Text

Duquesne Light Co 1989 Annual Rept.
	ML20042G910
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1989
From:	Von Schack W; DUQUESNE LIGHT CO.
To:	;
Shared Package
ML20042G908	List: ML20042G907; ML20042G910; ML20042G913; ML20042G916; ML20043A651; ML20043A662;
References
	NUDOCS 9005160266
	Download: ML20042G910 (40)
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Table of Contents Financial and Operating Highlights Letter to Shareholders . . . .1
' Percent 1989 1988 Change Perspective on Clean Air . . .5 OPeratingRevenues(000) 51,120.680 $1,063,233 +5.4
' Itrspective on 1989 . . .6 Management's Discussion . .14 [g"$[m"on c at Year End S19.27 518.51 + 4.1 Statement of Consolidated Earnings Per Share income -. .U of Common Stock $2.03 $1.86 +9.1 Consolidated Balance Shee: . .18 Shares of Common Stock Statement of Consolidated Outstandmg at Year End (000) 55J40 57,831 - 4.3 Cash Flows . .20 51.28 $1.20 Dividendt Paid Itr Share + 6.7 Statement of Consolidated Return on Average Retained Earnings . .21 Common Equity 10.6% 10.4% + 1.9 Notes to Consolidated Annual 5ystem Generation Financialstatements . .21 (mepwatt hours) 14,357,715 14,996,332 - 4.3 Pc kl.oad(megavzatts) 2,381 2,372 +0.4 Selected Financial Data and StatisticalSummary . . 32 fompany Report on 9
FinancialStatements .34 p
Audit Committee Letter . .34 About the Company Report ofIndependent Certified DQE is a holding company dedicated to energy related services, Public Accountants . .34 headquartered in Pittsburgh, Pa. Duquesne Light Company is the Board of Directors .35 principal subsidiary and primary source of revenue and earnings Officers . .36 ShareholderReference
' O ' "9"#S"# E E# ' #* * *# " # '" EPI Guide . .. .inside Beck Cover mately 573,000 customers within an 800 square mile area in Allegheny and Beaver ccanties m Southwestern Pennsylvania, and-also sells electricity to other electric utilities. Another subsidiary of DQE is Duquesne Enterprises, which owns Allegheny Development Corporation, and Property ventures, Ltd. ,
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, A milestone was passed in 1989 when shareholders growth in demand for electricity in our service overwhelmingly approved the formation of DQE territory. We closed power plants and reduced ;
as a holding company. The new structure adds the dividend. Yet we emerged from this experi-l
.11cxibility to our strategy for managing your assets. ence by the end of the decade in a stronger i DQE enjoys a special advantage because it is able to position and with a clearer understanding of !
draw lessons from the successes and failures of how best to manage DQE assets to increase diversification elsewhere. We anticipate that their value.
DQE will pursue new business opponunities in 1989, our solid progress in managing the decade's that will capitalize on your company's notable many tough choices was evident.Our earnings ;
leadership in engineerity energy production, per share advanced to $2.03 from $1.86 in 1988 and the application of technology. Moreover, as our financial condition continued to improve.
we intend to pursue new business opportunities in 1989, customer service operations earned only when there is the clearly de finab!c potential strong endorsements fiom those who matter for above average retums to our shareholders. most--our customers. In the last yearof the i Formation of DQE as a holdingcompany dedicated to decade, it also became clear that our long term energy related services marks another stcp in the strategy for regional economic development vigorous restructuringof our is effectively contributing to traditional business-an endeavor growth in our service territory.
that was the hallmark of the 1980s. The successful conclusion ,
I in the decadejust ended, we placed of a challengingdecade was most primary emphasis on management gratifyingly observed in the actions that improved financial increased value of our common performance; stock duringthe last two years.
Duringthe second half of the 1980s. DQE common shares closed many decisions weie painful. 1989 at a 16 year high. Common We cut back on the size of dividends also were raised during Duquesne Light to reflect lower each of the last two years.
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Your company did a great dealin the 1980s to prepare of our top priorities, given the strong competitive j for the 1990s. Allow me to elaborate on how we pressures in the energy busmess.
shaped our perspective for the 1990s as we met our employees rededicated themseh'es to deliver l I
the challenges of the 1980s. more courteous, responsive, and timely service ;
1980-1989 was a decade when Duquesne Light asked to customers. In the 1980s, we came to appreciate i how can we uncover the potential rewards of a the need to look at our market in much more changingenvironment. We discovered that we discrete elements-and to recognize that our can confront challenging and difficult situations smallest customer deserves to be treated with and discern new opportunities in them. Our suc- the same careful attention as our largest cesses reinvigorated our determination to achieve customer. We recogni:e that no one will make excellence in operations and in customer service. more critical choices about the company's future The Duquesne Light management team adopted as its .in the comingyears than will our customers.
goal that your company will be one of the best Duquesne Light has a long and successful history run in the industry, I have confidence in our as a provider of power to large industrial L
ability to achieve that ambition. We reduced customers. However, as our region lost much 1 l
! the number oflayers in our corporate structure of its industrial base, we recognized that we )
to achieve more individual responsibility, to must prepare to deliver our product during I opumize communication,and to the 1990s in an economy that loosen the grip of bureaucracy. is rapidly diversifying-and ;
The company is dedicated to changingour mix of customers.
recognizingthe value of every For example,in 1980, individualemployce. Duquesne Light's industrial in the 1980s, we improved cost controls customers accounted for 47%
throughout our operation. And,in of a total 13.3 billion kilomut hour the 1990s, cost controlwill be one - sales. By the end of the decade, 2 DOE
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industrial customer sales were only 28% of a shareholders and ratepayers alike.
total 11.6 billion kilowatt hours. In the 1980s, we fashioned a model economic
Kilowatt hour sales to the diverse commercial sector development program and made Duquesne 1
j grew during the decade from 30% in 1980 to Light an important partner in the turnaround i l 44% of kilowatt hour sales in 1989. Residential of Southwestern TYnnsyh ania. Our dramatically i
l and other sales, meanwhile, grew from 23% in increased commitment to this effort is improving 1980 to 28% in 1989. our outlook for sales. And we are recogni:cd So we examined our customer base more closely, as a leader in promoting this region's atuac-significantly increased our efforts to share cach tiveness as a location for new businesses and for customer's perspective, and improved the qual- expansion of enterprises already here.
ity, reliability, and timeliness of our service in What will the 1990s look like for Duquesne Light and ways that customers tell us they would like to the Pittsburgh region? The 2% growth forecast have it provided. Our customers seem to agree for this region in the 1990s will be somewhat that our commitment makes a difference, as they lower than the nation as a whole. Yet our analysis are expressing a high level of sausfaction with of the market tells us that, overall, the next decade our service. promises something very favorable for our We also intend to build on our strengths. Let me cite company: more stability and less likelihood of one of them. Duquesne Light has the severe swings m demand significant power that could be and output that the region made available for other narketmg expenenced in tl e 1980s.
opportunities beyond its current Our customers are confi- ,
serviceobligations Entering dent at the start of the new the 1990s, the company sees decade,and we share their.
opportunities in the wholesale confidence. In 1989, through bulk power market that will benefit the University of Pittsburgh, DOE 3
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we sponsored a survey of the business outlook in the caily 1980s but was able to rebuild during in our region. The survey told us that the owners the rest of the decade.
and managers of enterprises throughout South- I believe that tells the story of Duquesne Light in the western Itnnsylvania anticipate higher sales in 1980s as well-moving from heavy reliance on the new decade. industrial customers to a demand for exacting We also learned, encouragingly, that 80% of enter- service from a diverse customer base.
prises share our view that the business climate With the formation of DQE, the story will continue, here is excellent or good, that the quality of the as we use our more flexible corporate structure labor force is outstanding, and that the region's to take full advantage of opportunities for our amenities for employers and employees and shareholdersin the 1990s.
their families are particularly strong advantages Our progress reficcts the outstanding dedication of
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for regional competitiveness in the decade ahead, my fellow employees, whose spirited response These survey results reflect growing confidence in a enabled the company to manage profound changes region that lost much of its economic strength in the 1980s and to .uccessfully prepare for the e~7"="a decade ahead.1 thank them for their service.
Thank you for your steadfast support as the owners of DQE. In the 1990s, your company intends f jh to continue on a path that will achieve steady
growth in the value of your investment.
y Our colleague and fellow director, Mt Henry G. Allyn T M Jt, has decided not to stand for reelection. We E N Q p @~
thank him for his im aluable business insight
[k b@yn and dedicated service over the past nine years.
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Lo N W Oc0.-, l Wesley W. von Schack Chainnan of the Bomd and Chicf Execurnt Ofccr March 9.1990
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Some observers throw all utilities together as reinovinglow tont entiatioris of toxn substances
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opponents of clean air Our reacnon is to Irom our plants wastes wonder why they don't talk,instead, about Our c ontribunon to a clean entn onment enceds companies hkr ours We look on important 5600 milhon Wah our commitment to this environmental milestones, such as Earth Day cause durmg the last two det ades. our plants on Apnl 22, as a cause to celebrate in the Pittsburgh region alreadv meet the new Society has made great stndes over the last two standaids proposed for the Clean An Act decades m cleanmg up its act We~te proud of Investment m dean an equipment at our power plants ont track record Our company is a recogm ed produces a tangible improvement m the quahty leader m improvmg air quahty-f rom out of hic m our servue ternterv As out busmess mstallation in the early 1970s of the nation's hrst leaders travel the world promoting the hvabihty tull scale, plant wide scrubber system, to our of this region, out conoibunon to clean an is more iccent pioneenng use of natural gas to bre proot of Southwestern Ivnnsylvania s a coal f ueled boder We also pioneered the use of Jetermmation to invest in its f uture chemicals to reduce scrubber system corrosion, Responsible behavior toward the environment is a and we are leaders m research to hnd methods for crucial test 01 corporate cmzenship as well as a test ofintelhgent management Our mnovanon and our knancial commitment to clean air have produced a 7% reduction m sulfur dioxide emis51on$ and a M redliction in dust etnissions We're pleased with these ati.omplishments. but we are not content to rest on our lauiels We reall:e applhallotl o! the OcW law Will present u5 with new t hallenges and tosts We are prepared to meet those obbgations and to mamtam our leadership among torriparties t ont erned about the erwironi11 erit DOE 5
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, /~y On luh 25. retail customer denund reat hed All , lasses of retail tustomers posted revenue 2381 megawans. the highest level sina increases conunercial.1I 5% residen-1481-the year we reached our all time nal,8 7% and industrial. 58% 'lotal
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system peak ot 2 522 megawatts I he 1984 operating revenues. which inc lude iTuquesne laght system performed w ell sales to other unhnes. mcreased 5 %.
in re5ponse to Cu5toiner deniand to bl I hilhon Duquesne 1.ight L.ompany reahred 3 ales to Customer Satisf action retail customers last year of I l n bilhon We are always looking loi ways to kilowatt hours This sales level mamtams incicase customer sanslacnoa the healthy o% increase achieved in in the tall of 1980. Iluquesne Light hegan to 1988, when electrical demand received read the meters of residennal customers an added boost trom the honest summer monthly rather than bimonthly . This has m 100 years Whde summer tempera- resulted ir. more accurate and umely bills tures returned to near nonralin 1080 and icwer bilhng complaints regional growth and diversity cononued Commercial sales which have posted all time high totals for 12 years in a row.
