Item 1. Business
KU Energy Corporation
KU Energy Corporation (KU Energy or the Company), an exempt utility holding company, was incorporated in the state of Kentucky on June 23, 1988. On December 1, 1991, KU Energy became the holder of all common stock of Kentucky Utilities Company (KU). KU Energy has two wholly owned subsidiaries, KU, an electric utility, and KU Capital Corporation (KU Capital), a nonutility subsidiary. KU is KU Energy's principal subsidiary.
The Company is a public utility holding company as defined in the Public Utility Holding Company Act of 1935 (the Holding Company Act). On November 13, 1991, the Company obtained an order from the Securities and Exchange Commission which granted an exemption from all provisions of the Holding Company Act, except Section 9(a)(2) thereof which relates to the acquisition of securities of public utility companies.
The ability of the Company to pay dividends on its common stock is dependent upon distributions made to it by KU and KU Capital and on amounts that may be earned by the Company on investments.
KU Capital Corporation
KU Capital continues to pursue a core energy strategy for its nonutility business activities. Under this strategy, targeted opportunities are energy-related activities that build on the Company's knowledge and expertise and have the appropriate risk/reward profile.
Kentucky Utilities Company
General
KU is a wholly owned subsidiary of KU Energy. KU was incorporated in Kentucky in 1912 and incorporated in Virginia in 1991. KU is a public utility engaged in producing, transmitting and selling electric energy. KU provides electric service to about 432,900 customers in over 600 communities and adjacent suburban and rural areas in 77 counties in central, southeastern and western Kentucky, and to about 28,800 customers in 5 counties in southwestern Virginia. In Virginia, KU operates under the name Old Dominion Power Company. KU operates under appropriate franchises in substantially all of the 161 Kentucky incorporated municipalities served. No franchises are required in unincorporated Kentucky communities. Service has been provided in Virginia without franchises for a number of years. The lack of franchises is not expected to have a material adverse effect on KU's operations. KU also sells electric energy at wholesale for resale in 12 municipalities.
The territory served by KU has an aggregate population estimated at about 1,000,000. The largest city served is Lexington, Kentucky. The population of the metropolitan Lexington area is estimated at about 225,000. The populations of the next 10 largest cities served at retail range from about 21,000 to 9,000. The territory served includes most of the Bluegrass Region of central Kentucky and parts of the coal mining areas in southeastern and western Kentucky and southwestern Virginia. Lexington is the center of the Bluegrass Region, in which thoroughbred horse, burley tobacco and bourbon whiskey distilling industries are located. Among the principal industries in the territory served are automotive and related
industries, coal mining, the manufacture of paper and paper products, electrical and other machinery, and rubber and miscellaneous plastic products.
Revenues
KU's sources of electric revenues and the respective percentages of total revenues for the three years 1994-1996 were as follows:
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 Management's Discussion and Analysis of Financial Condition and Results of Operations - Sales and Revenues in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) which is incorporated herein by reference for information related to revenues.
Operations
KU's net generating capability was 3,639 megawatts at December 31, 1996. The net generating capability available for operation at any time may be lower because of periodic outages of generating units due to inspection, maintenance, fuel restrictions, or modifications required by regulatory agencies. KU obtains power from other utilities under bulk power purchase and interchange contracts. At December 31, 1996, KU's system capability, including purchases from others, was 4,032 megawatts. On February 5, 1996, an all-time system peak demand, on a one-hour integrated basis, was set at 3,391 megawatts. See Item 2, Properties-Construction for a discussion of KU's plans to add additional peaking capacity.
The percentage of KU's system output which was internally generated and purchased for the periods indicated was as follows:
1996 1995 1994 Internally Generated 84% 82% 83% Purchased 16% 18% 17%
KU is one of 28 members of the East Central Area Reliability Coordination Agreement, the purpose of which is to augment the reliability of the members' bulk power supply through coordination of planning and operation of generation and transmission facilities. The members are engaged in the
generation, transmission and sale of electric power and energy in the east central area of the United States, which covers all or portions of Michigan, Indiana, Ohio, Kentucky, Pennsylvania, Virginia, West Virginia and Maryland. KU also has interconnections and contractually established operating arrangements with neighboring utilities and cooperatives.
Under a contract with Owensboro Municipal Utilities (OMU), KU has agreed to purchase from OMU the surplus output of the 150-megawatt and 250-megawatt generating units at OMU's Elmer Smith station. Purchases under the contract are made under a contractual formula which has resulted in costs which were and are expected to be comparable to the cost of other power purchased or generated by KU. Such power constituted about 8% of KU's net system output during 1996. See Note 4 of the Notes to Financial Statements, Commitments and Contingencies under Item 8.
KU owns 20% of the common stock of Electric Energy, Inc. (EEI), which owns and operates a 1,000-megawatt generating station in southern Illinois. KU's entitlement is 20% of the available capacity of the station. Purchases from EEI are made under a contractual formula which has resulted in costs which were and are expected to be comparable to the cost of other power purchased or generated by KU. Such power constituted about 8% of KU's net system output in 1996. See Note 4 of the Notes to Financial Statements, Commitments and Contingencies, under Item 8.
KU had approximately 2,160 employees at December 31, 1996, of which about 300 are covered by union contracts expiring August 1, 1997.
Fuel Matters
Coal-fired generating units provided more than 99% of KU's net kilowatt- hour generation for 1996. The remainder of KU's net generation for 1996 was provided by hydroelectric plants, oil and/or natural gas burning units. The average delivered cost of coal purchased per million BTU (MBTU) and the percentage of spot coal purchases for the periods indicated were as follows:
1996 1995 1994
Per MBTU - all sources $ 1.14 $ 1.16 $ 1.19 Per MBTU - spot purchases only $ 1.08 $ 1.10 $ 1.16 Spot purchases as % of all sources 33% 30% 46%
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 coal mine labor strikes 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 substantial portion of its coal requirements with 3-year and 5-year contracts. KU anticipates that coal supplied under such contracts will represent about two-thirds of the requirements over the next several years. 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. See Note 4 of the Notes to Financial Statements, Commitments and Contingencies, under Item 8 for the estimated obligations under existing fuel contracts for each of the years 1997 through 2001.
KU has no long-term contracts in place for the purchase of natural gas for its combustion turbine peaking units. KU has met its gas requirements through spot purchases. KU does not anticipate encountering any significant problems acquiring an adequate supply of fuel necessary to operate its peaking units. See Item 2, Properties-Construction for a discussion of KU's plans to add additional peaking capacity.
Environmental Matters
Federal and state agencies have adopted environmental protection standards which apply to the electric operations of KU. Capital expenditures to comply with environmental requirements amounted to about $187 million during the 1992-1996 time period.
