ML20081F172

1990 Annual Rept of Shareholders

ML20081F172
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1990
From:	Von Schack W DQE
To:
Shared Package
ML20081F108	List: ML20081F103 ML20081F111 ML20081F157 ML20081F163 ML20081F167 ML20081F172
References
NUDOCS 9106070097
Download: ML20081F172 (52)

Text

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. - FINANCI AL AND OPERATING lilGlillGilTS QDOE synent change avvo im 1%s  % v3 89 m vs 88 Operating Revenues tln Milhon:) $ 1,134.3 $ 1,120 7 $ 1/163 2 12% 54%

ikiok value per Share of Commc n Stock at Year End $ 20.07 $ 19.27 5 18 51 42% 41%

Larnings per Share of Common Stock $ 2.24 5 2 03 5 186 103 % 91%

Shares of Common Stock Outstending at Year Lnd (000) 53,759 55340 57.831 -2% -43%

Annuali/ed Dividends Declared per dnare at Year Lnd $ l.44 $ 136 $ I28 5% 63%

Retur n on Average Common Equity I I .3% 106% 104 % 66% 19%

Net Operating Cash flow (In Milhons) $ 275.1  ! 2078 $ 1659 32 4 % 252 %

Longlerm Debt and Freferred Stock (in Milhons) $ 1,690.4 $ 1.7603 51,7950 -40% - 1.9%

Inletest on Long ~1erm Debt (In Millions) $ 139.9 $ 144 6 $ 152.7 -33% - 53 %

Stock Price at Year -End 5 24.875 $ 23875 $ 18.750 42% 273 %

Retail Sales (MWlh 11,694 11,569 11,604 1.1 % -- 0 3%

, Annual System Gereration (MWlb 13,986 14316 14,976 -23% -4,%

li'ak Load (MW) 2,379 2381 2372 - 0.1 % 0.4 %

x Earnings per Share End of Year Dividend Rate 00E Cornmon Stock Performance 1990 (Dollars per Share) (Dollars per Share) (Dallars per Share)

IPM) $2 24 1990 . Si 44 __

Mll9 12 03 . _

IM9 51 36. _

1%8 $129 1%8 $186 53 1r $185  ; IW __ li 2s ,

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L illi 11L_ 87 88 89 90 E J f M A M J J A S 0 N D 87 88 89 90 Earnugs per share ncreased 21% unce Our annualued "vdend rate increased 00E corn 11on stock reached a 17 year 1987 20% since 1987 big *1 of 25% in 1990 oNE

To OUR SH AREHOLDERS -

Nmeteen ninety was the first full doing business that support our year of operation for DQL lt was corporate objective-to be a low-a good year. cost pmducer and profitable sup-We formed DQE in 1989 because pher of electric energy and related we believed that the best way to energy services, recognized for prosper in the current energy excellence and quality marketplace was to create a hold ing company organizational 7tiking the Initiaffee structure designed to accommo- A major initiative in 1990 was the date changt and give as the llext signing of a contract to sell bility to help initiate opportunities General Pubhc Utilities Corpora-Our organizational and financial tion (GPU) 500 megawatts of restructuring, the vitality of our power and to jointly construct core business terntory, and the and own a 200 mile transmission prospect of new opportunities line. The proposed line could sunounding our proposed trans deliver up to 1,500 megawatts of action to sell power in the Last power from Pittsburgh to an intet-position us well for the future. connection, near 11arrisburg, with we were able to convert a the power grid serving energy-m s ga n in sales and rmnues h areas along h EaM M Wesley W son Schack clarnun el the tuml amt into a 103 percent increase in in addition to being consistent chyl necutne oficer earnings per share. Mild cummer with President llush's plans for a weather and the initialimpact of national energy atrategy, this the current recession resulted in transaction has the potential to lower than expected retail cus- create jobs, to reactivate a power tomer sales end revenues Sales plant that meets new Clean Air j to retail customers increased Act standards, and to develor a i I

1.1 percent in 1990 to 11.7 billion local energy export industry.

kilowatt-hours Revenues from Clearly, this multiyear project retail customers increased i A otlers many advantages. The percent to $1 P4 billion. potential for jobs is particularly Our earnings per share of $2 24 important in a time ofincreasing repredent i 21 cent increase over economic uncertainty in the state.

1989 As a rt ult of this increase, The agreement includes the trans-we are able to oiic' a quarterly fer to GPU of a 50 percent interest 1991 dividend increase of two in our Phillips Power Station,which cents, to 36 cents per share. would be returned to service in With the onset of recession, we 1994. Restart of that major power continue to re-examine every aspect of our company, aiming to strictly coatrol expenses while seeking to establish better ways of rwo

-. . -- ... , - . . - - ~..-- . - . . . - - - . . - . _ _ . - - . -

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. plant and building of the trans- vital heart of DQl1 Your company "Our long standing commitment to mission line can provide sigmfb has a competitive advantage over cant impetus to economic many other electric energy providers improving the environment greatly development in Itnnsylvania- in four key areas.

creating more than 2.000 con- first, we have no need for new lessens the potentialimpact of new struction jobs and 1,000 perma. paseload generation our total ac-nent jobs in power production, liv. oenerallAg capacity is 2335 Clean Air Act regulations."

coal mining,and support activities meuwatts. More than 500 further, southwestern ltonsyl- sr cpwatts will be added in 1994,

- vania enjoys a wealth of fuel witn the proposed restart of Phil-sources, Removing the transmis- lips Ibwer station and the already sion bottlent k can open a size- scheduled 1994 reactivation of able market t ,r these resources Brunot Island Ibwer Station This and help establish the foundation will give us enough margin to for a local energy export industry meet both anticipated system de-In December, we petitioned the mand and the sale to GPU. The

- Pennsylvania Public Utility Com- combination of available power mission (PUC) for approval of the and the potential ownership of DQE-GPU transaction. This additional transmission capacity project serves the interests of all adds to our ability to meet future of our constituencies. Yet we want .. demand in the Pittsburgh region to be sure that the PUC supports it and in markets in the East.

before we invest major capitalin - Second, our long-standmg plant reactivation and transmis-- commitment to improving the sion line work An ambitious yet environment-more than $600

- realistic schedule has been set for million invested in air- and ,

this project. For the wide rang ng water-control equipment since ,

benefits of this transaction to be 1970-greatly lessens the poten-realized, approval from the PUC is tialimpact of newClean Air Act needed during 1991. regulations. Thanks to that invest- ,

ment, more than 80 percent of ,

.Our Core Business lias the companv's total capacity can Competitive Advantages be generated by facilities that are

, Providing ekctricity to more than -

in full' comphance with 1995 sul-574,000 customers in Allegheny fur dioxide emission standards.

and Deaver counties in south- - Emissions wi!! be reduced at western Pennsylvania still is the plants providing the remaining

. capacity to put us in complete

- compliance by the deadline.

To the extent possible, we plan to hmit long term capital and i m y u .--wr,---- .- v wrnat- - + , ~-T T '-%9'=-P.-'97' .P <-- 4- T-- 4' . + +'=-4 Pef _ .

1 "During the past three years, your total operating commitments by using regional organizations, we can l least-cost compliance options, take some credit for the compara- l return, includin0 stock price apprecia- including cleaner coal This tively sound economic health of approach will enable us to take today's revitalized Allegheny and i tion and the dividend, has been in the c4 vantage ofimprovements in Beaver counties, I emission control technologies in highlighting these broad top 25 percent of industry performance." expected during this decade. competitive advantages, we can.

Third,our fuel sources are stable not overlook the outstanding con- l and in good supply We do not tributions made by our people in l rely on oil to generate electricity. every aspect of daily operations.

Abundant coal supplies 75 per- Continued operations excellence -!

cent of the company's luel mix, and high kvels of customer satis-with the remaining 25 percent faction will be key factors in your generated by nuclear fuel. This company's ability to compet in balanced mix helps us to keep the new energy marketplace, both fuel costs competitive and to within and outside its traditional maintain reliability service territory And fourth, while both the na-tional and regional economies Looking Ahead clearly are in :ession, we do not Financial restructuring has been anticipate long term implications one of the most successful com-in southwestern Pennsylcania. ponents of our business strategy Continued diversification of the We expect to continue this activity business and industrial base has as long as it makes economic

- lessened the area's and your sense to do sa During the past cornpany's-exposure to a severe three years, your total return,in-economic downturn such as that cluding stock price appreciation of the early 1980s, when the and the dividend, has been in region was so dependent on the the top 25 percent ofindustry steel industry As many of our performance.

shareholders know, regional eco- Since 1987, we have repur-nomic development has been, an:t chased nearly 27 percent of the will continue to be, a cornerstone common shares outstanding. In of our strategic plan. We believe addition, we reduced annual in-that,in partnership with other terest expense by $32.4 million through the repurchase of high cost debt, and we reduced pre-ferred and preference dividend expense by $61 million through stock repurchases.In 1990alone, we reduced interest expense on long-term debt by $4,7 million roVR

and prefened and peli1ence divi- vanety of innovauve programs challenge and also continue to dend expense by $2 7 milhon, that will help customers conserve meet your expectations for high while buying back an additional electncity Such conservation performance levels in 1991. And 16 milhon shares of common techniques would help us to meet we continue to be optimistic stock In addition, Standard and future customer energy needs about our long teim future Iwr's Corporation, fitch Investors while deferring construction of fhe challenges facing the many Service, and Moody's investors peak load pnver plants We were compe;itors in the energy serv-Service upgraded Duquesne the liist energy provider in the ices marketplace of the 1990s will Light's first mortgage bond ratings sta'e to submit a DSM plan. be quite ditrerent from those of one step to BBB 4, BBB + , and we hope to reach agreement the 1980s our people met i Baal, respectively with the PUC on how th.fse r 4ivi. challenges of the 1980s and ate The strength and vitahty we ties will be implemented and how ready for the 1990s We are have gained through our linancial the appropnate ratemaking proce- presenting nontraditional solu-and organizational restructuring dures will be set We are urging tions to these new challenges in help give us the flexibihty to con the PUC to provide utihties with doing so, we want to create op-sider a wide range of growth op. financial incentives that stimulate portunities for growth that will be portunities We only will focus on conservation and kiad management of mutual benefit to shareholders, ontions that are closely related to activities. If a dechne in revenues customers, our people, and the our core business. is the reward for conservation larger community The followmg in last year's report, I discussed the efforts, utilities simply will not pages express why I beheve we significant contnbution Allegheny proactively encourage customers have the power to deliver.

Development Corporation (ADC), to use less electricity a DQE company, will make to our in 1991, we will file a plan with on behalf of the Board of Directors, future growth ADCenters 1991 on the Federal Energy Regulatory schedule and on budget in its ac- Commission (FERC) for market- Q 4 kg tivities to provide energy services based pricing and open access to o the new Pittsburgh internation- the company-owned portion of Wesley W. von Schack al Airport. When completed in the proposed DQE GPU transmis chalmun o/ the fumlaal 1992, the $625 million airport will sion line. In effect, we propose to ChiCIDC'"DUCOSCCf be a hub for economic develop- allow the market to determine M uary a I WI ment. Demand from commercial who can use the hne. P Feheve growth is expected to add 20 to at our proposal fully su- .the megawatts ofload to the initial 17 changing philosophy aational megawatts required for the facihty transmission hne operations ad-Our customers' increasing in- vanced by FERC and many state terest in energy etliciency presents regulators another new business opportunity Given the etfects of the current in late 1990, we submitted a recession, we expect 1991 will be demand side management (DSM) a dilficult year. llowever, we are proposa to the PUC detaihng a confident that we can manage our way effectively through that FiVL

We belim state and lederal POWER To DELIVER  ! massion

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line""' """""A proposal to be tonsistent eth national

{ ensegypolicy

The organizational fical- { my 7,7

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pany structure enhances ; r

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opportunities ,

NEW ENERGY llORIZONS compete directly in the generation j j At DQE, we recognize that the and transmission of electricity i electric power market of the As these trends continue, utih-  ;

1990s is characterized by a vane. ties increasingly will have more i ty of dynamic forces and will be. opportunities to shop for power, j

ome mcreasingly competitive. to buy instead of build the capa  ;

4ucceed. we must tmderstand city needed to scru Nir cus- .<

ese forces and tailor our busi- tomers it is likely that a majority  ! f iess strategies to the reahties of of this power will come from a i ,

the changing marketplace. competitive bidding process in- i . jf

'(

Electric demand cantinues to volving both utilities and indepen ,

grow, particularly in northeastern dent power pmducers. Already >

and mid-Atlantic states, yet utih- there are variations of competitive ties are not building new generat- bidding in approximately 26 Ji ing tacihties. tJtihty to utihty sales states, including Pennsylvania ,g have become an increasingly im- To dehver power from one sec- ~~""7 *ev ,

. 1 me portant vehicle to dehver power tion .if the country to another, ,

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w$ $ng M; ' g4 from markets with adequate sup- various supphers must obtain ac- ,

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ply to markets where demand ex- cess to the transmiss5n grid built ( ,

ceedssupply. Spurred by tegulatory and maintained by investor-owned y ,

ff2 efforts to increase competition, utilities. Transmission access is '

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independent power pnxlucers being addressed on a case-by case "

j%yd 4

• MND also are stepping in to fill the basis across the country. It is a ghO -

energy void. More than 4 percent of all power consumed in the complex issue, chiefly because of the technicahties of transmitting kM United Statesin 1989was provided power over long distances and j[ pe" by these entrepreneurs Their pricing questions raised by open- j;$ 4 l 4 y{

• share is expected to double by ing access to new power supphers.

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M the yev 2000 lloweve",it appears that market h Regulxary changes will con. forces and regulatory reform will s ygg%g~ @

4- -

tinue to entourage competitive result in increased transmission , , s, - g sources of pmver generation, acce3s in the 1990s 7-r 4

especially independent power production Energy companies, in-Qj Al DQE in the New -

luding electric utilities, will have Energy Afarketplace i to be creative and cost effective if To take advantage of the opportu- .

they are to retain and invease nities within and outside our i their share of the busmess They traditional service territory offered i AlieghenyDevelopment ~ #-

will have to play a more active by the new energy marketplace, f ,C",'Pf',",",",y,",',,'yT,( f 3,,,9,, ,,,,,, ,,,,,

role in the development and appli- we must continue to strive for ex-  : ica contract for the new  : io marketsin the East

Pittsburgh airport demon- can be a major catalyst cation of.new technologies, as cellence and quahty in all aspects  : strates our ability to i forinvestment and lob new entrants and traditional sup- of our operations our goalis j"',',',",,'**,',*P'"" j 'y'[""jj'y,,

phers of related energy services to be recognized as one of the S1X

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"* - 3 of new baseload generatior, in dependent pawer producen transmisstort accru compt 0 tivt bidding demand side managemen ant' the Dean An Act urg all part of the min T h i'.

dynamic increasin01) compet; tive energy marketp' ace of the 19905 could of1er 00t oppor i tunities wdhin and outs:(te its traditional service tenitory A financial and organizational

restructuring ovee the past severai yean has equippec D0t tc better compete in the new energy marketp 4te Il c=e g

New GeneratinC Capacity Planned 11989 98l J --

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tid a 1 STRi t i Mt ItN 4L 61 ' 4T F F H< 41 m TECHNOLOGY _- . . _ . _ .

