ML20116E769

Forwards Duquesne Light Co,Ohio Edison Co & Pennsylvania Power Co Annual Financial Repts for 1984

ML20116E769
Person / Time
Site:	Beaver Valley, Perry, 05000000
Issue date:	04/23/1985
From:	Carey J DUQUESNE LIGHT CO.
To:	Varga S Office of Nuclear Reactor Regulation
Shared Package
ML20116E772	List: ML20116E769 ML20116F012
References
NUDOCS 8504300409
Download: ML20116E769 (1)

Text

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Telephorie (412) 393-6000 Nuclear Group l,eoj9 crt, PA 15077-0004 April 23, 1985 4

Director of Nuclear Reactor Regulation United States Nuclear Regulatory Commission Attn: Mr. Steven A. Varga, Chief Operating Reactors Branch Division of Licensing Washington, DC 20555

Reference:

Beaver Valley Power Station, Unit No. 1 Docket No. 50-334, License No. DPR-66 License Financial Information - 1983 Gentlemen:

Forwarded herewith for your information and use is a copy of the annual financial report of Duquesne Light Company, Ohio Edison Company and Pennsylvania Power Company.

These reports are filed with your office for Licensees of Beaver Valley Power Station, Unit No. 1 in accordance with 10 CFR 50.71B.

Very truly yours, Q..

/)

I ePresident,f are Nuclear cc: Mr. W. M. Troskoski, Resident Inspector U. S. Nuclear Regulatory Commission Beaver Valley Power Station Shippingport, PA 15077 U. S. Nuclear Regulatory Commission c/o Document Management Branch Washington, DC 20555 Director, Safety Evaluation & Control Virginia Electric & Power Company P.O. Box 26666 One James River Plaza

//fg Richmond, VA 23261 i

I 8504300409 850423 PDR ADOCK 05000334 I

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ij;', ,y; g. i l 5 i .-= -- [@ l EWBREIR l Seated. from left. M' alter T LVard:indi. John M. Arthur and Charles M. Atkinson. Standing From lett Roger D Beck, ChWord N Dunn LVilliam E Gillillan fr. Earl]. bVoolever, John ]. Carey and LVe~ ley TV. von SchacL l l l I 1

To Our Despite a drop in industrial sales in the Tartan Laboratories, Inc. which is auto-fourth quarter, our total kilowatt-hour sales mating the process of compiling computer Stockholders in 1984 were 5.2% higher than in 1983. software,is one of many exampies of iocai Revenues also were up 7.7%, from $800 advanced technology success stories. million to $862 million, and earnings rose Formed in 1981 by three Carnegie-Mellon from $2.20 per share to $2.21 per share. professors, the firm now employs 50. Tartan in 1984 we took a one-time write-off of executives project sales of $70 million and approximately $5 million, or 4v per share, to employment to leap to 250 by 1986. pay for an early retirement incentive pro-The production of steelin Pittsburgh is gram that helped us accomplish the objec-about half of what it was three years ago. tives of our on-going, Companywide reor-However, agreements being negotiated by ganization. Three hundred twenty-four the Reagan administration with foreign pro-employees elected to take early retirement. ducers could help to stabilize the domestic steel industry and possibly increase steel Economy production in and around Pittsburgh. The economy of our service territory is During late February 1985, LTV Steel Co. rapidly changing from an industrial base restarted one of two 100 megawatt electric to a research and service base. Today more arc furnaces and the blooming mill at its than 80 percent of the work force is Southside facility, resulting in the recall of employed outside of the traditional manu-about 275 workers. Both units had been idle facturing environment, and despite a seven for most of 1984. percent regional population decline during Our Economic Development Department the past 20 years,180,000 new jobs have continues to work with many local busi-been created in our service area and the sur-nessmen and government officials to expand rounding seven county southwestern and diversify the region's economic base. Pennsylvania region. A source of added business in 1984 was In 1984, the growing segment of our the sale of bulk power to other utilities. " commercial" market was medical and Revenues from the sale of bulk power to research facilities, fast-food restaurants, and such companies as Allegheny Power, Cleve-new office buildings. land Electric, Ohio Edison and Toledo We are particularly pleased that Edison amounted to $27 million in 1984 Carnegie-Mellon University was chosen by versus $7 million the prior year. the federal government as the site of the new $103 million Software Engineering Rate Changes Institute, a computer software research cen- {n April, your Company filed for a 4.8% ter. More than 400 advanced technology ($42 million) rate increase. On January companies, employing nearly 40,000 people 24,1985, the Public Utility Commission are now located in the Pittsburgh region, approved an increase of $31.4 million. This and it is predicted that a growing number of rate adjustment, which went into effect Jan-these types of businesses willlocate in our uary 26,1985, should allow earnings to area in the near future. show further improvement in 1985. Early in 1985, we expect to file for an additionalincrease in rates. 2

Reorganization Fund, a non-profit agency we helped launch Megawatts hroughout 1984, all areas of the Com. and continue to support, paid all or part of 3000 Tpany wereinvolved in our extensivethe electric bills of 642 Duquesne Light resi-g,,,,, reorganization program. We are concentra. dential customers in 1984. In a remarkable ting r:sponsibility for running the Com. demonstration of community spirit,20,000 l 2500 pany in five major functional groups plus a of our customers voluntarily added an extra a . legal and corporate communications organi- $1 to their electric bills each month as their j zation, reducing the number of departments contribution to the Fund. E from 44 to 25. The overall goals of the reor-Deserved Praise ganization plan are to strengthen our plan-a ning and control functions, to reduce man-e especially want to salute our fellow a ag:m:nt costs, and to further enhance our Duquesne Light employees, who l 1500 ability to manage future changes. j ined together to go the extra mile in 1984 m when friends and neighbors needed help-Actual 3 . Cost C:ntainment One small example: 2,400 Duquesne Light a "8""-"*d"' I S'o'ng"o'ing cost containment program. Salvation Army Food Fund. 3 In I?84, the documented savings amounted The Company also wishes to thank its j ta $3.5 million. Since the inception of the stockholders for their support through soo 3 program in late 1981, we have documented the difficulties of the year. Speaking for all savings of approximately $26 million. members of management, we pledge our g a continued efforts to earn your support and o,l l Our C:mmunity confidence. roto 20 30 40 so oo 70 80 84 94 ' ocal basic industry remained depressed Annual System I'eak Load . s in 1984, and unemployment was higher

than the national average. Growth in other

arras of the economy is helping to relieve the impact on our community; nevertheless, John M. Arthur unemployment remained a grave concern, Chairman of the Board and President

! and some of our customers have found

th

mselves unable to cope with their utility bills.

February 14,1985 Duquisne Light is committed to help the

poor, th; unemployed and the elderly cope

' with th ir utility bills. The Dollar Energy 3 j

REVENUES / EARNINGS / been an active participant in the continued perspec{ive cus,ome,se,v, css e,,,,,,,,d,ve,,,,,,u,,e,,,ce,,e,. o, ' On 1984 operating aeyenues posi 7.7 percent Gai, Thira cuarter neport to stockhoiders

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Duquesne Light's revenues rose 7.7 percent n I gy m. dustries in our service area over -from $800 million in 1983 to $862 million the past five years. That diversification in 1984. A rate increase approved in the fall of 1983, an adjustment to the energy cost rn vement received a major boost m rate in April 1984, and improved sales to November when the U.S. Department of Defense announced that Carnegie-Mellon certain customer groups were the principal reasons for the increase. University had been selected as the site for the Software Engineering Institute, a $103 Earnings per share of common stock were $2.21 in 1984 compared to $2.20 with a milh n e mputer software research center lower average number of shares outstanding which is expected to employ up to 250 peo-ple and to attract related firms that will in 1983. employ many more. Sales Increase 5.2 Percent A drop in fourth quarter industrial sales and HelpingThose. Need m The contmued steel industry slump has cooler-than-average summer temperatures caused hardship in pockets of our service combined to moderate sales gains made in area. The Company has supported economic the first half of the year. Overall, sales development groups throughout our service increased 5.2 percent-from 10,990 million ternt ry m their efforts to pubhcize positive kilowatt-hours in 1983 to 11,563 million kilowatt-hours in 1984. f'Y'! pment features, to encourage inquiries fr m prospective new companies The commercial market remains strong, andt improve employment. Duquesne with the continuing expansion of medical Light Company and its employees have a and office facilities leading the way. Cur-1 ng tradition of taking an active role m the rently, six medical facilities totalling more c mmunity. For example, m 1984, employ-than 10 megawatts of new load and $2.5 ces donated $363,000 to the local United million in revenues are in the design stage Way campaign and $57,000 to a Salvation or are under construction in our territory. Armyf d bank. The Company pledged an Several major projects also are planned additional $318,000 to the local United for the downtown area. Construction is expected to begin in the spring of 1985 on a e Dollar Energy Fund, a non-profit 32-story,1.3 milhon square foot corporate energy assistance program Duquesne Light headquarters building fx Allegheny Inter-helped to establish and continues to sup-national, Inc. In a related project, work has port, was honored by a governor s task torce begun on the $36 million renovation of a as one of 25 model programs in Pennsylva-nearby theater into a second major perform-ing arts center. A few blocks away, directly

• ': p its d rts, Duquesne UgM was a Iccipient of the Keystone Award. Customers across the street from the David L Law-rence Convention Center, ground has been

^.cnc uraged to voluntarily add $1 to their monthly bills m support of the pro-broken for Liberty Center, a 1.5 million gram t help those who legitimately have a square-foot hotel / office / parking complex. verified mability to pay their utility bills. Advanced Technology Makes Gains The Company also worked to simplify While still working to revitalize our tradi-eligibility standards foYthe state's energy tionalindustrial base, Duquesne Light has assistance program. In the past, grant B&onsof KLVli 14 12 Resklenti '~~ =- 10 Gunmeo d 3 b Industria 4 2 Othery " 0 1080 108 1o82 1933 gog KLVII Sales k

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money could be paid only to the supplier of Test Scrubber at Eirama the primary heat source. We successfully Elrama Power Station is the site of a wet sought a modification of this provision to scrubber research project designed to include the secondary heat source, since vir-iniprove the efficiency of sulfur dioxide 4 { tually all sources of home heat rely on elec-removal and the reliability of the equip-tricity to operate. ment, thus reducing operating costs. The For the fourth year, Duquesne Light hon-new system could have advantages in terms O) d S "o. ored 30 of its commercial, industrial and of improved use of lime, higher sulfur governmental customers for their imple-dioxide removal, use of less costly additives, mentation of conservation measures that better sludge dewatering characteristics and bines a 46-story o/Kcr totoer Zeith a public urban plaza into a single resulted in significant energy savings as part decreased power usage. The testing, which flotoing structure. Duquesne of the Edison Electric Institute's National is expected to cover a one-year period, is Light, Westinghouse Credit Cor-Energy Watch program. Energy Watch is a being conducted by our Environmental poration and Joy Mnnufacturing voluntary program to meet national energy Affairs and Fossil Generation units. Company are all headquartered conservation objectives through local and Renewable Resources there. The Ave-story atrium is individual initiatives. home to a oariety v/ shops and Duquesne Light currently has contracts restaurants. OPERATIONS with four renewable resource electric gener-ating facilities located within our service Power Sales area. These include a small hydroelectric Successful negotiations resulted in the sale plant and three windmills. During 1984, the of 100 megawatts of power to the Michigan hydro facility supplied about 7.4 million Power Pool from December 1983 through kilowatt-hours of electricity to the Com-April 1,1984, and to The Cleveland Electnc pany's system, and two of the windmills Illuminating Company from April 23,1984 supplied 423 kilowatt-hours. The combined through October 21,1984. In addition t total from all of the sources was approxi-these long-term arrangements, other power mately.06 percent of the Company's total sales were negotiated for weekly and daily generation, or enough to supply energy to periods. over 1,000 homes for a year. UMWA Coal Contract Research and Development A 40-month labor agreement between the Duquesne Light pools its research dollars United Mine Workers of America and the with more than 450 other electric utilities Bituminous Coal Operators of America (of across the country to fund the Electric which the Company is a member) was Power Research Institute's (EPRI) develop-I signed in September. This is the first time in ment of technology optiens for better pro-20 years that such a labor agreement was duction, transmission, distribution and uti-signed without a national cc,al strike. 1 zation of electric power. During 1984 we contributed $2,437,000 to EPRI's research 7(gy ~ x ,/ ~ 'A .k _ _y _.( f, {lYd '.[ 4 _- 4.}.{/:8 ,'WfM 3 k/ . Nhs XQ,r ", ",J. :. $, (kW I.: ' s~7.$ '

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V] fniversity spinof. Formative . Technologies ofers a computer-powered design system n:= that can link scores or even hun- .W dreds of engineers and handle the. la i projects. Most new Pitts-bu h companies of the "high Jr.. { tec " variety are spinofs oflocal industrial or university research, J r 8 Yj and Formtek is typical-il toas l l ; k%; A y 2:- t y WgQ founded by a pair ofprofessors. x f ; A' b Q, ~ g

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\\ lc h.. j' } /,, i and development efforts. Through member-CAPCO companies to concentrate on the ship in EPRI, Duquesne Light maximizes its completion of Perry Unit No. l. This delay return on every R&D dollar, avoids costly is expected to increase the total estimated duplication of research, and allows for cost of the unit from about $3.5 billion to extensive projects far beyond the financial approximately $3.9 billion, including capability of any one utility. allowance for funds used during construc-tion. Duquesne Light's share of the increase NUCLEAR is $55 million, bringing our total commit-ment in the unit to about $536 million. BVPS Unit No.1 Has Good Year Prior to its October 11,1984 shutdown for The estimated completion date of Perry refueling, maintenance and modification Unit No.1, which is about 97% complete, work, the nuclear Beaver Valley Power Sta-remains unchanged--around the end of 1985-and the cost nimate for this unit ' tion Unit No. I attained an on-line operat-cents rer Mhn BTU

ing availability of 92.3 percent for 1984. The remains unchanged. The schedule required gg unit's annual availability for 1984 was 71.8 to meet this target has little,if any, margin

. percent. During this refueling, the fourth in to accommodate the unexpected problems ao I the 810-megawatt unit's eight-year history, that can arise during this stage of the con-l the reactor core was upgraded to an struction of a nuclear generatmg unit. no ~ 18-month refueling cycle, which should The estimated cost and completion time-12o increase its availability in 1985. The unit table for Perry Unit No. 2 remain under review. And, as announced previously, the I was returned to service on January 5,1985. ,gg CAPCO companies are considering all CAPCO Reviews Construction options with respect to this unit, including 30 On January 28,1985, the CAPCO compa-cancellation. Duquesne Light owns 13.74% l nies announced a delay in the completion of each of the three units under construction. oo i date of Beaver Valley Unit No. 2, which is I about 83% complete, from late 1986 to Last Fuel Removed from Shippingport 40

about the end of 1987. The new schedule The final shipment of spent nuclear fuel

' recognizes the need for more time to com. from the historic, and now closed, 2o ! plete the unit in light of regulatory and Shippingport Atomic Power Station (SAPS) g i safety requirements adopted since the unit was completed on September 6,1984. This m 7, 7, ,o 32,, i was dcsigned, as well as the decision of the ended the defueling of the plant and for-cat or rmsd anmudear ruel l 9 J

m + atery weekend. During the Three Rivers ! gatta, half a million spectators flock to riverbanks and downtown buildungs to watch them race. sternwheelers,100-mph Formula lassics in the park. The One hydroplanes, leather boats. Pittsburgh Symphony has crew shells, Anything That its summer home in 36-acre Floats. Between races there are Point State Park, at the tip cl sky shows, stage shows and a downtown. Fe r a dozen perform-boat show. Dessert, of ccurse, is ances auring fuly, music lovers tireworks. need bring only lawn chairs and picnic baskets; the concerts are free. qqe sqzgy;qyw;eqpn w~"[%qy'vrygmqqqqq s lpJh i 'o c

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will focus the world's attention on Ship-Nuclear Regulatory Commission (NRC) g3.,.. <

I pingport, Pa. Within 20 to 30 years, over evaluators did not find any deficiencies in l ' 100 nuclear units could be decommissioned meetmg on-site emergency plannmg __a as their useful lives end. It is predicted that requirements during this exercise. The Fed-i

engineers from as many as 19 foreign coun-eral Emergency Management Agency tries and 50 domestic utilities may visit (FEMA) evaluated the performance of state l SAPS during the decommissioning period.

and local governments during the drill. ' When the job is completed in 1988,it is INTERNAL OPERATIONS 4 expected that the level of residual back-l ground radiation remaining on the property Reorganization Making Progress l will be low enough to allow unrestricted use The reorganization implementation plan, of the property. Present plans call for using which was started late last year, continues the land for facilities needed by the adjacent to make good progress. The purpose of the e l Beaver Valley Power Station, reorganization is to develop an organiza-j tional structure which focuses attention on

Nuclear Fuel Savings the Company's external marketplace and to

The CAPCO companies have renegotiated provide efficient, cost-effective service to l contracts with the U.S. Department of the community.

