ML20084A446

1994 Annual Rept to Shareholders, for Duquesne Light Company

ML20084A446
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1994
From:	DUQUESNE LIGHT CO.
To:
Shared Package
ML20084A425	List: ML20084A422 ML20084A446 ML20084A494 ML20084A504 ML20084A507
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NUDOCS 9505300344
Download: ML20084A446 (47)

Text

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~5tF 1994 A n n ual Repo rt to Sh a re h o lde rs 9505300344 950518 PDR ADOCK 05000334 I PDR I

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DQE FINANCIAL AND OPERATING HIGHLIGHTS Change Change From From 1998 1993 1993 1992 1992 0 1

Peak Demand 2,535 31W l .1% 2.499 MW fl.3% _2,30f1 M W Durinesne Customer Sales (million ) 12,122 KWil 2.3% 11.1151 KWil 2.1% 11,569 KWii 0;rrating flesenues (hillions) $ l .236 3.0% $1.200 3.1% $ 1.161 .

i Net income (million%) 8156.11 11. 9 % $144.0 1 .11 % $141.5 i Year-End Sharen Outstanding (millions) 52.3 - 1.3 % 53.0 -

53.0 a ,

r , lleturn on Ascrage Common Erguity 12.5% 1.2% 12.0'7c . -3.2% 12.4 %

long-Tenn Debt (hillions) $ 1.3711 -2.11% $1.417 0.3% $1.413 ,

i Interest (millions) 8101.0 -5.9 % . $ 110.5 -10.1% $122.9

Preferred and Preference Disidends u of Sulnidiaries (million*) $6.0 -32.6% $11.9 -5.3% $9.4 l Net Ogerating Cash I' low (millions) ( A) $372.9 -3.1% $331.9 -3.1% $397.4 '

Capital Eyrnditures and ,

Other investments (millions) $1117.!! -l.3% $196.3 45.6% $131.!!

AlW .\legau att. A mensure of the generating <apacity of J!ili!) plants. equal to l,lMMi lilaust!!s.

KM H: kilou att. hour.1 meansre of the quantity ofelectricity consumed in one hour, equimlera to 1JMx) units consumedfor one hour. , ,

(A k bcludes u nrLing capital and other - net < hanges. }>

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j CONTENTS On the Cover Tlic pace of change in the electric utility industry continues to accelerate. After decades of operating as -

" traditional" titilities with exclusise franchises, the industry is entering a peritnl of far-reaching restructuring .

to sucet the challenge

• of competition. Emerging from that restructuring will le a new' competitise paradigm

- a pnifoundly different way in which energy companies like DQE will operate their businesses in the com[rtilise marketplace. ,

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Chairman's Message 2 lj Wesley W. son Schack discusses how DQE is strategically - and flexibly -inisitionni to meet new challenges ,;

as the new competitise paradigm emerges. [

Managing for the Competitive Marketplace 4 l Anticipating and meeting the nents of the customer is fundamental to any succe sful business. When your business emimnment is eyrriencing rapid change. as is the energy industry. 3ou must rise alxne the swirl to i find hetter, more eflicient solutions for your customers. Our iniple an maintaining high les els of customer .

satisfaction as we continue to focus inlemally on lrrformance imprmement and cost control. The stories of fise natisfint customers demon trate how we an'successfully managing our company for the com[rtitive p enar ketplace.

I 1994 Financial Information 9 The company continues to effectisety manage its financial position through continuni gnmth ofits disersifini i ojerations while maintaining com[rtitise costs of pnnluction in its utility operations. Effective cost controls are j in place while we continue to nuhlee interest and other charges and maintain a strong cash flow. 3 i

Board of Directors 45  !

Officers 46 I Shareholdor F4eference Guido inside llack Cmer i

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CORPORATE PROFILE l)QE i an energy senices hohling cornpany nationally anil regionally recognizeil for excellence, quality. integrity atul salue, f.

Mission Statomont i

l Our pritnary foco i to cUiciently anil effecthel) satisfy the necil anil requircenents l of our co tomers thningh the comniittnent anil personal irnohement of all eniployees 1)QE will be a pnifitable ilisersificil entity. ileilicateil to supplying low co-t, safe anil sa m reliable electrie crictgy atul pur uing pnulent iliser ification oplwirtunities relateil to the core hu ines that benefit our cu tomers, sharelvelilers anil communities. -

82.'o Subsidiarios

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lluqunne light Company j lluquesne 1.ight Company, w hose origin <lates to Illilo, is the principal sub-iiliary of ~

l)QE.1)uque ne I.ight is engageal in the pnnluction. transmis-ion,ili tribution aml male of electric energy. It- senice territory i- approximately 800 square miles in south-westerti l'enn y hania, with a juipulation of I.3 million. In athlition to sening more - - -

than .il!OJWM) customers in Allegheny arul llcaser countie*, the comparty sell- ,.

electricity to other utilitie .

So E E E E E on ol er) 93 o t llutjue".stle l'.nfrryllu's Earnen,. per .nor.

n.v.en.r.. e lluquc>ne Enterpri c* own* Alleghen) lleselopnient Corjw.ratioliinnel Pruperty. n,.,r n,y..r.

Venture , l.tel., arul ha* suh-tantial equity interest in Chester Ernironinental, Inc.

These companic are insoh eil in initiaine- relateil to the core hu-ines, incluilitig energy anel utility senices, einiromnental senices, power quality, atul real e tate.

Ilonta ul.

Montauk makes hoth hort- arul long-tenn irnestment atul raises capital for its own purpo-es arul for l)uquc>ne Enterpri es.

1994 Results $ 1.80

• Eatning per share were $2.O!!. an inetra c of 9.6'4 os er l'113 atul our eighth ~

con centise yearly increa. e.

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• lloquesne Enterpri-es atul Montauk contributeil 32 cent 4 to earnings per share in 19')l an increa c of l 16% oset the presiou* year.

• Sales to Iluque ne 1.ightk co tomers were up 2.3% in l'ril. The comparn hail a sun s) tem peak ilemanal of 2.535 Megawatt , it* highest eser.

COMMON STOCK TRENDS ID - " =

h+ %.r o.ny..on.i

$1.no 199i Un3 Un2 19)! 1990 F);;i) ' *a n.,,.* d'. -

I:arning Per Shate 8 2.911 82.72 $2.67 S2.50 S2.21 $2.03 luV4 llisiilenil- Paiil Pet Share 8 1.611 St.fio $ 1.52 S1.11 $ 1.36 $ 1.2!! 5u3 so E E_E_E_E.

on ni w 93 on Ilin.k Value at Year-Enil 821.II $23.21 S22. I 2 $21.00 $20.07 819.27 1.174 we=am er= wen l n n n in in. . l M.uket 15 ice l'er .shatc **===r'*==a=

indu.ery I!!gh 838U4 537 532'n $31 S25'4 S2.V n 7.6%

low 827'n S31'k S2 tin $23's $20% 417 % 9.74 har-Etul #295 $3 0 3 832i:. $3mn $21'n 923'n 1.19 1

{ To Our Sharehohh ru l Competi tion in the ch.ci,ic uniiiy business me h. a h,i a news auring the pasi year. nui the reality of competition was not news to DQE sharehoklers. The changing environment for utilities has been a constant theme in my letters to sharehohlers for nine years. That's how long we have been r preparing ourselves for competitive markets. Our first major stop in meeting marketplace domands came with the highly successful Duquesno Plan in 1986. Tho front cover of our annual report that year said: "To becomo more officient, more competitivo, more market-driven, more customer-oriented and more profitablo, we are datormined to evolve and change."

In 1989, we restructured our trailitional business organization with the formation of DQE as . .

a hohling company. As we imlicateil at the time, our goal was to create a more flexible ami adaptable sinicture, one that wouhl enable us to seek opportunities aml he proactive in an increasingly competitive environment. Since then we have continued to see remarkable change p in our business, and the flexibility of DQE has enabled us to add suhaantial value.

This year, the solid progress of the various businesses of DQE is yiehling significant contri-hulions to the overall value of the company. The core business represented by Duquesne I.ight Company is stable, while new business opportunities associated with Montauk and Duquesne Enterprises continue to grow in imlmrtance. last year their contribution grew to more than 10 percent of the company's earnings, as earnings per share increased for the eighth consecutive year.

The pace of change for the inulitional electric utility industry is accelerating. Various scenar-l ios for market forces to replace regulation are being discussed across the country and in our own state of Pennsylsania, but the public policy that will be implemented to resolve these issues is far innn evident. As a matter of good pubilc policy, we believo we nood at least two things from federal and stato regulators: 1) a clear vision of how all customers of the industry can best bonofit from competition, and 2) a transition plan that la fair to customers and shareholders and does not suddenly chango long-established ground rulos.

L suplwirt a regultilory vision tlial allows all d our retail < Wonn W kwQ kn b bg prices that inevitably will result fnun sigonius wholesale competition. The fir 4 Mep towant diis goal is acec s to the tran mission network at non-di .criminatory price and service levels. This cost-hased service must he comparable to what transmission owners provide for themsehrs in onler to ensure economically efficient int estment decisions will he made for future generation options.

In whlitioo. pnulent intestments that were made hy regulated companies under their clear legal obligation to pnnide senice will hase to be n cognized as legitimate system costs. Thesc costs luiuhl lw sitared ley all electricity users, regande .s of future somrs of m9dhs pd lwmer. As retail cu*ltune gain nuire cluiice in tlicir c<itn[>t titise pureliasing ty>tions, electr!c utility r ponsihihties wdl shift (nnu an ah olute obligation to senice any request Ihr power to an obliga-tion only to deliser asailable p<mer at competitisely detennined prices. Any imeMnu nb in new generation plants. whether hy utility or non. utility desclopers wouhl be suppoded by market delernuned prices reganlless of the ultimate costs of these new power sources.

The flexibility offorod by DQE and the changes being modo in Duquesno Light will help koop us positioned for such a future. Duquesne l ight's trategy to succeed in a competitise m.uketplace is characterized by three element . First, the quality of our senice continues to d liser significant salue to cu-tomers. This is esident in system perfonnance.

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where lhuluesne 1.ight's service reliability is the hest in the state, and in the feedback our peo-pie receise froni custorners, who gise the company extremely high customer satisfaction ratings.

Second, we are continuing to restructure 1)minesne 1.ight. Oser the past fise years, we have implemented quality management initiati5es, such as henchmarking and reengineering, to improse the competitiseness of production and delivery costs. Our competitive cost of production has resulted in increased sales to the wholesale power market.

Tbventy-one perant of our total sales are to other utilities. We current ly are petitioning the Federal Energy llegulatory Commission to open access to the regional transmis-sion system, and helieve this will further help us to sell energy into whole. sale markets. Third, we also hase developed innovative pricing flexibility to attract new industrial customers and to maintain our competitiseness with large

"/lesjst/t' //it' filtrerf tllll/ \ t It>(Ilt>(/ industrial customers who whl incremental load.

Montauk, a financial services la \ t'lltlligt' Ill lllt' Illt/listr \. (Ill company, has continued to grow with selective Investments and projects tbfthilfl14't1l>lt'lltilt'tt>Illlillit*tlIll that are related to our core business.

Our strategy has heen to desclop an intest-

//lf'Ir (/t>(/It tillts/l /ts /Artil'If/l/lg tillr nu'nt portfdlio that pmvides excelh'nt returns, geographical ditersity, and a mix of assels, ellsit>Illers Irlll! Ille Illglies/ level <>l We hate pursued selective investments and stillsfilt(Ittil. [lll'Nr tirt' slft'llglllf , ' '" ""'UY' " ## "

direct knowledge and experience. D,emrema '

ll1111 Irr rtill rth!Ill'Illit' Its rt>Illlt th!I. " committed to this intestment philosophy.

Duquesne Enterprises owns a majority interest in Chester Environ-montal, a leader in the water quality management industry, l.ast year Chester won new contracts to provide consulting and engineering services to major municipal and itulustrial clients in the People's llepublic of China, Mexico and Taiwan. We expect that demaml for these senices will continue to increase.

In early 1993, we also saw our investment in International Power Machines enhanced by its merger with Exide Electronic . We now are a major shareholder of Exide Electronics, a dominant player in the power management mul protection industry.

Over the last ten years, we have systematically assembled a strong management team. Muny of these Individuals come from industries other than our own and bring fresh Ideas to the challenge of competitive markets, l)espite the uncertainly created by change in the industry, all of our people hate continued in their dedication to pnniding our customers with the highest lesel of satisfaction. These are strengths that we can continue to count on. l Thank you, our sharehohlers, for your confi lence and support.

On behalf of the lloani of I)irectors.

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\\'esley \\. run Scitacic Chainnan and Chief Executive Officer February 17. 1995 3

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1 Manar,ing For Bir Competitive Marketplace l nticipating aiul inecting customer needs is fundamental to any successful business. When your business envinmment is experiencing rapid change, as is the energy industry, you must rise above the swirl to fim! hetter, more efficient solutions for your customers. DQE serves diterse markets, both  ;

i traditional and emerging. In 1991, our principal subsidiary, Dmluesne 1.ight, inaintained high levels of customer satisfaction as its people continued to focus internally on performance improvement and cost control. Our other subsidiaries proged their worth in their markets. The following stories of five sati-fied customers detnonstrale how we are succewfully managing for the competitise marketplace.

Peter Gilezank challenge to Chester membrane >> stems, and then reused in pnuluction Emironmental was a major one. Chrysler de %hico facilities. Sanitary wastewater similarly is recycled planned to huihl a new Dodge Ram assembly plant for irrigating the grounds around the plant.

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in the desert southwest of Monterrey, at Saltillo. The Chrysler is just one of a long list of l'ortune oo sire of the plant and the limited companies to which Chester provides asailability of water meant that eminmmental engineering am!

Che. ter was asked to design and scientific consuhing senices. Its huild one of the wothlk largest zero- ph ~

growing list of international clients di charge water and wastewater features projects in Australia, treatment facilities. Thi, task was "f Poland, Taiwan and China.

made more fonnidable by a sis-month . . We acquired a contro!!ing interest l schedule for com;derion. in Chester Eminmmental in 1993.

Chry sler was confident Chester Chesterk activities are closely related wouhl he up to the challenge because to our core husiness. Our association it had earned the companyk preferred with Chester is a somH] investment in supplier rating fise out of the six pre- a growing company, aml it reinforces ,

vious years and a Quality lheellence our own long-term commitment to the Awanl gisen to less than 37c of environment.

Chryslerk suppliers. That awant is Environmental management and ,

a key measun of demonstrated contnil is a subject we know well.  :

commitment to escellence in a Our emironmental record and supplierk pnnlucts and senices. expertise are competithe advantages, Chester delisered again at the especially as other energy companies Saltillo plant - successfully fulfilling attempt to come to grips with compli-the largest contract in its ll0-year ance deadlines for new envinmmental history - by designing and mer- regulation *.

seeing construction of a totally llecau-e of Dmluesne 1.ighth integrated >> stem. The Chester solu- pioneering efforts in pollution control tion masimires n-e of wastewater, tecimology, the userage sulfur dimide supplemented by makeup water from a prisate well. (80) emission rate for our Pennsyhania coal-burning .

Drinking and industrial process water is chemically units already is lower than the Clean Air Act requires and biologically treated, filtered by mhanced to meet its 1993 and 2(MN) standank With more than 4

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$600 million already irnested in excellence, leadership arul accomp-clean air, we hage relathely -mail  : lishment. This recognition encourages M- .

eapital requirement- to meet addi- ' fy % others in the community lo emulate tional SO and nitrogen o\ide stand-

,py *

" these achiesements, j

anl , while utf.er energy progiders ,

acro. , the country are facing snuch more significant expenditure,. With all of our cu tomers, we l Our commitruent to the einiron- strne lo buihl the ty pe of partnership ment takes many forms. .

Matt flotsfoni describe .. Whether

• A comprehen h e, s> <tematic, helping a major customer like etnironmental strategic plan that ErblClass Processing to espatul its mhlres-e compliance, training, operations, introducing fixul senice issues management, slewanl-hip provnlers to a new, more efficient arul conununication .. electrotechnology, or helping hical

• Ern ironmental aw arenes, train- ho-pital* reduce their medical waste ing for all 1)uque-ne 1.ight people dispo-al costs through another new that connects practically to their electnitechnology, we are committed thes ami to the more than 300 envi- to helping our customers impnne romnental regulations that gosern the their competitiseness through company \ day-to-day operations. increa ,ed use of electricity.

• A sarict) of stewani-hip The ErklClass Processing swv pmgram , including collalniratise began in the early 19W)s, when a efforts with the We. tern Pennsyhania group of insestors was seeking a Con-en ancy, American Forests, the location for a steel processing plant.

Audubon Society, the Penn yhania Our economic deselopment team Emininmental Council, the National pnivided potential site locations and Tree Trust Allegheny County, and assisted in securing low-cost state the American legion. These and funding to hnance mirastructure other program , educate elementary impnnements. We also pnivided students, high school stmlents, lloy competitively priced power thniugh Scouts ad Girl Scouts about the our special economic des elopment importance of eminmmental presenation: foster the rider, designed to encourage business expansion and collection of rec 3clable materials;impnne land use job creation. The plent has been a succes .ful through eminmmental planning and wihilife habitat pn>cesser of hot-nilled steel coils for major steel deselopmeni: and help small hu inesses comply with pnnlucers and their customers.

new emininmental regulations. Various of these A decade cadier, steel manufacturing and pnicess-aethilies base recched in cial conunendations from ing repn sented 30% of the recont 13.6 billion Allegheny County and the Penns> hania legi latun . kilowatt-hours (KWil) of electricity we sohl to retail

• The Three Itisers Eminmmental Awanis, which customers. With the shakeout of the hical steel pay tribute to indhidual- and organization in western industry, that share declined to ju t 159 of the Penns)h ania that demon trate emironmental iI billion KWil sohl in 1935, an unprecedented 5

dn>p of almost w9f in just four years. .

other facilities. Safely sterilizing this Pitishurgh in the IWO4 features a waste otesite reduces the cost to bury more diser%e ecoru>my, ha=,cd oli the material in special landfills. l'or

• ^* the pa t two ) cars we hase cos[Mm-sinall manufacturing financial arnl rnedical services. mh ariced techno- .

sored educational symposiums that logy enterprises and a workhcla-s .

intnxiuced hospital administrators to ,

unisersity system. Iloweser, steel tllis technology. In conjunction with a remains an iniportant contributor to national utility research group, we plan to open a demon-tration site at

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the local economy - 139f of our lWl sale of 12.1 billion KWil. A a local hospital in mid-lW3.

In IWl. WorldClass announced . Ir , so cu,s to sol.c ~

plans to hnild the first new sicel mill , .i, ., , , ,, n i ,,, , n c , y, ,,

in thi area since Woth! War 11. The urunic,1 Hur</i"n.fhpshc As chairman of one of the top ten

$ 110 million mini. mill, scheduled '"'"'6'"""I""d""'" sheet metal producers in the United und unth,np huppent then for con truellon in four phases mer S. tates. Slilt M.a-hington salues the the Inn of in n c, ,n en n s the nest three years, will enabl" ann, c r h u n n an,,, h ain ,n,t reliable electric senice we prmide.

