (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 Pollution Control 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 Pollution Control 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, September 1, 2001, March 1, 2002, March 15,

7

2002 and October 1, 2002 (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 FF.  The bonds of this Series have been issued to the Pollution Control Trustee under the Pollution Control Indenture to secure payment of the Pollution Control Revenue Bonds, 2002 Series A (Louisville Gas and Electric Company Project) (the “Pollution Control Revenue Bonds”) issued by the County of Trimble, Kentucky (the “County”) under the Pollution Control 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, 2002 (the “Agreement”) between the Company and the County.  The maturity of the obligation represented by the bonds of this Series is October 1, 2032.  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 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 Pollution Control 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 Pollution Control Indenture and the Pollution Control

8

Revenue Bonds) on the Pollution Control 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 Pollution Control 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 Pollution Control Indenture, specifying the last date to which interest on the Pollution Control 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 Trustee shall mail notice of the Demand Redemption Date (such notice being hereinafter called the “Demand Redemption Notice”) to the Pollution Control 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 Pollution Control 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 Pollution Control 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 Pollution Control 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 Pollution Control Trustee, and the principal of and interest

9

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 Pollution Control Revenue Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the Pollution Control Trustee (other than any Pollution Control Revenue Bond that was cancelled by the Pollution Control Trustee and for which one or more other Pollution Control Revenue Bonds were delivered and authenticated pursuant to the Pollution Control Indenture in lieu of or in exchange or substitution for such cancelled Pollution Control Revenue Bond), or upon provision for the payment thereof having been made in accordance with the Pollution Control Indenture, bonds of this Series in a principal amount equal to the principal amount of the Pollution Control 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 Pollution Control 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 Pollution Control Indenture), at the request of the Company, consents to the release of the bonds of this Series as security for the Pollution Control 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, Z, AA, BB, CC, DD and EE) 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 Pollution Control 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 BNY Midwest Trust Company, as Trustee under the Indenture, or its successor thereunder.

10

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

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 BNY Midwest Trust Company, 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:

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ARTICLE I.

SPECIFIC SUBJECTION OF PROPERTY TO THE LIEN OF THE ORIGINAL INDENTURE

Section 1.01.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

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as are set forth in the Indenture.

ARTICLE II.

Provisions Of Bonds Of Pollution Control Series FF

Section 2.01.There is hereby created, for issuance under the Original Indenture, a series of bonds designated Pollution Control Series FF, each of which shall bear the descriptive title “First Mortgage Bonds, Pollution Control Series FF” and the form thereof shall contain suitable provisions with respect to the matters specified in this section.  The Bonds of Pollution Control Series FF shall be printed, lithographed or typewritten and shall be substantially of the tenor and purport previously recited.  The Bonds of Pollution Control Series FF 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 Pollution Control Trustee.  The Bonds of Pollution Control Series FF shall be dated as of the date of their authentication.

The Bonds of Pollution Control Series FF 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 FF is October 1, 2032.  The date of maturity of the obligation represented by the Bonds of Pollution Control Series FF is hereinafter referred to as the Final Maturity Date.  The Bonds of Pollution Control Series FF 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 Pollution Control 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 Pollution Control Indenture and the Pollution Control Revenue Bonds) on the Pollution Control 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 FF shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter called a “Redemption Demand”) from the Pollution Control 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 Pollution Control Indenture, specifying the last date to which interest on the Pollution Control 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 FF.  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 FF 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

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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 Redemption Notice”) to the Pollution Control 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 Pollution Control Trustee, the Trustee or the Company.  The Bonds of Pollution Control Series FF shall be redeemed by the Company on the Demand Redemption Date, upon surrender thereof by the Pollution Control 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 Pollution Control 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 FF 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 FF; 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 FF 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 Pollution Control Trustee, and the principal of and interest on the Bonds of Pollution Control Series FF 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 Pollution Control Trustee by one of its Vice Presidents.

Section 2.03.Upon payment of the principal of and premium, if any, and interest on the Pollution Control Revenue Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the Pollution Control Trustee (other than any Pollution Control Revenue Bond that was cancelled by the Pollution Control Trustee and for which one or more other Pollution Control Revenue Bonds were delivered and

14

authenticated pursuant to the Pollution Control Indenture in lieu of or in exchange or substitution for such cancelled Pollution Control Revenue Bond), or upon provision for the payment thereof having been made in accordance with the Pollution Control Indenture, Bonds of Pollution Control Series FF in a principal amount equal to the principal amount of the Pollution Control 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 Pollution Control Series FF shall be surrendered by the Pollution Control 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 Pollution Control Indenture), at the request of the Company, consents to the release of the bonds of this Series as security for the Pollution Control 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, Z, AA, BB, CC, DD and EE) 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 Pollution Control 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 Pollution Control Trustee as the registered holder of the Bonds of Pollution Control Series FF 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 FF 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

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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 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.

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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 October, 2002.

		Louisville Gas And Electric Company
		By
			Daniel K. Arbough
			Treasurer
(Corporate Seal)
Attest:
	John R. McCall
	Executive Vice President, General Counsel and Corporate Secretary
		BNY Midwest Trust Company
		By
			J. Bartolini
			Vice President
(Corporate Seal)
Attest:
	C. PotterAssistant Secretary

17

Commonwealth of	)
Kentucky	)	SS:
	)
County of Jefferson	)

BE IT REMEMBERED that on this             day of               , 2002, 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                , 2002.

Notary Public
Kentucky, Commonwealth at Large

(Notarial Seal)

My Commission Expires:                                            

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State of Illinois	)	SS:
	)
County of Cook	)

BE IT REMEMBERED that on this            day of               , 2002, 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 BNY Midwest Trust Company, 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               , 2002.

		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

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EX-4.50

EXHIBIT 4.50

Supplemental Indenture

Dated May 1, 2002

KENTUCKY UTILITIES COMPANY

TO

U.S. BANK NATIONAL ASSOCIATION
AND RICHARD PROKOSCH,
AS TRUSTEES

(SUPPLEMENTAL TO THE INDENTURE OF MORTGAGE OR DEED OF TRUST DATED
MAY 1, 1947, AS AMENDED, HERETOFORE EXECUTED BY KENTUCKY UTILITIES
COMPANY TO CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY
OF CHICAGO AND EDMOND B. STOFFT, AS TRUSTEES.)

(PROVIDING FOR FIRST MORTGAGE BONDS,
POLLUTION CONTROL SERIES NO. 12, DUE
FEBRUARY 1, 2032, NO.13, DUE FEBRUARY 1,
2032, NO.14, DUE FEBRUARY 1, 2032, and NO. 15
DUE FEBRUARY 1, 2032)

THIS SUPPLEMENTAL INDENTURE, dated May 1, 2002, made and entered into by and between KENTUCKY UTILITIES COMPANY, a corporation organized and existing under the laws of the Commonwealths of Kentucky and Virginia (hereinafter commonly referred to as the “Company”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association having its office or place of business in the City of Chicago, Cook County, State of Illinois, formerly named First Trust of Illinois, National Association, successor to Bank of America Illinois, formerly named Continental Bank, National Association and Continental Illinois National Bank and Trust Company of Chicago (hereinafter commonly referred to as the “Trustee”), and Richard Prokosch (successor Co-Trustee), of the City of St. Paul, County of Ramsey, State of Minnesota, as Trustees under the Indenture of Mortgage or Deed of Trust dated May 1, 1947, as modified and amended by the several indentures supplemental thereto heretofore executed by and between the Company and the Trustees from time to time under said Indenture of Mortgage or Deed of Trust; said Indenture of Mortgage or Deed of Trust, as so modified and amended, being hereinafter commonly referred to as the “Indenture”; and said Trustees under the Indenture being hereinafter commonly referred to as the “Trustees” or the “Trustees under the Indenture”; Witnesseth:

WHEREAS, the Company, by resolution of its Board of Directors or the Pricing Committee thereof duly adopted, has determined to issue forthwith an additional series of its bonds to be secured by the Indenture, as hereby modified and amended, such bonds to be known and designated as First Mortgage Bonds, Pollution Control Series No. 12, First Mortgage Bonds, Pollution Control Series No. 13, First Mortgage Bonds, Pollution Control Series No. 14 and First Mortgage Bonds, Pollution Control Series No. 15 (hereinafter sometimes referred to, respectively, as the “bonds of Series No. 12”, the “bonds of Series No. 13”, the “bonds of Series No. 14”, the “bonds of Series No. 15”, or, collectively, as the “bonds of said Series”), and to be authorized, authenticated and issued only as registered bonds without coupons; and

WHEREAS, the County of Carroll in the Commonwealth of Kentucky (“Carroll County”) has agreed to issue (a) $20,930,000 in principal amount of its Pollution Control Revenue Bonds, 2002 Series A (Kentucky Utilities Company Project) (the “Carroll County Series A Revenue Bonds”), which will be issued pursuant to the provisions of the Indenture of Trust dated as of February 1, 2002 (the “Carroll County Series A Indenture”), between Carroll County and Deutsche Bank Trust Company Americas, as Trustee, Paying Agent and Bond Registrar (said Trustee or any successor trustee under the Carroll County Series A Indenture or under any or all of the respective Indentures of Trust dated as of February 1, 2002, hereinafter mentioned, being hereinafter referred to as the “County Trustee”), and (b) $2,400,000 in principal amount of its Pollution Control Revenue Bonds, 2002 Series B (Kentucky Utilities Company Project) (the “Carroll County Series B Revenue Bonds”), which will be issued pursuant to the provisions of the Indenture of Trust dated as of February 1, 2002 (the “Carroll County Series B Indenture”), between Carroll County and the County Trustee; and

WHEREAS, (a) the proceeds of the Carroll County Series A Revenue Bonds (other than any accrued interest, if any, thereon) will be loaned by Carroll County to the Company pursuant

to the provisions of a Loan Agreement, dated as of February 1, 2002, between Carroll County and the Company (the “Carroll County Series A Agreement”), to pay and discharge $20,930,000 in outstanding principal amount of “County of Carroll, Kentucky, Collateralized Pollution Control Revenue Bonds, (Kentucky Utilities Company Project), 1992 Series B” (the “1992 Series B Carroll Bonds”) on or prior to the date of issuance of the Carroll County Series A Revenue Bonds.  The 1992 Series B Carroll Bonds were issued to refinance the cost of construction of certain air, solid waste and water pollution control facilities at the Ghent Generating Station of the Company, which facilities are hereinafter sometimes referred to as the “Carroll County Series A Project,” which Carroll County Series A Project is located in Carroll County and which Carroll County Series A Project is more fully described in Exhibit A to the Carroll County Series A Agreement; and (b) the proceeds of the Carroll County Series B Revenue Bonds (other than any accrued interest, if any, thereon) will be loaned by Carroll County to the Company pursuant to the provisions of a Loan Agreement, dated as of February 1, 2002, between Carroll County and the Company (the “Carroll County Series B Agreement”), to pay and discharge $2,400,000 in outstanding principal amount of “County of Carroll, Kentucky, Collateralized Pollution Control Revenue Bonds, (Kentucky Utilities Company Project), 1992 Series C” (the “1992 Series C Carroll Bonds”) on or prior to the date of issuance of the Carroll County Series B Revenue Bonds.  The 1992 Series C Carroll Bonds were issued to refinance the cost of construction of certain air pollution control facilities at Unit 2 at the Ghent Generating Station of the Company, which facilities are hereinafter sometimes referred to as the “Carroll County Series B Project,” which Carroll County Series B Project is located in Carroll County and which Carroll County Series B Project is more fully described in Exhibit A to the Carroll County Series B Agreement; and

WHEREAS, payments by the Company under and pursuant to the Carroll County Series A Agreement have been assigned by Carroll County to the County Trustee in order to secure the payment of the Carroll County Series A Revenue Bonds; and in order to further secure the payment of the Carroll County Series A Revenue Bonds, the Company desires to issue its bonds of Series No. 12 to the County Trustee as provided in the Carroll County Series A Agreement; and

WHEREAS, payments by the Company under and pursuant to the Carroll County Series B Agreement have been assigned by Carroll County to the County Trustee in order to secure the payment of the Carroll County Series B Revenue Bonds; and in order to further secure the payment of the Carroll County Series B Revenue Bonds, the Company desires to issue its bonds of Series No. 13 to the County Trustee as provided in the Carroll County Series B Agreement; and

WHEREAS, the County of Muhlenberg in the Commonwealth of Kentucky (“Muhlenberg County”) has agreed to issue $7,200,000 in principal amount of its Pollution Control Revenue Bonds, 2002 Series A (Kentucky Utilities Company Project) (the “Muhlenberg County Revenue Bonds”), which will be issued pursuant to the provisions of the Indenture of Trust dated as of February 1, 2002 (the “Muhlenberg County Indenture”), between Muhlenberg County and the County Trustee; and

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WHEREAS, the proceeds of the Muhlenberg County Revenue Bonds (other than any accrued interest, if any, thereon) will be loaned by Muhlenberg County to the Company pursuant to the provisions of a Loan Agreement, dated as of February 1, 2002, between Muhlenberg County and the Company (the “Muhlenberg County Agreement”), to pay and discharge $7,200,000 in outstanding principal amount of “County of Muhlenberg, Kentucky, Collateralized Pollution Control Revenue Bonds, (Kentucky Utilities Company Project), 1992 Series A” (the “1992 Muhlenberg Bonds”) on or prior to the date of issuance of the Muhlenberg County Revenue Bonds.  The 1992 Muhlenberg Bonds were issued to refinance the cost of construction of certain air pollution control facilities at the Green River Generating Station of the Company, which facilities are hereinafter sometimes referred to as the “Muhlenberg County Project,” which Muhlenberg County Project is located in Muhlenberg County and which Muhlenberg County Project is more fully described in Exhibit A to the Muhlenberg County Agreement; and

WHEREAS, payments by the Company under and pursuant to the Muhlenberg County Agreement have been assigned by Muhlenberg County to the County Trustee in order to secure the payment of the Muhlenberg County Revenue Bonds; and in order to further secure the payment of the Muhlenberg County Revenue Bonds, the Company desires to issue its bonds of Series No. 14 to the County Trustee as provided in the Muhlenberg County Agreement; and

WHEREAS, the County of Mercer in the Commonwealth of Kentucky (“Mercer County”) has agreed to issue $7,400,000 in principal amount of its Pollution Control Revenue Bonds, 2002 Series A (Kentucky Utilities Company Project) (the “Mercer County Revenue Bonds”), which will be issued pursuant to the provisions of the Indenture of Trust dated as of February 1, 2002 (the “Mercer County Indenture”), between Mercer County and the County Trustee; and

WHEREAS, the proceeds of the Mercer County Revenue Bonds (other than any accrued interest, if any, thereon) will be loaned by Mercer County to the Company pursuant to the provisions of a Loan Agreement, dated as of February 1, 2002, between Mercer County and the Company (the “Mercer County Agreement”), to pay and discharge $7,400,000 in outstanding principal amount of “County of Mercer, Kentucky, Collateralized Pollution Control Revenue Bonds, (Kentucky Utilities Company Project), 1992 Series A” (the “1992 Mercer Bonds”) on or prior to the date of issuance of the Mercer County Revenue Bonds.  The 1992 Mercer Bonds were issued to refinance the cost of construction of certain air pollution control facilities at the E.W. Brown Generating Station of the Company, which facilities are hereinafter sometimes referred to as the “Mercer County Project,” which Mercer County Project is located in Mercer County and which Mercer County Project is more fully described in Exhibit A to the Mercer County Agreement; and

WHEREAS, payments by the Company under and pursuant to the Mercer County Agreement have been assigned by Mercer County to the County Trustee in order to secure the payment of the Mercer County Revenue Bonds; and in order to further secure the payment of the Mercer County Revenue Bonds, the Company desires to issue its bonds of Series No. 15 to the County Trustee as provided in the Mercer County Agreement; and

3

WHEREAS, the issuance of each series of bonds created and authorized by this supplemental indenture (namely, the bonds of Series No. 12, No. 13, No. 14 and No. 15) is a separate transaction, and the issuance of one series of bonds is not contingent upon the issuance of any other series of bonds; and

WHEREAS, the Company desires, in accordance with the provisions of Article I, Section 6(e) of Article II and Article XVI of the Indenture, to execute this supplemental indenture for the purpose of creating and authorizing its bonds of Series No. 12, No. 13, No. 14 and No. 15 and modifying or amending certain provisions of the Indenture in the particulars and to the extent hereinafter in this supplemental indenture specifically provided; and

WHEREAS, the execution and delivery by the Company of this supplemental indenture have been duly authorized by the Board of Directors of the Company or the Pricing Committee thereof, and the Company has requested, and hereby requests, the Trustees to enter into and join with the Company in the execution and delivery of this supplemental indenture; and

WHEREAS, the bonds of Series No. 12, No. 13, No. 14 and No. 15 are to be authorized, authenticated and issued only in the form of registered bonds without coupons, and each of such bonds shall be substantially in the following form, to wit:

(Form of face of bond of Series No. 12,

No. 13, No. 14 and No. 15, respectively)

This bond is nontransferable except as may be required to effect a transfer to any successor trustee under the Indenture of Trust dated as of February 1, 2002, hereinafter referred to.

No. $

Kentucky Utilities Company
First Mortgage Bond, Pollution Control Series No. ^{[See Note (1) on page 8]}
Due February 1, 2032

Kentucky Utilities Company, a Kentucky and Virginia corporation (hereinafter referred to as the “Company”), for value received, hereby promises to pay to Deutsche Bank Trust Company Americas, as Trustee under the Indenture of Trust (the “County Indenture”) dated February 1, 2002, from the County of ^{[see Note (2) on page 8]}, Kentucky, (the “County”) to Deutsche Bank Trust Company Americas or any successor trustee under the County Indenture (the “County Trustee”), the principal sum of                                Dollars on the Demand Redemption Date, as hereinafter defined, and to pay on the Demand Redemption Date to the County Trustee interest on said sum from the Initial Interest Accrual Date, as hereinafter defined, to the Demand Redemption Date, at the interest rate or rates determined for the “Interest Rate Mode” (as described in Section 2.02 of the County Indenture) applicable to the Revenue Bonds referred to on the reverse hereof as selected from time to time by the Company, subject to the

4

provisions hereinafter set forth in the event of a rescission of a Redemption Demand, as hereinafter defined.  Both the principal of and the interest on this bond shall be payable at the office or agency of the Company in Chicago, Illinois, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts.

The provisions of this bond are continued on the reverse side hereof and such continued provisions shall have the same effect, for all purposes, as though fully set forth at this place.  This bond shall not be valid or become obligatory for any purpose unless and until it shall have been authenticated by the execution by the Trustee or its successor in trust under the Indenture of the Trustee’s Certificate endorsed hereon.

IN WITNESS WHEREOF, Kentucky Utilities Company has caused this bond to be executed in its name by the manual or facsimile signature of its President or one of its Vice-Presidents, and its corporate seal or a facsimile thereof to be hereto affixed or imprinted hereon and attested by the manual or facsimile signature of its Secretary or one of its Assistant Secretaries.

Dated as of
	Kentucky Utilities Company
	By
		Vice President
Attest:
Secretary

5

(Form of reverse side of bond of Series No. 12,

No. 13, No. 14 and No. 15, respectively)

This bond is one of the bonds of the Company issued and to be issued from time to time under and in accordance with and all secured by the indenture of mortgage or deed of trust dated May 1, 1947, executed and delivered by the Company to U.S. Bank National Association, successor to Bank of America Illinois (formerly Continental Bank, National Association and formerly Continental Illinois National Bank and Trust Company of Chicago and hereinafter referred to as the “Trustee”) and Edmond B. Stofft, as Trustees, and the indentures supplemental thereto heretofore executed and delivered by the Company to the Trustees under said indenture of mortgage, including the indenture supplemental thereto dated May 1, 2002, executed and delivered by the Company to said U.S. Bank National Association and Richard Prokosch (successor Co-Trustee), as Trustees (collectively the “Trustees”), prior to the authentication of this bond (said indenture of mortgage and said supplemental indentures being hereinafter referred to, collectively, as the “Indenture”).  Reference to the Indenture and to all supplemental indentures, if any, hereafter executed pursuant to the Indenture is hereby made for a description of the property mortgaged and pledged, the nature and extent of the security and the rights of the holders and registered owners of said bonds and of the Trustees and of the Company in respect of such security.  By the terms of the Indenture the bonds to be secured thereby are issuable in series which may vary as to date, amount, date of maturity, rate of interest, redemption provisions, medium of payment and in other respects as in the Indenture provided.

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 No. ^{[see Note (1) on page 8]} (hereinafter called the “bonds of Series No. ^{[see Note (1) on page 8]}” or the “bonds of said Series”).  The bonds of Series No. ^{[see Note (1) on page 8]} have been issued to Deutsche Bank Trust Company Americas, as trustee (said trustee or any successor trustee being hereinafter referred to as the “County Trustee”) under the Indenture of Trust dated as of February 1, 2002 (the “County Indenture”), between the County and the County Trustee, to secure payment of the Pollution Control Revenue Bonds, 2002 Series ^{[see Note (3) on page 8]} (Kentucky Utilities Company Project) (the “Revenue Bonds”), issued by the County under the County Indenture, the proceeds of which (other than any accrued interest thereon) have been loaned to the Company pursuant to the provisions of the Loan Agreement dated as of February 1, 2002 (the “Agreement”), between the Company and the County.

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 County Indenture and the Revenue Bonds) on the 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 Series No. ^{[see Note (1) on page 8]}shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter called a “Redemption Demand”) from the County 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 County Indenture, specifying the last date to which interest on the Revenue Bonds has been paid (such date being hereinafter referred to as the “Initial Interest Accrual Date”) and demanding

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redemption of the bonds of Series No. ^{[see Note (1) on page 8]}.  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 Series No. ^{[see Note (1) on page 8]} 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) February 1, 2032, 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) February 1, 2032.  The Trustee shall mail notice of the Demand Redemption Date (such notice being hereinafter called the “Demand Redemption Notice”) to the County 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 February 1, 2032, such date shall be deemed to be the Demand Redemption Date without further action (including actions specified in this paragraph) by the County Trustee, the Trustee or the Company.  The bonds of Series No. ^{[see Note (1) on page 8]} shall be redeemed by the Company on the Demand Redemption Date, upon surrender thereof by the County Trustee to the Trustee, at a redemption price equal to the principal amount thereof plus accrued interest thereon at the rate or rates then applicable to the Revenue Bonds or determined under the provisions of the County Indenture from the Initial Interest Accrual Date to the Demand Redemption Date.  If a Redemption Demand is rescinded by the County 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 Series No. ^{[see Note (1) on page 8]} 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 said 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 Series No. ^{[see Note (1) on page 8]} shall bear interest at the rate or rates applicable to the Revenue Bonds from the Initial Interest Accrual Date, as specified in a written notice to the Trustee from the County 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 Article X of the Indenture.

Upon payment of the principal of and premium, if any, and interest on the Revenue Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the County Trustee (other than any Revenue Bond that was cancelled by the County Trustee and for which one or more other Revenue Bonds were delivered and authenticated pursuant to the County Indenture in lieu of or in exchange or substitution for such cancelled Revenue Bond), or upon provision for the payment thereof having been made in accordance with the County Indenture, bonds of Series No. ^{[see Note (1) on page 8]} in a principal

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amount equal to the principal amount of the 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 Series No. ^{[see Note (1) on page 8]} shall be surrendered by the County Trustee to the Trustee and shall be cancelled by the Trustee.  From and after the Release Date (as defined below), the bonds of Series No. ^{[see Note (1) on page 8]} 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 as of which all bonds issued under the Indenture prior to the date of initial issuance of this bond (and excluding bonds of Series No. 11, 12, 13, 14 and 15 have been retired through payment, redemption or otherwise (including those bonds “deemed to be paid” within the meaning of that term as used in Article XII of the Indenture) at, before or after the maturity thereof.  On the Release Date, the bonds of Series No. ^{[see Note (1) on page 8]} shall be surrendered by the County Trustee to the Trustee whereupon the bonds of Series No. ^{[see Note (1) on page 8]} so surrendered shall be cancelled by the Trustee.

No recourse shall be had for the payment of the principal of or interest on this bond, or for any claim based hereon, or otherwise in respect hereof or of the Indenture or any indenture supplemental thereto, to or against any incorporator, stockholder, officer or director, past, present or future, of the Company, or of any predecessor or successor corporation, either directly or through the Company or such predecessor or successor corporation, under any constitution or statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability of incorporators, stockholders, directors and officers being waived and released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture.

This bond is nontransferable except as may be required to effect a transfer to any successor trustee under the County Indenture.  Any such transfer may be made by the registered owner hereof, in person or by attorney duly authorized, at the principal office or place of business of the Trustee under the Indenture, upon the surrender and cancellation of this bond and the payment of any stamp tax or other governmental charge, and upon any such transfer a new registered bond or bonds without coupons, of the same series and for the same aggregate principal amount, will be issued to the transferee in exchange herefor.

NOTES:

(1)The number of the applicable series of bonds (Series No. 12, No. 13, No. 14 or No. 15, as the case may be) shall be inserted at this point in each bond of such series.

(2)The name of the applicable County (Carroll County as to bonds of Series No. 12 and No. 13, Muhlenberg County as to bonds of Series No. 14 and Mercer County as to bonds of Series No. 15) shall be inserted at this point in each bond of such series.

(3)The designation of the applicable series (A as to Series No. 12, No. 14 and No. 15, and B as to Series No. 13) shall be inserted at this point in each bond of such series.

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AND WHEREAS, there is to be endorsed on each of the bonds of Series No. 12, No. 13, No. 14 or No. 15 (whether in temporary or definitive form) a certificate of the Trustee substantially in the following form, to-wit:

Trustee’s Certificate

This bond is one of the bonds of the series designated therein, described in the within mentioned Indenture.

U.S. Bank National Association
as Trustee
By
	Authorized Officer

NOW, THEREFORE, in consideration of the premises and of the sum of One Dollar ($1.00) duly paid by the Trustee to the Company, and of other good and valuable considerations, the receipt whereof is hereby acknowledged, and for the purpose of further assuring to the Trustees under the Indenture their title to, or lien upon, the property hereinafter described, under and pursuant to the terms of the Indenture and for the purpose of further securing the due and punctual payment of the principal of and interest and the premium, if any, on all bonds which have been heretofore or shall be hereafter issued under the Indenture and indentures supplemental thereto and which shall be at any time outstanding thereunder and secured thereby, and for the purpose of securing the faithful performance and observance of all the covenants and conditions set forth in the Indenture and/or in any indenture supplemental thereto, the Company has given, granted, bargained, sold, transferred, assigned, pledged, mortgaged, warranted the title to and conveyed, and by these presents does give, grant, bargain, sell, transfer, assign, pledge, mortgage, warrant the title to and convey unto U.S. BANK NATIONAL ASSOCIATION AND RICHARD PROKOSCH, as Trustees under the Indenture as therein provided, and the successors in the trusts thereby created, and to their assigns, all the right, title and interest of the Company in and to any and all premises, plants, property, leases and leaseholds, franchises, permits, rights and powers, of every kind and description, real and personal (1) which have been acquired by the Company through construction, purchase, consolidation or merger, or otherwise, and which at the date hereof are owned by the Company, and (2) which shall be acquired by the Company, through construction, purchase, consolidation, merger, or otherwise, on or subsequent to the date hereof, together, in each case, with the rents, issues, products and profits therefrom, excepting, however, and there is hereby expressly reserved and excluded from the lien and effect of the Indenture and of this supplemental indenture, all right, title and interest of the Company, now owned, or hereinafter acquired, in and to (a) all cash, bonds, shares of stock, obligations and other securities not deposited with the Trustee or Trustees under the Indenture, and (b) all accounts and bills receivable, judgments (other than for the recovery of real property or establishing a lien or charge thereon or right therein) and choses in action not specifically assigned to and pledged with the Trustee or Trustees under the Indenture, and (c) all lamps and supplies, machinery, appliances, goods, wares, merchandise, commodities, equipment, apparatus, materials and/or supplies acquired or held by the Company for sale, lease, rental or consumption

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in the ordinary course of business, and (d) the last day of each of the demised terms created by any lease of property leased to the Company and under each and every renewal of any such lease, the last day of each and every such demised term being hereby expressly reserved to and by the Company, and (e) all gas, oil, ore, copper and other minerals now or hereafter existing upon, within or under any real estate of the Company subject to, or hereby subjected to, the lien of the Indenture.

Without in any way limiting or restricting the generality of the foregoing description or the foregoing exceptions and reservations, the Company hereby expressly gives, grants, bargains, sells, transfers, assigns, pledges, mortgages, warrants the title to and conveys unto said U.S. BANK NATIONAL ASSOCIATION AND RICHARD PROKOSCH, as Trustees under the Indenture, and unto their successor or successors in trust, and their assigns, under the trusts and for the purposes of the Indenture, as hereby amended, the properties described in Section 5 of Article VIII of this supplemental indenture (said description being incorporated herein by reference with the same force and effect as if set forth at length herein), and which properties have been acquired by the Company, through construction, purchase, consolidation or merger, or otherwise, and which are owned by the Company at the date of the execution hereof together with the tenements, hereditaments and appurtenances thereunto belonging or appertaining.

TO HAVE AND TO HOLD all said property, right and interests hereinabove described or referred to and conveyed, assigned, pledged or mortgaged, or intended to be conveyed, assigned, pledged or mortgaged, together with the rents, issues, products and profits therefrom unto said U.S. BANK NATIONAL ASSOCIATION AND RICHARD PROKOSCH, as Trustees under the Indenture, as hereby modified and amended, and unto their successor or successors in trust forever, But In Trust Nevertheless, upon the trusts, for the purposes and subject to all the terms, conditions, provisions and restrictions of the Indenture, as hereby modified and amended.

And upon the considerations and for the purposes aforesaid, and in order to provide, pursuant to the terms of the Indenture, for the issuance under the Indenture, as hereby modified and amended, of bonds of Series No. 12, No. 13, No. 14 or No. 15 and to fix the terms, provisions and characteristics of the bonds of said Series, and to modify and amend the Indenture in the particulars and to the extent hereinafter in this supplemental indenture specifically provided, the Company hereby covenants and agrees with the Trustees as follows:

ARTICLE I.

Section 1.  A series of bonds issuable under the Indenture, as hereby modified and amended, and to be known and designated as “First Mortgage Bonds, Pollution Control Series No. 12” (hereinafter sometimes referred to as the “bonds of Series No. 12” or in this Article as the “bonds of said Series”), and which shall be executed, authenticated and issued only in the form of registered bonds without coupons, in denominations of $5,000 and integral multiples thereof, is hereby created and authorized.  The bonds of said Series shall be payable as provided in Section 3 of this Article and shall be substantially in the form thereof hereinbefore recited.  Each bond of said Series shall be issued to and registered in the name of the County Trustee and shall be nontransferable except as required to effect any transfer of bonds of said Series to any

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successor trustee under the Carroll County Series A Indenture.  Each bond of said Series shall be dated as of the date of issuance of the Carroll County Series A Revenue Bonds.

Section 2.  The bonds of Series No. 12 shall bear interest, and the principal thereof and interest thereon shall be payable, only to the extent and in the manner provided in Section 3 of this Article.  The bonds of said Series shall mature on February 1, 2032.  The bonds of said Series shall be payable, both as to principal and interest, at the office or agency of the Company in Chicago, Illinois in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts.

The bonds of said Series shall be deemed fully paid, and the obligations of the Company thereunder shall be terminated, to the extent and in the manner provided in Section 4 of this Article.

Section 3.  (a)  Except as provided in paragraph (b) of this Section 3, in the event of a default under Section 9.1 of the Carroll County Series A 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 Carroll County Series A Indenture and the Carroll County Series A Revenue Bonds) on the Carroll County Series A 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 Series No. 12 shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter in this Article called a “Redemption Demand”) from the County 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 Carroll County Series A Indenture, specifying the last date to which interest on the Carroll County Series A Revenue Bonds has been paid (such date being hereinafter referred to in this Article as the “Initial Interest Accrual Date”) and demanding redemption of the bonds of Series No. 12.  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 Series No. 12 so demanded to be redeemed (hereinafter in this Article 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) February 1, 2032, 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) February 1, 2032.  The Trustee shall mail notice of the Demand Redemption Date (such notice being hereinafter in this Article called the “Demand Redemption Notice”) to the County 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 February 1, 2032, such date shall be deemed to be the Demand Redemption Date without further action (including actions specified in this paragraph) by the County Trustee, the Trustee or the Company.  The bonds of Series No. 12 shall be redeemed by

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the Company on the Demand Redemption Date, upon surrender thereof by the County Trustee to the Trustee, at a redemption price equal to the principal amount thereof, plus accrued interest thereon at the rate or rates then applicable to the Carroll County Series A Revenue Bonds or determined under the provisions of the Carroll County Series A Indenture from the Initial Interest Accrual Date to the Demand Redemption Date.  If a Redemption Demand is rescinded by the County 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 Series No. 12 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.

(b)           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 Series No. 12 shall bear interest at the rate or rates applicable to the Carroll County Series A Revenue Bonds from the Initial Interest Accrual Date, as specified in a written notice to the Trustee from the County Trustee, and the principal of and interest on the bonds of said Series from the Initial Interest Accrual Date shall be payable in accordance with the provisions of Article X of the Indenture.

(c)           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 paragraph (b) of this Section 3, and such Redemption Demand, rescission or notice shall be of no force or effect, unless it is executed in the name of the County Trustee by one of its Vice-Presidents.

Section 4.  Upon payment of the principal of and premium, if any, and interest on the Carroll County Series A Revenue Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the County Trustee, or upon provision for the payment thereof having been made in accordance with Article VIII of the Carroll County Series A Indenture, bonds of Series No. 12 in a principal amount equal to the principal amount of the Carroll County Series A Revenue Bonds so surrendered and cancelled shall be surrendered by the County Trustee to the Trustee, whereupon the bonds of said Series so surrendered shall be deemed fully paid and the obligations of the Company thereunder shall be terminated, and such bonds of said Series shall be cancelled and destroyed by the Trustee by shredding, compacting or other suitable means 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 Series No. 12 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 as of which all bonds issued under the Indenture prior to the date of initial issuance of the bonds of this Series (and excluding bonds of this Series and First Mortgage Bonds, Pollution Control Series No. 11, No. 13, No. 14 and No. 15) have been retired through payment, redemption or otherwise (including those Bonds “deemed to be paid” within the meaning of that term used in Article XII of the Indenture) at, before or after the maturity thereof.  On the Release Date, the bonds of this Series shall be surrendered by the County Trustee to the Trustee whereupon the bonds of Series No. 12 so surrendered shall be cancelled by the Trustee.

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ARTICLE II.

Section 1.  A series of bonds issuable under the Indenture, as hereby modified and amended, and to be known and designated as “First Mortgage Bonds, Pollution Control Series No. 13” (hereinafter sometimes referred to as the “bonds of Series No. 13” or in this Article as the “bonds of said Series”), and which shall be executed, authenticated and issued only in the form of registered bonds without coupons, in denominations of $5,000 and integral multiples thereof, is hereby created and authorized.  The bonds of said Series shall be payable as provided in Section 3 of this Article and shall be substantially in the form thereof hereinbefore recited.  Each bond of said Series shall be issued to and registered in the name of the County Trustee and shall be nontransferable except as required to effect any transfer of bonds of said Series to any successor trustee under the Carroll County Series B Indenture.  Each bond of said Series shall be dated as of the date of issuance of the Carroll County Series B Revenue Bonds.

Section 2.  The bonds of Series No. 13 shall bear interest, and the principal thereof and interest thereon shall be payable, only to the extent and in the manner provided in Section 3 of this Article.  The bonds of said Series shall mature on February 1, 2032.  The bonds of said Series shall be payable, both as to principal and interest, at the office or agency of the Company in Chicago, Illinois in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts.

The bonds of said Series shall be deemed fully paid, and the obligations of the Company thereunder shall be terminated, to the extent and in the manner provided in Section 4 of this Article.

Section 3.  (a)  Except as provided in paragraph (b) of this Section 3, in the event of a default under Section 9.1 of the Carroll County Series B 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 Carroll County Series B Indenture and the Carroll County Series B Revenue Bonds) on the Carroll County Series B 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 Series No. 13 shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter in this Article called a “Redemption Demand”) from the County 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 Carroll County Series B Indenture, specifying the last date to which interest on the Carroll County Series B Revenue Bonds has been paid (such date being hereinafter referred to in this Article as the “Initial Interest Accrual Date”) and demanding redemption of the bonds of Series No. 13.   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 Series No. 13 so demanded to be redeemed (hereinafter in this Article 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) February 1, 2032, provided

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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) February 1, 2032.  The Trustee shall mail notice of the Demand Redemption Date (such notice being hereinafter in this Article called the “Demand Redemption Notice”) to the County 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 February 1, 2032, such date shall be deemed to be the Demand Redemption Date without further action (including actions specified in this paragraph) by the County Trustee, the Trustee or the Company.  The bonds of Series No. 13 shall be redeemed by the Company on the Demand Redemption Date, upon surrender thereof by the County Trustee to the Trustee, at a redemption price equal to the principal amount thereof, plus accrued interest thereon at the rate or rates then applicable to the Carroll County Series B Revenue Bonds or determined under the provisions of the Carroll County Series B Indenture from the Initial Interest Accrual Date to the Demand Redemption Date.  If a Redemption Demand is rescinded by the County 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 Series No. 13 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.

(b)           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 Series No. 13 shall bear interest at the rate or rates applicable to the Carroll County Series B Revenue Bonds from the Initial Interest Accrual Date, as specified in a written notice to the Trustee from the County Trustee, and the principal of and interest on the bonds of said Series from the Initial Interest Accrual Date shall be payable in accordance with the provisions of Article X of the Indenture.

(c)           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 paragraph (b) of this Section 3, and such Redemption Demand, rescission or notice shall be of no force or effect, unless it is executed in the name of the County Trustee by one of its Vice-Presidents.

Section 4.  Upon payment of the principal of and premium, if any, and interest on the Carroll County Series B Revenue Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the County Trustee, or upon provision for the payment thereof having been made in accordance with Article VIII of the Carroll County Series B Indenture, bonds of Series No. 13 in a principal amount equal to the principal amount of the Carroll County Series B Revenue Bonds so surrendered and cancelled shall be surrendered by the County Trustee to the Trustee, whereupon the bonds of said Series so surrendered shall be deemed fully paid and the obligations of the Company thereunder shall be terminated, and such bonds of said Series shall be cancelled and destroyed by the Trustee by shredding, compacting or other suitable means and a certificate of such cancellation and destruction shall be delivered to the Company.  From and after the Release Date (as defined

14

below), the bonds of Series No. 13 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 as of which all bonds issued under the Indenture prior to the date of initial issuance of the bonds of this Series (and excluding bonds of this Series and First Mortgage Bonds, Pollution Control Series No. 11, No. 12, No. 14 and No. 15) have been retired through payment, redemption or otherwise (including those Bonds “deemed to be paid” within the meaning of that term used in Article XII of the Indenture) at, before or after the maturity thereof.  On the Release Date, the bonds of this Series shall be surrendered by the County Trustee to the Trustee whereupon the bonds of Series No. 13 so surrendered shall be cancelled by the Trustee.

ARTICLE III.

Section 1.  A series of bonds issuable under the Indenture, as hereby modified and amended, and to be known and designated as “First Mortgage Bonds, Pollution Control Series No. 14” (hereinafter sometimes referred to as the “bonds of Series No. 14” or in this Article as the “bonds of said Series”), and which shall be executed, authenticated and issued only in the form of registered bonds without coupons, in denominations of $5,000 and integral multiples thereof, is hereby created and authorized.  The bonds of said Series shall be payable as provided in Section 3 of this Article and shall be substantially in the form thereof hereinbefore recited.  Each bond of said Series shall be issued to and registered in the name of the County Trustee and shall be nontransferable except as required to effect any transfer of bonds of said Series to any successor trustee under the Muhlenberg County Indenture.  Each bond of said Series shall be dated as of the date of issuance of the Muhlenberg County Revenue Bonds.

Section 2.  The bonds of Series No. 14 shall bear interest, and the principal thereof and interest thereon shall be payable, only to the extent and in the manner provided in Section 3 of this Article.  The bonds of said Series shall mature on February 1, 2032.  The bonds of said Series shall be payable, both as to principal and interest, at the office or agency of the Company in Chicago, Illinois in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts.

The bonds of said Series shall be deemed fully paid, and the obligations of the Company thereunder shall be terminated, to the extent and in the manner provided in Section 4 of this Article.

Section 3.  (a)  Except as provided in paragraph (b) of this Section 3, in the event of a default under Section 9.1 of the Muhlenberg County 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 Muhlenberg County Indenture and the Muhlenberg County Revenue Bonds) on the Muhlenberg County 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 Series No. 14 shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter in this Article called a “Redemption Demand”) from the County 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 Muhlenberg County Indenture, specifying the last date to which interest on the Muhlenberg County Revenue Bonds has been paid (such date being hereinafter referred to in this Article as

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the “Initial Interest Accrual Date”) and demanding redemption of the bonds of Series No. 14.   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 Series No. 14 so demanded to be redeemed (hereinafter in this Article 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) February 1, 2032, 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) February 1, 2032.  The Trustee shall mail notice of the Demand Redemption Date (such notice being hereinafter in this Article called the “Demand Redemption Notice”) to the County 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 February 1, 2032, such date shall be deemed to be the Demand Redemption Date without further action (including actions specified in this paragraph) by the County Trustee, the Trustee or the Company.  The bonds of Series No. 14 shall be redeemed by the Company on the Demand Redemption Date, upon surrender thereof by the County Trustee to the Trustee, at a redemption price equal to the principal amount thereof, plus accrued interest thereon at the rate or rates then applicable to the Muhlenberg County Revenue Bonds or determined under the provisions of the Muhlenberg County Indenture from the Initial Interest Accrual Date to the Demand Redemption Date.  If a Redemption Demand is rescinded by the County 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 Series No. 14 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.

(b)           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 Series No. 14 shall bear interest at the rate or rates applicable to the Muhlenberg County Revenue Bonds from the Initial Interest Accrual Date, as specified in a written notice to the Trustee from the County Trustee, and the principal of and interest on the bonds of said Series from the Initial Interest Accrual Date shall be payable in accordance with the provisions of Article X of the Indenture.

(c)           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 paragraph (b) of this Section 3, and such Redemption Demand, rescission or notice shall be of no force or effect, unless it is executed in the name of the County Trustee by one of its Vice-Presidents.

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Section 4.  Upon payment of the principal of and premium, if any, and interest on the Muhlenberg County Revenue Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the County Trustee, or upon provision for the payment thereof having been made in accordance with Article VIII of the Muhlenberg County Indenture, bonds of Series No. 14 in a principal amount equal to the principal amount of the Muhlenberg County Revenue Bonds so surrendered and cancelled shall be surrendered by the County Trustee to the Trustee, whereupon the bonds of said Series so surrendered shall be deemed fully paid and the obligations of the Company thereunder shall be terminated, and such bonds of said Series shall be cancelled and destroyed by the Trustee by shredding, compacting or other suitable means 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 Series No. 14 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 as of which all bonds issued under the Indenture prior to the date of initial issuance of the bonds of this Series (and excluding bonds of this Series and First Mortgage Bonds, Pollution Control Series No. 11, No. 12, No. 13 and No. 15) have been retired through payment, redemption or otherwise (including those Bonds “deemed to be paid” within the meaning of that term used in Article XII of the Indenture) at, before or after the maturity thereof.  On the Release Date, the bonds of this Series shall be surrendered by the County Trustee to the Trustee whereupon the bonds of Series No. 14 so surrendered shall be cancelled by the Trustee.

ARTICLE IV.

Section 1.  A series of bonds issuable under the Indenture, as hereby modified and amended, and to be known and designated as “First Mortgage Bonds, Pollution Control Series No. 15” (hereinafter sometimes referred to as the “bonds of Series No. 15” or in this Article as the “bonds of said Series”), and which shall be executed, authenticated and issued only in the form of registered bonds without coupons, in denominations of $5,000 and integral multiples thereof, is hereby created and authorized.  The bonds of said Series shall be payable as provided in Section 3 of this Article and shall be substantially in the form thereof hereinbefore recited.  Each bond of said Series shall be issued to and registered in the name of the County Trustee and shall be nontransferable except as required to effect any transfer of bonds of said Series to any successor trustee under the Mercer County Indenture.  Each bond of said Series shall be dated as of the date of issuance of the Mercer County Revenue Bonds.

Section 2.  The bonds of Series No. 15 shall bear interest, and the principal thereof and interest thereon shall be payable, only to the extent and in the manner provided in Section 3 of this Article.  The bonds of said Series shall mature on February 1, 2032.  The bonds of said Series shall be payable, both as to principal and interest, at the office or agency of the Company in Chicago, Illinois in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts.

The bonds of said Series shall be deemed fully paid, and the obligations of the Company thereunder shall be terminated, to the extent and in the manner provided in Section 4 of this Article.

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Section 3.  (a)  Except as provided in paragraph (b) of this Section 3, in the event of a default under Section 9.1 of the Mercer County 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 Mercer County Indenture and the Mercer County Revenue Bonds) on the Mercer County 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 Series No. 15 shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter in this Article called a “Redemption Demand”) from the County 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 Mercer County Indenture, specifying the last date to which interest on the Mercer County Revenue Bonds has been paid (such date being hereinafter referred to in this Article as the “Initial Interest Accrual Date”) and demanding redemption of the bonds of Series No. 15.  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 Series No. 15 so demanded to be redeemed (hereinafter in this Article 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) February 1, 2032, 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) February 1, 2032.  The Trustee shall mail notice of the Demand Redemption Date (such notice being hereinafter in this Article called the “Demand Redemption Notice”) to the County 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 February 1, 2032, such date shall be deemed to be the Demand Redemption Date without further action (including actions specified in this paragraph) by the County Trustee, the Trustee or the Company.  The bonds of Series No. 15 shall be redeemed by the Company on the Demand Redemption Date, upon surrender thereof by the County Trustee to the Trustee, at a redemption price equal to the principal amount thereof, plus accrued interest thereon at the rate or rates then applicable to the Mercer County Revenue Bonds or determined under the provisions of the Mercer County Indenture from the Initial Interest Accrual Date to the Demand Redemption Date.  If a Redemption Demand is rescinded by the County 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 Series No. 15 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.

(b)           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 Series No. 15 shall bear interest at the rate or rates applicable to the Mercer County Revenue Bonds from the Initial Interest Accrual

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Date, as specified in a written notice to the Trustee from the County Trustee, and the principal of and interest on the bonds of said Series from the Initial Interest Accrual Date shall be payable in accordance with the provisions of Article X of the Indenture.

(c)           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 paragraph (b) of this Section 3, and such Redemption Demand, rescission or notice shall be of no force or effect, unless it is executed in the name of the County Trustee by one of its Vice-Presidents.

Section 4.  Upon payment of the principal of and premium, if any, and interest on the Mercer County Revenue Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the County Trustee, or upon provision for the payment thereof having been made in accordance with Article VIII of the Mercer County Indenture, bonds of Series No. 15 in a principal amount equal to the principal amount of the Mercer County Revenue Bonds so surrendered and cancelled shall be surrendered by the County Trustee to the Trustee, whereupon the bonds of said Series so surrendered shall be deemed fully paid and the obligations of the Company thereunder shall be terminated, and such bonds of said Series shall be cancelled and destroyed by the Trustee by shredding, compacting or other suitable means 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 Series No. 15 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 as of which all bonds issued under the Indenture prior to the date of initial issuance of the bonds of this Series (and excluding bonds of this Series and First Mortgage Bonds, Pollution Control Series No. 11, No. 12, No. 13 and No. 14) have been retired through payment, redemption or otherwise (including those Bonds “deemed to be paid” within the meaning of that term used in Article XII of the Indenture) at, before or after the maturity thereof.  On the Release Date, the bonds of this Series shall be surrendered by the County Trustee to the Trustee whereupon the bonds of Series No. 15 so surrendered shall be cancelled by the Trustee.

ARTICLE V.

Section 1.  The bonds of each of Series No. 12, No. 13, No. 14 and No. 15 shall be executed on behalf of the Company and sealed with the corporate seal of the Company, all in the manner provided in or permitted by Section 6 of Article I of the Indenture, as follows:

(a)           bonds of each of said Series executed on behalf of the Company by its President or a Vice-President and by its Secretary or an Assistant Secretary may be so executed by the manual or facsimile signature of such President or Vice-President and of such Secretary or Assistant Secretary, as the case may be, of the Company, or of any person or persons who shall have been such officer or officers, as the case may be, of the Company on or subsequent to the date of this supplemental indenture, notwithstanding that he or they may have ceased to be such officer or officers of the Company at the time of the actual execution, authentication, issue or delivery of any of such bonds, and any such manual or facsimile signature or signatures of such officer or officers of the Company, as above provided, on any such bonds shall constitute execution of such bonds

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on behalf of the Company by such officer or officers of the Company for the purposes of the Indenture, as hereby modified and amended, and shall be valid and effective for all purposes, provided that all bonds of each of said Series shall always be executed on behalf of the Company by the manual or facsimile signature of its President or a Vice-President and of its Secretary or an Assistant Secretary, as above provided, and provided, further, that none of such bonds shall be executed on behalf of the Company by the manual or facsimile signature of the same officer or person acting in more than one capacity; and

(b)           such corporate seal of the Company may be facsimile, and the bonds of each of said series on which such facsimile seal of the Company shall be affixed, impressed, imprinted or reproduced shall be deemed to be sealed with the corporate seal of the Company for the purposes of the Indenture as hereby modified and amended, and such facsimile seal shall be valid and effective for all purposes.

ARTICLE VI.

Section 10 of Article III of the Indenture is hereby further amended to provide that the Company agrees to observe and comply with the provisions of said section as so amended hereby so long as the bonds of Series No. 12, No. 13, No. 14 and No. 15 are outstanding.  The bonds outstanding on the date hereof to which said Section 10 applies are Nos. 8, Series P, Nos. 1B, 2B, 3B and 4B, Series Q, Nos. 9, 10 and 11, Series R, and Series S.

No covenant to provide a maintenance and renewal fund is made in respect of the bonds of Series No. 12, No. 13, No. 14 or No. 15.  The absence of such a covenant shall not, however, limit the right of the Company to use, apply or certify bonds of Series No. 12, No. 13, No. 14 or No. 15 to comply with, or to satisfy its obligations under, any provision of the Indenture (including, without limitation, the provisions of Section 1 of Article VII of the Indenture).

The bonds of Series No. 12, No. 13, No. 14 or No. 15 are intended to be used as collateral for and to secure payment of the Carroll County Series A Revenue Bonds, the Carroll County Series B Revenue Bonds, the Muhlenberg County Revenue Bonds and the Mercer County Revenue Bonds, respectively, as hereinabove provided, and, accordingly, the bonds of Series No. 12, No. 13, No. 14 or No. 15 shall be dated as of the respective dates of issuance of the applicable Revenue Bonds and shall bear interest from their respective Initial Interest Accrual Dates, as hereinabove provided, notwithstanding anything to the contrary contained in the Indenture with respect to the dating of bonds and the date from which interest on bonds shall accrue.

ARTICLE VII.

Section 1.  Capitalized terms used in this Article VII and not otherwise defined in this Indenture shall have the meanings set forth in the applicable County Indenture.

Section 2.  Subsequent to the issuance of the applicable Revenue Bonds, the Company shall not be required to establish compliance with the net earnings requirements of Section 5 of

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Article II of the Indenture in connection with any Conversion of Interest Rate Mode on such Revenue Bonds or any change in length of Long Term Rate Period.  So long as such Revenue Bonds operate in any Interest Rate Mode other than the Long Term Rate where the Long Term Rate Period ends on the day prior to the final maturity of such Revenue Bonds, the Company shall include, for purposes of any required calculation of such net earnings requirement (as such requirement shall then be in effect), interest on the bonds of the applicable Series at an annual rate of 14%.  If at any time the interest rate on such Revenue Bonds is a Long Term Rate where the Long Term Rate Period ends on the day prior to the final maturity of such Revenue Bonds, the Company may include, for purposes of any calculation of such net earnings requirement, interest on bonds of the applicable Series at the Long Term Rate then borne by the Revenue Bonds.

ARTICLE VIII.

Section 1.  The provisions of this supplemental indenture shall be effective from and after the execution hereof; and the Indenture, as hereby modified and amended, shall remain in full force and effect.

Section 2.  Each holder or registered owner of a bond of any series not now outstanding which shall be authenticated by the Trustee and issued by the Company under the Indenture (as hereby amended) subsequent to the execution of this supplemental indenture and of any coupon pertaining to any such bond, by the acquisition, holding or ownership of such bond and coupon, thereby consents and agrees to, and shall be bound by, the provisions of this supplemental indenture.

Section 3.  Each reference in the Indenture, or in this supplemental indenture, to any article, section, term or provision of the Indenture shall mean and be deemed to refer to such article, section, term or provision of the Indenture, as hereby modified and amended, except where the context otherwise indicates.

Section 4.  All the covenants, provisions, stipulations and agreements in this supplemental indenture contained are and shall be for the sole and exclusive benefit of the parties hereto, their successors and assigns, and of the holders and registered owners from time to time of the bonds and of the coupons issued and outstanding from time to time under and secured by the Indenture, as hereby modified and amended.

This supplemental indenture has been executed in a number of identical counterparts, each of which so executed shall be deemed to be an original.

At the time of the execution of this supplemental indenture, the aggregate principal amount of all indebtedness outstanding, or to be outstanding, under and secured by the Indenture, as hereby modified and amended, is $522,760,000, consisting of and represented by First Mortgage Bonds, Pollution Control Series No. 8, Series P, Pollution Control Series No. 1 B through No. 4B, inclusive, Series Q, Pollution Control Series No. 9 and 10, Series R, Series S and Series No. 11, No. 12, No. 13, No. 14 and No. 15 of the Company, as follows:

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Series	Interest Rate	Maturity Date	Principal Amount
No. 8	7.45	September 15, 2016	96,000,000
P	7.92	May 15, 2007	53,000,000
	8.55	May 15, 2027	33,000,000
No. 1B	6 ¼	February 1, 2018	20,930,000	(a)
No. 2B	6 ¼	February 1, 2018	2,400,000	(a)
No. 3B	6 ¼	February 1, 2018	7,200,000	(a)
No. 4B	6 ¼	February 1, 2018	7,400,000	(a)
Q	6.32	June 15, 2003	62,000,000
No. 9	5 ¾	December 1, 2023	50,000,000
No. 10	Variable	November l, 2024	54,000,000
R	7.55	June 1, 2025	50,000,000
S	5.99	January 15, 2006	36,000,000
No. 11	Variable	May 1, 2023	12,900,000
No. 12	Variable	February 1, 2032	20,930,000	(b)
No. 13	Variable	February 1, 2032	2,400,000	(b)
No. 14	Variable	February 1, 2032	7,200,000	(b)
No. 15	Variable	February 1, 2032	7,400,000	(b)

(a)To be paid and discharged not more than 90 days after issuance of Pollution Control Series No. 12, No. 13, No. 14 and No. 15

(b)To be presently issued by the Company under the Indenture, as hereby modified and amended.