Energy to provide nuclear fuel enrichment The new organization has brought about

! services on a requirements basis at a price the consolidation of 44 departments into 25

lower than previous arrangements. The new departments through the integration of i contracts also provide for accelerated liqui-related functions. This provides for maxi-

! dation of anticipated future inventories plus mum operating efficiency within functional j additional flexibility features, all of which groups by expanding responsibility and 11 J

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3"; jj Safety Record Best in State T g For the setond consecutive year, Duquesne 3 Light Company is the recipient of safety J + $1 awards from the Pennsylvania Electric N.j a ~w; m.% o Association (PE A, and the Edison Elet trit pa- - E x

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$-pq ((N Company for achieving the best results in

} $F r9 accident prevention in 1083 among those Pennsylvania elettrit utihties with more 4 gd'. 4 p 'O than one million work-hours annually It marks the first time in Duquesne 1.ight j history that this honor has been achieved j ? two years in a row The EEI award also received for the sec-( r. ond year in a row, recognize 3 electrit utility jj tempanies in the United States which achieve a 25 percent or greater reduction in

injuries as tompared with the pretedmg 2"

j three years 1 j BVPS Computer System F[ A major new computer syst( m to protess the scheduling and project management a system for the nuclear refueling outage at met f Beaser Valley Li it No I has been installed n to redute outside expenditures and improve 4 operational control The fourth refueling j just completed at L' nit No I was success-tully auomplished using this computer f 1 k p, - } system Management Audit Completed j The Company <ompleted its program to j \\ implement a series of retommendations d 1 s C-:U aimed at improving its operatmg efiniency ~ and performante resulting from a 1082 2 e k armt rip a warehcuse Cem mene Ccurt was a mcriu merl!a,' tu r Y: O* thi-(t't !u Yls i,u,u,>;x char stood emm - ma riv vea r New :t : UJ NJ S sd u a Yi *t't I C' s h2f's a t: J& t s 'On att J 'n t a *ict~ m:>:uti calE R 4 PJs4 t ki !" :d f J P'- d0 i':f %: f sili

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m_______= Pennsylvania Public Utility Commission CONSTRUCTION AND FINANCING ormerly a grand hotel. Teddy oomit and Woodrow (PUC) mandated management audit. In Capital Expenditures l August 1984, a final implementation report Our net capital expenditures for the year

documenting the Company's progress was came to $251 million. About 26 percent of.

Laruso and Carnegie, Sarah Bernhardt and Lillian Russell. I submitted to, and accepted by, the PUC. this was generated internally. The balance The renovators restored the best

Equal Employment was raised by outside financing. This of the oldgrandeur and com-F etely rebuilt everything else.

l In August 1984, the Office of Federal Con _ included the following:

1. On March 27,1984, the Company issued Now it s the University of l tract Compliance Programs conducted a review of Duquesne Light's equal

$50,000,000 principal amount of 13rs % Pitt.sburgh student union. . employment opportunity policies and prac. First Mortgage Bonds, series due March tices and found the Company to be in com_ 1,1901. Net proceeds to the Company i pliance with federal requirements. were approximately $40 6 million

2. On November 14,1981, the Company On July 10. Duquesne Light and the Western Pennsylvania Branches of the issued 2,500,000 shares of Common NationM Association for the Advancement Stock. Net proceeds to the Company y

of Colored People (N AACP) joined together were approximately $37 4 million. [ to formally declare their support for the Fair

3. On December lo,1o84, the Beaver 7

Share Principles endorsed by the Edison County Industrial Development Author-f Electric Institute and the national office of ity issued $51 million of 11% % tax-the N AACP. The declaration sets forth exempt pollution control revenue bonds, mutually beneficial goals that the Company Series due December 1,2014, to fin <nce has supported in the past and will continue the Company's share of the costs of cer- ,I to support as part of its commitment to the tain pollution control facilities at the community. Duquesne Light was the first nuclear Beaver Valley Power Station. Net utility company in Pennsylvania to achieve proceeds made available for payment of such an agreement with the N AACP. such costs amounted to approximately $40.7 million Supervisory Training / Management 4 The Company issued 3,7a3,836 shares of Development Common Stock in 1984 pursuant to its In January 1984, a new supervisory training Dividend Reinvestment Plan Issuances program for first-line supervisors and a of Common Stock through this Plan managt ment development program for aggregated approximately $48 million. In mid-level managers were initiated. Supervi-addition, e1,096 shares of Common Stock l sors receive skills training in handling were issued pursuant to employee stock everyday supervisory situations Mid-level ownership plans. managers learn techniques to increase pro-ductivity, through and with their staffs, by Standby Credit using a participative management style The Company completed arrangements for when appropriate. One-third of the Com_ an increase in its existing revolving credit pany's mid-level management and supervi-agreement with two banks $ rom $60 million sors completed the two programs during to $100 million in addition, the Company 1984. All supervisors and managers are scheduled to complete the programs by the first quarter of 1986. l ormerit a trnght heu~e. In ~ the old days trnght tram ~ pulled in here to be loaded Now. .~till called The Fraght Hou,e. it i shelters 10 re~taurant, and M . shops that, ell mo,tly out-of-the-ordinary things Some are hou~ed m old (but ~hinyi treight can 13

_o_m EfiiliB\\la ( a FT El p( E gpg;j u !$E I?35'sbI3 ggg y g y ;j g g; g.g ,q e g u s re xe h'IRTE;in [;;i >'I; ( s + j ddlNi s!I25 Y U W 9- @ M Qis , q w rq y z x twosgg F .y t kE i j. I ( I as y> -,y{ el' ' '. ' -y v,~ m4 ~ "V "% l

l recently reached agreement with several Dividend Reinvestment Plan banks on the basic terms and conditions for The Shareholder Relations Department con-an additional standby credit facility of $125 tinues to improve its administration of the million. The detailed documentation for the Dividend Reinvestment Plan, which was agreement currently is being finalized, but is brought in-house late last year at a signifi-3 not yet complete. The main purpose of the cant cost savings to the Company. The cur-j::h enpanded credit facilities is to assure all rent annual cost savings are approximately

j investors, including stockholders, that the

$175,000. 4 Company has the financial capabilities to Toll-Free Numbers complete its major construction projects yg Two toll-free numbers have been estab-f currently underway. lished for Duquesne Light stockholders. A j RatGs major advantage will be the expediting of L; On January 25,1985, the Pennsylvania Pub-stockholder inquiries. The following num-3! lic Utility Commission entered a final order bers should be used for calling Shareholder j concerning the Company's request for a $42 Relations: Outside Pennsylvania (1-800- , million increase in annual rates which was 247-0400); Pennsylvania, except Pittsburgh filed on April 27,1984. The order allowed (1-800-367-6400); Pittsburgh (393-6167). $31.4 million of the rate increase requested. Film Receives National Award In December, the Company was awarded a Downtown keeps changtng. A new headquarters for SHAREHOLDER RELATIONS / CINE Golden Eagle Certificate by the Coun-Allegheny International (model COMMUNICATIONS cil on International Nontheatrical Events for shown here) is about to start con-New Transfer Agent, Registrar its film "The Changing Nuclear Neighbor-struction. Half a block away, a The First Jersey National Bank of Jersey hood." The new public service film, used by huge old movie palace is being City, N.J., has been named by the Board of our Company's Speakers' Team, deals with transformed into a Centerfor the Directors as the Company's sole transfer the controversialissue of nuclear energy-Performing Arts. Ill's the second agent and registrar, effective February 1, how it affects and is accepted by people one downtown, but the frst, 1985. This change was initiated by the living near a nuclear plant. This award is Heinz Hall, houses symphony, dann and opea mmpanies, and announcement by Chemical Bank of New made annually for films judged suitable to can no longer meet the increasing York, the Company's previous major trans-represent American cinematography in f,' "[rtcnmn/) fer agent, that it would discontinue stock international film festivals. This is the sec-transfer services. First Jersey, one of six ond time the Company has won the award-blocks away, across the street potential transfer agents invited to submit In 1980, the film "Pittsburgh-an American from the Convention Center, the proposals to the Company,is expected to Industrial City" also was honored. Both double towers of a hotel-plus- , provide excellent service. The change to one films were produced by the Corporate off.e building willsoon rise. ! transfer agent and registrar will result in Communications Unit. significant cost savings to the Company. 1083 1084 18 18 I' t? re, lo , t e s. 16 15 % 1% I4 l"* 14 in tv. U 12 12 j p ilu l l l i l i m m let 2nd 3rd 4th 1st 2nd 3rd 4th Hgh Low Common Stock i Ogh. Low Commen Stat k Tk,rwpIrradmg maran, rk, Compnn ommm % L n th, N,w %rk c %i En. kang,1h, stai o alv lut,J n rk,l%Ia,Mekn % L ls hange 15 i

Company Report on Financial Statements The Company is responsible for the financialinformation Their examination was made in accordance with generally and representations contained in the financial statements accepted auditing standards and included a review of the and other sections of this Annual Report. The Company system of internal accounting controls and tests of trans-believes that the financial statements have been prepared actions to the extent they considered necessary to provide in conformity with generally accepted accounting princi-reasonable assurance that the financial statements are not ples appropriate in the circumstances to reflect,in all misleading and do not contain material errors. material respects, the substance of events and transactions The Board of Directors has an Audit Committee com-that should be included and that the other information in posed of four non-officer directors which met four times the Annual Report is consistent with those statements. In in 1984. The Audit Committee has the following duties preparing the financial statements, the Company makes and responsibilities: (1) recommend the independent pub-informed judgments and estimates based on currently ik accountants;(2) review the planned scope and results available information on the effects of certain events and of their audit and other services to be performed; transactions. (3) review the financial statements and the related report The Company maintains a system of internal account-of the independent public accountants;(4) review with the ing controls designed to provide reasonable assurance that officers, internal auditors and the independent public the Company's assets are safeguarded and that transac-accountants the adequacy of the Company's system of tions are executed and recorded in accordance with estab-internal accounting control, including their recommenda-lished procedures. There are limits inherent in any system tions with respect thereto; and (5) review the planned of internal control based on the recognition that the cost scope and results of the internal audit function. The inde-of such a system should not exceed the benefits to be pendent certified public accountants and internal auditors d erived. The system of internal accounting control is sup-have full and free access to the Audit Committee and meet ported by written policies and guidelines and is supple-with it, with and without management being present, to mented by a staff of internal auditors. The Company discuss internal accounting controls, auditing and financial believes that the internal accounting control system pro-reporting matters. vides reasonable assurance that its assets are safeguarded and the financial information is reliable. g* pf The accompanying consolidated financial statements 7 have been audited by Deloitte Haskins & Sells,indepen-Wesle W. von Schack John M. Arthur d:nt certified public accountants, whose appointment was Vice President-Finance Group Chairman of the approved at the 1984 Annual Meeting of Stockholders. and Chief Financial Officer Board and President Opinion of Independent Certified Public Accountants DELOITTE HASKINS & SELLS Certified Public Accountants 2400 One PPG Place Pittsburgh, Pennsylvania 15222 TO THE DIRECTORS AND STOCKHOLDERS OF DUQUESNE LIGHT COMPANY: We have examined the consolidated balance sheets of Duquesne Light Company at December 31,1984 and 1983 Duquesne Light Company as of December 31,1984 and and the results of its operations and the changes in its Ito3 and the related statements of consolidated income, financial position for each of the three years in the period rttained earnings, capital surplus and changes in financial ended December 31,1984, in conformity with generally position for each of the three years in the period ended accepted accounting principles consistently applied during December 31,1984. Our examinations were made in the period except for the change, with which we concur,in accordance with generally accepted auditing standards 1984 in the method of accounting for leases as described in and, accordingly, included such tests of the accounting Note L to the financial statements. { records and such other auditing procedures as we consid-cred necessary in the circumstances. Q In our opmion, such consolidated financial statements present fairly the consolidated financial position of February 14,1985 lb L

Duquesne Light Compan" Statement of Consolidated Income For the Three Years Ended December 31,1984 (Thousands of Dollars, Except Per Share Amounts) 1984 1983 1982 ELECTRIC OPERATING REVENUES $861,775 $800,345 $746,462 ' OPERATING EXPENSES: Fuel 234,910 192,512 229,693 Purchased power (sales)-net (26,637) (7,330) (23,172) 1 Othrt operation 149,477 136,188 126,151 l Maintenance (Note N) 73,214 65,016 66,855 Depreciation 77,532 73,682 62,939 Taxes other than income taxes (Note N) 70,279 60,651 57,476 Income taxes (Note H) 97,266 92,954 71,213 1 Total Operating Expenses 676,041 613,673 591,155 ' OPERATING INCOME 185,734 186,672 155,307 OTHER INCOME: Allowance for equity funds used during construction 60,133 50,709 35,415 Incom2 taxes-credit (Note H) 22,666 16,760 17,906 _ Other income and deductions-net 4,594 246 8,913 Total Other Income 87,393 67,715 62.234 INCOME BEFORE INTEREST CHARGES 273,127 254,387 217,541 INTEREST CHARGES: Interest on long-term debt 133,431 118,813 111,726 Othir interest 3,611 5,736 3,471 Allowance for borrowed funds used during construction, net of income taxes (20,709) (15,388) (14,853) Total Interest Charges 116,333 109,161 100,344 INCOME FROM CONTINUING ELECTRIC OPERATIONS BEFORE EXTRAORDINARY GAIN 156,794 145,226 117,197 . LOSS FROM DISCONTINUED STEAM HEATING OPERATIONS (Note C) (9,924)

