ML20065A847

Forwards Util Consolidated Financial Statements for Twelve Month Period Ending 931231 & Internal Cash Flow Projection, Including Actual 1993 Data & Projections for 1994,in Accordance w/10CFR140.21 Re Price-Anderson Act

ML20065A847
Person / Time
Site:	Beaver Valley, Perry
Issue date:	03/30/1994
From:	Jeffrey Mitchell DUQUESNE LIGHT CO.
To:	Mark D NRC
References
NUDOCS 9404010090
Download: ML20065A847 (73)

Text

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.t 1 Gra t ce Psttsburgh, PA 15279 (412) 393-4131 i

JAMES D MITCHELL March 30,1994 Mr. David Mark, Section Chief Policy Development and Financial Evaluation Section Office of Nuclear Regulatory Commission Washington, DC 20555 Re: Docket No. 50-440 - Peny Nuclear Power Plant Unit No. I Docket No. 50-334 - Beaver Valley Power Station Unit No.1 Docket No. 50-412 - Beaver Vallev Power Station Unit No. 2 Gentlemen:

In accordance with NRC Regulation 10 CFR Section 140.21, regarding the Price-Anderson Act retrospective premium system guarantee requirements, you will find enclosed:

1. A copy of Duquesne Light Company's consolidated financial statements for the twelve month period ended December 31,1993;

2. An internal cash flow projection, including actual 1993 data and projections for 1994. This statement indicates that $7.498 million, our ponion of the $30 million retrospective premiums for the three subject units, would be available for the payment of such premiums in 1994. Duquesne Light Company has a 47.5% ownership in Beaver Valley Unit No.1, a 13.74% ownership in Perry Unit No. I and a 13.74% leasehold interest in Beaver Valley Unit No. 2.

Pursuant to Commission rules, Duquesne Light Company has elected to utilize its financial statement as its guarantee of payment ofdeferred premiums. We are providing these statements to meet our reporting requirements for both Beaver Valley Unit I and Unit 2 and Perry Unit I at this time.

Sincerely, lfp bl h lbf James D. Mitchell

Treasurer Enclosures 0100CU

'0N 9404010090 940330 I'

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PDR ADOCK 05000334 i

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- Source and Application of Funds (In Millions of Dollars)

ACTUAL FORECAST 1993 1994 Capital Requirements Construction Expenditures (Excluding AFUDC)1

$101

$110 Capital Additions Projected to be Leased (Principally nuclear fuel) 32 36-Maturities and Sinking Funds 1

1 Total Capital Requirements (Excluding AFUDC)1

$134

$147 Sources of Capital Internal Sources 2 Depreciation

$125

$136 Amortization 16 15

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Deferred Taxes (29)

(10) investment Tax Credit (5)

(5)

Phase-In Plan Deferred Revenues & Carrying Charges

_92

_29 Total internal Sources j

(Excluding Retained Earnings)

$206

$165 1

Total AFUDC for 1994 is projected to be $3 million.

2 Changes in Retained Earnings have not been reflected.

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[ CONFORMED)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X)

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [ Fee Required] for the focal year ended December 31,1993 or

[]

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the transition period from to Commi== Ion Registrant State ofIncorporation I.R.S. Employer File Number Addnear==A Telechone N-4 Identification No.

1-956 DUQUESNE LIGHT COMPANY 25-0451600 (A Pennsylvania Corporation)

One Oxford Centre 301 Grant Street Pittsburgh, Pennsylvania 15279

' Telephone (412) 393-6000 Indicate by check m=l: whether the registrant (1) has fded all reports required to be fded by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such fding requirements for the past_90 days. Yes X No l,

1 DQE is the holder of all shares of outstanding common stock ($1 par value) of Duquesne Light Company consisting of 10 shares as of February 23,1994.

[X]

Indicate by check mark if disdosure of delinquent filers punuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge,in definitive proxy or information statements incorporated by reference in Part 111 of this Form 10-K or any amendment to this Form 10 K.

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.,i Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange

' Reelstrant Tide of each class on which re-brered

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Duquesne Light Preferred Stock (per value $50)

New York Stock Exchange Company Involuntary Sstisa liquidation Value 4%

$50 per share 3.75 %

$50 per share 4.15 %

$50 per share 4.20 %

$50 per share 4.10%

$50 per share

$2.10

$50 per share

$7.20

$100 per share Sinking Fund Debentures, due March 1,2010 (5 %) New York Stock Exchange.

DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Into Which Document Descriotion Is Incornorated DQE Annual Report to Shareholders Parts I and II for the year ended December 31,1993 Proxy Statement for DQE Annual Part 111 Meeting of Shareholders to be held on April 20,1994

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TABLE OF CONTENTS

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U Past PART I ITEM 6. SELECTED FINANCIAL DKTA 19 I

ITEM 7. MANAGEMENT'S CliCUSSION AND ITEM I. BUSINESS 1

ANALYSIS OF FINANCIAL CONDITION.

General 1

AND RESULTS OF OPERATIONS 19 L

Service Territory 1

ITEM 8. CONSOLIDATED FINANCIAL l

Regulation 1

STATEMENTS AND SUPPLEMENTARY l

Seasonality 1

DATA 19 i

Results of Operations 2

ITEM 9. CHANGES IN AND DISAGREEMENTS Power Sales 2

WITH ACCOUNTANTS ON Other Income and Deductions 4

ACCOUNTING AND FINANCIAL Financial Condition 4

DISCIDSURE 19 Financing 4

)

Short-Term Borrowings 5

i Interest Charges 5

PART III Sales of Accounts Receivable 5

Nuclear Fuel Leasing 6

ITEM 10. DIRECTORS AND EXECUTIVE ESOP 6

OFFICERS OF THE REGISTRANT 19 Transmission Access 6

ITEM 11. tJECUTIVE COMPENSATION 20 Construction 6

ITEM 12. SECURITY OWNERSHIP OF CERTAIN l

Rate Matters 7

BENEFICIAL OWNERS AND l

1987 Rate Case 7

MANAGEMENT 20 Energy Cost Rate Adjustment Clause (ECR) 7 ITEM 13. CERTAIN RELATIONSHIPS AND Deferred Rate Synchronization Costs 7

RELATED TRANSACTIONS 20 l

Demand Side Management 8

Joint Interests in Generating Units 8

l Employees 9

PART IV i

Electric Operations 9

Fossil Fuel 9

ITEM 14. EXHIBITS, FINANCIAL STATEMENT Nuclear Fuel 10 SCHEDULES AND REPORTS ON Nuclear Decommissioning 11 FORM 8-K 20 Environmental Matters 11 SCHEDULE V 34 l

Outlook 13 SCHEDULEVI 37 Competition 13 SCHEDULE VIII 40 l

Property Held for Future Use 14 SCHEDULEX 41 Retirement Plan Measurement Assumptions 15 Other 15 SIGNATURES 42 Executive Officers of the Registrant 16 ITEM 2. PROPERTIES 17 INDEPENDENT AUDITORS' REPORT 43 ITEM 3. LEGAL PROCEEDINGS 18 FINANCIAL STATEMENTS 44 to 66 Westinghouse Lawsuit 18 SELECTED FINANCIAL DATA 67 General Electric Settlement 18 Rate-Related and Environmental Litigation 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUrrY AND RELATED STOCIGIOLDER MATTERS 19 l

PART I ITEM 1. BUSINESS.

General Duquesne Light Company (Duquesne) is a wholly owned subsidiary of DQE, an energy services hold-ing company formed in 1989. Duquesne is engaged in the production, transmission, distribution and sale of electric energy. Duquesne was formed under the laws of Pennsylvania by the consolidation and merger in 1912 of three constituent companies.

Service Temrory Duquesne provides electric service to customers in Allegheny County, including the City of Pittsburgh, and Beaver County. This represents a service territory of approximately 800 square miles. The population of the area served by Duquesne, based on 1990 census data, is approximately 1,510,000, ofwhom 370,000 reside in the City of Pittsburgh. In addition to serving approximately 579,000 customers within this service area, Duquesne also sells electricity to other utilities beyond its service territory.

Regulation Duquesne's utility operations are subject to regulation by the Pennsylvania Public Utility Commission (PUC). Duquesne is also subject to regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act in respect of rates for interstate sales, transmission of electric power, accounting and other matters. This regulation is designed to provide for the recovery of operating costs and investment and the opportunity to earn a fair return on funds invested in the utility business. The regulatory process imposes a time lag during which increases in operating expenses, capital costs or construction costs may not be recov-ered. Duquesne is also subject to regulation by the Nuclear Regulatory Commission (NRC) under the Atomic Energy Act of 1954, as amended, with respect to the operation ofits jointly owned nuclear power plants, Beaver Wiley Unit 1, Beaver Wiley Unit 2 and Perry Unit 1.

Seasonality Sales of electricity to ultimate customers by Duquesne tend to increase during the warmer summer and cooler winter seasons because of greater customer use of electricity for cooling and heating.

Quarterly Kilowatt-Hour Sales muaa.

1 2 3 4 1 2 3 4 1 2 3 4 1991 1991 1993 1

Results cf Operatians 4

1993 ENERGY SALES BY CLASS OF CUSTOMERS (Excluding Sales to Other Ut!!! ties)

RESIDENT %L 27.3%

RESIDENTIAL 32.9%

33.1%

COMMERC%L 47.0%

COMMERCML INDUSTRML 25.7%

INDUSTR%L 34.0%

DUQUESNE ALL ELECTRIC UTILfilES Tetsi saine io urnmate customers. it.est.om mwn source: Essen Secrieinsstste Power Sales 1

In 1993, sales to Duquesne's 20 largest customers accounced for 14.5 percent of customer revenues.

Sales to USX Corporation, Duquesne's largest customer, accounted for 3.7 percent of total 1993 customer revenues. Kilowatt-hour (KWH) sales to ultimate customers in 1993 increased 2.4 percent in comparison with KWH sales to ultimate customers in 1992. Above normal temperatures in the summers of1993 and 1991 were responsible for increased KWH sales to residential and commercial customers in those years. Mild summer and winter temperatures had the opposite effect on residential and commercial sales in 1992.

Power sales to other utilities in 1993,1992 and 1991 were 2,820,920 KWH,4,059,989 KWH and 2,978,662 KWH, respectively. Sales to other utilities in 1993 declined from the record level in 1992 because higher system demand and more planned and forced generating station outages in 1993 reduced Duquesne's generating capacity available for off-system sales. The increase from 1991 to 1992 in these short-term sales to other utilities resulted from greater availability of transmission and generating capacity, increased demand by other utilities for energy and Duquesne's muketing efforts. The profits from these sales were passed through the Energy Cost Ibte Adjustment Clause (ECR) to benefit Duquesne's customers. See discussion on page 7.

Customer operating n enues result from Duquesne's sales of electricity to ultimate customers and ue based on rates authorized by the PUC. These rates ue designed to recover Duquesne's operning expenses and investment in utility assets and to provide a return on the investment. Current and deferredcustomer mvenues resulted from a $232 million rate increase granted in early 1988. The PUC required Duquesne to phase in this increase during a six-year period. The phase-in plan provided that, with no impact on total reported cus-tomer revenues, rates would increase by approximately $85 million in April of each year from 1988 through 1991, remain constant in 1992 and 1993, and decrease by approximately $85 million in April 1994. The phase-in plan also provided for recovery of deferred rrvenues and carrying costs on such deferred revenues. The rate increase has been recognized in operating revenues since March 1988. A regulatory asset has been estab-lished for that portion of revenues yet to be collected from customers, and curying charges on this deferred asset have been recognized as a component of other ineame in the Statement of Consolidated Income.

Duquesne expects the remaining deferred asset balance at December 31,1993 of $28.6 million to be recov-ered by April 1994, the end of the phase-in period.

Short-term sales to other utilities are made at muket rates and are recorded in other operating revenues in the Statement of Consolidated Income. Revenues from sales to other utilities were $50.7 million, $72.4 million and $58.9 million in 1993,1992 and 1991, respectively. Factors influencing record 1992 revenues correspond to those affecting KWH power sales to other utilities (above).

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Yestly fluctuations infuelandpurchasedpower expense result from changes in the cost of fuel, the m between coal end nuclear generation, the total KWHs generated and the effects of deferred energy costs. In 1993, the impact of the ECR on deferred energy costs decreased fuel expense, in comparison to that for 1992.

Also contributing to the 16.7 percent decline in fuel expense was a 6 percent decrease in generafion that was primuily due to more scheduled and forced generating plant outages in 1993. Fuel expense for 1992 was greater than that for 1991 because ofincreased generation of electricity attributable to record sales to other utilities. The greater fuel expense in 1992, however, was putially offset by lower coal and nucleu fuel costs per KWH In 1994, nuclear fuel costs per KWH generated are expected to continue to decline, and coal costs per KWH generated are expected to remain near the 1993 level.

Other operating expense were 6.5 percent higher in 1993 than in 1992, in 1993, Duquesne finalized plans to sublease the majority ofits office space at corporate headquuters: relocation ofits principal business offices is anticipated in 1994. A charge of approximately $13 million was recorded as an operating expense to reflect the shortfall in anticipated sublease revenues from the rental payments related to space leased through January 2003, the date the leasing arrangements expire. Included in 1991 operating crpenseswas an increase of

$11.9 million in the allowance for uncollectible accounts receivable caused by the deterioration of Duquesne's past due customer accounts and increased collection costs.

Maintenance crpense incurred for scheduled refueling outages at Duquesne's nuclear units is deferred and amortized over the period between scheduled outages. During 1993, amortization of deferred nucleu refueling outage expense increased approximately $3.5 million over the 1992 level. Contributing further to the increase in maintenance expense in 1993 was Duquesne's change, as ofJanuny 1,1993, in its method of accounting for maintenance costs during major fossil station outages. Prior to 1993, maintenance costs incurred for scheduled major outages at fossil stations were chuged to expense as the costs were incurred.

Under the new accounting policy, Duquesne accrues, over the period between outages, anticipated expenses for scheduled major fossil station outages. (Maintenance costs incurred for non-major scheduled outages and for forced outages continue to be charged to expense as the costs are incurred.) This new method was adopt-ed to match more accurately the maintenance costs with the revenue produced during the periods between scheduled major fossil outages.

Depreciation andamorrization expense increased in 1993 by compuison with that for 1992 and 1991.

The increase was primuily a result of an increase in depreciable property.

Tara other than income taxa decreased in 1993 primarily as a result of a favorable resolution of property tax assessments retroactive to 1987. Also in 1993, Duquesne recorded, on the basis of this revised assessment, the expected refunds of these overpayments in prior years. By comparison with those for 1991, taxa other than income rares decreased in 1992 as the result of favorable resolution of capital stock tax, gross receipts tax and sales tax matters.

Income taxa increased in 1993 as a result of an increase in taxable income and a 1 percent increase in the corporate federal income tax rate.

Net Cash Flow From Operations

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OtherIncome andDeductions l

l Otherincome decreased in 1993, in comparison with that for 1992, as a result of a decrease of approxi-L mately $13 million in carrying charger on deferredrnenues. During 1993, the deferred revenue balance upon l

which carrying charges ne camed declined in compuison with that for 1992 and since April 1993, Duquesne l

has not recorded additional carrying charges on defenrdrnenues. (See the discussion of the phase-in plan under the section on Pouer Sales on page 2.)

Income raus related to other income decreased $15 million in 1993, in comparison with those for 1992, because of a favorable settlement (related to Duquesne's 1988 tax return and the consolidated 1989 tax return) with the United States internal Revenue Service. The remaining decrease in 1993 was caused by lower non-operating income.

l Other income for 1992 increased, in compuison with that for 1991, primuily as the result of an increase of $3.5 million in interest income and a decrease of $3.7 million in fees related to Duquesne's sale of receivables.

j Other income for 1991 included a $5.3 million regulatory accounting reclassification that decreased otherincome, reduced depreciation expense and had no impact on ner income.

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Financial Condition Financing l

Duquesne plans to meet its current obligations and debt maturities through 1998 with funds generat-ed from operations and through new financings. At December 31,1993, Duquesne was in compliance with all ofits debt covenants.

Duquesne continues to reduce capital costs by refinancing, repurchasing and retiring securities. Since the end ofl987, annual interest expense on long-term debt has been reduced by $55.3 million through the i

repurchase and refinancing of high cost debt. Preferred and preference dividend costs have been reduced

$10.6 million through the repurchase or redemption of preferred and preference stock. During 1993, i

l Duquesne issued $695 million of first collateral trust bonds with maturities ranging from the year 1996 l'

through the year 2025 and with an average interest rate of 6.58 percent. The proceeds of these sales, together with other funds, were used to redeem $713.7 million of first mortgage bonds with an average interest rate of 8.16 percent.

I Specifically, on June 15,1993, a shelf registration for the periodic sale of up to $300 million of First Collateral Trust Bonds became effective. Duquesne issued bonds totaling $200 million under this shelf regis-j tration and, in conjunction with the issuance of $495 million of First Collateral Trust Bonds under 1992 shelf registrations, redeemed the remaining balances of the following first mortgage bonds outstanding: $99.0 mil-tion of 9.00% First Mortgage Bonds, Series due February 1,2017; $98.0 million of 9.50% First Mortgage l

Bonds, Series due December 1,2016; $96.4 million of 8.375% First Mortgage Bonds, Series due April 1,

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2007; $49.0 million of 9.50% First Mortgage Bonds, Series due Much 1,2005; $43.6 million of 8.625%

First Mortgage Bonds, Series due April 1,2004; $35.0 million of 7.75% First Mongage Bonds, Series due July 1,2003; $32.7 million of 7.25% First Mortgage Bonds, Series due Januuy 1,2003; $28.5 million of 7.50% First Mortgage Bonds, Series due June 1,2002; $26.5 million of 7.50% First Mortgage Bonds, Series l'

due December 1,2001; $34.7 million of 7.875% First Mongage Bonds, Series due Much 1,2001; $29.7 million of 8.75% First Mongage Bonds, Series due March 1,2000; $28.6 million of 7.75% First Mongage Bonds, Series due July 1,1999: $30.0 million of 7.00% First Mortgage Bonds, Series due January 1,1999:

$34.6 million of 6.375% First Mortgage Bonds Series due February 1,1998; $24.6 million of 5.25% First Mortgage Bonds, Series due February 1,1997; and $22.8 million of 5.125% First Mortgage Bonds, Series due February 1,1996.

In June 1993, Duquesne panicipated in the issuance of $25 million of Beaver County Industrial Development Authority Pollution Control Revenue Bonds. In August 1993, Duquesne panicipated in the issuance of $20.5 million of Ohio Air Quality Development Authority Pollution Control Revee Refunding -

Bonds to refund a like amount of pollution control obligations.

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On January 14,1994, Duquesne redeemed all ofits outstanding sharea of $2.10 preference stock and l

$7.50 preference stock for approximately $30 million.

6 Shorr-Tmn Borrowings Duquesne has extendible revolving credit agreements with a group of banks totaling $225 million.

The current expiration date of this credit arrangement is September 30,1994. Interest rates can,in accor-dance with the option selected at the time of each borrowing, be based on prime, federal funds, Eurodollar or -

CD rates. Commitment fees are based on the unborrowed amount of the commitments.

There were no short-term borrowings during 1992. During 1993 and 1991, the maximum short -

term bank and commercial paper borrowings outstanding were $27 million and $66 million: the average daily short-term borrowings outstanding were $1.6 million and $11.0 million; and the weighted average daily inter- -

est rates applied to such borrowings were 3.42 percent and 6.36 percent, respectively. At December 31,1993, short-term borrowings were $11.0 million. There were no short-term borrowing balances outstanding at December 31,1992 or 1991.

Interest Chargn Duquesne achieved reductions in intense chagn in 1993 and 1992 through refinancing first mortgage bonds and through obtaining lower average short-term rates on certain tax exempt pollution control notes.

Duquesne also retired $24.2 million of preferred and preference stock during 1992. Interest expense and divi-dends on preferred and preference stock declined to $121 million in 1993 from $135 million in 1992 and

$145 million in 1991. Interest expense and dividends on preferred and preference stock are expected to decline in 1994 by approximately $9 million from the 1993 level.

Interest Expense and Preferred and Preference Dividends am 160 M

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1989 1990 1981 1992 1983 Sale ofAccouna Receivable i

In 1989, Duquesne and an unaffiliated corporation enteied into an agreement that entided.

Duquesne to sell and the corporation to purchase, on an ongoing basis, up to $100 million of accounts receiv-able. At December 31,1993, Duquesne had sold $9 million of receivables. The accounts receivable sales agreement, which expires in June 1994, is one of many sources of funds available to Duquesne.' Duquesne is '

currendy evaluating whether to seek an extension or a replacement of the agreement.

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-D-g Nuclear FuelLwing

' Duquesne finances its acquisitions of nuclear fuel through a leasing arrangement under which it may -

L finance up to $75 million of nucleu fuel. As of December 31,1993, the amount of nuclear fuel financed by I

Duquesne under this arrangement totaled approximately $65 million. Duquesne plans to continueleasing l'

nuclear fuel to fulfill its requirements at least through 1995, the remaining term of the leasing arrangement.

l ESOP As discussed in Notes C and I to Duquesne's consolidated financial statements, effective January 1, 1992. Duquesne established an Employee Stock Ownership Plan (ESOP) through which it will match up to

$.50 (depending on whether certain incentive targets are met) of every $1.00 an employee contributes to the 401(k) Retirement Savings Plan for Management Employees up to a maximum ofsix percent of their eligible salary. Duquesne's matching contributions ne invested in Duquesne Preference Stock which can be exchanged for DQE Common Stock. Duquesne may purchase shues of DQE Common Stock from DQE or on the open market to satisfy the exchange feature of the Preference Stock.

Transmission Access During the fourth quarter of1993, Duquesne recognized a charge to or/xrincome of approximately

$15.2 million for its investment in the abandoned General Public Utilities (GPU) transmission line project.

On December 8,1993, the New Jersey Board of Regulatory Commissioners (BRC) denied a request by GPU's subsidiary Jersey Central Power and Light Company for approval oflong-term power purchase

• and operating agreements that were originally signed in 1990 by GPU and Duquesne and further amended in 1993. The BRC rejected an administrative law judge's recommended decision that the project be approved and, within hours of the BRC decision, GPU terminated its participation in the project. In view of GPU's decision, Duquesne also terminated its participation in the project and the Pennsylvania PUC transmission line siting proceeding.