WothlCla , to pnuluce a sariety of n n,1. nu . It inco n , enen,nc lt enables SSil Industries to u-e specialized steel ami of fer a wider " 6 ' ' ' "" " " I ' h "I" " ' " " innmative technology to fahricate a  :

range of senices lo larger mills. wide range of products from diver %e 6 ynnin s p,,ulu, rnon nf The reliability of our poucr. arul metals.

y,, g , , 3, 3 , .f our connnilment to deliter it at a so , rc,nc n o, hl We take great pride in our record competitise price, were critical ' ""'P"' u n c husencuc, of reliahility. In fact, independent

h"" ' ""d"""'""-

component in the WoiblCla - sune>s show that we hme the j i 4 hun anon decision lo esparnl. We recognite s >tl I,ntn,1,,cs In, highest lesel of senice reliahility in that in todayk economy. many of our Penns)ls ania.

customers face intense competition Our conmiitment to reliability was worldwide. t)ne of our major goal

• tested in lWl. In .lanuary a reconl-with these customers is to structme their rates in a setting frecte put electric power in short upply way that enable them to compete in glohal mmkets. throughout mo t of the northeastern United States We're also helping hu ine -es of all sires by and many utilities impo ed n>lling blackouts. In pnniding electric options to increase their efficiency June, a heat wase pu hed customer demand to a new and competitisener. For example. we intnuloceil all-time s> stem high - 2.535 megawatts. In both hical foint senice pnniders to the benefits of the cases, we delisered safe and reliabic electric energy.  ;

flash hake men. Thi- new technology u-e a combi- Pennsyhania Public Utility Commissioner John nation of inten-e sisible light and infran d energy to llanger gase l>uquesne 1.ighth January performance cook fiuul almost in-tantly fnnn the outside in and high praise, saying it was at the top of all utilities in the in ide out. llestaurants. comenience stores, the slate. '

supermalket and nunic theaters now can sene a That performance is a re , nit of the dedication and wi ler range of fiuuls better. fa-ter and more pmfitably. the -kill of line workers, customer senice represen-New elecanitechnologie al-o can n duce dispo-al tatises, and the people in our S3 tem Operations and ,

co-t* for infection, medical wa te fnnn ho-pitals and 1)i-trihution Operations centers. The people in our 6

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power stations play a particularly imgortant role in times when her imme was without electricity during pnniding reliable gnwer to both local customers, like 17 years. Each outage was brief and stonu-related.

SSM Imlustries, and to utility companies in other There are sescral gomi reasons why lletty never parts of the country. had to call us.

Our available capacity is one of our key assets and

• Our customers hase the most reliable electric an important competitise advantage for the future, service in Pennsylvania; 99 99 percent hase full Our generating stations - the source of that power [Hmer at any given time.

- perfonned well in 1991. Ileaver Valley Power

• Our distribution systemi remote switching Station achiesed the highest combined capacity devices isolate problems and allow us to resolve factor - a key pnnluction measure - in the history most service interruptions within 15 minutes.

of the station. Cheswick Power Station achieved its

• Most senice interruptions requiring an "in-the-highest capacity factor in 21 years of operation, fiehl' response are resolsed within iwo hours, iteliable energy is a major consideration for com- Iteliability is just one facet of our strong customer panies planning an expansion or selecting a hication satisfaction reconi.

for a new plant. With increased computerization.

• Customers who do need to call u* (we received more and more customers want added protection to more than one million calls in 1991) are connected ensure an uninterrupted flow oflwiwer. willi a service representative williin 13 secoruls, on l'or that reason, we made a strategic investment average.

sescral years ago in international Power Machines, a

• Our billing accuracy is 99.95 percent. That's an world wide supplier of power userage of one hilling error es ery protection for computer applications, seven customer lifetimes.

telecommunications systems and

• The average time required to j indu* trial process control. That connect a new residential service is j irnestment will be enhanced by IPMk 7 now 21 hours2.430556e-4 days <br />0.00583 hours <br />3.472222e-5 weeks <br />7.9905e-6 months <br />.

merger with Exide Electronics. Exide

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independent suneys continue j is the largest company in the worhl to pnne that customers are sery i

Nk dedicated exclusisely to descloping, satisfied. They gise us particularly

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manufacturing and senicing a full

>[k high ratings for reliability, courteous line of nmer i management and power .g" .:.f employees and accurate billings, protection systems. Its cu fomers We are taking significant steps include AT&T, lilM, the l'ederal behind the scenes to streamline our Asiation Admini tration and the internal pnicesses to further improve I)cpartment of I)cfen-c. renice and cut costs. Increased u e of micropnicessors, first intnuluced in 19115 for meter reading, is improv- I As both a homeowner and a ing pnuluctisity in a number of fune-regional executise director of The tions. Expansion of the multierafting j National Conference of Chri tians concept for our fiehl workers - l and Jews, lictly Pickett appn ciates con olidaling job descriptions and not basing to worry about her electric training our people to handle a wider senice. She can n member only three number of a signments - is helping 7

1 us buihl a enore fhwihle arni Itobert thinks so highly of Sinart s ~~

resIHinsise workfon'e. b new way of bolnfort tbat bes tobl niany of bis

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sche <luling substation snaintenance T friernl about it. lle egen cornpetes

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is reilucing operating costs while with a fiienil who has achieseil siniilar inaintaining reliability. benefits frorn the prograin. They Our conipan.Vwitle focus on conipare hills each tuonth to see who

_ ,* .g custorner sati% faction, quality senice  ? has In esi the anost eficierit.

arn! cowl recluction is alrising continu- wQ

1. t M ' s Srnart Cornfort has helpeal thou-ous isnproscinent ni operations, t , Q santl* of custorners. I,he payback positioning us to he egen inore corn-  ! U. \ peritMI for program expenses is j petitise in a changing niarketplace. nearly half the inclustry s resen-year l

stanilani. Stuart Comfort has been recognizetl by the U.S. Departinent of  !

Robert I.awyet an<l his wife. %1ary Energy, the Pennsy hania G<n ernor's lou, base ha<l to inale a noinher of Energy Office an<l the E<lison ailju linents since illness forecil hirn Electric In-titute for its innosatise il retire early from his joh as a }.rograin <lesign arnl siclisery.

machine shop supeniwor llohert Athlitional programs anal artisities calle<l to inquire about our awanl- to benefit the communities we wne winning Smart Cornfort program, are logical outgrowths of Smart which helps custorners in neetl take Comfort arul other senices for heller control of their electric costs .

cu-tomets with special nectls. With hy <leseloping niore efficient energy- senice ties to the Pittshurgh area i u c habits. <lating back nearly 115 years. we are a conunitteil Trailitional resi<lential consenation prograrns community partner, focus on the house's outer shell. Wehe turneil that Eilucation is a top priority because it will help appniach in iile out. llather than Imking only at ensure that the workforce of the future has the skills heating winnlow* aini insulation, we explore arul knowle<lge necceary for the 21st century. We 1

electric use frorn the cu tomer's perspectise. Ilow hase particularly close ties with resen local seluml ihms the in.u chohl u-e lights arnl appliances? <listricts through our Partners in E<lucation" program.

The core of the program is an in-person analysis in mhlition to prosiiling cultural experiences for chil-of the co tomer's monthly hill. Working with the (In n. the partnership pn gram has been insinunental lawyers, we v.cre able 10 pinpoint sescrat areas in in increa ing irnohement of stuilents - particularly their trailer home where high usage couhl be minorities arnl females - in math aml -cience.

reiluccil. \lajor impnnement inchaleil placing an We are prowl of our soluntary senice to the insulation w rap on their electric water heater, loacring conununity aini we siningly encourage our people the hot-water temperature to 120 <legrees, replacing to get insoheil. last year, our people collectisely their ohl, inef ficient refrigerator, aml replacing contributeil ahno-t 1(HUHH) hours of solunteer incemh._ni n.c..-< night, in ih.. uichen wiih ...nices. neipiny a wi h. s a,iciy ef ca.,mnuniiy. heahh.

more ellicieni compact fluore-cent lamps. can ironmental ainl human -en ices organizations.

8

Contents DQE 1994 FinancialInformation

.'I. .:

ici

\1. -

l' .- -

Company F4eport on Financial Statements The Company is resixinsible for the financial infonnation and representations re,.ol,..,<>f.,,,,,,,,,,. contained in the financial statements and other sections of this annual reixirt to iI sharehohlers. The Company believes that the consolidated financial statements have been prepare <l in conformity with genendly accepted accounting principles f o p,i o l li, so n , , '

that are appropriate in the circumstances to reflect, in all material respects, the

, a n ,I I ,,p,,,l, r ,

substance of events and transactions that shouhl he m. eluded .m the statements

!i nr.d that the other infonnation in the annual reiwn1 to sharehohlers is consistent v . . n , , ,, r , n I ,n t , with those statements. In preparing the financial statements, the Company makes I, infonned judgments and estimates based on currently available infonnation alw>ut f the effects of certain events and transactions. The Company maintains a system of internal accounting control designed to provide reasonable assurance that the n.

Company's assets are safeguarded and that transactions are executeil and reconi-a .

ed in acconlance with established procedures. There are limits inherent in any i,, o ,. 1 . . , c. a system of internal control and such limits are ha-ed on recognition that the cost l

'" of such a system shouhl n,it exceed the benefits derived. The system of intemal i ne ounting control is supported by written ixilicies and guidelines and is supple-

- . . . - . . - . .m.." I mented by a staff of internal auditors. The Company helines that the internal

t. . . . 4 l accounting control system provides reasonable assurance that its assets are safe- I guanled and the financial infonnation is reliable.

....,...u .. . - .i s,.. .. . .. ......t. i

$4 N hh%! -

i ii l' Wesley W. son Schack Chainnan of the floani. President s ., . , . - . . , a ,, , a and Chief Ibeutive Officer i , ~sc.,m. .

s. . i . .. i, ,

Gary L Schwass sn.. i,_., , n,,, Executise Vice President, i i Chief l'inancial Officer and Treasurer l

i 9

- _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . I

l Glossary of Terms Follmring are explanations ofcertainfinancial and operating terms used in our retort and unique in our core business.

Allowance for Funds Used During Kilowatt (KW)

) Construction (AFC) A kilowatt is a unit of power or capacity. A AFC is an amount n conini on the lumks of kilowatt hour (KWil)is a unit of energy or a utility during the period of construction of kilowatts times the length of time the kilowatts utility assets. The amount represents the are used. For example, a 100-watt bulb has a -

l estimated cost of Imth debt and nguity used demami of.1 KW and, if humed continuously, to finance the construction. will consume 1 KWil in ten hours. One Construction Work in Progress (CWIP) thousand KWs is a megawatt {MW). One This amount represents utility assets in the thousand KWils is a megawatt hour (MWil).

pmcess of construction but not yet placed Nuclear Decommissioning Costs in ser ice. The amount is shown on the con- Decommissioning costs are extenses to be solidated halance sheet as a component of incurrnl in connection with the entomhment, progr:1y, plant and equipment. decontamination, dismantlement, removal Deferred Energy Costs and dis [osal of the situctures, systems and In conjunction with the Energy Cost itate "'"'ponents of a nuclear power plant that Adjustment Clau e, the Company reconis has pennanently ceased the pnxluction of defened energy costs to offset difference, electric energy.

letween actual energy costs and the level Peak Demand of energy costs cum ntly recovered from Peak demand is the arnount of electricity electric utility customers. rnluired during [eriods of highest usage.

Demand Peak perimls fluctuate by season and gener.

Tim amount of electricity delhered to con- ally occur in the morning hours in winter numers at any instant or averagni mer a and in late aftemoon during the summer.

lrriod of time, Pennsylvania Public Utility Commission E

Energy Cost Rate Adjustment Clause (ECR) The Pennsylvania gm ernmental lxxly that The Company recovers ihmugh the ECit, to nwdates all utilities (electric, gas, telephone, the extent that such amounts are not includnl water, etc.), which is made up of five in base rates, the cost of nuclear fuel, fossil memlers nominated by the govemor and fuel and purrhased power emts and passes confirmed by the senate.

to its customem the profits imm short-term Regulatory Asset power sales to other utilities. Costs that the Company would otherwise have Equivalent Availability Factor charged to expense which are capitalized or The irrcent of generating capacity available deferrni Ircause these costs are currently for senice, w hether ogeratnl or not. Iring recoverni or hecause it is pmhable that the PUC and FEllC will allow recovery of Federal Energy Regulatory Commission these costs timingh the ratemaking pmcess.

(FERC)

FEllC is an indeiendent five-memler commission within the U.S. Department of The ability of end-use consumers to individ-Energy. Among its many resgonsibilities, ually contract for ch ctrical energy fmm FEllC sets rates and charges for the whole. comgeting generation supplient.

sale transportation and sale of natural gas Scrubbed Capacity and electricity, and the licensing of hydr"- Fossil fuel firni generating capacity electric lower pmjects. uippnl with sulfur dioxide (SOA emission rnlucing c(paipment. ,_

10

Management's Discussion and Analysis of Financial Condition and Results of Operations Corporure Str ur ture DQF is an energy services hohling company. Its subsidiaries are Duquesne 1.ight Company (Duquesne), Duquesne Enterprises (DE) and Montauk. DQE and its subsidiaries are collectively

, referrni to as the Company.

Duquesne, the principal subsidiary, is an electric utility engaged in the pnnluction, transmission, distribution and sale of electric energy. DE is involved in initiatives related to the core business; these include pmsiding all the energy services for the Pittsburgh International Airport. providing

, environmental consulting and engineering services, providing power quality management, and l investing in real estate. Montauk makes Imth shod- and long-tenn investments and raises capital for DE and for its own purioses.

Iteinits of Operations Operating Revenues The Company sells electricity to appmximately 580,000 ultimate customers within its service tenitory of approximately 800 square miles in Southwestern Pennsylvania and, on a short-tenn basis, to other utilities. Customer operating rerennes result imm the Company's sales of electric-ity to ultimate customers and are hasnl on rates authorized by the Pennsylvania Public Utility Commission (PUC). These rates are cost-basnl and are designni to reemer the Company's energy and other operating expenses and investment in utility assets and to pmside a return on the imestment. Short-tenn sales to other utilities are regulatnl by the Federal Energy Hegulatory Commission (FEltC) and are made at market rates.

Ein tric l'tility Ibsc-in diferred recenues represent the deferral and subsniurnt recovery of revenues resulting Customer sales from a $232 million rate increase granted in early 1988. The PUC requirnt the Company to 1991cs.1993 phase this increase in during a six-year geriod, which ended in April 1711. During this phase-

, stal <.n. .,j A u 10 in perial, the rate increase was recognized in operating rnenues.

The Company's non-KWil resenues comprise other operating recenues in the Statement of 200 m Consolidatal Income of DQE.

Components of Change in Operating Revenues from the Prior Year p,n i991 19)3 (Amounts in Millions of Dollam)

Resenues from Sales of Electricity:

3"" Hnenues from uhimale customers 80.7 8 31.9 Hevenues from other utilities 7.6 (21ft) u, l Total Hnenues from Sah s of Electricity 11. 3 10.1 Other Operating Hnenues 26.9 26.5 I

g Total Operating Elecenues $33.2 S 36.6 i:

Revenues from sales of electricity to ultimate customers, includingphase-in deferrals, fluctuate

-n as a result of changes in sales volume and changes in fuel and other energy costs. Generally, n .. ,ne,s the Company is pennittal to recover (to the extent that such amounts are not included in base comm~. .e rates) these fuel and other energy costs from its customers through an energy cost rate adjust-

'ad" '" 'd' ment clause (ECH), subject to PUC review. This revenue adjustment includes a credit to the c o. om... .a . Company's customers for profits from shod-term sales to other utilities.

n.gn,.. oo io en.,

.o .. n..n Hnenues from sales of electricity to ultimate customers inen asnl in 1991 comparni to 1993

=aaw as a result of higher sales to commercial and industrial customers. Commen ial and industrial sales volume increased 1.3 [ercent and 6.9 gwreent, respectis ely, benefiting from the impmving economy, as well as slight gmwth in the numlers of customers. Industrial sales volume also increased a* a result of our marketing efforts and fewer customer pnnluction facility outages.

Compared to 1992, the significantly botter summer in 1993 nmulted in higher nmidential and commercial sales solume. The credit to the Company's customers for profits fmm short-tenn

s. des to other utilities was $16.6 million in 1911,$12.1 million in 1993 and $19.1 million in 1912. These fluctuations primarily resulted from changes in sales solume to other utilities.

11

l 1

I

./ fller tric f'tilit) The metall lesel ofl>usine** actisity in the Company'% service territory and weather conditions Customer Rerennes are eyroted to nintinue to he the primary factors affecting sales of electricity to ultimate cu -

t Ellm,n ,,f I A,L' O tomers in the near tenn. The Companyi electric x.le* may also be affected in the long tenn by increasnl competition in the electric utility industry. (See "Com[rtition" discu-sion on page Ifs.)

IDH Relennes/ nam other utilities result from sales of electricily to other utilities, fluctuations in elecnicity sales to other utilities an generally n. lated to the Company's cu tomer energy n9plirements, the energy market and transmis ion conditions and the mailahility of the IHWH _ _ _ Companyi generating stations. llecau*e of rnluen! generating station availability, th5 Company lud fewer of f-sptem sales in 1913 than in 19)1 or 1912. Future lesels of off-sptem sales of l clectricity will he affectml by the outcome of the Companyi FEl(C l' lings requesting finn

$3'o _ __ _. transmi ion access. (See "l'ransmission Access" di-cu sion on page 17.)

(>ther ty> crating retenues increased in lWI and 19)3 compans) to the prior pa, primarily due to gruwth in rmironmental ser ice revenues. The increa-c reDect* the acquisition of a suo - - - -

70 [rrrent controlling interest in Che-ter Emininmental. Inc. (Chester) on August 17.1933.

Che terk resenues hase been redected in other eyscruting rerennes since that date.

Operating Expersses l

T syn d[ji) c h,

5 fuel andpurch<nnip,mer expense Onctuations result fnim changes in the cost of fuel, the mis letween nial and nuclear generation the total KWil sohl and generating station availability.

llecau-e of the ECll, changes in fuel and purchasal power cost nonnally do not impact earnings.

1  ? _g Components of Change en Fuel and Purchased Power Expense from the Prior Year L 0 i L 4 1  ; c J f

$0 E F $4 i 1991 14)3 i

ini m u., m in ( Amount

• in Millions of I)ollars) c - .berage unit cost of fuel 843.11 S (1.8) c.

, Generatinn mix (5.5I 9.I i

,,,,,,,,,,,,,,,,,,,,,,,,, Generation solume 7.1 (l3.4) l

• -*-ac-d

_Purcha cd power 7.7 44  !

1 Total 1:nergy F:xpense S 6.2 S (1.5) \

lilertric I hlay

'Ihe memge unit emt of coal declined slightly in 1911. after n maining relatisely con tant UP ""'I"# ""d

. during 1933. Meanwhile the aserage unit cost of nuclear fuel has declined continually during

\lointennne c [.tpen se gy g, ,

r %#iorn 9/'t A.Nro Generation mix impacts fuel espen e as the Companyi nuclear fuel cost per KWil i* less than it fossil fuel cost per KWil.1)nring 1933. compared to 19)I and 1932, the Company had

"" more .chnlulnl nuclear station refueling outages, resuhing in les* nuclear generation and more fuel espen-c.

gn Generation solume during 1911 increasnl 3A [rreent compared to 1973 due to fewer

- - - -~

generating station outage *. During 1913. generation decrea ed 5h percent from 1912.

Purcha ni inmer solume increa ed in 19)1 compared to 1913 because of the timing of gener-

$3e _ ____ at y station outage . Purcha ed power solume increased in 1933 compan d to 19)2 primarily due to the pedonnance of d e Perry plant. (See " Perry l' nit 1" discussion on page 15.)