now make up 4% of our retad sales enungng cuyon, ya igao.e39 Scheduled niaintenarxe and ref ueling outages at Duquesne Light power stations meant sw b b k sale to other unhoes Consequentiv in 1084 these sales decreased 22V to 2 2 bilhon kilowatt hou:3 alter hve gg ggy consecunve years of record growth a %n,1 , g ,%,,,n , , ; a con,,y,,s,,g B DOE
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Ince Duquesnt light l'ipNd its economn devehapanun won = n 1987 wmpny peoph hm helpre noe o. retm E 4% into n n+ .
fPgiors A ter0HI enafuple I: th tt on itn. One' of t bt nidrY at:e largest heanng dic iminotartmon m the pai Unq- ' pr 3 help was ei critmal element er the tuoinuative ef f uo thM tvought D11toni new manutattutifig diviMon to Braver f.uunty g _
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to olier thi kind ot mnovauve service w % : . . . . . . .m e s .3
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at ptd a po% Matemem urging
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" pioach to all their comnmnicanons with M, _ , ..c I .f . . . f Q. .h , . h.g
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F Customer 5 We are pleased to report that
. gt. g,g c.,. ,.. - c ,a . t... . - - .; ,- - .. ..,u, q Duquesne bght intioduced its own plain
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...f; .y... . pgy hi language residential hill in late (OH8
'.; Dd A ret ent surves revealed that customers y ;,,. : :, q . . .-
- H ;y.; e- M y g c . 'M Fi are extremelv pleased with the new hill
f.m pw ;. .y ,2 % .. .c {ki
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advance These lormat ( ustomei t onunents mcluded y$.a.w
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Mplan'ned biotechnology center, form the base fer 4 r &g6 e critical mass ~'~
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the followmg "Congratulanons, the y
M revised format is good--tvpical of $ -
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Duquesne Light's quahty service" 'The
%7 v?i bill is excellent, and " l'his is the most .s L
1) r,M informante of all the bills we receive:
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4
.f The company keeps m regular contact with j $ ? -
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customers to get feedback on its perform-
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ance A series of telephone surveys and -
(% , kki" face to face meetmgs weic conducted e- -
with residennal and commercial cus- j -
tomt rs m 1089 Duquesne lagnt residen-kI !g[g p. .
i s hp '.;,
ual customers were overwheinungly . .f . = .
.3-. . .. 'R- a,,- 8 pleased with the overall quahty of the 4~ : "'. O; ~' .g t[ M!g i ,.
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company's services and rehabihty . 1- y .
%%s Commercial customers said they are highly '. s , ' .. ; ' f' satisfied with their service and wah the h ,, :htmagN: i WegeteidiggIgleMigt%Bdt elforts of our representanves. who are .
.istagggfela. ugheshpn.es,m($s.s$lidialet#, suisinIndyN working to serve customers better by i 740$gydut44aphsethisW$1p ted#ng$ autsepQRd 4thelder
.,a -
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makmg them aware of new energy tech- 4ptspgegdh ,
f ,agiesenssiin,akdatdaghege@.
.,.m . .
8 nologies .by providingon site analysis d(kgigigadqgute(thef'M... 4 miyagiismgggNIr j
.u. . .
ol exisung energy systems- .and by .
/.ly:yter4dhy, . . , . p 4st %.I$d%sim % ghtgegangs, providmg price opnons. such as mtet- b. ,. Naguliget$t AlssptMissieggi$gutggeblessiddhestth[ +
rupnble rates. time of day rates, and [;;@, pag $$rM.e .+kQjdeliggingsgyseg s , .w. .~ .. .
econonuc development rates Commer- j's Mjgt$.$$4thegggggigpahammipdgBfgilW$ an
e. t .
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Cia CuNIolllCrs a so gave the company
}l(. . g:$ ckhk' . -
sgh ceres ter m ashty te sp &m get g. 5www. ,,,e ; ;eW the most value for their energy do;lars I. . , .
w. ?. .1.Wg.. +. >. 8 . . > . -: W 3 ..s % ",. ;;
~ 1 sersicas to more than 500 laws f.:%
10 DOE - # Nb E -
T A.
f V amrns chvin one tundies ni mei f Duquesne light peopic takt vrig achyt roies in inen n.mmunines voiume,.m
-W thev Umr and o pe< tnt te a milr 6 ariet, oiyouu: (buut suum 'to vita Luo 3
ruttivid inoom Economic Development leader Community Relations and Duquesne 1.ight, a recogni:cd leadet Partnerships in the Pittsburgh region's revitah: anon Our successlul conununity relanons pro-efforts, presented its hrst Economa gram is built on the cornerstone of pait-Development Awards to]&l Struttural. nership 113 blendingout resources with inc m Aliquippa Beaver County.and those of others m the community we to Thunder Manulacturing m McKees have cicated a wellspringof synergisoc th u<s, Allegheny Cmmty The award > benehts for the Pittsburgh region recogtu:e companies that tontribute to Company partnerships have paired Duquesne the revitah ation of their mdividual com- t ight's resources with those of the hrst mumnes and to the region as a whole Carnegic l.ibrary m the country The company also helps promising husmess (Braddotk Pa T m m ellort to save a start ups and expansions through loan historn aiea build:ag and with those of programs adnunistered by the Beaver two nonproht energy conservation hrms County Corporanon lor Econonuc to create " Energy Ilouse a 120 year old Development and the Pittsburgh Foun- home that was extensively retrohtted to danon in lust two years, funds provided be energy cibeient Used as an educa-by the company have resulted in loans of tional tool for our customer s, Energy more than 52 unlhoa to eight compames Ilouse recently was one of seven energy Jons in nie (;reate projects in Pennsylvania to receive the Pittsburgh Area (sovernor's Energy Award
('.oininunity piirinerships-public and private
, sectors workmg together -lueled the revitahzalidn of the Pittsburgh region in
, the it%)s We are tomnatted to keepmg
,, this spirit ahve m the l'N0s a
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cop.atunmn we m ir the noik oowe makei i.ne company
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. . , - . .Y %?:pp 4 l . . . flementi i.ontinun to ipow f aster than the ekrihe supply "Nf.f!l$, %?h ? Y <_ _ ] ll U$ _
Our People .
Our people are acuvely mvolved m ellorts to make the l'ittsburgh region a (,
better plate to hve and work In addinon h.
!{i
. %.. .: %g to providing the electric power that helps .
% 6
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luel growth of the local economy. these 4. ..
~
f. ee dedicated cinzens serve m leadership te .-o nd. .
roles in various community service. , s governmental, social, and economic development organizauons lo insure that they have the knowledge and skills needed m today s rapidly changmg environment, we conunued our strong y emphasis on trammg Our people took part m more than a quarter milhon work hours of skills trainmg personal development, and managertal educanon m support of our corporate goal of providmg opportumnes for pec.sonal m wiw usin growth and development. the tuinon relund benefit for job related tourses ,,
was mcreased to 100% m 1989 ;g a Both on and off thejob our pec.ple are the key to meenngour goals in the years ahead n c ,
?fA 12 DQE
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y Duquesne Enterprises Duquesne Enterprises represents the next phe.se of our contmuingefforts to stay ahead of changing market forces
~1 his company will considet opportu-nities m such areas as conservation, demand side management, and inde-pendent power production Customers for these types of services could include individuals companies, and other utih-nes, and can be found in our traditional aSame - o service territory and m other parts of M the country Our approach will be measured and deliber-ate, and will reflect the expertise we've developed over the years. Allegheny Development Corporation, a Duquesne Enterpnses subsidiary that will provide energy services to the new Greater Pitts-burgh International Airport,is an exam- ~
ple of how we can successfully respond to the changingenergy services market naquess,as aEpfWWiNS181 [
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A y
. Management's Discussion and Analysis of Financial Condition 'and Results of Oporations-Corparate - Struetute The lluctuations in electrical consumption resuhed from
! FffectiveJulp 7,1989 Duquesne Light Company (Duquesne) changes in kilowatt-hour sales to residential, commercial and became a wholly owned subsidiary of DQE,a holdingcompany industrial customers. The decreases in energy cost rate revenues .
+
formed as part of a shareholder approved restructuring. DQE in all years were primarily due to decreases in the energy cost and Duquesne are sometimes referred to collectively as the rate. The general rate decrease resulted from the final order in - Company. As the principaloperatingsubsidiary of DQE, the 1986 rate case.The decrease in sales to other utilities in Duquesne's operations account for the major share of DQE's 1989 was primarily due to more scheduled outages at Duquesne's total assets, revenues and income. Therefore, DQE's financial generating units in 1989, which resuhed in less available capac-condition, changes in its liquidity and its future financial out- ity. Favorable capacity situations and the requirements of neigh- ! look depend primanly on the operating, investing and financial boring utilities resulted in increased sales to other utilities in activities of Duquesne. 1988 and 1987. Currently,all benefits from short term sales to other utilities are required by the PUC to be passed through to Resuits of' Opetations Duquesne's customers. - Opewting Revenues Operating revenues increased (decreased)in the years 1987 through 1989 over the respective precedmg years, for the follow-fr e GTu i ing reasons: 0 160 1989 1988 asJ (Afilhons of Dollars) 1987 ma General rate increase 583.7 $ 63.3 $ - Deferred customer revenues (21.3) 1175 - m Electrical consumption (l.6) 22.0 10.8 Energy cost rate revenues (4.2) (34.9) (10.9) . m General rate decrease - (7.7) (7.6) 12.8 L Other 5.1 (7.1) Revenues from other utilities (12.0) 9.9 -63 no Total $57A $175.2 ~ $ (8.3) eg g us7 nas nas. Operatmg revenues are based on rates authorized by the Itnn. sylvania Public Utility Commission (PUC) and are designed t Opcmrion and AfaintenanceIhpenses recover operatingexpenses, plus a rate of return on the invest-Fuel expense decreased in 1989 and 1988 compared to the mentin utility rate base. respective preceding years due to decreases in the cost per ton of The general rate increase and the deferred customer revenues c al, the effect of the increased use oflower cost nuclear fuel and in 1989 and 1988 resulted from the rate order received in htarch a@ustmem r revenues receWehou$ th energy cost rate. 1988. The decrease in deferred revenues in 1989 reflects the im-Additionally, fuel expense decreased in 1989 compared to 1988 plementation of the second step of the phase-in plan in htarch due t decreased generation.Other operation and maintenance 1989 which resulted in increased current revenues. See Note H. expenses increased in 1989 and 1988 due to expenses related to Beaver Valley 2 and Itrry 1, which were deferred through the first quarter of 1988. Additionally, maintenance expense in-creased in 1989 due to more scheduled outages of generating units, and other operation expenses increased in 1988 com-pared to 1987 due to increases in the generation of electricity and increases in general and administrative and marketing . expenses.
.14 - DilE
( --- t }Q . 7q5-
, Deptrdation and Tencs Interest and Dividends ' Depreciation and amortization increased in 1989 and 1988 WS MMM primarily due to depreciation ofIttry I and Beaver Valley 2
_ common and transmission facilities beginning in April 1988. ano
'. Additionally, these costs increased in 1988 due to the amorti-zation ofItrry 2 costs which began inJuly 1987. - zu ,m p The increases in taxes other than income taxes in lw9 , ! and 1988 were primarily due to increased Pennsybynia gross ,m ; receipts taxes, which vary in chrect relationship to revenues. The m increases in income taxes in 1989 and 1988 were primarily due to increased taxable income, income taxes also were affected by an -
decreases in statutory income tax rates in both 1988 and 1987.