All of said bonds of Series P, Series Q, Series R and Series S, respectively, were sold by the Company to, and upon the issue thereof were owned and held by, the corporations and partnerships whose names and residences are stated in the Supplemental Indentures dated May 15, 1992, June 15, 1993, June 1, 1995 and January 15, 1996, respectively, executed by the Company to the Trustees under said Indenture as heretofore modified and amended.

All of said bonds of Series No. Series No. 8 were heretofore issued and delivered by the Company to, and upon the issuance thereof were held by, First Security National Bank and Trust

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Company, One First Security Plaza, Lexington, Fayette County, Kentucky 40507, as trustee (now succeeded by Bank One, Kentucky, N.A.).

All of said bonds of Series No. 1B through 4B, inclusive, and Series No. 9, and Series No. 10 were heretofore issued and delivered by the Company to, and upon the issuance thereof were held by, Bank One, Kentucky, N.A., 201 East Main Street, Lexington, Fayette County, Kentucky 40507, as trustee.

All of said bonds of Series No. 11 were heretofore issued and delivered by the Company to, and upon the issuance thereof were held by, The Bank of New York, 101 Barclay Street, 21^st Floor, New York, New York 10286.

The Thirty-Seven Million Nine Hundred Thirty Thousand Dollars ($37,930,000) in principal amount of bonds of Series No. 12, No. 13, No. 14 and No. 15 proposed to be issued by the Company under the Indenture as hereby modified and amended, are to be issued and delivered by the Company to, and upon the issuance thereof held by, Deutsche Bank Trust Company Americas, Corporate Trust & Agency Services, c/o DB Services New Jersey, Inc., 100 Plaza One, 6th Floor, Jersey City, New Jersey 07310, as County Trustee.

Section 5.  The Company hereby gives, grants, bargains, sells, transfers, assigns, pledges, mortgages, warrants the title to and conveys unto the Trustee under the Indenture, upon the trusts and for the purposes of the Indenture, as hereby modified, the following described properties:

Parcel 1

That certain property located in Mercer County, Kentucky, on both sides of the Danville and Dix River Road and on the Ballard Turnpike and more particularly described as follows:

BEGINNING at a stone in the center of the Danville and Dix River Road, corner to Martin Noel, opposite Motley’s Passway, and running with the center thereof South 32-1/2< West 4.2 chains, and South 19< West 3.8 chains to corner to Newton Curd; thence leaving the road with his lines North 78-1/4< West 5 chains to a stone and South 51-1/2< West 55 links to the east edge of the right of way of the Cincinnati Southern Railway, as newly located; thence with the east line thereof with the fence Southwardly 1080 feet to the north edge of the Ballard Turnpike at the intersection with the railway; thence with the north edge of the turnpike South 84< East 4.75 chains to the center of the Danville and Dix River Road; thence with the center of said road North 2-3/4< W 10.45 chains to an iron pin corner to H. T. Ison, formerly Artis W. Curd; thence with his line South 84< East 21.63 chains to a stone corner to Grant Epperson; thence with his line North 56-1/2< East 2.6 chains to an iron pin corner to David Motley and Epperson; thence with Motley’s lines North 6< West 10.36 chains to a stone, North 86-1/2< West 9 chains to a stone, North 3< E 3.7 chains to the edge of Motley’s 20 foot roadway, and thence with the south line thereof South 84< West 10.5 chains to the beginning, containing 36 acres, be the same more or less.

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There is excepted from the above-described Parcel 1 the following:

1)Property conveyed to A. G. Peavler and Rosie Lee Peavler, his wife, by deed of Grover Peavler, a single man, et al, dated October 17, 1979, recorded in Deed Book 236, Page 674;

2)Property conveyed to Kentucky Utilities Company, Inc., a Kentucky corporation, by deed  of Grover Peavler, a single man, et al, dated November 8, 1991, recorded in Deed Book 237, Page 103.

All of the foregoing references are to the Mercer County Clerk’s office.

Parcel 2

All of that tract of land, with improvements thereon, near Dix Dam in Mercer County, Kentucky, on the Curdville Road, described as: BEGINNING on the West side of the Curdsville Road in the center of an old lane corner to J.D. WALLACE (or Willis); thence with his line N 76.08 W 330 feet continuing with Willis and crossing the C.N.O. and T.P. Railway Company right of way and continuing with Virgil Houp S 52.53 W 891 feet to a point in the Dix Dam Road in line of F.C. Slama; thence with Slama’s line up a hill N 22.49 W 282 feet along a stone fence, N 22.41 W 198 feet, N 23.14 W 444 feet to a mulberry tree, and along the creek bank N 50.09 W 109 feet, and around the top of the brow of the bluff N 7.01 W 264 feet; N 9.50 W 263 feet; N 14.24 E 264 feet to an elm on the side of the bluff and S 82.16 W 143 feet to an elm tree on top of bluff, and along the top of the bluff N. 0.46 W 488 feet to the line of Gwinn; thence with Gwinn for four calls along the side of the bluff and along an old stone fence N 11.40 E 229 feet, N 44.42 E 330 feet, and leaving stone fence and crossing creek and said railroad N 88.55 E 528 feet to a point on the East side thereof, thence at an angle across said right of way N 5.27 W 392 feet to a point on the west side of said C.N.O. and T.P. Railway Company double tracks and corner to John Buckley; thence with Buckley S 58.49 E 1963 feet to the West side of the Curdsville Road; thence along the West side thereof S 28.21 W 524 feet, S 26.04 W 640 feet S 38.36 W 363 feet, and S 18.55 W 274 feet to the beginning.  There is excepted from the above-described Parcel 2 the following:

1)Railroad right-of-way conveyed in Deed Book 43, Page 459, Deed Book 44, Pages 175 and 404; and deed to Trustees of the Cincinnati Southern Railway, dated September 14, 1928, recorded in Deed book 104, Page 205;

2)Property conveyed by Clarene A. Rose to F.C. Slama, by deed dated  April 30, 1952, and recorded in Deed Book 128, Page 412;

3)Property conveyed to Commonwealth of Kentucky, by deed dated October 9, 1936, recorded in Deed book 110, Page 637.

All of the foregoing references are to the records of the Mercer County Clerk’s office.

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The foregoing two parcels having been surveyed by Estes Engineering, prepared November 28, 2000, and are described pursuant to the survey in three separate tracts as follows:

Tract ‘D’

A description of tract ‘D’ from Houp located on KY 342 and Curdsville road in the county of Mercer, state of Kentucky and bounded as follows:  unless stated otherwise, any monument referred to herein as an iron pin set 11/2000 is a 5/8” x 24” rebar with a 2” aluminum cap stamped L.W. Estes  LPLS 1880; beginning at an iron pin (set 11/2000) located in the west right of way of Curdsville Road and being a corner to Major etal; thence, along the west right of way of Curdsville road (20’ to c/l) for the following calls,

S34E27’24”w, a distance of 184.05 feet to a point;

S32E04’07”w, a distance of 308.88 feet to a point;

S28E07’56”w, a distance of 272.12 feet to an iron pin (set 11/2000);

S26E51’37”w, a distance of 185.81 feet to a point;

S26E16’48”w, a distance of 168.28 feet to a point;

S30’08’53”w, a distance of 56.37 feet to a point;

S37E54’22”w, a distance of 88.05 feet to a point;

S38E49’36”w, a distance of 94.54 feet to a point;

S36E18’15”w, a distance of 90.01 feet to a point;

S28E49’15”w, a distance of 76.20 feet to a point;

S20E40’55”w, a distance of 108.61 feet to a point;

S16E01’26”w, a distance of 113.54 feet to an iron pin (set 11/2000);

S14E12’06”w, a distance of 60.92 feet to a point;

S12E06’15”w, a distance of 107.64 feet to a point;

S07E03’13”w, a distance of 159.31 feet to a point;

S05E58’57”w, a distance of 143.54 feet to a point;

S04E10’57”w, a distance of 183.40 feet to a point;

S04E33’22”w, a distance of 180.41 feet to an iron pin (set 11/2000);

S04E30’14”w, a distance of 277.58 feet to an iron pin (set 11/2000),

located in the north right of way of KY 342; thence, N57E25’57”w, along the north right of way of KY 342 (r/w  variable), a distance of 184.15 feet to an iron pin (set 11/2000) located in the east right of way of Southern Railroad;  thence, along the east right of way of Southern Railroad (DB 104-205 and DB 104-250) for the following calls,  along a curve to the left having a radius of 2964.90 feet, a curve length of 1182.75 feet, the chord of which is n6E03’51”w, a chord length of 1174.92 feet to an iron pin (set 11/2000); N18E52’08”w, a distance of 662.00 feet to an iron pin (set 11/2000); along a curve to the right having a radius of 2764.90 feet, the curve length of 1698.86 feet, the chord of which is   N3E11’47”w, a chord distance of 1672.26 feet to an iron pin (set 11/2000), a corner to Major et al;  thence, s58E49’00”e, along the line of Major et al (DB 230-267) and along or near a fence, a distance of 1828.71 feet to point of beginning.  Containing 58.237 acres more or less.  All bearings are referred to bearing of record along the line of Major et al as shown in DB 176-18  (S58E49’00”e) tract ‘D’ is a portion of DB 176-18 and a portion of DB 237-590.  Tract ‘D’ was surveyed by Lindon W. Estes, Lpls 1880 (Estes Engineering and Surveying, Inc.) on 11/28/2000.

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Tract ‘E’

A description of tract ‘E’ from Houp located on Southern Railroad in the county of Mercer, state of Kentucky and bounded as follows:  unless stated otherwise, any monument referred to herein as an iron pin set 11/2000 is a 5/8” x 24” rebar with a 2” aluminum cap stamped L.W. Estes LPLS 1880; beginning at an iron pin (set 11/2000) located in the west right of way of Southern Railroad and a corner to Shakertown at Pleasant Hill,  Kentucky, Inc.  (Said point located S35E08’09”w, a distance of 520.58 feet from the north west most corner of tract ‘D’ of Houp; thence, along the west right of way of Southern Railroad (DB 43-459 and DB 44-175 (DB 44-404) for the following calls, S10E09’05”w, a distance of 56.20 feet to an iron pin (set 11/2000); along a curve to the left having a radius of 2342.00 feet, the curve length of 1497.38 feet, the chord of which is S8E57’52”e, the chord length of 1472.01 feet to an iron pin (set 11/2000);   S28E21’31”e, a distance of 301.67 feet to an iron pin (set 11/2000); along a curve to the right having a radius of 1382.70 feet, the curve length of 157.42 feet, the chord of which is S23E57’04”e, the chord length of 157.33 feet to an iron pin (set 11/2000); S69E18’37”w, a distance of 50.00 feet to an iron pin (set 11/2000); S17E15’09”e, a distance of 271.52 feet to an iron pin (set 11/2000), a corner to Baker; thence, S52E53’00”w, along the line of Baker (DB 266-402), a distance of 314.56 feet to the center of 14” W.F. I beam (found), a corner to Lot ‘14’ of Pleasant Hill Farm;     thence, along the line of Pleasant Hill Farm (Lots 14 thru 9 PC ‘A-570’) for the following calls, N30E57’29”w, a distance of 31.15 feet to the center of 14” W.F. I beam (found); N32E21’45”e, a distance of 161.60 feet to the center of 12” wood post witness pin (set 11/2000) N28E00’12”e, a distance of 1.14 feet; N3E14’27”w, a distance of 200.07 feet to the center of 14” corner post witness pin (set 11/2000) N1E08’37”e, a distance of 1.42 feet;  N40E01’48”w, a distance of 175.61 feet to the center of 14” wood post witness pin (set 11/2000) S59E06’47”e, a distance 0.98 feet; N51E52’29”w, a distance of 266.26 feet to the center of 12” wood post witness pin (set 11/2000) S74E18’58”e, a distance of 0.91 feet;  N84E01’18”w, a distance of 281.03 feet to the center of 10” wood post witness pin (set 11/2000) S89E49’47”e, a distance of 0.75 feet; N53E49’46”w, a distance of 84.33 feet to a 14” white oak tree witness pin (set 11/2000) S2E22’55”e, a distance of 1.77 feet; S47E22’53”w, a distance of 71.83 feet to an iron pin (set 11/2000 in snag); N35E07’25”w, a distance of 114.11 feet to a 24” oak tree  witness pin (set 11/2000) S69E56’54”e, a distance of 1.87 feet; N8E15’24”e, a distance of 252.25 feet to a 30” sycamore tree witness pin (set 11/2000) S51E14’27”e, a distance of 1.55 feet; N24E39’36”e, a distance of 201.83 feet to a 18” hickory tree witness pin (set 11/2000) N68E50’36”w, a distance of 0.79 feet; N8E27’09”e, a distance of 153.01 feet to the center of 12” walnut  stump, witness pin (set 11/2000) N1E28’16”e, a distance of 0.70 feet;  N23E59’04”w, a distance of 129.81 feet to a 20” walnut tree, witness pin (set 11/2000) S39E40’16”e, a distance of 1.16 feet; N21E57’48”w, a distance of 205.36 feet to a 14” oak stump (3’ tall) witness pin (set 11/2000) N88E14’58”e, a distance of 0.98 feet, a corner to H.U.S. of Ky., Inc.; thence, N4E24’53”w, along the line of H.U.S. of  Ky.,Inc. (DB 239-599), a distance of 297.54 feet to an iron pin (set 11/2000) at corner to Shakertown at Pleasant Hill, Kentucky, Inc.; thence, along the line of Shakertown at Pleasant Hill, Kentucky, Inc.  (DB 157-149 tract III) for the following calls, N11E44’16”e, a distance of 217.80 feet to an iron pin (set 11/2000); N47E14’16”e, a distance of 330.00 feet to a point on rock ledge on west side of cedar run witness pin (set 11/2000) N17E17’42”e, a distance of 14.40 feet; S83E30’44”e, a distance of 244.31 feet to point of

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beginning.  Containing 23.186 acres more or less.  All bearings are referred to bearing of record along the line of Major et al as shown in DB 176-18  (S58E49’00”e).  Tract ‘E’ is a portion of DB 176-18.  Tract ‘E’ was surveyed by Lindon W. Estes, LPLS 1880 (Estes Engineering and Surveying, Inc.) on 11/28/2000.

Tract ‘F’

A description of tract ‘F’ from Houp located on KY 342 in the county of Mercer, state of Kentucky and bounded as follows:    Unless stated otherwise, any monument referred to herein as an iron pin set 11/2000 is a 5/8” x 24” rebar with a 2” aluminum cap stamped L.W. Estes  LPLS 1880; beginning at an iron pin (set 11/2000) located in the south right of way of KY 342 and the east right of way of Southern Railroad; thence, S47E29’58”e, along the south right of way of KY 342 (r/w variable), a distance of 131.29 feet to an iron pin (set 11/2000) located in the west right of way of Curdsville road and a corner to Kentucky  Utilities, (said iron pin located S44E12’55”w, a distance of 95.94 feet from  the south east most corner of tract ‘D’ of Houp; thence, N82E49’14”w, along the line of Kentucky Utilities (DB 190-396), a distance of 104.35 feet to an iron pin (set 11/2000) located in the east right of way of Southern Railroad; thence, N5E05’13”e, along Southern Railroad (DB 104-250), a distance of 75.96 feet to point of beginning.  Containing 0.091 acres more or less.  All bearings are referred to bearing of record along the line of Major et al as shown in DB 176-18 (S58E49’00”e) tract ‘F’ is a portion of DB 237-590 tract ‘F’ was surveyed by Lindon W. Estes, LPLS 1880 (Estes Engineering and Surveying, Inc.) on 11/28/2000.

Parcel 1 being the same property conveyed to Clifford W. Houp and Patricia J. Houp, his wife, by deed dated December, 1991, recorded in Deed Book 237, Page 590, in the Mercer County Clerk’s office.  Parcel 2 being the same property conveyed to Clifford W. Houp and Patricia J. Houp, his wife, by deed dated January 6, 1973, recorded in Deed Book 176, Page 18, in the Mercer County Clerk’s office.

Parcel 3 – Ky River Tract

(1)BEGINNING in the west right-of-way line of C.N.O. and T.P. Railway in or near High Bridge and running thence westwardly a straight line paralleling Kentucky River and with line of the second (2) tract herein to a beech snag on the east bank of Cedar Run Creek, and thence continuing said line to the center of said creek; thence down same with the center thereof to the mouth of said creek at Kentucky River; thence up Kentucky River eastwardly to the west right-of-way of said railway and with the same southwardly to the beginning.

(2)A certain boundary of land lying in Mercer County, Kentucky, on the waters of Cedar Run Creek near the mouth thereof and between said creek and the right-of-way of the Cincinnati-Southern Railroad and bounded as follows:

BEGINNING at the figure 1 cut in a large rock in the edge of said creek and running thence a straight line in an easterly direction 165 feet more or less to figure 7 cut in the face of the cliff, thence a straight line in a southerly direction 294 feet more or less to figure 4 cut in the

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face of the cliff, thence a straight line in a westerly direction 100 feet more or less to a cross cut in a large rock on the edge of the creek, thence down the creek as it meanders 298 feet more or less to figure 1, the place of beginning.

There is excepted from the foregoing description of Parcel 3, property conveyed to Cincinnati Southern Railway, by deed dated August 29, 1908, recorded in Deed Book 78, Page 379, in the Mercer County Clerk’s office.

Parcel 3 being the same property conveyed Clifford Wayne Houp, by deed dated November 23, 1983, recorded in Deed Book 210, Page 746, in the Mercer County Clerk’s office.

Parcels 1, 2 and 3 being the same property conveyed to Kentucky Utilities Company, by deed from Clifford W. Houp and Patricia J. Houp, dated March 22, 2001, recorded in Deed Book 282, Page 266, in the Mercer County Clerk’s office.

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INWITNESS WHEREOF, said Kentucky Utilities Company has caused this instrument to be executed in its corporate name by its President, Vice-President or its Treasurer and its corporate seal to be hereunto affixed and to be attested and countersigned by its Executive Vice President, General Counsel and Corporate Secretary, and said U.S. Bank National Association, for the purpose of entering into and joining with the Company in the execution of this supplemental indenture, has caused this instrument to be executed in its corporate name by one of its Assistant Vice-Presidents and to be attested by one of its Assistant Vice-Presidents, and said Richard Prokosch for the purpose of entering into and joining with the Company in the execution of this supplemental indenture, has signed this instrument; all as of the day and year first above written.

			KENTUCKY UTILITIES COMPANY
			By:
				Daniel K. Arbough
				Treasurer
Attest:
		John R. McCall
		Executive Vice President,
		General Counsel and
		Corporate Secretary
				(Corporate Seal)
			U.S. Bank National Association
			By:
				Julie Eddington
				Assistant VicePresident
Attest:
	Lori-Anne Rosenberg
	Assistant Vice President
			By:
				Richard Prokosch

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Commonwealth of Kentucky	}	SS:
	}
County of Jefferson	}

I, Rhonda E. Anderson, a Notary Public in and for said County in the Commonwealth aforesaid, do hereby certify that Daniel K. Arbough, Treasurer of Kentucky Utilities Company, a Kentucky and Virginia corporation, and John R. McCall, Executive Vice President, General Counsel and Corporate Secretary of said corporation, who are both personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such officers of said corporation, and who are both personally known to me to be such officers, appeared before me this day in person and severally acknowledged before me that they signed, sealed and delivered said instrument as their free and voluntary act as such officers, and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth; and said Daniel K. Arbough, upon oath, acknowledged himself to be Treasurer of said corporation and that, as such officer, being authorized so to do, he executed said instrument for the purposes therein contained, by signing the name of said corporation thereto by himself as such officer.

Given under my hand and official seal this 14th day of May, 2002.

Notary Public

My commission expires:  August 31, 2003

(Notarial Seal)

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State of Minnesota	}	SS:
	}
County of Ramsey	}

I,                                               , a Notary Public in and for said County in the State aforesaid, do hereby certify that:

(a)           Julie Eddington, an Assistant Vice President of U.S. Bank National Association, a national banking association, and Lori-Anne Rosenberg, an Assistant Vice President of said corporation, who are both personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such Assistant Vice Presidents of said corporation, and who are both personally known to me to be such officers, appeared before me this day in person and severally acknowledged before me that they signed and delivered said instrument as their free and voluntary act as such officers, and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth; and said Julie Eddington upon oath, acknowledged herself to be an Assistant Vice President of said corporation and that, as such officer, being authorized so to do, she executed said instrument for the purposes therein contained, by signing the name of said corporation thereto by herself as such officer; and

(b)           Richard Prokosch, personally known to me to be the same person described in, and whose name is subscribed to, the foregoing instrument, appeared before me this day in person and acknowledged before me that he executed, signed and delivered said instrument as his free and voluntary act and deed, for the uses and purposes therein set forth.

Given under my hand and official seal this 13th day of May, 2002.

Notary Public

My commission expires:

(Notarial Seal)

This instrument prepared by James Dimas, Esq., 220 West Main Street, Louisville, Kentucky 40202.

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EX-4.51

EXHIBIT 4.51

Supplemental Indenture

Dated September 1, 2002

KENTUCKY UTILITIES COMPANY

TO

U.S. BANK NATIONAL ASSOCIATION
AND RICHARD PROKOSCH,
AS TRUSTEES

(SUPPLEMENTAL TO THE INDENTURE OF MORTGAGE OR DEED OF TRUST DATED
MAY 1, 1947, AS AMENDED, HERETOFORE EXECUTED BY KENTUCKY UTILITIES
COMPANY TO CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY
OF CHICAGO AND EDMOND B. STOFFT, AS TRUSTEES.)

(PROVIDING FOR FIRST MORTGAGE BONDS,
POLLUTION CONTROL SERIES NO. 16
DUE OCTOBER 1, 2032)

THIS SUPPLEMENTAL INDENTURE, dated September 1, 2002, made and entered into by and between KENTUCKY UTILITIES COMPANY, a corporation organized and existing under the laws of the Commonwealths of Kentucky and Virginia (hereinafter commonly referred to as the “Company”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association having its office or place of business in the City of Chicago, Cook County, State of Illinois, formerly named First Trust of Illinois, National Association, successor to Bank of America Illinois, formerly named Continental Bank, National Association and Continental Illinois National Bank and Trust Company of Chicago (hereinafter commonly referred to as the “Trustee”), and Richard Prokosch (successor Co-Trustee), of the City of St. Paul, County of Ramsey, State of Minnesota, as Trustees under the Indenture of Mortgage or Deed of Trust dated May 1, 1947, as modified and amended by the several indentures supplemental thereto heretofore executed by and between the Company and the Trustees from time to time under said Indenture of Mortgage or Deed of Trust; said Indenture of Mortgage or Deed of Trust, as so modified and amended, being hereinafter commonly referred to as the “Indenture”; and said Trustees under the Indenture being hereinafter commonly referred to as the “Trustees” or the “Trustees under the Indenture”; Witnesseth:

WHEREAS, the Company, by resolution of its Board of Directors or the Pricing Committee thereof duly adopted, has determined to issue forthwith an additional series of its bonds to be secured by the Indenture, as hereby modified and amended, such bonds to be known and designated as First Mortgage Bonds, Pollution Control Series No. 16 (hereinafter sometimes referred to as the “bonds of Series No. 16” or the “bonds of said Series”), and to be authorized, authenticated and issued only as registered bonds without coupons; and

WHEREAS, the County of Carroll in the Commonwealth of Kentucky (the “County”) has agreed to issue $96,000,000 in principal amount of its Pollution Control Revenue Bonds, 2002 Series C (Kentucky Utilities Company Project) (the “Revenue Bonds”), which will be issued pursuant to the provisions of the Indenture of Trust dated as of July 1, 2002 (the “County Indenture”), between the County and Deutsche Bank Trust Company Americas, as Trustee, Paying Agent and Bond Registrar (said Trustee or any successor trustee under the County Indenture dated as of July 1, 2002, hereinafter mentioned, being hereinafter referred to as the “County Trustee”); and

WHEREAS, the proceeds of the Revenue Bonds (other than any accrued interest, if any, thereon) will be loaned by the County to the Company pursuant to the provisions of the Loan Agreement, dated as of July 1, 2002, between the County and the Company (the “Agreement”), to pay and discharge $96,000,000 in outstanding principal amount of “County of Carroll, Kentucky, Collateralized Pollution Control Revenue Bonds, (Kentucky Utilities Company Project), 1992 Series A” (the “Refunded Bonds”) on or prior to the date of issuance of the Revenue Bonds.  The Refunded Bonds were issued to refinance the cost of construction of certain air, solid waste and water pollution control facilities at the Ghent 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 County Trustee in order to secure the payment of the Revenue Bonds; and in order to further secure the payment of the Revenue Bonds, the Company desires to issue its bonds of Series No. 16 to the County Trustee as provided in the Agreement; and

WHEREAS, the Company desires, in accordance with the provisions of Article I, Section 6(e) of Article II and Article XVI of the Indenture, to execute this supplemental indenture for the purpose of creating and authorizing its bonds of Series No. 16 and modifying or amending certain provisions of the Indenture in the particulars and to the extent hereinafter in this supplemental indenture specifically provided; and

WHEREAS, the execution and delivery by the Company of this supplemental indenture have been duly authorized by the Board of Directors of the Company or the Pricing Committee thereof, and the Company has requested, and hereby requests, the Trustees to enter into and join with the Company in the execution and delivery of this supplemental indenture; and

WHEREAS, the bonds of Series No. 16 are to be authorized, authenticated and issued only in the form of registered bonds without coupons, and each of such bonds shall be substantially in the following form, to wit:

(Form of face of bond of Series No. 16)

This bond is nontransferable except as may be required to effect a transfer to any successor trustee under the Indenture of Trust dated as of July 1, 2002, hereinafter referred to.

No.                        $                       

Kentucky Utilities Company
First Mortgage Bond, Pollution Control Series No. 16
Due October 1, 2032

Kentucky Utilities Company, a Kentucky and Virginia corporation (hereinafter referred to as the “Company”), for value received, hereby promises to pay to Deutsche Bank Trust Company Americas, as Trustee under the Indenture of Trust (the “County Indenture”) dated July 1, 2002, from the County of Carroll, Kentucky, (the “County”) to Deutsche Bank Trust Company Americas or any successor trustee under the County Indenture (the “County Trustee”), the principal sum of Ninety-Six Million Dollars on the Demand Redemption Date, as hereinafter defined, and to pay on the Demand Redemption Date to the County Trustee interest on said sum from the Initial Interest Accrual Date, as hereinafter defined, to the Demand Redemption Date, at the interest rate or rates determined for the “Interest Rate Mode” (as described in Section 2.02 of the County Indenture) applicable to the Revenue Bonds referred to on the reverse hereof as

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selected from time to time by the Company, subject to the provisions hereinafter set forth in the event of a rescission of a Redemption Demand, as hereinafter defined.  Both the principal of and the interest on this bond shall be payable at the office or agency of the Company in Chicago, Illinois, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts.

The provisions of this bond are continued on the reverse side hereof and such continued provisions shall have the same effect, for all purposes, as though fully set forth at this place.  This bond shall not be valid or become obligatory for any purpose unless and until it shall have been authenticated by the execution by the Trustee or its successor in trust under the Indenture of the Trustee’s Certificate endorsed hereon.

IN WITNESS WHEREOF, Kentucky Utilities Company has caused this bond to be executed in its name by the manual or facsimile signature of its President or one of its Vice-Presidents, and its corporate seal or a facsimile thereof to be hereto affixed or imprinted hereon and attested by the manual or facsimile signature of its Secretary or one of its Assistant Secretaries.

Dated as of
	Kentucky Utilities Company
	By
		Vice President
Attest:
Secretary

(Form of reverse side of bond of Series No. 16)

This bond is one of the bonds of the Company issued and to be issued from time to time under and in accordance with and all secured by the indenture of mortgage or deed of trust dated May 1, 1947, executed and delivered by the Company to U.S. Bank National Association, successor to Bank of America Illinois (formerly Continental Bank, National Association and formerly Continental Illinois National Bank and Trust Company of Chicago and hereinafter referred to as the “Trustee”) and Edmond B. Stofft, as Trustees, and the indentures supplemental thereto heretofore executed and delivered by the Company to the Trustees under said indenture of mortgage, including the indenture supplemental thereto dated September 1, 2002, executed and delivered by the Company to said U.S. Bank National Association and Richard Prokosch (successor Co-Trustee), as Trustees (collectively the “Trustees”), prior to the authentication of this bond (said indenture of mortgage and said supplemental indentures being hereinafter referred to, collectively, as the “Indenture”).  Reference to the Indenture and to all supplemental indentures, if any, hereafter executed pursuant to the Indenture is hereby made for a description of the property mortgaged and pledged, the nature and extent of the security and the rights of the holders and registered owners of said bonds and of the Trustees and of the Company in respect

3

of such security.  By the terms of the Indenture the bonds to be secured thereby are issuable in series which may vary as to date, amount, date of maturity, rate of interest, redemption provisions, medium of payment and in other respects as in the Indenture provided.

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 No. 16 (hereinafter called the “bonds of Series No. 16” or the “bonds of said Series”).  The bonds of Series No. 16 have been issued to the County Trustee under the County Indenture to secure payment of the Pollution Control Revenue Bonds, 2002 Series C (Kentucky Utilities Company Project) (the “Revenue Bonds”), issued by the County under the County Indenture, the proceeds of which (other than any accrued interest thereon) have been loaned to the Company pursuant to the provisions of the Loan Agreement dated as of July 1, 2002 (the “Agreement”), between the Company and the County.

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 County Indenture and the Revenue Bonds) on the 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 Series No. 16 shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter called a “Redemption Demand”) from the County 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 County Indenture, specifying the last date to which interest on the Revenue Bonds has been paid (such date being hereinafter referred to as the “Initial Interest Accrual Date”) and demanding redemption of the bonds of Series No. 16.  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 Series No. 16 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) October 1, 2032, 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) October 1, 2032.  The Trustee shall mail notice of the Demand Redemption Date (such notice being hereinafter called the “Demand Redemption Notice”) to the County 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 October 1, 2032, such date shall be deemed to be the Demand Redemption Date without further action (including actions specified in this paragraph) by the County Trustee, the Trustee or the Company.  The bonds of Series No. 16 shall be redeemed by the Company on the Demand Redemption Date, upon surrender thereof by the County Trustee to the Trustee, at a redemption price equal to the principal amount thereof plus accrued interest thereon at the rate or rates then

4

applicable to the Revenue Bonds or determined under the provisions of the County Indenture from the Initial Interest Accrual Date to the Demand Redemption Date.  If a Redemption Demand is rescinded by the County 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 Series No. 16 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 said 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 Series No. 16 shall bear interest at the rate or rates applicable to the Revenue Bonds from the Initial Interest Accrual Date, as specified in a written notice to the Trustee from the County Trustee, and the principal of and interest on the bonds of said Series from the Initial Interest Accrual Date shall be payable in accordance with the provisions of Article X of the Indenture.

Upon payment of the principal of and premium, if any, and interest on the Revenue Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the County Trustee (other than any Revenue Bond that was cancelled by the County Trustee and for which one or more other Revenue Bonds were delivered and authenticated pursuant to the County Indenture in lieu of or in exchange or substitution for such cancelled Revenue Bond), or upon provision for the payment thereof having been made in accordance with the County Indenture, bonds of Series No. 16 in a principal amount equal to the principal amount of the 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 Series No. 16 shall be surrendered by the County Trustee to the Trustee and shall be cancelled by the Trustee.  From and after the Release Date (as defined below), the bonds of Series No. 16 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 County Indenture), at the request of the Company, consents to the release of the bonds of this Series, as security for the 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 Series No. 11, 12, 13, 14, 15 and 16 have been retired through payment, redemption or otherwise (including those bonds “deemed to be paid” within the meaning of that term as used in Article XII of the Indenture) at, before or after the maturity thereof.  On the Release Date, the bonds of Series No. 16 shall be surrendered by the County Trustee to the Trustee whereupon the bonds of Series No. 16 so surrendered shall be cancelled by the Trustee.

No recourse shall be had for the payment of the principal of or interest on this bond, or for any claim based hereon, or otherwise in respect hereof or of the Indenture or any indenture supplemental thereto, to or against any incorporator, stockholder, officer or director, past, present or future, of the Company, or of any predecessor or successor corporation, either directly or through the Company or such predecessor or successor corporation, under any constitution or

5

statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability of incorporators, stockholders, directors and officers being waived and released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture.

This bond is nontransferable except as may be required to effect a transfer to any successor trustee under the County Indenture.  Any such transfer may be made by the registered owner hereof, in person or by attorney duly authorized, at the principal office or place of business of the Trustee under the Indenture, upon the surrender and cancellation of this bond and the payment of any stamp tax or other governmental charge, and upon any such transfer a new registered bond or bonds without coupons, of the same series and for the same aggregate principal amount, will be issued to the transferee in exchange herefor.

AND WHEREAS, there is to be endorsed on each of the bonds of Series No. 16 (whether in temporary or definitive form) a certificate of the Trustee substantially in the following form, to-wit:

Trustee’s Certificate

This bond is one of the bonds of the series designated therein, described in the within mentioned Indenture.

U.S. Bank National Association
as Trustee
By
	Authorized Officer

NOW, THEREFORE, in consideration of the premises and of the sum of One Dollar ($1.00) duly paid by the Trustee to the Company, and of other good and valuable considerations, the receipt whereof is hereby acknowledged, and for the purpose of further assuring to the Trustees under the Indenture their title to, or lien upon, the property hereinafter described, under and pursuant to the terms of the Indenture and for the purpose of further securing the due and punctual payment of the principal of and interest and the premium, if any, on all bonds which have been heretofore or shall be hereafter issued under the Indenture and indentures supplemental thereto and which shall be at any time outstanding thereunder and secured thereby, and for the purpose of securing the faithful performance and observance of all the covenants and conditions set forth in the Indenture and/or in any indenture supplemental thereto, the Company has given, granted, bargained, sold, transferred, assigned, pledged, mortgaged, warranted the title to and conveyed, and by these presents does give, grant, bargain, sell, transfer, assign, pledge, mortgage, warrant the title to and convey unto U.S. BANK NATIONAL ASSOCIATION AND RICHARD PROKOSCH, as Trustees under the Indenture as therein provided, and the successors in the trusts thereby created, and to their assigns, all the right, title and interest of the Company in and to any and all premises, plants, property, leases and leaseholds, franchises, permits, rights and powers, of every kind and description, real and personal (1) which have been acquired by the

6

Company through construction, purchase, consolidation or merger, or otherwise, and which at the date hereof are owned by the Company, and (2) which shall be acquired by the Company, through construction, purchase, consolidation, merger, or otherwise, on or subsequent to the date hereof, together, in each case, with the rents, issues, products and profits therefrom, excepting, however, and there is hereby expressly reserved and excluded from the lien and effect of the Indenture and of this supplemental indenture, all right, title and interest of the Company, now owned, or hereinafter acquired, in and to (a) all cash, bonds, shares of stock, obligations and other securities not deposited with the Trustee or Trustees under the Indenture, and (b) all accounts and bills receivable, judgments (other than for the recovery of real property or establishing a lien or charge thereon or right therein) and choses in action not specifically assigned to and pledged with the Trustee or Trustees under the Indenture, and (c) all lamps and supplies, machinery, appliances, goods, wares, merchandise, commodities, equipment, apparatus, materials and/or supplies acquired or held by the Company for sale, lease, rental or consumption in the ordinary course of business, and (d) the last day of each of the demised terms created by any lease of property leased to the Company and under each and every renewal of any such lease, the last day of each and every such demised term being hereby expressly reserved to and by the Company, and (e) all gas, oil, ore, copper and other minerals now or hereafter existing upon, within or under any real estate of the Company subject to, or hereby subjected to, the lien of the Indenture.

To Have And To Holdall said property, right and interests hereinabove described or referred to and conveyed, assigned, pledged or mortgaged, or intended to be conveyed, assigned, pledged or mortgaged, together with the rents, issues, products and profits therefrom unto said U.S. BANK NATIONAL ASSOCIATION AND RICHARD PROKOSCH, as Trustees under the Indenture, as hereby modified and amended, and unto their successor or successors in trust forever, But In Trust Nevertheless, upon the trusts, for the purposes and subject to all the terms, conditions, provisions and restrictions of the Indenture, as hereby modified and amended.

And upon the considerations and for the purposes aforesaid, and in order to provide, pursuant to the terms of the Indenture, for the issuance under the Indenture, as hereby modified and amended, of bonds of Series No. 16 and to fix the terms, provisions and characteristics of the bonds of said Series, and to modify and amend the Indenture in the particulars and to the extent hereinafter in this supplemental indenture specifically provided, the Company hereby covenants and agrees with the Trustees as follows:

ARTICLE I.

Section 1.  A series of bonds issuable under the Indenture, as hereby modified and amended, and to be known and designated as “First Mortgage Bonds, Pollution Control Series No. 16 ‘‘ (hereinafter sometimes referred to as the “bonds of Series No. 16” or the “bonds of said Series”), and which shall be executed, authenticated and issued only in the form of registered bonds without coupons, in denominations of $5,000 and integral multiples thereof, is hereby created and authorized.  The bonds of said Series shall be payable as provided in Section 3 of this Article and shall be substantially in the form thereof hereinbefore recited.  Each bond of said Series shall be issued to and registered in the name of the County Trustee and shall be nontransferable except as required to effect any transfer of bonds of said Series to any successor

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trustee under the County Indenture.  Each bond of said Series shall be dated as of the date of issuance of the Revenue Bonds.

Section 2.  The bonds of Series No. 16 shall bear interest, and the principal thereof and interest thereon shall be payable, only to the extent and in the manner provided in Section 3 of this Article.  The bonds of said Series shall mature on October 1, 2032.  The bonds of said Series shall be payable, both as to principal and interest, at the office or agency of the Company in Chicago, Illinois in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts.

The bonds of said Series shall be deemed fully paid, and the obligations of the Company thereunder shall be terminated, to the extent and in the manner provided in Section 4 of this Article.

Section 3.  (a)  Except as provided in paragraph (b) of this Section 3, 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 County Indenture and the Revenue Bonds) on the 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 Series No. 16 shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter in this Article called a “Redemption Demand”) from the County 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 County Indenture, specifying the last date to which interest on the Revenue Bonds has been paid (such date being hereinafter referred to in this Article as the “Initial Interest Accrual Date”) and demanding redemption of the bonds of Series No. 16.  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 Series No. 16 so demanded to be redeemed (hereinafter in this Article 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) October 1, 2032, 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) October 1, 2032.  The Trustee shall mail notice of the Demand Redemption Date (such notice being hereinafter in this Article called the “Demand Redemption Notice”) to the County 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 October 1, 2032, such date shall be deemed to be the Demand Redemption Date without further action (including actions specified in this paragraph) by the County Trustee, the Trustee or the Company.  The bonds of Series No. 16 shall be redeemed by the Company on the Demand Redemption Date, upon surrender thereof by the County Trustee to the Trustee, at a redemption price equal to the principal amount thereof, plus accrued interest

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thereon at the rate or rates then applicable to the Revenue Bonds or determined under the provisions of the County Indenture from the Initial Interest Accrual Date to the Demand Redemption Date.  If a Redemption Demand is rescinded by the County 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 Series No. 16 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.

(b)           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 Series No. 16 shall bear interest at the rate or rates applicable to the Revenue Bonds from the Initial Interest Accrual Date, as specified in a written notice to the Trustee from the County Trustee, and the principal of and interest on the bonds of said Series from the Initial Interest Accrual Date shall be payable in accordance with the provisions of Article X of the Indenture.

(c)           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 paragraph (b) of this Section 3, and such Redemption Demand, rescission or notice shall be of no force or effect, unless it is executed in the name of the County Trustee by one of its Vice-Presidents.

Section 4.  Upon payment of the principal of and premium, if any, and interest on the Revenue Bonds, whether at maturity or prior to maturity by redemption or otherwise, and the surrender thereof to and cancellation thereof by the County Trustee, or upon provision for the payment thereof having been made in accordance with Article VIII of the County Indenture, bonds of Series No. 16 in a principal amount equal to the principal amount of the Revenue Bonds so surrendered and cancelled shall be surrendered by the County Trustee to the Trustee, whereupon the bonds of said Series so surrendered shall be deemed fully paid and the obligations of the Company thereunder shall be terminated, and such bonds of said Series shall be cancelled and destroyed by the Trustee by shredding, compacting or other suitable means 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 Series No. 16 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 County Indenture), at the request of the Company, consents to the release of the bonds of this Series, as security for the 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 the bonds of said Series (and excluding bonds of said Series and First Mortgage Bonds, Pollution Control Series No. 11, No. 12, No. 13, No. 14 and No. 15) have been retired through payment, redemption or otherwise (including those Bonds “deemed to be paid” within the meaning of that term used in Article XII of the Indenture) at, before or after the maturity thereof.  On the Release Date, the bonds of said Series shall be surrendered by the County Trustee to the Trustee whereupon the bonds of Series No. 16 so surrendered shall be cancelled by the Trustee.

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ARTICLE II.

Section 1.  The bonds of Series No. 16 shall be executed on behalf of the Company and sealed with the corporate seal of the Company, all in the manner provided in or permitted by Section 6 of Article I of the Indenture, as follows:

(a)           bonds of said Series executed on behalf of the Company by its President or a Vice-President and by its Secretary or an Assistant Secretary may be so executed by the manual or facsimile signature of such President or Vice-President and of such Secretary or Assistant Secretary, as the case may be, of the Company, or of any person or persons who shall have been such officer or officers, as the case may be, of the Company on or subsequent to the date of this supplemental indenture, notwithstanding that he or they may have ceased to be such officer or officers of the Company at the time of the actual execution, authentication, issue or delivery of any of such bonds, and any such manual or facsimile signature or signatures of such officer or officers of the Company, as above provided, on any such bonds shall constitute execution of such bonds on behalf of the Company by such officer or officers of the Company for the purposes of the Indenture, as hereby modified and amended, and shall be valid and effective for all purposes, provided that all bonds of said Series shall always be executed on behalf of the Company by the manual or facsimile signature of its President or a Vice-President and of its Secretary or an Assistant Secretary, as above provided, and provided, further, that none of such bonds shall be executed on behalf of the Company by the manual or facsimile signature of the same officer or person acting in more than one capacity; and

(b)           such corporate seal of the Company may be facsimile, and the bonds of said Series on which such facsimile seal of the Company shall be affixed, impressed, imprinted or reproduced shall be deemed to be sealed with the corporate seal of the Company for the purposes of the Indenture as hereby modified and amended, and such facsimile seal shall be valid and effective for all purposes.

ARTICLE III.

Section 10 of Article III of the Indenture is hereby further amended to provide that the Company agrees to observe and comply with the provisions of said section as so amended hereby so long as the bonds of Series No. 16 are outstanding.  The bonds outstanding on the date hereof to which said Section 10 applies are No. 8, Series P, Series Q, Nos. 9, 10 and 11, Series R, Series S, and Nos. 12, 13, 14 and 15.

No covenant to provide a maintenance and renewal fund is made in respect of the bonds of Series No. 16.  The absence of such a covenant shall not, however, limit the right of the Company to use, apply or certify bonds of Series No. 16 to comply with, or to satisfy its obligations under, any provision of the Indenture (including, without limitation, the provisions of Section 1 of Article VII of the Indenture).

The bonds of Series No. 16 are intended to be used as collateral for and to secure payment of the Revenue Bonds, as hereinabove provided, and, accordingly, the bonds of Series

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No. 16 shall be dated as of the date of issuance of the Revenue Bonds and shall bear interest from the Initial Interest Accrual Date, as hereinabove provided, notwithstanding anything to the contrary contained in the Indenture with respect to the dating of bonds and the date from which interest on bonds shall accrue.

ARTICLE IV.

Section 1.  Capitalized terms used in this Article IV and not otherwise defined in this Indenture shall have the meanings set forth in the County Indenture.

Section 2.  Subsequent to the issuance of the Revenue Bonds, the Company shall not be required to establish compliance with the net earnings requirements of Section 5 of Article II of the Indenture in connection with any Conversion of Interest Rate Mode on the Revenue Bonds or any change in length of Long Term Rate Period.  So long as the Revenue Bonds operate in any Interest Rate Mode other than the Long Term Rate where the Long Term Rate Period ends on the day prior to the final maturity of the Revenue Bonds, the Company shall include, for purposes of any required calculation of such net earnings requirement (as such requirement shall then be in effect), interest on the bonds of said Series at an annual rate of 14%.  If at any time the interest rate on the Revenue Bonds is a Long Term Rate where the Long Term Rate Period ends on the day prior to the final maturity of the Revenue Bonds, the Company may include, for purposes of any calculation of such net earnings requirement, interest on the bonds of said Series at the Long Term Rate then borne by the Revenue Bonds.

ARTICLE V.

Section 1.  The provisions of this supplemental indenture shall be effective from and after the execution hereof; and the Indenture, as hereby modified and amended, shall remain in full force and effect.

Section 2.  Each holder or registered owner of a bond of any series not now outstanding which shall be authenticated by the Trustee and issued by the Company under the Indenture (as hereby amended) subsequent to the execution of this supplemental indenture and of any coupon pertaining to any such bond, by the acquisition, holding or ownership of such bond and coupon, thereby consents and agrees to, and shall be bound by, the provisions of this supplemental indenture.

Section 3.  Each reference in the Indenture, or in this supplemental indenture, to any article, section, term or provision of the Indenture shall mean and be deemed to refer to such article, section, term or provision of the Indenture, as hereby modified and amended, except where the context otherwise indicates.

Section 4.  All the covenants, provisions, stipulations and agreements in this supplemental indenture contained are and shall be for the sole and exclusive benefit of the parties hereto, their successors and assigns, and of the holders and registered owners from time to time of the bonds and of the coupons issued and outstanding from time to time under and secured by the Indenture, as hereby modified and amended.

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This supplemental indenture has been executed in a number of identical counterparts, each of which so executed shall be deemed to be an original.

At the time of the execution of this supplemental indenture, the aggregate principal amount of all indebtedness outstanding, or to be outstanding, under and secured by the Indenture, as hereby modified and amended, is $580,830,000, consisting of and represented by First Mortgage Bonds, Pollution Control Series No. 8, Series P, Series Q, Pollution Control Series No. 9 and 10, Series R, Series S and Series No. 11, No. 12, No. 13, No. 14, No. 15 and No. 16 of the Company, as follows:

Series	Interest Rate	Maturity Date	Principal Amount
No. 8	7.45	September 15, 2016	96,000,000	(a)
P	7.92	May 15, 2007	53,000,000
	8.55	May 15, 2027	33,000,000
Q	6.32	June 15, 2003	62,000,000
No. 9	5 ¾	December 1, 2023	50,000,000
No. 10	Variable	November l, 2024	54,000,000
R	7.55	June 1, 2025	50,000,000
S	5.99	January 15, 2006	36,000,000
No. 11	Variable	May 1, 2023	12,900,000
No. 12	Variable	February 1, 2032	20,930,000
No. 13	Variable	February 1, 2032	2,400,000
No. 14	Variable	February 1, 2032	7,200,000
No. 15	Variable	February 1, 2032	7,400,000
No. 16	Variable	October 1, 2032	96,000,000	(b)

(a)To be paid and discharged not more than 90 days after issuance of Pollution Control Series No. 16

(b)To be presently issued by the Company under the Indenture, as hereby modified and amended.

All of said bonds of Series P, Series Q, Series R and Series S, respectively, were sold by the Company to, and upon the issue thereof were owned and held by, the corporations and partnerships whose names and residences are stated in the Supplemental Indentures dated

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May 15, 1992, June 15, 1993, June 1, 1995 and January 15, 1996, respectively, executed by the Company to the Trustees under said Indenture as heretofore modified and amended.

All of said bonds of Series No. 8 were heretofore issued and delivered by the Company to, and upon the issuance thereof were held by, First Security National Bank and Trust Company, One First Security Plaza, Lexington, Fayette County, Kentucky 40507, as trustee (now succeeded by Bank One, Kentucky, N.A.).

All of said bonds of Series No. 9, and Series No. 10 were heretofore issued and delivered by the Company to, and upon the issuance thereof were held by, Bank One, Kentucky, N.A., 201 East Main Street, Lexington, Fayette County, Kentucky 40507, as trustee.

All of said bonds of Series No. 11 were heretofore issued and delivered by the Company to, and upon the issuance thereof were held by, The Bank of New York, 101 Barclay Street, 21^st Floor, New York, New York 10286.

All of said bonds of Series No. 12, No. 13, No. 14 and No. 15, respectively, were heretofore issued and delivered by the Company to, and upon the issuance thereof were held by, Deutsche Bank Trust Company Americas, Corporate Trust & Agency Services, c/o DB Services New Jersey, Inc., 100 Plaza One, 6th Floor, Jersey City, New Jersey 07310, as trustee.

The Ninety-Six Million Dollars ($96,000,000) in principal amount of bonds of Series No. 16 proposed to be issued by the Company under the Indenture as hereby modified and amended, are to be issued and delivered by the Company to, and upon the issuance thereof held by, Deutsche Bank Trust Company Americas, Corporate Trust & Agency Services, c/o DB Services New Jersey, Inc., 100 Plaza One, 6th Floor, Jersey City, New Jersey 07310, as County Trustee.

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IN WITNESS WHEREOF, said Kentucky Utilities Company has caused this instrument to be executed in its corporate name by its President, Vice-President or its Treasurer and its corporate seal to be hereunto affixed and to be attested and countersigned by its Executive Vice President, General Counsel and Corporate Secretary, and said U.S. Bank National Association, for the purpose of entering into and joining with the Company in the execution of this supplemental indenture, has caused this instrument to be executed in its corporate name by one of its Assistant Vice-Presidents and to be attested by one of its                        , and said Richard Prokosch for the purpose of entering into and joining with the Company in the execution of this supplemental indenture, has signed this instrument; all as of the day and year first above written.

		KENTUCKY UTILITIES COMPANY
		By:
			Daniel K. Arbough Treasurer
Attest:
	John R. McCall Executive Vice President, General Counsel and Corporate Secretary
		(Corporate Seal)
		U.S. Bank National Association
		By:
			Julie Eddington Assistant VicePresident
Attest:
		By:
			RICHARD PROKOSCH

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Commonwealth of Kentucky	}	SS:
	}
County of Jefferson	}

I,                          , a Notary Public in and for said County in the Commonwealth aforesaid, do hereby certify that Daniel K. Arbough, Treasurer of Kentucky Utilities Company, a Kentucky and Virginia corporation, and John R. McCall, Executive Vice President, General Counsel and Corporate Secretary of said corporation, who are both personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such officers of said corporation, and who are both personally known to me to be such officers, appeared before me this day in person and severally acknowledged before me that they signed, sealed and delivered said instrument as their free and voluntary act as such officers, and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth; and said Daniel K. Arbough, upon oath, acknowledged himself to be Treasurer of said corporation and that, as such officer, being authorized so to do, he executed said instrument for the purposes therein contained, by signing the name of said corporation thereto by himself as such officer.

Given under my hand and official seal this           day of               , 2002.

	Notary Public
	My commission expires:
(Notarial Seal)

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State of Minnesota	}	SS:
	}
County of Ramsey	}

I,                                               , a Notary Public in and for said County in the State aforesaid, do hereby certify that:

(a)           Julie Eddington, an Assistant Vice President of U.S. Bank National Association, a national banking association, and Frank Leslie, a Vice President of said corporation, who are both personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such Assistant Vice President and Vice President of said corporation, and who are both personally known to me to be such officers, appeared before me this day in person and severally acknowledged before me that they signed and delivered said instrument as their free and voluntary act as such officers, and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth; and said Julie Eddington upon oath, acknowledged herself to be an Assistant Vice President of said corporation and that, as such officer, being authorized so to do, she executed said instrument for the purposes therein contained, by signing the name of said corporation thereto by herself as such officer; and

(b)           Richard Prokosch, personally known to me to be the same person described in, and whose name is subscribed to, the foregoing instrument, appeared before me this day in person and acknowledged before me that he executed, signed and delivered said instrument as his free and voluntary act and deed, for the uses and purposes therein set forth.

Given under my hand and official seal this            day of                , 2002.

Notary Public

My commission expires:

(Notarial Seal)

This instrument prepared by:

James Dimas, Esq.

220 West Main Street

Louisville, Kentucky 40202

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EX-10.54

Exhibit 10.54

EXECUTION COPY

EMPLOYMENT AND SEVERANCE AGREEMENT

THIS AGREEMENT made February 25, 2000, by and between LG&E Energy Corporation, a Kentucky corporation (the “Company”), Powergen, plc, a United Kingdom public limited company (“Parent”), and John R. McCall (the “Executive”).

WHEREAS, Parent, Company, a Delaware corporation to be formed as an indirect wholly owned subsidiary of Parent (“US Subholdco 2”) and a Kentucky corporation to be formed as a direct wholly owned subsidiary of US Subholdco 2 (“Merger Sub”), have executed a merger agreement (the “Merger Agreement”) which will become effective at the Effective Time (as defined in the Merger Agreement);

WHEREAS, the Merger will constitute a “Change in Control” for purposes of the Change-in-Control Agreement between the Company and the Executive dated January 5, 1998 (the “Change-In-Control Agreement”);

WHEREAS, Parent and the Company have determined that it is essential and in the best interest of Parent, the Company and their stockholders to retain the services of the Executive as [ TITLE ] of the Company on and after the Effective Time, and provide the Executive with compensation and other benefits on the terms and conditions set forth in this Agreement, and to ensure his continued dedication and efforts in such event without undue concern for his personal financial and employment security in the event of a Change in Control after the Merger; and

WHEREAS, the Executive is willing to accept such employment and perform services for the Company on the terms and conditions hereinafter set forth;

NOW THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows:

1.EFFECTIVENESS; EFFECT ON PRIOR AGREEMENTS; ADDITIONAL PAYMENTS.