~

Other operating eyrn-es deen.a ed slightly in 1981 compared to 19>3 despite a S25.0 million sin" - -- -

increa-e in oirrating eyrn es at Che-ter, the result of a full 3cari ownership in 1931. This

~

increase wa offset hy the continuation of the Companyi cost reduction program and hy the 14)3 n conting of a $15.2 million long-tenn power sale write-oft and a $12.8 million property

,,, m %. m m sublea ing charge. These 1913 charges, ahing with the Chester acqui*ition, accountnl for the increase in 14)3 compan d to 1912.

)

",*"ZZ"*,,,",,* -

, llaintenance eyrn-e Doctuation primarily result from the timing of schniuln1 genciating i.e i." = a station outage . the timing of schedulnl tran mi sion and distribution line maintenance and the elfeet of stonn- on merhead line- and tran-fonners. Incremental maintenance espen-e 1

12

lintio o[liurnings incurtnl for schnluled refueling outages at the Company % nuclear units is deferrni for to fined Churge4 amodization mer the periml(generally lll eminthw)lw4 ween scheduled outages. During l'f)l and l'/)3, arnodization of deferre91 riuclear refueling outage eq>en e increa-ed, redecting the g higher costs of rnore recent refueling outages. Offsetting this increase in l'f)I was a decrease

~

in transmi*-ion and di%tribution line maintenance eq>ense. Also increasing mnintennnte

. ry>cn-e in l'/>3 was the Company % change, as of January 1, l'I)3, in its method of accounting for maintenance cost

• during inajor fossil generating station outages. Prior to li/)3, maintenance

- - ~

co t* incurral for schetlulnl major outages at fo-sil generating station

• were chargnl to eq>en*e as the costs were incunnl. Under the new accounting lMilicy, the Company accrues, g mer the perimi between outages, anticipatnl expen*cs for schnlulnl major fossil station

- - ~

outages. (Maintenance costs incurn,l for non-major schnialnl outages and for forent outages ,

continue to be chargni to expen e as the costs are incunni.) This methal wa- miopini to match more accurately the maintenance costs with the resenue pn=luced during the perials

- - - ~

hetween schedulnl major foeil generating station outages.

/)cpreciation onsi nmorti;ntion expense inclutles, in adilition to ilepreciation of plant and

.m _ , _ _

niuipment, nuclear decommi-ioning accruals, amortization of regulatory tax receisables and ammii/ation of an estruonlinary pnipedy loss. llepreciation und amortharion expense increased in 1991 and l'F)3 compan,l to the prior year due to incerases in depreciable pn>pedy, nuclear 0 decommiwinning expen%e and lescragnl lease amodization. Th- IW3 increase also results

"" " I 42_ ; from amodization of regulator) tas receivables which began January 1, l'713, concurrent with

{ the mioption of Statement of finantini alt counting Standanis No. lif)($fIS No. lif)). During l'F)l, the Company completed an esten*ise resiew ofits depreciation rates and suhmittnl an infonnational filing to the ITC. As a nsult of thi study, beginning in l'f)3 the Company %

compo*ite depreciation rate increa nl from 3.0 percent to 3.5 perrent. It is anticipatnl that annual depreciation eqicnse will increase hy appnnimately $25 million in lf/)3 comparrd to the U/>l lesel. The Company is not currently seeking a rate increase to emer these additional co tm.

'lhses other than income lases were lower in 1(/)3 comparnl to l'F)I and l'f)2, primarily as a result of a favorahle resolution of cedain propedy las as-e-sments. In lW3, the Company reconled, on the ha%is of these resi ed assessments, the espectnl refunds for userpay ments in prior ) car *. l Other incomo

(>ther in,ome increased in IWl comparnt to l'f)3 as a result of leasing artisities in lWl and a full year's income fnim imestments made during IW3. (>ther income decreased in IW3 Inscrest lapense coniparnt to IW2 due to lower defennl resenue carrying costs, as the deferrni resenue balance und other Charpe, upon which carrying charges wen camnl declinnt n %timn of IMil.a e > Interest and Othor Charges

/n/ crest expeme rnluctions in lWI and lW3 werr achiesed through rrfinancing first modgage

$110 honds and certain las esempt pollution control note, and through retiring debt. /nteresi exjsense is eqw ctml to decline fudher in IW3.

~

l' referred and prefrence ditidends o(subsidiaries continue to decrease as a result of she 8I"" - - - - retirement of sescral outstanding inues. During IW1, the Company retired $39.9 million of i preferTni LuMI pleference stdN'k. j Incomo Taxes \

$;u - - ~ ^ ~

Income las eqiense was lower in IW3, compan d to 1991 and IW2, becau e of a fasorable I settlement (relatnl to Duquesne% 19m federal income tas return and the Company % 1989 pn con-olidatnl fnleral income las n turn) with the Internal Resenue Senice. The remaining on ni o2 m m fluctuation re-ult fnim a 1 percent increa-c in the cor]x> rate federal income tas rate in lW3 Penanceal restruetur and cbaWe- in finable income. !) Wing !(M)1 lbe statuto!T l'enns)!Vania kncome las rale was 7."*,*[.*$**. . rnluent fnim 12.25 percent to 9.W percent; thi n duction is to IIe pha-nl in mer four years.

- *-ae== Thi change resulted in a net dern ase of $N.2 million in deferrni tax liabilities and a the test S years.

J nirle-[Nbn{bnK rn uctiten kn t le repu attil} n re s a ) e.

13

I or its electric utility operations, the Company recognizes a regulatory asset for the deferred tax liabilities that are expectnl to be recoverni fnnn customers through rates.

With resgret to the financial statement presentation of SFAS No W), the Company reflects the amortization of the regulatory tax receivable resulting from reversals of deferred taxes as depreciation and amorfication extense. Changes in the regulatory tax receivable as a result of a change in tax rates are reflected in the statement of consolidated income on the tax rate adjustmera - regulatory tax receivable line. Ileversal.s of accumulated deferred income taxes are included in income tax expense.

Capital Resourt es Capital Expenditures and investing urul 1,iquidity DW IVJi, the Company spent approximately 894.3 million for utility constmetion. The Company s1wnt appmximately $100.6 million in 17)3 and $112.4 million in 1932 for utility Nel Cash Flow constmetion. These arnounts were expendal to impmve and/or expand its pnnluction, trans-ft om Opernlions mission and distrihution systems. Utility construction pmgrams of the Company focus on the

( il,ll.on. nf f bliar s i need to kerve new customers, to pmvide for the replacement of utility property and to modify facilities consistent with the most current environmental and safety regulations. The Company sim estimates that it will slend approximately 880 million for utility constmetion annually in 1915,19#> and 17)7. These amounts exclude AFC, nuclear fuel, expenditums for possible cady mplacement of steam generators at the I eaver Valley Power Station and expenditures for sam '

the refurbishment of the cold-reserved units. (See Notes F and J to the consolidated financial statements.) The Company currently has no plans for constmetion of new hase had generating plants. The Company ex[rets that funds generated from ogerations will continue to he sufficient s2m E, to finance a large part of its capital needs.

In addition to utility constmetion, the Company's long-tenn investments are focused in four pnneynd areas: real estate investments, energy-related im estments, leasing imestments and sim em ironmental sen ices im estments. The les el of im esting activities stayed wlatively constant Il_l_

in IV>l after increasing in 1993 compared to 19>2. Irase imestments in 1991 wem $52.3 sm I.

, , }",l " ', "2 '" '"

million, of which $18B million were energy-related. Ileal estate imestments in 1991 wem

$18.9 million, ine!uding $22.1 million in afTordable housing, and, on a net basis, other investmenta decreased $7.7 million. In 1733, the Company imested $59.1 million in real

......-,*,ou estate, inclu.'ing $35.4 million in afTonlable hou4ng, and $21.7 million in leasing and other

o. m,<. ou, .

imesments. Also daring 1993, the Company acquired a controlling interest in Chester for

"~*"""

SI1.9 million. The Company's 1992 investments were primarily in energy-relatnl leases.

Financing h Company plans to meet its cunent obligatiore med debt maturities through 1999 with funds A.ct Im ome generatnl from operations and through new financings. At Decemler 31,1931, the Company was in compliance with all of .its debt emenants.

( \ldisons pf lklient a l During 1913, the Company refinanced $731.2 million of long-tenn debt. In IVJt, the Company siso "mtinuni to rnluce its cost of capital by refinancing and retiring securities.

During 1931, all of the outstanding sha es of $2.10 and $7.50 preference stock were rnleemed for approximately $37.7 million. The Company al o mtired $2.2 million of $7.20 preferrni stock. In May 1991, the Company filed a shelf mgistration statement for the issuance of up to si"" I -- -

$150 million of Duquesne Capital I P. Cumulatise Monthly Income Pmferrni Securities.

Timse preferrn! securities have not leen issued.

During 1991. the Company also issun! $111.1 million of its pollution contml obligations to rio _

replace a like amount of higher cost judlution contml obligations. The new Imllution contml ohligations leur variahle interest rates and mature Octoler 1,2029.

The Company maintains two niendible revolving credit agreement *, including a $100 million I

<n oi og in g arrangement npiring August 1993, and a $150 million arrangement expiring October,1995.

Iloth anangensents contain two-year repayment Irriods for any amounts outstanding at the

, e mcom. mu. npiration of the rmohing credit periods. At Decemler 31,1991, the Company had hommed

""= S60 million under the agreements.

l 14

L L i J

l i

Sale of Accounts Receivable Tim Company and an unafGliatal corpration base an agreement that entitles the Company to sell and the coqoration to pumhase, on an ongoing basis, up to $50 million of accouats receiv-able. Tim Company had no weeivables sold at December 31, IV> t. Tim accounts receivable sales agreement, which expires in June 1935, is one of many sources of funds as ailable to the ,

Company. Upon expiration of this facility, the Company expects to extend the agmement or to replace the facility with a similar one.

A cernye Cost Nuclear Fuel Leasing  ?

ofCencration The Company fmances its acquisitions of nuclear fuel thmugh a leasing arrangement under (cn.u sw Au s'> which it may fmance up to $75 million of nuclear fuel. As of Decemler 31,1911, the amount of nuclear fuel financed by the Company under this arrangement totaled appmximately ,

2.w ,, 852 million. The Company plans to contin ~ leasing nuclear fuel to fulGil its nyuirrments at l Icast through Septernher 17)6, the remaining term of the current leasing arrangement.

Dividends 2n> llE Tim Company has paid dividends on common stock continuously since 1953.11 e quarterly dividends paid have increased by an average annual rate of 5.6 pement over the past five i years, egen though the Company has maintained a more conservatise payout ratio than the electric utility industry in general. llm Company expects that funds generated imm o[rrations will continue to be sufGeient to meet sinking fund and long-tenn Jeht maturities and to pay dividends.11m Company's nent and the availability of funds will be influeneni by the economic

'" activity within the Company's utility service territory, by competitise and envimnmental legislation and by regulatory matters experienent by the electric utility industry generally.

• I Dividends may le paid on DQE common stock to the extent pennitted by law and as declarni i by the loani of directors. Ilowever, in Duquesne** Restated Articles of incorgeration, pmvisions  !

o lI m m w n on relating to preferrni and preference stock may restrict the payment of Duquesne's common dividends. No dividends or distributions may be made on Duquesne's common stock if Duquesne has not paid dividends or sinking fund obligations on its preferrn! or preference stock.

u...y...........a. Further, the aggregate amount of Duquesne's common stock dividend payments or distributions ,

'"/ll.7,7. .',"! ' ""'"""'

, may not exceed certain irreentages of net income if the ratio of common sharehohlers' equity to total capitalization is less than specified percentages. As all of Duquesne's common stock is ownni by DQE, to the extent that Duquesne cannot pay common dividends, DQE may not he ,

able to pay dividends to its common shareholders. No part of the retainni earnings of DQE or i any of its subsidiaries was restrictni at December 31,1991.

Generating Units Generating Perforrnance 11m Company wholly owns and operates two generating units. In addition, the Company has an ownership or leaschold interest in nine jointly awned units, two of which the Company oper-ates. Of the four units the Company operates, thme achievn! reconi performance during IVJf.

The lleaser Valley Power Station achiesnl the highest combined (Units 1 and 2) capacity factor (87.7 percent) in the history of the station. The Cheswick Power Station achieved the highest capacity factor (78.7 gereent) in its 24-year history. Capacity factor is a key pnuluction -i

, measure. It is the ratio of the inwer actually generated by a facility to the facility's ratnl t capacity during that geriod of time. It is also a key indicator of how well the stations are operated hasal on their design capahilities. I Perry (Jntt 1 Tim Company has a 13.74 percent ow nership interest in Perry Unit 1, a nuclear generating l unit heatal in Ohio and operated by Tl e Cleseland Electric illuminating Company (CEI). 1 During 1913, the unit had an niuivalent availability factor of 39 percent. This perfonnance l nwulted fmm seseral outages. As a result of the length of these outages, the PUC imposnl a l gwnalty for incremental replacement imwer costs. Tim IVJi equivalent availability factor was i 41 gercent. This perfonnance resuhnl from an extendnl outage (190 days) for n fueling and 15

maintenance. Emm the eml of the outage in August 1991 thmugh the balance of 1991. Perry ogwrated at full capacity except for short durations of reduced power for testing and minor on-line maintenance activities.

CEI has previously submitted to the Nuclear llegulatory Commission an action plan, called the Perry Course of Action (PCA), designed by CEI to " correct identi'ied management, technical, ami pmgrammatic deficiencies" at the plant over mughly a three-year geriod, and to " correct the dow riwant trending gerformance" of Perry. CEI management represents to us that the PCA ,

in on schnlule and will be an effective pmgram to insure that Perry is in confonnance with industry standants for boiling water reactors. Based on actual costs and estimatea obtained fmm CEI through January 1995, the total costs to bring the plant into compliance, including the costs awriated with implementing the PCA, are more than the costs originally pmjected by CEl. The Company cannot predict the ultimate cost, timing or effectiseness of the PCA, and is continuing to closely mor,itor the situation.

Untlook competition Itegulatory developmenta in the electric utility industry are placing increasing competitive pressures on electric utilities. The electric utility industry la expected to continue to undergo significant changen for the remainder of the decade. These changen most likely will include increasing comgetition in the generation and sale of chytricity, increasing energy flows resulting fmm open transmission access and non-regulated generation a.,d transmission pmjects outside the traditional sergice areas. The Company, like the industry in general, is continuing to aness ,

the impact of these competitive forces on its future operations.

Electric Utility Industry Derelopments: The Nation d Energy Policy Act of1992 (energy act) was designed, among other things, to foster competition. Among other provisions, the energy act amends the Public Utility lloiding Company Act of1935 (l935 act) and the Federal Pourr Act. Amendments to the 1935 act create a new class of independent power pmducers known as Exempt Whoh sale Generaton. (EWGs), which are exempt from the coqmrate simeture regulations of the 1935 act. EWGa, which may include independent power pmducers as well as affiliates of electric utilities, do not require Securities and Exchange Commission appmval or regidation. In addition, brokers and marketers, without owning or ogwrating any generation or uansmission facilities, are being pennitted to enter into the business of buying and selling clettric capacity and energy. ,

Amendments to the Feder d Puuer Act create the gotential for utilities and other power pruducers ,

to gain increased access to transmission systems of other utilities in order to facilitate sales to other utilities. The amendments permit the FEllC to onler utilitica to transmit gower over their lines for use by other suppliers and to enlarge or construct additional transmission capacity to pnnide these services. The Company is currently pursuing expanded transmission access under these amendments. (See discu<sion in " Transmission Access" on page 17.)

The energy efGeiency title of the energy act requires states to consider adopting integrated resource planning, which allows utility investments in conservation and other demand side management techniques to be at least as profitable as supply investmenta. The energy act also establishes new efUciency standants in industrial and commercial equipment and lighting and requires states to establish commercial and residential buihling co.les with energy efficiency standants. Additionally, the energy act requires utilities to consider energy efficiency pmgrarns ,

in their integratnl n source phmning.

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

I 16

u l

The PUC is currently conducting an imestigation into electric [mwer competition. The Company has been adsocating inen ased transmission access in the wholesale ixmer inarket as the necessary first step towan] enabling our customers to benefit imm competition.

The Company's Response Emerging competition, fnleral deregulation of wholesale energy sales, and prospective retail accc+s initiatises require the Company to reexamine its approach to doing business. Gnmth in energy sales, competitive rate pressures, and the Company's commitment to pmvide reliable, quality service to its customers influence short-and long-term coqorate goals. The Cmnpany's current business plan recognizes the need to encourage economic gnmth and stability in the senice territory and surmunding region. The Company's efforts continue to focus on achiesement of business gmwth through the application of marketing and economic development pmgrams to achieve energy-efficient gmwth in its

[ sales of utility services.

%e Comimny has a diverse customer mix with less than 22 pen ent of total sales of electricity derisni fnnn industrial customers as comparn! to an electric utility industry average of approxnnately 31 [errent. The Company's rates for energy intensive industrial and commercial custorners are competitively prieni and its rate stmeture allows some flexihility in setting rates to attreet new business. In addition, Company-*gonsom! pmgrams help customers manage their electricity consumption and contml their costs.

Although management Imlieves the Companyi system is well positionnl, as a clean, low-cost producer, to compete loth within and outside of its service te Titoy, effods continue to further reduce costa und increase effectiseness and productivity. We will aggressively a hiress these factors to gosition the Company to overcome the challenges they may create and take advantage of the opimrtunities increasal comimtition will bring.

s Transmission Access: in March 1991, the Company submitted, pursuant to the Federal Pouer Act, a " good faith" request for transmission service with the Allegheny Power System (APS) and Pennsylvania-New Jersey-Maryland Interconnection Association (PJM Companies).

The rniuest is based on 20-year finn senice with flexible delivery points for 300 megawatts of transfer capability over the transmission network that extends fmm Western Pennsylvania to the East Coast. llecause of a lack of pmgress on pricing and other issues, on August 5 and September 16,1991, the Company filed with the FEllC applications for transmission senice fmm the PjM Companies and APS, respectiwly. The applications are authorized under Section 21I of the Federal Pouer Act, which n quires electric utilities to pmvide finn wholesale transmission service.

Generating Units IIeldfor future Use: In 1986, the Pl'C appnnni the Company's request to remove the Phillips and most of the llmnot Island (111) [mwer stations from service and place them in cohl reserve. The Company expects to recover its net investment in these plants through future electricity sales. Phillips and 111 represent licensn!, certifini, clean sources of electricity that will he necessary to meet expanding opportunities in the lxmer markets. The Company belieses that anticipatnl gmwth in peak demand for electricity within its senice terTitory will require additional peaking generation. The Company kmks to ill to meet this nent. The Phillips Ismer plant is an im;mrtant component in the Companyi strategy to identify and sene opiwntunities for pmviding hulk inwer service. With recent legislation prornoting wider transmission access to hulk ptmer markets and with the opportunity to package a sale of jumer fnnn Phillips with the suppert of the Companyi system, the Philligs plant could he made a highly reliable, cost-competitive abernative for most purchasers. In summan, the Company Imlies es its investment in these cold-n sen nl plants will be necessary in onler to meet future businen nents. If business opgortunities do not develop as expectn!,

the Company will consider the sale of these assets. In the event that market demand, transmi*-

• ion access or rate reemery do not sopimrt the utilization or sale of the plants, the Company may hase to write off part or all of their costs. At Decemlmr 31.1991, the Company % net imestment in Phillips and til was $910 million and $12.0 million, nspectisely.