INCOME BEFORE EXTRAORDINARY GAIN 156,794 145,226 107,273 EXTRAORDINARY GAIN ON EARLY EXTINGUISHMENT OF BONDS (Note D) 9,609

, NET INCOME 156,794 145,226 116,882

DIVIDENDS ON PREFERRED AND PREFERENCE STOCK 21,955 22,411 22,701 EARNINGS FOR COMMON STOCK

$134,839 $122,815 $ 94,181 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (000) 61,054 55,883 48,236 l EARNINGS PER SHARE OF COMMON STOCK: Income from continuing electric operations $2.21 $2.20 $1.96 Loss from discontinued steam heating operations (Note C) (.21) Extraordinary gain (Note D) .20 Earnings for common stock $2.21 $2.20 $1.95 DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $2.06 $2.00 $1.90 ( Th2 accompanying Notes to Financial Statements are an integral part of these statements. i 17

Duquesne Light Compan[ Balance Sheet Consolidatec December 31,1984 and 1983 (Thousands of Dollars) 1984 1983 ASSETS PROPERTY, PLANT AND EQUIPMENT: Electric plant in service $2,537,398 $2,436,715 Construction work in progress 1,077,992 856,766 Property held under capital leases (Note L) 184,109 Total 3,799,499 3,293,481 Less accumulated depreciation and amortization 659,745 555,641 Property, Plant and Equipment-Net 3,139,754 2,737,840 OTHER PROPERTY AND INVESTMENTS 32,358 14,474 CURRENT ASSETS: Cash and temporary cash investments (at cost which approximates market) 50,116 73,751 Accounts receivable: less reserve for uncollectible accounts of Customers (d $2,652, respectively) $2,976 an 70,467 69,822 Other 32,094 19,797 Materials and supplies (generally at average cost): Coal 55,708 59,205 Other operating and; construction 37,528 34,983 Deferred income taxes 3,121 Other current assets 12,291 13,028 TotalCurrent Assets 258,504 273,707 DEFERRED DEBITS: Extraordinary. property loss _es_(N_o.te B) 32,526 36,565 Deferred coal costs (Notes G and M). 22,635 22,343 Other deferred debits 44,533 60,882 j Total Deferred Debits 99,694 119,790 l Total $3,530,310 $3,145,811 The accompanying Notes to Financial Statements are an integral part of these statements. l ) ) i 18

1984 1983 LIABILITIES CAPITALIZATION (Note E): Common Stock (authorized-75,000,000 shares; outstanding--64,774,591 and 58,419,659 shares, respectively) $ 64,775 $ 58,420 Capital surplus 804,377_ 724,147 Retained earnings 184,313 175,938 Non-redeemable Preferred and Preference Stock 1,053,465 958,505 Total Common St_ockholders' Equity _ _. I Redeemable Preferred and Preference Stock ~~ 156,137 156,137 127,4 5 134,979 l First mortgage bonds 1,149,547 1,100,147 Other long-term debt _ _ 278,384 234,019 Unamortized debt discount and premium-net (10,896) (10,967) Total Capitalization 2,754,051 2.572,820 1 1 OBLIGATIONS UNDER CAPITAL LEASES (Note L) 119,335 2 CURRENT LIABILITIES: Long-term debt maturing within one year (Note E) 700 16,700 Lease obligations due within one year (Note _L) 25,582 Accounts payable 113,487 95,030 Accrued income taxes (Note H) 3,139 5,778_ Oth r accrued and deferred income taxes 17,363 19,430 2,775 Enrrgy cost rate refunds 35,131 40,390 Accrued interest Dividinds declared 38,808 34,771 Sinking fund and purchase require _ ment _s_(N.ote E) 16,423 13,391 __ Spent nuclear fuel (Not_e E) 9,131 3,181 Reserve for loss on discontinued steam heating operations (Note C) Total Current Liabilities 262,539 228,671 DEFERRED CREDITS: Investment tax credits 165,802 143,764 Accumulated deferred income taxes 222,633 193,649 Othtr deferred credits 5,950 6,907 Total Deferred Credits 394,385 344,320 COMMITMENTS AND CONTINGENT LIABILITIES (Notes B, G, I, L and M) Total $3,530,310 $3,145,811 i 19 )

Duquesne Light Compan' Changes in Consolidated Financial Position Statsmant of For the Three Years Ended December 31.1984 (Thousands of Dollars) 1984 1983 1982 SOURCE OF FUNDS: Continuing electric operations: lacome from continuing electric operations before extraordinary gain $156,794 $145,226 $117,197 Items not affecting working capital: Depreciation and amortization 92,810 79,800 66,303 Investment tax credit deferred-net 22,038 17,317 17,335 income taxes deferred-net (noncurrent portion) 28,984 21,049 18,466, Allowance for equity and borrowed funds used during construction (80,842) (66,097) (50,268) Total 219,784 197,295 169,033 Discontinued steam heating operations (9,924) hems not affecting working capital (including depreciation: 1982, $595) (349) Total From Operations (excluding extraordinary gain) 219,784 197,295 158,760 Extraordinary gain on early extinguishment of bonds 9,609 Sale of bonds 50,000 110,000 65,000 issuance of Common Stock 86,466 80,485 107,369 Obligations under capitalleases 155,805 _ Nuclear fuel obligations 4,269 6,125 24,221 Construction costs reimbursed by trustees from proceeds of pollution control financings 35,453 19,680 Decrease in werking capital (exclusive of current maturities of long-term debt and lease obligations)(a) 39,489 30,312 Total Source of Funds $591,266 $413,585 $395,271 Af PUCATION OF FUNDS: Construction expenditures (net of allowance for equity and borrowed funds used during construction) $250,522 $224,280 $231,022 Dividends on capital stock 148,419 134,628 115,247 Property held under capitalleases 155,805 Reduction of bonds 16,700 12,500 43,852 Reduction of obligations under capital leases 10,888 Sinking fund and purchase requirements 6,417 4,696 2,691 Deferred coal costs 292 4,005 2,669 Other-net 2,223 14,742 (210) Increase in working capital (exclusive of current maturities of long-term debt and lease obligations) (a) 18,734 Total Application of Funds $591,266 $413,585 $395,271 (a) The components of working capital (exclusive of current maturities of long-term debt and lease obligations) were as follows: Current assets: Cash and temporary cash investments $ 50,416 5 73,751 $ 33,663 a i Accounts receivable 102,561 89,619 86,968 l Materials and supplies and other current assets 105,527 107,216 117,009 Deferred income taxes 3,121 7,265 Total 258,504 273,707 244,905 Current liabilities: ,_ Accounts payable and accrued interest 148,61_8 135,420 127,881 Accrued taxes 20,502 25,208 20,061 _ Energy cost rate refunds 2,775 9,971 j Dividends declared 38,808 34,771 30,302 i Sinking fund and purchase requirements 16,423 13,391 10,987 Spent nuclear fuel 9,131 j 3,181 2.698 l Reserve for loss on discontinued steam haating operations Total 236,257 211,971 201,903 j Working capital at close of year 22,247 61,736 43,002 Working capital at beginning of year 61,736 43,002 73,314 I increase (decrease)in working capital (ex lusive of current maturities of long-term debt and lease obligations) $(39,489) $ 18,734 $(30,312) The accompanying Notes to Financial Statements are an integral part of these statements. 20

'Duq' uesne Light Compa[nStat2 ment o Consolidated Retained Ear For the Three Years Ended December 31,1984 (Thousands of Dollars) 1984 1983 1982 BALANCE AT BEGINNING OF YEAR $175,938 $165,340 $163,705 NET INCOME FOR THE YEAR 156,794 145,226 116,882 Total 332,732 310,566 280,587 DEDUCT: l Cash dividends declared: Preferred Stock: 4% Series 1,100 1,100 1,100 l j 3.75% Series 281 281 281 l 4.15% Series 291 291 291 4.20% Series 210 210 210 4.10% Series 246 246 246 1 $2.10 Series 336 336 336 l $8.64 Series 2,168 2,219 2,271 $7.20 Series 2,520 2,520 2,520 $8.375 Series 2,437 2,512 2,512 Preference Stock: $7.50 Series 1,859 1,944 2,038 $2.75 Series 646 891 1,035 $2.315 Series 2,778 2,778 2,778 $2.10 Series 2,520 2,520 2,520 $9.125 Series 4,563 4,563 4,563 Common Stock (Per Share: 1984-$2.06: 198h52.00: 1982-$1.90) 126,464 112,217 92,546 Total Cash Dividends 148,419 134,628 115,247 BALANCE AT CLOSE OF YEAR $184,313 $175,938 $165,340 j Statement of Consolidated Capital Surplus For tha Three Years Ended December 31,1984 (Thousands of Dollars) 1984 1983 1982 BALANCE AT BEGINNING OF YEAR $724,147 $649,376 $550,244 Premium on Common Stock issued 80,111 75,342 99,395 Oth r 119 (571) (263) BALANCE AT CLOSE OF YEAR $804,377 $724,147 $649,376 The accompanying Notes to Financial Statements are an integral part of these statements. I f i I 21 j

Duquesne Light Company Notes to Financial Statements A.

SUMMARY

OF ACCOUNTING POLICIES regulatory accounting, income taxes are allocated between Consolidation operating expenses and other income, principally with respect The consolidated financial statements include the Company to interest charges related to construction work in progress. and its wholly-owned subsidiary. See Noto C concerning Investment tax credits are deferred and amortized over the lives dispositionof thesubsidiary. of the related facilities. At December 31,1984 the cumulative net amount of income Property, Plant and Equipment Th2 properties of the Company are carried at original cost and, tax timing differences for which deferred income taxes have not with minor exceptions, are subject to a first mortgage lien. All been provided was approximately $168 million. These timing maintenance and repairs and replacements of minor units of differences relate primarily to accelerated depreciation on assets property are charged to income. Replacements of retirement which was flowed through for ratemaking purposes and other units of property and betterments are capitalized. In connection fl w-through tax deductions, which are deductible currently with retirements, reserves are charged with the carrying value, f r tax purposes but capitalized for accounting and ratemaking plus dismantling charges,less salvage, of property retired. purposes,includm, g certain taxes, the debt portion of AFC, pen-si nsandcertam, otheremployeebenefits. Revenues Deferred FuelCosts Customer meters are read mor+1v or bimonthly and bills are rendered on a monthly basis. uevenues are recorded whc, The Company defers the difference between actual fuel costs billed. and base fuel costs until the period in which such costs are cost rate & '" d on projected costs, with provision

• *"8Y # * '#

""8Y Allowance for Funds Used During Construction is base In accordance with the um. form system of accounts prescribed quent adjustments to actual cost. Any overcollections of reve-by regulatory authorities, an allowance for funds used during nues are refunded to customers with interest. construction (AFC) is mcluded m, construction work in progress Nuclear FuelCosts and credited to other income for AFC attributable to equity funds and to interest charges for AFC attributable to borrowed The Company's share of nuclear fuel costs under Icase agree-funds, net of income taxes. AFC is a non-cash item and is com-ments is charged to fuel expense based on the quantity of elec-puted using a composite rate, which is applied to the balance of tric energy generated. In 1982 the Company began capitalizing construction work in progress and assumes that funds used for acquisitions of nuclear material through a trust arrangement construction are provided by borrowings and by preferred, that is intended to finance a portion of tlie Company's require-preference and common stock equity. The rates were 9.4 %, ments for nuclear fuel. In 1984 all nuclear fue1 leases were capi-9.6% and 8.5% in 1984,1983 and 1982, respectively.This talized. See Note L concerning the capitalization of leases. accounting procedure results in the inclusion in property, plant Under the Nuclear Waste Policy Act of 1982 (the Act), the and equipment of amounts considered by regulatory authorities United States Department of Energy (DOE)is responsible for as appropriate costs for the purpose of establishing rates for the ultimate storage and disposal of spent nuclear fuel removed utility charges to customers. fr m reactors. Under the Act the Company is required to pay a quarterly fee to DOE of one mdl per kilowatt-hour on nuclear Depreciation generation after April 6,1983 and a one-time fee for nuclear The Company provides for depreciation of electric plant, exclu-generation through April 6,1983.The one-time fee of approxi-sive of coal properties, on a straight-line basis determined in a mately $8,921,000 is expected to be paid in June 1985. The manner consistent with applicable Pennsylvania law and with Company began recovering the one-time fee in rates in Febru-methods apphed by the Pennsylvania Public Utility Commission ary 1983 and has established a fund for the deposit of the (Commission)in the determination of depreciation in rate pro-amounts recovered.The balance of the Spent Nuclear Fuel ceedings. Provisions for depreciation, amortization and deple. Fund was $2,896,000 at December 31,1984. The Company also tion of other Company property are made on various bases is recovering the fees for generation after April 6,1983 and is such as amount of nuclear fuel burned and tons of coal mined. making payments to DOE on a quarterly basis. The Company provides for decontamination and dismantling Oth costs for the Beaver Valley No.1 nuclear generating unit in accordance with the provisions of the orders of the Commis-Other property and investments are stated pn.ncipally at cost, sion. The Company is allowed to recover from its customers less accumulated gepreciation where applicable. Other operat-annual decommissioning annuity payments to provide for the ing and c nstruction inventories are stated at average cost and decommisslorJng of radioactive components only. Such recov-include certain general and administrative costs related to oper-etable costs are currently estimated to be approximately ating the storerooms. General and adnunistrative costs remain- $31,000,000. The Company deposits applicable revenues in a ing in invent ry at December 31,1984 and 1983 were trust fund which has been established to pay for such costs. At $3,985,000 and $3,316,000, respectively. Debt discount or pre-December 31,1984, $1,971,000 was included in the mium and related expenses are amortized over the lives,f the DecommissioningTrust Fund. issues t which they pertam. Income Taxes B. EXTRAORDINARY PROPERTY LOSSES Deferred income taxes are provided principally for differences In January 1980, the Company and the other CAPCO compa. between depreciation for income tax purposes and depreciation nics cancelled the construction of four nuclear generating units. for accounting purposes to the extent permitted by the Com-On October 1,1982 the Shippingport Atomic 1 ower Station mission for ratemaking purposes, and for fuel and extraordi-was removed from commercial operation.The Company nary property losses deferred for accounting purposes but received approval from the Federal Energy Regulatory Com-deducted currently for income tax purposes. In compliance with mission (FERC) and the Pennsylvania Public Utility Commis-22 L

sion (Commission) to amortize and recover from its customers mately $8,712,000) and the loss from operations was $924,000 its share of the accumulated construction costs and a portion of (net ofincome tax benefit of approximately $1,028,000) for the ' the undepreciated cost of the Shippingport station, over a ten-nine months ended September 30,1982. The provision for loss year period which began January 29,1983. The unrecovered on disposition included estimated operating losses for the sub-costs as of December 31,1984 were $32,526,000. ne Com-sidiary of $1,100,000 (net of income tax benefit of approxi. mission's order approving the amortization and recovery of the mately $970,000) for the period October 1,1982 through May accumulated construction costs has been appealed by the 1%nn-31,1983. These losses were charged against 1982 income and no sylvania Consumer Advocate to the Pennsylvania Common-additionalloss was incurred due to the disposition. At Decem-w:alth Court. ber 31,1984 assets and liabilities included in the consolidated (- The Company is not earning any retum on the unamortized balance sheet applicable to the subsidiary were not material. L costs of either of the property losses. D. EARLY EXTINGUISHMENT OF BONDS C. DISCONTINUED STEAM HEATING OPERATIONS In December 1982, the Company exchanged 1,406,898 shares of The Company's steam heating subsidiary, Allegheny County Common Stock for approximately $29,852,000 principal Steam Heating Company, discontinued steam service to the amount of outstanding First Mortgage Bonds which were

public effective May 31,1983 and ansferred to Pittsburgh owned by an investment banking firm. The exchange resulted Allegheny County Thermal, Ltd. (PAC 7. ) a major portion of the in a nontaxable extraordinary gain of $9,609,000, or 5.20 per subsidiary's assets for nominal consideration.