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1s tich in potential luel

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best-managed energy sen' ices tage of our demonstrated j companies m the country knowledge of local transmission The competitive bidding for and power markets j energy services for the new 13tts- i burgh International Airport was a THE ENERGY ADDMTAGE j microcosm of the challenges of Nationally demand for electncityis  !

the new energy marketplace expected to contmue to grow in all Heating cooling and electricity three major customer segments-were bid in one package, and the residential, commercial, and competition was open to any sup. industnal- in the next decade.

plier that could meet Allegheny Regulated utilities have scheduled County's requirements. Allegheny tewer than 40.000 megawatts of the Development Corporation, an un- 100,000 to 200.000 megawatts 01 regulated UQE :ompany, success- new capacity estimated to be fully compcted with an out of state required by these markets by the energy group and subsidianes of end of the century two k) cal gas companies Our To capitalize on market expan abihty to create additional non sion and the power gan we must traditional business initiatives will continue to pratuce an excellent g _

be important to our future success product at the right price We have While projected sales to our much to offer Reliabihty, experi retail customers do not require ence, and skilled people top the additional basekaad generation list We have the ability and the construction in the near future, power to dehver we will investigate opportunities The availabihty and rehabihty of to use our experience to build our power supply is a competitive facihties for other utihties. Our Du- advantage. Ilowever, lack of trans-quesne Enterprises subsidiary has mission access has been an ob joined a unique consortium of stacle to marketing power m the electric utihties, afliliates, and an East. Our mnovative proposal to independent power developer to construct a 200 mile transmission j identify and assess independent kne between Pittsburgh and Har- j ,

generation opportunities The nsburg would enable us to sell  : conmientivis soonine e M lbwer Development Group is anJ transmit 500 megawatts of ""*' "

I Mb .

composed of eight forward power to General Public Utihtics 'I tuoking companies from across Corporation (GPUt The hne will the country with the equity capi- have capacity for an additional tal, experience and industry 1,000 megawatts that can be mar-knowledge needed to foster efti- keted to energy delicient areas.

cient and economical develop- '1his proposalis consistent with ment efk>rts nationwide. We are President Bush's plans for a national particularly interested in identify- energy strategy and with federal ing and participating in regional regulators' elk >rts to increase projects to take maximum advan-iionr

. . Thanks to the skiis and hard

• l work of our people. customers , Ce people take pride in safe can be assured that tak ' wors habits their totai tost

, time incittent rate conses i and reliable electric service

will be them wiien they kntly is tielow the 6ndustry j wantit. t v .agt i

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-u- Our generating stations have a A t 1 y proven recorti of pertnrmance, reliability, and safety, as do the professional people who oper-ste them. We l' ave 4 stable fuel supply and a balanced min of fust sources. Because we long have been committed to pro, lectin 0 (fin environment, the i.,.,, majority el our plants already a.

N.4 meet 1995 Clean Air Act stan-qg dards These componenudd ii;{

yg up to the Entirgy Advantagt Damond tot electricity ton-

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tinues to outstrip supply in the Iast. Our solid operations perturmance and the pmposed transmission firin to Eastern martets should make us a prime candidate to supply some of that needed powet 1NO Power Station Mallability M Uh Nuces 8Che . . _ . - -

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e o , . Our operations people continue to

• maintain p(Mer stdt10n ilVFtitity

q. o.,, , ,

l The North American Elisctric

RehabilityCouncilprotects

summer peak demano for

electricity will grow 2 percent

atinuaHy in the U S. through the 1990s

1 I

We are helping local businesses grow Coniinued

{ espansion of the commercial sector has been a artying

torts m the diversification competition Opening the trans- low sulfur coal to meet more j of the tocat economy mission bottleneck will broaden stringent clean air standards i the menu of choices on the supply i p% , ~,

side, making it easier for sellers of 7HE POlff R Ol'St RUlU i 7p energy services to meet con- if we are to succeed in a competi- -

sumer demand on a least-cost.

diversified basis Further, we do tive energy marketplace customer satisfaction must continue to be

! h-i g not plan to hmit access on thu, our major focus, whether the cus-  : [

u highway for electric power We tomer is a family in Beaver County, j will file a plan for market based pricing and open access to the a utihty holding company, a national retailer seeking a new location.

$*l*

transmission line, which we beheve will benefit customers.

or a municipal authonty seeking a j ,} <

suppher of energy serv ces for a j g .m suppliers, and our company new airport Customer satisfac- i Southwestern Pennsylvania is tion and our abihty to meet a vari- i y rich in potential fuel sources, from ety of customer needs are essential i  ;

abundant coal and natural gas to to continued success. j j alternative sources, including In 1990, all of our company- i methane gas from landfills, river operated generating stations-the currents, waste heat from indus-trial facihties, and waste caal coallired Cheswick and Elrama and the nuclear fueled Beaver Val-

[*

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,, ,p Construction of our transmission ley Umts I and 2-again achieved g link to Eastern markets could availabihty ratings above the in- jhq draw investment to the greater dustry average On July 3. Beaver g - 4 Pittsburgh area from a variety of Valley Unit 2 completed 354 days [ ^

independent power producers of contmuous operation, a com- -

that could develop these pany record run resources. The new power hne Safety is an impertant compo-will provide an opportunity to nent of operations excellence Our make our core service terntory a people in the Nuclear Group set a ,a hub for energy facihties generat- new company safety record- 3,9 -

ing electricity for customers million work hours. or 641 con- -

-w hundreds of miler away. secutive days, without a lost time f We actively have been studying accident Since 1982, company-ways toimprove the quahty oflocal wide safety incident rates consis -

coat Because of the promise of tently have been below the 22.

those studies, we have initiated a industry average. , y joint venture, Custom Coals Inter-national, to develop a commercial . In Our Duditional

]

patented "self-scrubbing" coal sereice Erritorv

. process We believe our process Nineteen nmety was the " Year of j will be a cost-effective alternative the Storm" for Duquesne Light i Dur economic cevelopment for utihties considenag the addi- Company Fourteen major storms  ! $"C on a n tion of scrubbers or switching to hit our systerr - almost tnphng  : ants seam county piani.

i!

Crew tender 0,vd Anman p { typsfiesourdeterminshor,to

mest customers' Ngh espec-tahons tot vthabehty and

(

, ,g j i semca

'. . Consumers in the new energy marketplace have very h)0h espettalions tot quality service They expect timely, knowledge-

• able responses to inquiries.

, ; .s ,

, , . One-stop serWct is preferred.

j# .

Consumers want to be sure

-Q + that steps are being taken to controt tosts flealble pnting i and service options are a must, eA e .

a% Social responsibHity has be-

• f.f

• ,s tome a bigh priority.

. A > 4

" d We art striving to meet t, -

f.i-jl* these espectauons. One of our y fundamental strate 0les in this

'5 era of dynamic thange is to 3 )

'i , b never take sur eyes off tus-

gl 4 . ,

tomet $8t451&Chon.

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['$ \ G i k'((ti g'L <

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, 1990 customer Satisfaction flatmg

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h, < ' i j }.i=', \ *

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3ro buter 3'%

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m)p,xnngq gg y 6t%

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• ii: ... !I: L i s Almost90% of custenws surveyed

ratec eettent orgood thest cveran

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} Ourstainlanguageodiand l state-of the arttelephone l informahon s'/ stem are just two of many efforta toimpmve

', customer commumcations 1

the 1989 total Our field, support . In the New  : A P'oneerin 4mpiementmg l

scruober technology in the ,

and ofh,ce people consistently did Enctgv Afarketpl6(c  : 1mt we plan to take advan-what it took to provide service to We are striving to become our  ! ',j,','[",'E8[$,*,'," '"

customers when conditions were customers' m house energy expert i durmo the 19905-at their worst. Our commercial and industnal Nineteen ninety also marked representatives match customer -

4- ,,) M ' '

the second year of a five yeai pro- needs with appropnate electric- #

[ f gram to enhance the capacity and based technologies Processes i, ,

rehabihty of our transmission and such as induction heating infrared i  !

distribution network. Where processing and industrial heat [ 3 necessary, we are adding capacity pumps can improve the pnxtuctivity  :

4 to circuits and replacing poles, and efficiency of certain industnes j  %

equipment, and wires. We also are Dy introducing electrotechnolo- i -

working on the development of a gies and general efficiencies that

{

low-cost, hand held monitor to can improve their competitive P field test power line insulators ness, we will become customers'

- i.- :dM+6 . ww .

3

,g i J 1mproving customer satisfaction energy provider of choice 4 ,$'[Je j remains our number one goal We in addition, our people are ex- [, ' p' , I m j achieved a number of successes pansion and rekication experts. "1 -

+

c-un num in 1990 Our economic development staff  %'7 wAem y .

s s

• Customer surveys consistently helps kical firms grow and demon-  %

strates to non-Pittsburgh compa-rate our overall quahty of service nies the many advantages of kacat-very high-well above the m.- .

ing a business and hving in the dustry~ average -

region. Our speciahsts have exten-

• The first full year of monthly sve pubhc and private coritacts at meter reading was the major the k) cal and state level They contributor to a 35 percent know the ins and outs of site reduction in customer billing selection. work force information, complaints'

• Participation in our Electncheck transportation, and financing our people are recognized lead-

' %[ f Q' plan doubled, making it one of ers in local economic develop. /

the more successful programs in ment efforts Since we tnpled our  ! .

the industry This convenient economic development resources i

service enables customers to in 1987 Duquesne Light people  ! g j have their monthly bill deducted have helped add or retain more  :

\J directly from their bank accounts- than 11,000 jobs in the region  ! (,

liighhghting 1990 activities was i a, our role in the planned restart of j X '

two k> cal mills we advised the  :

out-of town buyer of available  !

fly ash were recycled as tillin

a recently o;ened section of

'

• Interstate U9, samg $1 mdlion in dispotal costs.

'I W f L \ I. l

,~ .m__ - - -

r 1

i i . .

l Children of our people cctned

, l the important message of l electric safety throu0h a senes of television public j servicespotsandnewspaper

• (ngineet Bob Dethowski and I j severtisementL j p, p,,pg g l l l enhancin0 tt's *lidlife habitat

• that toe:Ists with one of our l

j generating stations on s j 180 acre island 5

i =

Consumers increasingly judge l [ companies for their social re-

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spensibility as well as for l

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s y I the quality of thelt products

.3 . and services Our commitment 8  ;

~

to the environment and to the communities we serve is well

'I' '

documented.

Our future success is linked to the economic health and 1 vitality of the regions we servt  !

\

We are en acknowledged leader  :

In the continuing effort to Im-prove the quality of life in the greater Pittsburgh region. Our economic development people - i have estaolished pannerships with local educational, tusi-I ness, and public Institutions.

Workinr to0 ether, we have made our sorporate home one of the mostlivable areasin the country.

Clean AirCompilance 1995 50s tmission standard CWh$CTWL??-,.-

casacAvr iemang Moosunon 12 t%

• (q.- . _ . -

_t - ag:sf '

' Your company received the '

t . Ballringer Award for best Because of Our king standing erwiron-4  : community relations program Imnt.11cornmetrmrt 81%of ourCapri'y i  ;  : In the country A cornerstone

! aheady meets the 1995 stand.ird l l was employee volunteerism, t  ; including helpin0 needy thlt

, fs r v . .% Aws ;ga. dren during the holidays E

1

f ,

i low-cost financing and pointed commitment to be recognized as percent of our power is produced out the benefits of Duquesne an environmentalleader and a at plants that already meet new Light's economic development community partner. sulfur dioxide emission standards and time-of-day rates. The $130 kir 1995 million restart of a state of the art Enhancing the rnehonment melt shop and a modern tube- We have been an environmental A Cornmunity Ibitnet making plant will add significant pioneer m many ways. Instahing The vitahty of our core business is -

electric k>ad and as many as 650 and operating the nation's first a direct reflection of the economic

. Jobs over the next three years. plant wide scrubber systems at health of the communities we Another 1990 highhght was our Elrama and Phillips power serve Their health is our health.

