ML20035B485

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Forwards Util Consolidated Financial Statements for 1992 & Internal Cash Flow Projection,Including Actual 1992 Data & Projections for 1993,per 10CFR140.21 Re Price-Anderson Act Retrospective Premium Sys Guarantee Requirements
ML20035B485
Person / Time
Site: Beaver Valley, Perry
Issue date: 03/30/1993
From: Jeffrey Mitchell
DUQUESNE LIGHT CO.
To: Mark D
Office of Nuclear Reactor Regulation
References
NUDOCS 9304020045
Download: ML20035B485 (28)
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{{#Wiki_filter:e 30 Gr n t of Prttsburgh, PA 15279 M12) 393-4131 + JAMES D. MITCHELL Treasurer March 30,1993 Mr. David Mark, Section Chef l Policy Development and Financial Evaluation Section Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555 Re: Docket No. 50-440 - Perry Nuclear Power Plant Unit No.1 Docket No. 50-334 - Beaver Valley Power Station Unit.No.1 Docket No. 50-412 - Beaver Valley Power Station Unit No. 2 Gentlemen: l In accordance with NRC Regulation 10 CFR Section 140.21, regarding the Price-Anderson Act retrospective premium system guarantee requirements, you will find enclosed: i 1. A copy of Duquesne Light Company's consolidated financial statements for the twelve month period ended December 31,1992; i 2. An internal cash flow projection, including actual 1992 data and projections for 1993. This statement indicates that $7.498 million, our portion of the $30 million retrospective premiums for the three subject units, would be available for the payment of such premiums in 1993. Duquesne Light Company has a 47.5% ownership in Beaver Valley Unit No.1, a 13.74% ownership in Perry Unit No.1 and a 13.74% leasehold interest in Beaver Valley Unit No. 2. Pursuant to Commission mies, Duquesne Light Company has elected to utilize its financial statement as i's guarantee of payment of deferred premiums. We are providing these statements to meet our reporting requirements for both Beaver Valley Unit 1 and Unit 2 and Perry Unit 1 at this time. Sincerely, D. ] James D. Mitchell Treasurer Enclosures

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Soure] And Ap;ilic: tion of Funds 1 (in Millions of Do!!ars) - ACTUAL ~ FORECAST. v, 1992 1993 'l Crpital Requirements Con:truction Expenditures .(Excluding AFUDC) 2 $_112 $102 C:pitd Additions Projected to be Leased -(Principally nucleat fuel) - 42. '38 M:turities and Sinking Funds. -78' 5 Tot:1 Cap!tal Requirements (Excluding AFUDC) 2 $232 $145 S:urces of Capital int: mil' Sources 0. D:preciation $112 $118 Amortization 65 67 Dif;rred Taxes 4 (38) Inv stmentTaxCredit _ 5) (6) ( Phrse-In Plan Deferred Revenues & Carrying Charges 83 102 Tot:1Intemal Sources (Excluding Retained Eamings) $259' $243 I 1 The figures below'do not include the effects of the proposed GPU Project; Approximately $240 million of cash capital expenditures w'Ji be required. That amount has been adiusted to reflect the transfer to GPU of e.;ialf-interest in the reactivated Phillips plant for an.- cstimated $145 million. Major capital expenditures are not planned until s!!ing on the tr:nsmission line is approved. 2 Total AFUDC for the years 1993 through 1996 is projected to be $20 m!!!!on. 3 Chcnges in Retained Earnings have not been reflected. 4 Primarily amortization of the Perry 2 investment.

INDEPENDENT AUDITORS' REPORT t

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To the Directors and Stockholder of Duquesne Light Company: We have audited the accompanying consolidated balance sheets of Duquesne Light Company and its subsidiary as of December 31,1992 and 1991, and the related consolidated statements ofincome, retained earnings, and cash flows for each of the three years in the period ended December 31,1992. Our audits also included the financial statement schedules listed in Item

14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial state.

ments and financial statement schedules 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 l whether the financial statements are free of material misstatement. An audit includes examin-ing, on a test basis, evidence supporting the amounts and disclosures in the financial state-ments. An audit also includes assessing the accoundng principles used and significant estimates made by management, as well as evaluating the overall financial statement presenta-tion. We believe that our audits provide a reasonable basis for our opinion. in our opinion, such consolidated financial statements present fairly, in all material respects,. the financial position of Duquesne Light Company and its subsidiary as of December 31,1992 and 1991, and the results of their opera'. ions and their cash flows for each of the three years in - i the period ended December 31,1992 in conformity with generally accepted accounting princi-ples. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. i 1 /s/ Deloitte & Touche DELOITTE & TOUCHE Pittsburgh, Pennsylvania January 26,1993 i 42

i <DUQUESNELIGHT COMPANY -- l STATEhENT OFCONSOLIDATED TNCOME e t Year Ended December 31, 1992 1991 1990 (Dwusands ofDollan) l OPERATINGREVENUES: Customen: Cunent $1,213,151 $1,219.091 ~ $1,075,068 [ Deferred (Notel) (98.201) (78,344) 10,784 Other utilities 2,439 58,903-45,153 j ~ TotalOperatmg Revenues 1,187.389 1,199,650 1,131,005-l OPERATING EXPENSES: Fuel 255,866 237,855 - 213.324-Purchased power 9,474 12,900 6,187 Otheroperation 279,228 289,178 267,795 Maintenance 79,146 83,773 97,756 Depmciation and amortization 127,924 119,261 122,251 Taxes other than income taxes 85.36S 95,067 81,043 Income taxes (Note G) 96,253 95,941 76,247 Total Opemting E-ses 933,259 933,978 864,603 OPERATING 1NCOME 254,150 265,672 266,402 OTHERINCOMEAND (DEDUCTIONS): Allowance for equity funds used during construction 2,598 1,855 .1,375 Canying chaq;es on defened revenues 15,145 21,514 22,950 Income taxes (Note G) (11,746) (5,132) . (8,231) Other-net 13,205 (9,379) - (2,922) TotalOther1ncome and (Deductions) 19,202 8,858 13,172 - INCOME BEFOREINTEREST CHARGES 273.332 274,530 279,574 i INTEREST CHARGES: Interest on long-term debt 123,402 131,499 139,889 Otherinterest 2,158 2,316 5,788 l Allowance for borrowed funds used during construction (2.296) (2,418) (1,559) Tota 11nten:staanges 123,564 131,397 144,118 4 NETINCOME 149,768 143,133 135,456 DIVIDENDS ON PREFERRED AND PREFERENCE STOCK 9,411 10,801 14,046 I EARNINGS FOR COMMON STOCK $140,357 S132,332 5121,410 l See Notes to Consolidated Financial Statements. i I 43

',DUQUESNE LIGHT COMPANY ' CONSOLIDATED BALANCE SHEET [ . Year Ended December 31, (77wusands ofDollars) 1992 1991 -ASSETS PROPERTY, PLANT AND EQUIPMENT: Electric plantin service $3,860,040 . $3,740,809 Constniction work in progress 67,435-91,140-Propeny held under capitalleases (Note F) 212,172 220,106' Propenyheld for future use (Note I) 216,893 216,343 - Total 4.356.540 4,268,398 Less accumulated depreciation and amortization (1,340,846) (1,233,283) Property,Pbnt and Equipment-Net 3,015,694 3,035,115 -j OTHER PROPERTYAND INVESTMENTS (at cost): Investment in DQE common stock 30,000 11,524 Other propenyand investments 21,307 17,195 TotalOtherPropenyandInvestments 51,307 28,719 j CURRENTASSETS: i Cash and temporary cash investments (at cost which approximates market) 6,156 3,169 Receivables (Note C) 52,088 116,659'- Materials and supplies (generally at average cost). [ Coal 39,297 -36,470 Opemting and construction 66,016 64,692 'l Other current assets 11,766 18,89 e Total CunentAssets 175,323 239,887 N OTHERASSETS. Extraordmaryproper+yloss (Note B) 46,447 67,514 l Unamortized loss on reacquired debt (Note E) 70,324 55,270 q Beaver Valley Unit 2 sale / leaseback premium (Note F) 36,371 l Income taxes on sale ofBeaverValley Unit 2 (Note F) 70,113 73,107-Deferred costs of units notin rate base (Note I) 51,149 51,149 Phase 4n plan deferrals (Note I) 127,996 '211,053 l Deferred debits 152,844 123,282 Total OtherAssets 555,244 581,375 TotalAssets $3,797,568 $3,885,096 See Notes to Consolidated Financial Statements. I i P 44 i i g + c % e