share, which was the difference between the exchange value of i The provision for loss on the disposition of the subsidiary's the Common Stock and the net carrying amount of the bonds. assets was $9,000,000 (net ofincome tax benefit of approxi. j E. CAPITALIZATION pecember 31,1984 December 31,1983 j Shares Shares Outstandmg Amount Outstanding Amount Common Stock-51 par value(1) 64,774,591 $ 64,774,591 58,419,659 $ 58,419,659 j Capitil Surplus: i Premium onCommon Stock $811,44(,,733 $731,335,853 j _ Capital stock expense (7,536,995) (7,622,344) Other 467,941 433,442 Caftalsurplus $804,377,679 $724,146,951 ] Non-redeemable Preferred and Preference Stock: Preferred Stock-$50 par value (cumulative)(1) j 4% Series (2) 549,969 $ 27,498,450 549, % 9 $ 27,498,450 3.75% Series (2) 150,000 7,500,000 150,000 7,500,000 4.15% Series (2) 140,000 7,000,000 140,000 7,000,000 4.20% Series (2) 100,000 5,000,000 100,000 5,000,000 1 4.10% Series (2) 120,000 6,000,000 120,000 6,000,000 $1.10 Series (2)_ 160,000 8,000,000 160,000 8,000,000 $7.20 Series (3) 350,000 17,500,000 350,000 17,500,000 l Preferznce Stock-51 par value (cumulative)(1) $2.315 Series (4) 1,200,000 1,200,000 1,200,000 1,200,000 $2.10 Series (4) 1303010 200,000 1.200,000 00,000 l Premium on Non-redeemable Preferred and Preference Stock 75,238,760 75,238,760 l Non-redeemable Preferred and Preference Stock $156,137,210 $156,137,210 involuntary liquidation value $155,998,450 $155,998,450 i Redeemable Preferred and Preference Stock: Preferred Stock-$50 par value (cumulative) (1) l $8.64 Series (3) 2_50,872 $_12,543,600 256,872 $ 12,843,600 $8.375 Series (3) 288,000 14,400,000 300,000 15,000,000 i Preference Stock-$1 par value (cumulative)(1) l $7.50 Series (3) 245,320 245,3_20 255,920 255,920 $2.75 Series (4) 192,665 192,665 270,570 270,570 $9.125 Series (3) 500,000 500,000 500,000 500,000 27 del,585 28,870,090 Premium on Redeemable Preferred and Preference Stock 105,354,240 109,173,360 Purchese and Sinking Fund Requirements (5,821,625) (3,064,250) Redeemable Preferred and Preference Stock $127,414,200 $134,979,200 Involunta7 iquidation value $127,414,200 $134,979,200 l (1) Authorhed shares: Common Stak-75,000,000; $% per share involuntary li uldation value. Preferred Stock-4,000,000; $100 per share involuntary uidation value. 23 and Preference Stot k-8.000,000. $25 per shareinvoluntary h idation value J

Duquesne Light Company Nstes (continued) The following summary indicates the changes in the number of shares of Common Stock outstanding during 1984,1983 and 1982: Year Ended December 31, 1984 1983 1982 Common Stock: Shares outstanding at beginning of year 58,419,659 53,276,525 45,302,520 !ssuances: Common Stock sales 2,500,000 2,475,000 4,500, coo Dividend Reinvestment Plan 3,793,836 2,524,407 1,962,320 Employee Stock Ownership Plans 61,096 143,727 104,787 Exchanged for outstanding First Mortgage Bonds 1,406.898 i Shares outstanding at end of year 64,774,591 58.419,659 53.276,525 The number of shares of Common tock reserved at Redeemable Preferred and Preference Stock s December 31,1984 for issuance under the Dividend Rein-The shares of $7.50 Preference Stock are entitled to a non-vestment Plan and the Employee Stock Ownership Plans are cumulative purchase fund under which the Company offers 2,570,288 and 737,019, respectively. to purchase annually ct $100 per share up to 4% of the num-The Preference Stock is entitled to quarterly cumulative ber of shares originally issued. The shares of $2.75 I' reference dividends except that no dividends may be paid if dividends Stock are subject to a cumulative sinking fund which will on any series of the Preferred Stock are accumulated and retire 55,000 shares by August 1 in each year at $25 per share. unpaid. If six quarterly dividends on any series of Preference The Company may on a non-cumulative basis retire an addi-Stock are in default, the holders of the Preference Stock are tional 55,000 shares in each such year. The shares of $9.125 entitled to elect two directors until all dividends in arrears Preference Stock are subject to a cumulative sinking fund have been paid. beginning with the year 1985 and continuing through 1997 The outstanding Preference Stock of the Company is which will retire 33,300 shares on January 1 in each year at callable on not less than thirty days' notice at the following $100 per share. The Company may, on a non-cumulative redemption prices plus accrued dividends: $7.50-basis, retire an additional 33,300 shares in each such year, redeemable at $105 through April 1,1986; $103 through provided that the Company may not redeem through the April 1,1989; and $101 thereafter; $2.75-redeemable at exercise of this option more than an aggregate of 150,000 $26.50 through July 31,1989; and $25.25 thereafter; $2.315-shares. redeemable at $26.60 through March 31,1986; $25.90 The shares of $8.64 Preferred Stock are entitled to a non-through March 31,1991; and $23.25 thereafter; $2.10-cumulative purchase fund under which the Company offers redce.nable at $26.40 through March 31,1987; $25.70 to purchase annually up to 6,000 shares at not more than through March 31,1992; and $25.00 thereafter; $9.125-not $10) per share. The shares of $8.375 Preferred Stock are sub-redeemable prior to January 1,1989 through certain refund-ject to a cumulative sinking fund which will retire 12,000 ing operations, otherwise redeemable at $100 plus the appli-shares on April l in each year at $100 per share. The Com-cable redemption premium decreasing from $6.24 in 1o85 to pany may on a non-cumulative basis retire an additional $.48 in 1997, 12,000 shares in each such year. The Preferred Stock is entitled to quarterly cumulative The combined aggregate sinking fund and mandatory pur-dividends. lf four quarterly dividends on any series of Pre-chase requirements for the next five years as of December 31, ferred Stock are in default, the holders of the Preferred Stock 1984 are as follows: are entitled to elect a majority of the Board of Direttors until Year Ending Sinking Fund and Mandatory all dividends in arrears and current dividends have been paid. December 31, Purchase Requirements The outstanding Preferred Stock of the Company is 1985 $7,121,625 callable on not less than thirty days' notice at the following 1986 7,805,000 redemption prices plus accrued dividends: 4%-$51.50; 1987 7,805,000 3.75 % -$51.00; 4.15 % -$51.73; 4.20 % -$51.71; 4.10 % - $51.75; $2.10--$51.84; $8.64-redeemable at $104 through 1988 7,805,000 September 30,1989; and $101 thereafter; $7.20-redcemable 1989 6,430,000 at $102.50 through March 31,1987; and $101 thereafter; $8.375-redeemable at $112 through March 31,1988, and j thereafter at $100 plus the applicable redemption premium decreasing from $5.03 in 1988 to 5.34 in 2003. 24

The following summary indicates the changes in the number of shares of Redeemable and Non-re.leemable Preferred and Preference Stock outstanding during 1984,1983 and 1982: Year Ended December 31, 1r84 ice 3 1982 Preferenc] Stock: Shares outstanding at beginning of year 3,426,490 3,533,940 3,565,220 Purchases and redemptions-$2.75 SeHes (77,905) (94,450) (20,080) --$7.50 Series (10,600) (13,000) (11,200) Shares outstanding at end of year 3,337,985 3,426,490 3,533,940 l Preferred Stock: Shares outstanding at beginning_of year 2,126E1 2,132,841 2 138,841 1 Purchases-$8.375 Series (12,000) ~$8.64 Series (6,000) (6.000) (6,000) Shares outstanding at end of year 2,108,841 2,126,841 2,132.841 Gains on the redemption of capital stock are recorded in capital surplus; losses, to the exte$t they exceed cumulative gains, are charged to retained earnings. First Mortgage Bonds (amount authorized is unlimited by indenture) December 31, 1984 1983 Series dueJuly 1 1984 (3% %) $ 16 000,000 1 1 Series due April 1,198_6 (33 %) 20,000,000 2_0,000,000 Series due Aprill1988 (3Ji %) 15,000,000 15,000,000 Series due March 1,_1989 (4 % 3) 10,000,000 10 000,000 1 _ Series due March 1,1991 (13JL%) 50,000,000 Series due February 11996[5]L%) 22,800,000 22,800,000 __Serieg du@bruary l,1997 (53%) 24,600,000 24,600,000 Series due February 1 1998_(636 %) 34,7_00,0'N) 34,700,000 1 _ Series dueJanuary 1,1999 (7%j 30,000,000 3_0,000,000 Series dueJuly 1,1999(7J1 %) 28,947,000 28,947,000 Series due March t,2000(8Ji%) 30,000,000 30,.000,000 Series due March 1,2001(73 %) 35,000,000 35,000,000 Series due December 1 2_001.(7% %) 26,461,000 26,461,000 1 Series duejune 12002(7h %) 28,470,000 28,470,0 % 1 Series duejanuary l,200317Ji%) 32,670,000 3_2,670,000 Series duefuly 1 2003 (7Ji %)_ 35,000,000 35,000,000 1 _ Series due April _1 2004 (83 %) 44,1_00,000 44 100,000 1 1 _ Series due March 1,2005(933) 50,000,000 50,000,000 Series dueJune 1,2006 (9_%L_ 80,000,000 80,000,000 Series due April 1,2007(8J63) 97,400,000 97,400,000 _ Series due February _1,2000_(10163) 100,000,000 100,000,c00 _ Series _dueJanuary 1,2010 (12% %) _60,000,000 60,000.000 Series due September 1 2010.(14 % %) 50,000,000 50,000,000 1 Series dueJune 12011(16%) 80,000,000 80,000,000 1 _ Series due May 1,2012 (16% %) 65,000,000 65,0 % 000 ._ Series due April 1,2013 (12h %) l Series due December 1,2013 (13 %) 60,000,000 _ _ o0,000,000 50,000,000 50,000,000 Tota! _1,160,148,000 _ _1,126,148,000

_Lesst urrent maturities-Series duejuly 1,198 t (3 % %).

16,000,000 C Current sinking fund requirements 10,601,480 10.001,480 First Mortgage lionds $1,149,546,520 $1,100,146,520 25

Duquesne Light Company .N;tes (continued) Other Long-Term Debt Ibilution ControlObligations: Sedal Maunty Average or Mandatory December 31' Date of Interest Redemption Tinal Issuance Rate Beginning Maturity 1984 1983 _ September _21,1972 5 49 % 1983 2002 $ 23,000,000 $ 23,500,000 _ June 21,1973 5.685 % 1984 2003 11,800,000 12,000,000 October 25,1973 5.755 % 1984 2003 15,000,000 16,000,000 August 13,1974 7.97 % 1989 2004 14,000,000 14,000,000 _Ad21975 7.50 % 1993 _2005 17,000,000 17,000,00 _0 2 October 29,1975 8.40 % 1991 2005 18,000 000 18 000,000 1 1 _ September 291976 6.90 % _ 1994 2011 15,000,000 15,000,000 2 March 24,1981 12.00 % 2002 2011 50,000,000 50,000 000_ 1 November 1,1983 10.50 % 2013 _ 20,500,000 20,500,000 December 19,1984 11.625 % 2014 51,000,000 Total 235,300,000 186,000,000 Less: Current maturities 700,000 700,0 _00 Current sinking fund requirements 325,000 Ibilution ControlObligations 234,600,000 184,975,000 , Nuclear FuelObligations 34,614,888 30,345,499 _ Spent Nuclear Fuel Liability 8,920,790

• % Sinking Fund Debentures (authorized 920.000,000) due March 1,2010 9,169,000 9,778,000 Total Other Long-Term Debt

$278,383,888 $234,019,289 The pollution control obligations arise from arrangements Year Endinr Dec. 31, Sinking Fund Requirements Maturities between the Company and governmental authorities 1985 511,601,48] $ 700,000-whereby the construction of certain pollution control facili-1986 11,401,480 20,7_0_0,000_ ties has been financed through the sale of bonds by those authorities, and the Company is obligated to pay to the 1987 11,776,480 800,000 tuthorities amounts equal to the principal of and interest on 1988 11,995,480 15,800 000, 1 such bonds. 1939 12,251,480 10,900,000 The nuclear fuel ob!!gations result from a trust arrange-ment for the procurement of a portion of the Company's The sinking fund requirements in each year relate primar-requirements for nuclear fuel. Interest amounts applicable to ily to the First Mortgage Bonds, which requirements may be tha trust a.e capitalized and included in construction work in satisfied by the certification of property add;tions at 166M% progress, at rates ranging from 1 % % to 1% % over the of the Bonds required to be redeemed, and the pollution con-trustee's commercial paper rate. Trust obligations will be paid trol obligations. The remaining sinking fund requirement by the Company as the related nuclear fuel is withdrawn relates to the 5% Sinking Fund Debentures. At December 31, from the trust. 1984, sinking fund requirements for the 5% Debentures had The spent nuclear fuelliability results from a requirement been satisfied for 1985,1986 and 1987, and the 1988 sinking to provide for payment of a one time fee to the United States fund requirement had been partially satisfied in the amount Department of Energy for ultimate storage and disposal of of $31,000, spent nuclear fuel used in the generation of electricity Total interest costs incurred during 1984,1983 and 1982 through April 6,1983 and was reclassified to current liabili-were $152,251,000, $131,248,000 and $125,004,000, respec. ties in 1984. See Note A to the financial statements. tively, of which $96,676,000, $73,310,000 and $60,075,000 Sinking fund requirements and maturities for the next five were capitalized or deferred, including allowance for funds yearsIorlong termdebt outstanding,exclusiveof nuclear used during construction. fuel obligations, as of December 31,1934 are as follows: F. SilORT-TERM BORROWING ARRANGEMENTS fees or compensating balances associated with the existing At December 31,1o84, the Company had lines of credit with lines of credit. In addition, the Company has a $100,000,000 three banks totaling $33,500,000, all of which were unused. re,volving credit agreement available to December 15,1988. Effective January 1,1985 one of these lines,in an amount of At December 31,1984, no loans were outstanding under the $20,000,000, expired. The range of interest rates under these res olving credit agreement. Borrowings outst mding at lines of credit is from prime rate less one half of one percent December 15,1988 :nay be converted to term notes payable to prime rate or basic rate or a special rate as may be offered in six equal semiannual installments commencing June 15, from ti:nc to time by the banks.There are no commitment 19M and concluding December 15,1991. Interest rates flue-1 3