BASF Corporation's announce- stations in the early 1970s As a concerned commuruty part-ment of a $29 million expansion demonstrated the viability of this ner, we are dedicated to the con-at its Beaver County facihty that technology in 1986, we were the tinued revitahzation of the greater ,

will add both jobs and significant first electric utility to use natural Pittsburgh region. It is all part of growth in electric consumption, gas to co-fire a coal fueled boiler, our commitment to know our with this expansion, BASF will a process that also reduces emis- customers better and to provide have the potential to become one sions and fuel costs at our the services they need.

of our largest customers. Cheswick Ibwer Station The Duquesne Light's community our prospecting for new busi- recycling of 353.000 tons of fly relations program received a nesses and jobs extended to Eu- ash for use as fill on the recently major honor in 1990= CommuntIV rope in 1990 Nearly 170 European opened East Street Valley section Relations Report a national publi-tirms currently operate in the ofInterstate 279 received national cation, presented the company greater Pittsburgh region To attenuon. with the prestigious Bellringer encourage continued foreign A highlight of our environmen- Award of Excellence for the best -

investment here, our Economic talworkin 1990 was the announce- community relations program in l Development Department cosponJ ment of a program to enhance the country The award cites the

. sored a tnp to Hanover. Germany, the habitat for wildhfe on Brunot company's long history of ad-to take part in the world's largest Island the site of one of our dressing community and con-l . industrial trade show and to con- generating stations. More than - sumer needs through both i-- tact companies that can take two thirds of the 180 acre island. mainstream energy related pro- -

' advantage of opportunities in krated just two miles from down- grams and specialized community-

- our region. town Pittsburgh,is grassland that outreach activities provides a habitat k)r a variety of Much credit for the Bellringer

. ENVIRONAfEATAL LEADER. wildhfe. The. Western Pennsylvania Award is due the men and women COAfAfUNITY PARTNER Conservancy is providing advice of Duquesne Light. They are (vell Equal to our determination to to company volunteers who will known for their volunteer ethirts be recognized as one of tre be improving the habitat and and generosity Dy working directly

- best-managed energy services erecting nesting boxes in the community and providing

._ companies in the country is oar our history of environmental significant leadership, our people l commitment will make it easier to embody the company's social -

l comply with the recently amend' conscience and its caring spirit.

ed Clean Air Act. More than 80 tOURTLrN

_ . ~ _ ~ - ~ . . - _ _ _ _ -

i

e a

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BOM OF DRE( TORS

? f t lam n ~

I i

i

( All teard terms 3 yearv sigo f alk,5n.eletled 19N 12 3) term ex 1 homas 1. M urrin,61 elet ted lanuary John M Atthur,68. elected 1%7 H M pues (W3 Irisonalirnestmems f rom 29 loi trrm espues l@l Dun Du l term expnes lel Retired as Chaaman g, w h- NWuWMW W - d W Bmm n'

g ggg , _

g, . gg g g, Duquesne Ught in 19$7. sened as Chair U S Department of Commeter 1%9 W man and Ch+el Isecuthe O!!k er.1%5 85 '

fie th care sctvk rsi ihreslorship Nanon President ununghouse IlectrK Cornga pnectorships traluJe Mme Safety Appli allntercroup ins T!vstre of Chatham tun Lncrgs and AJsanted icthnology ante 3 Com;un) (wot Aer and pl ant protecton equiptrent and systerns) and ggg g ,

l Chambcrs Deselopment Company inc u tiliam H. Anocil, t+ c lecicJ 1o%0 (3 N Rober t B. lyase, te eletted 14'il o (wa3!t managcment operauons) Charter teim rxpires luW RetueJ Chanman and term expires IW3 Scruor VKch rewk nt

, T!ustee of the University of hitsburgh Chiel Lxecutne O!!kt i of C lop 3 Indus Nahonal Development Corporation Ural l Daniel Derg, el~ elected 1W311. S term I" " I"# " WD " '

Y" ' # ^"' b "E "

tabotated steel pr oducts industrul and lerence on Commuruty Desclopment I t f I t k 'rt si ( r N " D Y#

insittute Professor of Rpt, l%5 67 Dirrt- I"i D " F "

forships inefude f fy Tr( h Machme, Inc a n Uuwe d C a'nge wuhNern Wnn@ma Mt lion Unaerwty nuppher of specialty parts) and Pericct A i rk W Springer,61 eietted 1977 G M Tech (precision component suppher) C., Clristian Lant2 sch, no ciecteJ 103 term expnes tw3 Partner of Hort)

(2. S term exp:res 1942 Retired Vhe Spnnger and Mattern PC unorneys at Dorcen L Boy (c, % elected 1975 (2. m.

Chairman. Mcl ion Bank Corporation (bank law 1 Dutctorships intlude the Urban term t spires IW2 Chici Lxecuhve O!!ker ieque of hitsburgh anJ hesbytenan '

holJmg company 1 retired VKe Chauman and Diret for of the Buhl f oundation (sup W CMTinanculO!!ker Mellon Bank Unn er sity lim pital poit of educationaland tommunity pro i N A Rommerculhinking and trust ser gramu unce IPi2 D: ret torships include hesley W. von Schack, a r!rited 1% l

• ' P* "N OU t3. 4 Si term expncs low Chanman '

Microbac l aboratonet inc and Dollar inc era a mWment tre and N heude:

• and Chief i secuuve othscr of Bank.FederalSavingsihmk Trustre of

""" ' I U" "' # IV anJ Duquesne twht Diret turships I ranklm & Marshall Colicee large. Trout Unkmited (nahonal consen a g g Robert P. Don one,57. riccted 1990 0 2L uon orgam/ationi term expnes tel hestJent and Chief engincenng sers kew the Reponallndus E.xecut vc Of!ker of Allegheny LuJ!um Dr. Robert Mehrabian' au.clected Janu - -

ary 291991, term expues tw2 President trul Destlopment tolporahon o! South t_orporation (specu!!y metals pndut tion)

Cdtnepe Mellon University. Ikan. Co!!cge w estern irnnsylvanu. the irnnsyh anu smce May 1990 President and Chief Oper Bosmess Roundtable. and the h.usburgh of f ngmeermg Unnersty of Cahlornia at atmg Ofh.ctr. lun. 90 Direttorshipsin Culturailrust Santa lurtura 1%3 9Q Duccior Center clude Allegheny [ udlum Corporahon and the PitbhIrgh Branch of the Federal Standards (W h) frilow Amencan Restne Ban' k of Cleseland Soticty for Metalsinternation4 elected memhcr Natuna! AcaJemy of Lnpnerrmg i

()QtJDuquesne Ught Committees g;7 tc

,t, er ,i n N4 ,' a. ,

Duquesne Ught Commuters j .p. }

.t n + r < r a u c ;w= tw ,

rume r V Frcnt row left to n0ht Enc W Spnnger, Sigo Falk.

Doreen E. Boyce. G. Chnstlin L.antrsch. Back row, left to right John M. Artnut Robert B. Pease, Robert R Bomas, Daniel Berg. William H. Knoell. and Wesley W. von Schack. Not pictured. Dt Robert L ,

Mehrabian and Thornas 1 Mumn. N.. ud

• F!F 1I! N

- . - - - - . - . . - . - . . - . . _ _ . - . - -- . _~ .

OITlaRS '

• f[DRUWV iWI DQE DUQUESNE 1.lGitT DUQUESNE ENTERPRISES Wesley W. von Schack

^ David D. Marshall l Chairnun of the Ikhnd President Wesley W. von Schack President l md Chic / C\ecutive Oficer Chairman o) the (kurd President Frederick S. Potter David D. Marshall

"" 'I I" *""'#' 00" Vice President

\ ice President John J. Carey

""" "# I'"l Anthony J. villiotti l f rederick S. Potter Iteasurer and Controller Vice President UU'""I'"# l David D. Marshall Allegheny Development Gary L Schwass Assistant to the President Corporation Vtcc President and Iteasurer Vice President, ColpOtate Diane S. Eismont Development 11. Donald Morine Secretary Ptes! dent Roger D. Beck James D. Mitchell vtcc President. AtarLeting and 11. Michael Siegel Assistant Tlcasurer Customer Services Vice Ptesident

- Raymond 11. Panza Gary R. Israndenberger Property Ventures, Ltd, Controller Vice President. IUwer Supply

11. Donald Morine Joan S. Senchyshyn William J. DeLeo President Assistant Secretary Vice President. Corporate Irr/dttnance and Afanagement John L Weinhold Information Services Vice President Dianna L Green Vice President. Administrative MONTAUK Services Gary L Schwass GaryI Schwass President Vice President. Finance ChiefFmancial0]licer James D. Mltehell Vice l' resident and lleasurer John D. Sieber VicC Pt'eslJCnl. Nuclear Edwyna G. Anderson General Counsel George E. Bentz Assistant Vke President.

Ilutnan Resources Diane S. Eismont Secretary James D. Mitchell Treasurer Raymond 11. Panza Controller Donald J. Clayton ASstStant lleabuler i Joan S. Senchyshyn Assistant Secretary l

su ru s

. FIN ANCI AL CONTEN'l S DDOE I 18 M ANAGEMI N1 S DISCUSsK1N AND AN AlYSISOf IIN ANCIAl CONDlilON AND RI $UI1S Of Ol'1 RAlIONS 24 RLIURISol M ANAGI Ml:N T ANDINtifi'ENDI N1 ACCOUNT AN1S 25 51 ATI MI:NIOF CON 50llDAT1.DINCOMI.

2B CONSOljDAll DL4ALANCl~ SillF1 28 Si AlEMENI Of CON 501.lDAlI.D CASili1 OWS 29 SI ATI Mt.NI OF CON 5OLIDA1l D RI. TAIN!'O E ARNINGS 29 NOll:S TOCONSOI.lDA1FDIINANCIAL Si All Mt N1S 46 Si tf Clt DilN ANCIAL DAI A 47 SI'I FCll' dol'f RATING DAl A 43 SLLI Cll.DCOMMON SirVK DAT A

.: t i t ' it**

H MANAGEMENT'S DISCUSSION AND Qoot,' ,'

ANALYSIS OF FINANCIAL CONDITION AND i RESULTS OF OPERATIONS CORPORATE DQE was formed as a holding company in 1989, with Duquesne Light STRUCTURE Company (Duquesne) as a wholly owned subsidiary. DQE and Duquesne are sometimes referred to collectively as the Company, As the principal oper-ating subsidiary of DQE Duquesne's operations account for the major share of DQE's total assets, tevenues and income.1herefore, DQE's Onancial condition changes it its liquidity and its future financial outlook depend primarily on the operating. investing and financial activities of Duquesne.

Although the electric utility business will continue to be the largest por-tion of DQE's business for the foreseeable future, the Company has taken important steps to develop its two non-utility subsidiaries Duquesne Enter-prises (DE) and Montauk. DE is developing a total energy services package for the new Greater Pittsburgh Intemational Airport, pursuing demand side management opportunities and providmg real estate services. Montauk is involved in a variety of investment management activities.

RESULTS OF Opemling Revenues OPERATIONS Operating revenues increased (decreased) in the years 1988 through 1990 '

over the respective preceding years. for the followmg reasons:

qMillions WDollarsI I990 l489 t988 Operating Revenues General rate increase 581.0 583 7 $ 63 3 N*ons et Dows)

Deferred customer revenues (85.5) (21 3) 117.5 m______-.- Retail KWH sales 8.4 (1 6) 22 0 m* Energy cost rate revenues 5,9 (42) (34 9) m-- "1 General rate decrease - -

(7.7)

_g Other 5.2 12;8 5.1 sao - -

Revenues from other utihties (1.4) jl2 0) 9y Toral $ 13.6 '557 4 $ 175.2 soo _ . . _ - _ ~~

Retail operating revenues are based on rates authorized by the Pennsylva-nia Public Utility Commission (PUC) and are designed to recover operating expenses plus a rate of return on the investment in utility rate base.

The general rate increase and the deferred customer revenues resulted from_ a $232 million rate increase granted in late March of 1988 which is uou - aa being phased in over a six-year period. The phase-in was designed such a wo.cma, that rates increase each year in years 1988 through 199I by $85 million, g g,  % remain constant in years 1992 and 1993 and decrease by $85 million in a c,,,, u,u % 1994. The rate _ increase granted has been recognized in revenues since

- m ograts menues March 1988 and a deferred asset has been established for that portion of me: sec 113 6 mson

. revenues yet to be collected from customers. The Company expects this deferred asset to be fully recovered by the end of the phase-in period, l

tioarf.Et

e o tDOE fittall kWH Salts Hetall 5 ale; in l9"O Int Icased I . I% t olnpared to i489. as inodest growth

• "h in conltUe(Clal and lildustnal sale 3 was ottset by the ef fet t (it inild w cather g

conditInns on leslJental sales %)es in luso det icascJ slightly. tompared 10 lob 8, tella ting a f eluin to neaf flolllb_ll sutM!nct IcIlipelatures k 'Ihe llthtllallotl% in enelgy cost tale IeVentles ill all yeal% Wele Pflinalily Ud due to (h;illges in luel cost 5 which !he enelgv coal late 16 dcN!gtled lo recoVet.

1he decreases in sales to other utilities, which weie all made on a shott-m p

}ph ij li terin basi 5 in 1940 and 1089. Were pillnailly due lo decrease 5 Ill deflhtnd b {U I.1 O li trom other utilities l\enefits tiom such shiitt lettil Niles ate passed through

• ~

% @] ] to Duquesne's tustorners bd i go Oj'eldlion dihl MalfilCndthe IQensC5 I uel expen5e lluctualed flom l458 lhlough {Ou0 dile to Chitnges in the cist per toll oIt oal, the illix between toal and nucleat generation and the tittal a r a wx kilowatt-hour $ genef ateti Maintenance expense increased in loud and I C ' 'N U"' " "N C I "

mm M coww .4 "S U g ,

of Beaver Valley 2 and Periy 1 into service G.10 ?et#1 k,WH km maened Offy de5p tf fM MJ" Of id\ch The lliclea$cs ill lik ome taxes ill 1990 alid 1484 Wele ptinhtfily dile to in creased taxable income 1he ellective it.come tax rates for loud, lu89 and

^

1088 were 38%,37% atid 31% tespectively. The 1088 effective tax rate was lower thatl 1400 or 1989 due to the higher amount of nonta <able carrying charges included in book income in 1988 See Note 1.

\(WH Generats6 Othet incorne dnd Dedallions by bergy Source Othei income increased in 1400 coinpated to 1984 lare,elv due to highet een anymg charges on deterred revenues and a 1989 charge for iate refunds which resulted from the settlernent of the 1987 rate case.

• Other income decreased in 1989 compared to loss pnma ily due to the 9

Q Qd { 8T% $ {d absence of carrying chatges apphcabic to Beaver Valley 2 and Perry 1 and

r. "M [dd 1 the 1989 rate retunds discussed above. Interest income decreased m 1980 O as previously invested cash was used tot financial testructuting Interest mcome in 1988 largelv reflected the impact of investing the proceed % from

" . the sale of Beaver 9ailey 2 These decreases were partially ottset by m-creased carrying charges m 1980 on defened ic\ enues lM e

l Inletest dnd Other Chdtges m

Interest and other charges dectcased in 19no and 1989 due to lettrement or refinancmg of higher cost first mortgage bonds, pctlution t onnol obliga-tions and pretened and preference stock These activities allowed the Com-4 g7 u ar pany to reduce interest expense arni dividends on preferred and pretetence slot k to $168 milhon in 1090 trom $175 milhon in 1988 G ca Rw om mmuam INS N!M U$ htMP fuel CMt$

CDmpC%e SGC ftd MJm r%dBAh t

5. J ;I !

M ANAGEMENT'S DISCUSSION AND Q oot .' .

AN ALYSIS OF FIN ANCIAL CONDITION AND RESU LTS OF OPER ATIONS :cm nwrn!

Earnmys Per Sharc Earnings per share were af fected by the changes in net mcome and the decrease in the average number of shares outstanding resulting from the Company's repurchases of its common stock. The repurchases of common stock increased earnings per share by $,05 for 1990 compared to 1989 and by $.25 for 1989 compared to 1988 CAPITAL Consu uction RESOURCES AND Construction expenditures during 1990, exclusive of allowance for funds 8 IQUIDITY used during construction (AFC) and nuclear fuel, were $110 million These expenditures were made to imptove and expand production, transmission and distribution systems.