.m The effective income tax rates for 1989,1988 and 1987 were = =
37E31% and (9%), respectively. o 1987 1988 1H9 Other Income and Deductions and Interest and Othet Charges Allowance for funds used during construcuon (AFC) decreased Capital Resources and Liquidity ' significantly when construction of Beaver Valley 2 and Ittry 1 C"""*"E" Construction expenditures during 1989, cxclusive of AFC and l
' was completed in late 1987. This decrease was partially offset by nudear fuct were $88 miHion. These expenditures were made to .
carryingcharges applicable to those Units recorded through th'e first quaner of 1988 and included in other income. Additionally, impr ve and expand production, transmission and distribution gd systems Constructionexpendituresdecreasedsignificantlywith other income decreased in 1989 compared to 1988 due to Duquesne's completion ofits major constmetion pregram recording in the second quarter of 1989 the addaional costs of related to Ittry 1 and Beaver Valley 2 when they went into com-
- the option order and cancelled generating umts refunds which resuhed from the settlement of the 1987 rate case, These merci i peration in 1987. Further, the Company currendy has decreases were offset substantially by increased carrying n plansf rconstructi nofadditionalgeneratingplants?
The Company currently estimates that its construction expen-
p charges in 1989 on deferred revenues on the phased in portion ditures, exclusive of AFC and nuclear fuel, will be approximately .
' of the rate increase.Sce Note H. Interest income decreased in $100 milhon each year for 1990 through 1994. These amounts ~ 1089 compared to 1988 and increased in 1988 compared to d m contain estimates for new environmental regulations, 1987 due to interest earned in 1988 cn the proceeds from the sucn as " acid rain" legislation; however, the Company beheves aale of Deaver Valley 2. Interest and mher charges decreased in that under current acid rain proposals there would be no addi-1989 and 1988 due to Duquesne's purchases ofits high-cost first ti nal censtruction expenditures required duringthe 1990 to mortgage bonds and preferred and preference stocks beginning 1994 peri d.
in October 1987. These purchases allowed the Company to re, duce interest on long-term debt and dividends on preferred and
. preference stock to $161.4 milhon in 1989 from $183.6 million h"""d"X During 1989 the Company repurchased 2.5 million sharts of
in 1987.
c mm n st ck for 5 45.7 million and Duquesne repurchased The adveise effects in 1987 cf recording the losses on the can-191,000 shares of preferred and preference stock for $18.6 mil-
. celled genemting units and on the sale of Beaver Valley 2 are dis- . h n. Duquesne also spent S 7.5 million to retire high-cost first . cussed in No'tes E and H.
mortgage bonds. These transactions reduced interest expense and dividend costs and increased the Company's financial farnfngs lYrSharc ofCmamon Stock flexibility. The Company's recapitalization program financed - Earnings per share of comtr.on stock were affected by the prim tily by proceeds from the sale of Beaver Valley 2 was decrease in the average number of shares outstanding resulting essentiaHy completed in early 1989. The Company is continuing . from the Company's repurchases ofits common stock begin. its efforts to reduce its capital costs by making additional pur-ning in October 1987, which increased earnings per share by chases or refundings ofits securities to the extent funds are avail-125 for 1989 compared to 1988 and by 5.23 for 1988 compared to'1987, able and the capital markets permit. However, future purchases of securities are not expected to occur at the level experienced during the 1987-1989 period. As a resuh, the substantial reduc-tion in mterest expense and preferred and preference stock divi-dends and the favorable effect on earnings per share described above under "Results of Operations" is not expected to continue DOE 15
. "T..l,,",;,..-.
9vc1
%r5 Management's Discussion and Analysis of Financial Condition and Results of Operations (continuo InJune 1989 Duquesne completed the sale of 575 milhon of- Dividends may be paid on the common stock to the extent i accounts accivable to an unaffilbted third party. An addtuonal permitted by law and as declared by the floard of Directors. $15 million was sold inJuly 1989. 2 he receivables sales agree- However, such dindends are affected by provisions in ment permits sales of up to 590 milhon. These sales provide Duquesnis destated Articles relating to payment of dividends Duquesne with enhanced liquidity and reduce working capital to DQE No dividends or distributions may be made on requirements. In the fourth quarter of 1989 Duquesne estab- Duquesne s common stock if dividends or sinking fund obliga-hshed a 5225 milhon program for medium term notes (which tions on Ducesnes preferred or preference stock are unpaid.
could be issued in the form of first mortgage bonds or unsecured Further, the yregate amount of Duquesnis common stock notes), the proceeds of which would be used for further recap- payments is limited to certain percentages of net income and by , itah:ation elTorts and general corporate purposes. In December the ratio of common stockholders' equity to total capitalization. 1989,513.5 million of pollution control obhgations were issued No prtion of Duquesnis retained earnings at December 31, to finance Duquesnes share of the cost of certain Itrry 1 facih- 1989 was restricted. ties. There were no equity securities issued by the Company in 1989. Oudook Duquesne finances its nuclear fuel requirements by leasing During 1989 results of operations began to reflect the full annual arrangements under which it may finance up to $185 million effect of the costs associated with Pei ry 1 and Beaver Wiley 2 and of nuclear fuel. As of December 31,1989 Duquesnis costs of the March 1988 rate increase whw h is being phased in over a of nuclear fuel financed under these arrangements was six-year period. Deferred revenues, representmg the difference
' $138 million,includmginterestatorage and other costs. between the total rate increase granted by the PUC and the in 1989 5178 milhon was required for maturines oflong-term amounts currently being collected from customers, have been ' debt and sinking fund requirements. It is expected that $8.2 mil- reflected in the income statement.
lion will be required in 1990 for similar purposes. The Company has been exploringopportunities for long term power sales to other utilities. OnJuly H,1989 a contract was Capitalization signed between Duquesne and Delmarva Power and Light Com-
!N of och pany involving the sale of 100 megawatts annually for a' period of 20 years beginning in 1990. Other opportunities in energy-uso related businesses are currently being explored.
m If, at any time in the future, the Company determines that - m r, reco" cry ofim estments not currently included in rate base or mn other deferred costs is not probable, the Company would recog-nize such unrecoverable amounts as a charge to earnings. See mo - Note H for a description of such items. The Company currently expects that funds generated from operations will continue to be 8* sufficient to meet its operating expenses, pay dividends and ma finance a large portion of its capital needs. The Company's need
= = for funds and the availability of those generated from operations a will be affected by the level of economic activity in the Com-pany's service area, legislation, rate-related proceedings, The Company anticipates that funds for planned construction changes in accounting principles and other matters experienced expenditures in the next several years will be provided by cash by it and the electric utility industry generally.
flows from operations and, to a minimal extent, the issuance of The electric utility industry is subject to inflationary pressures additional securities. Any interim Imancing required will be similar to those experienced by other industries. Because through bank borrowings and sales of commercial paper. Duquesnes rates are regulated, any increases in its cost of serv-ice or construction costs will not be included in rates charged to customers until new rates can be implemented through a rate proceeding with the PUC. To the extent Duquesne incurs addi-tional costs or receives benefits resulting from the effects ofinfla-tion,it is anticipated that those effects ultimately will be reflected in its rates. 16- 00E
gva y Statement of Consolidated income Year Ended December 31,(Thousands of Dollars, Except Itr Share Amounts) 1989 1988 1987 Operating Revenues:
Customers:
Current . .5 974,444 $ 883,725 $835,986 Deferred (Note H) . 96,287 117,544 - Other utilities 49,949 61,964' 52,018 TowlOperating Revenucs 1,120,680 1,063,233 888,004 Operating Expenses: Fuel 210,299- 224,900 238,039 Purchased power . 6,856 5.688 5,594 Other operation 272.823 268,762 189,783 Maintenance 83,305 73,180 66,380 Depreciation hnd amortization. I19,376 111,023 82,172 Taxes other thanincome taxes 92.919 80,833 67,442 income taxes (Note F) . 64,539 54,505 52,859 Total Operating Expenses 850,117 818,891 702,269 -
-- Operating income. 270.563 244,342 185.735 Other income and Deductions: - Allowance for equity funds used dunng construction 69 1,323 71,234 Carrying charges on assets not in rate base (Note 1I) - 23,622 l'1,093 Loss on cancelled generating units (Note H) - - (34,263) - Loss on sale of Beaver Valley 2 (Note E) z - - (23,828)
Rate refunds (including interest expense of
$5,943, $1,180 and $1E54, respectively)(Note H) . (8,581) (1,180) . (1,854)
Effects of application of SFAS 90 (Note B) - 5,973 6,586 7,048 income taxes (Note F) ; (10,880)- (7.277) 65,034 Other-net 20,867 25,972 10,551-Total Other income and Dcductions . 7,448 49,046 105,025-income Bef are Interest and Other Charses. 278,011 293,388 - 290,760 Interest and Other Charges: Interest on long-term debt 144,633 152,693 163,777 Otherinterest. 6,386 4,977 4,566 Allowance for borrowed funds used during construction (2,803) (1,704) (32,343) Preferred and preference stock dividends of Duquesne
- Light Company (Note A) - 16,793 18,856 19,788 Totalinterest and OtherCharges. 165,009 174,822- 155,788 Net income. .$ 113,002 $ 118,566 : $134,972 Average Number of Common Shares Outstanding (000). 55,790 63,748 72,845 - Earnings Per Share of Common Stock. 52.03 $1.86 $ 1.85 Dividends Declared Per Share of Common Stock . 51.30 $1.22 $ 1.20 See Notes to Conwhdated Financial 5taternents.
1 00E 17
gvc y l i Consolidated Balance Sheet : As of Dnember 31, (Thousands of Dollars) 1989 1988 Assets
. Property, Plen't end' Equipment:
Electric plantin service. 53,575,638 . $3,512,943 Construction workin progress 60,069 70,980 i Property held under capitalleases (Note E) .347,287 303,673. J Property held for future use (Note H) '215,635 214,982 l Total . 4,198,629 - 4,102,578
' Less accumulated depreciation and amortization . (1,143,590) (1,036,656) f Property, Plant and Equipment-Net . 3,055,039 3,065,922 l
l Other Property and investments (atcost) . 15,809 26,796 l
Current Assets: , Cash and tempor 1ry cash investments (at cost which approximates market) 97,159 45,557 )
. Accountsreceivable(NoteC): j . Customers (less allowance for uncollectible accounts of $11,244 and $7,721, respectively) 23,30ti 96,640 l
Other . 13,673 58,493 Materials and supplies (generally at average cost): l Coal: 28,100 25,088- ! Operatingand construction. 52,910 47,208 j ' Other current assets . 8,094 6,941 i TotalCurrent Assets . -223,242 279,927 l Deferred Debits: . l q Extraordinary property loss (Note B) . 97,181 107,453 Unamortized loss on reacquired debt (Note 1) 55,176 38,015 j Deferred coalcosts(Note H) . 6,030 12,768 Income taxes on sale of Beaver Valley 2 (Note E) .79,095 82,090 Deferred costs of units not in rate base (Note H). 51,149 51,127 Phase in plan deferrals (Note H) _234,149 119,707 ;i Other deferred debits 103,720 77,619 TotalDeferred Debits. 626,500 508,779 Total Assets . 53,920,590 $3,881,424 See Notes to Consolidated nnancial Statements. ; i 18 DDE
d%.
