ML20137J863
| ML20137J863 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley, Perry |
| Issue date: | 03/31/1997 |
| From: | Clayton D DUQUESNE LIGHT CO. |
| To: | NRC (Affiliation Not Assigned) |
| References | |
| NUDOCS 9704040162 | |
| Download: ML20137J863 (66) | |
Text
.
Duquesne Light Company -
ci s,.ia-owoeo2>
P.O. Som 1930 Peetugh, PA 15230 1930 (412)3e34230 i
pensu J.clayton Trees.nor March 31,1997 3
U. S. Nuclear Regulatory Commission 2120 L Street NW Washington, DC 20555 Attn.: Diredor of Nuclear Reactor Regulation L
I RE:
Docket No. 50-440 - Perry Nuclear Power Plard Unit No.1 Docket No. 50-334 - Beaver Valley Power Station Unit No.1 Docket No. 50-412 - Beaver Valley Power Station Unit No. 2 Gentlemen:
In accordance with NRC Regulation 10 CFR Section 140.21, regarding the Price-Arderson Act retrospective premium system guarantee requirements, you will find enclosed:
- 1. A copy of Duquesne Light Company's consolidated financial statements for the twelve month period ended December 31,1996; t
2.
An intemal cash flow projection, including actual 1996 data and projections for 1997.
This statement indicates that $7.498 million, our portion of the $30 million retrospective premiums for the three subject units, would be available for the l
payment of such premiums in 1997. Duquesne Light Company has a 47.5%
ownership in Beaver Valley Unit No.1, a 13.74% ownership in Perry Unit No.1 and a 13.74% leasehold interest in Beaver Valley Unit No. 2.
Pursuant to Commission rules, Duquesne Light Company has e:ected to utilize its financial statement as its guarantee of payment of deistred premium:,. We are providing these statements to meet our reporting requirements for both Beaver Vaby Unit 1 and Unit 2 and Perry Unit 1 at t
this time.
Sincerely,
[
I I
cc-R. Duckworth - BV 9704040162 970331 PDR ADOCK 05000334
$l@lllI,lllllll%
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5 i
1 Source and Application of Funds (in millions of dollars)
Actual Forecast Capital Requirements 1996 1997 Construction Expenditures (Excluding AFUDC and Nuclear Fuel)(1) 89
$ 110 j
Capital Additions Projected to be Leased (Principally Nuclear Fuel) 13 15
)
~
Maturities and Sinking Funds 51 50 Total Capital Requirements S
153
$ 175 Sources of Capital i
r Intemal Sources (2)
Deferred Taxes
($
89)
($ 75) 1 Investment Tax Credits
(
10)
(
8)
Depreciation and Amortization 230 262 Total Internal Sources
$ 131
$ 179 (excluding retained eamings) 1 (1) Total AFUDC for 1997 is projected to be less than 3 2 million.
(2) Changes in retained eamings have not been reflected.
1 The above forecast information is based upon assumptions conceming many variables, and is subject to significant changes. Accordingly, such information represents estimates and will be updated periodically. This information is provided for general information purposes only and not for any specific use or reliance.
[
l
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[ CONFORMED]
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I UNITED STA*IES SECURFIIES AND EXCHANGE COMMISSION a
Washington,D.C. 20549 I
l FORM 10-E l
E
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE l
SECURMES EXCHANGE ACFOF 1934 i
For the Fiscal Year Ended De-br 31.1996 I
[]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE.
SECURITIES EXCHANGE ACT OF1934 i
4 i
For the Transition Period From to i
i rnmmicainn File No-Le 1-956 i
l 1
Duauesne light Comnany
~
(Exact name of registrant as speci6ed in its charter) l l
Pennevivsnia 25.0451600 j
(State or otherjurisdiction of (I.R.S. Employer Identi6 cation No.)
incorporation or organization) 411 Seventh Avenue Pimhnrah. Pennevivania 15219 (Address of principal executive oHices)(Zip Code)
I J
r Registranti telephone number, including area code: (412) 393-6000
(
I
' Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the !
Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements the past 90 days.
Yes Y No i
(
DQE is the holder of all shares of outstanding common stock,51 par value, of Duquesne Light Company consisting ol l
shares as of February 21,1997.
i
[xi Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 L
of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in de6nitive proxy or information statements l
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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1 1
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~~.
t s
a
- Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
_R,,intrant
'ntle of each claan on which re_nistered t
Duquesne Light Preferred Stock New York Stock Exchange C ampany.
Involuntary Sedes LiqiniAmelon %lue 3.75 %
$50 per share 4.00 %
$50 per share 4.10 %
$50 per share 4.15 %
$50 per share 4.20 %
$50 per share
$2.10
$50 per share 8.375 %
$25 per share (1)
Sinking Fund Debentures, due March 1,2010 (5%)
New York Stock Fwhange (1) Issued by Duquesne Capital, LP., and the payments of dividends and payments on liquidation or redemption are guaranteed by Duquesne Light Company.
a 1
d d
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TABLE OF CONTENTS J
hat h91 PARTI PART III ITEM 1.
BUSINESS ITEM 10.
DIRECTORS AND EXECUTIVE OFF1CERS 0F THE REGISTRANT 19 General I
Results of Operations 2
ITEM 11.
EXECUTIVE COMPENSATION 19 Liquidity and Capital Resources 4
Rate Matters 5
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN Property Plant & Equipment (PP&E) 6 BENEFICIAL OWNERS AND MANAGEMENT 19 Employees g
ITEM 13.
CERTAIN RELATIONSHIPS AND Electric Utility Operations 8
RELATED TRANSACTIONS 19 Fossil Fuel 9
Nudear Fuel 9
Nudcar Decommissioning 10 PART IV Nc. dear Insurance 11 Spent Nudear Fuel Dispwal 11 ITEM 14.
EXHIBITS, FINANUAL STATEMENT Uranium Enrichm_..c Dantamination and SCHEDULES AND REPORTS ON FORM 8-K 20 Decommissionii.g Environmental Matters 12 SCHEDULE II 32 Outlook 13 Other 15 SIGNATURES 33 Executive Officers of the Registrant 16 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 34 FINANGAL STATEMENTS 35 ITEM 3.
LEGAL PROCEEDINGS 18 SELECTED FINANCIAL DATA 59 ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18 GLOSSARY 60 PART II ITEM 5.
MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 18 ITEM 6.
SELECTED FINANCIAL DATA 18 ITEM 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANUAL CONDITION AND RESULTS OF OPERATIONS 19 ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19 ITEM 9.
CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 19
Results of Operations Sales ofElectricity to Customers
%e decrease in 1996 totaloperedng revenua was S3.0 million, as compared to 1995. Comparing 1995 total opersdng revenue to 1994, there was an increase of $11.2 million. Operating revenues are derived from Duquesne's 3
sala ofdcaricity.The PUC authorizes rates for electricity sales which are mst-based and are designed to recover Duquesnei operating expenses and investment in electric utility assets and to provide a return on the investment.
(See " Rate Matters" and " Competition" discussions on pages 5 and 13.)
Electric UtlHty Sales by Customer Class (Kilowatt-Hours in MilHons):
1996 1995 1994 Residential 3,321 3,378 3,219 Commercial 5,836 5,827 5,662 Industrial 3,285 3,237 3,256 Miscellaneous 83 84 84 Sales to Electric Utility Customers 12,525 12,52J 12,221 Sales to Other Utilities 3,310 2,975 3,212 TotalSales 15,835 15,501 15,433 Sales to residential and commercial customers are strongly influenced by weather conditions. Warmer sununer and colder winter seasons lead to increased customer use of electricity for cooling and heating.
Commercial sales are also effected by regional emnomic development. Sales to industrial customers are influenced by national and global economic conditions. Customer revenues fluctuate as a result of changes in sales volume and changes in fuel and other energy costs.
Net Customer Revenues i
Nct curtomer revenua, reflected on the statement of consolidated income, decreased $8.3 million or 0.8 per-cent in 1996 compared to 1995. ne variance can be attributed primarily to decreased residential customer kilowatt-hour (KWII) sales of 1.7 percent due to unseasonably warm summer temperatures in 1995, as com-i pared to 1996, resulting in decreased revenues of $8.9 million. Industrial KWH sales volume in 1996 increased I
when compared to the prior year because of a self-generation outage experienced in 1996 by one of Duquesne's large industrial customers. Sales to Duquesne% 20 largest customers accounted for approximately 14 percent of i
customer revenues in 1996,1995 and 1994.
In 1995 as compared to 1994, net surtamer revenues increased by $7.8 million, or 0.7 percent. The increase is the net result of higher KWII sales to residential customers by 4.9 percent in response to extreme 1995 summer temperatures, partially offset by lower fuel and other energy msts per KWII, the benefits of which are passed through to the customers in the form oflower rates. Revenues from electric sales to residential customers in 1995 exceeded 1994 residential revenues by $13.0 million.
l Sales to 0:her Utilities Short-term sales to other utilitia are regulated by the FERC and are made at market rates. Fluctuations in electricity sales to other utilitia are related to Duquesne's customer energy requirements, the energy market and transmission conditions, and the availability of Duquesnei generating stations. Duquesne's electricity sales to other stilitia in 1995 were less than 1996 and 1994 due to the timing of generating station outages and the fluctuating level of sales to Duquesnei electric utility customers. Future levels of short-term sales to other stilitia will be affected by Duquesne s sale ofits owr.ership interest in the Fr. Martin Power Station (Ft. Martin),
the possible sale ofothe' generating stations, market rates, and by the outcome of Duquesnei FERC filings requesting firm transmission access. (See " Mitigation Plan" and " Transmission Access" discussions on pages 5 and 15.)
2 i
Other Operati:g Revenua Duquesnei non-lGVII revenues comprise arber operating revenues in Duquesnet statement of consolidated i
income. Other operating revenues are primarily comprised of revenues from joint owners of BV Unit I and BV Unit 2 for their shares of the administrative and general costs ofoperating these units. Other operating revenues, therefore, fluctuate depending on the timing of scheduled refueling and maintenance outages at Beaver Valley Power Station (BVPS) when significant msts are incurred. Both BV Unit I and BV Unit 2 underwent refueling outages in 1996 and 1995. BV Unit 2 cxperienced an extended outage of 107 drys during 1996 due to unanticipated repairs to two residual heat removal pumps and reactor head vent valves, resultmg in a $3.0 million increase in other operating revenues during 1996. There were no refueling outages in 1994; acmrdingly, orber operating rev-enues increased $5.7 million in 1995 when cornpared to 1994.
t i
Operating Etpenses Furlandpurrbasedpower expense fluctuations generally result from changes in the art of fuel, the mi.x between coal and nuclear generation, the total IGVIIs sold, and generating station availability. Because of the Energy Cost Rate Adjustment Clause (ECR), changes in fuel and purchased power msts did not unpact camings in 1996,1995 and 1994.
Fuelandpurchasedpower expense increased in 1996 compared to 1995 as a result of a 33 percent increase in purchased power irices. This increase was partially offset by lower nuclear fuel costs. Fuelandpurcharedpower crpense decrea in 1995 compared to 1994 due to lower nuclear fuel msts, a more favorable generation mir and a 2.7 percent decline in }GVII generation.
Other operadng expense increased $2.8 million when mmparing 1996 to 1995. The increase was the result of a one-time lease charge. In 1995, orber opersting expense decreased $18.7 million when compared to 1994. This 1995 reduction reflects ongoing cost savings efforts.
Depredation endamorti: stim expense increased $25.7 million in 1996 when compared to 1995 primarily due to the increase in Duquesnet mmposite depreciation rate from 3.5 percent to 4.25 percent effective May 1,1996.
During the third quarter of 1996, Duquesne completed reawery ofits investment m Perry Unit 2, the construction of which was abandoned by Duquesne in 1986. He resultant decrease in amortization expense was offset by Duquesnei increase in depreciation, as well as $9 million that was expensed related to the depreciation portion of deferred rate synchmniution msts in mnjunction with Duquesnet Mitigation Plan. Deptrcierion and anorti:stics expense increased $27.6 million in 1995, primarily due to the change in Duquesnei composite depreciation rate fmm 3.0 percent to 3.5 percent effectiveJanuary 1,1995. Duquesne did not seek a rate increase to remver the additional costs. (See " Mitigation Plan" discussion on page 5.)
Inmme taxes decreased in 1996 when mmpared to 1995 by $6.9 million, primariiy due to reduced taxable inmme. In 1995, taxable income was greater than in 1994, resulting in increased i,ame taxer of $1.8 million.
Otherinmme and (Deductions)
The increase of $22.9 million in otherinmme and deductionr, when comparing 1996 to 1995, was primarily the result ofinmme from long-term investments made during late 1995 and 1996. Otheriname end deducsont decreased $10.3 million in 1995 when compared to 1994 primarily due to increases in inmme taxes related to other inmme.
Interert Charges Duquesne achieved reductions of$8.4 million and $3.8 million in interest charges in 1996 and 1995, respectively.
The decreases were primarily due to the retirement oflong-term debt during 1995. Interest expeme in 1997 will be influenecd by fluctuations in simrt-tenn rates and any new financing.
3
Monthly Iname Preferred Suurities Dividend Requimnents he Monthly Iname IVeferred Searitia DnmiendRegumments teflect the payment oE$7.9 million in i
dividends in 1996 related to preferred stock issued in May 1996.
Dividends on Preferred and Prefemur Stod The decreases of $1.3 million and 50.7 million in 1996 and 1995 in tsvidendr enpreferredandpreferencestuk were primarily due to the retireenent of preferred stock in 1995.
Uquidity and CapitalResowtes CapitalErpenditures Duquesne spent approximately $88.5 million in 1996, $78.7 million in 1995 and $94.3 million in 1994 for con-struction. Duquesnei capital expenditures for construction focus on improving and/or expanding electric produc-tion, transmission and distribution systems. Duquesne esumates that it will spend, exduding allowance for funds 1
used during construction (AFC) and nudear fuel, approximately $110 million, $110 million and $95 million for construction during 1997,1998 and 1999.These estims tes also endude any potential expenditures for reliability enhancements to the Brunot Island (BI) Unit 3 mmbustion turbine. (See " Mitigation Plan" discussion on page 5.) Duquesne expects that funds generated frtru operations will continue to be sufficient to fund a large part ofits capital needs.
Long-Terminvestmentr Duquesnei long-term invernmener mnsist of Duquesne's holdings of DQE common stock, investments in affordable housing, lease investments, and Duquesnei nudcar demmmissioning trusts. Investing activities deacased in 1996, after increasing in 1995, when compared to 1994. Duquesne invested $1.5 million and $5.4 million in affordable housing funds during 1996 and 1995. Other investments in 1996 totaled approximatdy $2.7 million. In addition, Duquesne invested $57.5 million in lease investments during 1995, i
Finanang Duquesne expwts to meet its current obligations and debt maturities through the year 2001 with funds gener-sted from operations and through new financings. At December 31,1996, Duquesne was in mmpliance with all ofits debt covenants.
On May 14,1996, Duquesne Capital I.P., a Delaware spedal-purpose limited partnership the sole general parmer of which is Duquesne, issued $150 million principal amount of 8-3/8 percent Cumulative Monthly Inmme Preferred Securities (MIPS), Series A, with a stated liquidation value of $25.00. A portion of the proceeds was used to retire $50 million oflong-term debt maturing May 15,1996. Duquesne intends to continue to apply the remaining proceeds to the purchase or redemption ofoutstanding securities and for general mrImrate purposes.
In November 1997, $50 million of mortgage bonds will mature. Duquesne expects to retire these bonds with available cash or to refinance the bonds.
I Short-Tenn Borrowings i
At December 31,1996, Duquesne had a $150 mihion extendible revohing credit arrangement expiring in October 1997. Interest rates can,in acmrdance with the option selected at the time of the borrowing, be based on prime, Eurodollar or certificate of deposit rates. Commitment fees are based on the unborrowed amount of the commitment. The credit facility mntains a two-year repayment period for any amount outstanding at the expiration of the revolving credit period. At December 31,1996 and 1995, there were no short-term borrowings outstanding.
4
1 Sak ofAcwunts Receivable Duquesne and an unaffiliated corporation have an agreement that entitles Duquesne to sell, and the corpora-tion to purchase, on an ongoing basis, up to $50 million of accounts receivable. Duquesne had no recervables sold at December 31,1996. At December 31,1995, Duquesne had sold $7 million ofreceivables to the unaffiliated cor-poration. The accounts receivable sales agreement, which expires in June 1997, is one of many sources of funds available to Duquesne. Duquesne has not determmed, but may attempt to extend the agreement or to replace the facility with a similar arrangement or to eliminate it upon expiration.
Nuclear FuelLeasing Duquesne finances its acquisitions of nudear fuel through a leasing arrangement under which it may finance up to $75 million of nudcar fuel. As of December 31,1996, the amount ofnudear fuel financed by Duquesne under this arrangement totaled approximatdy $35 million. Duquesne plans to continue leasing nudear fuel to fulfill its requirements at least through September 1998, the remaining term of the leasing arrangement.
Rate Matters Customer Choice An Under the Customer Choice Act, which went into effect on January 1,1997, Pennsylvania has become a leader in customer choice. The Customer Choice Act will enable Pennsylvanish elecaic utility customers to purchase electricity at market prices from a variety of electric generation suppliers (customer choice). Electric utility restructuring will be accomplished through a two-stage process consisting of a pilot period (running through 1998) and a phase-in period (1999 through 2001). The pilot period will give utilities an opportunity to j
examine a wide range of technical and administrative details related to competitive markets,induding metering, billing, and cost and design of unbundled electric services. Duquesne filed a pilot program with the PUC on February 27,1997, which proposes unbundling transmission, distribution, electricity and competitive transition charges and offers participating customers the same options that will be available in a competitive generation market.
)
The pilot program will comprise approximately 5 percent of Duquesnei residential, commercial and industrial demand beginning September 1,1997. Customers participating in the pilot will have two basic options. First, customers can choose to continue taking bundled service from Duquesne under approved tariffs. Second, cus-j tomers can choose unbundled service w4th their electricity provided by an alternative electric generation supplier. All customen that choose unbundled electric service will be subject to unbundled distribntion charges approved by the PUC and unbundled transmission charges pursuant to Duquesnet FERC-approved tariff Each customer that elects unbundled service also will be required to pay a non-bypassable eccess fee (mmpetitive transition charge) that provides Duquesne with a reasonable opportunity to recover transition costs.
Duquesne must file a restructuring plan with the PUC by August 1,1997 setting forth its proposals for the i
transition to customer choice and the remvery of transition costs. (See " Competition" discussion on page 13.) The phase-in to competition begins onJanuary 1,1999 when 33 percent ofconsumers will have customer dioice (induding consumers covered by the pilot program); 66 percent ofconsumers will have customer choice by January 1,2000; and all consumers will have customer choice byJanuary 1,2001. Although the Customer Choice Act will give cusmmers their choice of electric generation suppliers, delhery of the electricity from the generation supplier to the customer will remain the responsibility of the existing franchised utility. Delivery of electricity (induding transmission, distribution and customer servia) will mntinue to be regulated in substantially the current m&nner.
Mitigation Plan Duquesne has taken a number of steps to mitigste its potential trans: tion costs. (See " Competition
- discussion on page 13.) In addition to the steps taken during the last 10 ears to prepare for competition, effective 3
January 1,1995, Duquesne accelerated its rate of depreciation on its fixed nudcar assets without seeking a rate increase to recover the additional costs. On October 31,1996, the sale of Duquesnet ownership interest in 5
Ft. Martin was = Ni Ft. Martin Unit I was' owned 50 percent by Duquesne and'50 percent byits operator,
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Allegheny Power System (APS).%e sale and a plan, to be funded in part by the proceeds of the Ft. Martin transac-t non, were approved by the PUC on May 23,1996. Under t' : approved plan, Duquesne will not increase its base rates for a period of Sve years through May 2001. In addition, Duquesne recorded in October 1996 a one-time i
reduction of approximately 5130 million in the book value of Duquesnei nudear plant investment.The proceeds from the sale are expected to be used to fund reliability enhancements so the BI Unit 3 combusoon turbine and to 1
l reduce Duquesnet capitalization. The approved plan also provides for incremental increases of $25 million in deprmudos sadmaartiranen expense in 1996,1997 and 1998 related to Duquesnei nudear investment, a well as additional anrnal contributions to its nudear plantden nenissioning funds of $5 million, without any increase in existing electric rates. Also, Duquesne will record an annual $5 million credit to the ECR d =
- the plan period l
to compensate Duquesnei customers for lost pro 6ts from any short-term power sales foregone the sale ofits t
ownership interest in Ft. Martin. In addition, Duquesne will cap energy costs, bginning April 1, G7 through the remamder of the plan penod, at a historical Sve-year average of 1.47 cents per KWH. In acund.re with
.l the approved plan, Duqueme haa expensed $9 million related to the depreciation portion of the deferred rate synchronization oosts associated with BV Unit 2 and Perry Unic 1. Duquesne s approved plan provides for the amortization of the remaining deferred rate roniution costs over a 10-year penod. At December 31,1996, 1
the unsmortized pomon of these costs total $41.4 milhon, net ofdeferrcd fuel savings related to the two units.
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(See " Deferred Rate Syndironization Costs" below.) Finally, Duquesne s approved plan also provides for annual t
assistance of 50.5 million to low-income customers.
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r DeferndRateSynchronization Carts i
In 1987, the PUC approved Duquesnet petition to defer initial operating Mer mots of BV Unit 2 and j
Perry Unit 1. Duquesne deferred the costs incurred from November 1987, when the units went into mmmercial operation, until March 1988, when a rate order was issued. In its rate order, the PUC postponed ruling on whether these costs would be recoverable from Duquesnet electric utility customers. Duquesne is not earning a return on the deferred costs. (See " Mitigation Plan" discussion on page 5.)