KU's generating units are operated in compliance with the Kentucky Natural Resources and Environmental Protection Cabinet's (Cabinet) State Implementation Plan (KYSIP) and New Source Performance Standards developed under the Clean Air Act. The KYSIP is a federally approved plan for the attainment of the national ambient air quality standards. The KYSIP contains standards relating to the emissions of various pollutants (sulfur dioxide, particulates and nitrogen oxides) from KU's fossil-fuel fired steam electric generating units. These emission standards are of varying stringencies and compliance with these standards is attained through a variety of air pollution control technologies (scrubbers, electrostatic precipitators, and low nitrogen oxide burners) and the use of low-sulfur coal. KU's operations are in substantial compliance with current emission standards. The operating permit program under the 1990 Clean Air Act Amendments required KU to make application to the Cabinet for new operating permits for its six generating stations. KU s existing permits to operate air contaminant sources continue in effect until new permits are issued.
The acid rain control provisions of the 1990 Clean Air Act Amendments, which are effective in two phases, require KU to further decrease the emissions of sulfur dioxide and nitrogen oxides from its fossil-fuel fired steam electric generating units. Ghent Unit 1, E. W. Brown Units 1, 2 and 3, and Green River Unit 4 were designated as Phase I affected units which were required to comply with sulfur dioxide emission reduction obligations beginning January 1, 1995. In order to comply with these sulfur dioxide emission limitations, KU installed a scrubber and related facilities on Ghent Unit 1 and switched to lower sulfur coal on some other Phase I affected units. In addition, these units were retrofitted with low nitrogen oxide burners in order to comply with applicable nitrogen oxide limitations under United States Environmental Protection Agency (EPA) regulations. The EPA issued final acid rain permits for each of KU's Phase I affected units. The EPA's approval of KU's acid rain compliance plan was accompanied by bonus allowances awarded for the installation of the scrubber on Ghent Unit 1. KU's current emission allowance strategy, in part, includes the accumulation of unused sulfur dioxide emission allowances. These unused allowances result from the bonus allowances received from the EPA and the expected reduced sulfur dioxide emissions from the installation of the Ghent Unit 1 scrubber. The accumulated
allowances are expected to allow KU to delay capital expenditures associated with KU's Phase II acid rain compliance obligations, which are effective January 1, 2000. KU's Phase II compliance strategy, in addition to utilizing accumulated allowances, may include additional fuel switching or the installation of additional scrubbers. However, KU will continue to reassess its options for complying with Phase II emission reduction requirements to determine an overall least cost strategy. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Construction Requirements and - Environmental Matters in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) incorporated herein by reference for additional discussion.
EPA has proposed revisions to the National Ambient Air Quality Standards for ozone and particulate matter which may result in the EPA seeking additional reductions of sulfur dioxide and nitrogen oxide emissions from coal-fired boilers. Because of the magnitude of these additional reductions (50 percent beyond that already required by the Phase II acid rain control provisions of the 1990 Clean Air Act Amendments which become effective January 1, 2000), substantial costs could be incurred to meet future compliance obligations for KU's coal-fired boilers. The proposed revisions are expected to be finalized in 1997. The revisions would be effective some time after the effective date of the Phase II acid rain control provisions of the 1990 Clean Air Act Amendments.
During 1996, each of KU's five fossil-fuel fired steam electric generating stations was re-issued a wastewater discharge permit by the Cabinet under the Clean Water Act's National Pollutant Discharge Elimination System. These 5-year permits place water quality-based effluent limitations (i.e., thermal and chemical limits) on each of the power plant's discharges. KU's operations are in substantial compliance with the conditions in the permits.
Pursuant to the Resource Conservation and Recovery Act, utility wastes (fly ash, bottom ash and scrubber sludge) have been categorized as special wastes (i.e., wastes of large volume, but low environmental hazard). The EPA has concluded that the disposal of coal combustion byproducts by practices common to the utility industry is adequate for the protection of human health and the environment. The Cabinet also regulates utility wastes as special wastes under its waste management program.
Under the Toxic Substances Control Act, the EPA regulates the use, servicing, repair, storage and disposal of electrical equipment containing polychlorinated biphenyls (PCB). To comply with these regulations, KU implemented procedures to be followed in the handling, storage and disposal of PCBs. In addition, KU completed the mandated phase out of all of its pole-class PCB capacitors and has no vault-type PCB transformers in use in or near commercial buildings.
On February 13, 1990, KU received a letter from the EPA identifying KU and others as potentially responsible parties under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA or Superfund) for a disposal site in Daviess County, Kentucky. The letter also asked KU and the other persons or entities named to proceed voluntarily with a remediation program at the site. Under Superfund, a responsible party may be liable for all or a portion of all monies expended by the government to take corrective action at the site. The EPA has turned over responsibility for investigation of the site and development of a remediation plan to a
group (not including KU) originally named as potentially responsible parties. KU has entered into an agreement with the group as to the portion of the investigation and development costs to be borne by KU in connection with the site. The agreement does not cover costs which may be incurred in connection with any remediation plan. The remediation plan has been approved by the EPA. The remediation work is scheduled for completion in 1997. KU does not believe that any liability with respect to the site will have a material impact on its financial position or results of operations.
Regulation
KU is subject to the jurisdiction of the Kentucky Public Service Commission (PSC) and the Virginia State Corporation Commission (SCC) as to retail rates and service, accounts, issuance of securities and in other respects. The Federal Energy Regulatory Commission (FERC) has jurisdiction under the Federal Power Act 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 Act. The FERC has classified KU as a "public utility" as defined in the Act. By reason of owning and operating a small amount of electric utility property in one county in Tennessee (having a gross book value of about $226,000), KU may also be subject to the jurisdiction of the Tennessee Public Service Commission as to retail rates, accounts, issuance of securities and in other respects. Since 1992, utilities in Kentucky have had the option to use either a historical test period or a forward-looking test period in rate filings.
KU's fuel adjustment clause for Kentucky customers, which operates to reflect changes in the cost of fuel in billings to customers, is designed to conform to a general regulation providing for a uniform monthly fuel adjustment clause for all electric utilities in Kentucky subject to the jurisdiction of the PSC. The clause is based on a formula approved by the FERC but with certain modifications, including the exclusion of excess fuel expense attributable to certain forced outages, the filing of fuel procurement documentation, a procedure for billing over and under recoveries of fuel cost fluctuations from the base rate level and provision for periodic public hearings to review past adjustments, to make allowance for any past adjustments found not justified, to disallow any improper expenses and to re-index base rates to include current fuel costs. The fuel adjustment clause mechanism for Virginia customers uses an average fuel cost factor based primarily on projected fuel costs. The fuel cost factor is adjusted annually for the over or under collection of fuel costs from the previous year.