The Company estimates that its 1991 construction expenditures, including expenditures relative to a proposed transaction with General Public Utilities Corporation (GPU), will total approximately $160 million Capital expendi-tures for 1992 through 1995 art expected to total $800 million. The Com-pany expects to recover $150 million of these expenditures in 1994 from the transfer of a 50% interest in the Phillips plant to GPU, These amounts do not Averagelnterest Rate include AFC and nuclear fuel or possible expenditures related to the Clean Ju umerm to Nspo Air Act amendments which are discussed separately under Environmental Matters on page twenty-two. T he Company currently has no plans for m_fg$ construction of new baseload generating plants See further discussion related to the GPU transaction under Long-Term f

k~~ ~ Power Sales on page twenty-one.

t I'

S ~ '

financing

~~p! ' , ~ ~~ The Company is continuing its efforts to reduce its capital costs by making additional purchases or refunding of its securities to the extent financially

• h 47 J h 3!

beneficial results can be achieved During 1990 the Company repurchased 1.6 million shares of common stock for $34 million and also' repurchased

[ j $32 million of preferred and preference stock.

f j j in addition the Company retired or refinanced $242 million oflong-term

• '~~ y y "g ~

debt. Approximately $42 million of tirst mortgage bonds were retired, $74

.3 ,, , million of first mortgage bonds were refinanced and $126 million of pollu-tion control bonds were also retinanced it is expected that 1991 interest fe$uNeaYale$nI$aIeaexpense on long-term debt will be approximately $4 million lower than in pays on ns tong-term ent. 1990 as a result of these transactions.

l l

~

. y i

.. ~. - - . .. .. - - - . -- . - - -. - .- - - - _ - . - _ .

.. _ _ ~ - -

hDOE Averge Cost of Shares In 1989 Duquesne enleted itilo an agreement with an unaftihated corpo Repurchased ration whereby Duquesne is entitled to sell and the cof potation is required amwe sw to prch se, on an ongoing basis. up to 500 million of its accounts receiv m able. At December 31,19a0 Duquesne had sold $68 million ol' receivables.

T hese sales provide Duquesne with enhanced liquidity and reduced work-ing capital requirements Duquesne finances its nuclear fuel requirements through a leasing at -

• iangement under which it may finance up to $145 million of nuclear fuel.

As of December 31,1990, Duquesne's nuclear fuel financed under this arrangement was $t23 nulhon, including interest, storage and other costs.

os ,." "" Dividends may be paid on the common stock to the extent permitted by law and as declared by the Board of Directors llowever, such dividends are affected by provisions in Duquesne's Restated Articles relating to payments of dividends No dividends or distributions may be made on Duquesne's "w w w w common stock if dividends or sinking f und obligations on Duquesne's pre-um.m ferred or prefetence stock are unpaid further, the aggregate amount of

. - c num. " Duquesne's common stock dividend payments or distributions are hmited we comsg weucused cs of net income it the f atio of common stockholders'

m. cus ma m to certain percentaq'alization ty to total capit is less than spectlied percentages, No porti of retained earnings at December 31,1990 was restricted Duquesne is considering forming a leveraged employee stock owner; hip plan (FSOP) in 1991. The !. SOP is expected to have minimal impact on earnings per share as DQE expects to purchase shares of its common stock on the open mmket to ollset any dilution Lonymn Nun Mes t 1 $m In September 1990 the Company entered into a long term tirm power sale e agreement with GPU. Under the tetms of the agreement, GPU will purchase tram the Lompany 500 MW of capacity and associated energy for 20 years beginnmg in 1994. ~Ihe back up capacity for the sale will be provided by the y, '

currently cold reserved Philhps plant and Brunot Island (B 11 combined cycle f acilities which are to be reactivated and returned to commercial ev

] operation The reactivations of the Philhps and B.l. facihties are expected to be completed over the next three years GPU will acquire a 50% interest in the Philhps plant atter it is returned to commercial operation m 1994.

n. g j As part of the overall arrangement. GPU and DQE will also jointly com

.l W > struct and operate a 500 KV transmission line trom Pittsburgh to liarrisburg, y Pennsylvania which is scheduled to be in service in 1996. Duquesne wdl 4: own i/3 of the new line and will have an option to use up to another 1/6 of

e. k4d the line.

e se sa si

• Consumination of the transactions desciibed above is subject to certain our rmwam twy unas conditions. includmg receipt of federal, state and local regulatory and envi-to mo* ronmental approvals.

1 l

1 ',.' f 4 i ' ONI

. _ , , , -- - _ - , , <- , . . _ . . , . _ . , . _ . ~ . - -

MANAGEMENT'S DISCUSSION AND p DGE

- ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS <cONUNurD:

t Environmental Alatters -

The comprehensive Environmental Response, Compensation and I.iability Act of 1980 (Superfund) and the Superfund Amendments and Reauthoriza-tion Act of 1986 (SARA) established a variety ofinformational and environ-mental actica programs- Duc uesne has been notified by the Environmental Protection Agency ofits invo vement or potential involvement in three haz-ardous waste sites Duquesne is cunently determining the extent, if any, of its liability in this regard Duquesne beheves that the ultimate outcome of these and other environmental matters will not have a material advm effect on its financial position or results of operations in 1990 Congress approved certain amendments to the Clean Air Act.

The emission limit standards of the new legislation will require Duquesne to reduce sulfur dioxide (SOA and/or nitrogen oxide (NOx) emissions at its wholly owned Cheswick plant and its jointly owned Eastlake, Sammis nnd Fort Martin plants by 1905 Preliminary studies indicate that the Company will be able to comoly with the Phase I requirements beginning in 1995 by using lower sulfur coal and adding low NOx burners at these four plants and Phillips. The capital costs associated with this strategy of meeting Phase I are estimated to be $50 million. To meet Phase 11 requirements beginning in 2000, Duquesne is exploring a combination of compliance methods to take advantage of advances in clean coal technology. Duquesne will con-tinue to work with the owner / operators of our jointly owned stations to arrive at a cost effective compliance strategy to meet the requirements of Phase 11.

Accounting Afatters The Financial Accounting Standards Board has issued statements regarding the accounting for income taxes and postemployment benefits which the Company will be required to adopt by 1992 and 1993 respectively. See oles A and G for a discussion of the accounting changes required by the new statements. The Company does not anticipate that the adoption of

- either standard will have an adverse effect on its financial position or results of operations. _

Note H describes the status of certain investments not currently included in rate base and other deferred costs which the Company expects to recover in the future. If at any time the company determines that recovery of these items is not probable, such umecoverable amounts would be recognized as a charge to earnings, l

l l

4 t00E lhe electric utility industry is subject to intlationary pressures situllar to those experienced by other industries Duquesne's utthly operations are subject to regulallon by the l'UC atid the f ederal Enetgy Regulatory Com-mission 'Ihis regulation is designed to provide for the rewvery of operating costs and the opportunity to carn a fair teturn on funds invested in the utihty business llowever, the regulatory process imposes a time lag dunng which increases in opetating expenses or construction costs may not be recoveted except to the extent that they are torecast in rate decisions, induded in the enetgy cost rate of offset by increases in sales tevenues until new rates Can be linplemerited thiough a rate proceeding with the PUC th discussed in Note 11, subject to (ettain conditions, the Company is not permitted to obtain additional base rate reliet over and above the phased-m increases approved in the IT/ Rate Case 11n11114%

Outlook The Cornpany currently expects that f unds generated f rom opeiations will continue to be suf ficient to meet its o;ierating expenses pay dividends and finance a large portion of its capital needs 't he Company's need for funds and the availability of those generated f rom operations will be affected by the level of economic activity in the Company's service area, legislation, rate related proceedings. environmental matters and other matters experi.

enced by it and the electric utility industry generally T< <> rneri

REPORTS OF M%AGEMENT AND INDEPENDENT ACCOUNTANTS QDOE

• COMPANY REPOP1 ON REPORT OF INDEPENDf N1 FINANCI AL STATEMENTS CER11FIED PUBt IC ACCOUN1 ANTS The Companyis responsible for the Gnancialiniorma- Deloitte & Touthe lion arid iepresentations contained in the financial Cerbfied Pubhc Acccuntants statements and other sections of this Annual Report lwo Ohver Plaza The Company beheves that the conschdated financial Pittsbutgh, Pennsylvania 15227 statements have been prepared in conformity with generally accepted accounting pnnciples appropnate To the Onectors and Stockholders of DQL in the circumstances to reficct. In all material respects. We have audited the consohdated bakmce sheet of the substance of events and transactions that should DQL and its subsidiaries as of December 31,1990 and be included in the statements and that the other infor 1%9 and the related conschdated statements of m-mation in the Annual Report is consistent with those come. retained earnings and cash Daws for each of the statements In preparing the financial statements. the three pars in the period ended December 31,1990.

Company makes informed ledgments and estimates These financial statements are the responsibihty of the based on cunently available information about the Company s management. Our responsibihty is to effects of certain events and transactions express an opimon on these !inancial statements r The Company maintains a system of internal ac- based on our audits counting control designed to provide reasonable as- We conducted our audus in accordance with surance that the Company's assets are safeguarded generally accepted auditing standards Those stan-and that transac' ions are executed and recorded in ac, dards require that we phn and perform the audit to cordance with estabhshed procedures lhete are hmits obtain reasonable assurance abcut whether the Anan-inherent in any system of miemal control based on the cial statements are free of material misstatement. An i recognition that the cost of such a system should not audit includes examining, on a test basis, evidence exceed the benefits to be derived The system of supportmg the amounts and disclosures in the finan-internal accounting contial is supported by written cial statements. An audit also includes assessmg the pohcies and guidelines and is supplemented by a staff accounting principles used and significant estimates ofinternal auditors. The Company beheves that the made by management, as well as evaluating the internal accounting control system provides reason- overall tinancial statement presentation. We beheve able assurance that its assets are safeguarded anJ the that our audits provide a reasonable basis for our ,

financialinformation is reliable, opinion in our opinion, suth conschdated financial state-Q g Q4 ments present fairly, in all matenal respects. Ihe financial position of DQE and its subsidianes as 01 December 31,1990 and 1969, and the results of their Wesley W. von Schack Caiy L Schwass operations and their cash Dows for each of the three Chairman of the Board. Vice President years in the period ended December 31,1990 in con -

President and Chief and Treasurer formity with generally accepted accounting principles.

Executive Othcer D4ArUA. d hd4 Deutte & Touche January 29.1991 AUDIT COMMITTEE LETTER The Auott Committee, composed entirely of non- pendent pubhc accountants

• management letter rec-employee directors, meets regularly with the inde- ommendations. and reviewed and approved the inde-pendent public accountants and the internal auditors pendent public accountants

• general audit fees and to discuss results of their audit work, their evalimtion non-audit services.

of the adequacy of the intemal accounting controls The committee meetings are designed to facilitate and the quality of financial reporting open communications with the internal auditors and in fulfilling its responsibihties in 1WO, the Audit the independent public accountants To ensure auditor Committee recommended to the Board of Directors, independence. both the independent public account-subject to shart holder approval, the selection of the ants and internal auditors have full and free access to Company's independent public accc untants. The Audit the Audit Committee Committee reviewed the overall scope and details of the independent public accountants' and i. .ternal The Audit Committee of the Board of Directors auditors' respective audit plans, discussed the inde-1 i W r N T y- ro u R i

i STMEMENT 01 C(>NSOllDATED INCOMI: ( At

\ nn I thin!!U twh ! 3L (7hoamis ollD!!s . Lu cpi Pct %e an n:nN 1990 14 M lusn

Ol'ERATING REV1 NUI S-Customers Cutterl $ l ,0 7 4,9 56  % "74414 $ htWi2 i

' 10,784 46 .N 117 SFi Detet tnl (Note lli Uther ut.'ahes 48,543 1" "49 bl 404 Toldl Ope 4 atuty Revenuc5 1,13 4,2 M i 1.1J0 om > l on A 2 U opt.RAllNG t.) Pl NSI.S; l' ucl 213,324 .10 J"4 2/4 4 t hi 5 Purchasal pow cr 9,577 o sho s oss Other operson 269,221 21J 8/3 /n* ib?

Maintenanc e 97,756 83 30; 711M l Depicciation and amot11'allon i22,261 I 10 Mo I I I 013 laxes uthet th.m miome taxed 81,2 a 5 "291" ho 63T In(ome taxes (Note I) 7 0,N 7 7 64 534 MbOh Total Operating f.xpenses HM,261 ESO II / M18N91 OPERAllNG INCOME 270,022 90 5b3 144 \42 OlllER INCOME AND (DI DUC1 TONS):

Allawance tot equity tunds used danng con 3tah uon 1,375 no 1.3 D Carrying (harges on deferted te cenues 22,950 INl! 5 1.607 Canying thames on assets not in rate base (Note lh '3tal Rate ref unds Oncluding interest expense) (Note 11. (432) (K BHIi t 1.150) i;!fects of app'Kaaon of SI AS W (Note 14 S,334 5 u?3 6Do income taxes (Note !) (13,918) 110 hMai 17.277)

(5,497) J.711 262/;

Other- net Total Other in"ome and (Ocductions) 9,812 1 418 44 046 INCOMI 1RI ORf, INTERESI AND 01111 R CilAHG1 S 279,834 278 011 24 UR8 INTL RI.ST AND OlllER CilARGES:

Interest on longictm debt 139,889 144 e 33 1h2 693 OtherInterest 5,787 6 36h 4.977 Allowarke hit b<>ttowed tutbh used dunng i onstith tu rn (1,559) (2 8(B) (1.7(11)

Preferred and preferente Stock da ndend3 of Duquesne Ight Company (Nate A) 14,045 1h 793 lb 856 158, \ b2 16.\004 174 822 Total Interest attd Other Charges NET INCOME 5 128,672 $ 113 002 $ l i h566 AVERAGE NUMBI R OF COMMON SilARES OUIST ANDING (000) 54,432 SS 700 63148 EARNINGS PER SilARE OF COMMON STOCK S2.24 $2 03 $1 hh DIVIDENDS DECEAREO PER SilARE 01 COMMON STOCK $ 1,3M $ 130 $122

<env*anwia stwu:wuunr 1 - t .?