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Energy Cart Rate Ahurtment Clowe (ECR)
{
i Through the ECR, Duquesne recovers (to the extent that such amounts are not indoded in base rates) nuclear fuel, fossil fuel and purchased power espenses and, also through the ECR, passes to its customers the profits from 4
short-term power sales to other utilities (collectively, ECR energy costs).
l On Duquesnet statement ofconsolidated income, these ECR revenues are induded as a component ofsperst-ing rmaser. For ECR purposes, Duquesne defers fuel and other energy expenses for recovery, or rAnding; in subsequent years. The deferrals reflect the difference between the amount that Duquesne is currendy collecting from customers and its actual ECR energy costs. The PUC annually reviews Duquesne) ECR energy costs for
(
the fiscal year April through March, compares them to previously projected ECR energy costs, and adjusts the i
ECR for over-or under-remvenes and for two PUC-established coal cost standards. (See " Fossil Fuel" di-man on page 9.)
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Under the Customer Choice Act, Duquesne may replace the ECR effective April 1,1997 by rolling its ECR l
energy costs into its base rates. The effect of this change would be to provide to Duquesne an opportunity to fur-ther miti ate its deferred energy costs based upon its ability to manage its energy costs. Under Duquesnet PUC-j 6
approved Miti ation Plan, the level of energy cost recovery is capped at 1.47 cents per KWH through May 2001.
6 To the extent that projections do not support remvery ofpreviously deferred costs through this pricing mechs-nism, these costs would bemme transition costs subject to recovery through a competitive transition charge (CFC). (See " Competition" discussion on page 13.)
\\
huperts Mont and Equ> ment (PteE) investment in PP&E sudAawmulated Depreciation
)
Duquesne's total investment in propeny, plant sad armpment and the related accumulated depredation balances for major classes 9f m3.my at December 31,1996 and 1995, are as follows:
6
MSE and Related Accumulated Depreciation at December 31 (4mounuin 7%wnds ofDollm) 1996 1995 Accumulated Net Acnnnulated Net imestmera Derredation imestment Investment Depreciation Investment Ihtric Production
$2,467,786
$1,092,928 $1,374,858
$2,501,974 S 885,389 $1,616,585 DatncTrammimion 299,895 114,406 185,489 296,953 110,242 186,711 Electric Didribution 1,176,738 374,180 802,558 1,143,111 347,399 795,712 Hectric General 324,366 168,470 155,896 314,844 141,133 173,711 i
Property IIcid for Future Use 190,821 82,737 108,084 216,633 94,283 122,350 Property IIeld Under Cagnalleases 99,608 47,670 51,938 133,381 74,874 58,507 Other 49,559 10,909 38,650 45,114 19,787 25,327 Tesal
$4,608,773
$1,891,300 $2,717,473 54,652,010
$1,673,107 52,978,903 JointIntensa in Generating Units L)uquesne has various contracts with Ohio Edison Company, Pennsylvania Power Company,'Ihe Cleveland Elcctric Illuminating Company (CEI) and The Toledo Edison Company, with respect to several joindy owned / leased generating units, that include provisions for coordinated maintenance responsibilities, limited and qualified mutual back-up in the event of outages, and certain capacity and energy transactions.
In September 1995, Duquesne commenced arbitration against CEI, seeking damages, termmation of the Operating Agreement for Eastlake Unit 5 (Eastlake) and partition of the parties' interests in Eastlake through a sale and division of the proceeds. The arbitration demand alleged, among other things, the improper allocation by CEI of fuel and related msts; the mismanagement of the administration of the Saginaw mal contract in con-nection with the closing of the Saginaw mine, which historically supplied coal to Eastlake; and the concealment by CEI of material information. In October 1995, CEI mmmenced an action against Duquesne in the Court of Common Pleas, Lake County, Ohio seeking to enjoin Duquesne from taking any action to effect a partition on the basis of a waiver of partioon mvenant contained in the deed to the land underlying Eastlake. CEI also seeks monetary damages from Duquesne for alleged unpaid joint costs in connection with the operation of Eastlake.
Duquesne removed the action to the United States District Court for the Northern District of Ohio, Eastern Division, where it is now pending. Currently, the parties are engaged in settlement discussions.To provide the parties with the opportunity to settle their claims, the murt has postponed litigation proceedings until April 1,1997.
Joint Interesa in Nudcar Power Stations Beaver Valley Peny Unit 1 Unit 2 Unit 1 Duquesne
- 47.50 %
- 13.74% (c) 13.74 %
Ohio Edison Company 35.00 %
41.88 %
30.00 %
Pennsylvania Power Company (a) 17.50 %
5.24 %
CEI(b) 24.47 %
- 31.11 %
i Toledo Edison Company (b) 19.91 %
19.91 %
' Denotes Operator
(:) Sulmidiary of Ohio Edi. >n Company (b) Subaldiary of Centerior Energy Co9 oration (c) In 1987, Duquesne sold and leased back its 13.74 percent interest in BV Unit 2; the sale was esclusive of transinizion and conunon facilities. The total sales price of $537.9 million was the appraised value of Duquesnel interest in the prolwrty.
Duquesne sulmoquently leased back its interest in the unit for a term of 29.5 years.'ne lease prmides for semi-annual payments and is accounted for as an operating lease. Duquesne is respomible under the terms of the lease for all costs related toits interest in the unit.
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Joi:t hterests in Fonil Power Stations Sammi.
P,ce Mansfield n=el L-Unit 7 Unit 1 Unit 2 Unit 3 Unit 5 Duquesne 31.20 %
29.30 %
8.00 %
13.74 %
31.20 %
Ohio FAison Company
- 48.00 %
60.00 %
39.30 %
35.60 %
Pennsylvania Power Company (a) 20.80 %
- 420%
- 6.80%
- 6.28%
CEI(b) 6.50 %
28.60 %
24.47 %
- 68.80 %
'Ibledo FAison Company (b) 17.30 %
19.91 %
' Denotes Operator (a) Sulmidiary ofOMo Edison Company 6
(b) Sulmidiary of Centerior Encry/ orporation C
On September 13,1996, Ohio Edison Company and Centerior Energy Corporation entered into an agree-ment and plan of merger to form FirstEnergy Corporation.The regulatory approval process for the proposed merger is expected to take approximately 12 to 18 months.
Property licldfor Future Use In 1986, the PUC approved Duquesnet request to remove Phillips Power Station (Phillips) and a portion of BI fmm service and from rate base. In swordance with Duquesnet Mitigation Plan,112 MWs related to BI Units 2a and 2b were moved from property heldforfature we to tienricplat is service in 1996. Duquesne expects to recover its investment in BI Units 3 and 4, which remain inproperty heldforfsture we through future electricity sales. Duquesne believes its investment in BI will be necessary in order to meet future business needs. A portion of the proceeds of the sale of Ft. Martin is expected to be used to fund reliability enhancements to the BI Unit 3 combustion turbine.The reliability enhancements are contingent upon the projects meeting a least-cost test versus other potential sources of pealdng capacity. (See " Mitigation Plan" discussion on page 5.) Duquesne is analyr.ing the effects of customer choice on its future generating requirements. Duquesne is planning to seek remvery ofits investment and associated msts of Phillips through a CTC. (See
- Competition" discussion on page 13.) In the event that market demand, transmission axess or rate recovery do not support the utilization of these plants, Duquesne may have to write off part or all of these investments and assodated costs. At December 31,1996, Duquesnei net of tax investment in Phillips and BI held for future use was $53.6 million and $17.2 million.
Employees At December 31,1996, Duquesne had 3,413 employees, including 1,157 employees at the Duquesne-operated BVPS. In November 1996, Duquesne reached an agreement on a three-year contract extension through September 30,2001 with the Intemational Brotherhood of Electrical Workers, which represents approximately 2,000 of Duquesne s employees.
Electric Utility Opemtions Duquesnei fossil plants operated at 76 percent availability in 1996 and 1995. Duquesnet nuclear plants operat-ed at 76 percent availability in 1996 and 83 percent in 1995. The timing and duration of scheduled maintenance and refueling outages, as well as the duration of forced outages, affect the availability of power stations. Duquesne normally experiences its peak demand in the summer. The 1996 customer system peak demand of 2,463 MW i
occurred on August 7,1996.
Duquesnei plan for optimizing generation resources is designed to reduce under-utilized generating capacity and employ cost-effective sources of peaking capadty.'Ile sale of Duquesnet ownership interest in Ft. Martin reduced in-service capacity by 276 MW. In mnjunction with the sale, Duquesne retumed 112 MW of peaking capacity at BI to elcaricplat in scrtice. Additionally, through potential reliability enhancements to the BI Unit 3 combustion turbine, Duquesne could return to service another 56 MW ofoil-fired peaking capacity. (See
" Property IIeld for Future Use" discussion slove.)
8
Duquesne has a 13.74 percent ownership interest in Perry Unit 1, a nudear generating unit located in Ohio and operated by CEI. CEI management has advised Duquesne that the Peny Course of Acoon (PCA), an action plan submitted to the NRC in 1993, was mmpleted at the end of the unit's fifth refueling outage in the spring of 1996. Perry Unit I has followed the PCA with the Peny Plan for Excellence, which is the long-term phase of l
the unit's performance improvement program. Duquesne will continue to monitor closely the status of the per-i formance improvement program.
FossN Feet Duquesne believes that sufficient coal for its mal-fired generating units will be available from various sources to satisfy its requirements for the foreseeable future. During 1996, approxunately 2.4 million tons of coal were consumed at Duquesne s two wholly owned coal-fired stations, Cheswick Power Station (Cheswick) and Elrama t
Power Station (Elrama).
Duquesne owns Warwick Mine, an underground mine located approximately 83 river miles from l
4 Pittsburgh. At December 31,1996, Duquesne's net investment in the mine was $11.4 million. Duquesne estimates l
that, at Deccinber 31,1996, its economically recoverable coal reserves at Warwick Mine were in excess of 1.5 million tons. The unaffiliated contract operator at Warwick Mine noti 6ed Duquesne that its financial circum-f stances and geologic mnditions caused it to cease operations late in 1996. Therefore, Duquesne is pursuing its 4
remedies and is currently negotiating to retain an operator for the mine as a smaller sized operation. Addinonally, Duquesne will mntinue to purchase coal on the open market. nis change should not impact Duquesnei ability to recover all ofits investment in Warwick Mine, the $2.6 million of uru ed system-wide cost of coal which endudes the Bruce Mansfidd Power Station (Bruce Mansfield), or to accrue funds for future liabilities. It is antic-ipated that this effort will be successfully completed by March 31,2000 when the system-wide coal cost cap expires. The current estimated liability for mine do:ing, induding final site redamation, mine water treatment and certain labor liabilities is $47.6 million, and Duquesne has recorded a liability on the consolidated balance sheet of approminately $20.2 million toward these msts.
During 1996, 69 percent of Duguesnei coal supplies were provided by contracts induding Warwick Mine, with the remainder satis 6ed thmugh purchases on the spot market. Duquesne had four long-term contracts in effect at December 31,1996 that, in combination with spot market purchases, are expected to furnish an adequate future coal supply. Duquesne does not antidpate any difficulty in replacing or renem'ng these contracts as they expire from 1997 through 2002. At December 31,1996, Duquesne) wholly owned and jointly owned generating units had on hand an average coal supply of 45 days.
The PUC has established two market price coal cost standards for Duquesne. One applies only to coal deliv-cred at Bruce Mansfield.The other, the system-wide coal cost standard, applies to coal delivered to the remain-der of Duquesnei system. Both standards are updated monthly to reflect prevailing market prices of dmilar coal. ne PUC has directed Duquesne to defer recovery of the delivered cost of coal to the extent that 1
such cost exceeds generally prevailing market prices for similar coal, as determined by the PUC.ne PUC allows deferred amounts to be remvered fmm customen when the delivered costs ofcoal fall below such PUC-deter-mined prevailing market prices. Duquesne) obligations to pay certain debt service costs assodated with the Bruce Mansfield coal supply will end on January 1,2000. ne Bruce Mans 6 eld mal mst-capping mechanism does not l
expire until the remvery of all deferrals has been resolved. Duquesne believes that Bruce Mansfield deferrals may increase through the end of this demde and then be reduced to zero by the end of the year 2002. ne unrecovered cost of Bruce Mansfield mal was $9.6 million and the unrecovered cost of the remainder of the system-wide coal was $2.6 million at December 31,1996. Duquesne believes that all deferred mal costs will be recovered.
P Cecisor Feel ne cyde of production and utilization of nudear fuel consists of(1) mining and milling of uranium ore and processing the are into uranium mncentrates, (2) mnverting uranium concentrates to uranium hexafluoride, (3) enriching the uranium hexafluoride, (4) fabricating fuel assemblies, (5) utilizing die nudear fuel in the generating station reactor and (6) storing and disposing of spent fuel.
9 i
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Adequate supplies of uranium and conversion services are under mntract for Duquesne s requirements for its jointly owned / leased nudear units throughJune and December 1997, respectively. Enrichment services are sup-plied under a 1984 United States Enrichment Corporation Utility Services Contract entered into for a period of 30 years by Duquesne for joint interests in Perry Unit 1, BV Unit I and BV Unit 2. Under the tenns and mndi-tions of Gis contract, Duquesne is committed to 100 percent ofits enrichment needs through 1999; Duquesne has tenninated, at zero cost, all ofits entidunent services requirements for fiscal yetrs 2000 through 2005.
Duquesne continues to review the need for further enrichment services for the years 2006 through 2014 and may terminate these future years' services under the mntract. Fuel fabrication contracts are in place to supply reload requirements for the next 18-momh cyde for BV Unit I and BV Unit 2 and the next fifteen 18-month cydes for Perry Unit 1. Duquesne will make nn angements for future uranium supply and related services, as required.
Each utility company is responsible for financing its proportionate share of the costs of nudear fuel for each nudear unit in which it has an ownership or leasehold interest. Duquesne's nuclear fuel msts, which are amor-tized to reflect fua masumed, are charged to fuel expense and are currently reewered through rates. Duquesne estimates that, over the next three years, the expenditures for new fuel will exceed the amortization of nudear fuel consurned by apprcximately $4.4 million.ne actual nudear fuel msts to be financed and amortized will be influenced by such factors as changes in interest rates; lengths of the respective fuel cydes; reload cyde design; and changes in nudear material costs and services, the prices and availability of which are not known at this time.
Such msts may also be influenced by other events not presently foreseen.
Nuclear Decommissioning ne PUC ruled that remvery of the decommissioning msts for BV Unit I could begin in 1977, and that remvery for BV Unit 2 and Peny Us I could begin in 1988. Duquesne expects to decommission BV Unit 1, BV Unit 2 and Perry Unit I no earlier than the expiration of each planti operating license in 2016,2027 and 2026. At the end ofits operating life, BV Unit I may be placed in safe storage until BV Unit 2 is ready to be decommissioned, at which time the units may be decommissioned together.
Based on site-specific studies finalized in 1992 for BV Unit 2, and in 1994 for BV Unit I and Peny Unit 1, Duquesnet share of the total estimatcx! decommissioning costs, induding removal and decontamination msts, currendy being used to determine Duquesnei cost of service, is $122 million for BV Unit 1, $35 million for BV Unit 2, and $67 million for Peny Unit 1. A study will be performed in 1997 to update Duquesnel estimated decxmunissioning msts of BV Unit I and BV Unit 2.
On July 18,1996, the PUC issued a kpased Policy Statement Regarding Nudear Dearmnmioning Cast Dtanation and Cart Rcan; cry for the purpose ofobtaining mmments from the public. The proposed policyindudes guide-lines for a site-specific study to estimate the cost of demmmissioning. Guidelines n quire that studies be performed at least every five years, address radiological and non-radiological costs, and indude a contingency factor of not more than 10 percent. Under the pmposed policy, annual decommissioning funding levels are based on an annuity calculation recognizing infl2 tion in the mst estimates and earnings on fund assets. With respect to the transition to a competitive generation market, the Customer Choice Act requires that utilities indude a plan to mitigate any shortfall in decommissioning trust fund payments for the life of the facility with any future decom-missioning filings. Consistent with this requirement, Duquesne has increased its nudear demmmissioning fund-ing by $5 million under the PUC-approved plan for the sale of Duquesne's ownership interest in Ft. Martin. (See
" Mitigation Plan" discussion on page 5.) These additional annual contributions bring the total annual funding to approximately $9 million. Also, on October 17,1996, the PUC adopt xi an Amounting Order filed by Duquesne to recognize the increased funding as part of Duquesnei cost of service. Duquesne expects to receive apprwal from the Internal Revenue Servim (IRS) for qualification of 100 percent of additional nuclear decommissioning trust funding for BV Unit 2 and Peny Unit 1, and 79 percent for BV Unit 1.
Duquesne records nudcar demmmissioning crpense under the category ofdepraiation andamortization expense and accrues a liability, equal to that amount, for nudcar decommissioning costs. Funding for nudcar decommissioning costs is deposited in external, segregated trust accounts and may be invested in a portfolio of mrporate comnen stock ar,d debt securities, municipal bonds, certificates of deposit and United States govern-ment securities. Trust fund eamings increase the fund balance and the recorded liability. The market value of the aggregate trust fund balances at December 31,1996 totaled appmximately $33.7 million. On Duquesnei consolidated balance sheet, the decommissioning trusts have been reflected in otherlong-tenn invarmenu, and the related liability has been recorded nethe non-amrnt liabilitia.
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o
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- adserInsurance r.
De 1%r-Andersos Amendmener to the AnemirEmrgy Aa afl9H limit public liability from a single incident at :
j nuclear plant to $8.9 billion.He mammum available private primary insurance of$200'million has been pur-k chased by Duquesne. Additional pmtecuan of $8.7 billion would be provided by an assessment of up to $79.3 -
million per incident on each nudear unit in the United States. Duquesnei maximum total possible==== ament,
$59.4 milliont, which is based on its ownership or leasehold interests in three nuclear generating units, would be
'I
' limited to a ma.8 mum of $7.5 million per inddent per year. nis assessment is subject to indexing for inflation and may be subje :t to state premium taxes. If funds prove insufficient to pay daims, the United States Congress g
could impose och tr revenue-raising measures on the nudear indusay.
L j
Duquesnei shne 9finsurance cxwerage for pmperty damage, d w
..Si ig and decontanunation liability j
is $1.2 billion. Duqueme would be responsible for its shue of any damages in e=== ofinsurance coverage. In insurance corppny that provb, reserves of Nudear Electric Insurance Limited (NEIL), an indi addition,if the pesfir.
~ dent at any ilnited States nudest site covered by that insurer, Duquesne could be ease==d retrospecove premi-ums totr'mg a maximum of $7.3 million.
i In nodition, Duquesne participates in a NEIL m that provides insurance for the irsui cost of genern-i tion ead/or purdissed power resulting from an acd tal outage of a nudear unit. Subject to the policy limit, the l
cove / age provides for 100 percent of the estimated incrementafcosts per week during the 52-week penod start-t ing 21 weeks after an accident and 80 percent of such estimate per week for the following 104 weeks, with no
.l mverage thereafter. If NEIL's losses for this program ever e==d its reserves, Duquesne could be *=emed retro-spective premiums totaling a marunum of $3.5 million.
i r
Spent NedearFest Disposet ne Nedear Warse IWity Aa ef1982 estabbshed a policy for handling and dispoeng of spent nuclear fuel and a j
i policy requiring the establishment of a final repository to accept spent nuclear fuel. Electric utility companies have entered into cxmtracts with the United States D p.ivr.ent of (DOE)for the permanent di of e nudear fuel and high-level radioactive waste in compliance with ~ legislation.nc DOE has ' 'cated i
1 e its repository under these contracts will not be available for acceptance of spent nuclear fuel before 2010. On July 23,1996, the U.S. Court ofAppeals for the Disuict of Columbia Circuit,in response to a suit brought by 25 l
electric utilities and 18 states and state agencies, unanimously ruled that the DOE has a legal obligation to begin taking spent nuclear fuel byJanuary 31,1998. ne DOE has not yet estabhshed an interim or permanent storage facility, and has indicated that it win be unable to begin acceptance of spent nuclear fuel for dis January 31,1998. Further, Congress is considering amendments to the Nadeer Wars 1Wi Act of1982 7
t d'
the DOE authority to proceed with the da apir,ent of a federal interim storage faality. In the event the E does not begin accepting spent nudear fuel, existing on-site spent nudear fuel seorage capadties at BV Unit 1, BV Unit 2 and Perry Unit I are expected to be sufficient until 2016 (end ofoperating license),2013 and 2011,i ys.M.
f i
OnJanuary 31,1997, Duquesne joined 35 other electric utilities and 46 states, state agencies and regulatory l
commissions in filing a suit in the U.S. Court ofAppeals for the District of Columbia against the DOE.He suit requests the court to suspend the utilities' payments into the Nudear Waste Fund and to place future payments into an escrow account until the DOE fulfills its obligation to accept spent nudear fuel. Signi6 cant additional expenditures for the storage of spent nuclear fuel at BV Unit 2 and Perry Unit I could be required if the DOE does not fulfill its obligation to accept spent nuclear fuel.
u anfan Endc6ssent ascentendenties and ascomunissindny
]
Nuclear reactor licensees in the United States are assessed annually for the decontamination and decommis-sioning of DOE uranium enrichment facilities. Assessments are based on the amount of uranium a utility had
. prm-J for enrichment prior to enactment of the NanomalEmergy JWiey Act afl992 (NEPA) and are to be paid by such utilities over a 15-year period. At December 31,1996, Duquesne's liability for contributions was -
l approximately $9.3 million (subject to an inflation adjustment). Contributions, when made, are currently recovered from customers through the ECR. '
4 11
r Envinnmental Matters ne Comprehensive EnvironmentalResponse, Compensation andLiability Aa of1980 and the Superfund Amendments and Reauthorization An ofl986(Superfund) established a variety ofinformational and environmental action programs.The United States Environmental Protection Agencf (EPA) informed Duquesne ofits potential involvement in three hazardous waste sites. Duquesne reached agreements to make de minimus financial payments in 1995 related to two sites in order to resolve any associated liability. Related to the remaining site, Duquesne believes that available defenses, along with other factors (induding overall limited involvement, low estimated remediation costs and other solvent, potentially responsible parties) will limit any potential liability that Duquesne may have for cleanup costs. Duquesne believes that any settlement or associated costs related to the remaining site will not have a materially adverse effect on its financial position, results of operations or cash flows.
As required byIde V of the Clean Air Aa Amendmentr (Clean AirAa), Duguesne filed comprehensive air operating permit applications for Cheswick, Drama, BI and Phillips during the last half of 1995. These applications are still pending approval. Duquesne also filed its Itle IV Phase II Clean AirAa mmpliance plan with the PUC on December 27,1995.