17

?

h,

,j' 1l p y Environmental Matters

'.' The Comprehensive Environmental Response, Compemation and Liability Act of1930 (Superfund) and the Siq>erfund Amendments and Reauthori:ation Act of1936 establishnl a variety of informational and environmental action pmgrams. The United States Envimnmental '

Protection Agency (EPA) has infonnni the Company of its involvement or tx>tential involvement in three hazanlous waste sites. If the Company is ultimately detennined to be a resiw>nsible party with resgret to these sites,it could be liable for all or a portion of the cleanup costs.

Iloweser, in each case, other solvent, potentially responsible parties that may bear all or part of any liability are also involved. In addition, the Company believes that available defenses, along with other factors (including overall limited involvement and low estimatnl mmnliation -

L costs for one site) will limit any potential liability that the Company may have for cleanup costs. The Company believes that it is adequately rnerved for all known liabilities and costs and, accontingly, that these matters will not have a materially adverse effect on its financial position or results of operations.

In lWO, Congress appmved amendments to the Clean Air Act. Among other innovations, this legislation establishni the Emission Allowance Trading System. These allowances are issuni by the EPA to fossil-fired stations with generating capability of more than 25 megawatts that were in existence as of the passage of the IVX) amendments. Allowances are part of a market-based appmach to sulfur dioxide (SO2 ) rnluction. Emission allowances can also be obtainnt ihmugh purchases on the open market or directly fmm other sources. Excess allowances may be banked for future use or sohl on the open market to other parties for their use in offsetting emissions.

The legislation requires significant additional rnluctions of 502 and oxides of nitmgen (NOx) by the year 2(XX). The Company continues to work with the operators of its jointly ownni stations to implement cost-effective compliance strategies to meet these miuirements. NOx rnluctions under Title IV of the Clean Air Act amendments were required at the Cheswick station and the work to achieve the mluctions was completed in lW3.%e ozone attainment pnnisions of 7itle 1of the Clean Air Act amendments also miuimi NOx mluctions by IW5 at the Company's Elrama plant and at the jointly owned Mansfield plant. The Company will achieve such rnluctions with low NOx burner technology. The Company has 662 megawatts of nuclear capacity,1,187 megawatts of sembbnl capacity, including 300 megawatts at the currently cold-trserved Phillips plant, and 757 megav;atts of capacity that meets the IWS standanls of the Clean Air Act amendments thmugh the use oflow sulfur coal. Through the y ear 2(MM), the Company is planning a combination of compliance methods that include fuel switching; increaml use of, and improvements in, scrubbed capacityt flue gas conditioningt low NOx burner technology; and the purchase of emission allowances. The Company currently estimates that additional capital costs to comply with Clean Air Act requirements thmugh the 3 ear 2(MX) will be appmsimately S20 million. This estimate is subject to the finalization of fnleral and state repdations.

The Company is closely monitori,ng other intential air quality pmgrams and air emission control requirements that couhl be imposni in the future, including additional NOx control requirements that could be imixxml on fossil fuel plants by the Ozone Transport Commission.

As these potential programs are in various stages of discussion and consideration, it is impossible to make reasonable estimates of the potential costs and impacts, if any.

In IW2, the Penns3hania Depanment of Envimmnental llesources (Dell)issuni llesidual hie Management llepdations goveming the generation and management of non-hazanlous waste. The Company is currently conducting tests and developing compliance strategies.

Capital compliance costs for these DER regulations are estimated, on the basis ofinfonnation cunrntly asailable, at 85 million in IW3. The eximetnl mhlitional capital cost of compliance for these DER repdations thmugh 20tM) is estimatn!, hael on cum nt infonnation, to be appnnimately $25 milhon: this estimate is subject to the results of continuing ground water av.e*sments and Dell fm' al appnnal of compliance plans.

18

p.

Under the Nuclear hie Policy Act er1982, which establishes a policy for handling and disposing of sient nuclear fuel and rniuires the establishment of a final repository to accept spent fuel, contracts forjointly ownni nuclear plants have been entered into with the Unital States Department of Energy (DOF) for pemianent disposal of spent nuclear fuel and high-level radioactive waste. The DOE has indicated that the repository will not he available for acceptance of spent fuel lefore 2010. Existing on-site spent fuel storage capacities at Ileaser Valley Unit 1, lleaver Valley Unit 2 and Perry are expectnl to be sufficient until 2017,2011, and 2009, resgwrtively. During 1711, the Company increased the storage capacity at lleaver Valley Unit I by equipping the spent fuel pool with high density fuel storage racks. ,

Retiremont Pla's Monsurement Assumptions

%e Company increasnl the discount rate usnl to detennine the projectal Iwnefit obligation on the Company's retirement plans at December 31, IVJi, to 8.0 percent. The assumed change in future com[ensation lesels was also incerased to tellect current market and economic conditions.

The effects of these changes on the Comiony's retirement plan obligations are redeetal in the amounts shown in Note N to the consolidatnl financial statements. The resulting decrease in relatal expenses for subsequent years is not expected to be material.

Investment in Intemational Power Machinos Corporation (IPM)

The Company had a $211 million investment, redectni in the Consolidated llalance Sheet of DQE as Other long-Term Imestments at Decemler 31,1991, ia IPM convertible preferrni stock. On February 8, IW5, IPM was acquired by Exide Electronics Croup, Inc. (Exide). The Company is now a major sharehohler of Exide, the world's largest independent developer, manufacturer and sersicer of [nwer pmtection and [xmer management system *. This acquisition resulted in a first quarter 1995 pre-tax gain for the Company of appmximately $7.2 million, or eight cents ger share.

Other

%e Comjony is subject to the accounting and reporting requirements of the Securities and >

Exchange Commission. In addition, the Company's utility operations are subject to the regtdation of the PUC and the FEllC. As a result, the consolidatnl financial statements contain regulatory assets and liabilities in acconlance with Statement of Financial Accounting  ;

Standanis No. 71, Accounting For the Efects of Certain Types ofRegulation (SIitS No. 71) and reDect the effects of the ratemaking pnwess. In acconlance with Sf}tS No. 71 the Company's financial statements redect regulatory assets and costs based on cunrnt cost-based ratemaking I regtdations. The regulatory assets represent probable future revenue to the Company because ,

provisions for these costs are currently includn], or are expecial to be includal, in charges to l utility customers through the ratemaking process. I The Company's electric utility ogerations currently satisfy the criteria of SI?tS No. 71. Ilowes er, j a company's utility operations or a portion of such o[wrations can cease to meet these criteria  ;

for various trasons including a change in regulation. Should the Company cease to meet the  !

SE4S No. 71 criteria, it wouhl he required to write-off any regulatory assets and liabilities for 1 those o[rrations that no longer meet these n quirements. 1 I

'l9

u lieport of To the Directors and Shareholders of DOE:

Indepen< lent  % have audited the accompanying conu>lidated balance sheets of DQE and its subsidiaries as r 'i,",'.[,f,",', , l . of Decender 31, IW1 and IW3, and the relatal consolidated statements of income, wtainni earnings, and cash flows for each of the three years in the period ended December 31, lWL Timse fmancial statements are the resionsibility of the Company's management. Our responsi-bility is to express an opinion on these fmancial statements hasni on our audits.

We conducted our audits in acconlance with generally acceptnl auditing standants. Those standants require that we plan and perfonn the audit to obtain reasonable assurance about whether the fmancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclmures in the financial statements.

An audit also includes assessing the accounting principles used and significant estimates made by management, as well as esaluating the overall fmancial statement presentation.

L lelies e that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidaini fmancial statements pmsent fairly, in all material restrets, the financial im<ition of DQE and its subsidiaries as of Decemler 31, IW1 and lW3, and the results of their oierations and their cash Hows for each of the thme yeans in the gerimi ended December 31, IW1 in confonnity with generally acceptnl accounting principles.

As discussed in Note A to the consolidated financial statements, effectise January 1, lW3 the Company changni its methal of accounting for income taxes to confonn with Statement of Financial Accounting Standants No.109, and the Company changniits method of accounting for maintenance costs during schniuled major fossil station outages.

'DW sw .

Deloitte & Touche LLP Pittsburgh, Pennsylvania January 31,1995 liepor i of the The Audit Committee, composed entimly of non-employee directors, meets regularly with the Amlit Committee independent public accountants and the intemal auditors to discuss results of their audit of the floord of work, their evaluation of the adnluacy of the intemal accounting contmls and the quality of Directors ofI)CE fmancial reporting.

In fulfilling its resionsibilities in lWl, the Audit Committee recommendal to the Hoani of Directors, subject to shareholder appmval, the selection of the Company's indelwndent public accountants. The Audit Committee reviewed the overall scoge and details of the independent public accountants' and internal auditors' respectise audit plans and rnfewnl and appmvnl the independent public accountants

• general audit fees and non-audit services.

Audit Committee meetings are designed to facilitate open communications with intemal auditors and indeiendent public accountants. E ensure auditor indeiendence, loth the independent public accountants and the internal auditors have full and free access to the Audit Conunittee.

The Audit Committee of the Hoani of Directors of DQE 20

la-4 Statement of Consolidated incorne (Thousands ofDollars, Escept l'er Shore Amounts)

) bur Ended December 31, 1991 1993 1992 Operating Herenues Sales of Electricity:

Customern $ 1,i 15,9117 $1,186,779 31,152,ft'15

, I'liase-in deferrain (211.111 0) (100,315) (98,201)

Utilitien 511,295 50,669 72,110 Total Salen of Electricity 1,145,172 1,137,133 1,127,074 01her 90,157 63,'122 36,748 Total Operuting Rerenues 1,235,629 1,200,455 1,163.822 Opernring Expenses fuel and punhaml ixmer 213,905 237,731 239,230 Other operating 312.220 316,6fl5 289,775 I Maintenance 79, Illit flo.292 79,116 Depreciation and amortization 160,531 152,282 128,730 Taxes other than income taxes 119,171 73,126 85,733 Tiital Operating Expenses 915,6I11 fl90,116 822,614 Operating income Olrrating income 320,011 310,339 511,208 Other income 13, til6 28,102 41,533 Interest and Other interest expense 108,0011 110,470 122,872 Charges Preferred and preference disidends of nuhsidiaries 5,99I 8,936 9,411 TistolInterest and Other Charges 110,002 119,406 132,283 Income liefore Income Tawa 253,195 219,035 250,458 Income 7knes Tax rate adjustment - regulatory tua receienble 117,200 - -

locome taxen 9,179 77,628 108,910 Tolol Income 7ines 96,679 77,628 108,910 .I i

income liefore Cunndative Effect on l'rior Years of Changen in Accounting I'rinciples 156,1116 141,107 141,5111 Adoption of SE4S No.109 - income taxes - 8,000 -

Accounting for maintenance costa - net - (5,425) -

Net income Net Income $ 156,1116 8 143,982 $ 141,518 Ascrage Numlwr of Connnon Sharen j Outstanding ((HH)) 52,69 a2,979 52,913 '

Enrnings Per Share Earning

• l'er 5 hare of Conunon Stock:

Income liefore Cumulatise Firect on l'rior Yearn j of Changen in Accounting I'rinciplem 8 2,911 $2.67 $2.67 i Adoption of SE4S No.109 -income taxes - .15 -

Accounting for maintenance costs - net -

(.10) - '

Earning

• l'er Share of Common Stock S 2 . 9 11 S2.72 $2.67 ,

1 Diridends Declared Distileniin Declareil l'er Share of Conunon Stock 81,70 S t.62 $1.51 See ns&S to conkdiolaterljinancial statements.

21

t Consolidated Balance Sheet (Tiwusaruls of thollars)

As ofDecember 31, s

1991 1993 j"' A ssets Current Ameta:

Cash and temsw>rary cash investenents S 50,0511 $ 32.231 t

fiercivables:

Electric custonwr accounts receivable 96,157 107,312 Other utility receivables 26,0011 211,807 Other receivablen 53,766 56,576 Irsa: Allowance for uncollectible accounts (15,1122) (13,688) lleceivables less allowance for uncollectible accounts 160,149 179/137 len: lleceivablen sold - (9,000)

Total Receirables 160,109 170,037 Materials and supplies (at aserage cost):

Coal- 30, Iili 26,793 0;rrating and constniction 511,262 61,8tl5 Total Materials and Supplies 118,716 91,678 Other current assets 36,156 10,455 Total {lurrent Assets 335,069 301,401 lemg-Terin Investment :

l'artnership investments 77,163 39,418 les eraged lease ingestments 50,322 48,102 leasehold investment

• 33,512 -

Other 35,191 38,111 Total lime Term Investments 146.2l11 125,63l l'rogw rty, I'lasil and Fait:Ignisesit:

Electric plant in service 1,196,690 4,102,979 Construction work in progrena 52,199 60,103 l'roperty held under capital leasen 162,732 177,lMMI Property held for future use l 6,73tl 216,Il63 l

Other ilI,I 65 63,405 1 Tiital 1,709,521 4,621,150 I

f ra accumulated depntiation and amortization (),5 6 9,9113) (1,452,910) j l*roperty, I'lant aml Equipment - Net 3,134,511 3,168,210 Other Non-Current Aweta llegulatory assets 710,763 909,405 l 1

Other 15,11-1 42,698 )

Total Other Non-Current Assets 756,177 952,103 Total Assets $ 1,127,005 $ 1,550,378 I see n,aes to omsolukardJhvwial staservnes.

l 22  !

.1 i

h (Tlwusands <ffhollars)

As ofElecember 31, 1991 1933 1.inbilities und Current I. labilities:

Capitali:nrien Notes payable 8 60,115 8 36,267 ,

Current maturities and sinking fund rnguirements 115,9116 45,741 Accounts payable 113,115 1 8ft,309 .

Accrued liabilities 61,1191 70,967 Dividend

• declan d 26,181 26,699 i

Other current liabilities 3,722 14,029 Total Current liabilities 327,055 282,012 Non-Currert I. labilities:

1)eferred income taxes - net 969,9 lit 1,169,148 I)eferrni investment tax crnlits 123,591 129,574 Capital lease obligationn i1,106 55,733 Other 215,639 133,202 Total Non-Current liabilities I,350,2tli 1,187,657 Conunitments and Contingencies (Notes 11 thmugh N) 1 Capitalir.ation:

12mg-Term Debi 1.3 77,6 I i 1,416,998 1

l' referred ami Preference Stock of Suhaidiaries:

Non-rnicemable preferred stock 90.310 92,523 1 Non-redeemable preference stock 29.1157 59,339 I)eferrni emplo)ec stock ownership plan (ESOP) benefit (21,1152) (27,126)  ;

Ilnicemable preference stock - 8,392 l Tintal l* referred and Preference Stock of Subsidiaries 95,315 133 l28 Conunon Shareboblers' Faguity: )

Common u tock - no par value (authorized - 125,0(WP) l shares: iwani - 73,119,136 shares) 1,001,973 1,001,259 l Iletainni carning. 622,072 551,608 Treasury stock (at co.t)(20,813,698 and 20,107,209 shares) (317,335) (325,280)

Tintal Common Shareholders' Equity 1,276,710 1,230,583 Tintal Capitoli2ntion 2,719,666 2,780,7(F) 7kutalliabilities and Capitalization 61.127,005 S t.550,378 23

'l 1

Statement of Consolidated Cash Flows (Tiununnds of Dollars) lbur Ended December 31, I991 1993 1912 Cash Flmes Trum Net income $ 156,1116 $143,9112 $141,518 Opernsing .lerie ities Principal non-cash charges (crnlits) to net income:

Depreciation aiul amortization 160,531 152,282 128,730 Capital lease and nuclear fuel amortization 36,320 32,019 49,001 Deferred income taxes and insestment tax crnlits - net (ll,136) (41,930) (2,319)

Allowance for njuity funds used during construction (I,295) (869) (2,598) ,

1)eferred resenue* and carrying charges recoserni 2f t,621 99,375 83,056 Changes in working capital other than cash (31,1191) (111,677) 411,670 Other - net 211,661 26,167 2,187 Net Cash I'rurided fram Operating Activities 369,627 299.319 118.515 Cash Flmes Used fly ingestments:

Inresting ctrtirities Capital expenditures (1 2 1,0115) (128,376) (113.215) long-term ins estmenta (66,6911) (71,956) (21,583)

Tutal Capital Expenditures and Other inreatments (1817,7113) (1%,332) (131,7911)

Other - net (12,321) (5,178) (12/>32)

Net Cash Used IJy Inresting Actirities (200,101) (201,510) (117,430)

Cash FImrs Used in Sale of lotuis 111,110 710,500 312,925 finnncing .tcriritic" increase in notes payable 32,530 36.267 -

Disidends on common stock (89,318) (86J)39) (111,491) llepurchase of common stock (23.307) - -

Heduction* of long-tenn obligations:

l' referred and preference stock (39,9511) (187) (21,1511)

Inng-tenn debt (l i I,1135) (735,018) (391,951)

Other obligations (33,522) (27,751) (13/M2) licaser Valley Unit 2 male /leaschack premium - - (36,'171) l'remium on reanquirni debt (5,033) (31,702) (111,127)

Other - net 7,661 623 (2,719)

Net Cash Used in Financing Artirities (l51,699) (1 0 3,3117) (288,5711)

Net increase (decrease) in cash and 'emporary cash ins est ment. 17,1121 (5,518) 12,537 Cash and temporary ra-h insestments at beginning of year 32.231 37,782 25.245 Cash mul temporary cash imestment* at end of3ear $ 50,0511 $ 32.234 8 37,782 Supplemental Cash Flow Information Cash Paid During Interest (net of amount capitalimi) $ 105,900 $125,301 $126,014

'I"' rea r income taxes 8111,6 l l $ 133,303 S I 12.!!59

.bn-Cnih inresting Capital lease obligations reconini 8 16,909 $ 11,81) $ 17,089 und Finnneing

_ , ,,;, ;,;,, .se noirs to consJidaned)inancial untemenu.

24

Statement of Consolidated Retained Earnings (Dwnsands of th>llan) 1991 IVXI 1 932 Italance at leginnirig of year $551,(e01 $496,711 $.136,(61 Net income 156,1116 143,982 141,518 Disidenib declarnl (89,3 til) (86,089) (81,191) llalance at end of year $622,072 8551,ml $1%,711 See notes les curlsolitlatedjinancial sittlernents.

Notes to Consolidated Financial Statements

.1. Summary of Consolidation

%"IIIC""'

The consolidaint financial statements of DQE include the accounts ofits subsidiaries:

l fl].'""""# Duquesne Light Company (Duquesne), Duquesne Enterprises (DE) and Montauk, DQE and its subsidiaries are collectisely referrni to as the Company. All material intercompany balances and transactions ha e been eliminatnl in the preparation of the Consolidatni Financial Statements of DQE.

On August 17,1993, DE acquired a 70 percent controlling interest in Chester Environmental, Inc. (Chester) for appnnimately $12 million. The acquisition was accounini for under the purchase method of accounting. The accounts of Chester, including the results of operations, have been included in the Company's consolidatnl financial statements since that date.

Basis of Accounting The Company is subject to the accounting and re;xuting requirements of the Securities and Exchange Commicion (SEC). In addition, the Company's utility operations are subject to the n gulation of the Pennsylvania Public Utility Commission (PUC) and the Fnleral Energy llegulatory Commission (FEllC). As a msult, the consdidatnl financial statements contain regulaton assets and liabilities in acconlance with Statement of Financial Accounting

\ Standards No. 71, AccountingJhr the Ifects of Certain 1) pes ofRegulation (SMtS No. 71) and reflect the effects of the ratemaking process. Such effects concern mainly the time at which various items enter into the detennination of net income in acconlance with the principle of matching costs and revenues. (See Note E)

Revenues l

Meters are read monthly and customers are hillnl on the same basis. flevenues are reconled in the accounting irrimls for which they am billn!, with the exception of energy cost reemery resenues. (See following section on " Energy Cost Itate Adjustment Clause.") Defened rev-I ennes are aunciated with the Company's 1987 rate case. (See Note F.)

