SEC Report : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Could someone help me. I have been looking for my utility company at the SEC site. I am not sure of exactly what I am looking for. If anyone has the time, could you please take a look and tell me what I am missing. It is the Kentucky Utility Company, the parent? company is Louisville Gas and Electric.

-- Linda A. (, December 02, 1998


Ask and you shall receive!

Year 2000 Computer Issues

The Company and its subsidiaries, including LG&E and KU, use various software, systems and technology that are affected by the "Year 2000 Issue." This issue concerns the ability of electronic processing equipment (including microprocessors embedded in other equipment) to properly process the millennium change to 2000 and related issues. A failure to timely correct any such processing problems could result in material operational and financial risks if significant systems either cease to function or produce erroneous data. Such risks are described in more detail below, but could include an inability to operate LG&E's or KU's generating plants, disruptions in the operation of transmission and distribution systems and an inability to access interconnections with the systems of neighboring utilities.

The Company began its project regarding the Year 2000 issue in 1996. The Board of Directors has approved the general Year 2000 plan and receives, along with management, regular updates. In addition, monthly reporting procedures have been established at senior management levels. Since 1996, a single-purpose Year 2000 team has been established in the Information Technology (IT) Department. This team, which is headed by a senior executive officer, is responsible for planning, implementing, and documenting the Company's Year 2000 process. The team also provides direct and detailed assistance to the Company's operational divisions and smaller units, where identified personnel are responsible for Year 2000 work and remediation in their specific areas. In many cases, the Company also uses the services of third parties, including technical consultants, vendor representatives and auditors.

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The Company's Year 2000 effort generally follows a three phase process:

Phase I - inventory and identify potential Year 2000 issues, determine solutions for Company issues

Phase II - survey vendors regarding their Year 2000 readiness, determine solutions to deal with possible vendor non-compliance, develop work plans regarding Company and vendors non-compliance issues

Phase III - implementation, testing, certification, contingency planning

The Company has long recognized the complexity of the Year 2000 issue. Work has progressed concurrently on (a) replacing or modifying IT systems, including mainframes, PC's and software applications, (b) replacing or modifying non-IT systems, including embedded systems such as mechanical control units and (c) evaluating the readiness of key third parties, including customers, suppliers, business partners and neighboring utilities.

State of Readiness

At present, the Company, including LG&E and KU, have substantially completed the internal inventory, vendor survey and compliance assessment portions (Phases I and II) of their Year 2000 plan for mission critical mainframe and PC hardware and software. Remediation efforts (Phase III) in these areas are approximately 50% complete. With respect to embedded systems, LG&E has also substantially completed its Phase I and Phase II efforts, while KU and the Company have completed approximately 30%-50%. For each entity, Phase III remediation efforts are also in progress for embedded systems. Testing will commence as remediation efforts are implemented and is generally expected to run from the fourth quarter of 1998 through the end of 1999.

As a general matter, corrective action for major IT systems, including customer information, financial and trading systems, are in process or have been completed. For smaller or more isolated systems, including embedded and plant operational systems, the Company has completed much of the evaluative process and is commencing corrective plans. The Company has communicated with its key suppliers, customers and business partners regarding their Year 2000 progress, particularly in the IT software and embedded component areas, to determine the areas in which the Company's operations are vulnerable to those parties failure to complete their remediation efforts. The Company is currently evaluating and, in certain cases, initiating follow-up actions regarding the responses from these parties. The Company regularly attends and participates in trade group efforts focusing on Year 2000 issues in the energy industry context.

Costs of Year 2000 Issues

The Company's system modification costs related to the Year 2000 issue are being expensed as incurred. Through September 1998, the Company has incurred approximately $19.0 million in capital and operating costs in connection with the Year 2000 issue. Based upon studies and projections to date, the Company expects to spend an additional $16.7 million to complete its Year 2000 efforts.

It should be noted that these figures include total hardware, software, embedded systems and consulting costs. In many cases, these costs include system replacements which were already contemplated or which provided additional benefits or efficiencies beyond the Year 2000 aspect. Additionally many costs are not incremental costs, but constitute redeployment of existing resources, particularly IT. These costs represent estimates, however there can be no assurance that actual costs associated with the Company's Year 2000 issues will not be higher.

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Risks of Year 2000 Issues

As described above, the Company has made significant progress in the implementation of its Year 2000 plan. Based upon the information currently known regarding its internal operations and assuming successful and timely completion of its remediation plan, the Company does not anticipate material business disruptions from its internal systems due to the Year 2000 issue. However, the Company may possibly experience limited interruptions to some aspects of its activities, whether IT, operational, administrative or otherwise, and the Company is considering such potential occurrences in planning for its most reasonably likely worst case scenarios.