Although Duquesne believes it has satisSed all of the Phase I Acid Rain Program requirements of the Ofean Air Aa, Phase II Acid Rain Program requires significant additional reductions of sulfur dioxide (SO,) and oxides of nitrogen (NO,)
the year 2000. Duquesne currently has 662 AnV of nudear capacity and 1,187 ARV of coal capacity equip with SO, emission-reducing equipment (induding 300 AnVofproperty heldforfuture use at Phillips). Through the year 2000, Duquesne is mnsidering a mmbination of compliance methods that indade fuel switching; increased use of, and improvements in, SO, emission-reducing equipment; low NO, burner tech-nology; and the purchase of emission allowances for those remaining stations not in compliance.
In addition to the Btle IV Acid Rain Program requirements, Duquesne is responsible for additional NO, reduction requirements to meet Ozone Ambient Air Quality Standards under Etic I of the Clean Air Aa. Hue gas conditioning and post-combustion NO, reduction technologies may be employed if economically justi6ed. Also, Duquesne is examining and developing innovative emissions technologies designed to reduce msts. Duquesne continues to work with the operators ofits jointly owned stations to implement cost-effective compliance < strategies to meet these requirements.
Duquesne is dosely monitoring other potential future air quality programs and air emission control require-
)
ments that could result fmm more stringent ambient air quality and emission standards for SO, and NO, particu-
]
lates and other by-products of coal combustion. Duquesne expects the Pennsylvania Department of Environmental Protection (DEP) to 6nalize in 1997 a regulation to implement the additional NO, control requirements that were remmmended by the Ozone Transport Commission. The estimated msts to comply
)
with this program have been induded in Duquesne's capital cost estimates through the year 2000. Since other potential programs are in various stages of discussion and consideration, it is impossible to make reasonable estimates of the potential costs and impacts, if any. Duquesne currently estimates that additional capital msts to comply with Clean Air Aa rg.irements through the year 2000 will be approximately $20 million.
Duquesne has developed, patented and installed low NO, bumer technology for the Elrama boilers. These cost-effective NO, reduction systems installed on the Elrama roof-fired boilers were spedfied as the tenchmark for the industry for this dass of boilers in the EPAs final Group II rulemaking. Duquesne is also currently evaluat-ing additional low-cost, developmental NO, reduction technologies at Cheswick and Elrama. An Artificial Neural Network control system enhancement, co-sponsored by the Electric Power Research Institute and Duquesne, will be demonstrated at Cheswick.The Gas Research Institute and Duquesne are sponsoring a targeted natural gas reburn demonstration at Elrama. Both demonstranons were mmated in 1996 and will be mmpleted in 1997.
In 1992, the DEP issued Raidual Waste Management Regulations governing the generation and management of non-hazardous residual waste, such as coal ash. Duquesne is assessing the sites it utilizes and has developed mm-pliance strategies that are currently under review by the DEP. Capital costs of L.5 million were incurred by Duquesne in 19% to mmply with these DEP regulations. Based on information currently available, an additional
$2.8 million will be spent in 1997. ne additional capital cost of compliance through the year 2000 is estimated, based on current information, to be $15 million. nis estimate is cubject to the results ofgroundwater assessments and DEP final approval of compliance plans.
12
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- Duquesne is involved in various other envimnmental matters. Duquesne believes that such matters, in total, will if "not have a materially adverse effect on its financial position, results of operations or cash flows.
i 6
l Doeteek
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Campetition
%e electric utility industry continues to undergo fundamental dange in response to open transmission amess and increased availability of energy altematives. Under historical PUC ratemaking, rgulated electric utilities were i
granted endusive geographic franchises to sell electricity in exchange for making investments and incurrin6 obliga-l tions to serve customers under the then.czisting regula framework. Through the ntemaking process, those prudendy incurred costs were recovered fmm customers, with a return on the investment. Additionally, cer-tain operating costs were approved for deferral for future recovery from customers. As a result of this historical
- ratemaking process, utilities have assets recorded on their balance sheets at above-market costs and have commitments to purchase power at above-market prices (transition costs).
In Pennsylvania, under the Customer Choia Act which became effe: ave onJanuary 1,1997, consumers in a utilityk traditional franchised territory will ultimately be able to purasse electricity at market prices fmm a variety ofelectric generation suppliers. Before the phase-in to customer choice be6ms in 1999, the PUC expects utilities to take vigorous steps to nungste transition mots as much as possible without increasing the price they currendy
. charge customers. He PUC will determine what para'on of a utilityk rema' ing transition cons will be recoverable m
(mm customers through a CFC. nis charge will be paid by musumers who choose alternative generation supphers as well a customers who doose their franchised utility. De CFC could last as long as 2,005, providing a utility total of up to nine years to recover transition costs. An overall four-and-one-halfyear pnce cap will be imposed on the transmission and distribution charges of electric utility companies. Additionally,' electric utility companies may not increase the generation price component ofprices as lonpas transition costs are being recovered, with certain exceptions. If a utility ultimately is unable to recover its tranation mots within this pricing structure and timeframe, i
i the costs will be written off.
Duquesne has already been effective in mitigating its exposure to transition costs. As the following *able demon-strates, generating plant, decommissioning and related regulatory asset costs have been reduced by app, im.tely
$400 nullion during the past two years.'nese reducuans have resulted fmm a variety of strategies, such as selling generating assets, accelerating recovery of fixed costs, increasing nuclear 1-< = d sodng charges and reducing i
capitalized costs. Duquesne expects to continue these steps to address its remaining transition costs.The O-r i
Choice Act provides another option to mitigate transition costs. With PUC approval, utilities are permitted to issue transinon bonds with a maturity of 10 years or less. Pmceeds can be used to reduce transition costs.
Duquesne is currently reviewing this alternative as well as others to further mitigate its transition costs. (See
' Regulation" and
- Rate Matters" discussions on pages 1 and 5.)
Asesntfel Tmnsition Costs December 31, January 1, 4
1996 1995 (Amosmerin MiBantofDsEsrs)
Nuclear plant
$ 910.5 S1,149.0 Generation-related regulatory assets 417.9 495.8 BV Unit 2 lease 399.1 401.0 Unfunded generating plant decommissioning.
299.5 371.0 Phillips
.t,,
78.3 78.3.. m Warwick Mine 15.3 25.0 Purdane power contracts 7&aml
$2,120.6
$2,520.1 Any estimate of transition costs, including those in the table above, is forward-looking and is highly depen-dent on estimates of the future market prices for electric power. Higher market pnas for electricity reduce tran-dtion cost we, while lower market prices increase esposure. As part ofits trarmition filing, Duquesne is 13 f
.a
l proposing to make a long-term sale of electricity during the transition period to determins ths market rate for power. In addition to market-related impacts, any estimate of the ultimate level of transition costs also depends on, among other things, the extent to which such costs are deemed recoverable by the PUC, the ongoing level of Duquesne's costs of operations, regional and national economic mnditions, and growth of Duquesne s sales.
Duquesne anticipates making its transition filing, including the identification of potential transition costs, as required by the PUC by August 1,1997. The PUC is expected to rule on Duquesnets ability to recover these costs through a CTC by May 1,1998. Duquesne believes, based upon prior rulings of the PUC, that it is entided to recover substantially all ofits transition costs, but cannot predict the outcome of this regulatory process. In the event that the PUC rules that any or all of these transition costs cannot be recovered through a CTC mechanism or Duquesne fails to satisfy the requirements ofSFAS No. 71, these costs will be written off. As Duquesne has substantial exposure to transition msts relative to its size, significant transition cost write-offs muld have a materially adverse effect on Duquesne's financial position, results of operations and cash flows.
Various financial covenants and restrictions could be violated if substantial write-offof assets or recognition of liabilities occurs.
In addition to the mitigation of transition costs, Duquesne has been preparing for competition in a variety of ways. Duquesne has been building its financial strength through the retirement and refinancing oflong-term debt, in 1995, Duquesne's restrictive first mortgage bond indenture was replaced with a new indenture with more flexi-ble provisions. In 1996, Duquesne issued MIPS to further add to its financial flexibility and creditworthiness.
Duquesne has better positioned its business for competition through improving operations and enhancing cus-tomer relations. In recognition ofimpending industry competition and in an effort to optimize its generation resources, in 1989 Duquesne signed a mntract with Delmarva Power for a bulk power sale for a period of 20 years.
His initiative would have resulted in the refurbishment and return to service of Duquesne's cold-reserved generating stations. Following the plan's failure to receive regulatory approni, in 1990 Duquesne announmd a second long-term power sale initiative to restart these power plants. His plan would have provided significant impetus to emnomic development in Pennsylvania as well as providing Duquesne's customers with substantial bene 6ts in the form oflower rates. Duquesne's efforts to upgrade and maintain the mid-reserved units have enabled Duquesne to utilize the BI units to meet peak demand during periods ofextreme weather in recent years and have enabled the BI units to more quickly return to servim as part of the Ft. Martin sale. In 1991, Duquesne reorganized into strategic business units along market lines and instituted cost reduction targets for capital, operation and maintenance, and inventory expenditures. Workforce reductions were achievedprimarily through attrition. Since 1989 Duquesne has reduced its number of employees by 25 percent. Recently, Duquesne signed a three-year con-tract extension with its bargaining unit employees through September 2001.nroughout the period, Duquesne has been aggressively reducing its fuel costs, achieving a 13 percent reduction in the unit cost of fuel since 1990.
These measures have enabled Duquesne to reduce its rates by nearly 36 percent, in real terms, since 1990. When considering the price freeze mmponent of Duquesnet Mitigation Plan, prices will have declined by nearly 50 crcent in real terms during the decade of the 1990s. From a customer relations standpoint, Duquesne negotiated ong-term contracts with more than 30 keyindustrial and commercial customers and was recognized in 1996 for its economic development efforts in attracting major new industrial expansions. In 1995, Duquesne became one of the first electric utilities in the muntry to offer a full customer senice guarantee and also guaranteed to match any competing electricity supplieri price for new businesses or for the expansion of existing businesses. Duquesne also is offering to customers increased bill-paying options, including an advanced technology service that enables customers to electronically receive and pay their electric bills. His service assists major customers just as its earlier Electricheck option helped smaller commercial and residential customers. Additionally, Duquesne will be positioned to offer customers a wide range of new services with the Customer Advanced Reliability System (CARS). Utility customers will be linked to CARS by encoder receiver transmitters contained in new or retro 6tted electric meters. Data communications offered by this tecimology are expected to result in improved reliability, security, and customer satisfaction.
At the national level, in 1996 the FFRC issued two related final rules that address the tenns on which electric utilities will be required to provide dolesale suppliers of electric energy with non-discriminatory access tr3 the utilityi wholesale transmission system. The first rule, Order No. 888, requires each public utility that owns, mn-trols or operates interstate transmission facilities to file a tariff offering unbundled transmission services contain-ing non-rate terms that mnform to the FERCh pro forma tariff. Order No. 888 also allows full recovery of prudently incurred costs from departing customers. FERC deferred to state regulators with respect to retail access, recovery of retail transition costs and the smpe of state regulatory jurisdiction. The second rule, Order No. 889, prohibits transmission owners and their afIlliates from gaining preferential access to information mncerning transmission and establishes a code of conduct to ensure the cortplete separation of a utility's wholesale power marketing and transmission operation furctions.
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Finally, the FERC simultaneously issued a new Notice o IbparedRutanaking (NOPR) on Capacity Recrvation Open Auest Trammision %rifs (CRI), which would requ[re all market participants to reserve fi i
righa between designated receipt and delivery points. If adopted, the CRT would replace the open access pro forma tariffimplemented in Order No. 898. (See " Transmission Access" discussion below.)
Duquesne is aware of the foregoing state and federal regulatory and business uncertainties and is attempting to position itself to effectively operate in a more competitive environment.
Transminion Acass In March 1994, Duquesne submitted, pursuant to the FederalPower Act, two separate " good faith" requests for transmission service with APS and the Pennsylvania-NewJersey-Maryland Interconnection Association (PJM Companies). Because of a lack of progress on pricing and other issues, Duquesne subsequently filed with the FERC applications for transmission service. In May 1995, the FERC instructed APS and the PJM Companies to pmvide transmission service to Duquesne and directed the parties to negotiate specific rates, terms and conditions.
No terms were agreed to, and briefs were filed with the FERC outlining the areas of disagreement.The matter is now pending before the FERC. In July 1996, Duquesne filed with the FERC a request for acceptance of a capacity reservation tariff to replace the previously filed FERC Order No. 888 pro forma tariff. (See
" Competition" discussion on page 13.) Duquesnet tariff proposes to adopt marginal mst pricing for transmission service on Duquesnei transmission system. In February 1997, the FERC rejected Duquesnet tariff filing, but permitted Duquesne to request a hearing to determine whether Duquesne's tariffis just and reasonable as well as consistent with or superior to the Order No. 888 pm forma tariff. Duquesne has requested such a hearing.
Duquesne is currently evaluating the impact of FERC regulatory actions on these proceedings. Duquesne can-not predict the final outcome of these proceedings.
Beanr Valley Power Station (BVPS) Steam Generators BVP.% two units are equipped with steam generators designed and built by Westinghouse Electric Corporation (Westinghouse). Similar to other Westinghouse nuclear plants, outside diameter stress cormsion cracking (ODSCC) has occurred in the steam generator tubes of both units. The units continue to have the capability 'o operate at 100 percent reactor power although 15 percent of BV Unit I and 2 percent of BV Unit 2 steam generator tubes have been removed from service. Material acceleration in the rate of ODSCC could lead o a loss in plant effidency and significant repairs or replacement of BV Unit I steam generators.The total replacement mst of the BV Unit I steam generators is estimated at $125 million, $59 million of which would be Duquesnet nsponsibility.The earliest that the BV Unit I steam generators could be replamd during a scheduled refueling outageis the fan of 2000.
Other Retirement Plan Measurement Assumptions Duquesne increased the dismunt rate used to determine the projected benefit obligation on Duquesnet retire-ment plans at December 31,1996 to 7.5 percent.De assumed change in future compensation levels and assumed rate of return on plan assets were also increased to reflect current market and economic conditions. ne effects of these changes on Duquesnei retirement plan obligations are reflected in the amounts shown in l
" Employee Benefits," Note N to the mnsolidated financial statements, on page 55. The tesulting change in relat-ed expenses for subsequent years is not crpected to be material.
Exceptfor historicalinformation antained herrin, the matters dhcussedin thir AnnualReport on Form!O-x areforward-looking statemer.tr that involve risks and uncertainties including, but not limited to, emnomic, canpetitive, governmental and technologicalfaaors afecting Duquesne1 operatiore, markets, products, servicer andprices, and otherfaaors dhcuard in Duguane'spimgs trith the Semrities and Erchange Commurion.
15
- ~ _
Emscuche Officers of the Aegistmart Set forth below are the names, ages as of March 1,1997, positions and brief accounts of the business experience during the past five years of the executive officers of Duquesne.
NAME AGE OFHCE David D. Marshall 44 President and Chief Executive Officer since August 1996.
President and Chief Operating Officer from February 1995 to August 1996. Executive Vice President from February 1992 to February 1995, Assistant to the President from October 1990 to February 1992, and Vice President - Corporate Development from August _
1987 to February 1992.
Gary L. Schwass 51 Senior Vice President since February 1995 and Chief Financial Officer sinceJuly 1989. Vice President -
Finance from May 1988 to February 1995.
james E. Cross 50 President, Generation Group since September 1996.
Senior Vice President - Nuclear since February 1995.
Via President - Nuclear from September 1994 to l
February 1995. Formerly Vice President, Thermal Operations, and Chief Nuclear Officer of Portland Geners! Electric from May 1993 to September 1994; i
and Vice President and Chief Nuclear Officer of Portland General Electric from December 1991 to May 1993.
Dianna L. Green 50 Senior Vice President - Customer Operations since April 1995. Senior Vice President - Administration l
from February 1995 to April 1995. Vice President -
l Administrative Servims from August 1988 to February 1995.
Gary R. Brandenberger 59 Vice President - Power Supply since August 1986.
WilliamJ. DeLeo 46 Vice President - Marketing and Corporate Performance since April 1995. Vice President -
Corporate Performance and Information Senices fromJanuary 1991 to April 1995.
Victor A. Roque 50 Vice President since April 1995 and General Counsel since November 1994. Previously Vice IYesident, General Counsel and Secretary for Orange and Rockland Utilities from April 1989 to November 1994.
l DonaldJ. Clayton 42 Treasurer sinceJanuary 1995. Assistant Treasurer from May 1990 toJanuary 1995.
Morgan K. O'Brien 36 Controller and Principal Accounting Officer since l
October 1995. Assistant Controller from December 1993 to October 1995. Manager, Corporate Taxes, from September 1991 to i
December 1993.
16 f
ITEM 2.,
PROPERTIES.
Duquesnei properties consist of electric generating stations, transmission and distribution facilities, and supplemental properties and appurtenances, comprising as a whole an integrated electric utility system, located in Allegheny, Beaver and Westmoreland counties in southwestern Pennsylvania.
r Duquesne owns all or a portion of the following generating units except Beaver Valley Unit 2, which is leased.
Duquesne's Share of Net Plant Output Capacity Year Ended I
(Megawatts)
December 31,1996
%-..aA Incariaa
. Type h = = --
Winter (Me-=-art Aaard Cheswick Coal 562 570 3,101,155
+
Springdale, Pa.
Elrama Coal 474 487 2,572,107 Elrama, Pa.
Sanunis Unit 7 (1)
Coal 187 187 1,058,157 Stratton, Ohio Eastlake Unit 5 (1)
Coal 186 186 972,750 Eastlake, Ohio Beaver Valley Unit 1 (1)
Nuclear 385 385 2,713,594 Shippingport, Pa.
Beaver Valley Unit 2 (1)
Nuclear 113 113 674,893 Shippingport, Pa.
Perry Unit 1 (1)
Nuclear 161 164 1,026,442 North Perry, Ohio BruceMansfield Unit I (1)
Coal 228 228 965,248 Shippingport, Pa.
Bruce Mansfield Unit 2 (1)
Coal 62 62 285,792 Shippingport, Pa.
Bruce Mansfield Unit 3 (1)
Coal 110 110 480,342 Shippingport, Pa.
ft. Martin Unit I (2)
Coal 276 276 1,215,111 Brunot Island Brunot Island, Pa.
Oil 166 128 (4846)
Total 2,910 2,946 15,058,745 Property held for future use:
Brunot Island Oil 92 128 Phillips Coal 300 300 lbtal 3,302 3,374 (1)
Amounts represent Duquesnei share of the unit which is owned by Duquesne in common with one or more other electric utilities (or, in the case of Beaver Valley Unit 2, leased by Duquesne).
(2)
Amount represents Duquesnei share of the unit, which was sold on October 31,1996.
Duquesne owns 24 transmission substations (including interests in common in the step-up transformers at i
Sairmis Unit 7; Easdale Unit 5; llruce Mansfield Unit 1; Beaver Valley Unit 1; Beaver Valley Unit 2; Perry
' Unit 1; Bruce Mansfield Unit 2; and Bruce Mansfield Unit 3) and 562 distribution substations. Duquesne has 714 circuit-miles of transmission lines, comprising 345,000,138,000 and 69,000 volt lines. Street lighting and distribution circuit of 23,000 volts and less include approdmately 50,000 miles oflines and cable.
i 17 i
'l Duquesne owns the Warwick Mine, including 4,849 acres owned in fee of unmined coal lands rnd mining
)
rights, located on the Monongahela River in Greene County, Pennsylvania, approximately 83 river miles from Pittsburgh. (See Item 1. BUSINESS " Fossil Fuel" discussion on page 9.)
I Additional information relating to Item 2. PROPERTIES,is set forth in Note D," Property, Plant and i
Equipment," of the consolidated financial statements for year ended December 31,1996, on page 42. The j
information is incorporated here by reference.
l ITEM 3.
LEGAL PROCEEDINGS.
Rate-Related Legat hoceedings, huperty, Mont and Equipment-Related lepot hoonedings and Environmental L* gal hoceedings Entlake Unit 5 In September 1995, Duquesne commenced arbitration against CEI, seeking damages, termination of the Operating Agreement for Eastlake Unit 5 (Easdake) and partition of the partid interests in Eastlake through a sale and division of the proceeds. The arbitration demand alleged, among other things, the improper allocation by CEI of fuel and related costs; the mismanagement of the administration of the Saginaw coal mntract in connection with the closing of the Saginaw mine, widdi historically supplied coal to Easdake; and the concealment by CEI ofmaterial information. In October 1995, CEI commenced an action against Duquesne in the Court of Common Pleas, Lake County, Ohio seekmg to enjoin Duquesne from taking any action to effect a partition on the basis of a waiver of partition covenant contained in the deed to the land undelying Easdake. CEI also seeks monetary damages fmm Duquesne for alleged unpaid joint costs in connection with the operation ofEastlake.
Duquesne removed the action to the United States District Court for the Northern District of Ohio, Eastern Division, where it is now pending. Currently, the parties are engaged in settlenxnt discussions. To provide the panics with the opportunity to settle their claims, the court has postponed litigation prm-hgs until April 1,1997.
Proceedings involving Duquesnei rates are reported in Item 1. BUSINESS " Rate Matters." Proceedings involving Property, Plant and Equipment m reported in Item 1. BUSINESS " Property, Plant and Equipment."
Proceedings invohing environmental mareu are reported in Item 1. BUSINESS " Environmental Matters."
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II ITEM 5.
MARKET FOR REGISTRAN1'S COMMON EQUITY AND RELATED SHAREHOLDER MA1TERS.
Duquesnei common stock is not publicly traded. EffectiveJuly 7,1989, Duquesne became a wholly owned subsidiary of DQE, the holding mmpany formed as part of a shareholder-spproved restructuring. As a result of the restructuring, Duquesne s shareholders received DQE mmmon stock in exchange for their shares of Duquesne common stock, which were cancelled. DQE owns all of Duquesnei outstanding common stock, which consists of 10 shares. As such, this item is not applicable to Duquesne because all its common equity is held solely by DQE. During 1996 and 1995, Duquesne declared quarterly dividends on its conunon stock totaling 5276 million and 5144 million, respectively.