tuate during the revolving and term periods, depending on on May 25,1984 to adopt the administrative law judge's rec-the period of borrowings, at fluctuating prime rate and at ommended decision subject to the Commission staff's percentages in excess of prime, Euro-Rate, certificate of exceptions which included revising the methodology set deposit or component cost of funds rates.There is a com-forth in the Stipulation Agreement effective January 1,1984. mitment fee of % % per annum on the average daily On September 11,1984 the Commission entered its final unborrowed amount of the commitment. order reflecting this action. While certain aspects of the final During the years ended December 31,1984,1983 and 1982 order are unclear, the Company believes that the final order the maximum amount of short-term borrowings outstand-(a) should allow the Company to apply the methodology of ing, consisting principally of commercial paper borrowings, the Stipulation Agreement as originally approved by the was $25,500,000, $48,320,000 and $37,000,000, the average administrative law judge retroactively to the period June i daily short-term borrowings outstanding were $4,631,000, 1980 through December 1983 and (b) will require the Com- $12,251,000 and $1,559,000 and the weighted average daily pany to apply the revised methodology approved by the interest rate applicable to such short-term borrowings was Commission in its final order to Quarto coal costs commenc- [ 11.46%,9.40% and 15.39%, respectively. ing on January 1,1984. At December 31,1984, the Company l G. DEFERRED COAL COSTS estimates the deferred Quarto co. o would have been $12.4 The Company and the other CAPCO companies have long-milli n had the final order been implemented and approved term coal supply arrangements with Quarto Mining Com-m a new energy c st rate. pany (Quarto), an unaffiliated company, to supply coal for On September 26,1984 the Company filed with the Com-the Bruce Mansfield Units. In December 1980 the Pennsylva. miSSi n a petition for clarification, rehearing and reconsidera-nia Public Utility Commission (Commission) instituted an ti n, including a request that the Commission stay the effec-investigation into the reasonableness of the cost of coal sup-tiveness of the final order as it applies to the period plied by Quarto. By Interim Order entered January 12,1981 C **C"Cing January 1,1984. On December 10,1984 the the Commission directed that, pending conclusion of the g mnu.ssmn entered an order denying the Company's peti-investigation or further order of the Commission, the Com-tmn in all matenal respects. pany limit its recovery of the cost of Quarto coal through its The Company believes that the revised methodology pro-energy cost rate to approximately the prevailing market price vided in the Commission's final order may not, under certain of similar coal rather than the actual cost of Quarto coal. As circumstances, permit full recovery of the deferred ceal costs required by the Interim Order, the Company is deferring the by the scheduled expiration dates of the Quarto coal sales encess of the actual cost of Quarto coal over the cost allowed agreements m the year 1999. Fluctuations m the deferred coal to be recovered through its energy cost rate until recovery of c sts may result during this penod depending on actual the actual cost is permitted by the Commission. At December Quan c sts, market price of other coal, amount of Quarto 31,1984 the unrecovered cost of Quarto coal paid by the c al burned and other factors. On January 8,1985 the Com-Company was approximately $22,155,000. If recovery of pany appealed the Commission's order to the Pennsylvania such excess is disallowed, the amount deferred would be Commonwealth Court. On January 30,1985 the Company charged to income in the y ear of disallowance. Thereafter, filed a new energy cost rate with the Commission which any excess of actual cost over the amount permitted to be reflects the application of the methodology of the Stipulation recovered would be charged to income on a current basis. Agreement to the period June 1980 through December 1983 A Stipulation Agreement between the Company and the and h rm,sd meoMogy commencing on January 1, Commission staff which set forth a method intended to per- ".84 If approved by the Commission, the new rate will per-mit the eventual recovery of the unrecovered cost of Quarto mit the Company to recover about $9.7 milhon of the accu-coal was the subject of hearings during 1983 in whi.h the mulated deferred Quarto coal costs. With respect to the bal-anc such cosh and any amona%nd costs, h Coasumer Advocate and the Commission staff participated. On February 3,1984 the administrative law judge issued a Company believes that the deferred coal costs were pru-recommended decision, subject to the Commission's dently incurred and that it is probable that all or substantially a such costs uhintaW wihcomCdomo approval, concluding that the Company was prudent in initi-the financial statements. ating and wntinuing the Quarto project and that the Stipula-tion Agreement was in the public interest and was a fair and in acc rdance with the Commission s February 20,1981 reasonable resolution of the investigation into the reason-rate rder, the cost of coal mm, ed at the Company's wholly-ableness of the cost of Quarto coal. The administrative law wned Warwick Mine in excess of the average market prices sn ar quality coal purchased by Pennsylvama utilities judge recommerded that the Stipulation Agreement and its methodology for recovering the cost of the Quarto coal be may n t be passed through the energy cost rate, but may be deferred and recovered to the extent that the cost of Warwick approved and the Commissien's investigation terminated. Exceptions to the recommended decision were filed by the c al falls below such market price. Such deferred costs Commission staff and the Ce nsumer Advocate. On March am unted to $480,000 at December 31,1984. Additionally, n nussi n ehnunaW Marwick nundmm We 30,1984 the administrative law judge denied the exceptions and the Commission staff and Consumer Advocate appealed Company s rate base for ratemaking purposes. The exclusion such denial to the Commission. The Commission took action fr m rate base is approximately $48,000,000. 27

Duquesne Light Company Notes (continued) H, INCOME TAXES Totalincome taxes in 1984,1983 and 1982 were comprised of the following components: 1984 1983 1982 (Thousands of Dollars) Included in operating expenses: Currently payable: Federal $ 38,004 $ 33,931 $ 25,257 State 16,042 14,295 12,694 Income taxes deferred-net: Federal 16,577 22,955 13,997 State 4,893 5,555 (228)_ Investment tax credit deferred-net 21,750 16,218 19,493 Total 97,266 92,954 71,213 Included in other income (income taxes-credit): Currently payable: Federal (18,060) (13,354) (14,267)_ State (4,606) (3,406) (3,639) Totalincome tax expense $ 74,600 $ 76,194 $ 53,307 Taxes currentlyyayable-federal and state $ 31,380 $ 31,466 $ 20,045 Taxes deferred-net 21,470 28,510 13,769 Investment tax credit deferred-net 21,750 16,218 19,493 Totalincome tax expense $ 74,600 $ 76.194 5 53,307 Total income tax expense is exclusive of income taxes applicable to discontinued steam heating operations. See Note C to the financial statements. Sources of income taxes deferred and the tax effects were: Excess of tax over book depreciation $ 24,281 5 20,920 $ 14,490 Fuel costs expensed on tax return and deferred on books (3,683) 9,786 (3,5521 Extraordinary property losses expensed on tax return and deferred on books (1,703) (1,562) 3 0_19_ t Other 2,575 (634) (188) Totalincome taxes deferred-net $ 21,470 $ 28,510 $ 13,769 Total income taxes from continuing electric operations were less than the amount computed by applying the statutory fed-cral income tax rate of 46% to income from continuing electric operations before income taxes. The reasons for this differ-cncein each year were as follows: Computed federal income tax on continuing electric operations at statutory rate $106,441 $101,853 $ 78 432 1 Increase (decrease)in taxes resulting from: Allowance for funds used during construction (37,187) (30,405) (23 1231 1 Excess of book over tax depreciation 4,979 3 246 1,131 _ 1 Stateincome taxes net of federalinco_me tax benefi.t 8,828 8,880 4,766 t t Amortiration of deferred investment tax credits (5 750) {5,2_66) _ _ _ (4,25Q 1 (2,711) (2,111) (3,648) Other-net $ 74,600 $ 76,194 5 53,307 Totalincome tax expense I. PRIOR YEARS' INCOME TAXES 1970 occurred in June 1983 based on an earlier court decision The Company's income tax returns are settled through 1970, which was generally in favor of the Company concerning Income tax returns for 1971 through 1981 have been exam-percentage depletion for the years 1956 through 1961.The ined, and the 1982 and 1983 returns are being examined. The Company expects that this cour c decision will serve as the Internal Revenue Service assessed deficiencies regarding the basis for settlement of the depiction issue for the years 1971 Company's computation of percentage depletion on coal through 1979. Management of the Company believes that mined for 1956 through 1979, as well as certain other issues the settlement of federal and state taxes will not have a mate-of relatively minor importance for 1971 through 1979. A rial effect on the Company's financial position or results of settlement of the depletion issue for the years 1962 through operations. 28 L

J. EMPLOYEE BENEFITS Decemter 31, The C:mpany has trusteed retirement plans to provide pen-1983 1962 1981 sions frr all employees, except coal mine employees who are (Th usands f Dollars) Actuarial present value of covered under a plan admmistered by the United Mme accumulated plan benefits: Workers of America. Since it is a multi-employer plan, infor-Vested $189,312 5159,956 5151,756 mation concerning the plan covering coal mine employees is Nonvested 11,945 11,494 11,566 not determinable and is not included in the data below. Pen-Total 5201,257 5171,450 $163,322 sion costs are funded as accrued and include amortization of i most prior service costs over 30 years and prior service costs Net assets available for related to the early retirement program over 15 years. Pen-benefits (at fair vahe) $141,235 5135,571 5111,013 sion costs charged to expense or construction for the years i ended December 31,1984,1983 and 1982 were $14,188,000, $10,803,000 and $12,313,000, respectively. The increase in The Company is liable under federal and state laws for the pension costs in 1984 was due principally to the impact of payment of benefits to coal mine employees disabled by the refund of employee contributions in 1983 and the early black lung and to their survivors and dependents. The esti-retirement program supplemental benefits. In 1983 the Com-mated costs of providing such benefits, mcluding amortiza-pany adopted an early retirement program under which cer-tron of prior service costs over the remaining estimated life of tain benefits will be paid from the assets of the retirement the Warwick mine, are actuarially determmed and accrued plans. The decrease in pension costs in 1983 resulted princi-n the basis of mine payroll costs and are deposited with a trustee. Such costs were $1,658,000, $1,574,000 and pally from an increase in the actuarial interest assumption. The accumulated plan benefits and net assets available for $1,417,000 for the years ended December 31,1984,1983 and benefits for the trusteed plans are presented as of the 1982, respectively. At July 31,1984 (the date of the latest December 31 benefit information dates. The assumed rate of actuanal valuation), the unfunded prior service cost for these return used in determining the actuarial present value of disability benefits was approximately $18,777,000, accumulated plan benefits was 5% % for 1983 and 1982 and 5% for1981. K. JOINTLY-OWNED GENERATING UNITS The Company, together with other electric utilities, primarily the CAPCO companies, has an ownership interest in certain jointly-owned units. Information regarding the Company's share of such jointly-owned units as of December 31,1984 is as follows(thousands of dollars): Company's Interest Utility Plant Accumuhted Construction Work Percentage Unit in Service Depreciation in Progress Ownership Megawatts Fort Martin No.1 5 46,131 5 15,830 $ 4,054 50.0 276 CAPCO Units: Eastlaka No. 5 51,280 12,666 1,392 31.2 202 Sammis No. 7 69,428 14,251 3,843 31.2 187 Brucs Mansfield No.1 72,390 17,295 847 29.3 228 Bruc2 Mansfield No. 2 20,251 4,120 113 8.0 62 Bruc2 Mansfield No. 3 71,123 9,432 558 13.74 110 Bruca Mansfield Common and Shared Facilities 62,748 14,365 466 Beaver Valley No.1 347,572 63,299 14,961 47.5 385 Beaver Valley No. 2 18 316,262 13.74 114 Berver Valley Common Facilities 69,689 6,945 65,548 Perry No.1, including Common Facilities 374,101 13.74 165 IVrry Na 2, including Common Facilities 215,178 13.74 165 Total 5810,630 5158,203 $997,323 Und:r terms of the arrangements with the other owners of such jointly-owned units, the Company is required to provide its sharz of financing the cost of such units. The Company's share of the direct expenses (fuel, maintenance and other opera-tion cxpenses) of the jointly-owned units is included in the corresponding operating expenses in the Statement of Consoli-dated Income. 29 J

Duquesne Light Company Notes (c:ntinued) L LEASES Capital obasesratin 1 eases In accordance with Statement of Financial Accounting Stan-dards No. 71 (SFAS 71)," Accounting for the Effects of Cer. (Thousands of Dollars) tain Types of Regulation," capitalleases entered into in 1983, 1985 5 28,270 $10,819 as well as such leases executed prior to 1983, have been capi-1986 30,334 8,663 talized. This change had no impact on 1984 net income. 1987 29,118 8,037 Leased property consists of the following: 1988 34,230 7,040 1989 30,598 6,835 December 31,1984 (Thousands of Dollars) 1990 and thereafter 95,426 85,989 Nuclear fuel 5164,001 Total minimum lease payments 247.976 5127.383 Electric plant (principally buildings and Less amount representing interest 68,444 data procusing equipment) 20,108 p gg 184,109 lease payments $179,532 Accumulated amortization (39,192) Property held under capital leases--net $144,917 M. COMMITMENTS AND CONTINGENT LIABILITIES Construction In accordance with SFAS 71, leased property is amortized The Company presently estimates that it will spend on con-in conjunction with the amortization of the related lease struction, exclusive of nuclear fuel and allowance for funds obligation. The leased nuclear fuel is amortized as the fuel is used during construction, between $794 million and $898 burned.The amortization of electric plant is based on the million during the period 1985 through 1989, depending on rental payments made. Amortization of leased property the construction schedule for Perry Unit No. 2. See Manage-amounted to $10,888,000 for the year ended December 31, ment's Discussion and Analysis of Financial Condition and 1984. If the noncapitalized financing leases had been capital-Results of Operations-Capital Resources and Liquidity-Construction. ized at December 31,1983, property, plant and equipment-net would have been increased by approximately Perry Unit No. 2 $143,547,000, with related increases in current liabilities and In September 1983, the Ohio Office of the Consumers' long-term debt of $24,271,000 and $119,761,000. Counsel, the City of Geveland, the Board of County Com-Lease payments in 1984,1983 and 1982 amounted to missioners of Geauga County, Ohio and three citizen groups $26,203,000, $30,028,000 and $17,679,000, respectively, of filed a petition with the Public Utilities Commission of Ohio which $34,976,000, $31,994,000 and $15,393,000 were (Ohio Commission) and the Power Siting Board of Ohio charged to operating expenses. The Company has an (Board) against The Cleveland Electric illuminating Com-undivided interest in nuclear fuel lease agreements. Rental pany, Ohio Edison Company and The Toledo Edison Com-payments are made monthly during the terms of the leases pany (respondents) requesting that the Ohio Commission based on the amount of nuclear fuelleased and the amount and the Board jointly and/or individually investigate the of nuclear fuel burned. The increase in 1984 and 1983 public need for the Perry Nuclear Power Plant Unit No. 2 amounts charged to operating expenses resulted from higher (Unit) presently under construction by the CAPCO compa-building rentals and an increased amount of nuclear fuel nies. The petition also requests that the Ohio Commission being burned. and the Board order the cessation of construction of the Unit The nuclear fuelleases may be terminated by the lessees or and of the accrual by the respondents of allowance for funds lessors with notice as defined in the agreements or by casu-used during construction (AFC) with respect to the Unit and alty or certain other contingencies, including default by the a declaration that the issuance of securities by the lessees. In certain situations involving a termination, the respondents, the proceeds of which will be used to finance lessees may be required to purchase the leased nuclear fuel at construction of the Unit, will not be approved.The the higher of fair market value or unamortized cost. At respondents have filed a motion to dismiss the petition filed ' December 31,1984, the Company's share of the lessors' with the Board and an answer to the petition filed with the unamortized cost of the leased nuclear fuel was Ohio Commission requesting that the petition be dismissed. $126,863,000, and ihe Company expects to finance an addi-While the Company is not a party to the proceedings,it has a ! tional $51,226,000 of such costs under current leasing 13.74 % ownership interest in the Unit. arrangements. The Unit, exclusive of common facilities required for the The Company has certain buildings or portions thereof operation of Perry Unit No.1,is about 45% complete.The under lease, including its corporate headquarters, subject to Company's investment in the Unit, including AFC and renewal options and in certain cases purchase options. excluding common facilities required for the operation of At December 31,1984 future minimum lease payments for Perry Unit No.1, was approximately $152 million at Decem-capital leases are based principally on estimated usage of ber 31,1984. An order in the proceeding requiring that con-nuclear fuel and building leases, and minimum lease struction of the Unit be terminated could have the effect of payments for operating leases are based principally on the cancelling the Unit. In such event, the Company would seek corporate headquarters lease, as follows: regulatory approval for the recovery from its customers of its t 30

