LG&E Energy Corp. said it is discontinuing power marketingoperations and will take a $231.8 million after-tax loss in thesecond quarter mainly because it was forced to cover fixed-pricedpower marketing agreements when Midwest power prices went throughthe roof last month, reaching $7,000/MW compared to $30/MW justdays prior. The company was among the top 10 largest powermarketers (by volume sold) in the country last year.

“Our portfolio of energy marketing contracts, coupled with theevents of the last several weeks, have demonstrated that financialexposures can vary widely and unpredictably over a very shortperiod of time,” said CEO Roger W. Hale. “We entered into many ofthese contracts in 1996 and early 1997 when we, and our outsideadvisors, expected pricing trends in electricity to follow those ofsimilar commodities that have been deregulated. The power tradingmarket is evolving in a very different way, and the predictabilityof this business has never been more uncertain than in the last fewweeks. These recent market events have made it clear that, for now,we lack the size and scale necessary to manage the existingportfolio of contracts, and simultaneously grow our energymarketing business in other areas.”

Hale said the company’s “portfolio of obligations” madecontinued participation in the energy trading and sale business “anuncertain proposition.” The company intends to focus on marketingpower from its own generating assets. “We have built a portfolio ofsome of the lowest-cost generation supply in the nation. Byoptimizing these assets and eliminating merchant energy trading andsales, I am confident in our ability to generate strong earningsgrowth in the future,” said Hale. “As a result, we do not plan toalter our dividend policy. We will continue our practice ofincreasing dividends each year, consistent with sound financialpractice.”

The company posted second quarter net income from continuingoperations before one-time merger-related expenses of $67.1million, compared with $32.8 million in the second quarter of 1997(as adjusted to reflect the merger with KU Energy). The company hadmerger-related expenses of $53.8 million. After giving effect tothe merger-related expenses and discontinued operations, thecompany posted a loss of $231.8 million for the second quarter of1998.

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