'Af 19H4 1988 Capitallration and Liabilities Capitalization (NoteD Common stoc k taut horized-125,000,000 shares, issued-7 3,l l4.446 shares) s 73 'o 5 73,119 Capital surplus "28a <3 927,446 Retamed earnings 314 454 293,854
l. css treasury stock (at cost 417,779,816 and 15,288.000 shares, respectively) (200.431) (223,844)
Total Common Stockholders' Equity 1 060 140 1,070,575 Non-redeemable preferred and preference stot k 1i4 010 154,073 Redeemable preferred and preference stock n5 061 90,743 I;irst mortgage bonds 1 181 013 1,187,903 Other long-term debt 305 268 368,694 Unamorti:cd debt discount and premium-net t5.452) (6,366) Total Capilahzation 2 826 510 2,865,622 Obligations Under Capital Lesses (Note D 110 742 121,793 Current Liabilities: long-term debt and lease obhganons due wahm one year (Notes I: and.D 48.527 39,852 Accounts payable 10207i l 10,6U Accrued mcome taxes u 618 8,535 Deferred mcc me taxes and other accrued taxes vi 8 30 26,257 Accrued inte rest 38.758 47,475 Dividends declared 26066 23,810 Deferred energy costs 2.037 12,545 Smkmgfund and purchase requirements (Note D 14 170 19,170 Rate refunds due wiihm onc year 10.121 4.442 Total Current Liabilities 104.700 292,755 Other tioncurrent Liabilities: Investment tax credits unamortized 154 110 161,038 Accumulated deferred mcome taxes 463 020 400,710 Other deferred credits ')1346 39,506 Total Other Noncurrent Liabihtirs 664 5H8 601,254 Commitments and Contingencies (Noteslithrough lO Total Capitahtation and Liabilities ;3.020 i00 $ 3,881,424 DQE 19
A g V St'atoment of Consolidated Cash Flows Year Ended December 31,(Thot4 sands of Dollars) 1989 1988 1987 Cash Flows From Operating Activities:
- Net income. .5113,002 $ 118,566 $134,972 L Principalnon cash charges (credits)to netincome: ~
Depreciation and amorti:ation. 150,389 154,042 114,002 Deferred income taxes and investment tax credits-n'et 56,294 - 44,560 69,866
- Allowance for equity funds used duringconstruction . (69) (1,323) (71,234)
Effects of application of SFAS 90 (5.973) (6,586) (7,048) Phase in plan deferred revenues -(114,442) (119,707) - loss on cancelled generatingunits . - - 34,263 Loss on sale of11 caver Valley 2 - - - 23,828 Rate refunds (includingaccrued interest) 8,581 - - Carrying charges on assets not in rate base - (23,622) (11,093) Changes in working capital other than cash: Accounts receivable (Note C) i18,154 . (8,003) (19,630) Materials and supplies (8,714) 12,448 (8,605) Other current assets . (1,153) 27,395 (569) Accounts payable (7,990) 3,629 ' 9,523 Other currentliabilities . (3,413) 1,522 29,626 Other-net . 25,311 11,555 (15,160)
- Net Cash Provided From Operating Activities 329,971 214,476- 282,741-Cash Flows From investing Activities:
Construction expenditures (88,169) (93,253) (187,302)- Sale of Beaver Valley 2.- - - $37,921 income taxes on sale of Beaver Valley 2 - - (85,086) Other-net - (3.519) (4,039) (1,925)
. Net Cash Provided From (Used in)lnvesting Acthities . (91,688) (97,292) 263,608-Cash Flows From Financing Activities: . .
Sale of bonds 13,500 71,000 100,000
' Decrease in notes payable . - - -(15,000)
Dividends on common stock . (72,397) ..(77,571)_ (87,296) Reductions oflong-term obligations . (73,512) (276,464) (43,853) Rate refund payments (10,873) (3,192) (47,636) Repurchase of common stock (45,707) (189,096) (34,858)
. Premium on reacquired debt (173) (18,387) (177)- - Other-net . 2,481 1,945 (212)
Net Cash Used in Financing Acti ities , ,(186,681) (491,765) (129,032) Net increase (decrease) in cash and temporary cash investments . 51,602 (374,581) . 417,317 Cash and temporary cash investments at beginning of year , 45.557 420,138 2,821 Cash and temporary cash investments at end of year . $ 97,159 $ 45,557 $420,138 Cash paid duringthe year for:
. Interest (net of amount capitalized) .5166,702 $132,913 $134,819 income taxes .. $ 28,157 $ 16,021 $ 36,211 Noncash investing and financing activities:
Capitallease obligations recorded 5 3l 542 $ 14,811 $ 20,851 See Notes to Consolidated Financial Statements. d 20 DDE c _ -. - ._ ._- _ _ _-___ - _ - ______-_ _ - _ -
A. V Statement of Consolidated Retained Earnings Year Ended December 31, (Thousands oJDollars) 1989 1988 1987 Balance, January 1 .5293254 5252,859 5205,183 Net laceme For The Yeat 113 002 118.566 134,972
- Total 406.85ti 371,425 340,155 Cash dividends declared-Common stock . 72,397 77,571 87.296 Balance At End of Yeaf .5334,459 5293,854 5252,859 Notet To Consolidated Financial Statements A. Summary of Accounting Policies Dcpr eciation ' ComolWation Depreciation of electric plant, except for coal properties, is The consolidated financial statements include the accounts cf provided on a straight line basis over the estimated useful hves DQE, Duquesne and their wholly owned subsidiaries. All mate. of property. Depreciation, amortization and depletion of other rialintercompany balances and transactions have been climi- property are calculated on various bases, such as amount of nated in preparation of the consolidated financial statements. nudear fuel burned and tons of coal mined.
Financial statements for the periods prior to the formation of As permitted by the PUC, Duquesne recovers through rates
. DQE have been restated to reflect the preferred and preference its share of the estimated future decommissioning costs for stock dividends of Duquesne as interest and other charges, three joimly owned nuclear units. These costs are estimated at 580 million for Beaver Valley 1, $23 milhon for I caver Valley 2 Proper ty, Plant and Equipment and $38 milhon for lttry 1. Amounts collected from customers Properties are stated at the original cost of construction, includ. through rates are deposited in segregated accounts which can be ing related payroll taxes, pensions and other fringe benefits, used only for future decomm.ssioning costs.
administrative and general costs and an allowance for funds used duringconstruction (AFC). AFC, which represents the income Taxes estimated combined debt and equity cost of funds used to Deferred income taxes are recorded principally for timing finance construction, varies according to changes in the level of differences between depreciation for income tax purposes and construction work in progress (CWIP) and in the cost of capital. depreciation for accounting purposes to the extent permitted by AFC is credacd to income, and while cash is not reali:cd cur. the PUC. Deferred taxes also are provided for expenses which - rently from this allowance,it is realized over the service life of are deferred for accounting purposes but are deducted currently
. the plant through increased revenues resuhing from higher rate for income tax purposes. These expenses include fuel, extraordi-base and higher depreciation expense. The AFC rates applied to nary pmperty losses and losses on early retirement oIdebr.
CWIP were 10.1%,12.0% and i1.4% in 1989,1988 and 1987, Deferred tax credits are recorded for certain rate refunds which respectively. are recogni:cd currently as losses for accounting purposes but Additions and replacements of property units are charged to are deducted over the refund period for income tax purposes. plant accounts. Maintenance, repairs and replacement of minor Deferred taxes are also provided for the phase-in plan deferred items of propeny are charged to expense as incurred The cost of revenues which are recognized as taxable income when billed to property retired plus removal costs, after deductingany sah age customers. value,is charged to the accumulated provision for depreciation. The deferred tax effects of certain other timingdifferences are Substantially all of Duquesne's properties are subject to a first not provided. They are recogni:ed for book purposes, and in mongage hen. rates,in the year thev affect taxes payable. These thningdiffer-ences relate primarily to the difference between tax depreciation Rnenurs and book depreciation related to property placed in service Customer meters are read and billed monthly. Revenues are prior to 1971. Based upon established PUC ratemaking prac-recorded in the accounting periods in which they are billed. tices, Duquesne believes that deferred taxes which have not been Deferred revenues representingthe phased in portion of the provided will be collected from its customers when the taxes be-rate increase have been recorded in operating revenues. come payable. As of December 31,1989 the cumulative net See Note H. amount of timmgdifferences for which deferred income taxes have not been provided was approximately $257 million. DOE 21
A h5
- Notes leontinued)
Duquesne allocates income taxes between operating expenses B, Extraordinary Property Loss ! and other income principally with respect to interest charges in 1984 the CAPCO companies agreed to mmimize construction related to CWIP Ibr certain property, Duquesne received in- work and cash expenditures on Ittry 2 pending consideration vestment tax credus which resulted in a reduction of federal of several ahernatives, including resumption of construction or
. income taxes payable. Investment tax credits generally are cancellation of the Unit. Duquesne helieves that any decision to deferred when used and reflected as reductions to tax expense resume construction of the Unit must be approved by all of the over the lives of the related assets. CAPCO companies. Based on present conditions, Duquesne will in December 1987 the FASB issued SFAS No. 96," Accounting not approve resumingconstruction. In 1987 Duquesne received , for income Taxes", which changes the method of accounting for approval from the PUC to amorti:e and recover its $155 million 1 income taxes The Company must adopt the Statement by investment in Perry 2 over a ten-year period which beganJuly 1, j January 1,1992. When the new standard is adopted, significant 1987, on the basis that Duquesne had abandoned its interest in i adjustments to balances of accumulated deferred income taxes the Unit in March 1986. Duquesne is not earning a return on the will have to be made to record additional deferred income tax unrecovered cost of the Unit, which was $116 million at Decem- . habihties. Significant adjustments also will be recorded for the ber 31,1989. - net reduction in previously recorded deferred income taxes in 1988 the Company changed its method of accounting for resulting from income tax rate changes and for the recognition abandonments to conform with SFA590. The effect of adopting of deferred income tax effects related to unamortized investment SFAS 90 was to decrease the reported cost of the Unit to the pres-tax credits The Company has not yet determined the amounts ent value of the future revenues allowed to recover the invest-of such adjustments. It is expected that the additional deferred ment in the plant, and to record a correspondingloss. Adoption : ' income tax assets and habilities will he offset primarily by ef;he Statement is increasing net income by decreasing amounts regulatory assets and liabihues representing the expected over the remainder of the recovery period. SFAS 90 represents a future revenue requirement impact of these adjustments. change in accounting for the financialimpact of a plant aban. ;
donment. It does not affect cash flows or the actual cost recovery ! Defmcd Fuel Cous procedure authorized by the PUC. The difference in accounting j ' Duquesne recovers from customers fuel and other energy costs is merely in the timing of the recognition of the economic effects not otherwise recovered through base rates, through an annual of the transaction. , energy cost rate (ECR). The ECR is based on projected costs and is recalculated each year. lt includes an adjustment for any previ- C Sales oO Recelvables ous over or undercollections Irom customers. Duquesne defers in mid 1989 Duquesne completed the sale of $90 million of ac-the difference between actual energy costs and the amounts cut- counts receivable to an unaffihated third party. The receivables
. rently recovered from customers through the ECR and records sales agreement permits sales of up to $90 milhon - the difference as payable to or receivable from customers. As part of its ongoing sale of receivables, Duqacsne currently has sold $77 milhon of customer receivables and $13 million of i Nuclear Fact Costs other receivables. The sales agreement includes a limited j Duquesne fmances its acquisition of nuclear fuel through capital recourse obhgation under which Duquesne could be required to lease arrangements. The cost of nuclear fuel is charged to fuel repurchase certain of the receivables. The maximum amount for expense based on the quantity of electric energy generated by which Duquesne is contingently liable was $18.2 milhon at the reactors. The U.S. Department of Energy (DOE)is responsi- December 31,1989.