Additionally, risk exists regarding the non-compliance of third parties with key business or operational importance to the Company. Year 2000 problems affecting key customers, interconnected utilities, fuel suppliers and transporters, telecommunications providers or financial institutions could result in lost power or gas sales, reduced power production or transmission capabilities or internal operational or administrative difficulties on the part of the Company. The Company is not presently aware of any such situations, however severe occurrences of this type could have material adverse impacts upon the business, operating results or financial condition of the Company. There can be no assurance that the Company will be able to identify and correct all aspects of the Year 2000 problem among these third parties that effect it in sufficient time, that it will develop adequate contingency plans or that the costs of achieving Year 2000 readiness will not be material.

The Company plans to develop contingency plans for material areas of Year 2000 risk and is in the process of preparing such plans. Contingency planning will address certain areas, including delays in completion in the Company's remediation plans, failure or incomplete remediation results and failure of key third parties to be Year 2000 compliant.

Forward Looking Statements

The foregoing discussion regarding the timing, effectiveness, implementation, and cost of the Company's Year 2000 efforts, contains forward-looking statements, which are based on management's best estimates derived using assumptions. These forward-looking statements involve inherent risks and uncertainties, and actual results could differ materially from those contemplated by such statements. Factors that might cause material differences include, but are not limited to, the availability of key Year 2000 personnel, the Company's ability to locate and correct all relevant computer codes, the readiness of third parties, and the Company's ability to respond to unforeseen Year 2000 complications and other factors described from time to time in the Company's reports to the Securities and Exchange Commission, including Exhibit 99.01 to the Form 10-K for the year ended December 31, 1997. Such material differences could result in, among other things, business disruption, operational problems, financial loss, legal liability and similar risks.

-- infoman (, December 02, 1998.

Informan, boy you are Good. Thank you.

-- Linda A. (, December 02, 1998.

Informan, could you please give me your opinion on exactly where my utility stands.

-- Linda A. (, December 02, 1998.

Get back with shortly on that. I'm no expert but I'll do a bit more investigatin' for ya.

-- infoman (, December 02, 1998.


Got a little sidetracked - Power companies are especially hard to predict because the potential for chaos lies primarily with the embedded systems, and even they don't know what's going to happen. How do they test these systems without power interruptions? Of course they will make sure their billing systems are working as effectively as possible. When all these chips start going nuts they can supposedly do a manual overide, if the government allows them to circumvent existing regulations, which I think they will do temporarily. There will undoubtedly be interruptions between all of the "switching around" between manual backup power they can keep going and systems they need to service. Who knows, if it turns out that they need to get very specialized replacements for defective systems, some customers could be out for weeks. I think their top priority for allocation of available power will be given to other large businesses and industries, since these would be most inclined to sue for large amounts from loss of business.

"With respect to embedded systems, LG&E has also substantially completed its Phase I and Phase II efforts, while KU and the Company have completed approximately 30%-50%."

That 30%-50% of only Phase I and II is a bit scary, but as I said, I beleive this indicates that they aren't really sure how to get through Phase III with the embedded systems without actually disrupting power. I'm sure we will be experiencing these well before 2000.

"For smaller or more isolated systems, including embedded and plant operational systems, the Company has completed much of the evaluative process and is commencing corrective plans."

If they are still making "plans" with one year to go, they are definitely running late.

This is only guesswork on my part, of course. I do not see anything extraordinary compared to what similar companies are saying. In some businesses it is easier to "read between the lines" and see whether their Y2K problems will seriously affect the bottom line, and what kind of strategy they are using.

LG&E is a $4 billion company (347 in Fortune 500), and Kentucky Utilities represents a little less than half of that ($1.7 billion) They anticipate at this point spending about $36 million on Y2K.

With power companies, they can simply say that they don't know what needs to be fixed, wait until it happens and then fix it. The serious financial outlays do not need to be incurred until afterwards, when businesses sue them, and they may be given a certain degree of protection by the government.

Loss of money or your job is one thing, but with power we are getting down to basic survival needs. I recommend to everyone to be prepared for this.

Keep the faith!

-- infoman (, December 03, 1998.

Thank you for researching this for me. I appreciate the time it took for you do look this up, Again thank you. Linda Arnold

-- Linda A. (, December 03, 1998.

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