[.~ ~ , DUQUESNE LIGHT COMPANY - CONSOLIDATED BA1ANCE SHEET As of December 31, (Thousands ofDollan) 1992 1991 CAPITALIZATION AND LIABILITIES CAPITALIZATION (Note E): Common stock (authorized - 90,000,000 shares, issued - 10 shares) Capital surplus 80G,667 762,719 Retained camings 300,742 301,385. Total common stockholder's equity 1,107,609 1,0fA.104 Non-redeemable preferred and preference stock 121,906 121,906, Redeernable pzrferred and preference stock 8,579 15,437 Non-redeemable preference stock, Plan Series A 29,995 30,000 Deferred employee stock ownenhip plan benefit (28,471) (.20,000) - Total prefened and preference stock 132,009 137,343 Senior secured debt (excluding Pollution Control Notes) 1,018,098 1,025,299 Otherlong-tenn debt 398.915 399,275 Unamortized debt discount and premium - net (4,012) (3,848) Totallong-term debt 1,413,001 1,420,726 Totd Capitalization 2,652,619-2,622,173 OBLIGATIONS UNDER CAPITAL LEASES (Note F) 71,876 87,861 CURRENTLIABILITIES Current maturities and sinking fund requirements (Notes E and I) 46,054 148,093 Accounts payable 118,423 126,996 Accrued income taxes 19,849 35,333 Accrued taxes other than income taxes 28,342 33,277 Accrued interest 28,258 32,339 Dividends declared: DQE 30,000 28,000 Other 5,109 5,287 Deferred energy costs (Note A) 18,893 Total CurrentLiabilities 294,928 409,325 OTHERNONCURRENT11ABilIHES: Imestment tax credits unamortized 135,580 ~ 141,549 - Accumulated deferred income taxes 540,829 529,625 Other deferred credits 101,736 94,563 TotalOtherNoncunentlibilities 778,145 765,737 COMMflMEN75 AND CONTINGENCIES (Notes B dtrough L) Total Capitalization and Liabilities $3,797,568 S3,885,096 See Notes to Consolidated Financial Statements. 45 .& 7 q h A '48 T

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+ STATEMENT OF CONSOLIDATED CASH FLOWS '~ Year Ended December 31. 1992 1991 1990 (musamis ofDollars) CASH FLOWS FROM OPERNUNG ACTIY1 TIES: $149.763 S143,133 S135,456 ' l Netincome Pdncipal non-msh charges (credits) to netincome: 127.924 119,261 122,251 . Depreciation and amortization l 49,001 56,437 -49,261 Capita 11 ease and other amortization Deferred income taxes and investment tax credits - net (10,896) (18,974) '20,535 l Allowance for equity funds used during construction (2,598). - (1_.955) -(1,375). -{ 83,056 56,830 (33,734) .l Phasen phn revenues and related cutying charges (1,360). (16,889) -l Rate refund-net ~ (7,925) -l l Changes in working capital other than cash (Note L) 55,193 (41,651). ~ 20,365 l 7,16G 38,051 l Other-net f Net Cash Prcnided from Operaung Acthities 458,614 349,875 287,945 CASH H OWS USED BYIhTESTING ACTl1TTIES: ~ (125,358) (103,701) l (112,409) Construction expenditures Allowance for borrowed funds used dudng construction (2,296) (2.418) (1,559) ' l (7,877) (6,905) (3,097) l i Other-net -{ Net CashUsed byImestingActhities (122,582) -(134,681) (108,357) -t 7l CASH FLOWS USED IN FINANCING ACTITTf1ES: 312,925 - 50,000 199,450 [ Sale ofbonds Dhidends on capital stock - (151,404)- (143,801). (134,545). f l Reductions oflong-temi obligations: Preferred and preference stock (24,158) (38,505) (31,974) (394,951)

(58,782) '

(241,788) l Long-term debt -(43,686) '(42,997) (43,517) l Other obligations. ~ Premium on reacquired debt (18,127) (2,947) . (3,349)- j l 45,000 30,000 Contribution from parent company 1 Beaver Valley Unit 2 sale / leaseback premium (36,371)' l Purchase of DQE common stock (18,476) (11,524) (3,797) 963 2,0341 'i Other-net Net Cash UsedIn nnancing Acthities (333,045) (217,593) (253,689) f-j Net increase (decrease) in cash and temporaiy cash 2,987 (2,399) (74,101) investments Cash and temporary cash imestments at beginning of year 3,169 5,568. .79,609 Nh and temporary cash investments at end of year $ 6,156 $ 3,169 $ 5.568 ' i .I i SUPPLEMT NTAL CASII FLOW INFOR',iATION i Cash paid dudng theyear for: Inte rst (netof amount capitalized) $126,014 5136,147 'S153,754 $112.S59 S 86,201 S 41,593 ' Income taxes l Non< ash investing and financing acthities: $ 17,089 5 22,028 - S 31,921 j Capita 11 ease obligations:rcorded j S S 30,000 5 ESOP preference stockissued r -. See Notes to Consolidated F. inancial Statements. 46 ,~.u..>,. ,a , :, c u,.,u u .. - e. - ~

..t 4 .DUQUESNE LIGHT COMPANT STATEMENT OF CONSOLIDATED RETAINED EARNINGS I Year Ended December $1. (Thousands ofDollars) 1992 1991 1990 i BAIANCE, JANUARY 1 $301,385 - $302,053. $301,142 j NETINCOME FORTHE YEAR 149,768 143,133. 135,456 Total 451,153 445,186 436,598 Cash dnidends declared: Preferred stock 4,90G 5,456 6,028 ' Preference stock (net of tax benefit of ESOP dhidend) 4.505 5,345 8,018 Common stock 141,000 133,000 120,499 - i Total Cash Dhidends Declared 150,411 143,801 134,545 BA1_ANCE, December 31 S300,742 S301,385 S302,053 - i See Notes to Consolidated Financial Statements. h f 6 3 4 ,.) i h a i s i I i i f f i r f ) l 47 r m. .. r... ,.. u. .... +,c, a,,

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Summary of NOTES 70 CONSOLIDATED FINANCIAL STATEMENTS A "**"'I"9 Consolidation and Reclassifications Polleles The consolidated financial statements include the accounts of Duquesne Light Company (Duquesne) and its wholly owned subsidiary. All material intercompany balances and transactions have been eliminated in the preparation of the consoli-dated financial statements. System of Accounts Duquesne's accounting records are maintained in accordance with the Federal Energy Regulatory Commission's Uniform System of Accounts which has been adopted by the Pennsyhania Public Utility Commission (PUC). Property, Plant and Equipment The asset values of properdes are stated at original construction cost. This includes the related payroll taxes, pensions and other fringe benefits, and administrative and general costs. Also included is an aHowance for funds used during construc-tion (AFC), which represents the estimated cost of both debt and equity funds used to finance construction. The amount of AFC capitalized varies according to changes in the level of construction work in progress (CWIP) and in the cost of capital. AFC rates applied to CWIP were 10.3 percent in 1992,9.6 percent in 1991 and 9.9 percent in 1990. Duquesne does not realize cash currently from this allowance. h realizes cash over the service life of the plant through increased revenues resulting from higher rate base and higher depreciadon expense. Additions and replacements of property units are charged to plant accounts. Main-tenance, repairs and replacement of minor items of property are charged to expense as incurred. The cost of property retired plus removal costs, less any sal-vage value, is charged to the accumulated provision for depreciation. Substantially all of Duquesne's properties are subject to a first mortgage lien, as well as to a junior lien. Depreciation Depreciadon of electric plant, including plant-related intangibles,is recorded on a straight-line basis over the estimated uscful lives of property. Amortization of other intangibles is on a straight-line basis over a five-year period. Depreciation and amor-tization of other property are calculated on various bases, such as the amount of nuclear fuel burned. Decommissioning Duquesne has recched regtdatory approval from the PUC to recover its share of the estimated decommissioning costs in rates over the operating life of each ofits nuclear units. The recovery granted was $70 million for Beaver Valley 1, S20 million for Beaver Valley 2 and $38 million for Perry 1. In 198S, Duquesne updated its decommissioning cost study for Beaver Valley. Duquesne's share, including removal and decontamination costs, amounted to $80 million for Unit I and S23 million for Unit 2. In 1992, Duquesne's share of esd-mated decommissioning cost for Unit 2 was further updated through a site specific study to $35 million and additional funding was provided in amounts consistent with the method approved by the PUC. Duquesne plans to condnue to periodically re-evaluate the estimated cost to decommission, provide addidonal funding consistent with the method approved by the PUC, and seek regulatory approval to recognize these increased funding levels. Duquesne records decommissioning costs in depreciation expense and records a lia-bility for nuclear decommissioning expense equal to the amount of cost recoveryin _. as .m. .._c, s.