then investment in the Unit, together with any related can-hr Ending Dea mber 31. cellation costs. Based on its present knowledge of the pr - 1985 $ 8,402,000 ceedings, management of the Company has no reason to 1986 8,195,000 believ2 that the proceedings will result in decisions adverse to the CAPCO companies, and the Company believes that 1987 7,989,000 the vltimate resolution thereof will not have a material effect 1988 7,782,000 on the Company's financial position. 1989 7,579,000 The CAPCO companies presently are reviewing their Ann 1989 65,W2,000 options with respect to the Unit. The alternatives include resumption of construction, with a new estimated cost and Total $105,889,000 completion date, or cancellation. It is not certain how soon this revi;w will be completed. In the meantime, the principal The current price of Quarto ceal to the CAPCO companies l work being performed on the Unit is that necessary to enable is based principally on the actual current production costs I erry Unit No.1 to be placed in service. This reduced effort plus amortization of certain production expenses incurred will result in only minimal expenditures for construction on during the development period. See Note G to the financial the Unit during 1985. The Company has been accruing AFC statements. during the construction period, and such AFC accruals on Beaver Valley Replacement Power the Unit are expected to be about $14.4 million in 1985. If the In connection with a February 20,1981 rate order, the Com-CAPCO companies do not decide during 1985 to increase mission found that the Company had not proven that the c nstruction significantly on the Unit, a reserve will be pro-costs of replacement power during a 1979 outage of Beaver vided against subsequent accruals of AFC on the Unit until Valley Unit No.1 were prudently incurred. On November I c:nstruction is resumed. A deferral of AFC would not affect 19,1982 the Commission adopted an order nisi which cash flow, but it would cause an equal reduction in reported ordered refunds of $12.5 million plus interest over a two-tarnings from what they otherwise would be. year period less a $1 million offset from another proceeding. Ifit ultimately is determined to cancel the Unit, the Com-The order nisi became final on June 10,1983. The Company pany would seek to recover its investment therein and filed an appeal with the Pennsylvania Commonwealth Court related cancellation costs as discussed above. and filed with the Commission a petition for an extension of Quarto Mining Company (Quarto) time in which to file a refund plan together with an applica-Th2 Company and the other CAPCO companies have tion for a stay of the final order.On August 24,1983 the mad 21ong-term coal supply arrangements with Quarto, Commission denied the application for a stay but granted en unaffiliated company, to supply coal for the Bruce Mans-the petition for an extension of time in which to file a refund field Units. As part of these arrangements the individual plan. Subsequently, the Company filed an application with CAPCO companies are severally, and not jointly, guarantee-the Commonwealth Court for a stay of the final order, and ing th;ir proportionate shares of Quarto's debt and lease on September 28,1983 the Commonwealth Court granted obligations incurred in connection with the development, the application. The Company does not agree with the Com-equipping and operation of two mines from which the coalis mission's order, and no provision has been recorded by the supplied. At December 31,1984 the Company had guaran-Company for any such refunds. While the Company is teed thiobh;ations of Quarto with respect to approximately unable to predict what action the appellate courts may $51,074,000 of indebtedness and lease obligations relating to ultimately take and although the amount of such refunds approximately $25,257,000 of capital equipment for the could be substantial, management of the Company believes mines. In general, it is contemplated that the purchase prices that the replacement power costs were prudently incurred to be paid for the coal to be received under the foregoing and the eventual outcome of this matter will not have a arrang;ments willinclude amounts sufficient to service the material effgct on the Company's financial position or results guaranteed obligations. of Operations. Und:r the terms of the coal supply contracts, which c,on-Rate Matters tinu a until December 31,1999 with options to extend for ten Effective July 15,1981 the Company increased its rates by additional years, the CAPCO companies must reimburse about $64.2 million annually in accordance with an option Quarto for their share of the costs of operating the Quarto order of the Pennsylvania Public Utility Commission (Com-t mines, including those costs associated with mine construc-mission). On April 15,1982 the Commission adopted its tion, wh;ther or not they receive coal from Quarto. The final order in the rate proceeding which determined that the Company's total payments under these contracts amounted option rate increase of $61.2 million annually was just and to $30,729,000 and $28,512,000 for the years ended Decem-reasonable. The final order was appealed to the Pennsylvania ber 31,1984 and 1983,respectively. Commonwealth Court by a commercial customer. On Th2 Company's estimated future minimum payments November 29,1983 the Court affirmed the Commission's under th2 coal supply contracts related to mine construction final order. The Court's order was appealed to the Pennsyl-and equipment costs are: vania Supreme Court by the commercial customer. On December 19,1984 the Supreme Court ruled that the Commission's June 29,1981 option order was invalid under the applicable provisions of the Pennsylvania Public Utility y J

Duquesne Light Company- -I Net s(entinuee , Code on the basis that the $64.2 million rate increase was a policies provide coverage for losses in excess of $500 million l ' prohibited temporary rate. The Supreme Court remanded up to $1.06 billion. tha case to the Commission for proceedings consistent with The property insurance policies described above provide the Supreme Court's opinion.The Company has filed an the CAPCO companies with $1.06 billion of coverage on an application for reargument with the Supreme Court. investment in the two Beaver Valley Units at December 31, Since the Supreme Court's opinion did not provide any 1984 of about $3.5 billion. guidance as to what action might be appropriate for the In addition, NEIL also provides insurance coverage for the l Commission to take on remand, the Company is unable to extra expense of replacement power during prolonged acci-d;termine what effect the Supreme Court's decision will dental outages of nuclear plants. Coverage is provided for ultimately have. The Company believes that the avst the Company's interest in Beaver Valley Power Station Unit adverse effect that might result would be an order b/ the No.1 and, after a deductible period of 26 weeks, weekly Commission requiring the Company to refund to its custom-payments of up to $729,000 are provided for one year and up ers amounts collected under the option rates in excess of to $364,000 for an additional year. If losses exceed accumu- . amounts which it otherwise would have been entitled to col-lated funds available to NEIL, the Company could be i lect as just and reasonable. While the Company estimates assessed approximately $1.9 million a year for payment of that such refund, after reflecting possible offsetting credits, NEllf s obligations. could amount to as much as $13 million, it believes that The Price-Anderson Amendments to the Atomic Energy additional credits might be available which could further Act limit liability to third parties to $595 million for each offset any such refund either in whole or in part. nuclear incident. Coverage of the first $160 million of such On April 30,1982 the Company filed with the Commis-liability is provided through ANI and MAELU.The next sion a new rate schedule estimated to increase annual reve- $435 million is provided by retroactive assessments of up to nues by approximately $165 million (subsequently reduced a limit of $5 million per operating nuclear reactor per inci-to approximately $155 million). On January 28,1983 the dent, but not more than $10 million per operating reactor in Commission entered a final order allowing an increase of any calendar year. Based on its present ownership interest in $105.8 million beginning on January 29,1983. The Com-one operating nuclear reactor, the Company's maximum . mission's order was appealed to the Pennsylvania Common-potential assessment under these provisions would be $2.4 wralth Court by both the Pennsylvania Consumer Advocate million per incident but not more than $4.8 million per cal-and the Company. Except for the Consumer Advocate's endar year. appeal with respect to the Commission's allowance of the Other recovery of the cancellation costs of four nuclear generating in connection with coal supply arrangements for its wholly-umts (see Note B to the financial statements), both appeals owned generating units the Company has contracted with an have been discontmued* unaffiliated coal supplier to purchase a minimum of 750,000 Management believes that the ultimate resolution of these tons of coal per year through December 31,1986. In 1983 the rate matters will not have a material adverse effect on the contract was amended to provide that if the Company Company's financial position or results of operations. requests deliveries in 1983 and 1984 below the minimum NuclearInsurance annual tonnage, the Company will make up the shortfall The CAPCO companies have coverage with American (plus a 63,000 ton shortfall in 1982) by purchasing additional Nuclear Insurers (ANI) and Mutual Atomic Energy Liability tons during the remaining term of the contract or by extend-Underwriters (MAELU) to provide primary property insur-ing the term of the contract. The contract also provides that ance coverage for Beaver Valley Power Station Units Nos.1 any shortfall can be sold to purchasers other than the Com-and 2 in the aggregate amount of $500 million, pany. The total shortfall under the contract at December 31, The CAPCO companies are members of Nuclear Electric 1984 was approximately 463,000 tons. Insurance Limited (NEIL), a mutual insurer established by The Company is involved in various other legal proceed-the utility industry to provide Decontamination Liability ings.In theopinionof managementof theCompanysuch and Excess Property insurance in excess of $500 million for legal proceedings will not have a material effect on the finan-members' nuclear generating facilities. NEIL presently pro-cial position or results of operations of the Company. vides such excess coverage in the amount of $475 million. N. SUPPLEMENTARY INCOME STATEMENT Under this policy the CAPCO companies are subject to a INFORMATION Year Ended December 31* retrospective premium assessment of approximately $9.5 1984 1983 1982 million per year for a period of seven years in the event of accidents at nuclear plants of member companies if losses (Thousands of Dollars) exceed premiums, reserves and other NEIL resources. The Maintenanc e 583,914 $75,947 578,431 Company's share of any such retrospective premium Amortization of ex'raordinary assessment would be approximately $2.9 million a year. property losses 4,033 6,099 Damages in excess of the primary $500 million coverage Taxes other than payroll and income taxes: also are covered by excess property insurance policies issued , mss wcapts 38,349 35,576 33,186 to the CAPCO companies by ANI and MAELU which pro-Impedy 16,604 14,374 14,139 . vide $85 million of coverage.The ANI/MAELU and NEIL State Capital stock s,901 5,501 6,601 32 L'

Under the system of accounting followed by the Com-to coalinventories.Theinvenv pccountsarerelievedand r pany, a portion of maintenance expenses and of taxes other operations expense charged aa the cod is used. than payroll and income taxes represents amounts charged O, QUARTERLY FINANCIAL INFORMATION (Unaudited) The following is a summary of selected quarterly financial data (in thousands of dollars, except per share amounts): 1 Electric Operating Operating Net Earnings I er Quarter Ended Revenues Income Income Share March 31,1983 5185,848 543,918 $32,975 5.31 ' June 30,1983 198,666 45,287 34,883 .54 Septimber 30,1983 215,141 49,491 39,392 .60 ( December 31,1983 200,690 47,976 37,977 .56 l Marth31,1984 213,485 50,989 42,611 .63 i June 30,1984 214,045 45,301 37,473 .53 ' September 30,1984 223,488 49,773 42,919 .61 December 31,1984 210,757 39,671 33,790 .45 ! P. SUPPLEMENTARY INFORMATION TO DISCLOSE THE EFFECTS OF CHANGING PRICES (Unaud The following supplementary information is supplied in prices (current cost) have had on the Company's results of accordance with the requirements of the Statement of Finan-operations. The data provided are not intended as a substi-cial Accounting Standards No. 33, Financial Reporting and tute for earnings reported on a historical basis, but offer Changing Prices. This Statement requires adjustments to some perspective of the approximate effects of inflation historical costs to estimate the effects that changes in specific rather than a precise measurement of these effects. STATEMENT OF INCOME ADJUSTED FOR CHANGING PRICES For The Year Ended December 31,1984 (Thousands of Dollars) Conventional Current Cost i Historical Average l Cost 1984 Dollars ' Electricoperatingrevenues $861,775 5861,775 Fut! 234,910 234,910 Purchased power (sales)-net (26,637) (26,637) Other operation and maintenance expenses 222,691 222,691 Depreciation expense 77,532 185,937 Taxes other than income taxes 70,279 70,279 Income taxes 97,266 97,266 Oth1rincome and deductions-net (87,393) (87,393) Interest charges 116,333 116,333 704,981 813,386 i income frorr. continuing electric operations (excluding adjustment of ! property, plant and equipment to net recoverabf e cost) $156,794 5 48,389 I I Increase in specific prices (current cost) of property, plant and equipment held during the year' $216,023 l AdjustmInt of property, plant and equipment to net recoverable cost 32 Effect of increase in general price level (212,822) Excess of increase in specific price les el over increase in general prices af ter adjustment of property, plant and equipment to net recoverable cost 3,233 Gain from decline in purchasing power of net amounts owed 72,125 Net $ 73,358 ' At December 31,1984, current cost of property, plant and equipment (exclusive of capitalized leases), net of accumulated depreciation, was $5,985,993, while historical cost or net cost recoverable through depreciation was $2,906,867. 33 J