ble for the uhimate storage and disposition of spent nuclear fuel. Duquesne pays DOE a fee for future disposal service, which it recovers through rates. Cash Flows For the purpose of the statement of cash flows, the Company considers all highly liquid investments which mature in three months or less to be cash eqtuvalents. l 22 00E:
d4. y D, Ghort Term Borrowing and Revolving Due to the ddlerence between the Unit's cost at completion Credit Arrangements . and its appraised mlue, Duquesne recorded a book loss of - Duquesne has a revolvingcredit agreement with a group of $23.8 million,or $.33 per share,in September 1987. Because banks totaling $225 milhnn available to November 30,1992. AFC was not included in the tax basis of the Unit, the sale Dependingon the option selected by Duquesne at the time of resuhed in a taxable gain. Duquesne received permission from each borrowing,intecest rates fluctuate based on prime, federal the PUC to recover the related taxes through rates over the term funds, Eurodollar and CD rates Duquesne pays a commitment of theleases. fee of 1/8% per year based on the unborrowed amount of the Future minimum lease payments for capnalleases ate related commitment. principally to buildingleases and the estimated usage of nuclear The maximum short term bank and commercial paper hor- fuelImanced through leasingarrangements Mmimum pay-rowings outstanding during 1989 were $104.9 million, the aver- ments for operatingleases are related principally to Beaver Val-age daily short term borrowings outstandingwere $15.6 million ley 2 and the corporate headquarters Future minimum lease and the weighted average daily interest rate was 10% There payments at December 31,1989 were as follows: were no short term borrowings in 1988,in 1987 the maximum short term bank and commercial paper borrowings outstandmg Ycar Endmg December 31, Operating Capital were $46.5 million, the average daily short term borrowings (Thousands ofDollars) Leases Leases outstanding were $15.4 milhon and the weighted average rate 1990. $ 65,027 ' $ 50,799 applicable to such borrowings was 7%. 1991. 63,942 37,475 1992 63,099 34,691 E. Leases 1993 62,143 23,792 Capital Leases: December 31, 1994. 60,779 18,208 (Thousands of Dollars) 1989 1988 1995 and thereafter 1,422,265 47,742 Nuclear fuel . . $ 311,367 $274,210 Total minimum Icasc Electric plant 35,920 29,463 payments $1,737,255 212,707 Total . 347,287 303,673 Less amount representinginierest . 45,288 Less accumulated amorti:ation . 179,868 153,179 Present value of net minimum Property held under lease payments - . $167,419 capitallenscs--net , 5167,419 $150,494
- Leased nuclear fuelis amortized as the fuelis burned. The amor-ti:ation ofleased c!cctric plant is based on the rental payments made. Amortization ofleased property amounted to $29.4 mil-hon, $40.5 million and $27.6 million for 1989,1988 and 1987, - respectively.
Lease payments in 1989,1988 and 1987 amounted to $104 6 milhon, $117.4 million and $59.9 million, respectively,of which
$103.1 million, $111 million and $54.1 million were charged to operatingexpenses.
On October 2,1987 Duquesne sold its 13.74% interest in Beaver Valley 2, exclusive of transmission and common facilities. The total sales price was $537.9 million, which was the appraised value of Duquesne's interest in the property. Simultaneous with the sale, Duquesneleased back its interest in the Unit for a term of 29% years. The leases provide for semiannual payments and are accounted for as operating leases. Duquesne remains responsible under the terms of the leases for all operation, maintenance and decommissioning costs of the Unit. DQE 23
jlva. 1 %g5
. hl 0 t B S - (c o ntin u e d)
F.: Income Taxes (Thousands of Dollars) 1989 1988 1987
.i included in operatingexpenses: .
j Currently payable: Federal . $ 5,639 $ (3,954) - $(23,929) : State (1,144) (899) (1,053) 1
' Deferred-net. Federal 62,269 61,661 60,911-State 2,535 2,667 1,434 . Investment tax credits deferred-net = (4,760) - (4,970) 15,496 - Totalincluded in operating expenses 64,539 54,505 52,859 included in other income and deductions:
Currently payable:. Federal . 8,998 3,400 (25,655)- State 2,459 929 (5.966) Deferred:- Fed 6al. (5) 2,742 (9,831) . state (113) 626 (2,414) 1 Investment tax credus (459) (420) (21,168) Totalincluded in other income and deductions . 10,880 7,277 - -(65,034) Totalincome tm expense (credit) ~ $75,419 - $61,782 $(12,175) > Totalincome taxes differ from the amount computed by applying the statutory federal income tax rate to income before income taxes . l and Duquesne Light Company preferred and preference dividends. The reasons for this difference in each yaar were as follows: Computed federalincome tax at statutory rate .569,773 $67,729 $ 56,963 : Increase (decrease) in taxes resulting from: Allowance for ftmds used duringconstruction -(976) (1,029)1 (41,379)L. 1 Carrying charges on assets not in rate base - (8,032) - q Excess of book over tax depreciation 7,329 l4,201 (3,986) .l State income taxes, net of federal income tax benefit . 2,466 - _ 2,196- (4,804) i Amorti:ation of deferri:d investment tax credits- (5,982) (6,921) .(24,651). j Other-net . 2,809 3,6 13 5,682-Totalincome tax expense (credit) 575,419- $61,782 $(12,175) - Sources ofincome taxes deferred and the related tax effects were: l Excess of accelerated over straight-line depreciation . $ 28,740 $28,336 ' S 36,427_
. Deferred revenues recorded for book but not for tax purposes . '43,298' 45,367 -
Unbilled revenues recorded for tax but not for book purposes (5,157) (3,395) . (3,519) Expensed on tax return and deferred on books: Nuclear plants maintenance outage costs . 3,891 _224 (593) : Property taxes. - (4,104) 7,038 Expensed on books but not deducted for tax purposes: A Loss on early retirement of bonds (1,340) 6,976 (395) Provision for bad debts . (4,290) (1,426) - (107)
-Perry Unit I test period costs . - - 8,319 Fuel costs (1,477) 675 (7,810)
Rate refunds (includinginterest) 2,895 1,998 .23,196 ! Loss on cancelled generatingunits - (56) (17,016)
' loss on abandonment of Perry 2 (2,041) (1,912) ' 1,017 Other-net . 167 .(4,987) 3,543 Toralincome taxes deferred-net $64,686 $67,696 $ 50,100 The Company's income tax returns are settled through 1983, and the returns for 1984 and 1985 have been examined. The returns for 1986 and 1987 are currently being reviewed, and the 1988 return is subject to review The Campany's management believes that the settlement of federal and state taxes will not have a material adverse effect on the Company's financial position or results of operations. , investment tax credits included in other income in 1987 relate principally to the sale and leaseback of Beave r Valley 2.
24 ' DOE
=_
d%-
%t5 1
G. Employee Benefits Duquesne has trusteed retirement plans to provide pensions for amount for the year h nsion costs charged to expense or con-
.a ll full time employees, except coal mine employees who are struenon for 1989,1988 and 1987 were 511.7 million. 512.5 mil-covered under a plan administered by the United hitne Workers lion and $12.3 million,iespectively. Costs related to the UhtW
of America (UhtW). Upon retirement, employees receive a plan were $1.2 million,51.7 milhon and $31 milhon for 1989, t monthly pension based on length of service and compensanon. 1988 and 1987, respectively.
The Company's pohey is to expense and fund the pension cost The followmg sets forth the funded status of the plans and detennined using the unit credit actuarial cost method, provided amounts recognized on the balance i,heet at December 31,1989 that this amount is at least equal to the minimum fundmg iequire- and 1988 Since the UhtW plan is a multi employer plan,infor-ments required by the Employee Retirement incorne Security mation concerning such plan is not determinable by the Com-Act (ERISAl and does not exceed the maximum tax deductible pany and is not included in the informanon below (Thousands ofDollan) 1989 1988
. Actuarial present value of benefits rendered to date:
Vested benehts . 5226,532 5204,906 Nonvested benehts 19,009 17,275 Accumulated beneht obliganons based on compensation to date 245,541 222,181
- Additional henefits based on estimated future salary levels 58,308- 59,672 - Projected beneht obligation . 303,849 281,853 . Fair market value of plan assets 322,065 266,014 Projected beneht obligation under (over) plan assets . .5 18,216 5(15,839)
Unrecognized ner gam . 5 66,156 $ 33,524
. Unrecognized prior service cost - (18.888) (19,407)
Unrecognl:ed net transition liability (26,538) (28,349) Net pension hability per balance sheet (2,514) (1,607) Total $ 18,216 5(15,839) Assumed rate of return on plan assets . 7.75% 8.0%
. Discount rate used to determine projected benefit obligation 7.75 % 80%
Assumed change in compensation levels . 5.75 % 5.73% Plan assets consist primarily of common stocks, United States obhgations and corporate debt securities Net pension cost for 1989, 1988 and 1987 was computed as follows: (Thousands ol Dollars) 1989 1988 1987
- Service cost benefits earned during the year S 8,458 $ 8,212 5 8,449 Interest on projected benefit obligation 21.700 20,782 18,645 Return on plan assets . (58,653) (22,827) (22,458)
Net amorti:ation of deferrals 40,168 6,323 i'662 Net pension cost , $ 11,673 $ 12.490 $12,298 H. Rote Matters 1987 Rate Case
. On hiarch 23,1988 the PUC adopted an order which increased will be recovered by the end of the sixth year. The phase in plan annual revenues by approximately $232 million. The order was designed to include a return equal to the after tax AFC rate reflects the PUC's allowance of a 12.87% return on equity and an on any revenues deferred for later recovery. Deferred revenues - overall rate of return of 10.94%. Ahhough the new rates became and related carryingcharges of $234.1 million were recorded eflective on klarch 25,1988, the PUC ordered the increase to be through December 31,1989 Several parties to the rate case, phased in over a period of six years. The deficiencies in revenues includmg Duquesne, had filed appeals primarily relating to a resuhing from these scheduled rate increases are deferred and Perry 1 cconomic excess capacuy penahy.
DDE 25
g q Ip A a vg i p V Notes Icontinued! l [ OnJuly 20,1989 the PUC approved a Comprehensive Settle- Dcfcrrcd CoalCosts p . ment Agreement among Duquesne, the itnnsylvania Office of Begmningin 1981, the PUC directed Duquesne to defer recovery i Consumer Advocate, the City of Pmsburgh and a number of of the cost of coal dehvered to the Bruce hiansfield Plant (htans-commercial customers in Patsburgh which had intervened in field coab in excess of generally prevaihng market prices for [' - the 1987 Rate Case and other rate proceedings (Joint ittitioners). similar coal; however, amounts deferred may be recovered from l Under the terms of the Agreement Duquesne's base rate revenues customers during periods that the cost of hiansfield coalis less were temporarily reduced by $25.4 million over a 12-month than generally prevaihng market prices. The unrecovered cost of period which began September 1,1089. The Agreement also set- hiansheid coal paid by Duquesne was $6 million at December tied and disposed of all proceedings pending between theJoint 31,1989. The Company believes that the defer red coal costs lttitioners before the PUC, the IYnnsylvania Commonwealth uhimately will be recovered. 3 Court and the itnnsyhimia Supreme Court,3ncluding the 1987 The PUC ordered a similar hmit on the recovery of the cost of p Rate Case and proceedings relating to the cancelled CAPCO all cnal dcPvered to Duquesne's wholly andjoindy owned power
!- units' amortization and an option order refund. stations other than the hiansheld Plant, including coal from )
[ Underthetermsof the Agreement Duquesnewillnotbeper- Duquesne's wholly owned Warwick mine. All deferred costs } L mitted to obtain addnional base rate relief (over and above the related to the system wide coal cost standard have been i phase-in increases approved in the 1987 Rate Case) untiljanu. recovered as of December 31,1989. ary 1,1993, unless any federal, state or locallegislative bod y, The l'UC excluded the Warwick mme from rate base in 1981, l Judicial authority or administrative agency, including the PUC, InJune 1988, as a result of excess coal inventories, Duquesne (a) orders or enacts changes in any statutes, regulations, regula- temporarily idled the mine. Duquesne's net investment in the I tory policies or interpretations thereof affecting Duquesne's mine was $44.8 million at December 31,1989. Duquesne ; base rates or (b) imposes new programs or procedures directly beheves that its interest in \Wrwick mine will be recovered. d resuhing in costs, savings, or changes in rate treatment, revenues In October 1989 Duquesne kled a petition with the PUC for or expenses, not provided for or at issue in the Agreement. revision of the system-wide coal cost standard. If approved, only hloreover, Duquesne can file for and, subject to PUC approval, coal obtained from the Warwick mine would be subject to a cost obtain addmonal base rate relief effectiveJanuary 1,1992 or any standard. E time thereafter if the annual rate ofinflation,as encasured by the GNP Implicit Price Dellator, exceeds an annual percentage of 7% Property Ucidjor Futurc Usc 'lj duringany 12-month rolhngperiod prior to the filing The The PUC approved Duquesne's request to remove from service Agreement will have no effect on any claim which Duquesne or and place in " cold reserve" most of the Brunot Island and any other party may make in any future rate proceeding with re- Philhps Ibwer Stations. Duquesne's net investment in the spect to certain operating and other costs ofIttry 1 and Beaver cold-reserved units was $105 milhon at December 31,1989. l Wiley 2 which ivere deferred in the 1987 Rate Case. The parties Duquesne beheves that its investments in the cold reserved j have taken the appropriate steps to discontinue the various ap- units, which have been removed from rate base, eventually 9 peals, thus finahring the settlement. will be recovered.
