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U.S. Securities and Exchange Commission


(Release No. 35-27785; 70-10176)

E.ON AG, et al.

Order Authorizing Change in Corporate Form and Ownership Structure of Intermediate Exempt Holding Company

December 29, 2003

E.ON AG ("E.ON"), Dusseldorf, Germany, a registered holding company, E.ON US Investments Corp. ("EUSIC"), a registered holding company, and LG&E Energy Corp. ("LG&E Energy"), a subsidiary of E.ON and a public utility holding company currently exempt from registration by order1 under section 3(a)(1) of the Public Utility Holding Company Act of 1935 ("Act"), both located in Louisville, Kentucky (collectively, "Applicants"), have filed an application-declaration, as amended ("Application"), with the Securities and Exchange Commission ("Commission") under sections 6(a), 7, 9(a), 10 and 12(d) of the Act and rules 43 and 54 under the Act. The Commission issued a notice of the filing of the Application in this matter on November 21, 2003 (Holding Co. Act Release No. 27767).

E.ON became a registered holding company under the Act on July 1, 2002, as a result of E.ON's acquisition of Powergen plc ("Powergen"). The Commission approved the acquisition in Holding Company Act Release No. 27539 (June 14, 2002) (the "Acquisition Order"). E.ON owns LG&E Energy, which in turn owns two public utility companies, Louisville Gas and Electric Company ("LG&E") and Kentucky Utilities Company ("KU"). E.ON's interest in LG&E Energy is held indirectly through several intermediate holding companies with EUSIC being the direct parent of LG&E Energy.

LG&E Energy is a wholly-owned, first tier subsidiary of EUSIC. LG&E Energy proposes to change its organizational form from a Kentucky corporation to a Kentucky limited liability company (the "Transaction"). Applicants state that in order to accomplish the Transaction under Kentucky law and in a tax-efficient manner, the following successive steps must be completed. First, New LG&E Energy will be formed by EUSIC as a Kentucky limited liability company. At this point, EUSIC will be the sole member of New LG&E Energy. Second, LG&E Energy will transfer to New LG&E Energy substantially all of its assets and liabilities in exchange for membership interests in New LG&E Energy. Then, pursuant to an agreement and plan of merger, LG&E Energy will merge with and into New LG&E Energy (the "Merger"), with New LG&E Energy as the surviving entity and as successor to LG&E Energy. Thus, when the Transaction is completed, LG&E Energy will continue to be wholly-owned by EUSIC, with the only substantive change being that LG&E Energy will have changed its organizational form from a Kentucky corporation to a Kentucky limited liability company.

LG&E Energy is currently exempt from registration under the Act pursuant to section 3(a)(1) of the Act.2 New LG&E Energy, will not, however rely on an exemption from registration under section 3(a)(1) of the Act. Upon consummation of the Transaction, New LG&E Energy will register as a holding company under section 5 of the Act. Accordingly, New LG&E Energy withdraws its request for an exemption under section 3(a)(1) of the Act.

New LG&E Energy will succeed to LG&E Energy's ownership of LG&E and KU, as well as its nonutility subsidiaries. New LG&E Energy will also be the successor of LG&E Energy with respect to its commitments and authorizations set forth in the Acquisition Order and any and all other orders of the Commission applicable to LG&E Energy.

E.ON states, for purposes of rule 54, that it is in compliance with all requirements of rule 53(a), except clause (1). In the Acquisition Order, the Commission, among other things, authorized E.ON to invest up to $25 billion, plus an additional $35 billion from divestments, in exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs"), as defined in sections 32 and 33 of the Act ("EWG/FUCO Financing Limit"). As of June 30, 2003, E.ON's aggregate investment in EWGs and FUCOs was approximately $12.5 billion.

Although E.ON's aggregate investment exceeds the 50% "safe harbor" limitation contained in rule 53, E.ON's aggregate investment is below the EWG/FUCO Financing Limit authorized in the Acquisition Order. In addition, E.ON states that it has complied and will comply with the record-keeping requirements of rule 53(a)(2), the employee limitation under rule 53(a)(3) and the requirements of rule 53(a)(4) concerning the submission of copies of certain filings under the Act to retail regulatory commissions. Finally, none of the circumstances described in rule 53(b) has occurred or is continuing.

Applicants represent that there has been no material change in capitalization since the Acquisition Order was issued. As of December 31, 2001, the most recent period for which financial statement information was evaluated in the Acquisition Order, E.ON's consolidated capitalization consisted of 48.68% common equity (on a pro forma basis taking into account acquisition of Powergen plc). As of June 30, 2003, E.ON's common equity as a percentage of capitalization was 53.8%; the common equity ratios of LG&E and KU as of June 30, 2003, were 46.8% and 53.6%, respectively. E.ON further represents that the proposed transactions will have no adverse impact on the consolidated capitalization or retained earnings of E.ON, LG&E or KU. E.ON also states that the requested authorization will not have a material adverse effect on the financial integrity of the E.ON system, or an adverse impact on E.ON's public utility subsidiaries, their customers or the ability of the state commissions to protect the utility customers within their respective systems.

Fees and expenses to be incurred in connection with the proposed transactions are estimated to be $30,000. The Federal Energy Regulatory Commission issued an order on December 10, 2003, approving the Transaction. Applicants maintain that no other state or federal commission, other than this Commission has jurisdiction over the Transaction.

Due notice of the filing of the Application has been given in the manner prescribed by rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that the applicable standards of the Act are satisfied and that no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and rules under the Act, that the Application be granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Jill M. Peterson
Assistant Secretary



Modified: 01/06/2004