t rates. Funds recovered through the ratemaking process for nuclear decommission-ing are deposited in external segregated trust accounts. Trust fund earnings. ll increase the fund balance and recorded liability. Collections and related interest of-S13.7 million are recorded in OtherProperty andInvestmentsin the Consolidated Balance Sheet with the related liability in OtherDeferred Credits.. i Maintenance Maintenance costs incurred for scheduled outages at Duquesne's nuclear units are - ( deferred and amortized over the period between scheduled outages. All other maintenance costs, including the costs of forced outages at the nuclear units, are l charged to expense as incurred. j i Revenues Meters are read monthly and customers are billed on the same basis. Revenues are recorded in the accounting periods for which they are billed. Deferred revenues. are associated with Duquesne's 1987 rate case. See Note I. l Income Taxes Deferred income taxes result from timing differences in the recognition of rev-i enue and expense for financial and tax reporting purposes. Deferred income taxes are provided at the statutory rate in effect at the time the difference origi-i nates. The deferred tax effects of certain timing differences, however, are not pro-vided in order to be consistent with ratemaking policies. These differences are rec-l ognized for book purposes, and in rates, in the years they affect taxes payable. As of December 31,1992, the cumulative net amount of timing differences for which deferred income taxes have not been provided was approximately $450 million. i These items are principally book versus tax basis differences. Investment tax credits related to utility property generallywere deferred when applied to reduce Duquesne's income tax liability. They are subsequently reflected as reductions to tax expense over the lives of the related assets. In February 1992, the FASB adopted Statement of Financial Accoundng Standards l

i No.109, Accountingfor1ncome Taxes,which effecdve beginning in 1993, requires the liability method of accounting for income taxes. The adoption of this State.

ment will not affect Duquesne's policy stated above for investment tax credits. Implementation of the statement will result in a favorable income statement impact of approximately SS million in the year of adoption and the recognition of ~ a net deferred tax liability of approximately $700 million. This liability will be off-set primarily by recognition of a corresponding asset which Duquesne will recover through the regulatory process. Deferred Energy Costs j Duquesne recovers from customers fuel and other energy costs not otherwise recovered through base rates, through an annual energy cost rate (ECR). The ECR is based on projected costs and is recalculated each year. This rate includes a credit to Duquesne's customers for profits from short-term power sales to other utilities, as well as an adjustment for any over-or under-collections from customers i which occurred in prior years. Duquesne defers the difference between actual energy costs and the amounts currently recovered from customers through the ECR The difference is recorded in the Consolidated Balance Sheet as a payable to, or a receivable from, customers. At December 31,1992, $18.9 million was payable to customers and shown as D,fened Energy Costs, while at December 31,1991, S8.6 mil-lion ~as recei *able from customers and included in Other Currest Assets. I 4 h 'hl' q 4 34 M ..WJDD. N.3 ,M 'E G" du.E'Bp'P' .'O D . mea a e/T dg.. ". - 4ek '=6% 4'4'. -"+$ .$4 a .dM.e' @g f

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h ~ t i Nuclear Fuel Costs Duquesne finances its acquisition of nuclear fuel through a capitallease. The cost of nuclear fuelis charged to fuel expense based on the quantity of energy gener-ated by the reactors. The U.S. Department of Energy (DOE) is responsible for the uldmate storage and disposition of spent nuclear fuel. Duquesne pay: DOE a fee for future disposal service. This fee is recovered through customer rates. Cash Flows For the purpose of the statement of cash flows, Duquesne considers all highly liquid investments that mature in three or fewer months to be cash equivalents. Reclassifications The 1991 and 1990 financial statements have been reclassified to conform with accounting presentations adopted during 1992. h Extraordinary In 19S4, the Central Area Power Coordination Group (CAPCO) companies agreed l i Property Loss to minimize construction work and cash expenditures on Perry Unit 2 pending consideration of several alternatives, including resumption of construction or can-cellation of the unit. In 1986, Duquesne abandoned its interest in the unit. In 1987, the PUC approved recovery of Duquesne's or%imd $155 million invest-ment in the unit over a 10-year period. Duquesne is not earning a return on the as yet unrecovered portion ofits investment in the unit, which was $51.1 million at December 31,1992. In February 1992, Duquesne sold its ownership interest of 13.74 percent in the uncomplued Perry Unit 2 to The Cleveland Electric illuminating Company for - 53.3 rrallion. Q Receivables In 1989, Duquesne entered into an arrangement with an unaffiliated corporation by w hich Duquesne is entitled to sell and the corporation must purchase, on an ongoing basis, up to S100 million ofits accounts receivable. At December 31, 4 1992, Duquesne had sold $66.3 million of customer receivables and $9.7 million of oth er receivables. The sales agreement includes a limited recourse obligation un.ler which Duquesne could be required to repurchase certain of the receivables. T1.e maximum amount for which Duquesne is contingently liable was $16.8 mil-lic n at December 31,1992. [ Ammmts in Thmaands cfDo!!ws at Dann!n 31, 1992 1991 1990 Customer accounts receivable $109,692 5137,706 5117,234 Other accounts receimble 26,103 34.851 29,3GS Less: Allowaace for uncollectible accounts (7,707) (30,898) (16,805) Receivables less allowance for uncollectible accounts 128,088 141,659 129,797 Less: Receivables sold (76,000) (25,000) (68,139) Total Receivables S 52,088 5116,659 5 61,658 l Q Short Term Duquesne has an extendable revohing credit agreement with a group of banks Borrowing and totaling $225 million. The current expiration date of this arrangement is Revolving Credit October 29,1993. Depending on the option selected by Duquesne at the time of Arrangements each borrowing, interest rates can be based on prime, federal funds, Eurodollar or CD rates. Duquesne pays a commitment fee based on the unbonowed amount of the commitment. There were no short-rerm borrowings during 1992. During 1991 and 1990, the maximum short-term bank and commercial paper borrowings outstanding were SGG million and S53 million, the average daily short-term borrowings outstanding were $11 million and S14.3 million, and the weighted average daily interest rate applied to such borrowings was 6.36 percerit and S.34 percent, respectively. t ...... s u.,. 7 .. -/ w. ..~... ~.. -.

i l Capitalization Common Stock and Capital surplus InJuly 1989, Duquesne became a wholly owned subsidiary of DQE, the holding company formed as part of a shareholder-approved restructuring. As a result of the restructuring, DQE common stock replaced all outstanding share of Duquesne t common stock, except for ten shares which DQE holds. Vear Ended December 31, (7Lnuands ofDollan) 1992 1991 1990 Capital Saiplus Premium on common stock SS08,707 $7C4,6S7 $736,276 Capual stock expense (1,S40) (1,96S) (3.270) Total Capital Suq)lus $806.567 S762,719 5733,006 Preferred and Preference Stock Holders of Duquesne's preferred stock are entitled to cumulative quarterly dividends. If four quarterly dividends on any series of preferred stock are in arrears, holders of the preferred stock are entitled to elect a majority of Duquesne's board of directors until all dividends have been paid. Holders of Duquesne's preference stock are entitled to cumulative quarterly dividends, provided that no dividends on any series of preferred stock are unpaid. If six quarterly dividends on any series of preference stock are in arrears, the hold-ers of the preference stock are entitled to elect two of Duquesne's directors until M1 dividends have been paid. Duquesne is current on all dhidends. Outstanding preferred and preference stock is generally callable on not less than 30 days' notice at the prices stated in the table on page _, plus accrued dividends. Certain call prices decline in 1993 and beyond. One series of preference stock is subject to purchase and sinking fund requirements. At December 31,1992 the maximum combined aggregate sinking fund and mandatory purchase require-ment for prefe: ence stock was $1.3 million for each year from 1993 through 1997. In December 1991, Duquesne established an ESOP to provide matching contribu-tions under its 401(k) Retirement Savings Plan for Management Employees. See Note 11 to the Consolidated Financial Statements. Duquesne issued and sold S45,070 shares of Preference Stock, Plan Series A, to the trustee of the ESOP. As consideration for the stock, Duquesne received a note valued at SSO million from the trustee. The preference stock has an annual dividend rate of S2.80 per share and each shar e of the preference stock is exchangeable for one share of DQE common stock. At December 31,1992, $28.5 million of preference stock issued in connection with the establishment of the ESOP has been offset, for financial state-ment purposes, by the recognition of a deferred compensation benefit. Dividends on the preference stock and cash contributions from Duquesne will be used to repay the ESOP note. As shares of preference stock are alh>cated to the accounts of participants in the ESOP, Duquesne recognizes compensation expense, and the i amount of the deferred compensation benefitis amortized. In 1992, Duquesne recognized $1.5 million of compensation expense related to the 401(k) plan. At December 31,1992 Duquesne held 984,629 shares of DQE common stock, of j which 579,629 were purchased during 1992. 4 .. _.. _.._.. ~. 5) .s., a...:. .......-.....~..~.,.w