ITEM 6.
SELECTED FINANCIAL DATA.
Selected financial data for Duquesne for each of the six years in the period ended December 31,1996, are set forth on page 59. *Re financial data is incorporated here by reference.
18 i
ITEM 7.
MANAGEMENfS DISCUSSION AND ANALYSIS OF FINANCIAL CONom0N AND RESUL15 0F OPERATIONS.
Management's discussion and analysis of fin-nci:! condition and results of operations are set forth in Item 1.
BUSINESS. The discussion and analysis are incorporated here by reference.
ITEM 8.
CONSOUoATED FINANCIAL STATEMENTS ANo SUPPLEMENTARY DATA.
The Consolidated Balance Sheet of Duquesne Light Company and iu subsidiary as of December 31,1996 and 1995, and the related Statements of Consolidated Income, Retained Earnings and Cash Flows for each of the three years in the period ended December 31,1996, together with the Independent Auditors' Report dated January 28,1997, are set forth in pages 34 to 58 of this Report. The consolidated financial statements and report are incorporated here by reference. Quarterly financial information is included on page 58 in Note O to Duquesne's consolidated financial statements and is incorporated here by reference.
ITEM 9.
CNANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRTANT.
All directors of DOE are also directors of Duquesi.e. Information relating to DOE) and Duquesne's board of directors is set forth on page 6 of the 1996 DQE At.nual Report to Shareholders filed here as part of this Report in Exhibit 99.2. The information is incorpora*.ed here by reference. Information relating to the execu-tive officers of the Registrant is set forth in Pan I << this Report under the caption " Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information relating to executive compensation is set forth in Exhibit 99.1, filed as pan of this Report.
The information is inmrporated here by reference.
ITEM 12. SECURITY OWNERSHIP 0F CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
DQE is the beneficial owner and holder of all shares of outstanding Common Stock, $1 par value, of Duquesne Light, consisting of 10 shares as of February 21,1997. Information relating to the ownership of equity securities of DOE and Duquesne Light by directors and executive officers of Duquesne Light is set forth in Exhibit 99.1, filed as part of this Report. The information is incorporated here by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
19
i PART IV 1
i ITEN 14. EKHISils, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
i (aXI) The following information is set forth here on pages 34 through 58:
i Report ofIndependent Certified Public Accountants.
i Statement of Consolidated Income for the Three Years Ended December 31,1996.
Consolidated Balance Sheet, December 31,19% and 1995.
. l Statement of Consolidated Cash Flows for the Three Years Ended December 31,1996.
Statement of Consolidated Retained Earnings for the Three Years Ended December 31,1996.
Notes to Consolidated Financial Statements.
(a)(2) The following financial statement schedule and the related Report ofIndependent Certified Public Acx:ountants (See pages 32 and 34.) are filed here as a part of this Report:
Schedule for the'ntree Years Ended Decemb-a 31,1996:
II. Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of the conditions under which they are required or because the information called for is shown in the financial statements or notes to the financial statements.
(aX3) Exhibits are set forth in the Exhibits Index on pages 21 through 31, and inmrporated here by reference. Documents other than those designated as being filed here are incorporated here by reference.
Previously filed documents incorporated by reference to a DQE Annual Report on Form 10-K, a Quarterly Report on Form 10-Q or a Current Report on Form 8-K are at Securities and Exchange Commission File No.1-10290. Documents inmrporated by reference to a Duquesne Light Company Annual Report on Form 10-K, Quarterly Report on Form 10-0 or a Current Report on Form 8-K are at Securities and Exchange Commission File No.1-956. The Exhibits include the management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K by item 601(dX10Xiii), of Regulation S-K.
(b) Reports on Form 8-K filed during the twelve months ended December 31,1996:
(1)
May 13,1996 - The following event was reported:
Item 7. Statement re: Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Stock Dividend Requirements.
No financial statements were filed with this report.
l i
20 m
r m
i m
m -
EXHIBIIS INDEX EXHIBIT METHOD 0F No.
DESCRIm0N FILING 3.1 Resuted Articles of Duquesne Light Company, as Exhibit 3.1 to the Form 10-K amended through December 19,1991 and as currently Annual Report of Duquesne i
in effect.
Light Company for the year j
ended December 31,1991.
3.2 By-Laws of Duquesn.c Light Company, as amended Filed here.
through Dece: doer 18,1996 and as currently in effect.
4.1 Indenture dated March 1,1960, relating to Duquesne Exhibit 4.3 to the Form 10-K Light Company's 5% Sinking Fund Debentures.
Annual Report of DQE for the year ended December 31,1989.
4.2 Indenture of Mortgage and Deed of Trust dated as of Exhibit 4.3 to Registration April 1,1992, securing Duquesne Light Company's Statement (Form S-3)
First CollateralTrust Bonds.
No. 33-52782.
4.3 -
Supplemental Indentures supplementing the said Indenture ofMortgage and Deed of Trust -
SupplementalIndenture No.1.
Exhibit 4.4 to Registration Statement (Form S-3)
No. 33-52782.
Supplemental Indenture No. 2 through Supplemental Exhibit 4.4 to Registration j
Indenture No. 4.
Statement (Form S-3)
No. 33-63602.
4 Supplemental Indenture No. 5 through Supplemental Exhibit 4.6 to the Form 10-K Indenture No. 7.
Annual Report of Duquesne Light Company for the year ended December 31,1993.
Supplemental Indenture No. 8 and Supplemental Exhibit 4.6 to the Form 10-K Indenture No. 9.
Annual Report of Duquesne Light Company for the year ended December 31,1994.
Supplemental Indenture No.10 thmugh Supplemental Exhibit 4.4 to the Form 10-K Indenture No.12.
Annual Report of Duquesne Light Company for the year ended December 31,1995.
SupplementalIndenture No.13.
Filed here.
4.4 Amended and Restated Agreement of Limited Partnership Filed here.
of Duquesne Capital LP., dated as ofMay 14,1996.
4.5 Payment and Guarantee Agreement dated as ofMay 14, Filed here.
1996 by Duquesne Light Company with respect to MII$.
4.6 Indenture dated as ofMay 1,1996 by Duquesne Light Filed here.
Company to the First National Bank of Chicago as Trustee.
21
=.
l
.~
h EXNIBITJ MtTNoe or No.
DEscalm0N FluMG i
Agreemente edesing toJointJy Oawed Genersting Unitr:
_l 10.1-Administration Agreement dated as of September 14,1%7.
Exhibit 5.8 to Registration.
- Statement (Form S-7).
No. 2-43106.
a 10.2 Transmission Facilities Agreement dated as of September Exhibit 5.9 to Registration i
14,1 % 7.
Statement (Form S-7)
No. 2-43106 ~
10.3 Operating Agreement dated as of September 21,1972 Exhibit 5.1 to Registration for Easdake Unit No. 5.'
Statement (Form S-7)
No. 2-48164.
i 10.4 Memorandum of Agreement dated as ofJuly 1,1982 re Exhibit 10.14 to the Form 10-K -
l reallocation of rights and liabilities of the companies Annual Report of Duquesne.
i under uranium supply contracts.
Light Company for the year j
ended December 31,1987.
10.5 Operating Agreement dated August 5,1982 m of Exhibit 10.17 to the Form 10-K September 1,1971 for Sammis Unit No. 7.
Annual Report of Duquesne Light Company for theyear.
ended December 31,1988.
j 10.6 Memorandum of Understanding dated as ofMarch 31, Exhibit 10.19 to the Form 10-K 1985 re implementation of company-by-company Annual Report of DQE for the management of uranium inventory and delivery.
year ended December 31, IW9.
j 1
10.7 Restated Operating Agreement for Beaver Valley Unit Exhibit 10.23 to the Form 10-K Nos. I and 2 dated September 15,1987.
Annual Report of Duquesre Light Company for the year ended December 31,1987.
10.8 Operating Agreement for Perry Unit No. I dated Exhibit 10.24 to the Form 10-K March 10,1987.
Annual Report of Duquesne Light Company for the year ended December 31,1987.
10.9 Operating Agreement for Bruce Mans 6 eld Units Nos.1, Exhibit 10.25 to the Form 10-K 2 and 3 dated September 15,1987 as ofJune 1,1976.
Annual Report of Duquesne Light Company for theyear ended December 31,1987.
10.10 Basic Operating Agreement, as amendedJanuary 1,1993.
Exhibit 10.10 to the Form 10-K
)
Annual Report of Duquesne Light Company for the year ended December 31,1993.
10.11 Amendment No. I dated December 23,1993 to Exhibit 10.11 to the Form 10-K Transmission Facilities Agreement (as ofJanuary 1,1993).
Annual Report of Duquesne-Light Company for the year ended December 31,1993.
22
EXHIBIT METHOD OF No.
DESCRigoN FIUNG 10.12 Microwave Sharing Agreement (as amended Exhibit 10.12 to the Form 10-K January 1,1993) dated December 23,1993.
Annual Report of Duquesne Light Company for the year ended December 31,1993.
10.13 Agreement (as of September 1,1980) dated Exhibit 10.13 to the Form 10-K December 23,1993 for termination or construction Annual Report of Duquesne of certain agreements.
Light Company for the year ended December 31,1993.
10.14 Fort Martin Power Station Asset Purchase Agreement Exhibit 10.17 to the Form 10-K dated as of November 28,1995.
Annual Report of Duquesne Light Company for theyear ended December 31,1995.
Agreements relating to the Sale and Leaseback ofBeaver Valley Unit No. 2:
10.15 Order of the Pennsylvania Public Utility Commission Exhibit 28.2 to the Form 10-Q dated September 25,1987 regarding the application Quarterly Report of Duquesne of the Duquesne Light Company under Section 1102(a)(3)
Light Company for the quarter of the Public Utility Code for approval in connection with ended September 30,1987.
the sale and leaseback ofits interest in Beaver Valley Unit No. 2.
i 10.16 Order of the Pennsylvania Public Utility Commission Exhibit 10.28 to the Form 10-K dated October 15,1992 regarding the Securities Annual Report of Duquesne Certificate of Duquesne Light Company for the Light Company for the year assumption of contingent obligations under ended December 31,1992.
financing agreements in connection with the 1
refunding of Collateralized Lease Bonds.
j x10.17 Facility Lease dated as of September 15,1987 between Exhibit (4)(c) to Registration i
The First National Bank of Boston, as Owner Trustee Statement (Form S-3) j under a Trust Agreement dated as of September 15,1987 No. 33-18144.
with the limited parmership Owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
yl0.18 Facility Ixase dated as of September 15,1987 between Exhibit (4)(d) to Registration The First National Bank of Boston, as Owner Trustee Statement (Form S-3)
- m. der a Trust Agreement dated as of September 15, No. 33-18144.
1987, with the corporate Owner Participant named therein, Lessor, and Duquesne Light Company, Lessec.
x10.19 Amendment No. I dated as of December 1,1987 to Exhibit 10.30 to the Form 10-K Facility Lease dated as of September 15,1987 between Annua) Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year under a Trust Agreement dated as of September 15,1987 ended December 31,1987.
with the limited partnr.rship Owner Participant named therein, Lessor, and Duquesne Light Company, Lessee.
23
ExNIBIT METH00 0F.
5 i
N0.
DESCRFHON '
FIUNG -
i y10.20 Amendment No. I dated as of Demmber 1,1987 to Exhibit 10.31 to the Form 10-K Fadlity lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year under a Trust Agreement dated as of September 15, ended December 31,1987.
i 1987 with the corporate Owner Participant named i
therein, Lessor, and Duquesne Light Company, Lessee.
x10.21
' Amendment No. 2 dated as of November 15,1992 to Exhibit 10.33 to the Form 10-K l
Fadlity Lease dated u of September 15,1987 between Annual Report of Duquesne i
i The First National Bank of Boston, u Owner Trustee Light Company for the year l
under a Trust Agreement dated as of September 15,1987 ended December 31,1992.
with the limited partnership Owner Participant named I
therein, Lessor, and Duquesne Light Company, Lessee.
y10.22 Amendment No.2 dated a of November 15,1992 to Exhibit 10.34 tothe Form 10-K j
Facility Lease dated as of September 15,1987 between Annual Report of Duquesne l
The First National Bank of Boston, u Owner Trustee Light Company for the year j
4 under a Trust Agreement dated as of September 15, ended December 31,1992.
1987 with the corporate Owner Participant named t
therein, Lessor, and Duquesne light Company,Ie see.
l x10.23 Amendment No. 3 dated as of October 13,1994 to Exhibit 10.25 to the Form 10-K 5
Facility lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year under a Trust Agreement dated as of Septembet 15,1987 ended December 31,1994.
with the limited permership Owner Participaar named j
therein, Lessor, and Duquesne Light Company, Leuee.
l y10.24 Amendment No. 3 dated as of October 13,1994 to Exhibit 1026 to the Form 10-K I
Facility Lease dated as of September 15,1987 between Annual Report of Duquesne The First National Bank of Boston, as Owner Trustee Light Company for the year j
under a Trust Agreement dated as of September 15,1987 ended December 31,1994.
with the corporate Owner Participant named therein, i
Lessor, and Duquesne Light Company, Lessee.
x10.25 Participation Agreement dated as of September 15, Exhibit (28X )to Registration 1987 among the limited partnership Owner Statement (Form S-3)
Participant named therein, the Original loan No. 33-18144.
i Participants listed in Schedule 1 thereto, as Original t
Loan Participants, DQU Funding Corporation, as Funding Corp, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
y10.26 Participation Agreement dated as of September 15,1987 Exhibit (28Xb)to Registration among the corporate Owner Participant named therein, Statement (Form S-3) the Original loan Participants listed in Schedule 1 No. 33-18144.
thereto, as Original loan Participants, DQU Funding '
s Corporation, as Funding Corp, The First National Bank j
of Boston, as Owner Trustee, Irving Trust Company, as L
Indenture Trustee and Duquesne Light Company, as Lessee.
i a
l 24 2--
.w.
,er-y-
EXHISIT METH00 0F i
NO.
DESCRIPTION FILING
]
x10.27 Amendment No. I dated as of December 1,1987 to Exhibit 10.34 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne l
among the limited partnership Owner Participant named Light Company for the year therein, the Original loan Participants listed therein, ended December 31,1987.
as Original Loan Participants, DQU Funding Corporation, as Funding Corp, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as Lessee.
yl0.28 Amendment No. I dated as of December 1,1987 to Exhibit 10.35 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the corporate Owner Participant named therein, Light Company for the year the Original loan Participants listed therein, u Original ended Deember 31,1987.
Loan Participants, DQU Funding Corporation, as Funding Corp, ne First Nstional Bank of Boston, as i
Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as lessee.
i i
x10.29 Amendment No. 2 dated as ofMarch 1,1988 to Exhibit (28)(c)(3) to Participation Agreement dated as of September 15,1987 Registration Statement among the limited permership Owner Participant named (Form S-3) No. 33-54648.
therein, DQU Funding Corporation, as Funding Corp, 1
j ne First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and j
Duquesne Light Company, as Lessee.
yl0.30 Amendment No. 2 dated as ofMarch 1,1988 to Exhibit (28)(c)(4)to l
Participation Agreement dated as of September 15,1987 Registration Statement l
among the corporate Owner Participant named therein, (Form S-3) No. 33-54648.
j DQU Funding Corporation, as Funding Corp, i
The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Duquesne Light Company, as lessee.
x10.31 Amendment No. 3 6ted as of November 15,1992 to Exhibit 10.41 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the limited partnership Owner Partidpant named Light Company for the year therein, DQU Funding Corporation, as Funding Corp, ended December 31,1992.
DQU II Funding Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Duquesne Light Company, as Lessee.
y10.32 Amendment No. 3 dated as of November 15,1992 to Exhibit 10.42 to the Form 10-K Participation Agreement dated as of September 15,1987 Annual Report of Duquesne among the corporate Owner Participant named therein, Light Company for the year DQU Funding Corporation, as Funding Corp, ended December 31,1992.
3 DQU II Funding Corporation, as New Funding Corp, He Hrst National Bank of Boston, as Owner Trustee, The Br.nk of New York, as Indenture Trustee and Duquesne Light Company, as Lessee.
4 I
25
...~-.- - --- --
I
]
EXXIM
%M00 0F i
No.
DESCRIm0N FILING j
i x10.33 Amendment No. 4 dated as of October 13,1994 to
. Exhibit 10.35 to the Form 10-K j
Participation Agreement dated as of S~wa=615,1987 Annual Report of Duquesne among the limited partnership Owner Participant named Light Company for the year therein, DQU Funding Corporation, as Funding Corp, ended December 31,1994.
I DQU II Funding Corporation, a New Funding Corp, The First National Bank of Boston, as Owner Trustee, l
The Bank of New York, as Indenture Trustee and
^
Duquesne Light Company, as Iessee.
y10.34 Amendment No. 4 dated as of October 13,1994 to~
Exhibit 10.36 to the Form 10-K l
Participation Agreement dated as of L;*-=615,1987 Annual Report of Duquesne j
among the corporate Owner Partidpant named therein, Light Company for the year l
DQU Funding Corporation, as Funding Corp, ended December 31,1994.
DQU Il Funding Corporation, as New Funding Corp, ne First National Bank of Boston, as Owner Trustee, l
De Bank of New York, as Indenture Trustee and l
Duquesne Light Company, as Lessee.
{
zl0.35 Ground Lease and Easement Agreement dated as of Exhibit G8Xe)to Registration l
September 15,1987 between Duquesne Light Company, Statement (Form S-3)
Ground Lessor and Grantor, and ne First National Bank No. 33-18144.
of Boston, as Owner Trustee under a Trust Agreement l.
dated as of September 15,1987 with the limited partnership Owner Partidpant named therein,
)
Tenant and Grantee.
i i
z10.36 Assignment, Assumption and Further Agreement dated as Exhibit G8Xf) to Registration of September 15,1987 among The First National Bank of Statement (Form S 3) l Boston, as Owner Trustee under a Trust Agreement dated No. 33-18144.
as of September 15,1987 with the limited partnership Owner Participant named therein, The Cleveland Electric 7
Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and The Toledo Edison Company.
l zl0.37 Additional Support Agreement dated as of September 15, Exhibit G8Xg)to Registration 1987 between ne First National Bank of Boston, as Statement (Form S-3)
Owner Trustee under a Trust Agreement dated as of No. 33-18144.
September 15,1987 with the limited partnership Owner Participant named therein, and Duquesne Light Company.
z10.38 Indenture, Bill of Sale, Instrument of Transfer and Exhibit G8Xh) to Registration Severance Agreement dated as of October 2,1987 Statement (Form S-3) between Duquesne Light Company, Seller, and The First No. 33-18144.
National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15,1987 with the limited partnership Owner Participant named therein, Buyer.
zl0.39 Tax Indemnificatior. Agreement dated as of September 15, FAibit 28.1 to the Form 8-K 1987 between the Owner Participant named therein and Current Report of Duquesne Duquesne Light Company, as Lessee.
Light Company dated November 20,1987.
26 1
or v-
.---.--w.,
EXHISIT METHOD OF No.
DESCRIMION FILING z10.40 Amendment No. I dated as of November 15,1992 to -
Exhibit 10.48 to the Form 10-K Tax Indemnification Agreement dated as of September 15, Annual Report of Duquesne 1987 between the Owner Participant named therein and Light Company for the year Duquesne Light Company, as lessee.
ended December 31,1992.
zl0.41 Amendment No. 2 dated as of October 13,1994 to Tax Exhibit 10.43 to the Form 10-K Indemnification Agreement dat.ed as of September 15,1987 Annual' Report of Duquesne between the Owner Participant, named therein and Light Company for the year Duquesne Light Company, as lessee.
ended December 31,1994.
zl0.42 Extension Letter dated December 8,1992 from Exhibit 10.49 to the Form 10-K Duquesne Light Company, each Owner Participant, The Annual Report of Duquesne First National Bank of Boston, the Uase Indenture Light Company for the year Trustee, DQU Funding Corporation and DQU II ended December 31,~1992.
Funding Corporation addressed to the New Collateral Trust Trustee extending their respective representations and warranties and covenants set forth in each of the Participation Agreements.
110.43 Trust Indenture, Mortgage, Security Agreement and Exhibit (4)(g) to Registration Assignment of Facility Ixase dated as of September 15, Statement (Form S-3) 1987 between The First National Bank of Boston, as No. 33-18144.
Owner Trustee under a Trust Agreement dated as of September 15,1987 with the limited partnership Owner Participant named therein, and Irving Trust Company, as Indenture Trustee.
yl0.44
'Irust Indenture, Mortgage, Security Agreement and Exhibit (4)(h) to Registration Assignment of Facility 12:sc dated as of September 15, Statement (Form S-3) 1987 between The First National Bank of Boston, as No. 33-18144.
Owner Trustcc under a Trust Agreement dated as of September 15,1987 with the corporate Owner Participant named therein, and Irving Trust Company, as Indenture Trustee.
x10.45 Supplemental Indenture No. I dated as of December 1, Exhibit 10.45 to the Form 10-K 1987 to Trust Indenture, Mortgage, Security Agreement Annual Report of Duquesne and Assignment of Facility lease dated as of September 15, Light Company for the year 1987 between The First National Bank of Boston, as Owner ended December 31,1987.
Trustee under a Trust Agreement dated as of September 15, 1987 with the limited partnership Owner Participant named therein, and Irving Trust Company, as Indenture Trustee.
y10.46 Supplemental Indenture No. I dated as of December 1, Exhibit 10.46 to the Form 10-K 1987 to Trust Indenture, Mortgage, Security Agreement Annual Report of Duquesne and Assignment of Facility Lease dated as of September 15, Light Company for die year 1987 between The First National Bank of Boston, as ended December 31,1987.
Owner Trustee under a Trust Agreement dated as of September 15,1987 with the corporate Owner Participant named therein, and Irving Trust Company, as Indenture Trustee.
27
1 EXHIBIT METHOD OF l
NO.
DESCRIMON FILING x10.47 Supplemental Indenture No. 2 dated as of November 15, Exhibit 10.54 to the Form 10-K 1992 to Trust Indenture, Mortgage, Security Agreement Annual Report of Duquesne and Assignment of Facility Iease dated as of September 15, Light Company for theyear 1987 between ne First National Bank of Boston, as ended December 31,1992.