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In Much of 1994 Duquesne submitted, pursuant to the Federal Power Act, a " Good Faith" request for l

transmission service with the Allegheny Power System (APS) and Pennsylvania-New Jersey-Maryland Interconnection Association (PJM). The request is based on 20-year firm service with flexible delivery points for 300 megawatts of transfer capability over the transmission network that extends from Western Pennsylvania to the East Coast. In this request Duquesne has identified a $50 million investment that would enhance and stabilize this transmission system. APS and PJM have sixty days from the receipt of this request to formally respond.

• For discussion of Duquesne's investment in the cold-reserved units, see Property Held for Future Use in Note j of Duquesne's consolidated financial statements.

Construction During 1993, Duquesne spent approximately $100 million for construction to improve and expand its production, transmission and distribution systems. Duquesne estimates that it will spend approximately $110 million for construction in 1994. Construction expenditures ne estimated to be $70 million in 1995 and $80 million in 1996. These amounts exclude AFC, nucleu fuel and expenditures fm possible culy replacement of steam generators at the Beaver Valley Power Station. (See Note K to Duquesne's consolidated financial state-I ments.) Duquesne currendy has no plans for construction of new base load generating plants.

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l Duquesne anticipates that funds for planned capital expenditures in the next several years will be pro-l vided primarily from cash becoming available from operations and, to a lesser degree, from additional financ.

ings. Interim financing has been and will continue to be provided through bank borrowings and sales of l

commercial paper. Substantially all funds needed for 1994 capital expenditures ne expected to be generated j

internally.

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See " Nuclear Fuel" on page 10 for a discussion of Duquesne's commitments with respect to the cost of nuclear fuel as of December 31,1993, and for each of the years 1994 through 1998.

l Rate Matters Electric rates charged by Duquesne to its customers are regulated by the PUC. Electric rates charged to the Borough of Pitcairn and to other electric utilities are regulated by the FERC. These rates are designed to recover Duquesne's operating expenses, investment in utility assets, and a return on those investments. Sales to other utilities are made at market rates. See Note J to Duquesne's consolidated financial statements for additional discussion of rate-related matters.

L987 Rare Case in March 1988, the PUC adopted a rate order that increased Duquesne's annual revenues by $232 mil-lion phased-in from April 1988 through April 1994. Deficiencies which resulted from the phase-in plan in current revenues from customers have been included in the consolidated income statement as deferred rev-enues. Deferred revenues have been recorded on the balance sheet as a deferred asset for future recovery. As customers were billed for deficiencies related to prior periods, this deferred asset was reduced. As designed, the phase-in plan provided for carrying charges (at the after-tax AFC rate) on revenues deferred for future recov-ery. Duquesne has not recorded additional curying charges on the deferred revenue balance since April 1993.

Duquesne had recovered previously deferred revenues and carrying charges of 5285.9 million as of December 31,1993. Phase-in plan deferrals of $28.6 million remained unrecovered as of that date. Duquesne expects to recover this remaining unrecovered balance.

At this time, Duquesne has no pending base rate case and no immediate plans to file a base rate case.

Energ Cost Rate Adjustment Clause (ECR)

Duquesne defers fuel and other ener;,j costs for recovery in subsequent years through the ECR. The deferrals reflect the difference between the amount that Duquesne is currently collecting from customers and its actual fuel costs. The PUC reviews Duquesne's fuel costs annually, for the fiscal year April through Much, against the previously projected fuel costs and adjusts the ECR for over-or under-recoveries and for two PUC-established coal cost caps. The ECR is based on projected unit costs, is recalculated each year, and is subject to PUC review. The adjustment includes a credit to Duquesne's customers for profits from short-term power sales to other utilities, as well as an adjustment for any over-or under-collections from customers that may have occurred in prior years. The 1993 ECR reduced customer costs from 1992 levels and has continued to reduce revenues through the first quuter of 1994 by a greater amount than in the prior year. From April 1994 through March 1995, the ECR is expected to reduce revenues by a lesser amount than in the prior year. This ECR treatment is intended to have no impact on net income.

DeferredRateSynchmniurion Costs In 1987, the PUC approved Duquesne's petition to defer initial operating and other costs of Perry Unit I and Beaver Valley Unit 2. Duquesne deferred the costs incurred from November 17,1987,when the units went into commercial operation, until Much 25,1988 when a rate order was issued. In its order, the PUC postponed ruling on whether these cosu would be recoverable from ratepayers. At December 31,1993, these costs totaled $51.1 million, net of deferred fuel savings related to the two units. Duquesne is not earn-ing a return on the deferred costs. Duquesne believes that these costs are recoverable. In 1990, another Pennsylvania utility was permitted recovery, with no return on the unamortized balance, of similar costs over a.

10-year period.

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l Dnnand-Side Managnnent in March of 1994, Duquesne fded with the PUC an updated Demand-Side Management Plan (DSM) 1 designed to encourage customer energy conservation and load management. Duquesne's proposed DSM pro.

grams include compact fluorescent lighting, load management, cool storage systems, emergency generation -

networks and long-term interruptible rates. The Pennsylvania Industrial Energy Coalition fded an appeal in Commonwealth Court of Pennsylvania on December 31,1993, requesting reversal of the PUC order of December 13,1993 which originated electric utility DMS programs in Pennsylvania and allows utilities to recover prudently incurred DSM program costs through rates. Implementation of Duquesne's DSM plan awaits PUC approval and disposition of this appeal.

Joint Interests la Generating Units i

Duquesne has various contracts with The Potomac Edison Company, Monongahela Power Company, Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric Illuminating Company (CEI) and The Toledo Edison Company including provisions for coordinated maintenance responsibilities, limited l

and qualified mutual back-up in the event of outages and certam capacity and energy transactions.

Duquesne has an interest in the following nuclear plants jointly with the following companies:

1 Beaver Vallev Perry i

Umt 1 Umt 2 (1)

Unitl Duquesne

• 47.50 %

• 13.74 %

13.74 %

Ohio Edison Company 35.00 %

41.88 %

30.00 %

Pennsylvania Power Company 17.50 % 5.24 %

Cleveland Electric illuminating Company 24.47 %

• 31.11 %

Toledo Edison Company 19.91 %

19.91 %

' Denotes Operator (1) In 1987 Duquesne sold its 13.74 percent interest in Beaver Valley Unit 2; the sale was crclusive of transmission and common facilities. The total salcs price of $537.9 mhn was the appraised value of Duquesne's interest in the propeny. Duquesne subse-1 quently leased back its interest in the unit for a term of 29.5 years. The lease provides for semiannual payments and is accounted for as an operating lease. Duquesne is resporuible under the terms of the lease for all costs ofits interest in the unit. See Nos E to Duquesne's consolidated financial statements.

Duquesne owns the following fossil plants joindy with the following companies:

Sammis Bruce Mamfield Eastlake Ft. Martin l

Umt 7 Umti Umt 2 Umt 3 Umt 5 Unit 1 Duquesne 31.20 %

29.30 %

8.00 %

13.74 %

31.20 %

50.00 %

Ohio Edison Company

• 48.00 %

60.00 %

39.30 %

35.60 % Pennsylvania Power Company 20.80 %

• 4.20%

• 6.80%

• 6.28% C'eveland Electric Illuminating Company 6.50 %

28.60 %

24.47 %

• 68.80 %

-0 Toledo Edison Company 17.30 %

19,91 % -0 Potomac Edison Company 25.00 %

Monongahela Power Company

• 25.00 %

'Denores Operator 8

c.

Under the agreements governing the operation of these jointly owned generating units, the day-te-day operating authority is assigned to a specific company. CEI has such authority for Perry Unit I and Eastlake Unit 5, Ohio Edison Company has authority for Sammis Unit 7. Pennsylvania Power Companyhas authority for ' Bruce Mansfield Units 1,2 and 3 and Monongahela Power Company operates Ft. Mutin Unit 1.

Duquesne monitors activities in connection with all of these units. Duquesne has day-to day operating authority for Beaver Wiley Units 1 and 2. All the companies with a joint interest in these units ne kept fully informed of developments at these generating units.

Employees At December 31,1993, Duquesne had 4.042 employees, including 1,285 employees at the Duquesne-operated Beaver Wiley Power Station. The International Brotherhood of Electrical Workers represents 2,481 of Duquesne's employees. The current contract runs through September 1994.

Electric Operations Approximately 78% of the electric energy generated by Duquesne's system during 1993 was produced by its coal-fired generating capacity and approximately 22% by its nucleu generating capacity. Duquesne normally experiences its peak loads in the summer. The customer system peak for 1993 of 2,499 megawstts occurred on August 31,1993.

Duquesne's fossil plants operated at 83% availability in 1993 and 80% in 1992. Duquesne's nuclear plants operated at 63% availability in 1993 compued to 90% in 1992. The timing of scheduled maintenance and refueling outages, as well as the duration of forced outages, affect availability of power plants.

In 1986, the PUC approved Duquesne's request to remove the Phillips and most of the Brunot Island (BI) power stations from service and place them in cold reserve. At that time, Duquesne's net investment in the cold-reserved stations was $106 million. In connection with a proposed long-term power sale, Duquesne invest-ed in the cold-reserved plants an additional $24 million in preservation, condition assessment and plant improvements. Duquesne's net investment in the plants at December 31,1993 is approximately $130 million.

For further diswssion of Duquesne's investment in the cold-reserved units, see Property Held for Future Use in i

"Oudook" and Note J of Duquesne's consolidated financial statements.

The North American Electric Reliability Council, ofwhich Duquesne is a member, uses capacity mar-gin to report generating capability as compared to demand. Capacity margin is expressed as capacity less demand divided by capacity. Although Duquesne also uses criteria other than capacity mugin for determin-ing the need for installation of additional generating capability, Duquesne's capacity margin in 1993 was 10.7% based on installed non-cold-reserved generating capacity and internal peak load, including 93 megawatts ofinterruptible load. Duquesne has ties with regional utilities which provide the capability to import in excess of 4,000 megawatts of capacity to supplement Duquesne's generation, u required. Peak gen-eration on June 28,1993 was 2,621 megawatts, which included 483 megawatts ofoff-system sales.

Additional information relating to Duquesne's electric operations is set forth on page 42 of DQE's Annual Report to Shareholders for the year ended December 31,1993. The information is incorporated here by reference.

Fossil Fuel Duquesne believes that sufficient coal for its coal-fired generating units will be available from vuious sources to satisfy its requirements for the foreseeable future. During 1993, approximately 2.4 million tons of coal were consumed at Duquesne's two wholly owned coal-fired stations - Cheswick and Elrama.

Duquesne owns Warwick Mine, an underground mine located on the Monongahela River approxi-mately 83 river miles from Pittsburgh. Warwick Mine has been excluded from rate base since 1981.

Duquesne temporarily idled the mine in June 1988 due to excess coal inventories. In 1990, Duquesne restut-ed the mine by an agreement under which an unaffiliated company operates the mine until Much 2000 ad 9

sells the coel produced. Preduction began in late 1990. The mine reached a full production rate in early 1991. Wuwick Mine coal reserves indude both high and low sulfur coal; the sulfur content tverages in the mid-

. range a 1.7 percent - 1.9 percent. More than 90 percent of the coal mined at Wuwick Mine currently is used by Duquesne, although Duquesne is not preduded from selling this coal on the open market. Duquesne receives a royalty on sales of coal to the open maket. The Warwick Mine currendy supplies less than one-fifth of the coal used in the production of electricity at the plants owned or joindy owned by Duquesne. Duquesne esti-mates that, at December 31,1993,its economically recoverable coal reserves at Warwick Mine were 11.5 mil-lion tons. Costs at Wuwick Mine and Duquesnis investment in the mine ne expected to be recovered through the cost of coal in the ECR. Recovery is subject to the system-wide coal cost standard. Duquesne also has an opportunity to earn a return on its investment in the mine through the cost of coal during the period of the sys-tem-wide coal cost standud, induding extensions. At December 31,1993, Duquesne's net investment in the mine was $24.5 million. The estimated current liability, induding final site reclamation, mine water treatment and certain labor liabilities for mine closing is $33.0 million and Duquesne has collected approximately $8.9 million toward these costs. For further discussion of Duquesnis investment in Wuwick Mine costs, see Note J of Duquesne's consolidated financial statements.

During 1993,65% of Duquesnis coal supplies were provided by contracts, with the remainder satis-fied through purchases on the spot muket. Duquesne had four long-term contracts in effect at December 31, 1993, which, in combination with spot maket purchases, are expected to furnish an adequate future coal sup-ply. Duquesne does not anticipate any difficulty in replacing or renewing these contracts as they expire in future yens ranging from 1995 through 2002. At December 31,1993 Duquesnis wholly owned and joindy owned generating units had on hand an average coal supply of 45 days.

The PUC has established two maket price coal cost standuds. One applies only to coal delivered at the Mansfield plant. The other, the system-wide coal cost standud, applies to coal delivered to the remainder of Duquest,is system. Both standards are updated monthly to reflect prevailing muket prices of similu coal-I during the month. The PUC has directed Duquesne to defer recovery of the delivered cost ofcoal over gener-ally prevailing muket prices for similu coal. Through the ECR, however, the PUC does allow deferred amounts to be recovered from customers when the delivered costs of coal fall below prevailing muket prices.

The unrecovered cost of Mansfield coal was $7.4 million and the unrecovered cost of the remainder of the sys-tem-wide coal was $8.8 million at December 31,1993. Duquesne estimates that all deferred coal costs will be recovered. Duquesnis average cost per ton of coal consumed during the past three years at generating units which it operates or in which it has an owne ship interest was as follows: 1993-$40.08; 1992-540.44; and 1991-$42.49. See Note J to Duquesnis consolidated financial statements for a discussion of the coal cost standards. The cost of coal, which falls within the market price limitations discussed in Note J of Duquesne's consolidated financial statements, is recovered from Duquesnis customers through the ECR discussed previ-ously in " Rate Matters" on page 7.

Nuclear Fuel The cycle of production and utilization of nuclear fuel consists of(1) mining and milling of uranium ore and processing the ore into uranium concentrates, (2) conversion of uranium concentrates to uranium hexafluoride, (3) er,richment of the uranium hexafluoride, (4) fabrication of fuel assemblies, (5) utilization of the nuden fuel in the generating station reactor and (6) storing and reprocessing or disposal of spent fuel.

Adequate supplies of uranium and conversion services are under contract for Duquesne's requirements for its joindy owned nuclear units through 1997. Enrichment services ue supplied under a 1984 United States Enrichment Corporation Utility Services Contract entered into for a period of 30 yens by the compa-nies for their joint interests in Perry Unit I and Beaver Valley Units 1 and 2. Under the terms of this contract Duquesne is committed to 100% ofits enrichment needs through 1998. Fuel fabrication contracts are in place to supply reload requirements for the next three cydes for Beaver Valley Unit 1, the next three cycles for Beaver Valley Unit 2 and the next twenty-one cycles of Perry Unit 1 Duquesne will be required to make arrangements for uranium supply and related services as existing commitments expire.

For joint interests in generating units (See page 8.), each company is responsible for financing its pro-portionate shue of the costs of nucleu fuel for each nudear unit in which it has an ownership interest.

Duquesne has entered into a lease arrangement for the acquisition of nudear fuel pursuant to which 10

Duquesne is permitted to fmance up to $75 million. As of December 31,1993, the cost of Duquesne's nuclear fuel fmanced was $65 million. Duquesne's nucleu fuel costs, which ne amortized to reflect fuel con-sumed, ne charged to fuel expense and are recovered through rates. Duquesne estimates that, over the next three years, the amonization of nuclear fuel consumed will exceed the expenditures for new fuel by approxi-mately $18 million. The actual nucleu fuel costs to be financed and amortized during the period 1994 through 1996 will be influenced by such factors as changes in interest rates, lengths of the respective fuel cycles and changes in nudear material cost and services, the prices and availability ofwhich are not known at this time. Such costs may also be influenced by other events not presently foreseen.

Duquesne's nuclear fuel costs related to Beaver Valley Unit 1. Beaver Valley Unit 2 and Perry Unit I under the lease arrangement are charged to fuel expense based on the quantity of energy generated. Nudear fuel costs for these units averaged.918 cents per KWH in 1993, inclusive of charges associated with spent fuel. Duquesne is recovering from its customers the costs associated with the ultimate disposal of spent fuel.

All three units presently operate on an 18-month refueling cycle with the scheduled refueling dates established as follows: Beaver Valley Unic 1, October 1994: Beaver Valley Unit 2, March 1995 and Perry Unit 1, February 1994.

Nuclear Decommissioning The PUC ruled that recovery of the decommissioning costs for Beaver Valley Unit I could begin December 24,1977 and that recovery for Beaver Valley Unit 2 and Perry Unit I could begin March 25,1988.

Duquesne expects to decommission each nuclear plant at the end ofits life, a date that currently coincides with the expiration of each plant's operating license. (See Note L to Duquesnis consolidated fmancial state-ments.) The total estimated decommissioning costs, including removal and decontamination costs, being recovered in rates are $70 million for Beaver Valley Unit 1, $20 million for Beaver Valley Unit 2, and $38 mil-lion for Perry Unit 1. These amounts were based upon the most recent studies available at the time of Duquesnis last rate case.

Since the time of Duquesnis last rate case, site specific studies have been performed to update the esti-mated decommissioning costs, in current dollars, for each ofits nucleu generating units. In 1992, Duquesne's share of the estimated decommissioning costs for Beaver Valley Unit 2 was revised to $35 million. Duquesne's share of decommissioning costs, which is based on preliminary site specific studies to be finalized euly in 1994, is estimated to increase to $134 million for Beaver Valley Unit I and to $71 million for Perry. (See Note L to Duquesnis consolidated fmancial statements for additional NRC licensing information.)

l During 1994,it is Duquesnis intention to increase the annual' contribution to its decommissioning trusts by $2 million to bring the total annual funding to approximately $4 million per year. Duquesne plans to continue making periodic reevaluations of estimated decommissioning costs, to provide additional funding from time to time, and to seek regulatory approval for recognition of these increased funding levels.

Duquesne racords decommissioning costs under the category of depreciation expense and accrues a lia-bility, equal to that amount, for nudeu decommissioning expense. Such nudear decommissioning funds are deposited in external, segregated trust accounts. Trust fund eunings increase the fund balance and the recorded i

liability. The aggregate trust fund balances at the end of1993 totaled $18.1 million. On the Company's consoli-dated balance sheet, the decommissioning trusts have been reflected in otherproperry andinverrmenn, and the l

related liability has been recorded as other deferredcrrdin.

l 1

Environmental Matters The Comprehensive Environmental Response, Compensation and Uability Act of1980 (Superfund) and the Superfund Amendments and Reauthorization Act of 1986 established a vuiety ofinformational and environmental action programs. The Environmental Protection Agency (EPA) has informed Duquesne ofits involvement or potential involvement in three hazardous waste sites. If Duquesne is uitimately determined to be a responsible party with respect to these sites, it could be liable for all or a portion of the cleanup costs. However, in each case, other solvent, potentially responsible parties that may bear all or part of any liability are also 11

4 4

involved. In addition, Duquesne believes that available defenses, along with other factors (including overalllimit.

ed involvement and low estimated remediation costs for one site) will limit any potential liability that Duquesne may have for cleanup costs. Duquesne believes that it is adequately reserved for all known liabilities and costs and, accordingly, that these matters will not have a materially adverse etTect on its financial position or results of operations.

l-1 in 1990, Congress approved amendments to the Clean Air Act. Among other innovations, this legisla-tion established the Emission Allowance Trading System. An " emission allowance" permits fuel emission ofone ;

ton of sulphur dioxide (SO ) for one year. These allowances ne issued by the EPA to fossil-fired stations with 2

generating capability of more than 25 megawatts thu were in cristence as of the passage of the 1990 amend-ments. Allowances are part of a market-based approach to 50, reduction. Emission allowances can also be I

obtained through purchases on the open market or direcdy from other sources. Excess allowances may be banked for future use or sold on the open market to other parties for their use in offsetting emissions.

The legislation requires significant reductions of SO, and oxides of nitrogen (NO ) by 1995 and addi-x tional reductions by the year 2000. Duquesne continues to work with the operators ofits joindy owned stations

)

to implement cost-effectb e compliance strategies to meet these requirements. Duquesne's plans for meeting the 1995 SO, compliance.equirements include increasing the use of scrubbed capacity, switching to fuel with a i

lower sulfur content and purchasing emission allowances. NOx reductions under Tide IV are required by 1995 at only the Cheswick station; work to achieve the reductions was cornpleted in 1993. The ozone attainment pro-visions ofTitle I of the Clean Air Act Amendments will require NO reductions by 1995 at Duquesne's Elrama x

plant and at the jointly owned Mansfield plant. Duquesne plans to achieve such reductions with low NO burn-x er technology. Duquesne has currendy 1,187 megawatts ofscrubbed capacity, including 300 megawatts at the currendy cold-reserved Phillips plant, as well as 570 megawatts ofcapacity that meets the 1995 standards of the Clean Air Act amendments rhrough the use oflow sulfur coal. He estimated capital costs to achieve 1995 com-pliance standuds are approximately $30 million, ofwhich approximately $15 million has already been spent.

Through the year 2000, Duquesne is planning a combination of compliance methods that include fuel switch-ing; increased use of, and improvements in, scrubbed capacity; flue gas conditioning; low NOxburner technolo-gy; and the purchase of emission allowances. Duquesne currently estimates that additional capital costs to comply with environmental requirements from 1995 through the year 2000 will be approximately $20 million.

I This estimate is subject to the finalization of federal and state regulations.

Duquesne is closely monitoring other potential air quality programs and air emission control require-ments that could be imposed in the future. These areas include additional No, control requirements that could l

be imposed on fossil fuel plants by the Ozone Transport Commission, more stringent ambient air quality and emission standards for 50,and particulares, or cubon dioxide (CO ) control measures. As these potential pro-2 grams are in various stages of discussion and consideration, it is impossible to make reasonable estimates of the potential costs and impacts of these programs at this time.

In July 1992, the Pennsylvania Department of Environmental Resources (DER) issued Residual Waste Management Regulations governing the generation and management of non-hazardous waste. Duquesne is cut-rendy conducting tests and developing compliance strategies. Capital compliance costs are estimated, on the basis ofinformation currendy available, at $10 million through 1995. The expected additional capital cost of compliance from 1995 through 2000 is approximately $25 million; this estimate is subject to the results of ground wuer assessments and DER final approval of compliance plans.

Duquesne operates the scrubbed Elrama plant and converts the scrubber slurry to a ftrated pozolonic material. This material is placed at an off-site disposal area having approximately six years of remaining capacity.