Energy Cost Rate Adjustment Clause (ECR)

Through the ECit, the Company recovets (to the extent that such amounts are not included in base rates) nuclear fuel, fossil fuel and pun basnl power expenses and, aho thmugh the ECit, passes to its customers the profits from short-term gxswer sales to other utilities (collectisely, ECil energy costs). Nuclear fuel ex[ense is reconied on the basis of the quantity of electric energy generatnl and includes such ne.ts as the fee, imine.nl by the United States Depanment of Energy (DOE), for future disiumd and ultimate storage and disposition of sient nuclear fuel. Fossil fuel expense incimles the costs of coal, natural gas and fuel oil used in the generation of electricity.

On the Company's statement of consolidatnl income, these energy cost reemery resenues are included as a component of operating rerenues. For ECit purposes, the Company defers fuel  ;

and other energy ex;rnses for reem ery, or refunding, in subsninent > ears. The deferral

• reflect 1 the difference letween the amount that the Company is currently collecting fnnn customers and )

its actual ECit energy costs. The PUC annually reviews the Company's ECit energy costs for I the lhcal year April thmugh Man h, compares them to presiously projected ECit energy cost

• j and adjusts the ECit for mer- or under reemeries and for two PUC-established nial cost I standants. pee Note E) as

g Over- or under-recoveries fmm customem are reconini in the Consolidatnl llalance Sheet of DQE as payable to, or receivable from, customers. At Dn-mber 31,1994, $5.9 million was receivable fmm custonrra and shown as other current assets. At Decemler 31,1993,810.1 million was payable to customen and shown as other current liabilities.

Maintenance Increnwntal maintenance expense incurred for refueling outages at the Company's nuclear units is deferrni for amortization over the irrimi (generally 18 months) letween schniulnl outages.

Tim Company changni, as of January 1,1993, its methal of accounting for maintenance costs during schnluled major fossil generating station outages. Prior to that time, maintenance costs incurred for echeduled major outages at fossil generating stations were charged to extense as these costs were incunrd. Umler the new accounting Imlicy, the Company accrues, over the geriods letween outages, anticipated expenses for scheduled major fonAl generating station outages. (Maintenance costs incurred for non-major scheduled outages and for fomni outages continue to be charged to expense as such costs are incurrnl.) This methml was adoptml to match more accurately the maintenance costs and the mvenue pnulucal during the perimis letween schnlulnl major fossil generating station outages.

'lhe cumulative effect (appmximately $5.4 million, net of income taxes of appmximately

$3.9 million) of the change on prior years was included in net income in 1993. The effect of the change in 1993 was to rnluce income, lefore the cumulative effect of clumges in account-ing principh s, by approximately $2.4 million or 8.05 per share and to rnluce net income, after the cumulative effect of changes in accounting principles, by approximately 87.8 million or S.15 iwr share.

Depreciation and Amortization Depreciation of property, plant and equipment, including plant-related intangibles, is reconled on a straight 4ine basis over the estimated useful lives of pmperties. Amortization of other intangibles is reconled on a straight line basis over a five-year irrim!. Depreciation and amonization of other proiwdies are calculatnl on various bases.

'lhe Company reconis decommissioning costs under the category of depreciation and amoniza-tion extense and acemes a liability, npo! to that anmunt, for nuclear decommissioning exiense.

Such nuclear decommissioning funds are depositnl in external, segregated trust accounts. 'Ihe funds are invn.tnl in a ponfolio consisting of municipal Innds, cenificates of deposit, and U.S.

gmernment securities. Trust fund earnings increase the fund balance and the reconled liability.

The market value of the aggregate tmst fund balances at December 31,1991, totaled S19.2 million. On the Company's consolidated balance sheet, the decommissioning tmsts have leen reflectal in other long-term imntments, and the related liability has leen recorded as other non-current liabilities. (See " Nuclear Decommissioning" on page 31.)

Income Taxes On January 1, lV13, the Company adopted Statement of Financial Accounting Standards No.

RF), Accountingfor income T<ues (SE1S No. H19). Implementation of SEIS No. HF) invoked a change in accounting principle. The cumulative S8 million effect on prior years was reported in 1993 as an inemase in net income.

SEIS No. RF) rniaires that the liability methat be used in computing deferrni taxes on all differences letween look an i tax bases of a+ cts. These lxok tax diffemnces occur when events and transactions recogniznl for financial reporting purioses a- r.ot recogniznl in the same period for tax purim *es. SKIS No. RF) also rniuires that a deferred tax liability or auet tw adjusted in the perial of enactment for the elTect of changes in tax laws or rates. During 19%

the statutory Penns)hania income tax rate was reduent fmm 12.25 gwrcent to 9.99 percent

this rnluction is to tw phased in over four years. This msultnl in a net decrease of $87.2 mil-lion in deferred tax liabilities and a corresimnding rnluction in the regidatory receivable.

l'or iu utility o[erations, the Company mcognires a regulatory nuet fo. the deferrni tax liabili-ties that are exirrini to le nrmerni from customers through rater. (See Notes I? and 11.)

as

I L

With respect to the financial statement presentation of SE4S No.109, the Company reflects the amortization of the regulatory tax receivable resulting fmm reversals of deferred taxes as

depreciati<m and amortization expense. Chan6es in the regulatory tax receivable as a result of a

(- change in tax rates are reflected in the statement of consolidatal income on the tax rate adjust-ment regulatory tax receivable line. Eleversals of accumulated deferred income taxes are included in income tax expense.

When applini to reduce the Company's income tax liability, investment tax crnlits related to utility pmperty generally were deferred. Such ernlits are subsequently reflected, over the lives of the relatnl assets, as rnluctions to tax expense.

Property, Plant and Equipment

f. The asset values of the Company' "tility properties are stated at original constmetion cost, which includes relatnl paymil taxn ,wnsions, and other fringe benefits, as well as administra-tive and general costs. Also includnl in original constmetion cost is an allowance for funds usnl during construction (AFC), which represents the estimatnl cost of debt and equity funds usnt to finance constmetion. The amount of AFC that is capitaliznl will vary acconling to changes in the cost of capital and in the les el of construction work in progress (CWIP). On a current basis, the Company ikws not realize cash fmm the allowance for funds usal during constmetion.11m Company does realize cash, during the service life of the plant, thmugh increasnl revenues reflecting a higher rate base (upon which a return is earned) and increased depreciation. The AFC rates applied to CWIP were 9.0 percent in 1991,9.6 percent in 1993, and 10.3 pement in 1992.

Additions to. and replacements of, pmperty units are chargni to plant accounts. Maintenance, repairs and replacement of minor items of pmperty are reconlnl as exIrnses when they are incurml. & costs of utility pmpenies that are retired (plus removal costs and less any salvage value) are chargni to the accumulated pmvision for depreciation.

Sule.tantially all of the Company's utility pmperties are subject to fin.t modgage liens, and to junior liens.

Temporary Cash Investments Temporary cash investments are shod-term, highly liquid investments with original maturities of three or fewer months. They are statnl at market, which appnnimates cost. The Company considers temjusrary cash investments to he cash equivalents.

Reclassifications Tim 1993 and 1992 financial statements have been reclassified to confonn with accounting presentations adoptml during 1991.

fl. Receirubles An arrangement letween the Company and an unafliliatnl corporation entitles the Company to perimlically sell up to $50 million of its accounts receivable. The Company had no receiv-ables sohl at Decemler 31,1991. At December 31,1993, the Company had sold 87.1 million .

of electric customer accounts receis able and S1.9 million of other utility receitables. The sah s agreement includes a limited meourse obligation under which the Comiumy couhl be rniuirni  !

to repurrhase certain of the receivables. The arrangement expires on June 27,199a. j C. Changes in Changes in Working Capital Other Than Cash i Working Capital l Other Than Cash 1991 1993 (a) 1992 q

(.4 mounts in Wusands of Dollars)

Reccis ables S 9,928 S(103,188) 868,0ml Staterial* and supplies 2,932 13/>35 (4,151) b Other curmnt av.et* (25,701) 4/>31 7,140 Accounts payable (i,455) (7,%1) (8.818)

L Other current liabilities (l1,595) (18,791) (9,589)

Total S(31,891) S(111,677) $ 18.670 (a) Nei of the effeet In m the pm hsic of Chr ter 27 h ieI - . ...i- -

i .. ._

p.,

13. I,ung-Term 11r Companyi mrtnership f imestments are primarily in affonlable hou*ing limitnl partnerships.

In reatments lhe Companyi investments in affonlable housing were $57.5 million at Decemler 31,1711 aml $35.4 million at Decemler 31,1993. The Company also has a pannership investment at Decemler 31,1991 of $15.7 million in a waste-to-energy facility.

r The Cmnpany is the lessor in five leveragni lease arrangements involving manufacturing equipment, mining equipment, rail equi [nnent and natural gas pmcessing equipnwnt. These i leases expire in various years irginning 2001 thmugh 2012.11r residual value of the equip-ment, which Irlongs to the Company after the leases expin , is estimatnl to appmximate 14 percent of the original cost. The Companyi aggregate equity investment represents 22 percent

{' of the aggregate original cost of the pmgedy and is secuns] by guarantees of each lesseek I

parent or affiliate. Tim remaining 7fl percent was fmanent by non-recoun+c debt providal by {

j lenders who base Iren grantn!, as their sole remnly in the event of default by the lessees, an

!' assignment of rentals due under the leases am! a security interest in the leased pmierty. This i debt amountnl to $139 million and $144 million at December 31,1991 and 1993, respectively.

Not Leveraged Lease Investments at December 31 1991 1993 (Amounts in Timusands ofI)ollars) llentals n reisable (net of principal and inten st on the non-n course debt) 850,010 $52,016 Estimated residual value of leassl asset

• 26,170 26,470 les*: Unearnni income (26,1511) (3 0.3111) in eragnl lease imestmenta 50,322 48,102 Irss: Deferrn! taxes arising from leveragni leases (31,17I) (22.Ilts)

Net irrernged Isase incestments $ 16,1 Ill $25,237 lhe Company's leaschold im estments are in computers, s chicles and equipment. The Companyi other imestments are primarily in assets of a nuclear decommissioning trust and marketable securitles, in acconlance with Statement of Financial Accounting Standards No.

I15, Accountingfor Cenain imestments in Debt and Equity Securities (SFAS No.115), these imestments are classified as available-for-sale and are statnl at market value. The amounts 1 of unrealiznl hohling gains at December 31,1991 are not material.

E. Property. Plant in ad htion to its wholly owned generating units, Duquesne, together with other electric utilities, and Equipment has an ownership or leasehohl interest in certain jointly owned units. The Company is nsluirni to pay its share of the construction and oierating costs of the units. The Company's share of the operating expenses of the units is included in the statement of consolidatnl income.

'lhe Company has a 13.74 percent ownership interest in Perry Unit 1, a nuclear generating unit krated in Ohio and ogeratal by The Cleveland Electric illuminating Company (CEI).

During 1993, the unit had an equivalent availability factor of 39 percent. This irdonnance resulini fmm several outages. As a result of the length of these outages, the PUC inqiosed a penalty for incremental replacement gumer costs. The 1994 equivalent availability factor was 41 rreent.

i 7% perfonnance resulted fnnn an extended outage (190 days) for refueling and maintenance. From the end of the outage in August 1991 through the ludance of 1991, Perry ogrratnl at fed capacity eu ept for short durations of rnluent power for testing and minor on line maie,enance activities.

CEI has pesiously submittni to the Nuclear llegulatory Commission an action plan, called the Perry Course of Action (PCA), designni by CEI to " correct identified management, technical, and pmgrammat;c deficiencie*" at the plant over mughly a three-> ear period, and to

" corn ci the downwant trending irrformance" of Perry. CEI management represents to us that as

,w the PCA is on schnlule and will he an elrective pmgram to insure that Peny is in confoi.aance with imlustiy standants for boiling water reactors, liased on actual costs and estimates obtainn!

!< from CEI through January 1993, the total costs to bring the plant into compliance, including the costs associated with implementing the PCA, an more than the costs originally pmjected by CEl. The Company cannot predict the uhimate cost, timing or effectiveness of the PCA, and in continuing to chmely monitor the situation.

Generating Units at December 31,1994 Net Percentage (Itility fuel Unit Interest Megawatts Plant Somre (Millions of Dollars)

Cheswick 100.0 570 $ 120.11 G al Elrama (a) 100.0 487 97.3 Oml Ft. Martin 1 50.0 276 3 11. 2 Coal Ea.stlake 5 31.2 186 48.6 Coal Sammis 7 31.2 Ill7 51.I Coal limee Mansfield 1 (a) 29.3 22fl 69.1 Coal lirwe Mansfiel.12 (a) 8.0 62 1 11. 0 Coal liruce Mansfield 3 (a) 13.74 110 111. 9 Coal lleaser Vidley 1 (b) 47.5 385 233.5 Nuclear lleaser Valley 2 (c)(d) 13.74 113 1 1.11 Nuclear licaver %dley Cmunum Facilities 165.6 Peny 1 (e) 13.71 161 59I.7 Nuclear lirunot Island 100.0 66 7.5 fuel Oil Total 2.113 1 1,521.I Cold-n-en nl unit 4:

linnuit 141arul 100.0 2 10 11.9 fuel Oil Phillips (a) 100.0 300 7 11. 6 Coal T* tal Genemting I! rata 3.374 81.687.4 ta) W umt a wpigy ed with flue gas deaulfurization equigunent.

0.) b NitC ha granted a heent.c to oierate through January 2016.

(c) On Octol.er 2.1987, the Comgiany nold its 13.7 8 gen ent intercat in llcaser Valley L nit 2 and leased it hacL:

the nate wan escluaise of tran*miazion arul cornrnon facilitica. Announts shown represent facilities not sold and sub*equent lea.<lmld impnn ements.

(d) W NitC han granied a liceni.e to operate ihnogh May 2027.

(c) h NitC has granted a license to operate through Man h 2026. l l

C linie .llotters 1987 Rate Case in March 1988. the PUC adopted a rate onler that increased the Company's utility rrvenues by

$232 million annually. This rate increase was phased-in from April 1988 through April 1994.

Deficiencies in current revenues which resultnl fmm the phase-in plan were included in the consolidatni statement of income as phase-in deferrals. Ibse-in deferrnh were reconini on the balance sheet as a regulatory asset. As customers were hilled for deficiencies n lated to prior periods, this regulatory asset was rnluent.

At this time, the Company has no [mnding base rate case and has no inunediate plans to file a j ha.*e rate ca*e.

Regulatory Assets As a result of the 1987 Itate Case, and the continuni application of SE4S No. 71, the Company reconis regulatory assets on its consolidated balance sheet. The regulutory assets represent probable future resenue to the Company because pmvisions for these costs are currently includal, or are expectnl to he includal. in charges to utility customers through the ratemaking process. Management will continue to esaluate significant changes in the regulatory and com[etitise environment to assess the Company's mendl consistency with the criteria of SIGIS No. 71.

29

P Regulatory Assets at December 31 1991 1993 i>

(Amounts in Thousaruls ofIMlars)

Regulatory tax receivable (Note 11) $ 128,013 $569,555 Unarnortiznl debt costs (Note K)(a) 103,158 108,076 Deferrni rate synchmnization nnts (see Irlow) 51,119 51,149 licaver Valley Unit 2 sale /leanchack premium (Note 1)(b) 33,414 34,903 Defernvl employee nnts (c) 31,012 32,408 Extraonlinary pmperty hm (see lelow) 22,394 35,781 Deferred nuclear maintenance outage costs (Note A) 11,106 15,256 DOE decontamination and decommissioning receivable (Note J) 10,932 12,251 Deferrn! coal costs (see lelow) 10,677 16,156 Phase-in plan deferrals (see above) - 28,621 Other 11,2112 9,249 Total Regulatory Assets 6710,763 $909405 (a) The premiumn paid to reacquire debt prior to sdmfulnl maturity daten are defermi for amortization mer the life of the debt is,$ued to finance the reacquisitionn.

(b) The emium paid to refinance the Ileaser Valley Unit 2 lease waa deferrnl for amortiration over the hfe of theI (c) includes amounts for reemery of aerruni comiensatal aln encen and accrued claims for workers' congen *ation.

Deferred Rate Synchronization Costs in the 1987 Itate Case, the PUC apprmed the Company's lrtition to defer initial ogwrating and other costs of Perry Unit I and lleaver Valley Unit 2. Tim Company deferrn! the costs incurred from Nmemler 17,1987, when the units went into commercial operation, until March 25,1988, when a rate onler was issued. In its onler, the PUC deferrni ruling on whether these costs would im recoverable from ratepayers. The Company is not eaming a return on the deferrni costs.

'ilm Company lelieses that these deferrni costs are reemerable. In 1990, the PUC pennitted another Pennsylvania utility recovery of such costs over a 10-) ear periml.

Extraorclinary Property Loss Tim Company almndoned its interest in the partially-constructed Perry Unit 2 in 1986 and subsequently disposed of its inten st in 1992. In the 1987 Hate Case, the PUC apprmnl n cmery, over a 10-year perimi, of the Company's original $155 million investment in Perry Unit 2. The Company is not earning a return on the as yet unreemered lxntion (approximately

$23.9 million at Decemler 31,199 8) of its investment in the unit.

Deferred Coal Costs  ;

.I Dr PUC has establishnt two market price coal cost standanls for the Company's interests in j mines that supply coal to its generating stations. One applies only to coal delisered at the  !

Mansfiehl plant. The other, the system-wide coal cost standant, applies to coal deliserni to the remainder of the Company's system. Iloth standants are updated monthly to reflect prevailing i market prices for similar coal. The PUC has din eted the Company to defer reemery of the I deliserni cost of coal to the extent that such cost exceeds generally pn vailing market prices,  ;

as detennined by the PUC, for similar coal. The PUC allows deferrni amounts to he recovered from cu tomers when the delivered costs of coal fall Irlow such PUC-detenninni prevailing i market prices. I in 1990, the PLC apprmnl a joint petition for settlement that clarified certain aspects of the system-wide coal cost standanl and gave the Company options to extend the standanl through Man'h 2000. In Decemler 1991, the Company exen ismi the first of two options that extendnl ]

the standant through March 1996. Tim unrecovered cost of coal used at Mansfiehl amountni to

$7.3 million and $7.4 million and the unreemens) cost of coal used throughout the system amountnl to $3.4 million and $8.8 million at Decemler 31,1994 and 1993, n spectively.  !

Tim Cmnpany lelieses that all deferrni coal onts will be reemered.

so l

I

f f-Warwick Mine Costs lhe 1990 joint petition for settlement (see preceding section on deferrni coal costs) also mcognizni costs at the Company's Warwick Mine, which had been on standby since 1988, and allown! for recovery of such costs, including the costs of ultimately closing the mine. In 1990, Duquesne entered into an agreement under which an unaffiliatnl company will operate the mine until March 200() and sell the coal pnuluen!. Pnnluction began in late 1990.1he mine reached a full pnx!uction rate in early 1991. The Warwick Mine coal re<enes include loth high and low sulfur coal; the Company's contract is for medium to high sulfur (1.3 pervent-l 2.5 gwrcent) coal. More than 60 gercent of the coal mined at Warwick cunently is used by the Company.1he Company recches a royalty on sales of Warwick coal in the open market. In u

the past year, the Warwick Mine supplied slightly less than one-fifth of the coal used in the pnnluction of electricity at the Company's wholly ownni and jointly owned plants.