~ Proferred and (In 7housands, Except Per ShairAmounu) OutstamlingonDecemler R Preference Sieck 1992 1991 1990 g p,; PerShare Shares Amount Shares Amount Shares Amount Prefened Stock Series: (1) 3.75% (3)(7) S 51.00 148 S 7,407 148 5 7,407 148 $ 7,407 4.00% (3)(7) 51.50 550 27,486 550' 27.4S6 550 27,486 4.10% (3)(7) 51.75 120 6,012 120 6,012 120 6,012 4.15% (3)(7) 51.73 132 6,643 132 6,643 132 ' 6.M3 4.20% (3)(7) 51,71 100 5,021 100 5,021 100. 5,021 S2.10 (3)(7) 51.84 159 8,039 159 8,039 '159 8,039 S7.20 (4)(7) 101.00 319 31,915 319 31,915 319 31,915 $8.375 (4)(6) 80 7,945 1M 10,345 TotalPrefmed Stock 1,528 92,523 1,608 100,468 1,632 102,86S Preference Stock Series: (2) $2.315 (5)(7) 1,177 29,440 S2.100 (5)(7) 25.00 1,175 29,383 1,175 29.383 1.175 29,3S3 57.500 (4)(6) 101.00 86 8,579 87 8,692 92 - 9,172 1 61 16,100 223' 22,2M 59.125 (4)(6) Plan Senes A (7)(8) 38.30 845 29,995 845 30,000 - TotalPreference Stock 2,106 67,957 2,268 84,175 2.667 90,279 Purchase and sinking fund requir ements (17,300) (4,054) Deferred ESOP benefit (28,471) (30,000) TotalPrefernd and Preferenu Stock 3,634 S132,009 3.876 5137,343 4,299 S189,093 (1) Preferred sec!c 4,000,000 authorized shares; 550 par velue; cumulahve. (5) 525 per share involordary Equidation value. p) Prebrance stock: B,000,000 authorized shares; 51 par vake; cumulan e. (6) Redeemab!.. p) 550 per share invobnta y liquidahon vake (7) ten-redeemable. p) 5100 per share invobntary kquidation value. . te) 535.50 per share involuniary tquidation vake. Long-Term Debt At December 31,1992, Duquesne had $1.42S billion of outstanding debt securides; including $265 million of first collateral trust bonds, $764 million of first mortgage bonds, $393 million of pollution control notes and $6 million of debentures. In May 1992, Duquesne began issuing secured debt under a new First Collateral Trust Indenture. This new indenture will ultimately replace Duquesne's 1947 First 51ortgage Ilond Indenture. The first collateral trust bonds, which total S265 million and have an average inter-est rate of S.04 percent, were issued in 1992 S50 million of first mortgage bonds, with an average interest rate of S.25 percent, were issued in 1991. Since 10S5, Duquesne has reacquired S848 million ofits high-cost debt. The dif- - ference between the purchase prices and the net carrying amounts of these bonds has been included in the Consolidated Ilalance Sheet as UnamorthedLoss on Reac-quired Debt. Duquesne amortizes and recovers these losses through rates. The cur-rent balance of Unamorthed Loss on ReacquiredDebt is $70.3 million. 52 ~..s. ._..-.a_.mm.._.._.,_........._.m

e ~t Long-Term Debt PrincipalAmowit Outstanding (In 71wusands of$) at Decemler31, 1 Average Interest Rate Maturity Series 1992 1991 Hrst Collateml Trust Bonds: 6.0S% 11-15-97 $ 50,000 5 i 6.55 % 11-1598 5,000 ) 8.75% - 515-22 100,000 8.207c 11-15-22 10,000 l { 8 375 % 5-15 24 100,000 Total First Collateral Trust Bonds 2G5,000 First Mortgage Bonds: S.45 % 12-1-92 73,500 80,000 9% GI-06 10-1/8 % 2-1-09 03,040' 94.161 l 11-5/87c 12-1 15 &l/4Tc G1-95 50,000 50.000 5-1/8% 2-1 96 22,800 22.800 5-1/4% 2-1-97 24,600 24,600 G3/87c 2-1-98 34,700 34,700 7% 1-1-10 30,000 30,000 7-3/47c 7-14 0 28,647-28,947- &3/4% (1) S140 29,700 30,000 7-7/8% SI.01 34,650 35,000 7-1/27c 12-1-01 26,461 26,461 7-1/2% G142 28,470 28,470 7-1/4 % 1-1-03 32,670 32,670 7-3/4% 7-1-03 35,000 35,000 8-5/S% +1-04 43,650 44,100 til/2% (1) SI-05 49,000 49,500- &3/8% 4-1-07 96,400 97,400 9-1/2% 12-1-16 ' 98,000 99,000 9% 2-1-17 99,000 100,000 i Less ainrnt maturi6es and sinking fund requirements (10,650) (84,050) Total First Mortgage Bonds 753,098 .1,025,2tO l'ollu6on Control Notes: 5.588 % 8-1-02 1972 Allegheny County Sedes A 19.000 5.707c 10-1-03 1973 Allegheny CountySedes B 13,050 7.50 % 4-145 1975 Allegheny Connty Sedes C 17,000 { (2)(3) 9 1-11 1!02 Allegheny County Sedes A 47,925 (2) 12-1-13 1990 Allegheny County Scries A 50,000 50,000 5.739 % G1-03 1973 Beaver County Sedes A 9,800 10,100 (2) &l40 1990 Beaver County Series B 18,000 18,000 6.90 % !L1-11 1976 Beaver County Series C 15,000 15,000 11.625 % 12-1-14 1984 Beaver County Sedes B 51,000 51,000. (2) 8 1-20 I!00 lleaver County Series A 13,700 13,700 (2) S-1-25 1990 Beaver County Series C 44,250 44,250 10.50 % 10113 19S3 Ohio Development Authority 20,500 20,500 11.125 % (3) 2-1-15 1985 Ohio Destlopment Authority 38,610 38,610 (2) 9-1-18 1988 Ohio Development Authority 71,000 71,000 - 6.65% (4) 10-1-23 1989 Ohio Development Authodty 13,500 13,500 l Less cunrnt maturi6cs and sinking fund requirements (690) (1,815) l Total Pollution Contro! Notes 392,595 392,895 5% smlung hmd debentmes due Maida 1,2010 (5) 6,042 6,042 j Miscellaneous 278 338 Less unamortized debt discount and premium-net (4,012) (3.S48) Totalinn:Tmn Debt $1,413,001 S1,420,726 (1)1o b redowned March 1,1993. (2) Canoin of Ihe Poben Control Rwww Nies ha,e varidliniered rose pweds reging Irom one day e 363 darp On 30-days notice prb b any inte,es re d date,Duquevv, con chame 6,e subuquent irdaad raie period on the roles to o ddiward interest role penod rangirvy from ens day lo lhe brol maturky of its bonds (3) hsved in de larm of F.rd f.brtgage Bomis or Fast Cobw al Trud Bomis i (4) Fined rase shrough hrd lwe ywes, thereehw Lcoming variaU rates an in imtnote 2,

  • - * ^ (5) 'drding land reqsemere lor iW3 cricI 1974 html been med and de reqwrunent lor 1995 has ben partdyst*J.ed. - 4 a