CONSOLIDATED BALANCE SHEET h DOE

• r-l-

l

(

i. As ofIWember 3L '~

(7hou%mds of[bli us1 1990 t984 ASSETS Property, Plant and Equipment:

Electric plant in service S3,661,190 $3,575,635 ConMruction woti m progress 68,630 60.069 Property hetd under capital! eases (Note E) 235,791 222,124 Property held for future u>e (Note t h 216,246 215,635 To?al 4,l81,857 4.073,466 Less au umu}ated depreciation and amortization (1,135,476) (1.018 427)

Property, Plant}md Eqtfipment Ret 3,04 6,3 8 t ' _

3,056 039_

' Other Iwfperty ated Investments tal cost! 18,310 15800 Current Assets:

Cash and temporary cash investments tat coM which approximates market) 38,576 97,159 Accoutsts receivable (Note C)-

Customers (less allowance for uncollectible accounts of $!4805 and $ 11.244, , espectively) - 50,390 23,306 Other 11,957 13.673

. Materials and supplies (generally at average cost)

Coal 37,938 28.100.

operating and construction 60,102 52.910.

Ot 10,847 8 094

_her current assets

~ TotalCurrent Asseta 209,810 223,242 Deferred Debits:

Extraordmary propertyloss (Note B1 84,407 97 >Li Unamortlted loss on texqtnred debt (Note j) 55,426 55.176 4 . Income taxes on Sale of Beaver Valley 2 (Note E) 76,101 79,095 Deferred costs ef uhits not in rate base (Note Hi - 51,149 51,149 Phase-in plan deferrals (Note !!) 267,883 234.149 .

. Other deferred deblis --

~. - - __ ,, --- 109,839-- - -. 109.750

_ Total Deptred peQ ___- _ _ _ _ _ _ _-_ , _ _ _ .-_ __ _ _ &44,805 b26.500 _ _

Total Assets $3,919,306 $3,920.540

=- ==-: - - = - - _ _ = - - - _ ~

= -- -

=-=; =:

Srv Avan to Gns did;t:V Iirram.si4 Matenv.%.

T W L N 1 Y-SIX

hDOE i

ktd l ?s \ en i ? 't 'l , % I 7h ruxinS o' Do knM l990 I"M" CAP 11 AlllAllON AND 11ADil.lilLS Capitahration (Nmc h Common simi uuthonfeJ 116 MM) shares muni i .,i 1 -) & th.u ca $ 73,119 5 7 3.1 l o CapiLd sutplus 928,411 "J8 nU Retamed earnings 3 H l .159 0mu leu treaqiry stod hit omt!ilu .%91 and 17 7 Wlo snM c3 Tevectivcip (303,548) L'ou U l l Total Common stmtholders' Equity 1.079,14I I("*\"U Non tedtTillable pielelled and pit lef ente 5tt% k 151,346 iM uM RedeemaNe pre:ctred and preteten..e stosk 37.747 0 5."n I litst mortgage bonds 1,103,63h i 141.7o3 Other long ter,n dcbt 401,912 403.4 M Unatnerti}ed debt dNi.unt and premium nel (4,253) ( 5 o 5.' )

Total Capitalitatson 2.769.529 2 C 6 'ii U Obligations Under Capital Leases (Note il 108,388 I l o.702 Current I.iabilities:

Long-term debt anJ lease obligaNns due utthin one year (Notes l' anJ h 48,303 48 527 Accounts payable 129,473 104,710 Accrued mcome ines 36,001 9 blH Defened in<ome taxes and othet accmed taxes 39,489 3 7 M4 Accrued interest 34,598 38 7M Dmdends dedated 25,984 26.006 Sinking t'und and parchue requirements iNote h 16,489 10.170 Rate returJs due within one year (Note lh -

19 121 70tal Current Liabilities 330,331 304 iud Other Noncurrent Liabilities:

Investment tax credits unamorti/ed 147,527 154.1 l b Accumulated deferred income taxc3 492,468 4 d 42h Other de: erred credits 71,057 51 646 Total Other Noncurrent iiabihties 711,052 bon.FM Commitments and Contingencies (Notes B through M Total Capitalthttion and Liabilities S3,919,306 $3420h*U

,1 i t i

J -

• STATEMENT _OF CONSOLIDATED CASH Flows Q oot nur Ended (Wember 3 L

- (7tymds o/ pyla!31 _. __

1990 1989 1488 .

Cash Flows From Operating Activities:

Net income .

S121,672 $113.002 $118.566 Principal nor' cash charges (credits) to net income.

Depreciation and amortization 17i,519 150,389 154,042 Deferred income taxes - net 28,542 63,216 48.974 investment tax credits - net (6,589) (6M22) (4,414)

Allowance for equity funds used during construction (1,375) (69) (1.323)

Effects of apphcation 6f SFAS 90 (5,334) (5973) (6,586)

Phase in plan deferred revenues and releited carrymg charges (33,734) (114 A42) (119.707)

Rate refunds (including accrued interest) 432 8.581 -

Carrying charges on assets not in rate base - -

(23.622)

Changes in working capital other than cash-Accounts receivable (Note C) (25,368) I18.154 (8.003)

Materials and supplies (17,030) (8,714) 12,448 Other current assets (2,753) (1.153) 27,395 Accounts payable 24,563 (7,996) 3,629 Other current itabilities 20,864 (3 413) I,522 Other- net _ __ _ _ __ _

_ 24,6_37 _ _ 2_5,311 _ _ 11,555 Net Cash Provided from Operating Activities

~ '

300,051 '

329,971

~~ ~

214 A76

~' ~

CAsI[ Flaws Us'e[15yIrivesting Activitiesi Construction expenditures (109,718) (88,169) (93.253)

Other - net . .

(3,404) (3.519) (4,039)

Net Cash Used ByInvesting Activities (113,122) -- .(91,688) . _ (97,292)

Cash Flows Used in Financing Activities:

Sale of bonds t 99,4 50 13,500 71.000 Dividends on common stock (74,972) (72.397) (77,571)

Reductions oflong-term obligations-Preferred and preference stock (31,974) (24.826) (16,089) l_ong-term debt (241,788) (19,328) (219,839)

Other obligations (43,517) (29,358) (40,536)

Rate refund payments (I 7,32 I) (10.873) (3,192)

Repurchase of common stock (34,170) (45,707) (189,096)

Premium on reacquired debt (3.349) (173) (18,387)

Other net

. - - _ - - _ _ . _ - -_ _---_-._______.___._9 2,12 2 A81 _ _

___ 1,945 _

- _ _ _ Nef Capsed in finongryg Activities _

(245,512) (186.68i) _

(491,765)

. Net increase (decrease) in cash and temporary cash investments (58,583) 51,602 (374,581)

' Cash and temporary cash investments at beginning of year _ 97,159

_ 45.557_ _ 420,13 {

Cash and temporary cash investments at end of year S 38,576 $ 97.159 $ 45.557

= == . . - = . . - =:. =:- = _

Supplemental Cash Flows Information:

Cash paid during the year for; interest (net of amount capitalized) $ 153,754 $166,702 $132,913

- Income taxes - S 41,593- $ 28.157 $ 16.021 -

==========-=:=wm==_= - -

Non-cash investing and financing activities:

Capit{leagobligations ryorded S 31,921 S 31.542 $ 14.811-

- &c Notes to Cenmlhkttal nnanaai Statemmts TWE N rY EiGH r

', '. STATEMENT OF CONSOLIDAl ED RIETAINED EARNINGS Q NE m u.n u fwloru 1990 luso tw nalance, January i s334.459 5203 m 5252 8So Net income ror 1he Year 121,672 113Jiu2 i i s 66n Total 456,131 4ao 856 371,425 Cash dividends declateu Conunon stod 74,972 72.3o7 77.571 Balance, December 31 SM I ,159 $M4 abo $2"Th54 S t '< st, + Mita; I:' :% D::

NOTES TO CONSOUDAT ED FIN ANCI AL STATEMENTS A. Consolidation

SUMMARY

OF The consohdated linancial statements include the accounts of DQE and its ACCOUNTING subsidiaries. All material intercompany balances and transactions have POLICIES been eliminated in the pteparation of the consolidated linancial statements.

Ptopeny, Plant and Lquipment Properties are stated at the original cost of construction, including related payroll taxes, pensions and other ninge benefits, administrative and general costs and an allowance for funds used during construction (Al C). AFC, which represents the estimated combined debt and equity cost of funds used to finance constniction, vanes according to changes in the level of construction work in progress (CWIP) and in the cost of capital. AFC is cred ited to income, and while cash is not realized currently from this aPowance, it is realized over the service life of the plant through increased revenues resulting from highet rate base and higher depreciation expense. The AFC rates applied to CWIP were 9.9% 101% and 12 (n,in 1990,1989 and 1988, respectively.

Additions and replacements of property units are charged to plant ac-counts Maintenance, repairs and replacement of minor items of property are charged to expense as incurred The cost of property retired plus re-moval costs, after deducting any salvage value, is charged to the accumu-lated provision for depreciation Substantially all of Duquesne's properties are subject to a first mortgage lien.

.t , ist

NOTES scm um Q oot .' ,'

DCpleCidlion Depreciation of electric plant is provided on a straight line basis os er the estimated useful hves of property Depicciation and amotlization of other properly are Calculated on Valious bases such as the itnotint <>1 tithleat fuel burned As pernutted by the Pennsylvania Pubhc Utth'y Comnussion (PUC).

Duquesne !ccovers through lates its shaic <>f tae estimated future decorn-nussioning tosts for its operating intetest in tntee nucleat units Duquesnc%

share of such costs aie estimated at 58n million 10: Beaver Valley 1. 523 million for Beas er Valley 2 and $38 million tot Perry 1. Amounts collected f rom Customets through rates ale depuS!ted in Segregated aaounts which can be used only for future deconunissiotung costs Revenues Customer meters are read and billed monthly Revenues are recorded m the accounting peMods in which they aie billed. DeferieJ revenues representing the phased-in portion of the rate increase have been teco!ded in operating revenues See Note ll.

Income Taxes Deferred income taxes result from timing dif ferences in the recognition of revenue and expense for financial and tax reporting purposes and are provided at the statutory rate in effect at the time the dilference originates in instances where Dow through accounting is renected in tevenue levels, the deferred tax etTects of certain timing ditterences are not provided They are recognized for book purposes, and in rates, in the year they attect taxes payable. As of December 31,1990 the cumulative net amount of timing difierences for which deferred income taxes have not been provided was approximately $250 million Duquesne allocates income taxes between operating expenses and other mcome Investment tax credits related to utility property genetally were de-ferred when used and reflected as reductions to tax expense over the lives of the related assets l

l rainis

', hDOE in December 1%7 the I mancial Accountmg standards Isoard il Asth issued Statement et f inanaal Accountmg Standards No. %. ' Act ounting tot income laxes; which changes the method of accounting lor income taxes The Company must adopt the Statement by lanuary i, IW When the new stand,ud is adopted, signnitant adjustments to balances of accumulated deterred incoine tases will hate to be m:ide to tot old adthtional descried mcome tax liabihties Significant adjustments also wdl be tetorded for the net reduction in previously recorded deteried income taxes tesulting hom inct nle tax title changes and hir the recognition at delerted incoine tax i

elletts related to unamo:li/ed mvestment tax aedits t he Company has estmhited that these ad;ustments could total as mut h as $5m milhon it is expected that the additional delened income tax assets imd habihties s 'lli be olfset primarily by regulatory assets and habihties teptesentmg the expected f uture ictenue icquacment impatt of these adjustments D< fen ed I uti Costs Duquesae recovers hom customets, fuel and other energy costs not other--

wise recovered through base rates. through an anmtal eneigy cost rate (ECRL The IXR is based on projected costs and is iecalculated each year.

It includes an adlustment for any p.evious ovel or undertollections f rom customers. Duquesne defers the ditterence between actual eneigy costs and the amounts curtently recovered f rom customers through the I:CR, and it records the difference as a payable to or receivable hom (ustomets NucIcar I"uel Costs Duquesne finances its acquisition of nuclear fuel through a ca}ntal lease arrangement The cost of nuclear tuelis chatged to fuel expense based on the quantity of electnc energy generated by the reactors 1he U S Depart-ment of Energy (DOE) is responsible for the ultimate storage and disposition of spent nuclear fuel. Duquesne pays DOE a fee for future disposal service, which it recovers thtough rates.

Cash luows For the purpose of the statement of cash flows. the Company considers all highly liquid mvestments which matute in three months or less to be cash equivalents.

Reclassi!1 cations The 1989 and 1W8 financial statements have been reclassitied to conform with accounting presentations adopted dunng IWo.

I uia r i oNr

NOTES secetm Q oos / ..

B. .

In 1984 the Central Area Power Coordination Group (CAPCOt companies EXTRAORDINARY agreed to minimize construction work and cash expenditures on Perry 2 PROPERTY 1.OSS pending consideration of several alternatives, including resumption of con-struction or cancellation of the Unit. Duquesne believes that any decision to resume construction of the Unit must be approved by all of the CAPCO .

companies. Based on present conditions, Duquesne will not approve re-suming construction In 1987 Duquesne teceived approval from the PUC to amortire and recover its $155 million investment in Perry 2 over a ten-year period which began July 1.1987, on the basis that Duquesne had aban-doned its interest in the Unit in Much 198h Ducuesne is not earnmg a return on the umecovered cost of the Unit, whic1 was $99.5 million at December 31,1940.

In 1988 the Company changed its method of accounting for abandon-ments to conform with Statement of Financial Accounting Standards No 90 (SFAS 90). SFAS 90 required that a loss be recorded for the disallowance of a return on investment, regardless of the fact that tegolators have provided for recovery of the full investment. 't he loss that was recorded far the disal-lowance of a return was measured by the difference between the recover ~

able investment and the present value of the amounts to bc recovered from customers. As this ditTetence decreases over the period of recovery of the onginal investment, the loss is reversed through accretion, whkh is recog-nized as income.