Costs at the Warwick Mine anel the Company's investment in the mine are expected to be recoveral through the cost of coal in the ECll. Ilecovery is subject to the system-wide coal cost standanl. The Company also has an opjortunity to earn a return on its investment in the mine thmugh the cost of coal during the period of the system-wide coal cost standanl, including l extensions. At Decemler 31,1998, the Company's net investment in the mine was $18.9 million.

l The estimated liability, including final site metamation, mine water treatment and certain talmr I

liabilities, for mine ch> sing is $33 million and the Company has mconled a liability in the consolidatal balance sheet of approximately $12.8 million towant these costs.

Property Held for Future Use in 1986, the PUC appmvnt the Company's request to remove the Phillips and most of the Ilrunot Island (Ill) lower stations fmm service and place them in cold reserve. The Company ex[ mets to recover its net investruent in these plants thn> ugh future electricity sales. Phillips and !!! represent licensed, certified, clean sources of electricity that will be necessary to meet expanding opportunities in the bulk power markets.1k Company lelieves that anticipated gmwth in peak load demand for electricity within ite senice territory will require additional graking generation.1he Company hioks to HI to meet this nent.1he Phillips power plant is an imgortant com[onent in the Company's strategy to identify and serve opportunities for pmviding bulk mwer i service. With recent legislation pmmoting wider transminion access to bulk power markets and with the opportunity to package a sale ofi nwer from Philhps with the sup;mrt of the Company's system, the Phillips plant could be made a highly reliable, cost-competitive attematise for most purchasers. In sununary, the Company believes its investment in these cohl-n sen ni plants will le necessary in onier to meet future business nents. If business opimrtunities do not develop as expected, the Company will consider the sale of these assets.

In the egent that market demand, transmission access or rate reemery do not supjort the utilit.ation or sale of the plants, the Coinpany may liasta to write off past or all of their costs.

At Decemler 31,1991, the Company's net investment in Phillips and 31 was $93.0 million and S12.0 million, resiretisely.

G. Short Term At December 31,1491, the Company ha i two extendible revohing crnlit agreements, including Horrou ing omi a $100 million arrangement expiring August 1993 and a $150 million arrangement expiring Recolcing Crnlit October 1993. Interest rates sary, in acconlance with the option selectnl at the time of each

<t rrangements borrowing. Various innuwing options are available under the credit agreements, including prime, federal funds, Eimatollar or certificate of deiosit rates. Commitment fees am based on the mdommnl amount of the commitments. Iloth arrangements contain two-year repayment periods for any amounts outstanding at the expiration of the revolving credit [wriods.

1here were no short-tenn Immmings during 1992. During 1991 and 1993, the maximum short- q E

tenn bank and commen ial pager immmings outstanding were S60 million and S36 million: 4 f the aserage daily short-tenn Immmings outstanding were S36.8 million and S9.9 million: and

]

the weightml aserage daily interest rates applied to such !mm> wings were 5.17 lwrcent and 1 3.91 percent, respectisely. At Decender 31,1991 and 1993, short-tenn Imrnmings were

$60 million and $36 million.

t 31

7 ir

11. Income 7ines The annual faleral corimrate income tax cms have leen audited by the Internal llevenue Service (IRS) for the tax years through 1917), lieturns filnl for the tax years 1930 to date remain subject to IRS review. The Company thes not beliese that final settlement of the fwleral income tax retums for these years will have a materially a<herse effect on its financial position or irsults of ogerations. The effects of the 1993 adoption of SSiS No. M) are discussnl in Note A.

Implementation of the standant involvnt a change in accounting principle. The cumulative effect of $8 million on prior years was reported in 1993 as an increase in nel income. The SElS No.109 impact on 1993 income before cumulative effect of changes in accounting principles is immaterial.

Deferred Tax Liabilities 1991 1993 (Amounts in Thousands of()ollars)

At Decemler 31, defenn! tax assets (liabilities) were:

Investment tax crnlits unamortiin! $ 83,257 8 45,351 Gain on sale /leaschack of ileaver Valley Unit 2 61,121 67,119 Ten lenefit - long-ter m irm stments 61,66*

Other 63,0511 57/290 Deferrni tax assets 232,106 170,160 Property depreciation (773,29I) (855,560) llegulatory asset (119,1115) (IV),3 ti) loss on reanluired debt unamortized (311,066) (10,933)

Other (2 10,11112) (213,471)

Deferreti tax liabilities ( l,202,05 l) (1,339,308)

Net lieferred Tax linhilities S (969,9 til) S(1,169,14ft)

Income Taxes 1998 1993 1992 (Amounts in Thousands ofI)ollars)

Currently payable: l'nletal S70,908 8 11" 110 3 $ 80,400 State 33,407 .' i,755 30,85fl Deferred - net: l'ederal ( l 5,62 *) (27,017) 7,023 State (73,227) 01/X)7) (3373) lmestment tax crnlits deferrni- net (3,932) (6,006) (5 968)

Income Tirxes $ 9,179 8 77,628 $10ft,910 Total income taxes dilTer fmm the amount computed by applying the statutory fe ral income tax rate to income lefore income taxes, preferred and preference dividends of subsidiaries and lefore the cumulative effect of changes in accounting principles.

Income Tax Expense Fleconciliation 1991 1993 1992 (Amoants in 1housands off)ollars)

Computed federal innune tax at statutory rate S 90,1121 $ 79,790 $ !!8,355 Increase (decrease) in taxes resulting from:

Tax auilit settlement - (15,000) -

State income taus, net of fnleral income tax lenefit (25,Illl3) 111,101 111,140 Amortiiation of deferrni imestment tax crnlits (3,9112) (6,006) (5/X19)

Adjustment to regidatory nyeitable, net of fnletal tax 3 6,6150 - -

llesenue rnluirement adjustment to regulatory taxes (12,1715) - -

Other (6,779) 743 8,114 Totalincome Tinx Expense S 96,679 8 77,628 $108.910 32

-Sources of Deferred Tax Expense L 1992 (Arrwunts in 11wnsands <{flollars)

.% urces of income tases deferred and the related tax efTects were:

Ese ess of tax depreciation $ 25,ltul 1)cierm! resenues reemensi for != mil purimes (30,702)

Allowance for uncollectible accounts 9,760 l'ucl cost 4 (10,fl20)

Ixm on early retirement of debt 20,999 Oiher - net (10,775)

Totallleferred income Tax Expense S 3,650 F

f

1. I.euses 'the Company leases nuclear fuel, a inution of a nuclear generating plant, certain office

}

huildings, computer twiuipment and other pmperty and equipment.

Capital Leases at December 3t 1991 1993 (Anwunts in 11wusands ofI)ollars)

Nuclear fuel 8139,763 $136,755 Electric plant 22,969 41,015 Total 162,732 177JWX) les* accumulaint amortieation (91,376) (31,717)

I'roperty lleid Under Capital leases - Net (a) 8 7I.356 8 9 3,0113 (a) Im Imk., s3.2n1 in Pm =l sa.fc in Pm ut carial te ~ .ith <ioint of.ligain iii, n.iin.<t.

In 19117, the Company sold its 13.71 percent interest in lleaser Valley Unit 2; the sale was esclusise of tran . mission and conunon facilities. The total sales price of $537.9 million wu the appraised salue of the Companyt interest in the pmpe:1y. The Company leased back its interest in the unit for a tenn of 29.5 years. The lease pmsides for semiannual payments and is accounted for as an operating lease. The Company is n+ininsible under the tenns of the lease j for all costs of its interest in the unit. In I)cccmher 1992, the Company particii ntnl in the l refinancing of collateralimi lease lomis to take advantage of lower inten st rate

• and reduce l the annual lea .e guyments. The londs were originally issued in 19:17 for the puqo e of partially financing the lea e of ileaser Valley Unit 2. In acconlance with the licaser Valley Unit 2 lease agreement, the Company guid the pn.miums of appmsinutely S36.4 million as a supplemental defernwl rent pay ment to the lessors. 'lhis amount was deferm! and is being amortized mer the remaining lease tenn. At December 31,1991, the defermi balance was apprmimately

$33. I million.

leased nuclear fuel is amo:1ized as the fuel is burned. The amentization of all other leased property in hasnl on rental payments made. Payments for capital and operating leases are charged to operating etpen.scs on the statement of cou*olidated income.

Summary of ITental Payments I998 1993 1992 (Amounts in 11musaruls <{llollars)

Operaiing lea es $56,137 $57,3911 8 6 1,9116 Amor1iration of capital lea es 33,596 2ft,75fl 43,119 Intenst on capital leavs 1,996 5,3112 7,lMlo Total ifental l'ayments $95,029 $91.53fl SI 15,9115 33

Future minimum lease payments for capital leases an related principally to the estimaini use of nuclear fuel finanent thmugh leasing arrangement

• and buihling leases. Minimum payments for oierating leases are related principally to llcaver Valley Unit 2 and certain of the coqmrale oGices.

Future Minimum Lease Payments Operating leases Capital trases Year Ended December 31, (Am<mnts in Thmuands ifDollars) x 1995 $ 57,391 8 30,781 19x3 57,202 15,305

, 1917 57,031 12,622 1938 56,921 6,078 1999 56,52fl 3,733 2(XX) and thereafter 950,385 23,736 Total Mininmm lease Payments $1,235,458 92,255 less amount trpresenting interest (25,065)

Present value of minimum lease payments for capital leasea $ 67,190(a)

(a) Inclueles current obligationa of $26.1 million er Decemin r 31,19%

Future pay ments due to the Com;mny, as of Decemler 31, IV)t, under subleases of certain coqorate oRice space are approximately $1.2 million in 1915, $3.8 million in IVX) and $30 million thereafter.

L Commitments and construction Contingenrics

,gy (e, mpany estimates that it will siend appmximately $80 million annually on construction during 1995, IVX) and 1917. These amounts exclude AFC, nuclear fuel, expenditun a for possible early replacement of steam generatoni at the Ileaver Valley Station (See " Nuclear 1.itigation" on page 35.) and extenditures for the refurbishment of the cold-reserved units.

(See " Property lleid For Future Use" on page 31.)

Nuclear-Related Matters The Company operates two nuclear units and has en ownen hip interest in a thini. 'Ihe oiera-tion of a nuclear facility imolves special riska, potential liabilities and siccific regulatory and safety n guirements. Specific infonnation about risk management and gotential liabilities is discussed lelow.

Nuclear Deconunissioning. The PUC rulnl that recovery of the decommissioning costs for lleaser Valley Unit I could legin in 1977, and that recovery for llcaver Valley Unit 2 and Perry Unit I couhl legin in 1988. The Company expects to decommission lleaver Valley Unit 2 and Perry Unit I following the end of their ogerating lises, a date that cunrntly coincides with the expiration of each plant'n oierating license. Ugon expiration of the Ileaver Valley Unit I oper-niing license, the unit uill le placed in safe storage until the expiration of the Beaver Valley Unit 2 ojerating license, at which time the units may he decommissionn! together, liasni u;mn site sgecific studies finalized in 1992 for lleaver Valley Unit 2, and in 1991 for  ;

licaser Valley Unit I and Perry Unit 1, the Company'n share of the total estimated decommis-  !

sioning costs, including removal and decontamination costs, cunrntly being used to detennine i the Company's cost of senice, are S122 million for lleaver Valley Unit 1, $'15 million for i licaser Valley Unit 2, and $67 million for Perry Unit 1. I In conjunction with an August 18,1991 PUC Accounting Onler, the Company has increasnl the annual contribution to its decommicioning tmsts by appmsimately $2 million to bring the total annual funding to approximately $ 1 million [er 3 car. Tim Company plans to continue making gerimlic rvesaluations of estimated decommissioning costs, to pmvide additional funding from time to time, and to seek regulatory approval for recognition of these increased funding level 4 34

Nuclear Insurance. All of tir companies with an interest in the 11 caver Valley Power Station maintain the maximum available nuclear insurance for the $5.9 billion total imestment in llemer Valley Units I and 2. The insurance program pmvides $2.8 billion for pmgerty damage, decommissioning, and decontamination liabilitin. Similar imiperty insurance is held by the joint owners of the Perry plant for their $5.5 billion total investment in Peny Unit 1.1he Company would be respmsible for its share of any damages in excus of insurance coverage.

In addition, if the pmperty damage resenes of Nuclear Electric Insurance 1.imited (NEll.), an industry mutual, are inadequate to emer claims arising fmm an incident at any U&l States nuclear site coverni by that insurer, the Company could be assesmi retmsrauve premiums totaling a maximum of $6.5 million.

The Price-Anderson Amendmeras to the Atomic Energy Act limit public liability (mm a single incident at a nuclear plant to $8.9 billion. 'lhe Company has purchased $200 rnillion ofinsur-ance, the maximum amount available, which guides the first level f financial protection.

Additional pmtection of $8.3 billion would be pmvidal by an assess ment of up to $75.5 million

, ger incident on each nuclear unit in the Unitni States.1he Company's maximum total assess-i ment,856.6 million, which is hael upm its ownership or leasehold mierests in three nuclear generating stations, would le limitnl to a maximum of $7.5 million ger incident ger year. A further surcharge of 5 gercent could be levied if the total amount of public claims excenled the funds pmvidal under the assessment pmgram. Additionally, a state premium tax (typically 3 gercent) would le charged on the assessment and durcharge. Finally, the United States Congress could impose other revenue-raising measures on the nuclear industry if funds pmve insufficient to pay claims.

'the Company carries extra expense insurance; cmerage includes the inen mental cost of any replacenwn! power purchased (in addition to costs that would have lren incurrnj had the units lwen ogerating) and other incidental exgense after the occurTence of certain types of accidents at its nuclear units. 'lhe arnotmts of the coverage are 100 gercent of the estimated ntra exgense ger week during the 52-week period starting 21 weeks after an accident and 80 percent of such estimate per week for the following 101 weeks.1he amount and duration of actual extra expense couhl substantially exceed insurance emerage.

l Nuclear Litigorion, in 1991 Pennsylvania Power Cornpany, Ohio Edison Company, Clevelan ! Electric illurninating Compmy, Tolnlo Edison Company and the Company were

joinni in the litigation against Westinghouse Electric Corporation (Westinghouse) in the Unitnl States District Court for the Western District of Pennsylvania. In the suit, the owners allege that six steam generators supplini by Etinghouse for lleaver Valley Units I and 2 contain f serious design defects - in particular defects causing tube cormsion and cracking.

! Steam generator maintenance costs hase inen ased as a result of these defects and are likely j l to continue inenwsing.1he condition of the steam generators is being monitorni chisely. l l Iteplacement of the lleaser Valley Unit I steam generator defective components may occur as i

carly as 1997. llaml upm other utilities with similar units who have replaeni steam genera- I I

tors, replacement cost ger unit is estimaint to be appmximately $125 million. To date,12 {

additional lawsuits base tren bmught by other utility companies amund the country against htinghouse for similar pmblems with Westinghouse steam generators.

A jmy trial legan Septemler 12,1991 in l'ederal District Court in htem Pennsyhania.

On October 21,1991, the Comt dismissni four of the five claims against htinghouse, leming only the fraud claim. On December 6,1991, the jury rendered a venlict in fasor of htinghouse on the fraud count. On January 5,1995, the owners of the lleaver Valley plant i apgralnl the decision to the Unital States Court of Appeals for the lhini Circuit. The Company cannot prnlict the outcome of this litigation: however, the Company < hrs not Irlieve that resolution will hase a materially wherse effect on its financial position or results of ogerations.

The Company's gercentage intere ,ts (ownership and leasehold) in lleaser Valley l; nit I and in lleaver Valley Unit 2 are 47.5 [ctrent aml 13.74 gervent, respectively.1he remainder of 11eaver Valley Unit I is owned by Ohio Edison Company and Penns)hania Power Company.

as

e 4r

o The remaining interest in llem er Valley Unit 2 is held by Ohio Edison Company, Cleseland Electric illuminating Company and lbledo Islimen Company.11m Company operates both units on behalf of these ownem.

Spent Nuclear Fuel Dimosal. Under the Nuclear %te Policy Act of 1982, which estah-lishes a golicy for handling and disposing of spent nuclear fuel and n quires the establishment of a final regonitory to accept sient fuel, contracts forjointly owned nuclear plants have Iren enten,I into with the DOE for gennanent disimal of sient nuclear fuel and high-level radio-artise waste.11m DOE has indicatnl that the mimitory will not le available for acceptance of egent fuel Irfore 2010. Exi ting on-site spent fuel storage capacities at Ileaser Valley Unit 1.

L Ileaser Valley Unit 2 ami l'eny are expected to le sufficient until 2017,2011, and 2009, resgectively. During 1991, the Company increa*,1 the storage capacity at licaser Vejley Unit I by nguipping the sient fuel inil with high density fuel storage racks, tiranium Enrichment Decontamination anal Decommiaioning Fumi. Nuclear mactor licen*ces in the Unitnl States am assessed annually for the decontamination and deconunis-sioning of DOE enrichment facilities. Assessments are hasni on the amount of uranium a utility had puressml for enrichment prior to enactment of the National Energy Policy Act of 1992 (encrpy act) and are to le paid by such utilities over a 15-year gerioil. At Decemler 31,1991, the Company's liability for contributions is appmsimately $9.9 million. Contributions, when made, are reemern) ihmugh the ECll.

Quarantees The Company and the other co-owners have guaranteed certain debt and lease obligations relatni to a coal supply contract for the limee Mansfiehl plant. At December 31,1991, the Company's share of these guarantees was $30.3 million. The prices paid for the coal by the companies nnder this contract are exgretnl to le sufficient to meet debt and lease obligations to le satislini in the > car 2(XX). (See Note E) The minimum future payments to le made by Duquesne solely in relation to these obligations are 86.6 million in 1995, $6.2 million in 1996,

$5.9 million in 1997, $3.6 million in 1998, $3.3 million in 1999, and S t.2 million in 2(XX).

"Ilm Company's total payments for coal purrhasnl under the contract wem $23.3 million in 1991, $26.5 million in 1993, and $25.2 million in 1992.

Residual Waste Management Regulations In 1992, the Pennsyhania Depaitment of Envimnmental llesources (DEIO issued 1(esidual Waste Management llegulations goveming the generation and management of non-hazanlous wa te.1he Comguny is currently conducting tests and deseloping compliance strategies. Capital compliance costs are estimatal, on the basis of information currently asailable, at $5 million in 1995. Tim expected additional capital cost of compliance thmugh 2(XXI is estimated, hasni on cunent infonnation, to le appnnimately $25 million; this estimate is subject to the msults of continuing gmund water assessments and Dell final appmval of compliance plans.

Other

'llm Company is insohn! in various other legal pnrenlings and environmental matters. The Company Irlines that such procenlings and matters, in total, will not have a materially whetse elTect on its financial position or msults of operations.

K. Iamg Term 1)cht During 1992, the Company legan issuing securnt debt under a new fint collateral trust indentum. This indenture will ultimately wplace Duquesne's 1917 first mortgage lond indenture. Fint collateral trust londs totaling $695 million with an average interest rate of 6.5f ti rreent were issued in 1993.

The pollution contml notes arise fmm the sale oflonds by public authorities for the purposes of financing constmetion of gollution contml facilities at the Company's plant

• or refunding previoudy issont londs.

11m Company is obligatni to pay the principal and intemst on the londs. For certain of the pollution contml notes, there in an annual conunitment fee for an irreurabic letter of crnlit.