Additionally, Duquesne owns 17 percent of the scrubbed Mansfield plant, which is operated by Pennsylvania Power. His plant pumps a similar slurry to an off-site impoundment where the slurry is treated by using a Calcilox fixation process. The site has at least 14 years of remaining capacity. Both plants have limited temporary on-site storage for flue gas desulfurization material and no permanent on-site disposal capacity. While there is no imminent shortage of disposal capacity, Duquesne continues to monitor this situation and to plan for future dis-posal. The siting of future disposal facilities will be facilitated by the 1993 EPA determination that coal combus-tion waste products are not hazardous waste and are therefore exempt from the Huardous Waste Regulations.

The second phase of EPA's determination will consider the co-management of coal combustion wastes with other low volume fossil fuel combustion waste streams.

12

Under the Nudeer Waste Policy Act of 1982, which esteblishea a policy for handling and disposing of spent nudear fuel and requires the establishment of a final repository to accept spent fuel, contracts for joindy owned nuclear plants have been entered into with the Department of Energy (DOE) for permanent disponi of spent nudear fuel and high-level radioactive waste. The DOE has indicated that the repository will not be available for acceptance of spent fuel before 2010. Existing on-site spent fuel storage capacities at Beaver Valley 1, Beaver Valley 2 and Perry Unit I are expected to be sufficient until 1996,2010, and 2009, respectively. Duquesne is cur-rendy increasing the storage capacity at Beaver Valley I by equipping the spent fuel pool with high density fuel storage racks. Duquesne anticipates that such action will increase the spent fuel storage capacity at Beaver Valley 1 to provide for suflicient storage through 2014.

In October 1992, the President signed into law the National Energy Policy Act of 1992 (energy act).

The energy act addresses a wide range of energy issues, including several matters affecting bulk power competi.

tion in the electric utility industry. See discussion in " Outlook" below. The energy act requires utilities (includ-ing Duquesne) that have purchased uranium enrichment services from the DOE to collectively contribute as much as $150 million annually (adjusted for inflation) up to a total of $2.25 billion for decommissioning and decontamination of DOE enrichment facilities. Assessments are based on the amount of uranium a utiliry had processed for enrichment prior to enactment of the energy act and are to be paid by such utilities over a 15-year period. The energy act states that the assessments shall be deemed a necessary and reasonable current cost of fuel and shall be fully recoverable in rates in all jurisdictions in the same manner as the utility's other fuel costs.

Duquesne believes these assessments will be fully recoverable through rates. Duquesne's total estimated liability for contributions is $12.5 million.

The Low-Level Waste Policy Act ofl980 (LLWPA) mandated that the responsibility for the disposal of low-level radioactive waste rests with the individual states. Most states, induding Pennsylvania and Ohio, have formed regional compacts to comply with the LLWPA by providing permanent disposal sites for radioactive waste generated within each compact. However, plans for these disposal sites have not progressed as anticipated in the LLWPA and it is not certain when the regional sites will be available for disposal ofwaste. Radioactive waste from Duquesne's jointly owned nuclear plants is currently shipped to a disposal facility in South Carolina. This facility has announced that it will not accept any additional waste from outside the Southeast Compact after June 30, 1994. The co-owners have constructed on-site waste storage facilities at the Beaver Valley Power Station and the Perry Power Plant for interim storage of the plants' low-level radioactive waste. The Beaver Valley on-site facility is expected to be sufficient to meet site storage requirements until regional disposal facilities become avadable. The Perry on-site facility is expected to be sufficient to meet site storage requirements for a period of five years.

The Company believes that it is adequately reserved for all known environmentalliabilities and costs.

Accordingly, the Company believes that the ultimate outcome of these environmental matters will not have a material adverse effect on its financial position or the results ofits operations.

Outlook Comperirion Regulatory developments in the industry are placing increasing competitive pressures on electric public utilities. Duquesne, like the industry in general, is continuing to assess the impact of these competitive forces on its future operations.

The National Energy Pblicy Act of 1992 (energy act) was designed, among other things, to foster com-petition. Among other provisions, the energy act amends the Public Utility Holding Company Act of 1935 (1935 act) and the Federal Power Act. Amendments to the 1935 act create a new class ofindependent power producers known as Exempt Wholesale Generators (EWGs), which are exempt from the corporate structure regulations of the 1935 act. EWGs, which may indude independent power producers as well as affiliates of elec.

tric utilities, do not require Securities and Exchange Commission approval or regulation. At the current time, Duquesne has not made, and has no plans to make, any investment in EWGs.

13

Amendments to the Federd Power Act create the potentid for utilities and other power producers to gain increased access to transmission systems of other utilities to facilitate sales to other utilities. The amend-

, ments would permit the FERC to order utilities to transmit power over their lines for use by other suppliers and to enlarge or construct additional transmission capacity to pmvide these services. The FERC may not, how-ever, issue any order that would unreasonably impair the continuing reliability of affected electric systems.

i Finally, the legislation allows brokers and marketers, without owning or operating any generation or trans-mission facilities, to enter into the business of buying and selling electric capacity and energy.

The energy efficiency title of the energy act requires states to consider adopting integrated resource planning, which allows utility investments in conservation and other demand-side management techniques to =

be at least as profitable as supply investments. The energy act also establishes new efficiency standards in industrial and commercial equipment and lighting and requires states to establish commercial and residential building codes with energy efficiency standards. Additionally, the energy act requires utilities to consider energy efficiency programs in their integrated resource planning. The effects on Duquesne of these standards

.l and requirements cannot be determined at this time.

The energy act encourages increased use of alternative transponation fuels by federal, state, city and power provider fleets. The energy act also provides funding for development of electric vehicles and associat-1 ed infrastructures. The effects on Duquesne cannot be determined at this time.

The nuclear-related provisions of the energy act generally encourage funher development of the nuclear power industry through a variety of measures, including the consolidation of construction and operat-ing license steps into one proceeding. The impact of these provisions on Duquesne is not expectw to be material.

These new regulations also permit industrial and large commercial customers to own and operate facilities to generate their own electric energy requirements and,if such facilities are qualifying facilities, to require the displaced electric utility to purchase the output of such facilities. Customers may also have the option of substituting fuels, such as the use of natural gas, oil or wood for heating and/or cooling p_urposes rather than electric energy or of relocating their facilities to a lower cost environment.

In addition, increased competition may also result from the 1990 Amendments to the Clean Air Act.

Such amendments exempt from SO, and NOx control requirements existing units with less than 25 megawatts of generating capacity and new or existing co-generation units supplying less than one-third of their electric output and less than 25 megawatts for commercial sale.

Property HeldforFuture Use In 1986, the PUC approved Duquesne's request to remove the Phillips and most of the Brunot Island power stations from service and place them in cold reserve. Duquesne's capitalized costs and net investment in the plants at December 31,1993 totaled $130 million. (See Note L to Duquesne's consolidated financial statements.)

Duquesne expects to recover its net investment in these plants through future sales. Phillips and BI represent licensed, cenified, clean sources of electricity that will be necessary to meet expanding opportunities in the power markets. Duquesne believes that anticipated growth in peak load demand for electricity within its service territory will require additional peaking generation. Duquesne looks to BI to meet this need. The Phillips Power Plant is an important component in meeting market opportunities to supply long-term bulk power. Recent legislation may permit wider transmission access to these long-term bulk power markets. In summary, Duquesne believes its investment in these cold-reserved plants will be necessary in order to meet future business needs. If business opponunities do not develop as expected, Duquesne will consider the sale of these assets. In the event that market demand, transmission access or rate recovery do not support the utiliza-tion or sale of the plants, Duquesne may have to write off part or all of their costs.

14

Retirement Man Measurement Assumptions Duquesne reduced the discount rate used to determine the pmjected benefit obligation en Duquesne's retirement plans at December 31,1993 to 7 percent. The assumed change in future compensa.

tion levels was also decreased by 0.5 percent to reflect current market and economic conditions.

The effect of these changes on Duquesne's retirement plan obligations is reflected in the amounts shown in Note I to Duquesne's consolidated financial statements. The resulting increase in related expenses for subsequent years is not expected to be material.

Other Duquesne's utility operations are subject to regulation by the PUC and the FERC. This regulation is designed to provide for the recovery of operating costs and investment and the opportunity to carn a fair return on funds invested in the utility business. The regulatory process imposes a time lag during which increases in operating expenses, capital costs or construction costs may not be recovered.

I e

f f

P b

h w

v 15 o

m

o Information relating to the business of Duquesne and ulditionel information relating to Duquesne is set forth on pages 9 to 44 of DQE's Annual Report to Shmholders for the year ended December 31,1993.

The information is incorporated here by reference.

I 1

Eaccutive Officers of the Registrant Set forth below ue the names, ages as of Much 1.1994, positions and brief accounts of the business j

experience during the put five years of the executive officers of Duquesne.

Name Ass Office Wesley W. von Schack 49 Chairman of the Board since September 1987 and President and Chief Executive Officer since i

January 1986.

David D. Marshall (a) 41 Executive Vice President since February 1992.

Cary L Schwus (b) 48 Chief Financial Officer since July 1989 and Vice President - Finance since May 1988.

Roger D. Beck 57 Vice President - Marketing and Customer Services since August 1986.

j Gary R. Brandenberger 56 Vice President - Power Supply since August 1986.

William J. DeLeo (c) 43 Vice President - Corporate Performance and Information Services since January 1991.

Dianna L Green (d) 47 Vice President - Administrative Services since i

August 1988.

)

John D. Sieber (e) 54 Vice President - Nuclear since March 1988.

James D. Mitchell (f) 42 Treasurer since July 1989.

Raymond H. Panza (g) 43 Controller and Principal Accounting Officer since July 1990.

(a) Mr. Marshall was Assistant to the President from October 1990 to January 1992 and Vice President -

Corporate Development from August 1987 to January 1992.

l (b) Mr, Schwass was Vice President and Treasurer from September 1987 to April 1988.

(c) Mr. DeLeo was Vice President - Corporate Planning and Management Information Services from April 1989 to December 1990. He also served as General Manager, Planning, Budgeting and Business Development from November 1987 to March 1989.

(d) Ms. Green was General Manager, Human Resources Unit from May 1988 to August 1988. She served 1

Xerox Corporation as Vice President - Personnel of the Information Products Division from May 1985 to April 1988.

(e) Mr. Sieber wu Vice President - Nuclear Operations from August 1986 to March 1988.

(f) Mr. Mitchell was Assistant Treasurer from October 1988 to June 1989. He served US West Information Sysems, Inc. as Executive Director from August 1985 to September 1988.

(g) Mr. ?anza served u Assistant Controller of Squibb Corporation from May 1989 to July 1990. He served RKO Get eral, a GenCorp company, from May 1985 to May 1989 in various positions including Vice President - Controller and Assistant Controller.

16

ITEM 2. PROPERTIES.

Duquesne's properties consist of electric generating stations, transmission and distribution'facilitics and supplemental properties and appurtenances, comprising as a whole an integrated electric utility system,locat-ed substantially in Allegheny and Beaver counties in southwestern Pennsylvania.

Duquesne owns all or a portion of the following generating units except Beaver %1Iey 2, which is leased.

Duquesne's Share of Net Demonstrated Net Plant Output Capability Year Ended December 31,1993 December 31,1993 Sme and location Typs (Merawatts)

(Merawatt-houn)

Cheswick Coal 570 3,238,308 Springdale, Pa.

Fort Martin No.1 (1)

Coal 276 1,834,484 Maidsville, W.W.

Elrama Coal 487 2,531,720 Elrama. Pa.

Sammis No. 7 (1)

Coal 187 1,175,234 Stratton, Ohio Eastlake No. 5 (1)

Coal 186 1,043,863 Eastlake, Ohio Beaver %11ey No.1 (1)

Nuclear 385 2,077,722 Shippingport, Pa.

Beaver %lley No. 2 (1)

Nuclear 113 730,789 Shippingport, Pa.

Perry No.1 (1)

Nuclear 164 547,375 North Perry, Ohio Bruce Mansfield No.1 (1)

Coal 228 1,075,002 Shippingport, Pa.

Bruce Mansfield No. 2 (1)

Coal 62 230,670 Shippingport, Pa.

Bruce Mansfield No. 3 (1)

Coal 110 465,116 Shippingport, Pa.

Brunot Island Oil 66 (5.812)

Brunot Island, Pa.

Total 2,834 14.944.4Z1 Cold-teserved units:

Brunot Island Oil 240 Phillips Coal

_399 Total

.L321 (1)

Amounu represent Duquesne's share of the unit which is owned by Duquesne in common with one or more other electric utilities (or, in the case of Beaver %!!ey Unit 2, leased by Duquesne).

Duquesne owns 24 transmission substations (including interests in common in the step-up transform-ers at Fort Martin No.1; Sammis No. 7; Eastlake No. 5; Bruce Mansfield No.1: Beaver %11ey Unit 1: Beaver Wiley Unit 2; Perry Unit 1; Bruce Mansfield No. 2; and Bruce Mansfield No. 3) and 563 distribution substa-tions. Duquesne has 714 circuit-miles of transmission lines, comprised of 345.000,138,000 and 69,000 volt lines. Street lighting and distribution circuits of 23,000 volts and less include approximately 50,000 miles of

!ines and cable.

17

Duquesne owns the Warwich Mine, including 4.849 acres owned in fee of unmined coal lands and mining rights, located on the Monongahela River in Greene County, Pennsylvania, approximately 83 river

- miles from Pittsburgh. See Item 1. " Fossil Fuel" on page 10.

Substantially all of Duquesne's properties are subject to a first mortgage lien of the Trust Indenture dated as of August 1,1947 securing Duquesne's first mortgage bonds. In May 1992. Duquesne began issuing se ured debt under a new First Collateral Trust Indenture. This new indenture will ultimately replace Duquesne's First Mortgage Bond Indenture.

ITEM 3. LEGAL PROCEEDINGS.

Westinghouse Lawsuit Beaver Valley Units 1 and 2 ue joindy owned / leased generating units (See hem 1. Business.). In 1991, the co-owners of Beaver Valley Units I uid 2 fded suit against Westinghouse Electric Corporation (Westinghouse) in the United States District Court for the Western District of Pennsylvania. The suit alleges that six steam genera-tors supplied by Westinghouse for the two units contain serious defects -in particular defects causing tube corro-sion and cracking. Duquesne is seeking monetary and corrective relief Steam generator maintenance costs have increased as a result of these defects and are likely to continue increasing. The condition of the steam generators is being monitored closely. If the corrosion and cracking continu, replacement of the steam generators could be required prior to the ends of their 40-yen design lives. Duquesr.e is continuing to conduct a corrective mainte-nance program and to explore longer term options, including repucement of the steam generators. While Duquesne has no current plans to replace the steam generatorund has not yet completed a detailed, site-specific study, replacement cost per unit is estimated to be betwem $100 million and $150 million. (Other utilities with similu units have replaced steam generators at costs in this range.) Duquesne cannot predict the outcome of this matter; however, Duquesne does not believe that resolution will have a materially adverse effect on Duquesne's financial position or results of operations. Duquesne's percentage interests (ownership and leasehold) in Beaver Valley Unit 1 and in Beaver Valley Unit 2 ue 47.5 percent and 13.74 percent, respectively. The remainder of Beaver Valley UNt 1 is owned by Ohio Edison Company and by Pennsylvania Power Company. The remaining interest in Beaver Valley Unit 2 is held by Ohio Edison Company, ne Cleveland Electric illuminating Company and The Toledo Edison Company. Duquesne operates both units on behalfof the joint owners.

General Electric Settlement in Januuy 1994, Duquesne Light Company The Cleveland Electric Illuminating Company, Ohio Edison Company, Pennsylvania Ibver Company and The Toledo Edison Company reached a settlement in con-nection with a 1991 lawsuit fded in the United States District Court in Cleve!and against General Electric Company (GE) regarding the Perry Plant. These co-owners jointly constructed Perry Unit 1, a nuclear power plant on the southern shore of12ke Erie in Ohio for which GE supplied the nuclear steam supply systems and other goods and services. The out-of-court settlement disposed of a complaint fded by the co-owners of Perry Unit I which included claims of breach of contract, warranty, and duties of good faith and fair dealing, as well as constructive fraud, negligence, misrepresentation and various RICO violations in connection with delays and cost increases relating to the comtruction of Perry Unit 1. The settlement provides for cash payments to the Perry ownen and discounts on their future purchases from GE. This setdement will not materially affect Duquesne's results of operations in future years.

i Rate-Related and Environmental Utigation Proceedings involving Duquesne's rates are reported in Item 1. " Rate Matters". Proceedings involving environmental matters ne reported in item 1. " Environmental Matters".

18

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY IIOLDFAS.

Not applicable.

PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SIIARE-IlOLDER MA'ITERS.

Effective July 7,1989, Duquesne Light Company became. wholly owned subsidiary of DQE, the holding company formed as put of a shareholder-approved restructuring. As a result of the restructuring, DQE common stock replaced all outstanding shares of Duquesne Light Company common stock, except for ten shares which DQE holds. As such, this item is not applicable to Duquesne Light Company because all its common equiry it held solely by DQE. During 1993, Duquesne declued quarterly dividends on its common stock totaling $144 million for the year.

ITEM 6. SELECTED FINANCIAL DATA.

Selected financial data for Duquesne Light Company for each year of the six-year period ended December 31,1993 are set forth on page 67. The financial data is incorporated here by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDI-TION AND RESULTS OF OPERATIONS.

Management's discussion and analysis of financial condition and results of operations are set forth in item 1. BUSINESS and on pages 10 through 17 of the DQE Annual Report to Shareholders for the year ended December 31,1993 The discussion and analysis are incorporated here by reference.

ITEM 8. CONSOIJDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Consolidated Balance Sheet of Duquesne Light Company and its Subsidiuy as of December 31, 1993 and 1972, and the related Statements of Consolidated Income, Retained Earnings and Cash Flows for each of the three years in the period ended December 31,1993 together with the Independent Auditors' Report dated January 25,1994 ue set forth here on pages 43 to 66. The financial statements and report we incorporated here by reference. Quuterly financial information is included on page 66 in Note M to Duquesne's consolidated financial statements and is incorporated here by reference.

ITEM 9. CIIANGES IN AND DISAGREEMENTS WITIl ACCOUNFANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

PART III ITEM 10. DIRECTOILS AND EXECUTIVE OFFICERS OF Tile REGISTRANT.

Information relating to the Directors of Duquesne Light Company is set forth under the captions

" Proposal No.1 - Election of Directors", " Nominees for Director" and " Standing Directors" in the DQE definitive Proxy Statement, filed with the Securities and Exchange Commission in connection with its annual meeting of shucholders to be held on April 20,1994. The Proxy Statement is incorporated here by reference.

All Directors of DQE are also Directors of Duquesne Light Company. Information relating to the executive officers of the Registrant is set forth in Put I of this Report under the caption " Executive Officers of the Registrant".

19 l

ITEM 11. EXECUTIVE CO.MPENSATION.

-l The information relating to executive compensation is set forth in Exhibit 28.1, filed as part of this Report. The information is incorporated here by reference.

1 ITEM 12. SECURITY OWNERSilIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

DQE is the beneficial owner and holder of all shares of outstanding Common Stock, $1 par value, of Duquesne Light, consisting of 10 shares as of February 23,1994. Information relating to the ownership of equity securities of DQE and Duquesne Light by directors and executive officers of Duquesne Light is set forth in Exhibi: 28.1, filed as put of this Report. The information is incorporated here by reference.

ITEM 13. CERTAIN REIATIONSIIIPS AND REIATED TRANSACTIONS.

None.

PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCIIEDULES AND REPORTS ON FORM 8-K.

(a)(1) The following financial statements are included on pages 43 to 66.

Independent Auditors' Report.

Statement of Consolidated Income for the Three Years Ended December 31,1993.

Consolidated Balance Sheet, December 31.1993 and 1992.

Statement of Consolidated Cash Flows for the Three Yeus Ended December 31,1993.

Statement of Consolidated Retained Earnings for the Three Yeus Ended December 31,1993.

Notes to Consolidated Financial Statements.

(a)(2) The following financial statement schedules and the related Independent Auditors' Report (See page 43.) are filed here as a part of this Report:

Schedules for the Three Years Ended December 31,1993:

V - Property, Plant and Equipment.

VI - Accumulated Depreciation. Depletion and Amortization of Property, Plant and Equipment.

VIII-Valuation and Qualifying Accounts.

X - Supplementuy income Statement Information.

l The remaining schedules are omitted because of the absence of the conditions under which they are j-required or because the information called for is shown in the financial statements or notes to the financial statements.

20

{

(a)(3) Exhibits relating to Duquesne L;ght Company fded as a part of this Report are set forth in the Duquesne Ught Company Exhibit List on pages 22 to 33, incorporated here by reference. Documents other than those designated u being fded here are incorporated here by reference. Documents incorporated by ref.

crence to a DQE Annual Report on Form 10-K,. Quarterly Report on Form 10-Q or a Current Report on Form 8-K ue at Securities and Exchange Commission File No.1956.

(b) On December 8,1993 a Form 8-K was fded with respect to Duquesne Ught Company reguding a long-term power sales contract with General Public Utilities.

(c) Executive Compensation Plans and Arrangements Deferred Compensation Plan for the Directors Exhibit 10.1 to the Form 10-K of Duquesne Light Company, as amended to date.

Annual Report of DQE for the year ended December 31,1992.

Incentive Compensation Program for Certain Exhibit 10.2 to the Form 10-K Executive Officers of Duquesne Ught Company, Annual Report of DQE for the as amended to date.

year ended December 31,1992.

Description of Duquesne Ught Company Pension Exhibit 10.3 to the Form 10-K Service Supplement Program.

Annual Report of DQE for the year ended December 31,1992.

Duquesne Light Company Outside Directors' Exhibit 10.59 to the Form 10-K Retirement Plan, as amended to date.

Annual Report of Duquesne Ught Company for the yeu ended December 31,1990.

Employment Agreement dated as of December 15, Exhibic 10.5 to the Form 10-K 1992 between DQE, Duquesne Light Company and Annual Report of DQE for the Wesley W. von Schack.

year ended December 31,1992.

Duquesne Light /DQE Charitable Giving Program.

Exhibit 10.6 to the Form 10-K Annual Report of DQE for the yen ended December 31,1992.

DUQUESNE LIGIIT COMPANY EXIIIBITS Exhibit Method of No.

Description Filiny 3.1 Restated Articles of Duquesne Ught Company, as Exhibit 3.1 to the Form 10-K amended through December 19,1991 and as currently Annual Report of Duquesne in effect.

Ught Company for the year ended December 31,1991.

3.2 By-Ins of Duquesne Ught Company, as amended Exhibit 3.2 to the Form 10-K through December 19,1991 and as currently in effect.