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t At December 31,1992 and 1991, Duquesne was in compliance with all ofits debt covenants. Sinking fund requirements and maturities oflong-term debt outstanding at December 31,1992 for the next five years are as follows (in millions): S11.0 and S.3 in 1993: S12.1 and S.1 in 1994: S11.7 and S50.1 in 1995: S11.8 and $22.9 in 1996 and S11.1 and $74.6 in 1997. Sinking fund requirements relate primarily to the first mortgage bonds and may be satisfied by cash or the certificatior. of property additions equal to 166-2/3 per. cent of the bonds required to be redeemed. During 1992, $5.7 million'of the annual sinking furid requirements was satisfied bfc:dh and $4.2 millicin by certifi. cation of property additions. Total interest costs incurred were $130.4 million in 1992, $143.1 million in 1991 and $158.5 million in 1990. Of these amounts, S4.7 million in 1992, S9.3 million in 1991 and S13.9 million in 1990, including AFC, were capitalized. Debt discount or premium and related issuance expenses are amortized over the lives of the appli-cable issues. In 1992 Duquesne wa3 involved in the issuance of $419.0 million of collateralized lease bonds, which were originally issued by an unaffiliated corporation for the purpose of partially financing the lease of13eaver Valley Unit 2. Duquesne is also associated with a letter of credit securing the lessors' S188 million equity interest in the unit and certain tax benefits. If certain specified events occur, the leases could terminate and the bonds would become direct obligations of Duquesne. The pollution control notes arise from the sale of bonds by public authorities to finance the construction of pollution control facilities at Duquesne's plants or to j refund such bonds. Duquesne is obligated to pay the principal and interest on the bonds. For certain of the pollution control notes, there is an annual commitment fee for an irrevocable letter of credit. The letter of credit is available, under cer-i tain cir cumstances, for the payment ofinterest on - or redemption of-a portion of the notes. In December 1992, pollution control notes totaling $47.9 million were refinanced at lower interest rates. i At December 31,1992, the fair value of Duquesne's long-term debt and redeemable preference stock approximates the carrying value. The fair value of Duquesne's long-term deb' and redeemable preference stock was estimated on the basis of (a) quoted market prices for the same or similar issues or (b) current rates offered to Duquesne for debt of the same remaining maturities. At December 31,1992, the fair market value of Duquesne's investment in DQE common stock was S31.8 million. t leases Duqueme leases nuclear fuel, a portion of a nuclear generating plant, office build-ings, computer equipment and other property and equipment. The capitalized leases are summarized below: Armmnts in llumsands ofDo!!ats at Daember 31, 1992 1991 1990 Nuclear fuel S169,837 S170,704 S192,657 Electric plant 42,335 49,402 43,l'A Total 212,172 220,106 235,791 Less acctunulated amordzation (101,S00) (S4.003) (80,000) Mpertylleld Under CapitalInnes-Net (1) S110,312 S136,103 $155,791 m kd,a s37e2 in i n2 and 53.3mn i n14 mmd 1.-4, osa.d cup = *.1 ,._,..-,._54_,...,....._......_...m. .__..,m., a. -. a... -- w.+. a n. i ~,... a.a.w. ~... a -.,...

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=- l ' ~ In 1987, Duquesne sold its 13.74 percent interest in Beaver Valley Unit 2, exclusive of transmission and common facilities. The total sales price was S537.9 million, which was the appraised value of Duquesne's interest in the property. Duquesne j subsequently leased back its interest in the unit for a term of 29-1/2 years. The i leases provide for semi-annual nayments and are accounted for as operating leases. l Duquesne is responsible under the terms of the lease for all costs ofits interest in the unit. In December 1992, Duquesne participated in the refmancing of the col-j lateralized lease bonds which were originally issued in 1987 for the purpose of par- .j tially financing the lease of Beaver Valley Unit 2. In accordance with the Beaver l l Valley Unit 2 kase agreement, Duquesne paid the premiums as a supplemental rent payment to the lessors in the amount of approximately $36.4 million. The" i S36.4 million cost has been deferred as of December 31,1992, and will be amor-2 tized over the remaining term of the lease, j l Leased nuclear fuel is amortized as the fuelis burned. The amortization of all e other leased property is based on rental payments made. Payments for capital and operating leases are charged to operating expenses on the Statement of Consoli-l dated Income. The following summarizes those rental payments reported in the .l Statement of Consolidated Income for the three years ended December 31,1992. t Amounts in lhousands ofDollarsfor the Year 1992 1991 1990 Openting leases $ 64,9S6 S G 3,414 S G5,989 l Amortization of capitra leases 43,119 39,323 - 43,36S Interest on capitalleases 7,880 10,057 10.334 { i Total Rental Payments $115,985 $114,794 S119,691 i 3 Future minimum lease payments for capital leases are related principally to the _ estimated usage of nuclear fuel financed through leasing arrangements and build- ? l ing leases..\\linimttm payments for operating leases are related principally to l Beaver Valley Unit 2 and the corporate headquarters. Future minimum lease pay-i ments at December 31,1992 were as follows: i t Amounts in Tiumsands ofDollarsfor the Year Operating Leases Capital Leases l 1993 $ 55,715 S 41,563 l l!D4 53,196 33,396 1995 51,9G1 20,168 i 1996 51,949 10,602 E 1997 51,836 6,046 1998 and thereafter 1,025,915 31.944 4 TotalMinimum Lease Payments $1,290.575 143.719 } i Less amount representing interest (37,189) Present value of minimum lease payments for capital leases S 100,530 ) Future payments due to Duquesne under subleases of corporate headquarter's space are expected to be Sll.5 million. h T t { 2 w + h ..-.-.33.. ..<m.- -..m.m y ,,.. -.. ~... .... ~..,...... i.. I i , u ,~~w.. . ~ ~ 4, ~,, w :,..w, - -aw :.a a ~., t

g imome Taxes Since DQE's formation in 1989, Duquesne has filed consolidated federal tax returns with its parent and other companies in the affiliated group Duquesne's federalincome tax returns are closed through 1987. The Internal Revenue Service is reviewing Duquesne's return for 1988 and the consolidated 1989 return. The consolidated 1990 and 1991 returns are subject to review. Duquesne does not believe that the final settlement of federal and state taxes will have a material adverse effect on its financial position or results of operations. Amounts in Thousands of Dollarsfor the Ymr 1992 1991 19uo Indaded in opemting expenses:- -.....~ Cunradypayable: Fedemi $ S0,850 $ 84,862 S 44,711 State 27,797 31,980 10,SfA Defen ed - net: Fedeml (3,208) (4,823) 31,430 State (3,750) (10,750) (4.920) Investment tax credits defen ed - net (5,436) (5,328) (5,83S) Totalincludedin Operating Expenses 9G,253 95,941 76,247 Induded in odier income and deducdons: Cun endy payable: Fedem! 7,265 2,131 6.573 State 2,983 1,074 1,795 Deferred: Fedemi 1,654 1.943 331 State 377 443 (9) Invesunent tax credits (533) (459) (459) Totalincluded in Other Income and Deductions 11,74G 5,132 8,231 Totalinmme Tax Espeme $107,999 S101,073 SS4,47S Totalincome taxes differ from the amount compuied by applying the statutory federalincome tax rate to income before income taxes and Duquesne's preferred and preference dividends. The reasons for this differ ence in each year were as follows: Computed fedend income tax at statutog mte $ 87,641 S 83,030 5 74,777 Increase (decrease) in taxes resulting from: Excess of book over tax depreciation 3,830 5,333 S.547 State income taxes, net of federalincome tax benefit 18,089 15,013 5,102 Amortization of deferred investment tax credits (5,9G9) (5,787) (6.435) Odier-net 4,408 3,484 2.487 TotalInmme Tax Espeme $107,999 S101,073 S S4,478 Sources ofincome taxes defenrd and the related tax effects were: Excess of tax depreciation 5 16,611 S 20,957 S 24,230 Defen~ed revenues recorded /(ret overed) for book pmposes (30,702) (21.240) 12,774 Alkmance for uncollectible accounts 9,760 (5,930) (2,722) Fuel costs (10,820) 1,047 (ISO) loss on early retirement of debt 20,999 (166) (1,167) Other - net (10,775) (7,855) (6,103) Total Deferred inwme Tax Enpeme (llenefit) $ (4,927) 5(l3.187) S 26,832 . ~ .,,4. A.,... w. u.. a,., u :,,, -e .,, c, -,,,.4 -.,. Jos...,J x. 3..,; c. .,+..a~ .m