Rate regulation in Kentucky allows each electric utility, with a PSC- approved environmental compliance plan and environmental surcharge, to recover on a current basis the cost of complying with federal, state or local environmental requirements, including the Federal Clean Air Act as amended, which applies to coal combustion wastes and byproducts from facilities utilized for the production of energy from coal. In 1994, the PSC approved KU's environmental surcharge, which is designed to allow KU to recover compliance related operating expenses and to earn a return on those compliance-related capital expenditures not already included in existing rates through the application of the surcharge each month to customers' bills. Surcharge billings are subject to periodic PSC review of the level of environmental expenditures and reconciliation of previous surcharge billings with actual costs. For additional information regarding the environmental surcharge, including information concerning pending legal proceedings, see Management's Discussion and Analysis of Financial
Condition and Results of Operations - Environmental Cost Recovery in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) incorporated herein by reference and Note 9 of the Notes to Financial Statements, "Environmental Cost Recovery," under Item 8.
Integrated resource planning regulations in Kentucky require KU and the other major utilities to make triennial filings with the PSC, of various historical and forecasted information relating to forecasted load, capacity margins and demand-side management techniques.
Pursuant to Kentucky law, the PSC has established the boundaries of the service territory or area of each retail electric supplier in Kentucky (including KU), other than municipal corporations, within which each such supplier shall have the exclusive right to render retail electric service.
The SCC requires 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. These filings are subject to review by the SCC Staff (Staff). The Staff issues a Staff Report, which includes any findings or recommendations to the SCC relating to the individual utility's financial performance during the historic 12-month period, including previously accepted adjustments. The Staff Report may lead to an adjustment in rates.
KU is presently exempt from all the provisions of the Public Utility Holding Company Act of 1935, except Section 9(a)(2) thereof (which relates to the acquisition of securities of public utility companies), by virtue of the exemption granted by an order of the Securities and Exchange Commission dated April 19, 1949 and, absent further action by the Commission, by virtue of annual exemption statements filed by KU with the Commission pursuant to Rule 2 prescribed under the Act.
Competition
The electric utility industry has been rapidly moving to a less regulated and more competitive environment since the passage of the National Energy Policy Act of 1992 (NEPA). NEPA gave the FERC the authority to order electric utilities to provide wholesale transmission access to independent power producers and other utilities. It also reduced restrictions on the ownership and operation of independent power producers. See Management's Discussion and Analysis of Financial Condition and Results of Operation - Utility Issues - Competition in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) incorporated herein by reference for further discussion of competition.
In April 1996, the FERC issued two final rules and a new Notice of Proposed Rulemaking (NOPR) to promote competition and deregulation in the wholesale electric market. FERC Order No. 888 (Order 888) addressed both open access transmission service and stranded cost issues. FERC Order No. 889 (Order 889) required utilities to establish an electronic Open Access Same-Time Information System (OASIS) to share information about available transmission capacity and also required the establishment by each utility of standards of conduct for its transmission system operation. The 1996 NOPR proposes to establish a new system for utilities to use in reserving capacity on their own and other's transmission lines. See Management's Discussion and Analysis of Financial Condition and Results of Operation - Utility Issues - Competition in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) incorporated herein by reference for further discussion of the FERC orders.
KU is one of 24 utilities in a ten-state region attempting to form the Midwest Independent System Operator (ISO). The primary objectives of the ISO are to advance wholesale competition by ensuring nondiscriminatory open transmission access to all customers and to enhance transmission reliability.
Cautionary Factors
See Management's Discussion and Analysis for information concerning forward looking statements. Forward looking statements have been and will be made in written documents and oral presentations of the Company and KU. All statements made herein which are not based on historical facts are forward looking and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed. In addition to those forward looking statements and cautionary factors referred to in Management's Discussion and Analysis, forward looking statements in this Form 10-K include those relating to:
1. The need for franchise agreements. 2. The comparability of OMU and EEI power costs to generation and other available power. 3. Maintaining necessary levels of fuel inventory and adequate supplies of coal and gas to avoid operational disruptions. 4. Availability of coal reserves to supply baseload generating units over their useful lives. 5. The amount of coal supplied by contract versus spot purchase. 6. Negotiations of new coal contracts for future coal needs. 7. KU's portion of EPA remediation plan costs at the Daviess County site. 8. The Company's future dividend policy. 9. The percent of total kWh requirements provided by OMU and EEI. 10. Estimates of future construction expenditures discussed under Item 2
Item 2. Properties
Currently, KU Energy and KU Capital have no significant physical property. KU owns and operates the following electric generating stations:
Substantially all properties are subject to the lien of KU's Mortgage Indenture.
Construction
Four 126-MW combustion turbine peaking units have been installed over the past three years. The first peaking unit was placed into commercial operation in late 1994. The second and third units were placed into commercial operation in February 1995 and December 1995, respectively. The fourth unit was placed into commercial operation in May 1996. Total construction expenditures for the years 1997 through 2001 are estimated at $531 million. Such expenditures include an estimated $168 million for generating facilities, $72 million for transmission facilities and $291 million for distribution and general facilities. Included in total construction expenditures for the 1997-2001 period are $95 million for 360 MW of peak generating capacity to be added during 1997-2001. KU has no plans to install baseload generating capacity before 2010. Construction expenditures for the years 1992 through 1996 aggregated about $688 million. See Note 4 of the Notes to Financial Statements, Commitments and Contingencies, under Item 8, for the estimated amounts of construction expenditures for each of the years 1997 through 2001.
KU frequently reviews its construction program and construction expenditures, which may be affected by numerous factors, including competition and deregulation, the rate of load growth, changes in construction costs, changes in environmental regulations, least cost planning, the adequacy of rate relief and KU's ability to raise necessary capital. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity & Capital Resources - Capital Requirements in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) incorporated herein by reference. KU's planned additions to its electric generating capacity are based on future load projections using estimated load growth rates. Consideration is also given to projections by neighboring utilities of their future loads and capacity. However, forecasts of future loads are subject to numerous uncertainties, including economic conditions and effectiveness of energy conservation measures.
Item 3.
Item 3. Legal Proceedings
KU Energy and KU Capital are involved in no material legal proceedings.
See Management's Discussion and Analysis - Environmental Matters - Environmental Cost Recovery in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) incorporated herein by reference and Note 9 of the Notes to Financial Statements, "Environmental Cost Recovery," for a discussion of KU's environmental surcharge legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders of either KU Energy or KU during the three months ended December 31, 1996.
Executive Officers of KU Energy
Current Positions Held During at Least the Name and Age Positions Held Last 5 Years
Michael R. Whitley Chairman and Chairman of the Board of KU Energy Age 53 President* since August 1995 and President of KU Energy since November 1994. Director of KU Energy since March 1992. Senior Vice-President from 1988 to November 1994. Secretary of KU Energy from 1988 to November 1992.
O. M. Goodlett Senior Vice- Senior Vice-President of KU Energy Age 49 President* since November 1994.
James W. Tipton Senior Vice- Senior Vice-President of KU Energy Age 53 President since November 1994. Senior Vice- President of Kentucky Utilities from November 1986 to November 1994.