Annual Report of Duquesne Ught Company for the year ended December 31,1991.

4.1 Trus Indenture dated as of August 1,1947, securing Exhibit 4.3 to Registration Duquesne Ught Company's First Mortgage Bonds.

Statement (Form S 1)

No. 2-11326.

4.2 Supplemental Trust Indentures supplementing the Trust Indenture -

21

E2hibit Method af No.,

Description Fifla; First through Tenth and an amendment to the Fifth.

Exhibits 4.4 through 4.13 to Registration Statement (Form S-1) No. 2-11326.

Eleventh.

Exhibit 4.3 to Registration Statement (Form S-1)

No. 212309.

Twelfth.

Exhibit 2.2 to Registration Statement (Form S-7)

No. 2.63467.

Thirteenth.

Exhibit 4.5 to Registration

' Statement (Form S 1)

No. 2-13360.

Fourteenth and Fifteenth.

Exhibits 4.6 and 4.7 to Registration Statement (Form S.

1) No. 2-13596.

Sixteenth.

Exhibit 4.8 to Registration Statement (Form S-1)

No. 2-14704.

1 Seventeenth and Eighteenth.

Exhibits 4.4 and 4.5 to Registration Statement (Form S.

1

1) No. 2-16033.

1 Nineteenth through Twenty-Third.

Exhibit 2.2 to Registration i

Statement (Form S-7)

No. 2-63467.

1 Twenty-Fourth.

Exhibit 2.2 to Registration Statement (Form S-9)

No. 2-24412.'

Twenty-Fifth.

Exhibit 4.2 to Registration Statement (Form S-7) i No. 2-63467.

l Twenty-Sixth.

Exhibit 2.2 to Registraten i

Statement (Form S-9)

No.2 25687.

Twenty-Seventh.

Exhibit 2.2 to Registration Statement (Form S-7)

No. 2-63467.

Twenty-Eighth.

Exhibit 2.2 to Registration Statement (Form S-9)

No. 2-28042.

Twenty-Ninth.

Exhibit 2.2 to Registration Statement (Form S-7)

No. 2-63467.

22

Exhibit Method cf No.

Dcmiption Filing Thirtieth.

Exhibit 2.2 to Registration Statement (Form S-9)

No. 2-30927.

Thirty-First and Thirty-Second.

Exhibit 2.2 to Registration Statement (Form S-7)

No. 2-63467.

Thirty-Third.

Exhibit 2.4 to Registration Statement (Form S-7)

No. 2-36333.

Birty. Fourth and Thirty-Fifth.

Exhibit 2.2 to Registration Statement (Form S-7) i No. 2-63467.

Thirty-Sixth.

Exhibit 2.4 to Registration Statement (Form S 7)

No. 2-39375.

Thirty-Seventh.

Exhibit 2.2 to Registration Statement (Form S-7)

No. 2-63467.

Thirty-Eighth.

Exhibit 2.4 to Registration Statement (Form S-7)

No. 2-42154.

Thirty-Ninth through FortyJifth.

Exhibit 2.2 to Registration -

Statement (Form S-7)

No. 2-63467.

Forty-Sixth.

Exhibit 2.3 to Registration Statement (Form S-7)

No. 2-52874.

Forty-Seventh through Forty-Ninth.

Exhibit 2.2 to Registration Statement (Form S-7)

No. 2-63467.

Fiftieth.

Exhibit 2.3 to Registration Statement (Form S-7)

No. 2-58483.

Fifty-First through Fifty-Third.

Exhibit 2.2 to Registration Statement (Form S-7)

No. 2-63467.

Fifty-Fourth and Fifty-Fifth.

Exhibit 2.2 to Registration Statement (Form S 10 No. 2-66258.

f Fifty-Sizrh.

Exhibit 2.2 to Registration Statement (Form S 10 No. 2-68959.

23

i, Exhibit Method cf

. No..

Descrintion Filin e Fifty-Seventh.

Exhibit 4.1 to Registration Statement (Form S-16)

No. 2 72522.

Fifty-Eighth and Fifty-Ninth.

Exhibit 4.1 to Registration Statement (Form S-16)

No. 2 76768.

Sixtieth and Sixty-First.

Exhibit 4.1 to Registration Statement (Form S 3)

No. 2 82139.

l 1

Sixty-Second and Sixty-Third.

Exhibit 4.1 to Registration Statement (Form S-3)

No. 2-87452.

Sixty-Fourth.

Exhibit 4.1 to Registration Statement (Form S-3)

No. 2 89719.

Sixty-Fifth through Sixty-Ninth.

Exhibit 4.1 to Registration Statement (Form S-3)

No. 33-1509.

Seventieth through Seventy-Seventh.

Exhibit 4.1 to Registration Statement (Form S-3)

No. 33-32026.

Seventy-Eighth thmugh Eightieth.

Exhibit 4.1 to Registration Statement (Form S-3)

No. 33-46990.

Eighty-First.

Exhibit 4.2 to Registration Statement (Form S-3)

No. 33-46990, i

Eighty Second.

Exhibit 4.1 to Registration Statement (Form S-3)

No. 33-52782.

Eighty-Third and Eighty Fourth.

Exhibit 4.1 to Registration Statement (Form S-3)

No. 33-63602.

Eighty-Fifth through Eighty-Eighth.

Filed here.

4.3 Indenture dated March 1.1960, relating to Duquesne Exhibit 4.3 to the Form 10 K Light Company's 5% Sinking Fund Debentures.

Annual Report of DQE for the

)

year ended December 31,1989.

4.4 Indenture dated as of November 1,1989 relating to the Exhibit 4.4 to the Form 10 K issuance of Duquesne Light Company's unsecured Annual Report of DQE for the year ended December 31,1989.

notes.

24

Exhibit hbthsd of A

Descrintion Filing 4.5 Indenture of Mortgage and Deed of Trust dated as of Exhibit 4.3 to Registration April 1,1992, securing Duquesne Ught Company's Statement (Form S 3)

First Collateral Trust Bonds.

No. 33-52782.

4.6 Supplemental Indentures supplementing the said Indenture of Mortgage and Deed of Trust -

Supplemental Indenture No.1.

Exhibit 4.4 to Registration Statement (Form S-3)

No. 33 52782.

Supplemental Indenture No. 2 through Supplemental Exhibit 4.4 to Registration Indenture No. 4.

Statement (Form S-3)

No. 33 63602.

Supplemental Indenture No. 5 through Supplemental Filed here.

Indenture No. 7.

Agreemena relating to the]ointly Oumed Genenrring Units:

10.1 Administration Agreement dated as of September 14, Exhibit 5.8 to Registration 1967.

Statement (Form S-7)

No. 2-43106.

10.2 Transmission Facilities Agreement dated as of September Exhibit 5.9 to Registration 14,1967.

Statement (Form S-7)

No. 2-43106.

10.3 Operating Agreement dated as ofSeptember 21,1972 Exhibit 5.1 to Registration for Eastlake Unic No. 5.

Statement (Form S-7)

No. 2-48164.

10.4 Memorandum of Agreement dated as of July 1,1982 re Exhibit 10.14 to the Form 10-K reallocation of rights and liabilities of the companies Annual Report of Duquesne under uranium supply contracts.

Ught Company for the year ended December 31,1987.

10.5 Operating Agreement dated August 5,1982 u of Exhibit 10.17 to the Form 10-K September 1,1971 for Sammis Unit No. 7.

Annual Report of Duquesne Ught Compary for the year ended December 31,1988.

10.6 Memorandum of Understanding dated u of March 31.

Exhibit 10.19 to the Form 10-K 1985 re implementation ofcompany.by<ompany Annual Report of DQE for the management of uranium inventory and deliwry.

year ended December 31,1989.

10.7 Rcstated Operating Agreement for Beaver Valley Unit Exhibit 10.23 to the Form to-K Nos. I and 2 dated September 15.1987.

Annual Report of Duquesne Ught Company for the year ended December 31,1987.

25

Exhibit Method of No.

Descrintion Fhe 10.8 Operating Agreement for Perry Unit No. I dated Exhibic 10.24 to the Form 10-K March 10,1987.

Annual Report of Duquesne Ught Company for the year ended December 31,1987, 10.9 Operating Agreement for Bruce Mansfield Units Nos.1, Exhibit 10.25 to the Form 10-K 2 and 3 dated September 15,1987 as c. June 1,1976.

Annual Report of Duquesne Ught Company for the yeu ended December 31,1987, 10.10 Basic Operating Agreement, as amended January 1, Filed here.

1993.

10.11 Amendment No. I dated December 23,1993 to Filed here.

1 Transminion Facilities Agreement (as ofJanuary 1, 1993).

10.12 Microwave Shuing Agreement (as amended Filed here.

January 1,1993) dated December 23,1993.

10.13 Agreement (as of September 1,1980) dated Filed here.

Decrmber 23,1993 for termination or construction of certain agreements.

10.14 Fort Mutin Construction and Operating Agreement Filed here.

J dated April 30,1965.

10.15 Fort Mar.in Transmission Agreement dated Filed here.

March 15,1967, i

10.16 Amendment ofJanuary 1,1988 to Fort Martin Filed here.

Transminion Agreement.

l i

Agreemener wlaring to the Sale andLeasebuk ofBeaver Valley Unit No. 2:

10.17 Order of the Pennsylvania Public Utility Commission Exhibit 28.2 to the Form 10 Q dated September 25,1987 regarding the application Quarterly Report of Duquesne of the Duquesne Ught Company under Section 1102(a)(3)

Ught Company for the quuter of the Public Utility Code for approval in connection with ended September 30,1987.

the sale and leaseback ofits interest in Beaver Valley Unit j

Na, 2.

.A

< rder of the Pennsylvania Public Utility Commission Exhibit 10.28 to the Form lo-K dated October 15,1992 regarding the Securities Annual Report of Duquesne Certificate of Duquesne Ught Company for the Ught Company for the yeu assumption of contingent obligations under ended December 31,1992.

financing agreements in connection with the refunding of Collateralized lease Bonds.

26

Exhibit Method of

. No, Descriotion FL.

x10.19 Facility leue dated as of September 15,1987 between Exhibit (4)(c) to Registration The Fint National Bank of Boston, as Owner Trustee Statement (Form S 3) under a Trust Agreement dated as of September 15,1987 No. 33-18144.

with the limited partnenhip Owner Participant named therein, lenor, and Duquesne Ught Company, lessee.

yl 0.20 Facility lease dated as of September 15,1987 between Exhibit (4)(d) to Registration The Fint National Bank of Boston, as Owner Trustee Statement (Form S-3) under a Trust Agreement dated as of September 15.

No. 33-18144.

1987, with the corporate Owner Panicipant named therein, truor, and Duquesne Ught Company, lessee.

x10.21 Amendment No. I dated as of December 1,1987 to Exhibit 10.30 to the Form 10-K Facility lease dated as of September 15,1987 between Annual Report of Duquesne The Fint National Bank of Boston, u Owner Trustee Ught Company for the yen under a Trust Agreement dated as of September 15, ended December 31,1987.

l 1987 with the limited partnership Owner Participant l

named therein, lessor, and Duquesne Ught Company, lessee.

yl0.22 Amendment No. I dated as of December 1,1987 to Exhibic 10.31 to the Form 10-K Facility teme dated as of September 15,1987 between Annual Report of Duquesne The Fint National Bank of Boston, as Owner Trustee Ught Company for the year under a Trust Agreement dated as of September 15, ended December 31,1987.

1987 with the corporate Owner Participant named therein, Lenor, and Duquesne Ught Company, lessee.

x10.23 Amendment No. 2 dated u of November 15,1992 to Exhibit 10.33 to the Form 10-K Facility Lene dated as of September 15,1987 between Annual Report of Duquesne The Fint National Bank of Boston, as Owner Trustee Ught Company for the ycu under a Trust Agreement dated as of September 15, ended December 31,1992.

1987 with the limited putnenhip Owner Participant named therein, lessor. and Duquesne Ught Company, t

lence.

yl0.24 Amendment No. 2 dated as of November 15,1992 to Exhibit 10.34 to the Form 10.K Facility Leme dated as of September 15,1987 between Annual Report of Duquesne The Fint National Bank of Boston, as Owner Trustee Ught Company for the year under a Trust Agreement dated as of September 15, ended December 31,1992.

1987 with the corporate Owner Puticipant named therein, lenor, and Duquesne Ught Company, lessee.

x10.25 Participation Agreement dated as of September 15.

Exhibit (28)(a) to Registration 1987 among the limited partnenhip Owner Statement (Form S 3)

Participant named therein, the Original loan No. 33-18144.

Participants listed in Schedule 1 thereto, as Original loan Participants, DQU Funding Corporation, as Funding q

Corporation, The Fint National Bank of Boston, as owner i

Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Ught Company, as lence.

27 i

l i

\\

l

Exhibit '

Mschod of No.

Descriotion Fmng yl0.26 Participation Agreement dated u of September 15, Exhibit (28)(b) to Registration l

1987 among the n.*> orate Owner Puticipant named Statement (Form S-3) therein, the Original loan Participants tred in No. 33-18144.

Schedule I thereto, = Originalloan Participants, DQU Funding Corporatiori, as Funding Corporation,The First National Bank of Boston, as Owner Trustee, Irving Trust Company, u Indenture Trustee and Duquesne Ught Company, u Lessee, x10.27 Amendment No. I dated as of December 1,1987 to Exhibit 10.34 to the Form 10-K Participation Agreement dated as of September 15, Annual Report of Duquesne 1987 among the limited putnership Owner Puticipant Ught Company for the yeu named therein, the Original loan Pu. ;panu listed ended December 31,1987, therein, as Original loan Putidpants, DQU Funding Corporation, as Funding Corporation.The First National Bank of Boston, u Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Ught Company, as lessee.

yl0.28 Amendment No. I dated as of December 1,1987 to Exhibit 10.35 to the Form 10 K Participation Agreement dated as of September 15.

Annual Report of Duquesne 1987 among the corporate Owner Participant named Ught Company for the year therein, the Original Loan Puticipants listed therein, ended December 31,1987.

as Original loan Puticipants, DQU Funding Corporation, as Funding Corporation, The Fint National Bank of Boston, u owner Trustee, Irving Trust Company, u Indenture Trustee and Duquesne Ught Company, as lessee.

x10.29 Amendment No. 2 dated as of Much 1,1988 to Exhibic (28)(c)(3) to Participation Agreement dated as of September 15, Registration Statement 1987 among the limited partnenhip Owner Puticipant (Form S-3) No. 33-54648, named therein, the Original loan Puticipants listed therein, as Original loan Puticipants, DQU Funding Corporation, as Funding Corporation, The Fint National Bank of Boston, as Owner Trustee. Irving Trust Company, as Indenture Trustee and Duquesne Ught Company, as Lessee.

j y10.30 Amendment No. 2 dated u of Much 1,1988 to Exhibit (28)(c)(4) to Putidpation Agreement dated as of September 15.

Registration Statement 1987 among the corporate Owner Puticipant named (Form S-3) No. 33-54648.

therein, the Original loan Puticipants listed therein, u Original loan Participants, DQU Funding Corporation, u Funding Corporation, The Fint National Bank of Boston, u Owner Trustee. Irving Trust Company, as Indenture Trustee and Duquesne Ught Company, as Lessee.

28

Exhibit Method cf No..

Descrintion FL.

x10.31 Amendment No. 3 dated as of November 15,1992 to Exhibit 10.41 to the Form 10-K Puticipation Agreement dated a of September 15.

Annual Repon of Duquestie 1987 among the limited pannenhip Owner Puticipant Ught Company for the yeu named therein, the Original Loan Panicipants listed ended December 31,1992.

therein, as Original loan Panicipanu, DQU Funding Corporation, as Funding Corporation, The Fint National Bank of Boston, as Owner Trustee, The Bank of New York, u Indenture Trustee and Duquesne Ught Company, u leuce.

y10.32 Amendment No. 3 dated as of November 15,1992 to Exhibit 10.42 to the Form lo-K Puticipation Agreement dated as of September 15, Annual Repon of Duquesne 1987 among the corporate Owner Puticipant named Ught Company for the year therein, the Original loan Participants listed therein, ended December 31.1992.

u Original loan Panidpants, DQU Funding Corporation, as Funding Corporation, The Fint National Bank of Boston, as Owner Trustee, The Bank of New York, u Indenture Trustee and Duquesne Ught Company, u lessee.

zl0.33 Ground leue and Euement Agreement dated u of Exhibit (28)(c) to Registration i

September 15.1987 between Duquesne Ught Company, Statement (Form S-3)

Ground Ieuor and Grantor, and The Fint National Bank No. 33-18144.

of Boston, u Owner Trustee under a Trust Agreement dated as of September 15,1987 with the limited partnenhip owner Puticipant named therein, Tenant and Grantee, z10.34 Assignment, Assumption and Further Agreement dated as Exhibit (28)(f) to Registration of September 15,1987 among The First National Bank of Statement (Form S-3)

Boston, as owner Trustee under a Trust Agreement dated No. 33-18144.

as of September 15,1987 with the limited putnenhip Owner Puticipant named therein, The Cleveland Electric illuminating Company, Duquesne Ught Company, Ohio Edison Company, Pennsylvania Power Company and The Toledo Edison Company.

z10.35 Additional Support Agreement dated as of September 15, Exhibit (28)(g) to Registration 1987 between The Fint National Bank of Boston, as Statement (Form S-3)

Owner Trustee under a Trust Agreement dated u of No. 33-18144.

September 15,1987 with the limited partnenhip Owner Panidpant named therein, and Duquesne Ught Company.

210.36 Indenture, Bill of Sale, Instrument of Transfer and Exhibit (28)(h) to Registration Severance A rcement dated as of October 2,1987 Statement (Form S-3) 6 between Duquesne t.ight Company. Sclier. and The No. 33-18144.

Fint National Bank of Boston, u Owner Trustee under a Trust Agreement dated as of September 15,1987 with the limited putnership Owner Panicipant named therein, Buyer.

z10.37 Tax Indemnification Agreement dated as of September 15.

Exhibit 28,1 to the Form 8-K 1987 between the Owner Participant named therein and Current Report of Duquesne Duquesne Ught Company, u lence.

Ught Company dated November 20,1987.

29

+

Eshibit Method of No.

' Description Fm,7 zl0.38 Amendment No. I dated as of November 15,1992 to Exhibit 10.48 to the Form 10-K Tax Indemnification Agreement dated as of September 15.

Annual Repon of Duquesne 1987 between the Owner Puticipant named therein and Ught Company for the yen Duquesne Ught Company, as bssee.

ended December 31,1992.

z10.39 Extension Ixtrer dated December 8,1992 from Exhibit 10.49 to the Form 10-K Duquesne, each Owner Puticipant, The First National Annual Report of Duquesne Bank of Boston, the lease Indenture Trustee, DQU 11 Ught Company for the year Funding Corporation and DQU 11 Funding Corporation ended December 31,1992.

addressed to the New Collateral Trust Trustee extending their respective representations and warranties and covenants set forth in each of the Puticipation Agreements.

x10.40 Trust indenture, Mortgage, Security Agreement and 2xhibit (4)(g) to Registration Assignment of Facility Lease dated as of September 15.

Statement (Form S-3) 1987 between The First National Bank of Boston, as No. 33-18144.

Owner Trustee under a Trust Agreement dated as of September 15,1987 with the limited partnership owner Puticipant named therein, and Irving Trust Company, u Indenture Trustee.

yl0.41 Trust Indenture, Mortgage, Security Agreement and Exhibic (4)(h) to Registration Assignment of Facility leue dated as of September 15, Statement (Form S-3) 1987 between The First National Bank of Boston, as No. 33-18144.

Owner Trustee under a Trust Agreement dated as of September 15,1987 with the corporate Owner Panicipant named therein, and Irving Trust Company, as Indenture Trustee.

x10.42 Supplemental Indenture No.1 dated as of December 1, Exhibit 10.45 to the Form 10-K 1987 to Trust Indenture, Mortgage Security Agreement Annual Repon of Duquesne and Assignment of Facility lease dated as of September 15, Ught Company for the year 1987 between The First National Bank of Boston, as Owner ended December 31,1987.

Trustee under a Trust Agreement dated as of September 15, 1987 with the limited partnenhip Owner Puticipant named therein, and Irving Trust Company, as Indenture Trustee.

yl0.43 Supplemental Indenture No. I dated as of December 1, Exhibit 10.46 to the Form 10 K 1987 to Trust Indenture, Mortgage, Security Agreement Annual Repon of Duquesne and Assignment of Fadlity lease dated u of September 15, Ught Company for the year 1987 between The First National Bank of Boston, u ended December 31,1987.

Owner Trustee under a Trust Agreement dated as of September 15,1987 with the corporate owner Puticipant named therein, and Irving Trust Company, as Indenture Trustee.

x10.44 SupplementalIndenture No. 2 dated as of November 15.

Exhibit 10.54 to the Form 10-K 1992 to Trust Indenture, Mortgage, Securit/ Agreement Annual Report of Duquesne and Assignment of Facility lease dated as of September 15, Ught Company for the year 1987 between The First National Bank of Boston, as ended December 31,1992.

Owner Trustee under a Trust Agtrement dated as of September 15,1987 with the limited pannership Owner Puticipant named therein, and The Bank of New York, as Indenture Trustee.

30

o e'

Ethihit Method cf No.

Descriotion p;n, yl0.45 Supplemental Indenture No. 2 dated u of November 15.

Fxhibit 10.55 to the Form ikK 1992 to Trust Indenture, Mortgage, Security Agreement Annual Report of Duquesne and Assignment of Fadlity Leue dated u of September 15, Ught Company for the yeu 1987 betweer The First National Bank of Boston, as ended December 31,1992.

Owner Trustee under a Trust Agreement dated as of September 15,1987 with the corporate Owner Participant named therein, and The Bank of New York, u Indenture Trustec.

10A6 Reimbursement Agreement dated as ofJuly 15,1992 Exhibit 10.56 to the Form 10 K among Duquesne Ught Company, Swiss Bank Annual Report of Duquesne Corporation, New York Branch, a LOC Bank, Union Ught Company for the year Bank, as Administrating Bank, Swin Bank ended December 31,1992.

Corporation, New York Branch. u Administrating Bank and The Participating Banks Named Therein.

10A7 Supplemental Reimbunement Agreement dated as of Exhibit 10.57 to the Form 10-K July 15,1992 among Duquesne Ught Company, Swiss Bank Annual Report of Duquesne Corporation, New York Branch, as LOC Bank, Union Ught Company for the year Bank, u Administrating Bank, Swiss Bank ended December 31,1992.