4 3 m Employee Benefits Retirement Plans i . Duquesne has trusteed retirement plans to provide pensions for all full-ume f a employees. Upon retirement, employees receive a monthly pension based on length of service and compensation. The cost of funding the pension plan is deter-mined by the unit credit actuarial cost method. Duquesne's policy is to record an - expense in an amount at least equal to the minimum funding requirements required by the Employee Redrement Income Security Act (ERISA). This expense may exceed the minimum funding requirement but may not exceed the maxi-mum tax deductible amount for the year. Pension costs charged to expense or construction werc $11.4 million for 1992, $11.2 million for 1991-and $12.6 million -- for 1990. l The following sets forth the funded status of the retirement plans and amounts recognized on the Consolidated llalance Sheet at December 31,1992,1991 and 1990. -l l Amounts in 7housam!s ofDollars at Decmler 31, 1992 1991 1990 Actuarial present value of benefits rendered to date: Vested benefits $287,360 $279,917 S241,193 ,j Non-rested benefits 16.252 14.294 19.915 Accumulated benefit obligations based on compensation to date 303,612 294.211 261,10S t Additional benefits based on estimated funire salaty levels 77,017 CA,919 .56.434 j Projected benefit obligation 380,629 359,130 317,542 Fair market udue of plan assets 411,440 392,027 319.594 l Projected benefit obligation under plan assets S 30,811 S 32.897 S 2.052 Unrecognized net gain S 61,971 S 86,695 S 56,573 Unrecognized prior senice cost (20,848) (22.317) {23,959) Unrecognized net transition liability (21,102) (22,913) (24,725) Net pension liability per balance sheet (9,210) (8,568) (5,S37) Total 5 30,811 S 32,897 5 2.052 i Assutned mte of rerum on plan assets 8.00 % 7.50 % 8.00 % Discount mte used to determine pmjected benefit obligation 7.50 % 7.50 % 8.00 % Assumed change in compensation levels 5.75 % 5.75 % 5.75 % Plan assets consist primarily of common stocks, United States obligations and cor-porate debt securities. Net pension cost for 1992,1991 and 1990 was computed as follows: 1 Amounts in llumsands ofDollan for t!w Year 1992 1991 1990 \\ Senice cost benefits camed during the year $ 11,397 5 9,911 S 9,710 Interest on projected benefit obligation 26,390 24,705 23,101 Return on plan 2.ssets (26,736) (80,716) (3,897) Net amortization and defetuds 325 57.319 (10.289) Sct Pension Coit $ 11,376 5 11.219 S 12.625 i I i ....,.-..-...-..........M-c-.......-...~.-.--.. ... m. _.. ..,.. _ m. a..s ._.2..>

Retirement Savings Plan and Other Benefit Options ~ Duquesne sponsors separate 401(k) Redrement Plans for its union-represented employees and its management employees. The 401(k) Redrement Savings Plan for hianagement Employees provides that Duquesne will match S.25 for every S1.00 that an employee contributes to a 401(k) account up to a maximum of 6% of their eligible salary. Duquesne will match up to an additional S.25 on every $1.00,if certain incentive targets approved by Duquesne's board of directors are met. The 1992 incentive target was met. Duquesne is fimding its matching contri. butions with contributions to an Employee Stock Ownership Plan (ESOP) estab-lished in December 199h See Note Ec-~ - Duquesne's shareholders have approved a long-term incentive plan through which - Duquesne may grant management employees options to purchase up to a total of three million shares of DQE common stock during the period 1987-1997 at prices equal to the fair market value of such stock on the dates the options were granted. As of December 31,1992 active grants totaled 84S,369 shares, at exercise prices ranging from S12.31 to $28.75 per share,which expire at various dates from 1997 to 2001. Stock appreciation rights (SARs) have been granted in connection with 622,S69 of the options outstanding. During 1992,107,594 SARs were exercised, 50,205 options at prices ranging from S12.3125 to S26.375 were exercised for shares and 59,330 options lapsed. Of the S48,369 grants active at December 31, 1992,232,293 were not exercisable at Deceml>cr 31,1992. Other Postretirement Benefits The FASli has issued Statement of Financial Accounting Standards No.106, Emplo,cr's ArcountingforPx!retirnnent &nefi:s 0:hcr Timn Passions,which requires, among other things, accrual of postretirement heahh care benefits during the years an employee provides service. Duquesne is required to adopt this Statement beginning in 1993. Duquesne currently pays a portion ofits early retirees

  • postrctirement medical cov-erage from the date of early retirement to the point at which 5fedicare begins at age 65. The cost of this coverage is reflected in Duquesne's financial statements, and is recovered through rates, on a pay-as-you-go (cash method) accounting basis. This cost is approximately $1.2 million annually.

11ased on an actuarial study, the unfunded transition obligation related to con-tributing toward the cost of postretirement medical coverage for Duquesne's retirees to age 65 is estimated at approximately S31.4 million. Duquesne will amor-tize this cost over twenty years. The annual cost, including this amortizadon, is expected to add approximately S4 million to the current level of costs in 1993. Q Rate Matters 1987 Rate Case The Alarch 1988 PUC rate order increased annual revenues by $232 million. This increase is being phased in from April 1,19SS through April 1,1994. Deficiencies in the revenues collected from customers resuhing from the phase-in were included in the consolidated income statement as deferred revenues. Deferred revenues are recorded on the balance sheet as a deferred asset for future recovery. As prior period deficiencies are billed to customers, they reduce this deferred asset instead of being included in current revenues. The phase-in plan includes a return on the revenues deferred for future recovery equal to the after-tax AFC rate. Duquesne has recovered previously deferred revenues of $185.6 million as of December 31,1992. Defert ed revenues and related carrying charges of S128.0 mil-lion remain to be recovered as of that date. Duquesne expects to fully recover this amount by the end of the phase-in period.- 1 - ss - - -. _. _ - _.. -. ,- a . - m. n-. w . ~.+. a..-.a.w. s ~.~. v.:

l At this time, Duquesne has no pending base rate case and has no plans to file a j base rate case. Deferred Costs of Units Not in Rate Base r in 1987, the PUC approved Duquesne's petition to defer initial operating and -l other costs of Perry Unit I and Beaver Valley Unit 2. Duquesne deferred costs incurred from the time the units went into commercial operation undl the March 1988 rate order. The PUC order deferred ruling on whether these costs are recov- - erable from ratepayers. These costs totaled S51.1 million at December 31,1992, l . net of deferred fuel savings related_to. the.two. units. Duquesne is nm earning a n... -. i current return on the deferred costs. Duquesne believes that these deferred costs. [ will be recovered in its next base rate filing. f t Deferred Coal Costs ~ ~ r The PCC has established two market price coal cost standards. One applies only to coal delivered at the Mansfield plant. The other, the system-wide coal cost stan-dard, applies to coal delivered to the remainder of Duquesne's system. Both stan-dards are updated monthly to reflect prevailing market prices of similar coal dur- .j ing the month. The PUC has directed Duquesne to defer recovery of the delivered i cost of coal over generally prevailing market prices for similar coal. However, the j PUC does allow deferred amounts to be recovered from customers when the deliv-l ered costs of coal fall below prevailing market prices. The unrecovered cost of, 1 Mansfiehl coal was $7.2 million and the unrecovered cost of the remainder of the system. wide coal was S3.3 million at December 31,1992. Duquesne believes that all l deferred coal costs will be recovered. -l In 1990, the PUC approved ajoint Petition for Settlement that clarified certain aspects of the system-wide coal cost standard and gave Duquesne options to extend it through March 2000. In December 1991, Duquesne exercised the first of two i options that extended the standard through March 1996; Warwick Mine Costs a The 1990 Joint Petition for Settlement (see Deferred Coal Costs) also recognized costs at the Company's Warwick mine. j The Warwick mine had been on standby since 19SS. In 1990, Duquesne entered. into an agreement under which an unaffiliated firm will operate the mine until l March 2000 and sell the coal to Duquesne. Production began in late 1990. The mine reached a fidl production rate in early 1991. TheJoint Petidon recognizes .[ costs at Duquesne's Warwick mine and allows for recovery of such costs, including .[ the costs of ultimately closing the mine. Duquesne expects to recover its net invest-ment in the mine through the cost of coal during the period of the system-wide - coal cost standard, including extensions. The net investment in the mine was $30.1 i million at December 31,1992. Duquesne has collected approximately SG.2 million { toward mine closing costs as of December 31,1992. Property Held for Future Use t l In 1986, the PUC approved Duquesne's request to remove the Phillips and most of the Brunot Island power stations from service and place them in " cold reserve." l Duquesne expects to return them to service in connection with the long-term sale of power to General Public Udiities Corporation (CPU). Duquesne's original net investment in the cold-reserved stations was S106 million. To date, Duquesne has .j additional net invesunents of S17A million related to condidon assessment, preser-i vation and preliminary preparation work for returning the cold-reserved units to { ser ice, S3.5 million related to plant improvements and 54.9 millionin other trans _ j action costs. Additionally, Duquesne's share of the current investment in siting the i transmission line is SnA million. Should this project not be approved by the PCC or - ,j -.. - otherwise not go forward,.a portion of.these costs.may not be-recoverable.-- ~..~... f 59 . -,.m... e ~ 1. .~, o n..