't l Deferred Cmts oJUnits Not in Rate Ume OnJuly 16,1987 the PUC approved Duquesne's petition to defer Cancelled Generating Units in 1980 the CAPCO companies cancelled construction of four l
l for possible recovery in a future rate proceeding, initial operat- nuclear generating units. The Company subsequently collected l t- ing and other costs ofihrry 1 and Beaver Wiley 2. The costs de- from customers $17 million ofits $343 milhon investment { ferred were incurred from November 1987 when the Units were under a PUC rate order permitting such recovery. in October ] placed in commercial operation until the March 25,1988 deci- 1987 the linnsylvania Supreme Court found that the Pennsyha- -{ aion of the PUC on the 1987 rate case. In the 1987 rate case the nia Public Utility Code prohibited the recovery of the cancelled PUC deferred ruhng on the recoverabihty of these costs. These costs, net ofincome tax and deferred fuel savings related to the tmits' costs because the units never provided service to the Company's customers. OnJanuary 11,1989 the United States { 1 4 two Units, totaled $48.3 million at December 31,1989. No cur- Supreme Court upheld the October 1987 decision. The Com- ! L rent return is beingearned on the deferred costs. pany recorded a loss in September 1987 equal to its original ! On February 28,1990 an Administrative lawJudge(ALJ) investment in the units of $343 million The refund of the j
-in a proceedinginvolvinganother Itnnsylvania utility recom- $17 milhon previously collected from customers was resolved j mended disallowance of similar costs. The recommended as a part of the 1987 rate case settlement agreement discussed i decision is not bmdingon the PUC and a final PUC decision above.
is expected by April 20,1990. { Duquesne conunues to beheve that its deferred costs eventu- I ally will be recovered through rates. Should the PUC adopt the ) ALJ's recommended decision, the Company would reevaluate j its position. 26 DDE L
6 2%. Af F il Commitments and Con 1ingencles ance available from commercial insurance carriers (currently
' Comu uttion $200 million) and an amount provided by an industry The Company estimates that it will spend $500 million on con- retrospective assessment plan. Under the plan,if any unit in the . struction, exclusive of nuclear fueland AFC,duringthe period United States had an incident wahlosses in excess of private in.
1990 through 1994, surance coverage, up to $63 million per incident could be levied
' against each licensed reactor in the country, but not more than i Guaranters $10 million per year for each reactor. Based on its present in-h Duquesne, together with the other CAPCO companies, has terest in three operating reactors, Duquesne's share of the maxi-p guaranteed certain debt and lease obhgations in connection mum potential assessment under the retrospective program
-with a coal supply contract for the Pruce Mansfield plant. At - would be approximately $47 million per incident, limited to
[ r- December 31,1989 Duquesne's share of these guarantees was $75 million per year for each incident. An additional surcharge [ 4
$50.6 milhon. In general, the prices paid for the coal by the of 5% could be levied if the total amount of public claims ex.
CAPCO companies under the coal supply contract will be suffi- ceeded the funds provided under the retrospective program. ciem to satisfy the debt and lease obligations. Under the coal Duquesne's share of the surcharge would be approximately supply contract, the minimum future payments to be made by $ 23 million, subject to any increases for inflation. Congress Duquesne which are related solely to these obhgations are: could impose further revenue raising measures on the nuclear industry if funds prove insufficient to pay claims. Year Endmg December 31, (Thousands ofDollars) 1990 . $ 8,563 LTVStrrl Compan) 1991 8,336 Duquesne was involved in various regulatory and court
g. 1992 7,952 proceedings with LTV Steel Company,Inc. (LTV), whkh.fJed for L 1993 7,567 reorgani:ation under Chapter 11 of the federal bankruptcy laws 1994- 7,184 in 1986. On August 13,1987 the federal bankruptcy court
. After 1994 . 30,254 approved an agreement between LTV and Duquesne covering -
h Total. . $69,856 allitems except the electric service contract at LTV's Midland works. Under the agreement, the amount of Duquesne's claim Duquesne's total payments for coal purchased under the con- in bankruptcy for $9.7 million for past service and $35.8 million tract,includingamounts related to the debt and lease obligations, under a long term electric service contract was reduced to a total were $30 million, $26,4 million and $2".8 million in 1989,1988 of $30 milhon. This amount was further reduced to $26 milhon and 1987, respectively. due to LTV's portion of a refund. The agreement also permitted Duquesne to offset agamst the amount of the claim LTV's share
. Nuclear Insurance ' of certain other refunds due from Duquesne. Duquesne also The CAPCO companies maintain a nuclear insurance program filed identical claims of $56.9 million against both LTV Corpora-to the maximum extent available. This program currently pro- tion and LTV Steel for guarantees under the electric service con-vides $106 billion of primary and excess property insurance tracts at the Midland works. These claims have not yet been and $975 million of decontamination liabihty and excess prop- approved by the bankruptcy court. Recovery of all or part of the erty insurance for the $5.8 billion total investments in Beaver remaining $26 milhon approved claim and the $56.9 million Valley 1 and 2. The CAPCO companies have similar property claim,if approved, will depend upon the amount of funds ulti-insurance for the $53 bilhon totalinvestment in Perry L If the mately available to pay all of LTV's unsecured creditors.
property damage rese rves of one of the insurers are inadequate to cover claims arising from an incident at any nuclear site in the othe, United States cove red by that insurer. Duquesne is obligated to The Company is involved in various other legal proceedmgs. pay retrospective premiums of up to $4 million per year. The Company beheves such pmceedings in the aggregate will Under the Price Anderson Amendments to the Atomic Energy not have a material adverse effect on its financial position or Act, th'c aggregate hmit for public liability claims that could arise results of operations.
) from a single nuclear incident is approximately $7.4 billion, sub- . ject to increases to reflect the effects ofinflation and as additional nuclear reactors are hcensed for operation. This potentialliabil-ity would be covered by the maximum amount ofliability insur-DOE 27
}Vg
%t5 Not'es icantinuedi J, Capitalization Preferred and Preferencc Stock Comnwn 5 tot h . The preferred stock is entitled to quarterly cumulative divi-The Company has paid a regular quarterly common stock divi- dends. If four quarterly dividends on any series of preferred dend each year since 1953. Dividends for each quarter in 1987 stock are in arrears, holders of the stock are entitled to elect a - and 1988 were 30 cents per share. The quarterly dividend was majority of the Board of Directors until all dividends have been - increased to 32 cents per share, effective with the dividend paid paid. january 1,1989 and was further increased to 34 cents per share The preference stock is entitled to quarterly cumulative divi-effective with the dividend paidJanuary 1,1990. dends, provided that no dividends on any series of preferred ; In 1987 the Company's shareholders approved a Long-Term stock are unpaid. If six quarterly dividends on any series of
']
Incentive Plan through which the Company may grant manage- preference stock are in arrears, the holders of the preference ) ment employees options to purchase up to a total of 3 million stock are entitled to elect two directors until all dividends have shares ofits common stock during the period 1987-1997 at not been paid. less than the market price of the stock. As of December 31,1989 The outstanding preferred and preference stock generally are active grants totaled 857,103; 191,000; and 10,000 shares, at callable on not less than 30 days' notice at the prices stated in the exercise prices of $123125, $153125 and $18.125 per share, table on page 29, plus accrued dividends. Certain call prices 4 respectively Stock appreciation rights (SARs) have been granted decline in future years. The preferred and preference stock are l in connection with 857,103 of the options outstanding. During subject to various purchase and sinking fund requirements. 1989 and 1988, respectively,164,162 and 6,356 SARs were exer- As of December 31,1989 the maximum combined aggregate l cised and 5,680 and 13,491 options lapsed due to terminations. sinking fund and mandatory purchase requirements for pre- i ferred and preference stock is $6,430,000 for each of the next j five years. -l The following summary indicates the changes in the number of shares of common, preferred and preference stock outstand-ing during 1989,1988 and 1987: Year Ended December 31, (Thousands ofShares) 1989 1988 1987 , Common Stock-$1 Par Value: l Outstanding-beginningofyear 57,831 70,096 73,119 1 Reissuance-treasury stock 10 - - 9 , Repurchase-common stock . (2,501) (12,265) (3,032) i. Outstanding-end ofyrar - 55,340 57,831 70,096 Preferred and Preference Stock: Outstanding-beginningofyear 4,903 5,069 5,183' .! Purchases and redemptions (248) (166) (114) Outstanding-end ofyrar 4.655 4,903 5,069 1 Year Ended December 31, (Thous 1nds ofDollars) 1989 1988 1987 l Capital Surplus: ! Premium on common stock 5933,326 $933,326 $933,326 Capital stock expense. (7,1563 (7,497) (7,561) Other 1,873 1,617 366 Total rapitaisurplus . $928,043 $927,446 $926,131 28 DQE
d%.
-%f Praf arred and Pref arence Steek: December 31,1989 Decernher31,1988 (Thousands) (Thousands)
Call Price Shares Shares
, Series . ErrSharc Outstanding Arnount Outstandmg Amount Preferred stock (1):
4%(3X7) 5 51.50 550- $ 27,486 550 $ 27,498 3.75y(3)(7), 51.00- 148 7,400 148 7,400 7
- 4.15%(3)(7), 51.73- 132 6,622 132 6,622 - 4.20%(3X7). 51.71 100 5,000 100 5,000 4.10% (3)(7) 51.75 120- 6,000 120 6,000 $2.10(3X7) 51.84 154 7,970 160 8,000 -$7.20(4X7) 101.00 334 16,708 334 16,708
$8 64 (4)(6) - 101.00 -175 8.760 185 0,240
$8.375(4X6)- 104.69 146 7,304 240 12,000 Preference stock (2): $2.315(5X7) 25 90 1,200 1,200 1,200 1,200 $2.10 (5)(7) 25.70 1,200 1,200 1,200 1,200 $7.50 (4X6) - 101.00 96 96 167 167- $9.125(4Xc) 10432 294 294 367 367 Total. 96,040 101,402 - Paid-in capital 129,081 148,544 Purchase and sinking fund requirements (5,130) (5,130)
Total preferrrd and preference stock , $219,941 $244,816 L (1) Preferred stock:4,000,000 authorted shares; $50 par value; cumularive. - (5) $25 per share involuntary liquidation value. (2) Preference stock: 8,000,000 authorted shares; $1 par value; cumulatiw. ' (6) Redeemable. (3) $50 per share involuntary liquidation value. (7) Non redeemable.