Corporation, New York Branch, as Administraing Bank and The Participating Banks Named Therein.

10.48 Collateral Trust Indenture dated as of November 15, Exhibit 10.58 to the Form 10-K 1992 among DQU 11 Funding Corporation, Duquesne Annual Report of Duquesne Ught Company and The Bank of New York, as Trustee.

Ught Company for the year ended December 31,1992.

10.49 First Supplemental Indenture dated as of November 15, Exhibit 10.59 to the Form 10-K 1992 to Collateral Trust Indenture dated as of Annual Report of Duquesne November 15,1992 among DQU II Funding Corporation, Ught Company for the year Duquesne Ught Company and The Bank of New York, as ended December 31,1992.

Trustee.

x10.50 Refinancing Agreement dated as of November 15,1992 Eahibit 10.60 to the Form 10-K among the limited partnenhip Owner Participant Annual Report of Duquesne named therein, as Owner Participant, DQU Funding Ught Company for the year Corporation, as Funding Corporuion, DQU 11 Funding ended December 31,1992.

Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, u Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee, and Duquesne Ught Company, as lence.

yl0.51 Refinancing Agreement dated u of November 15,1992 Exhibit 10.61 to the Form 10-K among the corporate Owner Participant named Annual Report of Duquesne.

therein, as Owner Participant, DQU Funding Ught Company for the year Corporation, as Funding Corporation DQU 11 Funding ended December 31,1992.

Corporation, u New Funding Corporation, The First National Bank of Boston, u Owner Trustee, The Bank of New York, as Indenture Trustre, The Bank of New York, as Collateral Trust Trustee. The Bank of New York, u New Collateral Trust Trustee, and Duquesne Ught Company, as lence.

]

31 i

t Exhibit Meth3d cf No.

Descrintion Filing x10.52 Addendum dated December 8,1992 to Refinancing Exhibic 10.62 to the Form 10.K Agreement dated u of Nowmber 15,1992 among the Annual Repon of Duquesne limited partnenhip Owner Participant named Ught Campany for the year therein, u Owner Participant, DQU Funding ended December 31,1992.

Corporation, u Funding Corporation DQU II Funding Corporation, u New Funding Corporation, The First National Bank of Boston, u Owner Trustee. The Bank of New York. as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, u New Collateral Trust Trustee, and Duquesne Ught Company, as lessee.

yl0.53 Addendum dated December 8,1992 to Refinancing Exhibit 10.63 to the Form 10-K Agreement dated as of November 15,1992 among the Annual Report of Duquesne corporate Owner Puticipant named therein, u Ught Company for the yen Owner Participant, DQU Funding Corporation, as ended December 31,1992.

Funding Corporation, DQU II Funding Corporation, u New Funding Corporation, The Fint National Bank of Boston, u owner Trustee. The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee. The Bank of New York, as New Collateral Trust Trustee, and Duquesne Ught Company, as Lessee.

OrherAgreemenrr

• 10.54 Deferred Compemation Plan for the Directon of Exhibit 10.1 to the Form 10.K j

Duquesne Ught Company, as amended to date.

Annual Report of DQE for the year ended December 31,1992.

• 10.55 Incentive Compensation Program for Certain Executive Exhibit 10.2 to the Form 10-K OHicen of Duquesne Ught Company, as amended to Annual Report of DQE for the date.

yeu ended December 31,1992

• 10.56 Description of Duquesne Ught Company Pension Exhibit 10.3 to the Form 10-K Service Supplement Program.

Annual Report of DQE for the year ended December 31,1992

• 10.57 Duquesne Ught Company Outside Directon' Exhibit 10.59 to the Form 10.K Retirement Plan, as amended to date.

Annual Report of Duquesne Ught Company for the year ended December 31,1990.

• 10.58 Employment Agreement dated as of December 15.

Exhibit 10.5 to the Form 10-K-1992 between DQE, Duquesne Ught Company and Annual Repon of DQE for the Tesley W. von Schack.

year ended December 31,1992

• 10.59 Duquesne Ught/DQE Charitable Giving Program.

Exhibit 10.6 to the Form 10-K Annual Report of DQE for the yeu ended December 31,1992 12.1 Calculation of Ratio of Eunings to Fixed Charges.

Filed here.

32

~.

22.1 Subsidieries of registrant:

Duquesne has no significant subsidinies.

23.1 Independent Audiron' Consent.

Filed here.

28.1 Executive Compensation of Duquesne Light Company Filed here.

Executive Officers for 1993 and Security Ownership of Duquesne Ught Company Direccon and Executive Officen as of February 23,1994.

28.2 DQE Annual Report to Shareholden for year ended Filed here.

December 31,1993. The Report, except those portions specincally incorporated by reference here, is furnished for the information of the Securities and Exchange Comminion and is not to be deemed " filed" for any purpose under the Securities Exchange Act of1934 or otherwise.

An additional document, substantially identical in all material respects to this Exhibit, has been entered into relating x

to one additional limited partnership Owner Participant. Although the additional document may differ in some respects (such as name of the Owner Puticipant, dollar amounts and percentages), there ue no material details in which the document diffen from this Exhibit.

y Additional docurnents substantially identicalin all material respects to this Exhibit, have been entered into relating to four additional corporate Owner Puticipants. Although the additional documents may differ in some respects (such as names of the Owner Participants, dollar amounts and percentages), there are no material details in which the documents differ from this Exhibit.

Additional documents, substantially identical in all material respects to this Exhibit, have been entered into relating r

to six additional Owner Puticipants. Although the additional documents may differ in some respeco (such as name of the Owner Puticipant, dol!u amounts and percentages), there are no material details in which the documents dif.

fer from this Exhibit.

This document is required to be filed as an exhibit to this form under Item 14(c).

Copies of the exhibits listed above will be furnished, upon request, to holden or beneficial ownen of any class of the Company's stock as of February 23,1994, subject to payment in advance of the cost of reproducing the exhibits requested.

l 33

i.

SCllEDULE V SCIIEDULE V. PROPERTY, PLANT AND EQUIPMENT Year Ended December 31,1993 (Thousands of Dollars)

I Column A Column B Column C Column D Column E

_Culumaf Other Balance at Changes Balance Beginning Additions Add at End C]nsification ofYear at Cost Retinments (Deduct)(A) ofYear Property, Plant and Equipment:

i Electric Plant in Service (B):

Intangible Plant

$ 39,100

$3,132 77

$ 42,155 Production Plant 2,227,746 42,103 4,495 73,415 2,338,769 Transmission Plant 290,822 3,874 306 12,941 307,331 Distribution Plant 1,033,930 42,281 5,319 63,911 1,134,803 General Plant:

Coal Properties 72,499 72,499 Other 195.943 11.072 2.505 (9) 204.501 Total Electric Plant in Service 3,860,040 102,462 12,702 150,258 4,100,058 Construction Work in Progress 67,435 (7,658) (C) 59,777 Held under Capital Leases 212,172 11,811 46,183 177,800 Held for Future Use 216.893 484 35 (479) 216.863 Total Property, Plant and l

Equipment

$4.356.540

$107.099 1 58.920

$ 149.779

$4.554.498 Other Property -

Nonutility Property 1

2.888 2.888 t

Notes:

(A) Reclassifications and adjustments including $150 million u a result of the January 1,1993 adoption of SFAS No.109.

l (B) Duquesne provides for depreciation of electric plant, including plant-related intangibles, on a straight-line basis. Amortization of other intangibles is on a straight-line buis over a five-year l

period. At December 31,1993 depreciation was computed on the basis of the following annual rates expressed as a percentage of original cost: production plant - 2.48% to 5.01%, transmission plant - 1.35% to 3.70%, distribution plant - 1.10% to 4.81% and general plant - 1.82% to 4.82%.

Amortization of capitalleases is based on nuclear fuel burned and rental payments made. Nonutility property is depreciated under the Modified Accelerated Cost Recovery System (MACRS) for various classes of property as defined in section 168 of the Internal Revenue Code.

(C) Represents net change in construction work in progress.

I i

34

SCHEDULE V SCIIEDULE V PROPERTY, PLANT AND EQUIPMENT Year Ended December 31,1992 (Thousands of Dollars)

Column A Column B Column C Column D Coloma E Column F Other Balance at Changes Balance Beginning Additions Add at End Classificatien ofYear at Cost Retirements (Deduct)(A) ofYear Property, Plant and Equipment:

Electric Plant In Service (B):

Intangible Plant 1,175

$19,408 6

$ 18,523

$ 39,100 Production Plant 2,222,652 30,281 6,791 (18,396) 2,227,746 Transmission Plant 274,543 17,060 652 (129) 290,822 Distribution Plant 987,857 52,792 6,708 (11) 1,033,930 General Plant:

Coal Properties 72,499 72,499 Other 182.083 16.870 3.011 1

195.943 Total Electric Plant in Service 3,740,809 136,411 17,168 (12) 3,860,040 Construction Work in Progress 91,140 (23,705) (C) 67,435 Held under Capital Leases 220,106 17,089 25,132 109 212,172 Held for Future Use 216.343 658 103 (5) 216.893 Total Property, Plant and Equipment

$4.268.398

$130.453

$ 42.403 92

$4.356.540 Other Property-Nonutility Property 5

2.888 2.888 Notes:

(A) Reclusifications and adjustments.

(B) Duquesne provides for depreciation of electric plant, including plant.related intangibles, on a straight-line basis. Amortization of other intangibles is on a straight-line basis over a five-year period. At December 31,1992 depreciation was computed on the basis of the following annual rates expressed as a percentage of original cost: production plant - 2.48% to 5.01%, transmission plant - 1.35% to 3.70%, distribution plant.1.10% to 4.81% and general plant - 1.82% to 4.82%.

Amortization of capital leases is based on nuclear fuel burned and rental payments made.

(C) Represents net change in construction work in progreu.

i 35

n SCIIEDULE V SCIIEDULE V-PROPERTY, PLANT AND EQUIPMENT Year Ended December 31,1991 (Thousands of Dolkrs)

GlumaA Column B Column _C.C91pmaR Column E Column F O nser Balance at Changes Balance Beginning Additions Add at End Classificatinn ofYear at Cost Ikthsmtata f Deduct)(A) ofYear Property, Plant and Equipment:

Electric Plant in Service (B):

Intangible Plant 948 579

$(352) 1,175 Production Plant 2,202,903 30,692 10,873 (70) 2,222,652 Transmission Plant 271,482 3,437 376 274,543 Distribution Plant 940,641 52,199 4,984 1

987,857 General Plant:

Coal Pmperties 72,502 (3) 72,499 Other 171.346 12.281 2.485

_.241 182.083 Total Electric Plant in Service 3,659,822 99,188 18,718 517 3,740.809 Construction Work in Progress 64,172 26,968 (C) 91,140 Held under Capital Leases 239,791 22,028 37,713 220,106 Held for Future Use 216.246 798 255 (446) 216.343 Total Property, Plant and Equipment

$4.176.031 5148.982

$ 56.686

$_Z1

$4.268.398 Other Property -

Nonutility Property 2.875 3

13 5

2.888 Ees:

(A) Reclusifications and adjustments.

(B) Duquesne provides for depreciation on a straight-line basis. At December 31,1991 depreciation was computed on the basis of the following annual rates expressed as a percentage of original cost: production plant - 2.48% to 5.01%. transmission plant - 1.35% to 3.70%. distribution plant -

1.10% to 4.81% and general lant - 1,82% to 4.82%. Amortization of capitalleases is bued on

?

nuclear fuel burned and renta. payments made.

(C) Represents net change in construction work in progress.

36 J

SCHEDULE VI SCllEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION Of PROPERTY, PLANT AND EQUIPMENT Year Ended December 31,1993 (Thousands of Dollars)

_C9hunnA Column B Column C Column D falumn E Column F Additions Balance at Chaged to Other Balance Beginning Costs and Changes Add at End Description ofYear Frnenses (A)

Retirements IDsdsd ofYear Accumulated Depreciation -

Electric Plant, Exclusive of Coal Properties:

Intangible Planc 2,859

$ 3,761 77

$ 6,543 Production Plant 766,793 68,687 4,457 2,056 833,079 Transmission Plant 92,411 6,655 285 365 99,146 Distribution Plant 286,802 29,538 7,763 1,805 310,382 General Plant 58,798 7,891 2,646 64,043 Retirement Work in Progress (12,715)

(2,137)

(14,852)

Other 3.535 (1.060) 2.475 Total 1.198.483 114.395 15.228 3.166 1.300.816 Accumulated Amortintion-Capital Leases 101.860 28.749 45.892 84.717 Accumulated Depreciation and Depletion - Coal Properties:

Depreciation 24,029 5,781 29,810 Depletion 10.190 836 11.026 Total 34.219 6.617 40.836 Accumulated Amortintion of Limited term Electric Investments 6.284 4.273 (1.194) 9363 Total

$1340.846

$154.034 5 61.120

$ 1.972 11.435.732 Accumulated Depreciation -

Nonutility Property 587 40 627 fiotes: (A) Amounts shown in column C do not agree with depreciation and amorcintion shown in the Statement of Consolidated income due to inclusion on this schedule of fuel amortintion. The amounts are included in fuel expense on the Statement of Consolidated Income.

37

J k

t SCllEDULE VI SCIIEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PI).Nr AND EQUIPMENT Year Ended December 31,1992 (Thousands of Dollars)

Column A Cgiumn D Column C Column D Column E C9]umn F Additions Balance at Charged to Other Balance Beginning Costs and Changes Add at End Description ofYear byenses (A)

Retirementa (Deduct)

.ofYear Accumulated Depreciation -

Bectric Plant, Exclusive of Coal Properties:

Intangible Plant

$ 2,859

$ 2,859 Production Plant 709,708 68,199 8,534 (2,580) 766,793 Transmission Plant 86,789 6,310 674 (14) 92,411 Distribution Plant 269,647 28,321 11,166 286,802 General Plant 54,585 6,499 2,286 58,798 l

Retirement Work in Progress (8,729)

(3,986)

(12,715) i Other 4.597

$(1,062) 3.535 Total 1.116.597 105343 22.660 (797) 1.198.483 l

Accumulated Amortization -

Capital Leases 84.003 42.989

_ 25.132 101.860 Accumulated Depreciation and Depletion - Coal Properties:

Depreciation 18,198 5,831 24,029 l

Depletion 9.355 835 10.190 Total 27.553 6.666 34.219 Accumulated Amortization of Limited-term Bectric Investments 5.130 1.419 (265) 6.284 Total

$1.233.283

$ 156.417

$ 47.792

$(1.062)

$1340.846 Accumulated Depreciation -

Nonutility Property 549 5

38 5

587 Etes: (A) Amounts shown in column C do not agree with depreciation and amortization shown in the Statement of Consolidated Income due to inclusion on this schedule of fuel amortization. The amounts are included in fuel expense on the Statement of Consolidated Income.

l 38 l

i

SCIIEDULE VI SCIIEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTI7ATION OF PROPERTY, PLANT AND EQUIPMENT Year Ended December 31,1991 (Thousands of Dollars)

Coinmn A Column B Column C Column D Column E Column f Additions Balance at Charged to Other Balance Beginning Costs and Changes Add at End Rescription of Year _

Frnenses (A)

Retirements (Deduct) ofYear Accumulated Depreciation -

Electric Plant, Exclusive of Coal Properties:

Production Plant

$ 654,016

$ 67,662

$11,970

$ 709,708 Transmission Plant 81,019 6,114 344 86,789 Distribution Plant 251,284 27,158 8,795 269,647 General Plant 51,580 6,017 3,012 54,585 Retirement Work in Progress (7,286)

(1,443)

(8,729)

Other 4.597 4.597 Total 1.030.613 105.508 24.121 4.597 1.116.597 Accumulated Amortization-Capital Leases 80.000 39.108 35.105 84.003 Accumulated Depreciation and Depletion - Coal Properties:

Depreciation 12,398 5,800 18,198 Depletion 8.520 835 9.355 Total 20.918 6.635 27.553 Accumulated Amortization of 1.imited-term Electric Investments 3.938 1.419 227 5.130 Total

$1.135.469 1152629

$59.453

$ 4.597 11.233.283 Accumulated Depreciation -

Nonutility Property 1

517 1

32 1

549 Notes: (A) Amounts shown in column C do not agree to depreciation and amortization shown in the Statement of Consolidated Income due to inclusion on this schedule of nuclear fuel amortization. Such amounts are included in fuel expense on the Statement of Consolidated Income.

39 4

i e

SCHEDULE VIII SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31,1993,1992 and 1991 (Thousands of Dollars)

Column 2 Column B Column C Column D Column E Column F Additions Balance at Charged to Chasged to Balance Beginning Costs and Other at End Description ofYear Frpenses Accounts Deductions ofYear Year Ended December 31,1993 Reserve Deducted from the Asset to which it applies:

Allowance for uncollectible accounts

$7.707 17.093 2.925 (A) 14.443 (B) $13.282 Year Ended December 31,1992 Reserve Deducted from the Asset to which it applies:

Allowance for uncollectible accounts

$30.898 10.900 2.101 (A) 36.192(B)

$7.707 Year Ended December 31,1991 Reserve Deducted from the Asset to which it applies:

Allowance for uncollectible accounts

$16.805 24.045 1.674 (A) 11.626(B)

MO899 5es: (A) Recovery of accounts previously written off.

(B) Accounts receivable written off.

40

I

?

SCllEDULE X 1

SCIIEDULE X. SUPPLEMENTARY INCOME STATEMENT INFORMATION For the Years Ended December 31,1993,1992 and 1991 (Thousands of Dollars)

Column A Coln=a B Chimed to Costs and hasnast_.

DsKdPlien 1921 1922 1221 Maintenance

$80,292 (A) 579,397 583,985 Amortization of extraordinary properry losses 15,501 16,444 16,444 Taxes other than payroll and income taxes:

Gross receipts 34,650 34,498 37,870 Property 14,284 (B) 31,120 34,489 Capital Stock 12,132 9,051 12.014 Eder the system of accounting followed by Duquesne, a portion of maintenance expenses and of taxes other than payroll and income taxes represents amounts charged to coal inventories. The inventory accounts are aclieved and operation expense charged as the coal is used.

(A)

Duquesne changed, as ofJanuary 1,1993, iu method of accounting for maintenance costs during scheduled major fossil station outages. Prior to that time, maintenance costs incurred for scheduled major outages at fossil stations were charged to expense as these costs were incurred. Under the new accounting policy, Duquesne accrues, over the periods between outages, anticipated expenses for scheduled major fossil station outages. (Maintenance costs incurred for non-major scheduled outages and for forced outages will continue to be charged to expense as such costs are incurred.) This new method wu adopted to match more accurately the maintenance costs and the revenue produced during the periods between scheduled major fossil station outages. The cumulative effect of $5.4 million (net ofincome taxes of $3.9 million) of the change on prior years is reflected on the Statement of Consolidated Income as " Accounting for maintenance costs - net".

(B)

The 1993 decrease reflects a favorable resolution of property tax assessments. In 1993, Duquesne recorded on the basis of this revised assessment, the expected refunds of these overpayments related to prior years.

41

SIGNATURES

' Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of1934, the registrant hu duly caused this report to bc signed on its behalf by the undersigned, thereunto duly authorized.

DUQUESNE LIGHT COMPANY (Registrant)

Date: March 22,1994 By: /s/ Weslev W. von Sdmk (Signature)

Wesley W. von Schack Chairman of the Boud, President and Chief Executive Omcer Pursuant to the requirements of the Securities Exchange Act of 1934, this report hu been signed below by the following persons on behalf of the registrant and in the capacities anJ on the dates indicated.

Signatutt 31ds D11c

/s/ Wesley W. von Schack Chairman of the Board. Presiden:,

March 22,1994 Wesley W. von Schack Chief Executive OGcer and Director

/s/ Gary L Schw233 Vice President - Finance and March 22,1994 Gary L Schwus Chief Financial 05cer

/s/ Raymund H. P2nn Controller and Principal March 22,1994

-i Raymond H. Panza Accounting OMcer

/s/ fohn M. Arthur Director March 22,1994 John M. Arthur

/s/ Daniel Bstg Director March 22,1994 Daniel Berg i

/s/ Doresa.E. Boyce Director March 22,1994 Doreen E. Boyce Is/ Robert P. Bonone Director March 22,1994 Robert P. Bonone i

j

/s/ Sico Falk Director March 22,1994 i

Sigo Falk Director March 22,1994 W. H. Knoell

/s/ G. Christian f antuch Director March 22,1994 i

G. Christian Lantuch

/s/ Robert Mehrabian Director March 22,1994 l

Robert Mehrabian

/s/ Thomas I. Murrin Director March 22, ID4 Thomu J. Murrin

/s/ Robert B. Peue Director March 22,1994 Robert B. Pease

/s/ Eric W. Soringer Director March 22,1994 Eric W. Springer 42

i INDEPENDENT AUDITORS' REPORT To the Directors and Stockholder of Duquesne Light Company:

We have audited the accompanying consolidated balance sheets of Duquesne Light Company and its subsidiuy as of December 31,1993 and 1992, and the related consolidated statements ofincome, retained earnings, and cash flows for each of the three years in the period ended December 31,1993. Our audits also included the finan-cial statement schedules listed in item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial state-ments and financial statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements ne free of material misstatement. An audit includes examining, on a test buis, evidence supporting the amounts and disclo-sures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable buis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Duquesne Light Company and its subsidiuy as of December 31,1993 and 1992, and the results of their oper-ations and their cash flows for each of the three years in the period ended December 31,1993 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when consid-cred in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note A to the consolidated financial statements, effective January 1,1993, the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standuds No.

109, and the Company changed its method of accounting for maintenance costs during scheduled major fossil station outages.

/s/ Deloitte & Touche DELOITTE & TOUCHE Pittsburgh, Pennsylvania January 25,1994 l

i 1

43 1

l

.s GL0ssARY OF TlRMs Following are explanations ofcertainfnancialand operating terms wed in oce repert and unique in our core busincn.

Allowanse for funds used Ouring Construttlen (AFC)

Nucl3sr Decommissioning Costs AFC is an amount recorded on the books of a Decommissioning costs are expenses to be utility during the period of construction of incurred in connection with the encombment, plant. The amount represents the estimated decontamination, dismantlement, removal cost of both debt and equity used to finance and disposal of the structures, systems and the construction.

components of a nuclear power plant that has P'"D**'*0 C'***0 'h' P'*0*i** *f 'I'CE'5' Y

Construction Work In Progress (CWIP) energy.