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  • Duquesne estimates that it will spend approximately S100 million on construction during 1993. Construction expenditures for 1994 and 1995 are expected to total S170 million to improve its operating facilities. These amounts exclude AFC, nuclear fuel, the proposed transaction with GPU, expenditures for possible early replacement of steam generators at the Beaver Valley Station and expenditures required under the Residual Waste.\\lanagement Regulations.

Westinghouse lawsuit The CAPCO companies are-meners-in various portions of BeaverValley-Units 1--- -- -4 and 2. In 1991, the CAPCO companies filed suit against Westinghouse Electric Corporation in the United States District Court for the Western District of Pennsyl-vania. The suit alleges that six steam generators supplied by Westinghouse for the two units contain serious defects, particularly defects causing tube corrosion and cracking. Duquesne is seeking monetary and corrective relief. Steam generator maintenance costs have increased due to these defects and uilllikely continue to increase. The condition of the steam generators is being monitored closely. If the corrosion and cracking continue, replacement of the steam generators could be required earlier than their 40-year design life. No site specific estimates of the cost i of potential replacement of the steam generators are yet available; however,indus-try replacement cc..s have exceeded S100 million per nuclear unit. Duquesne can-not predict the outcome of this matter; however, Duquesne does not believe that l its resohnion will have a material adverse effect on Duquesne's financial position or results of operations. Duquesne*s percentage interests (ownership and lease-hold) in Beaver Valley Unit I and in Beaver Valley Unit 2 are 47.5 percent and l 13.74 percent, respectively, with the remainder held by the other CAPCO compa-' nics. Duquesne operates both units on behalf of the CAPCO companies. Nuclear Insurance a The CAPCO companies maintain the maximum available nuclear insurance for the S5.9 billion total investments in Beaver Valley Units 1 and 2. The insurance i program provides S2.6 billion for property damage, decommissioning and decon-tamination liabilities. The CAPCO companies have similar property insurance for the $5.4 billion totalinvestment in Perry Unit 1. Duquesne would be responsible [ for its share of any damages in excess ofinsurance coverage. In addition,if the property damage reserves of any insurer are inadequate to cover claims arising from an incident at any nuclear site in the United States covered by that insurer, Duquesne could be assessed retrospective premiums of up to $3.1 million per year, for up to seven years. i The Price-Anderson Amendments to the Atomic Energy Act limit public liability l from a single incident at a nuclear plant to S7.4 billion. Duquesne has purchased $200 million, the maximum amount of available insurance, which provides the first level of financial protection. Additional protection of $7.2 billion would be i provided by an assessment of up to SG3 million per incident on each nuclear unit in the United States. Duquesne's maximum total assessment is $47 million and would be limited to a maximum of S7.5 million perincident per year. Another sur-l charge of 5 percent could be levied if the total amount of public claims exceeded the funds provided under the asse.nment program. Finally, Congress could impose other revenue-raising measures on the nuclear industryif funds prove insufficient j to pay claims. l Duquesne carries extra expense insurance which includes the incremental cost of [ any replacement power purchased (over the costs which would have been j incurred had the units been operating) and other incidental expenses after the j . ~ f d h-we *P ase * * * - .e** her s=**

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l occurrence of certain types of accidents at Duquesne's nuclear units. The amounts j of the coverage are 100 percent of the estimated extra expense per week during .i the 52-week period starting 21 weeks after an accident and 67 percent'of such esti- - l e mate per week for the following 104 weeks. The amount and duration of extra expenses could substantially exceed msurance coverage. National Energy Policy Act of 1992 The National Energy Policy Act of 1992 (Energy Act) requires utilities (including . _Duquesne).whiclthavrpurchand manium enrichment services from the U.S. Department of Energy to collectively contribute up to $150 million annually (adjusted for inflation) up to a total oIS2.25 billion for decommissioning and decontamination _of enrichment facilities. Assessments are based on the amount, of uranium a utility had processed for enrichment prior to enactment of the j Energy Act and are to be paid by such utilities over a 15-year period.The Energy Act states that the assessment shall be deemed a necessary and reasonable current. l cost of fuel and shall be fully recoverable in rates in alljurisdictions in the same manner as the utility's other fuel costs. Duquesne believes such assessments will j be fully recoverable in rates. Duquesne has recorded an estimated liability for l contributions of $12.5 million' offset by a regulatory asset. Emission Allowances I i in April 1992, Duquesne entered into an agreement with Wiscensin Power & Light f to purchase 5,000 allowances per year for S1.3 million in 1995,5 L4 million in 1996 and SI A million in 1997. Duquesne also received an option to buy an addi-l tional 5,000 allowances per year in 1998 and 1999J

l l

1 Guarantees Duqueme and the other CAPCO companies have guaranteed certa'm debt and lease obligations concerning a coal supply contract for the Bruce Alansfield plant. At December 31,1992, Duquesne*s share of these guarantees was $40 million. In ~ January 1992, certain bonds were refunded at Imyer interest rates that will con- { tribute to lower future coal costs. The prices paid for the coal by the CAP _CO com-i panies under this contract are expected to be sufficient to satisfy the debt and i lease obligations. See Note I to the Consolidated financial Statements. The mini-l mum future payments in millions of dollars to be made by Duquesne that relate 7 solely to these obligations are S7.2 in 1993, SG.9 in 1994, SG.5 in 1995, S6.2 in -[ 1996,55.9 in 1997 and S15.1 thereafter. Duquesne's total payments for coal pur-j chased under the contract were $25.2 million in 1992, S32.6 million in 1991 and t S25.7 mi!! ion in 1990. i Residual Waste Management Regulations i i t l InJuly 1992, the Pennsylvania Department of Emironmental Resources issued l Residual Waste 31anagement Regulations governing the generation and manage-i ment of non-hazardous waste. Duquesne is currently developing compliance { strategies and has estimated its costs over the next three years to be approximately ) S10 million. t: Other Duqueme is involved in various orher legal proceedings and em-ironmental mat-i ters. Duquesne believes such proceedings and matters in total will not have a mate-rial adverse ef fect on its financial position or results of operations. l i I 4- ...~ --.--~. -. _ _.6L.. & s s -,..... n...., m u.... _ a., _ ;l .-. ~..

g oansrating In addition to its wholly owned generating units, Duquesne, together with other Units electric utilities, has an ownership or leasehold interest in certainjointly owned ( units. Duquesne is required to pay its share of the construction and operating 1 costs of the units. The operating expenses of the units are included in the State-ment of Consolidated Income. I i Amounts included on the Consolidated Balance Sheet at December 31,1992 as property, plant and equipment include the following (thousands of dollars). Generating Construcnon Units: Percentage UtilityPlant Accumulated Work In Fuel ^ ~ Dugues'ne's ~~ ~ ~Uniit "- ~'"~ ~~~16ticihst~~MFin.itE' liiSentce-Trepisc125n~htgitsr-*Sontc'e'--~--- interest Chemkk 100.0 570 S 182.250 S 72,333 S 2.909 Coal EL ama (1) 100.0 4S7 195.294 107.007 3,004 Coal Ft. htartin l ~ ~ '50.0 - - 276- - - 65,836 -

  • 28.417 "