1.1.This Agreement shall become effective at the Effective Time, provided the Executive is employed by the Company on that date.  As of the Effective Time, the Change-in-Control Agreement shall, except as otherwise provided herein, terminate and become null and void.  In consideration of the services rendered by the Executive to the Company prior to the Effective Time, the Executive’s willingness to enter into this Agreement, and the satisfaction of all of the Company’s obligations under the Change-in-Control Agreement, the Company shall pay the Executive in cash 60% of the amount calculated and payable under Sections 3.1(b) and 6 of the Change-in-Control Agreement

(the “Initial Change-in-Control Payment”) within 10 days following the Effective Time conditioned  upon delivery by the Executive of an executed form of release of all claims against the Company with respect to the Change-in-Control Agreement (other than with respect to Section 6 of such Agreement) (on a form to be provided by the Company.)  The balance of the amount calculated under Sections 3.1(b) and 6 of the Change-in-Control Agreement (the “Deferred Change-in-Control Payment”) shall be credited to Executive’s account under the Deferred Compensation Plan of the Company (or such other plan or arrangement as may be mutually agreed upon by the parties hereto) and shall be payable in a lump sum cash payment (including adjustment for any increases or decreases in Executive’s account under the Deferred Compensation Plan), if the Executive so elects, within ten (10) days after the earliest to occur of (i) a termination of employment, other than a termination by the Executive without Good Reason, which occurs at any time during the eighteen consecutive months immediately following the Effective Time (the “Transition Period”), (ii) a Change in Control that occurs during the Transition Period, so long as the Executive is still employed by the Company immediately prior to the Change in Control, and (iii) the end of the Transition Period, so long as the Executive is still employed on such date.  In the event that Executive elects not to receive the foregoing lump sum payment, Executive may otherwise elect to defer receipt of such payment and have such payment continue to be held in his Deferred Compensation Plan account (which account shall continue to be adjusted in accordance with the terms of the Deferred Compensation Plan, or such other plan or arrangement as may be mutually agreed upon by the parties hereto).

1.2.Parent shall, or shall cause the Company to pay to the Executive a lump sum cash payment in an amount equal to 25% of the Deferred Change-in-Control Payment (without adjustment for any increases or decreases in Executive’s account under the Deferred Compensation Plan)(the “Premium Payment”) within ten (10) days after the earliest to occur of (i) the date that Executive’s employment is terminated by the Company without Cause, by Executive for Good Reason, or as a result of Executive’s death or Disability, at any time during the eighteen consecutive months immediately following the Effective Time (the “Transition Period”), (ii) a Change in Control that occurs during the Transition Period, so long as the Executive is still employed by the Company immediately prior to the Change in Control, and (iii) the end of the Transition Period, so long as the Executive is still employed on such date.  In the event that Executive elects not to receive the foregoing lump sum payment, Executive may otherwise elect to defer receipt of such payment and have such payment continue to be held in his Deferred Compensation Plan account (which account shall continue to be adjusted in accordance with the terms of the Deferred Compensation Plan, or such other plan or arrangement as may be mutually agreed upon by the parties hereto).

1.3.As of the Effective Time, Parent shall grant to the Executive the number of American Depository Shares of Parent, each of which represents four Ordinary Shares of

2

the Parent (the “ADS’s”), that are equivalent in value, as of the Effective Time, to the amount of the Premium Payment (the “Premium ADS’s”), which shall be subject to a risk of forfeiture and in which the Executive shall become vested upon the earliest to occur of (i) the date that Executive’s employment is terminated by the Company without Cause, by Executive for Good Reason, or as a result of Executive’s death or Disability, at any time during the Transition Period, (ii) a Change in Control that occurs during the Transition Period, so long as the Executive is still employed immediately prior to the Change in Control, and (iii) the end of the Transition Period, so long as the Executive is still employed on such date.  In addition, in the event that during the Transition Period, Parent pays dividends in respect of ADS’s (or Ordinary Shares, as applicable) to its holders thereof, the Executive shall have a right, subject to the Executive’s ultimate vesting in the Premium ADS’s pursuant to the preceding sentence, to receive a payment, in cash or ADS’s (as the Executive shall elect), equal to the amount of any dividends actually paid on the number of Premium ADS’s (or Ordinary Shares, as applicable) held by the Executive.

2.TERM OF AGREEMENT.  This Agreement shall commence as of the Effective Time, and shall continue in effect until the second anniversary of the Effective Time; provided, however, that commencing on the second anniversary of the Effective Time, and on each anniversary of the Effective Time thereafter, the term of this Agreement shall automatically be extended for one (1) year unless the Company or the Executive shall have given written notice to the other at least ninety days prior thereto (if such notice is given following the second anniversary of the Effective Time, otherwise such notice period shall be one hundred and eighty days) that the term of this Agreement shall not be so extended; and provided, further, however, that notwithstanding any such notice by the Company not to extend, the term of this Agreement shall not expire prior to the expiration of twenty-four (24) months after any Change in Control which occurs while this Agreement is in effect.

3.EMPLOYMENT.

0.1.The Company agrees to employ Executive, and Executive agrees to serve  during the term hereof as Executive Vice President, General Counsel, and Corporate Secretary of the Company.  Executive shall report to the Chief Executive Officer of the Company (the “CEO”).

0.2.Executive agrees to devote his full working time and efforts, to the best of his ability, experience and talent, to the performance of services, duties and responsibilities in connection with the position named above.  Executive shall perform such duties and exercise such powers, commensurate with his position, as the CEO and the Board of Directors of the Company (the “Board”) shall from time to time assign to him on such terms and conditions and subject to such

3

restrictions as the CEO and the Board may reasonably from time to time impose.

0.3.Nothing in this Agreement shall preclude Executive from (a) engaging in charitable and community affairs so long as, in the reasonable determination of the Company, such activities do not interfere with his duties and responsibilities hereunder, (b) managing any passive investment made by him in publicly traded equity securities or other property (provided that no such investment may exceed 5% of the equity of any entity, without the prior approval of the Company, which approval shall not be unreasonably withheld) or (c) serving, subject to the prior approval of the Company, which approval shall not be unreasonably withheld, as a member of boards of directors or as a trustee of any other corporation, association or entity.

0.4.The Executive will perform his services at the Company’s headquarters in Louisville, Kentucky, with the understanding that he will be required to travel as reasonably required (including travel to the United Kingdom) for the performance of his duties under this Agreement .

1.COMPENSATION.

1.1.SALARY.  The Company shall pay Executive a base salary (“Base Salary”) of not less than the rate in effect immediately prior to the Effective Time.  The Base Salary shall be payable in accordance with the ordinary payroll practices of the Company.  The Base Salary shall be reviewed by the Board as of July 1 of each year during the term of this Agreement and may be increased in the discretion of the Board and, as so increased, shall constitute “Base Salary” hereunder.  At no time shall the Board be able to decrease the Base Salary.

1.2.ANNUAL BONUS.  In addition to his Base Salary, Executive shall be eligible to participate in any annual incentive plan or program maintained by the Company in which other senior executives of the Company participate (the “Bonus Plan”).  Such participation shall be on terms commensurate with Executive’s position and level of responsibility.  The Executive’s target bonus under the Bonus Plan in respect of each twelve-month period of the term of this Agreement (as provided for in Section 2)(each, a “Contract Year”) shall be not less than the target bonus opportunity to which the Executive is entitled as of the date hereof  (50% of the Base Salary); provided, however, that with respect to the first and second Contract Years, Executive’s annual bonus amount shall not be less than 75% of the Executive’s target bonus for each such Contract Year.  Except as set forth in the preceding sentence, nothing in this Section 4.2 will guarantee to the Executive any specific amount of incentive compensation, or prevent a Remuneration Committee appointed by the Board of Directors of Parent from

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establishing reasonable performance goals and compensation targets, after consultation with the Executive, applicable only to the Executive.

1.3.COMPENSATION PLANS AND PROGRAMS. Executive shall be eligible to participate in any compensation plan or program maintained by the Company in which other senior executives of the Company participate on terms commensurate with his position and level of responsibility, and to receive equity-based incentive awards based upon achievement of performance goals based partially upon Parent’s and partially on the Company’s performance in accordance with the general terms of the long-term incentive plan contained on Exhibit A.

1.4.OTHER COMPENSATION.  Nothing in this Section 4 will preclude the Board from authorizing such additional compensation to the Executive, in cash or in property, as the Board may determine in its sole discretion to be appropriate.

4.5EXISTING STOCK OPTIONS.  In addition to any provision in the Merger Agreement, prior to the Effective Time, Executive may elect in writing delivered to Parent to convert each Company stock option he holds (each, a “Company Option”), whether vested or unvested, into an option to acquire, on the same terms and conditions as were applicable under such Company Option, the number of ADS’s, equal to the result (rounded down to the nearest whole ADS) of multiplying the number of shares subject to the Company Option immediately prior to the Effective Time by the Conversion Ratio (as defined in the Merger Agreement), at an exercise price per share equal to the result (rounded up to the nearest whole cent) of dividing the per share exercise price of such Company Option immediately prior to the Effective Time by the Conversion Ratio (it being understood that the exercise price shall be converted into dollars at the rate prevailing at the close of business on the business day prior to the Effective Time).  If Executive makes such election and holds the Company Option or the ADS’s acquired upon the exercise of such Company Option for two years after the Effective Time, then upon the later of (i) the end of the 24th month after the Effective Time, or (ii) the exercise of such Company Option, the Parent shall issue Executive one additional ADS for every 4 ADS’s acquired as a result of such exercise; provided however in the event that either (i) a Change in Control occurs within the two years after the Effective Time and the Executive is still employed by the Company immediately prior to the Change in Control, immediately prior to such time, the Executive shall receive one additional ADS for every 4 ADS’s (A) acquired by the Executive as a result of the exercise of any Company Option during the period prior to such Change in Control and (B) underlying each unexercised Company Option held by the Executive immediately prior to such Change in Control or (ii) the Executive’s employment is terminated for any reason (other than by the Company for Cause or by the Executive without Good Reason (other than as a result of death or Disability)) at any time during the two years after the Effective Time and prior to any Change in Control, the Executive shall receive, within 10 days after the termination of

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employment, one additional ADS for every 4 ADS’s (A) acquired by the Executive as a result of the exercise of any Company Option during the period prior to such termination of employment and (B) underlying each unexercised Company Option held by the Executive immediately prior to such termination of employment.

2.EMPLOYEE BENEFITS.

2.1.EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES.  The Company shall provide Executive during the term of his employment hereunder with coverage under all employee pension and welfare benefit programs, plans and practices including, but not limited to, those specified in Exhibit B attached hereto (commensurate with his positions and level of responsibility in the Company and to the extent permitted under any employee benefit plan) in accordance with the terms thereof, which the Company makes available to its senior executives.

2.2.VACATION AND FRINGE BENEFITS.  Executive shall be eligible to participate in the Company’s vacation plan; provided, however, that in no event shall Executive receive fewer vacation days than Executive is entitled to receive under the Company’s vacation policy as in effect immediately prior to the Effective Time.  In addition, Executive shall be entitled to perquisites and other fringe benefits that are comparable to those perquisites and fringe benefits to which Executive is entitled immediately prior to the Effective Time.

2.3.EXPENSES.  Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement, including, without limitation, expenses for travel and similar items related to such duties and responsibilities.  The Company will reimburse Executive for all such expenses upon presentation by Executive from time to time of appropriately itemized and approved (consistent with the Company’s policy) accounts of such expenditures.

4.DEFINITIONS.

4.1.BASE AMOUNT; BONUS AMOUNT.  For purposes of this Agreement, “Base Amount” shall mean the greater of the Executive’s annual base salary from the Company (a) at the rate in effect on the Termination Date (as hereinafter defined) or (b) at the highest rate in effect at any time during the ninety (90) day period prior to the Effective Time or the Change in Control, as applicable, and shall include all amounts of base salary that are deferred under any qualified and non-qualified employee benefits plans of the Company or any Subsidiary (as hereinafter defined) or under any other agreement or arrangement.  For purposes of this Agreement; “Bonus Amount” shall mean the greater of (a) the most recent annual bonus paid or payable to the Executive (which may include a bonus amount paid or payable in respect of any Contract Year), (b) the

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annual bonus paid or payable to the Executive under the Bonus Plan for the full fiscal year ended prior to the fiscal year during which the Effective Time, or the Change in Control, as applicable, occurred or (c) the Executive’s target award under the Bonus  Plan for the full fiscal year ended prior to the fiscal year during which the Effective Time, or the Change in Control, as applicable, occurred.

4.2.CAUSE.  For purposes of this Agreement, a termination for “Cause” is a termination evidenced by a resolution adopted in good faith by at least seventy-five percent (75%) of the Board of Directors of the Company that (i) there has been repeated willful misconduct by the Executive in performing the reasonably assigned duties on behalf of the Company required by and in accordance with his employment by the Company, or (ii) the Executive has been convicted of a felony in the course of performing those duties. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after a Notice of Termination (as hereinafter defined) is given by the Executive shall constitute Cause for purposes of this Agreement. No act, or failure to act, on Executive’s part shall be deemed to be “repeated” unless the Executive shall have received a written notice from the Company setting forth in detail the particulars of the act, or the failure to act, which the Company contends would constitute Cause when repeated and Executive then repeats such act or failure to act and does not resolve or otherwise cure such behavior within thirty (30) days of receipt of such notice.

2.4.CHANGE IN CONTROL.  For purposes of this Agreement, a “Change in Control” shall mean the occurrence during the term of this Agreement of any of the following events:

(1)An acquisition (other than directly from Parent) of any securities of Parent entitled generally to vote on the election of directors (the “Voting Securities”) by any “Person” (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)) immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of fifteen percent (15%) or more of the combined voting power of Parent’s then outstanding Voting Securities; PROVIDED, HOWEVER, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a “Non-Control Acquisition” (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A “Non-Control Acquisition” shall mean an acquisition by (1) an employee benefit plan (or a trust forming a part thereof) maintained by (a) Parent or (b) any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly and indirectly by Parent (a “Subsidiary”) or (2) Parent or any Subsidiary.

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(2)The individuals who, as of the date this Agreement was approved by the Board, are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by Parent’s stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Agreement, be considered as a member of the Incumbent Board; or

(3)Approval by stockholders of Parent of:

(1)A merger, consolidation or reorganization involving Parent; unless

(1)the stockholders of Parent immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, at least seventy-five percent (75%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the “Surviving Corporation”) in substantially the same proportion to each other as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, and

(2)the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the board of directors of the Surviving Corporation;

(2)A complete liquidation or dissolution of Parent or the Company ; unless, in the case of the Company, Parent continues to own directly or indirectly all or substantially all of the Company’s assets;

(3)An agreement for the sale or other disposition of all or substantially all of the assets of Parent or the Company to any Person (other than a transfer to a Subsidiary);

(1)A merger or other combination involving the Company as a result of which Parent ceases to beneficially own more than 50% of the outstanding Voting Securities of the successor to the Company, unless Parent continues to own directly or indirectly all or substantially all of the Company’s assets; or

(2)Any Person acquires Beneficial Ownership of a greater  percentage of the Voting Securities of the Company than the percentage of such Voting Securities then held, directly or indirectly, by Parent.

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Notwithstanding the foregoing clauses (a), (b), and (c), a Change in Control shall not be deemed to occur solely because any Person Beneficially Owned by the Subject Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by Parent which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by Parent, and after such share acquisition by Parent, the Subject Person or entity becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.

(4)Notwithstanding anything contained in this Agreement to the contrary, if the Executive’s employment is terminated during the term of this Agreement and the Executive reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control (a “Third Party”) or (ii) otherwise occurred in connection with, or in anticipation of, a Change in Control which actually occurs, then for all purposes of this Agreement, the date of a Change in Control with respect to the Executive shall mean the date immediately prior to the date of such termination of the Executive’s employment.

4.3.DISABILITY.  For purposes of this Agreement, “Disability” shall mean a physical or mental infirmity which impairs the Executive’s ability to substantially perform his duties with the Company which continues for a period of at least one hundred eighty (180) consecutive days.

4.4.GOOD REASON.

(1)For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the events or conditions described in subsections (1) through (8) hereof:

(1)a reduction by the Company in the Executive’s Base Salary or annual target bonus opportunity as in effect prior to such reduction or any failure to pay the Executive any compensation or benefits to which the Executive is entitled within thirty days of the applicable due date, provided that the Company may correct such reduction or failure within thirty (30) days of its commission;

(2)Parent or the Company require the Executive to be relocated anywhere in excess of fifty (50) miles of his present office location, except for required travel on Parent or Company business consistent with his business travel

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obligations as in effect prior to the Effective Time and as provided in Section 3.4 of this Agreement;

(3)a failure by Parent or the Company to maintain plans providing benefits at least as beneficial in the aggregate as those provided by any benefit or compensation plan, retirement or pension plan, stock option plan, bonus plan, long-term incentive plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating prior to the Effective Time, or the Change in Control, as applicable, or if the Company or Parent has taken any action which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him prior to the Effective Time, or the Change in Control, as applicable, or if the Company or Parent has failed to provide him with the number of paid vacation days to which he would be entitled in accordance with the Company’s normal vacation policy immediately prior to the Effective Time, or the Change in Control, as applicable;

(3)Parent or the Company materially reduces, individually or in the aggregate, the Executive’s title, job authorities or responsibilities as in effect prior to such reduction;

(4)Parent or the Company fails to obtain the assumption of the obligations contained in this Agreement by any successor as contemplated in Section 11 hereof;

(5)any purported termination of the Executive’s employment by Parent or the Company which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8 below; and, for purposes of this Agreement, no such purported termination shall be effective;

(6)any material breach by Parent or the Company of any provision of this Agreement;

(7)any purported termination of the Executive’s employment for Cause by Parent or the Company which does not comply with the terms of Section 6.2 of this Agreement; or

(2)Until the Executive’s Disability, the Executive’s rights to terminate his employment pursuant to this Section  6.5 shall not be affected by his incapacity due to physical or mental illness.

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5.TERMINATION OF EMPLOYMENT.

5.1.If, during the term of this Agreement, the Executive’s employment with the Company shall be terminated within twenty-four months after the effective time of any Change in Control, then the Executive shall be entitled to the following compensation and benefits:

(1)If the Executive’s employment with the Company shall be terminated (1) by Parent or the Company for Cause or (2) by the Executive (other than for Good Reason or as a result of death or Disability), the Company shall pay the Executive all amounts earned or accrued for or on behalf of the Executive through the Termination Date (as hereinafter defined) but not paid as of the Termination Date, including (i) Base Salary, (ii) reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date and (iii) vacation pay (collectively, “Accrued Compensation”).

(2)If the Executive’s employment with the Company shall be terminated (1) as a result of the Executive’s death or (2) as a result of the Executive’s Disability, the Executive shall be entitled to the following: (i) The Company shall pay the Executive all Accrued Compensation; (ii) the Company shall pay, as a severance amount to the Executive (or his or her personal representative or estate, as applicable) after the Termination Date, an amount equal to the Executive’s annual target bonus for the year in which such Termination Date occurs; and (iii) the Company shall provide the Executive with a cash lump sum payment of any long-term incentive award granted to the Executive at the target level, prorated for Executive’s actual period of service.

(3)If  the Executive’s employment with the Company shall be terminated (1) by the Company for any reason (including as a result of the Company’s notice not to extend the term of this Agreement) other than as specified in clause (1) of Section 7.1(a) or (2) by the Executive for Good Reason, the Executive shall be entitled to the following:

(1)The Company shall pay the Executive all Accrued Compensation;

(2)The Company shall pay, as a severance amount to the Executive after the Termination Date, an amount equal to 2.99 times the sum of (a) the Base Amount and (b) the Bonus Amount;

(3)For a period of thirty-six months (the “Continuation Period”), the Company shall at its expense continue on behalf of the Executive and his dependents and beneficiaries (to the same extent provided to the dependents and beneficiaries prior to the Executive’s termination) the life insurance, disability, medical, dental, and hospitalization benefits provided (x) to the Executive by the Company at any

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time within ninety (90) days preceding a Change in Control or at any time thereafter, or (y) to other similarly situated executives who continue in the employ of the Company during the Continuation Period. The coverage and benefits (including deductibles and costs) provided in this Section 7.1(c) (iii) during the Continuation Period shall be no less favorable to the Executive and his dependents and beneficiaries, than the most favorable of such coverages and benefits set forth in clauses (x) and (y) above. The Company’s obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Executive obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder as long as the aggregate coverages and benefits of the combined benefit plans are no less favorable to the Executive than the coverages and benefits required to be provided hereunder.  This Subsection (c)(iii) shall not be interpreted so as to limit any benefits to which the Executive or his dependents may be entitled under any of the Company’s or any Subsidiary’s employee benefit plans, programs or practices following the Executive’s termination of employment, including without limitation, retiree medical and life insurance benefits; and

(4)The Company shall provide to the Executive an amount equal to twenty percent (20%) of the Base Amount to be used for outplacement services.

5.2.If, during the term of this Agreement, but prior to a Change in Control, the Executive’s employment with the Company shall be terminated, the Executive shall be entitled to the following:

(1)If the Executive’s employment with the Company shall be terminated (1) by Parent or the Company for Cause or (2) by the Executive (other than for Good Reason or as a result of death or Disability), the Company shall pay the Executive all Accrued Compensation.

(2)If the Executive’s employment with the Company shall be terminated (1) as a result of the Executive’s death or (2) as a result of the Executive’s Disability, the Executive shall be entitled to the following: (i) The Company shall pay the Executive all Accrued Compensation; (ii) the Company shall pay, as a severance amount to the Executive (or his or her personal representative or estate, as applicable) after the Termination Date, an amount equal to the Executive’s annual target bonus for the year in which such Termination Date occurs.; and (iii) the Company shall provide the Executive with a cash lump sum payment of any long-term incentive award granted to the Executive at the target level, prorated for Executive’s actual period of service.

(3)If the Executive’s employment with the Company shall be terminated (1) by the Company for any reason (including as a result of the Company’s notice not to extend the term of this Agreement) other than as specified in clause (1) of

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Section 7.2(a) or (2) by the Executive for Good Reason, the Executive shall be entitled to the following:

(1)The Company shall pay the Executive all Accrued Compensation;

(2)The Company shall pay, as a severance amount to the Executive after the Termination Date, an amount equal to the sum of (a) the Base Amount and (b) the Bonus Amount, divided by twelve, the quotient of which shall be multiplied by the greater of (x) twelve and (y) the number of months remaining in the term of this Agreement;

(3)For a period of twenty-four (24) months (the “Continuation Period”), the Company shall at its expense continue on behalf of the Executive and his dependents and beneficiaries (to the same extent provided to the dependents and beneficiaries prior to the Executive’s termination) the life insurance, disability, medical, dental, and hospitalization benefits provided to other similarly situated executives who continue in the employ of the Company during the Continuation Period.  The Company’s obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Executive obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder as long as the aggregate coverages and benefits of the combined benefit plans are no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This Subsection (c)(iii) shall not be interpreted so as to limit any benefits to which the Executive or his dependents may be entitled under any of the Company’s or any Subsidiary’s employee benefit plans, programs or practices following the Executive’s termination of employment, including without limitation, retiree medical and life insurance benefits; and

(4)The Company shall provide to the Executive an amount equal to twenty percent (20%) of the Base Amount to be used for outplacement services.

5.3.The amounts provided for in Section 7.1(a), 7.1(b) (i) and (ii), 7.1(c) (i), (ii) and (iv), 7.2(a),  7.2(b)(i) and (ii) and 7.2(c) (i), (ii) and (iv) shall be paid in cash in a lump sum within thirty (30) days after the Executive’s Termination Date.

5.4.The Executive shall not be required to mitigate the amount of any payments provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as provided in Sections 7.1(c) (iii) and 7.2(c)(iii).

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5.5.The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive’s existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, incentive plan, or securities plan, employment agreement or other contract, plan or arrangement with the Company, any Subsidiary or any other party, including, but not limited to, those specified in Exhibit B attached hereto, provided, however, the Company shall not be required to make duplicative payments of Accrued Compensation, and provided further that, upon execution of this Agreement, Executive shall not have any rights under his prior Change-In-Control Agreement (other than with respect to Section 6 of such Agreement), as previously amended, which agreement (as stated in Sections 1 and 22 hereof) is superseded by this Agreement.

6.NOTICE OF TERMINATION. Any purported termination by Parent or the Company or by the Executive shall be communicated by written Notice of Termination to the other. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which indicates the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination.

7.TERMINATION DATE. “Termination Date” shall mean, in the case of the Executive’s death, his date of death and, in all other cases, the date specified in the Notice of Termination subject to the following:

(1)If the Executive’s employment is terminated by Parent or the Company for Cause or due to Disability, the date specified in the Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to the Executive, provided that, in the case of Disability, the Executive shall not have returned to the full-time performance of his duties during such period of at least (30) days; and

(2)If the Executive’s employment is terminated for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days from the date the Notice of Termination is given to Parent or the Company.

8.CERTAIN ADDITIONAL PAYMENTS

(1)Notwithstanding anything in the Agreement to the contrary, in the event that it is determined (as hereafter provided) that any payment or distribution by the Company or any affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement,

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including without limitation any stock option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (individually and collectively a “Payment”), would be subject to the excise tax imposed by Section 4999(or any successor provision thereto) of the Internal Revenue Code of 1986, as amended (the “Code”) by reason of being considered “contingent on a change in ownership or control” of the Company or Parent, within the meaning of Section 280G of the Code (or any successor provision thereto), or to any similar tax imposed by state or local law, or any interest or penalties with respect to any such taxes (such taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment or payments (individually and collectively, a “Gross-Up Payment”). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.

(2)Subject to the provisions of Section 10(f) hereof, all determinations required to be made under this Section 10, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the “Accounting Firm”) selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within thirty (30) calendar days after the Termination Date, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay or cause to be paid the required Gross-Up Payment in cash to the Executive within five (5) business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 10(f) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment

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shall be promptly paid by the Company in cash to, or for the benefit of, the Executive within five (5) business days after receipt of such determination and calculations.

(3)The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 10(b) hereof. Any determination by the Accounting Firm as to the amount of the Gross-Up Payment will be binding on the Company and the Executive.

(4)The federal, state, and local income or other tax returns filed by the Executive will be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive will make proper payment of the amount of any Excise Payment and, at the request of the Company, provide to the Company true and correct copies (with any amendments) of the Executive’s federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive’s federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive will within five (5) business days pay to the Company the amount of such reduction.

(5)The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 10(b) hereof shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof.

(6)The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than ten (10) business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the thirty (30) calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notifies the

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Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

(1)provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company;

(2)take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company;

(3)cooperate with the Company in good faith in order effectively to contest such claim; and

(4)permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax. basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 10(f), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 10(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or

17

contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(7)If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 10(f) hereof, the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 10(f) hereof) promptly pay the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 10(f) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 10.

9.SUCCESSORS; BINDING AGREEMENT.

(1)This Agreement shall be binding upon and shall inure to the benefit of Parent, the Company, their successors and assigns and, at the time of any such succession or assignment, Parent or the Company (as applicable) shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Parent or the Company would be required to perform it if no such succession or assignment had taken place. The terms “Parent”, “the Company” as used herein shall include such successors and assigns. The term “successors and assigns” as used herein shall mean a corporation or other entity acquiring ownership, directly or indirectly, of all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise.

(b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal personal representative.

10.FEES AND EXPENSES.  The Company shall pay all legal fees and related expenses (including the cost of experts, evidence and counsel) incurred by the Executive involving (a) the Executive’s termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment), or (b) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement.

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11.NOTICE.  For the purpose of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to Parent or the Company shall be directed to the attention of the Board with a copy to the Secretary of Parent or the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt.

12.NON-EXCLUSIVITY OF RIGHTS.  Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company.  Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company shall be payable in accordance with such plan or program.

13.SETTLEMENT OF CLAIMS.  The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others.

14.MISCELLANEOUS.  No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive, Parent and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. No additional compensation provided under any benefit or compensation plans to the Executive shall be deemed to modify or otherwise affect the terms of this Agreement or any of the Executive’s entitlements hereunder.

15.GOVERNING LAW.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Kentucky, without reference to principles of conflicts of laws.

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16.SEVERABILITY.  The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

30NONSOLICITATION.

(0)The Executive hereby covenants and agrees that, at all times during the period of his employment and during the Restricted Period (as hereinafter defined) immediately following termination for any reason (unless such termination occurs after a  Change in Control), the Executive shall not, without the prior written consent of the Board, (i) solicit or take any action to willfully and intentionally cause the solicitation of any person who as of that date is a client, customer, (“Client”) of the Parent or the Company or any of their subsidiaries to transact any business with a Competitive Enterprise (as hereinafter defined) or discontinue business, in whole or in part with the Parent or the Company; or (ii) willfully or intentionally interfere with or damage any relationship between a Client and the Parent or the Company.

(1)The Executive hereby covenants and agrees that, at all times during the period of his employment and during the Restricted Period immediately following the termination thereof for any reason (unless such termination occurs after a subsequent Change in Control), the Executive shall not, without the prior written consent of the Board, solicit any person employed at that time by the Parent, the Company or any of their subsidiaries to apply for or accept employment with a Competitive Enterprise or otherwise encourage or entice such person to leave his position with the Parent, the Company or any of their subsidiaries.

(2)For purposes of this Agreement, (i) the term “Restricted Period” shall equal one year, provided that if  Executive’s employment is terminated within eighteen months of the Effective Time for any reason other than a termination for Cause, the Restricted Period shall equal six months and (ii) the term “Competitive Enterprise” shall mean any business which is in competition with a business engaged in by the Parent, the Company or any of its subsidiaries or affiliates in any state of the United States or in any foreign country in which any of them are engaged in business at the time of such termination of employment for as long as they carry on a business therein.  Notwithstanding the preceding sentence, the Executive shall not be prohibited from owning less than five (5%) percent of any publicly traded corpor­ation, and if Executive’s termination of employment shall occur within eighteen months of the Effective Time for any reason other than a termination for Cause, “Competitive Enterprise” shall mean any business which is in competition with a business engaged in by the Parent, the Company or any of its subsidiaries or affiliates in any state in which any of them are engaged in business at the time of such termination of employment for as long as they carry on a business therein or in any state contiguous to such state.

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(3)It is the intention of the parties hereto that the restrictions contained in this Section be enforceable to the fullest extent permitted by applicable law.  Therefore, to the extent any court of competent jurisdiction shall determine that any portion of the foregoing restrictions is excessive, such provision shall not be entirely void, but rather shall be limited or revised only to the extent necessary to make it enforceable.  Specifically, if any court of competent jurisdiction should hold that any portion of the foregoing description is overly broad as to one or more states of the United States or one or more foreign jurisdictions, then that state or states or foreign jurisdiction or jurisdictions shall be eliminated from the territory to which the restrictions of paragraph (a) of this Section applies and the restrictions shall remain applicable in all other states of the United States and foreign jurisdictions.

17.CONFIDENTIAL INFORMATION

The Executive agrees to keep secret and retain in the strictest confidence all confidential matters which relate to the Parent, the Company, its subsidiaries and affiliates, including, without limitation, customer lists, client lists, trade secrets, pricing policies and other business affairs of the Parent, the Company, its subsidiaries and affiliates learned by him from the Parent, the Company or any such subsidiary or affiliate or otherwise before or after the date of this Agreement, and not to disclose any such confidential matter to anyone outside the Parent, the Company or any of its subsidiaries or affiliates, whether during or after his period of service with the Company, except (i) as such disclosure may be required or appropriate in connection with his work as an employee of the Company or (ii) when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Parent or the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such information.  The Executive agrees to give the Parent and the Company advance written notice of any disclosure pursuant to clause (ii) of the preceding sentence and to cooperate with any efforts by the Parent or the Company to limit the extent of such disclosure.  Upon request by the Parent or the Company, the Executive agrees to deliver promptly to the Parent or the Company upon termination of his services for the Company, or at any time thereafter as the Parent, the Company may request, all Parent, Company, subsidiary or affiliate memoranda, notes, records, reports, manuals, drawings, designs, computer files in any media and other documents (and all copies thereof) relating to the Parent or the Company’s or any subsidiary’s or affiliate’s business and all property of the Parent or the Company or any subsidiary or affiliate associated therewith, which he may then possess or have under his direct control, other than personal notes, diaries, rolodexes and correspondence.

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18.REMEDY

Should the Executive engage in or perform, either directly or indirectly, any of the acts prohibited by Sections 19 or 20 hereof, it is agreed that the Parent and the Company shall be entitled to full injunctive relief, to be issued by any competent court of equity, enjoining and restraining the Executive and each and every other person, firm, organi­zation, association, or corporation concerned therein, from the continuance of such violative acts.  The foregoing remedy available to the Parent and the Company shall not be deemed to limit or prevent the exercise by the Parent or the Company of any or all further rights and remedies which may be available to the Parent or the Company hereunder or at law or in equity.

19.ENTIRE AGREEMENT.  This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof, including, without limiting the foregoing, his prior Change-In-Control Agreement, as previously amended, which shall cease to be of any further effect.

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized representative and the Executive has executed this Agreement as of the day and year first above written.

POWERGEN PLC
By:	/signed/
	Name:
	Title:
LG&E ENERGY CORP.
By:	/s/ R. W. Hale
	Name:
	Title:
/s/ John R. McCall
John R. McCall

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EXHIBIT B

TO

CHANGE-IN-CONTROL AGREEMENT

1.Omnibus Long-Term Incentive Plan

2.Short-Term Incentive Plan

3.Qualified Thrift Plan

4.Nonqualified Thrift Plan

5.LG&E Energy Corporation Retirement Income Plan for Employees Who Are Not Members of a Bargaining Unit

6.LG&E Energy Corporation Supplemental Executive Retirement Plan

EX-10.63

Exhibit 10.63

First Amendment to the

Employment and Severance Agreement

of

John R. McCall

WHEREAS, John R. McCall (the “Executive”) and LG&E Energy Corp., a Kentucky corporation (the “Company”) and Powergen, plc, a United Kingdom public limited company (the “Parent”) entered into an Employment and Severance Agreement, dated February 25, 2000 (the “Agreement”);

WHEREAS, Parent, Company, a Delaware corporation to be formed as an indirect wholly owned subsidiary of Parent (“US Subholdco 2”) and a Kentucky corporation to be formed as a direct wholly owned subsidiary of US Subholdco 2 (“Merger Sub”), have executed a merger agreement (the “Merger Agreement”) which will become effective at the Effective Time (as defined in the Merger Agreement);

WHEREAS, Company and the Parent have determined that it is desirable to amend the Agreement to provide greater retention incentives to the Executive as a further inducement for the Executive to remain in the employment of the Company;

WHEREAS, Anamendment to the Merger Agreement has necessitated a corresponding amendment to the Agreement; and

WHEREAS, the parties wish to correct the definition of a Change in Control contained in the Agreement.

NOW THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows:

1.Section 1.1 shall be deleted and replaced in its entirety to read as follows:

“This Agreement shall become effective at the Effective Time, provided the Company employs the Executive on that date.  As of the Effective Time, the Change-in-Control Agreement shall, except as otherwise provided herein, terminate and become null and void.  In consideration of the services rendered by the Executive to the Company prior to the Effective Time, the Executive’s willingness to enter into this Agreement which provides additional retention value to the Company, and the satisfaction of all of the Company’s obligations under the Change-in-Control Agreement, the Company shall pay the Executive in cash $650,000 on the Effective Date, if said time occurs prior to January 1, 2001. Additionally, if the Effective Time occurs prior to January 1, 2001 the Company shall pay the Executive in cash the following: $405,000 on the six month anniversary of the Effective Time, $405,000 on the twelve month anniversary of the Effective Time, and $455,944 on the eighteen month anniversary of the Effective Time, collectively the “Retention Payments”, so long as the Executive is still employed by the Company on

such dates.  The Retention Payments shall be credited to Executive’s account under the Deferred Compensation Plan of the Company (or such other plan or arrangement as may be mutually agreed upon by the parties hereto) at the Effective Time and shall be payable in a lump sum cash payment (including adjustment for any increases or decreases in Executive’s account under the Deferred Compensation Plan), if the Executive so elects, within ten (10) days after the earliest to occur of (i) a termination of employment, other than a termination by the Executive without Good Reason, which occurs at any time during the eighteen consecutive months immediately following the Effective Time (the “Transition Period”), (ii) a Change in Control that occurs during the Transition Period, so long as the Executive is still employed by the Company immediately prior to the Change in Control, and (iii) the scheduled six, twelve, and eighteen month anniversaries.  In the event that Executive elects not to receive the foregoing lump sum payments, Executive may otherwise elect to defer receipt of such payments and have such payments continue to be held in his Deferred Compensation Plan account (which account shall continue to be adjusted in accordance with the terms of the Deferred Compensation Plan, or such other plan or arrangement as may be mutually agreed upon by the parties hereto).  If the Effective Date occurs on or after January 1, 2001, the Company shall pay the Executive in cash 60% of the amount calculated and payable under Sections 3.1(b) and 6 of the Change-in-Control Agreement (the “Initial Change-in-Control Payment”) within 10 days following the Effective Time conditioned upon delivery by the Executive of an executed form of release of all claims against the Company with respect to the Change-in-Control Agreement (other than with respect to Section 6 of such Agreement) (on a form to be provided by the Company).  Additionally, if the Effective Date Occurs on or after January 1, 2001, the balance of the amount calculated under Sections 3.1(b) and 6 of the Change-in-Control Agreement (the “Deferred Change-in-Control Payment”) shall be credited to Executive’s account under the Deferred Compensation Plan of the Company (or such other plan or arrangement as may be mutually agreed upon by the parties hereto) and shall be payable in a lump sum cash payment (including adjustment for any increases or decreases in Executive’s account under the Deferred Compensation Plan), if the Executive so elects, within ten (10) days after the earliest to occur of (i) a termination of employment, other than a termination by the Executive without Good Reason, which occurs at any time during the eighteen consecutive months immediately following the Effective Time (the “Transition Period”), (ii) a Change in Control that occurs during the Transition Period, so long as the Executive is still employed by the Company immediately prior to the Change in Control, and (iii) the end of the Transition Period, so long as the Executive is still employed on such date.  In the event that Executive elects not to receive the foregoing lump sum payment, Executive may otherwise elect to defer receipt of such payment and have such payment continue to be held in his Deferred Compensation Plan account (which account shall continue to be adjusted in accordance with the terms of the Deferred Compensation Plan, or such other plan or arrangement as may be mutually agreed upon by the parties hereto).

Parent shall, or shall cause the Company to pay to the Executive a lump sum cash payment in an amount equal to $172,028 if the closing occurs prior to January 1, 2001 or an amount equal to 25% of the Deferred Change-in-Control Payment if the closing occurs on or after January 1, 2001 (without adjustment for any increases or decreases in Executive’s account under the Deferred Compensation Plan) in either event (the

2

“Premium Payment”) within ten (10) days after the earliest to occur of (i) the date that Executive’s employment is terminated by the Company without Cause, by Executive for Good Reason, or as a result of Executive’s death or Disability, at any time during the eighteen consecutive months immediately following the Effective Time (the “Transition Period”), (ii) a Change in Control that occurs during the Transition Period, so long as the Executive is still employed by the Company immediately prior to the Change in Control, and (iii) the end of the Transition Period, so long as the Executive is still employed on such date.  In the event that Executive elects not to receive the foregoing lump sum payment, Executive may otherwise elect to defer receipt of such payment and have such payment continue to be held in his Deferred Compensation Plan account (which account shall continue to be adjusted in accordance with the terms of the Deferred Compensation Plan, or such other plan or arrangement as may be mutually agreed upon by the parties hereto).”

2.Section 4.5 shall be deleted and replaced in its entirety to read as follows:

“4.5  EXISTING STOCK OPTIONS.  In accordance with the Merger Agreement and any amendments thereto, Executive may elect in writing delivered to Parent to convert each Company stock option he holds (each, a “Company Option”), whether vested or unvested, into an option to acquire, on the same terms and conditions as were applicable under such Company Option, the number of ADS’s, equal to the result (rounded down to the nearest whole ADS) of multiplying the number of shares subject to the Company Option immediately prior to the Effective Time by the Conversion Ratio (as defined in the Merger Agreement), at an exercise price per share equal to the result (rounded up to the nearest whole cent) of dividing the per share exercise price of such Company Option immediately prior to the Effective Time by the Conversion Ratio (it being understood that the exercise price shall be converted into dollars at the rate prevailing at the close of business on the business day prior to the Effective Time).  If Executive makes such election and holds the Company Option or the ADS’s acquired upon the exercise of such Company Option for two years after the Effective Time, then upon the later of (i) the end of the 24th month after the Effective Time, or (ii) the exercise of such Company Option, the Parent shall issue Executive one additional ADS for every 4 ADS’s acquired as a result of such exercise; provided, however in the event that either (i) a Change in Control occurs within the two years after the Effective Time and the Executive is still employed by the Company immediately prior to the Change in Control, immediately prior to such time, the Executive shall receive one additional ADS for every 4 ADS’s (A) acquired by the Executive as a result of the exercise of any Company Option during the period prior to such Change in Control and (B) underlying each unexercised Company Option held by the Executive immediately prior to such Change in Control or (ii) the Executive’s employment is terminated for any reason (other than by the Company for Cause or by the Executive without Good Reason (other than as a result of death or Disability)) at any time during the two years after the Effective Time and prior to any Change in Control, the Executive shall receive, within 10 days after the termination of employment, one additional ADS for every 4 ADS’s (A) acquired by the Executive as a result of the exercise of any Company Option during the period prior to such termination of

3

employment and (B) underlying each unexercised Company Option held by the Executive immediately prior to such termination of employment.”

3.Section 6.3(c)(5) shall be deleted and replaced in its entirety to read as follows:

(5)Any Person acquires Beneficial Ownership of a greater percentage of the Voting Securities of the Company than the percentage of such Voting Securities then held, directly or indirectly, by Parent.

4.A new Section 6.3(d) shall be added to read as follows:

“6.3 (d)  Notwithstanding the foregoing clauses (a), (b), and (c), a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by Parent which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by Parent, and after such share acquisition by Parent, the Subject Person or entity becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.”

5.  Section 6.3(d) of the existing Agreement shall be renumbered as Section 6.3(e) to read as follows:

“6.3(e)  Notwithstanding anything contained in this Agreement to the contrary, if the Executive’s employment is terminated during the term of this Agreement and the Executive reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control (a “Third Party”) or (ii) otherwise occurred in connection with, or in anticipation of, a Change in Control which actually occurs, then for all purposes of this Agreement, the date of a Change in Control with respect to the Executive shall mean the date immediately prior to the date of such termination of the Executive’s employment.”

/s/ John R. McCall

John R. McCall

12/11/00

Date

LG&E Energy Corp.

By:

Powergen,plc

By:

4

EX-10.64

EXHIBIT 10.64

EXHIBIT I

JUNE 5, 2002, AMENDMENT TO ITEM NO. 10.29

(TEXAS GAS 5-YEAR FIRM NO-NOTICE TRANSPORTATION AGREEMENT)

L0008876
N000415

June 5, 2002 William’s, Gas Pipeline
Texas Gas, P. O. Box 20008
3800 Frederica St.
Owensboro, KY
270/926-8686

Louisville Gas and Electric Company

820 West Broadway

Louisville, KY 40202

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 5-year agreement) between them as follows:

A.            ARTICLE V, Section 5.1, 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, 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 term 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.

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
By:	/s/ Chris Hermann	By:	/s/ Kathy F. Kirk
Title:  Senior VP-Distribution Operations		ATTEST:		/s/ Sherry L. Rice, Asst. Sec.
AGREED TO AND ACCEPTED this 15th day of July, 2002.

EX-10.65

EXHIBIT 10.65

EXHIBIT II

NOVEMBER 1, 2002, RATE FT-A AGREEMENT

BETWEEN LG&E AND TENNESSEE GAS PIPELINE COMPANY

Service Package No: 40715

Amendment No:            

GAS TRANSPORTATION AGREEMENT

(For Use under FT-A Rate Schedule)

THIS AGREEMENT is made and entered into as of the 1^st day of November, 2002, by and between TENNESSEE GAS PIPELINE COMPANY, a Delaware Corporation, hereinafter referred to as “Transporter” and LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky Corporation, hereinafter referred to as “Shipper.”  Transporter and Shipper shall collectively be referred to herein as the “Parties.”

ARTICLE I – DEFINITIONS

1.1TRANSPORTATION QUANTITY – shall mean the maximum daily quantity of gas which Transporter agrees to receive and transport on a firm basis, subject to Article II herein, for the account of Shipper hereunder on each day during each year during the term hereof, which shall be 51,000 dekatherms.  Any limitations on the quantities to be received from each Point of Receipt and/or delivered to each Point of Delivery shall be as specified on Exhibit “A” attached hereto.

1.2EQUIVALENT QUANTITY – shall be as defined in Article I of the General Terms and Conditions of Transporter’s FERC Gas Tariff.

ARTICLE II – TRANSPORTATION

Transportation Service – Transporter agrees to accept and receive daily on a firm basis, at the Point(s) of Receipt from Shipper or for Shipper’s account such quantity of gas as Shipper makes available up to the Transportation Quantity, and to deliver to or for the account of Shipper to the Point(s) of Delivery an Equivalent Quantity of gas.

ARTICLE III – POINT(S) OF RECEIPT AND DELIVERY

The Primary Point(s) of Receipt and Delivery shall be those points specified on Exhibit “A” attached hereto.

ARTICLE IV

4.1All facilities are in place to render the service provided for in this Agreement.

4.2Pursuant to Article VIII, Section 1 of the General Terms and Conditions of Transporter’s Tariff (“GT&C”), Transporter shall cause the delivery of natural gas to Shipper at the Shipper’s Primary Point of Delivery as nearly as practicable to Transporter’s line pressure, provided that such line pressure shall not be less than 500 pounds per square inch gauge at Monroe, meter number 020843, and 600 pounds per square inch gauge at Calvary, meter number 020844.  Transporter shall be obligated to provide such minimum pressures only to the extent that capacity is reserved by Shipper and scheduled by Transporter at the Primary Delivery Point(s) described above.  Such minimum pressure obligation is subject to the GT&C including, but not limited to, Article X – Excuse of Performances.

In the event Transporter is unable to maintain the minimum pressure(s) described herein but Shipper is still able to take receipt of the scheduled quantity at the Primary Delivery Point(s) described above, then Shipper shall be considered unharmed by Transporter’s inability to maintain such minimum pressure(s).  Subject to the foregoing, any failure on Transporter’s part to deliver the scheduled quantity at the Primary Delivery Point(s)

1

described above shall entitle Shipper to the limited remedy specified in Rate Schedule FT-A, Section 7 – Failure of Transporter.

ARTICLE V – QUALITY SPECIFICATIONS AND STANDARDS FOR MEASUREMENT

For all gas received, transported and delivered hereunder the Parties agree to the Quality Specifications and Standards for Measurement as specified in the General Terms and Conditions of Transporter’s FERC Gas Tariff Volume No. 1.  To the extent that no new measurement facilities are installed to provide service hereunder, measurement operations will continue in the manner in which they have previously been handled.  In the event that such facilities are not operated by Transporter or a downstream pipeline, then responsibility for operations shall be deemed to be Shipper’s.

ARTICLE VI – RATES AND CHARGES FOR GAS TRANSPORTATION

6.1TRANSPORTATION RATES – Commencing upon the effective date hereof, the rates, charges, and surcharges to be paid by Shipper to Transporter for the transportation service provided herein shall be in accordance with transporter’s Rate Schedule FT-A and the General Terms and Conditions of Transporter’s FERC Gas Tariff.  Except as provided to the contrary in any written or electronic agreement(s) between Transporter and Shipper in effect during the term of this Agreement Shipper shall pay Transporter the applicable maximum rate(s) and all other applicable charges and surcharges specified in the Summary of Rates in Transporter’s FERC Gas Tariff and in this Rate Schedule.  Transporter and Shipper may agree that a specific discounted rate will apply only to certain volumes under the agreement.  Transporter and Shipper may agree that a specified discounted rate will apply only to specified volumes (MDQ, TQ, commodity volumes, Extended Receipt and Delivery Service Volumes or Authorized Overrun volumes) under the Agreement; that a specified discounted rate will apply only if specified volumes are achieved (with the maximum rates applicable to volumes above the specified volumes or to all volumes if the specified volumes are never achieved); that a specified discounted rate will apply only during specified periods of the year or over a specifically defined period of time; and/or that a specified discounted rate will apply only to specified points, zones, markets or other defined geographical area.  Transporter and Shipper may agree to a specified discounted rate pursuant to the provisions of this Section 6.1 provided that the discounted rate is between the applicable maximum and minimum rates of this service.

6.2INCIDENTAL CHARGES – Shipper agreed to reimburse Transporter for any filing or similar fees, which have not been previously paid for by Shipper, which Transporter incurs in rendering service hereunder.

6.3CHANGES IN RATES AND CHARGES – Shipper agrees that Transporter shall have the unilateral right to file with the appropriate regulatory authority and make effective changes in (a) the rates and charges applicable to service pursuant to Transporter’s Rate Schedule FT-A, (b) the rate schedule(s) pursuant to which service hereunder is rendered, or (c) any provision of the General Terms and Conditions applicable to those rate schedules.  Transporter agrees that Shipper may protest or contest the aforementioned filings, or may seek authorization from duly constituted regulatory authorities for such adjustment of Transporter’s existing FERC Gas Tariff as may be found necessary to assure Transporter just and reasonable rates.

2

ARTICLE VII – BILLINGS AND PAYMENTS

Transporter shall bill and shipper shall pay all rates and charges in accordance with Articles V and VI, respectively, of the General Terms and Conditions of the FERC Gas Tariff.

ARTICLE VIII – GENERAL TERMS AND CONDITIONS

This Agreement shall be subject to the effective provisions of Transporter’s Rate Schedule FT-A and to the General Terms and Conditions incorporated therein, as the same may be changed or superseded from time to time in accordance with the rules and regulations of the FERC.

ARTICLE IX – REGULATION

9.1This Agreement shall be subject to all applicable and lawful governmental statutes, orders, rules and regulations and is contingent upon the receipt and continuation of all necessary regulatory approvals or authorizations upon terms acceptable to Transporter.  This Agreement shall be void and of no force and effect if any necessary regulatory approval is not so obtained or continued.  All Parties hereto shall cooperate to obtain or continue all necessary approvals or authorizations, but no Party shall be liable to any other party for failure to obtain or continue such approvals or authorizations.

9.2The transportation service described herein shall be provided subject to Subpart G, Part 284 of the FERC Regulations.

ARTICLE X – RESPONSIBILITY DURING TRANSPORTATION

Except as herein specified, the responsibility for gas during transportation shall be as stated in the General Terms and Conditions of Transporter’s FERC Gas Tariff Volume No. 1.

ARTICLE XI – WARRANTIES

11.1In addition to the warranties set forth in Article IX of the General Terms and Conditions of Transporter’s FERC Gas Tariff, Shipper warrants the following:

(a)Shipper warrants that all upstream and downstream transportation arrangements are in place, or will be in place as of the requested effective date of service, and that it has advised the upstream and downstream transporters of the receipt and delivery points under this Agreement and any quantity limitations for each point as specified on Exhibit “A” attached hereto.  Shipper agrees to indemnify and hold Transporter harmless for refusal to transport gas hereunder in the event any upstream or downstream transporter fails to receive or deliver gas as contemplated by this Agreement.

(b)Shipper agrees to indemnify and hold Transporter harmless from all suits, actions, debts, accounts, damages, costs, losses and expenses (including reasonable attorneys fees) arising from or out of breach of any warranty by Shipper herein.

11.2Transporter shall not be obligated to provide or continue service hereunder in the event of any breach of warranty.

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ARTICLE XII – TERM

12.1This contract shall be effective as of November 1, 2002, and shall remain in force and effect, unless modified as per Exhibit B, until October 31, 2012.  If the FERC or other governmental body having jurisdiction over the service rendered pursuant to this Agreement authorizes abandonment of such service, this Agreement shall terminate on the abandonment date permitted by the FERC or such other governmental body.

12.2Any portions of this Agreement necessary to resolve or cash out imbalances under this Agreement as required by the General Terms and Conditions of Transporter’s Tariff shall survive the other parts of this Agreement until such time as such balancing has been accomplished; provided, however, that Transporter notifies Shipper of such imbalance not later than twelve months after the termination of this Agreement.

12.3This Agreement will terminate automatically upon written notice from Transporter in the event Shipper fails to pay all of the amount of any bill for service rendered by Transporter hereunder in accord with the terms and conditions of Article VI of the General Terms and Conditions of Transporter’s FERC Gas Tariff.

ARTICLE XIII – NOTICE

Except as otherwise provided in the General Terms and Conditions applicable to this Agreement, any notice under this Agreement shall be in writing and mailed to the post office address of the Party intended to receive the same, as follows:

TRANSPORTER:		Tennessee Gas Pipeline Company P. O. Box 2511 Houston, Texas  77252-2511
		Attention:  Director, Transportation Control
SHIPPER:
	NOTICES:	Louisville Gas and Electric Company P. O. Box 32020 Louisville, Kentucky  40232
		Attention:  J. Clay Murphy, Dir – Gas Management, Planning and Supply
BILLING:		Louisville Gas and Electric Company P. O. Box 32020 Louisville, Kentucky  40232
		Attention:  J. Clay Murphy, Dir – Gas Management, Planning and Supply

or such other address as either Party shall designate by formal written notice to the other.

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ARTICLE XIV – ASSIGNMENTS

14.1Either Party may assign or pledge this Agreement and all rights and obligations hereunder under the provisions of any mortgage, deed of trust, indenture, or other instrument which it has executed or may execute hereafter as security for indebtedness.  Either Party may, without relieving itself of its obligation under this Agreement, assignment any of its rights hereunder to a company with which it is affiliated.  Otherwise, Shipper shall not assign this Agreement or any of its rights hereunder, except in accord with Article III, Section 11 of the General Terms and Conditions of Transporter’s FERC Gas Tariff.