This amount represents utility plant in the

1. 'd D'#

process of construction but not yet placed in service. The amount is shown on the consoli-Peak load is the amount of electricity required dated balance sheet as a component ofproper-during periods of highest demand. Peak peri-ry plantandequipment ods fluctuate by season and generally occur in the morning hours in winter and in late after-colerred Energy Costs noon during the summer.

In conjunction with the Energy Cat Rate Adjustment Clause, Duquesne Light

!*nnsylvsnts publie utility Commission {PuC)

Company records deferred energy costs to off-The Pennsylvania governmental body that set differences between actual energy costs and regulates all utilities (electric, gas, telephone, the level of energy msts currently recovered water, etc.) is made up of five members (one a from customers.

chairman) appointed by the governor.

Energy Cost Rote Adjustment CIsuse (ECR) -

Regelstory Assel Duquesne Light Company recovers through Costs that Duquesne Light Company would the ECR, to the extent that such amounts are otherwise have charged to expense are capital-not included in base rates, the cost of nuclear ized or deferred because these costs ue cur-fuel, fossil fuel and purchased power costs and rendy being recovered or because it is passes to its customers the profits from shon-probable that the PUC will allow recovery of term power sales to other utilities these costs through rates.

Federal Energy Regelstory Commission (FERC)

FERC is an independent five-member com-mission within the U.S. Deputment of Energy. Among its many responsibilities, FERC sets rates and chuges for the wholesale transportation and sale of natural gas and electricity, and the licensing of hydroelectric power projects.

Kilowatt (KW)

A kilowatt is a unit of power or capacity. A kilowatt hour (KWH) is a unit of energy or kilowatts times the length of time the kilo-watts are used. For example, a 100-watt bulb has a demand of.1 KW and, if burned con-tinuously, will consume 1 KWH in ten hours.

One thousand KWs is a megawatt (MEGAWATT). One thousand KWHs is a megawatt hour (MWH).

i 1

O 4

?

6 DUQUESNEIJCIIT COMPANY (Thousands of Dollars)

STATEMFNT OF CONSOI TDATED INCOME Year Ended Decemher 31.

1993 1992 1991 Operating Re.auas Customers:

Current

$1.175,578

$1,181,242

$1,181,514

- i Deferwd (NoteJ)

(100,315)

(98201)

(78344)

Other 85,713 104 348 96,480 TotalOpenmngRemauer 1,160,976 1,187389 1,199,650 Operating Espenses Fuel 206,896 255,866 237,855 Purchased power 14,032 9,474 12,900 Other operating 297,510 27r 228 289,178 Mainenance 80,292 79,146 83,773 Depredation and amortizadon 140,500 127,924 119,264 Taxes other than income taxes 72,160 85368 95,067 Income taxes (Note F) 103,700 96,253 95,941 TotalOpmmngErpene 915,090 933,259 933,978 Operating Inmme 245,886 254,130 265,672 Other Inmme and (Dedewins).

Allowance for equity funds used during mnstruction 869 2,598 1,855 Long-term power sale write-ort (Nor J)

(15,225)

Carrytng charges on deferred revenues 1,801 15,145 21,514 Income taxes (Note F) 19,033 (11,746)

(5,132)

Other - net 3,693 13,205 (9,379)

Totalosserbecomemid(Dadia: rams) 10,171 19,202 8.858 Inmme Before Interest Charga 256,057 273332 274,530 Interest Chargen Interest on long-term debt 108,479 123,402 131,499 Other interest 3,517 2A58 2316 Allowance for bommed funds used during mnstruaion (726)

(2,296)

(2A18)

Totalbweme Cbrpr 111,270 123,564 131 397 Inme Before Cumulative F5ect on Prior Years of Changes in Accounting Principles 144,787 149,768 143,133 Adoption ofSFAS 109. Inmme Taxes (Notes A and F) 8,000 Accounting for mainenana costs - net (Note A)

(5,425)

Nec Inmme 147,362 149,768 143,133 Dividends on Prefened and 1%:ferene Siedc 9,188 9,411 10,801 Eawingsfer Common Stock 5138,174 5140 357

$132332-See Notes to Consohdated Financial Statements.

45

4 t

DUQUESNE 1.lGHT COMPANY (Thousands of Dollars)

CONSOf IDATED BALANCE SliFFT Ye2r Fnded December 31.

ASSETS 1993 1992 Property, Plaer and Equipmenti Electric plant in service (Note A) 54,100,058 53.860.040 Construaion work in progress 59,777 67,435 '

Property hdd under capitalleases (Note E) 177,800 212.172 Property held for future use (Note J) 216,863 216.893 Toral 4,554,498 4.356.540 Iess accumulated depreciation and amortization (1,435,732)

(1.340.846) 1% perry PfansandEqmpment-Ikt 3,118,766 3.015.694 Other Property and Innstments (at cost):

Investment in DQE Common Stodc 29,998 30.000 Other property and investments 31,062 21.307 t

Current Assetm Cash and temporary cash investments (at cost which approximates market) 6.156 l

Receivables (Note D):

Electric customer aaounts recivable 107,342 109.692 Tax reaivables 18,857 2,403 l

Other rewivables 35,842 23.700 Irss: Alkswance for uncollectible accounts (13,282)

(7.707)

Rewivables less allowana for uncollectible aarnets 148,759 128.088 l

less: Recivables sold (9,000)

(76.000)

Tota /Receinsbler 139,759 52.088 Materials and supplies (generally at average cost):

Coal 26,793 39.297 Operating and construction 64,885 (4.016 Other current assets 8,130 11.7(I)

TotalCaenntAsets 239,567 175.323 Other Asseta l

l Extraordmary property loss (Note B) 35,781 46.447 l

Ununortized kas on reautuired debt (Note C) 95,266 70.324 Beaver Valley Unit 2 satelleaseback premium (Note E) 34,903

%.371 Deferred rate synchmnization onts (Note j) 51,149 51.149 Phase-in plan deferrals (Note E) 28,621 127.996 s

Uncollected deferred income taxes (Note A) 569,555 Defened debits 162,798 152.844 ToralocherAmin 978,073 485.131 TotalAmes 54,397,466

$3.727,455 l

See Notes to Consolidated Financial Statements.

46

?

DUQUESNE IJGIIT COMPANY (Thousands of Dollan)

CONSOf ITTATED BAIANCE SIIFFT As of December M.

CAPITAllZA110N AND IlABIIJITES 1993 1992 Capitalmanon (Note C):

Common stock (authorized - 90,000,000 sharts, issued - 10 shares)

Capital surplus 805,755 806,867 Retained camings 294,916 300,742 Totalcommon asochider's ayuity 1,100,671 1,107,609 Non-redeemable preferred and preferene stod 121,906 121,906 Redeemable preferred and preference stock 8,392 8,579 Non-redeemable preference stock, Plan Series A 29,956 29,995 Total prefened and preferene stock before defened ESOP benefit l

(involuntary liquidation values of $160,117 and $160,342 exceed par by $81,585 and $81,808, respecuvely) 160,254 160,480 Dcfened empkee smck ownership plan (ESOP) benefit (27,126)

(28,471)

Total preferred and preference stock (Note C) 133,128 132,009 Senior secured debt (exduding Ibtlution Contml Notes) 999,400 1,018,098 Other long-term debt 422,524 398,915 Unamortized debc discnunt and premium - net (5,219)

(4,012)

Toral long-term debt (Note C) 1,416,705 1,413,001 TocalCP LA 2,650,504 2.652,619 Obligations Under Capital leases (Note E) 55,733 71,876 Current liabilities:

Notes pavable 10,991 Current manuities and sinking fund requirements (Notes C and E) 45,741 46,054 Accounts payable 112,401 118,423 Accrued taxes 49,345 48,191 Accrued incerest 14,185 28,258 Dividends dedared 36,436 35,109 Defened energy costs (Note A) 10,108 18,893 TocalCsams: Iambs &aa 279,207 294.928 Other Noncurrent I nka; h Investment ta aedits unamortized 129,574 135,580 Accurnulated deferred irwome taxes (Note A) 1,145,782 470,716 Defened credits (Note A) 136,666 101,736 TaralOdwr/Wicwnnes&&iksics 1,412,022 708.032 Commitments and Contingencies (Notes B thmugh L)

TaralCp h+midlishiLia

$4,397,466

$3,727,455 See Notes to Conelidated Finandal Statemena.

j l

l 47

8 t

i o,

DUQUESNE llGHT COMPANY (Thousands of Dollars)

STATEMENT OF CONSOf inATED CASil FLOWS hr Ended December 31.

1993 1992 1991 Cash &ws From Operating Aaivities Netincome

$147,362

$149,768

$143,133 Prindpal non-cash charges (credits) to net income:

Depredation and amomzation 140,500 127,924 119.264 Capital lease and other amortization 32,428 49,001 56,437 Deferred inmme taxes and investment tax credits - net (34,795)

(10,896)

(18,974)

Allowance for equity funds used during construction (869)

(2,598)

(1,855) 1 Phase-in plan revenues and related carrymg charges 99,375 83,056 56,830 Changes in working capital other than cash (Note H)

(96,799) 55,193 (41,651)

Other - net 19,505 7,166 36,691 Net Guhnwadedfrom OpmaingAamna 306,707 458,614 349,875 Cash &ws Uud ByInwsung Aaivities:

Construction expenditures (100,628)

(112.409)

(125,358)

Purthase of DQE common stock (18,476)

(11,524)

Allowance for borrowed funds used during mnstruction (726)

(2.296)

(2,418)

Other - net (12J17)

(7,877)

(6.905)

Mr Guh thedbyhawangAammer (113,671)

(141.058)

(146,205)

Cash &ws UmiIn handng Anivitics:

Sale of bonds 740,500 312,925 50,000 Increase in notes payable 10,990 Dividends on capital stock (154,204)

(151,404)

(143,801)

Redetions oflong-term obligations:

Prefened and preferena stock (187)

(24,158)

(38,505) long-term debt (735,048)

(394,951)

(58,782)

Other obligations (27,751)

(43,686)

(42,997)

Premium on reacquired debt (31,702)

(18,127)

(2,947)

Conmbution from parent company 45,000 30,000 Beaver Valley Unit 2 salellcaseback premium (36,371)

Other - net (1,790)

(3,797) 963 Mr Cub thedhsIo'nescnegAtanda (199,192)

(314,569)

(206,069)

Net increase (dearase) in cash and tanporary cash inwstments (6,156) 2,987 (2,399)

Cash and temporary cash investments at beginning ofyear 6.156 3,169 5,568 Cash and temporary cash inwstments at end ofpar

$ 6,156 5 3,169 J

SUPPLEMENTAL CAS!! FLOWINFORMATION Comb psi during the par fore Interest (ner of amount capitalized)

$124,692

$126,014

$136,147 Income taxes

$133,303

$112,859 5 86,201 Non< ash inwsting and (mandng activities:

Capitallease obligations remrded

$ 11,811

$ 17,089

$ 22,028 ESOP preferena stock issued 5

$ 30,000 See Notes to Consolidated Fmancial Statements.

48

?

DUQUESNE LIGIIT COMPANY (Thousands of Dollars)

STATEMENT OF WNSOf InATED RETAINED EARNINGS Year Fnded December 31.

1993 1992 1991 Balance, January 1

$300,742

$301,385

$302.053 Net income for the Yeu 147,362 149,768 143,133 Tbtal 448,104 451,153 445,186 Cash d;vidends dedand:

Prefernd strd 4,740 4,906 5.456 Preferene sttd (net of tax benefit of ESOP dividerd) 4.448 4,505 5,345-Common stock 144,000 141,000 133,000 lbtal Cash Dividends Dedared 153,188 150,411 143,801 Balance, Decernber 31

$294,916

$300,74.2

$301,385 See Noces to Consolidated Financial Statements.

49

T NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. S$ry of consolidstion und Rocisssitiestions 8

The consolidated fmancial statements include the accounts of Duquesne Light Company (Duquesne) and its wholly owned subsidiary. All material intercompany balances and transactions have been elim-inated in the preparation of the consolidated fmancial statements.

Bosis of Accounting The consolidated financial statements reflect the rate-making practices of Duquesne and contain regula-tory assets and liabilities a deferred charges and credits in accordance with Statement offinancial Accounting Standards Number 71 Accouniingfor the Efeca ofCertain Types ofkgulation (SFASNo. 71).

Duquesne's accounting practices conform to the Uniform System ofAccounts prescribed by the Federal Energy Regulatory Commission (FERQ and the requirements of the Pennsylvania Public Utility Commission (PUQ. The Company is also subject to the accounting and reporting requirements of the Securities and Exchange Commission (SEQ.

Property Finnt and Equipment The asset values of properties ne stated at original construction cost, which includes related payroll taxes, pensions, and other fringe benefits, as well as administrative and general cosu. Also included in original construction cost is an allowance for funds used during construction (AFQ, which represents the estimated cost ofdebt and equity funds used to finance construction. The amount of AFC that is capitalized will vary according to changes in the cost of capital and in the level of construction work in progress (CWIP). On a current basis, Duquesne does not realia cash from the allowance for funds used during construction. Duquesne does realize cash, during the service life of the plant, through increased revenues reflecting a higher rate bue (upon which a return is earned) and increased depreciation. The AFC rates applied to CWIP were 9.6 percent in 1993,10.3 percent in 1992, and 9.6 percent in 1991.

Additions to, and replacements of, property units ne charged to plant accounts. Maintenance, repairs and replacement of minor items of property are recorded a crpenses when they are incurred. The costs of properties that are retired (plus removal costs and less any salvage value) are charged to the accumulat-ed provision for depreciation.

Substantially all of Duquesne's properties are subject to a first mortgage lien, and substantially all of Duquesne's electric properties are subject to junior liens.

Ospreciation Depreciation ofproperty plant andequipment, including plant-related intangibles, is recorded on a straight-line buis over the estimated useful lives of properties. Amortization ofother intangibles is recorded on a straight-line basis over a five-yeu period. Depreciation and amortization ofother proper-ties are calculated on various bases.

Nuclest Decommissioning The PUC ruled that recovery of the decommissioning costs for Beaver Valley Unit I could begin in 1977 and that recovery for Beaver Valley Unit 2 and Perry Unit I could begin in 1988. Duquesne expects to decommission each nuclear plant at the end ofits life, a date that currendy coincides with the expiration of each plant's operating license. (See Note L) The total estimated decommissioning costs, including removal and decontamination costs, being recovered in rates are $70 rnillion for Beaver Valley Unit 1, $20 million for Beaver Valley Unit 2, and $38 million for Perry Unit 1. These amounts were based upon the most recent studies available at the time of Duquesne's last rate cue.

Since the time of Duquesne's last rate cue, site specific studies have been performed to update the esti-mated decommissioning costs, in current dollars, for each ofits nucleu generating units. In 1992, Duquesne's shue of the estimated decommissioning costs for Beaver Valley Unit 2 was revised to $35 million. Duquesne's shue of decommissioning costs, which is based on preliminuy site specific studies to be finalized early in 1994, is estimated to increase to $134 million for Beaver Valley Unic I and to

$71 million for Perry.

50

I t

During 1994, it is Duquesne's intention to increase the annual contribution to its decomm sioning trusts by $2 million to bring the total annual funding to approximately $4 million per year. Duquesne plans to continue making periodic reevaluations of estimated decommissioning costs, to provide addi.

tional funding from time to time, and to seek regulatory approval for recognition of these increased funding levels.

Duquesne records decommissioning costs under the category of depreciation expense and accrues a lia.

bility, equal to that amount, for nucleu decommissioning expense. Such nuclear decommissioning funds are deposited in external, segregated trust accounts. Trust fund eunings increase the fund balance and the recorded liability. The aggregate trust fund balances at the end of1993 totaled $18.1 million.

On Duquesne's consolidated balance sheet, the decommissioning trusts have been reflected in other pmpeny andinvestmena, and the related liability has been recorded as other defmedcredia Maintensnee Maintenance expense incurred for scheduled refueling outages at Duquesne's nuclear units is deferred and amortized over the period between scheduled outages. Duquesne changed, as ofJanuny 1,1993,its method of accounting for maintenance costs daring scheduled major fossil station outages. Prior to that time, maintenance costs incuned for scheduled major outages at fossil stations were chuged to expense as these costs were incurred. Under the new accounting policy, Duquesne accrues, over the periods between outages, anticipated expenses for scheduled major fossil station outages. (Maintenance costs incurred for non-major scheduled outages and for forced outages will continue to be chuged to expense as such costs are incuned.) This new method was adopted to match more accurately the m2intenance costs and the revenue produced during the periods between scheduled major fossil station outages.

The cumulative efTect (approximately $5.4 million, net ofincome caxes of approximately $3.9 million) of the change on prior years was included in income in 1993. The effect of the change in 1993 was to reduce income, before the cumulative effect of changes in accounting principle, by approximately $2.4 million or 5.05 per share and to reduce net income, after the cumulative effect of changes in accounting principle, by approximately $7.8 million or $.15 pcr shue.

Revenues Meters are read monthly and customers are billed on the same basis. Revenues are recorded in the accounting periods for which they ue billed. Deferred revenues ue associated with Duquesne's 1987 rate case. (See Note J.)

Income ines On January 1,1993, Duquesne adapted Statement ofFinancial Accounting Standards Number 109 (SFAS No.109). Implementation of SFASNo.109 involved a change in accounting principle. The cumulative

$8 million effect on prior years was reported in 1993 as an increase in net income.

SFASNo.109 requires that the liability method be used in computing deferred taxes on all differences between book and tax bases of assets. These book tax differences occur when events and transactions recognized for financial reporting purposes are not recognized in the same period for tax purposes. As a utility, Duquesne recognizes uncollecteddefmrdincome ters for these deferred tax liabilities that ue expected to be recovered from customers thrcugh rates. The adoption of SFAS No.109on Januuy 1, 1993 resulted in a $700 million increase in deferred tax liabilities and the recognition of $550 million in net regulatory assets. Prior to the adoption of SFAS No.109, Duquesne recorded certain costs in electric plant in service net of taxes. Because SFASNo.109 eliminates this " net of tax" accounting, the adoption of SFAS No.109 also resulted in an increase in plant assets of $150 million.

When applied to reduce Duquesne's income tax liability, investment tax credits related to utility proper-ty generally were deferred. Such credits ne subsequently reflected, over the lives of the related assets, as reductions to tax expense.

51 i

m

?

Energy Cost Rate Mlustmext CIsuse (ECR)

Through the ECR, Duquesne recovers (to the extent that such amounts ne not induded in base rates)

.I nuden fuel, fossil fuel and purchased power expenses and, also through the ECR, passes to in cus-romers the profits from short-term power sales to other utilities. Nudear fuel expense is recorded on the basis of the quantity of electric energy generated and indudes such casu as the fee, imposed by the United States Deputment of Energy (DOE), for future disposal and ultimate storage and disposition of spent nuclear fuel. Fossil fuel expense includes the costs of coal and fuel oil used in the generation of j

electricity.

Duquesne defers fuel and other energy expenses for recovery through the ECR in subsequent years. The deferrals reflect the difference between the amount that Duquesne is currendy collecting from customers and is actual fuel costs. The Pennsylvania Public Utility Commission (PUC) annually reviews Duquesne's fuel costs for the fiscal year April through March, compues them to previously projected fuel costs and adjusts the ECR for over-or under-recoveries and for two PUC-established coal cost stan-dards. (See Note J.)

Over-or under-tecoveries from customers ne recorded in the Consolidated Balance Sheet of Duquesne as payable to, or receivable from, customers. At December 31,1993 and 1992, $10.1 million and $18.9 million were payable to customers and shown as d<ferrrdenergy conr.

Cash Flows For the purpose of the statement of cash Bows, Duquesne considers all highly liquid investments matur-ing in three or fewer months to be cash equivalena.

Reclassifiestions The 1992 and 1991 financial statements have been reclassified to conform with accouncing presenta-I tions adopted during 1993 B. Extraordinary in 1984. Duquesne, Ohio Edison Company, The Cleveland Electric illuminating Company, Property Loss Pennsylvania Power Company and The Toledo Edison Company agreed to minimize construction work.

and cash expenditures on Perry Unit 2 until several alternatives, including resumption of construction or cancellation of the unit, were evaluated. Duquesne abandoned its interest in the unit in 1986 and subse-quendy disposed ofits interest in 1992.

In 1987, the PUC approved recovery, over a 10-year period, of Duquesne's original $155 million invest-ment in Perry Unit 2. Duquesne is not earning a return on the as yet unrecovered portion (approximate-ly $39.4 million at December 31,1993) ofits investment in the unit.

-i C. Capitalization Common stock and Capitsi surplus in July 1989, Duquesne became a wholly owned subsidiary of DQE, the holding company formed as part of a shareholder-approved restructuring. As a result of the restructuring, DQE common stock replaced all ouutanding shues of Duquesne common stock, except for ten shares which DQE holds.

DQE or its predecessor, Duquesne, has continuously paid dividends on common stock since 1953.

Dividends may be paid on DQE common stock to the extent permitted by law and as declared by its board of directors. However, in Duquesne's RestatedArticles ofincorporation, provisions relating to pre-

)

ferrrdandpreferenceirock may restrict the payment of Duquesne's common dividends. No dividends or i

distributions may be made on Duquesne's common stockif Duquesne has not paid dividends or sinking fund obligations on in preferred or preference stock. Further, the aggregate amount of Duquesne's com-mon stock dividend payments or distributions may not exceed certain percentages of nerincomeif the ratio of common stockholders'equiry to total capitalization is less than specified percentages. As all of Duquesne's common stock is owned by DQE, to the extent that Duquesne cannot pay common divi-dends, DQE may not be able to pay dividends to its common stockholders. No put of the irtained i

carningr of Duquesne was restricted at December 31,1993.

52

I

?

Capital Surplus (Amounn in &usandt of.Shm,)

Year Ended Decernber 31, 1993' 1992 1,991 Capital Surpha 5

Premium on mmmon stcd 807,593 808,707 764,687 Capital suxk expense (1,838)

(1,840)

(1,968)

TotalGepire/Surplur 5805,755

$806,867

$762,719 Preferred and Preference stost Holders of Duquesne's preferred stock ue entitled to cumulative quuterly dividends. If four quaterly dividends on any series of preferred stock are in arrean, holders of the preferred stock ue entided to elect a majority of Duquesne's board of directors until all dividends have been paid. At December 31, 1993, Duquesne had made all prefened stock dividend payments.

Holders of Duquesne's preference stock ue entitled to receive cumulative quanerly dividends if divi-dends on all series of prefened stock ue paid. Ifsix quaterly dividends on any series of preference stock are in urears, holders of the preference stock ue entitled to elect two of Duquesne's directors until all dividends have been paid. At December 31,1993 Duquesne had made all dividend payments.