36

e

?

Under certain circumstances, the letter of crnlit is available for the payment of interest on, or rnlemption of, a innion of the notes, in late 1911, p<dlution control notes totaling SI14.1 million with an aserage interest rate of 1011 gercent were reGnanced at lower adjustable interest rates.

Long-Term Debt int December 31 l'rincijnl Outstanding interest (Amounts in 17mumnds ofDollan) llate Matutity 1991 1933 First collateral innt bonds (a) 4.75 % 8.75 % 19'x)-2025 8 950,1(H) S 950,100 First mongage Ininds (b) 8.25 % 1995 - 49,000 Pollution contml notes (c) (d) 2001-2030 -l I 7,051 416.266 Sinking fund debentures (e) 5% 2010 5,111 7 6,012 Miscellaneous 11,113 3 509 Ins unamonimi debt di . count and premium - net (I,190) (5.219)

[ Total long-Term Debt $ 1.377.611 SI,416,998 (a) fu luilen $9fs milhun relaint to sinking funil mjuirements on de unilcrlying first nutgage luulis.

(b) fulmin6 $l'An millHm relaint to a rurrent trustunty on juir 1.1713.

(c) En luden $uS million retetinj lo sinking futul injuirenrnts on de undedying first nutgage luuls.

(d) nc in !!utmn r,mtrol rmi-. have olju table inscre : rate *. %e intered raies at year-cial useraged 4X4 in IWl amt Ltd in IV);l.

(c) As of January 17G. the t6 inking fuml mjuirrumnt for 1913 had been nri stul the requiremenh for tWi hel been partially uti ficil.

At Decemler 31,19)l, sinking fund ns[uirements and maturities oflong-tenn debt outstamling for the next Gsc 3 cars wen : $10.5 million and $49.1 million in 1995; SI1.0 million and

$50.1 million in 1996: $10.7 million and $50.0 million in 1937; $9.9 million and S75.0 million in 19311; aml S9.9 million a nd $75.0 million in 1999.

Sinking fund requirements relate primarily to the first modgage bonds anil may le satisfied by cash or the certification of pntperty additions equal to 166% gwrcent of the londs required to le redeemed. During 1911, annual sinking fund miuirement* of S.5 million were satisGed by cash and Slo.9 million by ceniGeation of property additions.

Total interest costs incurtnl were SI10.7 million in 1911.8118.1 million in 1993 ant! 8133.9 million in 1992. Of these amounts. S2.0 million in 1911, $2.0 million in 1993 and S t.7 million in 1992 were capitalimi as AFC. Debt discount or pn mium and relatni issuance extenses are amonimi mer the lises of the applicable issues.

In 1992, the Company was imohnt in the issuance of $419.0 million of collateralimi lease lond*, which were originally issuni by an unalTdiated coqmration for the puqmse of partially financing the lease of lleaver Valley Unit 2. 'ihe Company is also associain) with a letter of crnlit securing the lessors' equity inten si in the unit and certain tax lwnefits. During 1991, the Company's lleaver Valley Unit 2 lease arnmgement was amendal to n flect an increase in fnleral income tax rates. At the same time, the associated letter of crelt acuring the lessor's equity interest in the unit was increasnl from S188 million to $196 million and the tenn of the letter of crnlit was extended to 19>9. If cenain siccifini esents occur, the letter of credit couhl le drawn dow n by the owners, the leases could tenninate and the bonds wouhl become direct obligations of the Company.

At Decemler 31,1991 and 1993, the Company was in compliance with all of its debt covenants.

At December 31,1911, the fair value of the Company's long-tenn debt, including current maturities and sinking fund miuirements, estimated on the basis of quotnl market prices for the same or similar issues or current rate

• offerni to the Comieny for debt of the same remaining maturities, was $1,353.3 million. The principal amount includnl in the Company's balance sheet is $1,411.6 million.

37 i l

l J

L. l' referred and flohlers of Duquesne's prefemit stock are entitled to cumulative quarterly dividends. If four l' reference Stock of quarterly dividends on any series of preferrni st<rk are in arrears, holders of the preferred Suluidiuric$ stock are entitled to elect a majority of Duquesne's board of directors untd all dividends have been paid. At December 31,1991, Duquesne had made all prefe rent stock dividend payments.

Ilohlers of Duquesne's preference stock are entitled to receive cumulative quarterly dividends if dividends on all series of preferred stock me paid. If six quartedy dividends on any series of preference stock are in arrears, hohlers of the preference stock are entittnl to elect two of Duquesne's directors until all dividends have Iren paid. At December 31,1991, the Company had made all dividend payments.

Outstanding pnferred and preference stock is generally callable, on notice of not h sa than thirty days, at stated prices plus acemnl dividends. On January 14,1991, Duquesne callnl for redemption all ofits outstanding shares of 82.10 and 87.50 preference stock. None of the remaining preferred or preference stock issues has mandatory purchase requirements.

Preferred and Preference Stock of Subsidiaries at December 31 (Shares and Anwunts in Thousands) 1998 1993 1992 Call Pn.ce Per Share Shares A mount Shares Amount Shares Amount Preferrni Stock Series: (a) 3.75% (b) (c) $ 51.00 I l11 8 7, t 07 1#1 $ 7,10 7 118 $ 7,407 4.0(Fk (b) (c) 51.50 550 2 7 8116 550 27,llWi 550 27,41ki L10% (b)(c) 51.75 120 6,012 120 6,012 120 6,012 4.15% (b)(c) 51.73 132 6,683 132 6,6k3 132 6,6 13 4.2tr/r (h)(c) 51.71 100 5,021 100 5.021 100 5,021

$2.10 (h) (c) 51.111 159 II,039 159 11,039 159 8,039

$7.20 (c)(d) 101.00 2 911 29,732 319 31,915 319 31,915 Total l' referred Stock 1,507 90,310 1,528 92,523 1,5 211 92,523 Preference Stock Series: (f)

$2.10 (c) (g) - - - 1,175 29.383 1,175 29,383

$7.50 (d) (e) - - - 11 1 8,392 (Vi 8,579 plan Series A (c)(h) 37.16 till 29,1157 3 41 29,956 (115 29,995 Total l' reference Stock 1111 29,857 2,103 67,731 2,106 67,957 Deferrni FSOP lenefit (21,1152) (27,126) (28,471) l Total Preferred and Preference Stock $ 95,315 $133,128 $132,009 (a) Prefi rmi siwk UN N).oi x) audorim) .harn; 8.~d) par value; (e) Raleemable cumulatise (f) Prefemire sta L:HM MVu o authorimt .haren; 0.) $~in Ier nhare imuluntary liquklatmn salue $1 par salue; rumulatise (c) %n-micemable (g) $25 per share inwtuniary hquiitath n value (ih $lon ger

• hare involuntary hqui.lation salue (h) 835.*d)irr share inmluntary liquhl.uion salue in Decemler 1991, the Company established an Employee Stock Ownership Plan (l' SOP) to pnnide matching contributions for a 401(k) Iletirement Savings Plan for Management Employecs. (See Note N.) The Company issuni and sohl 315,070 shan.s of preference stock, pInn series A to the trustee of the ESOP. As consideration for the stock, the Company n ceivn!

a note valuni at $30 million from the im<tce. The preference stock has an annual dividend rate of $2.80 pei share, and each share of the preference stock is exchangeable for one share j of DQE mmmon stock. At Decender 31,1991 S21.9 million of preference stock issun! in connection with the establishment of the ESOP had Imen ofTset, for financial statement 38

purposes, by the reognition of a deferrn! ESOP benefit. Dividends on the pn 'erence stock i

and cash contributions fmm the Company are used to regmy the FSOP note. 'll 3 Comimny

made cash contributions of appmximately $2.3 million for IVJi, $2.1 million >r 1933, and

$4.9 million for 1992. These cash contributions were the difference lwtween the FSOP debt service and the anmunt of dividends on ESOP shares (approximately $2.4 million in 1931,

$2.3 rnillion in 1933 and $2.5 million in 1992). As Shan s of preference stock are alk>caint to the accounts of participants in the ESOP, the Company recognizes compensation expense, and r the amount of the deferrni compensation tenefit is amonized. The Company recognized com-pensation extense rnlatni to the 401(k) plan of $1.8 million in 17)l, $1.7 million in 1993, and $1.5 million in 19>2.

St. Common stock The Company has continuously paid dividends on common stock since 1953. 'llm quarterly I dividend declared in the fourth quarter of 19)t was increased to S.41 ger shan. This annual-l ized dividend of $1.76 per share was increasni fmm $1.68 per share in 1993. The annualizal

[ dividend irr share was Sl.ulin 1992 and $1.52 in 1991.

l An amendment to the Restated Articles ofDGE changing the Companyi common stock fmm stock with a par value of $1.00 ger share to stock having no par value, was appmved by sharehohlers at the Annual Meeting of Shareholders of DQE on April 20,1711.

Disidends may im paid on DQE n>mrnon stock to the extent genuittnl by law and as declared by the Inant of directors. Ilowever, in Duquesnei Restated Articles of incorporation, pmvisions relating to preferred and preference stock may restrict the payment of Duquesne's common dividends. No disidends or distributions may be made on Duquesne's common stock if Duquesne has not paid dividends or sinking fund obligations on its pn ferred or preference stirk. Further, the aggregate amount of Duquesnei common stock dividenil payments or distri.

butions may not excent cenain screentages of net income if the ratio of common shareholders' equity to total capitali:ation is less than siweified percentages. As all of Duquesne*s common stock is ownn! by DQE, to the extent that Duquesne cannot pay common dividends, DQE may not le able to pay dividends to its common sharehohlers. No part of the retained earnings of DQE or any ofits subsidiaries was restricted at Decemler 31,1991.

Changes in the Number of Shares of Common Sty" "utatanding 1991 1993 1 712 (Amounts in Thousands ofShares)

Outstanding as of January 1 53,012 52,950 52,905 lleicuance from treasury stock 77 62 45 Repurcha ,e of common stock (7113) -- -

_. Outstanding as of December 31 52,306 5'hnl2 52,950 N. Employee llenefits Retirement Plans

'the Company maintains retirement plans to prmide pensions for all full. time employees.

Upon retirement, an employee receises a monthly sension basal on his or her length of service ,

and comiensation. Tim cost of funding the pension plan is detenninni by the unit crnlit '

actuarial co*t method. 'llm Companyi policy is to recon 1 this cost as an expense and to fund the gension plans by an amount that is at least eipial to the minimum funding rniuirements )

of the Employee 1(etirernent income Security Act (EHISA) but not to excent the maximum tax ileductible amount for the year. Pension costs chargni to ex[rnse or cor.struction were

$8.9 million for IVJt, S9.11 million for 1993 and $11.4 million for 19>2. I i

1 39

C E.

Funded Status of the Rourement Plans and Amounts Recognized on the Consolidated Dalance Sheet of DQE at December 31 1991 1993

(.Anwunts in 17wusamh af Dollars)

Actuarial present value of Irnefit* rendern! to data:

htni Irnefits $311,933 $321,249 Non-sestnl Irnefits 1 7,2112 16.1126 Accumulatni Irnefit obligations based on com;ensation to date 332,215 338,075 Ad litional Irnefits ba ni on estimatnl future salary lesels 59,3 Ill 74,718 Projectal irnefit obligation 391,533 412,793 Fair market salue of plan assets 112,721 431,3M Projectnl Irnefit obligation under plan assets $ 21,191 8 21,591 Unrecognized net gain 8 95,691 8 110,41I Unnrognizni prior service cost (30,365) (21,419)

Unrecogniznl net transition liability (17,177) (19,289)

Net tension liability irr balance sheet (26,6511) (llUNl2)

Tosal 8 21,191 S 21,591 Assumnl rate of return on plan assets  !!.00% ll.(M F4 l)incount rate u*nl to detonnine projectml Irnefit obligation 15. 0 0 % 73MF4 Acumed change in compensation lesels 5.50 % 5.25eg Pension assets consist primarily of common stocks, Unitnl States obligations and corporate debt securitie4 Components of Net Pension Cost 1991 1993 1992

(,4 mounts in 17wusamh <{ Dollars)

Senice cost (llenefits carnni during the > car) $ 12,!!!2 8 11,657 S 11,397 Inten st on pnijectn! Irnefit obligation 211,221 27,123 26,390 licturn on plan awets I,967 (41,725) (26,736)

Net ammtization and deferral * (3 3,7113) 12,451 325 Net l'ension Cost $ II,Illl7 8 9,fW S 11,376 Rotirement Savings Plan and Other Beneftt Options The Company sponsor

• separate 401(L) n tirement plans for its union-representn!, International liniilmiluul of Electrica! Llers (IllEW), employecs an I its management employees.

'Ilm 401(L)lietin ment Sasings I"an for Management Employees pnnides that the Company will match employec contribution ,o a 401(k) account up to a maximu:n of 6 gerrent of his or her eligible salary. The Company match consists of a S.25 base match per eligible contribution dollar anil an adilitional S.25 incentive nutch per eligible contribution dollar, if Ikianl-appnnni targets wr achiesnl,'lhe IW1 incentise target was accomplishnl. The Company is funding its matching contributions to the 401(k) lletirrment Savings Plan for Management Employees with i payments to an ESOP establishnt in Ib,. ,cr 1991. (See Lie 1.)

4o

b p

Tim 401(k) Itetirement Savings Plan for IllEW llepresentnl Employees pmvides that beginning L

in 1995, the Company will match employee contributions to a 4)l(k) aen>unt up to a maximum i

of 4 gercent of his or her eligible salary. The Company match consists of a S.25 hase match per eligible contribution dollar and an additional S.25 incentive match per eligible contribution

dollar,if cenain Non-Occupational illness and injury targets are met. .

DQE sharehohlers have appnn ed a long-tenn incentive plan thmugh which the Company may grant management employees options to purrhase, during the years 1987 thmugh 2003, up to a total of five million shares of DQE common stock at prices equal to the fair market value of ,

such stock on the dates the options were granted. At Decemler 31,1991, appmximately 2.3 million of these shams were available for future grants.

A* of Decemler 31. IVJi,1933 and 1992, mspectively, active grants totaled 1,412,(XX);

1,175,(XX); and 318,(XX) shares. Exerciee prices of these options rangni from $12.3125 to

$31.625 at Decemler 31,1991 and Dnender 31,1993 and fmm $12.3125 to $28.75 at Decemler 31,1712. Expiration dates of these grants rangni fmm 1997 to 2001 at Decemler ,

31,1991; from 1997 to 2003 at Decemler 31,1993; and fmm 1997 to 2002 at December 31, j 1992. As of Decemler 31,1991,1993 and 1992, msgretively, stock appnriation rights (SAlls) had been grantnl in connection with 793,(XX); 795,(XX); and 623,000 of the eptions outstanding. During 1991,836,000 SAll* wem exercisnl; 226,(XX) options were exercised at prices ranging fmm $12.3125 to $28.375; and 187,(XX) options lapsed. During 1993, 748,0(X)

Salts were exercisnt; 151,(XX) options were exercisnl at prices ranging fmm $12.3125 to

$28.375; and 152,(XX) options lapsed. During 1992,108,000 SAlls were exercisnl; 50,(XX) options were exercisnl at prices ranging fmm $12.3125 to $26.375; and 59.(XX) options lapsnl. Of t'w active grants at Decemler 31,1991,1993 and 1992, msgectively,612,0(X);

578,(X)0; and 232,(XX) were not exercisable.

Other Postretirement Doneftts In a<hlition to pension tenefits, the Company pmvides certain health care tenefits and life insurance for some retirnl employees. Substantially all of the Company's full-time employees may, ujxan attaining the age of 55 and meeting cenain seuice rn;uirements, become eligible for the same benefits a,ailable to retirni employees. Panicipating retireen make contributions, which are adjustnl annually, to the health cam plan.1he life insurance plan is non-contributory.

Company-pmvidni health care icnefits terminate when emerni individuals become eligible for Mnlicare Irnefits or reach age 65, whicheser comes first. *lhe Company funds actual ex[enditums for obligations under the plans on a " pay-as-yougo basis. The Company has the right to mtulify or terminate the plans.

As of January 1.1993, the Company adoptnl Straement ofFinancial Accounting Standards No.106, Employers' Accowaingfhr Postretirement Benefits Other Than Pensions. which requires the actuarially detenninni cmts of the aforementionn! postretimment benefits to be acemni over the gerint from the date of hire until the date the employee lecomes fully eligible for lenefits.1he Company has adoptml the new standani prosgretitely and has elected to amortire the transition liability over 20 years.

Ce aponents of Postratirement Cost 1998 1V13 (Amounts m busands of Dollars}

Senice cet (llenefits earnni during the gerial) S1,631 S1.779 Interest emt on accumulatnlIrnefit obligation 2,291 2,197 Amortir.ation of the transition obligation mer twenty yents 1,700 1,700 Toted Postretirement Cost S3,625 S5,976

'lhe accumulatnl lumtretirement Irnefit obligation comprises the present salue of the estimatal future lenefits payahle to current retirees and a pm rata portion of estimated lenefits payahle to actise employees after trtirement.

41

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Y, ' /

Funded Status of Postretirement Plan and mounts Recognized on the Consolidated Balance Sheet of DOE at December 31 1991 1993 (Anwunts in %usands ofIMlars)

Actuarial present salue of lenefits:

lletirees S 6,292 $ 4,100 Fully clipble actise plan participants 3,071 3,482 Otler active plan participants 20,513 21,170 Accumulatnl watretirement lenefit obligation 29,909 32,482 I

fair market salue of plan aw ets Accumulateil tenefit obligation in excess of plan assets $(29,909) $(32.482)

Unrecognimi net loss S 9,Illi $ (122)

Unrecognimi prior nervice cost - 4,31 0 Unrecognimi net transition liability (30,5911) (32.2%)

Postretirement liability per balance sheet (!!,792) (4.447) 7btal $(29,909) $(32,482)

I)iscount rate usetl to delennine projectal Irnefit obligation  !!.00% 7.(MF7 Ilealth care cost trend rates:

For year leginning January 1 11. 6 0 % 10.50 %

Ultimate rate 6.50% 5.50 %

Year ultimate rate is reachn) 1999 1999 Effect of a one tercent increase in health care cost trend rates:

On accumulated projertal Irnefit obligation S 3,137 $ 4,(WM)

On aggregate of annual menice and intuest costs $ 165 $ MX) 3 H.Qtearterly Summary of Selected Quarterly Financial Data (thousands of dollars, l'inancial except per share amounts)

Infor motion [Tir quarterly ilata reflect wa,onal weatirr seriations in tir C,wnpanin wrvice territory.]

(l'nuunliscell 199i First Quarter Sec<wul Quarter Thini Qua11er fourth Quarter 0 rrating ilesenuen $309.993 $296,571 8 3 311.21118 $290.771 0;rrating inneme 111,969 72,082 101,159 61,1311 Net Innor 37.296 33,029 111,592 37.1199 Earning % Per Share .70 .63 92 .73 Stock l' rice:

liigh 38% 32% 31 30%

low 30% 2fivs 27% 27%

1993 (ahh) 0;rrating ltrienue* $283.0l12 82111.7'MI $331.11MI $2'XI,727 Operating Inner 76.376 76.792 116.501 70/67 inner liefore Cumulatise E!Icet on Prior Years of Changen in Accounting Principles 31K19 3't.017 MI,291 28.257 Net Iraune 31.111 33.017 411.291 2!!,257 Earning

• Per Sharc 16 .62 9) .51 Stock Price:

Iligh 364 36 37 36'n low 31% 32 % 31% 32

[si Fourth quarter Pro trouhn inc luilnl the efferia of a $15.2 emilion i harpe for tir w rite-off of the Compani, inic tment m an aban.lonni tran* min ion line pn icci anil a $116 nulhon rnluotion of tasca nther than innine na a re* ult of a famrable n *olution of tax a*w nrnt*,

(b) Itestatnl tu ninform with prn.cniation* a.lopinliluring IWl.