14.2Any person which shall succeed by purchase, merger, or consolidation to the properties, substantially as an entirety, of either Party hereto shall be entitled to the rights and shall be subject to the obligations of its predecessor in interest under this Agreement.

ARTICLE XV – MISCELLANEOUS

15.1THE INTERPRETATION AND PERFORMANCE OF THIS CONTRACT SHALL BE IN ACCORDANCE WITH AND CONTROLLED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE DOCTRINES GOVERNING CHOICE OF LAW.

15.2If any provision of this Agreement is declared null and void, or voidable, by a court of competent jurisdiction, then that provision will be considered severable at either Party’s option; and if the severability option is exercised, the remaining provisions of the Agreement shall remain in full force and effect.

15.3Unless otherwise expressly provided in this Agreement or Transporter’s FERC Gas Tariff, no modification of or supplement to the terms and provisions stated in this Agreement shall be or become effective until Shipper has submitted a request for change through PASSKEY and Shipper has been notified through PASSKEY of Transporter’s agreement to such change.

15.4Exhibit “A” attached hereto is incorporated herein by reference and made a part hereof for all purposes.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the date first hereinabove written.

TENNESSEE GAS PIPELINE COMPANY
By:	/s/
	Agent and Attorney-in-Fact
SHIPPER: LOUISVILLE GAS AND ELECTRIC COMPANY
By:	/s/  Chris Hermann
Title:	Senior Vice President – Distribution Operations
Date:	July 29, 2002

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EXHIBIT “A”

TO GAS TRANSPORTATION AGREEMENT

DATED NOVEMBER 1, 2002

BETWEEN

TENNESSEE GAS PIPELINE COMPANY

AND

LOUISVILLE GAS AND ELECTRIC COMPANY

EFFECTIVE DATE OF AMENDMENT:

RATE SCHEDULE:  FT-A

SERVICE PACKAGE:

SERVICE PACKAGE TQ:  51,000 Dth

METER	METER NAME	INTERCONNECT PARTY NAME	COUNTY	ST	ZONE	R/D	LEG	TOTAL-TQ	BILLABLE-TQ
020844	Calgary	Louisville Gas and Electric Co.	Marion	Ky	2	D	100	51,000	51,000
011306	Agua Dulce	Channel Industries	Nueces	Tx	0	R	100	40,000	40,000
010723	Kiln Miss Exchange	Gulfstream	Hancock	Ms	1	R	500	7,000	7,000
012241	Ship Shoal 108	Chevron USA	OL	La	1	R	500	4,000	4,000
							Total	51,000
							TQ

NUMBER OF RECEIPT POINTS:	3
NUMBER OF DELIVERY POINTS:	1

Note:  Exhibit “A” is a reflection of the contract and all amendments as of the amendment effective date.

GAS TRANSPORTATION AGREEMENT

(For Use under FT-A Rate Schedule)

EXHIBIT “B”

TO GAS TRANSPORTATION AGREEMENT

DATED November 1, 2002

BETWEEN

TENNESSEE GAS PIPELINE COMPANY

AND

LOUISVILLE GAS AND ELECTRIC COMPANY

BUYOUT/EARLY TERMINATION PROVISIONS*

SERVICE PACKAGE:

BUYOUT PERIOD(S)          November 1, 2007 through October 31, 2012

AMOUNT OF TQ REDUCED 51,000 Dth                                                              
FOR PERIOD(S)

AMOUNT OF                       $0.00

BUYOUT PAYMENT

FOR PERIOD(S)

ANY LIMITATIONS ON

THE EXERCISE OF THE

BUYOUT/TERMINATION

OPTION AS BID BY

THE SHIPPER: Shipper must notify Transporter on or before October 31, 2006 of its intent to terminate the attached service agreement.  Such termination shall become effective as of November 1, 2007.  Notwithstanding the foregoing, if at any time Tennessee terminates the July 8, 2002, Negotiated Rate Agreement between Tennessee and Shipper for any reason, Shipper shall have the unilateral right to notify Tennessee of its intent to terminate this Agreement effective sixty days after the referenced Negotiated Rate Agreement terminates.

*NOTICE MUST BE GIVEN AS PROVIDED FOR IN THE NET PRESENT VALUE STANDARD OF THE GENERAL TERMS AND CONDITIONS.

6

GAS TRANSPORTATION AGREEMENT

(For Use under FT-A Rate Schedule)

EXHIBIT “B”

TO GAS TRANSPORTATION AGREEMENT

DATED November 1, 2002

BETWEEN

TENNESSEE GAS PIPELINE COMPANY

AND

LOUISVILLE GAS AND ELECTRIC COMPANY

BUYOUT/EARLY TERMINATION PROVISIONS*

SERVICE PACKAGE:

BUYOUT PERIOD(S)          November 1, 2007 through October 31, 2012

AMOUNT OF TQ REDUCED 51,000 Dth                                                              
FOR PERIOD(S)

AMOUNT OF                       $0.00

BUYOUT PAYMENT

FOR PERIOD(S)

ANY LIMITATIONS ON

THE EXERCISE OF THE

BUYOUT/TERMINATION

OPTION AS BID BY

THE SHIPPER: Shipper must notify Transporter on or before October 31, 2006 of its intent to terminate the attached service agreement.  Such termination shall become effective as of November 1, 2007.  Notwithstanding the foregoing, if at any time Tennessee terminates the July 8, 2002, Negotiated Rate Agreement between Tennessee and Shipper for any reason, Shipper shall have the unilateral right to notify Tennessee of its intent to terminate this Agreement effective sixty days after the referenced Negotiated Rate Agreement terminates.

*NOTICE MUST BE GIVEN AS PROVIDED FOR IN THE NET PRESENT VALUE STANDARD OF THE GENERAL TERMS AND CONDITIONS.

7

EX-10.66

Contract #97-211-026
Kindill Mining, Inc.
Amendment No. 1

EXHIBIT 10.66

AMENDMENT NO. 1 TO COAL SUPPLY AGREEMENT

THIS AMENDMENT NO. 1 COAL SUPPLY AGREEMENT (“Amendment No. 1”) is entered into effective as of January 1, 2001, by and between LOUISVILLE GAS AND ELECTRIC COMPANY (hereinafter referred to as “Buyer”), whose address is 220 West Main Street, Louisville, Kentucky 40202, and KINDILL MINING, INC., (hereinafter referred to as “Seller”) an Indiana corporation, whose address is 1216 East County Road, 900 South, Oakland City, Indiana 47660.  In consideration of the agreements herein contained, the parties hereto agree as follows.

1.0AMENDMENTS

The Agreement heretofore entered into by the parties, dated effective July 1, 1997 and identified by the Contract Number set forth above, (hereinafter referred to as “Agreement”) is hereby amended as follows:

2.0TERM

Section 2 Term, is deleted and replaced with the following:

“The term of this agreement shall commence on July 1, 1997 and shall continue through December 31, 2002, subject to the provisions of Section 8.3.”

3.0QUANTITY

3.1Section 3.1 Base Quantity, is deleted and replaced with the following:

“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)
1997	150,000
1998	900,000
1999	900,000
2000	900,000
2001	700,000
2002	700,000

3.2Section 3.3 Right of First Refusal, is deleted in its entirety.

3.3Section 3.4 Option to Increase Quantity, is deleted and replaced with the following:

“Buyer shall have the right to increase the quantity to be delivered hereunder by up to an additional 240,000 tons annually.  Buyer shall exercise such option by giving to Seller notice stating Buyer’s exercise of the option and specifying the increased tonnage sixty (60) days prior to the end of each quarter for increased tonnage for the immediately following quarter; provided, however, the maximum tonnage that can be nominated for delivery during the immediately following quarter shall not be more than 60,000 tons.  Buyer’s exercise of the option in any given quarter shall not obligate Buyer to take delivery of the increased quantity in any following quarter or any following year.  Any additional tonnage which Buyer exercises its right to purchase under this § 3.4 hereinafter shall be referred to as “Option Tonnage” and shall be subject to all the terms and conditions hereof (including price).

4.0QUALITY

4.1Sections 6.1(b), 6.1(c), and 6.1(e) Specifications, are hereby revised to provide that they shall not be applicable to the years 2001 and 2002.

5.0PRICE

5.1Section 8.1 Base Price, is hereby revised by adding the following paragraph:

“For years 2001 and 2002, the base price (“Base Price”) of the coal to be sold hereunder will be firm and in accordance with the following:

BASE PRICE

YEAR	PRICE ($Per MMBTU)
2001	$	0.8180
2002	See Section 8.3 as revised.

5.2Sections 8.2 (i) and 8.2 (ii) Quality Price Discounts, shall not be applicable to years 2001 and 2002.

5.3Section 8.3 Price Review is amended by adding the following paragraph:

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“Section 8.3 Term and Price Review: Buyer and Seller agree to begin terms, conditions and price negotiations on or before July 1, 2001, for terms and conditions, including without limitation prices, to be effective beginning January 1, 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.”

6.0INVOICES, BILLING AND PAYMENT

Section 9.1 Invoicing Address is hereby revised by adding the following:

“As of the date of this Amendment, invoices will be sent to Buyer at the following address:

Louisville Gas and Electric Company

220 West Main Street

Louisville, Kentucky 40202

Attn: Director, Fuels Management

7.0STATUS OF AGREEMENT

As amended herein, the Agreement is hereby ratified and confirmed and shall continue in full force and effect.

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		KINDILL MINING, INC.
By:		By:
	Wayne T. Lucas		Kent Holcomb
	Executive Vice President – Power Generation		President
DATE:		DATE:

3

EX-10.67

Contract #97-211-026

Kindill Mining, Inc.

Amendment No.2

EXHIBIT 10.67

AMENDMENT NO. 2 TO COAL SUPPLY AGREEMENT

THIS AMENDMENT NO. 2 COAL SUPPLY AGREEMENT (“Amendment No. 2”) is entered into effective as of January 1, 2002, by and between LOUISVILLE GAS AND ELECTRIC COMPANY, (hereinafter referred to as “Buyer”) a Kentucky corporation, whose address is 220 West Main Street, Louisville, Kentucky 40202, KINDILL MINING, INC., (hereinafter referred to as “Seller”) an Indiana corporation, whose address is 1216 East County Road, 900 South, Oakland City, Indiana 47660; and HORIZON NR, LLC, (hereinafter referred to as “Guarantor”) a Delaware limited liability corporation, whose address is 2000 Ashland Drive, Ashland, Kentucky 41101.  In consideration of the agreements herein contained, the parties hereto agree as follows.

1.0AMENDMENTS

The Agreement heretofore entered into by the parties, dated effective July 1, 1997 and identified by the Contract Number set forth above, as amended by Amendment No. 1 dated effective January 1, 2001(hereinafter together referred to as the “Agreement”), is hereby further amended as follows:

2.0TERM

Section 2 Term, is deleted in its entirety and replaced with the following:

“The term of this agreement shall commence on July 1, 1997 and continue through December 31, 2005.”

3.0QUANTITY

3.1           Section 3.0 Quantity, is deleted in its entirety and replaced with the following:

3.2           Section 3.1 Base Quantity

“Seller shall sell and deliver and Buyer shall purchase and accept delivery of the following annual base quantity of coal (“Base Quantity”), to be delivered on a ratable monthly basis:

YEAR	BASE QUANTITY (TONS)
2002	700,000
2003 - 2005	900,000	per year

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3.3          Section 3.2, Underdeliveries, is hereby added as follows:

If Seller delivers 85% or less of the ratable monthly quantity hereunder during any one calendar month (the “Underdeliveries”) and such Underdeliveries are not excused by a valid force majeure event, the Base Price that was in effect in 2001 shall be automatically and immediately reinstated, effective on the first day of the month during which the Underdeliveries occurred.  If such Underdeliveries exceed 15% during any sixty (60) day period, Buyer shall have the immediate right to offset cover costs against payments due Seller and Seller acknowledges and agrees it shall be responsible for all cover costs resulting from such Underdeliveries.  If Buyer chooses not to cover, such Underdeliveries shall be made up at Buyer’s sole option per Buyer’s schedule.

Notwithstanding this specific remedy, the parties agree that Buyer’s remedies for Sellers’ underdeliveries and defaults shall be cumulative and not exclusive and shall include contractual, legal and equitable remedies.

4.0          QUALITY

Section 6.1 Specifications, sub-sections (b), (c), and (e) are hereby deleted in their entireties.

5.0PRICE

5.1           Section 8.1 Base Price, is hereby deleted in its entirety and replaced with the following provision:

Section 8.1 Base Price. “The base price (“Base Price”) of the coal to be sold hereunder will be firm and in accordance with the following:

BASE PRICE
YEAR	PRICE ($Per MMBTU)
2002 - 2005	$	.95455 FOB railcar

The parties hereto acknowledge Buyer has paid Seller $1.00/MMBtu for all coal received on and after January 1, 2002. As of May 31, 2002, 391,261.8 tons of coal have been received by Buyer.  On and after the date all parties have fully executed this Agreement, Buyer will begin receiving a credit of $1 per ton for all coal delivered by Seller to Buyer, which credit shall continue until all overpayments have been recouped by Buyer.

2

5.2Quality Price Discounts,  Sections 8.2(b)(i) and 8.2(b)(ii), are hereby deleted in their entireties.

5.3           Section 8.3 Price Review is hereby deleted in its entirety.

6.0GUARANTY OF SELLER’S OBLIGATIONS.  As a material inducement for Buyer’s entering into this Amendment No. 2, and in consideration thereof, Guarantor hereby guarantees the full, prompt and complete performance by Seller of all the terms and conditions of the Agreement to be performed by Seller thereunder (the “Guaranty”).  Guarantor hereby indemnifies and holds Buyer and Buyer’s successors and assigns harmless from and against all liability and expense, including reasonable attorney’s fees, sustained by Buyer by reason of the failure of Guarantor fully to perform and comply with the terms and obligations of the Agreement, or by reason of any misrepresentation of Guarantor hereunder.   It is understood this is a continuing, absolute and unconditional Guaranty, co-extensive and co-terminous with the Agreement between the Seller and Buyer, as it may be further extended and amended by Buyer and Seller.  Guarantor hereby expressly waives notice of acceptance of this Guaranty, notice of the defaults by Seller or of nonpayment or nonfulfillment of any or all of Seller’s liabilities and obligations.  The delay or failure of Buyer 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 or of the Guaranty.  The Guarantor hereby expressly gives the Buyer and Seller from time to time, without notice to Guarantor, authority and consent to give and make such extensions, renewals, settlements, and compromises at it may deem proper with respect to any of the duties or liabilities of the Seller under this Agreement.

7.0NOTICES

The following notice provisions in Section 12.1, Form and Place of Notice, are hereby revised as follows:

The copy address listing Buyer’s Manager, Procurement Services is hereby deleted.

The notice addresses for Seller are hereby deleted and replaced with the following:

If to Seller:	Kindill Mining
	1216 East County Road 800 South
	Oakland City, Indiana 47660

[No copy address.]

8.0EARLY TERMINATION 

Section 13 Early Termination is hereby deleted in its entirety.

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9.0STATUS OF AGREEMENT

As amended herein, all terms and conditions in the Agreement are hereby ratified and confirmed and shall continue in full force and effect, including without limitation the representations, warranties, non-waiver and indemnification provisions.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 on the

day and year below written, but effective as of the day and year first set forth above.

LOUISVILLE GAS AND ELECTRIC COMPANY		KINDILL MINING, INC.
By:			By:
	Paul Thompson
	Senior Vice President — Energy Services		Kent Holcomb
			President
DATE:			DATE:
			Guarantor:
			HORIZON NR, LLC
			By:
			Its:
			DATE:

4

EX-10.68

EXHIBIT 10.68

AMENDMENT NO. 2 TO COAL SUPPLY AGREEMENT

THIS AMENDMENT NO. 2 TO COAL SUPPLY AGREEMENT (“Amendment No. 2”) is entered into effective as of January 1, 2003, 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, AND ISLAND CREEK COAL COMPANY, Delaware corporations, and EIGHTY FOUR MINING COMPANY, a Pennsylvania 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.

1.0AMENDMENTS

The Agreement heretofore entered into by the parties, dated effective January 1, 2000, and identified by the Contract Numbers set forth above, as amended by Amendment No. 1 dated January1, 2002, hereafter referred to as “Agreement”, is hereby amended as follows:

2.0TERM

2.1           Section 2.0 Term is deleted in its entirety and is replaced with the following:

2.0TERM.  The term of this Agreement shall continue through December 31, 2004 subject to early termination pursuant to the terms of the Agreement.

3.0QUANTITY

3.1Section 3.1 Base Quantity, is deleted in its entirety and is replaced with the following:

3.0QUANTITY.  Seller shall sell and deliver and Buyer shall purchase and accept delivery of the following annual quantities of coal:

1

Year	Base Quantity (Tons)
2003	1,000,000
2004	2,000,000

The Base Quantity will be delivered in approximately equal monthly quantities and in accordance with a mutually agreed upon schedule.

4.0          SOURCE

4.1           Section 4.1 Source is deleted and replaced with the following:

4.1Source.  The coal sold hereunder shall be supplied primarily from geological seam Pittsburgh #8, from Seller’s Shoemaker Mine, located in Marshall County, West Virginia (the “Coal Property”).  As necessary soley 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, McElroy, Mine 84, VP #8, Buchanan, Baily/Enlow Fork, Loveridge, and/or Robinson Run Mines (the “Alternate Mines”).

5.0          QUALITY

5.1           Section 6.1 Specifications is deleted and replaced with the following:

6.1Specifications.  The coal delivered hereunder shall conform to the following  specifications on an “as received basis”:

Specifications	Guaranteed Monthly Weighted Average (1)		Rejection Limits (per shipment)
BTU/LB.	min.	12,200	<	11,800
LBS/MMBTU:
MOISTURE	max.	6.50	>	7.20
ASH	max.	11.20	>	12.50
SULFUR	max.	2.50	>	2.75
SULFUR	min.	2.25	<	2.00
CHLORINE	max.	0.06	>	0.08
FLUORINE	max.	0.015	>	0.035
NITROGEN	max.	1.10	>	1.25
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 (°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

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(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.

*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) =		(Fe2O3  +  CaO  +  MgO  +  Na2O  +  K2O)
		(SiO2  +  A12O3  +  TiO2)
Note: As used herein	>	means greater than:
	<	means less than.

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5.2           Section 6.3 Rejection is deleted and replaced with the following:

6.3Rejection.  Buyer has the right, but not the obligation, to reject any shipment which fail(s) to conform to any or all of the Rejection Limits set forth in § 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 § 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 all of the Rejection Limits set forth in § 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.  Seller shall reimburse Byer for (i) the  excess, if any,  between (a) the actual price to Buyer for such coal purchased from another source plus the cost of transporting such coal to Buyer’s plant and (b) the price Buyer would have paid for such coal under this Agreement, plus the cost to Buyer, if any, of transporting such coal from the relevant Delivery Point to Buyer’s plant; 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 § 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 § 6.4.  Buyer shall notify Seller no later than thirty (30) days following Buyer’s acceptance of such rejectable coal, of Buyer’s decision to reduce by an amount equal to the amount of rejectable coal, the Base Quantity which Seller is obligated to sell and deliver to Buyer.  If Buyer does not notify Seller within the thirty (30) day time period of Buyer’s decision to reduce the Base Quantity by the amount of rejectable coal, the

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Base Quantity will remain as defined in § 3.1.  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.

6.0          WEIGHTS, SAMPLING, AND ANALYSIS.

6.1           Section 7.1 Weights is deleted and replaced with the following:

7.1Weights.  The weight of the coal delivered hereunder shall be determined on a per shipment basis by pBuyer 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 sixty (60) days before the time any inaccuracy of scales is determined.

6.2           Section 7.2 Sampling and Analysis is deleted and replaced with the following:

7.2Sampling 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 ASTM standards where applicable, or industry-accepted standards.  Samples for analyses shall be taken by any industry-accepted standard, mutually acceptable to both parties, 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, 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 agree.

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Each sample taken by Buyer shall be divided into four (4) parts and put into airtight containers, properly labeled and sealed.  One (1) part shall be used for analysis by Buyer; one (1) part shall be used by Buyer as a check sample, if Buyer in its sole judgment determines it is necessary; one (1) part shall be retained by Buyer (LG&E) until the twenty-fifth (25^th) 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 (1) 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 twelfth (12^th) 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 extent that Buyer’s analysis prevails and by Buyer to the extent that the analysis of the Independent Lab prevails.

7.0          PRICE

7.1           Section 8.1 Base Price is deleted and replaced with the following:

8.1 Base Price.  Except as provided in section 8.4, the base price (“Base Price”) of the coal to be sold hereunder, excluding any applicable sales or use tax imposed on Buyer, will be firm in accordance with the following schedule:

Year	Base Price (F.O. B. Barge)
2003	$	0.9631 per MMBtu
2004	$	0.9631 per MMBtu

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7.2           Section 8. 2(b) is deleted and replaced with the following:

8.2(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.

	Guaranteed Monthly Weighted Average		Discount Point
BTU	Min.	12,200 BTU/LB	12,000 BTU/LB
ASH	Max.	11.20 LB/MMBTU	11.20 LB/MMBTU
MOISTURE	Max.	6.50 LB/MMBTU	7.00 LB/MMBTU
SULFUR	Max.	2.50 LB/MMBTU	2.60 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.

7.3Section 8.4 Price Review is deleted in its entirety.

7.4           Section 8.4 New Impositions is added in its entirety.

8.4New Impositions.  The above Base Price shall be subject to adjustment only  in the event that new, or changes in existing, applicable Federal or state statutes, regulations, or other governmental impositions on the coal to be supplied hereunder, including but not limited to tax increases or decreases, occur after January 1, 2003, which cause Seller’s cost for providing coal to Buyer under this Agreement to increase or decrease by more than $.10 per ton.  Seller shall promptly notify Buyer of any such changes and supply

7

sufficient documentation for Buyer to verify any such change.  Either Buyer or Seller may request a Base Price adjustment, which shall be comprised of no more than the reasonable costs directly associated with the effect of such change on the coal to be supplied hereunder.  If the non-requesting party agrees to the requested price adjustment, such adjustment shall be made effective on the first day of the calendar month following the effective date of any change, (except when such change is effective on the first day of the month in which case the adjustment shall be made as of such date).  If the non-requesting party rejects the request of the requesting party for a Base Price adjustment, the requesting party, at its option, may terminate this Agreement without liability due to such termination for either party.

8.0          INVOICES, BILLING AND PAYMENT

8.1Section 9.3 Payment Procedures for Coal Shipments is deleted and replaced with the following:

9.3Payment Procedures for Coal Shipments.  For all coal delivered pursuant to Article Section 5 hereof, and unloaded at the Buyer’s generating stations between the first (1^st) and fifteenth (15^th) 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 (25^th) day of such month of delivery and unloading.  If the twenty-fifth (25^th) is not a regular working day, payment shall be made on the next regular working day.  For all coal delivered, as defined in Article Section 5 hereof, and unloaded at the Buyer’s generating stations between the sixteenth (16^th) 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 (10^th) day of the month following the month of delivery and unloading.  If the tenth (10^th) 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 (25^th) 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 (75%) of coal delivered and unloaded September

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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 fifteenth (15^th) 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 (25^th) day of the month following the month of delivery and unloading, except, that, if the twenty-fifth (25^th) 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 as designated in writing by Seller.”

9.0          NOTICES

9.1Section 12.1 Form and Place of Notice is amended to change the address for notices to the Seller to read as follows:

“Notice if to Seller:	CONSOL Energy Inc
	1800 Washington Road
	Pittsburgh, Pennsylvania 15241
	Attn:  Vice President, Marketing
Notices and correspondence of a routine nature shall be addressed to Seller at:
	CONSOL Energy, Inc.
	1800 Washington Road
	Pittsburgh, Pennsylvania 15241
	Attn: General Sales Manager

10.0        EXHIBIT A

10.1Exhibit A Sample Coal Payment Calculations is deleted and replaced with the following:

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Exhibit A

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:	$	23.50	/ton
1a)	Tons of coal delivered:			tons
2)	Guaranteed average heat content:	12,200		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:	$	0.9631	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	2.50		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	6.50		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 <12,000 BTU/lb. then: {1 —{(line 2r) / (line 2)} * $0.2604/MMBTU  {1 - (  ) / (  )} * $0.2604 =	$		/MMBTU
7d)	SULFUR:  If line 3r is greater than 2.60 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 [ ( ) -  ( ) ] * 0.0016 =	$		/MMBTU

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	Section III	Total Price 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                 +	$	/MMBTU	=	$

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 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:		BY:
TITLE:		TITLE:
DATE:		DATE:
KENTUCKY UTILITIES COMPANY		CONSOLIDATION COAL COMPANY
BY:		BY:
TITLE:		TITLE:
DATE:		DATE:
		EIGHTY FOUR MINING COMPANY
		BY:
		TITLE:
		DATE:
	CONSOL PENNSYLVANIA COAL COMPANY
		BY:
		TITLE:
		DATE:
		ISLAND CREEK COAL COMPANY
		BY:
		TITLE:
		DATE:

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EX-10.69

Peabody COALSALES Company

Contract No. LGE03010

EXHIBIT 10.69

COAL SUPPLY AGREEMENT

This is a coal supply agreement (the “Agreement”) dated January 1, 2003 between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220 West Main Street, Louisville, Kentucky 40202 (“hereinafter referred to as Buyer”) and PEABODY COALSALES COMPANY, a Delaware corporation, (hereinafter referred to as “Seller”), whose address is 701 Market Street, St. Louis, Missouri 63101-18926.

WITNESSETH:

WHEREAS, LG&E is an electric utility company which desires 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 consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

SECTION 1.  GENERAL.

(a) The above recitals are true and correct and comprise a part of this Agreement.

(b) Seller will sell to Buyer and Buyer will buy from Seller steam coal under all the terms and conditions of this Agreement.

(c) Seller hereby represents and warrants that it has obtained or will obtain the agreement of Patriot Coal Company, LP, a Delaware limited partnership, and Peabody Coal Company, a Delaware corporation (together, the “Producer”), as indicated by each Producers’ signatures on the Producer’s Certificate attached hereto as “Exhibit A” and made a part hereof, and has delivered or will deliver such original Producer’s Certificate to Buyer.  This obligation of Seller is a material inducement for Buyer’s entering into this Agreement.  If Seller fails to deliver an unrevised Producer’s Certificate to Buyer within five (5) days after execution of this Agreement, then Buyer may declare this Agreement null and void, and neither party shall have any further obligations hereunder, except to the extent of deliveries then in route.  Seller acknowledges and agrees that Buyer is the third-party beneficiary of the agreement between Producer and Seller (the “Coal Marketing and Sales Agreement”) and as such shall be entitled to enforce its rights thereunder, in addition to exercising its rights and remedies hereunder.

(d) Each covenant, representation and warranty given by Seller herein or by Producer in the Producer Certificate is a material inducement for Buyer to enter into this Agreement.

SECTION 2.  TERM.  The term of this Agreement shall commence on January 1, 2003 and shall continue through December 31, 2005.

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SECTION 3.  QUANTITY.

§ 3.1 Base Quantity.  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)
2003	1,000,000
2004	1,000,000
2005	1,000,000

§ 3.2 Delivery Schedule. Shipments are to be made on a ratable basis as adjusted during the year to reflect Buyer’s outages.  Initial shipments shall begin on or about January 1, 2003.  Time is of the essence with respect to the schedule so established.  Except as otherwise provided herein, failure by Seller to deliver in a timely fashion shall constitute a material breach within the meaning of § 16 of this Agreement, unless such failure to deliver is the result of Buyer’s action or inaction to perform as required by this Agreement.

SECTION 4.         SOURCE.

§ 4.1 Source.  The coal sold hereunder, including coal purchased by Seller from third parties, shall be supplied from Patriot Coal Company’s “Patriot Complex”, located in Henderson County, Kentucky which consists of the “Patriot Mine” (a surface mining operation which is owned and operated by Seller’s affiliated company, Patriot Coal Company, L.P (“Patriot”)) and the “Freedom Mine”(which is an underground mine operated by Seller’s affiliated company,

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Ohio County Coal Company (“Ohio County”)).  Seller may also provide coal supplied from Peabody Coal Company’s Camp Complex located in Union County, Kentucky and its Gibraltar Mine located in Muhlenberg County, Kentucky, (all of the foregoing sources hereinafter referred to as the “Coal Property”).

§ 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 cause the applicable Producer to 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 cause the applicable Producer 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 cause the applicable Producer to operate and maintain same at the sole expense of Seller and Producer, including all required permits and licenses.  Seller hereby warrants that Producer has dedicated, or Seller will cause Producer to dedicate 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.

§ 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

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the economically recoverable balance of coal in the Coal Property to an amount less than that required to be supplied to Buyer hereunder.

§ 4.4 Seller’s Preparation of Mining Plan.  On or before January 1, 2003, Seller shall have prepared, or obtained from Producer, and delivered to Buyer, a complete mining plan for the Coal Property with adequate supporting data to demonstrate Producer’s capability to have coal produced from the Coal Property which meets the quantity and quality specifications of this Agreement.  Seller shall provide Buyer with two (2) copies of such mining plan.  Buyer’s receipt of any such mining plans or other information or data furnished voluntarily by Seller (the “Mining Information”) shall not in any manner relieve Seller of any of Seller’s obligations or responsibilities under this Agreement.  Buyer’s receipt and review, if any, of any Mining Information shall not be construed as constituting an approval of Producer’s proposed mining plan or Producer’s mining practices.  The parties acknowledge that Buyer has no right to approve, disapprove or require modification of Producer’s mining plan.  Buyer and Seller understand and acknowledge that a review, if any, by Buyer of the Mining Information shall be 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.

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 provide Buyer with two (2) copies of such mining plan which shall contain maps and a narrative

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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 constructed at the Coal Property, 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.  Such complete mining plan shall be delivered to Buyer on or before January 1, 2003.

Buyer’s receipt of the mining plan or other information or data furnished by Seller shall not in any many relieve Seller of any of Seller’s obligations or responsibilities under this Agreement; nor shall such review be construed as constituting an approval of Producer’s proposed mining plan as prudent mining practices, such review by Buyer being limited solely to a determination, for Buyer’s purposes only, of Producer’s capability to supply coal on a long-term basis to fulfill Buyer’s requirements of a dependable coal supply.

Seller shall annually provide Buyer with a mining plan update (“Update”) showing progress to date, conformity to original mining plan, and then known changes in reserve data and

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planned changes in mining progression, plans or procedures.  The update shall be submitted annually on or before January first (1^st) of each year during the term of this Agreement.

§ 4.5 Substitute Coal.  Notwithstanding the above representations and warranties, in the event that Seller is unable to supply 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 § 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 after receiving Buyer’s 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 § 3.1, the price provisions of § 8, the quality specifications of § 6.1, and the provisions of § 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.

§ 4.6 Relationship of the Parties.  Seller agrees that it is not and will not hold itself out as a partner, employee, agent or representative of or joint venturer with Buyer.  Nothing herein contained shall be construed as creating a single enterprise, joint venture, agency, partnership, joint employer, owner-contractor, or lessor-lessee relationship between Buyer and Seller or between Buyer and Producer.

Seller and Producer shall each have sole and exclusive authority to direct and control its respective activities and operations, and those of any subcontractors, undertaken in the

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performance of Seller’s obligations under this Agreement.  Seller and Producer shall each exercise full and complete control over its respective work force and labor relations policies.  Buyer shall have no authority or control over either Seller’s or Producer’s operations or work force.

§ 4.7 Warranties. EXCEPT AS EXPRESSLY SET FORTH HEREIN, SELLER EXPRESSLY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING MERCHANTABLILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.

§4.8 Remedies.  No waiver of remedies or damages herein shall apply to claims of anticipatory repudiation or remedies therefore provided by law except that neither Seller nor Buyers shall be liable to the other for any punitive, special, incidental or consequential damages (including without limitation, loss of profits or overhead), whether by statute, in tort or in contract, under any indemnity provision or otherwise.

SECTION 5.  DELIVERY.

§ 5.1 Barge Delivery.  The coal shall be delivered to Buyer F.O.B. barge at the following points (the “Delivery Point”), Demao Dock (Patriot coal) at Mile Point 31.5 on the Green River, Camp Breckinridge (Camp Mine Complex coal) at Mile Point 842.0 on the Ohio River, or the Gibraltar Dock (Gibraltar Mine coal) at Mile Point 85.9 on the Green River.  With Buyer’s consent, Seller may deliver the coal at a location different from the Delivery Point, provided,

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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 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, clean and ready for loading in accordance with a delivery schedule provided by Buyer to Seller, and in sufficient number and in a timely manner in order for Seller to meet any previously agreed upon delivery schedule as provided for in §3.2.  Seller shall arrange and pay for all costs of 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 specified minimum tonnage 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

9

wharfage, dockage, fleeting, switching, and other harbor and port charges; that while the barges are in the care and custody of the loading dock, all applicable 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 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 owners or wharfinger’s insurance with basic coverage of not less than $300,000.00 and total of basic coverage and excess liability coverage of not less than $1,000,000.00, 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 thirty (30) days advance notification of Buyer in the event of termination of or material reduction in coverage under the insurance.

SECTION 6. QUALITY.

§ 6.1  Specifications.  The coal delivered hereunder shall conform to the following specifications on an “as received” basis:

Specifications	Guaranteed Monthly Weighted Average (1)		Rejection Limits (per shipment)
BTU/LB.	min.	10,850	<	10,600
LBS/MMBTU:
MOISTURE	max.	12.9	>	15.0
ASH	max.	10.8	>	12.5
SULFUR	max.	3.00	>	3.40
SULFUR	min.	2.75	<	2.55
CHLORINE	max.	0.05	>	0.06
FLUORINE	max.	0.01	>	0.015
NITROGEN	max.	1.35	>	1.45
SIZE (3” x 0”):
Top size (inches)*	max.	3	>	3
Fines (% by wgt)
Passing 1/4” screen	max.	50	>	55
% BY WEIGHT:
VOLATILE	max.	31	>	29
FIXED CARBON	max.	38	>	30
GRINDABILITY (HGI)	min.	55	<	50
BASE ACID RATIO (B/A)		0.60		0.90
SLAGGING FACTOR**	max.	2.0	>	2.5
FOULING FACTOR***	max.	0.5	>	0.7
ASH FUSION TEMPERATURE (°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.	2330	min.	2280
Softening (H=1/2W)	min.	2425	min.	2300
Fluid	min.	2490	min.	2375

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(1) An actual Monthly Weighted Average will be calculated for each specification for coal delivered to the Buyer’s 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 (50) 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 Na₂0 by Weight_Dry)

The Base Acid Ratio (B/A) is herein defined as:

BASE ACID RATIO (B/A) =		(Fe203  +  Ca0  +  Mg0  +  Na20  +  K20 )
			(Si02  +  A1203  +  T102)
Note:As used herein	>	means greater than:
	<	means less than.

§ 6.2        Definition of “Shipment”.  As used herein, a “shipment” shall mean one (1) barge load or a barge lot load in accordance with Buyer’s sampling and analyzing practices.

§ 6.3        Rejection.

Buyer has the right, but not the obligation, to reject any shipment which fail(s) to conform to any or all of the Rejection Limits set forth in § 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 § 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 Producer, 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

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from notice of rejection with coal conforming to all of the Rejection Limits set forth in § 6.1.  If Seller fails to replace the rejected coal within such five (5) working day period or the replacement coal is rejected for failure to meet the Rejection Limits (per shipment) set forth in §6.1, 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 the rejected coal.  This remedy is in addition to all of Buyer’s other remedies under this Agreement.

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 § 6.1 or because such shipment contained a material amount of 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 § 6.4.  Buyer shall notify Seller no later than thirty (30) days following Buyer’s acceptance of such rejectable coal, of Buyer’s decision to reduce by an amount equal to the amount of rejectable coal, the Base Quantity which Seller is obligated to sell and deliver to Buyer.  If Buyer does not notify Seller within the thirty (30) day time period of Buyer’s decision to reduce the Base Quantity by the amount of rejectable coal, the Base Quantity will remain as defined in § 3.1.

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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.

§ 6.4 Suspension and Termination.

If the coal sold hereunder fails to meet one (1) or more of the Guaranteed Monthly Weighted Averages set forth in § 6.1 for any two (2) consecutive months or a total of three (3) months in a six (6) month period, or if six (6) barge shipments in a thirty (30) day period are rejectable by Buyer, 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 ten (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 § 6.1 and that the source will exceed the rejection limits set forth in § 6.1.  If Seller fails to provide such assurances within said ten (10) day period, Buyer may terminate this Agreement by giving written notice of such termination at the end of the ten (10) day period.  A waiver of this right for any one (1) period by Buyer shall not constitute a waiver for subsequent periods.  If Seller provides such reasonable assurances to Buyer, 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(s).  If Seller, after providing 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)

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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.

§ 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.

§ 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 ASTM standards where applicable, or industry-accepted standards.  Samples for analyses

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shall be taken by any industry-accepted standard, mutually acceptable to both parties, 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, 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 agree.

Each sample taken by Buyer shall be divided into four (4) parts and put into airtight containers, properly labeled and sealed.  One (1) part shall be used for analysis by Buyer; one (1) part shall be used by Buyer as a check sample, if Buyer in its sole judgment determines it is necessary; one (1) part shall be retained by Buyer until the twenty-fifth (25^th) 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 (1) 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 twelfth (12^th) 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

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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.  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.

§  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 § 5 in accordance with the following schedule:

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	BASE PRICE ($ PER MMBTU)
YEAR	Patriot		Camp		Gibraltar
2003	$	0.88	$	0.8774	$	0.8539
2004	$	0.89	$	0.8874	$	0.8639
2005	$	0.90	$	0.8974	$	0.8739

§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 § 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 § 6.1, as determined pursuant to § 7.2, subject to the provisions set forth below.  The discount values used are as follows:

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 apply and shall be calculated on the basis of the difference

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between the actual Monthly Weighted Average and the Guaranteed Monthly Weighted Average pursuant to the methodology shown in Exhibit B attached hereto.

	Guaranteed Monthly Weighted Average		Discount Point
BTU/LB	min.	10,850	10,650
LB/MMBTU:
SULFUR	max.	3.00	3.05
ASH	max.	10.80	12.20
MOISTURE	max.	12.90	14.46

For example, if the actual Monthly Weighted Average of sulfur equals 3.10 lb/MMBTU, then the applicable discount would be (3.1lb – 3.00 lb) X $.1232/lb/MMBTU = $.0123/MMBTU.

§ 8.3 Payment Calculation.  Exhibit B 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.

§ 8.4 New Impositions.  The above Base Price shall be subject to adjustment only in the event that new applicable Federal or state statues, regulations, or other governmental impositions on the coal to be supplied hereunder, including but not limited to tax increases or decreases, occur after July 1, 2002, which cause Seller’s cost for providing coal to Buyer under this Agreement to increase or decrease by more than $.05 per ton.  Seller shall promptly notify Buyer

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of any such changes and supply sufficient documentation for Buyer to verify any such change.  Either Buyer or Seller may request a Base Price adjustment, which shall be comprised of no more than the reasonable costs directly associated with the effect of such change on the coal to be supplied hereunder.  If the non-requesting party agrees to the requested price adjustment, such adjustment shall be made effective on the first day of the calendar month following the effective date of any change, (except when such change is effective on the first day of the month in which case the adjustment shall be made as of such date).  If the non-requesting party rejects the request of the requesting party for a Base Price adjustment, the requesting party, at its option, may terminate the contract without liability due to such termination for either party.

SECTION 9.         INVOICES, BILLING AND PAYMENT.

§ 9.1 Invoicing Address.  Invoices will be sent to Buyer at the following address:

Louisville Gas and Electric Company

P.O. Box 32010

Louisville, KY  40232

Attention: Manager LG&E/KU Fuels

§ 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 (15^th) of the following month.  Seller’s invoice shall be based upon the monthly analysis data set forth in § 7.2.

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§ 9.3 Payment Procedures for Coal Shipments. For all coal unloaded at the Buyer’s generating station(s) between the first (1st) and fifteenth (15th) days of any calendar month.  Buyer shall make a preliminary payment of 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 unloading, except that, if the twenty-fifth (25th) is not a regular work day, payment shall be made on the next regular work day.  For all coal unloaded at the Buyer’s generating station(s) between the sixteenth (16th) and the last day of any calendar month, Buyer shall make a preliminary payment of seventy-five percent (75%) of the amount owed for the coal (based on the assumption that the coal will meet all of the guaranteed monthly quality parameters) by the tenth (10th) day of the month following the month of unloading, except that, if the tenth (10^th) is not a regular work day, payment shall be made on the next regular work day.

All preliminary payments shall be calculated based on 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 and shall be equal to seventy-five percent (75%) of such calculated amount.

A reconciliation of amounts paid and amounts owed shall occur by the twenty-fifth (25th) day of the month following the month of unloading.  (For example, Buyer will make one preliminary payment by September 25 for all coal unloaded September 1 through 15, and another preliminary payment by October 10 for seventy-five percent (75%) of coal unloaded September

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16 through 30.  A reconciliation will occur by October 25 for all unloadings made in September.)  The reconciliation shall be made as follows: Seller shall invoice Buyer for all coal unloaded during the preceding month on or before the fifteenth (15^th) day of the month following the month of 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, except, that, if the twenty-fifth (25th) is not a regular work day, payment shall be made in the next regular work day.  Buyer shall electronically transfer all payments to Seller’s account at:

Peabody COALSALES, St Louis

PNC Bank of N.A.

ABA # 043000096

Account # 1008971287

§ 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 or Producer, 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.

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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.

§ 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, lockouts, fires, floods or earthquakes, 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 Producer’s force majeure event, Seller shall require Producer to not deliver any coal to any other buyers to whom Producer’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

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force majeure event in place at the beginning of the force majeure event.  An event which affects the Producer’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 Buyer and Seller, on the basis of a mutually agreeable shipping schedule.

§ 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 and Producer 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 sixty (60) days notice to

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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.  Either party may, at any time by written notice pursuant to § 12 of this Agreement, propose 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 or any such other provision as may affect the suitability and amount of coal to be delivered to Buyer’s generating stations. Such proposed changes will not become binding unless and until the parties agree thereto and this Agreement is amended in writing. 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 § 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.

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SECTION 12.       NOTICES.

§ 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
	P.O. Box 32010
	Louisville, Kentucky 40232
	Attn.: Director Corporate Fuels and By-Products
If to Seller:	Peabody COALSALES Company
	701 Market Street, Suite 930
	St. Louis, Missouri 63101
	Attn: Vice-President, Sales

§ 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.

§ 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.

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SECTION 13.       CREDIT RATING.  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 payment 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.

SECTION 14.       RIGHT TO RESELL.  Buyer shall have the unqualified right to resell all or any of the coal purchased under this Agreement.

SECTION 15.       INDEMNITY AND INSURANCE.

§ 15.1 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

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care and custody of the loading dock or loading facility, (ii) due to any failure of Seller or Producer to comply with laws, regulations or ordinances, or (iii) due to the acts or omissions of Seller or Producer 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 (including reasonable inside and outside attorney’s fees) (i) due to any failure of Buyer to comply with laws, regulations or ordinances, or (ii) due to the negligence of any representatives, agents or employees of Buyer (collectively, “Visitors”) who inspect the Coal Property; or (iii) due to the acts or omissions of Buyer in the performance of this Agreement.

§ 15.2 Insurance.  Seller shall require Producer 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)           In addition, Seller shall require Producer to 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

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Insurance satisfactory in form to the Buyer and signed by the Producer’s insurer shall be supplied by the Seller to the Buyer evidencing that the above insurance is in force and that not less than thirty (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 the Producer’s 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 and Producer’s liability shall not be limited to their insurance coverage.

SECTION 16.       TERMINATION FOR DEFAULT.

Subject to § 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 material 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 thirty (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.

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SECTION 17.       TAXES, DUTIES AND FEES.

Seller shall pay when due, and the price set forth in § 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 18.       DOCUMENTATION AND RIGHT OF AUDIT.

Seller and Producer 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 (2) 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 two (2) years thereafter and Seller and Producer shall cooperate at no additional cost to Buyer.

SECTION 19.       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 CRF § 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 CRF § 50-250.4 relating to the employment and advancement of disabled veterans

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and veterans of the Vietnam Era; Rehabilitation Act regulations set forth in 41 CRF § 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 § 637(d)(3); and subcontracting plan requirements set forth in 15 USC § 637(d).

SECTION 20.       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 and Producer shall cooperate with such inspections at no additional cost to Buyer.  Seller shall cause the Producer to 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 underground 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

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Seller or Producer of any of their responsibilities nor be deemed to be a waiver of any of Buyer’s rights hereunder.

SECTION 21.       MISCELLANEOUS.

§ 21.1 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.

§ 21.2 Headings.  The paragraph headings appearing in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.

§ 21.3 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.

§ 21.4 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.

§ 21.5 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.

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§ 21.6 Binding Effect.  This Agreement shall bind and inure to the benefit of the parties and their successors and assigns.

§ 21.7 Assignment.

A.            Seller shall not, without Buyer’s prior written consent, which shall not be unreasonably withheld, make any assignment or transfer of this Agreement, by operation of law or otherwise, including without limitation any assignment, encumbrance 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 may not be unreasonably withheld, assign this Agreement or any 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 comprising the Delivery Point, 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.

§ 21.8      Entire Agreement.  This Agreement contains the entire agreement between the parties as to the subject matter hereof, and there are no representations, understandings or

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agreements, oral or written, which are not included herein.

§ 21.9 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.

LOUISVILLE GAS AND ELECTRIC COMPANY
		PEABODY COALSALES COMPANY
By:		By:
Title:	SVP – Energy Services	Title:
Date:		Date:

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EXHIBIT A

PRODUCER’S CERTIFICATE

The undersigned, PATRIOT COAL COMPANY, L.P. a Delaware limited partnership and OHIO COUNTY COAL COMPANY, a Kentucky corporation, and PEABODY COAL COMPANY, a Delaware corporation (herein collectively “Producer”), by and through their duly authorized officers, as an inducement to LOUISVILLE GAS AND ELECTRIC COMPANY (“LG&E”), a Kentucky corporation (“Buyer”) and PEABODY COALSALES COMPANY, a Delaware corporation (herein “Agent”), to enter into a Coal Supply Agreement (the “Coal Supply Agreement”) between LG&E and Agent, and as a further inducement to Agent to enter into a Coal Marketing and Sales Agreement with Producer (“Coal Marketing and Sales Agreement”), hereby certifies, warrants and represents to LG&E and Agent as follows:

1.             Producer is a duly organized, validly existing limited partnership or corporation, as the case may be, in good standing under the laws of the Commonwealth of Kentucky, and fully qualified to do business under the laws of the Commonwealth of Kentucky.  Producer has all requisite power and authority to execute this instrument and to enter into all documents required in connection with and including the proposed Coal Marketing and Sales Agreement between Producer and Agent.

2.             By the execution hereof, the undersigned certify that, as the officers of Producer, they have all the necessary power and authority to execute and deliver this Producer’s Certificate, for and on behalf of Producer.

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3.             This Certificate is given by Producer to induce LG&E and Agent to each execute and deliver between themselves that certain proposed Coal Supply Agreement, with the knowledge that LG&E and Agent will each rely upon the truth of the statements made herein.

4.             Each Producer represents and warrants that the portion of the “Coal Property” described in Exhibit “A” over which that Producer has control (the “Coal Property”) contains economically recoverable coal of a quality and in quantities which will be sufficient to satisfy all the quantity and quality requirements of the Coal Supply Agreement and the Coal Marketing and Sales Agreement which requirements are set forth on Exhibit “B” attached hereto.  Producer further 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 at the quality specified in Exhibit “B”.  Producer further represents and warrants and 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.  Producer agrees that it shall operate and maintain the machinery, equipment and/or facilities at its sole expense, including all required permits and licenses.  Producer further dedicates to the Coal Supply Agreement and the Coal Marketing and Sales Agreement sufficient reserves of coal meeting the quality specifications specified in Exhibit “B” and lying on or in the Coal Property so as to fulfill the quantity requirements of the proposed Coal Marketing and Sales Agreement.

5.             Producer agrees and warrants that it will not, without obtaining the express prior written consent of both LG&E and of Agent, use or sell coal from the Coal Property in a way that

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will reduce the economically recoverable balance of coal in the Coal Property to an amount less than that required to be supplied by Producer as specified in Exhibit “B”.

6.             Producer agrees and warrants that it shall require of the loading dock operator that the barges and towboats provided by LG&E or LG&E’s barging contractor be provided convenient and safe berth free of wharfage, dockage and port charges; that while the barges are in the care, custody and control 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; and 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 LG&E and LG&E’s barging contractor; 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 LG&E and Agent in the form of a certificate of insurance from the insurance carrier or an acceptable certificate of self-insurance with requirement for notification of LG&E and Agent in the event of termination of the insurance.

7.             Producer agrees that it will replace rejected coal within five (5) working days with coal conforming to the rejection limits set forth in the proposed Coal Supply Agreement and the Coal Marketing and Sales Agreement between Producer and Agent, which rejection limits Producer understands and acknowledges are the same rejection limits as provided in the proposed

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Coal Supply Agreement between LG&E and Agent, and that should Producer either fail to replace the rejected coal within such five (5) working day period or the replacement coal is rightfully rejected (where such rejection is not based upon the BTU/LB minimum or the percentage of moisture maximum being exceeded as a result of weather conditions), and another source has replaced such rejected coal, Producer agrees to and shall reimburse LG&E for any amount that the total delivered cost to LG&E of such coal purchased from another source exceeds the then current delivered cost of coal sold by Producer under the proposed Coal Marketing and Sales Agreement between Agent and LG&E.  Further, Producer agrees to be responsible to pay or reimburse Agent or LG&E as applicable, for any and all freight or transportation expenses that have been incurred for rightfully rejected coal.

8.             Producer agrees that if it shall receive a notice in writing that the coal sold fails to meet one or more of the monthly average guarantees as set forth in the Coal Supply Agreement between Agent and LG&E, then Producer shall within ten (10) days provide LG&E with reasonable assurances that subsequent monthly deliveries of coal shall meet or exceed such monthly average guarantees

9.             Producer agrees to and shall indemnify and save harmless LG&E, and its respective 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 attorney’s fees) relating to the barges provided by LG&E or LG&E’s contractor while such barges are in the care and custody of the loading dock, or for any

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failure of Producer to comply with laws, regulations or ordinances, or for any matter which arises out of the acts or omissions of Producer in the performance of its obligations hereunder including, but not limited to, the proper delivery of coal by Producer to Buyer.

10.           Producer agrees and warrants to and shall carry insurance coverage with minimum limits as follows:

A.            Commercial general liability, $1,000,000, single limit liability.

B.            Automobile general liability, $1,000,000 single limit liability.

C.            In addition, Producer shall carry excess liability insurance covering the foregoing perils in the amount of $4,000,000 for any one occurrence.

D.            Kentucky Worker’s Compensation and Employer’s Liability with statutory limits.

E.             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 Producer’s proposed Coal Marketing and Sales Agreement with Agent.

11.           Producer agrees that it shall not assign the proposed Coal Marketing and Sales Agreement between it and Agent or any rights or obligations thereunder without the prior written consent of Agent and Buyer which consent shall not be unreasonably withheld.

IN TESTIMONY WHEREOF, the undersigned officers of Producer have executed and delivered the foregoing Producer’s Certificate on behalf of Producer.

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ATTEST:
	PATRIOT COAL COMPANY, L.P.
	By:
	Its:
	Date:
	OHIO COUNTY COAL COMPANY
	By:
	Its:
	Date:
	PEABODY COAL COMPANY
	By:
	Its:
	Date:

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EXHIBIT A TO PRODUCER’S CERTIFICATE

“Coal Property” means the following seams and mines owned by Producer:

Patriot Coal Company’s Patriot Complex, located in Henderson County, Kentucky; Peabody Coal Company’s Camp Complex located in Union County, Kentucky and Gibraltar Mine located in Muhlenberg County, Kentucky.

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EXHIBIT B TO PRODUCER’S CERTIFICATE

Quality Requirement

The quality required by the Coal Marketing and Sales Agreement is as follows:

Specifications	Guaranteed Monthly Weighted Average	Rejection Limits (per shipment)
BTU/LB.	min. 10,850	< 10,600
Ash	max 10.80 lbs./MMBTU	> 12.50 lbs./MMBTU
Moisture	max 12.90 lbs./MMBTU	> 15.00 lbs./MMBTU
Sulfur	max.  3.00 lbs./MMBTU	> 3.40 lbs./MMBTU
Sulfur	min. 2.75 lbs./MMBTU	< 2.55 lbs./MMBTU
All Qualities:
Chlorine	max. 0.05 lbs./MMBTU	> 0.06 lbs./MMBTU
Fluorine	max. 0.01 lbs./MMBTU	> 0.015 lbs./MMBTU
Nitrogen	max. 1.35 lbs./MMBTU	> 1.45 lbs./MMBTU
SIZE (3” x 0”):
Top size (inches)*	max.  3”x 0”	>  3”x 0”
Fines (% by wgt)
passing 1/4” screen	max. 50%	>  55
% BY WEIGHT:
VOLATILE	max. 31	> 29
FIXED CARBON	min. 38	< 30
GRINDABILITY (HGI)	min. 55	< 50
BASE ACID RATIO (B/A)	.60	> .90
SLAGGING FACTOR	2.0	2.5
ASH FUSION TEMPERATURE (°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. 2330	min. 2280
Softening (H=1/2W)	min. 2425	min. 2300
Fluid	min. 2490	min. 2375

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* 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 forty percent (40%) 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 Na₂0 by Weight_Dry)

The Base Acid Ratio (B/A) is herein defined as:

BASE ACID RATIO (B/A) =		(Fe203  +  Ca0  +  Mg0  +  Na20  +  K20)
		(Si02  +  A1203  +  T102)
Note:As used herein:	>	means greater than;
	<	means less than.