George S. Brooks II General Corporate Secretary of KU Energy Age 46 Counsel and since November 1992, and General Corporate Counsel since 1988. Secretary*
William N. English Treasurer* Treasurer of KU Energy since 1988. Age 46
Michael D. Robinson Controller* Controller of KU Energy since June Age 41 1990.
Note: Officers are elected annually by the Board of Directors. There is no family relationship between any executive officer and any other executive officer or any director.
* Certain executive officers of KU may be considered "executive officers" of KU Energy for certain purposes. Identified persons hold positions with the same titles at KU. Refer to KU's listing of executive officers for information concerning positions held during the last five years and information concerning KU executive officers.
Executive Officers of KU Current Positions Held During at Least the Name and Age Positions Held Last 5 Years
Michael R. Whitley Chairman and Chairman of the Board of KU since Age 53 President* August 1995 and President from November 1994. Director of KU since March 1992. Senior Vice- President of KU from March 1987 to November 1994. Secretary of KU from July 1978 to November 1992.
James M. Allison Senior Vice- Senior Vice-President of KU since Age 43 President** November 1994. Vice-President of KU from February 1993 to November 1994. President and Chief Operating Officer of Wheeling Power Company from October 1989 to January 1993.
O. M. Goodlett Senior Vice- Senior Vice-President of KU since Age 49 President* November 1992. Vice-President of KU from April 1982 to November 1992.
Wayne T. Lucas Senior Vice- Senior Vice-President of KU since Age 49 President November 1994. Vice President of KU from November 1986 to November 1994.
George S. Brooks II General Corporate Secretary of KU since Age 46 Counsel and November 1992, and General Counsel Corporate since January 1988. Secretary*
Gary E. Blake Vice-President Vice-President of KU since Age 43 November 1992. Western Division Manager of KU from October 1991 to November 1992. Assistant Western Division Manager of KU from March 1990 to October 1991.
William E. Casebier Vice-President Vice-President of KU since May Age 54 1988.
Executive Officers of KU (continued)
Current Positions Held During at Least the Name and Age Positions Held Last 5 Years
Linda M. DiMascio Vice-President Vice-President of KU since Age 42 February 1995. Director of Human Resources of Tucker Housewares from September 1994 to February 1995. Senior Area Coordinator for U.S. Manufacturing Department of Mobil Oil Corporation from April 1992 to September 1994. Assistant Employee Relations Manager, Torrance Refinery of Mobil Oil Corporation from October 1989 to April 1992.
Gary L. Hawley Vice-President Vice President of KU since January Age 48 1996. Director of Bulk Power Planning from November 1986 to January 1996.
Robert M. Hewett Vice-President Vice-President of KU since January Age 49 1982.
William N. English Treasurer* Treasurer of KU since April 1982. Age 46
Michael D. Robinson Controller* Controller of KU since August Age 41 1990.
John J. Maloy, Jr. Assistant Assistant Treasurer of KU since Age 42 Treasurer August 1984. (Not an Executive Officer)
Note: Officers are elected annually by the Board of Directors. There is no family relationship between any executive officer and any other executive officer or any director.
* Certain executive officers of KU may be considered "executive officers" of KU Energy for certain purposes. Identified persons hold positions with the same titles at KU Energy.
** Mr. Allison resigned effective February 21, 1997. His duties were temporarily assigned to Mr. Goodlett, who also continues as the Company's Chief Financial Officer and Senior Vice-President of Finance and Administration.
PART II Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
KU Energy
KU Energy's common stock is listed on the New York and Pacific stock exchanges under the ticker symbol "KU." Quotes in daily newspapers can be found under the listing "KU Engy."
The table below sets forth the high and low sales prices and the dividends paid for the Company's common stock for the periods shown.
KU Energy's Board has declared a common stock dividend of $.44 per share payable March 14, 1997, to shareholders of record on February 25, 1997.
As of December 31, 1996, KU Energy had approximately 29,344 common shareholders of record.
KU has paid cash dividends since 1939. KU Energy expects to continue this policy, although future dividends are dependent on future earnings, capital requirements and financial conditions. The dividend payout ratio (cash dividends as a percentage of net income) was 79% for 1996 and 84% for 1995. See Note 5 of the Notes to Consolidated Financial Statements, Common Stock, in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) incorporated herein by reference for information regarding dividend restrictions.
KU
All of the outstanding common stock of KU is held by KU Energy.
The following table sets forth the cash distributions (in thousands of dollars) on common stock paid by KU for the periods indicated:
1996 1995 First Quarter $16,261 $15,789 Second Quarter $16,262 $15,789 Third Quarter $16,262 $15,789 Fourth Quarter $16,262 $15,883
See Note 5 of the Notes to Financial Statements, Common Stock, under Item 8 for information regarding dividend restrictions.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information under the heading Management's Discussion and Analysis of Financial Condition and Results of Operation is combined for KU Energy and KU on pages 14 through 19 of KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) and is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data
KU ENERGY
The financial statements and supplementary data on pages 20 through 33 of KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) are incorporated herein by reference.
KU
Page(s)
Index to Financial Statements and Supplementary Data:
Report of Independent Public Accountants 23 Statements of Income and Retained Earnings 24 Statements of Cash Flows 25 Balance Sheets 26 Statements of Capitalization 27 Notes to Financial Statements 28-38 Supplemental Quarterly Financial Information 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kentucky Utilities Company:
We have audited the accompanying balance sheets and statements of capitalization of Kentucky Utilities Company (a Kentucky and Virginia corporation) as of December 31, 1996 and 1995, and the related statements of income and retained earnings, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the management of Kentucky Utilities Company. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kentucky Utilities Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
/s/Arthur Andersen LLP Arthur Andersen LLP
Chicago, Illinois January 28, 1997
Notes to Financial Statements Kentucky Utilities Company
1. Summary of Significant Accounting Policies
General
Kentucky Utilities Company (KU) is the principal subsidiary of KU Energy Corporation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts from prior periods have been reclassified to conform with the current year presentation.
KU is a public utility engaged in producing, transmitting and selling electric energy. KU provides electric service to about 432,900 customers in over 600 communities and adjacent suburban and rural areas in 77 counties in central, southeastern and western Kentucky and to about 28,800 customers in 5 counties in southwestern Virginia.
Regulation
KU is exempt from regulation as a registered holding company under the Public Utility Holding Company Act of 1935. KU is subject to regulation by the Kentucky Public Service Commission (PSC), the Virginia State Corporation Commission (SCC) and the Federal Energy Regulatory Commission (FERC). With respect to accounting matters, KU maintains its accounts in accordance with the Uniform System of Accounts as defined by these agencies. KU's accounting policies conform to generally accepted accounting principles applicable to rate regulated enterprises and reflect the effects of the ratemaking process. Other than the unamortized loss on reacquired debt, KU's regulatory assets are immaterial.