Duquesne Light Company N2tes (continued) FIVE-YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA ADJUSTED FOR EFFECTS OF CHANGING PRICES (In Thousands, Except Per Share Amounts) Year Ended December 31, 1984 1983 1982 1981 1980 Current cost information: Income from continuing electric cperations (excluding adjustment of property, plant a..d equipment to net j recoverable cost)(1) $ 48,389 $46,702 $24,567 $24,430 $24,216 ) Income (loss) per share from continuing electric operations (after dividend requirements on preferred and preference stock)(1) .43 .42 (.04) (.14) Excess of increase in general price level over increase in specific prices after adjustment of property, plant and equipment to net recoverable cost 0,233) 2,767 (247) 125,660 245,461 Net assets at year-end at net recoverable cost 1,039,107 999,286 934,346 867,398 869,413 Generalinformation Gain from decline in purchasing power of net amounts owed 72,125 70,614 66,856 154,353 215,541 Cash dividends declared per share of common stock $2.06 $2.o9 $2.04 $2.11 $2.27 Market price per share of common stock at year-end $15.125 $14.07 $15.88 $15.14 $15.92 Average consumer price index 311.2 298.5 289.1 272.4 246.8 Historical basis: Electric operating revenues $861,775 $800,345 $746,462 $786,229 $674,744 Cash dividends declared per share of common stock $2.06 $2.00 $1.90 $1.85 $1.80 Market price per share at year-end $15.125 513.50 $14.75 $13.25 $12.63 Proven and probable coal reserves at beginning of year (tons) 23,200 25,100 26,300 28,100 29,900 Tons of coal mined 860 785 942 680 875 Average cost per ton of mined coal $34.65 $36.59 $31.62 $35.10 $31.14 (1) Amounts for 1982 are before extraordinary gain. The current cost of property, plant and equipment, which recoverable cost, which is historical cost. The amount of this includes land, land rights, intangible plant, property held for excess that accumulated as a result of inflation in the current future use, construction work in progress and nuclear fuelin year must be reduced to net recoverable cost. process, represents the estimated cost of replacing existing The Company, by holding assets such as receivables, plant assets and was primarily determined by indexing sur-prepayments and inventory, suffers a loss of purchasing viving plant by the Handy-Whitman Index of Public Utility power during periods of inflation because the amount of Construction Costs. The current cost of coal properties was cash received in the future for these items will purchase less. d:termined by indexing coal reserves and machinery and Conversely, by owing monetary liabilities, primarily long-equipment by the Marshall-Stevens Mining and Milling term debt, the Company benefits because the payment in the Index.The current cost of property, plant and equipment future will be made with nominal dollars having less pur-does not include capitalized leases.The current year's provi-chasing power. The Company has significant amounts of sion for depreciation and depletion on the current cost long-term debt outstanding which will be paid back in amounts of property, plant and equipment was determined dollars having less purchasing power and, therefore, for by applying the Company's depreciation and depletion rates purposes of these calculations, has a net gain from holding to the indexed plant amounts, monetary liabilities in excess of iaonetary assets. Fuel inventories, the cost of fuel used in generation and The regulatory process limts the amount of tiepreciation purchased power have not been restated from their historical expense included in the Company's revenue allowance and cost in nominal dollars. Rate regulation limits the recovery of limits utility plant in rate base to original cost. Such amounts fuel and purchased power costs through the operation of produce cash flows which are inadequate to replace such adjustment clauses or adjustments in basic rate schedules to property in the future or preserve the purchasing power of actual costs. For this reason fuel inventories are effectively common equity capital previously invested. While this effect - monetary assets. is partially mitigated by the benefit derived from holding As prescribed in Statement 33, income taxes were not long-term debt, the Company has a net purchasing power adjusted. loss which is experienced by the common shareholder and The regulatory process limits the Company to the recov-can only be overcome by adequate rate relief. However, the cry of the cost of service in its rates. Therefore, any excess of Company expects that it will be able to establish rates which the value of plant at current cost must be reduced to the net will recover the increased costs of new plant. 34 w.

Duquesne Light Company Selected Financial Data and Statistical Summary (Thousands of Dollars, Except Per Share Amounts) 1984 1983 1982 1981 1980 1979

SUMMARY

RESULTS OF OPERATIONS Residential revenues 280,647 267,110 238,496 223,146 196,400 176,744 Commercial revenues 314,129 290,370 263,374 243,501 209,871 185,880 Industrial revenues 244,970 221,107 225,292 300,066 250,295 232,389 Street lighting and other revenues 14,689 14,357 13,240 12,383 11,052 10,370 Miscellaneous revenues 7,340 7,401 6.060 7,133 7,126 6,164 Total electric revenues 861,775 800,345 746,462 786,229 674,744 611,547 Operation and maintenance expenses 430,964 366,386 399,527 435,589 380,973 351,731 Depreciation 77,532 73,682 62,939 60,854 53,316 47,885 Taxes othtr than income taxes 70,279 60,651 57,476 57,694 47,637 46,956 Incomt taxes 74,600 76,194 53,307 57,801 50,643 41,592 Interest charges, net of allowance for borrowed funds used during construction 116,333 109,161 100,344 92,968 75,629 65,414 i Other income, principally allowance for equity funds used during construction 64,727 50,955 44,328 28,086 26,749 21,587

Income from continuing electric operations before extraordinary gain 156,794 145,226 117,197 109,409 93,295 79,556 Loss from discontinued steam heating operations 9,924 538 333 1,194 Income before extraordinary gain 156,794 145,226 107,273 108,871 92,962 78,362 Extraordinary gain 9,609 l Net income 156,794 145,226 116,882 108,871 92,962 82,207t Dividends on Preferred and Preference Stock 21,955 22,411 22,701 22,976 23,353 23,721

Earnings for Common Stock 134,839 122,815 94,181 85,895 69,609 58,486

Avtrage number of common shares outstanding 61,054 55,383 48,236 41,764 38,267 32,239 Earnings per share of Common Stock:

Incom! from continuing electric operations 2.21 2.20 1.96 2.07 1.83 1.73 Earnings for Common Stock 2.21 2.20 1.95 2.06 1.82 1.81t Dividmds declared on Common Stock 2.06 2.00 1.90 1.85 1.80 1.76 l tincludes cumulative effect to January 1,1979 of the change in billing practice, net of income taxes, of $3,845 or 5.12 per share. l PLANT Property, plant and equipment 3,799,499 3,293,481 3,024,554 2,809,753 2,604,333 2,380,805

Accumulated depreciation and amortization 659,745 555,641 504.680 477,009 424,653 386.479 Property, plant and equipment-net 3,139,754 2,737,840 2,519,874 2,332,744 2,179,680 1,994,326 jTOTAL ASSETS 3,530,310 3.145,811 2,883,424 2,668,577 2,447,163 2,222,537 35 l

Duquesne Light Company Not s(continued) 1984 1983 1982 1981 1980 1979 CAPITALIZATION Common Stock 64,775 58,420 53,277 45,303 40,166 35,550 Capital surplus 804,377 724,147 649,376 550,244 494,228 433,984 Retained earnings 184,313 175,938 165,340 163,705 155,102 155,328 _ Non-redeemable Preferred and Preference Stock 156,137 156,137 156,137 156,137 156,137 156,137 Redeemable Preferred and Preference Stock 127,414 134,979 140,829 143,924 146,867 149,998 First mortgage bonds 1,149,547 1,100,147 1,006,637 983,870 918,230 808,830 Other long-term debt 278,384 234,019 199,934 176,682 126,981 127,436 Unamortized debt discount and premium-net (10,896) (10.967) (9,488) (9,453) (7,161) (5,770) Total capitalization 2,754,051 2,572,820 2,362,042 2,210,412 2,030,550 1,861,493 AVERAGE REVENUE PER KILOWATT-HOUR-ALL CUSTOMERS 7.389v 7.215v 6.708v 5.715v 5.019e 4.54ee SALES OF ELECTRICITY Average annual residential kilowatt-hour use 5,768 5,752 5,668 5,698 5,770 1,629 _ Electric energy sales billed (millions of kilowatt-hours) Residential 2,918 2,905 2,853 2,858 2,676 2,778 Commercial 4,393 4,257 4,163 4,069 4,024 3,870 Industrial 4,148 3,717 3,902 6,582 6,272 6,546 Street lighting and other 104 111 120 125 129 131 Total 11,563 10,990 11,038 13,634 13,301 13,325 ENERGY SUPPLY AND PRODUCTION DATA Energy supply (millions of kilowatt-hours) _ Generated in system plants 12,983 11,900 12,352 13,914 13,485 13,884 Purchased and net interchange (803) (164) (689) 410 541 125 Losses and Company use (617) (746) (625) (690) (725) (684) Total 11,563 10,990 11,038 13,634 13,301 13,325 Generating capability (thousands of kilowatts) 3,148 3,148 3,144 3,177 3,179 3,294 Peak load (thousands of kilowatts) 2,172 2,184 2,158 2,522 2,474 2,296 Cost of fuel per million BTU 165.868v 167.140v 167.865v 159.660v .149.7o8e 131.779v BTU per kilowatt-hour generated 10,682 10,635 10,853 10,931 10,811 10,924 Average production cost per kilowatt-hour 2.559v 2.541v 2.575v 2.354v 2.202v 1.913v NUMBER OF ELECTRIC CUSTOMERS-At End of Year Residential 506,883 505,781 503,987 503,044 500,466 496,005 Commercial 49,837 49,493 49,320 48,859 48,308 47,978 Industrial 1,990 1,984 1,999 2,016 2,005 1,975 Street lighting and other 1,588 1,633 1,647 1,713 1,725 1,746 Total 560,298 558,891 556,953 555,632 552,504 547,704 36 L

LManagement's Discussion Fu n g mpany anticipates that funds required for planned and' Analysis of Financial construction expenditures in the next sever i years wiii be ~ provided principally from the issuance of additional equity 1 Condition and Results and debt securities and in part from cash becoming available ! of Operations from operations. On March 27,1984 the Company issued $30 miiii,,,,133, pi,,, yo,,g,,e 30,a,, se,ie, a,e . i Ci P talResources and Liquidity March 1,1991. On November 14,1984 the Company issued i Construction and sold 2.5 million shares of Common Stock. Net proceeds l Construction expenditures during 1984, exclusive of from the sale of the Common Stock were approximately ' allowance for funds used during construction and nuclear $37.4 million. Funds provided to the Company under its , fu;1, were approximately $251 million. These expenditures Dividend Reinvestment Plan in 1984 amounted to approxi- ' were primarily for the construction of three CAPCO gener-mately $48 million, and an additional $10.7 million was rein-Ating units in addition to improving and expanding produc-vested on January 1,1985. On December 19,1984 the Beaver j tion, transmission and distribution systems and pollution County Industrial Development Authority issued $51 million ' controlequipment. of 11% % tax-exempt pollution control revenue bonds to On January 28,1985, the CAPCO companies announced a reimburse the Company for its share of the cost of certain i delay in the completion date of Beaver Valley Unit No. 2, pollution control facilities at the Beaver Valley Nuclear which is about 83% complete, from late 1986 to about the Power Station. Principal and interest on the bonds will be end of 1987. This delay is expected to increase the total esti-funded by the Company. Portions of the net proceeds from mated cost of the unit from about $3.5 billion to approxi-these issues were used to pay short-term indebtedness 4 mately $3.9 billion, including allowance for funds used dur-incurred principally for construction purposes, and the bal-l ing construction. The Company's share of the increase is $55 ance was applied to construction expenditures. The Com-i million, bringing its total commitment in the unit to $536 pany currently estimates that approximately 79% of the million. The new schedule recognizes the need for more time funds required for its 1985 construction program will come to complete the unit in light of regulatory and safety require-from outside financing. The Company expects to complete a ments adopted since the unit was designed, as well as the pollution control financing in the first quarter of 1985 for the decision of the CAPCO companies to concentrate on the Perry Nuclear Power Station through the issuance of $39 mil-i completion of Perry Unit No. l. lion State of Ohio Pollution Control Revenue Bonds secured The Company currently estimates that it will spend, by First Mortgage Bonds. The exact timing of this sale will

exclusiva of allowance for funds used during construction depend on market conditions.

i (AFC) and nuclear fuel, approximately $229, $173, $186, The Company finances its nuclear fuel requirements pri- , $169 and $141 million for each of the years 1985 through marily by leasing and other arrangements pursuant to which ' 1989, respectively. These estimates assume a severely it may finance up to $208 million of nuclear fuel. As of

restricted construction schedule for Perry Unit No. 2 in 1985 December 31,1984 the Company's share of the cost of l and resumption of construction in 1986.

nuclear fuel financed under these arrangements was about f Estimated Construction Program $157 million, including interest, storage and other ($in millions) nuscellaneous costs. In addition to the funds required for the construction pro-1985 1986 1987 1988 1989 I gram, $23.1 million was required in 1984 for maturities of including AFC $329 $240 $247 $203 $180 long-term debt and sinking fund and purchase requirements, Excluding AFC $229 $173 $186 $169 $141 and $7.8 million will be required in 1985 for such purposes. Interim financing will be through bank borrowings and If Perry Unit No. 2 construction does not resume until 1989, sales of commercial paper. See Note F to the financial state-construction expenditures for the years 1986 through 1989 ments for short. term borrowing arrangements. Variable mar-are estimated to be $155, $144, $124 and $142 million, ket and general economic conditions may affect the Com-L respectivily,in each case exclusive of AFC and nuclear fuel. pany's selection of financing alternatives and adversely affect ! See Nots M to the financial statements.' its ability to raise capital. In order to maintain earnings ade-Th2 amount which the Company must spend for its con-quate to finance construction expenditures and refunding struction program is regularly under review and is subject to requirements, the Company requires rate increases sufficient , changes influenced by business and economic conditions and to offset increased costs and provide a fair rate of return. l other factors, such as escalation of labor, material and equip-The Restated Articles of the Company require that as a

ment costs, rate of construction progress, the development of condition to the issuance of Preferred Stock, earnings (after

! environmental and nuclear safety regulations, service rella-income taxes) available for interest charges be at least 1.5 I bility and system efficiencies. In addition, this review also times the sum of interest charges on all indebtedness and must tak2 into account difficulties in obtaining rate increases Preferred Stock dividend requirements. This restriction cur-sufficient to generate adequate earnings, possible changes in rently precludes the Company from issuing Preferred Stock. load growth trends and,in the case of the CAPCO construc-There is no similar restriction upon the issuance of the Com- ! tion program, the ability of each of the CAPCO companies to pany's Preference or Common Stock. ' financeits capital requirements. 37