C. In 1989 Duquesne entered into an arrangement with an unaffiliated corm-SALE OF ration whereby Duquesne is entitled to sell a_nd the corporation is requits 1 RECEIVABLES to purchase, on an ongoing basis, up to $90 million of its accounts &

ceivable. At December 31,1990 Duquesne had sold $50 million of customer receivables and $18,1 million of other receivables, At December 31,1989 Duquesne had sold $77 million of customer receivables and $13 million of other receivables. The sales agreement includes a limited recourse obliga-tion under which Duquesne could be required to repurchase certain of the -

. receivables. The maximum amount for which Duquesne is contingently liable was $13.8 million at December 31,1990. -

1ainT y r v o l

l

hDOE 11 Duquesne has an extendable revolving credit agreement with a group of SiiORT 11 RM banks totaling $225 mtihon with the initial expiration Ote being November BORROWING AND 3n.1992 DepenJmy on the option selected by Duquesne at the titne of cat h RINOINING buttowing. in!ctest tales uin be based on pume federal tunds,1:urodollar CRt Dil or CD rates Duquesne pays a commitment fee of 1/81 per year based on ARR A ngl: MINI s the unbonowed amount of the t oinmitment t he inaximum short term bank and (onunetcial papet borrowmgs out-standing dut:11g 1040 were $53 million the average daily short term bor-towings outstandmg were $113 milhon and the weighted average d.nly interest tale was 8 3M in lu8u the inaximum shott-term bank and com-mercul papet bonowings outstanding were $101.4 million, the avetage daily short term bottowings outstandmg wete $15 6 milhon and the weighteJ average tate applicable to such bottowings was in% lhete were no short term borrowines in 1488 E

gy A e,1,3 I Wem!rr J 1 ilhausanxis et I A>!!aN 1990 low Cip;tdIra5Cs Nut icar l'ucl $ 192,65 7 $ 1 m 2 h-1 1.!n In; plant 43,134 E910 Total 235,791 2R,12 )

L.ess an umulated amortization M O,000 M 705 Property hem under capnalleases - net $ 155,791 %t67A\n lhe Company leases nuclear tuel, a portion of a nuclear ger.erating plant, ottice buildings. computer equipment and other property and equipment On Octobet 2.1987 Duquesne sold its 13 7h mtetest in Beaver Valley 2 exclusive of transmission and common facilities t he total sales price was

$537 9 million, which was the appraised value of Duquesne , aterest in the property. Simultaneous with the sale, Duquesne leased back its interest in the Umt for a term of 2% I/2 years lhe leases provide for semiannual payments and are accounted for as operating leases Duquesne temains responsible under the terms of the leases for all operation, maintenance and decommissioning costs of the Unit

!HIL ' H l' ! t

NOTES <cc, < nm o,

• Q oot .' .

t.tased nthlear fuel is amollized as the fuel is burned. T he amortization ol leased electric plant is based on the rental payments made. Such payments for capital and operatina lcases are charged to operating expenses on the Statement of Consolidated income lhe following summarizes those rental payments on the Statement of Consohdated Income for the three years ended December 31,1900 Yntr i nJa! Dcccml>cr 3 I,

( 7 hWNna el Do!!ar.a 1990 _.

1989 1988 Operatmg leases S 65,989 $ 65.292 $ 65.413 Amorttration of tapitalleases 43,368 29.287 36,752 Interest on capital! cases 10,334 8.555 8 841 Totairentalpayments $ 119,69 I 5103.134 511I.006 Futcre minimum lease payments for capitalleases are related principally to building leases and the estimated usage of nuclear fuel tinanced through leasmg arrangements. Minimum payments for operating leases are related principally to 13eaver Valley 2 and the corporate headquarters. Future minimum lease payments at December 31,1990 were as follows Yeat l~nsling Decern!>cr J1. Operating Capital (Thousin,fs of Dolt.trM L. cases t. cases 1991 5 65,510 $ 50,326 1992 fA636 44,010 1993 63,366 27.140 1994 61,071 21.238 1995 61,010 11.057 1996 and 11 ereaf ter I,362.605 38,732 Total minimum lease payments _

$l.b?6.198 l 42.503 Less amount representing interest 36,712 Present value of net minimum lease payments $ 155,791 i lt ! k l i - l i, .F

h DOE f

INCOMI 1 A\15 ilh,mmJs of IO!!,n.a 1990 1"W tw int luded in opt rating expenve'.

Cut tentij pay able l eder al $ 40,392 $ ht> W $ Ro!.11 State 9,N 13 ti1eh (W '

Delerted - net l eder al 31,430 t 2 2nu eItti State (4,920) J W, 2fM investmet11 tax cred.ts dt teMed - nel (5,M38) M 760) H yl0:

Totalincluded in opetating etpenses 10,877 o U.P  !.4 r.nt, included in other uworac and dedthlions Cu!len!!y payable I(deral 11,039 8.0 % 3 4fK)

State 3,016 /e u29 Deterred I e& lal 331 N 2,742 State (9) t l 13) t .2 6 Insestment tax cred;ts (4 5ui q oy ,47n, Totalintladed in other incorne and deductions 13,9 I N ln eso 7.277 70talincorne lat expense 584,795 $7hAlu $61 INJ lotal incorne taxes differ froni the arnount cornputed by applying the statutory lederal income tax tale to income befole inconic taxes and DuqueSne 1ight Company prelerted and pteferente dWi-dends lhe reasons for this difference in each year were as follows Computed lederalincome tax at statutory rate $ 7 4,9 74 Sea 773 $b7.7 o increase (decrease) In tates tesultatig from Allowante for funds used 6tnng (onstruction (99M tu7ta (1,029, y Cairying charges on assets not in rate base is of::)

1.Acess of book over Ln depreciation h,547 7 319 4201 State moome taxes. net of !cdcralinctime tax benefit 5,214 2 Aon 2. l on Amortizanon of deterred Investment tax (tedits (6,435) IXun2) to uJ I)

Other - nel 3,493 2 kou 3.o M Totalincome htx expense $N4,795 $75 414 $c s .782 0 Sources of income taxes deferred arid the telated tax effects w cle lacess of accelerated over straNh t line depretiation $ 2 4,2 30 $2s740 $28 330 Deterred levenut,s recorded for book but not tot tax purposes 12,774 41248 46 3n7 Unbiln- .menues recorded for tax but not for bool) urposes l3,7 7 2 ) (5 1671 (3 3Wa Deducted on tas retuin and detened on books S Nuclear plants maintenance outage tusts (2,620) 3 891 224 Praperty taxes (l,347) (4,104) 1 xpens : on ba +ks but not deducted for tax purposes I oSS on early retire!Deril til bonds (l,167) ( I ,34 W h476 P!UYtston l(it had debts (2,722) 14.2401 t l 4 2 til f uel (osts (180) (I A77: 675 h

Rate refunds (including interesu 5,994 2 hu5 1.995

}h "O

Low on abandonment of I'erry 2 (2,794) 62.041) (1.412l Other - net (1,504) 167 (5 0431 Totali" ome

. fases Je/et7ed - nel 526,832 504 686 Sh 7.6ub i h ;i i t i

NOTES icos nwm Q oot ' ,'

1he Companys federal income tax icturns are settled through 1983 and the teturns for 1984 and 1985 have been examined 1he setutns for 1986 and 1987 are cunently being reviewed and the 1988 and 1989 seturns are subject to teview. The Internal Revenue Service has proposed significant deficiencies in its examination of the Companys 1986 and 1987 tax returns, including the disallowance of a Perry Unit No. 2 abandonment loss and 3

related deductions claimed on the 1986 return The Company will appeal thest disallowances. The Company has recorded the tax benellt of the Perry Unit No. 2 deduction in a delened tax accrual and has been passing on such benefit to customers The Company is reviewing the impact of the proposed deficiencies but believes that the settlement of lederal and state taxes will not have a material adverse ellect on the Companys financial position or results of operations.

G. Duquesne has trusteed

• 9ement plans to provide pensions for all full-time EMPLOYEE employees. Upon ret employecc receive a monthly pension based llENErl15 on length of service . . . ipensation. The Companys policy is to expense and fund the pension cost determined using the unit credit actuarial cost method, provided that this amount is at least equal to the minimum funding requirements required by the Lmployee Retirement _ income Security Act 3 (ERISA) and does not evceed the maximum tax deductible amount for the year. Pension costs chatged to expense or construction for 1990,1989 and 1988 werc $12.6 million, $11.7 million and $12 5 million, respectively. Costs related to a plan for former United Mine Workers employees were $0 2 <

million, $1.2 million and $1,7 million fot 1990,1989 and 1988, respectively.

The following sets forth the funded status of the retirement plans and amounts recognized on the Consolidated 11alance Sheet at December 31.

1990 and 1989 (Thousmb of[kilars) ~~

I990 ~

l989 Actuatial present value d benefits rendered to date*

Vested benefits $2 41,193 $226,532 Nonvested benefits . ._ . _ , _ .

19,915 19,009 Accumulated benefit obligations based on compensation to date 261,I ON 245.54I Addjuonal benelits based on estimated futute salary levels 56,434 _._ _; SH,30H l'rojected benefit obligation 317,542 303.849 Iair market value of plan assets 319,594 3223* 5 Projected benefit obligation under plan assets . S 2,052 $ 18.21ti Umecognited nel gain $ 56,573 $ 66,156 Unrecognized pnor servke cost (23,959) (18 A88)

Unrecognized net transtoon liabihty (24,725) (26,538)

Net pension liability per balance stiert (5,837) (2,514)

Total 5 2,052 $ 18.216 1uig13 3;y

. '. h DOE Assuined tale of feturn on plan awels 8.00 % 7 IfA thscount tale used to determine payetted tienefit oliHgation 8.00% 7 If.%

Assumed ( hange in fotnpensation levels rd75% h7NU l'laa assets tonsist primatdy of (ommon slot LN Ututed States obilgations and (or -

porate debt secutities Net pension cost foi iWO 1969.md 19M8 was temputed as follows 47hbusanih el /Ullaisi 1990 1989 ~ ~l488

& (Yit e cost benttits catned dunng the yeat 5 9,710 $ 8,458 $ H.212 Intriest on ptolet ted I cherit obligation 23,101 21 flu 0 2u.782 Retum on plan asset 4 (3,897) 6MMN (22M7)

Net amortization of deterrah (16,289) 40 lti8 A323 Net penMon t oM 512,625 $11373 $ 12,49u ilhe i ASD has issued Statement af f inancial Accounting Standards No, 106, Dnphyet 's AccounUng fot Posurthement lienefits Othe! 1han l'ensions This Statemetit will require acclual of postretnetnent benelits (such as health caf e benefits) during the years an etnployee ptovides services. T he costs of these benefits are currently expensed and recovered through tales on a pay as you-go basis. The impact of this new standatd has not been fully determlned, however,11 is not expected to adversely impact tesults of operations. Ihr Company is required to adopt this Statement in 1993.

il, Io87 lhtte Case RATI MATIIRS On Match 23,1988 the PUC adopted an order which increased annual tevenues by approximately $232 million The older tellects the PUC's allow ance of a 12 87% teturn on equity and an overall rate of return of 10,94%

Although the new tales became ellective in March 1988, the PUC ordered the increase to be phased in over a period of six years 1he deliciencies in revenues resulting from those scheduled tale increasch are defetted and will be recovered by the end of the sixth year. The phase in plan was designed to include a return equal to the after tax ATC rate on any revenue deferred for latertecovery. Deletted revenues and related carrying charges of $267.9 million were recorded through December 31,1990-Several parties to the rate case, including Duquesne, had tiled appeals

. primarily relating to a Perry I cconomic excess capacity penalty. In July 1989 the PUC approved a Comprehensive settlement Agreement (Agice.

ment) among Duquesne, the Pennsylvania Office of Oinsumet Advocate, the City of Pittsburgh and a number of commercial ct ,tomers in Pittsburgh which had intervened in the 1987 Rate Case and other tale proceedings (loint Petitioners). Undet the terms of the Agtrement Duquesne's base rate revenues were temporarily reduced by $25 4 million over a 12 inonth period ~

whic h ended August 31,1990.1hc Agreement also settled and disposed of all proceedings pending between the Joint Petitioners befote the PUC, the Pennsylvania Commonwealth Court and the Pennsylvania Supreme Coutt, including the 1987 Rate Case, proceedmgs relating to the cancelled CAPCO units' amortitation and an option order telund

Nm i: Sat som o Q oot / .'

Under the terms of the Agreement Duquesne is not permitted to obt.un additional base rate relict inser and above the phased m incicases ap proved in the 1u87 Rate Case) until I.uuury 1.1943 unless any tederal, state or local legislath e body, judicial authonty or administrative agency, includ-ing the PUC, tai orders or enat ts changes m any statutes, tegulations. tegu latory policies o! interptelations thereot allecting Duquesne=s base rates or d0 imposes new progiams or procedures duet!!y resullmg in costs, savings, or changes in late treatmer.t. revenues or expenses. tiot provided for or at issue in the Agreement liowever. Duquesne can file for and, subject to PUC approval. obtain additional base rate iclief cifc(tive January 1,1902 of cny time thereaf ter il the annual rate of inllation, as measured by the GNP Implicit Price Dellator, enceds an annual percentage of 7 L duting any 12- month rolhng pehod pnor to the liling 1he Agteement has no cifet1 on any claim whnh Duquesne or any other party may make in any future rate proseedmg with respect to (ettam operating and other tosts of Perry I and Beavel Valley 2 which were deferred in the 1087 Rate Cate DeletrcJ Costs of Units Not m Ibite liase on July 16,1987 the PUC approved Duquesne's pelihon to defer for possible recovery in a future rate proceedmp, itutjal operating and other costs of Perly I and l\eaver Vallev 2.1he costs detened were mcuned hcun Novem-ber '1987 when the Units'were placed in commet(tal operation until the hiarch 1988 decision of the PUC in the 1987 Rate case in the 1987 Riie Case the PUC deferred ruimg on the recoverability of these costs 'These costs net of deferred fuel savings related to the two Umts, totaled 551 million at December 31,1090 No cuttent return is being catned on the deterred costs.

Deferred Coal Costs Beginning in 1981 the PUC duccted Duquesne to deler recovery of the cost of cual deliveted to the Bruce hianstick! Plant (hiansticld (oah in cuess (!

generally prevaihng market ptices for similat coal; however, amounts defened may be recovered tiom customers during periods that the cost of hiansfielJ coalis less than generally ptevaihng market pnces The unrecov cred cost of hiansfield coal paid by Duquesne was 55 5 million at December 31,1990 The Company believes that the delened coal costs ultimately will be recoveted ln October 1989 Duquesne filed a pellttori With the PUC fot revision of a system-wide coal cost standard which is applied to the cost of all coal dehv-cred to Duauesne's wholly and jointly owned power stations other than the h8ansfield plant, including coal trom Duquesne's wholly owned Warwick mine A loint Petition for Settlement (loint Petitiom was approved by the PUC in June 1990 which clanties certain aspects of the existing system wide coal cost standard and exicads the standard to Alarch 31.1992 with options for Duquesne to further extend the standard through h1 arch 31,200d 1he Joint Peution also permitted Duquesne to utih/c apptoxanately SS 7 million of escrowed funds remainmg fram the settlement of the United hiine Wotk-ers Putchased Coal Clause laigation for capital expenditures associated with the restatt of the Warwick mine.

