LOUISVILLE, Ky. (AP) _ Kentucky's largest utility, LG&E Energy, has bought No. 2 power producer KU Energy for $1.5 billion, creating a company with 1.1 million customers.

The deal, announced Wednesday, will meld Louisville Gas & Electric Co. and Lexington-based Kentucky Utilities Co., the two operating subsidiaries of LG&E and KU Energy. The merged company will retain the LG&E Energy name and be headquartered in Louisville.

LG&E and KU are following a trend in the utility industry as deregulation sweeps from state to state and power producers foresee the need to become more efficient to meet competition.

The two companies said they expect to save more than $760 million over a 10-year period through the integration of their systems and operations.

``There will be some personnel reductions down the road,'' said LG&E spokesman John McCall. Job cuts, he said, will be in the range of 400 positions and are expected to be accomplished through attrition and reduced hiring. The two companies now employ about 5,000.

The deal, approved by both boards Tuesday, is expected to take 12 to 18 months to complete and requires shareholder and regulatory approvals. The combined company will serve electric and natural gas customers in Kentucky, Virginia and abroad.

Wall Street sent KU stock 14 percent higher on the news. KU Energy shares gained $4.12 1/2 to close at $34 each in trading Wednesday on the New York Stock Exchange, where LG&E was off $1.75, or 7 percent to $22.62 1/2.

``As one of the nation's largest, low-cost energy services companies with the largest utility-affiliated energy marketing business, we will define the successful energy company of the 21st century,'' said Roger W. Hale, chairman and chief executive of LG&E.

Hale will be chairman and CEO of the merged company. Michael R. Whitley, chairman and chief executive of KU Energy, will be the new company's vice chairman, president and chief operating officer.

LG&E will have eight seats on the combined board. KU will have seven.

``This merger gives the merged company the critical mass in both generation and distribution markets to propel our growth over the next few years,'' Whitley said.

Over the next five years, the companies said they are committed to not seeking any rate increases except in extraordinary circumstances. They estimate the merger will translate into reductions in customers' bills of nearly 2 percent for each of the next five years.

The merger calls for KU Energy shareholders to receive 1.67 share of LG&E Energy common stock for each share of KU Energy common stock they own. Based on Tuesday's prices, the deal values KU Energy at $1.5 billion.