Utility Plant
Utility plant is stated at the original cost of construction. The cost of repairs of property units and replacements of minor items is charged to maintenance expense as incurred. Property unit replacements are capitalized and the depreciation reserve is charged with the cost, less net salvage, of units retired.
Depreciation
Provision for depreciation of utility plant is based on straight-line composite rates applied to the cost of depreciable property. The rates approximated 3.5% in 1996 and 1995 and 3.4% in 1994.
Cash and Cash Equivalents
For purposes of reporting cash flows, KU considers highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents.
Notes to Financial Statements Kentucky Utilities Company
KU utilizes a cash management mechanism that funds certain bank accounts for checks as they are presented to those banks. KU classified checks written but not presented to those banks, which amounted to $6.1 million and $10.5 million at December 31, 1996 and 1995, respectively, in accounts payable.
Financial Instruments
KU's temporary cash investments are classified as held-to-maturity and are reported under the caption "Cash and cash equivalents" on the Balance Sheet.
Stock-Based Compensation
KU adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," in 1996 by continuing to account for stock compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." If KU had recognized compensation expense for awards under its stock-based compensation plan according to the new standard, net income and earnings per share for the year ended 1996, 1995 and 1994 would not have been materially different from amounts recorded.
Unamortized Loss on Reacquired Debt
KU defers costs (primarily call premiums) arising from the reacquisition or retirement of long-term debt. Costs related to refinanced debt are amortized over the lives of the new debt issues. Costs related to retired debt not refinanced are amortized over the period to the scheduled maturity of the retired debt.
Operating Revenues and Fuel Costs
Revenues are recorded based on services rendered to customers. KU accrues an estimate of revenues for electric service furnished from the meter reading dates to the end of each accounting period. Cost of fuel used in electric generation is charged to expense as the fuel is consumed. Fuel adjustment clauses adjust operating revenues for changes in the level of fuel costs charged to expense. An environmental surcharge for Kentucky retail customers, implemented in August 1994, permits the utility to recover certain ongoing operating and capital costs of compliance with federal, state or local environmental requirements associated with the production of energy from coal, including the Federal Clean Air Act as amended. See Note 9 of the Notes to Financial Statements, "Environmental Cost Recovery," for an update of environmental surcharge legal proceedings.
Pursuant to regulatory orders, KU had been refunding fuel cost savings related to the resolution of a coal contract dispute. Refunds were made to Virginia retail customers during the period August 1993 through June 1994. Refunds were made to wholesale customers under the jurisdiction of the FERC in lump sum payments in September 1993. Refunds to Kentucky retail customers commenced in July 1994. Pursuant to
Notes to Financial Statements Kentucky Utilities Company
legislation adopted in 1996, KU paid the remaining balance of unclaimed Kentucky retail customer refunds to the Kentucky Workers' Compensation Funding Commission to pay certain workers compensation benefits.
By virtue of the legislation, KU's payment of the unclaimed refunds to the State released KU from any future liability to customers relating to such refunds. The legislation also preserved the rights of ratepayers entitled to claim a refund who have not yet done so and authorized the Funding Commission to honor future refund claims using any funds available.
Operating revenues and fuel expense for 1994 were reduced by $19.4 million and $23.1 million, respectively, resulting from the above- mentioned refunds. The refunds had no impact on operating revenues or fuel expense for 1995 or 1996. The difference between the reduction in operating revenues and the reduction in fuel expense is attributable to incurred litigation costs, fuel cost savings related to opportunity sales and costs incurred to administer the refund plan. These amounts were retained by KU pursuant to regulatory orders.
Income Taxes
KU establishes deferred tax assets and liabilities, as appropriate, for all temporary differences, and adjusts deferred tax balances to reflect changes in tax rates expected to be in effect during the periods the temporary differences reverse. Investment tax credits resulted from provisions of the tax law which permitted a reduction of KU's tax liability based on certain construction expenditures. Such credits have been deferred in the accounts and are being amortized as reductions in income tax expense over the life of the related property. Because of rate regulation, changes in tax rates are deferred and amortized as the temporary differences reverse.
2. Income Taxes
KU is included in the consolidated federal tax return of its parent company, KU Energy. Income taxes are allocated to the individual companies, including KU, based on their respective taxable income or loss.
Notes to Financial Statements Kentucky Utilities Company
The accumulated deferred income taxes as set forth in the Balance Sheet arise from the following temporary differences:
Notes to Financial Statements Kentucky Utilities Company
KU's effective income tax rate, determined by dividing income taxes by the sum of such taxes and net income, was 35.4% in 1996, 34.9% in 1995 and 35.2% in 1994. The difference between the effective rate and the statutory federal income tax rate is attributable to the following factors:
3. Retirement Benefits
Pensions
KU has a noncontributory defined benefit pension plan covering substantially all of its employees. Benefits under this plan are based on years of service, final average base pay and age at retirement. KU's funding policy is to make such contributions as are necessary to finance the benefits provided under the plan. KU's contributions meet the funding standards set forth in the Employee Retirement Income Security Act of 1974. The plan assets consist primarily of common stocks, corporate bonds and U.S. Government Securities.
KU also has a Supplemental Security Plan for certain management personnel. Retirement benefits under this plan are based on years of service, earnings and age at retirement. The plan has no advance funding. Benefit payments are made to retired employees or their beneficiaries from the general assets of KU.
The reconciliation of the funded status of the retirement plans and the pension liability recorded by KU is as follows:
Notes to Financial Statements Kentucky Utilities Company
Other Postretirement Benefits
KU provides certain health care and life insurance benefits to eligible retired employees and their dependents. KU accrues, during the years that the employee renders service, the expected cost of providing these benefits for retired employees, their beneficiaries and covered dependents. The postretirement health care plan is contributory for employees who retired after December 31, 1992, with retiree contributions indexed annually based upon the experience of retiree medical expenses for the preceding year. Pre-1993 retirees are not required to contribute to the plan. KU's employees become eligible for retiree medical benefits after 15 years of service and attainment of age 55. The life insurance plan is noncontributory and is based on compensation levels prior to retirement.
In 1993, KU began funding, in addition to current requirements for benefit payments, the maximum tax-favored amount allowed through certain tax deductible funding vehicles. KU anticipates making similar funding decisions in future years, but will consider and make such funding decisions on the basis of tax, regulatory and other relevant conditions in effect at such times. The plan assets consist primarily of equity investments.
Notes to Financial Statements Kentucky Utilities Company
The reconciliation of the funded status of the plans and the postretirement benefit liability recorded by KU is as follows:
For measurement purposes, a 7.5% annual rate of increase in the per capita cost of covered health care benefits is assumed for 1997. The health care cost trend rate is assumed to decrease gradually to 4.75% through 2003 and remain at that level thereafter over the projected payout period of the benefits. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996, by $10.4 million (16%) and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for the year by $1.2 million (19%).