T o:w i ison:

'. '. h D

Ihe Watwi,L Inine had lmen on standhv ' int c tons im St l :et We the Congiany rntried into aglet inrnts with an unalhhated tiu e un f lot the upciation of the nunc until M ut h Joon and lot the sair s :r - n pany duting this period of io.d puuhn cd troin the nune l'rodu+ th n a s .a lh lalf 1900 l)uquCstle's tiel l!Westil1Cnt ill the !!utic. W hl( h Was S n) /

nulhon at 1)ca nitet 31. touu. is expctled to be tews eted through the wst of ( o.d dunng the period of the w.d ( ost statid.ud in(luding extensiotts I'lopctly tirlst fol I ulute 18c lit lu%h the PUC appil4 ed li i:tluest(s requett to letth4 0110:11 stt vlL C atid pl.ue111"[tild lcsci\ c ' tiiust til the ist tiitot Islalid and Phillips Pi>M ei Sta llofis !)liqlic5nC ' net itWU$tturni ll) thC tiild lUsUl\ Cd unlls M a5 $1nh nul hon at twentber 31. loon Ihrse stations air expn trd to be totuined to selvit e 111 (ollnUt tiot) M ilh the 'Jfig 10111) Nde til poWet to Get1Clal Ptihht Utlhlic5 Colpotalltin tCPl3) l O sn%ftils(1o11 C( M1Mi l M1.N I S t he Coltipatly estiinates that it will ' pend apptinittiately ilt 0 tiillliott tilt ANL) wnstrut tion rulusive of nuticat f uel and Al C. dunny 1991 Capital expen CONilNGl NCitS dilutes tot IW/ thiough 1995 ate r Apreted to total $h00 nulhon 'lhe Cotti pany expetis to let:ovel Sl!iu inillion of these expetiditures in199i itom the llanstet of a 600 intelest in the Philhps plant to Gl't! 1hesc .irnounts do not uwlude expetiditutes telated to the Clean Ait At t ainendnients GualdllicCh thiquestic, togethet with the othel C APCO (oltipar11rs. has };uatanteed (citaiti debt and leitse oblig,ttions it) (otitle(tion With a (oal supply Lontf ati for the Ittuce Mansticld plant At liet etubei 31.1000 !)uquesne s share of these guatalitres was $50 l niilliot) lli grDehd, the pilt es paid tot the to.d by the C AITO wtupattles undri the co.d supplc rotitt.u I will be tullit ictit to S.6tt$ly the tchl and lease obligations l'ndri the (oal slipply L ontf alt, the filinuntini lutule payinents to be in,tdc by thigliestic whit h alc telated solely to these obligations ale Wat I n, lum 1% < m!wt ifI, iitr mm,I~ of (Mllat.m 1001 $sm 199) 7 9]u vn\  ;;,c,7 10%) /.I M lous n fo3 Ar'.cr 1% /3 4 ni lolal %s d ,2 N thtquesne's total payinents lot (oal pilt(hased under the (ontiat t were SM 7 inilhon $30 nulhon and $/o a nulhon in tuvo,198u and lu88 tespec.

Lively in,o i3  !

.. .J

NUI Ls e n e Q oot J 5

NH4Iedf IllSiffdth e lhe CAPCO companies inaintain a nutlear msutance prograin to the inaxi-Inum e\ lent available lhls progf Jill t ullently provides 512 billion 4 4 primaty and c Acc55 p!opelly Insulant e afid $1.125 bilhon of decontamina-tRTIl liabillt,,, des ominis5KT!1ing Ilabihty and cKte$s propelty insulance foi lhe $5 8 bdllon total inve5!!11cnts in l\ caver Valley I and 2 Ihe CAP (l) com par)'csi ha\e strDilat propelly in5ula!Ke for the $5 3 billion total investment in Petty 1 If the propcIly dainage reserved of one of the msulets ale inade quale to cover 4,laims all51 rig flofli an nKidet i at any nuclear site in the United State $ Wveled by thal W5ulet, Duquesne is obhgated to pay Ictro spective prenliums of up to $4 Inillion pel year.

1 lhe Prict' Andersori Ametidnients to the Atomic ! nergy Att provide nuclear liabihty indemnification that hmits public hability ftom a smgle incident al a lluclear plant to $7 4 billiofl lhe ptiniarY linanClal p!Otecti(m is provided by puf(ha5 lng the maximuni ainount at available insuratue of

$200 milhof) Additional protet tion of $7.2 billion would be provided by af) assessment of up to $63 inilliori pet intident levied ori cach of the tulclear uruts in the United States, sub)cci to a maxunutn assessment of $10 million per incident pet tlucIcar unit ill afly yeat Duquesne's curletit itilelest m three operatic] lea (tois Would subject Duquesne lo a $47 milhon maAimum assessmellt which 11 would be hable to pay with tespect to an incident at a nylear plant. Duquesne's payment of this assessment would be limited to a nulmum of $7.5 milhon per mtident per year. An additional surcharge of 53 could be levied if the total amount of pubhc claitns exceeded the funds proviJed under the tetrospective program Duquesne's shale of the sur Charge Would be approAifnately $2 3 million, subject to any increases for inflation Congress (ould impose further revenue raising measures on the nuclear industry if funds prove insuf ficient to pay claims OlIlef The Company is invch ed in various other legal proteedirigs lhe Compar1y believes such proceedings in the aggtegate will not have a matenal adverse ellett on its finainial position or results of operations L Common Stod CAPil AIRAllON lhe Company has paid a regular quarterly common stock dividend each year since 1953 Dividends were 30 cents per share for each quarter in 1988.

The quarterly dividend was increased to 32 cents per share eficctive with the dividend paid January 1,1989, to 31 cents per shale effective with the dividend paid January 1,1990 and was further increased to 36 cents per shale effective with the dividend paid January 1,1941.

In 1987 the company's shareholders approved a t.ong lerm incentive Man through which the Company may grant manag* ment eniployees options to purchase up to a total of a nullion shaies ofits common stock during the period 1987-1997 at not less than the mattet price of the stock.

As of December 31,1990 active grants totaled 707,973.176.000,10.000 and 127.284 shares, at exercise prices 01 $12.3125, $15 3125, $18125 and

$23 75 per share, tespettively. Stock appreciation rights (SARs) have been granted in connection with 835 257 of the options outstandmg Duting 1990,1984 and 1988, respectively.137 A85,164.162 and R356 SARs were exetcised,3,50h 7,053 and 0 options were exercised for shares and 23,139, 5,680 and 13A91 options lapsed due to terminations i: ci,

& pol l'!clettnl ath! I'Icletcth c Stos L 1he prefetted stot k is entitled to quatterly cumut itivt thvidefuls it tout quatterly disidends on any sciirs of picletted stock arc m atteats, holders of the stot k are entitled to clnI a malotity of I)uquesne's Ikuld of I)anlots until all C.vidends have been paid lhe pielerence sto(k is entitled to quatterly cumulative dividends. Pio vided that tio dividends on any series of picteried stot k are unp.ud 11 six (platterly dividends on any series of prctetent e stot k ate in ancats the holdets of the pieletence stot k ate entitled to elect two of ()uquesne's direttots until all divulends have bc( n paid

^1hc outstanding pteferred and pielriente stock generally ate callable on tiot less than 30 days' notite at the pines stated in the labic oli page lof ty two, plus aurued dividctuls= Critam call prices detilne in tuture yeais lhe pretetred and pieleternc slot k are subjnt to vatious putthase atul sitiLing tund requirements As of ()ct cinber 31,1990 the tuaxttnutu (olut>ined .

aggregale sinkIrig futid atid tilatidaloly puttIhlM tequltelnents Iot piclettell atid plcletetice stock are $5.6 million tot cath of the next five yeats lhe tollowitig summary indicates the t hatiges in the riutnber of shi.tes of cotumon. pieletred and prefereth e slot L outstanding during 1900,1960 and 1988 imt ! nJn)lh t cmtwt JI.

17housuntsofShatco 1990 1984 luMM COMMON STOCK - S t PAP VAI Uta

()ulstanding begmtung of ve.u 55,340 h7 MI 10.0 %

lictsbuatu e treasury slo.L 4 10 Kcputt hase - tommon slot k ( 1,5 ft S) (2 50l! t l i./6N Outstanshng - erhl ofyrat 63,759  % 340 67 83\

l'Rt Il RRl.D AND l'RIII RI'NCE STOCK:

()utstandmg begmumn of yeat 4,655 4,'m 5 046 hth hases and icdempth'us (355) (14 H) ll6N Outstantling - ethl olycat 4,300 4.6 % 4 003

\ car I nJnl Iles emlet 31, t t housands ol l h illatu 1990 1989 1988 CAPli Al. SURPL ltS.

Ptemium on t ornmon stot L 5933,316 $933 3/0 $433E0 Caplial stik k cipt use (6,772) (1,l b6) (7,447)

Other 1,857 1873 1.617 10101 capital $Utplu% Y)2 H,4 I I $428.04 3 $U2 7.446

?

!a'i 13 .I

NOTES mwe Q 00e' .'

Preferred and Prefererne Sto(L of Duquesne Light Company:

na c n A r M lt , T u r m ler 31; l e ON Ilis e Nhilc5 hi!H b;l NhUc% Anklulil Series ICJ bh.tf r Out %nd m p f!!o iVrO/ Outstanding (7/h 'U VDI 8 Preferred Stock (t h 4% (3H7) $ 51.50 549,709 5 27,486 549109 $ 27.486 3 75% (3)(7) 51.00 148,000 7,407 146 000 7,407 4=153 (34 7) 51,73 132,450 6,643 132.6 0 0643 4 20t (3it7) 51.7I 100,000 5,02I 100 000 5.021 4.10% (3H7) 51.75 l 19,H60 6,012 120.000 6.019

$210 (3H7) 51.84 159,400 M,039 159.400 8,039

$7.20 (447) 108.00 319,160 31,915 334,150 33.415

$8 64 (4H6) - -- l i nju4 $ 7NO P 37';pH6, 101.36 103,454 10,345 146,087 14 604 Pteference f.tock (2h

$2 315(5H7) 25.90 1,177,600 29,440 1.200.000 30,000

$ L IO 15)(7) 25.70 1,175,300 29,3H3 1,200 000 30,000

, $7 Sr (4HN 101.00 91,722 9,172 95 420 9.542

$9125(4HW 103,84 222,839 22,284 244.Pab 29,420 Total 193,147 225 121 Purchase and sinking fund requirements (4,054) (5,130)

Toti5 prefetted and hreference stod S I 89,093 $2IuS9i ,

<n tuet rmt stu 4 wa v aavuonmt st.arn Wsur vaix comuwm & w.Irr Mc uwlanun inntauan salue Qt 11rfctcru e stM & vMLn)Julhoruni 51 *cs. $I panJ!ae s wNla!hr it i RedctnwHe or $ 4[vr shaic tm olantary bquoJatun vah . n n Non.iniwmatric.

I415 hk jfi s!we inw!u?; tan thlJh1J!wn ru!ve Other Long Terrn Debt of Duquesne IJght Company: Pollution Control Obligatiorih7hgoands o/ Toll.nu ntncips! Amount Outstandmg Yea. A\ erage al IW'Wb'I U I' Issued interest Rate Senes Matprity 1990 1989 1472 5 5794. Allegheny County Series A 2002 5 19,600 $ 20,200 1973 5718% Braver County Series A 2003 10,400 10,700 1973 5 70A Allegheny County Series D 2003 13,395 13,850 1976 7 50% Allegheny County Series C 2005 17,000 17.000 1990 (2) Beaver County Series B 2009 18,000 -

1976 6 90% Beaver County Series C 2011 15,000 15.000 1983 10.50+ Ohio Development Authority 2013 20,500 20.500 1990 (2) Allegheny County Series A 2013 50,000 -

1984 Il.625% Beaver County Series B 2014 51,000 51,000 1985 11.125% (1) Ohia Development Authority 2015 3 H,610 38,610 1968 (2) Ohio Development Authority 2018 71,000 71 000 1990 (2) Beaver County Series A _

2020 13,700 -

1989 (2) Ohio Deselopment Authority 2023 13,500 13.500 1990- t2) Deaver County Series C 2025 44,250 -

1974 7.97% Deaver County Series A - -

13.700 1975 8 4 0%. - Beaver County Series n - -

18.000 1981 12 Dat Allegheny County benes D - -

50.000 1985 7.75 0 Beaver County - 1985 Senes - -

4440 Total 395,955 397.310 Less current maturities and strEng fund requirements 1,635 1.990

~

Totalpolludon control obIlgations 394,320 395.320 5% sinking fund debentures tauthorized $20.000 000) due March 1,2010 7,592 8.168 Total other long-term debt S401,912 $403.AM t 0 !asalin Ibc Lvm ofIust Msraue imb Q t 4,'t(hh!> Of Ulf [\1!lUlh **)

et *n R tt ItYWntif ri ?TnlS $1df Whl!W IIAC!r.<? Islit lbrik h!5 !dihlif f Ih ?M s *!l($dV lik bb\t daVS i 'n M slJa th @ C lsth *!