' Duquesne 1.ight Company b OteS (continued) Perry Unit No.2 On April 27,1984 the Company filed a request for a $42 The CAPCO companies are presently reviewing their million annual rate increase with the Commission. The Com- . options with respect to completion of the Perry Nuclear n ission's final order allowed an increase of $31.4 million Power Plant Unit No. 2 (Unit). The alternatives include beginning on January 26,1985. This rate increase should resumption of construction, with a new estimated cost and result in improved earnings in 1985. completion date, or cancellation. It is not certain how soon Fatraordinary Propertyh this review will be completed. In the meantime, the pnncipal in 1980 the CAPCO companies cancelled the construction work bemg performed on the Unit is that necessary to enable of four nuclear generating units. In January 1983 the Com-Perry Unit No.1 to be placed m, service.This reduced effort mission approved the recovery of the accumulated costs frcan 4 will result in only mimmal expenditures for construction on the Company's customers but did not allow any return on the Unit during 1985. The Company has been accruing AFC these costs. The Commission's order has been appealed by during the construction period, and such AFC accruals on the the Pennsylvania Consumer Advocate to the Pennsylvania i Unit are expected to be about $14.4 million in 1985. If the Commonwealth Court. See Note B to the financial 1 CAPCO companies do not decide during 1985 to increase statements. construction significantly on the Unit, a reserve will be pro-Deferred CoalCosts vided against subsequent accruals of AFC on the Unit until construction is resumed. A deferral of AFC would not affect By Interim Order entered January 12,1981 the Commis-cash flow, but it would cause an equal reduction in reported sion directed that the Company limit its recovery of the cost earnings from what they otherwise would be.The Unit is f Quarto coal through its energy cost rate to approximately about 45% complete. The Company's investment in the the prevailing market price of similar coal rather than the Unit, including allowance for funds used during construction actual cost of Quarto coal. The Company is deferring the and excluding common facilities required for the operation of excess of the actual cost of Quarto coal over the cost being Perry Unit No.1, was approximately $152 million at Decem-recovered through its energy cost rate until recovery of the ber 31,1984, if it is ultimately determined to cancel the Unit, actual cost is permitted by the Commission. If recovery of such excess is disallowed, the amount deferred would be the Company would seek regulatory approval for the recov-charged to income in the year of disallowance. See Note G to cry from its customers of its then investment in the Unit, the financial statements. together with any related cancellation costs. See Note M to the financial statements. Beaver Valley Replacement Power in c nnection with a February 20,1981 rate order, the Rate Matters Commission found that the Company had not proven that Effective July 15,1981 the Company increased its rates by the costs of replacement power during a 1979 outage of Bea-about $64.2 million annually in accordance with an option ver Valley Unit No.1 were prudently incurred. Further order of the Commission. On April 15,1982 the Commission hearings in the Beaver Valley refund proceedings were held, adopted its final order in the rate proceeding which deter-em ,1982 the Commission adopted an order mined that the option rate increase of $64.2 million annually ag n mst which ordered refunds of $12.5 milhon plus interest over was just and reasonable. The final order was appealed to the a tW Par penod3e order Mshanw Snal on June 10, i ennsylvania Commonwealth Court by a commercial cus. 1983, and the Company filed an appeal with the Common-tomer. On November 29,1983 the Court affirmed the Com- "#"I #"*"I'* mission's final order. The Court's order was appealed to the Pennsylvania Supreme Court by the commercial customer. Other On December 19,1984 the Supreme Court ruled that the Under provisions of the Economic Recovery Tax Act of - Commission's June 29,1981 option order wa:, invalid under 1981 eligible individuals who are participants in the Com-the applicable provision of the I ennsylvania Public Utility pany's Dividend Reinvestment Plan may elect to exclude Code. The Company has filed an application for reargument from current federal taxable income each tax year from 1982 with the Supreme Court.The Company believes that the through 1985 the fair market value of shares of Common most adverse effect that might result would be an order by Stock received from the reinvestment of dividends to the the Commission requiring the Company to refund to its extent the aggregate fair market value of such shares does not customers amounts collected under the option rates in excess exceed $750 ($1,500 for spouses who file a joint return). This of amounts which it otherwise would have been entitled to provision has provided incentive for stockholders to reinvest - collect as just and reasonable. While the Company estimates dividends and thereby case the cash requirements of the that such refund, after reflecting possible offsetting credits, Company. could amount to as much as $13 million,it believes that addi-tional credits might be available which could further offset any such refund either in whole or in part. See Note M to the financial statements. 38 a

In 1984 the Company capitalized all of its nuclear fuel maintenance expenses in 1983 compared to 1982 was due leises and certain property leases. There was no impact on primarily to a substantial reduction in fuel expenses resulting the Company's results of operations. from higher generation from the Beaver Valley No.1 nuclear The Company has generated in each year funds from unit, decreased deferred energy expenses and lower genera-oper tions sufficient to meet its operating expenses, pay tion of electricity. Net sales of power to other utilities dividends and finance a portion of its capital needs. The decreased as the market for such sales was not as favorable in demands and commitments detailed in Note M to the finan-1983. cial statements and those noted above are not expected to Depreciation expense increased in 1984 and 1983 as a result mat:rially affect the Company's ability to finance its opera-of increases in ut lity plant and changes in depreciation rates tions or its construction program or to pay dividends. in 1983 to conform with the depreciation rates allowed by the Results of Operations Pennsylvania Public Utility Commission in its rate orders. Operating revenues from continuing electric operations Additionally, begmnmg m January 1983 depreciation increased (decreased) in the years 1982 through 1984 over the expensg includes the amortization of the cancelled nuclear respective preceding years, for the following reasons: E.eneratmg umts and Shippingport. See Note B to the finan-cial statements. 1984 1983 1982 Taxes other than income taxes increased in 1984 compared (Millions of Dollars) to 1983 due primarily to increased Pennsylvania gross Gen:ral rate increases $26.9 $88.4 $ 43.0 receipts taxes, which vary in direct relationship to revenues, and as a result of increases in Pennsylvania capital stock taxes Elec.t_ric.a.l_co_nsu. mpti.on 12.8 (10.0) (62.3). and Pennsylvania public utility realty taxes relatmg pn,nci-Enirgy clause revenues 18.3 (31.0) (19.0) pally to legislative changes implemented in 1984. Fluctua-Stata tax adjustment tions in income taxes are due primarily to changes in taxable and other 3.4 6.5 (1.5) income. The effective incorr.e tax rate for the three years $61.4 553.9 5(39.8) ended December 31,1984,1983 and 1982 was 32%,34% and 31 % respectively. See Note H to the financial statements. The operating revenues of the Company are based on rates The increases in allowance for equity and borrowed funds authorized by the Pennsylvania Public Utility Commission. used during construction were primarily due to the increased Dese rates are designed to recover the Company's operating cost of construction. Fluctuations in interest income resulted expenses, plus a rate of return on the investment in utility from changes in cash available for temporary investments. rata base. The Company also has an energy cost rate which Interest expense for each of the years 1984,1983 and 1982 generally allows it to recover the difference between actual was higher due to increased total borrowings to finance the fu;l costs and fuel costs included in base rates. Any Company's capital expenditures. overcollections of revenues are refunded, with interest, to Earnings per share of Common Stock for 1984,1983 and customers. 1982 were adversely affected by increases in the average l Th2 Company was permitted two rate increases in 1983 number of shares outstanding, which reduced earnings per , effective January 29 and September 17. See Note M to the share by 5.20, $.35 and 5.31, respectively. l financialstatements.Theincreasesin electricalconsumption The Company has prepared information on the effects of l and en:rgy clause revenues in 1984 were due principally to inflation and changing prices as prescribed by the Financial increased sales to all significant customer groups and a higher Accounting Standards Board. Such information is in Note P I average energy cost rate. The decreases in electrical consump-to the financial statements. tion in 1982 and 1983 were due primarily to the severe impact of th; economic recession in the Company's service area, par-ticularly on steel and other industrial customers. Total operation expenses (fuel, purchased power and other operation) increased in 1984 compared to 1983 primarily due to increases in deferred energy expenses, increased genera-tion of electricity and increased administrative and general cxpenses which included a one-time charge of approximately 1 $5 million to pay for an early retirement program. These incr ases were partially offset by increases in 1984 in net sales of power to other utilities due to favorable capacity situations and thm requirements of neighboring utilities which resulted ' in increased power deliveries. Maintenance expenses increased in 1984 compared to 1983 due primarily to increased i generating outage expenses. The decrease in operation and l l 39 N _]

l Business of the Company Common Stock Dividends distributions on, or the purchase of, its capital stock ranking junior to Duquesne Light Company is The Company has paid cash the Preferred Stock (collectively engaged principally in the produc-dividends on its Common Stock in referred to as " junior stock tion, transmission, distribution and each year since 1913 and on a regu-payments"). sale of electric energy. The Com-lar quarterly basis (January 1, April 1, No dividends or distributions pany serves an area of approxi-July I and October 1)in each year may be made on the Common Stock mately 800 square miles in Alle-beginning in 1953 after becoming if dividends or sinking or purchase gheny and Beaver Counties. This publicly owned. The quarterly divi-fund obligations on the Preferred area, which includes the City of dend related to the first quarter of Stock or Preference Stock are Pittsburgh,is located in South-1983 was paid at the rate of 47%# accumulated and unpaid. Further-western Pennsylvania and has a per share. Quarterly dividends more, the aggregate amount of jun-population of about 1,430,000. related to the last three quarters in ior stock payments which may be The executive offices of 1983 and the first quarter in 1984 made in any 12-month period are in Duquesne Light are located at: were paid at the rate of 50v per generallimited to (1) 50% of con-One Oxford Centre share. Commencing April 1,1984 solidated net income for any period 301 Grant Street the quarterly dividend rate was of 12 consecutive calendar months Pittsburgh, Pennsylvania 15279. increased to 51%v per share. Future within the 15 preceding months if dividends will depend upon future the effect of such payments would Duquesne Light Company is an eanungs, the cash position of the be to reduce the ratio of common Equal Opportunity Employer. Company, construction require-stock equity to total capitalization ments, rate regulati n and ther rel-to less than 20% or (2) 75% of such Service Area map evant factors. The Company expects consolidated net income if the effect that dividends will continue to be would be to reduce such ratio to paid in the future. 20% or more but less than 25%. No Dividends may be paid on the portion of retained earnings at g f.,u( Common Stock to the extent per-December 31,1984 was restricted mitted by law and as declared by by virtue of this provision. The %g the Board of Directors, subject t approximate number of holders of L D=== the provisions of the Company's Common Stock as of the March 1, i Restated Articles which restrict the 1985 record date for the 1985 g M67 payment of cash dividends or other Annual Meeting was 147,000. x.J ~ FederalIncome Tax Status of Common Stock Dividends The Company estimates that portions of the Common Stock dividends paid in 1984 represent a return of capital and are not taxable as dividend income

• "1 as follows:

Payment Taxable As Not Taxable As Dates Dividend Income Dividend Income January 1 100.00 % 0.00 % 1974-1984 Dimensions April 1 100.00 % 0.00 % Magazine Juiy 1 79.77 % 20.23 % in mid-year 1985, the Company October 1 68.09 % 31.91 % plans to publish Duquesne Light These estimates are subject to audit by the Internal Revenue Service. Dimensions, containing in-depth information concerning the Com-pany. Dimensions will include an Form 10-K Offer Report on Form 10-K filed with the 11-year statistical review and a dis-Securities and Exchange Commis-cussion of some of the important if you are a holder or beneficial sion for the year 1984 (including a issues affecting Duquesne Light owner of any class of the Com-list of exhibits). All requests must Company. For a copy of Dimensions pany's stock as of March 1,1985, be made in writing to the Secretary, the record date for the 1985 Annual (29-7) Duquesne Light Company, write: Duquesne Light Company Meeting, the Company will send One Oxford Centre,301 Grant Corporate Communications (30-5) you, upon request and at no charge, Street, Pittsburgh, Pennsylvania One Oxford Centre a copy of the Company's Annual 15279. 301 Grant Street Pittsburgh, Pennsylvania 15279 40

CAPCO Board of Directors Company Officers In 1967, Duquesne Light joined four John M. Arthur 9 $

• John M. Arthur oth r electric utilities to form the Chairman of the Board and President Chairman of the Board and President C;ntral Area Power Coordination Charles M. Atkinsont*

Charles M. Atkinsonm (CAPCO) group. Executive Vice President Executive Vice President Prior to 1980,10 generating units w:ra committed under the CAPCO Henry G. Allyn, Jr.* t Roger D. Beck detired President and Chief Executive Vice President-Admm, istrative Services arrangements, which provided for Officer of The Pittsburgh Group joint ownership interests based on and Lake Erie Railroad Company individual requirements To date, Daniel Berg

• t$
• Vi e Pre dent-Nuclear Group sev;n are in service, and three are Acting President, Provost and Institute Clifford N. Dunn undir construction. Duquesne Light Professor, Rensselaer Polytechnic Institute shares in nine of the CAPCO units.

Vice President-Power Supply Group Dorun B Since 1980 each CAPCO com-William F. Gilfillan, Jr. eBuhl ndation pany has been responsible for estab. Vice President-Customer Services lishing its own level of reserves and John H. Demmler*t Group {ar[ner Reed Smith Shaw & McClay Wesley W. von Schack<2) gingrating capacity needs beyond g_ thyomtly-owned umts still under Vice President-Finance Group construction. Duquesne Light is Sigo Falk* $ n;w developing a program to meet Associate Director, Health Systems Walter T. Wardzm.skt its future capacity requirements. Agency of Southwestern Pennsylvania Vice President-Legal and Corporate Communications William H. Knoell t' 'Duquesne Light Company President and Chief Executive Officer, Earl J. Woolever Beaver Wiley #1 Beaver Wiley =2 Cyclops Corporation Vice President-Nuclear Construction c tyI8,000 KW G. Christian Lantzsch t$* Diane S. Eismontm tyI8,000 KW a DY. Ownership:47.5 % D.L Ownership: 13.74 % Vice Chairman of Mellon Bank, and Vice Secretary D.L Share: 385,000 KW D.L Share: 114,000 KW Chairman and Treasurer of Mellon Bank James O. Ellenberger ' Pennsylvania Power Company Corporation Controller M.msfeld 31 Mansfeld 32 En W.Springery Ronald G. Males c Coal-1976 Coal-1977 Capacity:780,000 KW Capacity: 780,000 KW Partner, Horty, Springer and Mattem Treasurer D.L Ownership:29.3 % D.L Ownership:8.0% Attorneys-at-Law D.L Share:228,000 KW D.L Share:62.000 KW Richard J. Ciora

• Member of Audit Committee y,g,fj gy Assistant Treasurer Coal-1980 t Member of Compensation Committee Capacity:800,000 KW f Member of Employment and Lawrence P. Galie D.L Ownership: 13.74 %

Community Relations Committee Assistant Treasurer D.L Share: 110,000 KW $ Memberof NominatingCommittee ' Ohio Edison Company

• Member of Nuclear Review Committee Joan S. Senchyshyn Sammis # 7 Assistant Secretary E,,',,3y';7'co,ooogw Transfer Agent and A. William Stein (4) 2 D.L Ownership: 31.2%

Registrar Assistant Secretary D.L Share: 187,000 KW

• The Cleveland Electric Common, Preference and "On April 17,1984, the Board of Directo,rs elected Charles M. Atkmson Executive hce Illuminating Company Preferred Stock President. Prior to his appointment, IYrry # I Itrry *2 The First Jersey National Bank Mr Atkinson was Vice President, Finance and Accounting Group.

Nuct:ar-1985 Nuclear " Jersey City, New Jersey C'.L Ownership:pacity:1,205,000 KW Capacity: 1,205,000 KW mon August 21,1984, the Board of Directors D 13.74% D.L. Ownership: 13.74 % elected Wesley W. von Schack Vice President-D.L Shrre: 165,000 KW D.L Share: 165,000 KW Annual Meeting Of F. nance Group. In addition, on September 18, E;st!alc #5 1984 the Board assigned Mr. von Schack the Stockholders duties of Chief Financial Officer. Prior to his Coal-1972 Capacity:648,000 KW appointment, Mr. von Schack was Senior Vice D.L Ownership: 31.2% The annual meeting of stockholders President-Finance and Administrative Ser-D.L Share: 202,000 KW will be held at 10 a.m., Pittsburgh $7'[,,7l""' Verm nt PuNic Service

• The Toledo Edison Company time, on Tuesday, April 30,1985 in GOn A ril 17,1984, the Board of Directors the David L. Lawrence Convention elected E>iane S. Eismont Corporate Secretary.

0*# # I a y KW Center, Pittsburgh, Pennsylvania. $,r ' hn aP i"' ' $~ Eis,mLn s ,, 3, n in t = pm n D.L Share:0 "On June 19,1984, the Board of Directors " Constructing and operating company elected A. William Stein Assistant, Secretary. In " Construction schedule under review addit, ion, Mr. Stein is an Attorney m the Com-pany s Legal Unit. .l

A4 Duquesne Ugfd rp a One Oxford Centre Pittsburgh, PA 15279 i L - -}}