42

l l

i Selected Financial Data Amount.: in T/mtuands of Dollars I991 1993 1972 1991 1990 1989 Selected income Statement itema Ogwrating Hesennen:

Cu.*tomerm $ 1,115,9117 $ 1,1116,779 SI,152J135 $1.131,779 $1,050,702 8 951,570 ,

Phase-in deferrals (211,111 0) (100,315) (911,201) (711,311) 10,781  %,287 Utihtien 515,295 50,669 72,410 58,9tKI 411,5 13 49,919

[-

Other 90,157 63,322 36,7411 37,715 30,501 21,682 Total Operating Herennes 1,235,629 1,200,155 1,163.822 1.203,053 1,140,533 1,125,Ms8 Operating Exiwn ca:

Fuel and purchaeli mer 213,905 237,731 239,230 254.019 228,993 221,928 Other operating & maintenance 121,7011 426,977 36f t,921 393,100 390.231 373/>511 Depn ciation and mnortiration 160,531 152,282 128,730 119,261 122,250 119,376 Taxe other than income taum 119,171 73,126 115,733 95,176 81.255 92.919 Total Operating Expenses 915,6III 890,116  !!22,614 861,559  !!22,729 110 7,118 1 Ogwrating Income 320,011 310,339 3 11.2011 341,491 317,801 317,607 Other income 13, lit 6 211,102 41,533 35,566 45,976 35,823 Interent and Other Charges i10,002 119,106 132,210 141,651 157,313 165JXN Income hew 96,679 77,6211 108.910 101,n11 81,795 75,419 Changen in Accounting Principics - 2,575 - - - -

Net income 8 156.1116 S 143,982 S 141,518 8 133,565 S 121.672 S 113,002 Earnings l'cr Sharc $2,911 $2.72 $2.67 $2.50 $2.21 S2.03 Selected llalance Sheet item.

Propeny, piani & eqnipment .- net $3,139,5 I I S3,1611,2 10 $3,036,509 S3,052,KI1 S3,018,388 $3,057,079

'liital awtn S 1,12 7,00"> $ t,550,1711 $3,778.335 $3,il51,318 $3,1133.n12 83,102/>38 I

Capitalizatium Conunon shareholdern' equity $ 1,276,710 $ 1,230,5113 $ 1.171,160 S1,111,121 $1,079,141 $1,066,190 Preferred and preference stock 95.315 133,1211 132JNW 137,343 1119J03 219,991 long-tenu dehi 1,377,611 1,416.998 1,ll3J)01 1,120,726 1,501,295 1,510,329 Tietal Capitalization 82,719,666 S 2,7110,7 0 9 $2,716,470 $2/i69,190 $2,769,529 $2,Il26.510 Capitalization llation s Conunon sharehohlern' equity 16.1% 41.2% 13.1 % 41.6% 39.0% 37.7%

Preferred and preference tock 3.5% 4.8% 4.9% 5.2% 6.8% 7.!Fk long-tenn debt 30.1% 51.0ck 52.0% 53.2 % 51.2% 51.5%

7htal Capitali ntion 100.0 % 1m.0% 100.0% 1(MMF4 100.0% 1(XWk Natio of Cumings an Fixed Gorges (pre-tax) 2.59 2.28 2.23 2.09 1 .119 1.78 Sclerted Connnon Stock Infonnation Shares Ontstanding(In thousands):

Year-end 52,306 53,012 52,950 52,005 53,759 55,3 to Ascrage 52,697 52,979 52,913 53,391 51,432 55,790 Disidends declared (In thou.sando S119,3 in S86,089 $81,191 $711,010 $74,972 872,377 Disidends paid per share 8 1.611 S t .60 $1,52 81.4i S t.36 $1.211 Dividend pa3out ratio 56,8% 58.11% 56.9% 57.6G 60.7% 63.l ej Price earninr3 ratio at 3 car-end 9,9 12.7 12.1 12.3 11.1 11J1 Disidend yield at ycar-end 5,7ri 4.6% 5.0% 5.0% 5.!!% 5.7%

licturn on aserage conmmn equity 12.5 r ', 12.0% 12.1% 1229 11.3 % 10.6 %

43

Y, .~

3 elected Operating Data 1991 1993 1992 1991 1990 19fl9

, Salen of Elcetricity:

Average annual tenidential C Lilowatt-hour use 6,170 6,201 5,901 6.331 5,953 6.060 Electrie energy nalen hilled ,

(millions of KWil):

llenidential 3,219 3,231 3,069 3.2fG 3,07fl 3,119 Commercial 5,563 5,190 5,35fl 5,450 5,236 5,145 Industrial 3,256 3,0 16 3,059 3,012 3,2 % 3,221 Mi cellanenun 11 I 11 1 83 111 31 31 Tietal Sales to Customers 12.122 IljGI 11,569 11,861 11,691 11,569 Salen to other utilitica 3,212 2J121 4JKs0 2,979 1,830 2,100 Total Sules 15.338 14,672 15,629 14,n80 13,524 13,669 l'ercentage Change in Energy Salen:

llesidential (0.8) 5.3 (6.6) 6.7 (1.3) (1.2)

Conunercial 1.3 2.5 (1.7) 4.1 1.8 1 .11 Industrial 6,9 (0.4) 0.6 (7,7) 2.3 (2.5)

Miscellaneoun - 1.2 (1.2) - -

(7.7) 71stal Sales to Custorners 2.3 2.4 (2.5) 1.4 1.1 (0.3)

Sales to other utilities i3.9 (30.5) 36.3 62.8 (12.9) (22.7)

Tietal Sales 1.5 (6.1) 5.3 9.7 (1.1) (4.5)

Energy Suggely ami l'roduction Data:

Energy supply (milhona of KWil):

Net generation - nystem plants (net of Company use and losses) I 1,67tl 14,056 15,074 14.220 13.266 13,455 l'urchased and net inadvertent inewer 656 616 555 620 25fl 214 Total Energy Supply 15,331 14,672 15,629 14Jtto 13,524 1 3 / I39 i

Generating capability (MW) 2,Il31 2Jrli 2Jn1 2Jtl5 2J135 2,fl35 Peak demand (MW) 2,535 2,499 2,308 2,402 2,379 2,3111 Coat of fuel per million llTU 137.23 v 143.65c 140.15c 153.70e 149.62e 143.87c IITU per kilowatt-hour generated 10,178 10,437 10,370 10,414 10,441 10,411 Asernge cost of generation 2.23 c 2.33v 2.19e 2,4tv 2.51r 2.33r l'er kilowatt-hour Numiner of Cu.tomern - End of Years llesidential 5 2 2,5118 522,353 521,152 520,016 518,322 516J101 Conunercial 33,617 52,910 52JL19 52,617 52,330 51,950 Industrial 2,027 1,995 1,9117 2Jul 2,026 2,023 J 1

Other 1,lilli IJi66 1,f133 IJ191 IJ147 IJil8 j Tietal Customers 5110,i13 579,121 577,fil I 576,528 574,525 572,592 I i

1 l

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44 j I

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Boar,1 of Director <stiter s a car,> r l DANest BEno RosERT MEHnAStAN

65. Term expinm 1997 (1,6). Institute Professor, 5'l. Tenn expires 1995(1,5). President, Carnegie Mellon llennelaer Polytechnic Institute. Directorships include Unisersity: Dean, College of Engineering, Univeniity of Ily-Tech Machine,Inc. (speciahy parts) Joachim California at Santa liarhara, 1983-90. Directorships Machinery Co., Inc. (distributor of machine tools), amt include PPG Industries, Inc. (pnxiucer of glass, chemicals, Chester Envimnmental, Inc. (envimnmental engineering'. coatings and resins), Mellon llank Coqu> ration and Mellon llank, N.A.

DOnEEN E. Boyce TNouAs A maniN

60. Ti nn expins 1995 (2,5). President of the lluhl Foundation (support of educational and conununity 65. Tenn expires 1997 (3,6). Dean, AJ. Palumbo School programs). Dinrtorships include Mien >hac laboratories, of flusiness Administration, Duquesne University; fmmu inc. and Dollar llank, Fnleral Savings llank. Trustee of Deputy Secretary of U.S. Dept. of Commerce: fonner Franklin & Marshall College. President, Westinghouse Electric Corimration Energy and Advanent Technology Group. Directorships include Motorola, Inc. (manufacturer of electronic equipment and RostnT P. DOZZONE comlMlnents). Member o[tbe Executive Cominitter of the U.S. Council on Competitiveness and Chainnan of the

61. Tenn expires 19'n (1. 2). h..ee Chainnan of Allegheny . .

. . Distnct E,ximrt L,ouncil.

I.udhun t,orporatmn (specialty metals pnuluctmn).

Din etorships include Allegheny Ludlum Corporation:

Chairman, Pittsburgh branch of the Federal llesene Hank l ROBERT B, PEASE of L,lcselaml. Tmstee of llensselaer Poly techm.e Institute. )

69. 'li nn expires 1996 (1,5). Senior Vice President,  ;

National Development Corporation (real estate): Executive l Csoo Faun Dinrtor, Allegheny Conference on Community Des elopment, 196491. Directorships include the Port J (A 'li nn expires 1996(2,3,4). Management of personal l Authority of Allegheny County and the Heg.mnal Industrial I investments. Chainnan of Maurice Falk Mnh.eal F,und and Deselopment L,orgmration of h.euthwestern Pennsylvania.

b..ee Chainnan of t.hatham L,ollege lloard of Tnatees.

Director hips include the llistorical Society of Etern Penn*>lvania and the Allegheny 1.and Tnnt.

Ensc W. SPmNot:R

65. Tenu expires 1996(1,4). Partner of Ilorty, Springer WatuAu H. KNOELL and Mattern, P.C. (attorneys-at-law). Directorships include

. Presbyterian University llo ,pital. hnmnliate past pn sident

_0. Tenn expires 1997(3,4, 6). Iletired Chainnan and 4

. . . of the Allegheny C,ounty llar A%ociat.mn.

Chief E.xecutn e Officer of Cyclops industnes, Inc. (hasic and specialty steels and fabricaint steel pnnlucts; industrial and commen ial construction). Directorships incimle Calmt WEstry W. VON ScHAcn Oil and L,a* L,orinration.1.ife imstee of Carneg.ie Mellon Unisersity. 50. Tenn expires 19'X,(3,4,5,6). Chairman, President an i Chief Executise Omcer of DQE: Chainnan and Chief Executise Officer of Duquesne Light. Directorships G. CHnest:AN LANT78CH include Mellon Hank Corporation, ilMI Titanium Co.

(pnnlucer of titanium metal pnulucts), the Pittsburgh

. 0. Term expins 1995(2,3). Iletin,1 b,.ee Chainnan branch of the F,nleral Heserve llank of Cleveland, the and Treasurer Mellon llank L,orporation (hank holding . .

. . Reg.mnal Industnal Deselopment Corgoratmn of company): retuni hee L,hainnan and Chief I..mancial 5, >uthwestern Pennsylvam.a, the Pennsylvania ilusiness Officer, Mellon llank, N.A. (commen,.al banking and trust

. . Houndtable, and the Pittsburgh L,uttural 'I, rust.

services). Direciondu.ps melude h.ogerE.quity, Inc. (real estate imestment Imst).

1)Qf7thuqueme light Commuttees: 1)uquesne 1.ight Committees:

1. Audit 5. f:mployment und

2. Compervation Community Relations ,

3. Finave 6. Nuclear Ret iew i

4. Nominating 45 g

7

])QIs Officeru l WESLEY W. VON SCHACK, 50. CHAIRMAN OF THE BOARD, PRESDENT AND CHIEF ExEcurivE OrFcER. Joineal tlie company in 19M. I'reviously behl senior ewcutise Iwnitions in finance anil a<! ministration with other utility arni comrnunications com;wmies. Directorships inclmleil in lia,tilig on page 45.

GARY L. SCHwass 49. EXECUTIVE VcE PRESIDENT, CHIEF FINANCIAL OmCER AND TREASURER. I'reviously senesl in a Varicly of senior exerntine [wasitions in finance antl management with Consumers l'ower Company. Joine<l the company in 19fl5.

Directorships inclutle Chairinan, htem l'ennsylsania Development Cnnlit Corporation (promotes small business through lernling artisities), anil Vice Presiilent arn! Trea .urer, lloly I'arnily l'ounilation (supports families in crisis).

David D. MARSHALL,42. ExECyrrVE VcE PRESIDENT. Presiously liehl senior executige positjons in finance at Central Vennont l'uhlic Senice. Joineil the company in .19:15. Directorships incimle the Technology Development anil Eilucation Corporation (economic ilevelopment) anil the Erict Affairs Council (hnwulens local awareness of global issues).

JAMES D. Ml1CHELL,43. VcE PRESOENT Pres kons!y bebt senior financia! positions witb Duquesne K !.k bt anil b.b. bI, Inc joined the Compmy in 19ml. Directorships include Thn e Itisers Youth (helps troubleil teenagers).

DeANE S. EISMONT, 50 MORGAN K. O'BmEN, 34 JACM SAxER, JR., 51 SECRETARY ASS STANT CournOLLER ASSISTANT TREASURER RAYMONO H. PANZA,44 VICTOR A. RoOuE,48 JOAN S. SENCMYsHYN, 56 CONTROU.ER GENERAL COUNSEL ASSISTANT SECRETARY B

})uquesne I,iglit Cornpany .I WESLEY W. DIANNA L. GREEN, 48 WILLIAM J. DELEO,44 JACM SAxER, JR., 51 v0N SCHACK, 50 SENOR VcE PRESCENT, VICE PRESIDENT, CORPORATE ASSISTANT VcE PRESIDENT, CHAIRMAN OF THE BOARD ADMINISTRATION PERFORMANCE AND ADMINISTRATION AND CHIEF ExEcuTrvE OeTcER lNFORMATiON SEWcES R R D. BE% 58 SALLY K. WAoE, 41 DAviO D. MARSHALL,42 VcE PRESIDENT, MARKETING DONALD J. CuYTON,40 ASSISTANT Vcs PRESIDENT, PRESCENT AND AND CUSTOMER SERvCES TREASURER HUMAN RESOURCES CHIEF OPERATING OrriCER GAnY R. DIANA S. EISMONT, 50 WituAM F. FIELDS, 44 GARY L. SCHwAss,49 DRANDENDERGER,57 SECRETARY ASSeSTANT TREASURER SENIOR Vos PnESIDENT AND VICE PRESIDENT, RAYMONo H. PANZA, 44 MORGAN K. O'BmEN, 34 CHiEr FINANCtAL OmCER PowcR SUPPLY h R hN CNR JAMES E. Cnoss,48 VECTOR A. RoquE,48 JOAN S. SENCHYSHYN, 56 ENOR VcE NESOENT, GENERAL COUNSEL ASSISTANT SECRETARY NUCLEAR E E 5)uquesne k5nterprises g g JAMS s D. MrTCHELL,43 KERRY N. D EHL,39 ANTHONY J. VittnOTTs, 48 H. DONALD MOmNE, 67 PRESOENT VcE PRESIDENT VcE PRESIDENT, PRESOENT, ALLEOHENY THOMAS A. HURKMANS,29 TREASURER AND hR hENT CORPORATON AND PROPERTY VENTURES, LTD.

VcE PRESIDENT 1

I

) ontauk GARY L. SCHWAss,49 DONALD J. CMYTON,40 WLuAM F. FeELDS,44 PRES 8 DENT VcE PRESOENT TREASURER LYDIA E. YoRn, 35 JAMES E. Watson,29 Ves PRESOENT CONTROLLER 46

= -

9 Shar'eholder Common Stoc4c Shareholder Services / Assistance Hefbrcnce Cuhle Trading Symbol: DQE Ily telephone, n presentatises are available

. Stock Exchanges lited and Tradnh from 7:30 a.m. to 4:30 p.m., Eastern time.

[ New Erk, Philadelphia, Chicago 1-mmIl7. OHM)(toll-fred j, Number of Common Sharehohlers of iteconi 393-6167 in Pittsburgh F at Year Emh 79,021.

FAL 1-112-393-60117 j

Annual Meeting These representalises can handle inquiries Shan hohlers are confially invitnl to attend relating to . . .

[ our Annual Meeting of Sharehohlers at 11 a.m. (local time). April 19,1995, at the Stock Transfers Dividend lleinvestment

[*

Manchester Craftsmen's Guihi Auditorium, Dividend Payments 11115 Metmp>litan St., Pittsburgh, PA 15233. Change of Ad&ess Notification Missing Stock Cenificates Direct Deposit of Dividends ,

Din et Dep>*.it of D.m.dends t

Lur DQE quanerly disidend payments can Written inquiries shouhl be directni to:

le deposiini automatically into a pen onal checking or savings acedtmt. Call us toll-free 997 for more mfonnation, Sharehohler Ilclations 7

g ELECTRI STOCK Dividend Fleinvest- Pinshurgh, PA 15230-0068 ment and Stock Purchase Plan St$k transfers shouhl he sent to the Ilank of Boa n, a Mnssnl as foHms:

More than 40 pe rent of our sharehohlers acquire adilitional shares of DQE common llank of Iloston stock through reimestment of their disidend* Transfer Processing and contributions of mluntary cash. Call us 150 lloyall Street 45-01-05 loll-free to learn more about the following Canton, M A 02021 El.ECTitl-STOCK sen-ices: Telephone: 1-617-575-3120 .

• Purchase and sale of plan shares at Form 10-K '

nominal commissions. If you bid or an a teneficial owner of our

• Depos,it of certificates to your remvest- g; k e of February 16,1995, the record ment tyecqiunt for sale or safekeepm, g.

, dae for tin 1995 Annual Meeting, we will L = Participatmn m an automatic cash con- ~

u nd you, free upon request, a copy of DQE's tributions pmgram that allows you to l Annual lleport on Form 10-K, as fdnl with l make regular voluntary cash contrihu- j du Securities and Exchange Commission for tions by harmg funds automatically "

1991. Itequesta must he made in writing to:

withdrawn fmm tour bank account.

• lleregistration of your shares. Secretary .

1

• Creation of new accounts at no charge. DQE

= lieplace' ment of a hwt or stolen rein. Ilox 68 5esiment plan sale check. Pittsburgh, PA 15230-0068 Direct Purchase of DQE Stock n ncial CommunW InWes DQE offers non-shan hohlers the ability to

^"dI Y5* I"*****ent managers, and brokers should direct the.. ir mquines to 412-393-purchase Mock ilin etly fmm the company. . ..

Call us for mon inforulation. 4133. nnen mqmnes s u>uld be sent to:

Dividend Tax Status investor Madans Depanmem The company estimates that all of the com-DQE Box 68 mon stock disidends paid in lW1 are tasable Pittsburgh, PA 15230-0068 as disidend income. 'this estimate is subject FE l-412-393.6448 to audit hy tl e Intemal llesenue Senice.

DQE and ita affiliatnl companies are 0 lieg. U.s. Pat. a Tm. Orr. Equal Oprinunity Employcr*.

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@ Tlie l'rit l>QE Anniual iteinert was printal entirely <>n rec >r!<ni im[er azul is 1(K)lerre nt recyclalile.

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