- 1,769 - Coal -- ~ ~ ---

  • Eastlake 5 31.2 186 69,113 25,290 5,212 Coal S.unmis 7 31.2 187

.82,999 28,318 1,024 Coal Unice Mansfiehl 1 (1) 29.3 22S 117,555 54,007 f63 Coal Bnice Mansfiehl 2 (1) 8.0 62 32,404 14,199 166 Coal Bmce Mansfield 3 (1i 13.74 110 87,376 34.091 121 Coal Beaver Valley 1 (2) 47.5 385 398.202 140,963 10,826 Nudear BeaverValley 2 (3)(4) 13.74 113 18,069 2,198 2,144 Nuclear Beas er Valley Common Facilities 210,S39 40.093 1,972 Penv1(5) 13.74 IG4 752,405 124,20S 4.C6S Nuclear Total 2.768 2.212.341 671,124 34,468 Cold-resened units: Bnmot !< land 100.0 306 87,250 34,414 595 Fuel Oil Phillips (1) 100.0 300 144,436 67,110 249 Coal Total Generating Units 3.374 52,444,027 5772.GIS S35.312 (1) Unit is equipped with live gas dwulforcors equy:, ment (2) The NRC has gronhed on operat;ng license thrc,vgh January 2016. (3) Cm Ocde 2.1967 Duquews soulits 13.74% inwrmt in b, aver Volley Unit 2, excidve of transminion and common Iac1 ties. Amovnts shown represent locildin not sold and slisequent leasehoM improvements. i (4) The NRC has grankd on operating liceme bugh Wy 2007. (5) The idC has granted on operating I,ceme bugh Wrch 2006. 1 1 i i f _-..,_..,.6].....,..._.......,.,4..,,,..._, .........,.. _... ; _. m %. ~. m _c. _ m..u . ~ ,,..u

e g changesin The following is a summary of changes in working capital other than cash: Working Capital I I I# A"*"" 5" ""**""#'lO'II""l Other Than Cash Accounts receivable (Note C) SCA.571 S(55,001) S(24,667) Materials and supplies (4.151) (3,122) (17,031) Odier current assets 7,131 (8,050) (2,752) Accoeuts payable (S.573) (405) 22,546 Other curTent liabilities (3,785) 24.987 13,979 Total 555,193 S(41,651) S (7,923) O o art rir rhe roiioxing is a summary or sciertea uarteriv inanciai aata <thousanas or aoi. s r Financial lars, except per share amounts). The, quarterly data reflect s,casonal weather varia_. _ _ _ informaffen tions in Duquesne's service territory. (Unaudited) 1992 First Qt arter Second Quarter Third Quaner Fourth Quarter Operatmg Revenues $298,178 $290,149 $314,515 $284,547 Openting Income 62,810 59,200 74,600 57,520 Net income 36,171 32,769 47,996 32,832 1991 First Quaner Second Quaner Third Quarter Fourth Quaner Openting Revenues S2SS.009 $2S8.703 $333.40S S289,470 Opecting Income (1) 65,650 65.276 75,2C4 59.476 Net Income 35.552 31,635 45.298 30fdB (1) Restated to conform with prewaaiens adopted during 1992. s a. o 4 - 63.s.,__._..._.....~_._,_-- m., ......_....... ~.. m.-.... ......._......~.._.,_..._..._.%_..,_.,a

t 1 SELECTED FINANCIAL DATA e { i T/musand.s o/Ddlan 1992 1991 1990 1989 1988 1987' 1' INCOME STATEMENT 1TEMS Total operating rrvenues $1,187.389 $1,199,650 ' $1.131,005 $1,118,583 S1,000,817 S 866,200 Operating income $ 254.130 $ 265,672 $ 266,402 S 269,506 S 244,342 S 185,735 Earnings for common stock 5 140,357 5 132,332 S 121,410' S 112,644 S 118,566 S 134,972- ....... ~. ~ -.. ~ - - - - ~ -. = _ _ BAIANCE SHEETITDiS Property, plant and equipment-net $3,015,691 $3,035,115 S3,040,562 $3,053,978 $3,065,922 $3,098,897 $3,797.563 $3.885,096-S3,879,777 -53,901,751 - S3,881,424 -$4,151,615- -- -j Total assets 'i Capitalization: i Common stockholder's equity S1,107,609 $1,064,1N S1.035.059 S1,033,826 S1,070,575 51,217,361 Non-redeemable preferred and preference stock 123,430 121,906 151,346 154,030-154,073 156,137 [ Redeemable perferred and preference I stock H.579 15,437 37,747 65,961-90,743 104,768 long-term debt 1.413.001 1,420,726 1,501,295' 1,540,329 1,550,231 1,690,600 l Total opitalaation S2,652,619 $2.622.173 S2.725,447 S2,794,146 S2,865,622 $3,168,806 s u ) t ) I i ) t i I 1 's 1 i i i [ i I l CA m *qp e rme 9 4 f 'e m> *Q

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CLCSSARY CF TERMS a F ollowing are explanations of certain financial and operating terms used in our report, some of which are unique to our business. Allowance for Funds Federal Energy Used During Construction (AFC) Regulatory Commission (FERC) An amount recorded on the books of a utility An independent five-member commission during the period of construction of plant or within the U.S. Department of Energy which "" facihties to~tepesent Thtwthtmted cost of---hnrresponsibitityforsettingrates.ttrd chaq;es- --~~ - both debt and equity used to finance the for the wholesale transportation and sale of construction. natum! gas and electricity, and the licensing -.. of hydroelyctric power projec,ts, among. _, _ _ _., _ Capitallease other things. A lease that transfers substantially all of the benefits and risks incidental to tiie ownership Energy Cost Rat., (ECR) of property, and thus is accounted for as the A provision in a utility tariff which provides acquisition of an asset and the incurrence of for nte changes to customers due to increases an obligation by the lessee, or decreases in fuel costs incurred by the utility. Duquesne Light recovers the cost of fuel con-Central Area Power sumed at its generating plants, as well as the Coordination Group (CAPCO) cost of purchased power, and passes through the ECR to its customers the profits of short-Duquesne Light, Oh.io Edison Company, Pennsyhania Power Company, The Clev' eland tenu power sales to other utih..taes. Electric illuminating Company and The

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TJc.L tdison Company. The companies joined together in 1967 tojoindy develop A kilowatt (kW) is'a unit of power or capacity. power generation and transmission facilities. A kilowatt hour (LWh) is a unit of energy or kilowatts times the length of time the kilowatts Construction Wark in Progress (CWIP) are used. For example, a 100-watt hulb has a demand of.1 kW and, if bumed condnuously, 'I.his amount represents utih.ty plant in will consume 1 kWh in ten hours. One thou-process of construction but not yet placed m-sand kh..s is a megawatt (mW). One thousand semce and is shown as a component of prop-g.b i hb erty, plant and equipment. Operating lease Deferred Taxes These leases do not transfer the benefits or Income taxes resulting from the recognition nsks of ownership. of certain items of revenue and expense in the tax return in a different period dian they Peak load are recorded on the books of the company. Peak load is the amount of electricity required FASB Statement No.106 during periods of highest demand. Peak peri-ds fluctuate by season, generally occun-ing in An accounting standard, issued in 1990, which the nmming houn in wmter aml in late after-will require companies to change from the n n during the summer. current practice of accounting for postretire-ment benefits on a 'pav-as-you-go basis to accruing the actuarialN determined cost of Pennsylvania Public U'EII'Y '***I"'*" IEU'I providing these benefits to employees. The Pennsyhania governmental body that FASB Sterement No.109 regulates all utilities (electric, gas, telephone. w ter, etc.) is made up of fim memben (one a An acconnung standard, issued in 1987 as chainnan) appomted by the governor. Statement No. 96 and revised in February 1992 as Statement No.109, winch will require the liability method of ac counting f or Regulatory Asset im ome taxes. Costs that the Cmnpany would otherwise have charged to expense that are capitalized or. deferred because it is probable that the PCC will allow their recovery in rates. ~... .6> .....x. -. ~. -.......... _..m.__.,,..,.,,,_.....

DUQUESNE LIGHT COMPAhT EXHIBIT 12.1 e t l e l C -" P, -{ fs ':Q O tw s,, tw C N OJ Z 6 O. Z C. i i.O 2 N.

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DUQUESNE LIGHT COMPANY EXHIBIT 24.1 r INDEPENDENT AUDITORS' CONSENT - -- We consent 1o'the incorporation by reference in Registration Statement No. 33-46990 and - 3352782 of Duquesne Light Company on form S-S of our report datedJanuary 26,1993, appear- ...ing in the AnnualReponanArm.10n 9LD.uquene.Liglu.Gemp.an!.fer thesea,t.eyde.5L December 31,1992. /s/ Deloitte & Touche DELOl'ITE & TOCCHE Pittsburgh, Pennsylvania i March 30,1993 t i f i k i P h e f 6 i i i ? t ? I t t r I l r i; I e . 14 .-,....-...........,.....--,...,...,......n.- .,.nn....... s. - wa.. .r.:a n.,,,,e.~..a,._. ......->..-%+....n..~.n. i t}}

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