- (4) $100 per share involuntary hquidation value.
Other Long Term Debt: Pollution Control Obligations (ThousandsofDollars): Principal Amount Outstanding Serial Maturity or i, car at Dnember31,
= Average Mandatory Redemption Final issued interest Rate 13eginning Maturity 1989 gggg 1972' 549% 1983 2002 $ 20,200 $ 20,800 1973 5.685% 1984 2003 10,700- 11,000 ~1973 5.755 % 1984 2003 13,850- 14,250 1974 7.97 % 1989 2004 13,700 14,000 1975 7.50% 1993 2005 17,000 17,000 1975 8.40% 1991 2005 18,000 18,000 1976 6.90% 1994 20ti 15.000 15,000 1981 12.00 % 2002 :2011 50,000 50,000 ' '1983 10.50 % -
2013 20,500 20,500 1984' i1.625 % - 2014 51,000 51,000-1985 7.75% - 2015 44,250 44,250 1988 6.875% - 2018 71,000 71,000
'I989 - 6.65% -
2023 13,500 - Total 358,700 346,800 Less current maturities and sinking fund requirements 1,600 1,600 Total pollution control obligations 357,100 345,200 Nuclear fuel obligations - 14,740 5% sinking fund debentures (authorized-520,000,000)due March 1,2010 8,168 8,754 Totalotherlong term debt . $ 365,268 $368,694 DQE 29
- - - - ___=____-___ __ ____ - - _______- - _ - - _-- _ - -
4 g-I'% f ^' Notes icontinued) The pollution con'ml obligations arise from the sale of bonds During 1988 and 1989 Duquesne reacquired a total of $ 210.5 by public authonties o fmance the construction of pollution million ofits first mortgage bonds.The difference between the - control facihties at Duquesne's plants Duquesne is obhgated to purchase prices and the net carryingamounts of the bonds was pay the prinapa of and interest on the bonds For certain of the $20.2 million and has been included in the balance sheet as pollution control obligations, there is an annual commitment fee " Unamortized loss on reacquired debt". Duquesne amortizes
- for an irrevocable letter of credit. The letter of credit is available, and recovers these losses through rates.
under certain circumstances, for the payment ofinterest on or ' Sinking fund requirements and maturities for the next five redemption of a portion of the bonds. years oflong term debt outstandingas of December 31,1989 were as foHows: Flt t Mortgage Bonds (ThousandsofDollars): Wadnding Sinking fund Pnncipal Amount Daemba31, Ralukments hfaturities Outstandmg at Dnember31, 1990 $14,208.000 $ 900,000 interest 1991 13,890,000 26,169,000 Rate Afaturity 1989 1988 1992 13,565,000 75250,000
;4%% 3-1 89 5 - $ 10,000 1993 14,115,000 1,000,000 13%% 3 1-91 24,619 25,119 1994 14,715,000 700,000 -
10%% 12 1-92 74,250 75,000 49,500 50,000 The sinking fund requirements relate primarily to the first 10%% 6 1-95 22,800 m rtgage bonds and may be satisfied by the certification of 5%% 2-1-96 22,800 24,600 24,600 pr petty additions equal to 166M% of the bonds required to be 5%% 2-1-97 redeemed. During 1989, $5.0 million of the annual sinking fund 6%% 2-1 98 34,700 34.700 ' 30,000 requirement was satisfied by cash and $8.3 million by certifica-7% l-1-99 30,000 28.047 28,947 ti n fpropertyadditions. 7%% 7-1-99 Total interest costs incurred during 1989,1988 and 1987 were 8%% 3-1 00 30,000 30,000
$172 million, $174.1 million and $184.3 million, respectively, of '
7%% .3 1-01 35.000 35,000 which $18 million, $41.9 million and $128.7 million, including 7%% 12-1-01 26,461 26,46I 28,470 AFC, were capitalized or deferred. Debt discount or premium 7%% 6-1 02 28.470 and related expenses are amortized over the lives of the applica-7%% l-1-03 32.670 32,670 ble issues. 74% 7-1-03 35,000 35,000 44,100 Duquesne was im olved in the issuance of $421.6 million of 8%% 4-1-04 44.100 50,000 c 11 teralized lease bonds.of which $420.2 million remains 9%% 3-1 05 50.000 80,000 80,000 utstanding, by an unaffihated corporation for the purpose of 9% 6-1-06 financing the lessors' purchases ofI eaver Wiley 2. Duquesne is 8%% 4 1-07 97,400 97,400 also associated with a>!etter of eredit securingthe lessors' $116.3 10%% 2 1-09 99,000 100,000 1;022 milli n equity interest in the Unit and certain tax benefits. If cer-16%% 5-1 i,672 39,000 tain specified events occur, the leases could terminate and the 11 %% 2 1-15 38.o10 letter of credit and/or the bonds would become direct obliga-11% % 12-1-15 107,201 110,556 100,000 100,000 ti ns f Duqm snt 9h% ' 12-1-16 , 9% 2-1-17 100,000 100,000 Total 1.I94.353 1,211,495 Less: Current matunties . - 10,252 Current sinking fund rec.bments 11340 13,340 Totalfirst mortgage bonds 51.181,013 $1,187,903
30 DOE
p-O g
%r5 li L
g ' l(. Jointly Dwned Generating Units W Du,;uesne, together with other electric udhties, has an ownership or leaschold interest in certainjomtly owned units Duquesne is ! L required to pay its share of the construction and operatingcosts of the units The operatingexpenses of the units are included in the [ income statement. Amounts includcd on the balance sheet at December 31,1989 as property, plant and equipment include the follow-
,ing(thousands of dollarsk l
c f Duquesne's Interest f \ Unit Wrcentage Interest hiegawatts
~ Utility Plant in Service ' Accunudated Depreciation Constnsclio?
Work in Frogress fort Martin 1 50.0 276 $ 62,687 -$ 23,196 $ 995 p CAPCO Units: Eastlake 5 31,2 186 68,994 19,642 1,045 Sammis 7 31.2 187 72,357 22,775 7,620 Bruce Mans field 1 - 29.3 228 74,085 27,259 412 Bruce Mansfield 2- 8.0 62 20,786 7,064 183 Bruce Mansfield 3 13 74 110 -72,101 20,532 .120 Bruce Mansfield Common and Shared Pacihties . 65,911 25,847 129 i Beaver Valley 1. 47.5 385 393,349 115,114 4,913 l Beaver Valley 2 13.74 114 13,425 702 685 't Deaver Valley Common Facihties 201,839 23,734 1,375 Perry 1 13.74 164 750,399 51,808 2,990 Total. 1,712 51,795.933 5337,673 $ 20,467 j d L. Ovarterly Financial Information (Unaudited) ; h The followingis a summary of selected quarterly financial data (thousands of dollars,except per share amounts): I n j { First Second Third Fourth
V Quarter Quarter Quarter Quarter 1989 Operating revenues . 5270.028 5273.079 $301,055 5276,518 )
Operatingincome 66,697 64.816 80,964 58.036 [ i Net income (l) . 27,722 19,756 36,326 29,198 !
. Earnings per share .40 .36 .66 .52 ' Stock price:
High 18 % 20 % 23 % 23% low 17% 17% 20% 21 % l 1988 4 i Operating revenues . $216,521 5263,250 $306,279 5277,183- J" Operatingincome 37,732 60.378 81,275 64,957 Netincome(l) 28,586 19,731 40,424 29,825 .,
- Earnmgs per share .41 .31 .65 .49 j Stock price: J High 14 % 15% 15% 18%
Low 11% 14 % 14% 15% j) 1 (I) Quarterly net income prior to thejuly 7,1989 restnaturing has been restated to reflect the preferred and prtference stock dividends of Duquesne as interest and other charges in compulmg net income. i l DOE 31 l
sivi ht5 . Selected Financial Data and Statistical Summary (Thousands ofDollan. Except itrSharc Amounts) 1989 1988 1987 1986 1985 1984 Incoms Statement items: Totaloperatingrevenues , $ 1,120,680 $1,063,233 $ 888,004 5 896,263 $ 918,460- $ 897,140 Operatingincome . .5 270,563 $ 244,342 $ 185,735 $ 189,515 $ 190,832 $ 185,734l
' Net income $ 113,002 $ 118,566 $ 134,972. $ 110,324 5' 154 707 $ 134,839 Net incomc as % of operating revenues 10.1 % 11.2% 15.2% 12.3% 16.8% 15.0%
Times interest charges earned before income taxes 2.31 2.25 1.84 1,75 2.62 2.69 Balance' Sheet items: Property. plant and equipment net $3,055,039 $3,065,922 $3,098,897 $3,490,599 $3,420,133 $3.139,754 Total assets . $3,920,590 $3,881,424 $4,151,615 $3,997,076 _ $3,854,468 $3,530,310 Capitalization: Common stockholders' equity $ 1,066,190 $1,070,575 $1,217,361 $1,204,433 $1,169,831 .$ 1,053,465 Non redeemablepreferredand ^ preference stock . 154,030 154,073 156,137 156,137 156,137 156,131
. Redeemable preferred and preference stock 65,961 90,743 104,768 110,653 119,653. 127,414 ' Long-term debt . 1,540,329 1,550,231 1,690,600 1,613,787 1,549,468 1,416,736 Totalrapitalization . $2.826,510 $2,865,622 $3,168,866 $3,085,010 $2,995,089 - $ 2,753,752 -
Capitstiration Ratios: Common stockholders' equity . 37.7 % 37.4 % 38.4 % 39.0% ^ 39,1% . 38.3% Preferred and nreference stock 7.8 8.5 8.2 8.7 9.2 10.3 Long-termi at . 54.5 54.1 53,4 52.3 51.7 SIN Totalcapitalitation . 100.0 100.0 100.0 100.0 L 100.0 100.0 Common ' Stock Deta: Shares cutstanding(000):
Year-end , 55,340 57,831 70,096 73,119 71,488 64,775 Average 55,790 63,748 72,845 72,930 '68,543 61,054.