Quantity Requirement

The quantity required by the Coal Marketing and Sales Agreement is as follows:

QUANTITY
Year	Tonnage
2003	1,000,000
2004	1,000,000
2005	1,000,000

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Exhibit B

EXHIBIT B TO COAL SUPPLY AGREEMENT

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:	$	19.10	/ton
1a)	Tons of coal delivered:			tons
2)	Guaranteed average heat content:	10,850		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:	$	.880	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	3.00		LBS./MMBTU
3r)	As received monthly avg. sulfur			LBS./MMBTU
4)	Guaranteed monthly avg. ash	10.80		LBS./MMBTU
4r)	As received monthly avg. ash			LBS./MMBTU
5)	Guaranteed monthly avg. max. moisture	12.90		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 < 10,650. then:
	{1 –{(line 2r) / (line 2)} * $0.2604/MMBTU
	{1 - (       ) / (       )} * $0.2604 =	$	/MMBTU
7d)	SULFUR:  If line 3r is greater than 3.05 then:
	[ (line 3r) - (line 3) ] * 0.1232/lb. Sulfur
	[ (       ) - (       ) ] * 0.1232 =	$	/MMBTU
8d)	ASH: If line 4r is greater than 12.20 then:
	[ (line 4r) - (line 4) ] * 0.0083/MMBTU
	[ (       ) - (       ) ] * 0.0083 =	$	/MMBTU
9d)	MOISTURE:  If line 5r is greater than 14.46then:
	[ (line 5r) - (line 5) ] * 0.0016/MMBTU
	[ (       ) - (       ) ] * 0.0016 =	$	/MMBTU

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	Section III	Total Price 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                            +	$		=	$

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EX-10.70

Peabody COALSALES Company

Contract No. LGE02011

EXHIBIT 10.70

COAL SUPPLY AGREEMENT

This is a coal supply agreement (the “Agreement”) effective as of January 1, 2002 between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220 West Main Street, Louisville, Kentucky 40202 (“Buyer”), and PEABODY COALSALES COMPANY, a Delaware corporation, 701 Market Street, Suite 830, St. Louis, Missouri 63101-1826  (“Seller”).

The parties hereto agree as follows:

SECTION 1. GENERAL.  Seller shall sell and deliver and Buyer shall purchase and accept delivery of 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, 2004.

SECTION 3.  QUANTITY.

§ 3.1  Base Quantity.  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	750,000
2003	600,000 *
2004	600,000 *

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* Parties shall meet starting June 1, 2002 to negotiate pricing for an additional 250,000 tons of coal per year to be supplied during calendar year 2003.  If the parties do not agree upon pricing for such additional tons by September 1, 2002, then Buyer shall not be entitled to such additional tons, and the tonnage to be delivered during calendar year 2003 shall be the Base Quantity as defined above.

Parties shall also meet starting June 1, 2003 to negotiate pricing for an additional 250,000 tons of coal for 2004.  If the parties do not agree upon pricing for such additional tons by September 1, 2003, then Buyer shall not be entitled to such additional tons and the tonnage to be delivered during calendar year 2004 shall be the Base Quantity as defined above.

§ 3.2 Delivery Schedule.  Shipments are to be made on a ratable basis as adjusted during the year to reflect outages.  Initial shipments shall begin on or about January 1, 2002.  Time is of the essence with respect to the schedule so established; and failure by Seller to deliver in a timely fashion shall constitute a material breach within the meaning of § 16 of this Agreement.

SECTION 4.         SOURCE.

§ 4.1 Source.  The coal sold hereunder, including coal purchased by Seller from third parties, shall be supplied from geological seam Western Kentucky #9 and #11, from Seller’s

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affliliated company, Highland Mining Company’s (the “Producer”) Complex, Union County, Kentucky (the “Coal Property”).

§ 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.  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.

§ 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.

§ 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 § 20), provide information to Buyer of such mining plan which shall contain

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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 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.

§ 4.5 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 § 10, then Buyer will have the option of requiring that Seller supply substitute coal

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from other facilities and mines.  Seller shall also have the right to supply substitute coal 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 § 3.1, the price provisions of § 8, the quality specifications of § 6.1, and the provisions of § 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.

§ 4.6 Implied Warranties.  EXCEPT AS EXPRESSLY SET FORTH THEREIN, SELLER EXPRESSLY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING MECHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE.  No waiver of remedies or damages herein shall apply to claims of anticipatory repudiation or remedies therefor provided by law except that neither Seller nor Buyer shall be liable to the other for consequential, incidental, punitive, exemplary or indirect damages, lost profits, or business interruption damages, whether by statue, in tort or in contract, under any indemnity provision or otherwise.

SECTION 5.  DELIVERY.

§ 5.1 Barge Delivery.  The coal shall be delivered to Buyer F.O.B. barge at the Camp Complex, Mile Point 841.6 on the Ohio River, or at Seller’s option as a substitute, the Gibraltar Dock at Mile Point 85.9 on the Green River (either the “Delivery Point”).  Seller may deliver the

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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 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, clean and ready for loading, in accordance with a delivery schedule provided by Buyer to Seller, and in sufficient number and in a timely manner in order for Seller to meet any previously agreed upon delivery schedule as provided for in § 3.2.  Seller shall arrange and pay for all costs of transporting the coal from the mines to the loading docks and loading the coal into barges.  Buyer’s barging contractor shall be responsible for trimming the coal into barges to the proper draft and the proper distribution within the barges, and the release and movement of the barges during loading.  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, for Seller’s failure to provide coal for the barges in a timely manner and in the specified minimum tonnage, including the demurrage, or other penalties.   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

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port charges; that while the barges are in the care and custody of the loading dock, all applicable 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 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 owners or wharfinger’s insurance with basic coverage of not less than $300,000.00 and total of basic coverage and excess liability coverage of not less than $1,000,000.00, 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 thirty (30) days advance notification of Buyer in the event of termination of or material reduction in coverage under the insurance.

SECTION 6. QUALITY.

§ 6.1  Specifications.  The coal delivered hereunder shall conform to the following specifications on an “as received” basis:

Specifications	Guaranteed Monthly Weighted Average		Rejection Limits (per shipment)
BTU/LB.	min.	11,400	<	10,800
LBS/MMBTU:
MOISTURE	max.	10.53	>	12.00
ASH	max.	8.33	>	9.00
SULFUR	max.	2.89	>	3.10
SULFUR	min.	2.30	<	2.00
CHLORINE	max.	0.009	>	.015
FLUORINE	max.		>
NITROGEN	max.	1.32	>	1.70
ASH/SULFUR RATIO	min.	3.22:1	<	3:1
SIZE (3” x 0”):
Top size (inches)*	max.	3x0	>	4x0
Fines (% by wgt) Passing 1/4” screen	max.	60	>	65
% BY WEIGHT:
VOLATILE	min.	30	<	29
FIXED CARBON	min.	43	<	40
GRINDABILITY (HGI)	min.	50	<	48
BASE ACID RATIO (B/A)		0.40		.50
SLAGGING FACTOR**	max.	1.32	>	1.80
FOULING FACTOR***	max.	0.32	>	0.40

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ASH FUSION TEMPERATURE (°F) (ASTM D1857)
REDUCING ATMOSPHERE
Initial Deformation	min.	1990	min.	1990
Softening (H=W)	min.	2065	min.	2050
Softening (H=1/2W)	min.	2105	min.	2075
Fluid	min.	2225	min.	2200
OXIDIZING ATMOSPHERE
Initial Deformation	min.	2330	min.	2300
Softening (H=W)	min.	2355	min.	2325
Softening (H=1/2W)	min.	2400	min.	2370
Fluid	min.	2480	min.	2400

* 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

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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) =		(Fe2O3   +   CaO   +   MgO   +   Na2O   +   K2O)
		(SiO2  +  A12O3  +  TiO2)
Note:   As used herein	>	means greater than:
	<	means less than.

§ 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.

§ 6.3        Rejection.

Buyer has the right, but not the obligation, to reject any shipment(s) which fail(s) to conform to any of the Rejection Limits set forth in § 6.1 or contains a material amount of extraneous materials.  Buyer must reject such coal within seventy-two (72) hours of receipt of the coal analysis provided for in § 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 §6.1.  If Seller fails to replace the rejected coal within such five (5) working day period or the replacement coal is rejected for failure to meet any of the Rejection Limits (per shipment) set

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forth in § 6.1, 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 the rejected coal.  This remedy is in addition to all of Buyer’s other remedies under this Agreement.

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 § 6.1 or because such shipment contained a material amount of 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 § 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.

§ 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 § 6.1 for any two (2) consecutive months or a total of three (3) months in a six (6) month period, or if four (4) barge shipments in a thirty (30) day period are rejectable by Buyer, 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 ten (10) days,

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provide Buyer with reasonable assurances that subsequent monthly deliveries of coal shall meet or exceed the Guaranteed Monthly Weighted Averages set forth in § 6.1 and that the coal will conform to all of the Rejection Limits set forth in § 6.1.  If Seller fails to provide such assurances within said ten (10) day period, Buyer may terminate this Agreement by giving written notice of such termination at the end of the ten (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 reasonable assurances to Buyer, 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(s).  If Seller, after providing 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.

§ 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

11

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.

§ 7.2  Sampling and Analysis.  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 industry-accepted standards.  Samples for analyses shall be taken by any industry-accepted standard, mutually acceptable to both parties, 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, except for 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 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 the twenty-fifth (25th) of the month following the month of

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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 twelfth (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 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

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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.

§  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 § 5 in accordance with the following schedule:

YEAR	BASE QUANTITY PRICE (F.O.B. Barge)
2002	$	1.1224 per MMBtu	$	25.59 per ton
2003	$	1.1351 per MMBtu	$	25.88 per ton
2004	$	1.1680 per MMBtu	$	26.63 per ton

§ 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 § 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 § 6.1, as determined pursuant to § 7.2, subject to the provisions set forth below.  The discount values used are as follows:

DISCOUNT VALUES
	$/MMBTU
BTU/LB.	0.2604
	$/LB./MMBTU
SULFUR	0.1232
ASH	0.0083
MOISTURE	0.0016

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(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 apply 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.	11,400	11,200
LB/MMBTU:
SULFUR	max.	2.89	2.98
ASH	max.	8.33	8.69
MOISTURE	max.	10.53	11.25

For example, if the actual Monthly Weighted Average of sulfur equals 3.00 lb/MMBTU, then the applicable discount would be (3.00 lb. – 2.89 lb.) X $.1232/lb/MMBTU = $.0136/MMBTU.

§ 8.3  New Impositions.  The above Base Price shall be subject to adjustment only in the event that new applicable Federal or state statues, regulations, or other governmental impositions

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on the coal to be supplied hereunder, including but not limited to tax increases or decreases, occur after July 31, 2001, which cause Seller’s cost for providing coal to Buyer under this Agreement to increase or decrease by more than $.10 per ton.  Seller shall promptly notify Buyer of any such changes and supply sufficient documentation for Buyer to verify any such change.  Either Buyer or Seller may request a Base Price adjustment, which shall be comprised of no more than the reasonable costs directly associated with the effect of such change on the coal to be supplied hereunder.  If the non-requesting party agrees to the requested price adjustment, such adjustment shall be made effective on the first day of the calendar month following the effective date of any change, (except when such change is effective on the first day of the month in which case the adjustment shall be made as of such date).  If the non-requesting party rejects the request of the requesting party for a Base Price adjustment, the requesting party, at its option, may terminate the contract without liability due to such termination for either party.

§ 8.4 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.

§ 9.1        Invoicing Address.  Invoices will be sent to Buyer at the following address:

Louisville Gas and Electric Company

220 West Main Street

P.O. Box 32010

Louisville, KY  40232

Attention:  Manager LG&E/KU Fuels

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§ 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.

§ 9.3  Payment Procedures for Coal Shipments.  For all coal 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 unloading, except that, if the twenty-fifth (25th) is not a regular work day, payment shall be made on the next regular work day.  For all coal 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 unloaded coal by the tenth (10th) day of the month following the month of unloading, except that, if the tenth (10^th) 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 unloading.  (For example, Buyer will make one initial

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payment by September 25 for seventy-five (75%) percent of coal unloaded September 1 through 15, and another initial payment by October 10 for seventy-five percent (75%) of coal unloaded September 16 through 30.  A reconciliation will occur by October 25 for all unloadings made in September.)  The reconciliation shall be made as follows: Seller shall invoice Buyer on or before the fifteenth (15^th) day of the month following the month of delivery.  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, except, that, if the twenty-fifth (25th) is not a regular work day, payment shall be made in the next regular work day.  Buyer shall electronically transfer all payments to Seller’s account at:

Peabody COALSALES, St Louis

PNC Bank of N.A.

ABA # 043000096

Account # 1008971287

§ 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.

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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.

§ 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, lockouts, fires, floods or earthquakes, which are beyond the reasonable control 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

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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 agreeable schedule.

§ 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.

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SECTION 11.  CHANGES.  Either party may, at any time by written notice pursuant to § 12 of this Agreement, propose 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; or any such other provision as may affect the suitability and amount of coal to be delivered to 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 § 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.

§ 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,

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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
	P.O. Box 32010
	Louisville, Kentucky 40232
	Attn.:  Director Corporate Fuels and By Products
If to Seller:	Peabody COALSALES Company
	701 Market Street, Suite 930
	St. Louis, Missouri 63101
	Attn:  Vice-President, Sales

§ 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.

§ 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.       CREDIT RATING.  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

22

investment grade entity, etc.).  Until the mutually acceptable assurances of good credit are received, Seller has the right to require payment 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.

SECTION 14.       RIGHT TO RESELL.  Buyer shall have the unqualified right to resell all or any of the coal purchased under this Agreement.

SECTION 15.       INDEMNITY AND INSURANCE.

§ 15.1  Indemnity.  Seller agrees to indemnify and save harmless Buyer, its officers, directors, employees and representatives from any responsibility and liability to Buyer or third parties 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.

Buyer agrees to indemnify and save harmless Seller, its officers, directors, employees and representatives from any responsibility and liability to third parties for any and all claims, demands, losses, legal actions for personal injuries, and property damage (including reasonable inside and outside attorney’s fees); (i) due to any failure of Buyer to comply with laws,

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regulations or ordinances, or (ii) due to the negligence of any representatives, agents or employees of Buyer (collectively, “Visitors”) who inspect the Coal Property; or (iii) due to the acts or omissions of Buyer in the performance of this Agreement.

§ 15.2  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 thirty (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.

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SECTION 16.       TERMINATION FOR DEFAULT.

Subject to § 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 material 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 thirty (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 17.       TAXES, DUTIES AND FEES.

Seller shall pay when due, and the price set forth in § 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 18.       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

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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 19.       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 § 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 § 50-250.4 relating to the employment and advancement of disabled veterans and veterans of the Vietnam Era; and Rehabilitation Act regulations set forth in 41 CFR § 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 § 637(d)(3); and subcontracting plan requirements set forth in 15 USC § 637(d).

SECTION 20.       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

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equipment for conformance with this Agreement.  Seller shall cause Highland Mining Company to 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 21.       MISCELLANEOUS.

§ 21.1  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.

§ 21.2  Headings.  The paragraph headings appearing in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.

§ 21.3      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.

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§ 21.4  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.

§ 21.5      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.

§ 21.6  Binding Effect.  This Agreement shall bind and inure to the benefit of the parties and their successors and assigns.

§ 21.7      Assignment.

A.  Seller shall not, without Buyer’s prior written consent, which may be withheld in Buyer’s 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 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

28

assign this Agreement in connection with a transfer by Buyer of all or a part interest in the generating station comprising the Delivery Point, 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.

§ 21.8  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.

§ 21.9  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.

LOUISVILLE GAS AND ELECTRIC COMPANY		PEABODY COALSALES COMPANY
By:		By:
	Paul Thompson		Richard A. Navarre
	SVP — Energy Services		President
Date:		Date:

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Exhibit A

EXHIBIT A

SAMPLE COAL PAYMENT CALCULATIONS

Total Evaluated Coal Costs for Contract No. LGE02011

For contracts supplied from multiple “origins”, each “origin will be calculated individually.

	Section I	Base Data
1)	Base F.O.B. price per ton:	$	25.59	/ton
1a)	Tons of coal delivered:			tons
2)	Guaranteed average heat content:	11,400		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:	$	1.1224	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	2.89		LBS./MMBTU
3r)	As received monthly avg. sulfur			LBS./MMBTU
4)	Guaranteed monthly avg. ash	8.33		LBS./MMBTU
4r)	As received monthly avg. ash			LBS./MMBTU
5)	Guaranteed monthly avg. max. moisture	10.53		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 <11,200BTU/lb. then: {1 - (line 2r) / (line 2)} * $0.2604/MMBTU {1 - (    ) / (    )} * $0.2604 =	$	/MMBTU
7d)	SULFUR:  If line 3r is greater than 2.98 lbs./MMBTU [ (line 3r) - (line 3) ] * 0.1232/lb. Sulfur [ (    ) - (    ) ] * 0.1232 =	$	/MMBTU
8d)	ASH: If line 4r is greater than 8.69 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

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Exhibit A

		Total Price Adjustments
	Section III
	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                                                          +	$	=	$

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EX-10.71

Peabody COALSALES Company

Contract #LGE02011

Amendment No.1

EXHIBIT 10.71

AMENDMENT NO. 1 TO COAL SUPPLY AGREEMENT

THIS AMENDMENT NO. 1 TO COAL SUPPLY AGREEMENT (“Amendment No. 1”) is entered into effective as of June 1, 2002, by and between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220 West Main Street, Louisville, Kentucky 40202 (Buyer”), and PEABODY COALSALES COMPANY, a Delaware corporation, 701 Market Street, Suite 830, St. Louis, Missouri 63101-1826 (“Seller”).  In consideration of the agreements herein contained, the parties hereto agree as follows.

1.0AMENDMENTS

The Agreement heretofore entered into by the parties, dated effective January 1, 2002 and identified by the Contract Number set forth above, (hereinafter referred to as “Agreement”) is hereby amended as follows:

2.0QUANTITY

2.1Section 3.1 Base Quantity, is deleted in its entirety and replaced with the following:

YEAR	BASE QUANTITY (TONS)
2002	600,000
2003	750,000
2004	600,000

* Parties shall begin discussions on and after June 1, 2002 to negotiate pricing for an additional 250,000 tons of coal per year to be supplied during calendar year 2003.  If the parties do not agree upon pricing for such additional tons by September 1, 2002, then Buyer shall not be required to purchase such additional tons, and the tonnage to be delivered during calendar year 2003 shall be the Base Quantity as defined above.  The parties shall also meet starting June 1, 2003 to negotiate pricing for an additional 250,000 tons of coal to be supplied during calendar year 2004.  If the parties do not agree upon pricing for such additional tons by September 1, 2003, then Buyer shall not be required to purchase such additional tons and the tonnage to be delivered during calendar year 2004 shall be the Base Quantity as defined above.

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3.0          PRICE

3.1           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 5 in accordance with the following schedule:

Year	Base Price (F.O.B. Barge)
2002	$	1.1224 per MMBtu	$	25.59 per ton
2003	$	1.1224 per MMBtu	$	25.59 per ton *
2003	$	1.1351 per MMBtu	$	25.88 per ton **
2004	$	1.1680 per MMBtu	$	26.63 per ton

* The Base Price for the first 150,000 tons delivered in 2003

** The Base Price for the remainder of the tons delivered in 2003

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		PEABODY COALSALES COMPANY
BY:		BY:
	SVP - Energy Services
		TITLE:
DATE:		DATE:

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EX-10.72

Peabody COALSALES Company

Contract #LGE 02011

Amendment No. 2

EXHIBIT 10.72

AMENDMENT NO. 2 TO COAL SUPPLY AGREEMENT

THIS AMENDMENT NO. 2 TO COAL SUPPLY AGREEMENT (“Amendment No. 2”) is entered into effective as of January 1, 2003, by and between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220 West Main Street, Louisville, Kentucky 40202 (Buyer”), and PEABODY COALSALES COMPANY, a Delaware corporation, 701 Market Street, Suite 830, St. Louis, Missouri 63101-1826 (“Seller”).  In consideration of the agreements herein contained, the parties hereto agree as follows.

1.0AMENDMENTS

The Agreement heretofore entered into by the parties, dated effective January 1, 2002 and identified by the Contract Number set forth above, as amended by Amendment No. 1 dated effective June 1, 2002 is hereby further amended as follows the January 2, 2002 Agreement, as amended by Amendment No. 1 and Amendment No. 2, is hereafter referred to as the “Agreement”:

2.0GENERAL

2.1Section 1 General is deleted in its entirety and is replaced with the following:

2.1           SECTION 1.  General and Producer’s Certificates

1.1General.  Seller shall sell and deliver and Buyer shall purchase and accept delivery of steam coal under all the terms and conditions of this Agreement.

1.2Producer’s Certificates.

Seller hereby represents and warrants that it has obtained or will obtain the agreement of Patriot Coal Company, LP, a Delaware limited partnership; Peabody Coal Company, a Delaware corporation; Ohio County Coal Company, L.P., a Kentucky corporation; and Highland Mining Company, a Delaware corporation (collectively “Producer”), as indicated by each Producer’s signature on the Producer’s Certificates attached hereto as Exhibit B-1 and Exhibit B-2 and made a part hereof, and has delivered or will deliver the  originals of such Producer’s Certificates to Buyer.  This obligation of Seller is a material inducement for Buyer’s entering into this Agreement.  If

Seller fails to deliver Producer’s Certificate(s) in the form of Exhibit B-1 and Exhibit B-2 for each Producer to Buyer with five (5) days after execution of this Agreement, then Buyer may declare this Agreement null and void, and neither party shall have any further obligations hereunder, except to the extent of deliveries then in route.  Seller acknowledges and agrees that Buyer is the third-party beneficiary of the agreements between Producer and Seller (the “Coal Marketing and Sales Agreement”) and as such Buyer shall be entitled to enforce its rights thereunder, in addition to exercising its rights and remedies hereunder.

3.0QUANTITY

3.1Section 3.1 Base Quantity, is deleted in its entirety and replaced with the following:

3.1Quantity.  Seller shall sell and deliver and Buyer shall purchase and accept delivery of the following annual quantities of coal:

YEAR	BASE QUANTITY (TONS)
2002	600,000
2003	750,000 – Quality A
	250,000 – Quality B
2004	600,000 – Quality A
	250,000 – Quality B

4.0          SOURCE

4.1Section 4.1 Source, is deleted in its entirety and replaced with the following:

4.1Source.    The coal sold hereunder, including coal purchased by Seller from third parties, shall be supplied from the geological seams known as the Western Kentucky #9 and #11 seams.  Coal designated as Quality A, as defined below, shall be supplied from the mining complex in Union County, Kentucky which is owned and operated by Seller’s affiliated company, Highland Mining Company (“Highland”).  Coal designated as Quality B, as defined below, shall be supplied from: (i) the “Patriot Mining Complex” in Henderson County which consists of the Patriot Mine (a surface mining operation which is owned and operated by Seller’s affiliated company, Patriot Coal Company, LP (“Patriot”)) and the “Freedom Mine” (which is operated by Seller’s affiliated company, Ohio County Coal Company (“Ohio County”)); (ii) the Camp Complex in Henderson County, or (iii) the Gibraltar Mine in Muhlenberg County.  The Camp Complex and the Gibraltar Mine are both owned and operated by Seller’s affiliated company, Peabody Coal Company (“Peabody Coal”).  All of the

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foregoing sources of coal are hereinafter referred to as the “Coal Properties”.  Highland, Patriot, Ohio County and Peabody shall be referred to collectively herein as “Producer.”

4.2           Section 4.7 Relationship of the Parties is added and reads as follows:

Seller agrees that it is not and will not hold itself out as a partner, employee, agent or representative of or joint venturer with Buyer.  Nothing herein contained shall be construed as creating a single enterprise, joint venture, agency, partnership, joint employer, owner-contractor, or lessor-lessee relationship between Buyer and Seller or between Buyer and Producer.

Seller and Producer shall each have sole and exclusive authority to direct and control its respective activities and operations, and those of any subcontractors, undertaken in the performance of Seller’s obligations under this Agreement.  Seller and Producer shall each exercise full and complete control over its respective work force and labor relations policies.  Buyer shall have no authority or control over either Seller’s or Producer’s operations or work force.

5.0          DELIVERY

5.1           Section 5.1 Barge Delivery, is modified to make the first literary paragraph read:

The coal shall be delivered to Buyer F.O.B. barge at the Camp Complex, Mile Point 841.6 on the Ohio River, or at Seller’s option as a substitute at the Gibralter Dock at Mile Point 85.9 on the Green River.  By advance agreement between Buyer and Seller, Seller may also deliver the coal to Buyer at Demao Dock (Patriot Coal) at             Mile Point 31.5 on the Green River.  The Camp Complex, Gibralter Dock and Demao Dock are all “Delivery Points”.

6.0          QUALITY

6.1           Section 6.1 Specifications is deleted and replaced with the following provision:

6.1.1Quality A.    The coal delivered hereunder which is designated as Quality A shall conform to the following specifications on an “as received” basis:

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QUALITY A

Specifications	Guaranteed Monthly Weighted Average (1)		Rejection Limits (per shipment)
BTU/LB.	min.	11,400	<	10,800
LBS/MMBTU:
MOISTURE	max.	10.53	>	12.00
ASH	max.	8.33	>	9.00
SULFUR	max.	2.89	>	3.10
SULFUR	min.	2.30	<	2.00
CHLORINE	max.	0.009	>	.015
FLUORINE	max.
NITROGEN	max.	1.32	>	1.70
ASH/SULFER RATIO	min.	3.22:1	>	3:1
SIZE (3” x 0”):
Top size (inches)*	max.	3x0	>	4x0
Fines (% by wgt)
Passing 1/4” screen	max.	60	>	65
% BY WEIGHT:
VOLATILE	max.	30	>	29
FIXED CARBON	max.	43	>	40
GRINDABILITY (HGI)	min.	50	<	48
BASE ACID RATIO (B/A)		0.40		0.50
SLAGGING FACTOR**	max.	1.32	>	1.80
FOULING FACTOR***	max.	0.32	>	0.40

ASH FUSION TEMPERATURE (°F) (ASTM D1857)
REDUCING ATMOSPHERE
Initial Deformation	min.	1990	min.	1990
Softening (H=W)	min.	2065	min.	2050
Softening (H=1/2W)	min.	2105	min.	2075
Fluid	min.	2225	min.	2200
OXIDIZING ATMOSPHERE
Initial Deformation	min.	2330	min.	2300
Softening (H=W)	min.	2355	min.	2325
Softening (H=1/2W)	min.	2400	min.	2370
Fluid	min.	2480	min.	2400

(1) An actual Monthly Weighted Average will be calculated for each specification for coal delivered to the Buyer’s 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 (50) 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 Na₂0 by Weight_Dry)

The Base Acid Ratio (B/A) is herein defined as:

BASE ACID RATIO (B/A) =	(Fe203  +  Ca0  +  Mg0  +  Na20  +  K20)
	(Si02  +  A1203  +  T102)

Note: As used herein	>	means greater than:
	<	means less than.

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6.1.2       Quality B.  The coal delivered hereunder which is designated as Quality B shall conform to the following specifications on an “as received” basis:

QUALITY  B
Specifications	Guaranteed Monthly Weighted Average (1)		Rejection Limits (per shipment)
BTU/LB.	min.	10,850	<	10,600
LBS/MMBTU:
MOISTURE	max.	12.9	>	15.0
ASH	max.	10.8	>	12.5
SULFUR	max.	3.00	>	3.40
SULFUR	min.	2.75	<	2.55
CHLORINE	max.	0.05	>	0.06
FLUORINE	max.	0.01	>	0.015
NITROGEN	max.	1.35	>	1.45
SIZE (3” x 0”):
Top size (inches)*	max.	3	>	3
Fines (% by wgt)
Passing 1/4” screen	max.	50	>	55
% BY WEIGHT:
VOLATILE	max.	31	>	29
FIXED CARBON	max.	38	>	30
GRINDABILITY (HGI)	min.	55	<	50
BASE ACID RATIO (B/A)		0.60		0.90
SLAGGING FACTOR**	max.	2.0	>	2.5
FOULING FACTOR***	max.	0.5	>	0.7

ASH FUSION TEMPERATURE (°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.	2330	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 Buyer’s 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 (50) 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 Na₂0 by Weight_Dry)

The Base Acid Ratio (B/A) is herein defined as:

BASE ACID RATIO (B/A) =		(Fe203  +  Ca0  +  Mg0  +  Na20  +  K20)
		(Si02  +  A1203  +  T102)
Note: As used herein	>	means greater than:
	<	means less than.

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7.0          PRICE

7.1           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 5 in accordance with the following schedule:

Year	Base Price Quality A (F.O.B. Barge)
2002	$	1.1224 per MMBtu	$	25.59 per ton
2003	$	1.1224 per MMBtu	$	25.59 per ton	*
2003	$	1.1351 per MMBtu	$	25.88 per ton	**
2004	$	1.1680 per MMBtu	$	26.63 per ton

* The Base Price for the first 150,000 tons of Quality A delivered in 2003

** The Base Price for the remainder of the tons of Quality A delivered in 2003

Year	Base Price Quality B (F.O.B. Barge)
2003	$	0.90 per MMBtu	$	19.53 per ton
2004	$	0.91 per MMBtu	$	19.75 per ton

7.2           Section 8.2(b) Quality Price Discounts, is deleted and replaced with the following”

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 apply 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.

QUALITY A
	Guaranteed Monthly Weighted Average		Discount Point
BTU/Lb.	min.	11,400	11,200
LB/MMBTU:
SULFUR	max.	2.89	2.98
ASH	max.	8.33	8.69
MOISTURE	max.	10.53	11.25

QUALITY B
	Guaranteed Monthly Weighted Average		Discount Point
BTU/Lb.	min.	10,850	10,650
LB/MMBTU:
SULFUR	max.	3.00	3.05
ASH	max.	10.80	12.20
MOISTURE	max.	12.90	14.46

For example, if the actual Monthly Weighted Average of sulfur for Quality A equals 3.00lb/MMBTU, then the applicable discount would be (3.00 lb. – 2.89 lb.) X $.1232/lb/MMBTU = $.0136/MMBTU.

8.0          DOCUMENTATION AND RIGHT OF AUDIT.

8.1          Section 18.  Documentation and Right of Audit is hereby deleted in its entirety and replaced as follows:

SECTION 18.  DOCUMENTATION AND RIGHT OF AUDIT.   Seller shall maintain, and cause Producer to maintain, all records and accounts pertaining to payments, quantities, quality analyses, and sources for all coal supplied under this Agreement for a period lasting through the term of this Agreement and for two years thereafter.  Buyer or its representatives 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.

9.0          COAL PROPERTY INSPECTIONS.

9.1          Section 20. Coal Property Inspections is deleted in its entirety and replaced as follows:

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SECTION 20.   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 cause Producer to allow such inspection and to 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 the regulations and rules of Seller or Producer 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 or Producer of any of its responsibilities nor be deemed to be a waiver of any of Buyer’s rights hereunder.

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		PEABODY COALSALES COMPANY
BY:		BY:
	SVP – Energy Services
		TITLE:
DATE:		DATE:

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EXHIBIT B-1

PRODUCER’S CERTIFICATE B-1

The undersigned, PATRIOT COAL COMPANY, L.P. a Delaware limited partnership, OHIO COUNTY COAL COMPANY, a Kentucky corporation, and PEABODY COAL COMPANY, a Delaware corporation (herein collectively “the Producer”), by and through their duly authorized officers, managers or general partners as an inducement to LOUISVILLE GAS AND ELECTRIC COMPANY (“LG&E”), a Kentucky corporation (“Buyer”) and PEABODY COALSALES COMPANY, a Delaware corporation (herein “Agent”), to enter into  Amendment No. 2 to a Coal Supply Agreement dated January 1, 2002 (the January 1, 2002 Coal Supply Agreement as amended by Amendments 1 and 2 are collectively referred to herein as “Coal Supply Agreement”) between LG&E and Agent, and as a further inducement to Agent to enter into a Coal Marketing and Sales Agreement with Producer (“Coal Marketing and Sales Agreement”), hereby certify, warrant and represent to LG&E and Agent as follows:

1.             Producer is a duly organized, validly existing limited partnership or corporation, as the case may be, in good standing under the laws of the Commonwealth of Kentucky, and is fully qualified to do business under the laws of the Commonwealth of Kentucky.  Producer has all requisite power and authority to execute this instrument and to enter into all documents required in connection with and including this Producer’s Certificate and the proposed Coal Marketing and Sales Agreement between Producer and Agent.

2.             By the execution hereof, the undersigned certify that, as the officers, manager or partners of Producer, they have all the necessary power and authority to execute and deliver this

8

Producer’s Certificate, for and on behalf of Producer.

3.             This Certificate is given by Producer to induce LG&E and Agent to each execute and deliver between themselves that certain proposed Coal Supply Agreement, with the knowledge that LG&E and Agent will each rely upon the truth of the statements made herein.

4.             Producer represents and warrants that the “Coal Property” described in Exhibit “A” to the Producer’s Certificate B-1 (the “Coal Property”) contains economically recoverable coal of a quality and in quantities which will be sufficient to satisfy all the quantity and quality requirements of the Coal Supply Agreement and the Coal Marketing and Sales Agreement which requirements are set forth on Exhibit “B” attached hereto.  Producer further 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 at the quality specified in Exhibit “B” hereto.  Producer further represents, and warrants and agrees that it will 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.  Producer agrees that it shall operate and maintain the machinery, equipment and/or facilities at its sole expense, including all required permits and licenses.  Producer further dedicates to the Coal Supply Agreement and the Coal Marketing and Sales Agreement sufficient reserves of coal lying on or in the Coal Property meeting the quality specifications specified in Exhibit “B” hereto so as to fulfill the quantity requirements of the proposed Coal Supply Agreement and the Coal Marketing and Sales Agreement.

5.             Producer agrees and warrants that it will not, without obtaining the express prior written consent of both LG&E and of Agent, 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

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that required to be supplied by Producer as specified in Exhibit “B” hereto.

6.             Producer agrees and warrants that it shall require of the loading dock operator that (a) the barges and towboats provided by LG&E or LG&E’s barging contractor be provided convenient and safe berth free of wharfage, dockage and port charges; (b)  while the barges are in the care, custody and control 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; (c) any water in the cargo boxes of the barges be pumped out by the loading dock operator prior to loading; (d)  the loading operations be performed in a workmanlike manner and in accordance with the reasonable loading requirements of LG&E and LG&E’s barging contractor; and (e)  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 LG&E and Agent in the form of a certificate of insurance from the insurance carrier or an acceptable certificate of self-insurance with requirement for notification of LG&E and Agent in the event of termination of the insurance.

7.             Producer agrees that it will replace rejected coal within five (5) working days with coal conforming to the rejection limits set forth in the proposed Coal Marketing and Sales Agreement between Producer and Agent, which rejection limits Producer understands and acknowledges are the same rejection limits as provided in the proposed Coal Supply Agreement between LG&E and Agent, and that should Producer either fail to replace the rejected coal within such five (5) working day period or the replacement coal is rightfully rejected (where such rejection is not based upon the BTU/LB minimum or the percentage of moisture maximum being exceeded as a result of weather conditions), and another source hasreplaced such rejected coal, Producer agrees

10

to and shall reimburse LG&E for any amount that the total delivered cost to LG&E of such coal purchased from another source exceeds the then-current delivered cost of coal sold by Agent under the Coal Supply Agreement between Agent and LG&E.  Further, Producer agrees to be responsible to pay or reimburse Agent or LG&E as applicable, for any and all freight or transportation expenses that have been incurred for rightfully rejected coal.

8.             Producer agrees that if it shall receive a notice in writing that the coal sold fails to meet one or more of the monthly average guarantees as set forth in the Coal Supply Agreement or the proposed Coal Supply Agreement between Agent and LG&E, then Producer shall within ten (10) days provide LG&E with reasonable assurances that subsequent monthly deliveries of coal shall meet or exceed such monthly average guarantees

9.             Producer agrees to and shall indemnify and save harmless LG&E, and its respective 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 attorney’s fees) relating to the barges provided by LG&E or LG&E’s contractor while such barges are in the care and custody of the loading dock, or for any failure of Producer to comply with laws, regulations or ordinances, or for any matter which arises out of the acts or omissions of Producer in the performance of its obligations hereunder including, but not limited to, the proper delivery of coal by Producer to Buyer.

10.           Producer agrees and warrants to and shall carry insurance coverage with minimum limits as follows:

A.            Commercial general liability, $1,000,000, single limit liability.

B.            Automobile general liability, $1,000,000 single limit liability.

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C.            In addition, Producer shall carry excess liability insurance covering the foregoing perils in the amount of $4,000,000 for any one occurrence.

D.            Kentucky Worker’s Compensation and Employer’s Liability with statutory limits.

E.             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 Amendment 2 to the Coal Supply Agreement or the Producer’s proposed Coal Marketing and Sales Agreement with Agent whichever is earlier.

11.           Producer agrees that it shall not assign the proposed Coal Marketing and Sales Agreement between it and Agent or any rights or obligations thereunder without the prior written consent of Agent and LG&E , which consent shall not be unreasonably withheld.

IN TESTIMONY WHEREOF, the undersigned officers and/or members of Producer have executed and delivered the foregoing Producer’s Certificate B-1 on behalf of Producer.

ATTEST:
	PATRIOT COAL COMPANY, L.P.
	By:
	Its:
	Date:

12

OHIO COUNTY COAL COMPANY

By:

Its:

Date:

PEABODY COAL COMPANY

By:

Its:

Date:

13

EXHIBIT A TO PRODUCER’S CERTIFICATE B-1

“Coal Property” means the following seams and mines owned by Producer:

Patriot Coal Company’s (“Patriot”) Patriot Complex, located in Henderson County, Kentucky consisting of the surface mining operation known as the “Patriot Mine” which is owned and operated by Patriot Coal Company and the deep mining operation known as the “Freedom Mine” which is owned by Patriot and operated by Ohio County Coal Company; Peabody Coal Company’s Camp Complex located in Union County, Kentucky and Gibraltar Mine located in Muhlenberg County, Kentucky.

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EXHIBIT B TO PRODUCER’S CERTIFICATE B-1

Quality B Requirement

The quality designated as Quality B as required by the Coal Marketing and Sales Agreement is as follows on an “as received basis”:

Specifications	Guaranteed Monthly Weighted Average	Rejection Limits (per shipment)
BTU/LB.	min 10,850	< 10,600
Ash	max 10.80 lbs./MMBTU	> 12.50 lbs./MMBTU
Moisture	max 12.90 lbs./MMBTU	> 15.00 lbs./MMBTU
Sulfur	max.  3.00 lbs./MMBTU	>3.40 lbs./MMBTU
Sulfur	min. 2.75 lbs./MMBTU	< 2.55 lbs./MMBTU
All Qualities:
Chlorine	max. 0.05 lbs./MMBTU	> 0.06 lbs./MMBTU
Fluorine	max. 0.01 lbs./MMBTU	> 0.015 lbs./MMBTU
Nitrogen	max. 1.35 lbs./MMBTU	> 1.45 lbs./MMBTU
SIZE (3” x 0”):
Top size (inches)*	max.  3”x 0”	>  3”x 0”
Fines (% by wgt)
passing 1/4” screen	max. 50 %	>  55
% BY WEIGHT:
VOLATILE	max. 31	> 29
FIXED CARBON	min. 38	< 30
GRINDABILITY (HGI)	min. 55	< 50
BASE ACID RATIO (B/A)	.60	> .90
SLAGGING FACTOR	2.0	2.5
ASH FUSION TEMPERATURE (°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. 2330	min. 2280
Softening (H=1/2W)	min. 2425	min. 2300
Fluid	min. 2490	min. 2375

* 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 forty percent (40%) 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 Na₂0 by Weight_Dry)

The Base Acid Ratio (B/A) is herein defined as:

BASE ACID RATIO (B/A) =	(Fe203  +  Ca0  +  Mg0  +  Na20  +  K20)
	(Si02  +  A1203  +  T102)

Note:As used herein:		>	means greater than;
	.	<	means less than

Quantity Requirement

The quantity required by the Coal Marketing and Sales Agreement is as follows:

QUANTITY – QUALITY B
Year	Tonnage
2003	250,000  – Quality B
2004	250,000 – Quality B

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EXHIBIT B-2

PRODUCER’S CERTIFICATE – B-2

The undersigned, HIGHLAND MINING COMPANY, a Delaware corporation (herein “the Producer”), by and through its duly authorized officers as an inducement to LOUISVILLE GAS AND ELECTRIC COMPANY (“LG&E”), a Kentucky corporation (“Buyer”) and PEABODY COALSALES COMPANY, a Delaware corporation (herein “Agent”), to enter into Amendment No. 2 to a Coal Supply Agreement  dated January 1, 2002 (the January 1, 2002 Coal Supply Agreement as amended by Amendments 1 and 2 are collectively referred to herein as “Coal Supply Agreement”) between LG&E and Agent, and as a further inducement to Agent to enter into a Coal Marketing and Sales Agreement with Producer (“Coal Marketing and Sales Agreement”), hereby certifies, warrants and represents to LG&E and Agent as follows:

1.             Producer is a duly organized, validly existing corporation in good standing under the laws of the Commonwealth of Kentucky, and is fully qualified to do business under the laws of the Commonwealth of Kentucky.  Producer has all requisite power and authority to execute this instrument and to enter into all documents required in connection with and including this Producer’s Certificate and the proposed Coal Marketing and Sales Agreement between Producer and Agent.

2.             By the execution hereof, the undersigned certifies that, as the officers of Producer, they have all the necessary power and authority to execute and deliver this Producer’s Certificate B-2, for and on behalf of Producer.

3.             This Certificate is given by Producer to induce LG&E and Agent to each execute and deliver between themselves that certain proposed Coal Supply Agreement, with the knowledge that LG&E and Agent will each rely upon the truth of the statements made herein.

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4.             Producer represents and warrants that the “Coal Property” described in Exhibit “A” to this Producer’s Certificate B-2 (the “Coal Property”) contains economically recoverable coal of a quality and in quantities which will be sufficient to satisfy all the quantity and quality requirements of the Coal Supply Agreement and the Coal Marketing and Sales Agreement which requirements are set forth on Exhibit “B” hereto.  Producer further 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 at the quality specified in Exhibit “B” hereto.  Producer further represents, warrants and agrees that it will 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.  Producer agrees that it shall operate and maintain the machinery, equipment and/or facilities at its sole expense, including all required permits and licenses.  Producer further dedicates to the Coal Supply Agreement and the Coal Marketing and Sales Agreement sufficient reserves of coal lying on or in the Coal Property meeting the quality specifications specified in Exhibit “B” hereto so as to fulfill the quantity requirements of the Coal Supply Agreement and the proposed Coal Marketing and Sales Agreement.

5.             Producer agrees and warrants that it will not, without obtaining the express prior written consent of both LG&E and of Agent, 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 by Producer as specified in Exhibit “B” hereto.

6.             Producer agrees and warrants that it shall require of the loading dock operator that (a) the barges and towboats provided by LG&E or LG&E’s barging contractor be provided convenient and safe berth free of wharfage, dockage and port charges; (b)  while the barges are in the care,

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custody and control 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; (c) any water in the cargo boxes of the barges be pumped out by the loading dock operator prior to loading; (d)  the loading operations be performed in a workmanlike manner and in accordance with the reasonable loading requirements of LG&E and LG&E’s barging contractor; and (e) 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 LG&E and Agent in the form of a certificate of insurance from the insurance carrier or an acceptable certificate of self-insurance with requirement for notification of LG&E and Agent in the event of termination of the insurance.

7.             Producer agrees that it will replace rejected coal within five (5) working days with coal conforming to the rejection limits set forth in the proposed Coal Marketing and Sales Agreement between Producer and Agent, which rejection limits Producer understands and acknowledges are the same rejection limits as provided in the proposed Coal Supply Agreement between LG&E and Agent, and that should Producer either fail to replace the rejected coal within such five (5) working day period or the replacement coal is rightfully rejected (where such rejection is not based upon the BTU/LB minimum or the percentage of moisture maximum being exceeded as a result of weather conditions), and another source has replaced such rejected coal, Producer agrees to and shall reimburse LG&E for any amount that the total delivered cost to LG&E of such coal purchased from another source exceeds the then-current delivered cost of coal sold by Agent under the Coal Supply Agreement  between Agent and LG&E.  Further, Producer agrees to be responsible to pay or reimburse Agent or LG&E as applicable, for any and all freight or transportation expenses

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that have been incurred for rightfully rejected coal.

8.             Producer agrees that if it shall receive a notice in writing that the coal sold fails to meet one or more of the monthly average guarantees as set forth in the Coal Supply Agreement or the proposed Coal Supply Agreement between Agent and LG&E, then Producer shall within ten (10) days provide LG&E with reasonable assurances that subsequent monthly deliveries of coal shall meet or exceed such monthly average guarantees

9.             Producer agrees to and shall indemnify and save harmless LG&E, and its respective 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 attorney’s fees) relating to the barges provided by LG&E or LG&E’s contractor while such barges are in the care and custody of the loading dock, or for any failure of Producer to comply with laws, regulations or ordinances, or for any matter which arises out of the acts or omissions of Producer in the performance of its obligations hereunder including, but not limited to, the proper delivery of coal by Producer to Buyer.

10.           Producer agrees and warrants to and shall carry insurance coverage with minimum limits as follows:

A.            Commercial general liability, $1,000,000, single limit liability.

B.            Automobile general liability, $1,000,000 single limit liability.

C.            In addition, Producer shall carry excess liability insurance covering the foregoing perils in the amount of $4,000,000 for any one occurrence.

D.            Kentucky Worker’s Compensation and Employer’s Liability with statutory limits.

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E.             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 Amendment 2 to the Coal Supply Agreement or the Producer’s proposed Coal Marketing and Sales Agreement with Agent whichever is earlier.

11.           Producer agrees that it shall not assign the proposed Coal Marketing and Sales Agreement between it and Agent or any rights or obligations thereunder without the prior written consent of Agent and LG&E which consent shall not be unreasonably withheld.

IN TESTIMONY WHEREOF, the undersigned officers and/or members of Producer have executed and delivered the foregoing Producer’s Certificate B-1 on behalf of Producer.

ATTEST:
	HIGHLAND MINING COMPANY
	By:
	Its:
	Date:

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EXHIBIT A TO PRODUCER’S CERTIFICATE B-2

“Coal Property” means the following seams and mines owned by Producer:

Highland Mining Company’s Highland Mine, located in Union County, Kentucky.

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EXHIBIT B TO PRODUCER’S CERTIFICATE B-2

Quality A Requirement

The quality designated as Quality A as required by the Coal Marketing and Sales Agreement is as follows on an “as received basis”:

Specifications	Guaranteed Monthly Weighted Average		Rejection Limits (per shipment)
BTU/LB.	min. 11,400		< 10,800
Ash	max 8.33 lbs./MMBTU		> 9.00 lbs./MMBTU
Moisture	max 10.53 lbs./MMBTU		> 12.00 lbs./MMBTU
Sulfur	max.  2.89 lbs./MMBTU		>3.10 lbs./MMBTU
Sulfur	min. 2.30 lbs./MMBTU		< 2.00 lbs./MMBTU
All Qualities:
Chlorine	max. 0.009 lbs./MMBTU		> 0.015 lbs./MMBTU
Fluorine	max. lbs./MMBTU		> lbs./MMBTU
Nitrogen	max. 1.32 lbs./MMBTU		> 1.70 lbs./MMBTU
ASH/SULFUR RATIO	min.  3.22:1		< 3:1
SIZE (3” x 0”):
Top size (inches)*	max.  3”x 0”		>  4”x 0”
Fines (% by wgt)
passing 1/4” screen	max. 60 %	%	>  65
% BY WEIGHT:
VOLATILE	max. 30		> 29
FIXED CARBON	min. 43		< 40
GRINDABILITY (HGI)	min. 50		< 48
BASE ACID RATIO (B/A)	.40		> .50
SLAGGING FACTOR	1.32		1.80

ASH FUSION TEMPERATURE (°F) (ASTM D1857)
REDUCING ATMOSPHERE
Initial Deformation	min. 1990	min. 1990
Softening (H=W)	min. 2065	min. 2050
Softening (H=1/2W)	min. 2105	min. 2075
Fluid	min. 2225	min. 2200
OXIDIZING ATMOSPHERE
Initial Deformation	min. 2330	min. 2300
Softening (H=W)	min. 2355	min. 2325
Softening (H=1/2W)	min. 2400	min. 2370
Fluid	min. 2480	min. 2400

* 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 forty percent (40%) 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 Na₂0 by Weight_Dry)

The Base Acid Ratio (B/A) is herein defined as:

BASE ACID RATIO (B/A) =	(Fe203  +  Ca0  +  Mg0  +  Na20  +  K20)
	(Si02  +  A1203  +  T102)

Note:	As used herein:	>	means greater than;
		<	means less than.

Quantity Requirement

The quantity required by the Coal Marketing and Sales Agreement is as follows:

QUANTITY – QUALITY A
Year	Tonnage
2002	600,000  – Quality A
2003	750,000 – Quality A
2004	600,000 – Quality A

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EX-10.73

	EXHIBIT 10.73
A.T. MASSEY COAL COMPANY
KU Contract # KUF02850

COAL SUPPLY AGREEMENT

This is a coal supply agreement (the “Agreement”) dated January 1, 2002 between KENTUCKY UTILITIES COMPANY, a Kentucky corporation, whose address is 220 West Main Street, Louisville, Kentucky 40202 (“Buyer”), and MASSEY COAL SALES COMPANY, INC. a Virginia corporation, whose address is P.O. Box 26765, Richmond, Virginia 23261 (“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 April 1, 2002 and shall continue through March 31, 2004.

SECTION 3.  QUANTITY.

§ 3.1  Base Quantity.  Subject to the price review set forth in § 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)
4/1/02-3/31/03	800,000
4/1/03-3-31-04	800,000

The Base Quantity will be delivered in approximately equal monthly quantities and in accordance with a mutually agreed-upon schedule.

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SECTION 4.  SOURCE.

§ 4.1 Source.  The coal sold hereunder, shall be supplied primarily from Seller’s Elk Run, Progress, Black Castle and Bandmill Mines, located in Boone and Logan Counties, West Virginia (the “Coal Property”).

§ 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.  Further, Seller has adequate machinery, equipment and other facilities to produce, prepare and deliver coal in the quantity and of the quality required by this Agreement.  Seller will 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 so as to fulfill the quantity requirements hereof.

§ 4.3  Seller’s Preparation of Mining Plan.  If Seller claims force majeure or fails to deliver the required quantity hereunder for any other reason, Seller shall, upon request, promptly deliver to Buyer mining and production histories covering relevant time periods and plans for the Coal Property and such reasonably related supporting data as Buyer shall request.  Seller shall,

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upon Buyer’s request during Coal Property Inspections, if any (made pursuant to § 19), provide information to Buyer of its mining plan which 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 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.

§ 4.4 Substitute Coal.  Notwithstanding the above, 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 § 10, Seller shall have the right to supply substitute coal after having received Buyer’s prior written consent

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(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 §8, the quality specifications of § 6.1, and the provisions of § 5 concerning reimbursement to Buyer for increased transportation costs.

SECTION 5.  DELIVERY.

§ 5.1 Barge Delivery.  The coal shall be delivered to Buyer F.O.B. barge at the following points (each a “Delivery Point”): for Elk Run, Progress, Black Castle and Bandmill Mines, the KRT-Ceredo Dock at mile point 314.5 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.

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 load ready condition 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 loading docks and loading and trimming the coal into barges to the proper draft and the proper distribution within the barges.  Buyer shall arrange and pay for all costs of transporting the coal by barge from the Delivery Point to its generating station(s).  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 to Buyer which accrue at the Delivery Point, including the

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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 or its affiliate 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, fleeting, switching and other harbor 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; and 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.  Seller will use commercially reasonable efforts to provide to Buyer evidence that its loading dock operator carries adequate 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, such evidence to be 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.

§ 6.1Specifications.  The coal delivered hereunder shall conform to the following specifications on an “as received” basis:

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Specifications	Guaranteed Monthly Weighted Average(1)			Rejection Limits (per shipment)
BTU/LB.	min.	12,000		<	11,800
LBS/MMBTU:
MOISTURE	max.	6.67		>	8.33
ASH	max.	10.83		>	10.83
SULFUR	max.	0.60	*	>	0.60
SULFUR	min.	NA		<	NA
CHLORINE	max.	0.18		>	0.18
NITROGEN	max.	1.30		>	1.30

* Individual shipment limit of 1.20 lbs. SO₂/MMBTU

SIZE (2” x 0”):
Top size (inches)**	max.	2x0	>	2x0
Fines (% by wgt)
Passing 1/4” screen	max.	50	>	50
% BY WEIGHT:
VOLATILE	min.	34	<	32
FIXED CARBON	min.	46	<	42
GRINDABILITY (HGI)	min.	45	<	42
ASH FUSION TEMPERATURE (°F) (ASTM D1857)
REDUCING ATMOSPHERE
Initial Deformation	min.	+2550	min.	+2450
Softening (H=W)	min.	+2610	min.	+2500
Softening (H=1/2W)	min.	+2640	min.	+2550
Fluid	min.	+2670	min.	+2575
OXIDIZING ATMOSPHERE
Initial Deformation	min.	+2610	min.	+2500
Softening (H=W)	min.	+2660	min.	+2550
Softening (H=1/2W)	min.	+2690	min.	+2570
Fluid	min.	+2700	min.	+2590

(1) An actual Monthly Weighted Average will be calculated for each specification for coal delivered to the Kentucky Utilities Ghent generating station.

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Note:	As used herein	>	means greater than:
		<	means less than.

§ 6.2Definition of “Shipment”.  As used herein, a “shipment” shall mean the quantity of coal actually loaded into one barge.

§ 6.3Rejection.

Buyer has the right, but not the obligation, upon written notification to Seller to reject any shipment which exceeds the Rejection Limits set forth in § 6.1, such written notice to be provided to Seller within forty-eight (48) hours after receipt of the coal analysis provided for in § 7.2 or such right to reject is waived.  In the event Buyer rejects such non-conforming coal as provided herein, 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 § 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.

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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 §6.1, or because such shipment contained a material amount of extraneous materials, then such non-conforming coal shall be deemed accepted by Buyer.  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.

§ 6.4Suspension and Termination.

If the coal sold hereunder fails to meet one or more of the Guaranteed Monthly Weighted Averages set forth in §6.1 for any two (2) months in a six (6) month period or if 20% of the shipments in any month 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 after written notice, provide Buyer with reasonable assurances that subsequent monthly deliveries of coal shall meet or exceed the Guaranteed Monthly Weighted Averages set forth in §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 15 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

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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.

§ 7.1  Weights. The weight of the coal delivered hereunder shall be determined on a per shipment basis by Seller on the basis of scale weights at the rail loading location 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.  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.