Notes to Financial Statements Kentucky Utilities Company
4. Commitments and Contingencies
Construction Program
KU frequently reviews its construction program and may revise its projections of related expenditures based on revisions to its estimated load growth and projections of its future load.
See Management's Discussion and Analysis - Construction Requirements in KU Energy's 1996 Annual Report to Shareholders (Exhibit 13) incorporated herein by reference for a discussion of future construction expenditures including those relating to construction of peaking units.
Coal Supply
Obligations under KU's coal purchase contracts are stated at prices effective January 1, 1997, and are subject to changes as defined by the terms of the contracts.
Purchased Power
KU has purchase power arrangements with Owensboro Municipal Utilities (OMU), Electric Energy, Inc. (EEI), and other parties. Under the OMU agreement, which expires on January 1, 2020, KU purchases, on an economic basis, all of the output of a 400-MW generating station not required by OMU. The amount of purchased power available to KU during 1997-2001, which is expected to be approximately 8% of KU's total kWh requirements, is dependent upon a number of factors including the units' availability, maintenance schedules, fuel costs and OMU requirements. Payments are based on the total costs of the station allocated per terms of the OMU agreement, which generally follows delivered kWh. Included in the total costs is KU's proportionate share of debt service requirements on $192.9 million of OMU bonds outstanding at December 31, 1996. The debt service is allocated to KU based on its annual allocated share of capacity, which averaged approximately 48% in 1996.
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
Notes to Financial Statements Kentucky Utilities Company
capacity of a 1,000-MW station. Payments are based on the total costs of the station allocated per terms of an agreement among the owners, which generally follows delivered kWh.
KU has several other contracts for purchased power during 1997-2001 of various MW capacities and for varying periods with a maximum entitlement at any time of 282 MW.
Credit Arrangements
KU has aggregate bank lines of credit of $60 million, all of which remained unused at December 31, 1996. All of these credit lines expire in December 1999. In support of these lines of credit, KU compensates the banks by paying a commitment fee.
5. Common Stock
KU is subject to restrictions applicable to all corporations under Kentucky and Virginia law on the use of retained earnings for cash dividends on common stock, as well as those contained in its Mortgage Indenture and Articles of Incorporation. At December 31, 1996, there were no restricted retained earnings.
6. Preferred and Preference Stock
Each series of preferred stock is redeemable at the option of KU upon 30 days' written notice as follows:
Redemption Price per Share Series (plus accrued and unpaid dividends, if any) 4 3/4% $101.00
6.53% (Not redeemable prior to December 1, 2003.) $103.265 through November 30, 2004, decreasing approximately $.33 each twelve months thereafter to $100 on or after December 1, 2013.
As of December 31, 1996, there were 5.3 million shares of KU preferred stock, having a maximum aggregate stated value of $200 million, authorized for issuance, of which 400,000 shares were outstanding.
As of December 31, 1996, there were 2 million shares of KU Preference Stock without par value, authorized for issuance.
7. Short-Term and Long-Term Debt
KU's short-term financing requirements are satisfied through the sale of commercial paper. The weighted average interest rate on the year-end balance was 6.17% for 1996 and 5.83% for 1995.
Notes to Financial Statements Kentucky Utilities Company
In 1994, KU entered into a loan agreement with the County of Carroll, Kentucky to finance the construction of solid waste disposal facilities. The County of Carroll issued $54 million of variable rate revenue bonds, with the proceeds held in a construction fund. In 1994, 1995 and 1996, KU drew down $35.7 million, $15.1 million and $3.2 million, respectively, relating to these bonds. Kentucky Utilities Pollution Control Series 10 Bonds are issued under KU's Mortgage Indenture.
Under the provisions for the variable rate revenue bonds, KU can choose between various interest rate options. Currently, the daily interest rate option is being utilized. The average annual interest rate on the bonds during 1996 and 1995 was 3.53% and 3.95%, respectively. The variable rate 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. If tendered bonds are not remarketed, KU has available lines of credit which may be used to repurchase the bonds.
In January 1996, KU issued $36 million of Series S First Mortgage Bonds which bear interest at 5.99% and will mature January 15, 2006. The proceeds were used to redeem $35.5 million of Series K First Mortgage Bonds.
Substantially all of KU's utility plant is pledged as security for the first mortgage bonds.
8. Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
The carrying values of cash and cash equivalents, escrow funds, construction funds, short-term borrowings, commercial paper and customer deposits approximate fair value because of the short maturity of these amounts.
Long-term debt fair values are based on quoted market prices for KU's first mortgage bonds and on current rates available to KU for debt of the same remaining maturities for KU's pollution control bonds and promissory note. The carrying value of long-term debt on December 31, 1996 and 1995 was $546 million and $546 million, respectively, and the estimated fair value was $587 million and $594 million, respectively.
If the difference between fair value and carrying value of KU's long-term debt were settled at amounts approximating those above, the anticipated regulatory treatment (based on the current regulatory environment) would allow recovery of these amounts in rates over a prescribed amortization period. Accordingly, any settlement would not have a material impact on KU's financial position or results of operations.
Notes to Financial Statements Kentucky Utilities Company
9. Environmental Cost Recovery
Since August 1994, KU has been collecting an environmental surcharge from its Kentucky retail customers under a Kentucky statute which authorizes electric utilities (including KU) to implement, beginning January 1, 1993, an environmental surcharge. The surcharge is designed to recover certain operating and capital costs of compliance with federal, state or local environmental requirements associated with the production of energy from coal, including the Federal Clean Air Act as amended. KU's environmental surcharge was approved by the PSC in July 1994 and was implemented in August 1994. The total surcharge collections from August 1, 1994 through December 31, 1996 were approximately $40 million.
The constitutionality of the surcharge statute was challenged in the Franklin County (Kentucky) Circuit Court in an action brought against KU and the PSC by the Attorney General of Kentucky and joined by representatives of consumer groups. In July 1995, the Circuit Court entered a judgment upholding the constitutionality of the statute, but vacating that part of the PSC's July 1994 order which the judgment describes as allowing KU to recover, under the surcharge, certain environmental expenditures characterized by the Circuit Court as having been incurred before January 1, 1993. The Circuit Court further ordered the case remanded to the PSC for a determination in accordance with the judgment. KU and the PSC assert that none of the costs included in the surcharge were incurred prior to June 1994.
The Attorney General and other consumer representatives appealed to the Kentucky Court of Appeals that part of the Circuit Court judgment upholding the constitutionality of the surcharge statute. The PSC and KU appealed that part of the judgment denying recovery of certain environmental expenditures characterized by the Circuit Court as having been incurred before January 1, 1993. The PSC has ordered all surcharge revenues collected by KU from February 1, 1995 subject to refund pending final determination of all appeals. The total surcharge collections from February 1, 1995 through December 31, 1996 were approximately $36 million.