Earnings per share $2.03 . $1.86 $ 1.8_5 _ ' $1.51 $2.26 - $2.21 Return on average common equity . 10.6 % 10.4 % 11.1% 9.3% 13.9 % 13.4 % Dividends paid per share $1.28 $_1.20 $1.20 . $1.63 $2.06 $2.045 - Dividend payout rate . 63.1% 64.5% - 61.9% '107,9 % 91.2% 92.5 % Book value per share at year-end $ 19.27 $18.51 $17,37 $16
7 - $16.36 $16.26
- Market price per share:
High. 23% 18% _14 % 19 % 17% 16% Low 17% 11% 10% 12% 14% -11% Year-end . 23 % 18 % 11 % 12% 16% 15% Market / book at year-end . 1.24 1.01 .68 .74 - .99 ,93 Pricc earnings ratio at year-end (l), 11.8 10.1 6.4 8.1 7.2 ' 6.8 Dividend yield at year end (1) 5.7% 6.8% 10.2% 9.8% 12.7 % 13.6%
- (1) Based on year-end market price per share.
i 32 DQE-
8t
%t5 1989 1988 1987 1986 1985 1984 Average Revenus Per Kilowett Hours-All Customers 8.187c 7.473( 7.517C 8.032( 7.832( 7.389(
Sales of Electricity:
. Averageannual residentialkilowatt houruse 6,060 6,168 6,019 5,821 5.621 5,768 '
Electric energy sales b[iled (mlilions ofkilowau-hours): Residential 3,119 3,156 3,065 2,957 2,848 2,918 Commercial . 5,145 5,055 4,899 4,724 4,537 4,393 Industrial . 3,221 3,302 2,918 2,734 ~ 3,522 4,148 Other. , 84 91 98 99 101 104 Totalsales so customers 11,569 11,604 10,980 10,514 11,008 11,563 Sales to other utilities. . 2,170 2,797 2,486 2,136 1,981 1.019 Totalsales - 13,739 14,401 13,466 12,650 12,989 12,582 0parating. Revenues (ThousandsofDollars): Residential revenues . . $ 346,142 $ 318,552 $299.562 $297,520 $286,260 $280,647 Commercial revenues . 403,506 362,012 345,585 347,364 335,012 314.129
. Industrial revenues . 183,781 171,779 165,550 178,425 225,692 244,970 Other revenues . 43,015 31,382 25,289 27,435 25,447 25,955 Current revenues from customers . 974,444 883.725 835,986 850,744 872,411 865,701 Deferred customer revenues - 96,287 117,544 - - - -
Revenues from other utihties. 49,949 61,064 52,018 45,519 46,049 31,439
. Totaloperating revenues . $ 1,120,680 $ 1,063,233 . $888,004 $896,263 $918,460 $897,140 Energy Supply:and. Production Data:
Energy supply (millions of kilowatt hours): Net generation system plants 14,316 14,976 14,025 13.264 13,590 12,983
~ Purchased and net inadvertent power 284 257 258 194 184 216 Totalenergysupply 14,600 15,233 14,283_ 13,458 13,774 13,199 ,
Losses and Compimy use . (861) (832) (817) (808) (785) (617)
^
Net energysupply . 13,739 14,401 13,466 12,650 12,989 12,582
- Generating capability (thousands of kilowatts) 2,835 2,836 2,852 2,908 3,148. -3,148 Itak load (thousands of kilowatts) 2,381 2.372 2,280 2,132 2,127 2,172 Cost of fuel per million BTU 143.867e 145.738C 150.991t 165.340( 168.450( 165.868(
BTU per kilowatt hour generated 10,411 10,304 10,449 10,624 10,633 10,682 Average production cost per kilowatt-hour . 2.732t 2.578( 2.328C 2.545c 2.462( 2.559(: Number of Customers End of Year: Residential . 516,801 513,760 510,823 509,054 507,824 506,883
. Commercial . 51,950 51,456 50,904 50,346 49.927 49,837 , -Industrial 2.023 2,017 1,978 1,970 1,981 1,990 Other . 1,818 1,828 1,831 1,826 1,817 1,588 Total customers . 572,592 569,061 565,536 563,196 561,549 560,298 DDE 33
A 4 i Company Report on liepoit of Independent Financial Statements Certilled Public kcountants M e Company is responsible for the hnancialinformanos and D1101110 & TOUCHE represemanons contained in the Imancial siatements and other Centhed Pubhc Accountants sections of this Annual Report.1 he Company beheves that the 2400 One l'PG 11 ace consohdated Imancial statements have been prepared in conform- httsburgh, Pennsylvama 15222 ity wnh generally accepted accosmting priaciples appropnate in the circumstances to tellect,in all material respects, the sub- To the Directors end Storkholders el D013 stance of events and transaenons that should be included in the We have audurd fac conschdned balame sheet of DQE as of statements and that the other informanon in the Annual Report Decemb;t 3L 148%nd 1488,and the related conwbdated state-it consistent with those staicments in prepanngthe Imam tal ments of ti~ ome. retamed earning and casb llows for each of statements. the Company makes informed judgments and esti- the three yeamn d.c period ended Decenver 31,1989 T hese mates based on currently available information about the ellects Imancud stakmontsair the responsibihn of the Company's of tertainevensandtransactions management. 0ar respon Abihy is to express an opinion on T he Company maintams a system olinternal accountmg these hnancial stan mmts bm d on our aud ts. control designed to provide reasonable assurance that the We conducted out audns m accordame with generally accepted Company's assets are safeguarded and that transactions are auditing standards 1 hose standards require that we plan and executed and ruorded in accordance with ntabbshed procc- pcdorm the audn to obtain reasonable assurarwe about whether dmes 1 here are hmits mhetent in any system of internal com rol the Imanual statemems are Irre of material misstatement. An based on the recognition that the cost of such a system should audit includes examimng, on a test basis, eviden(c supporting not eweed the benehts to be derived 1 he system oiinternal the amounts and disclosures in the Imancial statemems. An accounting controlis supported by wrinen pohcies and gmde- audu also mcludes assessing the accounnng pnneiples used and hnes and is supplemented by a stall of internal audnors The sigmhcant esnmates made by management, as well as evaluating Company brheves that the internal accounting control system the overall hnancial statement pre >entation. We beheve that our provides t..aonable assurance that its assets are safeguarded audus provide a teamnable basis for our opinion. and the hnancial mlormation is rehable. In our opinion, such consohdated imancial statements presem lairly,in all material respects, the fmancial position of DQL as of j [d%ld A NcM []Wc2C (/
/- December 31,1989 and 1988,and she results of its operations and its cash flows for cat F nitla three years in the renod ended Wesley W. von Schack Gary L Schwass Dec ember 31,1989 in conbrmny with generally stepied Chairman of the Board, We President and1reasurer accounting princip!cs President and Chief Executive Officer gg f qq Audit Committee letter Delonte & Touche January 31,1990 1he Audit Commutec, composed entirely of non-employee Odarch 9 as to Note 10 directors, meets regularly with the independent pubbe account-ants and the internal audnors to discuss resuhs of their audit work,their evaluation of the adequacy of the internalaccountmg controls and the quahty of fmancial reporting.
In fulblhngits responsibilities in 1989, the Auda Committee recommend ' ,the Board of Directors, subject to shareholder appioval .w ection of the Company's independent pubhc accountan' c Auda Ccmnuttee reviewed the overall scope and spec. . .ans of the mdependent public accountants'and internal
ors' respective audu plans, discussed the independ-ent public . wuntants' management letter recommendations, and reviewed and approved the mdependent pubhc account-ants' general auda fees and non-auda service (
The comminee meetings are designed to facihtate open com-munications with the internal audnors and the independent pubhc accountants. To ensure audnor independence, both the independent pubhc accountants and internal audnors have full and free access to the Audn Committee. The Audit Committee of the Board of Duectors 34 DDE
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A %F Officers 00E Duquesne Light Company Duquesne Enterprises Wesley W, von Schack Wesley W. von Schack David D. Marshall chamnan cf tim lumi. Chamnan cf ahr it'u'd. P'r micnt penident and Cnelfaroahc Officer Pinidctif arid CI: cflartuInt Offurr David D. Marshall JohnJ.Carey pu , p,na,.n, lanuthe vue nestant.or nat"'"' All80 hany Develepment Roger D. lleck Corporstion Gary L. Schwass vu, nnacnt, ga,hcting ana custony, 11. Donald Mortne Ukr nrsulcnt and Trramtrr Scn h cs PresJcnt Diane S. Eismont Gary R. lirandenberger Donald O. Messner 5, organ, vu r nodent.lsnrsurply "k c hrmicnt James D.Mitchell Amstant 7,camin V"' h"dc"' C"rP"d'r I'd"" "X ""d Property Ventures, Ltd. Managnient 1,ifennalmn s'"'"" l-1. Donald Morine Joan S. Senchyshyn P,nucnt Dianna L Green Amsrant scortary va r nnacnt, ajnnnnt,atne 3rn.h n David D. Marshall tur nnaient. cornwatc Dcwlernent Gary L Schwa $s vice nesucnt, nnan< r, chir]hnancialopun John D Sieber va r nodent, Nu(icar Edwyna G. Anderson acnnalcounsel George E. llent: Asustant vue nesdent, flutna't Resourtes Diane S. Eismont sevetary James O. Ellenberger Control!ci James D. Mitchell Tirasuver Joan S.Senchyshyn Assistant $ccertary 36 - DOE-
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A- , V I
.Shareholdet Reference Guide Corporate' Of fices Shareholder Servicesl Assistance DQE Shatcholder mquiries relating to dividends, missing stock One Oxford Centre ceruhcates, dwidend reinvestment, direct depostt. change of 301 Grant Street add ess notification.and other accoum informanon should htisburgh, PA 15279 be directed to:
Shareholdet Relations Department Common Stock DQE 1radmg5ymbol , .DQE Ilox 68 httsburgh,PA 15230 0068. Stock Exchanges You may call weekdays between 730 a m. and 4:30 p m., Listed and iraded Nrw York, Phdadelphia lastern time. Please have your account number handy when callmg. Ihe telephone numbers are: Ntmiber of Common Sha. # 3 httsburgh area . 393 M67 of Record at Yeat End . .9400 Toll Free Pennsylvania . .1800-3b7 6400 Outside Pennsylvania .1-800 247 0400 Annual Meeting (Wtthln the continental Umted states) Shareholders are cardtally invited to anend our Annual Meeting Questions relatingto te-registermg stoc k can be answered by of Shucholders at 10 a m . local time, May 22,1990, at the out Shareholder Relations Department, but to actually transfer Tampa llay Performing Arts Center in 1ampa. Fla. stock, contact our transfer agent. Melkm Securities 1 rust Company Dividead Attention: Joseph Wrca lhe Itoard of Dnectors historically has declared quarterly dwl- Stock Transler Depanment dends payable on or about the first day of January, Apni, July fort tre Executive Park and October.The record dates for 1990 are expected to be One Executive Dnvc March 12.jime ll,5cpt 10and Dec.10. Fortler,NJ 07024 3309 201 592-4053 Direct Deposit of Dividends Your DQE quarterly dividend payments can be dep; sited auto. Financ!el Commanity Inquitles matically into a personal checking or >avings account. Through Analysts or brokers shouki dirett their inquiries to 412 393 4133 this f ree shareholder service, your dwidend incoine is available Written inquiries should be sent to: for immediate use on the payment date. Standing in bank hnes Assistant Treasurer is eliminated, as well as the fear of misplacing or losing your DQE dividend check before you cash it Call us toll free to receive One Oxford Centre (28-3) more information. 301 Grant Street httsburgh, PA 15279. f oem 10 K Difer
. lf you hold et arc a bcneficial owner clour stock as of March l 2, Tax Status of Common Stock Dividends 1990, the record date for the 1990 Annual Meeting we wdl send The company estimates that portions of the common stock divi.
you. free upon request, a copy of DQE's Annual Report Form dends paid in 1989 represent a return of capital and are not tax-10-K, filed w ith the Securities and Exchange Commission for able as dwidend income, as shown on the following chart. 1989 All requests must be made in writing to: Secretary Not TasaNe as TaxaNeas Dividend Income DQE One Oxford Centre (17 6) Pd. ment Dare DividendIncome (.'Murn ofCapital) 301 Grant Street Duquesne Light Company Pittsburgh,PA 15279. january 1 100.00 % 0.00 % April 1 100.00 % 0.00% july 1 100.00 % 0.00% DQE October 1 71.73 % 28.27% These estimates are subject to audit by the Internal Revenue DQE is an Equal Opponunity Employer. Service. _ _____-___________ - _ _ a_ - _:___ - ..
cr: bbb L 4tgS. : DQE : t- One Oxbrd Centre c
Pittsburgh, PA 15279 i
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