Owner Trustee under a Trust Agreement dated as of September 15,1987 with the limited partnership Owner Participant named therein, and The Bank of New York, as Indenture Trustee.
y10.48 Supplemental Indenture No. 2 dated as of November 15, Exhibit 10.55 to the Form 10-K 1992 to Trust Indenture, Mortgage, Security Agreement Annual Report of Duquesne and Assignment of Facility Lease dated as of September 15, Light Company for the year
?
1987 between The First National Bank of Boston, as ended December 31,1992.
Owner Trustee under a Trust Agreement dated as of September 15,1987 with the corporate Owner Participant named therein, and The Bank of New York, as Indenture Trustee.
l 10.49 Reimbursement Agreement dated as of October 1,1994 Exhibit 10.51 to the Form 10-K among Duquesne Light Company, Swiss Bank Annual Report of Duquesne Corporation, New York Branch, as LOC Bank, Union Light Company for the year Bank, as Administrating Bank, Swiss Bank ended December 31,1994.
Corporation, New York Branch, as Administrating Bank and The Participating Banks Named Therein.
10.50 Collateral Trust Indenture dated as of November 15,1992 Exhibit 10.58 to the Form 10-K among DQU II Funding Corporation, Duquesne Light Annual Report of Duquesne Company and The Bank of New York, as Trustee.
Light Company for the year ended December 31,1992.
10.51 First Supplemental Indenture dated as of November 15, Exhibit 10.59 to the Form 10-K 1992 to Collateral Trust Indenture dated as of Annual Report of Duquesne November 15,1992 among DQU II Funding Corporation, Light Company for the year l
Duquesne Light Company and The Bank of New York, as ended December 31,1992.
l Trustee.
l x10.52 Refinancing Agreement dated as of November 15,1992 Exhibit 10.60 to the Form 10-K among the limited partnership Owner Participant Annual Report of Duquesne named therein, as Owner Participant, DQU Funding Light Company for the year Corporation, as Funding Corp, DQU II Funding ended December 31,1992.
Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenmre Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee, and Duquesne Light Company, as Lessee.
i 28
~.-
EXHISIT METH00 0F No.
DESCRIPTION FILING i
i Refmancing A reement dated as of November 15,1992 Exhibit 10.61 to the Form 10-K yl0.53 6
among the corporate Owner Participant named therein, Annual Report of Duquesne as Owner Participant, DQU Funding Corporation, Light Company for the year as Funding Corp, DQU II Funding Corporation, ended December 31,1992, as New Funding Corp, ne First National' Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee, and Duquesne Light Company, as Lessee.
x10.54 Addendum dated December 8,1992 to Refinancing Exhibit 10.62 to the Form 10-K L
Agreement dated as of November 15,1992 among the Annual Report of Duquesne limited partnership Owne-Participant named therein, Light Company for the year as Owner Participant, DC ' Funding Corporation, as ended December 31,1992.
Funding Corp, DQU II Funding Corporation, as New Funding Corp, De First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, ne Bar.k of New York, as Collateral Trust Trustee, ne Bank of New York, as New Collateral Trust Trustee, and Duquesne Light Company, as Lessee.
yl0.55 Addendum dated December 8,1992 to Refmancing Exhibit 10.63 to the Form 10-K A reement dated as of November 15,1992 among the Annual Report of Duquesne E
corporate Owner Participant named therein, as Light Company for the year Owner Participant, DQU Funding Corporation, as ended December 31,1992.
Funding Corp, DQU II Funding Corporation, as New Funding Corp, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee, and Duquesne Light Company, as Lessee.
OtherAgreements:
10.56 Deferred Compensation Plan for the Directors of Exhibit 10.1 to the Form 10-K Duquesne Light Company, as amended to date.
Annual Report of DQE for the year ended December 31,1992.
i 10.57 Incentive Compensation Program for Certain Executive Exhibit 10.2 to the Form 10-K 0$cers of Duquesne Light Company, as amended to Annual Report of DQE for the date.
year ended December 31,1992.
10.58 Description of Duquesne Light Company Pension Exhibit 10.3 to the Form 10-K Service Supplement Program.
Annual Report of DQE for the i
year ended December 31,1992.
j 10.59 Duquesne Light Company Outside Directors' Filed here.
Retirement Plan, as amended to date.
10.60 Duquesne Light /DQE Charitable Giving Program.
Exhibit 10.6 to the Form 10-K Annual Report of DQE for the year ended December 31,1992.
29 4
4
j l
EXHIBIT METHOD OF l
NO.
DESCRIm0N FILING 10.61 Performance Incentive Program for DQE, Inc. and Exhibit 10.7 to the Form 10-K Subsidiaries formerly known as the Duquesne Light Annual Reportof DQE for the Company Performance Incentive Program.
year ended December 31,1996.
10.62 Employment Agreement dated as of December 15, Exhibit 10.5 to the Form 10-K 1992 between DQE, Duquesne Light Company and Annual Report of DQE for the i
Wesley W. von Schack. -
year ended December 31,1992.
10.63 First Amendment dated as of October 25,1994 to Exhibit 10.8 to the Form 10-K Employment Agreement dated as of December 15, Annual Report of DQE for the 1992 between DQE, Duquesne Light Con pany and year ended December 31,1994.
Wesley W. von Schack.
10.64 Resignation Agreement between DQE and Duquesne Exhibit 10.1 to the Form 10-Q Light Company and Wesley W. von Schack.
Quarterly Report of DQE for the quarter ended September 30,1996.
10.65 Employment Agreement dated as ofAugust 30,1994 Exhibit 10.9 to the Form 10-K between DQE, Duquesne Light Company and Annual Report of DQE for the David D. Marshall.
year ended December 31,1994.
10.66 First Amendment dated as ofJune 27,1995 to Exhibit 10.68 to the Form 10-K Employment Agreement dated as ofAugust 30,1994 Annual Reportof Duquesne between DQE, Duquesne Light Company and Light Company for the year David D. Marshall.
ended December 31,1995.
10.67 Employment Agreement dated as ofAugust 30,1994 Duquesne Light Company between DQE, Duquesne Light Company and Exhibit 10.10 to the Form 10-K Gary L. Schwass.
Annual Report of DQE for the year ended December 31,1994.
10.68 Employment Agreement dated as ofAugust 30,1994 Exhibit 10.68 to the Form 10.K between Duquesne Light Company and Dianna L.
Annual Report of DQE for the Green.
year ended December 31,1994.
10.69 First Amendment dated as ofJune 27,1995 to Exhibit 10.71 to the Form 10-K Employment Agreement dated as of August 30,1994 Annual Report of Duquesne between Duquesne Light Company and Dianna L.
Light Company for the year i
Green.
ended December 31,1995.
10.70 Employment Agreement dated as of October 14,1996 Filed here.
between Duquesne Light Company andJames E. Cross.
10.71 Non-Competition and Confidentiality Agreement dated Exhibit 10.14 to the Form 10-K as of October 3,1996 by and among DQE, Inc., Duquesne Annual Report of DQE for the Light Company and David D. Marshall, together with a year ended December 31,1996.
q schedule listing substantially identical agreements with Dianna L Green, Victor A. Roque, James D. Mitchell
)
andJames E. Cross.
12.1 Calculation of Ratio of Earnings to Fixed Charges.
Filed here.
21.1 Subsidiaries of registrant:
Duquesne has no significant subsidiaries.
30 i
4
+
EXHIBIT METHOD OF NO. '
DESCRIm0N FIUNG 23.1 Independent Auditors' Consent.
Filed here.
27,1 Financial Data Schedule.
Filed here.
l
'99.1 Executive Compensation of Duquesne Light Company
- Filed here.
j Executive Officers for 1996 and Security Ownership of Duquesne Light Company Directors and j
. Executive Officers as of February 21,1997.
l 99.2 Directors of DQE and Duquesne Light Company.
Filed here.
An additional document,'substantially identical in all material respects to this Exhibit, has been entered x
into relating to one additional limited partnership Owner Participant. Although the additional document may -
l diEer in some respects (such as name of the Owner Participant, dollar amounts and percentages), there are no l
material details in which the document diEers from this Exhil>it.
i 3
i y Additional documents, substantially iderdcal in all material respects to this Exhibit, have been entered i
4 1
into relating to four additional corporate Ows er Participants. Although the additional documents may differ in some respects (such a names of the Owner Participants, dollar amounts and percentages), there are no material details in which the documents diser from this Exhibit.
i l
Additional documents, substantially identical in all material respects to this Exhibit, have been entered i
z into relating to six additional Owner Participants. Although the additional documents may diEer in se:ne respects (such as names of the Owner Participants, dollar amounts and percentages), there are no material details in which the documents differ from this FMiibit.
e Copies of the exhibits listed above will be furnished, upon request, to holders or bene 6cial owners of any class of Duquesne s stock as of February 21,1997, subject to payment in advance of the cost of reproducing the exhibits requested.
i i
i a
0 31
.i
i i
SCHEDULE II SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31,1996,1995 and 1994 (Thousands of Dollars)
Columa A Cnin=n B Cnlumn C Cninmn D Column E Cntumn F AAAirinne Balance at Charged to Charged to Balance Beginning Costs and Other at End Descrintion ofYear Fwnences Arennnes DeAncrinne ofYear 1
Year Ended December 31,1996 Reserve Deducted from the Asset to which it applies:
Allowance for uncollectible accounts
$17.920
$10.582 54.080 (A)
$14.288 (B)
S.18.2M i
1 Year Ended December 31,1995 Reserve Deducted from the Asset to which it applies:
Allowance for uncollectible accounts
$15.021
$13.430
$3.567 (A) 514.098 (B) 517.920 Year Ended December 31,1994 Reserve Deducted from the Asset 1
to which it applies:
l Allowance for uncollectible accounts
$13.282
$11.890
$1832(A)
$13.988 (B) 515.021 Notes: (A) Recovery of accounts previously written off.
(B) Accounts receivable written off.
l
\\
l
)
32
i 4
i SIMATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, the eunto duly authorized.
DUQUESNE LIGHT COMPAhT (Registrant)
Date: March 25,1997 By:
/d David D. March =11 (Signature)
David D. Marshall President, Chief Executive Officer and Director
. Pursuant to the requirernents of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indiuted.
SIMATURE TITLE DATE '
f
- /d David D. Marshal _1 President, Chief Executive Officer and March 25,1997 David D. Marshall Director
/d Carv L. Schwass Senior Vice President and Chief Financial March 25,1997 Gary L. Schwsss Officer
/d Morasn K. O'Brien Controller and Principal Accounting Officer March 25,1997 l
Morgan K. O'Brien
/d Daniel Bera Director March 25,1997 Daniel Berg f
/d Doreen E. Bovce Director March 25,1997 Doreen E. Boyce j
/d Robert P. Bannne Director March 25,1997 Robert P. Bozzone
/d Sino Falk Director March 25,1997 i
Sig'o Falk
/d William It k'anell Director March 25,1997 i
i William 11. Knoell
/d Rnhert Mehrshisn Director March 25,1997 Robert Mehrabian i
/d Thnms. T. Murrin Director March 25,1997
'RomasJ.Murrin
/d Frb W. Snrinaer Director March 25,1997 j
Eric W. Springer l
13
REPORT OF INDEPENDENT CERTIFIED PusLIC AccdUNTANTS f
To the Directors and Stockholder of Duquesne Lig! t Company:
We have audited the accompanying consolidated bala
- x sheet of Duquesne Light Company (a wholly owned subsidiary of DQE) and its subsidiaries as of December 31,1996, od 1995, and the related consolidated statcznents ofincome, retained earnings, and cash flows for each of the three years in tb e penod ended December 31,1996. Our audits also induded the financial statement schedule listed in the Inder at Item 14. These financial statements an:1 financial statement schedule are the responsibility of Duquesne's management. Our respc nsibility is to express an opiniot on these financial statements and financial statement schedule based on our audits.
. We conducted our audits in accordance with generally accepted auditing standards. %ose standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statamnts are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall fins icial statement presentation. We believe that our audits pmvide a reasonable basis for our opmion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Duquesne Light Company and its subsidiaries as of December 31,1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP DELOITTE & TOUCIIE LLP Pittsburgh, Pennsylvania Janusty 28,1997 1
I 34
STATEMENT OF CONSOUDATED INCOME
(&urandsofNian)
YearEndelDeemi,er31, 1996 1995 1994 I
Operadng Revenues:
SalesofElectricity:
Residential
$ 405,392 S 414,291 5 401,246 Commercial 494,919 497,187 495,734 Indusuial 190,723 190,689 195,852 Provmon E>r doubtful acmunts (10,582)
(13,430)
(11,890)
Net customer revenues 1,000,452 1,088,737 1,080,942 Utilities 58,292 55,% 3 58,295 Total Sales of Electridty 1,138,744 1,144,700 1,139,237 Other 38,081 35,084 29,387 i
TeodOpmsemigRe =nner 1,176,825 1,179,784 1,168,624 i
i Operating F-enn Fuel 204,655 208,546 222,420 Purdiased power 32,269 23,422 21,715 Other operating 253,109 250,322 269,001 Maimenana 78,386 81,516 79,488 Dc;reciation and amoruzation 216,338 190,679 163,114 Taxes other than income taxes 84,625 86,349 85,839 e
Income taxes 85,364 92,313 90,491 Tans /Opmengfapemer 954,746 933,147 932,068 OperatingIncome 222,079 246,637 236,556 OtherIncome and (Deductions):
1 Interestand dividendinmme 12,216 7,923 6,503 Income taxes 2,356 (581) 6,300 Allowance for equity funds used during construcuan 721 1,295 Other 9,991 (6,404)
(2,151) 3 f
TassIOderlmanse 24,563 1,659 11,947 Income Befose Interest and Other Charges 246,642 248,2 %
248,503 Interest Changes:
Interest on long-term debt 88,478 95,391 101,027 Otherinterest 1,632 2,599 1,095 Allowana for bormwed funds used during construcuan (1,249)
(764)
(1,068)
TassfInsmur Osrger 88,861 97,226 101,054 Monthly Inmme " i.J Securities Dnsiend Requirements 7,921 NetIncome 149,860 151,070 147,449
_ Dividends on Preferred and Preference Stock -
4,045 5,320 6,046 EarningrforQsuman Sa=*
$ 145,815
$ 145,750 S 141,403 l
35
CONSOLIDATED BALANCE SHEET l
(Ibousands afDallen) i Ar ofDaember 31, N
Assrrs 1996 1995 J
Property, Plant and Equipmenc Dectricplantin service
$4,272,623
$4,262,670 Construction workin pmgress 45,059 38,134 l
Property bcId under capitalleases 99,608 133,381 Propertyheld for future use 190,821 216,633 Other 662 1,192 i
Grosslwperty, plant and equipment 4,608,773 4,652,010 l
Iess: Accumulated depreciation and amoruzation (1,891,300)
(1,673,107)
TasslI%pery,P&mtamtF,, ; :-Net 2,717,473 2,978,903 long-Tenn Investments:
Investmentin DQE Common Stock 59,319 66,757 Other investments 102,948 102,648 Totallong-Tens Invernmener 162,267 169,405 CurrentAssets:
Cash and temporarycash invesunents 154,414 2,490 ReceivaWes:
Dectriccustomer acmunts receivaNe 92,475 103,821 i
Other utility receivables 18,635 22,441 Other receivaNes 12,829 11,842 Irss: Allowance for unmilectiWe acmunts (18,294)
(17,920)
Recx:ivaWes less allowance for uncollectible accounts 105,645 120,184 i
less: Receivables sold (7,000)
I TotalReniusNer-Net 105,645 113,184 Materials and supplies (at average cost):
Coal 19,097 25,454 Operating and construction 52,669 53,298 TotalMsterialsandSupplier 71,766 78,752 Other current assets 8,828 7,955 ToestOnnntAarar 340,653 202,381 OtherNon<unrntAssets:
Regulatory assets 636,816 678,700 Other 39,877 38,276 TassIOtherNan-CenntAnar 676,693 716,976 TaaslAarer
$3,897,086 S4,067,665 Ser ones a canMatedfaamusautemena i
l 36 i
CONSOLIDATED BALANCE SHEET i-I (Ibosaands ofDallers)
]
Ar ofDeconder31, CAPTTAUZADON AND IJABi1IllES 1996 1995 coni ~6.too.
Common stock (authorized - 90,000,000 shares, issued and outstanding - 10 shares)
S Capitalsurplus 825,540 837,265 l
Retained earnings 163,884 294,069 TotalGwamen h4AolderkEredry 989,424 1,131,334 Non-redeemaNe preferred stock 63,608-63,608-i Non-redeemaNe Monthly Inmme Preferred Securities 150,000 Non-redeemaNe preference stock 28,997 29,615 Total preferred and preferenz stock before deferred ESOP bene 6t 242,605 93,223 Deferred esnpkrfee stock ownership plan (ESOP) benefit (19,533)
(22,257) hetPhfmnalass4T,J,a Sad 223,072 70,966 Img-term debt 1,271,961 1,322,531 Toast C ; ' '= *
'2,484,457 2,524,831 Obligations Under CapitalIzases 28,407 34,546 CurrentIJabilities:
Current maturities and sinking fund requirements 70,912 71,051 Accounts payable 84,272 76,435 Amruedliabilities 59,020 53,930 Dividends declared 2,371 375,15 t
Other 4,613 9,191 TawlGmatliduisier 221,188 247,622 Non-Cuannt Ilabilities:
Deferred inmme taxes-net 726,517 805,996 Deferredinvesunent tax credits 106,201 115,760 Deferredincome 139,075 162,916 i
Other 191,241 175,994 TomlNm-CmentLis6deier 1,163,034 1,260,666 Commitments and Contingencies (Note B through N)
TomlC;* ' =2-mundIJddeler
$3,897,086 S4,067,665
[
t
$tt 19Nt180 C00Upliddled)5Fxenitte$JtetsM i
r i
(
s 37 i
STATEMENT OF CONSOUDATED CASH FL0ws
(&suandr ofIMen) harEnddDecmsber31, 1996 1995 1994 _.
Cash Hows Fmm Operating Activities:
Netincome
$ 149,860 S 151,070 S 147,44, Prin::ipal non cash charges (credits) to net income:
Depreciation and amoruzation 216,338 190,679 163,114 Capital lease, nudear fuel and other amortization 24,006 32,670 36,940 Deferred inmme taxes and investment tax cr-dits - net (98,874)
(41,410)
(33,411)
Phase-in plan revenues and related carrying chargcs 28,621 Changes in working capital other than cash (20,872) 30,656 (36,884)
Other 11,182 33,749 45,315
& Carbhadad#yOpmaningAanmier 281,640 397,414 351,144 Cash Hows Pmvided By (Used In) Investing Activities Sale ofgenerating station 169,100 Construction expenditures (88,546)
(78,656)
(94,315)
Inng-term invesunents (4,225)
(62,854)
(5,317)
Pro (xxxis from disposition ofinvestments 4,203 Other (700)
(4,534) 2,077
& Carh hidd by (Ehadhd ImesningAaivinia 79,832 (146,044)
(97,555)
Cash Hows Used In Haancing Activities Sale of bonds 114,110 Issuance ofpreferrcx! stock 150,000 Decreasein notes payable (10,990)
Dividends on capital stock (281,015)
(150,059)
(151,059)
Reduaions oflong-term obligations:
Preferred and preferenx stock G9,732)
'(39,958) long-term debt (50,812)
(56,114)
(114,835) l Capitalleases (19,326)
G6,373)
(33,522)
Other (8,395)
Q,506)
(1,431) d Net Cab UmfInI'x AAdininia (209,548)
Q64,784)
G37,685)
Net increase (decrease) in cash and temporary cash investments 151,924 (13,414) 15,904 Cash and temporary cash investments at begmning ofyear 2,490 15,904 Cash and temporary cash investments at end ofyear
$ 154,414 S
2,490 S 15,904 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid durhig the year fon Interest (net of amount capitalized)
$ - 86,409
$ 95,521 S 102,944 Inmme tax::s
$ 165,948
$ 115,504 S 111,614 Non-cash invesdng and L Mag activities i
Capital lease obligations rexx>rded
$ 13,050 S 14,%1 S 16,909 Contribution of DQE Ownmon Stock from parent company S
$ 19,531 l
Preferred stock issued in conjunction with long-term investments S
S 3,000 j
srr una ni
'[m.madaaemena i
38 1
STATEMENT OF CONSOUDATED RETAINED EARNINGS (kuondrofDallars)
YearEndedDecember31, 1996 1995 19M Balance at beginning ofyear
$294,069
$292,319
$294,916 Net Income for the Year 149,860 151,070 147,449 Total 443,929 443,389 442,365 Cash dividends declared:
Preferred stock 2,712 3,870 4,592 Preference stock (net of tax benefit of ESOP dividend) 1,333 1,450 1,454 Common stock 276,000 144,000 144,000 Total Cash Dividends Declared 290,045 149,320 150,046 Balance at end ofyear
$163,884 S294,069
$292,319 See norer a analidaudfinnnaalsvaremena.
NOTES TO CONSOUDATED FINANGAI. STATEMENTS A. Summary of Consolidation Duquesne Light Company (Duquesne)is a wholly owned subsidiary of DQE, an energy services holding company. Duquesne is engaged in the production, transmission, distribution and sale g,
of electric energy. Duquesne has one wholly owned subsidiary, Monongahela light and Power which makes long-term investments.
All material intercompany balances and transactions have been eliminated in the preparation of the consolidated financial statements of Duquesne.
Basis of Accounting Duquesne is subject to the accounting and reporting requirements of the United States Securities and Exchange Commission (SEC). In addition, Duquesne's operations are subject to regulation by the Pennsylvania Public Utility Commission (PUC) and the Federal Energy Regulatory Commission (FERC) under the FederalPower Ad with respect to rates for interstate sales, transmission of electric power, accounting and other matters.
Duquesne's consolidated financial statements report regulatory assets and liabilities in accordance with Statement ofFinancial Aavunting StandardrNo. 71, Aaountingfor the Efectr ofCenain Typer ofRegulation (SFAS No. 71), and reflect the effects of the current ratemaking process. In accordance with SFA9No.