§ 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 made in Seller’s laboratory or an independent laboratory at Seller’s expense.  Samples for analyses shall be taken by Seller’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 loadings made hereunder.  Seller shall notify Buyer in writing of any significant changes in Seller’s sampling and analysis practices.  Any such changes

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in Seller’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 Seller shall be divided into 4 parts and put into airtight containers, properly labeled and sealed.  One part shall be used for analysis by Seller; one part shall be used by Seller as a check sample, one part shall be retained by Seller until thirty (30) days (“Disposal Date”) after the sample is taken, and shall be delivered to Buyer for analysis if Buyer so requests before the Disposal Date; and one part (“Referee Sample”) shall be retained by Seller until the Disposal Date.  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 before the Disposal Date, 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 any dispute arises before the Disposal Date, 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.

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SECTION 8.  PRICE.

§  8.1 Base Price.  The base price (“Base Price”) of the coal to be sold hereunder will be firm during the entire term of this agreement in accordance with the following schedule, subject to adjustment only for quality variations pursuant to §8.2 and New Costs pursuant to §8.4:

BASE PRICE

PERIOD	LOADING POINT	($PER MMBTU)	($PER TON)
4/1/02 - 3/31/04	KRT-Ceredo Dock	1.80625 F.O.B. barge	$	43.35

§ 8.2Quality Price Discounts.

(a)The Base Price is based on coal meeting or exceeding the Guaranteed Monthly Averages specifications for the Kentucky Utilities Ghent Generating Station, as set forth in §6.1. Quality price discounts shall be applied for each specification, for the Kentucky Utility generating station, to reflect failures to meet the Guaranteed Monthly Averages or Individual Shipment SO₂ specifications set forth in §6.1, as determined pursuant to §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
MOISTURE	0.0016

INDIVIDUAL SHIPMENT DISCOUNT VALUE

	$/TON
SO2	3.00

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(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 for the Kentucky Utilities Ghent 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. 12,000	11,800
LB/MMBTU:
ASH	Max. 10.83	10.83
MOISTURE	Max. 6.67	8.33

	Guaranteed Barge LbsSO2/Mmbtu	Discount Point
LB/MMBTU:
SO2	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. – 10.83 lb.) X $.0083/lb/MMBTU = $.001411/MMBTU.

§ 8.3Payment Calculation Exhibit A attached hereto shows the methodology for calculating the coal payment and quality price discounts for the month Seller’s coal is unloaded by Buyer.  If there are any such discounts, Buyer shall apply credit to amounts owed Seller for the month the coal was unloaded.

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§ 8.4New Costs. The Base Price shall be subject to adjustment only in the event that new or amended applicable Federal, state or local statutes, laws, rules, regulations, orders, or other governmental impositions or a change in the interpretation  of any such statutes, laws, rules, regulations, orders or other governmental impositions on the coal to be supplied hereunder, including but not limited to tax increases or decreases that occur after April 1, 2002, which cause Seller’s or its affiliate’s cost of the mining, processing, transportation, delivery or sale of  coal to Buyer under this Agreement to increase or decrease.  Seller shall promptly provide written notice to Buyer of any such changes and supply sufficient documentation for Buyer to verify any such change.  Either Buyer or Seller may request a Base Price adjustment under this Section 8.4, which shall be comprised of no more than the reasonable costs directly associated with the effect of such change on the coal to be supplied hereunder.  If the non-requesting party agrees to the requested price adjustment, such adjustment, shall be made effective on the first day of the calendar month following the effective date of any change, (except when such change is effective on the first day of the month in which case the adjustment shall be made as of such date).  If the non-requesting party rejects the request of the requesting party for a Base Price adjustment, the requesting party, at its option within fifteen days thereafter, may terminate the contract with thirty days’ written notice to the other party without liability due to such termination for either party.

SECTION 9.  INVOICES, BILLING AND PAYMENT.

§ 9.1Invoicing:

Invoices for Kentucky Utilities will be sent to the following address:

Kentucky Utilities Company

220 West Main Street

Louisville, KY  40202

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Attention: Director, Corporate Fuel

Fax No.: (502) 627-3243

§ 9.2Invoice Procedures for Coal Shipments. Seller shall invoice Buyer at the Base Price including any adjustments, and reconciliations as provided herein, for all coal unloaded in a calendar month by the fifteenth (15^th) of the following month. In the event that any adjustment is not calculated in time for inclusion on the invoice, such adjustment(s) may be stated as a retroactive adjustment on the invoice next following the calculation date.  A statement showing the basis for the adjustment shall accompany the invoice.

§ 9.3Payment for Coal Shipments.  For all coal unloaded at the Ghent Station between the first (1^st) and fifteenth (15^th) days of any calendar month, Buyer shall make preliminary payment for eighty-five percent (85%) 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 (25^th) day of such month of unloading, except that, if the 25^th is not a regular work day, payment shall be made on the next regular work day.  For all Coal unloaded at the Ghent Station between the sixteenth (16^th) and the last day of any calendar month, Buyer shall make preliminary payment for eighty-five percent (85%) of the amount owed for the Coal (based on the assumption that the Coal will meet all guaranteed monthly quality parameters) by the tenth (10^th) day of the month following the month of unloading, except that, if the 10^th is not a regular work day, payment shall be made on the next regular work day.

Preliminary payment shall be in the amount of eighty-five percent (85%) 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.

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A reconciliation of amounts paid and amounts owed shall occur by the twenty-fifth (25^th) day of the month following the month of unloading.  (For example, Buyer will make one initial payment by August 25 for eighty-five percent (85%) of Coal delivered August 1 through August 15, and a second payment by September 10 for eighty-five percent (85%) of Coal delivered August 16 through August 31.  A reconciliation will occur by September 25 for all deliveries made in August.)  The reconciliation shall be made as follows: Seller shall invoice Buyer on or before the 15^th day of the month following the month of delivery.  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 (25^th) day of the month following the month of unloading, except, that, if the 25^th is not a regular work day, payment shall be made on the next regular work day.  Payment for coal unloaded in a calendar month shall by mailed or wired by the 25^th of the month following the month of unloading, except that, if the 25^th 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:

Massey Coal Sales Company, Inc.

SUN TRUST BANK, Richmond, VA.

Account No.   201367459

ABA No.   051000020 

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§ 9.4Withholding.  Buyer shall have the right to withhold from payment of any billing or billings (i) any sums which are the subject of a good faith dispute provided, however, that Buyer shall pay all amounts then due which are not disputed; and (ii) any amounts owed to Buyer from Seller.  Buyer shall notify Seller promptly in writing of any such dispute, 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.

§ 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, lockouts, fires, floods or earthquakes, or any similar events 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

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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 Buyer’s force majeure event shall be made up at Seller’s sole option on a mutually agreeable schedule; tonnage deficiencies resulting from Seller’s force majeure event shall be made up at Buyer’s sole option on a mutually agreeable schedule.

§ 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 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 either Buyer or Seller, 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

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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 except for shipments already loaded onto barges and/or in transit to Buyer.

SECTION 11.  CHANGES.  Buyer may, by mutual agreement with Seller, at any time by written notice pursuant to § 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 § 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.

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SECTION 12.NOTICES.

§ 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 (with confirmation), 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

Fax No.: (502) 627-3243

If to Seller:Massey Coal Sales Company, Inc.

P.O. Box  26765

Richmond, Virginia  23261

Attn: Senior Vice-President

Fax No.: (804) 788-1811

With a copy to:

A.T. Massey Coal Co., Inc.

P.O. Box 26765

Richmond, Virginia 23261

Attn: General Counsel

Fax No.: (804) 788-1804

§ 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.

§ 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 mutually acceptable format.

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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.

§ 14.1  Indemnity.  Both parties agree to indemnify and save harmless the other, 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 either party to comply with laws, regulations or ordinances, or (ii) due to the acts or omissions of either party in the performance of this Agreement.  Notwithstanding the foregoing, neither party shall be liable to the other for any consequential, incidental, special, punitive, exemplary or indirect damages, lost profits, or business interruption damages, whether by statute, in tort or in contract arising out of the performance of any of the obligations under this Agreement.

§ 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

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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 § 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 § 8 of this Agreement shall be inclusive of, all taxes, duties, fees and other assessments of whatever nature imposed by

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governmental authorities with respect to the transactions contemplated under this Agreement, as such price may be adjusted pursuant to § 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.   Buyer shall have the right, at its sole cost and expense, to audit, copy and inspect such records and accounts at any reasonable time upon reasonable notice during the term of this Agreement.

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 § 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 § 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 § 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 § 637(d)(3); and subcontracting plan requirements set forth in 15 USC § 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 upon reasonable notice to

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Seller 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.WARRANTIES.  OTHER THAN THOSE EXPRESSLY PROVIDED HEREIN, SELLER MAKES NO OTHER REPRESENTATION OR WARRANTY, WRITTEN OR, EXPRESS OR IMPLIED, IN CONNECTION WITH THE SALE AND PURCHASE OF COAL HEREUNDER.  ALL WARRANTIES OF MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE OR ARISING FROM A COURSE OF DEALING OR USEAGE OF TRADE ARE SPECIFICALLY EXCLUDED.

SECTION 21.MISCELLANEOUS.

§ 21.1  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.

§ 21.2  Headings.  The paragraph headings appearing in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.

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§ 21.3  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.

§ 21.4  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.

§ 21.5  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.

§ 21.6  Binding Effect.  This Agreement shall bind and inure to the benefit of the parties and their successors and assigns.

§ 21.7  Assignment.

A.  Seller shall not, without Buyer’s prior written consent, which may be withheld in Buyer’s 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 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.

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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 part interest in the generating station comprising the Delivery Point, or as part of a merger or consolidation involving Buyer, or to Buyer’s affiliate.

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.

§ 21.8  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.

§ 21.9  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	MASSEY COAL SALES COMPANY, INC.
By:	By:

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	Paul W. Thompson
	Senior VP -  Energy Services	Its:
Date:		Date:

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Exhibit A

EXHIBIT A

SAMPLE COAL PAYMENT CALCULATIONS

Total Evaluated Coal Costs for Contract No. KU F02850

For contracts supplied from multiple “origins”, each “origin will be calculated individually.

	Section I	Base Data
1)	Base F.O.B. price per ton:	$	43.35	/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:	$	1.80625	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 lbsSO2/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)	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 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

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	Section III			Total Price 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	+	$		=	$

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GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT (“Guaranty”) is made and entered into this 1^st day of January 2002 by MASSEY ENERGY COMPANY (“Massey”), a Delaware corporation, with offices at 4 North Fourth Street, Richmond, Virginia 23219, 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 Massey Coal Sales Company, Inc. (“Seller”), a Virginia corporation, with offices at 4 North Fourth Street, Richmond, Virginia 23219, propose to enter into a Coal Supply Contract dated on or about January 1, 2002 (“Contract”) for a coal supply from Massey’s Elk Run, Progress, Black Castle and Bandmill Mines, located in Boone and Logan Counties, West Virginia (the “Coal Property”); and

WHEREAS, Buyers performance under the Contract will benefit Massey through the Seller, and to induce Buyer to enter into the Contract, Massey 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.

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, Massey hereby agrees as follows:

1)Guaranty - - Massey 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 - Massey 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 hereafter made or granted.

3)Buyer’s Remedies - Massey 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 Massey a party to the suit.

4)Massey’s Defenses - Except as otherwise provided in Section 5 of this Guaranty, Massey 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 - Massey 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 Massey under this Guaranty, Massey shall reimburse Buyer for all reasonable expenses incurred by Buyer in connection therewith, including reasonable attorneys’ fees.

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7)Representations - Massey represents that:

a.Massey 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 Massey’s corporate powers.

c.The giving of this Guaranty has been pursuant to all necessary corporate action and does not contravene any law or any contractual restriction binding on Massey.

d.This Guaranty is a legal, valid and binding obligation, enforceable against Massey 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:Massey Coal Sales Company, Inc.

PO Box 26765

Richmond, Virginia  23261

Attn: Senior Vice-President

As to Massey:Massey Energy Company

PO Box 26765

Richmond, Virginia  23261

Attn: President

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 - - Massey’s rights and obligations under this Guaranty may be assigned to the ultimate parent company of an approved assignee of Seller’s rights and

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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 Massey and if Buyer has agreed to release Seller from the Obligations, this Guaranty shall terminate and Massey shall be released from any further obligations or liabilities hereunder.  If another company with substantial assets becomes the new ultimate parent company of Seller, Massey may, with Buyer’s written approval, assign its rights and obligations hereunder to such other company and thereafter, as to Massey, this Guaranty shall terminate, and Massey shall be released from any further obligations or liabilities hereunder.

IN WITNESS WHEREOF, Massey has executed this Guaranty as of the date first written above.

	MASSEY ENERGY COMPANY
	By:
	Its:
ATTEST:

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EX-10.74

Exhibit 10.74

THIRD AMENDMENT TO THE

EMPLOYMENT AND SEVERANCE AGREEMENT

OF

VICTOR A. STAFFIERI

                This Third Amendment to the Employment and Severance Agreement of Victor A. Staffieri (“Third Amendment”) is made and entered into this 1st day of July, 2002 by and among (i) LG&E Energy Corp., a Kentucky corporation (“Company”), (ii) Powergen, plc, a United Kingdom public limited company (“Parent”), (iii) E.ON AG, an anktiengesellschaft formed under the Federal Republic of Germany (“German Parent”), and (iv) Victor A. Staffieri (“Executive”), collectively referred to as the “Parties”.

                WHEREAS,the Executive, the Company and the Parent entered into an Employment and Severance Agreement, dated February 25, 2000 (“Agreement”);

                WHEREAS, the Agreement was previously amended by the Executive, the Company and the Parent in a document dated December 8, 2000 (“First Amendment”);

                WHEREAS, the Agreement was also amended by the Executive, the Company and the Parent in a document effective as of April 30, 2001 (“Second Amendment”);

                WHEREAS, the Parent and German Parent have agreed to the terms of a recommended pre-conditional cash offer, whereby German Parent or its subsidiary will acquire ownership of the Parent;

                WHEREAS, the Parent and the German Parent have determined that the acquisition of the Parent by the German Parent shall be completed by way of a scheme of arrangement, whereby the acquisition will become effective in accordance with the terms of the scheme (“Acquisition Date”); and

                WHEREAS, the Parties have determined that it is now desirable to amend the Agreement to reflect certain changes resulting from the German Parent’s acquisition of the Parent.

AGREEMENT:

                NOW THEREFORE, in consideration of the respective agreements of the Parties contained herein, it is agreed as follows:

1.   A new Section 1.4 shall be added to the end of Article 1 to read as follows:

“1.4         On the Acquisition Date, the Company, the Parent, the German Parent, or any subsidiary of the Company, the Parent or the German Parent, hereinafter referred to as the

1

“Employer”, shall pay to the Executive a lump sum cash payment in an amount equal to $800,570, provided that the Executive is employed by an Employer on the Acquisition Date.  Additionally, the Employer shall pay the Executive, as provided herein, the following: (i) $800,570 on the first anniversary of the Acquisition Date, (ii) $800,570 on the second anniversary of the Acquisition Date, and (iii) $800,570 on the thirty month anniversary of the Acquisition Date, collectively hereinafter referred to as the “Additional Retention Payments.”  The Additional Retention Payments shall be credited to the Executive’s account under the deferred compensation plan of the Company on the Acquisition Date and shall be payable in a lump sum cash payment (including adjustment for any increases in Executive’s account under the deferred compensation plan), if the Executive so elects, within ten (10) days after the earliest to occur of (i) any termination of the Executive’s employment with an Employer, other than a termination by the Executive without Good Reason, (ii) a Change in Control that occurs during the thirty months following the Acquisition Date, so long as the Executive is still employed by an Employer immediately prior to such Change in Control, or (iii) the respective first year, second year and thirty month anniversaries of the Acquisition Date, so long as the Executive is still employed by an Employer on such dates.  In the event that the Executive elects to continue to defer the foregoing lump sum payments, such amounts shall nevertheless vest as set forth above, and shall continue to be held in the Executive’s deferred compensation plan account, which shall continue to be adjusted and shall be distributed in accordance with the terms of the deferred compensation plan.”

2.             Section 3.1 shall be deleted and replaced in its entirety to read as follows:

“3.1         The Company agrees to employ Executive, and Executive agrees to serve during the term hereof as Chief Executive Officer of the Company.  Executive shall report to Ulrich Hartmann, or his successor.  In addition, German Parent shall (i) cause the Executive to be elected as a member of the Board of Directors of the Company (the “Board”), (ii) secure Executive’s election as a member of the Board of Directors of Parent (the “Parent Board”), and (iii) secure Executive’s election as a member of the management board or board of directors (as applicable) of E.ON U.S. Verwaltungs GMBH or any other similar entity

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the German Parent utilizes to establish its presence, through acquisition or other development activity, in the United States’ energy industry (“Primary U.S. Acquisition Board”), and Executive agrees to serve in such capacities.”

3.  Section 3.2 shall be deleted and replaced in its entirety to read as follows:

“3.2         Executive agrees to devote his full working time and efforts, to the best of his ability, experience and talent, to the performance of services, duties and responsibilities in connection with the position named above.  Executive shall perform such duties and exercise such powers, commensurate with his position, as Chief Executive Officer of the Company, as Ulrich Hartmann or his successor shall from time to time delegate to him on such terms and conditions and subject to such restrictions asUlrich Hartmann or his successor may reasonably from time to time impose.”

4.Section 3.4 shall be deleted and replaced in its entirety to read as follows:

“3.4.        The Executive will perform his services at the Company’s headquarters in Louisville, Kentucky, with the understanding that he will be required to travel as reasonably required (including travel to the United Kingdom and Germany) for the performance of his duties under this Agreement.”

5.Section 4.1 shall be deleted and replaced in its entirety to read as follows:

“4.1.        SALARY.  The Company shall pay Executive an annual base salary (“Base Salary”) of not less than$630,000.  The Base Salary shall be payable in accordance with the ordinary payroll practices of the Company.  The Base Salary shall be reviewed by Ulrich Hartmann or his successor in December of each year during the term of this Agreement and may be increased in the discretion of Ulrich Hartmann or his successor at that or any other time and, as so increased, shall constitute “Base Salary” hereunder.   At no time shall Ulrich Hartmann or his successor be able to decrease the Base Salary.”

6.     Subsection 6.5(a) shall be deleted and replaced in its entirety to read as follows:

“(a)         For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of

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the events or conditions described in subsections (1) through (10) hereof:

                (1)           a reduction by the Company in the Executive’s Base Salary or annual target bonus opportunity as in effect prior to such reduction or any failure to pay the Executive any compensation or benefits to which the Executive is entitled within thirty days of the applicable due date, provided that the Company may correct such reduction or failure within thirty (30) days of its commission;

                (2)           German Parent, Parent or the Company require the Executive to be relocated anywhere in excess of fifty (50) miles of his present office location, except for required travel on German Parent, Parent or Company business consistent with his business travel obligations as in effect prior to the Effective Time and as provided in Section 3.4 of this Agreement;

                (3)           a failure by Parent or the Company to maintain plans providing benefits at least as beneficial in the aggregate as those provided by any benefit or compensation plan, retirement or pension plan, stock option plan, bonus plan, long-term incentive plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating prior to the Effective Time, the Change in Control, the Second Amendment, or this Third Amendment, as applicable, or if the Company or Parent has taken any action which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him prior to the Effective Time, the Change in Control, the Second Amendment or this Third Amendment, as applicable, or if the Company or Parent has failed to provide him with the number of paid vacation days to which he would be entitled in accordance with the Company’s normal vacation policy immediately prior to the Effective Time, the Change in Control, the Second Amendment, or this Third Amendment as applicable;

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                (4)           Parent or the Company materially reduces, individually or in the aggregate, the Executive’s title, job authorities or responsibilities as in effect prior to such reduction;

                (5)           Parent or the Company fails to obtain the assumption of the obligations contained in this Agreement by any successor as contemplated in Section 11 hereof;

                (6)           any purported termination of the Executive’s employment by Parent or the Company which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8, hereof; and, for purposes of this Agreement, no such purported termination shall be effective;

                (7)           any material breach by Parent or the Company of any provision of this Agreement;

                (8)           any purported termination of the Executive’s employment for Cause by Parent or the Company which does not comply with the terms of Section 6.2 of this Agreement;

                (9)           any removal of the Executive from the position of Chief Executive Officer of the Company, except for Cause; or

                (10)         any removal of Executive from, the Board, the Parent Board, or the Primary U.S. Acquisition Board, except for Cause.”

7.The introduction to Section 7.1 shall be deleted and replaced in its entirety to read as follows:

“7.1         If, during the term of this Agreement, the Executive’s employment with the Company shall be terminated within twenty-four months after the effective time of any Change in Control occurring after the Acquisition Date, then the Executive shall be entitled to the following compensation and benefits:”

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8.The introduction to Section 7.2 shall be deleted and replaced in its entirety to read as follows:

“7.2.        If, during the term of this Agreement, but not during a twenty-four month period following the effective time of any Change in Control occurring after the Acquisition Date, the Executive’s employment with the Company shall be terminated, the Executive shall be entitled to the following:”

                IN WITNESS WHEREOF, the Company, the German Parent, and the Parent have caused this Third Amendment to be executed by its duly authorized representative and the Executive has executed this Third Amendment as of the date set forth below, but which shall be effective as of the later of (i) the Acquisition Date, provided the Company employs Executive on that date, or (ii) the date the Executive executes a release in the form attached hereto.  Except as provided herein, nothing contained in this Third Amendment shall alter the terms and conditions of the Agreement, the First Amendment, or the Second Amendment.

E. ON. AG
By:	/s/ Ulrich Hartmann
	Name
	Title
Date:	1/7/2002
LG&E ENERGY CORP.
By:	/s/ John R. McCall
	Name	John R. McCall
	Title	EVP, General Counsel and Corporate Secretary
Date:
POWERGEN, plc
By:	/signed/
	Name
	Title
Date:

6

EXECUTIVE
By:	/s/ Victor A. Staffieri
	VICTOR A. STAFFIERI
Date:

7

EX-10.75

Exhibit 10.75

RETENTION AND SEVERANCE AGREEMENT

AMONG

LG&E ENERGY CORP.

E.ON AG

AND

[ April/May 2002 ]

TABLE OF CONTENTS

Section

1.  Effectiveness, Effect on Prior Agreements

2.  Term

2.1 Termination for Cause

2.2 Death or Disability

2.3 Other Termination

3.  Retention Bonus

4.  Payment Upon Termination of Employment

4.1 Accrued Compensation Payment

4.2 Severance Payment

4.3 Timing of Payments

5.  Tax Withholding and Tax Payments

6.  Notices

7.  Governing Law

8.  Entire Agreement

9.  Amendment

10  Assignment

11.Binding Effect

12.Headings; Section References

13.Construction

14.Survival

15.Acceptance

II

GLOSSARY OF DEFINED TERMS

Defined Term	Section
Acquisition Date	Recitals
Agreement	Preamble
Base Amount	3
Bonus Amount	3
Cause	2.1
CIC Agreement	Recitals
Company	Preamble
Corporation	Recitals
Disabled	2.2
Employer	1
Executive	Preamble
Good Reason	2.3(b)
Letter Agreement	Recitals
Parent	Preamble
Prior Agreements	1
Retention Payment	3
Term	2

III

RETENTION AND SEVERANCE AGREEMENT

This Retention and Severance Agreement (“Agreement”) is made and entered into as of the       day of [ April/May ], 2002 by and among (i) LG&E Energy Corp., a Kentucky corporation (“Company”), (ii) E.ON AG, an aktiengesellschaft formed under the Federal Republic of Germany (“Parent”), and (“Executive”).

Recitals:

        A.  WHEREAS, the Parent and Powergen, plc, a United Kingdom public limited company (“Corporation”), have agreed to the terms of a recommended pre-conditional cash offer, whereby Parent or its subsidiary will acquire ownership of the Corporation;

        B.  WHEREAS, the Parent and the Corporation have determined that the acquisition of the Corporation by the Parent shall be completed by way of a scheme of arrangement, whereby the acquisition will become effective in accordance with the terms of the scheme (“Acquisition Date”);

        C.   WHEREAS, the Company and the Executive previously entered into a Change in Control Agreement dated February 6, 2001, (“CIC Agreement”);

        D.   WHEREAS, the Company and the Executive previously entered into a letter agreement dated November 29, 2000, which provided for certain retention and severance payments (“Letter Agreement”);

        E.   WHEREAS, the Parent, and the Company have determined that it is in their best interests to retain the services of the Executive following the Acquisition Date; and

        F.   WHEREAS, the Parent, the Company and the Executive desire to provide for certain additional severance and retention payments upon the occurrence of certain events.

Agreement:

        Now, Therefore, the parties hereby agree as follows:

1.       Effectiveness, Effect on Prior Agreements.  This Agreement shall become effective at the Acquisition Date, provided that on such date, the Executive is employed by the Company, the Parent, the Corporation, or any subsidiary of the Company, the Parent or the Corporation, hereinafter collectively referred to as “Employer”.  The CIC and the Letter Agreement, collectively referred to as the “Prior Agreements”, shall continue in full force and effect in accordance the terms contained therein. Nothing contained in this Agreement shall amend or modify the terms of the Prior Agreements.  Further, nothing contained in this Agreement shall constitute a failure or breach of an Employer under the Prior Agreements, or give rise to a condition that would constitute “Good Reason” under Section 2.6 of the CIC Agreement, as defined therein.

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2.   Term.  The term of this Agreement shall commence on the Acquisition Date, and shall continue in effect, except as otherwise provided herein, until the fourth anniversary of the Acquisition Date; provided, however, that commencing on the fourth anniversary of the Acquisition Date, and on each anniversary of the Acquisition Date thereafter, the term of this Agreement shall automatically be extended for one year unless the Employer has given written notice to the Executive at least ninety days prior thereto that the term of this Agreement shall not be so extended (“Term”).  In addition to the foregoing termination by notice not to extend this Agreement, the Term shall cease, in the event of:

2.1     Termination for Cause.  By a vote of a seventy-five percent of the Board of Directors of the Company(“Board”), the Executive’s employment by an Employer may be  terminated for Cause (as hereinafter defined).  For purposes of this Agree­ment, the term “Cause” shall mean:

(a)  The repeated gross negligence by the Executive in performing the reasonably assigned duties on behalf of an Employer required by and in accordance with his employment by such Employer.

(b)The commission by the Executive of a felony in the course of performing his duties on behalf of an Employer required by and in accordance with his employment by such Employer.

2.2    Death or Disability.  If the  Executive dies or becomes Disabled (as hereinafter defined), the Term shall cease.  For purposes of this Agreement, the Executive shall be considered “Disabled” if he is so considered under a disability insurance policy maintained by the Employer, if any, or, if no such disability insurance policy is in effect, on the date that the Board determines, in its reasonable discre­tion, but based upon competent medical advice, that the Executive is, or will be, unable by reason of illness or accident to perform his duties hereunder for a continuous period of 180 days, or for a period of more than 180 days in any 270-day period.

2.3   Other Termination

    (a) Employer.  The Executive acknowledges that no representations or promises have been made concerning the grounds for termination or the future of the Employer’s business, and that nothing contained herein or otherwise stated by or on behalf of the Employer modifies or amends the right of the Employer to terminate Executive at any time, with or without Cause.

    (b) Executive.  The Executive may terminate employment for any reason by giving the Employer, not less than 14 days but not  more than 90 days prior written notice of such termination. Termination by the Executive shall be for “Good Reason” if:  (i) the Executive’s base salary, annual target bonus percentage, or long term target bonus percentage is reduced by an Employer, or (ii) prior to the fourth anniversary of the Acquisition Date an Employer relocates the Executive’s present place of employment in excess of one hundred miles.

3.  Retention Bonus  If the Executive is employed on the day following the second anniversary of the Acquisition Date by an Employer, the Employer shall pay to the Executive a lump sum cash payment “Retention Payment” in an amount equal to the Executive’s Base Amount (as hereinafter defined) and Bonus Amount (as hereinafter defined).  For purposes of

2

this Agreement, “Base Amount” shall mean the Executive’s annual base salary from an Employer in effect at the time of payment, including all amounts of annual base salary that are deferred under any qualified or non-qualified employee benefit plan of an Employer; provided, however, if an Employer has reduced the Executive’s annual base salary, the Base Amount shall be the annual base salary in effect prior to the reduction.  For purposes of this Agreement, “Bonus Amount” shall mean the target annual bonus of the Executive under the annual incentive plan of the Employer at the time of payment; provided however, that if an Employer has reduced the target annual bonus of the Executive, the Bonus Amount shall be the target annual bonus in effect prior to the reduction.  If on or prior to the second anniversary of the Acquisition Date, the Executive’s employment with the Employer is terminated (i) by the Employer for other than Cause, death or Disability or (ii) by the Executive for Good Reason, the Employer shall pay to the Executive the Retention Payment within 10 business days of the termination date; provided however, that if an Accounting Firm (as defined in the CIC Agreement) determines pursuant to Section 6(b) of the CIC Agreement that such Retention Payment creates or increases an Excise Tax (as defined in the CIC Agreement),  such Retention Payment shall be reduced in whole or in part, to the extent necessary to reduce to zero the Excise Tax resulting from the Retention Payment.  For purposes of the foregoing calculation of Excise Tax, if any, the Retention Payment shall be deemed to be the last item taken into consideration.

4.   Payment Upon Termination of Employment

4.1   Accrued Compensation Payment.  If the Executive’s employment is terminated for any reason by the Employer or by the Executive, the Executive shall be entitled to receive any earned but unpaid base salary as of the date of termination, together with any earned, but unpaid (i) vacation and (ii) annual bonus for the prior performance year, as determined pursuant to the terms of the plan.

4.2   Severance Payment.  In addition to the payment provided in Section 4.1, if the Executive’s employment is terminated after the second anniversary of the Acquisition Date (i) by the Employer for other than Cause, death or Disability, or (ii) by the Executive for Good Reason, the Executive shall be entitled to receive a lump sum cash payment in an amount equal to the Executive’s Base Amount and Bonus Amount.  Notwithstanding the foregoing, if the Executive becomes entitled to a payment of severance benefits pursuant to Section 3.1 of the CIC Agreement, no benefit shall be payable pursuant to this Section 4.2.

4.3   Timing of Payments.  All of the amounts provided for above shall be paid to the Executive (or his successor-in-interest in the event of his death) no later than 10 days following his termination of employment.

5.      Tax Withholding and Tax Payments.  Executive acknowledges that amounts paid or deferred pursuant to this Agreement may be subject to federal, state and local tax payments and withholdings.  All amounts paid to the Executive shall be net of such withholding.  In the case of amounts deferred pursuant to this Agreement, Executive hereby agrees to timely provide the Company with sufficient funds to enable it to meet its withholding and deposit obligations with respect to such taxes.

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6.     Notices.  Any notices required or permitted to be given under this Agreement shall be in writing and be personally delivered against a written receipt, delivered to a reputable messenger service (such as Federal Express, DHL Courier, United Parcel Service, etc.) for overnight delivery, transmitted by confirmed telephonic transmission (fax) or transmitted by regis­tered, certified or express mail, return receipt requested, postage prepaid, addressed to the residence of the Executive as shown on the Employer’s records, or the principal place of business of the Employer­, respectively.  All notices shall be effective and shall be deemed given upon being personally delivered against a written receipt, when delivered to a reputable messenger service, upon transmission of a confirmed fax or upon being deposited in the United States mail in the manner provided in this Section.

7.     Governing Law.  This Agreement shall be gov­erned by, and construed in accordance with, the laws of the Commonwealth of Kentucky without regard to its conflict of laws rules.

8.     Entire Agreement  This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof.

9.     Amendment.  This Agreement may not be amended orally, but only by an agreement in writing signed by the party against whom enforce­ment of any waiver, change, modifi­cation, extension or discharge is sought.

10.   Assignment.  The rights and obligations of the Executive under this Agreement are personal and may not be assigned or delegated.  The Employer may not assign their rights and obligations under this Agreement, by operation of law or otherwise, without the prior written consent of the Executive.

11.   Binding Effect.  This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective executors, administrators, heirs, successors and assigns.

12.   Headings; Section References.  The Section headings contained in this Agreement are for convenience only and shall not be deemed a part of this Agreement in construing or inter­preting the provisions hereof.  All Section references herein shall refer to Sections of this Agreement unless the context otherwise requires.

13.   Construction.  Each of the parties acknowledge that they and their respective counsel have negotiated and drafted this Agreement jointly and that the rule of construction that ambiguities are to be resolved against the drafting party shall not apply in the interpretation or construction of this Agreement.

14.   Survival.  The terms of Section 4 shall survive the termination of this Agreement regardless of who terminates this Agreement or the reasons therefor.

15.   Acceptance of Agreement.  The benefits contained in this Agreement are conditioned upon acceptance of this Agreement by the Executive.  Executive shall indicate such acceptance of this Agreement by returning an executed copy to the Senior Vice President and Chief Administrative Officer of the Company by 5:00 p.m. on May 6, 2002.  Failure by the Executive

4

to accept the Agreement as provided in this Section 15 shall result in a loss of eligibility for the benefits contained herein.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

LG&E Energy Corp.

By:  _________________________________

Title: ________________________________

(“Company”)

E.ON AG

By:  _________________________________

Title: ________________________________

(“Parent”)

_____________________________________

(“Executive”)

5

EX-10.76

Exhibit 10.76

SECOND AMENDMENT TO THE

EMPLOYMENT AND SEVERANCE AGREEMENT

OF

JOHN R. McCALL

                This Second Amendment to the Employment and Severance Agreement of John R. McCall (“Second Amendment”) is made and entered into this 20 day of May, 2002 by and among (i) LG&E Energy Corp., a Kentucky corporation (“Company”), (ii) Powergen, plc, a United Kingdom public limited company (“Parent”), (iii) E.ON AG, an aktiengesellschaft formed under the Federal Republic of Germany (“German Parent”), and (iv) John R. McCall (“Executive”), collectively referred to as the “Parties”.

                WHEREAS,the Executive, the Company and the Parent entered into an Employment and Severance Agreement, dated February 25, 2000 (“Agreement”);

                WHEREAS, the Agreement was previously amended by the Executive, the Company and the Parent in a document dated December 8, 2000 (“First Amendment”);

                WHEREAS, the Parent and German Parent have agreed to the terms of a recommended pre-conditional cash offer, whereby German Parent or its subsidiary will acquire ownership of the Parent;

                WHEREAS, the Parent and the German Parent have determined that the acquisition of the Parent by the German Parent shall be completed by way of a scheme of arrangement, whereby the acquisition will become effective in accordance with the terms of the scheme (“Acquisition Date”); and

                WHEREAS, the Parties have determined that it is now desirable to amend the Agreement to reflect certain changes resulting from the German Parent’s acquisition of the Parent.

AGREEMENT:

                NOW THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows:

                 1.            A new Section 1.4 shall be added to the end of Article 1 to read as follows:

“1.4         If the Executive is (i) employed on the day following the second anniversary of the Acquisition Date by the Company, the Parent, the German Parent, or any subsidiary of the Company, the Parent or the German Parent, hereinafter referred to as the

“Employer”, or (ii) terminated from employment prior to expiration of the twenty-four (24) month period following the Acquisition Date for any reason other than a termination by an Employer for Cause or a termination by the Executive without Good Reason (as hereinafter defined), the Employer shall pay to the Executive on such an anniversary or within 10 days of such termination date a lump sum cash payment in an amount equal to (i) the Executive’s Salary Amount (as hereinafter defined), and (ii) the Executive’s Target Annual Incentive Amount (as hereinafter defined).  For purposes of this Agreement, “Salary Amount” shall mean the Executive’s annual base salary from an Employer in effect at the time of payment, including all amounts of base salary that are deferred under any qualified or non-qualified employee benefit plan of an Employer; provided however, if an Employer has reduced the Executive’s annual base salary, the Salary Amount shall be the annual base salary in effect prior to the reduction.  For purposes of this Agreement, “Target Annual Incentive Amount” shall mean the target annual bonus of the Executive under the annual incentive plan of the Employer at the time of payment; provided however, that if an Employer has reduced the target annual bonus of the Executive, the Target Annual Incentive Amount shall be the target annual bonus in effect prior to the reduction.”

2.             Section 2 shall be deleted and replaced in its entirety to read as follows:

“2. TERM OF AGREEMENT.  This Agreement shall commence as of the Effective Time, and shall continue in effect until the second anniversary of the Effective Time; provided, however, that commencing on the second anniversary of the Effective Time, and on each anniversary of the Effective Time thereafter, the term of this Agreement shall automatically be extended for one (1) year unless the Company or the Executive shall have given written notice to the other at least ninety days prior thereto (if such notice is given following the second anniversary of the Effective Time, otherwise such notice period shall be one hundred and eighty days) that the term of this Agreement shall not be so extended; and provided, further, however, that notwithstanding any such notice by the Company not to extend, the term of this Agreement shall not expire prior to the expiration of the later of (i) twenty-four (24) months after any Change in Control which occurs while this Agreement is in effect, or (ii) forty-eight (48) months after the Acquisition Date.”

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3.Section 3.4 shall be deleted and replaced in its entirety to read as follows:

“3.4.        The Executive will perform his services at the Company’s headquarters in Louisville, Kentucky, with the understanding that he will be required to travel as reasonably required (including travel to the United Kingdom and Germany) for the performance of his duties under this Agreement.”

4.Subsection 6.5(a) shall be deleted and replaced in its entirety to read as follows:

“(a)         For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the events or conditions described in subsections (1) through (10) hereof:

                (1)           a reduction by the Company in the Executive’s Base Salary or annual target bonus opportunity as in effect prior to such reduction or any failure to pay the Executive any compensation or benefits to which the Executive is entitled within thirty days of the applicable due date, provided that the Company may correct such reduction or failure within thirty (30) days of its commission;

                (2)           German Parent, Parent or the Company require the Executive to be relocated anywhere in excess of fifty (50) miles of his present office location, except for (i) required travel on German Parent, Parent or Company business consistent with his business travel obligations as in effect prior to the Effective Time and as provided in Section 3.4 of this Agreement; or (ii) a relocation resulting from appointment of Executive to the highest ranking legal position (whether Chief Legal Officer, General Counsel or similar title) of the United States entity primarily responsible for the management of the German Parent’s participation in the United States’ energy industry;

                (3)           a failure by Parent or the Company to maintain plans providing benefits at least as beneficial in the aggregate as those provided by any benefit or compensation plan, retirement or pension plan, stock option plan, bonus plan, long-term incentive plan, life insurance plan, health and accident plan or disability plan in which the

3

Executive is participating prior to the Effective Time, the Change in Control, or this Second Amendment, as applicable, or if the Company or Parent has taken any action which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him prior to the Effective Time, the Change in Control, or this Second Amendment, as applicable, or if the Company or Parent has failed to provide him with the number of paid vacation days to which he would be entitled in accordance with the Company’s normal vacation policy immediately prior to the Effective Time, the Change in Control, or this Second Amendment as applicable;

                (4)           Parent or the Company materially reduces, individually or in the aggregate, the Executive’s title, job authorities or responsibilities as in effect prior to such reduction;

                (5)           Parent or the Company fails to obtain the assumption of the obligations contained in this Agreement by any successor as contemplated in Section 11 hereof;

                (6)           any purported termination of the Executive’s employment by Parent or the Company which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8, hereof; and, for purposes of this Agreement, no such purported termination shall be effective;

                (7)           any material breach by Parent or the Company of any provision of this Agreement;

                (8)           any purported termination of the Executive’s employment for Cause by Parent or the Company which does not comply with the terms of Section 6.2 of this Agreement;

                (9)           any removal of the Executive from the position of Executive Vice President, General Counsel, and Corporate Secretary of the Company, except for Cause; or

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                (10)         any failure to appoint Executive to the highest ranking legal position (whether Chief Legal Officer, General Counsel or similar title) of the United Sates entity primarily responsible for the management of the German Parent’s participation in the United States’ energy industry.”

        4.     The introduction to Section 7.1 shall be deleted and replaced in its entirety to read as follows:

“7.1.        If during the Term of this Agreement, the Executive’s employment with the Company shall be terminated within the later of (i) twenty-four months after the effective time of any Change in Control, or (ii) forty-eight months of the Acquisition Date, then the Executive shall be entitled to the following compensation and benefits:”

5.             The introduction to Section 7.2 shall be deleted and replaced in its entirety to read as follows:

“7.2.        If during the Term of this Agreement, the Executive’s employment with the Company shall be terminated following the later of (i) twenty-four months after the effective time of any Change in Control, or (ii) forty-eight months of the Acquisition Date, then the Executive shall be entitled to the following compensation and benefits:”

6.             Section 7.2(c)(ii) shall be deleted and replaced in its entirety to read as follows:

“7.2(c)(ii)                The Company shall pay, as a severance amount to the Executive after the Termination Date, an amount equal to the Executive’s (i) Salary Amount, and (ii) Target Annual Incentive Amount;”

IN WITNESS WHEREOF, the Company, the German Parent and the Parent have caused this Second Amendment to be executed by its duly authorized representative and the Executive has executed this Second Amendment as of the date set forth below, but which shall

5

be effective as of the later of (i) the Acquisition Date, provided the Company employs Executive on that date, or (ii) the date the Executive executes a release in the form attached hereto.  Except as provided herein, nothing contained in this Second Amendment shall alter the terms and conditions of the Agreement or the First Amendment.

E. ON. AG
By:	/s/ Ulrich Hartmann
	Name
	Title
Date:
LG&E ENERGY CORP.
By:	/signed/
	Name
	Title
Date:
POWERGEN, plc
By:	/signed/
	Name
	Title
Date:
EXECUTIVE
	/s/ John R. McCall
	John R. McCall
Date	20 May 2002

6

EX-10.77

EXHIBIT 10.77

CONTRACT OF EMPLOYMENT

THIS AGREEMENT is made the   22    day of June    1999 B E T W E E N:

(1)POWERGEN UK PLC of 53 New Broad Street, London, EC2M 1JJ (“the Company”)

- and -

(2)RICHARD AITKEN-DAVIES of 131 Durham Road, London SW20 ODF (“the Executive”)

IT IS HEREBY AGREED as follows:

1.The Executive will hereafter be employed by the Company on the Terms and Conditions of Employment set out in the Appendices and the Schedule hereto.

2.This Agreement is governed by and shall be construed in accordance with the Laws of England.

3.This Agreement supersedes all previous agreements and arrangements relating to the Executive’s employment by the Company or by any of the Company’s predecessors in business (which shall be deemed to have been terminated by mutual consent).

IN WITNESS WHEREOF this Agreement has been entered into the day and year first before written.

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THE APPENDICES

TERMS AND CONDITIONS OF EMPLOYMENT

Set out in the following Appendix I, Appendix II and the Schedule are the terms and conditions of your employment with the Company.

Copies of the Company’s Bonus Scheme, Car Scheme, Private Health Scheme and relevant pension schemes referred to in Appendix I and the Company’s Sick Leave Rules referred to in Appendix II will all be available from the Company’s Group Personnel Director.

References to “associated company” and “associated companies” in the Appendices or the Schedule mean:-

(a)any subsidiary company, as defined in Section 736 of the Companies Act 1985 (as substituted by Section 144 of the Companies Act 1989), of the Company and

(b)any company having an ordinary share capital (as defined in Section 832 of the Income and Corporation Taxes Act 1988) of which not less than 25 per cent is owned directly or indirectly by the Company (applying the provisions of Section 838 of the Income and Corporation Taxes Act 1988 in the determination of ownership).

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APPENDIX I

1.Pay and Benefits

1.1Salary

(A)Your salary will initially be at the rate of £140,000 per annum.

(B)Your salary will be payable by equal monthly instalments in arrears on or about the 24th day of each month, and will be deemed to accrue from day to day.  It will be reviewed from time to time during your employment at the discretion of the Company.

(C)Your salary will be inclusive of any other remuneration to which you may be entitled as a Director of the Company or of any associated company, and to give effect to this you will pay over, or procure to be paid over, to the Company all such fees or other remuneration received by you.

2.Bonus Scheme

You will be paid a bonus in accordance with the terms of the Company’s Executive Bonus Scheme and such other performance-related payments or incentives, all as may be agreed from time to time.

3.Company Car

You will be paid an annual payment of £9,504 by monthly instalments of £792 in lieu of an Executive level car under the PowerGen Contract Hire Scheme.

This payment will not be superannuable and will be liable to tax. It will be subject to review once a benchmark has been established for the cash equivalent benefit under the Executive car scheme and you will be notified of any changes.

4.Private Health Care

You will receive free cover for yourself and your spouse and for any dependant children during the period of your employment with the Company under the Company’s Private Health Scheme subject to and in accordance with the rules of the Scheme from time to time.

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5.Pension

5.1You will be entitled to membership of the Electricity Supply Pension Scheme (“the ESPS”) and you will be entitled to become a member of such other schemes as the Company may introduce subject to, and in accordance with, the terms of the ESPS and such other schemes from time to time.

5.2While you are a member of the ESPS your employment will be contracted out for the purposes of the Social Security Pensions Act 1975.

5.3You will be required to make contributions in accordance with the terms of the ESPS and the terms of such other relevant schemes as may be introduced in relation to which such contributions are payable.

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APPENDIX II

1Title and Duties

1.1You will be employed by the Company as Director – Group Performance.

1.2As an employee you will perform such duties and exercise such powers as may from time to time be assigned to you by the Company.  You will devote the whole of your attention and skill to your duties.

1.3You may be required by the Company, as part of your employment, to have responsibilities for, and to carry out duties on behalf of, any of its associated companies, to act as an officer, or consultant of any such associated company and to carry out the duties relating to such an appointment.

2.Places of work

You will be based at the Company’s office at New Broad Street, but the Company has the right to transfer you to other locations in the United Kingdom after consultation with you.  If any transfer necessitates moving house you will be reimbursed for reasonable expenses you may so incur.

3.Hours of Work

You will work such hours as may be necessary or appropriate from time to time to carry out your duties properly and effectively.

4.Notice periods and retirement

4.1Subject to Clause 12 below your employment will continue unless or until terminated by either the Company giving to you or by you giving to the Company not less than 12 months notice in writing.

4.2Your employment will, in any event, automatically terminate (if not already terminated) upon your 63rd birthday or on your retirement at any earlier time.

5.Holidays

5.1You will be entitled to 25 days annual holiday on full salary between 1 April and 31 March in each year (the “Holiday Year”), to be taken at such time or times as may be approved by the Company.  You may not carry over any holiday entitlement not taken in one Holiday Year to the next, except at the discretion of the Company.

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5.2Upon the termination of your employment (except pursuant to Sub-Clause 12.1 below) you will be entitled to a payment in lieu of any annual holiday which has accrued due since the beginning of the then current Holiday Year and which you have not taken at the date of termination.  If on termination of employment you have taken holidays in excess of the annual holiday which had accrued due by the date of termination you shall pay forthwith to the Company, or that the Company may deduct from any sums payable to you, an amount that is equal to the salary you have been paid in respect of excess days of holiday taken by you.  For the purposes of this sub-clause your annual holiday will be treated as accruing at the rate of two days for each month of service completed after the beginning of the relevant Holiday year.

5.3In addition you will be entitled during the Holiday Year to holiday with pay on public, bank and other similar holidays.

6.Ill Health

6.1Provided that you supply the Company with self-certification sickness forms and/or medical certificates covering the periods of absence as required by the Company’s Sick Leave Rules you will be entitled to be paid during absence from work due to sickness or injury for a period of a total of up to six months on full salary in any period of twelve months you are employed by the Company.  Thereafter, you will at the discretion of the Company and, subject to the provisions of Sub-Clause 12.2 below, continue to be paid for a further six months at half salary.  In the event that your employment is terminated either at the end of the aforementioned six month period or under the terms of Sub-Clause 12.2 you will be entitled to receive the benefits of such health insurance scheme as may from time to time be in force.

6.2If the sickness or injury resulting in your absence from work is, or appears to be caused by the acts or conduct of a third party you must immediately notify the Company giving full particulars, including particulars of any relevant claim or legal proceedings.  If required by the Company, you must also refund to it that part of any damages recoverable relating to loss of earnings for the period of your absence as the Company may reasonably determine provided that the amount to be refunded shall not exceed the amount of damages or compensation actually recovered by you less any costs borne by you in connection with such recovery and shall not exceed the total remuneration paid to you in respect of the period of absence.

7.Business expenses

You will be reimbursed with the amount of all hotel, travelling and other expenses properly and necessarily incurred in the performance of your duties

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against the production to the Company of valid receipts for such expenses, and subject always to the Company’s current policies with regard to business travel, accommodation and expenses.

8.Confidential information and other business interests and activities

8.1.During your employment you must not (other than with the written consent of the Company) be directly or indirectly engaged or concerned in the conduct of any other business, trade or occupation (whether as employee, consultant, director, shareholder or otherwise).  Nevertheless, you may be or become a shareholder of not more than 3% of any class of security in any one Company which is quoted and dealt in on any recognised Stock Exchange.  You must at all times keep the Chairman, or his nominee, promptly and fully informed of all matters upon which you are engaged outside your employment with the Company.  You must also observe Company requirements and procedures relating to the impartiality of officers and the acceptance of gifts.

8.2You will not, either during your employment (otherwise than in the performance of your duties) or afterwards, use for your own or for anyone else’s benefit, divulge or communicate to anyone any trade or business secret or confidential information concerning the business, finances or affairs of the Company, or any associated company, without the written consent of the Company or relevant associated company, as appropriate.  You will use your best endeavours to prevent the misuse, disclosure or publication of any trade or business secret or any confidential information concerning the business of the Company or any associated company.

8.3You will not make use of, make copies or notes of, or retain any records, written or otherwise, relating to the business of the Company, or any associated company, or allow any of these things to be done by anyone else, otherwise than for the benefit of the Company or the relevant associated company, as appropriate.  In any event, upon the termination of your employment you will deliver up to the Company or relevant associated company any such documents, together with all other Company or associated company property.  Title to and copyright in all such documents will be the Company’s (or, where appropriate, the associated company’s) throughout.

8.4You will not after the termination of your employment represent yourself as being an officer of, or employed by or connected with, the Company or any associated company.

8.5You will not, for twelve months in respect of paragraph 8.5(a) and nine months in respect of other paragraphs of this Sub-Clause, after the termination of your employment (without the prior written consent of the Company or any associated

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company as appropriate) either on your own account or for any person, firm, company or organisation:-

(a)solicit or entice or endeavour to solicit or entice away from the Company, or from any associated company in relation to which you held at any time a position of responsibility in the course of your employment, any person who is or who at any time during the six months prior to the termination of your employment was an employee or Director of or consultant to the Company or the relevant associated company and with whom you had personal contact or dealings in the course of your employment during the period of six months prior to the termination of your employment.  This restriction applies whether or not such a person would commit any breach of his contract of employment by reason of leaving the service of the Company or the associated company, as appropriate;

(b)solicit, or endeavour to solicit business from any person or organisation with whom or which you had personal contact or dealings in the course of your employment during the period of twelve months prior to the termination of your employment, and which business is of the kind which is undertaken by the Company, or by any associated company in relation to which you held a position of responsibility in the course of your employment at any time during the twelve months prior to its termination, and which was undertaken by the Company or by any such relevant associated company as the case may be, at any time during that twelve month period;

(c)entice, or endeavour to entice, away from the Company, or from any associated company in relation to which you held a position of responsibility in the course of your employment at any time during the twelve months prior to its termination, business of the kind which is undertaken by the Company, or the relevant associated company, and which was undertaken by the Company or by any such relevant associated company as the case may be, during that twelve month period.

(d)have business dealings with, or accept business from, any person or organisation with whom you had personal contact or dealings in the course of your employment during the twelve months prior to the termination of your employment, and which business is of the kind which is undertaken by the Company, or by any associated company in relation to which you held a position of responsibility in the course of your employment at any time during the twelve months prior to its termination, and which was undertaken by the Company or by any such relevant associated company as the case may be, during that twelve month period.

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8.6You will not within England, Wales or Scotland and for the period of nine months after the termination of your employment without the prior written consent of the Company either alone or jointly with, or as manager, agent consultant or employee of, any person or organisation, directly or indirectly, carry on or be engaged or involved in the Restricted Business (as defined in the Schedule) or in any other business which competes directly with any business (other than the Restricted Business) of the Company or any associated company in relation to which you held a position of responsibility in the course of your employment at any time during the twelve months prior to its termination.  During any period of restriction which arises pursuant to this Sub-Clause 8.6, the Company will pay you compensation of equivalent to nine months of your annual salary determined from Sub-Clause 1.1 of Appendix I, always provided that you have not committed any breach of the provisions of this Sub-Clause.  This compensation will be payable in nine equal monthly payments on the last day of each calendar month beginning at the end of the first complete calendar month after the termination of your employment.

8.7If you should at any time seek to leave the Company’s employment without giving the full period of notice required under Clause 4 above and in circumstances where you are not entitled to terminate your contract of employment without giving such notice, the Company will have the right to require you not to attend at any place of work and otherwise to suspend you from the performance of your duties without prejudice to your rights to remuneration and other benefits until such termination is effective.

8.8You agree that the restrictions and obligations contained in Sub-Clauses 8.2, 8.3, 8.4, 8.5 and 8.6 will continue after the termination of your employment, whether terminated on notice, summarily, in breach of contract or otherwise and whether terminated by you or by the Company.

8.9For the avoidance of doubt, the restrictions contained in each of the above Sub-Clauses constitute entire, separate and independent restrictions.  If any restriction is held to be unenforceable, then it is intended that the remaining restrictions will remain in force and unaffected.

9.Protection of intellectual property

9.1Subject to the Patents Act 1977 and the Copyright Act 1956 (as amended or consolidated), any invention made by you in the course of or arising out of your employment belongs to the Company and you must take all appropriate steps to ensure that the Company obtains the maximum benefit from such invention by the prompt application for patents at the Company’s expense and generally.

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9.2If you create or make any discovery, design or other work in the course of or arising out of your employment each such discovery, design or work belongs to the Company and you should take all appropriate steps to ensure that the Company obtains the maximum benefit from such discovery, design or work.

10.Compliance with legislation and regulation

10.1You must observe the relevant requirements of the Stock Exchange “ Yellow Book”, The Company Securities (Insider Dealing) Act 1985 (as amended or consolidated), and, when applicable, the City Code on Take-overs and Mergers and the Rules governing Substantial Acquisitions of Shares.