10 any intetrM resel JJ!c. thC enmjUnpan dWWC ?!< hukijUrm HaClat t#v p'!k d W UC (W.h la J d&fml midnt late f tn %l TJDgi%

_fh1m O!!P d11% V Un' fl%il!?M!u!!!/ ry U1C t%'Ind I?iC LpUP i WGl rd $f a %'md hCn iVi UC [%',YfrY j'Idn? @bl n[:IT!nt!st $bUth'nl iOH1Y TWO l

p .. . . . . . . . . . . . -

. g oo, n,ci,-nuhono,nhoiehhgahonsaireno,no,e uc m eu unobu<

allllhitllich h t tillath e the ( tiintitis thiti tif lwi!!uthin ((inttiil t,h ilitic at (Ith{llcSileN l1lanl$ (1! to tellitid kut Il holkls lhh]ileStic is t'Iillga!cd b) l lay the ;> tith ibil til athi intete't < >ti the litituts i til t t italti t c *;;c lxdlotti n i

O'ullol obligallotb thetc is att alHi!idl 4 t'lllitullnent lec ! Lit all litevl4 able letter of ctedit 't he Ictlet ol tledit h avallatile, undet t cil,uti cifi uinstalh e' for the }i tyment of inlciest on of Icdctni) thin of a jiollion of the bothis Mediutn-letm notes in the folin of Iitst Mottgage l\onds totahng $/3 !,

inilhon were issucJ in 1u00 1hese notes has e intetest rates arciaging 8 4 7 0 and Inature on liet ember 1, IW/

!!!at !.h, iip.p ikinds of iruquesne i tgnt tornpany . I!w-se s l u"ar i l'? vn ipa! .% n ml ( hi' t,ur.!un; tm et y,\ al i U cmh 1.11, l$,ite M;!!urity 1990 idf M8 13 3 61 .5 1 41  % $ / 4 f,10 li n I c .14 )j l U.' -

/ ,1. /!d )

I fl 3 ' 4

• fi ] 'J'. al 9,0()O 19 #lbii h IIWC }-l \hh )),800 ); N U h 5 1-4A .-l47 24,600 /4 boli 6 .4 X( J l uk 34,700 31. 7t e t 7o l l uu 30,000 30 out i 7 1/ 4 L 7 I "Y 28,947 / N# 17 8 3 ' 4 *. 3100 30,000 in 000 7- 7 < FT, i I til 35,000 t'i tif ie 7-l / t 12 I al 26,461 16 461

/-l<2* #, I i'J 28,470 19170 7 - 1, 4 L i 1 o3 3/,670 11 670 7344, 71 oi 35,000 ViD00 8 fu el o 4 1 ol 44,100 44 100 9 1 JJ 4, 3 i Or, 50,000 f,0.ohn 44 6 1 (ih N O,000 N) Olk) 6 3 -' h

• 4-l (l7 97,400 47 4(H) la 1 an. 1109 94,040 99 000 lb ic 4 0 511/ 372 1 02)11-578. 11 1 t h 48,276 107.101 o I//4 11116 100,000 100.000 40 /l l7 100,000 100 O(la 7$ila/ I,OIl,N3ft l ] hf.t,7 4 3 1

Mediurn lenn Notes x 33 L 85* 12 1 of 71,500 l t w t.urren! Ntiking land tequirenichts l1,700 I? 06h Total first inortgage hon.h 51,103,636 %I.14? 743

!- i  ! ;! i

• I

NOTts wuwxm Q oot -

Duting 1988,1989 and 1990 Duquesne teacquited a total of $324.4 nullion of its litst mortgage bonds. The ditietence between the purchase price <. and the nel carrying amounts of the bonds was $20 9 miihon and has been included in the balance sheel as "Unamurtited loss on reacquired debt" Duquesne amortizes and recovels these losses lhtough rates Sinking fund requirements and maturities for the next live years of long-term debt outstanding as of December 31,1990 were as follows:

un Driling Nnking i und themfor 31. licquiternents Matutilles 1991 $ 12,435.(K80 5 400.000 1942 13.M 2.000 74.500,000 t993 i A i 15.000 1.ovosoo I094 i A 715#00 700 000 1995 11440.0fK) 49 100,000 1he sinking fund requitements telate primarily to the Orst inortgage bonds and may be sailsfied by the certification of property addit;ons equal to 166-2/3% of the bonds requiad to be tedeemed. During 1990, $4.2 million of the annual sinking fund requirernent was satisfied by cash and $8 3 million by certification of property additions.

Total interest costs incutted during 1990,1989 and 1988 were $158 5 million, $172 million and $174.1 million, respectively, of whkh $13 9 mil-lion, $18 million and $40 6 inithon, including AFC, were capitali/ed or de-ferred. Debt discount or premium and related expenses ate amortized over the lives of the applicable issues.

Duquesne was involved in the issuance of $4216 million of collateralized lease bonds, of which $418 8 million temains outstanding, by an unallillated corporation for the purpose of financing the lessors' purchases of 15eaver Valley 2. Duquesne is also associated with a letter of credit securing the lessoir $183 million equity interest in the Unit and certain tax benelits. Il certain specilled events occur, the leases could terminate and the letter of credit and/or the bonds would become direct obligations of Duquesne.

K. In addition to its wholly owned generating units, Duquesne, together with GI.NERATING other electric utilities, has an ownership or leasehr' '~ e in certain UNilS jointly owned units. Duquesne is required to pay 1: ,ie construc-tion and opcrating costs of the units, The operatin e of the units are included in the income statement.

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GI NI ItAllNG Ainounts int hided on the Consolidated Italance Shcot at Det rinber 31,1990 UNil s as ptopcity, plant and equiptnent include the following (thousands of dollars)

Generaung Umts inuquesnc+ intriesti Prftelitage Utilltv Plant An uttituated Const rth non I ttel Unit ititriest hirgawatt( in Servi 6e Depredation Wott in Progress boutcc Chrswit L 100 0 570 $ 17h 4W $ 64,198 $ 2,195 Coal I haina (1) 1000 4h7 188.366 96.3 t h 2,804 Coal ll hlafilt) { $0 0 /76 65 F64 24NI6 889 Coal l astlake 6 31 2 lho 69.104 21,595 675 ( oal harninis 7 31 2 187 85.!60 26h78 787 Coal bruce hiansucid I (1) 29 3 22H 116822 46.7 bb 199 Coal titute hians0rld 2 (i1 - 62 31,959 iL348 127 Coal litute Man 60 eld 3 (11 ii i10 bn 356 2R073 $24 Coal Itcavet Valley 1 C5 38h sun,582 125 82H 2370 Nuclear iteavet Valley 2 (3) 13 74 114 13.03M 901 1.608 Nuclear Itcave; falley Conunon

! acilities 206.284 29 241 1.570 Perry i 13 74 164 750.671 75,707 4387 Not lear Tolal 2.769 2 187.295 662,556 1MA95 Cold reserved enits 15tunot Island m 1000 306 86.344 33 872 385 I uel Oil Philiips (1) (2) 100 0 300 144,170 67,191 80 Coal Total Gottetafftig Units 3.376 $2,417,616 $651619 $ 19,160 m umt u egyini w+ trat gasutsuvawn owpurra u we a este : in va,puw wu m i s m inten~t so n swr vana ;

. W thC (filCV lhj!bp\ MaU *ff and11aI(0 lht bru!pt lhlaikt V4III%nY O!(taWHLWatt and O Vntnan fs thtM2, AfMInh %lhyn Math sri air In s old trment Nec NM 14 reprewn! fat tiitn tw1 w!J and wbusprent It aus uJ unpn n erner n L

QUAllTEltLY I IN ANCI AL lhe following is a sutnntary of selected quarterly financial data (thousands INI'OltMNilON of dollatt except per share anlourits),lhe quarterly data tellect seasonal (UN AUDIT ED) variations (othmon in the utility industry; indt Second Ihltd l'ourth Quartet Quarter Qttattet _ Quallet 1990 Opcf uting IM etiues S2 N S,030 $271,575 S304,839 $2 72,839 Operating incorne 70,f 05 60,213 7 H,619 60,685 Nel incotne 33,337 21,716 3 h,196 2 H,42 5 f.atnings Per Share .60 .40 .7 i ,G3 Stock ptice.

Illgh 23-7/8 23 l/4. 22 5/H 25 1/4 low 20 3/8 20 7/8 20 3/4 22-l/2 1989 Optrating Nevenues $ 270.028 $ 273.079 $ 30l$55 $ 276518 Operating inc oine b6497 64,816 80304. 6H.086 Net incotile (t) 27,722 . t 9,756 36,326 -

-29,I98 I arnings Per Share 49 36 66 .52 5tockpri(r-lugh IN h/8 20-7/H 23- t /2 23 7/8 low '17 3/8 17-1/2 20 6/8 21 3/8 eii waertv ru i twmc rwr p the lh 7. t vm umtra mnny haa tven town! ts ra% t ik p>v vncJ r and pre!rtt tu c MM ,badmJs v!

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• i7humnf WI Muu 1990 I "* low lus7 lobo los INCOMI 51 All.MI N1; Opet autm i:n cnues Re sident'al t n rnues 6 3 7 5,f>0M $ 34b 142 $ 31 M F ' SJ" 60? UG EJo i.% 2W6 t.~enuncicul t n enues 4 50,2 7 M au s 4 m 30/ D l; 345 % 347 44 3 6 0lJ Indu st r iall m enut s 201.197 151.Thl 171 T N lbh Mo  !!' 4J5 . 'iho!

Oth( f in tnues 47,873 4 5 01 L 31 N  ? J$u Ji W J 447 Currt nt f n enuc.. l tom ( ustomet s 1,0 7 4,9 5 b 974 444 5S 4 7?'. 664+ W i4 + MiJ ill

[k f rr f t dl udlifntf f tTLt.lWs 10,784 uh JM7 117 641 Krvenurs !rorn othtt utthlics 48,543 du uW o l up 4 62 ulb 45 614 40 oqu f old/ Opctal/ng Rnrnues 1,13 4,2 H 1 1.110 bNo I HA' O AM' 0:in 8 % 263 "I b 4hu

()priating l h pCnsch I utl and purchased powet 222,901 217 156 JN1GMM 243 634 J37 43% 153 3iih other operatit N e xprimes 366,977 3;o, l J 8 Miy42 J 5n 163 J44 274 119 obo liept et talion a nd iimor tiestion 122,251 119 37o 111 023 82.17? 7a N u x 1 non

~! axes othet than Int ome taics M I ,2 5 5 OJ 419 ta 53 4 67.442 70 "57 7J.b l i Insothe tars 70,877 64Nu 64 Y h GJ W 70.724 100 091 Total Opetaling bpenses 864,26l 86' t i 17 618 ml T ot ./ m Ton 745 7J7 oJb Operatingincorne 270,022 170 5h3 240C lo6 736 IWSib 19a 8 42 Other Irwome and lirdut Dons I.quity Al t 1,375 bu 1.3/ 3 7] p34 41 u 0 /2 782 Othct N,437 7379 47,7J 4 33 701 (lauibn 30. E 3 70fal Othet tncome and Deduc tions 9,812 7.4 4 k 40 0 % 105 0/5 68 044 lill %

Income Picfore Interest & Othel Charges 2 79,83 4 278011 Zut35M Jo)7bo /58.510 30Luo7 Interest and Other Chat ges interest on long and shutt tcrin detit 145,676 151,019 t h7.b70 t oV43 16h775 15 U41 Borrowed Al C (1,559) (2 bl3) 11 7011 (42.34 9 t1x 64I) Go J31!

Pt rf t ried and prett renc e dividends 14,045 16 703 18 h50 14.75s 20.547 J I J 50 Totallnierest anJ Othet Charges 158,162 166009 174.h22 166758 IRl81 14M2no Net income $ 121,672 $ l 13 002 5 118500 $134 472 $ 110X4 $154 707 lirnes interest char ges t:at ned before locome 1 nes 2.51 2 31 J 24 1M i 75 1 02

1. 7 housin,Is oll'ollatu 1990 low lusk los? loro luoh inALANCE Sill LT ITEMS:

l'roperty. plant & equipment - net $ 3,04 6,381 $3 OWO30 $3 005.0J2 Ru%Hu7 $3Aua5W $3 4?h 133 Total assets 53,919,306 $ 4 "Jo.Suo $36x1.424 $416l .015 $3 0u7,076 $TbM AbA Capitah/ation Comm($n ktut kh(ddet S' equl!y $ 1,0 7 9,141 $ 1,06b,1 % ) $l 070 575 $1,JI7.3hl $ 1.204.4 33 $ 1.160.H31 Non tedermahleprofettru and ptrlcrtn(O so 's k 151,346 154.03() 154 073 inn l37 156.137 15t 137 Redeematde prcletied and prrierence stod 37,747 66 un t va 73 3 tot 7be i 10.b53 1IR6M long termdebt 1,501,295 1 MO 320 1 560 231 1 oud nuo 1,b l 3.7 X 7 IMMbM Total (dpildli/dtion 52,769,529 $2 826 filo $2 bh5 022 $3108 bon $10% 010 $2 "u5.050 Capitah/alion Ratios U tmnh ifl 51(K kholderS' equity 39.0 % 37 7 L 37 42 3840 3" U 4. 30 iT P!citried and prcirrenc e slot k 6. 3 7X b5 6 X/ uj  !

long term dct.1 54.2 i4 f i41 M4 52 3 51 7 Tofd/tapifdli/ation 100.0 IHib 100 0 In>H i&lo 10')O i 1.1 )r

Si ilit l li OPl RAlING lM1 A Q oot 1990 pina luss pm; pest, p e, S At t 5 OI i il Cl RICl1Y:

Avriage annual tcwicnual likm att houtuse 5,953 o unu o los o olo 5 hJ I htJI I Irc tra et,ctyy siles t@rJ Untilliink ol kWhl l'cwicntul 3,O l M 3 Ilo 5 ll0 4 on5 . 'e / '%h C( mmen ul 5,236 .!4;

. N 05 - 4 nuo a /14 45\7 Industf ul 3,296 3 J21 3W J olk / T34 3.4/J

( >t het MI M of tn 01 1()I T otal sales lo 6 usloiners i 1.69 I IIfou I 1 no 1 1o uso Io 514 l l .now Sales to other u!!hurs 1,443 J 17U /.7"? /.46n-

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T oldl %fles 13,637 13 730 14 qui i i en li Mia 1/ +9 I N!:RGY SUI'I'lN AND l'RODUC110N DAl A:

I netgy supp!y niuMions of LWlu Nel genetahon wstern plants 13,986 14 3i6 la 970 1 -i n/ 5 1%/64 1

• hoo l'urt hased and not inadvt itt nt pt m( r 371 Jh4 /67 26* 194 154 Toldf r!)cip supply 1I,357 14 600 lb / O 14 J5 4 1468 13 774 t.oues and Lotnpany use (720) nhi t mX1 P l 7) thoN (7xN Not enrigv supply 13,637 1333" 14401 13 4ho 1/ n40 12,484 Generating apabth!y (thousands of kilowattsi 2,835 /h,, / 636 2 651  ?.004 3,14 M l'eak load (thousands of kih m atlM 2,379 > W1 ,U/ / Jha 2,13) 1.1/ 7 Cust of furl per nullion li!U 14 9.615 < 143?b74 le l uC tho uu!G lb5 MOG l os %h<

lilu per balowatt hoet generated 10,144 10 411 10 304 10 449 10 624 lo nu As etage produc tion (ost per Lilowatt hout 2.6110  ? 73/< J bl84 J VX4 2 64%C J46/?

NUMBl.R Of CUST OMI RS - t ND Of Yl: AR-Residentul 518,322 Gio3o1 613 700 510 8/3 50th M Gul 814 Cofntnris ul 52,330 Gl 0;O 61 66 50,o04 ,60. u n 49.9/7 Industf ul 2,026 2 013 2.h17 1.978 1.970 1 481 Other I,847 1 + 18 1.828 I bli 1.6/6 IMl?

Tofairusforncis 574,525 571 501 hn9 061 ho W o 66 t i on fin i .b4 0 Inogy $ ales in Clus of Customet 1990 unn.. un .

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