71, Duquesnei consolidated financial statements reflect regulatory assets and liabilities consistent with cost-based, pre-competition ratemaking regulations. (See " Rate Matters," Note F, on page 44.)
'ne preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial state-ments. The reportal amounts of revenues and expenses during the reporting period nuy also be affected by the estimates and assumptions management is required to make. Actual results muld differ from those estimates.
Revenues fmm Sales of Bectricity Meters are read monthly and electric utility customers are billed on the same basis. Revenues are recorded in the accounting periods for which they are billed, with the exception of energy cost recovery revenues. (See " Energy Cost Rate Adjustment Clause (ECR)" discussion on page 40.)
39
Duquesne's Bectric Service Territory Duquesne provides electric service to customers in Allegheny County, induding the City of Pittsburgh, Beaver County and Wesanoreland County.This represents approximately 800 square miles in south-western Pennsylvania, located within a 500-mile radius ofone-halfof the population of the United States and Canada. The population of the area served by Duquesne's operations, based on 1990 census data,is approximately 1,510,000, of whom 370,000 reside in the City of Pittsburgh. In addition to serving approximately 580,000 direct customers, Duquesne also sells electridty to other utilities.
Energy Cost Rate Adjustment Gause (ECR)
% rough the ECR, Duquesne remvers (to the extent that such amounts are not induded in base rates) nudear fuel, fossil fuel and purchased power expenses and, also through the ECR, passes to its customers the profits from short-term power sales to other utilities (milectively, ECR energy costs).
Nudear fuel expense is recorded on the basis of the quantity of electric energy generated and indades such costs as the fee imposed by the United States Department of Energy (DOE) for future disposal and ultimate storage and disposition of spent nudear fuel. Fossil fuel expense indudes the costs of coal, natural gas and fuel oil used in the generation of electricity.
On Duquesnet statement of consolidated income, these ECR revenues are indoded as a component of operating rrvenser. For ECR purposes, Duquesne defers fuel and other energy expenses for remvery, or refunding, in subsequent years. The deferrals reflect the difference between the amount that Duquesne is currendy collecting from customers and its actual ECR energy coset. The PUC annually reviews Duquesnets ECR energy costs for the fiscal year April thmugh March, compares them to previously projected ECR energy costs, and adjusts the ECR for over-or under-remveries and for two PUC-established coal cost standards. (See " Deferred Coal Costs" and "Warwick Mine Costs" discussions, Note F, on pages 45 and 46.)
Over-or under-remveries from customers are recorded in the consolidated balance sheet as payable i
to, or receivable from, customers. At Deamber 31,1996 and 1995,51.8 million and $5.8 million were i
payable to customers and shown as orber current liabilitier.
Under the Bectricity Generation Curtemer Choice and Competition Act (Customer Choice Act), Duquesne may replace the ECR effective April 1,1997 E rollingits ECR energy costs into its base rates. He f
effect of this change would Igovide to Duquesne an opportunity to further mitigate its deferred energy msts based upon its ability to manage its energy costs. Under Duquesne's PUC-approved Mitigation Plan, the level ofenergy cost recoveryis capped at 1.47 cents per kilowatt-hour (KWH) through May 2001. To the extent that projections do not support recovery of previously deferred costs through this pridng mechanism, these costs would bemme transition costs subject to recovery through a 1
competitive transition charge (CTC). (See
- Customer Choice Act" and " Mitigation Plan" discussions, Note F, on page 44.)
Maintenance Incremental maintenance expense incurred for refueling outages at Duquesnei nudear units is deferred for amortization over the period between refueling outages (generally 18 months). Duquesne accrues, i
over the periods between outages, anticipated expenses for scheduled major fossil generating station out-1 ages. Maintenance costs incurred for non-major scheduled outages and for forced outages are charged to expense as such costs are incurred.
Depewelation and Amortimtion Depredation ofpropeny, plant and epipment, induding plant-related intangibles, is recorded on a straight-line basis over the estimated remaining useful lives of properties. Amortization ofother intangibles is recorded on a straight-line basis over a five-year period. Depreciation and amortization of other properties are calculated on various bases.
40
C L w; t
Duquesne records decommissioning costs under the category of.'i
'+ msdemornunon expense i
and accrues a liability, equal to that amount, for nudear' da==nissioning expense. On Duquesnek con-solidated balance sheet, the decommissioning trusts have been reflected in otherteng-tenn inveronener, j
and the related lisbility has been recorded as other son ammt limhilitier. (See "Nudear Decommissioning" dien= ion, NoteJ, on page 49.)
Duquesnei composite deprecianon rate mcreased from 3.5 percent to 4.25 percent effective May 1,1996 and 3.0 percent to 3.5 percent effectiveJanuary 1,1995. Also in 1996, Duquesne expensed
' $9 million related to the depreciation portion ofdeferred rate synchronization costs in conjunction with Duquesnes Mitigation Plan.
Income Tanss i
Duquesne uses the liability method in computing deferred taxes on all differences between book and tax bases of assets.nese book / tax differences occur when events and transactions recognized for finan-cial reporting purposes are not recognized in the same penod for tax purposes.The deferred tax i
liability or and tha adjusted in the period of enactment for the effect of changes in tax laws or rates.
1 I
Duquesne recognizes a c.g ', aset for the deferred tax liabilities that are ap~*A o be t
L recovered from customers through rates. (See " Rate Matters," Note F, and " Income Taxes," Note H, on j
pages 44 and 46.)
i Duquesne reflects the amortization of the regulatory tax receivable resulting from reversals of deferred taxes as depraistion andenomzenen expense. Reversals of secumulated deferredinavne rarer are induded in income tar expense.
When applied to reduce Duquesne's income tax liability, inestment tax credits related to i
electric utility p+iy generally are deferred. Such credits are subsequently reflected, over the lives of '
the related assets, as reductions to imanne ter expense.
hoperty Mont and Equ> ment The asset values of Duquesne's properties are stated at original construction cost, which indudes related payroll taxes, pensions and other fringe benefits, as well as admitdstrative and general costs. Also i
indaded in original construction cost is an allowance for funds used during construction (AFC), which j
represents the estimated cost ofdebt and equity funds used to finance construction.
Additions to, and replacements of, property units are charged to plant accounts. Maintenance, repairs and replacement of minor items of prwiy are recorded as expenses when they are incurred.ne costs of properties that are retired (plus removal costs and less any salvage value) are charged to sawnslated depraintion andenortsution.
Substantially all of Duquesnet properties are subject to a first mortgage lien.
AssetImpairment The effects of adopting Ststement offinnmantAmmating Stendar4r No.121, Aaonntingfer the i
1mpaument ofLang-Lived Anett andforlong-Lived Anetr no Be Depared Of(SFASNo.121), on January I, l
1996 did not have a material impact on Duquesnei financial position, results ofoperations or cash flows, based on the current regulatory structure in which it operates. As competitive factors influence pricing in
.I the utility industry, this assessment may change in the future. He general requirements ofSFASNo.121 j
apply to non-current assets and require impairment to be mnsidered whenever evidence suggests that it 1
is no longer probable that future cash flows in an amount at least equal to the asset book value will result.
l 41 L
1 I
.I
'Sesch-sesadca r --%
Statament ofFinanaalAamunaing Standords No.123, Amfor Stad-Based r
^7';
~
(SFAS No.123) encourages, but does not require, companies ed record compensation cost for stock-based employee compensation plans at fair value. Duquesne has chosen to continue to accoutit for seodt-based compensation using the intrinsic value method prescribed in AausenugPhmapia Board Opamen No. 25, AussssingferStadfas,4se Fmployen, and selsted interpretations. Accordmgly, compensation cost for j
sock options is meawred as the excess, if any, of the quoted market price of DQEh stock at the date of -
the grant over the amount an employee must pay to acquire the sock. C--n== tion cost for stock j
appreciation rights is recorded annually based on the quoted market price ~of DQEistock at the end of the period.
Temporary Cash 1mestusents Temporary cash investments are short-term, highly liquid investments with original maturities
{
of three or fewer months. They are stated at market, which appronunates cost. Duquesne w-das temporary cash investments to be cash equivalents.
l t
Asciassifiestions '
l De 1995 and 1994 consolidated financial statements have been rednesified to conform with account-ing presentations adopted during 1996.
- s. AscefnsNes Duquesne and an una9iliated corporation have an agreement that entides Duquesne to sell, and the i
corporation to purchase, on an ongomg basis, up to 550 mdhon of accounts receivable. Duquesne had l
no receivables sold at December 31,1996. At December 31,1995, Duquesne had sold $7 million of I
receivables to the unaffiliated corporation. ne accounts receivable sales agreement, which espires in June 1997, is one of many sources of funds available to Duquesne. Duquesne has not determined, but
^
may attempt to extend the agreement or to replace the facility with a similar arrangement or to eliminate j
i.
it upon expiranon.
i C.Chenpes Changes in N6eMeg Capitaf Other than Cash i
is NbrHop 1996 1995 1994 C W Other Than Cash (Anusenseris 7&eares4refDagsrs)
Rueiushla
$ 7,539 S 19,131 S 6,708 l
i Afsterialt enJsspplse 1,286 9,994 2,932 l
E Othercarrrat snets (873) 7,840 (6,929) l Anowstrpsya&Ie 9,437 15,781 (23,816) i Otherturrentliabilitia (38,261)
(22,090)
(15,779)
Tensi
$(20,872)
$ 30,656
$(36,884) i I
D. hoperty, In addition to its wholly owned generating units, Duquesne, together with other electric utilities, has
- Mant and an ownership or leasehold interest in certain joindy owned units. Duquesne is required to pay its share l
Egefpment of the construction and operating costs of the units. Duquesnei share of the operating expenses of the i
units is included in the statement of consolidated income.
I i
l 42 2
Gaumtkg Units at December 3L 1996 Generating NetUtility Fuel Unit Capability Plant Source 4
(Megawam)
(Milmm afDsEsrs)
Cheswidc 570 S 120.2 Coal -
Eirama(a) 487 98.0 Coal Easdake Unit 5 186 39.4 Coal Sarnmis Unit 7 187 49.5 Coal BruceMansfield Unit 1(a) 228 65.5 Cosi BruceMansfield Unit 2(a) 62 18.9 Coal BruceMansfield Unit 3 (a) 110 49.8 Coal BeaverVall Unit 1 (b) 385 215.9 Nuclear Beaver Vall Unit 2 (c)(d) 113 14.3 Nuclear BeaverVall Common Facilities 153.2 Perry Unit I(e) 164 398.5 Nudear BrunotIsland(f) 178 23.1 Fuel Oil Tesel 2,670 1,246.3 Propertyheld for future use:
BrunotIsland(f) 128-28.5 FuelOil Phillips(a) 300 78.3 Coal TamarCommeng thnier 3,098 S1,353.1
{
(a) W unit is equipped eith flue gas desulfurizanon eqispnent.
(b) The Nudear Regulatory n--
, (NRC) has granted a license to operme through January 2016.
(c) On October 2,1987, Duquesne sold its 13.74 percent meerentin Beaver VaBey Unit 2 and leased it back; the sale was endusive dtransmission and conunon facibacs. Amounts shown represent facilities not sold and subsequent leaselmld ii.ir-=
(d) 'lhe NRC has granted a lianne to opaste through May 2027.
(e) %e NRC has graneed a licente to operase Mard 2026.
(f) A
'on of the proceeds of the sale of the Ft.
Power Station is espected so be used to fund
' ability enh---a to the Brunot Island (BI) Unit 3 combustion turtene. %e reliability
=E==is are contmgent upon the prgects mecong a lesse-met test versus other potential sources of peaking capacity. BI Units 2a and 2b were need fruenpropsny 6diferfmaar sur to alumir m 1996,in accordance with Duquesneh Mitigation Plan. (See "Mingstion Plan %% pl Note F,on page 44.)
E. Long Term At December 31,1996 and 1995, the fair market value of Duquesne's investment in DQE common Investments stock was $59.3 million and $66.8 million. At December 31,1996 and 1995, the cost of Duquesne's investment in DQE common stock was $40.3 million and $43.9 million.
Duquesne makes equity investments in affordable housing. At December 31,1996, Duquesne had I
investments in eight affordable housing developments.
Deferred income primarily relates to Duquesne's lease investments. Deferred amounts will be ree-ognized as income over the lives of the underlying lease investments over periods generally not exceeding five years.
Duquesnei other investments are primarily in assets of nudear dammmissioning trusts and mar-ketable securities. In accordance with SFASNo.115, these investments are classified as available-for-i sale and are stated at market value. De amount of unrealized holding gains related to marketable securities at both December 31,1996 and 1995 are S19.0 million and $22.9 million ($11.1 million and S13.4 million net of tax).
4 43
C Rate Matten Customer Choice Act Under the Customer Choice Act, which went into effect on January 1,1997, Pennsylvania has become a leader in customer choice. The Customer Choice Act will enable Pennsyivania's electric utility cus-tomers to purchase electricity at market prices from a variety of electric generation suppliers (customer choice). Electric utility restructuring will be acmmplished through a two-stage process mnsisting of a pilot period (running through 1998) and a phase-in period (1999 through 2001). Before the phase-in to customer choice begins in 1999, the PUC expects utilities to take vigorous ste;r, to mitigate transition msts as much as possible without increasing the price they currently charge retomers.The PUC will determine what portion of a utility's remaining transition costs will be recoverable from customers through a CFC. This charge will be paid by consumers who choose alternative generation suppliers as well as customers who choose their franchised utility. The CTC muld last as long as 2005, providing a utility a total of up to nine years to recover transition costs. An overall four-and-one-halfyear price cap will be imposed on the transmission and distribution charges of electric utility companies. Additionally, electric utility companies may not increase the generation price component of prices as long as transition msts are being recovered, with certain exceptions. If a utility ultimately is unable to remver its transition costs within this pricing structure and timeframe, the costs will be written off.
Mitigation Man Duquesne has taken a number of steps to mitigate its potential transition costs. In addition to the steps taken during the last 10 years to prepare for competition, effectiveJanuary 1,1995, Duquesne accelerat-ed its rate of depreciation on its fixed nudear assets without seeking a rate increase to recover the addi-tional msts. On October 31,1996, the sale of Duquesnet ownership interest in the Ft. Martin Power Station (Ft. Martin) was completed. Ft. Martin Unit I was owned 50 percent by Duquesne and 50 per-cent by its operator, Allegheny Power System. De sale and a plan, to be funded in part by the proceeds of the Ft. Martin transaction, were approved by the PUC on May 23,1996. Under the approved plan, Duquesne will not increase its base rates for a period of five years through May 2001. In addition, Duquesne recorded in October 1996 a one-time reduction of approximately $130 million in the book value of Duquesne's nuclear plant investment.The proceeds from the sale are expected to be used to fund reliability enhancements to the BI Unit 3 combustion turbine and to reduce Duquesne's capitaliation.
The approved plan also provides for incremental increases of $25 million in depreciation andamornzation expense in 1996,1997 and 1998 related to Duquesne's nudear investment, as well as additional annual mntributions to its nuclear plant demmmissioning funds of $5 million, without any increase in existing electric rates. Also, Duquesne will remrd an annual $5 million credit to the ECR during the plan period to compensate Duquesnet customers for lost profits from any short-term power sales foregone by the sale ofits ownership interest in Ft. Martin. In addition, Duquesne will cap energy costs, beginning April j
1,1997 through the remainder of the plan period, at a historical five-year average of 1.47 cents per IGVII. In acmrdance with the approved plan, Duquesne has expensed $9 million related to the depreci-ation portion of the deferred rate synchroniution msts associated with Beaver Valley Unit 2 (BV Unit 2) and Perry Unit 1. Duquesnet approved plan provides for the amortiution of the remaining deferred j
rate synchronintion costs over a 10-year period. At December 31,1996, the unamortized portion of these costs totaled $41.4 million, net of deferred fuel savings related to the two units. (See " Deferred Rate Synchronintion Costs" discussion on page 45.) Finally, Duquesne's approved plan also provides for annual assistance of 50.5 million to low-income customers.
Regulatory Assets As a result of the application of SFAS No. 71, Duquesne remrds rrgulatory arretr on its consolidated bal-ance sheet. %e rrgulatory aners represent probable future revenue to Duquesne lecause provisions for these costs are currently included, or are expected to be included,in charges to electric utility customers through the ratemaking process.
A companys electric utility operations or a portion of such operations could cease to meet the SFAS No. 71 ariteria for various reasons, including a change in the FERC regulations or the competition-related changes in the PUC regulations. (See
- Customer Choice Act" discussion above.) Duquesne currently believes its electricity generating assets and related regulatory assets continue to satisfy these criteria in 44
light of the transition to mmpetitive generation under the Nmmer Choice Act. Should any pornon of Duquesnes electric utility operations be deemed to no longer meet the SFASNo. 71 criteria, Duquesne may be required to write off any above-market cost assets, the remvery of which is uncertam, and any reg-ulatory assets or liabilities for those operations that no longer meet these requirements.
Repdatory Assets at December 32 1996 1995 (Amenatrin ?f usenhofDalen)
Regulatory tax receivable (Note H)
$394,131
~ ' $414,543 Unamortized debt costs (Note K)(a) 93,299 98,776 Deferred rate synchronization costs (see below) 41,446 51,149 Beaver Valley Unit 2 sale /leaseba:k premium (Note I)(ti) 30,059 31,564 Deferred employee costs (c) 29,589 31,218 Deferred nuclear maintenance outage costs (Note A) 13,462 6,776 l
Deferred coalcosts(see below) 12,191 12,753 l
DOE decontamination and decommissioning recervable (NoteJ) 9,779 10,687 Extraordinary propertyloss(d) 8,300 Other 12,860 12,934 ToeslRegsdseeyAsser
$636,816 5678,700 (a) The pranitens paid to reecquire debt prior to scheduled matunty dates are defened for amomzetion over the life of the debt issued to finance the reecqsummons.
(b) The premium paid to refinance the BV Unit 2 lease was defened for amomzetion over the life of the lease.
(c) Includes amounts for recovery daccrued -- ;
-i absenes and accrued claims for worken'-
- +
(d) During the third quarter of 1996, Duquesne -@~i recovery ofits investment in Peny Unit 2.
Deferred Mate synchantartion Costs In 1987, the PUC approved Duquesne's petition to defer initial operating and other costs of BV Unit 2 and Perry Unit 1. Duquesne deferred the costs incurred from November 1987, when the units went into commercial operation, until March 1988, when a rate order was issued. In its rate order, the PUC postponed ruling on whether these costs would be recoverable from Duquesne's customers. Duquesne is not earning a rerum on the deferred msts. (See " Mitigation Plan" dbmian on page 44.)
[
t Deferred CoalCosts The PUC has established two market price coal mst standards for Duquesne. One applies only to coal delivered at the Bruce Mansfield Power Station (Bruce Mans 6 eld).The other, the system-wide mal cost i
standard, applies to coal delivered to the remainder of Duquesnei system. Both standards are updated monthly to reBect prevailing market prices of similar coal. ' Die PUC has chrected Duquesne to defer j
recovery of the delivered cost of coal to the extent that such cost exceeds generally prevailing market prices for similar coal, as detennined by the PUC. The PUC allows deferred amounts to be recovered from customers when the delivered costs of coal fall below such PUC-detennined prevailing market prices.
In 1990, the PUC approved a joint petition for setdement that clari6ed certain aspects of the system-wide coal cost standard. Duquesne has exercised options to extend the coal cost standard through March 2000. The unrecovered cost of Bruce Mans 6 eld coal was $9.6 nulhon and $8.4 million, and the unrecov-ered cost of the remainder of the system-wide coal was $2.6 nulhon and $4.4 nulhon at December 31, l
1996 and 1995. Duquesne believes that all deferred coal costs will be reccwered.
]
l I
)
45
Warwick Mine Cas*3 The 1990 joint petition for setdement also remgnized costs at Duquesneh Warwick Mine, which had been exduded fmm rate base since 1981, and allowed for recovery of such msts, induding the costs of ultimately dosing the mine. (See " Deferred Coal Costs" discussion on page 45.) In 1990, Duquesne entered into an agreement under which an unaffiliated company will operate the mine until March 2000 and sell the coal produced. Production began in late 1990. The contract operator at WarwickMine noti-fied Duquesne that its financial drcumstances and geologic conditions caused it to cease operations late in 1996. Therefore, Duquesne is pursuing its remedies and is currently negotiating to retain an operator for the mine as a smaller sized operation. Additionally, Duquesne will continue to purchase coal on the open market. In the past year, the Warwick Mine supplied slightly less than one-fifth of the coal used in the production of electricity at Duquesne's wholly owned and jointly owned plants.This change should r
not impact Duquesnei ability to recover all ofits investment in Warwick Mine, the $2.6 million of unre-covered system-wide cost of mal which endudes Bruce Mansfield, or to accrue funds for future liabili-ties. It is anticipated that this effort will be successfully completed by March 31,2000 when the system-wide mal cost cap expires.
Costs at the Warwick Mine and Duquesnet investment in the mine are expected to be remvered through the cost ofcoal in the ECR. Recovery is subject to the system-wide coal cost standard and the cap agreed to as pan of Duquesnet Mitigation Plan. Duquesne also has an opportunity to earn a return on its investment in the mine through the cost of coal during the penod of the system-wide coal cost standard, induding extensions. At December 31,1996, Duquesne's net investment in the mine was
$11.4 million. The current estimated 'Jability for mine closing, induding final site reclamation, mine water treatment and certain labor liabilities,is $47.6 million, and Duquesne has recorded a liabilityon the mnsolidated balance sheet of approximately $20.2 million toward these costs.
Property Heldf6rFutme Use In 1986, the PUC approved Duquesne's request to remove Phillips Power Station (Phillips) and a por-tion of Brunot Island (BI) from service and from rate base. In accordance with Duquesne's Mitigation Plan,112 MWs related to BI Units 2a and 2b were moved from property heldforfiaure are to elatricplant in service in 1996. Duquesne expects to recover its investment in BI Units 3 and 4, which remain in property heldforfuture use through future electricity sales. Duquesne believes its investment in BI will be necessary in order to meet future business needs. A portion of the proceeds of the sale of Ft. Martin is expected to be used to fund reliability enhancements to the BI Unit 3 combustion turbine.The reliability enhancements are contingent upon the projects meeting a least-cost test versus other potential sources of peaking capacity. (See " Mitigation Plan" discussion on page 44.) Duquesne is analyzing the effects of customer choice on its future generating requirements. Duquesne is planning to seek recovery ofits investment and associated costs of Phillips through a CTC. In the event that market demand, transmission access or rate remvery do not support the utilization of these plants, Duquesne may have to write off part or all of these investments and associated costs. At December 31,1996, Duquesnet net of tax invest nent in Phillips and BI held for future use was $53.6 million and $17.2 million.