10.2It is your obligation to ensure you take no action and make no statement (or omit to take any action or make any statement) which constitutes unlawful discrimination whether under the Sex Discrimination Act 1975 or the Race Relations Act 1976 or otherwise.

10.3You are required to comply with the provisions of legislation on health and safety and working conditions, and to do your utmost to ensure that the Company, and any subsidiary company, complies with that legislation, with the legislation concerning their areas of activity and generally with all legal obligations affecting the Company and any subsidiary company or successor company.

11.Medical examinations

The Company may require you to undergo from time to time a medical examination by a doctor appointed by the Company.  The Company will be entitled to receive a report of the examination, a copy of which will be sent to you.

12.Termination Provisions

12.1Your employment may be terminated forthwith by the Company by summary notice in writing:

(a)if you are guilty of any gross default or gross misconduct in connection with or affecting the business of the Company or any associated company; or

(b)in the event of any serious or repeated breach of or non-observance by you of any of the stipulations contained in this agreement; or

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(c)if you become unable to pay your debts or a bankruptcy order is made against you, or if you enter into a deed of arrangement with your creditors; or

(d)if you are convicted of any arrestable criminal offence (other than an offence under road traffic legislation in the United Kingdom or elsewhere for which a fine or non-custodial penalty is imposed); or

(e)for any other reason permitting summary dismissal at law.

12.2If (owing to sickness, injury or otherwise) you do not perform your duties for a period of at least six months (whether or not consecutive) in any period of twelve months the Company will (without prejudice to any other provision of this agreement) be entitled by summary notice to you in writing (given at the expiry of such period or at any time thereafter while you continue not to perform your duties hereunder) to terminate your employment forthwith.

12.3If the Company has any grounds to believe it may have a right to terminate your employment pursuant to Sub-Clause 12.1 above it shall be entitled (but without prejudice to its right subsequently to terminate your employment on the same or any other ground) to suspend you on full pay, for a period of not more than three months for any enquiry or investigation into the circumstances giving rise to such belief.

12.4In the event of the Company deciding to pay to you a sum in lieu of notice (whether whole or in part), the Company reserves the right:-

a)to reduce any such payment by such amount as the Company’s Remuneration Committee shall direct if in the opinion of such Committee you have failed properly to discharge your duties as an executive director of the Company;  and/or

b)to discharge any such payment by means of instalment payments to you during any remaining period of notice not worked by you, of such amounts and upon such conditions as the Company’s Remuneration Committee may direct (having regard in particular to your ability to mitigate any loss occasioned to you by reason of the termination of your employment.)

12.5Upon termination of your employment for whatever reason, and whether in breach of contract or otherwise, you will at the request of the Company or any associated company, immediately resign, in writing and delivered as a deed, your position as a Director of such associated company, waiving all compensation for loss of office as Director.  If you fail to resign your position as Director, all relevant associated companies are hereby irrevocably authorised to appoint

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someone in your name and on your behalf to sign any documents and to do any things necessary to give effect to this obligation.

13.Grievance/Disciplinary

In the event that you are dissatisfied with any disciplinary action taken against you, or have any grievance relating to your employment you should apply in the first instance to the Chairman who will either propose a solution or refer the matter to the Company Board for a decision.  There is no formal disciplinary procedure relating to your employment.

14.Continuous Employment

Your period of continuous employment with the Company (including any relevant previous employment with the Central Electricity Generating Board) began on 1 May 1998.

15.Notices

Notice under these Terms and Conditions will be treated as having been given if sent by ordinary first class post, by you to the Company’s registered office or by the Company to you at your last known address, as appropriate, and will be deemed to be given on the day when it would ordinarily be delivered after such posting.

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THE SCHEDULE

“Restricted Business” shall mean the businesses of:-

•generation, distribution, marketing, sale or supply of electricity; and/or

•distribution, marketing, sale or supply of gas; and/or

•the procurement or sale of fuel for the generation of electricity; and/or

•the construction or erection of power stations for the generation of electricity; and/or

•research into or technical evaluation of any process or method capable of use in any of the items above; and/or

•providing consultancy services in respect of any of the items above.

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SIGNED the day and year first before written.

SIGNED by	)
for and on behalf of	)
POWERGEN UK PLC	)
	)
	)
SIGNED by	)
RICHARD AITKEN-DAVIES	)

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TERMS AND CONDITIONS OF ASSIGNMENT TO: POWERGEN KENTUCKY LTD; US BRANCH OFFICE (“The  Assignment”)

WITH POWERGEN UK PLC (“the Company”)

NAME:  Mr Richard Aitken-Davies

PROPOSED PERIOD: 1 January 2001 - 31 December 2002

References in this document to “Chief Executive Officer” mean the Chief Executive Officer of LG&E Energy Corporation.

1.Title

You will be assigned as the Chief Financial Officer, LG&E Energy Corp.

2.Remuneration

Your remuneration package is made up of:

Basic Salary	£167,104	per annum
Cost of living adjustment	£3,410	per annum (non-taxable)

Your salary will be reviewed in July each year.  The cost of living adjustment is reviewed annually. As a result of the review, any adjustments to your overseas remuneration will be made at this time. You should be aware that these adjustments can go down as well as up.

The cost of living adjustment is based on the standard index. After one year this will be reviewed on the basis that you will be a more informed purchaser and the efficient purchaser index will be used.

Your salary net of hypothetical tax will be paid into your UK bank account.  Any reasonable bank charges associated with the transfer of money to the US will be reimbursed on production of the necessary documentation.

Your basic salary includes the sum of  £9,504 in lieu of the payment that you currently receive under your UK contract of employment for an executive level car.  On your return to the UK, you will continue to receive this payment consolidated in your basic salary and will not be eligible for a car under the executive car scheme.

Additional Remuneration

In addition an overseas service payment (not subject to hypothetical tax) of 5% of salary will be paid every six months for the duration of the assignment.  The calculation will be based on the basic salary at the time of payment.

Settling-in Allowance(not subject to hypothetical tax)

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A lump sum payment of £2000 will be paid as a contribution to the expense of settling into your US accommodation.

3.US Work Permit

It is a condition that you and your wife are in possession of the relevant US Visa prior to commencing this assignment.

4.Taxation

The Company agrees to the tax and social security arrangements as set out in Appendix A which forms part of this contract.  This allows for hypothetical tax to be deducted from certain components of your overseas package in order to contribute towards meeting any real UK or US income tax liabilities.

On the basis of current UK tax legislation you should be entitled to non-resident tax status, as your assignment includes a full UK tax year, (that is, 6 April to 5 April).  You will need to submit a P85 claim form to the Birmingham tax office via the tax advisors in order to obtain this relief.

You will be provided with overseas tax return preparation assistance for filing tax returns in the US and UK tax return preparation assistance in the year of departure from, and arrival back in, the UK. You must ensure that all information requested by the tax advisors is provided in a timely manner to ensure compliance. Any penalties or interest costs arising from missed deadlines will be reimbursed by you to the Company.  Any overseas tax repayments made to you must be signed over to the Company at the time the money is received.

The advisors will provide such information to Powergen as is necessary to ensure tax liabilities arising on employment related income are met by the Company.

5.National Insurance

The UK has a reciprocal agreement on social security with the USA. Therefore, Powergen will apply to the relevant authorities to allow you to remain in the UK National Insurance scheme for the duration of your assignment.  If successful, you will receive a Certificate of Continuing Liability to UK National Insurance and Class 1 contributions will continue for the period of the assignment.

6.Pension

During your assignment in the US you will continue to be entitled to remain a member of the Electricity Supply Pension Scheme, the Powergen Senior Executive Pension Scheme (PSEPS) and the Unapproved Schemes and have pension contributions deducted from your basic salary at the present rate. Should your circumstances change you should inform the Pensions Manager at Powergen as soon as possible.

7.Pre and Post Assignment Leave

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You will be entitled to 1 day’s embarkation leave and 2 days’ recuperative leave at the start of the assignment, and 1 day’s embarkation leave and 1 day’s rest leave at the end.  This leave is in addition to your annual leave entitlement.

8.Travel Costs

In order that you may take up your assignment, Powergen will pay travelling expenses for you and your wife, to and from the US at the beginning and end of the assignment (except as provided in 24.3 and 24.5).  These expenses will include payment of an excess baggage allowance of 20kg each on both the outward and return flights.

Travel will be by Business class; flights booked through the Company’s preferred supplier..

For travel from home to the UK airport,, you may wish to use a hire car. Powergen will pay the cost of a maximum of 2 day’s hire. The same arrangements will apply for the journey home at the end of your assignment (except as provided in 24.3 and 24.5).

9.Annual Leave

Your overall leave entitlement will be 25 days (excluding travelling time) plus the annual public holidays of the host country.  If you wish to take annual leave this must be approved by the Chief Executive Officer for the duration of the assignment.

10.Home Leave and Travel Costs

You should incorporate home leave with business trips wherever possible. You and your wife will each be entitled to 4 home leave tickets during the assignment period excluding the outgoing and final trip home. In addition, you are entitled to a further 4 tickets each year for your non-accompanying family members. Travel for home leave will be on the basis of business class airfare booked through the Company’s preferred supplier.

A hire car may be booked for the full period of home leave.  Petrol costs will be met by the Company.

Any days off taken, as part of a home leave will be deducted from your annual leave entitlement.

11.Emergency ‘Home Leave’’

Consideration will be given to emergency home leave in the event of the death or serious illness of an immediate family member in the UK.

12.Freight

The reasonable costs of shipping personal effects will be paid at the beginning and at the end of the assignment (except as provided in 24.3 and 24.5).  You and your wife will have a total surface freight allowance of 3m^³ per person net or equivalent cost airfreight allowance.  When in the UK, you should obtain quotes from our preferred suppliers and accept the lowest.  Please refer to the notes of guidance in the enclosures pack. At the end of your assignment you may contact the preferred supplier or a local recommended organisation.   If you find the allowance of 3m^³net restrictive, you should provide details of what you intend to take and the Group HR

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Director will give consideration to increasing the allowance on an individual basis.  We recommend you do not ship antique or fragile goods.

Unused freight allowance is not transferable.

13.Temporary Accommodation on Arrival in the US

Should you and your wife have to stay in a hotel or other temporary accommodation for the initial period of the assignment, reasonable costs, including meals, will be reimbursed on production of receipts, within limits agreed with  the Group HR Director.

14.Accommodation – Destination Support

Assistance in finding suitable accommodation has been arranged by the Company with First Choice International based in Louisville, Kentucky.

15.Permanent Accommodation

The Company will pay up to an agreed limit for reasonable accommodation (including management and car parking/garage fees). Prior to commencing your house search, the allowance and specification for your accommodation should be agreed with the Senior Vice President and Administrative Officer.  Should you wish to rent a higher priced property, you will be responsible for the additional costs incurred.  the Company will meet the cost of legal fees, rates and estate agent fees.  You will be responsible to the Landlord for any accidental damage to the property or its contents that occurs during the assignment.  You should note that normally the lease is drawn-up in LG&E Energy’ Corporations  name subject to local arrangements. You and your wife will be entitled to occupy such accommodation until your assignment in the US actually ceases.

16.UK and US Utilities

The overriding principle is that you will remain responsible for one set of standing charges and units consumed.  The table below establishes where the responsibility for payment rests in a range of circumstances.

Powergen will reimburse the total cost of initial connection charges for gas, electricity, water and telephone and any subsequent disconnection charges incurred in the US.

The Company will pay reasonable business call costs and you should meet the cost of all personal telephone calls.  Bills should be itemised accordingly.

	UK			US
	Standing Charges	Units Consumed	Maintenance Costs Units	Standing Charges	Units Consumed
UK property occupied by family	E	E	E	PG	PG
UK property rented-out	E	E	E	E	E/PG*
UK property empty	E	—	PG	PG	E/PG*

E = Employee    PG = The Company    E/PG* = Proportion of 50/50

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17.On-going Commitments in the UK

During the period of your assignment you will continue to be responsible for payment of any such items as mortgage, house insurance, council tax, etc related to any property owned/leased by you in the UK.

If you choose (as opposed to business need transfer) to sell your house in the UK any costs incurred in the sale or purchase or rental of any alternative property will not be met by Powergen that  is, at the commencement or end of an assignment.

Should you retain your house and leave it unoccupied during the assignment, any additional reasonable costs incurred, (e.g. additional house contents insurance, general property maintenance), will be reimbursed on production of receipts. If you choose to rent out your property the Company will not reimburse any additional costs incurred.  You should note that you have a duty to take every action to mitigate any losses by taking proper security precautions, pursuing claims against third parties etc.  The Company will not pay for any costs associated with normal wear and tear of the property.  You should check the terms of your home contents insurance policy to ensure it is not invalidated by any non-occupancy.

Any reasonable costs arising from the redirection of mail from your home to a nominated forwarding address will be reimbursed on production of receipts.

18.Provision of US Transport

As you have a UK entitlement to a contract car you will be provided with a lease vehicle in the US in accordance with the senior executive car programme in LG&E. You should discuss arrangements with the Group HR Director.  Actual petrol expenses incurred by business mileage and private mileage will be met by the Company.  You will be entitled to company paid parking.

You will need to obtain an International Driving Permit by taking your British Licence and a passport photograph to one of the national motoring organisations (AA, RAC, NationalBreakdown), prior to your departure.  When applicable the cost of any additional insurance above the leasing arrangements, any road fund licence, together with any costs associated with driving tests for you/your wife will be met by the Company.

As a resident in Kentucky you will also need to obtain a local driving licence.

19.Luncheon Club

You will be reimbursed invitation fees and dues at a luncheon club of your choice subject to club provisions of nondiscrimination.

20.Occupational Health

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You and your wife have received the necessary medical clearance from Dr Vidia Kisnah, (Powergen’s Chief Medical Advisor) related to your stay in the US and have been provided with appropriate medical advice and guidance and equipment. Arrangements will be made by Dr Kisnah for a review in May 2001.

It is advisable for you and your wife to have full health checks e.g. optician and dental checks, routine GP visits, prior to departure and on home leave visits.  If you should require such checks overseas or glasses/contact lenses, Powergen will meet any significantly greater cost than that incurred in the UK upon production of receipts.

21.Insurance

Contents insurance applying to your possessions in the host country will be provided through Ergon Insurance Ltd.  You should refer to the overseas home insurance schedule for details of cover and complete an insurance proposal form and return to Risk Management based at Westwood.

Personal accident, and travel insurance will be provided for you and your wife through AIG.

You and your wife will be eligible to participate in the medical plan provisions which cover LG&E Energy Corporation employees in Kentucky. Arrangements will be made to take you through the plan provisions.

22.Business Visits

You may be required to make business visits during the course of your assignment.  Travel will be on the basis of Business class and a hire car may be booked for the full period of the visit.

All reasonable visits to the UK to perform your current role with the Association of Chartered Certified Accountants will be treated as business trips.

23.Business Expenses

Business expenses should be claimed in accordance with the Company arrangements.  They should be authorised by the Chief Executive Officer.

24. Trips to the UK

For tax reasons you must notify the Group HR Manager of any time spent in the UK either on business or pleasure.

25.Assignment Completion

Three months before the end of the assignment you and the Chairman will discuss the experience you have gained from the assignment in the US and consider future career possibilities.

26.Termination of Assignment

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26.1The Company is entitled to terminate your employment immediately by notice in writing to you pursuant to Clause 12.1(a), (b) (c), (d) (e) and 12.2 in your U.K Contract of Employment.

26.2The Company may terminate the assignment at any time without indemnity, compensation or notice save as set out in 26.4. The following list provides examples of reasons for termination but it is not to be regarded as exhaustive:-

a)termination of or a change to the Company’s activities in the country or specific venture or project to which you have been assigned or a change in the requirements of your role;

b)if the Company receives advice that your continued employment in the USA would be likely to endanger your health;

c)domestic/compassionate and other discretionary reasons requiring your return to the UK.

26.3If the assignment is terminated under the provisions of paragraphs 26.1 above, at the discretion of the Chairman, you will not be reimbursed the cost of you and your wifes repatriation to the UK.  The Company will not be liable for any loss of future income (from whatever source) allowance or benefits in kind that would have been earned but for the termination.

26.4If the Company terminates the assignment under the provisions of paragraphs 26.2 above or 26.7 below, then you will be reimbursed for all reasonable transfer costs arising directly out of the termination of your assignment.  The overseas service payment will be paid on a pro-rata basis upon termination of the assignment.

26.5In the event that you choose to resign from the Company before the end of the assignment, you will not be eligible to receive the overseas service payment nor will the Company pay for any return travel or freight costs.

26.6Tax equalisation will be applied until the date of termination of the assignment.

26.7If you can demonstrate on reasonable grounds that you are unable to pursue the objectives of this assignment in the US in the interests of the Company (or your own personal interests) and following consultation with the Chief Executive Officer and Group HR Director the position can not be resolved then you will return to your role as Director – Group Performance or an equivalent position agreeable to you at the time to be mutually agreed or in default of agreement upon three months notice from you.

26.8In the event that the company is taken over and completion of the takeover occurs during the first twelve months of your assignment, then for a period of twelve months from the date of the takeover, the relevant notice period to terminate your employment would be the remainder of  your assignment period plus the notice period as set out in your UK contract of employment.  In all other circumstances, the notice period set out in your UK contract of employment will apply.

7

27.British Consulate

You should register yourself and your wife at the local British Consulate Office soon after arrival in the US.

26.Jurisdiction

This agreement shall be governed by and interpreted in accordance with the laws of England and each of the parties submit to the jurisdiction of the English courts as regards any claim or matter arising under this agreement.

27.Contract of Employment

Except as stated in these terms and conditions your contract of employment with Powergen UK plc dated 23 June 1999 remains unchanged.

Signed for and on behalf of Powergen UK plc:

/signed/	19 March, 01
J A HART	Date

I have read the terms and conditions of assignment and understand and agree to abide by the tax and social security equalisation arrangement (Appendix A).  I accept the assignment on the basis of these terms and conditions.

/signed/	26th March 2001
Richard Aitken-Davies	Date

8

Appendix A

TAX AND SOCIAL SECURITY EQUALISATION

In order to ensure a fair and consistent approach to its international assignees, Powergen (Powergen UK plc and its subsidiaries) having regard to the practices adopted by other international companies, have applied a tax and social security equalisation policy on all basic UK pay and benefits elements, except healthcare.  Tax liability arising from receiving allowances or other benefits, e.g. “free” accommodation is met by Powergen.

Tax equalisation on personal income is not usual Powergen policy however taking into account your circumstances, arrangements will be made for your to meet with representatives from Arthur Andersen so that you can identify your current personal income/investment portfolio (‘register’ the portfolio). Powergen will then undertake to reimburse any incremental tax liability incurred on that portfolio as a result of the assignment to the US.  This commitment is subject to you adopting the tax filing basis recommended by Arthur Andersen’s.

Taking into account your circumstances, Powergen’s tax equalisation position with regards to income arising under Powergen’s share based plans is based on the following four basic principles:

1.  Any host country liability arising from an initial grant/award (as opposed to exercise or disposal under a Powergen share based plan will be covered by tax equalisation.

2. Any “forced” exercise which creates a US tax liability will be tax equalized.  Where such an event would “ordinarily” create a UK tax liability (i.e. exercise of an unapproved option), hypothetical taxes will be deducted, with the company meting any actual UK and UK taxes.

3.  Any home or US tax liability arising as a result of any voluntary exercise is for the individual’s account.  Further:

a)  where the plan is approved and therefore non taxable in the UK, it will be the individual’s responsibility to meet the US liability.

b)  where the plan is unapproved and therefore “ordinarily” taxable in the UK, either in part or whole, the company will deduct hypothetical tax and pay all home and US taxes to a maximum of the hypothetical tax deduction.  Any actual taxes in excess of this amount will be for the individual’s account.

4.  The disposal of any shares acquired through any Powergen share based plan (unless there is a “forced disposal”) is a personal investment decision and any home or US taxes arising on such a disposal are therefore not covered by tax equalisation.

9

Note:

The term “exercise” includes both an exercise of an option or a request for plan shares to be released from trust.

The term “forced exercise” is defined as an exercise which either:

a)  occurs within the last seven days up to and including the expiry dates of the specified vesting periods applicable to each of Powergen’s share based plans; or

b)  occurs within the last seven days up to and including the start of a closed period where the normal expiry date falls within the closed period; or

c)  occurs as a result of a change to Powergen’s corporate existence.

The term “voluntary exercise” is defined as any exercise which is not forced.

The term “forced disposal” is defined as where the individual is obliged at “forced exercise” to fund the actual/hypothetical tax arising by disposing of a proportion of the exercised shareholding.

The term “closed period” is defined as a specified period, during the normal vesting period applicable to each of Powergen’s based plans, in which an individual is prevented from exercising due to stock exchange or other statutory restrictions.

The total tax liability for the overseas assignment is met by Powergen utilizing the hypothetical tax policies plus its own funding.  Arthur Andersen are engaged to support the process.  Any UK tax refunds in the year of departure from and arrival in the UK arising as a result of the overseas assignment, including refunds due to unused personal allowances, but excluding refunds relating to non-employment income not covered above must be repaid to Powergen.  Further any under or over payment of actual UK or overseas tax, in respect of employment related income or that identified above only, will be met by Powergen or collected from the individual, respectively.   In the unlikely event of your being declared redundant whilst overseas, our tax equalisation policy will apply to the severance payments.

It is important to note that hypothetical tax is not real income tax and uses standard allowances rather than actual tax codes.  As in the UK, tax relief on Electricity Supply Pension Scheme contributions (ESPS) including additional voluntary contributions to the ESPS is maintained.  The basis of calculation of hypothetical tax is further outlined below.  Where the assignment commences or terminates part way through the UK tax year, the lower and basic rate bands and personal allowances will be pro-rated in the hypothetical tax calculation.

10

On the basis of current UK tax legislation, if your assignment includes a full UK tax year (that is 6 April to 5 April) you will be deemed to be a non-resident in the UK.  If not, it is likely you will be taxable both in the UK and US.

You will be required to submit UK and UK tax returns during the period of the Assignment.  Arthur Andersen have been appointed as Powergen’s international tax advisers who will assist with the preparation of returns (as detailed below) and the calculation of actual tax payable.  You may wish to supplement Arthur Andersen’s advise with independent financial advice in relation to your personal investment income.

Prior to commencing your US assignment, you are required to meet with Arthur Andersen who will clarify your taxation position and complete the necessary exit documentation for submission to the Inland Revenue.  Failure to do this may result in considerable tax complications for you.

It should be noted that you retain ultimate responsibility for the returns and must ensure that all information requested by the tax advisers is proved in a timely manner to ensure compliance.  Any penalties or interest costs arising from missed deadlines will need to be reimbursed to Powergen.

Social Security Equalisation

National Insurance helps to pay for some Social Security benefits including retirement pensions.  Whilst employed in the UK Class 1 contributions, up to a maximum rate are deducted from salary.  Powergen also pays employer NI contributions for you.

For assignments to the US, the UK has a reciprocal agreement.  Subject to various qualifications you will remain subject to UK National Insurance only and therefore both you and Powergen will remain liable for Class 1 contributions.

December 2000

11

EXPATRIATE TAX EQUALISATION

Components of Package

Taxable — equalised back to UK

Base Salary

Any Bonus payments

Car/transport allowance (personal use)

“Forced exercise” of the unapproved option

Exercise of approved option in an unapproved manner

“Voluntary exercise” of unapproved option subject to maximum referred to in point 3.b above

Non Taxable — Tax Paid by Powergen

Cost of living allowance

Overseas service payment

Location allowance

Settling in allowance

Accommodation costs

Home leave

Travel costs

Overseas relocation costs

Travel/accident insurance

UK garden and property maintenance costs

Overseas utility charges (where paid)

Private medical insurance

US lease car (senior executive car programme and associated expenses

Powergen share based plan — grant/award

Powergen share based plan — “forced exercise” of UK approved option

Powergen share based plan —  “forced disposal”

“Registered” portfolio of personal/investment income

December 2000

12

AMENDMENT TO THE TERMS AND CONDITIONS

OF ASSIGNMENT TO: LG&E ENERGY CORP.

OF

RICHARD AITKEN-DAVIES

THIS AMENDMENT TO THE TERMS AND CONDITIONS OF ASSIGNMENT TO: LG&E ENERGY CORP. OF RICHARD AITKEN-DAVIES (“AMENDMENT”) is made and entered into this 27^th day of June, 2002 by and among (i) LG&E ENERGY CORP., a Kentucky corporation (“Company”), (ii) POWERGEN, PLC, a United Kingdom public limited company (“Parent”) and, (iii) RICHARD AITKEN-DAVIES (“Executive”), collectively referred to as the “Parties”.

WHEREAS, the Executive and the Parent entered into a Contract of Employment, dated June 22, 1999 (“Agreement”).

WHEREAS, the Agreement was modified by the Terms and Conditions of Assignment To: LG&E Energy Corp. in a document dated December 19, 2000 (“Assignment”).

WHEREAS, the Parent and E.ON AG, an aktiengesellschaft formed under the Federal Republic of Germany (“German Parent”) have agreed to the terms of a recommended pre-conditional cash offer, whereby German Parent or its subsidiary will acquire ownership of the Parent.

WHEREAS, the Parent and the German Parent have determined that the acquisition of the Parent by the German Parent shall be completed by way of a scheme of arrangement, whereby the acquisition will become effective in accordance with the terms of the scheme (“Acquisition Date”).

WHEREAS, the Parties have determined that it is now desirable to amend the Assignment to reflect certain changes necessitated by the German Parent’s acquisition of the Parent.

AGREEMENT:

NOW THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed that the Assignment shall be amended as follows:

1.  The Proposed Period of the Assignment shall be extended until the second anniversary of the Acquisition Date.

2.  A new Section 26.9 shall be added to the end of Article 26 of the Assignment to read as follows:

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"26.9  If the Executive is (i) employed on the day following the second anniversary of the Acquisition Date by the Company, the Parent, the German Parent, or any subsidiary of the Company, the Parent or the German Parent, hereinafter collectively referred to as the "Employer", or (ii) terminated from employment prior to the expiration of the twenty-four (24) month period following the Acquisition Date by an Employer (other than as provided for in Sections 12.1 or 12.2 of Appendix II to the Agreement) or by the Executive for Good Reason (as hereinafter defined), the Employer shall pay to the Executive on such an anniversary or within 10 days of such termination date a cash lump sum payment in an amount equal to (i) the Executive's Salary Amount (as hereinafter defined), and (ii) the Executive's Target Annual Incentive Amount (as hereinafter defined).  For purposes of this Agreement, "Good Reason" shall mean a reduction by an Employer in the Executive's base salary or annual target bonus percentage as in effect prior to such reduction, or any failure to pay the Executive any compensation or benefits to which the Executive is entitled within thirty (30) days of its commission.  For purposes of this Agreement, "Salary Amount" shall mean the Executive's annual base salary from an Employer in effect at the time of payment;, provided however, if an Employer has reduced the Executive's annual base salary, the Salary Amount shall be the annual base salary in effect prior to the reduction.  For purposes of this Agreement, "Target Annual Incentive Amount" shall mean the target annual bonus of the Executive under the annual incentive plan of the Employer at the time of payment; provided however, that if an Employer has reduced the target annual bonus of the Executive, the Target Annual Incentive Amount shall be the target annual bonus in effect prior to the reduction."

3.             Except as provided in this Amendment, the temrs and conditions of the Agreement and the Assignment shall remain in full force and effect.

                IN WITNESS WHEREOF, the Company, the Parent have caused this Amendment to be executed by its duly authorized representative and the Executive has executed this Amendment as of the date set forth below, but which shall become effective as of the Acquisition Date, provided the Executive is employed by the Company on that date.

14

LG&E ENERGY CORP.
By:	/s/ John R. McCall
	Name
	Title	EVP, General Counsel, Corp. Sec.
Date:	6/21/02
POWERGEN, PLC
By:	/signed/
	Name
	Title
Date:
EXECUTIVE
	/s/ Richard Aitken-Davies
		Richard Aitken-Davies
Date:

15

EX-10.78

EXHIBIT 10.78

POWERGEN

UK LONG TERM INCENTIVE PLAN

NOVEMBER 2002

I

EXECUTIVE SUMMARY

This document sets out detailed proposals for the design and operation of the UK Long-term Incentive Plan (“the Plan”).

Purpose of the Plan

The primary purpose of the plan is to provide senior executives under a UK contract of employment with an incentive, beyond the annual bonus, linked to company performance.

In addition, the plan is intended to assist in the retention of executives and to ensure that, when considered with the E.ON Stock Option Award Programme, the level of long-term incentive reward available is competitive in the UK market.

Eligibility

The following categories of executives employed by Powergen UK plc are eligible to be considered for awards in 2002 and future years subject to Board approval:

1.Directors in the Powergen UK business.

2.Corporate Powergen Directors based in the UK.

3.UK Directors on secondment to LG&E.

4.Selected Senior Managers

In addition, for the awards in 2003 and onwards, it is proposed that selected senior managers may be included in the plan.  Currently it is estimated that approximately 25 senior managers have sufficiently broad impact on either Powergen UK or the Corporate Centre to be included, although that figure may be revised as the business changes.

For the avoidance of doubt, former TXU employees will not be included in the 2002 grant.

Plan Overview

Awards will be granted on an annual basis.  Each award will be earned over three financial years.  Target award levels will be expressed as a percentage of annual salary valued at time of grant.

1

The target award will be adjusted according to business performance in each of the three financial years and the adjusted award paid in cash following the approval of E.ON AG’s results at the end of the third financial year by E.ON AG’s shareholders

The adjustment following each year’s results may be up or down by up to 30%.  So, for example, if an executive’s initial award is £100:

1.The maximum award at the end of three years would be 100 x 1.3 x 1.3 x 1.3 = £219.70.

2.The minimum award at the end of three years would be 100 x 0.7 x 0.7 x 0.7 = £34.30.

Performance Measures

The performance measures will be agreed at the beginning of each year.  Performance measures for 2002 will be as follows using the definition of Internal Operating Profit (IOP) in the E.ON Planning and Controlling Manual:

1.Powergen UK Internal Operating Profit for those working in that business.

2.LG&E Internal Operating Profit for UK expatriates working in LG&E.

3.Powergen Group Internal Operating Profit for those working in the Corporate Centre.

The adjustment to the target award will be by 3% of the target award for each 1% variation from target.  So the maximum adjustment of 30% to the target award applies for results 10% or more above target, and conversely the maximum reduction of 30% applies for results 10% or more below target.

Key design issues

The following are the key design issues that have been discussed with the UK and E.ON HR management, and the recommended approach that has been incorporated in the draft documentation.

1.The company has the right in exceptional circumstances such as very poor business results or a major accident to cancel or defer the payments under the plan.

2.Where participant moves between business units the company has the option to change the performance measure to the new business unit for current and subsequent years of existing awards as well as for future awards.

3.The award should be paid to employees who are in service on the last day of the three year period.  This is different from the position previously notified which was that people working out notice at the end of the award period would not be entitled to payment.  It was considered that the complication of

2

pro-rating and the negative impact of proposing to cancel or reduce awards outweighed any cost saving or extended retention.

4.Individual performance is a factor in the plan in that poor performers may not be granted an award.  However, once an award has been granted, only company performance and remaining in service determine whether the award is paid and the amount of the award.

5.If the business is restructured, the Board has the right to revise targets to reflect the new business structure.

3

II

RULES OF THE POWERGEN LONG-TERM INCENTIVE PLAN

These rules govern the operation of the Powergen UK and Corporate Centre Long-Term Incentive Plan (“the Plan”) which has been established to provide selected Powergen executives under a UK contract of employment with a long-term incentive opportunity related to business performance.

The plan is operated on behalf of the Board of Powergen plc whose decision on questions of interpretation of the rules is final.  It is anticipated that this Plan will be adopted by the Powergen Board at the last meeting of 2002.  The Powergen Board delegates full authority to the Senior Vice President Corporate Executive Human Resources of E.ON AG (currently Stefan Vogg) in all matters relating to the operation of the Plan including participants and performance measures.

Definitions

Award period means the period of 36 months commencing at the start of the financial year in which the award is granted.

Board means the Board of Powergen plc.

Award means a contingent entitlement to payment under the plan granted under rule 2.

Award period means the three financial years of Powergen starting with the year in which the award is granted.

E.ON Group means E.ON AG and all its subsidiary and associated companies.

1.Eligibility

Participation in the Plan is by invitation at the discretion of the Board who may select participants from directors and senior managers in the following categories:

(a)those working in the Powergen UK business;

(b)those working in the Powergen Corporate Centre based in the UK;

(c)UK employees on secondment to LG&E or elsewhere in the E.ON Group

The grant of an award in a particular plan cycle does not imply that the participant will be granted awards in subsequent cycles of the plan.

4

2.Grant of Awards

Awards granted will be expressed as a target monetary amount and will be notified to participants in writing.  Each award will relate to a period of three financial years of Powergen starting with the year in which the award is granted.

Following each financial year, the target award will be increased or reduced according to a performance measure and scale included in the award letter.

3.Payment of the Award

Provided the award holder is employed within the E.ON Group continuously from the date of the award until the end of the award period the monetary value of the amount of the award following the adjustment after the end of the third financial year will be paid within 90 days of the approval of E.ON AG’s results at the end of the third financial year by E.ON AG’s shareholders.

The payment will be subject to the normal deductions for taxation and social security contributions that apply to cash bonuses.  Payments are not pensionable.

4.Transferring with the E.ON Group

If an award holder transfers from one business to another within the E.ON Group past awards will continue as normal; performance measures for past awards will, unless notification to the contrary is given to the award holder, continue to be operated based on the performance of the business units as stated in the original award letter for each award.  Any subsequent awards, if granted, would normally be based on performance of the unit in which the participant was working at the date of that award.

5.Sale of a Business

If the business in which the participant is working ceases to be part of the E.ON Group the Board may terminate those awards in accordance with rule 8 or may agree with the new owner that awards continue in operation and become the responsibility of the new owner.  In the case of awards held by employees no longer working in the business being sold but elsewhere in the E.ON Group, the Board will determine whether those awards continue with revised performance measure or are terminated in accordance with rule 8.

6.Restructuring of the Business

If all or any part of the business is restructured, the Board has the right to revise targets to reflect the new business structure.

5

7.Leaving the E.ON Group

If an award holder ceases to be employed within the E.ON Group for any reason then no payment will be made unless cessation of employment takes place after the end of the first financial year of the award period as a result of:

(a)retirement, whether at normal retirement date, early or late or due to ill-health; or

(b)death in service; or

(c)redundancy.

In those circumstances the amount of award, adjusted for each completed financial year of service relating to the award, will be pro-rated for completed months of employment since the start of the financial year in which the award was granted as compared to the 36 months of the award period.  That is:

Amount of payment = Latest adjusted   x   Completed months of service in award period

                                     value of award                                           36

8.Cancellation or deferral of payment

In exceptional circumstances the Board may at its discretion cancel, reduce or defer payment of any award due for payment. In this context exceptional circumstances would include, but not be limited to, severely adverse financial results; serious financial irregularities or wider group policy decision.

9.Termination of Plan or Awards

The Board may at its discretion at any time terminate the plan or terminate awards that have been made previously.  In that event, awards will be paid in cash pro rata for months completed during the award period at a level reflecting adjustments for all completed financial years prior to termination of the award.  Payment will be made in cash within 90 days after the effective date of termination.

10.Discretion of the Board

If any circumstances arise that are not covered by these rules, the Board, having taken advice from the Senior Vice President Corporate Executive Human Resources of E.ON AG E.ON AG (currently Stefan Vogg), will decide on the approach to be taken and that decision will be final.

6

11.Adjustments to Awards

At the discretion of the Senior Vice President Corporate Executive Human Resources of E.ON AG (currently Stefan Vogg), the size of an award may be adjusted to reflect circumstances such as:

1.Absence from work on reduced pay or unpaid, for example through leave of absence, extended maternity leave or sickness.

2.Change to working hours such as a move from full-time to part-time or vice versa.

3.Change in the financial year end of Powergen and/or E.ON AG.

If such adjustment is made it should be calculated to reflect the actual time paid at full rate (or pro rata at a reduced rate) during the award period as compared to that anticipated when the award was made.

No adjustment to awards will be made in the case of salary increases or promotion during the award period.

11.Amendment to Rules

The Board, having taken advice from the Senior Vice President Corporate Executive Human Resources of E.ON AG (currently Stefan Vogg), may amend these Rules.  Any amendment will be effective only for awards granted after the amendment is made.

7

III

ADMINISTRATION GUIDE

This guide forms part of the governance of the Powergen Long-Term Incentive Plan (“the Plan”) approved by the Board of Powergen plc and is intended as a reference document for the Board and for the administration of the plan. It is to be read in conjunction with the Rules of the Plan.

The Powergen Board will delegate full authority to the Senior Vice President Corporate Executive Human Resources of E.ON AG (currently Stefan Vogg) in all matters relating to the operation of the Plan including participants and performance measures.

Key decisions regarding changes to the design of the Plan are referred formally by the Board.  In all cases the Board will take advice from the Senior Vice President Corporate Executive Human Resources of E.ON AG (currently Stefan Vogg) prior to taking its decision.  However, the Powergen Board delegates full authority to the Senior Vice President Corporate Executive Human Resources of E.ON AG (currently Stefan Vogg) in all matters relating to the operation of the Plan including participants and performance measures.

1.Eligibility

Awards are intended to be made annually, subject to Board approval and to satisfactory individual performance to:

1.Directors in the UK business.

2.Directors based in the UK in the Powergen Corporate Centre.

3.UK Directors on secondment elsewhere in the E.ON Group.

4.At discretion, selected other senior managers based in the UK or on secondment elsewhere in E.ON Group.

Note: Secondees to Powergen from elsewhere in E.ON Group, on expatriate terms or otherwise, are not normally eligible for the plan.

2.Size of award

For 2003 the award is to be calculated as the following percentage of salary on 1^st January in the financial year in which the award is granted:

8

Position	Target Award as percentage of Salary
UK Chief Executive	40	%
Directors	25	%
Senior Managers	15	%

The basis of future awards will be recommended to the Board on an annual basis.

Awards will be expressed as a money amount calculated on annual basic salary as at 1^st January at the start of the financial year in which the award is granted.  No adjustment will be made for subsequent salary increases or promotions.

3.Performance measures

The performance measure for each award is announced in the award letter.  The performance measure for 2002 will be Internal Operating Profit as defined in the E.ON Planning and Controlling Manual.  This could change for subsequent years; any change in performance measure will apply to existing awards part way through their award period as well as to subsequent awards so that only one measure is in use for any year for each company.

The intention is that the performance measured will be that of the business in which the participant is working when the award is granted; subsequent changes in role will not affect the measures applied to the awards granted previously.  Performance measured will therefore be:

1.Powergen UK Internal Operating Profit for those working in that business.

2.LG&E Internal Operating Profit for UK expatriates working in LG&E.

3.Powergen Group Internal Operating Profit for those working in the Corporate Centre.

For 2002 and 2003 the performance scale for adjustment will be a 3% change in award value for each 1% variance from target.  The variance should be calculated as a percentage to one decimal place so for example if final results are 96.3% of target this is a variance of -3.7%; this variance would result in awards being reduced by 3 x 3.7% = 11.1%.

4.New entrants to the population

New entrants to the population of Directors and Senior Managers that may be considered for the plan will be considered for an award at the next award date following their date of joining that population.  This will apply irrespective of whether they join the population by external recruitment, by promotion within Powergen or by transfer from elsewhere in the E.ON Group.

9

In exceptional cases, the Board has discretion to make an award at a date other than the normal award date for the year; the amount of the award may differ from the normal formula.

5.Adjustment of awards

The rules allow discretion for adjustment in awards where the participant works for a proportion of full-time that is substantially different from that envisaged at the award date.  This could happen where an employee changes from full-time to part-time or vice versa, or has a period of absence for whatever reason at reduced pay or on an unpaid basis.

Cases will be considered by the SVP Corporate Executive Human Resources on an individual basis.  In general the principle for adjustment would be to calculate the proportion of time paid at base salary during the three year award period as compared to that expected.  For example, someone working 60% of time (3 days per week) at the time of the award who changed to full-time six months before the end of the award period has been paid at base salary for 2.5 years x ..6 + 0.5 years x 1 = 2 years.  This compares to an expected 3 years x 0.6 = 1.8.

There would therefore be a case for increasing the award in the ratio of 2:1.8.

Similarly someone who had a period of six months unpaid leave during the three year period might have their award reduced in the ratio 2.5:3.

Someone who is on unpaid maternity leave or other leave at the end of the three year period relating to an award is treated as being in service at that date and qualifies for payment of the award.

6.Payment of awards

Awards are to be paid via payroll within 90 days of the approval of E.ON AG’s results at the end of the third financial year by E.ON AG’s shareholders.  The payment amount will be net of the usual tax and National Insurance (or equivalent) deductions.

Payments on early termination of awards, for example on retirement or on sale of a business, to be made by cheque within 90 days after the effective date of termination.

10

Illustration Only

POWERGEN LONG-TERM INCENTIVE PLAN

Statement of awards for: A Director

		March 2003
Year Award Granted		2002	2003	2004	2005	Total
Award Period – Financial Years		2002 - 2004
Initial Award		£10,000	£20,000
Adjustments based on performance of		Powergen UK	Powergen UK
2002	Award value as at 1st January	£10,000
	Performance measure and target	IOP £300m
	Performance outcome	£297m (99%)
	Adjustment to award	-3%
2003	Award value as at 1st January	£9,700	£20,000
	Performance measure and target	IOP £320m	IOP £320m
	Performance outcome
	Adjustment to award
2004	Award value as at 1st January
	Performance measure and target
	Performance outcome
	Adjustment to award
2005	Award value as at 1st January
	Performance measure and target
	Performance outcome
	Adjustment to award

11

EX-10.79

EXHIBIT 10.79

Terms and Conditions
for Stock Options Issued as part of the
E.ON Group’s Stock Options Program
- - Translation of the German Version -

Preamble

Internationally as well as—increasingly—in Germany, executives whose activities are paramount to a company’s performance and success are being offered additional incentives. In the United States, it is common practice for companies to offer their executives option rights on the company’s stock (“stock options”). Executives, especially in Anglo-American countries, increasingly expect performance-based compensation in the form of stock options. For this reason, E.ON Group executives will also be given the opportunity to share in the benefits of their successful work by exercising stock options.

Under the rules applying to the E.ON Group’s Stock Option Program, the company will pay out the exercise gains directly to the executives at the time that they choose to exercise their options. The E.ON Group’s Stock Option Program is therefore based on fictitious stock.

Options can be exercised in certain exercise windows within the exercise period from the third year until the seventh year after their issue. The minimum holding period of two years is a compromise between the scheme’s intended long-term effect and the interest of executives in obtaining their remuneration as soon as possible. The maximum holding period of seven years and the exercise period of five years is a compromise between, on the one hand, the desire to promote long-term decision-making by executives, and, on the other hand, the wish to limit the number of options held by a single executive.

As a prerequisite for awarding the options, each entitled executive will have to maintain a certain personal investment in E.ON stock during the lifetime of the options. Participating executives will be obliged to hold the number of E.ON bearer shares as stated in the Supplementary Terms and Conditions beginning with the allocation of their options and ending with the complete exercise or maturity of the options. E.ON shares that are held by the entitled executive due to previously awarded options will be set off against the shares to be held for the new series of options.

Executives are awarded options in writing, accompanied by the Supplementary Terms and Conditions describing the features of the series concerned, specifying the number of options allotted to the executive and the number of E.ON shares to be held for the allotment of options. The Terms and Conditions for Stock Options as well as the Supplementary Terms and Conditions form both integral parts of the options awarded.

Translation of the Terms and Conditions for Stock Options within the Framework

of the E.ON Group’s Stock Option Program, fourth Tranche (2002 – 2008)

1

§ 1

Option Right

(1)Within the framework of its Stock Option Program, the company (“Company”) mentioned in the Supplementary Terms and Conditions (“Supplementary Terms”) shall award options (“Options”) on “fictitious” stock of E.ON AG, Düsseldorf, (“E.ON AG”). Pursuant to these Terms and Conditions, the beneficiary of an Option (“Option Beneficiary”) is entitled to request during the exercise windows stipulated in § 2 that the Company pays the differential amount (“Differential Amount”) as determined in accordance with the provisions of subparagraph (2), provided, however, that the conditions stipulated in subparagraph (3) have been fulfilled.

(2)The Differential Amount shall be the difference expressed in euros (“EUR”) between the closing price (“Exercise Price”) of the bearer share of E.ON AG (“E.ON Share”) in the XETRAÒ electronic trading system (Exchange Electronic Tra­ding) as determined and published by Deutsche Börse AG on the Exercise Date (as defined in § 7 subparagraph (2)) and the relevant strike price (“Strike Price”) as stated in the Supplementary Terms, provided, however, that the Exercise Price exceeds the Strike Price. Each Option shall entitle the Option Beneficiary to receive the difference relating to one E.ON Share, being equivalent to a subscription ratio (“Subscription Ratio”) of one E.ON Share per Option.

(3)The payment of the Differential Amount determined in accordance with subparagraph (2) is conditional upon

(i)the Exercise Price having exceeded the Strike Price by at least 10 percent on the relevant Exercise Date, and

(ii)the price performance of the E.ON Share having exceeded the price performance of the Dow Jones STOXX Utility Suppliers Price Index (“Index”) prior to the relevant Exercise Date during the lifetime of the Options on at least ten succeeding Stock Exchange Business Days (as defined below), calculated in accordance with the following formula:

>   1

V(t):closing price of the E.ON Share in the XETRAÒ electronic trading system as determined and published by Deutsche Börse AG on the relevant Stock Exchange Business Day

V(0):Strike Price

I(t):closing price of the Index as determined and published by STOXX Limited, Zurich, on the relevant Stock Exchange Business Day

I(0):price of the Index as determined in the Supplementary Terms

“Stock Exchange Business Day” shall mean a day on which the closing price of the E.ON Share in the XETRAÒ electronic trading system as well as the closing price of the Index are determined and published by Deutsche Börse AG and STOXX Limited, Zurich, respectively.

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The Calculation Agent (as defined in § 6) shall notify the Company of the fulfillment of the condition stipulated in this subparagraph (ii) without undue delay. The Company will inform the Option Beneficiaries accordingly.

(4)Options are awarded free of charge.

§ 2

Time to Maturity/Exercise Periods

(1)The Options’ time to maturity shall begin on the first Business Day in January of the year of issue (year 1), and shall end on the last Business Day of the last Exercise Window (as defined in subparagraph (2)) falling in year 7. For the purposes of these Terms and Conditions, a “Business Day” shall be every day on which banks in Frankfurt am Main and Düsseldorf are open for general business.

(2)Subject to the provisions of § 8, Options can be exercised on each Business Day during the respective Exercise Windows in years 3 through 7. “Exercise Windows” shall be the relevant periods from the first Business Day up to and including the twentieth Business Day after the publication of the Group financial statements and/or E.ON AG’s interim reports. The relevant Exercise Windows of each year during which exercises of Options are allowed will be notified by the Company by January 15 of the relevant year, at the latest.

(3)In the case of extraordinary circumstances, E.ON AG reserves the right to exclude the exercise of Options during an Exercise Window in its sole discretion even if all the conditions for exercise according to § 1 subparagraph (3) have been fulfilled. The decision will be made by E.ON AG’s Compliance Officer who will inform the relevant Option Beneficiary about the introduction and discontinuation of the exercise restriction.

§ 3

Disturbances of the Market/Substitute Price

(1)A disturbance of the market (“Market Disturbance”) takes place if on the relevant Exercise Date

a)no Exercise Price for whatever reason is determined, or

b)there has been a trading suspension or a material restriction in the trading of the E.ON Share in the XETRAÒ electronic trading system within the last 60 minutes prior to determination of the Exercise Price.

(2)If there is a Market Disturbance on an Exercise Date according to subparagraph (1), the Differential Amount will be calculated by using the next closing price in the XETRAÒ electronic trading system determined and published by Deutsche Börse AG following the end of the Market Disturbance. Should a Market Disturbance still continue on the fifth Business Day (including) following the Exercise Date, the Differential Amount will be calculated on the basis of the closing price in the XETRAÒ electronic trading system determined and published by Deutsche Börse AG on such fifth Business Day, or, if the closing price is not being determined, on the basis of a Substitute Price to be determined by the Calculation Agent. “Substitute Price” shall mean the price determined by the Calculation Agent in its equitable discretion based upon common market conditions and the last closing price in the XETRAÒ electronic trading system determined and published by Deutsche Börse AG.

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The determination of a Substitution Price shall be (in the absence of manifest error) binding on all parties concerned.

§ 4

Adjustment Measures Due to Extraordinary Dividend Payments
and Equity Measures Taken by E.ON AG

(1)If E.ON AG (i) pays its stockholders an extraordinary dividend (as defined below), or (ii) increases its capital by way of issuance of new shares against contributions while granting its stockholders direct or indirect subscription rights (“Capital Increase Against Contributions”), or (iii) increases its capital out of retained earnings (“Capital Increase out of Retained Earnings”), or (iv) directly or indirectly grants its stockholders a right to subscribe bonds or other securities with option or conversion rights on stock (“Issuance of Securities with Option or Conversion Rights”), the Strike Price and the Subscription Ratio, as the case may be, shall be adjusted according to the provisions of subparagraphs (2) through (4) with effect as of their respective Cut-off Dates.

“Cut-off Date” shall be the first trading day on the Frankfurt Stock Exchange on which the shares are quoted “ex dividend,” “ex subscription right,” or “ex bonus shares.”

(2)In the event of an Increase of Share Capital Against Contributions, the Strike Price shall be multiplied and the Subscription Ratio shall be divided by the figure determined by applying the following formula:

Where:

Bis the subscription ratio (number of old shares : number of new shares),

Eis the issue price of the new shares,

Dis the disadvantage for dividends of the new shares (not discounted),

Kis the closing price in the XETRAÒ electronic trading system determined and published by Deutsche Börse AG on the trading day immediately preceding the Cut-off Date.

(3)In the event of a Capital Increase out of Retained Earnings, the Strike Price shall be multiplied and the Subscription Ratio shall be divided by the figure determined by applying the following formula:

B, D, and K shall have the same meanings as in subparagraph (2).

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(4)In the event of an Issuance of Securities with Option or Conversion Rights, the Strike Price shall be reduced by subtracting the value of the subscription right as determined on the Frankfurt Stock Exchange on the Cut-off Date.

(5)If there is a change in the number of shares without a change in capital (e.g. stock splits) and there is a decrease in capital due to a reverse stock split or redemption of stock, the provisions of subparagraph (3) above shall apply mutatis mutandis.

(6)In the event of an Extraordinary Dividend, the Strike Price shall be reduced by the value of such Extraordinary Dividend. “Extraordinary Dividend” shall mean (i) a dividend that is explicitly resolved by E.ON AG’s Annual Shareholders’ Meeting as “extraordinary dividend” or “special dividend,” or (ii) the amount per share expressed in euros which corresponds to a dividend yield in percent (without taking into account any corporate tax credit inherent to the dividend) higher than the sum of (a) 5 percent and (b) the average of the dividend yields of the five business years preceding the business year for which the Extraordinary Dividend will be paid. Should the Extraordinary Dividend be contributed in the form of shares of a company, the value of the Extraordinary Dividend shall be calculated on the basis of the first quotation of such shares in the XETRAÒ electronic trading system determined and published by Deutsche Börse AG. A reduction of the Strike Price shall never result in a negative Strike Price.

(7)The Calculation Agent shall immediately inform the Company about the amended Strike Price and Subscription Ratio, as the case may be. The Company shall notify the Option Beneficiaries accordingly.

§ 5

Further Adjustments for Economic Reasons

(1)

a)Should E.ON AG carry out equity measures other than those mentioned in § 4, or should E.ON AG undergo a transformation, these Terms and Conditions shall be adjusted so as to ensure that the Option Beneficiary will be placed on equal economic terms with the stockholders of E.ON AG. b)The term “Transformation” as used in this § 5 subparagraph (1) above shall comprise (i) a merger of E.ON AG by way of absorption where E.ON AG is not the absorbing company, or by way of establishing a new company, (ii) any other transaction (e.g. split, asset transfer, integration or restructuring, modification, or exchange of shares) through which or as a result of which all shares of E.ON AG are irrevocably invalidated, transferred, scheduled to be transferred, reclassified, or modified in their legal status, and (iii) any other transaction that has the same economic effects as the aforementioned transactions.

(2)

a)The item fundamental to the calculation of the Index and the determination of the Initial Index is the concept of the Index as defined and maintained by STOXX Limited, Zurich, along with the calculation, determination, and publication of the Index by STOXX Limited, Zurich, even if future changes or adjustments are made to the calculation of the Index, the composition and the weighting of prices and stocks used as a basis to calculate the Index, the manner and means by which it is published, or if other changes or adjustments are made or measures are taken that affect the calculation of the Index, unless otherwise specified in the following provisions.

5

b)If (i) the fundamental design and/or calculation method or the basis of the Index is changed in a substantial way so that the continuity or comparability of the Index calculated on the old basis does not exist anymore (e.g., if the Index is significantly altered as a result of a change, adjustment or other measures although the prices of the various stocks included in the Index and their weighting have not changed), or if (ii) the Index is during the Options’ lifetime no longer regularly determined and published by STOXX Limited, Zurich, or some other legal entity and the conditions stipulated in § 1 subparagraph (3) (ii) are not fulfilled yet, the Terms and Conditions shall be adjusted so as to ensure that the indexing concept underlying the Options will be preserved, as much as possible, in terms of its economic effects.

(3)

Adjustments as specified in subparagraphs (1) or (2) above shall have to be jointly agreed upon by the Calculation Agent and the Company and shall be communicated to the Option Beneficiaries by the Company.

§ 6

Calculation Agent

(1)HSBC Trinkaus & Burkhardt KGaA, Düsseldorf, shall be the “Calculation Agent.” The Company shall ensure that a Calculation Agent is appointed for the entire lifetime of the Options. The Company shall be entitled to appoint a new Calculation Agent for compelling reasons. Should the Calculation Agent cease to perform its function or should it no longer be able or willing to perform this function, the Company shall be obliged to appoint the head office of another leading bank in the stock options business. The Calculation Agent shall not be entitled to terminate its function without the prior appointment of a successor agent. The Company shall immediately inform the Option Beneficiaries of the appointment of a new Calculation Agent.