Outstanding prrferredandprrfennce stock is generally callable, on notice of not less than 30 days, at stat-ed prices (See table on page 55.) plus accrued dividends. On Januuy 14,1994, Duquesne called for redemption of all ofits outstanding shues of $2.10 and $7.50 preference stock. None of the remaining preferred or preference stock issues has mandatory purchase requirements.

In December 1991, Duquesne established an Employee Stock Ownership Plan (ESOP) to provide matching contributions for a 401(k) Retirement Savings Plan for Management Employees. (See Note I.)

Duquesne issued and sold 845,070 shares of rrdumableprrference stock, plan serier A to the trustee of the ESOP. As consideruion for the stock. Duquesne received a note valued at $30 million from the trustee.

The preference stock has an annual dividend rue of $2.80 per shue, and each shue of the preference stock is exchangeable for one share of DQE common stock. At December 31,1993, $27.1 million of preference stock issued in connection with the establishment of the ESOP had been offset, for fmancial statement purposes, by the recognition of a deferred ESOP benefit. Dividends on the preference stock and cash contributions from Duquesne will be used to repay the ESOP note. During 1993, Duquesne made cash contributions of approximately $2.1 million, the difference between the ESOP debt service and the amount of dividends on ESOP shues (approximately $2.3 million). As shnes ofpreference stock ue allocated to the accounts of puticipants in the ESOP, Duquesne recognizes compensation expense, and the amount of the deferred compensation benefit is amonized. In 1993, Duquesne recog-nized $1.7 million ofcompensation expense related to the 401(k) plan.

53

?-

9 I

o Cretserst ont Pretornate $ lock of Oceansce ligQt Comoser at Decembe? 39 (SharaadAmounain 7housadt)

I993 1992 I99I G Price Per Share Sh ms Amour-Shares Amount Shares Amount Preferral Stodt Seriem (a) 3.75% (b)(c)

$ 51.00 148 $ 7,407 148 $ 7,407 148 $ 7,407 j

4.00% (b) (c) 51.50 550 27,486 550 27,486 550 27,486 4.10% (b) (c)

SlJ5 120 6,012 120 6,012 120 6,012 4.15% (b) (c) 51.73 132 6,643 132 6.643 132 6.643 4.20% (b) (c) 51.71 100 5,021 100 5.021 100 5.021 l

$2.10 (b) (c) 51.84 159 8,039 159 8,039 159 8,039

$7.20 (c) (d) 101.00 319 31,915 319 31,915 319 31.915

$8.375 (d)(c) 80 7,945 TorethrferndStock I,528 92,523 1,528 92,523 1,608 100,468 Pnferena Stock Seriem (f)

$2.100 (c)(g)(h) 25.00 1,175 29,383 1,175 29.383 1,175 29.383

$7.500 (d)(c)(h) 101.00 84 8,392 86 8.579 87 8.692

$9.125 (d)(c) 161 16,100 Plan Series A(c)(i) 37,74 844 29,956 845 29,995 845 30,000 Tota /IWfensceStock 2,103 67,731 2,106 67,957 2.268 84,175 Purchase and sinking fund rexguirements (17.300)

Defernd ESOP benefit (27,126)

(28,471)

(30,000)

TotAlbr[erndW8dbr[frWScrStock 3,631 $133,128 3,634 $132,009 3,876 $137,343 (a) Prderral mol 4.000,000 authorized shares, $50 par value; (O Prderence scock: 8.000.000 authorized shares; cumulative

$1 par value:curnularhe a.) 550 per shase incluntary liquitation value (g,) 525 per share involuntary l'eguxlaibn value (c) Non-redecmahle (h) blecmedJanuary14,1994 (d) $100 per share involuntary liquabn value (i) 535.50 per share invohmcary liquilarion value (c) hicemable j

long Term Gebt At December 31,1993, Duquesne had $1,433 billion ofoutstanding debt securities; these consisted of

$960 million of first collateral trust bonds, $49 million of first mortgage bonds,5418 million of po!!u.

tion control notes and $6 million of debentures.

During 1992 Duquesne began issuing secured debt under a new first collateral trust indenture. This indenture will ultimately replace Duquesne's 1947 first mortgage bond indenture.

First collateral trust bonds totaling $695 million and $265 million, and having weighted average interest rates of 6.58 percent and 8.04 percent, were issued in 1993 and 1992.

Since 1985, Duquesne has reacquired $ 1.%1 billion of first mortgage bonds. The difference between the purchase prices and the net carrying amounts of these bonds has been included in the consolidated balance sheet as unamorriudlaa on reacquinddebt. At December 31,1993, the balance of unamorriud lon on reacquireddebtwas $95.3 million.

54

r..........

?

. Long. Term Debt at Decembo?.11 l'rmci ulOucranding Senior Secured Debt at December 31, f

(Amounnin l7esuands ofDolbsn).

Interest Race (a)

Maturity 1993 1992 Fint CoUateralTrust Bonds:

4.75 %

5-15-96 5 50,000

)

6.08%.

11 15-97 50,000 50,000

' 6.15%

2-12 98 35,000 5.85%

6-01-98 35,000 6.55 %

11 15-98

5,000 5,000 5.90 %

7-01-99 75,000 6.45%

3-01-00 45,000 6.10 %

5-10-00 55,000 6.65 %

4-01-03 45,000 6.70 %

5-15-03 55,000 6.625 %

6 15-04 100,000 8.75%

5-15-22 100,000 100.000 8.20 %

11-15-22 10,000 10,000 l

7.625 %

4-15-23 100,000 8.375 %

5-15-24 100,000 100,000 l-7.55%

6-15-25 100,000 less current maturities and sinking fund requirements (b)

(9,600)

TeamlRret CallsarralTrustBendr 950,400 265,000 Fint Mortgage Bonds:

8.25 %

6-1-95 49,500 50,000 -

22,800 5.125%

2-1.')6 5.25% -

2-1-97 24,600 34,700 6.375 %

2-1-98 30,000 7.00 %

1 1-99 7.75%

7-1-99 28,647 29,700.

8.75 %

3-1-00 34,650 7.875 %

3-1-01 7.50 %

12-1-01 26,461 28,470 7.50 %

61-02 32,670 7.25 %

l 1 03 7.75%

7 1-03 35,000 -

8.625 %

4-1-04 43,650 9.50 %

3-1-05 49,000 8.375 %

4-1-07

' 96,400 9.50 %

12-1-16 98,000 99.000 9.00 %

2-117

. less cunent marurities and smkmg fund requirements (500)

(10,650)

TeastRrreMersygeBendr 49,000 753,098 TotalSemierSecuredDde 999,400 1,018,098 I

l' 55

-a

s

't.

e i

Other long-Term Debt at December 31 Prinnploumamling

)

(Amounain kraandsofDouan)

Interest Rate (a)

Maturity Series 1993 1992 lbilution Contml Notes:

(c)(d) 9111 1992 Allegheny County Series A 47,925 47,925 (c) 121-13 1990 Allegheny County Series A 50,000 50.000 5.739%

6-103 1973 Beawr County Series A 9,500 9,800 (c) 8-1-09 1990 Beawr County Series B 18,000 18,000 6.90 %

9-1 11 1976 Beawr County Series C 15,000 15.000 11.625 %

12-1-14 1984 Beawr County Series B 51,000

$1.000 l

(c) 8-1-20 1990 Beawr County Series A 13,700 13.700 (c) 8-1-25 1990 Beawr County Senes C 44.250 44.250 (c)(d) 9-1-30 1993 Beawr County Series A 25,000 10.50 %

10-113 1983 Ohio Dewlopment Authority 20,500 11.125% (d) 2-1-15 1985 Ohio Development Authority 38,610 38,610 (c) 9-1-18 1988 Ohio Development Authority 71,000 71,000 6.65% (c) 10-1-23 1989 Ohio Dewlopment Authority 13,500 13.500 (c)(d) 10-1-27 1993 Ohio Development Authority 20,500 less cunent maturities and smkmg fund requirements (1,719)

(690)

ToralMuries Cmsro/Norer 416,266 392,595 5% sinking fund debentures due March 1,2010 (f) 6,042 6.042 Misa:llaneous 216 278 I2ss unamortimed debt discount and premium-net (5,219)

(4,012)

Torelleng-Term Dr6r

$1,416,705

$1,413.001 (a) These intenst rates are the average coupon ram for mukiple issuanccs with the sarne maturity dares.

(b) Sinki fund mquixment relates to the fine mortpge bonds hekt by the trunee as collateraf for 6e pubt; -held collateral trust bonds. The outscanding cnheeral enue bonds do not have a sinkin6 und f

requuement.

(c) Cenain of the pollution connel noces have adjustable incense raie riods cunendy rangine fmm 1 to 360 davs.

On 30 days' to 90 dayi nocxx pnor to any incense reser date, uesne can change the sulsequent interest '

rate perkxi on the nocca to a d Terent interest rate pericxi rangi m 1 day to the final manuicy of 6e bonds.

(d) Issued in the form of first mortgage bonds or first collateral trust (c) Fcxed rate through fine fne years, aereafter becoming variable rates = in foocroce c (f) As ofJanuary 1994. the sinking fund requirement for 1995 had been met and 6e equirernent for 1996 had been paniJy satafed.

j At December 31,1993 and 1992, Duquesne was in compliance with all ofits debt covenants.

At December 31,1993, sinking fund requirements and maturities oflong-term debt outstanding for the next five years were: $11.8 million and $.1 million in 1994; $11.4 million and $49.6 million in 1995;

$11.2 million and $50.1 million in 1996; $10.8 million and $50.0 million in 1997; and $10.1 million and $75.0 million in 1998.

Sinking fund requirements relate primarily to the first mortgage bonds and may be satisfied by cash or the certification of property additions equal to 166-2/3 percent of the bonds required to be redeemed.

During 1993, annual sinking fund requirements of $.5 million were satisfied by cash and $4.8 million by certification of property additions.

Total interest costs incurred were $118.1 million in 1993, $133.9 million in 1992 and $147.2 million in 1991. Of these amounts, which included AFC, $2.0 million in 1993, $4.7 million in 1992 and 59.3 million in 1991 were capitalized. Debt discount or premium and related issuance expenses are amortized over the lives of the applicable issues.

56

\\

r In 1992, Duquesne was involved in the issuance of $419.0 million of collateralised lease bonds, which were originally issued by an unaffdiated corporation for the purpose of partially financing the lease of Beaver Valley Unit 2. Duquesne is also associated with a letter of credit securing the lessors' $188 mil-lion equity interest in the unit and cenain tax benefits. If cenain specified events occur, the letter of credit could be drawn down by the owners, the leases could terminate and the bonds would become direct obligations of Duquesne.

The pollution control notes arise from the sale of bonds by public authorities for the purposes of financ-ing construction of pollution control facilities at Duquesnis plants or refunding previously issued bonds.

Duquesne is obligated to pay the principal and interest on the bonds. For cenain of the pollution con-trol notes, there is an annual commitment fee for an irrevocable letter of credit. Under cenain circum-stances, the letter of credit is available for the payment ofinterest on, or redemption of, a portion of the notes. In June 1993, $25 million of pollution control notes were issued; the proceeds were used to reim-burse Duquesne for pollution control expenditures related to the Beaver Valley plant. In August 1993, pollution control notes totaling $20.5 million were refmanced at lower interest rates.

At December 31,1993, the fair value of Duquesnis long-term debt and redeemable preference stock approximated the carrying value.The fair value of Duquesnis long-term debt and redeemable prefer-ence stock was estimated on the basis of(a) quoted market prices for the same or similar issues or (b) current rates offered to Duquesne for debt of the same remaining maturities.

At December 31,1993, the fair market value of Duquesne's investment in DQE common stock was -

$34.0 million.

D. Receivables An arrangement between Duquesne and an unaffdiated corporation entitles Duquesne to sell, and the corporation to purchase, up to $100 million of Duquesnis accounts receivable. At December 31,1993 and 1992, Duquesne had sold $7.1 million and $66.3 million of durric customer accouna receivable and

$1.9 million and $9.7 million of receivables under contracts from co-owners ofjoindy owned generat-ing facilities, respectively, to the unaffdiated corporation. The sales agreement includes a limited recourse obligation under which Duquesne could be required to repurchase cenain of the receivables. The maxi-mum arnount of Duquesne's contingent liability was $2.8 million at December 31,1993.

E. Leases Duquesne leases nuclear fuel, a portion of a nuclear generating plant, office buildings, computer equip-ment and other property and equipment.

(Amounn in 7kusands ofDollan)

Capitalleases at December 31 1993 1992 Nuclear fue!

$136,755 5169.837 Electnc plant 41,045 42.335 TOrdt 177,800 212.172 Less accumulated amonization (84,717)

(101.860)

Ikopery Held Under CapiulLasses - Net (A)

$ 93,083 5110.312 (a) Indudes $3A92 in 1993 arul $3.782 in 1992 of capral leases with assoc aced obligations atind in 1987, Duquesne sold its 13.74 percent interest in Beaver Valley Unit 2: the sale was exclusive of transmission and common facilities. The total sales price of $537.9 million was the appraised value of Duquesnis interest in the propeny. Duquesne subsequently leased back its intercst in the unit for a term of 29.5 years. The lease provides for semiannual payments and is accounted for as an operating lease.

Duquesne is responsible under the terms of the lease for all costs ofits interest in the unit. In December 1992, Duquesne participated in the refmancing ofcollateralized lease bonds originally issued in 1987 for the purpose of partially financing the lease of Beaver Valley Unit 2. In accordance with the Beaver Valley Unit 2 lease agreement. Duquesne paid the premiums of approximately $36.4 million as a sup-plemental rent payment to the lessors. This amount wu deferred and is being amortized over the remaining lease term. Leased nuclear fuel is amortized as the fuel is burned. The amonization of all other 57

+

r leased property is based on rental payments made. Payments for capital and operating leases ne charged to operating expenses on the statement ofconsolidated income.

(Amounain husands ofDollan)

Summary of Rental Payments 1993 1992 1991 Operating leases

$57,398 5 64,986 5 65,414 Amortization ofcapitalleases 28,758 43.119 39,323 Interest on capital leases 5,382 7,880 10,057 Tote /Rentalltrymena

$91.538

$115.985

$114,794 l

Future minimum lease payments for capital leases ne related principally to the estimated use of nuclear fuel fmanced through leasing arrangements and building leases. Minimum payments for operating leases are related principally to Beaver Valley Unit 2 and the corporate headquarters.

Futuas Maimum Leane Payments (Amouna in husandt ofDollan)

Year Ended December 31, Operating leases Capitalleases 1994 5 53.467

$ 39.500 1995 51,970 24.987 1996 51,949 13,811 1997 51,836 8,041 1998 51,711 4,749 1999 and thereafter 976,176 28,278 TotalMinimum feaseIkymena

$1,237,109 119,366 Ins amount representing interest (29.775)

Pnsent value of muumum lease paymenu for capital leases

$ 89,591 Future payments due to Duquesne, as of December 31,1993, under subleases ofits corporate head-quarters space are approximately $1.7 million in 1994, $3.4 million in 1995 and $24.9 million there-after.

F. Income Taxes Since DQE's formation in 1989, Duquesne has fded consolidated federal income tax returns with its puent and other companies in the affdiated group. Duquesne's federal income tax returns have been audited by the Internal Revenue Service and closed for the tax years through 1989.

Returns filed for the tax years 1990 to date remain subject to IRS review. Duquesne does not believe that fmal setdement of the federal tax returns for these years will have a materially adverse effect on its fmancial position or results of operations. The effects of the 1993 adoption of SEASNo.109 are dis-cassed in Note A. Implementation of the standud involved a change in accounting principle. The cumulative effect of $8 million on prior years was reported in 1993 as an increase in net income. The SFAS No.109 impact to 1993 income before cumulative effect of changes in accounting principle is immaterial.

i At December 31,1993, the accumulated deferred income taxes of Duquesne totaled $1.146 billion. As discussed in Note A, this includes the deferred tax liability for the book and tax bases differences associ.

ated with (i) electricplantin service of $ 855 million: (ii) uncollecteddeferredincome rares of $199 million; and (iii) unamortizedlos on nacquimddebt of $40.9 million. Duquesne also nets against this liability balance the deferred tax assets associated with (i) investment tax credia unamorrindof $45.3 million and (ii) the gain on the sale and leaseback of Beaver Valley Unit 2 of $67.1 million. Duquesne expects to realize these deferred tax assets.

58

1 (Amounnin MusandsofDollan)

TotalIncome Tax Expense 1993 1992 1991 Induded in operating expenses:

Cunrndy payable:

Federal

$100,521

$ 80,850

$ 84,862 State 37,718 27,797 31,980 Defened - net:

Federal (20,133)

(3,208)

(4,823)

State (9,007)

(3,750)

(10,750)

Investment tax aedia deferred - net (5,399)

(5,436)

(5,328)

Tofal[nt[Ndadin DptratiNgEEpenses 103,700

%,253 95,941 Induded in other inmme and deduaions:

Currendy payable:

federal (17.557) 7,265 2,131 State (1,220) 2,983 1,074 Defened:

Federal 251 1,654 1,943 State 100 377

-443 Investment tax aedits (60 0 (533)

(459)

TotalIncludedin Other become and Deductwns (l9,033) 11,746 5,132 TotalIncoms TarErpense

$84,667

$107,999

$101,073 Total income taxes differ from the amount computed by applying the statutory federal income tax rate to income before income taxes, preferred and preference dividends of subsidiary and before the cumulative effect of changes in accounting principle.

(Amounnin MutandtofDollan)

Inmme Tax Expesme Reconcai=rian 1993 1992 1991 Computed federalineme tax at statutory rare

$ 80,309

$ 87,641

$ 83,030 increase (deaease) in taxes resulting fmm:

Tax audit secdement (15,000)

Excess of book cr,er tax depreciation 7,162 3,830 5,333 State income taxes, net of federal inmme tax benefit 17,934 18,089 15,013 Amortization of defened investment tax aedia (6,006)

(5,969)

(5,787)

Other-net 268 4,408 3,484 TotalIncoms TarErpense

$84,667

$107.999

$101.073 (Amounain MurandsofDollan)

Sources of Deferred Tar Expense 1993 1992 1991 Sources ofinmme taxes defened and the related tax effects were:

Excess of tax depredation

$16,651

$.16,611

$ 20,957 Deferred revenues remeded/(recovered) for book purposes (37,576)

(30,702)

(21,240)

Alkrwance for uncollectible acmunu (2,890) 9,760 (5,930)

Fuel msa 4,829 (10,820) 1,047 loss on early seturment ofdebt 9,798 20,999 (166)

Other-net (19,601)

(10,775)

(7,855)

TotalDefermdInconia T4eExpense fBeneft)

$(28,789)

$ (4,927)

$(13,187)

G. Short Term Duquesne has extendible revolving credit agreements with banks totaling $225 million. Expiration dates Borrowing and vary during 1994, Interest rates can, in accordance with the option selected at the time of each borrow-Related Credit ing, be based on prime, federal funds, Eurodollar or CD ratet Commitment fees are based on the D"*"I*

unborrowed amount of the commitments, i

59

3l s-

- r There were no short-term borrowings during 1992. During 1993 and 1991, the maximum shon term bank and commercial paper borrowings outstanding were $27 million and $66 million the average daily shon-term borrowings outstanding were $1.6 million and $11.0 millioni and the weighted average daily interest rates applied to such borrowings were 3.42 percent and 6.36 percent, respectively. At December 31,1993, shon-term borrowings were $11.0 million. Here were no shon-term borrowings at December 31,1992 or 1991.

(Amounain hwandsofDollan)

I1. Changes in Changes in Working Capital Othee Than Cmh 1993 1992 1991 Worlung Capital Accounts receivable 5(87,671)

$64,571

$(55,001)

Other Than Cash Materials and supplies 13,635 (4,151)

(3,122)

Other current assets 3,636 7.131 (8,050)

Accounts payable (6,022)

(8.573)

(465)

Other current liabilities (20,377)

(3.785) 24,987 Total 5(96,799)

$55,193

$(41,651)

I. Employee Benefits Retirement Plans Duquesne maintains retirement plans to provide pensions for all full-time employees. Upon retirement, an employee receives a monthly pension based on his or her length of service and compensation. He cost of funding the pension plan is determined by the unit credit actuarial cost method. Duquesne's pol-icy is to record this cost as an expense and to fund the pension plans by an amount that is at least equal to the minimum funding requirements of the Employee Retirement income Security Act (ERISA) but not to exceed the maximum tax deductible amount for the year. Pension costs charged to expense or construction were $9.8 million for 1993, $11.4 million for 1992 and $11.2 million for 1991.

(Amounain hwandtofDollan)

Funded Samens of the Reunment Ihns and Amounts As Dnemba31, Recogmad on the Consolulated Balance Sheet of Duquesne 1993 1992 1991 Actuanal present value of benefia rendered to date:

Vested benefits

$321,249

$287,360

$279,917 Norewsted benefia 16,826 16,252 14.294 Accumulated benefit obliganons based on compensacion to date 338,075 303,612 294.211 Additional benefits based on estimated future salary lewis 74,718 77,017 64,919 Projected benefit obligation 412,793 380,629 359,130 Fair market value ofplan asaca 434,384 411,440 392.027 Pn);ected benefit obligation under plan asset:

$ 21,591

$ 30,811 5 32,897 Unrecngnued net gain 5 80,411 5 81,971

$ 86,695 Unncognaed prior service cost (21,449)

(20,848)

(22,317)

Unncognard net transition liability (19,289)

(21,102)

(22,913)

Net pension liability per balano: sheet (18,082)

(9,210)

(8,568) f Teral

$ 21,591

$ 30,811

$ 32,897 Assumed rate of return on phn assea 8.00 %

8.00 %

7.50 %

Discount race used to deremune projeard benefit obligation 7.00 %

7.50 %

7.50 %

Assumed change in compensation leveh 5.25 %

5.75 %

5.75 %

Pension assets consist primarily of common stocks, United States obligations and corporate debt securi-

)

ties.

60

3 1

(Amouna in Ihnaands ofLbil.m)

Components ofNet IVnsion Coet 1993 1992,

1991 Service cost (Benefits earned during the year) 5 11,657 5 11.397

$ 9,911 Interest on pmjected benefit obligation 27,423 26,390 24,705 Return on plan auets (41,725)

(26,736)

(80,716) i Net amortization and deferrals 12,454 325 57,319 NrrIbssion Corr 5 9,809 5 11,376

$ 11.219 Retirotnent $svings Plan and Other Genefit Options Duquesne sponsors separate 401(k) retirement plans for its union-represented employees and its man-agement employees. The 401(k) Retirement Savings Plan for Management Employees provides that Duquesne will match employee contributions to a 401(k) account up to a maximum of 6 percent of his or her eligible salary. Duquesne's match consists of a $.25 base match and an additional $.25 incentive match, if rugets approved by it's board of directors are met. He 1993 incentive target was met.