G.Wrt Term At December 31,1996, Duquesne had a $150 million extendible revolving credit arrangement expir-Sorrowing and ing in October 1997. Interest rates can, in accordance with the option selected at the time of the bor-AewMns rowing, be based on prime, Eurodollar or certificate of deposit rates. Commitment fees are based on the Ciudit unborrowed amount of the commitment. The credit facility mntains a two-year repayment period for i
hngements any amount outstanding at the expiration of the revolving credit period. At December 31,1996 and 1995, there were no short-term borrowings outstanding.
- #. Income Tames Since DQE's formation in 1989, Duquesne has filed mnsolidated federal income tax returns with its parent and other companies in the affiliated group. The annual federal corporate income tax returns have been audited by the Internal Revenue Service (IRS) for the tax years through 1992.The tax years 1993 through 1996 remain subject to IRS review. Duquesne does not believe that final settlement of the federal inmme tax returns for the years 1991 through 1996 will have a materially adverse effect on its financial position, results ofoperations or cash flows.
46
j l
Drferred Tax Assets (LloblUttes) at December 31 r
1996 1995 (Amountsin kutards ofDaEm)
Investment tax credits unamortized S
44,067 5 48,033 l
Gain on sale / leaseback of BV Unit 2 61,131 64,124 i
. Tax benefit-long-term investments 139,075 164,582 I
Other 19,144 41,509 Deferred tax assets 263,417 318,248 j
Property depreciation (785,950)
(871,539) i Regulatory assets (150,346)
(172,008) loss on reacquired debt unamortized (33,331)
(35,340)
Other (20,307)
(45,357)
Deferred taxliabilities (989,934)
(1,124,244) s NerDrfmadhlisiinier S (726,517)
$ (805,996)
Income Tanes 1996 1995 1994 (Amountrin husank ofDam)
Currentlypaysble:
Federal
$ 95,524 5 103,271 S 90,157 State 29,325 30,453 33,000 Deferred -net:
Federal (30,950)
(28,381)
(20,058)
State (697)
(5,778) p,232) l Investment tax credits deferred - net (7,838) p,252)
(5,376)
TardImendedin OperunngFw 85,364 92,313 90,491 Included in other income and deductions:
Currently payable:
Federal 42,323 2,199 (5,%1) i State 14,710 (1,619) 406 Deferred-nec Federal (43,493) 442 (99)
State (14,176) 137 (39)
I Investment tax credits (1,720)
(578)
(607)
ToemfWin Oderlmonemudh (2,356) 581 (6,300)
Tarmflamme hEsprer
$ 83,008
$ 92,894 S 84,191 Total income tarer differ from the amount computed by applying the statutory federal inmme tax rate i
to income beforeinawne taver.
Income Tat & pense ReconclHatton 1996 1995 1994 (Amountsin husandt ofDum) i Computed federal inmme tax at statutory rate
$ 81,504 S 85,387 S 81,074 1
Increase (decrease) in taxes resulting from:
State income taxes, net of federal inmme tax benefits 18,955 15,076 16,988 Amortization ofdeferred investment tax credits (9,559) p,831)
(5,983)
)
Revenue requirement adjustment to regulatory taxes (12,178) j Other (7,892) 262 4,290 Tot 4Imamer hEsprer
$ 83,008 5 92,894 5 84,191 47
o I Lasses Duquesne leases nudear fuel, a portion of a nudear generating plant, certain office buildings, comput-er equipment, and other property and equipment.
CapitalLeases at December 31 1996 1995 (Amountsin Desuands ofDallen)
Nuclear fuel 5
79,103
$ 112,573 Electric plant 20,505 20,808 7aast 99,608 133,381 Less: Accumulated amortization (47,670)
(74,874)
Phperry Held Undr Gqntaf ram,r-Ner (g) 51,938 S 58,507 (a) Includes 52,618 in 1996 and $2,910 in 1995 ofespitalleases with associated obligations =ured.
In 1987, Duquesne sold and leased back its 13.74 pearent interest in BV Unit 2; the sale was exclusive of transmission and common facilities. The total sales price of $537.9 million was the appraised value of Duquesne s interest in the property. Duquesne subsequently leased back its interest in the unit for a term of 29.5 years.The lease provides for semi-annual payments and is accounted for as an operating lease.
Duquesne is responsible under the terms of the lease for all msts ofits interest in the unit. In December 1992, Duquesne participated in the refinancing of collateralized lease bonds to take advantage oflower interest rates and reduce the annual lease payments.The bonds were originally issued in 1987 for the purpose of partially financing the lease of BV Unit 2. In accordance with the BV Unit 2 lease agreement, Duquesne paid the premiums ofapproximately $36.4 million as a supplemental rent payment to the lessors. This amount was deferred and is being amortized over the remaining lease term. At December 31,1996, the deferred balance was appmrimately $30.1 million.
Leased nuclear fuel is amoruzed as the fuel is burned and charged tofuelsadpmhmedpoirer expense on the statement of consolidated income. The amortization of all other leased property is based on rental payments made. These lease-related expenses are charged to operating capenrer on the statement of con-solidated income.
Summary of Rental nryments 1996 1995 1994 (Amormirin nousandsofDollan)
Operatingleases 59,503 S 57,617 S 56,437 Amortization ofcapitalleases 19,378 26,705 33,5 %
Interest c.i a iM leases 3,703 4,332 4,996
)
74ralRentalPaymener S
82,584 5 88,654 S 95,029 48 i
future Minimum Lease Nyments Operating Leases CapitalLeases Year Ended December 31, Qlmountsin llousandtofDaars) 1997 S 57,001
$ 24,186 1998 56,876 11,380 1999 56,869 6,516 2000 56,830 4,166 2001 56,745 2,481 2002 and thereafter 846,852 18,555 TotalAfinmans feme Paymener
$1,131,173
$ 67,284 Less: Amount representinginterest (17,964)
Present value of minimum lease payments for capital leases (a)
$ 49,320 (a) Includes current obligations of $20.9 million at December 31,1996.
Future minimum lease payments for capital leases are related principally to the estimated use of nude-ar fuel financed through leasing arrangements and building leases. Future minimum lease payments for operating les es are related principally to BV Unit 2 and certain wrporate offices.
Future payments due to Duquesne, as of December 31,1996, under subleases of certain corporate office space are approxirnately $4.5 million in 1997,54.6 million in 1998 and $18.5 million thereafter.
2, Commitments Construction
{"f Duquesne estimates that it will spend, exduding AFC and nudear fuel, approximatdy $110 million,
$110 million and $95 million for mnstruction during 1997,1998 and 1999.These estimates also exdude any potential expenditures for reliability enhancements to the BI Unit 3 mmbustion turbine.
(See " Mitigation Plan" discussion, Note I? on page 44.)
Nuclear-Related Matters Duquesne has an ownership interest in three nuclear units, two of which it operates. The operation of a nuclear facility involves special risks, potential liabilities, and specific regulatory and safety requirements. Specific information about risk management and potential liabilities is discussed below.
Nuclear Demmmissioning. The PUC ruled that remvery of the decommissioning msts for Beaver Valley Unit I (BV Unit 1) could begin in 1977, and that recovery for BV Unit 2 and Perry Unit I could begin in 1988. Duquesne expects to decommission BV Unit 1, BV Unit 2 and Perry Unit I no earlier 1
than the expiration of each plants operating license in 2016,2027 and 2026. At the end ofits operating i
life, BV Unit I may be placed in safe storage until BV Unit 2 is ready to be decommissioned, at which time the units may be decommissioned together.
Based on site-specific studies finalized in 1992 for BV Unit 2, and in 1994 for BV Unit I and Peny Unit 1, Duquesne s share of the total estimated decommissioning costs, including removal and demn-t tamination costs, currently being used to determine Duquesne1s mst of senice, is $122 million for BV Unit 1, $35 million for EV Unit 2, and $67 million for Peny Unit 1. A study will be performed in 19'n to update Duquesnei estimated decommissioning costs of BV Unit I and BV Unit 2.
On July 18,1996, the PUC issued a PropwedI%Iicy Statement Regarding Nudear Demmminioning Cut lirimation and Cut Remvery for the purpose ofobtaining mmments from the public. The proposed pol-icy indudes guidelines for a site-specific study to estimate the cost of decommissioning. Guidelines require that studies be performed at least every five years, address radiological and non-radiological msts, and include a contingency factor of not more than 10 permnt. Under the proposed policy, annual decommissioning funding levels are based on an annuity calculation recognizing inflation in the cost 49
l l
V i
estimates and carnings on fund assets. With respect to the transition to a competitive generation market, the Customer Choice Act requires that utilities include a plan to mitigate any shortfall in decommissioning trust fund payments for the life of the facility with any future hWesioning Shags.
' Consistent with this requirement, Duquesne has increased its nudear hWasioning funding by 55 million under the PUC-approved plan for the sale of Duquesnet ownership interest in Ft. Martin.
(See " Mitigation Plan" discussion, Note F, on page 44.) These additional annual contributions bring the total annual funding to approximately $9 million. Also, on October 17,1996, the PUC adopted an '
Accounting Order Sled by Duquesne to recognize the increased fundmg as part of Duquesnei cost of service. Duquesne expects to receive approval from the IRS for qualification of 100 percent of additional nuclear demmmissioning trust funding for BV Unit 2 and Perry Unit 1, and 79 percent for -
BV Unit 1.
~
Funding for nudar ha
%ing costs is deposited in external, segregated trust accounts and 3
may be invested in a portfoho of corporate common modc and debt securities, munidpal bonds, cern6ates i
of deposit and United States govemment securities. Trust fund earnings increase the fund balance and the recorded liability. The market value of the aggregate trust fund balances at December 31,1996 totaled approximately S33.7 million.
i NadearInsemamer. The hire-Anderson Amendmenar to the AssanicEmery Act afl9H limit public lis-.
bility from a single incident at a nudear plant to $8.9 billion. *Ihe maximum available private primary insurance of $200 million has been purchased by Duquesne. Additional protection of$8.7 billion.would be provided by an assessment of up to $79.3 million per incident on each nuclear unit in the United States. Duquesnei maximum total possible assessment, $59.4 mdhon, which is based on its ownership or leasehold interests in three nudear generating units, would be limited to a mammum of $7.5 mdlion per 4
incident per year. This==e= ment is subject to indexmg for in8ation and may be subject to state premium taxes. If funds prove insuffident to pay claims, the United States Congress could impose other revenue.
i raising measures on the nudear indusay.
Duquesnei share ofinsurance coverage for property damage, decomnussioning and decontamhetion liability is St.2 billion. Duquesne would be responsible for its share of any damages in excess ofinsur-ance coverage. In addition, if the propmy damage reserves of Nuclear Electric Insumace Limited j
(NEIL), an industry mutual insurance company that provides a portion of this coverage, are inadequate j
to cover claims arising from an incident at any United States nuclear site covered by that insurer, Duquesne could be assessed retrospective premiums totaling a maximum of $7.3 million.
In addition, Duquesne participates in a NEIL program that provides insurance for the incseased cost of generation and/or purchased power resulting from an accidental outage of a nuclear unit. Subject to the policy limit, the coverage provides for 100 percent of the esumated incremental costs per week dur-ing the 52-week period starting 21 weeks after an acx:ident and 80 percent of such esumste per week for the following 104 weeks, with no coverage thereafter. lf NEIIJs losses for this program ever e-A its reserves, Duquesne could be amened retrospecove premiums totahng a mammum of $3.5 million.
Reaver Va#ey Pbsper Stseien (BVPS) Saesus Gemenssors. BVPSh two units are equipped with steam generators designed and built by Westinghouse Electric Corporation (Weninghw). Similar to other Westinghouse nuclear planis, outside diameter stress corrosion cracking (ODSCC) has w mi in the steam generator tubes of both units. BV Unit 1, which was placed in service in 1976, has required removal of appronimately 15 percent ofits steam generator tubes num service through a process called
" plugging." However, BV Unit I continues to have the capability to operate at 100 percent reactor power and has the ability to return tubes to service by repairing them through a process called "sleev-ing." To date, no tubes at either BV Unit 1 or BV Unit 2 have been sleeved. BV Unit 2, which was placed in service 11 years after BV Unit 1, has not yet exhibited the degree of ODSCC expenenced at BV Unit 1. Appmmimately 2 percent of BV Unit 2h tubes are plugged; however, it is too early in the life of the unit to determine the extent to which ODSCC may become a problem.
50
.o Duquesne has undertaken mrtain measures, such as increased inspections, water chemistry control and tube plugging, to minimize the operational impact of and to reduce susceptibility to ODSCC.
Although Duquesne has taken these steps to allay the effects of ODSCC, the inherent potential for future 07 SCC in steam generator tabes of the Westinghouse design still exists. Material acceleration in the.ste of ODSCC could lead to a loss of plant efficiency, significant repairs or the possible replacement of the BV Unit I steam generators. The total replacement cost of the BV Unit I steam generators is currently estimated at $125 million. Duquesne would be responsible for $59 million of this total, which indudes the cost of equipment removal and replacement steam generators but exdudes replacement power costs. %e earliest that the BV Unit ! steam generators could be replaced during a scheduled refueling outageis the fallof 2000.
BV Unit I mmpleted its 1Ith refueling outage on May 11,1996. %e outage lasted 49 days and was the shortest refueling outage in the history of the unit. During the outage, various inspections of the unit's steam generators were made, induding examinations using a new "Plus Point" probe. As a result of these inspections, Duquesne retumed to service tubes that had previously been plugged. Following the refueling outage,85 percent of the steam generator tubes were in service, apprurimatrb ! acentmore than at the beginning of the outage.
BV Unit 2 mmpleted its sixth refueling outage on December 16,1996. The outage lasted 107 days due to unanticipated repairs to two residual heat removal pumps and reactor head vent vahes.Various inspections of the unitt steam generators, induding inspections using the Plus Point probe, were com-pleted. Upon completion of the outage, approximately 98 percent of the unit's steam generator tubes remained in service.
Duquesne mntinues to explore all viable means of managing ODSCC, induding new repair technologies, and plans to continue to perform 100 percent tube inspections during future refueling outages, which occur at, approximately,18-month intervals for each unit. Duquesne will mntinue to monitor and evaluate the mndition of the BVPS steam generators.
Spent Nuclear FuelDhpasal. The Nudrar Waste Nig Act of1982 established a policy for handling and disposing of spent nuclear fuel and a policy requiring the establishment of a Snal repository to accept spent nuc' ear fuel. Electric utility mmpanies have entered into contracts with the DOE for the permanent disposal of spent nuclear fuel and high-level radioactive waste in compliana with this legisla-tion. I se DOE has indicated that its repository under these mntracts will not be available for acceptance of spent nuclear fuel before 2010. OnJuly 23,1996, the U.S. Court ofAppeals for the District of Columbia Circuit, in response to a suit brought by 25 electric utilities and 18 states and state agencies, unanimously ruled that the DOE has a legal obligation to begin taking spent nudear fuel byJanuary 31, 1998. The DOE has not yet established an interim or permanent storage facility, and has indicated that it will be unable to begin acceptance of spent nudear fuel for disposal byJanuary 31,1998. Further, Congress is considering amendments to the Nudear %te Nig Aa off 982 that muld give the DOE authority to proceed wit the development of a federal interim storage facility. In the event the DOE does not begin accepting spent nudear fuel, existing on-site spent nudear fuel storage capacities at BV Unit 1, BV Unit 2 and Peny Unit I are expected to be sufficient until 2016 (end ofoperating license),
2013 and 2011, respectively.
OnJanuary 31,1997, Duquesne joined 35 other electric utilities and 46 states, state agencies and reg-ulatory commissions in filing a suit in the U.S. Court ofAppeals for the District of Columbia against the DOE. ne suit requests the murt to suspend the utilities' payments into the Nudear Waste Fund and to place future payments into an escrow account until the DOE fulfills its obligation to accept spent nudcar fuel. Significant additional expenditures for the storage of spent nudear fuel at BV Unit 2 and Perry Unit I could be required if the DOE does not fulfill its obligation to accept spent nuclear fuel.
51
Uranium Emichment Dewntamination and Dewmminioning. Nudcar reactorlicenseesin the United States are assessed annually for the demntamination and demmmissioning of DOE uranium enrichment facilities. Assessments are based on the amount of uranium a utility had pmcessed for enridiment prior to enactment of the NationalEnergy Policy Act of1992 (NEPA) and are to be paid by such utilities over a 15-year period. At December 31,1996, Duquesneiliability for contributions was approximately $9.3 million (subject to an inflation adjustment). Contributions, when made, are currently recovered from customers through the ECR.
Fossil Decommissioning In Pennsylvania, current ratemaking does not allow utilities to remver future decommissioning msts through depreciation cidrges during the operating life of fossil-fired generating stations. In 1996, the Financial Accounting Standard Board issued an crposure draft, Aavuntingfor Certain Liabilitier Related to Carurt or RemovalofLong-Live /Ancts. The primary effect of this exposure draft would be to change the way Duquesne accounts for nuclear and fossil demmmissioning costs. He exposure draft calls for recording the present value of estimated future cash flows to decommission Duquesnei nudear and fos-sil power plants as an increase to asset balances and as a liability. His amount is currently estimated to be $299.5 million. Duquesne will seek to recover these costs thmugh a CTC.
Guamntees Duquesne and the other owners of Bruce Mansfield have guaranteed certain debt and lease obliga-tions related to a coal supply contract for Bruce Mansfield. At December 31,1996 Duquesnek share of these guarantees was $20.3 million. The prices paid for the mal by the companies under this contract are expected to be sufficient to meet debt and lease obligations to be satisfied in the year 2000. (See " Deferred Coal Costs" discussion, Note F, on page 45.) De minimum future payments to be made by Duquesne solely in relation to these obligations are $5.9 million in 1997, $5.6 million in 1998, $5.3 million in 1999, and $4.2 million in 2000. Duquesnet total payments for mal purchased under the mntract were $26.9 million in 1996, $28.9 million in 1995, and $23.3 million in 1994.
Residual Hbste Management Regulations In 1992, the Pennsylvania Department of Environmental Protection (DEP) issued Rendual Wane Management Regulationr goveming the generation and management of non-hazardous residual waste, such as coal ash. Duquesne is assessing the sites it utilizes and has developed compliance strategies that are currently under review by the DEP. Capital costs of $2.5 million were meurred by Duquesne in 1996 to comply with these DEP regulations. Based on information currently available, an additional $2.8 million will be spent in 1997. The additional capital cost of compliance through the year 2000 is estimated, based on current information, to be $15 million. This estimate is subject to the results ofgroundwater assessments and DEP final approval of mmpliance plans.
Employees In November 1996, Duquesne reached an agreement on a three-year mntract extension through j
September 30,2001 with the Intemational Brotherhood of Electrical Workers (IBEW), which repre-sents approximately 2,000 of Duquesne's employees.
j Other Duquesne is involved in various other legal proceedings and environmental matters. Duquesne believes that such proceedings and matters, in total, will not have a materially adverse effect on its finan-cial position, results of operations or cash flows.
52 l
K. Loop-Term The pollution contml notes arise from the sale of bonds by public authorities for the purposes of De6e financing mnstruction of pollution contml facilities at Duquesnes plants or refunding previously issued bonds. Duquesne is obligated to pay the principal and interest on these bonds. For artain of the pollution control notes, there is an annual commitment fee for an irremcable letter of credit. Under certain circumstances, the letter of credit is available for the payment ofinterest on, or redemption of, all or a portion of the notes.
long-Term Debt At December 31 PrincipalOutstanding Interest (Amountsin ThoutandtofDoRm)
Rate Maturity 1996 1995 First mortgage bonds 4.75 8.75 %
1997-2025 S 853,000 (a) $ 903,000(b)
Pollution control notes (c) 2009-2030 417,985 417,985 Sinking fund debentures 5%
2010 4,891 5,703 Less: Unamortized debt dismunt and premium-net (3,915)
(4,157)
TotalLong-Term De6t S1,271,%1
$1,322,531 (s) Excludes $50.0 million related to curreat matunties on November 15,1997.
(b) Excludes $50.0 million related to a current maturity on May 15,1996.
(c) Tbc pollution contml notes have adjustable interest rates.The interet rates et year-end everaged 3.7 percent in 1996 and 3.9 percent in 1995.
At December 31,1996, sinking fund requirements and maturities oflong-term debt outstanding for the next five years were $50.0 million in 1997, S75.1 million in 1998, $75.4 million in 1999, $100.4 nu1-lion in 2000, and 50.4 million in 2001.
Total interest msts incurred were $94.6 million in 1996, $103.3 million in 1995, and $107.7 million in 1994. Interest msts attributable to long-term debt and other interest were $90.1 million, $98.0 million and $102.1 million in 1996,1995 and 1994, respectively. Interest costs incurred also include $4.5 mil-tion, S5.3 million and $5.6 million attributable to capital leases in 1996,1995 and 1994, respecovely. Of these amounts,50.8 million in 1996, $1.0 million in 1995, and 50.6 million in 1994 were capitalized as AFC. Debt discount or premium and related issuance expenses are amortized over the lives of the appli-i cable issues.
I During 1994, Duquesnet BV Unit 2 lease arrangement was amended to reflect an meresse m federal inmme tax rates. At the same time, the associated letter of credit securing the lessori equity interest in the unit was increased from 5188 million to $194 million and the term of the letter of credit was extend-ed to 1999. If certain specified events occur, the letter ofcredit could be drawn down by the owners, the j
leases muld terminate, and collateralized lease bonds ($391.8 million at December 31,1996) would bemme direct obligations of Duquesne.
At December 31,1996 and 1995, Duquesne was in compliance with all ofits debt covenants.