(2)All calculation data provided and decisions made by the Calculation Agent for the purposes defined in these Terms and Conditions shall (in the absence of manifest error) be binding upon the Company and the Option Beneficiaries. Option Beneficiaries shall not be entitled to bring forward claims against the Calculation Agent due to the latter’s performance or non-performance of its rights, duties, or discretionary powers as defined in these Terms and Conditions.

§ 7

Exercise of Options/Payment of Differential Amount

(1)The Option shall be exercised in such a way that an Option Beneficiary declares to the Company that he intends to exercise a series of Options, either fully or partially (but at least 250 Options per exercise), by returning the completed (including the respective series number of the relevant series of Options, as stated in the respective Supplementary Terms) exercise form (“Option Declaration”) during an Exercise Window. Concurrently, the Option Beneficiary shall inform E.ON AG about his exercise by forwarding a copy of the Option Declaration to E.ON AG.

(2)Option Declarations received by the Company shall be binding and irrevocable. The day of the effective exercise of the option rights (“Exercise Date”) shall be the Business Day during an Exercise Window on which the Company shall have received the Option Declaration prior to 1.00 p.m. (Düsseldorf time). Should the Company not have received the Option

6

Declaration in time on a Business Day, the Exercise Date shall be the immediately succeeding Business Day, provided, such Business Day falls within an Exercise Window.

(3)The Company shall deposit the Differential Amount accrued on the full number of Options exercised to the Option Beneficiary’s payroll account in connection with the next possible salary settlement.

(4)Notwithstanding the aforementioned provisions, Option Beneficiaries shall be deemed to have exercised their Options without further requirements by the last possible Exercise Date, providing that the conditions of § 1 subparagraph (3) have been fulfilled. Otherwise, the rights arising from the Options shall be null and void.

(5)Any (income) taxes, levies and employee social security contributions arising from the payment of the Differential Amount shall be borne by the Option Beneficiary.

(6)Should the Company purchase Options in accordance with § 8 subparagraph (1) (ii), the provisions of § 7 subparagraphs (1) through (3) and (5) shall apply mutatis mutandis.

§ 8

Extraordinary Exercise of Options

(1)Following an Event of Change-in-Control regarding E.ON AG (as defined below), Option Beneficiaries shall be entitled at their own discretion

(i)to exercise their Options during a twelve-month period after the event and without fulfillment of the conditions stipulated in § 1 subparagraph (3) and § 2 subparagraph (2) being required, or

(ii)to request during a twelve-month period after the event the purchase of the Options by the Company against payment of a purchase price equivalent to the calculated value of the Options to be determined by the Calculation Agent, or

(iii)to exercise their Options in accordance with these provisions of the Terms and Conditions.

An “Event of Change-in-Control” regarding E.ON AG takes place, if:

a)E.ON AG is notified by a third party that it has acquired 25 percent or more of the voting rights of E.ON AG in accordance with § 21 of the German Securities Trading Act (WpHG), or

b)a third party on its own or together with voting rights attributable to him in accordance with § 22 German Securities Trading Act (WpHG) has acquired a share in voting rights which, at E.ON AG’s Annual Shareholders’ Meeting, would represent or which, at E.ON AG’s last Annual Shareholders’ Meeting, would have represented the majority of the voting rights present at such a Meeting, or

c)an affiliation agreement is concluded with E.ON AG as controlled company in accordance with §§ 291 ff. of the German Stock Corporation Act (AktG), or

d)E.ON AG is being integrated in accordance with §§ 319 ff. of the German Stock Corporation Act (AktG), or

e)E.ON AG changes its legal status in accordance with §§ 190 ff. of the German Conversion Law (UmwG), or

f)E.ON AG is being merged with another legal entity, provided that the enterprise value of such legal entity is more than 20 percent of the enterprise value of E.ON AG at the time

7

of adopting the resolution by E.ON AG. The methods of valuation acknowledged by the professional association of qualified auditors (Stellungnahme des Hauptfachausschusses des Instituts der Wirtschaftsprüfer HFA 2/1983 = Grundsätze zur Durchführung von Unternehmens­bewertungen sowie die neueren Verlautbarungen des Berufsstandes) shall be used to determine the value of both entities, to the extent that both enterprise values will be determined according to said methods in connection with the merger. Otherwise, the market capitalization of both legal entities at the time the resolution is adopted by E.ON AG will be deemed as their respective enterprise values. If a market capitalization can not be determined, the enterprise values agreed upon by both legal entities will be deemed as their respective enterprise values.

E.ON AG will notify the Option Beneficiaries of an Event of Change-in-Control regarding E.ON AG without undue delay.

(2)If the Company ceases to be an affiliated company of E.ON AG, as defined in § 15 of the German Stock Corporation Act (AktG) (Event of Change-in-Control regarding the Company), Option Beneficiaries shall be entitled at their own discretion

(i)to exercise their Options during a three-month period after the event and without fulfillment of the conditions stipulated in § 1 subparagraph (3) and § 2 subparagraph (2) being required, or

(ii)to request during a three months’ period after the event the purchase of the Options by the Company against payment of a purchase price equivalent to the calculated value of the Options to be determined by the Calculation Agent, or

(iii)to exercise their Options in accordance with these provisions of the Terms and Conditions.

The Company will notify the Option Beneficiaries of an Event of Change-in-Control regarding the Company without undue delay.

(3)Option Beneficiaries shall be entitled to exercise their Options at their own discretion (i) during a three-month period after either of the events specified in subparagraphs (a) through (c) below occurs and without fulfillment of the conditions stipulated in § 1 subparagraph (3) and § 2 subparagraph (2) being required, (ii) or in accordance with the provisions of these Terms and Conditions, if and when:

a)the employment contract of the relevant Option Beneficiary is terminated by the Company or it runs out upon expiration of its term, provided, however, that the employment contract is not extraordinarily terminated by the Company due to material reason in accordance with § 626 subparagraph (1) German Civil Code (BGB), or

b)the employment contract between the relevant Option Beneficiary and the Company is terminated because the former reaches his or her retirement age or becomes an invalid; or

c)the Option Beneficiary has received the rights resulting from the Options by inheritance.

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§ 9

Transferability/Expiration

(1)Rights resulting from the Options may not be assigned or pledged. It shall also be prohibited to dispose of the rights resulting from the Options in any other form, to grant sub-participation or to establish a trust. Option Beneficiaries are not allowed to conduct any back-to-back transactions that are economically tantamount to selling the rights from the Options. Any violations of these provisions will lead to the expiration of Options granted with no compensation.

(2)If Option Beneficiaries, for whatever reason, terminate their employment contract with the Company during years 1 and 2 of the lifetime of the Options, the Options granted to them shall become null and void without compensation. If Option Beneficiaries terminate their employment contract after these first two years, they can exercise their Options as of the immediately following Exercise Date, provided, however, that the conditions of § 1 subparagraph (3) have been fulfilled. If they fail to exercise their Options as of the immediately following Exercise Date, their Options shall become null and void with no compensation. This subparagraph shall also apply in the event that the employment contract is extraordinarily terminated by the Company due to material reason in accordance with § 626 subparagraph (1) of the German Civil Code (BGB).

(3)If the employment contract between the Option Beneficiary and the Company is terminated and the Option Beneficiary subsequently concludes an employment contract with an affiliated company of E.ON AG, as defined in § 15 of the German Stock Corporation Act (AktG), this shall not affect the Option Beneficiary’s rights resulting from the Options, except as otherwise provided for in the Option Beneficiary’s employment contract.

(4)Option Rights may be transferred by way of inheritance.

§ 10

Written Form

Amendments and supplements to these Terms and Conditions must be made in writing. This also applies to amendments to this § 10.

§ 11

Applicable Law/Place of Performance and Jurisdiction

(1)Form and substance of the Options as well as all rights and duties of the Option Beneficiaries and the Company shall be governed in every respect by the laws of the Federal Republic of Germany.

(2)Place of performance for all obligations arising from these Terms and Conditions for Option Beneficiaries and the Company shall be Düsseldorf, Germany.

(3)Place of jurisdiction for all proceedings relating to matters covered by these Terms and Conditions shall be Düsseldorf, Germany.

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§ 12

Partial Invalidity

Should any of the provisions of these Terms and Conditions be or become in whole or in part invalid or impracticable, this shall not affect the validity of the other provisions. Any deficiency resulting from the invalidity or impracticability of a provision of these Terms and Conditions shall be filled by way of a supplementary interpretation of the terms of contract by analogy, taking into consideration the interests of the parties involved.

10

EX-12

               EXHIBIT 12

LOUISVILLE GAS AND ELECTRIC COMPANY AND SUBSIDIARY

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(Thousands of $)

	2002			2001			2000			1999			1998
Earnings:
Net Income	$	88,929		$	106,781		$	110,573		$	106,270		$	78,120
Add:
Federal income taxes - current	24,564			41,127			30,425			54,198			39,618
State income taxes - current	7,653			8,185			4,450			13,650			10,164
Deferred Federal income taxes - net	20,258			12,595			24,233			(4,564		)	2,167
Deferred State income taxes - net	4,357			3,840			6,787			(715		)	636
Investment tax credit - net	(4,153		)	(4,290		)	(4,274		)	(4,289		)	(4,312		)
Fixed charges	30,128			38,234			44,707			39,323			37,571
Earnings	171,736			208,472			216,901			203,873			163,964
Fixed Charges:
Interest Charges per statements of income	29,805			37,922			43,218			37,962			36,322
Add:
One-third of rentals charged to operating expense (1)	323			312			1,489			1,361			1,249
Fixed charges	$	30,128		$	38,234		$	44,707		$	39,323		$	37,571
Ratio of Earnings to Fixed Charges	5.70			5.40			4.85			5.18			4.36

NOTE:

(1)In the Company’s opinion, one-third of rentals represents a reasonable approximation of the interest factor.

1

EXHIBIT 12

KENTUCKY UTILITIES COMPANY AND SUBSIDIARY

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(Thousands of $)

	2002		2001		2000		1999		1998
Earnings:
Net Income before cumulative effect of a change in accounting principle per statements of income	$93,384		$96,278		$95,524		$106,558		$72,764
Add:
Federal income taxes - current	37,839		57,389		45,276		51,997		45,704
State income taxes - current	10,509		13,197		9,400		13,513		10,008
Deferred Federal income taxes - net	3,272		(12,117	)	(3,376	)	(4,651	)	(2,492	)
Deferred State income taxes - net	1,459		(1,118	)	927		887		54
Investment tax credit - net	(2,955	)	(3,446	)	(3,674	)	(3,727	)	(3,829	)
Undistributed income of Electric Energy, Inc.
	(5,382	)	258		70		33		1
Fixed charges	25,823		34,202		40,254		39,486		39,318
Earnings	163,949		184,643		184,401		204,096		161,528
Fixed Charges:
Interest Charges	25,727		34,043		39,484		38,904		38,660
Add:
One-third of rentals charged to operating expense (1)	96		159		770		582		658
Fixed charges	$25,823		$34,202		$40,254		$39,486		$39,318
Ratio of Earnings to Fixed Charges	6.35		5.40		4.58		5.17		4.11

NOTE:

(1)In the Company's opinion, one-third of rentals represents a reasonable approximation of the interest factor.

2

EX-21

Exhibit 21

SUBSIDIARIES OF THE REGISTRANTS

Louisville Gas and Electric Company, a Kentucky corporation, has one subsidiary, LG&E Receivables LLC, a Delaware limited liability company.

Kentucky Utilities Company, a Kentucky and Virginia corporation, has two subsidiaries, Lexington Utilities Company, a Kentucky corporation, and KU Receivables LLC, a Delaware limited liability company.

EX-23.01

Exhibit 23.01

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

Pursuant to 17 CFR 230.437a, a written consent of Arthur Andersen LLP (Andersen) is omitted relating to a prior period for which Andersen was engaged as independent public accountant. As of the filing date, after reasonable efforts, LG&E had not already obtained such a written consent nor anticipates being able to obtain such a consent. The lack of written consent may limit the legal recourse, if any, of investors against Andersen in claims under certain securities laws based upon the fact of Andersen’s engagement as independent public accountant, including provision of an accountant’s report by Andersen and inclusion of such report in public filings.

Exhibit 23.01

March 25, 2003

Louisville Gas and Electric Company and Subsidiary

220 West Main Street

P.O. Box 32010

Louisville, Kentucky 40232

Enclosed are our manually signed reports to the use in the Annual Report on Form 10-K of our reports dated January 21, 2003 relating to the consolidated 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.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

EX-23.02

Exhibit 23.02

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

Pursuant to 17 CFR 230.437a, a written consent of Arthur Andersen LLP (Andersen) is omitted relating to a prior period for which Andersen was engaged as independent public accountant. As of the filing date, after reasonable efforts, KU had not already obtained such a written consent nor anticipates being able to obtain such a consent. The lack of written consent may limit the legal recourse, if any, of investors against Andersen in claims under certain securities laws based upon the fact of Andersen’s engagement as independent public accountant, including provision of an accountant’s report by Andersen and inclusion of such report in public filings.

Exhibit 23.02

March 25, 2003

Kentucky Utilities Company and Subsidiary

220 West Main Street

P.O. Box 32010

Louisville, Kentucky 40232

Enclosed are our manually signed reports to the use in the Annual Report on Form 10-K of our reports dated January 21, 2003 relating to the consolidated 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.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

EX-24

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, 2002 (the 2002 Form 10-K); and

WHEREAS, each of the undersigned holds the office or offices in KENTUCKY UTILITIES COMPANY set opposite his name;

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints JOHN R. MCCALL, 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 2002 Form 10-K and to any and all amendments to such 2002 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 10^th day of March, 2003.

/s/ Victor A. Staffieri	/s/ Michael Söhlke
VICTOR A. STAFFIERI	MICHAEL SÖHLKE
Chairman, President and Chief Executive Officer	Director
(Principal Executive Officer)
/s/ Edmund A. Wallis	/s/ Richard Aitken-Davies
EDMUND A. WALLIS	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)

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, 2002 (the 2002 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 JOHN R. MCCALL, 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 2002 Form 10-K and to any and all amendments to such 2002 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        day of March, 2003.

/s/ Victor A. Staffieri	/s/ Michael Söhlke
VICTOR A. STAFFIERI	MICHAEL SÖHLKE
Chairman, President and Chief	Director
Executive Officer
(Principal Executive Officer)
/s/ Edmund A. Wallis	/s/ Richard Aitken-Davies
EDMUND A. WALLIS	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:

*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;

*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;

*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;

*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;

*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;

*Economic conditions including inflation rates and monetary fluctuations;

*Trade, monetary, fiscal, taxation, and environmental policies of governments, agencies and similar organizations in geographic areas where the Companies have a financial interest;

*Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services;

*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;

*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;

*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;

*Employee workforce factors including changes in key executives, collective bargaining agreements with union employees, or work stoppages;

*Rate-setting policies or procedures of regulatory entities, including environmental externalities;

*Social attitudes regarding the utility, natural gas and power industries;

*Identification of suitable investment opportunities to enhance shareholder returns and achieve long-term financial objectives through business acquisitions;

*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;

*Legal and regulatory delays and other unforeseeable obstacles associated with mergers, acquisitions and investments in joint ventures;

*Costs and other effects of legal and administrative proceedings, settlements, investigations, claims and matters, including but not limited to those described in Notes 3, 11 and 15 (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, 2002, and items under the caption Commitments and Contingencies;

*Technological developments, changing markets and other factors that result in competitive disadvantages and create the potential for impairment of existing assets;

*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;

*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;

*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;

*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;

*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.

*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.

EX-99.02

Exhibit 99.02

LOUISVILLE GAS AND ELECTRIC COMPANY
AND
KENTUCKY UTILITIES COMPANY
DIRECTOR AND OFFICER INFORMATION

The outstanding stock of Louisville Gas and Electric Company (“LG&E”) is divided into three classes: Common Stock, Preferred Stock (without par value), and Preferred Stock, par value $25 per share. At the close of business n February 28, 2003, the following shares of each were outstanding:

Common Stock, without par value	21,294,223 shares
Preferred Stock, par value $25 per share, 5% Series	860,287 shares
Preferred Stock, without par value, $5.875 Series	250,000 shares
Auction Series A (stated value $100 per share)	500,000 shares

The outstanding stock of Kentucky Utilities Company (“KU”) is divided into three classes: Common Stock, without par value, Preferred Stock, without par value, and Preference Stock, without par value. As of the close of business on February 28, 2003, the following shares of each were outstanding:

Common Stock, without par value	37,817,878 shares
Preferred Stock, without par value (stated value $200 per share)
4.75% Series	200,000 shares
6.53% Series	200,000 shares

All of the outstanding LG&E Common Stock and KU Common Stock is owned by LG&E Energy Corp. (“LG&E Energy”). Based on information contained in a Schedule 13G originally filed with the Securities and Exchange Commission in October 1998, AMVESCAP PLC, a parent holding company, reported certain holdings in excess of five percent of LG&E’s Preferred Stock. AMVESCAP PLC, with offices at 1315 Peachtree Street, N.W., Atlanta, Georgia 30309, and certain of its subsidiaries reported sole voting and dispositive power as to no shares and shared voting and dispositive power as to 43,000 shares of LG&E Preferred Stock, without par value, $5.875 Series, representing 17.2% of that class of Preferred Stock. The reporting companies indicated that they hold the shares on behalf of other persons who have the right to receive or the power to direct the receipt of dividends or the proceeds of sales of the shares. No other persons or groups are known by management to be beneficial owners of more than five percent of LG&E’s Preferred Stock

As of February 28, 2003, all directors, nominees for director and executive officers of LG&E and KU as a group beneficially owned no shares of LG&E Preferred Stock or KU Preferred Stock.

On December 11, 2000, then Powergen plc, a public limited company with registered offices in England and Wales (“Powergen”) completed its acquisition of LG&E Energy, the parent corporation of LG&E and KU for cash of approximately $3.2 billion, or $24.85 per share of LG&E Energy common stock. In connection with such transaction, certain officers and directors of Powergen were appointed to fill vacancies in the Board of Directors of LG&E and KU occurring by resignation of prior directors.  In January 2003, Powergen was reregistered as Powergen Limited.

On July 1, 2002, E.ON AG, a German corporation (“E.ON”), completed the acquisition of Powergen for cash of approximately 8.1 billion euros or 7.65 British pounds per Powergen ordinary share (equal to 30.60 British pounds per Powergen ADS.) In connection with such transaction, certain officers or directors of E.ON and Powergen were appointed to fill vacancies in the Board of Directors of LG&E and KU occurring by resignation of prior directors.

In October 2001, the Board of Directors of LG&E and KU authorized the delisting of LG&E’s 5% Preferred Stock from the NASDAQ Small Capitalization Market, and KU’s 4.75% Preferred Stock from the Philadelphia Stock Market, which delistings were completed in April and May 2002, respectively, following applications to the relevant exchanges. Delisting does not constitute a change in the terms and conditions of the preferred stock nor the rights and

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privileges of its shareholders.  Delisting enabled LG&E and KU (collectively, the “Companies”) to realize certain administrative and corporate governance efficiencies.

INFORMATION ABOUT DIRECTORS

The number of members of the Board of Directors of LG&E and KU is currently fixed at nine, pursuant to the Companies’ bylaws and resolutions adopted by the Boards of Directors. The directors are classified into three classes, as nearly equal in number as possible, with respect to the time for which they are to hold office. Generally, one class of directors is elected at each year’s Annual Meeting to serve for three-year terms and to continue in office until their successors are elected and qualified.

In connection with the completion of the E.ON-Powergen acquisition, Sir Frederick Crawford, Dr. David K-P Li and Messrs. Nicholas P. Baldwin, Sydney Gillibrand and David J. Jackson resigned as directors of LG&E and KU, effective July 1, 2002. Messrs. Victor A. Staffieri and Edmund A. Wallis continued as directors and Mr. Michael Soehlke was appointed to fill one vacancy, resulting in a board of three persons and six vacancies. At this time, the Boards of Directors also approved proposed future amendments to the Companies’ Articles of Incorporation and Bylaws to enable reduction of LG&E’s and KU’s board sizes to three members and recommended it for eventual shareholder vote.

Therefore it is anticipated that LG&E and KU will, in the near future, seek shareholder approval of the board size of three persons, without staggered terms. In this regard, for the interim, the three current serving directors have been elected to and are serving parallel one year terms.

The following contains certain information as of February 28, 2003 concerning the directors of LG&E and KU:

Directors with Terms Expiring at the 2003 Annual Meeting of Shareholders

Victor A. Staffieri (Age 47):    Mr. Staffieri is Chairman, President and Chief Executive Officer of LG&E Energy, LG&E and KU, serving from April 2001 to the present. He served as President and Chief Operating Officer of LG&E Energy, LG&E and KU from February 1999 to April 2001; Chief Financial Officer of LG&E Energy and LG&E, May 1997 to February 2000; Chief Financial Officer of KU, May 1998 to February 2000. President, Distribution Services Division of LG&E Energy, December 1995 to May 1997; Senior Vice President, General Counsel and Public Policy of LG&E Energy and LG&E from November 1992 to December 1993. Mr. Staffieri has been a director of Powergen, LG&E Energy, LG&E and KU since April 2001.

Michael Soehlke (Age 43):    Mr. Soehlke was appointed a director and Chief Financial Officer of Powergen on July 1, 2002. He was previously Head of Corporate Planning and Controlling at E.ON AG. Prior to that, he was Head of Controlling and Accounting at PreussenElektra AG (which merged into E.ON Energie AG). Prior to joining the E.ON group, he worked nearly ten years in finance positions of the German subsidiary of Solvay S.A., Brussels.  He is also a director of Powergen UK plc and Powergen International Limited.  Mr. Soehlke has been a director of LG&E Energy, LG&E and KU since July 2002.

Edmund A. Wallis (Age 63):    Mr. Wallis is Chief Executive Officer and Deputy Chairman of Powergen. He was appointed to the Powergen Board on October 22, 1998, serving as Chairman of such Board from that date until July 2002. He was also Chief Executive of Powergen until February 21, 2001. He had been Chief Executive of Powergen UK plc since March 1990 and Chairman from July 1996 until February 2001. He is a director of Powergen International Limited.  Mr. Wallis is a non-executive director of Merrill Lynch European Investment Trust plc, and MEPSEC LTD and a non-executive director of London Regional Transport and Chairman of London Underground Limited. Mr. Wallis has been on the Board of Directors of LG&E and KU since December 2000.

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INFORMATION CONCERNING THE BOARD OF DIRECTORS

The Boards of Directors of LG&E and KU contain the same members.  Certain members are also directors of Powergen or LG&E Energy, as described above.

During 2002, there were a total of 12 meetings or consents of the LG&E and KU Boards. All directors attended 75% or more of the total number of meetings or consents of the Board of Directors and committees of the Board on which they served.

Compensation of Directors

Directors who are also officers of Powergen, LG&E Energy or its subsidiaries receive no compensation in their capacities as directors of LG&E and KU.

During 2002, certain non-employee directors who were also directors of Powergen received aggregate annual salaries or fees ranging from approximately 12,500 to 15,000 Pounds for their service on the Powergen board but received no separate compensation for their service on the LG&E and KU Board. The compensation of these non-employee directors was determined by the Powergen Board and consisted of a basic sum plus an additional payment for specific duties in respect of committee work.  Non-employee directors do not receive Powergen pension contributions and do not have service contracts with Powergen or any of its subsidiaries.

Committees

There are currently no committees of the Boards of Directors of the Companies.  Until July 2002, the Boards of Directors of LG&E and KU included an Audit Committee and a Remuneration Committee and the directors who were members of the various committees served in the same capacities for purposes of both the LG&E and KU Boards.

In July 2002, upon completion of the E.ON-Powergen acquisition, the structures of the LG&E and KU Boards were changed to recognize practical and administrative efficiencies. The LG&E and KU Boards and LG&E Energy Board, respectively, adopted resolutions providing that (i) the functions of the former Audit Committee would be performed by the LG&E and KU Boards as a whole and (ii) certain functions of the former Remuneration Committee under certain LG&E Energy executive compensation plans would be performed by Dr. Stefan Vogg, an executive of E.ON.

Prior to July 2002, the former Remuneration Committee was composed of Dr. David K-P Li, a non-employee director, and performed certain duties in connection with the compensation of the executive officers of LG&E and KU, including making recommendations regarding benefits provided to executive officers and the establishment of various employee benefit plans. The Remuneration Committee met 3 times during 2002.

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REPORT REGARDING REMUNERATION

Following the July 1, 2002 completion of E.ON’s acquisition of Powergen, the Remuneration Committee of the Boards of Directors of LG&E and KU was terminated.  As stated above, the LG&E Energy Board adopted resolutions providing that certain functions of the former Remuneration Committee under certain executive compensation plans would be performed by Dr. Stefan Vogg, an executive of E.ON AG.  This report describes the compensation policies applicable to the Companies’ executive officers for the last completed fiscal year.

Prior to completion of the E.ON-Powergen merger in July 2002, the former Remuneration Committee set base pay for 2002, established incentive targets and conducted administration of the Powergen Long-Term Incentive Plan (the “Powergen Long-Term Plan”) as applicable to LG&E and KU executive officers.  Thereafter, Dr. Vogg, in consultation with certain officers of E.ON AG, Powergen, LG&E Energy, LG&E and KU (collectively, the “Compensation Group”), arrived at decisions regarding the compensation of LG&E’s and KU’s executive officers, including the administration and determination of payments under the Short-Term Incentive Plan (the “Short-Term Plan”) as applicable to LG&E and KU.

The Companies’ executive compensation program and the target awards and opportunities for executives are designed to be competitive with the compensation and pay programs of comparable companies, including utilities, utility holding companies and companies in general industry nationwide. The executive compensation program has been developed and implemented over time through consultation with, and upon the recommendations of, recognized executive compensation consultants. The Compensation Group and the Board of Directors have continued access to such consultants as desired, and are provided with independent compensation data for their review.

Set forth below is a report addressing LG&E’s and KU’s compensation policies during 2002 for their officers, including the executive officers named in the following tables. In many cases, the executive officers also serve in similar capacities for affiliates of LG&E and KU, including LG&E Energy. For each of the executive officers of LG&E and KU, the policies and amounts discussed below are for all services to LG&E, KU and their affiliates, during the relevant period.

Compensation Philosophy

During 2002, LG&E’s and KU’s executive compensation program had three major components: (1) base salary; (2) short-term or annual incentives; and (3) long-term incentives. The Companies developed their executive compensation program to focus on both short-term and long-term business objectives that are designed to enhance overall shareholder value. The short-term and long-term incentives were premised on the belief that the interests of executives should be closely aligned with those of the Companies’ shareholders. Based on this philosophy, these two portions of each executive’s total compensation package were linked to the accomplishment of specific results that were designed to benefit the Companies’ shareholders in both the short-term and long-term.

The executive compensation program also recognized that the Companies’ compensation practices must be competitive not only with utilities and utility holding companies, but also with companies in general industry to ensure that a stable and successful management team can be recruited and retained. As the Companies’ most direct competitors for executive talent are not limited to the utilities, the various compensation peer groups as discussed below, are not the same as the utility industry index in the Comparison of Five-Year Total Return graph included in any applicable proxy statement.

Pursuant to this competitive market positioning philosophy, in establishing compensation levels for all executive positions for 2002, the former Remuneration Committee reviewed competitive compensation information for United States general industry companies with revenue of approximately $3 billion (the “Survey Group”) and established targeted total direct compensation (base salary plus short-term incentives and long-term incentives) for each executive for 2002 to generally approach the 50th percentile of the competitive range from the Survey Group.   Salaries, short-term incentives and long-term incentives for 2002 are described below.  (The utilities and utility holding companies that were in the Survey Group were not necessarily the same as those in the Standard & Poor’s Utility Index used in the Company Performance Graph in any applicable proxy statement.)

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The 2002 compensation information set forth in other sections of this document, particularly with respect to the tabular information presented, reflects the considerations set forth in this report. The Base Salary, Short-Term Incentives, and Long-Term Incentives sections that follow address the compensation philosophy for 2002 for all executive officers except those serving as Chief Executive Officer. (See “Chief Executive Officer Compensation”).

Base Salary

The base salaries for LG&E and KU executive officers for 2002 were designed to be competitive with the Survey Group at approximately the 50th percentile of the base salary range for executives in similar positions with companies in the Survey Group. Actual base salaries were determined based on individual performance and experience.

Short-Term Incentives

The Short-Term Plan provided for Company Performance Awards and Individual Performance Awards, each of which is expressed as a percentage of base salary and each of which is determined independent of the other. The former Remuneration Committee established the performance goals for the Company Performance Awards and Individual Performance Awards at the beginning of the 2002 performance year. Payment of Company Performance Awards for executive officers was based on varying performance measures tied to each officer’s responsible areas. These measures and goals included, among others, Powergen earnings per share targets, LG&E Energy operating profit targets and LG&E/KU operating profits targets The Committee retains discretion to adjust the measures and goals as deemed appropriate. Payment of Individual Performance Awards was based 100% on Management Effectiveness. As stated, the awards varied within the executive officer group based upon the nature of each individual’s functional responsibilities.

For 2002 the Company Performance Award targets for named executive officers ranged from 18% to 30% of base salary, and the Individual Performance Award targets ranged from 12% to 20% of base salary. Both awards were established to be competitive with the 50th percentile of such awards granted to comparable executives employed by companies in the Survey Group. The individual officers were eligible to receive from 0% to 175% of their targeted amounts, dependent upon Company performance as measured by the relevant performance goals, with regard to Company Performance Awards, and were eligible to receive from 0% to 175% of their targeted amounts dependent upon individual performance as measured by management effectiveness, with regard to Individual Performance Awards.

Using the relevant Powergen, LG&E Energy, LG&E/KU and other subsidiaries’ performance against goals in 2002 and making adjustments for unusual financial events, including the continued economic crisis in Argentina, certain accounting effects of the completion of the E.ON-Powergen merger and limited commitments regarding guaranteed levels of bonus compensation for 2002 in connection with the E.ON-Powergen merger, the Compensation Group determined relative annual performance against targets for Company Performance Awards. Based upon this determination, Company Performance Awards for 2002 to the named executive officers were paid ranging from 16% to 34%, of base salary. Payouts for Individual Performance Awards to the named executive officers ranged from 17% to 35%, of base salary.

Long-Term Incentives

Prior to July 2002, a Powergen Long-Term Plan was administered by the former Remuneration Committee. The Long-Term Plan provided for the grant of any or all of the following types of awards: stock options, stock appreciation rights, restricted stock, performance units and performance shares. In 2002, the former Remuneration Committee chose to award only performance units to executive officers.

The former Remuneration Committee determined the competitive long-term grants to be awarded for each executive based on the long-term awards for the 50th percentile of the Survey Group. The aggregate expected value of the awards was intended to approach the expected value of long-term incentives payable to executives in similar positions with companies in the 50th percentile of the Survey Group, depending upon achievement of targeted Company performance.

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Performance units were granted to executive officers and senior management during the first quarter of 2002.  The number of performance units granted was determined by taking the amount of the executive’s long-term award to be delivered in performance units, as determined above, and dividing that amount by the fair market value of Powergen American Depositary Shares (“ADS’s”) on the date of the grant. The future value of the 2002 grants of performance units was substantially dependent upon the changing value of Powergen ADS’s in the marketplace as well as the anticipated accelerated payment of such performance units anticipated at the completion of the E.ON-Powergen merger during 2002. Each executive officer was entitled to receive from 0% to 150% of the performance units contingently awarded to the executive based on corporate performance measured in terms of the achievement of certain cash flow targets by LG&E Energy during a three-year performance period.

No regular payouts of awards under the Long-Term Plan occurred during 2002 as no three-year performance periods had been completed since the establishment of the plan in December 2000 following Powergen’s acquisition of LG&E Energy. However, pursuant to the change in control provisions of the Long-Term Plan, payouts of the two open performance period awards under the Long-Term Plan occurred in April 2002 upon Powergen shareholder approval of the prospective E.ON transaction. These payouts were based on the greater of LG&E Energy’s performance through that time for each of the partially completed 2001-2003 and 2002-2004 performance periods, respectively, or the award value on date of grant.  Based upon LG&E Energy’s performance through the change in control date, payouts of performance units were made using their value as of grant date.

During 2002, certain executive officers of the Companies were invited to participate in the E.ON AG Stock Option Program (the “E.ON SAR Plan.”), Fourth Tranche (2002-2008), which is a stock appreciation rights plan   The E.ON SAR Plan is anticipated to be a vehicle pursuant to which long-term incentives are provided to the Companies’ executive officers.  For 2002, named executive officers received initial grants under the E.ON SAR Plan as shown in the Option/SAR Grants Table in this document.  The grant amounts were established by the Compensation Group and varied per individual officer.

Other

In connection with the LG&E Energy-Powergen merger, Messrs. Staffieri and McCall entered into employment and severance agreements in exchange for waiver of potential rights under prior agreements. These agreements are discussed under “Employment Contracts and Termination of Employment Arrangements and Change in Control Provisions”. Following the change in control event relating to the Powergen shareholder approval of the E.ON transaction, these officers received payments under these agreements, which payments are described in that section. In connection with the E.ON-Powergen merger, Messrs. Staffieri and McCall entered into amendments to their employment and severance agreements in exchange for waiver of potential rights under their existing agreements.  Certain of these payments are included in the “All Other Compensation” column in the Summary Compensation Table.

Chief Executive Officer Compensation

Mr. Victor A. Staffieri was appointed Chief Executive Officer of LG&E and KU effective May 1, 2001. Mr. Staffieri’s compensation was governed by the terms of an Employment and Severance Agreement entered into on February 25, 2000 as amended (including upon his appointment as Chief Executive Officer) (the “2000 Agreement”). The 2000 Agreement is for an initial term of two years commencing on December 11, 2000, with automatic annual extensions thereafter unless the Companies or Mr. Staffieri give notice of non-renewal.

The 2000 Agreement established the minimum levels of Mr. Staffieri’s base compensation, although the Chairman of E.ON AG retains discretion to increase such compensation. In early 2002, the former Remuneration Committee established Mr. Staffieri’s compensation and long-term awards using comparisons to relevant officers of companies in the Survey Group, including utilities, and survey data from various compensation consulting firms. Mr. Staffieri also received Company contributions to the savings plan, similar to those of other officers and employees. Details of Mr. Staffieri’s 2002 compensation are set forth below.

Base Salary.    Mr. Staffieri was paid a total base salary of $630,000 during 2002, as provided in the 2000 Agreement, as amended. The former Remuneration Committee, in determining Mr. Staffieri’s 2002 annual salary,

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including the minimum, considered his individual performance in the prior growth of LG&E Energy, the comparative compensation data described above and the compensation provided to other Powergen, LG&E Energy, LG&E and KU officers.

Short-Term Incentives.    Mr. Staffieri’s target short-term incentive award as Chief Executive Officer was 70% of his 2002 base salary. As with other executive officers receiving short-term incentive awards, Mr. Staffieri was eligible to receive more or less than the targeted amount, based on Company performance and individual performance. His 2001 short-term incentive payouts were based 60% on achievement of Company Performance Award targets and 40% on achievement of Individual Performance Award targets.

For 2002, the Company Performance Award payout for Mr. Staffieri was 54% of his 2002 base salary and the Individual Performance Award payout was 49% of his 2002 base salary. Mr. Staffieri’s Company Performance Award targets were based on measures including Powergen’s corporate centre performance goals and LG&E Energy operating profit goals and his Company Performance Award was calculated based upon annual Company performance all as described under the heading “Short-Term Incentives,” including adjustments for unusual financial events, such as the continued economic crisis in Argentina and certain accounting effects of the completion of the E.ON-Powergen merger.  In determining the Individual Performance Award, the Remuneration Committee considered Mr. Staffieri’s effectiveness in several areas including the financial and operational performance of LG&E Energy, LG&E, KU and other subsidiaries, customer satisfaction ratings, Company growth and other measures.

Long-Term Incentive Grant.    In 2002, Mr. Staffieri received 25,278 performance units for the 2002-2004 performance period under the Powergen Long-Term Plan. These amounts were determined in accordance with the terms of his 2000 Agreement, as amended, with expected value representing approximately 175% of his base salary. The terms of the performance units (including the manner in which performance units are earned) for Mr. Staffieri are the same as for other executive officers, as described under the heading “Long-Term Incentives.”  During 2002, Mr. Staffieri also was invited to participate in the E.ON SAR Plan and received an initial grant of 6,250 stock appreciation rights in November 2002, under the same circumstances and upon the same terms as for other executive officers, as described under the heading “Long-Term Incentives.”

Long-Term Incentive Payout.    As with other executive officers, no regular payouts of awards under the Long-Term Plan occurred in 2002 as no three-year performance periods had yet been completed.  As with other executive officers, pursuant to the change in control provisions of the Long-Term Plan, payouts of the two open performance period awards occurred in April 2002 upon Powergen shareholder approval of the prospective E.ON transaction. Mr. Staffieri’s Company Performance Awards were paid out at the value at grant date for the partially completed 2001-2003 and 2002-2004 periods, as described under the heading “Long-Term Incentives.”

Other.    During 2002, under the terms of the 2000 Agreement, as amended, Mr. Staffieri became entitled to a retention payment upon completion of the E.ON-Powergen merger in the amount of $851,094.  Additionally, Mr. Staffieri became entitled to certain premium payments in the amount of $262,835 and in the form of 9,722 Powergen ADS’s.  Mr. Staffieri also received a bonus in connection with a 2002 amendment to his employment and severance agreement in the amount of $800,570.

Members of the Companies’ Boards of Directors

Victor A. Staffieri
Michael Soehlke
Edmund A. Wallis

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EXECUTIVE COMPENSATION AND OTHER INFORMATION

The following table shows the cash compensation paid or to be paid by LG&E, KU or LG&E Energy, as well as certain other compensation paid or accrued for those years, to the Chief Executive Officer and the next four highest compensated executive officers of LG&E and KU who were serving as such at December 31, 2002, as required, in all capacities in which they served LG&E Energy or its subsidiaries during 2000, 2001 and 2002:

SUMMARY COMPENSATION TABLE

						Long-Term Compensation
						Awards				Payouts
	Annual Compensation					Other Annual		Restricted Stock		Securities Underlying		LTIP		All Other Compen-
		Salary		Bonus		Comp.		Awards		Options/SAR		Payouts		Sation
Principal Position	Year	($)		($)		($)		($) (1)		(#) (2)		($) (3)		($)
Victor A. Staffieri	2002	630,001		650,101		24,282		—		6,250		1,483,377		2,433,735	(4)
Chairman of the Board,	2001	555,769		529,330		45,704		—		51,011		0		1,811,703	(5)
President and Chief Executive Officer	2000	460,000		388,277		24,247		262,880	(1)	90,000		1,051,694		640,160
John R. McCall	2002	363,975		251,543		144,756	(6)	—		3,611		401,580		1,390,557	(4)
Executive Vice President,	2001	338,365		242,104		8,732		—		14,786		0		463,793	(5)
General Counsel and Corporate Secretary	2000	325,000		228,605		18,177		172,028	(1)	40,000		570,565		677,097
Richard Aitken-Davies	2002	273,336	(7)	111,049	(7)	369,300	(7)	—		2,792	(7)	—	(7)	11,738	(7)
Chief Financial Officer (7)	2001	229,490		102,735		319,910	(7)	—		—		—		—
Paul W. Thompson	2002	262,497		147,944		8,106		—		2,604		290,000		440,486	(4)
Senior Vice President - Energy Services	2001	245,193		142,650		9,970		—		10,714		0		436,152	(5)
	2000	221,000		144,401		8,345		—		21,000		264,153		420,839
S. Bradford Rives	2002	280,019		180,145		6,616		—		2,877		204,450		486,491	(4)
Senior Vice President - Finance and Controller	2001	235,000		131,342		6,595		—		7,554		0		390,335	(5)
	2000	221,000		144,401		9,095		—		21,000		262,339		15,606

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(1)Amount shown represents the dollar value of restricted Powergen ADS awards, determined by multiplying the number of ADSs in each award by the closing market price as of the effective date of the LG&E Energy-Powergen merger on December 11, 2000.  Pursuant to the terms of the named executives’ employment agreements, the restricted Powergen ADS’s did not vest until the occurrence of the change in control event associated with the Powergen shareholders’ approval of the E.ON transaction in April 2002.  Dividends on the restricted ADS’s were payable upon vesting, without interest.  In July 2002, upon completion of the E.ON-Powergen merger, all Powergen ADS, including restricted ADS’s, were exchanged for E.ON’s cash consideration amount, resulting in the following payments, including dollar amounts representing accrued dividends, in respect of restricted ADS’s: Mr. Staffieri 7,688 ADS’s ($ 371,052) and Mr. McCall 5,032 ADS’s ($ 242,814).

(2)Amounts for year 2002 reflect E.ON SAR Plan grants.  Amounts for year 2001 reflect options for Powergen ADS’s.  Amounts for year 2000 represent options for LG&E Energy common stock.

(3)No regular payouts under the Powergen Long-Term Plan were made during year 2002 as no three-year performance periods had yet been completed.  As described in the “Report on Compensation,” all open performance periods were accelerated during 2002 upon the change in control event resulting from the Powergen shareholders’ approval of the E.ON transaction.  Amounts for year 2000 reflect acceleration of all open performance periods upon the change in control event as a result of the LG&E Energy-Powergen merger.

(4)Includes employer contributions to 401(k) plan, nonqualified thrift plan, employer paid life insurance premiums, and retention payments in 2002 as follows: Mr. Staffieri $5,500, $29,780, $49,285 and $2,349,170, respectively; Mr. McCall $5,185, $13,707, $18,250 and $1,346,416 respectively; Mr. Thompson $4,288, $8,366, $1,906 and $425,926, respectively; and Mr. Rives, $4,076, $8,878, $892 and $87,746, respectively.  Additionally, Mr. Rives’ figure includes $384,898 in compensation relating to retention to which he elected to defer.  The retention payments above are discussed in the “Report on Compensation” and “Termination of Employment Arrangements and Change in Control Provisions”.

(5)Includes retention payments in 2001 as follows: Mr. Staffieri,  $1,719,884, Mr. McCall, $423,524, Mr. Thompson, $405,860 and Mr. Rives, $382,393, respectively.

(6)Includes financial planning, automobile, spouse travel, dues, overseas compensation and tax payments in 2002 as follows:  $2,000, $7,586, $50,589, $240, $36,398 and $48,143, respectively.

(7)Mr. Aitken-Davies, on assignment in the U.S. as an officer of LG&E and KU, is an employee of Powergen and ultimately receives his salary, compensation and benefits from Powergen.  He participates in Powergen incentive, pension and benefit schemes and, except as described in this document, does not generally participate in LG&E Energy, LG&E or KU plans. Amounts in “Other Annual Compensation” represent financial planning, automobile, travel or spouse travel, housing allowance, overseas compensation, cost-of-living and attributed income tax payments in 2002, as follows:  $4,641, $8,214, 13,066, $23,343, $75,061, $40,097, $5,744 and $199,129, respectively.  Amount for 2001 includes attributed income tax payments in 2001 of 223,373.  Attributed tax payments do not represent in-hand compensation to Mr. Aitken-Davies, but were paid to U.S. taxing authorities.  Amounts for “All Other Compensation” represent immigration, cost-of-living and other payments in 2002 as follows:  $3,725 and $8,013, respectively, related to his service.

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OPTION/SAR GRANTS TABLE

Option/SAR Grants in 2002 Fiscal Year

The following table contains information at December 31, 2002, with respect to grants of E.ON AG stock appreciation rights (SAR’s) to the named executive officers:

	Individual Grants					Potential
	Number of	Percent of				Realizable Value At
	Securities	Total		Exercise		Assumed Annual
	Underlying	Options/SARs		Or Base		Rates of Stock
	Options/SARs	Granted to		Price		Price Appreciation
	Granted	Employees in		($/	Expiration	For Option Term
Name	(#) (1)	Fiscal Year		Share)	Date	0%($)	5% ($)	10%($)
Victor A. Staffieri	6,250	16.4	%	49.660	12/31/2008	0	126,354	294,458
John R. McCall	3,611	9.5	%	49.660	12/31/2008	0	73,002	170,126
Richard Aitken-Davies	2,792	7.3	%	49.660	12/31/2008	0	56,445	131,540
Paul W. Thompson	2,608	6.8	%	49.660	12/31/2008	0	52,644	122,683
S. Bradford Rives	2,877	7.5	%	49.660	12/31/2008	0	58,163	135,545

(1)No Powergen ADS options or SAR’s were awarded during the 2002 fiscal year as grants under the Powergen Long-Term Plan were made 100% in performance units.  For 2002, the named executive officers received initial grants of SAR’s under the E.ON SAR Plan as shown in the table above.

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OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE

Aggregated Option/SAR Exercises in 2002 Fiscal Year

And FY-End Option/SAR Values

The following table sets forth information with respect to the named executive officers concerning the exercise or cash-exchange of Powergen ADS options and ordinary shares during 2002 and the value of unexercised E.ON SAR’s held by them as of December 31, 2002:

Name	Shares Acquired On Exercise (#)(1)	Value Realized ($)	Number of Securities Underlying Unexercised Options/SARs at FY-End (#)(2) Exercisable/Unexercisable	Value of Unexercised In-The-Money Options/SARs at FY-End ($)( Exercisable/Unexercisable
Victor A. Staffieri	89,901	825,696	0 / 6,250	0 / 0
John R. McCall	75,021	923,864	0 / 3,611	0 / 0
Richard Aitken-Davies	69,500	305,184	0 / 2,792	0 / 0
Paul W. Thompson	23,958	231,393	0 / 2,604	0 / 0
S. Bradford Rives	33,800	404,142	0 / 2,877	0 / 0

(1)Amounts shown are Powergen ADS’s, except for Mr. Aitken-Davies, where Powergen ordinary shares are shown..  In July 2002, upon completion of the E.ON-Powergen acquisition, pursuant to E.ON’s acquisition agreement and upon election by option holders, existing options were cancelled and option holders received payments equal to the difference between the exercise price and the 30.60 British pounds ($46.87) per ADS and 7.65 British Pounds ($11.72) per ordinary share consideration paid by E.ON to Powergen shareholders.

(2)Amounts shown are E.ON SAR’s.

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LONG-TERM INCENTIVE PLAN AWARDS TABLE
Long-Term Incentive Plan Awards in 2002 Fiscal Year

The following table provides information concerning awards of performance shares made in 2002 to the named executive officers under the Powergen Long-Term Plan.

	Number	Performance or
	of Shares,	Other Period	Estimated Future Payouts under Non-Stock Price Based Plans (number of shares) (1)
	Units or	Until
	Other	Maturation
Name	Rights(1)	Or Payout	Threshold(#)	Target(#)	Maximum(#)
Victor A. Staffieri	25,278	12/31/2004	12,639	25,278	37,917
John R. McCall	6,676	12/31/2004	3,338	6,676	10,014
Richard Aitken-Davies	24,375	12/31//2004	8,631	24,375	53,552
Paul W. Thompson	4,814	12/31/2004	2,407	4,814	7,221
S. Bradford Rives	3,394	12/31/2004	1,697	3,394	5,091

(1)Except for Mr. Aitken-Davies, amounts shown are awards of Powergen performance units under the Powergen Long-Term Plan during 2002.  For Mr. Aitken-Davies, figures shown are performance shares under the Powergen UK Long Tem Incentive Plan.  Pursuant to the terms of the plans, the performance periods shown and all performance share grants were accelerated upon the change in control resulting from Powergen shareholder approval of the E.ON transaction and were paid in cash during April 2002.

Each performance unit awarded under the Powergen Long-Term Plan represented the right to receive an amount payable in Powergen ADS’s and/or cash on the date of payout, the latter portion being payable in cash in order to facilitate the payment of taxes by the recipient. The amount of the payout was to be determined by the then-fair market value of Powergen ADS’s. For awards made in 2002, the Powergen Long-Term Plan awards were intended to reward executives on a three-year rolling basis dependent upon the achievement of certain cash flow targets by LG&E Energy, taking into account, however, the anticipated acceleration of such awards upon completion of the E.ON-Powergen acquisition during 2002.  As a result of the change in control event resulting from Powergen shareholder approval of the E.ON transaction, awards were accelerated and paid out in April 2002 based upon value on grant date. Payments made under the Long-Term Plan in 2002 are reported in the summary compensation table for the year of payout.

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Pension Plans

The following table shows the estimated pension benefits payable to a covered participant at normal retirement age under LG&E Energy’s qualified defined benefit pension plans, as well as non-qualified supplemental pension plans that provide benefits that would otherwise be denied participants by reason of certain Internal Revenue Code limitations for qualified plan benefits, based on the remuneration that is covered under the plan and years of service with LG&E Energy and its subsidiaries:

2002 PENSION PLAN TABLE

		Years of Service
Remuneration		15		20		25		30 or more
$	100,000	$	44,080	$	44,080	$	44,080	$	44,080
$	200,000	$	108,080	$	108,080	$	108,080	$	108,080
$	300,000	$	172,080	$	172,080	$	172,080	$	172,080
$	400,000	$	236,080	$	236,080	$	236,080	$	236,080
$	500,000	$	300,080	$	300,080	$	300,080	$	300,080
$	600,000	$	364,080	$	364,080	$	364,080	$	364,080
$	700,000	$	428,080	$	428,080	$	428,080	$	428,080
$	800,000	$	492,080	$	492,080	$	492,080	$	492,080
$	900,000	$	556,080	$	556,080	$	556,080	$	556,080
$	1,000,000	$	620,080	$	620,080	$	620,080	$	620,080
$	1,100,000	$	684,080	$	684,080	$	684,080	$	684,080
$	1,200,000	$	748,080	$	748,080	$	748,080	$	748,080
$	1,300,000	$	812,080	$	812,080	$	812,080	$	812,080
$	1,400,000	$	876,080	$	876,080	$	876,080	$	876,080
$	1,500,000	$	940,080	$	940,080	$	940,080	$	940,080
$	1,600,000	$	1,004,080	$	1,004,080	$	1,004,080	$	1,004,080
$	1,700,000	$	1,068,080	$	1,068,080	$	1,068,080	$	1,068,080

A participant’s remuneration covered by the Retirement Income Plan (the “Retirement Income Plan”) is his or her average base salary and short-term incentive payment (as reported in the Summary Compensation Table) for the five calendar plan years during the last ten years of the participant’s career for which such average is the highest. The years of service for each named executive employed by LG&E Energy at December 31, 2002 was as follows: 10 years for Mr. Staffieri; 8 years for Mr. McCall; 11 years for Mr. Thompson, and 19 years for Mr. Rives. Benefits shown are computed as a straight life single annuity beginning at age 65.

Current Federal law prohibits paying benefits under the Retirement Income Plan in excess of $160,000 per year. Officers of LG&E Energy, LG&E and KU with at least one year of service with any company are eligible to participate in LG&E Energy’s Supplemental Executive Retirement Plan (the “Supplemental Executive Retirement Plan”), which is an unfunded supplemental plan that is not subject to the $160,000 limit. Presently, participants in the Supplemental Executive Retirement Plan consist of all of the eligible officers of LG&E Energy, LG&E and KU. This plan provides generally for retirement benefits equal to 64% of average current earnings during the highest 36 months prior to retirement, reduced by Social Security benefits, by amounts received under the Retirement Income Plan and by benefits from other employers. As with all other officers, Mr. Staffieri participates in the Supplemental Executive Retirement Plan described above.

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Estimated annual benefits to be received under the Retirement Income Plan and the Supplemental Executive Retirement Plan upon normal retirement at age 65 and after deduction of Social Security benefits will be $596,667 for Mr. Staffieri; $324,396 for Mr. McCall; $227,639 for Mr. Thompson; and $224,856 for Mr. Rives.  Mr. Aitken-Davies is eligible and participates in retirement or pension schemes provided by his employer Powergen or by the national government in the U.K. and does not participate in LG&E Energy pension plans or supplemental plans.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT

ARRANGEMENTS AND CHANGE IN CONTROL PROVISIONS

In connection with the E.ON-Powergen merger, Messrs. Staffieri and McCall entered into amendments to their employment and severance agreements.  The original agreements, effective upon the LG&E Energy-Powergen merger for two year terms, contained change in control provisions and the benefits described below.  Pursuant to these agreements,  upon Powergen shareholder approval of the E.ON-Powergen merger. Messrs. Staffieri and McCall received retention payments, including interest, of $851,094 and $501,145, respectively,  cash premium payments of $262,835 and $172,028, respectively,  and the restricted Powergen ADS’s and dividends, all as described in the Summary Compensation Table.  Also, upon this change in control event, pursuant to the Powergen Long-Term Plan, outstanding performance units were paid out in cash.

In the event of termination of employment for reasons other than cause, disability or death, or for good reason, Mr. Staffieri shall be entitled to a severance amount equal to 2 times the sum of (1) his annual base salary and (2) his bonus or “target” award paid or payable, or, if within 24 months after a change in control event, 2.99 times the sum of (1) and (2).  In the event of termination of employment for reasons other than cause, disability or death, or for good reason, Mr. McCall shall be entitled to a severance amount equal to the sum of (1) his annual base salary and (2) his bonus or “target” award paid or payable, or, if within 48 months of the date of the E.ON-Powergen merger, 2.99 times the sum of (1) and (2).

In 2002, Messrs. Thompson and Rives became entitled to receive scheduled retention payments, including interest, of $425,926 and $355,078, respectively, pursuant to the terms of retention agreements entered into at the time of the Powergen-LG&E Energy merger.  During 2002, in connection with the E.ON-Powergen merger, Messrs. Thompson and Rives entered into new retention agreements under which these officers will be entitled to a payment equal to the sum of (1) his annual base salary and (2) his annual bonus or “target” award, in the event of their continued employment through the second anniversary of the E.ON-Powergen merger.  Messrs. Thompson and Rives have also entered into change of control agreements which provide that, in the event of termination of employment for reasons other than cause, disability or death, or for good reason following a change in control, these officers shall be entitled to a severance amount equal to 2.99 times the sum of (1) his annual base salary and (2) his bonus or “target” award paid or payable.

Pursuant to the employment and change in control agreements, payments may be made to executives which would equal or exceed an amount which would constitute a nondeductible payment pursuant to Section 280G of the Code, if any. Additionally, executives receive continuation of certain welfare benefits and payments in respect of accrued but unused vacation days and for out-placement assistance. A change in control encompasses certain merger and acquisition events, changes in board membership and acquisitions of voting securities.

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