Duquesne is funding its matching contributions with contributions to an ESOP established in December 1991. (See Note C.)

Duquesne's shareholders have approved a long-term incentive plan through which Duquesne may grant management employees options to purchase, during the years 1987 through 2003, up to a total of five million shues of DQE common stock at prices equal to the fair market value of such stock on the dates the options were granted. At December 31,1993, approximately 2.9 million of these shues were avail-able for future grants.

As of December 31,1993,1992 and 1991, respectively, active grants totaled 1,174,000; 823,000; and 1,263,000 shues. Exercise prices of these options ranged from $12.3125 to $34.1875 at December 31, 1993 and from $12.3125 to $28.75 at December 31,1992 and 1991. Expiration dates of these grants ranged from 1997 to 2003 at December 31,1993; from 1997 to 2002 at December 31,1992; and from 1997 to 2001 at December 31,1991. As of December 31,1993,1992 and 1991, respectively, stock appreciation rights (SARs) had been granted in connection with 778,000; 612,000; and 822,000 of the options outstanding. During 1993,103,000 SAlb were exercised; 8,500 options were exercised at prices ranging from $12.3125 to $28.375; and $2,000 options lapsed. During 1992,108,000 SARs were exer-cised; 50,000 options were exercised at prices ranging from $12.3125 to $26.375; and 59,000 options lapsed. During 1991,229,000 SARs were exercised; 11,000 options were exercised at $ 12.3125; and 48,000 options lapsed. Of the active grants at December 31,1993,1992 and 1991, respectively, 549,000; 211,000; and 526,000 were not exercisable.

Other Postratirement Genefits in addition to pension benefits, Duquesne provides certain health care benefits and life insurance for some retired employees. Substantially all of Duquesne's full-time employees may, upon attaining the age of 55 and meeting certain service requirements, become eligible for the same benefits available to retired employees. Puticipating retirees make contributions, which are adjusted annually, to the health cue plan. The life insurance plan is non-contributory. Company-provided health care benefits terminate when covered individuals become eligible for Medicue benefits or reach age 65, whichever comes first.

Duquesne funds actual expenditures for obligations under the plans on a " pay-as-you-go basis."

Duquesne has the right to modify or terminate the plans.

As ofJanuary 1,1993, Duquesne adopted Statement ofRnancialAccountingStandards Number 106, Employrs'AccountingforIbstrrrirrment Beneper Other Than Pensions. which requites the actuarially deter-mined costs of the aforementioned postretirement benefits to be accrued over the period from the date of hire until the date the employee becomes fully eligible for benefits. Duquesne has adopted the new standard prospectively and has elected to amortize the transition liability over 20 yeus.

61

u z

• e in prior years, Duquesne recogniad the cost ofproviding postretirement benefits by expensing the con-tributions u they were made. Costs recognized under this method in 1992 approximated $1.2 million.

The new accrual method increased the car recogniud for providing postretirement benefits to approxi-l mately $6.0 million.

(Amounrrin hwands ofLkilan)

Components ofIbstretirernent Cost 1993 -

Service unt (Benefia camed during the period)

$1.779 Interest cost on accumuhted benefit obligation 2,497 Amortization of the transition obligation over twenry years 1,700 Tord1%sartarmmr Cost

$5,976 The accumulated postretirement benent obligation comprises the present value of the estimated future benefits payable to current retirees and a pro rata portion of estimated benents payable to active employ-ces after retirement.

Funded SIstos of Postratirement Plan and Amounts Recognited on the Consollisted Isionse Sheet of Duquesne at December 31,1993 (Amounnin &wandsofDollan)

Actuanal present value of benefits:

Petirees

$ 4,830 Fully eligible active plan participana 3,482 Other active plan participana 24,170 Accumulated postreurement benefit obligation 32,482 Fair market value of plan auet 0

Accumulated benefit obligation in excess of plan assets

$(32,482)

Unrecognized net km

$(122)

Unrecognized prior service cost 4,383 Unrecr>gnized net trandtion liability (32.296) lhuetirement liability per balanc sheet (4,447)

Tot 4

$(32,482) -

For measurement purposes, a 10.5 percent increase in the cost of covered health care benefits was assumed as ofJanuary 1,1993.This rate is assumed to decrease to 5.5 percent by 1999 and remain at that level thereafter. The health care cost trend rate assumption hu a significant effect on the amounts reported. A 1 percent increase in the health care cost trend rate would increue the accumulated postre-tirement benent obligation by $4.0 million at January 1,1994 and the net annual cost by $0.6 million for the year. The weighted average discount rate used in determining the accumulated patretirement benefit obligation wu 7 percent.

J. Rate Matters fut ante esse in March 1988, the PUC adopted a rate order that increased Duquesne's annual revenues by $232 mil-lion to be phned in from April 1,1988 through April 1,1994. Deficiencies which resulted from the phne-in plan in current revenues from customers have been included in the consolidated income state-ment as deferred revenues. Deferred revenues have been recorded on the balance sheet as a defe red asset for future recovery. As customers were billed for deficiencies related to prior periods, this deferred uset we reduced. As designed, the phne-in plan provided for carrying charges (at the after-tax AFC rate) on revenue: deferred for future recovery. Since April 1993 Duquesne has not recorded additional carrying charges on the deferred revenue balance. As of December 31,1993, Duquesne had recovered previously deferred revenues and carrying charges of $285.9 million. Phase-in plan deferrals of $28.6 million 62

f 4

remained unrecovered as of that date. Duquesne expects to recover this remaining unrecovered balance by the end of the phase-in period.

At this time, Duquesne has no pending base rate case and has no immediate plans to fde a liase rate case.

Oeferred Role Synchronirslion Costs in 1987, the PUC approved Duquesne's petition to defer initial operating and other costs of Perr I and Beaver Valley Unit 2. Duquesne deferred the costs incurred from November 17,1987, when the units went into commercial operation, until March 25,1988 when a rate order was issued. In its order, the PUC deferred ruling on whether these costs would be recoverable from ratepayers. At December 31, 1993, these costs totaled $51.1 million, net of deferred fuel savings related to the two units. Duquesne is not earning a retum on the deferred costs. Duquesne believes that these deferred costs ue recoverable. In 1990, another Pennsylvania utility was permitted recovery, with no return on the unamortized balance, of simuar costs over a 10-year period.

Deterred Energy Costs Duquesne defers fuel and other energy costs for recovery in subsequent yeus through the ECR. The deferrals reflect the difference between the amount that Duquesne is currendy couecting from customers and its actual fuel costs. ne PUC reviews Duquesne's fuel costs annuauy, for the fiscal year April through March, against the previously projected fuel costs and adjusts the ECR for over-or under-recoveries and for two PUC-established coal cost caps.

The PUC has established muket price coal cost standards for all Permsylvania utdities that have interests in mines that supply coal to their generating stations. Duquesne is subject to two such standards. One applies only to coal delivered at the Mansfield plant.The other, the system-wide coal cost standud, applies to coal delivered to the remainder of Duquesne's system. Both standards ue updated monthly to reflect prevailing muket prices for similar coal. The PUC has directed Duquesne to defer recovery of the delivered cost of coal to the extent that such cost exceeds generally prevailing market prices, as deter-mined by the PUC, for simuu coal. The PUC allows deferred amounts to be recovered from customers when the delivered costs ofcoal fall below such PUC-determined prevailing muket prices.

In 1990, the PUC approved a joint petition for settlement that cluified certain aspects of the system-wide coal cost standud and gave Duquesne options to extend the standud through Much 2000. In December 1991, Duquesne exercised the first of two options that extended the standard through Much 1996. The unrecovered cost of coal used at Mansfield unounted to $7.4 million and the unrecovered cost of coal used throughout the system amounted to $8.8 million at December 31,1993. Duquesne believes that all deferred coal costs will be recovered.

Wstwick Mins Costs The 1990 joint petition for setdement (See preceding section on deferred energy costs.) also recognized costs at Duquesne's Warwick Mine, which had been on standby since 1988, and allowed for recovery of such costs, including the costs of ultimately closing the mine. In 1990, Duquesne entered into an agree-ment under which an unaffdiated company will operate the mine until March 2000 and sell the coal produced. Production began in late 1990. The mine reached a full production rate in cady 1991. The Warwick Mine coal reserves include both high and low sulfur coah the sulfur content averages in the mid-range at 1.7 percent - 1.9 percent sulfur content. More than 90 percent of the coal mined at Wuwick currently is used by Duquesne. Duquesne receives a royalty on sales of coal in the open mar-ket. The Wuwick Mine currendy supplies less than one-fifth of the coal used in the production of elec-tricity at the plants owned or co-owned by Duquesne.

Costs at the Warwick Mine and Duquesne's investment in the mine ue expected to be recovered through the ECR. Recovery is subject to the system-wide coal cost standud. Duquesne also has an opportunity to earn, through the ECR, a retum on its investment in the mine during the period, including extensions, of the system-wide coal cost standard. At December 31,1993, Duquesne's net investment in the mine was $24.5 million. He estimated current liabdity for mine closing (including final site reclamation, mine water treatment and certain labor liabilities) is $33.0 million and Duquesne has collected approximately $8.9 miUion toward these costs.

63

i 5f+

(

i Property Held for futare (Ise In 1986, the PUC approved Duquesne's request to remove the Phillips and most of the Brunot Island (BI) power stations from service and place them in cold reserve. Duquesne's capitalized costs and net j

investment in the plants at December 31,1993 totaled $130 million. (See Note L)

On December 8,1993, the New Jersey Boud of Regulatory Commissioners (BRC) denied a request by General Public Utilities' (GPU) subsidiuy Jersey Central Power and Light Company for approval of the long-term power purchase and operating agreements, originally signed in 1990, between GPU and Duquesne and further amended culier in 1993. The BRC rejected an administrative law judge's recom-mended decision that the project be approved and, within hours of the BRC decision, GPU terminated i

its puticipation in the project. In view of GPU's decision not to proceed, Duquesne terminated its pu.

ticipation in the project and in the PUC transmission line siting proceeding. During the fourth quater of 1993, Duquesne recognized a charge of approximately $15.2 million for its investment in this aban-doned GPU transmission line project.

Duquesne expects to recover its net investment in these plants through future sales. Phillips and BI rep-resent licensed, certified, clean sources of electricity that will be necessary to meet expanding opportuni-ties in the power markets. Duquesne belit es that anticipated growth in peak load demand for electricity within iu service territory will require adutional peaking generation. Duquesne looks to BI to meet this need. The Phillips Power Plant is an important cornponent in meeting market opportunities to supply long term bulk power. Recent legislation may permit wider transmission access to these long-term bulk power mukets. In summuy, Duquesne believes its investment in these cold-reserved plants will be nec-essuy in order to meet future business needs. If business opportunities do not develop as expec ed, Duquesne will consider the sale of these assets. In the event that maket demand, transmission access or rate recovery do not support the utilization of sale of the plants, Duquesne may have to write off put or all of their costs.

K. Commitments nna construction at ngencies Duquesne estimates that it will spend approximately $110 million on construction during 1994.

Construction expenditures ne estimated to be $70 million in 1995 and $80 million in 1996. These amounts exclude AFC, nuclear fuel and expenditures for possible early replacement of steam generators at the Beaver Valley Station.

Westingtteuse lawsuit In 1991, the co-owners of Beaver Valley Uniu 1 and 2 fded suit against Westinghouse Electric Corporation (Westinghouse) in the United States District Court for the Western District of Pennsylvania. The suit alleges that six steam generators supplied by Westinghouse for the two units con-tain serious defects --in particular defects causing tube corrosion and cracking. Duquesne is seeking monetuy and corrective relief. Steam generator maintenance costs have increased as a result of these defects and ue likely to continue increasing. The condition of the steam generators is being monitored

~

closely, if the corrosion and cracking continue, replacement of the steam generators could be required prior to the ends of their 40-year design lives. Duquesne is continuing to conduct a corrective mainte-nance program and to explore longer term options, including replacement of the steam generators.

While Duquesne has no current plans to replace the steam generators and has not yet completed a detailed, site-specific study, replacement cost per unit is estimated to be between $100 million and $150 million. (Other utilities with similar units have replaced steam generators at costs in this range.)

Duquesne cannot predict the outcome of this matter; however, Duquesne does not believe that resolu -

tion will have a materially adverse effect on it's fmancial position or results of operations. Duquesne's percentage interesu (ownership and leasehold) in Beaver Valley Unit 1 and in Beaver Valley Unit 2 ue 47.5 percent and 13.74 percent, respecuvely. The remainder of Beaver Valley Unit 1 is owned by Ohio Edison Company and Pennsylvania Power Company. The remaining interest in Beaver Valley Unit 2 is owned by Ohio Edison Company, Cleveland Electric Illuminating Company and Toledo Edison Company. Duquesne operates both units on behalfof these co-owners.

64

q y

o 7,

Mostest ICsursnce Co-owners of the Beaver Valley Power Station maintain the maximum available nucleu insurance for i

the $5.9 billion total investment in Beaver Valley Units 1 and 2. The insurance proj; ram pit >vides $2.7 billion for property dunage, decommissioning, and decontamination liabilities. Similu property insur-ance is held by the joint owners of the Perry Plant for their $5.4 billion total investment in Perry Unit 1.

Duquesne would be responsible for its shue of any damages in excess ofinsurance coverage. In addition, if the property damage reserves of Nucleu Electric Insurance Limited (NEIL), an industry mutual, ue inadequate to cover claims arising from an incident at any United States nuclear site covered by that insurer, Duquesne could be assessed retrospective premiums of as much as $6.5 million for up to seven years.

The Price-Anderson Amendments to the Atomic Energy Act limit public liability from a single incident at a nuclear plant to 59.4 billion. Duquesne has purchased $200 million ofinsurance, the maximum amount available, which provides the first level of financial protection. Additional protection of $8.8 bil-lion would be provided by an assessment of up to $75.5 million per incident on each nuclear unit in the United States. Duquesne's maximum total assessment, $56.6 million, which is based upon its ownership interests in nuclen generating stations, would be limited to a maximum of $7.5 million per incident per yen. A further surcharge of 5 percent could be levied if the total amount ofpublic claims exceeded the funds provided under the assessment program. Additionally, a premium tax of 3 percent would be charged on the assessment and surcharge. Finally, the United States Congress could impose other rev-enue-raising measures on the nucleu industry if funds prove insufficient to pay claims.

Duquesne carries extra expense insurance; coverage includes the incremental cost of any replacement power purchased (in addition to costs that would have been incurred had the units been operating) and other incidental expense after the occurrence of cert 2in types of accidents at it's nuclear units. The amounts of the coverage ne 100 percent of the estimated extra expense per week during the 52-week period starting 21 weeks after an accident and 67 percent ofsuch estimate per week for the following 104 weeks. The amount and duration of acrual extra expense could substantially exceed insurance cover-age-Gustentess Duquesne and the other co-owners have guaranteed certain debt and lease obligations related to a coal supply contract for the Bruce Mansfield plant. At December 31,1993, Duquesne's share of these guar-antees was $35.2 million. The prices paid for the coal by the companies under this contract are expected to be sufficient to meet debt and lease obligations to be satisfied in the year 2000. (See Note J.) The minimum future payments to be made by Duquesne solely in relation to these obligations ue $6.9 mil-lion in 1994, $6.6 million in 1995, $6.3 million in 1996, $5.9 million in 1997, $5.6 million in 1998,

$5.3 million in 1999 and $4.1 million in 2000. Duquesne's total payments for coal purchased under the contract were $26.5 million in 1993, $25.2 million in 1992 and $32.6 million in 1991.

Residual Weste Management Requis! Ions In July 1992, the Ihnnsylvania Deputment of Environmental Resources (DER) issued residual waste management regulations governing the generation and management of non-hazardous waste. Duquesne is currendy conducting tests and developing compliance strategies for these regulations. Capital compli-ance costs ue estimated, on the basis of currendy available information, at $10 million through 1995.

Through the year 2000, the expected additional capital cost of compliance, which is subject to the results of ground water assessments and DER final approval of compliance plans, is approximately $25 million.

Other Duquesne is involved in vuious other legal proceedings and environmental matters. Duquesne believes that such proceedings and matten. in total, will not have a materially adverse effect on its financial posi-tion or results of operations.

65 1

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• A 4 -.,

L, Genzrating Unlu In addition to its wholly owned generating units. Duquesne, together with other electrie utilities, has an ownership or leasehold interest in certain joindy owned units. Duquesne is required to pay its share of

~

the construction and operating costs of the units. Duquesne's share of the operating expenses of the units is included in the Statement of Consolidated income.

Genersting Unit: at December 31,1993 Net Perantage Utility Fuel Unit Interest Megawaru 11 ant Soun:e (Millions ofDollan)

Cheswick 100.0 570

$ 124.4 Coal Elrama (a) 100.0 487 91.7 Coal Ft. Martin 1 50.0 276 39.2 Coal Easdake 5 31.2 186 46.9 Coal Sammis 7 31.2 187 54.7 Coal Bruce Mans 6 eld 1 (a) 293 228 653 Coal Bruw Mansfield 2 (a) 8.0 62 17.5 Coal Bruce Mans 6cid 3 (a) 13.74 110 51.0 Coal Beaver Valley 1 (b) 47.5 385 2623 Nuclear BeaverValley2 (c)(d) 13.74 113 15.5 Nuclear Beaver Valley Common Faalities 169.5 Ihry 1 (e) 13.74 164 608.7 Nuclear Brunot Island 100.0 66 7.4 Fuel Oil Teral 2,834 1,554.1 1

Cold-reserved units:

i Brunot Idand 100.0 240 44.5 FuelOil Phillips (a) 100.0 300 78.0 Coal

-l Tela [hfMffWidssg ($s[#

3.374

$1,67b.b ne unit is equipped with flue gu desulfurization eguipment.

On October 2, granted a license to operate through January 2016.1987 Duquesne sold iu 13.74 He NRC ha transminion and common facilities. Amounts shown represent facilities not sold and subsequent leuchold improvements.

(d) ne NRC hu granted a license to operate throurh May 2027.

(c) ne NRC ha granted a license to operate throu@ Much 2026.

M. Quarteriy sununsty at selectenuanumsneist osts (thousade et doslus, usut pu shus smoue)

Financial,

%uartedy dae w weather variarbns in %ne's & te%

Infonnation (Unaudited) 1993 (a)

F nt Quarter Second Quaner Hird Quaner Fourth Quaner Operating Revenues

$283,845 5274,311 5324,577

$278,243 Operating Income 58,537 60,618 66,339 60J92 Income Before Cumulative Effect on Prior Years ofChanges in Accounting Principles 32,788 34,570 48,478 28,951 Net Income 35,363 34,570 48,478 28,951 1992 Operating Revenues (b)

$298,178

$290,149

$314,515

$284.547 Operating Income (b) 62,810 59,200 74,600 57,520 Net Income 36,171 32,769 47,996 32.832 (a) Founh quaner 1993 :esula induded the etTects of a 515.2 million charge for the wnte-off of Duquesne's mvestment in abandoned transminion line project (See Note J.) and a 514.6 million reductbn of taxes other than income u a sesult of a favorable resolution of tax auessments.

(b) Restated to conform with presentations adopted during 1993.

66 2

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• SELECED FINANCIAL DATA Thousands of Douars 1993 1992 1991 1990 1989 1988 1

INCOME STATEMENT ITEMS Total operating revenues

$1,160,976

$1,187389

$1,199,650

$1,131,005

$1,118.583

$1,060,817 Operating inmme 5 245,886

$ 254,130

$ 265,672

$ 266,402

$ 269,506

$ 244,342 Net income

$ 147,362

$ 149,768

$ 143,133

$ 135,456

$ 129,437 5 137,422 Eamings for common stock

$ 138,174 5 140357

$ 132,332

$ 121,410

$ 112,644

$ 118,566 BALANCE SHEETITEMS l

Property, plant and equipment-net

$3,118,766

$3,015,694

$3,035,115

$3,040,562

$3,053,978

$3,065,922 Total assets

$4,397,466

$3,727,455

$3,811,989

$3,803,676

$3,822,656

$3,799,334 Capitalization:

Common stockholder's equity

$1,100,671

$1,107.609

$1,064,104

$1,035,059

$1,033,826

$1,070,575 Non-n deemable preferred and preference stock 124,736 123,430 121,906 151,346 154,030 154,073 Redeemable prefened and preference stock 8,392 8,579 15,437 37,747 65,961 90,743 fong-term debc 1,416,705 1,413,001 1,420,726 1,501,295 1,540.329 1,550,231 Total capim6mn

$2,650,504

$2.652,619

$2.622,173

$2,725,447

$2,794,146

$2,865,622 l

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4 Duquesne Light Company and Subsidiary Calculation of Ratio of Earnings to Fixed Charges (Thousands of Dollars)

Year Ended December 31, 1993 1992 1991 1990 1989 FIXED CIIARGES:

Interest on long-term debt

$102,938

$119,179

$127,606

$135.850

$140,623 Other interest 3,517 2.464 2,339 6,148 12,332 Amortization ofdebt discount, premium and 5,541 4,223 3,892 4,039 4,010 expense-net Portion oflease payments representing an interest factor 45.925 60.721 64.189 64.586 64.854 Total Fixed Clurges

$157.921

$186.587

$198.026

$210.623

$221.819 m

EARNINGS Income from continuing operations

$144,787

$149,768

$143,133

$135.456

$129,437 Income taxes 84,667 107,999 101,073 84,478 75,151 Fixed charges as above 157.921 186.587 198.026 210.623 221.819 Total Earnings

$387.375

$444.3M

$442.232

$430.557

$426.407 e

ES RATIO OF EARNINGS TO FIXED CllARGES 235 23 221 231 L22 E

E rn C

S Duquesne's share of the fixed charges of an unaffiliated coal supplier, which amounted to approximately $4.0 million for the year ended December 31, g

1993, has been excluded from the ratio.

n O

sW C!

5.

w C

i

a e

g, a DUQUESNE LIGHT COMPANY EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-52782 and 33-63602 of Duquesne Light Company on Form S-3 of our report dated January 25,1994, appearing in the Annual Report on Form 10-K of Duquesne Light Company for the year ended December 31,1993.

/s/ Deloitte & Touche DELOITTE & TOUCHE Pittsburgh, Pennsylvania March 22,1994 69