At December 31,1996, the fair value of Duquesnei long-term debt, including current maturities and sinking fund requirements, estimated on the basis of quoted market prices for the same or similar issues or current rates offered to Duquesne for debt of the same remaining maturities, was $1,321.6 million.
The principal amount induded in Duquesnei consolidated balance sheet is $1,325.9 million.
i 53
L hefened and hwfaned and ?..l.....:e Stock at December 31 5
(Sharer andAmonwtr in Thosaandr)
I Call Price Per Share Shares Amount Shares Amount i
Preferred Stock Series:
3.75% (a)(b)(c)
$51.00 148
$ 7,407 148 $ 7,407 l
4.00% (a)(b)(c) 51.50 550 27,486 550 27,486 4.10% (a)(b)(c) 51.75 120 6,012 120 6,012 4.15% (a)(b)(c) 51.73 132 6,643 132 6,643 4.20% (a)(b)(c) 51.71 100 5,021 100 5,021
$2.10 (a)(b)(c) 51.84 159 8,039 159 8,039 9.00% (d) 3,000 3,000 8.375% (e) 6,000 150,000 TasslagEnedSad 7,209 213,608 1,209 63,608 Preference Stock Series:(f)
Plan Series A(c)(g) 37.18 817 28,997 834 29,615 Tandn.f.. ceSad 817 28,997 834 29,615 i
Deferred ESOP benefit (19,533)
(22,257) i ToedhgEnotandn.f. ccSad
. $223,072 S70,966 (a) Preferred stock: 4,000,000 authorized shares; (e) Cumulative Monthly Income Preferred
$50 par value; cumulative Securities Series A: 6,000,000 authorized (b) 550 per share involuntary liquidation value shares; $25 involuntary liquidation value (c) Non-redeemable (f) Preference stocic 8,000,000 authonzed (d) 500 authorized shares; 10 issued $300,000 per shares; $1 parvalue cumulauve value;involuntaryliquidation value $300,000 (g) 535.50 per share involuntary liquidation per share; mandatory redemption beginning value August 2000 Hol&rs of Duquesne's preferred stock are entitled to cumulative quarterly dividends. If four quarterly dividends on any series of preferred stock are in arrears, holders of the preferred stock are entitled to elect a majority of Duquesnet board of directors until all dividends have been paid. Holders of Duquesnei preference stock are entided to receive cumulative quarterly dividends if dividends on all series of preferred stock are paid. If six quarterly dividends on any series of preference stock are in arrears, holders of the preference stock are entitled to elect two of Duquesnet directors until all dividends have been paid. At December 31,1996, Duquesne had made all dividend payments. Preferred and preference dividends were $12.0 million, $5.3 million and 56.0 million in 1996,1995 and 1994. Total preferred and preference stock had involuntary liquidation values of $242.5 million and $93.1 million, which exceeded par by $28.2 million and $28.8 million at December 31,1996 and 1995.
)
In December 1991, Duquesne established an Employee Stock Ownership Plan (ESOP) to provide matching contributions for a 401(k) Retirement Savings Plan for Management Employees. (See
" Employee Benefits," Note N, on page 55.) Duquesne issued and sold 845,070 shares of nfcrcrurstack, f
plan serier A to the trustee of the ESOP. As mnsideration for the stock, Duquesne received a note valued at $30 million from the trustee. He preference stock has an annual dividend rate of $2.80 per share, and each share of the preference stock is exchangeable for one and one-half shares of DQE common stock.
At Dec ember 31,1996, $19.5 million of preference stock issued in connection with the establislunent of the ESOP had been offset, for Snancial statement purposes, by the remgnition of a deferred ESOP benefit. Dividends on the preference stock and cash mntributions from Duquesne are used to repay the ESOP note. Duquesne made cash contributions of approximately $1.4 million for 1996,51.6 million for 1995, and $2.2 million for 1994.nese cash contributions were the difference between the ESOP debt service and the amount of dividends on ESOP shares (S2.3 million in 1996 and 1995, and $2.4 million in 1994). As shares of preference stock are allocated to the accounts of participants in the ESOP, Duquesne recognizes compensation expense, and the amount of the deferred mmpensation beneSt is amortized.
i 54
Duquesne recognized compensation expense related to the 401(k) plans of $2.3 million in 1996, $2.3 million in 1995, and $1.8 million in 1994. Outstandingpreferredendpreference stuk is generally callable, on notice of not less than 30 days, at stated prices plus actrued dividends.
M. Common Stock Common Stock and CapftalSurplus
[ y#
CapitalSurplus 1996 1995 1994 Year Ended December 31, (Amountsin Thomands ofShern)
Premium on common stock
$825,814
$837,539 $823,886 Capital stock expense (274)
(274)
(693)
TaralCaps/Swplur
$825,540
$837,265 $823,193 In July 1989, Duquesne became a wholly owned subsidiary of DQE, the holding mmpany formed as part of a shareholder-approved restructuring. As a result of the restructuring, DQE common stock replaced all outstanding shares of Duquesne common stock, except for 10 shares which DQE holds.
DQE or its predecessor, Duquesne, has mntinuously paid dividends on common stock since 1953.
Dividends may be paid on DQE common stock to the extent permitted by law and as declared by its board of directors. Ilowever, in Duquesnet Rutated Anicle ofincorporation, provisions relating to pre-ferred andperference stuk may restrict the payment of Duquesnet mmmon dividends. No dividends or distributions may be made on Duquesnei common stuk if Duquesne has not paid dividends or sinking fund obligations on its preferred or preference stock. Further, the aggregate amount of Duquesne's common stock dividend payments or distributions may not exceed certain percentages of net ineme if the ratio of common stockbolder) epiry to totalcapitalization is less than speci6ed pecentages. As all of Duquesne's common stock is owned by DQE, to the extent that Duquesne cannot pay common dividends, DQE may not be able to pay dividends to its common shareholders. No part of the rrrained earnings of Duquesne was restricted at December 31,1996.
N, Employee Retirement Plans Senefits Duquesne maintains retirement plans to provide pensions for all eligible employees. Upon retire-ment, an employee receives a tnonthly pension based on his or her length of service and mmpensation. The cost of funding the pension plan is determined by the unit credit actuarial cost i
method. Duquesne's policy is to record this cost as an expense and to fund the pension plans by an
)
amount that is at least equal to the minimum funding requirements of the Employer RetirementIncome Semrity Act of1974 (FJUSA) but that does not exceed the inaximum tax-deductible amount for the year. Pension costs charged to expense or construction were SI1.9 million for 1996, $6.1 million for 1995, and $8.9 million for 1994.
I 55
~
e
~
l Funded Status of the Rethensent Mans and Aneeents "--_,1
'on the Conse6 dated Balance Short et l
December 31 l
1996 1995 (Amountsin husenk afDolm)
Actuarial present value of benefits rendered to date:
~ Vested benefits
$413,109
$378,344 Non-vested benefits 22,551 19,110 j
Accumulated benefits obligation based on mmpensation to date 435,660 397,454 l
Additional benc6ts based on estimated future salarylevels 61,438.
53,757 l
Projected benefits obligation 497,098 -
451,211 i
Fair market value of plan assets 525,871 490,870 Projected benefits obligation under plan assets S 28,773 S 39,659 Unremgni=1 net gain
$128,382
$124,794 Unrecognized prior service cost (43,790)
(37,535)
Unrecognized net transition liability (13,853)
(15,665)
Net pension liability per masolidated belance sheet (41,966)
(31,935) l Tammf S 28,773
$ 39,659 i
Assumed rate of return on plan assets 8.25 %
8.00 %
Discount rate used to determine projected benefits obhgation 7.50 %
7.00 %
Assumed change in mmpensation levels 5.25 %
5.00 %
i Pension assets consist primarily of common stocks, United States obligations and corporate debt secu-I rities.
l l
Components of Prnsion Cost 1996 1995 1994 i
(Annountrin MeannbofDaKm)
Service mst (benefits earned during the year)
S 12,209 S 9,953 S 12,482 Interest on projected benefits obligation 32,597 30,063 28,221 l
Return on plan assets (58,173)
(99,246) 1,%7 l
Net amortization and deferrals 25,312 65,316 (33,783)
NetFWenon Cat
$ 11,945 S 6,086 S 8,887 i
Retimnent Savings Man and Other Benefit Options Duquesne sponsors separate 401(k) retirement plans for its management and bargaining unit employ-ces.
The 401(k) Retirement Savings Plan for Management Employees provides that Duquesne will match employee contributions to a 401(k) account up to a maxunum of 6 percent of an employeen eligible salary. Duquesnei match consists of a 50.25 base match per eligible contribution dollar and an additional i
$0.25 incentive match per eligible contribution dollar, if Board-approved targets are achieved. The 1996 incentive target for management was accomplished. Duquesne is funding its matching contributions to the 401(k) Retirement Savings Plan for Management Employees with payments to an ESOP established in December 1991. (See " Preferred and Preference Stock," Note I, on page 54.)
The 401(k) Retirement Savings Plan for IBEW Represented Employees provides that, begmamg in 1995, Duquesne will match employee mntributions to a 401(L) account up to a maximum of 4 percent of an employcet eligible salary. Duquesnei match cons;sts of a $0.25 base match per eligible contribution dollar and an additional 50.25 incentive match per chgible contribution dollar,if certain targets are met, j
In 1996, these incentive targets were not met by Duquesnet union-represented employees.
56
)
.)
t DQEk shareholders have approved a long-term incentive plan through which Duquesne may grant rnanagement employees options to purchase, during the years 1987 through 2006, up to a total of 7.5 l
million shares of DQE's common stock at prices equal to the fair market value ofsuch stock on the dates l
the options were granted. At December 31,1996, appmuimately 3.1 million of these shares were avail-able for future grants.
As of December 31,1996,1995 and 1994, active grants totaled 1,698,000; 2,159,000; and 2,118,000 i
shares. Exercise prices of these options ranged from $8.2084 to $30.875 at December 31,1996, and from
$8.2084 to $27.625 at December 31,1995, and from $8.2054 to $23.0833 at December 31,1994.
Expiration dates of these grants ranged from 1997 to 2006 at December 31,1996; from 1997 to 2005 at December 31,1995; and from 1997 to 2004 at December 31,1994. As of December 31,1996,1995 and 19M, stock appreciation rights (SARs) had been granted in connecuan with 984,000; 1,202,000; rnd I,190,000 of the options outstanding. During 1996,715,000 SARs were exetcised; 267,000 options were exercised at prices ranging from $8.2084 to $20.3334; and 150 options were cancelled. During 1995, 367,000 SARs were exercised; 133,000 opoons were exercised at prices rangmg from $8.2084 to
$21.6667; and 28,000 options were cancelled. During 1994,1,254,000 SARs were exercised; 339,000 options were exercised at prices ranging from $82084 to $18.9167; and 80,000 options were cancelled.
Of the active grants at December 31,1996,1995 and 1994,668,000; 929,000; and 918,000 were not exercisable.
Other hst-Retirement Benefits In addition to pension benc6ts, Duquesne provides certain health care bene 6ts and life insurana for some retired employees. Substantially all of Duquesnek full-time employees may, upon attaining the age of 55 and meeting certain service requirements, become eligible for the same bene 6ts available to retired employees. Participating retirees make contributions, which are adjusted annually, to the health care plan /Ihe life insurance plan is non-contributory. Company-provided health care benefits terminate when covered individuals become eligible for Medicare beneSts or reach age 65, whichever comes Erst.
Duquesne funds actual expenditures for obligations under the plans on a " pay-as-you-go" basis.
Duquesne has the right to modify or tenninate the plans.
Duquesne accrues the actuarially determined costs of the aforemmtioned post-retirement bene 6ts over the period from the date of hire until the date the employee becomes fully eligible for benc6ts.
Duquesne has elected to amortize the transition liability over 20 years.
Components of kst-Retirement Cost i
1996 1995 (Amountrin 7bousank ofDoRax)
Service cost (bene 6ts carned during the period)
$1,182
$1,315 Interest cost on accumulated benefit obligation 2,046 2,340 Amortization of the transition obligation over 20 years 1,700 1,700 Other (812)
(582)
Totallht-Retnemcar Cat
$4,116
$4,773
'Ihe accumulated post-retirement benefit obligation comprises the present value of the esumated future benefits payable to current retirees and a pro rata portion of estimated benefits payable to active employees after retirement.
l l
57 1
l l
I e
funded States of hst-Retirement Man at Deannber.11 -
1996 1995 (Amoenain ThomandsofDoRm)
Actuariai gresent value of benefits:
Retirees S 8,840
$ 7,359 Fully eligible active plan participants 3,829 3,187 Other active plan panicipants 26,352 21,935 Accumulated post-retirement benefit obligation 39,021 32,481 Fair market value of plan assets Accumulated benefit obligation in excess of plan assets
$(39,021)
$(32,481) j Unremgni=1 net actuarial gains S 2,874
$ 8,427 Unrecognized net transition liability (27,198)
(28,898)
Postretirement liability per consolidated balance sheet (14,697)
(12,010)
Teest
$(39,021) 5(32,481)
Discount rate used to detennine projected benefit obligation 7.50 %
7.00 %
Ilealth care cost trend tates:
For year beginningJanuary 1 6.96 %
8.80 %
Ultimate ratein the year 2000 6.00% -
5.50 %
Effect of a one percent increase in health aire cost trend rates:
On accumulated projected benefit obligation S 2,920 S 3,228 i
On aggregate of annual service and interest costs 391 435 i
- 0. Quarterly Summary of Selseted Quarterly financial Data (Thousands of Donart, Emept nur Shara Amounts)
(The quanerly data reflect seasonal weather variations in Duquesnen service emitory.]
(Unaudited) 1996 First Quarter Second Quaner Third Quaner Founh Quarter Operating Revenues (a)
$290,857
$284,522
$320,275
$281,171 OperaungIncome (a) 54,584 50,161 69,738 47,5 %
NetIncome 36,749 32,571 50,852 29,688 i
1995 Fine Quaner Second Quaner Third Quarter Fourth Quarter ting Revenues (a)
$286,616
$274,669
$337,156
$281,343 cratingIncome (a) 57,542 55,705 76,001 57,389 j
tIncome 33,371 32,441 52,787 32,471 s
(a) Restated to confonn w.th presentations adopted during 1996.
j Exceptfor historicalinformation contained herein, the matten discuaedin thir AnnualReport on Fonn 10-K, areforward-looking statements that involve rhks and uncertaintia indsding, but not limited to, eamomic, competitive, governmentaland tubnologicalfacton efetting Duquesney operations, markets, produca, servica andprices, and otherfacton ducunedin Duguaneyfding with the Suuritia and Exchange Comminion.
58 1
s SEECIED FINANCIALDATA Amountsin'Ihousands of Dollars 1996 1995 1994 1993 1992 1991 INCOME STA'IEMENTITEMS
[
Totaloperating revenues
$1,176,825 S1,179,784 S1,168,624 S1,160,685
$1,150,380 $1,173,105 Operatingincome
$ 222,079
$ 246,637 S 236,556 S 240,168 S 258,367 5 270,559 Net income
$ 149,860 S 151,070 S 147,449 5 147,362 S 149,768
$ 143,133 Earnings for common stock
$ 145,815 S 145,750
$ 141,403
$ 138,174 S 140,357
$ 132,332 BALANCE StIEETTTEMS i
Property, plant and equipment-net $2,717,473
$2,978,903
$3,068,519 S3,123,948 S3,018,641 53,037,454 Total assets
$3,897,086 S4,067,665 S4,149,867 S4,388,103
$3,718,092 S3,802,626 Capitalization:
Common stockholdericquity
$ 989,424
$1,131,334 S1,115,512 S1,100,671
$1,107,609
$1,064,104 Non-redeemable preferred and preference stock 223,072 70,966 95,345 124,736 123,430 121,906 Redeemable preferred and preference stock 8,392 8,579 15,437 Iong-term debt 1,271,961 1,322,531 1,368,930 1,416,705 1,413,001 1,420,726 Total capitalization
$2,484,457
$2,524,831 52,579,787 S2,650,504
$2,652,619 S2,622,173 4
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Glossaryof Terms Following are explanations ofcertainfnancial and operating termt sued in our report.
i Competitive Tmnsition Charge (CTC Prok Demand intangible Tmnsition Charge (ITC) )/
Peak demand is the amount of electrici During the electric utility restructuring from required during periods of highest usage.heak i
the tradinonal regulatory framework to customer periods fluctuate by season and generally oxur a choice, utilities will have the opportunity to the moming hours in winter and in late afternoon recover transition costs from custmers through a during the summer.
surchargc, or competitive, transition charge.
Alternauvely, if the unhty gams PUC approval and p,,,,,q,,,,g, p,ggy, yggggg, (,,,g,,,,, (py(y securitizes its transition costs, it may then charge The PUC is the Pennsy1vania governmental an intangible transition charge.
body that regulates all un,h, ties (electric, gas, teleP one, water, etc.) and is made up of five h
her choice members nominated by the governor and The Pennsylvania Customer Choice Act(see confirmed by the senate.
" Customer Choice Act" discussion on page 5)
Regulatory Assets will give consumers the nght to mntract for electricity at market prices from PUC-approved Regulatory assets are costs that Duquesne electric generation suppliers.
woukl otherwise have charged to expense which are capitalized or deferred because these costs are Decommissioning Costs currently being remvered or because it is probable Decommissioning costs are expenses to be that the PUC and the FERC will allow recovery of incurred in connecuan with the entombment, these costs through the ratemaking proo:c ror demntamination, dismandement, removal and example, under traditional regulanon, tax benefits disposal of structures, systems and components of associated with electric generating assets were a power plant that has permanently ceased the required to be immediately passed on to a utilityt production ofelectric energy.
customers. These same benefits later would be Defened Enetyy Costs incmed as a tax mst, which the utility would expect to collect from its customers under the In conjunction with the Energy Cost Rate traditionalregulatory framework.
Adjustment Clause, Duquesne remrds deferred energy costs to offset differences between actual Tmsition costs energy msts and the level of energy costs currendy Transition or stranded costs are the net present recovered from its rate-regulated electric utility value of a utilityt known or measurable costs customers.
related to electric generation that are recoverable Demand under the current regulatory framework, bu,t which may not be recoverable m a mm,penove Demand is the amount of elecuicity delivered geaeration market and which will remam following to mnsumers at any mstant or averaged over a mitigation efforts taken by such utility to remver period of ume.
the costs. Examples of potential transition msts Energy Cost Rate Adjustment Cause (ECR) include regulatory assets; the unfundedportion fde mnussi tung mSts; StS femPoyee l
Duquesne remvers through the ECR, to the extent that such amounts are not included in base 8" "*""**'***"8'**'I '*"#***"*'""d f.
rates, the mst of nuclear fuel, fossil fuel and ur-agemennan genaangelatedmsts.
P chased >wer msts and passes to its customers the in udmg the associated capital costs.The I,UC profits rom short-term power sales to other will determine the level of transition msts a utility unhues.
,,7 7,ggyy, UnbundledBectric Service Eedem! Energy Regulatory Commission (FERC)
The FERC is en independent five-member Electric utilities traditionally have been obligated serve cust mers fr m the generac,on through,
t commission within the United Stats D P rtment the delivery of electricity. Under the P ivarna of Energy. Among its many responsibih'ues, ee Customer Choice Act, electric service wt e FERC sets rates and charges for the wholesale transportation and sale of natural gas and electricity. unbundled. Although customer choice will give mnsumers their choice of electric generation Kilowatt (KW) suppliers, delivery of the electricity from the A kilowatt is equal to 1,000 watts. A watt is the geneation suppher to the consumer will remain rate at which electricity is generated or consumed.
the responsibthty of the existing franchised utihty.
A Lilowatt-hour (lGVil) ts a measure of the quantity of electricity generated or consumed in one hour.
60
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DUQUESNE LIGHT COMPANY AND SUBSIDIARY r
CALCULATION OF RATIO 0F EARNINGS TO FIXED CHARGES (THOUSANDS OF DOLLARS) t Year Ended December 31,.
1996 1995
_'994 1993 1992 l
FIXED CHARGES:
Interest on long-term debt S 82,505 S89,139 594,646 S102,938
$119,179 Otherinterest 1,632 2,599 1,095 2,387 1,749 Monthly Income Preferred Securities dividend requirements 7,921
- Amortization of debt discount, premium and expense-net 5,973 6,252 6,381 5,541 4,223 Portion oflease payments representing an interest factor 44.357 44.386 44.839 45.925 60.721 Total Fixed Charges
$142,388 S142,376 5146,%1 S156,791
$185,872 EARNINGS:
Income from continuing operations
$149,860 S151,070 S147,449
$144,787 S149,768 Income taxes 83,%8
- 92,894
- 84,191 77,237 110,993 Fixed charges as above 142,388-
$386,340
$378,601
~ $378,815
$446,633 g '
142,376 146,%1 156,791 185,872 Total Earnings
$375,256 h
RATIO OF EARNINGS TO FIXED CHARGES 2.64 2.71 2.58 2.42 2.40 in Duquesne's share of the fixed charges of an unaf61iated coal supplier, which amounted to approximately $3.1 million for the twelve months ended C
Decembr 31,1996, has been excluded from the ratio.
g H.
i
- Earnings i elated to income taxes reflect a $12.0 million and 513.5 million decrease for the twelve months ended December 31,1996 and December 31,1995, o
respectively,dxed charges, absent this reclassification equals 2.72 and 2.81 for the twelve months ended Decembe due to a financial statement reclassification related to Statement offinssas/AanatingSrsedsrdrNo.109, Aaosm '
Imone Terer. The ratio of earnings to ber 31,1995, respec-5 tively.
h Ci m
s b;-
- g. g DUQUESNE LIGHT COMPANY EXNIBK 23,1 l
INDEPENDENT AuerT0as' CONSENT k
?
We cnnsent to the incorporation by reference in Registration Statement Nos. 33-52782 and 33-63602, and PostFKmcrive Amendment No. I to Registration Statement Nos. 33-53563 and 33-53563 01 of Duquesne Light Company on Fonn S-3 of our report dated January 28,1997, appearing in the Annual Report on Form 10-K of Duquesne Light Company for the year ended December 31,1996.
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/s/ Deloitte & Touche LIE DELOTITE & TOUCHE LLP Pittsburgh, Pennsylvania March 27,1997
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