KU believes the constitutionality of the surcharge statute will be upheld, but it cannot predict the outcome of that part of the Circuit Court judgment disallowing recovery of certain environmental expenditures characterized by the Circuit Court as having been incurred before January 1, 1993. If the Circuit Court judgment is ultimately upheld as entered, KU estimates that the amount it would be required to refund (which is based solely on costs associated with certain environmental expenditures characterized by the Circuit Court as having been incurred before January 1, 1993) for surcharge collections through December 31, 1996, from the implementation of the surcharge would be approximately $11 million, and from February 1, 1995 would be approximately $9 million. At this time, KU has not recorded any reserve for refund.
Supplementary Quarterly Financial Information (Unaudited) Kentucky Utilities Company
Quarterly financial results for 1996 and 1995 are summarized below. Generally, quarterly results may fluctuate due to seasonal variations, changes in fuel costs and other factors.
These quarterly amounts reflect, in KU's opinion, all adjustments (including only normal recurring adjustments) necessary for a fair presentation.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None for KU Energy or KU.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrants
The information required by Item 10 for the Company and KU relating to each director and each nominee for election as a director at the Company's and KU's 1997 Annual Shareholders Meetings is set forth in the Company's definitive proxy statement (the Proxy Statement) filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with the Company's 1997 Annual Shareholders Meeting. Such information is incorporated herein by reference to the material appearing in the Proxy Statement under the caption "Election of Directors--General" and is also filed herewith as Exhibit 99.03. Information required by this item relating to executive officers of the Company and KU is set forth under a separate caption in Part I hereof.
Item 11.
Item 11. Executive Compensation
The information required by Item 11 for the Company and KU is incorporated herein by reference to the material appearing in the Proxy Statement under the caption "Election of Directors -- Directors' Compensation, and -- Executive Compensation" and is also filed herewith as Exhibit 99.03 (but excluding any information contained under the subheadings -- "Report of Compensation Committee on Executive Compensation," -- "Performance Graph").
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 for the Company and KU is incorporated herein by reference to the material appearing in the Proxy Statement under the caption "Election of Directors--Voting Securities Beneficially Owned by Directors, Nominees and Executive Officers" and is also filed herewith as Exhibit 99.03.
Item 13.
Item 13. Certain Relationships and Related Transactions
None for KU Energy or KU.
PART IV
KU ENERGY AND KU
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page of this Report on Form 10-K KU Energy KU
(a) (1) Financial Statements** Report of Independent Public Accountants * 23 Statements of Income and Retained Earnings for the years ended December 31, 1996, 1995 and 1994 * 24 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 * 25 Balance Sheets as of December 31, 1996 and 1995 * 26 Statements of Capitalization as of December 31, 1996, and 1995 * 27 Notes to Financial Statements * 28
(a) (2) All financial statement schedules for KU Energy and KU are omitted as not applicable or not required under Regulation S-X.
* Incorporated by reference from KU Energy's 1996 Annual Report to Shareholders (Exhibit 13).
** The KU Energy consolidated financial statements, including notes, are not included in the KU Annual Report on Form 10-K.
(3) Exhibits - KU Energy and KU
Applicable to Form 10-K of KU No. Description Energy KU Page(s)
3.01 Amended and Restated Articles of Incorporation of KU Energy Corporation. (Exhibit 3A to Form 10-K Annual Report of KU Energy for the year ended December 31, 1992). Incorporated by reference. x
3.02 Amended and Restated Articles of Incorporation of Kentucky Utilities Company. (Exhibits 4.03 and 4.04 to Form 8-K Current Report of KU, dated December 10, 1993). Incorporated by reference. x
3.03 By-laws of KU Energy Corporation dated July 29, 1996 (Exhibit 4.01 to Form 10-Q Quarterly Report for the quarter ended June 30, 1996 of KU Energy and KU). Incorporated by reference. x
3.04 By-laws of Kentucky Utilities Company dated July 29, 1996. (Exhibit 4.02 to Form 10-Q Quarterly Report for the quarter ended June 30, 1996 of KU Energy and KU). Incorporated by reference. x
4.01 Rights Agreement, dated as of January 27, 1992, by and between KU Energy Corporation and Illinois Stock Transfer Company (Exhibit 4.1 to Form 8-K Current Report of KU Energy dated January 27, 1992). Incorporated by reference. x
4.02 Indenture of Mortgage or Deed of Trust dated May 1, 1947, between Kentucky Utilities Company and First Trust National Association (successor Trustee) and a successor individual co-trustee, as Trustees (the Trustees) (Amended Exhibit 7(a) in File No. 2-7061), and Supplemental Indentures thereto dated, respectively, January 1, 1949 (Second Amended Exhibit 7.02 in File No. 2-7802), July 1, 1950 (Amended Exhibit 7.02 in File No. 2-8499), June 15, 1951 (Exhibit 7.02(a) in File No. 2-8499), June 1, 1952 (Amended Exhibit 4.02 in File No. 2-9658), April 1, 1953 (Amended Exhibit 4.02 in File No. 2-10120), April 1, 1955 (Amended Exhibit 4.02 in File No. 2-11476), April 1, 1956 (Amended Exhibit 2.02 in File
Applicable to Form 10-K of KU No. Description Energy KU Page(s)
4.02 No. 2-12322), May 1, 1969 (Amended con. Exhibit 2.02 in File No. 2-32602), April 1, 1970 (Amended Exhibit 2.02 in File No. 2-36410), September 1, 1971 (Amended Exhibit 2.02 in File No. 2-41467), December 1, 1972 (Amended Exhibit 2.02 in File No. 2-46161), April 1, 1974 (Amended Exhibit 2.02 in File No. 2-50344), September 1, 1974 (Exhibit 2.04 in File No. 2-59328), July 1, 1975 (Exhibit 2.05 in File No. 2-59328), May 15, 1976 (Amended Exhibit 2.02 in File No. 2-56126), April 15, 1977 (Exhibit 2.06 in File No. 2-59328), August 1, 1979 (Exhibit 2.04 in File No. 2-64969), May 1, 1980 (Exhibit 2 to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1980), September 15, 1982 (Exhibit 4.04 in File No. 2-79891), August 1, 1984 (Exhibit 4B to Form 10-K Annual Report of KU for the year ended December 31, 1984), June 1, 1985 (Exhibit 4 to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1985), May 1, 1990 (Exhibit 4 to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1990), May 1, 1991 (Exhibit 4 to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1991), May 15, 1992 (Exhibit 4.02 to Form 8-K of KU dated May 14, 1992), August 1, 1992 (Exhibit 4 to Form 10-Q Quarterly Report of KU for the quarter ended September 30, 1992), June 15, 1993 (Exhibit 4.02 to Form 8-K of KU dated June 15, 1993) and December 1, 1993 (Exhibit 4.01 to Form 8-K of KU dated December 10, 1993), November 1, 1994 (Exhibit 4.C to Form 10-K Annual Report of KU for the year ended December 31, 1994), June 1, 1995 (Exhibit 4 to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1995) and January 15, 1996 (Exhibit 4.E to Form 10-K Annual Report of KU for the year ended December 31, 1995). Incorporated by reference. x x
Applicable to Form 10-K of KU No. Description Energy KU Page(s)
4.03 Supplemental Indenture dated March 1, 1992 between Kentucky Utilities Company and the Trustees, providing for the conveyance of properties formerly held by Old Dominion Power Company (Exhibit 4B to Form 10-K Annual Report of KU for the year ended December 31, 1992). Incorporated by reference. x x
10.01 KU's Amended and Restated Performance Share Plan (Exhibit 10.A to Form 10-Q Quarterly Report of KU for the quarter ended June 30, 1993). Incorporated by reference. x x
10.02 KU's Annual Performance Incentive Plan (Exhibit 10B to Form 10-K Annual Report of KU for the year ended December 31, 1990). Incorporated by reference. x x
10.03 Amendment No. 1 to KU's Annual Performance Share Plan. x x 50-54
10.04 Amendment No. 1 to KU's Annual Performance Incentive Plan (Exhibit 10D to Form 10-K Annual Report of KU for the year ended December 31, 1991). Incorporated by reference. x x
10.05 Amendment No. 2 to KU's Annual Performance Incentive Plan (Exhibit 10.H to Form 10-K Annual Report of KU for the year ended December 31, 1993). Incorporated by reference. x x
10.06 Amendment No. 3 to KU's Annual Performance Incentive Plan (Exhibit 10.I to Form 10-K Annual Report of KU for the year ended December 31, 1993). Incorporated by reference. x x
10.07 Amendment No. 4 to KU's Annual Performance Incentive Plan. x x 55-59
10.08 KU's Executive Optional Deferred Compensation Plan. x x 60-81
10.09 KU's Director Retirement Retainer Program, and Amendment No. 1 (Exhibit 10G to Form 10-K Annual Report of KU for the year ended December 31, 1991). Incorporated by reference. x x
10.10 Amendment No. 2 to KU's Director Retirement Retainer Program. x x 82-84
Applicable to Form 10-K of KU No. Description Energy KU Page(s)
10.11 Amendment No. 3 to KU's Director Retirement Retainer Program. x x 85-87
10.12 KU's Supplemental Security Plan (Exhibit 10I to Form 10-K Annual Report of KU for the year ended December 31, 1991). Incorporated by reference. x x
10.13 Amendment No. 1 to KU's Supplemental Security Plan (Exhibit 10.J to Form 10-K Annual Report of KU for the year ended December 31, 1994). Incorporated by reference. x x
10.14 Amendment No. 2 to KU's Supplemental Security Plan (Exhibit 10.K to Form 10-K Annual Report of KU for the year ended December 31, 1994). Incorporated by reference. x x
10.15 Amendment No. 3 to KU's Supplemental Security Plan. x x 88-94
10.16 KU's Amended and Restated Director Deferred Compensation Plan. x x 95-116
10.17 KU Energy's Performance Share Plan (Exhibit 10A to Form 10-Q Quarterly Report of KU Energy for the quarter ended June 30, 1993). Incorporated by reference. x
10.18 Amendment No. 1 to KU Energy's Performance Share Plan. x 117-121
10.19 KU Energy's Annual Performance Incentive Plan of January 1993 (Exhibit 10.J to Form 10-K Annual Report of KU Energy for the year ended December 31, 1993). Incorporated by reference. x
10.20 Amendment No. 1 to KU Energy's Annual Performance Incentive Plan (Exhibit 10.K to Form 10-K Annual Report of KU Energy for the year ended December 31, 1993). Incorporated by reference. x
10.21 Amendment No. 2 to KU Energy's Annual Performance Incentive Plan of January 1993. x 122-126
10.22 KU Energy's Annual Performance Incentive Plan as amended and restated effective as of January 28, 1997. x 127-148
10.23 KU Energy's Executive Optional Deferred Compensation Plan. x 149-172
Applicable to Form 10-K of
KU No. Description Energy KU Page(s)
10.24 KU Energy's Director Retirement Retainer Program (Exhibit 10J to Form 10-K Annual Report of KU Energy for the year ended December 31, 1992). Incorporated by reference. x
10.25 Amendment No. 1 to KU Energy's Director Retirement Retainer Program. x 173-175
10.26 KU Energy's Amended and Restated Director Deferred Compensation Plan. x 176-197
10.27 KU Energy s Long-Term Incentive Plan. x 198-231
12 Computation of Ratio of Earnings to Fixed Charges x 232
13 Portions of 1996 KU Energy Annual Report to Shareholders x x* 233-260
21 List of Subsidiaries x x 261
23 Consent of Independent Public Accountants - KU Energy and KU x x 262
27.01 Financial Data Schedule of KU Energy** x
27.02 Financial Data Schedule of KU** x
99.01 Description of Common Stock - KU Energy x 263-265
99.02 Description of Common Stock - KU x 266-267
99.03 Director and Officer Information x 268-276
99.04 KU Employee Savings Plan as Amended and Restated effective as of January 1, 1997 x x 277-326
99.05 KU Employee Savings Plan Trust effective January 2, 1997 x x 327-341
99.06 Cautionary Statements - KU Energy and KU x x 342-343
Note - Exhibit numbers 10.01 through 10.27 are management contracts or compensatory plans or arrangements required to be filed as exhibits to this Form 10-K. * Only the Management's Discussion and Analysis of Financial Condition and Results of Operations is included or incorporated in the Annual Report on Form 10-K of Kentucky Utilities. ** Included in electronic filing only.
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.
(B) No reports on Form 8-K were filed by KU Energy or KU during the last quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, KU Energy Corporation and Kentucky Utilities Company have each duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 10, 1997.
KU ENERGY CORPORATION AND KENTUCKY UTILITIES COMPANY (Registrants)
/s/Michael R. Whitley Michael R. Whitley Chairman and President
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 registrants in the capacities and on the date indicated.
Signature Title
/s/Michael R. Whitley Michael R. Whitley Chairman and President (Principal Executive Officer) and Director
/s/O.M. Goodlett O. M. Goodlett Senior Vice-President (Principal Financial Officer) /s/Michael D. Robinson Michael D. Robinson Controller (Principal Accounting Officer)
/s/Mira S. Ball Mira S. Ball Director
/s/Carol M. Gatton Carol M. Gatton Director
/s/Harry M. Hoe Harry M. Hoe Director
/s/Milton W. Hudson Milton W. Hudson Director
/s/John T. Newton John T. Newton Director
/s/Frank V. Ramsey, Jr. Frank V. Ramsey, Jr. Director
/s/William L. Rouse, Jr. William L. Rouse, Jr. Director
Signature Title
/s/Charles L. Shearer Charles L. Shearer Director
/s/Lee T. Todd, Jr. Lee T. Todd, Jr. Director
March 10, 1997